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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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) 677-5444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each
Title of Each Class: Exchange on Which Registered:
- ------------------- ----------------------------
Common Units NASDAQ OTC Bulletin Board
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Number of Common Units outstanding as of March 28, 2002: 4,950,000
The aggregate market value of the 3,481,000 Common Units held by
non-affiliates of the Partnership as of March 28, 2002 was
approximately $2,332,000, which was computed using the closing sales
price of the Common Units on March 28, 2002.
Indicate by checkmark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes [X] No [ ]
TABLE OF CONTENTS
PART I
Items 1 and 2.
Business and Properties
General
Partnership Operations and Products
Markets and Competition
Customers
Long-Term Product Supply Agreement
Employees
Environmental Matters
Forward Looking Statements
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Partnership's Common Units and Related
Unitholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Partnership
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
PART I
Items 1 and 2. Business and Properties
General
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 three products terminals located in
Abilene, Texas (the "Abilene Terminal"); San Angelo, Texas (the "San
Angelo Terminal"); and Aledo, Texas (the "Aledo Terminal")
(collectively the "Products Terminals") and one common carrier
products pipeline system that transports refined products from the
Abilene Terminal to the San Angelo Terminal (the "San Angelo
Pipeline") that are used to market conventional gasoline, low sulfur
diesel fuel, and military aviation fuel (the "Products Marketing
Business"). In April 1998, the Partnership began purchasing those
refined products from Equilon Enterprises Company LLC which is now
doing business as Shell Oil Products U. S. ("Shell") pursuant to the
agreement (the "Shell Agreement") to market through its Products
Terminals and the San Angelo Pipeline (see "Long-Term Product Supply
Agreement"). The Partnership's operations are conducted primarily in
the State of Texas.
Prior to April 1998, the Partnership operated a simplex petroleum
refinery facility in Abilene, Texas (the "Refinery") and produced its
own refined products. The Refinery was idled when the Partnership
began purchasing its refined products requirements from Shell. At the
same time, the Partnership idled a pipeline which transported refined
product from the Abilene Terminal to the Aledo Terminal (the "Aledo
Pipeline"). On January 18, 2002, the Partnership sold both the
remaining Refinery equipment and Aledo Pipeline to Alon USA Refining,
Inc. ("Alon") for $5,400,000. See "Partnership Operations and
Products - Products Marketing Business".
Prior to October 1, 1999, the Partnership also owned and operated
a crude oil gathering business that gathered, transported, resold and
redelivered crude oil in the Texas market (the "Crude Gathering
System"). On October 1, 1999, the Partnership sold the operating
assets utilized by the Crude Gathering System to Sun Pipe Line
Services, Inc. ("Sun") for $29,595,000 in cash proceeds and the
assumption by Sun of certain indebtedness in the amount of $5,334,000
(the "Crude Gathering Sale"). See "Partnership Operations and
Products - Crude Gathering System". Accordingly, the Crude Gathering
System has been presented as discontinued operations for all periods
herein.
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. The Partnership
succeeded in January 1990 to the businesses of Pride SGP, Inc.
("Special General Partner" or "Pride SGP") which owns a 0.1% general
partner interest in and serves as the special general partner of the
Partnership. The Managing General Partner and Pride SGP (collectively
the "General Partners") collectively own a 2% general partner
interest. In addition to its general partner interest, Pride SGP
owned the Series G Preferred Units of the Partnership with a stated
value of $3,144,000 ("G Preferred Units"), as of December 31, 2001,
and a 4.9% interest in the Partnership through ownership of common
limited partner units ("Common Units") (See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operation - Financial Condition - Financial Resources and Liquidity").
Subsequent to December 31, 2001, Pride SGP distributed G Preferred
Units with a stated value of $2,526,000 to the Departing Shareholders
of Pride SGP in exchange for their interest in Pride SGP (See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operation - Financial Condition - Financial Resources and
Liquidity"). After the redemption by the Partnership of G Preferred
Units with a stated value of $104,000 and $2,526,000 owned by Pride
SGP and the Departing Shareholders of Pride SGP, respectively, Pride
SGP owns $514,000 G Preferred Units as of April 3, 2002. Management,
which is comprised of the officers of the Managing General Partner
(the "Management"), collectively own a 24.1% interest as of February
28, 2002 in the Partnership through their ownership of Common Units
(see "Item 10. Directors and Executive Officers of the Partnership").
Public ownership represented by the remaining Common Units is 69.0%.
An owner of Common Units is referred to herein as a common unitholder
("Common Unitholder"). In accordance with the Third Amended and
Restated Agreement of Limited Partnership of Pride Companies, L.P.
(the "Partnership Agreement"), the Managing General Partner conducts,
directs and exercises control over substantially all of the activities
of the Partnership. The Partnership has no directors or officers;
however, directors and officers of the Managing General Partner are
employed by the Partnership to function in this capacity.
On January 17, 2001, the Partnership filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy") in
the Northern District of Texas, Abilene Division (the "Bankruptcy
Court"), and was authorized to continue managing and operating its
business as a debtor in possession subject to the control and
supervision of the Bankruptcy Court. The filing was necessitated by
certain actions taken by Varde Partners, Inc. ("Varde") which was the
Partnership's primary lender and also owned two-thirds of the
Partnership's redeemable preferred equity (see "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Financial Condition -
Financial Resources and Liquidity").
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc. (a
wholly-owned subsidiary of the Partnership) ("Pride Marketing") each
filed a voluntary petition under Chapter 11 of the Federal Bankruptcy
Code in the Northern District of Texas, Abilene Division and each of
them was authorized to continue managing and operating its business as
a debtor in possession subject to the control and supervision of the
Bankruptcy Court.
On January 11, 2002, the Partnership and Managing General
Partner's Bankruptcy Plan was confirmed by the Bankruptcy Court and
the Partnership and Managing General Partner emerged from Bankruptcy
on January 22, 2002 (see "Item 3. Legal Proceedings").
Pride Marketing which is currently inactive is expected to be
liquidated in the near future.
Pride SGP is expected to request the Bankruptcy Court to dismiss
its bankruptcy petition.
The Partnership's principal business consists of marketing
military aviation fuel, conventional gasoline and low sulfur diesel
fuel. The San Angelo Pipeline transports products from the Abilene
Terminal to Dyess Air Force Base ("Dyess") in Abilene and to the San
Angelo Terminal.
The Partnership's primary market area for refined products
includes Central and West Texas and is a region that is not
significantly served by the major refining centers of the Gulf Coast.
Alon, which purchased Fina, Inc.'s refinery in Big Spring, Texas, in
September, 2000, is a competitor of the Partnership and has products
pipeline access into Abilene, while the Partnership is the only
supplier with a products pipeline into San Angelo.
In April 1998, Shell converted an existing crude pipeline into a
refined products pipeline that delivers conventional gasoline, low
sulfur diesel fuel and military aviation fuel to the Abilene Terminal
and Aledo Terminal for distribution to the Partnership's existing
customers. In the Partnership's primary market area, product prices
reflect a premium due to transportation costs required to import
refined products from supply points outside of the market area.
Joint Reserve Fort Worth ("Joint Reserve"), Dyess, and certain
other military installations have been long-time customers of the
Partnership's military aviation fuel. Management anticipates that the
Partnership will continue to bid for these and other military supply
contracts in the future although volumes have declined from prior
years due to increasing competition. See "Partnership Operations and
Products - Products Marketing Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Factors and Trends Affecting Operating Results - Other
Factors." Gasoline and diesel tankage and sales facilities at the
Aledo Terminal allow the Partnership access to the smaller communities
west of the Dallas-Fort Worth ("DFW") market along Interstate 20 for
conventional gasoline and the DFW market for low sulfur diesel fuel.
See "Markets and Competition" below.
Partnership Operations and Products
Products Marketing Business. The Partnership receives refined
products from Shell at the Abilene Terminal and Aledo Terminal to
market through its Products Terminals in Abilene, San Angelo, and
Aledo. The Partnership transports refined products from the Abilene
Terminal to Dyess in Abilene and to the Partnership's San Angelo
Terminal through the San Angelo Pipeline. Prior to idling the
Refinery, the Partnership operated the Aledo Pipeline that transported
refined products from the Abilene Terminal to the Aledo Terminal. The
Aledo Pipeline was idled in April 1998, since Shell's pipeline is
connected to the Aledo Terminal.
The Partnership delivers military aviation fuel to Dyess by
pipeline and trucks military aviation fuel from both the Abilene
Terminal and Aledo Terminal to other military installations supplied
by the Partnership. Conventional gasoline is marketed through the
Partnership's Products Terminals to non-military customers in the
Abilene area, the San Angelo area, and the communities west of the
Dallas-Fort Worth ("DFW") metropolitan area along Interstate 20. Low
sulfur diesel fuel is also marketed through the Products Terminals to
non-military customers in the Abilene area, the San Angelo area, and
the DFW metropolitan area.
Military aviation fuel delivered by the San Angelo Pipeline to
Dyess is sold f.o.b. the Abilene Terminal with title passing to the
purchaser as the product enters the pipeline. Prior to 1998, the
Partnership had the only pipeline capable of delivering jet fuel
directly into Dyess. In late 1997, Alon's predecessor purchased
Conoco's products terminal in Abilene and built its own pipeline from
that terminal to Dyess that now enables Alon to also deliver military
aviation fuel by pipeline into Dyess (see "General").
Sales of military aviation fuel constitute a significant portion
of the Partnership's revenues. See "Markets and Competition" below.
The expected volumes under the most recently awarded contract are
34,325,000 gallons compared to 32,850,000 gallons under the previous
contract. The Partnership believes that its profit margins under the
new contract should be similar to those under the previous contract.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors and Trends Affecting
Operating Results - Other Factors." The Bankruptcy has not affected
the contract the Partnership has with the United States of America
(the "Government").
The Partnership and its predecessors have been supplying products
to Joint Reserve and Dyess since the early 1960s. Management believes
that there will continue to be strong demand for military aviation
fuel in the Partnership's market area into the foreseeable future;
however, due to increased competition, the amount of military aviation
fuel supplied by the Partnership, under its last four contracts
relating thereto, was at reduced volumes from contracts prior to 1998.
Furthermore, any future contracts may be at further reduced volumes.
Dyess is an Air Combat Command facility, formerly a strategic air
command facility, and the primary training base for the B-1 bomber
crews. In addition, Dyess also has two worldwide deployable airlift
squadrons which fly the C-130 Hercules. Under a contract with the
Government that was effective from April 1, 2001 through March 31,
2002, the Partnership contracted to sell military aviation fuel to
Dyess, Joint Reserve, AASF in Dallas, Texas, and AASF in Grand
Prairie, Texas. Under a new contract with the Government that is
effective from April 1, 2002 through March 31, 2003, the Partnership
will supply military aviation fuel to those same bases. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating Results
- - Other Factors."
In the year ended December 31, 2000, the Partnership collected an
award of $61,521,000 ("DESC Proceeds") from the Government, also
referred to as the Defense Energy Support Center ("DESC"), related to
underpayments by the Government for jet fuel purchased from the
Partnership over several years (see "Item 3. Legal Proceedings").
Crude Gathering System. Prior to October 1, 1999, the
Partnership's businesses included the Crude Gathering System. The
Crude Gathering System consisted of an 800-mile pipeline system,
425,000 barrels of crude oil, 40 truck injection stations, 101 trucks
used to transport crude oil and other related equipment. For the
first seven months of 1999, the Partnership gathered 38,110 barrels
per day ("BPD") of crude oil.
On October 1, 1999, the Partnership sold the operating assets
utilized by the Crude Gathering System to Sun for $29,595,000 in cash
proceeds and the assumption by Sun of certain indebtedness in the
amount of $5,334,000.
Refining. Prior to March 22, 1998, the principal business of the
Partnership was refining crude oil at its Refinery located
approximately ten miles north of Abilene, Texas. The Refinery had a
throughput capacity of 49,500 BPD and was permitted to process 44,500
BPD.
As a result of idling the Refinery, the Partnership wrote down
such assets by $40,000,000 at December 31, 1997. Some of the tanks
and the rack facility also referred to as the Abilene Terminal that
were once part of the Refinery are still being used in connection with
the Shell Agreement. In December 1998, the Partnership sold its
diesel desulfurization unit for $3,100,000. On January 18, 2002, the
Partnership sold the remaining Refinery equipment and Aledo Pipeline
to Alon for $5,400,000.
Markets and Competition
Alon, the Partnership's principal competitor in its primary
market area, operates a products pipeline in the Abilene area. This
competitor's pipeline originates in Big Spring, Texas (105 miles west
of Abilene) and supplies Abilene, Midland, and Wichita Falls, Texas
and the Midcontinent region of the United States. However, the
Partnership currently has the only products pipeline access to the San
Angelo area. Retailers and jobbers who are not supplied by the
Partnership or one of its exchange partners must truck their products
into San Angelo from locations as far away as 90 to 200 miles. In
April 1998, Shell completed conversion of an existing crude pipeline
into a refined products pipeline that delivers conventional gasoline,
low sulfur diesel fuel and military aviation fuel from the Gulf Coast
to the Partnership's Abilene Terminal and Aledo Terminal, and the
Partnership ships product from the Abilene Terminal to the San Angelo
Terminal through the San Angelo Pipeline. Other Gulf Coast refiners
ship their products primarily throughout the southeast and central
United States. Total petroleum product demand for the Partnership's
market area is determined by demand for conventional gasoline, low
sulfur diesel fuel, and military aviation fuel. In the case of each
product, however, demand tends to vary by locality and season.
Aviation fuel consumption is from regional military and civilian air
facilities.
Longhorn Partners Pipeline, which has several major oil
companies' participating in the venture, is expected to bring
petroleum products into West Texas, New Mexico and Arizona from the
Gulf Coast. The exact timing is unknown. This would increase
competition in the Partnership's primary market areas.
In addition to its primary market areas in Abilene and San
Angelo for conventional gasoline and low sulfur diesel fuel, the
Partnership has access to a secondary market in the small communities
west of Dallas-Fort Worth along Interstate 20 for conventional
gasoline and the Dallas-Fort Worth metropolitan area for low sulfur
diesel fuel. The San Angelo market area is accessible via the San
Angelo Pipeline that is connected to storage tanks at the Abilene
Terminal. Market demand for gasoline and diesel in Abilene and in San
Angelo is estimated to be approximately 17,500 BPD and 11,000 BPD,
respectively. Market demand for petroleum products in the Dallas -
Fort Worth area is estimated to be approximately 343,000 BPD, with
reformulated gasoline, diesel and a limited amount of conventional
gasoline accounting for an aggregate of 195,000 BPD.
The Partnership sells gasoline to branded product companies and
to unbranded dealers. Low sulfur diesel fuel is primarily sold to
truck stops and end users with a limited amount sold to other branded
product companies. A number of major petroleum product marketers in
West Texas do not have local refinery facilities or sales terminals.
Accordingly, such marketers supplement their local needs by purchases
or product exchanges with local suppliers, such as the Partnership.
The Partnership currently sells or exchanges diesel, conventional
gasoline, and military aviation fuel, depending on local market needs
throughout the region. Some of the marketers in the area that
purchase from or exchange refined products with the Partnership
include Alon, ChevronTexaco ("Chevron"), Exxon Mobil, Phillips, Shell,
Star Enterprise and Ultramar Diamond Shamrock. The Partnership has
two exchange agreements and two sales agreements with these companies
for product supplied out of the Abilene Terminal; five exchange
agreements with these companies for products supplied out of the San
Angelo Terminal; and one exchange agreement and one sales agreements
with these companies for product supplied out of the Aledo Terminal.
After the Bankruptcy, one of the marketers in the Partnership's area
cancelled an exchange agreement for product supplied out of the Aledo
Terminal and San Angelo Terminal. The Partnership does not expect any
further cancellations; however, such events are outside the
Partnership's control. The exchange agreements have enabled the
Partnership to expand its marketing area to Amarillo, Big Spring, Fort
Worth, Lubbock and Midland/Odessa, Texas without incurring
transportation costs to these cities. Prior to March 31, 2000, the
Partnership had operated several retail fueling facilities.
Customers
Two of the Partnership's major customers are the DESC and
Chevron. Revenues from the DESC comprised 12.8%, 17.2% and 13.6% of
total revenues from the Products Marketing Business in 2001, 2000 and
1999, respectively. Revenues from Chevron comprised 7.5%, 8.1% and
6.7% of total revenues from the Products Marketing Business in 2001,
2000 and 1999, respectively.
At December 31, 2001 and 2000, the Partnership had $537,000 and
$1,544,000, respectively, in receivables from the DESC and $971,000
and $303,000, respectively, in receivables from Chevron.
Long-Term Product Supply Agreement
In 1997, the Partnership executed a long-term product supply
agreement (see "General") with Shell to supply gasoline, diesel fuel
and jet fuel to the Partnership. The Shell Agreement has a 10-year
primary term which began in April 1998, the date Shell completed its
system of pipelines and terminals. The Shell Agreement also has two-
year renewal provisions for up to an additional 10 years. After the
initial five years of the initial ten-year term ("Primary Term"), if
Shell determines that shipment of products on its products pipeline is
no longer economical due to product prices, then Shell may notify the
Partnership of proposed redetermined prices. If the Partnership does
not accept such redetermined prices, then Shell may elect to terminate
the Shell Agreement by 18 months' written notice. After the Primary
Term, if either party under the Shell Agreement can demonstrate that
the prices for delivered products under the Shell Agreement are
producing cash flows materially below that received during the Primary
Term, then such party may notify the other party of proposed prices it
must receive to continue. If the other party does not accept such
redetermined pricing, then the other party may elect not to renew the
Shell Agreement not less than one year prior to the end of the current
term. The Shell Agreement may furthermore be terminated upon any
breach by the other party which continues beyond 30 days following
notice of breach. Additionally, the Shell Agreement provides that the
Partnership will purchase all gasoline, diesel and jet fuel which it
may desire to purchase, exclusively from Shell. The Partnership's
cost for such product is based primarily on the market price in the
area in which the products are received less a discount. The
Partnership uses Shell products to supply its existing customer base,
which includes wholesale customers, exchange partners, and military
bases, primarily using the Products Terminals and San Angelo Pipeline.
In connection with the Shell Agreement, the Partnership idled its
Refinery, but continues to utilize the terminal and storage facilities
at the Refinery as part of the Abilene Terminal. As a result of the
Shell Agreement, the Partnership believes that cash flows have been
less volatile since the Partnership is no longer exposed to the
extremely volatile margins of a refinery. The Partnership also
believes that the Shell Agreement better enables the Partnership to
remain competitive as environmental standards change and the industry
trends toward consolidation and realignments in the future.
During the Bankruptcy, Shell continued providing refined products
to the Partnership. As of December 31, 2001, the Partnership's
purchases were secured by a cash deposit of $14,000,000. The cash
deposit was subsequently reduced to $10,000,000 on January 22, 2002
(see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Financial
Resources and Liquidity").
Employees
As of December 31, 2001, the Partnership had 32 employees in the
Products Marketing Business.
Environmental Matters
The Partnership's activities involve the transportation,
storage, and marketing of refined petroleum products that constitute
or contain substances regulated under certain federal and state
environmental laws and regulations. The Partnership is also subject
to federal, state and local laws and regulations relating to air
emissions and disposal of wastewater as well as other environmental
laws and regulations, including those governing the handling, release
and cleanup of hazardous materials and wastes. The Partnership has
from time to time expended resources, both financial and managerial,
to comply with environmental regulations and permit requirements and
anticipates that it will continue to be required to expend financial
and managerial resources for this purpose in the future. For the year
ending December 31, 2002, the Partnership expects to spend $50,000
related to an investigative study by the Texas Natural Resource
Conservation Commission. The Partnership spent $31,000 related to
that study for the year ended December 31, 2001. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating
Results" and "Item 3. Legal Proceedings."
Forward Looking Statements
This Form 10-K 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
Shell and the availability of such products, (ii) the sales volume
at the Products Terminals, (iii) the impact of current and future laws
and governmental regulations affecting the petroleum industry in
general and the Partnership's operations in particular, (iv) the
ability of the Partnership to sustain cash flow from operations
sufficient to realize its investment in operating assets of the
Partnership and meet its debt obligations and obligations under the
preferred security instruments, (v) fluctuations in refined product
prices and their impact on working capital, and (vi) the disputed
proofs of claim filed by former employees. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operation - Financial Condition" and "Item 3. Legal Proceedings."
Item 3. Legal Proceedings
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.
The Partnership has no off-balance sheet arrangements or
transactions with unconsolidated, special purpose entities that would
expose the Partnership to liability that is not reflected on the face
of its financial statements.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the remaining cost to comply with
this study approximates $50,000 and had accrued for this amount at
December 31, 2001. Management does not believe any significant
additional amounts will be required to maintain compliance with this
study or other environmental requirements other than routine
expenditures in the ordinary course of business.
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America, also referred to as the DESC (see "Items 1. and 2.
Business and Properties - Partnership Operations and Products -
Products Marketing Business"), relating to erroneous pricing of jet
fuel purchased over a period of several years from the Partnership and
its predecessors (the "DESC Claim"). The Partnership had sued the
DESC based on an illegal economic price adjustment ("EPA") provision
present in 12 jet fuel contracts between the Partnership and the DESC.
Although the DESC acknowledged the illegality of the EPA provision,
the parties disagreed on whether the Partnership had incurred damages.
On May 10, 2000, the presiding judge in the Partnership's lawsuit
against the DESC rendered a judgment in favor of the Partnership in
the amount of $45,706,000 (comprised of an additional long-term
contract premium of $23.4 million and a transportation premium of
$22.3 million), plus statutory interest of $15,815,000 under the
Contract Disputes Act. The DESC Proceeds were $61,521,000 (see "Items
1. and 2. Business and Properties - Partnership Operations and
Products - Products Marketing Business") from which the Partnership
paid legal fees of $5,908,000 to the Partnership's attorneys ("Legal
Fees") and bonuses of $6,967,000 to Management ("Bonuses"). The DESC
Proceeds less the Legal Fees and Bonuses were $48,646,000 ("DESC
Income" or "Net DESC Proceeds"). The Partnership reported the
$45,706,000 less Legal Fees of $4,339,000 and Bonuses of $5,110,000 or
a net of $36,257,000 in operating income for the year ended December
31, 2000. The Partnership reported the other $15,815,000 less Legal
Fees of $1,569,000 and Bonuses of $1,857,000 or a net of $12,389,000
in other income for the year ended December 31, 2000.
On July 25, 2000 and July 26, 2000, the Partnership made three
payments to Varde totaling $16,606,000 (the "Payments") from the DESC
Proceeds to retire the A Term Loan and B Term Loan. On August 23,
2000 and August 31, 2000, the Partnership also made the First Deposit
of $9,360,000 and Second Deposit of $7,000,000, respectively, for a
total of $16,360,000 in Deposits from the DESC Proceeds with the
District Court of Taylor County, Texas ("Texas Court") which were
expected to be used to retire the Debt and Redeemable Preferred Equity
prior to the Bankruptcy (see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Financial Resources and Liquidity" for the definitions of
A Term Loan, B Term Loan, First Deposit, Second Deposit, Deposits,
Debt and Redeemable Preferred Equity"). The total of the Payments and
the Deposits is $32,966,000 (the "Disbursements"). The balance of the
Net DESC Proceeds after the Disbursements is $15,680,000 and has been
used by the Partnership for working capital to the extent permitted
under temporary injunctions issued by both the Texas Court and the
Supreme Court of New York County, New York, ("New York Court") and
subject to the supervision of the Bankruptcy Court (see below).
Due to various layers of debt and the Partnership's preferred
equity securities, and taking into consideration preferential calls on
available cash contained in the Partnership's debt instruments and
preferred equity securities instruments (including distributions paid
in kind on debt and accumulated arrearages owed on Redeemable
Preferred Equity), Legal Fees and payments under the Partnership's
bonus plan, Common Unitholders (see "Items 1. and 2. Business and
Properties - General") were allocated income from the DESC Proceeds
without a corresponding distribution of cash to offset the tax
liability that arose from such income. The Partnership had originally
estimated that the net taxable income from the DESC Proceeds that
would be allocable to Common Unitholders would be approximately $41.0
million (or $8.28 per Common Unit). However, as a result of the
dispute with Varde, the net taxable income actually allocated to
Common Unitholders from the DESC Proceeds was $45,168,000 (or $9.12
per Common Unit). Before the dispute with Varde, the Partnership had
planned on retiring the Redeemable Preferred Equity with the DESC
Proceeds in conjunction with a new working capital facility, which
would have reduced the income allocated to the Common Unitholders as a
result of the payment of accumulated arrearages on such Redeemable
Preferred Equity (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity"). As a result of the DESC Claim
being paid in two installments, such net income was reported to Common
Unitholders in two different months (see below).
As a result of the expected retirement of the Debt with the
Payments and the Deposits, the Partnership wrote-off $2,556,000 of
deferred financing costs that were being amortized over the life of
the loans in the third quarter of 2000.
In accordance with the Partnership Agreement, the Managing
General Partner determined that for tax purposes it was necessary to
establish a convention for the Partnership under which the income and
certain expenses attributable to the judgment would be allocated to
the Common Unitholders. Under that convention, Common Unitholders as
of July 31, 2000 and August 31, 2000 were allocated the income
attributable to the portion of the proceeds from the judgment actually
received by the Partnership during those months. The Partnership also
took the position that suspended losses would be available to Common
Unitholders to offset net income attributable to the judgment;
however, it is not certain the Internal Revenue Service will agree
with that position. The actual tax impact on a Common Unitholder
depends upon such Common Unitholder's overall personal tax situation
and whether such Common Unitholder has suspended losses which can be
used to offset the allocation of income. The Partnership suggested
that Common Unitholders should consult with their own tax advisor
regarding the use of suspended losses.
Under the various loan documents with Varde, one-third of the
remaining DESC Proceeds after certain payments on the A Term Loan and
B Term Loan were required to be paid to Varde. The Partnership had
planned on eventually retiring all of the Debt and Redeemable
Preferred Equity with the DESC Proceeds after a replacement working
capital facility was in place; however, after the Partnership made the
Payments of $16,606,000 to Varde, Varde claimed for the first time
that it was entitled to the Varde One-Third as a transaction fee
rather than being required to apply the Payments against the Debt and
Redeemable Preferred Equity (see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Financial Resources and Liquidity" for the definition of
Varde One-Third). The Partnership believed this position conflicted
with the credit agreement between Varde and the Partnership in that it
required that the Varde One-Third must be applied to the Debt and
Redeemable Preferred Equity. However, Varde's position was that since
another loan document executed at the same time as the credit
agreement did not specifically require application of the Varde One-
Third to the Debt and Redeemable Preferred Equity that the Varde One-
Third should be treated as a transaction fee ("Transaction Fee"). The
Bankruptcy Court's Initial Ruling (see below) found that the Varde
One-Third must be applied to the Debt and Redeemable Preferred Equity.
Additionally, Varde also argued that the term "proceeds" as used
in the credit agreement was before the Legal Fees associated with the
DESC Claim and, therefore, the amount of proceeds used to calculate
the Varde One-Third should have been the $61,521,000 rather than the
$55,613,000 (after Legal Fees of $5,908,000) that the Partnership
believed was correct. The Bankruptcy Court's Initial Ruling found
that the Varde One-Third should have been based on $55,613,000 which
is after the Legal Fees.
If Varde's interpretations of the loan documents had been
correct, the Varde One-Third would have equaled $17,621,000 and Varde
would have received such amount as a Transaction Fee and would not
have had to apply it to any of the Debt and Redeemable Preferred
Equity.
Due to the dispute with Varde, and rather than making additional
payments to Varde which Varde indicated that it would not apply in
accordance with the Partnership's interpretation of the loan
documents, the Partnership deposited $16,360,000 of the Net DESC
Proceeds with the Texas Court.
The Partnership advised Varde that it did not intend to make any
further payments until the above issues were resolved. The
Partnership filed suit against Varde in the Texas Court, on August 3,
2000, demanding, among other things, that Varde apply the proceeds
from the DESC Claim in accordance with the credit agreement. The
trial which was scheduled in the Texas Court for February 2, 2001, was
removed to the Bankruptcy Court by Varde.
On August 14, 2000, the Partnership requested an injunction from
the Texas Court to prevent Varde from accelerating the loans and
foreclosing on the collateral. On August 28, 2000, a hearing was held
and the Texas Court signed an order on September 15, 2000 that, among
other things, restrained Varde from seizing or foreclosing on any
collateral while the case was pending.
On August 8, 2000, Varde filed a new lawsuit in New York, a
notice of motion for summary judgment in lieu of complaint, in the
amount of $18,592,000 plus interest from August 8, 2000, on the ground
that the action was based upon an instrument for the payment of money
only and that there was no defense to payment. The $18,592,000 is the
amount Varde claimed was still outstanding on the B Term Loan, C Term
Loan and the remaining balance of a Transaction Fee based on the first
receipt of $45,706,000 of DESC Proceeds before reduction for Legal
Fees.
On August 31, 2000, Varde filed a second New York lawsuit
claiming $48,749,000, the amount Varde claimed was still outstanding
on the B Term Loan, C Term Loan, Subordinate Note A, B Preferred
Units, C Preferred Units, D Preferred Units and the remaining balance
of the Transaction Fee associated with the receipt of the DESC
Proceeds (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity" for the definitions of C Term Loan,
Subordinate Note A, B Preferred Units, C Preferred Units, D Preferred
Units). Varde claimed that due to the defaults, all of the
aforementioned Debt and Redeemable Preferred Equity was due.
On September 7, 2000, Varde requested and received a temporary
restraining order from the New York Court which, among other things,
enjoined the Partnership from transferring or otherwise disposing of
any personal or real property (including cash) to the extent of
$48,749,000 received as a result of the DESC Claim.
On October 10, 2000, the New York Court issued a preliminary
injunction, replacing the temporary restraining order, enjoining the
Partnership from transferring or disposing of any property to the
extent of the amount claimed of $48,749,000.
The New York Court issued a temporary restraining order on
September 7, 2000 which imposed restrictions on the Partnership's use
of DESC Proceeds. Because of these constraints, Management agreed to
extend the Management Revolver of $4,200,000 from the Bonuses paid to
Management as a result of the successful litigation of the DESC Claim
(see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Financial
Resources and Liquidity" for definition of Management Revolver).
During the third and fourth quarters of 2000, Management made advances
under this facility. The facility was subsequently cancelled.
The trial in the New York Court that was scheduled for January
18, 2001 was automatically stayed by the Bankruptcy. The Partnership
was authorized to continue managing and operating its business as a
debtor in possession subject to the control and supervision of the
Bankruptcy Court (see "Items 1. and 2. Business and Properties -
General"). As previously discussed, the filing was necessitated by
certain actions taken by Varde which was the Partnership's primary
lender and also owned two-thirds of the Redeemable Preferred Equity.
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc. (a
wholly-owned subsidiary of the Partnership) each filed a voluntary
petition under Chapter 11 of the Federal Bankruptcy Code in the
Northern District of Texas, Abilene Division, and were authorized to
continue managing and operating their businesses as debtors in
possession subject to the control and supervision of the Bankruptcy
Court.
On January 31, 2001, Varde removed the Partnership's suit from
the Texas Court to the Bankruptcy Court and filed a motion with the
Bankruptcy Court for appointment of a trustee. Varde subsequently
removed both of the New York state lawsuits to New York federal court.
The motion for appointment of a trustee was heard on March 6, 2001 and
the Bankruptcy Court denied Varde's request on March 22, 2001.
In March 2001, the Partnership and Varde agreed to let the
Bankruptcy Court hear all disputes from each of the removed Texas and
New York lawsuits. Closing arguments were heard by the Bankruptcy
Court on April 6, 2001.
In April 2001, a Common Unitholder notified the Partnership he
believes the Partnership should be classified as a corporation rather
than a partnership for federal income tax purposes. At issue is the
requirement that a publicly traded partnership have a sufficient
percentage of income that consists of "qualifying income" under
Section 7704(d)(1) of the Internal Revenue Code to be taxed as a
partnership, rather than a corporation, for federal income tax
purposes. The Common Unitholder demanded that the Partnership
immediately withdraw its Schedule K-1's; however, the Partnership did
not change its position that it will continue to be taxed as a
partnership because a sufficient portion of its income constitutes
"qualifying income" and, therefore, the Partnership does not plan on
withdrawing the Schedule K-1's.
If the Partnership were taxed as a corporation rather than a
partnership for federal income tax purposes, the Partnership's results
of operations, and the tax treatment to the Partnership and its Common
Unitholders, would materially differ from the amounts presented
herein. However, the Partnership intends to vigorously defend its
status as a partnership for federal income tax purposes.
On September 4, 2001, the Bankruptcy Court issued initial
findings of fact and conclusions of law in the adversary proceeding
between Varde and the Partnership held in April 2001 (the "Initial
Ruling"). The Bankruptcy Court found, among other things, that the
Varde One-Third had to be applied against the Debt and Redeemable
Preferred Equity; the Tender (see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Financial Resources and Liquidity") was effective and, as
a result, interest ceased accruing on the Debt to the extent of the
Tender; and the Deposits were not an effective tender and, therefore,
the Debt and Redeemable Preferred Equity expected to be retired with
such Deposits continued to accrue interest and accumulate arrearages
at the contractual rates. The Bankruptcy Court did not rule on the
propriety or significance of Varde's acceleration of the Debt.
Varde, the Partnership and Management had planned on asking the
Bankruptcy Court to review certain points of the Initial Ruling.
However, prior to briefing those points, Varde, the Partnership and
Management entered into a settlement agreement on October 18, 2001 and
the Bankruptcy Court approved it on November 15, 2001 thus ending the
litigation between the various parties ("Varde Settlement Agreement").
Under the Varde Settlement Agreement, Varde received $12,000,000
and an allowed unsecured claim of $11,000,000 (net of a $2,000,000
discount) on November 21, 2001 from the Partnership (the "Allowed
Unsecured Claim"), of which $4,000,000 was to be paid on the effective
date of the Plan (the "Effective Date") and the Partnership would give
Varde an unsecured note in the principal amount of $9,000,000 (subject
to a $2,000,000 discount) ("Varde Unsecured Note") which was to mature
on January 22, 2005 (see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Financial Condition
- - Financial Resources and Liquidity" for the definition of Plan). As
a result of paying Varde a total of $11,000,000 on January 22, 2002,
the Partnership received the $2,000,000 discount on the Varde
Unsecured Note.
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 and the
Allowed Unsecured Claim of $11,000,000 exceeded Varde's share of the
Debt and Redeemable Preferred Equity as of November 21, 2001. The
Allowed Unsecured Claim of $11,000,000 did not accrue any interest
from November 21, 2001 to January 22, 2002.
The Varde Settlement Agreement also provided that Management
would hold allowed claims against the Partnership with respect to the
various securities Varde assigned to them in December 1997 (see "Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Financial Resources and
Liquidity" and "Item 13. Certain Relationships and Related
Transactions"). As of December 31, 2001, this included the C Term
Loan of $2,055,000, the Subordinate Note A of $1,111,000 and the
Redeemable Preferred Equity of $8,353,000 (collectively "Management
Securities"). Management agreed that if Varde were paid off on
January 22, 2002 that it would accept $3,200,000 of New Redeemable
Preferred Equity for the C Term Loan and Subordinate Note A in
addition to the $8,300,000 of New Redeemable Preferred Equity that it
would receive under the Plan for the Redeemable Preferred Equity owned
by Management (see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity" for the definition of New
Redeemable Preferred Equity). The New Redeemable Preferred Equity
issued to Management accrues distributions at 7.5% per annum.
Pursuant to the Plan, Management's C Term Loan and Subordinate Note A
were converted into $3,200,000 of New Redeemable Preferred Equity
which matures January 22, 2012 and is amortized in ten equal annual
installments beginning on January 22, 2003 and Management's Redeemable
Preferred Equity was converted into $8,300,000 of New Redeemable
Preferred Equity which matures January 22, 2017 and is amortized in
fifteen equal annual installments beginning on January 22, 2003.
Management had further agreed to discount the New Redeemable Preferred
Equity up to $2,000,000 to the extent the discount on the Varde
Unsecured Note was less than $2,000,000. However, Management's New
Redeemable Preferred Equity was not discounted since the Partnership
received the full $2,000,000 discount on the Varde Unsecured Note.
Under the Varde Settlement Agreement, the Partnership owed
approximately the same amount as it did prior to the settlement after
factoring in the $2,000,000 discount on the Varde Unsecured Note;
however, debt was converted into New Redeemable Preferred Equity, the
distribution rates are substantially lower, the maturity dates were
extended and the Partnership avoided having to further litigate the
issues in dispute with Varde.
For the years ended December 31, 2001 and 2000, the Partnership
incurred legal fees and other expenses of $900,000 and $1,172,000 in
connection with the dispute with Varde and $1,294,000 (includes a
premium of $183,000 related to the Varde Settlement Agreement) and
$55,000, respectively, related to the Bankruptcy.
In connection with the Bankruptcy, several material proofs of
claim were filed with the Bankruptcy Court that the Partnership
disputed. The Partnership has resolved all of the material proof of
claims with the exception of those filed by the former employees. The
Bankruptcy Court decided that the Partnership owed the former
employees something and is currently deciding how much (see "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Financial Resources and
Liquidity"). The Partnership had accrued $72,000 in severance prior
to the Bankruptcy Court's initial ruling, but has not accrued an
additional liability as a result of such ruling since the Partnership
does not feel it has enough information to estimate the amount of the
liability at this time.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
fiscal year 2001.
PART II
Item 5. Market for Partnership's Common Units and Related Unitholder
Matters
The Partnership's Common Units are traded on the NASDAQ OTC
bulletin board under the symbol PRDE. The following tables set forth,
for the periods indicated, the high and low closing prices of the
Common Units in 2001 and 2000 on the NASDAQ OTC bulletin board.
Quotations on the NASDAQ OTC bulletin board reflect interdealer,
without retail mark-up, mark-down, or commission, prices and may not
necessarily represent actual transactions. No distributions were made
on the Common Units during the past two fiscal years.
NASDAQ OTC Bulletin Board
- -------------------------
2000 HIGH LOW
---- ---- ---
First Quarter $ 0.39 $ 0.13
Second Quarter 0.25 0.11
Third Quarter 0.31 0.02
Fourth Quarter 0.22 0.14
2001 HIGH LOW
---- ---- ---
First Quarter $ 0.38 $ 0.16
Second Quarter 0.40 0.25
Third Quarter 0.90 0.33
Fourth Quarter 0.89 0.56
As of December 31, 2001, the Subordinate Note A, B Preferred
Units and C Preferred Units were convertible into 176,000, 493,000 and
265,000 Common Units, respectively, or a total of 934,000 Common
Units. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation - Financial Condition - Financial
Resources and Liquidity." Through December 31, 2001, these securities
had total accumulated arrearages of $2,660,000.
Based on information received from its transfer agent and
servicing agent, the Partnership estimates the number of beneficial
Common Unitholders of the Partnership at December 31, 2001 to be
approximately 2,700.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Financial
Resources and Liquidity" for a discussion of certain restrictions on
the payment of distributions to Common Unitholders while the New
Redeemable Preferred Equity and G Preferred Units remain outstanding.
Item 6. Selected Financial Data
The following table sets forth, for the periods and at the dates
indicated, selected financial data for the Partnership. The table is
derived from the financial statements of the Partnership and should be
read in conjunction with those financial statements. See also "Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The income statement data and balance sheet data for the years
1997 and 1998 have been restated to reflect the Crude Gathering System
as a discontinued operation.
(The following table should be printed on 14" x 8.5" paper)
SELECTED FINANCIAL DATA
(In thousands, except per unit amounts, operating data and footnote amounts)
Year Ended December 31,
-----------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Income Statement Data:
Revenues
Products Marketing Business $ 277,179 $ 121,189 $ 130,604 $ 234,929 $ 236,510
Net DESC Proceeds - - - 36,257
Costs of sales and operating
expenses, excluding depreciation 266,918 115,454 126,424 230,144 229,280
Refinery closure costs 41,396 - - - -
Marketing, general and administrative
expenses 4,769 3,761 3,700 3,406 3,434
Depreciation 4,955 1,422 1,496 1,467 1,444
-------- -------- -------- -------- --------
Operating income (loss) (40,859) 552 (1,016) 36,169 2,352
-------- -------- -------- -------- --------
Other net 558 322 505 1,016 1,047
Net interest income from DESC - - - 12,389 -
Interest expense (4,829) (5,647) (5,095) (1,244) 222
Credit and loan fees (1,242) (1,646) (2,080) (4,921) (907)
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations before reorganization items (46,372) (6,419) (7,686) 43,409 2,714
Reorganization items:
Professional fees and
administrative expenses - - - - 1,111
Premium on retirement of Debt and
Redeemable Preferred Equity - - - - 183
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations (46,372) (6,419) (7,686) 43,409 1,420
Discontinued operations :
Income (loss) from operations of
the Crude Gathering System prior
to August 1, 1999 1,341 (2,138) 269 - -
(Loss) on disposal - - (251) - -
-------- -------- -------- -------- --------
Net income (loss) $ (45,031) $ (8,557) $ (7,668) $ 43,409 $ 1,420
======== ======== ======== ======== ========
Basic net income (loss) per Common
Unit:
Net income (loss) from continuing
operations $ (9.18) $ (1.62) $ (1.89) $ 8.26 $ (0.27)
Net income (loss) from
discontinued operations $ .26 $ (.42) $ - $ - -
-------- -------- -------- -------- --------
Basic net income (loss) $ (8.92) $ (2.04) $ (1.89) $ 8.26 $ (0.27)
======== ======== ======== ======== ========
Diluted net income (loss) per Common
Unit:
Net income (loss) from continuing
operations $ (9.18) $ (1.62) $ (1.89) $ 5.82 $ (0.27)
Net income (loss) from
discontinued operations $ .26 $ (.42) $ - $ - -
-------- -------- -------- -------- --------
Diluted net income (loss) $ (8.92) $ (2.04) $ (1.89) $ 5.82 $ (0.27)
======== ======== ======== ======== ========
Numerator:
Basic net income (loss) from continuing
operations $ (46,372) $ (6,419) $ (7,686) $ 43,409 $ 1,420
Preferred distributions - (1,763) (1,854) (1,683) (2,806)
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations less preferred
distributions (46,372) (8,182) (9,540) 41,726 (1,386)
Net income (loss) from continuing
operations allocable to 2%
general partners' interest (928) (163) (191) 835 (28)
-------- -------- -------- -------- --------
Numerator for basic net income
(loss) per Common Unit
from continuing operations $ (45,444) $ (8,019) $ (9,349) $ 40,891 $ (1,358)
======== ======== ======== ======== ========
Net income (loss) from discontinued
operations $ 1,341 $ (2,138) $ 18 $ - $ -
Net income (loss) from discontinued
operations allocable to 2% general
partners' interest 27 (43) - - -
-------- -------- -------- -------- --------
Numerator for basic net income
(loss) per Common Unit
from discontinued operations $ 1,314 $ (2,095) $ 18 $ - $ -
======== ======== ======== ======== ========
Numerator for basic net income
(loss) per Common Unit $ (44,130) $ (10,114) $ (9,331) $ 40,891 $ (1,358)
======== ======== ======== ======== ========
Diluted net income (loss) from
continuing operations $ (46,372) $ (6,419) $ (7,686) $ 43,409 $ 1,420
Preferred distributions - (1,763) (1,854) (1,683) (2,806)
Adjustments to compute diluted net income
(loss):
Subordinate Note A interest expense - - - 186 -
B Preferred Unit distributions - - - 795 -
C Preferred Unit distributions - - - 427 -
-------- -------- -------- -------- --------
Net income (loss) from continuing
operations less preferred
distributions (46,372) (8,182) (9,540) 43,134 (1,386)
Net income (loss) from continuing
operations allocable to 2%
general partners' interest (928) (163) (191) 863 (28)
-------- -------- -------- -------- --------
Numerator for diluted net income
(loss) per Common Unit
from continuing operations $ (45,444) $ (8,019) $ (9,349) $ 42,271 $ (1,358)
======== ======== ======== ======== ========
Net income (loss) from discontinued
operations $ 1,341 $ (2,138) $ 18 $ - $ -
Net income (loss) from discontinued
operations allocable to 2% general
partners' interest 27 (43) - - -
-------- -------- -------- -------- --------
Numerator for diluted net income
(loss) per Common Unit
from discontinued operations $ 1,314 $ (2,095) $ 18 $ - $ -
======== ======== ======== ======== ========
Numerator for diluted net income
(loss) per Common Unit $ (44,130) $ (10,114) $ (9,331) $ 42,271 $ (1,358)
======== ======== ======== ======== ========
Cash distributions declared per
Common Unit $ - $ - $ - $ - $ -
Denominator :
Denominator for basic net income
(loss) per Common Unit: 4,950 4,950 4,950 4,950 4,950
Adjustments to denominator for
convertible debt and convertible
preferred equity securities:
Subordinate Note A - - - 292 -
B Preferred Units - - - 1,315 -
C Preferred Units - - - 705 -
-------- -------- -------- -------- --------
Total adjustments - - - 2,312 -
-------- -------- -------- -------- --------
Denominator for diluted net income
(loss) per Common Unit: 4,950 4,950 4,950 7,262 4,950
======== ======== ======== ======== ========
Balance Sheet Data (at end of period):
Net property, plant and equipment $ 19,793 $ 17,518 $ 16,621 $ 15,301 $ 13,963
Total assets 64,804 44,107 47,506 56,069 48,297
Long-term debt (including current
maturities) 37,465 39,594 25,799 9,359 14,166
Redeemable Preferred Equity 19,529 19,529 17,079 17,079 5,693
Partners' capital (deficiency) (15,433) (23,990) (28,514) 14,895 11,211
Operating Data Continuing Operations (BPD):
Products Marketing Business
Product sales - 13,267 14,783 16,919 18,758
Refinery
Crude oil throughput 31,449 28,090 - - -
Products refined 30,619 27,438 - - -
Products System
Transportation volumes 11,415 7,335 - - -
Prior to idling the Refinery on March 22, 1998, this data represents information for the Refinery, products pipelines and
terminals.
Discontinued operations for 1998, included a $1,197,000 lower of cost or market inventory adjustment due to the decline in
inventory values. Discontinued operations for 1999 included the reversal of a $1,197,000 lower of cost or market inventory
adjustment since the market value of the crude oil was more than its carrying value.
Refinery closure costs for the year ended December 31, 1997 includes a $40,000,000 noncash charge for impairment of fixed
assets, $1,750,000 related to closure of the Refinery and related severance costs, and $367,000 related to the write-off of
certain Refinery assets offset by $721,000 in accruals that were reversed as a result of the Refinery being idled.
Since a portion of the debt was subject to increasing rates of interest, the Partnership was accruing interest at the
effective rate over the term of the debt. Interest expense in 1998, 1999 and 2000 reflects an accrual of $1,030,000,
$315,000 and reversal of an accrual of $1,345,000, respectively, which was based on the difference between the effective
interest rates and the stated rates.
Credit and loan fees include costs associated with the restructuring and refinancing of the Partnership of $613,000,
$1,325,000, $1,761,000 and $3,456,000 for 1997, 1998, 1999 and 2000, respectively, and legal fees associated with the Varde
dispute of $1,172,000 and $900,000 for 2000 and 2001, respectively.
Since cash distributions were not paid on the preferred equity, the preferred equity accrued distributions of $1,763,000,
$1,854,000, $1,683,000 and $2,806,000 for the years ended December 31, 1998, 1999, 2000 and 2001, respectively, which have
been deducted in determining net income (loss) per Common Unit. Included in the preferred equity accrued distributions for
the years ended December 31, 1998 and 1999 were $196,000 and $147,000, respectively, related to the E Preferred Units and F
Preferred Units. The accrued distributions on the E Preferred Units and F Preferred Units were cancelled in connection with
the Crude Gathering Sale on October 1, 1999 (see Footnote 11).
In 1997, 1998, 1999, 2000 and 2001, the calculations of diluted net income per Common Unit excluded 300,000, 300,000,
278,000, 208,000 and 160,000, respectively, officer and employee unit appreciation rights and 2,987,000, 3,027,000,
2,751,000, 0 and 934,000, respectively, units attributed to the convertible preferred equity and convertible debt because the
effect would be antidilutive. For 2000, 2,312,000 Common Unit equivalents related to the convertible preferred equity and
convertible debt was included in the calculation of diluted net income per Common Unit. The calculation for those five years
also excluded 70,000 director unit appreciation rights because the plan states they will be settled for cash.
At December 31, 1997, 1998, 1999, 2000 and 2001 current maturities were $1,938,000, $65,000, $25,799,000, $9,359,000 and
$7,166,000 (of which $5,111,000 was include in current liabilities subject to compromise), respectively.
In connection with the Crude Gathering Sale, Pride SGP exchanged certain assets, receivables, and the E Preferred Units and F
Preferred Units for $2,000,000 and $3,144,000 G Preferred Units which are included in Partners' capital (deficiency) for the
years ended December 31, 1999, 2000 and 2001. See "Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operation - Factors and Trends Affecting Operating Results - Financial Resources and Liquidity."
Due to the Refinery being idled on March 22, 1998, the operating data in 1998 for the Products Marketing Business is for the
period April 1, 1998 through December 31, 1998 and for the Refinery and Products System is for the period January 1, 1998
through March 31, 1998.
The Crude Gathering System segment was sold on October 1, 1999. Accordingly, the segment has been presented as discontinued
operations for all periods.
On May 10, 2000, the presiding judge in the Partnership's lawsuit against the DESC rendered a judgment in favor of the
Partnership in the amount of $45,706,000 (comprised of an additional long-term contract premium of $23.4 million and a
transportation premium of $22.3 million), plus statutory interest of $15,815,000 under the Contract Disputes Act. The total
award was $61,521,000. The DESC did not appeal the decision and the Partnership received $45,706,000 of the judgment on July
25, 2000 and paid total Legal Fees to the Partnership's attorneys of $5,908,000. On August 24, 2000, the Partnership
received an additional $15,815,000 which was for the statutory interest on the judgment. The Partnership paid Bonuses
totaling $6,967,000 from the DESC Proceeds to Management. The Partnership reported the $45,706,000 less Legal Fees of
$4,339,000 and Bonuses of $5,110,000 or a net of $36,257,000 in operating income for the year ended December 31, 2000. The
Partnership reported the other $15,815,000 less Legal Fees of $1,569,000 and Bonuses of $1,857,000 or a net of $12,389,000 in
other income for the year ended December 31, 2000.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
General
The following is a discussion of the financial condition and
results of operations of the Partnership. This discussion should be
read in conjunction with the financial statements included in this
report.
As a result of the Crude Gathering Sale on October 1, 1999, the
Partnership's operating results for the Products Marketing Business
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 Shell and (ii) the sales volume
at the Products Terminals. The price the Partnership is able to
realize on the resale of its petroleum products is influenced by the
level of competition in the Partnership's markets.
The Crude Gathering System was sold on October 1, 1999 and
accordingly the Crude Gathering System is treated as a discontinued
operation in the financial statements of the Partnership. The Crude
Gathering System's operating results depended principally on (i) the
volume of throughput on and margins from the transportation and resale
of crude oil from the Partnership's Crude Gathering System and (ii)
the amount of crude oil produced in the areas the Partnership
gathered. Margins from the Crude Gathering System were influenced by
the level of competition and the price of crude oil. When prices were
higher, crude oil could generally be resold at higher margins.
Additionally, transportation charges trended upward when higher crude
oil prices resulted in increased exploration and development.
Conversely, when crude oil prices decreased, exploration and
development declined and margins on the resale of crude oil as well as
transportation charges tended to decrease.
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.
Year ended December 31, 2001 compared with year ended December 31,
2000.
Products Marketing Business. Net income was $1,420,000 for the
year ended December 31, 2001 compared to $43,409,000 for the year
ended December 31, 2000. The results for the year ended December 31,
2000 included $48,646,000 of income from the DESC Claim. The
$12,389,000 of interest income related to the DESC Claim is reported
separately from the $36,257,000 included in operating income which
represents underpayments by the Government in prior years for jet fuel
purchased from the Partnership. As a result of collecting the DESC
Proceeds and applying it to the Debt, the Partnership wrote-off
$2,556,000 of deferred financing costs that were being amortized over
the life of the loans and recognized income of $1,345,000 associated
with the reversal of an accrual for increasing rate accrued interest
for the year ended December 31, 2000 (see "Item 3. Legal Proceedings"
and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Financial
Resources and Liquidity" for the definitions of DESC Claim, DESC
Proceeds and Debt).
For the year ended December 31, 2001, interest expense decreased
$1,283,000 as a result of retiring the Debt with the DESC Proceeds and
the reversal of an accrual for interest expense of $862,000 on certain
Debt and Redeemable Preferred Equity expected to be retired and
redeemed with the Deposits. In addition, credit and loan fees
declined $2,903,000 for the year ended December 31, 2001 primarily
because the Partnership wrote-off $2,556,000 in deferred financing
costs in 2000. This was partially offset by an increase in
reorganization costs associated with the Bankruptcy of $1,294,000 for
the year ended December 31, 2001 (see "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Financial Condition - Financial Resources and Liquidity" for the
definitions of Redeemable Preferred Equity and Deposits).
Operating income for the Products Marketing business was
$2,352,000 for the year ended December 31, 2001 compared to
$36,169,000 for the year ended December 31, 2000. Excluding the
$36,257,000 of DESC Income (see "Item 3. Legal Proceedings") included
in operating income, the year ended December 31, 2000 would have shown
an operating loss of $88,000. Depreciation expense for the Products
Marketing Business was $1,444,000 and $1,467,000 for the years ended
December 31, 2001 and 2000, respectively. Operating income excluding
depreciation for the Products Marketing Business was $3,796,000 for
the year ended December 31, 2001 compared to $37,636,000 for the year
ended December 31, 2000. Excluding the $36,257,000 of DESC income
included in operating income, the year ended December 31, 2000 would
have shown operating income excluding depreciation of $1,379,000.
Excluding the DESC Income for the year ended December 31, 2000, the
improvement for the year ended December 31, 2001 was primarily due to
an increase in gross margins of $2,888,000 for the year ended December
31, 2001 which was partially offset by an increase in operating
expenses of $368,000 for the same period. For the year ended December
31, 2001, the Partnership marketed 18,758 BPD of refined products
compared to 16,919 BPD for the year ended December 31, 2000. The net
margin per barrel (after marketing, general and administrative
expenses and excluding the DESC Income) for the year ended December
31, 2001 was $0.34 compared to breakeven for the year ended December
31, 2000.
Year ended December 31, 2000 compared with year ended December 31,
1999.
General. Net income for the year ended December 31, 2000 was
$43,409,000 compared to net loss of $7,668,000 for the year ended
December 31, 1999. The results for the year ended December 31, 1999
included income of $18,000 from discontinued operations.
Continuing Operations (Products Marketing Business). Net income
from continuing operations was $43,409,000 for the year ended December
31, 2000 compared to a net loss from continuing operations of
$7,686,000 for the year ended December 31, 1999. The results for the
year ended December 31, 2000 included $48,646,000 of income from the
DESC Claim (see "Financial Condition - Financial Resources and
Liquidity"). The $12,389,000 of interest income related to the DESC
Claim is reported separately from the $36,257,000 included in
operating income which represents underpayments by the Government in
prior years for jet fuel purchased from the Partnership. As a result
of collecting the DESC Proceeds and applying it to the Debt (see
"Financial Condition - Financial Resources and Liquidity"), the
Partnership wrote-off $2,556,000 of deferred financing costs that were
being amortized over the life of the loans and recognized income of
$1,345,000 associated with the reversal of an accrual for increasing
rate accrued interest for the year ended December 31, 2000. In
addition, for the year ended December 31, 2000, marketing, general and
administrative expense declined $294,000 and operating expense
declined $634,000 for a total decrease of $928,000 (see "Item 3. Legal
Proceedings").
Operating income for the Products Marketing business was
$36,169,000 for the year ended December 31, 2000 compared to operating
loss of $1,016,000 for the year ended December 31, 1999. Excluding
the $36,257,000 of DESC Income (see "Item 3. Legal Proceedings")
included in operating income, the year ended December 31, 2000 would
have shown an operating loss of $88,000. As mentioned before, general
and administrative expenses and operating expenses declined a total of
$928,000 for the year ended December 31, 2000. Depreciation expense
for the Products Marketing Business was $1,467,000 and $1,496,000 for
the years ended December 31, 2000 and 1999, respectively. Operating
income excluding depreciation for the Products Marketing Business was
$37,636,000 for the year ended December 31, 2000 compared to operating
income excluding depreciation of $480,000 for the year ended December
31, 1999. Excluding the $36,257,000 of DESC income included in
operating income, the year ended December 31, 2000 would have shown
operating income excluding depreciation of $1,379,000. The
improvement for the year ended December 31, 2000 was due to a $928,000
reduction in general and administrative expenses and operating
expenses. For the year ended December 31, 2000, the Partnership
marketed 16,919 BPD of refined products compared to 14,783 BPD for the
year ended December 31, 1999. The net margin per barrel (after
marketing, general and administrative expenses and excluding the DESC
Income) for the year ended December 31, 2000 was breakeven compared to
negative $0.19 for the year ended December 31, 1999.
Discontinued Operations (Crude Gathering System). Net income
from discontinued operations was $269,000 for the seven months ended
July 31, 1999. Net income from discontinued operations for the year
ended December 31, 1999 included the reversal of a $1,197,000 lower of
cost or market inventory adjustment since the market value of the
crude oil owned by the Partnership was more than its LIFO carrying
value at September 30, 1999. The results from discontinued operations
for the seven months ended July 31, 1999 included $944,000 in higher
costs of sales due to hedging losses. See "Item 7a. Quantitative and
Qualitative Disclosure About Market Risk." The volume of crude oil
gathered by the Crude Gathering System was 38,110 BPD for the first
seven months of 1999. For the seven months ended July 31, 1999, net
margin was $0.12 per barrel.
The Partnership also realized a loss for the year ended December
31, 1999 on the disposal of the discontinued operations of $251,000,
which includes operating losses incurred after the measurement date of
August 1, 1999 and prior to the disposal date of October 1, 1999.
From August 1, 1999 through October 1, 1999, the Partnership incurred
$1.3 million in higher costs of sales due to hedging losses which was
offset by the gain realized on the sale of crude oil to Sun on October
1, 1999 as part of the Crude Gathering Sale.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's operating
results, both indirectly and directly, such as environmental
compliance, other regulatory requirements, industry trends, price of
crude oil and, with respect to certain products, seasonality and
weather. The Managing General Partner expects that such conditions
will continue to affect the Partnership's business to varying degrees
in the future. The order in which these factors are discussed is not
intended to represent their relative significance.
Environmental Compliance. Increasing public and governmental
concern about air quality is expected to result in continued
regulation of air emissions. Regulations relating to carbon monoxide
and regulations on oxygen content in gasoline and sulfur content in
both diesel fuel and gasoline are expected to be increasingly
important in urban areas. In addition, the Partnership plans to spend
approximately $399,000 for the years ended December 31, 2002 and 2003
on several projects to maintain compliance with various other
environmental requirements, including $50,000 for 2002 related to an
investigative study by the Texas Natural Resource Conservation
Commission and an aggregate of $93,000 for 2002 and 2003 related to
the cleanup of an existing leak. The remaining $256,000 is for
various operating expenses to be incurred in the ordinary course of
business.
The Partnership is currently involved in the final stages of
Phase II of an investigative study by the Texas Natural Resource
Conservation Commission. Management estimates the remaining cost to
comply with this study approximates $50,000 and had accrued for this
amount at December 31, 2001. The Partnership spent $217,000 and
$31,000 related to that study for the years ended December 31, 2000
and 2001, respectively. Management does not 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 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 have had or will
have a material adverse effect on the Partnership's operations.
After the Crude Gathering Sale, the Partnership continues to be
responsible for certain environmental liabilities associated with the
Crude Gathering System including three on-going remediation sites, any
refined product contamination associated with the assets sold and
certain inactive crude gathering lines retained by the Partnership.
Other than $93,000 currently accrued for remediation of the sites, the
Partnership does not expect future expenditures related to these
retained environmental liabilities to be material.
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. The Partnership is
impacted by fluctuations in the cost of products purchased from
Shell versus fluctuations in the price realized by the Partnership
on the sale of such products and the amount of competition in its
markets.
Seasonality and Weather. Gasoline consumption is typically
highest in the United States in the summer months and lowest in the
winter months. Diesel consumption in the southern United States is
generally higher just prior to and during the winter months when
commercial trucking is routed on southern highways to avoid severe
weather conditions further north.
Other Factors. The Government awarded the Partnership the right
to supply 34,325,000 gallons of military aviation fuel for the
contract period that began April 1, 2002 and ends March 31, 2003. The
award is for deliveries to Dyess, Joint Reserve - Fort Worth, Texas,
AASF in Dallas, Texas, and AASF in Grand Prairie, Texas. The contract
provides for a 4% increase from the volumes that it supplied under the
previous contract which began April 1, 2001 and ended March 31, 2002.
The Partnership believes that its profit margins under the new
contract should be similar to those under the previous contract. See
"Items 1. and 2. Business and Properties - Partnership Operations and
Products - Products Marketing Business."
On January 11, 2002, the Partnership and Managing General
Partner's Bankruptcy Plan was confirmed by the Bankruptcy Court and
the Partnership and Managing General Partner emerged from Bankruptcy
on January 22, 2002 (see "Item 3. Legal Proceedings" and "Financial
Condition - Financial Resources and Liquidity" ).
Financial Condition
Inflation
Although the Partnership's operating costs are generally impacted
by inflation, the Managing General Partner does not expect general
inflationary trends to have a material adverse impact on the
Partnership's operations.
Financial Resources and Liquidity
With respect to the Products Marketing Business, the Partnership
receives payments from the United States Government, major oil
companies, and other customers within approximately 7 to 15 days from
shipment in the case of product sales. As a result of problems
associated with the startup of the products pipeline by Shell in 1998,
Shell agreed to certain contract concessions including maintaining the
Partnership's refined products inventory at the Products Terminals and
in the San Angelo Pipeline from October 1, 1998 to December 31, 1999.
Shell agreed to maintain the refined products inventory in tanks
leased to Shell by the Partnership at the Partnership's marketing
facilities. On April 15, 1999, Shell further agreed to extend the
lease and maintain the inventory provided the Partnership reimburses
Shell for its carrying costs beginning January 1, 2000, which
primarily includes interest costs. This arrangement substantially
reduces the lag between the time the Partnership pays Shell for the
product, 10 to 20 days after the sale, and the time the Partnership
receives payment from its customers.
As previously discussed, the Partnership is required to reimburse
Shell its carrying costs of inventory, including interest costs
beginning January 1, 2000. As an alternative to providing Shell with
a letter of credit to secure the Partnership's payable to Shell and to
offset the interest costs associated with carrying the inventory, the
Partnership deposited $14,000,000 with Shell in the first and second
quarters of 2000 and maintained the $14,000,000 deposit through
January 21, 2002. On January 22, 2002, Shell reduced the deposit by
$4,000,000. The deposit is included as an offset to accounts payable
in the financial statements. To the extent the deposit to Shell
exceeds the payable to Shell, the excess is reclassified from accounts
payable in the balance sheet to accounts receivable. Since the
deposit exceeded the payable at December 31, 2001 and 2000, the
Partnership reclassified $6,722,000 and $3,394,000, respectively, from
accounts payable to accounts receivable. Shell pays the Partnership
interest income on the amount by which the deposit exceeds the value
of the refined products inventory maintained by Shell.
The Partnership does not currently have a working capital loan
facility. As a result of its receipt of $5,400,000 from the sale of
the remaining Refinery equipment and the Aledo Pipeline and $4,000,000
from the reduction of the Shell deposit, the Partnership believes it
does not currently need such a facility. The Partnership expects
that, for the foreseeable future, it will be able to fund its working
capital requirements and its planned capital expenditures from cash on
hand and cash generated from operations.
On December 31, 1997, Varde purchased and assumed the then
existing lenders' rights and obligations under the Partnership's
outstanding bank debt. In conjunction with Varde's purchase and
assumption of the lenders' rights and obligations under such bank
debt, BankBoston, N. A. ("BankBoston") refinanced the Partnership's
letter of credit facility and provided a new revolver facility (the
"BankBoston Revolver") on December 31, 1997.
At the request of BankBoston, the BankBoston Revolver was reduced
to zero during the third quarter of 2000. At that time, the
Partnership began banking with Wells Fargo Bank, N.A. ("Wells Fargo")
and had Wells Fargo issue a letter of credit for $721,000 which is
secured by a certificate of deposit.
Under the Varde loan documents, the Partnership was required to
make quarterly principal payments on the Series A Term Loan. In
addition, the Varde loan documents provided for the following
prepayments: (a) prepayments at the Partnership's option, (b)
prepayments of excess cash flow, (c) prepayments of proceeds from the
issuance of new securities, (d) prepayments from asset sales and (e)
prepayments from proceeds of legal claims, which included DESC
Proceeds (see "Item 3. Legal Proceedings") (the "Prepayments"). On
receipt of proceeds from legal claims, the loan documents required
that the Partnership must first retire the Series A Term Loan which
with accrued interest was $3,657,000 as of July 25, 2000 ("A Term
Loan") and pay $5,000,000 towards the Series B Term Loan which with
accrued interest was $12,949,000 as of July 25, 2000 ("B Term Loan").
The amounts outstanding on the A Term Loan and B Term Loan shown above
were before the Payments on July 25, 2000 and July 26, 2000 to Varde
totaling $16,606,000 from the DESC Proceeds (see "Item 3. Legal
Proceedings"). In addition, Varde also was entitled to receive one-
third of the remaining DESC Proceeds after reduction for the
$8,657,000 applied to the A Term Loan and B Term Loan mentioned above
("Varde One-Third"). However, as a result of the dispute with Varde,
the Partnership did not pay the entire amount of the Varde One-Third
and instead deposited $16,360,000 with the Texas Court to cover the
remaining Varde One-Third plus retire additional securities with a
portion of the Partnership's two-thirds. The Partnership believed it
was allowed to retain any remaining DESC Proceeds after the payment of
the Varde One-Third; however, the Partnership planned on using a
portion of the remaining proceeds to further reduce Debt and
Redeemable Preferred Equity thereby reducing future interest expense
and accumulated arrearages, respectively. Additionally, there was a
dispute about whether the DESC Proceeds were also reduced by the legal
fees paid to the Partnership's attorneys in calculating the Varde One-
Third. Under the Varde credit agreement, the Partnership believed the
Varde One-Third must be applied to the Debt and Redeemable Preferred
Equity. Likewise, the Bankruptcy Court concluded in its Initial
Ruling that the Varde One-Third must be so applied (see "Item 3. Legal
Proceedings"). Therefore, the Payments of $16,606,000 were applied
against the A Term Loan and B Term Loan and those notes were
considered to be retired in July of 2000.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership, subsequent interest being paid in
kind, proceeds from the Crude Gathering Sale being applied to the A
Term Loan, scheduled principal payments, payments out of the DESC
Proceeds and payments under the Varde Settlement Agreement, Varde's
interest in such Debt was completely paid off. As of December 31,
2001, Management held the remaining balance of the Series C Term Loan
of $2,055,000 ("C Term Loan") and Series A Unsecured Loan of
$1,111,000 ("Subordinate Note A"). As previously discussed, those two
notes along with Management's one-third interest in the Redeemable
Preferred Equity (see below) was converted into the New Redeemable
Preferred Equity (see below) on January 22, 2002 (see "Item 3. Legal
Proceedings").
The A Term Loan, B Term Loan, C Term Loan and Subordinate Note A
are collectively referred to as the debt (the "Debt"). The balance of
the C Term Loan and Subordinate Note A after application of the
Payments in July of 2000 is collectively referred to as the remaining
debt (the "Remaining Debt").
Prior to the Bankruptcy Court's Initial Ruling (see "Item 3.
Legal Proceedings"), the Partnership had accrued interest expense at
the statutory rate of 6% ("Statutory Rate") on $6,171,000 of the C
Term Loan and $2,000,000 of the Subordinate Note A beginning July 27,
2000 as a result of the tender by the Partnership to Varde of
$8,171,000 on such date (the "Tender"). In the Initial Ruling, the
Bankruptcy Court determined that Varde was not entitled to interest on
the Tender. When the Partnership deposited $9,360,000 in the Texas
Court on August 23, 2000 (the "First Deposit"), the Partnership
considered this a tender and originally accrued interest expense at
the Statutory Rate on an additional $1,188,000 of the Subordinate Note
A which is what would have been the remaining balance of the
Subordinate Note A had Varde accepted the Tender on July 27, 2000;
however, the Bankruptcy Court's Initial Ruling concluded the First
Deposit was not a valid tender and interest continued to accrue on
$1,188,000 of the Subordinate Note A at the contractual rate. The
outstanding balance on the C Term Loan of $2,055,000 after payments to
Varde under the Varde Settlement Agreement is included in the current
portion of long-term debt, whereas the outstanding balance on the
Subordinate Note A of $1,111,000 after payments to Varde under the
Varde Settlement Agreement is included in current liabilities subject
to compromise at December 31, 2001. Prior to the Bankruptcy Court's
Initial Ruling, the Partnership had accrued total interest expense of
$342,000 and $172,000 at the Statutory Rate on the C Term Loan and
Subordinate Note A, respectively; however, the accrual was reversed in
the third quarter of 2001 and the Partnership recorded paid in kind
interest of $134,000 on the Subordinate Note A for the period August
23, 2000 to December 31, 2001 as a result of the Initial Ruling.
On August 31, 2000, the Partnership deposited another
$7,000,000 in the Texas Court (the "Second Deposit"). The Partnership
believed the Second Deposit and $1,000 of the First Deposit would be
used to redeem a portion of the Redeemable Preferred Equity along with
paying accumulated arrearages on those securities (see below). The
First Deposit and Second Deposit are collectively referred to as the
deposits (the "Deposits"). For the years ended December 31, 2001 and
2000, the Deposits with the Texas Court accrued interest income of
$684,000 and $391,000, respectively.
Prior to the Bankruptcy, cash interest and distributions were
limited under the loan documents. Interest in excess of those
limitations on the A Term Loan, B Term Loan, C Term Loan and
Subordinate Note A were paid in kind. Distributions in excess of
those limitations on the Redeemable Preferred Equity accumulated in
arrears. Prior to the Payments and the Tender, the A Term Loan, B
Term Loan, and C Term Loan bore interest rates of 11%, 13%, 15%, 17%
and 18% for the first, second, third, fourth and fifth years,
respectively, except for $4,779,000 of the B Term Loan as of July 25,
2000 which was subject to interest rates of 18% through maturity. As
mentioned before, the Partnership originally accrued interest expense
on the C Term Loan at the Statutory Rate of 6% per annum after the
Tender on July 27, 2000 and on the Subordinate Note A at the Statutory
Rate after the Tender on July 27, 2000 and the First Deposit on August
23, 2000; however, the accruals were reversed as a result of the
Bankruptcy Court's Initial Ruling. The Subordinate Note A was
convertible into 176,000 Common Units as of December 31, 2001 and bore
interest at prime plus one percent which was 4.75% at December 31,
2001.
Because a portion of the Debt was subject to increasing rates of
interest in 2000 and before, the Partnership was accruing interest at
the effective rate over the term of the Debt. Interest expense for
the years ended December 31, 2000 and 1999 reflects the reversal of an
accrual of $1,345,000 and an accrual of $315,000, respectively, which
is based on the difference between the effective interest rates and
the stated rates.
As a result of the cash interest and principal payment
limitations, interest on the B Term Loan, C Term Loan, and the
Subordinate Note A had been paid in kind prior to the Payments and the
Tender. Since the Tender only covered $2,000,000 of the Subordinate
Note A, interest continued to be paid in kind on $1,118,000 of the
Subordinate Note A through November 21, 2001. From November 22, 2001
through December 31, 2001, interest continued to be paid in kind on
$438,000 of the Subordinate Note A owned by Management. The preferred
distributions continued accumulating in arrears on the entire balance
of the Redeemable Preferred Equity through November 21, 2001. From
November 22, 2001 through December 31, 2001, the distributions
continued accumulating in arrears on the Redeemable Preferred Equity
owned by Management (see "Item 3. Legal Proceedings").
The A Term Loan, B Term Loan, C Term Loan and Subordinate Note A
were originally due December 31, 2002. As previously mentioned, the
Partnership was required to make quarterly principal payments on the A
Term Loan as well as Prepayments under certain circumstances. Varde
agreed to forego all regular principal payments in 1998 and 1999.
However, the Partnership applied $15,000,000 of the cash proceeds from
the Crude Gathering Sale to the A Term Loan on October 1, 1999, made a
quarterly principal payment of $1,353,000 on the A Term Loan in the
second quarter of 2000, and used $3,657,000 and $12,949,000 of the
Payments to retire the A Term Loan and B Term Loan, respectively. On
November 21, 2001, Varde received $12,000,000 and the Allowed
Unsecured Claim for $11,000,000 (net of a $2,000,000 discount) from
the Partnership under the Varde Settlement Agreement and retired
Varde's two-thirds interest in the C Term Loan, Subordinate Note A,
and Redeemable Preferred Equity for financial purposes which was
$4,110,000, $2,216,000 and $16,491,000 (which includes accrued
distributions of $5,104,000), respectively. At December 31, 2001, the
Allowed Unsecured Claim was shown net of the $2,000,000 discount and
$4,000,000 of the claim was included in current liabilities subject to
compromise and the other $7,000,000 was included in long-term
liabilities subject to compromise.
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 and the
Allowed Unsecured Claim of $11,000,000 exceeded Varde's share of the
Debt and Redeemable Preferred Equity as of November 21, 2001. The
Allowed Unsecured Claim of $11,000,000 did not accrue any interest
from November 21, 2001, to January 22, 2002, the date it was paid.
For the year ended December 31, 2001, the Partnership operated
without a working capital facility. During the year ended December
31, 2000, the Partnership had drawn up to approximately $2,603,000 on
the BankBoston Revolver. The weighted average amount outstanding
under the BankBoston Revolver was approximately $37,000. The weighted
average interest rate during the 2000 period for the BankBoston
Revolver was approximately 10.8%. The Partnership did not draw on the
Varde Revolver during the year ended December 31, 2000.
Cash flows will be significantly affected by fluctuations in the
cost and volume of refined products and the timing of accounts
receivable collections. For the year ended December 31, 2001, cash
was provided by the Texas Court returning the Deposits and an increase
in accounts payable since the Partnership could not pay certain
liabilities while it was in Bankruptcy, which was partially offset by
an increase in accounts receivable (as a result of the higher refined
product prices). For the year ended December 31, 2000, cash was
utilized as a result of the Payments, the Deposits, an increase in
accounts receivable (as a result of the higher refined product prices)
and a decrease in accounts payable (resulting from the $14,000,000 in
cash deposited with Shell).
Prior to the sale of the remaining Refinery equipment and the
Aledo Pipeline for $5,400,000 and the reduction in the Shell deposit
of $4,000,000 (see "Items 1. and 2. Business and Properties -
Partnership Operations and Products - Refining" and "Items 1. and 2.
Business and Properties - Long-Term Product Supply Agreement"), the
Partnership believed it would need a new working capital facility once
it was out of Bankruptcy. However, now the Partnership plans to wait
to obtain a new working capital facility and hopefully obtain more
favorable terms than are now available.
The C Term Loan of $2,055,000 held by Management was secured by
substantially all of the Partnership's assets. On January 22, 2002,
Management received New Redeemable Preferred Equity for the C Term
Loan and as a result no longer has a security interest in the
Partnership's assets.
The New York Court issued a temporary restraining order on
September 7, 2000 which imposed restrictions on the Partnership's use
of DESC Proceeds (see "Item 3. Legal Proceedings"). Because of those
constraints, Management agreed to extend a revolving loan to the
Partnership of $4,200,000 ("Management Revolver") from the Bonuses
paid to Management as a result of the successful litigation of the
DESC Claim (see "Item 3. Legal Proceedings"). A note evidencing the
Management Revolver was executed September 18, 2000. During the third
and fourth quarters of 2000, Management made advances under this
facility. Although the note accrued interest at prime plus 1.75%,
Management waived such interest for the period it was outstanding.
The facility was subsequently cancelled.
Effective December 31, 1997, Management invested an aggregate of
$2,000,000 in the form of a note payable to Varde and received a one-
third economic non-directive interest in the following: (i) $6,000,000
of the B Term Loan, (ii) the C Term Loan, (iii) the Subordinate Note
A, (iv) Series B Cumulative Convertible Preferred Units, (v) Series C
Cumulative Convertible Preferred Units and (vi) Series D Cumulative
Preferred Units. The note payable to Varde was secured by
Management's interest in such securities. Any current cash yield on
Management's share of such securities was payable to Varde as
interest, net of applicable federal income tax. On January 22, 2002,
Management received $11,500,000 in New Redeemable Preferred Equity for
its one-third interest in the Remaining Debt and Redeemable Preferred
Equity (see "Item 3. Legal Proceedings").
The Partnership or Management had 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 $7,500,000 over Varde's cost. Such call
lapsed December 31, 2000. The securities held by Varde had certain
antidilution provisions and registration rights.
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and Redeemable Preferred Equity effective as
of January 1, 1998. As a result of the amendment, distributions on
the Redeemable Preferred Equity accumulated in arrears rather than
being paid in kind. This reduced the amount of preferred equity on
the balance sheet and also affected the tax treatment of the
distributions to the Common Unitholders and holders of the Redeemable
Preferred Equity.
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received $17,079,000 of redeemable preferred equity
("Redeemable Preferred Equity") including $9,322,000 of Series B
Cumulative Convertible Preferred Units ("B Preferred Units"),
$5,000,000 of Series C Cumulative Convertible Preferred Units ("C
Preferred Units") and $2,757,000 of Series D Cumulative Preferred
Units ("D Preferred Units"). Management purchased a one-third
interest in the Redeemable Preferred Equity effective December 31,
1997. As part of the Varde Settlement Agreement, Varde received cash
and the Allowed Unsecured Claim of $11,000,000 (net of a $2,000,000
discount) for its two-thirds interest in the Remaining Debt and
Redeemable Preferred Equity which was $6,326,000 and $16,491,000
(which includes accrued distributions of $5,104,000), respectively as
of November 21, 2001. At December 31, 2001, Management owned the
balance of the Redeemable Preferred Equity which was $5,693,000 and
included B Preferred Units, C Preferred Units and D Preferred Units of
$3,107,000, $1,667,000 and $919,000, respectively. At December 31,
2001, the B Preferred Units and C Preferred Units were convertible
into 493,000 and 265,000 Common Units, respectively, or a total of
758,000 Common Units. The preferential quarterly payments on the B
Preferred Units and C Preferred Units were 6% per annum in the first
three years after issuance, 12% per annum in the fourth and fifth
years and 15% per annum thereafter or at the Partnership's option
accumulated in arrears at 8% per annum in the first three years. The
preferential quarterly payments on the D Preferred Units were 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 accumulated in arrears at 13% per annum in the
first three years.
The Partnership had expected prior to the Bankruptcy that once
the dispute with Varde was resolved that the Second Deposit of
$7,000,000 and $1,000 from the First Deposit would be used to redeem
$3,117,000 of the B Preferred Units and $1,672,000 of the C Preferred
Units or a total of $4,789,000, along with payment of accumulated
arrearages on the Redeemable Preferred Equity of $2,212,000 or a total
of $7,001,000. From August 31, 2000 to June 30, 2001, the Partnership
accrued interest expense at the Statutory Rate in the amount of
$348,000 on the B Preferred Units and C Preferred Units to the extent
that the Second Deposit and $1,000 of the First Deposit were expected
to be applied to such securities. As a result of the Bankruptcy
Court's Initial Ruling, the Partnership reversed the interest expense
accrual in the third quarter of 2001 and increased the accumulated
arrearages on the B Preferred Units and C Preferred Units by $626,000
for the period August 31, 2000 to June 30, 2001. For the years ended
December 31, 2001 and 2000, the Partnership accumulated arrearages of
$2,806,000 (which includes the adjustment of $626,000 mentioned above
for the period August 31, 2000 to June 30, 2001) and $1,683,000,
respectively, on the Redeemable Preferred Equity. At December 31,
2001, the Redeemable Preferred Equity owned by Management had total
accumulated arrearages of $2,660,000. On November 21, 2001, the
accumulated arrearages were reduced by $5,104,000 as a result of Varde
receiving $12,000,000 and the Allowed Unsecured Claim of $11,000,000
(net of a $2,000,000 discount) under the Varde Settlement Agreement
for its two-thirds interest in the Remaining Debt and Redeemable
Preferred Equity.
As discussed (see "Item 3. Legal Proceedings"), the Debt and
Redeemable Preferred Equity including accumulated arrearages which
were owned by Management converted into the New Redeemable Preferred
Equity of $11,500,000 on January 22, 2002.
The Partnership also accumulated arrearages of $343,000 on the E
Preferred Units and F Preferred Units owned by Pride SGP through the
third quarter of 1999 (see below). These accumulated arrearages were
canceled on October 1, 1999 as part of an exchange between Pride SGP
and the Partnership.
In connection with the Crude Gathering Sale on October 1, 1999,
Pride SGP exchanged (a) certain trunklines and related pumping
facilities owned by Pride SGP, (b) interest payable to Pride SGP from
the Partnership in the amount of $548,000, (c) rentals payable to
Pride SGP from the Partnership in the amount of $2,146,000, (d) the
Series E Cumulative Convertible Preferred Units ("E Preferred Units")
with a stated value of $2,000,000 held by Pride SGP, and (e) the
Series F Cumulative Preferred Units ("F Preferred Units") with a
stated value of $450,000 held by Pride SGP for (y) $2,000,000 in cash
and (z) the G Preferred Units with a stated value of $3,144,000 (see
"Items 1. and 2. Business and Properties - General").
At December 31, 2001, Pride SGP held G Preferred Units with a
stated value of $3,144,000 (see "Items 1. and 2. Business and
Properties - General"). The G Preferred Units were subordinate to the
B Preferred Units, C Preferred Units and D Preferred Units at December
31, 2001. On January 22, 2002, the C Term Loan, Subordinate Note A, B
Preferred Units, C Preferred Units and D Preferred Units owned by
Management were converted into the New Redeemable Preferred Equity.
As previously discussed (see "Item 3. Legal Proceedings"), the
Partnership, the Managing General Partner and Management entered into
the Pride SGP Settlement Agreement with Pride SGP and the Departing
Shareholders (see below) of Pride SGP on January 8, 2002. Under the
Pride SGP Settlement Agreement, the Partnership agreed to redeem
$2,630,000 of the $3,144,000 G Preferred Units held by Pride SGP or
the Departing Shareholders of Pride SGP (see below) for $1,275,000.
On March 18, 2002, the Partnership redeemed $104,000 of the G
Preferred Units held by Pride SGP for $50,000. On April 3, 2002, the
Partnership redeemed $2,526,000 of the G Preferred Units from the
Departing Shareholders for $500,000 and a non-interest bearing payable
of $725,000 due on September 30, 2002. The remaining $514,000 of G
Preferred Units held by Pride SGP will not accrue any distributions
prior to October 1, 2004. Beginning October 1, 2004, distributions
will accrue on the G Preferred Units at a rate equal to the lesser of
(i) the Partnership's net income less any distributions accrued or
paid on the New Redeemable Preferred Equity or (ii) 10% per annum.
At December 31, 2001 and 2000, 4,950,000 Common Units were
outstanding, representing a 98% limited partner interest. As of
February 28, 2002, Pride SGP, Management and the public owned 250,000,
1,219,000 and 3,481,000 Common Units, respectively.
The terms of the G Preferred Units prohibit the payment of
distributions on the Common Units as long as any G Preferred Units are
outstanding. In addition, the terms of the New Redeemable Preferred
Equity require that all distributions on the New Redeemable Preferred
Equity must be current before any distributions are paid on the G
Preferred Units or Common Units. Further, under the Partnership
Agreement, distributions payable on the Common Units are equal to 98%
of the Available Cash (as defined in the Partnership Agreement) of the
Partnership for a particular quarter. Generally, Available Cash is
equal to the net income of the Partnership plus depreciation less debt
payments and payments with respect to certain preferred equity,
capital expenditures and investments. Available Cash may also be
increased or decreased by reductions of or additions to, respectively,
certain reserves established by the Managing General Partner in
accordance with the Partnership Agreement. Based on current
operations, annual payments on the New Redeemable Preferred Equity and
restrictions on distributions contained in the G Preferred Unit
instrument, Management does not expect to pay distributions to Common
Unitholders for the foreseeable future.
At December 31, 2001, $1,111,000 of the Subordinate Note A,
$3,107,000 of the B Preferred Units and $1,667,000 of the C Preferred
Units owned by Management were convertible into 934,000 Common Units.
If Management converted all their securities into Common Units, the
number of Common Units outstanding would have increased from 4,950,000
Common Units to 5,884,000 Common Units.
At December 31, 2001, the Common Units ranked behind debt, as
well as the B Preferred Units, C Preferred Units, D Preferred Units
and G Preferred Units. Beginning January 22, 2002, the Common Units
rank behind debt, as well as the New Redeemable Preferred Equity and G
Preferred Units. As a result of debt and preferred equity securities
ahead of the Common Units and taking into consideration the various
preferential calls on available cash contained in the preferred equity
securities instruments (including annual distributions and required
amortization of the New Redeemable Preferred Equity), Common
Unitholders could be allocated taxable income under the Partnership
Agreement in the future without a corresponding distribution of cash
to offset any potential tax liability.
In accordance with the Bankruptcy rules, certain of the
Partnership's debt is being cancelled because the holders of such
claims did not file timely proofs of claim or because such claims are
not allowed even though proofs of claim were timely filed. As a
result, the Partnership is required to recognize income with respect
to such debt cancellation and, subject to the possible availability of
offsetting deductions, to allocate the resulting net taxable income to
Common Unitholders even though the Common Unitholders do not receive a
distribution of cash. The Partnership estimates taxable income of
$9,600,000 related to cancellation of indebtedness income of which 98%
will be allocated to Common Unitholders based on the number of months
each Common Unitholder held his or her Common Units during the taxable
year that ends December 31, 2002.
On January 18, 2002, the Partnership sold the remaining Refinery
equipment and Aledo Pipeline for $5,400,000 since those assets were no
longer used in its business and to further increase working capital.
The gain from the sale of those assets for tax purposes is estimated
to be $3,100,000 of which 98% will be allocated to Common Unitholders
before any basis adjustment attributable to specific Common
Unitholders. Common Unitholders who purchased Common Units after July
of 2000 do not have any basis in these assets based on the trading
price of the Common Units after such date. Therefore, those Common
Unitholders will be allocated gain from the sale of those assets of
$5,400,000. Such gain will be allocated to those Common Unitholders
who held Common Units on January 31, 2002.
As a result of the Partnership paying Varde $11,000,000 on
January 22, 2002, Varde will be allocated $3,454,000 of gross income,
thus decreasing the amount of gross income allocable to Common
Unitholders by 98% of that amount. The reduction in gross income
allocated to Common Unitholders will be based on the number of months
each Common Unitholder held his or her Common Units during the taxable
year that ends December 31, 2002.
Common Unitholders will also be allocated 98% of a loss of
$2,100,000 on a loan to a subsidiary that is now considered worthless.
The deduction will be allocated to Common Unitholders based on the
number of months each Common Unitholder held his or her Common Units
during the taxable year that ends December 31, 2002.
The above allocations are in addition to the 98% of taxable
income that will be allocated to Common Unitholders from normal
operations for the taxable year ended December 31, 2002 adjusted for
basis adjustment attributable to specific Common Unitholders. The
actual tax impact on a Common Unitholder depends upon such Common
Unitholder's overall personal tax situation and whether such Common
Unitholder has suspended losses which can be used to offset the
allocation of income. Each Common Unitholder should consult with
their own tax advisor regarding the use of suspended losses.
As a result of emerging from Bankruptcy and fully paying off
Varde, the Partnership expects over the next several years to have
positive cash flow from operations and expects its net income during
the current fiscal year to be close to break even, in each case before
annual payments of $1,406,000 for the next ten years beginning January
22, 2003 (for the years eleven through fifteen, the payments will
decrease to $940,000 annually) on the New Redeemable Preferred Equity
held by Management and any payments due on the G Preferred Units after
October 1, 2004 (see Notes 5 and 13).
The Partnership's ability to improve its profits is principally
dependent upon increased volumes and/or improved profit margins, as
well as continued cost control initiatives. Under a new military
aviation fuel contract with the Government which began April 1, 2002
and ends March 31, 2003, the Partnership will supply approximately
34,325,000 gallons, which is a 4% increase from the volumes that it
supplied under the previous contract with the Government, which began
April 1, 2001 and ended March 31, 2002. The Partnership believes that
its profit margins under the new contract should be similar to those
under the previous contract.
The Partnership has been able to achieve certain reductions in
operating expenses and marketing, general and administrative expenses
over recent years. The expenses of the Products Marketing Business
have declined from the levels of 1999 and prior years as a result of
staff reductions and computer automation. The Partnership's 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.
As previously discussed, the Partnership recently sold the
remaining Refinery equipment and Aledo Pipeline for $5,400,000. On
January 22, 2002, Shell also returned $4,000,000 of the $14,000,000 in
cash the Partnership had deposited with Shell to secure its payable to
Shell for refined product purchases. The Partnership believes, in
light of these two events, that it currently has adequate liquidity to
operate at this time without a working capital facility.
As previously mentioned, on January 17, 2001, the Partnership
filed Bankruptcy and was authorized to continue managing and operating
its business as a debtor in possession subject to the control and
supervision of the Bankruptcy Court. As previously discussed, the
filing was necessitated by certain actions taken by Varde which was
the Partnership's primary lender and also owned two-thirds of the
Redeemable Preferred Equity. Varde was claiming a $17,621,000
Transaction Fee and the rights to certain securities it had assigned
to Management effective December 31, 1997 (see "Item 3. Legal
Proceedings" and "Item 13. Certain Relationships and Related
Transactions"). An adversary proceeding involving all of the
contested issues between Varde and the Partnership was completed on
April 6, 2001. The Bankruptcy Court issued the Initial Ruling on
September 4, 2001 (see "Item 3. Legal Proceedings").
Under Chapter 11, certain claims against the Partnership in
existence prior to the filing of the petition for relief under the
federal bankruptcy laws were stayed while the Partnership continued
business as a debtor in possession. These claims are reflected in the
December 31, 2001 balance sheet as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise)
may have arisen or may arise subsequent to the filing date resulting
from rejection of executory contracts, including leases, and from
determination by the Bankruptcy Court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed
amounts such as the claims of the former employees (see below).
Claims secured by the Partnership's assets ("Secured Claims") also
were stayed, although the holders of such claims had the right to move
the Bankruptcy Court for relief from the stay. The Secured Claims
were secured primarily by the Partnership's cash, accounts
receivables, and property, plant and equipment.
At December 31, 2001, current liabilities subject to compromise
included liabilities of the Products Marketing Business (continuing
operations) of $7,707,000 and liabilities of the Crude Gathering
System (discontinued operations) of $861,000, whereas long-term
liabilities subject to compromise included $7,000,000 of liabilities
from the Products Marketing Business (continuing operations) and
$8,680,000 of liabilities from the Crude Gathering System
(discontinued operations).
The Partnership paid or incurred $1,294,000 (includes a premium
of $183,000 related to the Varde Settlement Agreement) and $55,000 in
bankruptcy related expenses for the years ended December 31, 2001 and
2000.
The Partnership received approval from the Bankruptcy Court to
pay or otherwise honor certain prepetition obligations, including
employee wages, liabilities for excise taxes and accounts payable owed
to Shell for the purchase of refined product.
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc. (a
wholly-owned subsidiary of the Partnership) each filed a voluntary
petition under Chapter 11 of the Federal Bankruptcy Code in the
Northern District of Texas, Abilene Division and each of them was
authorized to continue managing and operating its business as debtors
in possession subject to the control and supervision of the Bankruptcy
Court (see "Items 1. and 2. Business and Properties - General").
On or about May 17, 2001, the Partnership, the Managing General
Partner, and Pride SGP filed their proposed Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code and Disclosure
Statement for Debtors' Joint Chapter 11 Plan of Reorganization with
the Bankruptcy Court.
On September 24, 2001, the Partnership and the Managing General
Partner filed their proposed First Amended and Restated Debtors' Joint
Plan of Reorganization under Chapter 11 of the Bankruptcy Code and
First Amended and Restated Joint Disclosure Statement with the
Bankruptcy Court to reflect the Bankruptcy Court's Initial Ruling.
As a result of the Varde Settlement Agreement, the Partnership
and Managing General Partner filed their proposed Second Amended and
Restated Joint Plan of Reorganization and Second Amended and Restated
Joint Disclosure Statement for Debtors' Joint Chapter 11 Plan of
Reorganization on November 9, 2001.
A hearing before the Bankruptcy Court was held on November 15,
2001 to determine the adequacy of the disclosure in the Partnership's
proposed Second Amended and Restated Joint Plan of Reorganization and
Second Amended Disclosure Statement for Debtors' Joint Chapter 11 Plan
of Reorganization. During the hearing, the Partnership agreed to
certain modifications and incorporated those modifications into the
Third Amended and Restated Joint Plan of Reorganization (as amended by
modifications thereto filed January 8, 2002 and January 11, 2002,
respectively, the "Plan") and Third Amended and Restated Joint
Disclosure Statement for Debtors' Joint Chapter 11 Plan of
Reorganization (the "Disclosure Statement") dated November 19, 2001.
The Plan and Disclosure Statement was mailed to the impaired creditors
and equity holders and notice was given to all creditors.
On January 11, 2002 (the "Confirmation Date"), the Bankruptcy
Court signed an order confirming the Plan after the Court heard
testimony on January 8, 2002 that all classes entitled to vote
("Impaired Classes") had voted in favor of the Plan and certain agreed
to modifications were made to the Plan. The Partnership and Managing
General Partner emerged from Bankruptcy on January 22, 2002 (the
"Effective Date").
On May 22, 2001, Messrs. Doug Morris, Brad Morris, Jimmy Morris,
Tommy Broyles, and Mike Dunigan, as beneficiary of certain Dunigan
family trusts, (collectively the "Claimants") each filed a proof of
claim against the Partnership and the Managing General Partner in the
amount of $14,541,000 each plus interest, attorney fees and costs.
The Claimants are shareholders of Pride SGP and directors of Pride SGP
with the exception of Mr. Jimmy Morris who was an advisory director.
The Claimants alleged that they and Pride SGP were wrongfully deprived
of assets, rents payable, interest due and other claims as a result of
certain transactions beginning in 1994. On December 10, 2001, those
shareholders and Pride SGP withdrew their proof of claim (see "Item 3.
Legal Proceedings").
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP Settlement Agreement with
Pride SGP and the Departing Shareholders of Pride SGP (see below).
Under the Pride SGP Settlement Agreement, the Partnership agreed to
redeem $2,630,000 of the $3,144,000 G Preferred Units held by Pride
SGP and the Departing Shareholders of Pride SGP for $1,275,000
($2,526,000 of the G Preferred Units were subsequently distributed by
Pride SGP to the Departing Shareholders of Pride SGP in exchange for
their interest in Pride SGP and were redeemed by the Partnership from
the Departing Shareholders for $1,225,000), Pride SGP agreed to vote
in favor of the Plan and all parties agree to mutual releases. On
March 18, 2002, the Partnership redeemed $104,000 of the G Preferred
Units held by Pride SGP for $50,000. On April 3, 2002, the
Partnership redeemed $2,526,000 of the G Preferred Units from the
Departing Shareholders for $500,000 and a non-interest bearing payable
of $725,000 due on September 30, 2002. As a result of the acquisition
of the interests in Pride SGP owned by the Departing Shareholders, all
of the outstanding stock of Pride SGP is now owned by Messrs.
Stephens, Malone and Caddell (see "Item 10. Directors and Executive
Officers of the Partnership" and "Item 13. Certain Relationships and
Related Transactions").
On May 22, 2001, five former employees filed proofs of claim
totaling $3,213,000 plus amounts unknown related to unpaid
compensation for 1998 through 2000. On November 26, 2001, an
adversary hearing was held by the Bankruptcy Court to determine
whether to allow the proofs of claim. On December 21, 2001, the
Bankruptcy Court issued its initial ruling and held that the
Partnership owed the former employees some amount but did not specify
how much was owed. The Bankruptcy Court requested that the parties
attempt to settle their controversy based on its initial ruling.
Since the parties were unable to settle the case, the Bankruptcy Court
held a hearing on February 28, 2002 to hear additional evidence on
damages. The Partnership had accrued $72,000 in severance prior to
the Bankruptcy Court's initial ruling, but has not accrued an
additional liability as a result of such ruling since the Partnership
does not feel it has enough information to estimate the amount of the
liability at this time.
Several other parties have filed proofs of claim which the
Partnership has objected to or plans on objecting to; however, those
disputed claims are not expected to have a material effect on the
Partnership.
In accordance with the Bankruptcy rules, certain of the
Partnership's debt is being cancelled because the holders of such
claims did not file timely proofs of claim or because such claims are
not allowed even though proofs of claim were timely filed. As a
result, the Partnership is required to recognize income with respect
to such debt cancellation and, subject to the possible availability of
offsetting deductions, to allocate 98% of the resulting net taxable
income to Common Unitholders even though the Common Unitholders do not
receive a distribution of cash. The Partnership estimates taxable
income of $9,600,000 related to cancellation of indebtedness income of
which 98% will be allocated to Common Unitholders based on the number
of months each Common Unitholder held his or her Common Units during
the taxable year that ends December 31, 2002.
On January 11, 2002, the Bankruptcy Court signed an order, after
a hearing on January 8, 2002, confirming, under Chapter 11 of the
United States Bankruptcy Code, the Plan submitted by the Partnership
and the Managing General Partner. The Plan took effect on January 22,
2002 and the two companies emerged from bankruptcy at that time. All
creditors whose claims are not disputed or who filed proofs of claim
that are allowed under the Bankruptcy Code are expected to be paid in
full as provided in the Plan. The following summary of the Plan is
qualified in its entirety by reference to the Plan. Capitalized terms
that are not defined herein shall have the meanings given them in the
Plan.
The Plan provides for the following treatment for the Allowed
Claims and Allowed Interests of Creditors and Interest holders of the
Partnership:
(i) Varde was deemed to have an Allowed Unsecured Claim against
the Partnership in the amount of $11,000,000 (net of a $2,000,000
discount) that would be paid by the Partnership as follows: (1)
$4,000,000 paid in cash on the Effective Date; and (2) the balance
paid by delivery of the Varde Unsecured Note in the original principal
amount of $9,000,000 (before the $2,000,000 discount). The
Partnership paid Varde $11,000,000 on the Effective Date and as a
result received the $2,000,000 discount on the Varde Unsecured Note.
(ii) Certain Claims and Interests of Management are treated
as follows:
a. The Allowed Secured Claims of Management (which is
referred to as the C Term Loan in the financial statements) against
the Partnership were satisfied with a separate series of New
Redeemable Preferred Equity with an aggregate $2,100,000 liquidation
preference, which provides for cumulative distributions of 7.5% per
annum, and is subject to mandatory redemption in equal annual
installments as necessary to fully redeem such series of New
Redeemable Preferred Equity over 10 years.
b. The Allowed Unsecured Claims of Management (which
includes the Subordinate Note A and amounts due under indemnity
agreements) against the Partnership was satisfied as follows: (i) the
Partnership paid $388,000 to Management on January 22, 2002 for their
Allowed Unsecured Claims arising under indemnity obligations of the
Partnership, plus (ii) Management received New Redeemable Preferred
Equity with an aggregate $1,100,000 liquidation preference, which
provides for cumulative distributions of 7.5% per annum, and is
subject to mandatory redemption in equal annual installments as
necessary to fully redeem such series of New Redeemable Preferred
Equity over 10 years.
c. The Allowed Existing Partnership Preferred Interests
(which is referred to as the Redeemable Preferred Equity in the
financial statements) of Management was satisfied by Management's
receipt of New Redeemable Preferred Equity with an aggregate
$8,300,000 liquidation preference, which provides cumulative
distributions of 7.5% per annum, and is subject to mandatory
redemption in equal annual installments as necessary to fully redeem
such series of New Redeemable Preferred Equity over 15 years. The New
Redeemable Preferred Equity was subject to a $2,000,000 potential
discount depending on when the Varde Unsecured Note was retired.
Since Varde was paid $11,000,000 on the Effective Date, the New
Redeemable Preferred Equity owned by Management was not discounted.
(iii) Other Creditors are treated as follows:
a. Allowed Administrative Expenses of the Partnership will
be paid in full as soon as practical after the Effective Date, or
after such expense is Allowed by the Court.
b. Allowed Unsecured Priority Tax Claims of the Partnership
will be paid in full on the later of (1) as soon as practicable after
the Effective Date, (2) as soon as practicable after such Claim
becomes an Allowed Claim, or (3) if the payment on the Claim is not
due as of the Confirmation Date, when the payment is due in the
ordinary course of the Partnership's business.
c. Allowed Secured Tax Claims of the Partnership will be
paid with interest at 8% per annum in the ordinary course of the
respective Partnership's business as described more fully in the Plan.
Creditors will retain any liens until the tax is paid.
d. Allowed Non-Tax Priority Claims will be paid in full by
the Partnership as soon as practical after the Effective Date or after
such claim is Allowed, whichever is later.
e. The Allowed Secured Claim of Fleet National Bank against
the Partnership will be paid in full by the Partnership as soon as
practical after the Effective Date or after such claim is allowed,
whichever is earlier.
f. Allowed Royalty Claims against the Partnership will be
paid in full by the Partnership as due in the ordinary course of its
business, on the later of the Effective Date or such date that the
Claim becomes due in accord with the Texas Natural Resources Code (see
Note 11).
g. Allowed General Unsecured Claims of the Partnership will
be paid by the Partnership in full with 7.5% interest per annum from
the Effective Date upon the later of six months after the Effective
Date or when Allowed; however, if such claims are not disputed the
Partnership plans on paying them earlier.
(iv) Interest holders received the following treatment pursuant to
the Plan:
a. The Managing General Partner retained its Allowed
Existing Partnership General Partnership Interest.
b. At the Confirmation Hearing, the Partnership, the
Managing General Partner and Management, on the one hand, and Pride
SGP and certain of its shareholders (referred to herein as
the "Departing Shareholders"), on the other hand entered into the
Pride SGP Settlement Agreement. Messrs. Malone, Stephens and Caddell
retained their interest in Pride SGP. All other shareholders of Pride
SGP are Departing Shareholders (see "Item 10. Directors and Executive
Officers of the Partnership" and "Item 13. Certain Relationships and
Related Transactions"). Under the Pride SGP Settlement Agreement,
Pride SGP retained its Existing Partnership General Partnership
Interest since the agreement was approved by the Bankruptcy Court.
c. Pride SGP retained its Allowed Existing Partnership
Subordinated Preferred Interests (which is referred to as the G
Preferred Units in the financial statements) and such interest
continues to be subordinated to the New Redeemable Preferred Equity.
Pursuant to the SGP Settlement Agreement, however, the Plan was
amended to provide for the following alternative treatment since
certain Conditions Precedent were satisfied:
i. The Partnership paid the Departing Shareholders of
Pride SGP, who were holders of units of the Existing Partnership
Subordinated Preferred Interests (or G Preferred Units), $500,000 in
cash on April 3, 2002 (the "First Payment"). On September 30, 2002,
the Partnership will pay the Departing Shareholders an additional
$725,000 (the "Second Payment"). (Collectively, the First Payment and
Second Payment are referred to as the "Pride SGP Payments".) The
Pride SGP Payments will be in full and final settlement and redemption
of $2,526,000 (based on the stated value thereof) of the Existing
Partnership Subordinated Preferred Interests (or G Preferred Units)
that were distributed by Pride SGP to the Departing Shareholders. The
Pride SGP Payments will be made to Tommy Broyles as Trustee for the
Departing Shareholders and he shall be responsible for allocating the
Pride SGP Payments among the Departing Shareholders (see "Item 13.
Certain Relationships and Related Transactions").
ii. The Partnership paid Pride SGP $50,000 in cash on
March 18, 2002 to redeem $104,000 (based on the stated value thereof)
of the Existing Partnership Subordinated Interests (or G Preferred
Units) held by Pride SGP.
d. Allowed Existing Partnership Common Interests retained
their Interests.
As of the Confirmation Date, there were 4,950,000 Common Units
outstanding. Holders of Allowed Existing Partnership Common Interests
retained such interests, and such interests remained outstanding
pursuant to the Plan. Also, as described above, existing Redeemable
Preferred Equity owned by Management was cancelled and New Redeemable
Preferred Equity was issued with respect thereto. In addition, Pride
SGP retained its Existing Partnership Subordinated Preferred Interests
(or G Preferred Units) and its Existing Partnership General
Partnership Interest remained outstanding and certain of its Existing
Partnership Subordinated Preferred Interests (or G Preferred Units)
were redeemed pursuant to the Pride SGP Settlement Agreement.
Under the Plan, the Partnership had proposed a reverse Common
Unit split so that the number of Common Unitholders would be less than
300 and the Partnership could avoid the expenses of being a public
company. Since the requisite number of Common Unitholders did not
vote for the reverse Common Unit split, the Common Units that they own
were unaffected by the Plan. All other voting classes in the
bankruptcy voted in favor of the Plan.
UNAUDITED PRO FORMA BALANCE SHEET OF THE PARTNERSHIP
AS OF DECEMBER 31, 2001
SELECTED SUBSEQUENT EVENTS OF THE PARTNERSHIP
On January 22, 2002, the Partnership emerged from Bankruptcy. A
number of significant subsequent events occurred after December 31,
2001 related to the Partnership's emergence from Bankruptcy. There
were also several significant events that occurred after December 31,
2001 that were not directly related to the Bankruptcy such as the
asset sale and reduction in the Shell deposit (see below). The pro
forma balance sheet as of December 31, 2001 gives effect to these
events.
INTRODUCTORY STATEMENT
The unaudited pro forma condensed balance sheet of the
Partnership has been prepared to give effect to (i) the payment to
Varde of $11,000,000 on January 22, 2002 under the Varde Settlement
Agreement; (ii) the $11,500,000 of New Redeemable Preferred Equity
issued to Management under the Plan for its one-third interest in the
Remaining Debt and Redeemable Preferred Equity; (iii) the $4,000,000
reduction in the $14,000,000 cash deposit with Shell on January 22,
2002; (iv) the sale of assets no longer used in the business for
$5,400,000 to Alon on January 18, 2002; (v) cancellation of
indebtedness income estimated to be $9,600,000 related to the
Bankruptcy; (vi) expected payment of remaining liabilities subject to
compromise; and (vii) the redemption of $2,630,000 G Preferred Units
owned by Pride SGP and the Departing Shareholders of Pride SGP for
$1,275,000 under the Pride SGP Settlement Agreement (collectively
"Selected Subsequent Events").
The unaudited pro forma balance sheet have been prepared to give
effect to the Selected Subsequent Events as described below:
The unaudited pro forma condensed balance sheet of the
Partnership as of December 31, 2001 has been prepared to give effect
to the Selected Subsequent Events as if they were completed on
December 31, 2001.
The unaudited pro forma condensed balance sheet included herein
is not necessarily indicative of the results that might have occurred
had the transactions taken place on the dates that are assumed for the
pro forma presentations and are not intended to be a projection of
future results. Future results may vary significantly from the results
reflected in the accompanying unaudited pro forma balance sheet.
The following unaudited pro forma condensed balance sheet should
be read in conjunction with the Financial Statements (and the related
notes) of the Partnership contained herein.
PRIDE COMPANIES, L.P.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2001
(IN THOUSANDS)
The Pro Forma Pro Forma
Partnership Adjustments Partnership
----------- ----------- -----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 13,294 $ (5,412)(1) $ 7,882
Restricted cash 909 909
Accounts receivable 14,464 (4,000)(c) 10,464
Inventories 963 963
Prepaid expenses 364 364
-------- -------- --------
Total current assets 29,994 (9,412) 20,582
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, net 13,963 13,963
ASSETS NO LONGER USED IN THE BUSINESS 4,235 (4,235)(d) -
OTHER ASSETS 105 105
-------- -------- --------
$ 48,297 $(13,647) $ 34,650
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL:
CURRENT LIABILITIES:
Current liabilities not subject to compromise:
Accounts payable $ 1,619 $ - $ 1,619
Accrued payroll and related benefits 250 250
Accrued taxes 2,534 2,534
Other accrued liabilities 687 687
Current portion of long-term debt 2,055 (2,055)(b) -
-------- -------- --------
Subtotal 7,145 (2,055) 5,090
Current liabilities subject to
compromise 8,568 (8,568)(2) -
-------- -------- --------
TOTAL CURRENT LIABILITIES 15,713 (10,623) 5,090
LONG-TERM DEBT
LONG-TERM LIABILITIES SUBJECT
TO COMPROMISE 15,680 (15,680)(3) -
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED EQUITY 5,693 5,807 (b) 11,500
PARTNERS' CAPITAL:
G Preferred Units 3,144 (2,630)(g) 514
Common Units 8,374 9,289 (4) 17,663
General partners' interest (307) 190 (4) (117)
-------- -------- --------
Total partners' capital 11,211 6,849 18,060
-------- -------- --------
$ 48,297 $(13,647) $ 34,650
======== ======== ========
1. (a) (c) (d) (f) (g)
2. (a) (b) (e) (f)
3. (a) (e)
4. (b) (d) (e) (g)
See accompanying notes to unaudited pro forma condensed financial statements.
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed balance sheet of the
Partnership has been prepared to give effect to (i) the payment to
Varde of $11,000,000 on January 22, 2002 under the Varde Settlement
Agreement; (ii) the $11,500,000 of New Redeemable Preferred Equity
issued to Management under the Plan for its one-third interest in the
Remaining Debt and Redeemable Preferred Equity; (iii) the $4,000,000
reduction in the $14,000,000 cash deposit with Shell on January 22,
2002; (iv) the sale of assets no longer used in the business for
$5,400,000 to Alon on January 18, 2002; (v) cancellation of
indebtedness income estimated to be $9,600,000 related to the
Bankruptcy; (vi) expected payment of remaining liabilities subject to
compromise; and (vii) the redemption of $2,560,000 G Preferred Units
owned by Pride SGP and the Departing Shareholders of Pride SGP for
$1,275,000 under the Pride SGP Settlement Agreement.
The unaudited pro forma condensed balance sheet is presented as
if the Selected Subsequent Events occurred on December 31, 2001.
NOTE 2. PRO FORMA ADJUSTMENTS
Following are descriptions of the pro forma adjustments used in
the preparation of the accompanying unaudited pro forma balance
sheets:
(a) On the Effective Date (January 22, 2002), Varde was paid
$11,000,000. Under the Varde Settlement Agreement, Varde received
$12,000,000 on November 21, 2001 and the Allowed Unsecured Claim of
$11,000,000 (net of a $2,000,000 discount) or a total of $23,000,000
for its two-thirds interest in the Remaining Debt and Redeemable
Preferred Equity. On the Effective Date, Varde was to receive
$4,000,000 and the $9,000,000 Varde Unsecured Note which was subject
to a $2,000,000 discount. Because the Partnership paid Varde
$11,000,000 on January 22, 2002, the Partnership received the
$2,000,000 discount on the Varde Unsecured Note.
(b) On the effective date, Management received $11,500,000 of New
Redeemable Preferred Equity for its one-third interest in the
Remaining Debt and Redeemable Preferred Equity. Management purchased
a one-third interest in such Remaining Debt and the Redeemable
Preferred Equity from Varde effective December 31, 1997.
(c) On January 22, 2002, Shell agreed to reduce by $4,000,000 the
$14,000,000 cash deposit the Partnership had provided Shell to secure
the Partnership's payable to Shell and to offset the interest costs
associated with carrying the inventory. At December 31, 2001, the
deposit exceeded the payable to Shell by $6,722,000 and so such amount
was reclassified from accounts payable to accounts receivable.
Accordingly, the reduction in the cash deposit of $4,000,000 is
reflected as a reduction in the accounts receivable rather than as an
increase in accounts payable.
(d) On January 18, 2002, the Partnership sold both the remaining
Refinery equipment and Aledo Pipeline to Alon for $5,400,000 which
were included in assets no longer used in the business as of December
31, 2001.
(e) Due to the failure of certain creditors to file proofs of claim
in the bankruptcy case or because of the disallowance of claims by the
Bankruptcy Court, the Partnership expects to report cancellation of
indebtedness income of $9,600,000 for the year ended December 31,
2002. Common Unitholders will be allocated 98% of such income.
(f) The remaining balance of liabilities subject to compromise
after the cancellation of indebtedness income mentioned above is shown
as paid in the pro forma balance sheet.
(g) On January 8, 2002, the Partnership, the Managing General
Partner and Management entered into the Pride SGP Settlement Agreement
with Pride SGP and the Departing Shareholders of Pride SGP (see
below). Under the Pride SGP Settlement Agreement, the Partnership
agreed to redeem $2,630,000 of the $3,144,000 G Preferred Units held
by Pride SGP and the Departing Shareholders of Pride SGP for
$1,275,000 ($2,526,000 of the G Preferred Units were distributed by
Pride SGP to the Departing Shareholders of Pride SGP in exchange for
their interest in Pride SGP and were redeemed by the Partnership from
the Departing Shareholders for $1,225,000).
Capital Expenditures
Capital expenditures totaled $106,000 for the year ended December
31, 2001 compared to $202,000 for the year ended December 31, 2000.
Management anticipates spending $231,000 for the year ended
December 31, 2002 for environmental expenditures, of which $100,000
was accrued at December 31, 2001 and maintenance capital expenditures
for 2002, are budgeted at $100,000.
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk
During the year ended December 31, 1999, the Partnership hedged
its crude oil inventory after an increase in crude oil prices in 1999
from the weak prices in December 1998 to mitigate possible future
declines in crude oil prices. The Partnership hedged the inventory to
reduce the negative impact that previous declines in crude oil prices
had on the borrowing base. The Partnership hedged between 125,000
barrels to 375,000 barrels during 1999. The hedged position resulted
in a loss of $2.3 million and was offset by an increase in the value
of the 425,000 barrels of crude oil sold to Sun on October 1, 1999 as
part of the Crude Gathering Sale.
Under an agreement with Shell, Shell maintained the refined
products inventory for the Partnership during 2001, 2000 and 1999 thus
eliminating the Partnership's exposure to changing refined product
prices (see "Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operation - Financial Condition - Financial
Resources and Liquidity").
The Partnership's debt was subject to market risks based on
changes in the prime rate. The Partnership does not hedge this market
risk. Approximate debt maturities for the next five years and
applicable interest rates as of December 31, 2001 are as follows:
2002
-----------------
Amount Rate Total
----------- ---- -----------
C Term Loan $ 2,055,000 0% $ 2,055,000
Subordinate Note A 673,000 0% 673,000
Subordinate Note A (Prime+1%) 438,000 5.75% 438,000
Varde Unsecured Claim 11,000,000 0% 11,000,000
----------- -----------
$14,166,000 $14,166,000
=========== ===========
The Bankruptcy Court ruled the Partnership did not owe interest on the
C Term Loan or Subordinate Note A to the extent payment was tendered
on that debt on July 27, 2000.
Under the Varde Settlement Agreement, the Varde Unsecured Claim does
not accrue interest.
At December 31, 2000, the five year maturities and applicable
interest rate were as follows:
2001
------------------
Amount Rate Total
----------- ---- -----------
C Term Loan $ 6,171,000 0% 6,171,000
Subordinate Note A 2,000,000 0% 2,000,000
Subordinate Note A (Prime+1%) 1,188,000 10.5% 1,188,000
----------- -----------
$ 9,359,000 $ 9,359,000
=========== ===========
The Bankruptcy Court ruled the Partnership did not owe interest on the
C Term Loan or Subordinate Note A to the extent payment was tendered
on that debt on July 27, 2000.
Since the C Term Loan, Subordinate Note A and Varde Unsecured
Claim were retired on January 22, 2002 , Management believes the fair
value of such debt approximates the amount recorded in the financial
statements as of December 31, 2001.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Partnership, together with
the reports thereon of DAVIS, KINARD & CO., P.C. ("Davis Kinard")
appear after the signature pages. See the Index to Financial
Statements at the beginning of the Financial Statements.
The independent auditors reports for the years ended December 31,
2000 and 1999, included going concern paragraphs and referenced
conditions that raised substantial doubt about the Partnership's
ability to continue as a going concern at that time.
Davis Kinard billed the Partnership $71,850 for audit fees
related to the 2001 financial statements, which included $13,850 for
quarterly reviews required by the Securities and Exchange Commission.
Davis Kinard did not provide any non-audit services during 2001;
therefore, no fees for such services were billed to the Partnership.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
On September 26, 2000, Ernst & Young notified the Partnership of
their resignation as auditors of the Partnership, effective as of that
date. During the Partnership's two most recent fiscal years for the
period ended December 31, 1999 and the subsequently completed quarters
preceding the resignation of Ernst & Young, there were no
disagreements with Ernst & Young on any matter of accounting
principles or practice, financial statement disclosure or auditing
scope or procedure, which, if not resolved to the satisfaction of
Ernst & Young, would have caused Ernst & Young to make a reference to
the matter in connection with their reports. The reports of Ernst &
Young on the Partnership's financial statements for 1999 did not
contain an adverse opinion, a disclaimer of opinion and were not
qualified as to audit scope or accounting principles. The report of
Ernst & Young on the fiscal year ended December 31, 1999 was modified
as to uncertainty regarding the ability of the Partnership to continue
as a going concern.
PART III
Item 10. Directors and Executive Officers of the Partnership
Set forth below is certain information concerning the executive
officers and directors of the Managing General Partner as of December
31, 2001 who are responsible for the operations of the Partnership.
All directors of the Managing General Partner are elected by its
shareholders. All officers of the Managing General Partner serve at
the discretion of the board of directors of the Managing General
Partner.
POSITION WITH THE
NAME AGE MANAGING GENERAL PARTNER
____ ___ ________________________
E. Peter Corcoran 73 Chairman of the Board
Brad Stephens 51 Chief Executive Officer, Treasurer,
Assistant Secretary and Director
D. Wayne Malone 58 President, Chief Operating Officer,
Assistant Secretary and Director
Douglas Y. Bech 56 Director
Clark Johnson 56 Director
Robert Rice 79 Director
Craig Sincock 49 Director
Dave Caddell 52 Vice President, General Counsel
and Assistant Secretary
George Percival 42 Chief Financial Officer
E. Peter Corcoran. Mr. Corcoran served as a director of
Pride Pipeline Company, an affiliate of the Partnership, from
1985 to 1990 and became a director of the Managing General
Partner in 1990. In March 1994, he became Chairman. In 1991, Mr.
Corcoran retired from Lazard Freres & Co., having been a limited
partner thereof since 1983 and a general partner from 1968 until
1983. Mr. Corcoran serves as a member of the Audit and Conflicts
Committee of the Board of Directors of the Managing General
Partner.
Brad Stephens. Mr. Stephens served as Vice President of one
of the predecessor companies of the Partnership ("Predecessor
Companies") from 1988 until June 1989, when he became Executive
Vice President and Chief Financial Officer. In March 1994, he
became Chief Executive Officer. Prior to 1988, Mr. Stephens was
President of Independent Bankshares and First State Bank of
Abilene, where he had been employed since 1978. Mr. Stephens is
a Certified Public Accountant and prior to 1978, he was employed
by the accounting firm of Deloitte, Haskins & Sells.
D. Wayne Malone. Mr. Malone has been associated with the
Predecessor Companies since 1979 and has been an officer, director,
and shareholder of the various companies since 1981. Mr. Malone
became President of Pride Pipeline Company in 1980, President of Pride
Marketing of Texas, Inc. in 1984 in charge of retail, wholesale, and
aviation fuel sales, and President of a predecessor of Pride SGP in
March 1988, adding the responsibilities of refining and product
trucking. Mr. Malone also served as President of Carswell Pipeline
Company. In March 1994, he became President and Chief Operating
Officer.
Douglas Y. Bech. Mr. Bech became a director of the Managing
General Partner in 1993. He is Chairman and Chief Executive Officer
of Raintree Resorts International, Inc. and the founding partner of
Raintree Capital Company, L.L.C., a merchant banking firm. From 1994
to 1998, Mr. Bech was a partner in the law firm of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., and from 1993 to 1994 he was a partner
in the law firm of Gardere & Wynne, L.L.P. From 1970 to 1993, he was
associated with and a senior partner of the law firm of Andrews &
Kurth, L.L.P. Mr. Bech is also a director of Frontier Oil Corporation
and j2 Global Communications.com. Mr. Bech serves as a member of the
Compensation Committee of the Board of Directors of the Managing
General Partner.
Clark Johnson. Mr. Johnson became a director of the Managing
General Partner in 1993. He is President and CEO of Orion Refining
Corporation, an independent refining and marketing company. Prior to
his position with Orion Refining Corporation, he held the positions of
President and CEO of Frontier Refining and Marketing, Executive Vice
President and Chief Operations Officer of Kerr-McGee Refining
Corporation, and senior management positions with Coastal Corporation
and Tenneco Oil Company. Mr. Johnson serves as a member of the Audit
and Conflicts Committee and as Chairman of the Compensation Committee
of the Managing General Partner.
Robert Rice. Mr. Rice became a director of the Managing General
Partner in 1990. He is an independent investor. Mr. Rice serves as
Chairman of the Audit and Conflicts Committee and as a member of the
Compensation Committee of the Board of Directors of the Managing
General Partner.
Craig Sincock. Mr. Sincock became a director of the Managing
General Partner in February, 1994. He is President and a director of
Avfuel Corporation, a privately held corporation and independent
supplier of aviation fuel headquartered in Ann Arbor, Michigan. He
has been associated with Avfuel Corporation since the early 1980's and
is an active real estate investor. Mr. Sincock serves as a member of
the Audit and Conflicts Committee of the Board of Directors of the
Managing General Partner.
Dave Caddell. Mr. Caddell is Vice President and General Counsel.
He practiced general corporate law as a sole practitioner from
November 1992 to March 1994. Previously, he served as Vice President
and General Counsel of the Predecessor Companies and the Partnership
from 1985 to October 1992.
George Percival. Mr. Percival, a Certified Public Accountant,
came to the Partnership in June 1990, and has served as Chief
Financial Officer since August of 1994. Prior to joining the
Partnership, he was with Computer Language Research (d.b.a. Fast-Tax),
where he had been the Senior Tax Manager since 1987. Prior to that he
was employed by the accounting firms of Coopers & Lybrand (1984 to
1987), and Fox and Company (1981 to 1984).
During 2001, two officers of the Managing General Partner did not
file on a timely basis all reports required pursuant to Section 16(a)
of the Securities Exchange Act of 1934. Mr. Stephens filed Form 4 for
October of 2001 4 days late and Schedule 13G for the transaction that
occurred on January 16, 2001 17 days late. Mr. Malone filed Form 4
for March of 2001 and October of 2001 49 days late and 1 day late,
respectively, and Schedule 13G for the transaction that occurred on
January 16, 2001 21 days late.
Item 11. Executive Compensation
(a) Compensation of the General Partners. In respect of their
general partner interests in the Partnership, the General Partners are
allocated an aggregate of 2% of the income, gains, losses and
deductions arising from the Partnership's operations and receive an
aggregate of 2% of any distributions. For the year ended December 31,
2001, the General Partners did not receive any distributions in
respect of their 2% general partner interest in the Partnership. The
compensation set forth below under Officers' Compensation is in
addition to any 2% distribution to the General Partners. The General
Partners are not required to make any contributions to the capital of
the Partnership, beyond those made upon formation of the Partnership,
to maintain such 2% interest in allocations and distributions of the
Partnership. The General Partners do not receive, as general partners
of the Partnership, any compensation other than amounts attributable
to their 2% general partner interest in the Partnership.
Additionally, the Special General Partner is allocated a portion of
the income, gains, losses and deductions arising from the
Partnership's operations in respect of its Common Units. The Managing
General Partner did receive a $300,000 bonus related to the Crude
Gathering Sale in 1999 and a $1,989,000 bonus from the DESC Proceeds
in 2000 (See "Item 3. Legal Proceedings" and "Benefit Plans").
For the year ended December 31, 2001, the Special General Partner
did not receive any distributions in respect of the G Preferred Units.
The Partnership reimburses the General Partners for all their direct
and indirect costs (including general and administrative costs)
allocable to the Partnership. See "Item 13. Certain Relationships and
Related Transactions."
(b) Summary Officers' Compensation Table. The following table
sets forth certain compensation paid during fiscal 2001, 2000 and 1999
by the Partnership to the executive officers of the Managing General
Partner:
(The following table should be printed on 11" x 8.5" paper)
SUMMARY COMPENSATION TABLE
All Other
Year Salary Bonus Compensation
---- -------- ---------- ------------
Brad Stephens 2001 $225,000 $ 0 $ 27,300
Chief Executive Officer 2000 225,000 2,218,400 35,700
1999 225,000 127,900 26,900
D. Wayne Malone 2001 225,000 0 27,600
Chief Operating Officer 2000 225,000 2,218,400 35,900
1999 225,000 127,900 26,900
Dave Caddell 2001 165,000 0 26,900
Vice President/General 2000 165,000 1,293,200 31,900
Counsel 1999 165,000 67,900 26,700
George Percival 2001 115,000 0 4,600
Chief Financial Officer 2000 115,000 686,600 8,000
1999 115,000 40,000 4,600
In this column is the Partnership's contribution to the Section 401(k) Plan for each officer,
reimbursement of income taxes on certain perquisites and directors and advisor fees for Messrs.
Stephens, Malone and Caddell. See "Benefit Plans - Section 401(k) Plan" and "Compensation of
Directors" below.
In connection with the Crude Gathering Sale, the Managing General Partner was paid a $300,000
bonus. Subsequently, the Managing General Partner paid Messrs. Caddell and Percival a bonus in
the amount of $18,700 and $30,000, respectively, and a cash distribution to Messrs. Corcoran,
Stephens, Malone and Caddell in the amount of $16,300, $97,900, $97,900 and $39,200,
respectively. Messrs. Stephens, Malone, Caddell and Percival also received a bonus of $30,000,
$30,000, $10,000 and $10,000, respectively, in February 2000, which was accrued as of December
31, 1999, related to meeting certain expense reduction goals.
Under the management bonus plan, which bases such bonuses on cash flow of the Partnership
including litigation proceeds, Messrs. Stephens, Malone, Caddell and Percival and the Managing
General Partner were paid bonuses of $1,716,800, $1,716,800, $981,100, $490,500 and $1,989,600,
respectively, during the year ended December 31, 2000 (see "Benefit Plans"). The Partnership
also paid payroll taxes of $71,600 on such bonuses. The total bonus paid by the Partnership
including taxes was $6,967,000. Subsequently, the Managing General Partner paid Messrs.
Stephens, Malone, Caddell and Percival bonuses in the amount of $97,300, $97,300, $150,400 and
$196,100 respectively, plus payroll taxes of $7,800 also in the year ended December 31, 2000.
The Managing General Partner also paid a cash distribution to Messrs. Corcoran, Stephens,
Malone and Caddell in the amount of $67,400, $404,300, $404,300 and $161,700, respectively. In
May 2001, Messrs. Stephens, Malone, Caddell and Percival repaid $6,900, $6,900, $4,000 and
$2,000 of the bonus paid in 2000 since the actual cash flow used in computing the bonuses was
slightly lower than the original estimate the Partnership used for cash flow at the time the
bonuses were paid.
(c) Benefit Plans. In order to attract, retain and motivate
officers and other employees who provide administrative and managerial
services, the Partnership provides incentives for key executives
employed by the Partnership through an Annual Incentive Plan. The
Annual Incentive Plan was originally proposed in 1996 by the
Compensation Committee, which is comprised of outside directors, and
was approved by the Board in 1996. The Plan now provides for certain
key executives to share in a bonus pool which varies in size with the
Partnership's operating income plus depreciation, calculated after
bonus accrual, after payments under the Partnership's unit
appreciation plan, and after proceeds of litigation, to the extent not
otherwise included in operating income ("Cash Flow"). Provided that
Cash Flow exceeds $2 million, the key executive bonus pool includes 8%
of an amount equal to the Partnership's first $2 million of Cash Flow
in excess of $2 million, plus 12% of the next $4 million of Cash Flow,
plus 15% of any Cash Flow in excess of $8 million. The Partnership
paid Bonuses of $6,967,000 under this plan for the year ended December
31, 2000.
Unit Appreciation Rights. During 1996, the Partnership
implemented a Unit Appreciation Rights Plan for officers and key
employees. Under the plan, individual employees can be granted UARs
whereby a holder of the UARs is entitled to receive in cash or in
Common Units the increase, if any, between the exercise price, as
determined by the board of directors of the Managing General Partner
at the date of grant, and the fair market value on the exercise date.
The employees awarded and the number of UARs awarded to the employees
are subject to the discretion of the board of directors of the
Managing General Partner. The term of all awards is ten years from
the grant date. It is anticipated that UARs aggregating approximately
10% of the total Common Units will be reserved for issuance to key
employees. However, no Common Units are expected to be issued under
this plan.
On December 9, 1996, four officers and twelve employees were
awarded a total of 292,760 UARs at an exercise price of $3.75 per
unit. Because the fair market value of the UARs did not exceed the
exercise price at December 9, 1996, no compensation expense was
accrued. Effective December 31, 1997, the number of UARs was
increased to 299,996, reallocated among four officers and eleven
employees, and the exercise price was reduced to $1.94 per unit. The
UARs of the eleven employees were terminated in 1999, 2000 and 2001
thus reducing the total outstanding UARs to the officers and employees
to 160,000 at December 31, 2001. A one-time award of 70,000 UARs was
made in 1996 to five non-employee directors at an exercise price of
$3.75 which were fully vested on December 31, 1997. Effective
December 31, 1997, the exercise price was amended and reduced to $1.94
per unit. The UARs were fully vested on December 31, 1998; however,
none have been exercised as of December 31, 2001.
Section 401(k) Plan. The Pride Employees' 401(k) Retirement Plan
and Trust ("Plan") is a defined contribution plan covering
substantially all full-time employees. Under the Plan, the
Partnership must make a mandatory contribution each year equal to 3%
of a participant's compensation and may make discretionary matching
contributions of up to an additional 3% of a participant's
compensation depending on the Partnership's cash flow for such year.
The participant's contribution to the plan may not exceed the
limitation as outlined under Internal Revenue Code Section 402(g).
Beginning January 1, 2002, contributions will vest over a six year
period (prior to January 1, 2002, contributions vested over a seven
year period), subject to immediate vesting upon retirement. The
Summary Compensation Table above includes amounts contributed to the
plan by the Partnership on behalf of the four most highly compensated
executive officers in the column titled "All Other Compensation."
The Partnership also has in effect, for the benefit of its
employees, a Long-term Disability Plan, a Safety Incentive Plan,
Accidental Death and Dismemberment Insurance, Life Insurance, Group
Hospitalization Insurance, Dental Plan, Cancer Plan, Medical
Reimbursement Plan and Dependent Care Plan.
(d) Compensation of Directors. The Chairman of the Managing
General Partner receives an annual retainer of $42,000, $2,000 for
each board meeting attended and is reimbursed for travel and lodging
expenses incurred to attend board meetings. Members of the board of
directors of the Managing General Partner receive an annual retainer
of $12,000, $2,000 for each board meeting attended and are reimbursed
for travel and lodging expenses incurred to attend board meetings.
Dave Caddell, an advisor to the Board of Directors of the Managing
General Partner, receives an annual retainer of $12,000, $2,000 for
each board meeting attended and is reimbursed for travel and lodging
expenses to attend board meetings. Directors have also received UARs
as discussed under Benefit Plans.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a) Security Ownership of Certain Beneficial Owners as of February 28,
2002.
The following table sets forth certain information with respect
to each person known by the Partnership to own beneficially 5% or more
of the Common Units as of February 28, 2002.
Percent
of
Title of Class Name and Address Amount Class
______________ ________________ ______ _______
Common Units Brad Stephens 563,554 11.4%
1209 North Fourth Street
Abilene, TX 79601
Common Units Wayne Malone 376,135 7.6%
1209 North Fourth Street
Abilene, TX 79601
Common Units Pride SGP, Inc. 250,000 5.1%
1209 North Fourth Street
Abilene, TX 79601
The percentages for Messrs. Stephens and Malone represent the
securities they hold directly. In addition, they have an interest in
the Common Units held by Pride SGP (see "Item 13. Certain
Relationships and Related Transactions").
<\FN>
b) Security Ownership of Management
The following table sets forth certain information, as of
February 28, 2002, concerning the beneficial ownership of Common Units
by each director and officer of the Managing General Partner and by
all directors and officers of the Managing General Partner as a group.
The table does not reflect the various securities assigned to
Management by Varde effective December 31, 1997 or the loan made by
Management during the year ended December 31, 2000 (see "Item 13.
Certain Relationships and Related Transactions").
Percentage of
Name Number of Common Units Class
- ---- ---------------------- -------------
E. Peter Corcoran - -
Brad Stephens 563,554 11.4%
D. Wayne Malone 376,135 7.6%
Douglas Y. Bech 300
Clark Johnson - -
Robert Rice - -
Craig Sincock - -
Dave Caddell 186,000 3.8%
George Percival 93,000 1.9%
--------- -----
All directors and
officers as a group
(9 persons) 1,218,989 24.7%
========= =====
Unless otherwise indicated, the persons named above have sole voting
and investment power over the Common Units reported.
This director of the Managing General Partner owned beneficially, as
of February 28, 2002, less than 1% of the Common Units outstanding on
such date.
<\FN>
Item 13. Certain Relationships and Related Transactions
The Partnership is managed by the Managing General Partner
pursuant to the Partnership Agreement. See "Items 1. and 2. Business
and Properties - General" and "Item 11. Executive Compensation -
Compensation of the General Partners" for certain information related
to compensation and reimbursement of the General Partners. As of
December 31, 2001, the Special General Partner was beneficially owned
approximately 18% by Mr. Schumacher (a past officer and director of
the Managing General Partner), 10% by Mr. Malone, 7% by Mr. Stephens,
5% by Mr. T.M. Broyles (a past officer of the Managing General
Partner), 2% by Mr. Caddell, 46% by trusts established for the
relatives of certain deceased members of management and 12% by
relatives of certain deceased members of management. As part of the
Pride SGP Settlement Agreement, the Partnership redeemed G Preferred
Units with a stated value of $2,526,000 from the Departing
Shareholders of Pride SGP on April 3, 2002. Pride SGP had distributed
the G Preferred Units to the Departing Shareholders in exchange for
their stock in Pride SGP. As a result, Messrs. Malone, Stephens and
Caddell now own 47%, 41% and 12%, respectively, of Pride SGP (see
"Item 3. Legal Proceedings" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Financial Resources and Liquidity"). The Managing General
Partner is beneficially owned approximately 39% by Mr. Malone, 39% by
Mr. Stephens, 16% by Mr. Caddell, and 6% by Mr. Corcoran.
Prior to the Crude Gathering Sale, the Partnership had an
agreement with Pride SGP to lease defined segments of the Crude
Gathering System. As consideration for this lease, the Partnership
agreed to perform all routine and emergency maintenance and repair
operations to the pipelines. The value of such services was
approximately $300,000 annually. In addition, the Partnership paid
the taxes, insurance, and other costs. Rentals accruing to Pride SGP
from the Partnership for the year ended December 31, 1999 totaled
$300,000 for the lease of the pipeline and are included in income from
discontinued operations in the statements of operations. For certain
periods between August 1995 and December 1997, payments to Pride SGP
were suspended pursuant to the terms of an amendment to the then
existing credit agreement. Beginning January 1, 1999, rental payments
to Pride SGP were suspended again. The lease agreement with Pride SGP
was not entered into on an arm's-length basis. While Management was
not able to determine whether the terms of the lease were comparable
to those which could have been obtained by unaffiliated parties,
Management believed such terms were fair and reasonable given the
importance to the Partnership of the Hearne to Comyn pipeline segment
which enabled the Partnership to gather and transport a greater supply
of high quality crude oil for sale to other refiners.
Pride SGP made two unsecured loans to the Partnership on March
26, 1993 and September 7, 1995 in the aggregate principal amount of
$2,450,000 and required the Partnership to pay interest only during
the term of such loans. The loans were used to fund working capital.
Beginning the latter part of 1995, the Partnership ceased interest
payments on the loans to Pride SGP in accordance with an amendment to
the then existing credit agreement. On December 31, 1997, the two
unsecured loans were converted into the E Preferred Units of
$2,000,000 and the F Preferred Units of $450,000 (see "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Financial Resources and
Liquidity").
In connection with the Crude Gathering Sale on October 1, 1999,
Pride SGP exchanged (a) the pipeline mentioned above, (b) interest
payable to Pride SGP from the Partnership of $548,000, (c) rentals
payable to Pride SGP from the Partnership of $2,146,000, (d) the E
Preferred Units with a stated value of $2,000,000 held by Pride SGP,
and (e) the F Preferred Units with a stated value of $450,000 held by
Pride SGP for (y) $2,000,000 in cash and (z) the G Preferred Units
with a stated value of $3,144,000 (see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Financial Resources and
Liquidity").
The Partnership utilizes an airplane from time to time, as
needed, on a per hour market rate basis from an entity controlled by
two officers of the Managing General Partner. Payments to this entity
totaled $66,000, $79,000 and $70,000 during 2001, 2000 and 1999,
respectively.
The Partnership leases property from a relative of one of the
officers of the Managing General Partner. Lease payments were
approximately $42,000, $41,000 and $40,000 in 2001, 2000 and 1999,
respectively.
The Managing General Partner has a 1.9% interest in the income
and cash distributions of the Partnership, subject to certain
adjustments. Members of management of the Managing General Partner
were, until September 20, 2001, also members of the management of
Pride SGP, which has a 0.1% general partner interest, $3,144,000 in G
Preferred Units prior to April 3, 2002 ($514,000 in G Preferred Units
as of April 3, 2002), and a 4.9% limited partner interest in the
Partnership (see "Items 1. and 2. Business and Properties - General").
As a result of the Pride SGP Settlement Agreement, members of
management of the Managing General Partner will eventually take over
management of Pride SGP. Compensation of directors and officers of
the Managing General Partner and any other expenses incurred on behalf
of the Partnership by the Managing General Partner and Pride SGP are
paid by the Partnership.
As a result of the temporary restraining order imposed by the New
York Court on September 7, 2000, Management agreed to extend the
Management Revolver of $4,200,000 from the Bonuses paid to Management
as a result of the successful litigation of the DESC Claim (see "Item
3. Legal Proceedings" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial
Condition - Financial Resources and Liquidity"). The note was
executed September 18, 2000. During the third and fourth quarters of
2000, Management made advances under this facility. Although the note
accrued interest at prime plus 1.75%, Management waived such interest
for the period it was outstanding. The facility was subsequently
cancelled.
On December 1, 2000, the Managing General Partner of the
Partnership exercised a call option and purchased 930,000 Common Units
of the Partnership for $251,000. The Managing General Partner of the
Partnership paid $150,000 on July 25, 2000 to J-Hawk Corporation for
the call option. In January, 2001, the Managing General Partner sold
95,000 of those Common Units to certain members of Management and
distributed the remaining 835,000 Common Units it held to its
shareholders.
The Common Units underlying the call option were acquired by J-
Hawk Corporation in a separate transaction that also closed on July
25, 2000. The Managing General Partner was paid a $50,000 finder's
fee by the Seller.
Effective December 31, 1997, Management invested an aggregate of
$2,000,000 in the form of a note payable to Varde and received a one-
third economic non-directive interest in the following: (i) $6,000,000
of the B Term Loan, (ii) C Term Loan, (iii) Subordinate Note A, (iv) B
Preferred Units, (v) C Preferred Units and (vi) D Preferred Units.
The note payable to Varde was secured by Management's interest in such
securities. Any current cash yield on Management's share of such
securities was payable to Varde as interest, net of applicable federal
income tax. On January 22, 2002, Management received $11,500,000 in
New Redeemable Preferred Equity for its one-third interest in the
Remaining Debt and Redeemable Preferred Equity (see "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity").
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP Settlement Agreement with
Pride SGP and the Departing Shareholders of Pride SGP (see below).
Under the Pride SGP Settlement Agreement, the Partnership agreed to
redeem $2,630,000 of the $3,144,000 G Preferred Units held by Pride
SGP and the Departing Shareholders of Pride SGP for $1,275,000
($2,526,000 of the G Preferred Units were subsequently distributed by
Pride SGP to the Departing Shareholders of Pride SGP in exchange for
their interest in Pride SGP and were redeemed by the Partnership from
the Departing Shareholders for $1,225,000) (see "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity"). On March 18, 2002, the
Partnership redeemed $104,000 of the G Preferred Units held by Pride
SGP for $50,000. On April 3, 2002, the Partnership redeemed
$2,526,000 of the G Preferred Units from the Departing Shareholders
for $500,000 and a non-interest bearing payable of $725,000 due on
September 30, 2002.
The Partnership purchased an aircraft for $1,817,000 in March of
2002. In order to conserve working capital, the Partnership plans to
sell the aircraft to the owners of the Managing General Partner and
the Chief Financial Officer at the same price and then lease it back
at a monthly rental of $18,000 over a term of seven years. In
addition, the Partnership will be responsible for taxes, insurance and
maintenance and any other expenses of the aircraft during the lease
term. At the end of seven years, the Partnership will have the option
to continue leasing the aircraft or purchasing it for $1,300,000. The
planned sale and lease is expected to be completed in April 2002.
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 Common Unitholders and, consequently, must
exercise good faith and integrity in handling the assets and affairs
of the Partnership.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements and (2) Financial Statement
Schedules: See Index to Financial Statements after the signatures
pages for financial statements filed as a part of this Report.
(3) Exhibits: See Index to Exhibits after the Financial
Statement for a description of the exhibits filed as a part of this
Report.
(b) Reports on Form 8-K filed during the quarter ended
December 31, 2001:
None
All schedules are omitted because they are not applicable or the
required information is shown elsewhere in this report.
SIGNATURES
Pride Companies, L.P., pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, 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 Managing General Partner
By: /s/Brad Stephens
Chief Executive Officer, Treasurer, and Director
DATED: April 15, 2002
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brad Stephens and D. Wayne
Malone and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign
any or all amendments in connection herewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report and power of attorney has been signed below by the
following persons on behalf of the Partnership and in the capacities
and on the date indicated.
PRIDE REFINING, INC.
Signature Title Date
_________ _____ ____
/s/E. Peter Corcoran Chairman and Director April 15, 2002
/s/Brad Stephens Chief Executive Officer, April 15, 2002
Treasurer, and Director
/s/D. Wayne Malone President, Chief Operating April 15, 2002
Officer, and Director
/s/Douglas Y. Bech Director April 15, 2002
/s/Clark Johnson Director April 15, 2002
/s/Robert Rice Director April 15, 2002
/s/Craig Sincock Director April 15, 2002
/s/Dave Caddell Vice President and April 15, 2002
General Counsel
/s/George Percival Chief Financial Officer April 15, 2002
(Principal Financial Officer
and Accounting Officer)
INDEX TO FINANCIAL STATEMENTS
Report of Davis, Kinard & Co., P.C., Independent Auditors
Balance Sheets at December 31, 2001 and 2000
Statements of Operations for the years ended
December 31, 2001, 2000 and 1999
Statements of Changes in Partners' Capital (Deficiency)
for the years ended December 31, 2001, 2000 and 1999
Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to Financial Statements
INDEPENDENT AUDITORS REPORT
The Board of Directors of the
Managing General Partner
We have audited the accompanying balance sheet of Pride Companies,
L.P. (the "Partnership") as of December 31, 2001 and 2000, and the
related statements of operations, changes in partners' capital
(deficiency), and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
Pride Companies, L.P. as of December 31, 1999 were audited by other
auditors whose opinion, dated February 11, 2000, on those statements
included an explanatory paragraph that described a going concern
uncertainty discussed in Note 1 to the financial statements.
We conducted our audits in accordance with U.S. generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pride
Companies, L.P. as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for the years then ended in
conformity with U.S. generally accepted accounting principles.
DAVIS, KINARD & CO., P.C.
Abilene, Texas
February 11, 2002
BALANCE SHEETS
PRIDE COMPANIES, L.P.
(DEBTOR-IN-POSSESSION)
At December 31, 2001 and 2000
(In thousands, except unit amounts)
2001 2000
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents--Note 2 $ 13,294 $ 6,178
Restricted cash--Note 2 909 17,634
Accounts receivable, less allowance
for doubtful accounts of $315 and
$227 for 2001 and 2000, respectively
--Note 6 14,464 12,005
Inventories--Note 2 963 107
Prepaid expenses 364 500
-------- --------
TOTAL CURRENT ASSETS 29,994 36,424
PROPERTY, PLANT AND EQUIPMENT, net--Note 3 13,963 15,301
ASSETS NO LONGER USED IN THE
BUSINESS--Note 3 4,235 4,235
OTHER ASSETS 105 109
-------- --------
$ 48,297 $ 56,069
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current liabilities not subject
to compromise:
Accounts payable $ 1,619 $ 1,371
Accrued payroll and related
benefits 250 150
Accrued taxes 2,534 1,982
Other accrued liabilities 687 1,845
Net current liabilities of
discontinued operations--Note 11 - 942
Current portion of long-term debt--Note 4 2,055 9,359
-------- --------
Subtotal 7,145 15,649
Current liabilities subject to
compromise--Note 12 8,568 -
-------- --------
TOTAL CURRENT LIABILITIES 15,713 15,649
LONG-TERM DEBT--Note 4 - -
LONG-TERM LIABILITIES SUBJECT TO
COMPROMISE--Note 12 15,680 -
NET LONG-TERM LIABILITIES OF
DISCONTINUED OPERATIONS--Note 11 - 8,446
COMMITMENTS AND CONTINGENCIES--Note 5
REDEEMABLE PREFERRED EQUITY--Note 8 5,693 17,079
PARTNERS' CAPITAL
Preferred Units to the Special
General Partner (3,145 and 3,145, units
authorized and 3,144 and 3,144, units
outstanding at December 31, 2001 and
2000, respectively)--Notes 5, 7, 9
and 13 3,144 3,144
Common Units (5,275,000 units
authorized and 4,950,000 units
outstanding)--Notes 5 and 9 8,374 11,984
General partners' interest (307) (233)
-------- --------
$ 48,297 $ 56,069
======== ========
See accompanying notes.
STATEMENTS OF OPERATIONS
PRIDE COMPANIES, L.P.
(DEBTOR-IN-POSSESSION)
Years ended December 31, 2001, 2000 and 1999
(In thousands, except per unit amounts)
2001 2000 1999
-------- -------- --------
Revenues:
Refinery and Products Marketing
Business--Note 6 $ 236,510 $ 234,929 $ 130,604
Net DESC proceeds--Note 5 - 36,257 -
Cost of sales and operating expenses,
excluding depreciation--Note 7 229,280 230,144 126,424
Marketing, general and administrative
expenses--Note 7 3,434 3,406 3,700
Depreciation 1,444 1,467 1,496
--------- --------- ---------
OPERATING INCOME (LOSS) 2,352 36,169 (1,016)
Other income (expense):
Interest income 944 1,062 441
Net interest income from DESC--Note 5 - 12,389 -
Interest expense (including interest
paid in kind of $134, $1,673 and
$2,691 and increasing rate
accrued interest of $0, ($1,345),
and $315 in 2001, 2000 and
1999, respectively) 222 (1,244) (5,095)
Credit and loan fees (including
amortization and write-off of
$0, $3,546 and $1,761 and credit
and loan fees paid in kind of
$0, $0 and $100 in 2001, 2000
and 1999, respectively) (907) (4,921) (2,080)
Other - net 103 (46) 64
--------- --------- ---------
362 7,240 (6,670)
--------- --------- ---------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE REORGANIZATION
ITEMS 2,714 43,409 (7,686)
Reorganization items--Note 12:
Professional fees and administrative
expenses 1,111 - -
Premium on retirement of Debt and
Redeemable Preferred Equity 183 - -
--------- --------- ---------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS 1,420 43,409 (7,686)
Discontinued operations:
Income from operations of the
Crude Gathering System prior
to August 1, 1999 - - 269
Loss on disposal - - (251)
--------- --------- ---------
NET INCOME (LOSS) $ 1,420 $ 43,409 $ (7,668)
========= ========= =========
Basic net income (loss) per Common Unit:
Net income (loss) from continuing
operations $ (0.27) $ 8.26 $ (1.89)
Net income from discontinued
operations - - -
--------- --------- ---------
Basic net income (loss) $ (0.27) $ 8.26 $ (1.89)
========= ========= =========
Diluted net income (loss) per Common Unit:
Net income (loss) from continuing
operations $ (0.27) $ 5.82 $ (1.89)
Net income from discontinued
operations - - -
--------- --------- ---------
Diluted net income (loss) $ (0.27) $ 5.82 $ (1.89)
========= ========= =========
Numerator for basic net income (loss)
per Common Unit:
Net income (loss) from continuing
operations $ 1,420 $ 43,409 $ (7,686)
Preferred distributions (2,806) (1,683) (1,854)
--------- --------- ---------
Net income (loss) from continuing
operations less preferred
distributions (1,386) 41,726 (9,540)
Net income (loss) from continuing
operations allocable to 2%
general partner interest (28) 835 (191)
--------- --------- ---------
Numerator for basic net income (loss)
per Common Unit from continuing
operations $ (1,358) $ 40,891 $ (9,349)
========= ========= =========
Net income from discontinued
operations $ - $ - $ 18
Net income from discontinued
operations allocable to 2%
general partner interest - - -
--------- --------- ---------
Numerator for basic net income
per Common Unit from discontinued
operations $ - $ - $ 18
========= ========= =========
Numerator for basic net income (loss)
per Common Unit $ (1,358) $ 40,891 $ (9,331)
========= ========= =========
Numerator for diluted net income (loss)
per Common Unit:
Net income (loss) from continuing
operations $ 1,420 $ 43,409 $ (7,686)
Preferred distributions (2,806) (1,683) (1,854)
Adjustments to compute diluted
net income (loss):
Subordinate Note A interest
expense - 186 -
B Preferred Unit distributions - 795 -
C Preferred Unit distributions - 427 -
--------- --------- ---------
Net income (loss) from continuing
operations less preferred
distributions (1,386) 43,134 (9,540)
Net income (loss) from continuing
operations allocable to 2%
general partner interest (28) 863 (191)
--------- --------- ---------
Numerator for diluted net income
(loss) per Common Unit from
continuing operations $ (1,358) $ 42,271 $ (9,349)
========= ========= =========
Net income from discontinued
operations $ - $ - $ 18
Net income from discontinued
operations allocable to 2%
general partner interest - - -
--------- --------- ---------
Numerator for diluted net
income per Common Unit from
discontinued operations $ - $ - $ 18
========= ========= =========
Numerator for diluted net income
(loss) per Common Unit $ (1,358) $ 42,271 $ (9,331)
========= ========= =========
Denominator:
Denominator for basic net income
(loss) per Common Unit 4,950 4,950 4,950
========= ========= =========
Adjustments to denominator for
convertible debt and convertible
preferred equity securities:
Subordinate Note A - 292 -
B Preferred Units - 1,315 -
C Preferred Units - 705 -
--------- --------- ---------
Total adjustments - 2,312 -
--------- --------- ---------
Denominator for diluted net income
(loss) per Common Unit 4,950 7,262 4,950
========= ========= =========
See accompanying notes.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
PRIDE COMPANIES, L.P.
(DEBTOR-IN-POSSESSION)
Years ended December 31, 2001, 2000 and 1999
(In thousands)
General
Preferred Common Partners'
Units Units Interest Total
--------- --------- --------- ---------
Balance at December 31, 1998 $ - $ (23,042) $ (948) $ (23,990)
Issuance of Preferred Units
--Notes 7 and 9 3,144 - - 3,144
Net loss - (7,515) (153) (7,668)
--------- --------- --------- ---------
Balance at December 31, 1999 3,144 (30,557) (1,101) (28,514)
Net income - 42,541 868 43,409
--------- --------- --------- ---------
Balance at December 31, 2000 3,144 11,984 (233) 14,895
Net income - 1,392 28 1,420
Distributions on Redeemable
Preferred Equity - (5,002) (102) (5,104)
--------- --------- --------- ---------
Balance at December 31, 2001 $ 3,144 $ 8,374 $ (307) $ 11,211
========= ========= ========= =========
See accompanying notes.
STATEMENTS OF CASH FLOWS
PRIDE COMPANIES, L.P.
(DEBTOR-IN-POSSESSION)
Years ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before
reorganization items $ 2,714 $ 43,409 $ (7,668)
Reorganization items (1,111) - -
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 1,444 1,467 2,992
Amortization and write-off
of loan costs - 3,546 1,761
Deferred tax benefit - - (98)
(Gain) loss on sale of property,
plant and equipment (32) (49) 93
(Gain) on disposal of
discontinued operations - - (1,226)
Paid in kind interest and
credit and loan fees 134 1,673 2,791
Increasing rate accrued interest - (1,345) 315
Lower of cost or market adjustment - - (1,197)
Net effect of changes in:
Restricted cash 16,725 (17,399) 418
Accounts receivable (2,459) (5,229) 3,276
Inventories (856) 73 2,228
Prepaid expenses 136 (342) 546
Accounts payable and other
long-term liabilities 1,736 (16,989) 2,737
Accrued liabilities 717 (378) (929)
-------- -------- --------
Total adjustments 17,545 (34,972) 13,707
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 19,148 8,437 6,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (106) (202) (1,245)
Proceeds from asset disposals 32 104 391
Transaction with the Special
General Partner - - (2,000)
Transaction and exit costs related
to sale of discontinued operations - - (2,040)
Proceeds from sale of
discontinued operations - - 29,595
Other 42 (66) 23
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (32) (164) 24,724
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit
facilities - 2,014 17,025
Payments on debt and credit
facilities (6,327) (20,127) (33,779)
Redemption of Redeemable Preferred
Equity (4,023) - -
Distributions paid on Redeemable
Preferred Equity (1,650) - -
-------- -------- --------
NET CASH (USED IN)
FINANCING ACTIVITIES (12,000) (18,113) (16,754)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,116 (9,840) 14,009
Cash and cash equivalents at
beginning of the period 6,178 16,018 2,009
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 13,294 $ 6,178 $ 16,018
======== ======== ========
See accompanying notes.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS
Organization and Nature of Operations: 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
operated three products terminals located in Abilene, Texas (the
"Abilene Terminal "); San Angelo, Texas (the "San Angelo Terminal");
and Aledo, Texas (the "Aledo Terminal") (collectively the "Products
Terminals") and one common carrier products pipeline system that
transports refined products from the Abilene Terminal to the San
Angelo Terminal (the "San Angelo Pipeline") that are used to market
conventional gasoline, low sulfur diesel fuel, and military aviation
fuel (the "Products Marketing Business"). In April 1998, the
Partnership began purchasing those refined products from Equilon
Enterprises Company LLC which is now doing business as Shell Oil
Products U. S. ("Shell") pursuant to the agreement (the "Shell
Agreement") to market through its Products Terminals and the San
Angelo Pipeline. The Partnership's operations are conducted primarily
in the State of Texas.
Prior to April 1998, the Partnership operated a simplex petroleum
refinery facility in Abilene, Texas (the "Refinery") and produced its
own refined products. The Refinery was idled when the Partnership
began purchasing its refined products requirements from Shell. At the
same time, the Partnership idled a pipeline which transported refined
product from the Abilene Terminal to the Aledo Terminal (the "Aledo
Pipeline"). On January 18, 2002, the Partnership sold both the
remaining Refinery equipment and Aledo Pipeline to Alon USA Refining,
Inc. ("Alon") for $5,400,000.
Prior to October 1, 1999, the Partnership also owned and operated
a crude oil gathering business that gathered, transported, resold and
redelivered crude oil in the Texas market (the "Crude Gathering
System"). On October 1, 1999, the Partnership sold the operating
assets utilized by the Crude Gathering System to Sun Pipe Line
Services, Inc. ("Sun") for $29,595,000 in cash proceeds and the
assumption by Sun of certain indebtedness in the amount of $5,334,000
(the "Crude Gathering Sale"). Certain liabilities associated with the
Crude Gathering System were retained and have been presented in
discontinued operations and in liabilities subject to compromise at
December 31, 2000 and 2001, respectively (see Note 11).
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. The Partnership
succeeded in January 1990 to the businesses of Pride SGP, Inc.
("Special General Partner" or "Pride SGP") which owns a 0.1% general
partner interest in and serves as the special general partner of the
Partnership. The Managing General Partner and Pride SGP (collectively
the "General Partners") collectively own a 2% general partner
interest. In addition to its general partner interest, Pride SGP
owned, the G Preferred Units of the Partnership with a stated value of
$3,144,000, as of December 31, 2001, (see below and Notes 9 and 13 for
subsequent events) and a 4.9% interest in the Partnership through
ownership of common limited partner units ("Common Units").
Subsequent to December 31, 2001, Pride SGP distributed G Preferred
Units with a stated value of $2,526,000 to the Departing Shareholders
of Pride SGP in exchange for their interest in Pride SGP (see Note
13). After the redemption by the Partnership of G Preferred Units
with a stated value of $104,000 and $2,630,000 owned by Pride SGP and
the Departing Shareholders of Pride SGP, respectively, Pride SGP owns
$514,000 of G Preferred Units as of April 3, 2002. Management, which
is comprised of the officers of the Managing General Partner (the
"Management"), collectively own a 24.1% interest as of February 28,
2002 in the Partnership through their ownership of Common Units.
Public ownership represented by the remaining Common Units is 69.0%.
An owner of Common Units is referred to herein as a common unitholder
("Common Unitholder"). In accordance with the Third Amended and
Restated Agreement of Limited Partnership of Pride Companies, L.P.
(the "Partnership Agreement"), the Managing General Partner conducts,
directs and exercises control over substantially all of the activities
of the Partnership. The Partnership has no directors or officers;
however, directors and officers of the Managing General Partner are
employed by the Partnership to function in this capacity.
The financial statements of the Partnership include all of its
wholly owned subsidiaries. All significant intercompany transactions
have been eliminated.
Going Concern and Operating Environment: Certain key events beginning
in 1997 are key to evaluating the Partnership's current operating
environment.
1997 Restructuring and Recapitalization: Effective December 31, 1997,
Varde Partners, Inc. ("Varde") purchased and assumed the then existing
lenders' rights and obligations under the Partnership's outstanding
bank debt ("Prior 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 on
December 31, 1997. Pride SGP converted two notes into redeemable
preferred equity securities (see below and Notes 7 and 8). The
Partnership incurred costs of $60,000 and $6,570,000 in 1998 and 1997,
respectively (including $3,257,000 in noncash fees in 1997), related
to the restructuring and recapitalization, which were included in
deferred financing costs. During 2000 and 1999, the Partnership
expensed $3,546,000 (of which $990,000 was amortization of deferred
financing costs and $2,556,000 of deferred financing costs were
written off as a result of retiring or tendering payment on Varde's
debt) and $1,761,000 (all of which was amortization of the deferred
financing costs), respectively, related to the restructuring and
recapitalization.
In addition to the assumption by Varde of the Prior Bank Debt,
Varde loaned the Partnership an additional $4,693,000 for working
capital purposes, including fees and costs associated with the
restructuring and recapitalization. After completion of the
restructuring and recapitalization, Varde held the following
securities, in order of seniority:
(i) Series A Term Loan ("A Term Loan") maturing December 31,
2002 in the original amount of $20,000,000;
(ii) Series B Term Loan ("B Term Loan") maturing December 31,
2002 in the original amount of $9,500,000;
(iii) Series C Term Loan ("C Term Loan") maturing December 31,
2002 in the original amount of $4,689,000;
(iv) Series A Unsecured Loan ("Subordinate Note A") in the
original amount of $2,500,000 maturing December 31, 2002;
(v) Series B Cumulative Convertible Preferred Units ("B
Preferred Units") in the amount of $9,322,000, which were
subject to mandatory redemption at December 31, 2002;
(vi) Series C Cumulative Convertible Preferred Units ("C
Preferred Units") in the amount of $5,000,000, which were
subject to mandatory redemption at December 31, 2002, and
(vii) Series D Cumulative Preferred Units ("D Preferred Units")
in the amount of $2,757,000 which were subject to
mandatory redemption at December 31, 2002.
The A Term Loan, B Term Loan, C Term Loan and Subordinate Note A
are collectively referred to as the debt ("Debt") (see Note 4). The
balance of the C Term Loan and Subordinate Note A after application of
the Payments to the Debt in July of 2000 is collectively referred to
as the remaining debt (the "Remaining Debt") (see Note 4).
The B Preferred Units, C Preferred Units and D Preferred Units
are collectively referred to as redeemable preferred equity
("Redeemable Preferred Equity") (see Note 8).
Effective December 31, 1997, Management invested an aggregate of
$2,000,000 in the form of a note payable to Varde and received a one-
third economic non-directive interest in the following: (i) $6,000,000
of the B Term Loan, (ii) the C Term Loan, (iii) the Subordinate Note
A, (iv) the B Preferred Units, (v) the C Preferred Units and (vi) the
D Preferred Units. The note payable to Varde was secured by
Management's interest in such securities. Any current cash yield on
Management's share of such securities was payable to Varde as
interest, net of applicable federal income tax. On January 22, 2002,
Management received $11,500,000 in New Redeemable Preferred Equity
(see Notes 5, 7, 8 and 13) for its one-third interest in the Remaining
Debt and Redeemable Preferred Equity.
The Partnership or Management had 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 $7,500,000 over Varde's cost. Such call
lapsed December 31, 2000. The securities held by Varde had certain
antidilution provisions and registration rights.
1999 Sale of Operating Assets Utilized by the Crude Gathering System:
As previously discussed, the Partnership sold the operating assets of
the Crude Gathering System to Sun on October 1, 1999 (see Note 11).
The net proceeds were applied as follows: $15,000,000 principal
payment on the A Term Loan (see Note 4), $2,000,000 was paid to Pride
SGP as part of the exchange described in the following paragraph (see
Note 7), and $10,007,000, net of transaction and exit costs of
$2,588,000, was retained for working capital. This sale resulted in a
taxable loss allocable to the Common Unitholders. None of the
proceeds were distributed to Common Unitholders.
In connection with the Crude Gathering Sale on October 1, 1999,
Pride SGP exchanged (a) certain trunklines and related pumping
facilities owned by Pride SGP, (b) interest payable to Pride SGP from
the Partnership in the amount of $548,000, (c) rentals payable to
Pride SGP from the Partnership in the amount of $2,146,000, (d) the
Series E Cumulative Convertible Preferred Units ("E Preferred Units")
with a stated value of $2,000,000 held by Pride SGP, and (e) the
Series F Cumulative Preferred Units ("F Preferred Units") with a
stated value of $450,000 held by Pride SGP for (y) $2,000,000 in cash
and (z) the Series G Preferred Units ("G Preferred Units") with a
stated value of $3,144,000 (see Note 9).
Net Losses: Excluding the income resulting from the DESC Claim (see
below and Note 5), the Partnership had continually incurred net losses
prior to the year ended December 31, 2001. Operating results prior to
the year ended December 31, 2001 suffered as a result of increasing
competition, depressed operating margins and higher financing costs.
Net income for the year ended December 31, 2001 was $1,420,000. For
the year ended December 31, 2000, net income was $43,409,000 as a
result of DESC Income (see below) of $48,646,000. Excluding the DESC
Income and the write-off of deferred financing costs of $2,556,000,
the Partnership would have had a net loss of $2,681,000 for the year
ended December 31, 2000. The deferred financing costs were written
off as a result of retiring part of the Debt with the Net DESC
Proceeds (see below) and tendering payment on the Remaining Debt (see
below).
2000 Collection on Judgment from the Government: In the year ended
December 31, 2000, the Partnership collected an award of $61,521,000
("DESC Proceeds") from the United States of America (the
"Government"), also referred to as the Defense Energy Support Center
("DESC"), related to underpayments for jet fuel purchased from the
Partnership and from that paid legal fees of $5,908,000 to the
Partnership's attorneys ("Legal Fees") and bonuses of $6,967,000
("Bonuses") to Management (see Note 5). The DESC Proceeds less the
Legal Fees and Bonuses were $48,646,000 ("DESC Income" or "Net DESC
Proceeds") of which $36,257,000 was included in operating income and
$12,389,000 was included in other income (see Note 5).
The Partnership planned on using the Net DESC Proceeds to retire
the Debt and the Redeemable Preferred Equity and provide working
capital. Out of the Net DESC Proceeds, the Partnership paid
$16,606,000 on the Debt and deposited $16,360,000 with the District
Court of Taylor County, Texas (the "Texas Court") pending resolution
of the Partnership's dispute with Varde (see below). The remaining
$15,680,000 of the Net DESC Proceeds, as permitted by the Bankruptcy
Court, was used for working capital. None of the Net DESC Proceeds
was available for distribution to Common Unitholders.
2000 Dispute with Varde: The Partnership had planned on using the
DESC Proceeds to completely pay off all of the Debt and Redeemable
Preferred Equity. However, after the Partnership paid $16,606,000
towards the Debt on July 25, 2000 and July 26, 2000, Varde claimed for
the first time it was entitled to an additional $17,621,000 as a
transaction fee. The Partnership ceased making any further payments
after Varde demanded the transaction fee and pursued legal remedies
(see Notes 4 and 5).
Due to the dispute with Varde, and rather than making additional
payments to Varde which Varde indicated that it would not apply in
accordance with the Partnership's interpretation of the loan
documents, the Partnership deposited $16,360,000 of the Net DESC
Proceeds with the Texas Court.
2001 Bankruptcy Filing: On January 17, 2001, the Partnership filed a
voluntary petition under Chapter 11 of the Federal Bankruptcy Code
(the "Bankruptcy") in the Northern District of Texas, Abilene Division
(the "Bankruptcy Court"), and was authorized to continue managing and
operating its business as a debtor in possession subject to the
control and supervision of the Bankruptcy Court (see Note 12). The
filing was necessitated by the above mentioned actions taken by Varde
which was the Partnership's primary lender and also owned two-thirds
of the Redeemable Preferred Equity (see Notes 4, 5 and 8).
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing of Texas (Cedar Wind), Inc. (a
wholly-owned subsidiary of the Partnership) ("Pride Marketing") each
filed a voluntary petition under Chapter 11 of the Federal Bankruptcy
Code in the Northern District of Texas, Abilene Division, and each of
them was authorized to continue managing and operating its business as
a debtor in possession subject to the control and supervision of the
Bankruptcy Court.
2001 Court Ruling and Settlement with Varde: On September 4, 2001, the
Bankruptcy Court issued initial findings of fact and conclusions of
law in the adversary proceeding between Varde and the Partnership held
in April 2001 (the "Initial Ruling"). The Bankruptcy Court found,
among other things, that Varde was not owed $17,621,000 as a
Transaction Fee and therefore all payments to Varde had to be applied
against the Debt and Redeemable Preferred Equity; the Tender was
effective and, as a result, interest ceased accruing on the Debt to
the extent of the Tender; and the Deposits were not an effective
tender and, therefore, the Debt and Redeemable Preferred Equity
expected to be retired with such Deposits continued to accrue interest
and accumulate arrearages at the contractual rates (see Notes 4, 5,
and 8).
On October 18, 2001, Varde, the Partnership and Management
entered into a settlement agreement ("Varde Settlement Agreement")
that ended the litigation between them. The Varde Settlement
Agreement was subsequently approved by the Bankruptcy Court on
November 15, 2001. Under the Varde Settlement Agreement, Varde
received $12,000,000 on November 21, 2001 and an allowed unsecured
claim of $11,000,000 (net of a $2,000,000 discount) ("Allowed
Unsecured Claim") or a total of $23,000,000 for its two-thirds
interest in the Remaining Debt and Redeemable Preferred Equity (see
Notes 5, 12 and 13). On the Effective Date (see below), Varde was to
receive $4,000,000 and a $9,000,000 unsecured note subject to a
$2,000,000 discount. The Partnership paid Varde $11,000,000 on
January 22, 2002 and received the $2,000,000 discount on the unsecured
note. Management received $11,500,000 of New Redeemable Preferred
Equity for its one-third interest in the Remaining Debt and Redeemable
Preferred Equity on the Effective Date (see Notes 5, 12 and 13).
Under the Varde Settlement Agreement, the Partnership owed
approximately the same amount as it did prior to the settlement;
however, the distribution rates on the New Redeemable Preferred Equity
are substantially lower, the maturity dates were extended and the
Partnership avoided having to further litigate these issues.
2001 Proof of Claims Filed by Former Employees and Pride SGP: In
connection with the Bankruptcy, certain former employees and Pride SGP
filed proofs of claim with the Bankruptcy Court that the Partnership
disputed (see Note 12). Five former employees filed proofs of claim
totaling $3,213,000 plus amounts unknown related to unpaid
compensation for 1998 through 2000. On November 26, 2001, an
adversary hearing was held by the Bankruptcy Court to determine
whether to allow the proofs of claim. On December 21, 2001, the
Bankruptcy Court issued its initial ruling and held that the
Partnership owed the former employees some amount but did not specify
how much was owed. The Bankruptcy Court requested that the parties
attempt to settle their controversy based on its initial ruling.
Since the parties were unable to settle the case, the Bankruptcy Court
held a hearing on February 28, 2002 to hear additional evidence on
damages. The Partnership had accrued $72,000 in severance prior to
the Bankruptcy Court's initial ruling, but has not accrued an
additional liability as a result of such ruling since the Partnership
does not feel it has enough information to estimate the amount of the
liability at this time.
The majority shareholders of Pride SGP filed proofs of claim
individually and on behalf of Pride SGP in the amount of $14,541,000
plus interest, attorney fees and costs. On December 10, 2001, those
shareholders and Pride SGP withdrew their proofs of claim. On January
8, 2002, the Partnership, the Managing General Partner and Management
entered into a settlement agreement with Pride SGP and the Departing
Shareholders of Pride SGP ("Pride SGP Settlement Agreement"). Under
the Pride SGP Settlement Agreement, the Partnership agreed to redeem
$2,630,000 of the $3,144,000 G Preferred Units (see Notes 5, 7, 9 and
13) held by Pride SGP and the Departing Shareholders of Pride SGP for
$1,275,000 ($2,526,000 of the G Preferred Units were subsequently
distributed by Pride SGP to the Departing Shareholders of Pride SGP in
exchange for their interest in Pride SGP and were redeemed by the
Partnership from the Departing Shareholders for $1,225,000), Pride SGP
agreed to vote in favor of the Plan and all parties agree to mutual
releases.
2002 Confirmation of Plan and the Partnership's Emergence from
Bankruptcy: A hearing was held by the Bankruptcy Court on January 8,
2002 on confirmation of the Partnership's Third Amended and Restated
Plan of Reorganization (as amended by modifications thereto filed
January 8, 2002 and January 11, 2002, respectively, the "Plan") (see
Notes 12 and 13). At the hearing, the Partnership agreed to certain
modifications to the Plan. The Bankruptcy Court signed an order
confirming the Plan as modified on January 11, 2002 ("Confirmation
Date") and the Partnership emerged from Bankruptcy on January 22, 2002
("Effective Date"). All creditors whose claims were not disputed or
who filed proofs of claim that are allowed under the Bankruptcy Code
have been or are expected to be paid in full as provided in the Plan
(see Note 13). On January 22, 2002, the Partnership also paid Varde
$11,000,000 which was the remaining amount owed to Varde under the
Varde Settlement Agreement (after deduction of a $2,000,000 discount
to which the Partnership was entitled if the payment was made by that
date).
Due to the failure of certain creditors to file proofs of claim
in the bankruptcy case or because of the disallowance of claims by the
Bankruptcy Court, the Partnership expects to report cancellation of
indebtedness income to Common Unitholders for the year ended December
31, 2002. The amount of cancellation indebtedness income allocable to
Common Unitholders is currently estimated to be $9,600,000 (see Notes
5, 9, 11, 12 and 13).
Future Outlook: As a result of emerging from Bankruptcy and fully
paying off Varde, the Partnership expects over the next several years
to have positive cash flow from operations and expects its net income
during the current fiscal year to be close to break even, in each case
before annual payments of $1,406,000 for the next ten years beginning
January 22, 2003 (for the years eleven through fifteen, the payments
will decrease to $940,000 annually) on the New Redeemable Preferred
Equity held by Management and any payments due on the G Preferred
Units after October 1, 2004 (see Notes 5 and 13).
The Partnership's ability to improve its profits is principally
dependent upon increased volumes and/or improved profit margins, as
well as continued cost control initiatives. Under a new military
aviation fuel contract with the Government which began April 1, 2002
and ends March 31, 2003, the Partnership will supply approximately
34,325,000 gallons, which is a 4% increase from the volumes that it
supplied under the previous contract with the Government, which began
April 1, 2001 and ended March 31, 2002. The Partnership believes that
its profit margins under the new contract should be similar to those
under the previous contract.
The Partnership has been able to achieve certain reductions in
operating expenses and marketing, general and administrative expenses
over recent years. The expenses of the Products Marketing Business
have declined from the levels of 1999 and prior years as a result of
staff reductions and computer automation. The Partnership's 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.
As previously discussed, the Partnership recently sold the
remaining Refinery equipment and Aledo Pipeline for $5,400,000. On
January 22, 2002, Shell also returned $4,000,000 of the $14,000,000 in
cash the Partnership had deposited with Shell to secure its payable to
Shell for refined product purchases. The Partnership believes, in
light of these two events, that it currently has adequate liquidity to
operate at this time without a working capital facility.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition: Revenue is recognized from the sale of refined
products at the time of delivery to the customer. Transportation fees
are recognized when the refined products are delivered to the
contracted destination.
Net Income (Loss) Per Common Unit: Basic net income (loss) per Common
Unit is computed using the weighted average number of Common Units
outstanding. Diluted net income per Common Unit is computed by
adjusting the primary units outstanding and net income for the
potential dilutive effect of the conversion of the Subordinate Note A,
B Preferred Units and C Preferred Units (collectively the "Convertible
Securities") outstanding during the period and the elimination of the
related interest and distributions and the potential effect of the
exercise of officers and employees' unit appreciation rights. When
the effect of including the conversion of the Convertible Securities
on diluted net income (loss) per Common Unit is antidilutive, as was
the case for the years ended December 31, 2001 and 1999, such
Convertible Securities are not included in the calculation of dilutive
net income (loss) per Common Unit. The unit appreciation rights were
antidilutive for the years ended December 31, 2001, 2000 and 1999.
Inventories: Inventories are stated at the lower of average cost or
market value.
Property, Plant and Equipment and Assets No Longer Used In The
Business: Property, plant and equipment is stated at cost.
Depreciation is computed by the straight-line method based upon the
estimated useful lives of the various assets (see Note 3).
Maintenance, repairs, minor renewals and replacements are charged
to expense when incurred. Betterments, major renewals and
replacements are capitalized. Repairs and maintenance expense for
continuing operations for the years ended December 31, 2001, 2000 and
1999 was $284,000, $230,000, and $589,000, respectively.
Assets no longer used in the business are stated at estimated
fair value at the time of impairment. On March 22, 1998, the
Partnership idled the Refinery; however, some of the tanks and the
rack facility also referred to as the Abilene Terminal are still being
used in connection with the Shell Agreement. Accordingly, the
Partnership evaluated the ongoing value of the refinery assets that
would no longer be used in the business in accordance with Statement
of Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS
121"). Based on this evaluation, the Partnership determined that
assets with a carrying amount of $47,353,000 were impaired and wrote
them down by $40,000,000 to their estimated fair value. Fair value
was based on independent appraisals discounted at a market rate of
interest. As discussed in Note 1, these assets were sold to Alon for
$5,400,000 on January 18, 2002.
Income Taxes: As a limited partnership, the Partnership is not a
taxable entity for federal income tax purposes and any federal income
taxes are the direct responsibility of the individual partners of the
Partnership. Accordingly, no federal income tax provision is made in
the accompanying statement of operations related to the operations of
the Partnership itself. The Partnership's tax bases in its assets and
liabilities were greater than its bases therein for financial
reporting purposes by approximately $7,745,000, at December 31, 2001.
The taxable loss reported by the Partnership for the year ended
December 31, 2001 was $220,000, of which $1,650,000 of taxable income
was allocated to the Redeemable Preferred Units and a taxable loss of
$1,833,000 and $37,000 was allocated to Common Unitholders and the
General Partners, respectively. The major reconciling items between
the net income for financial purposes and tax purposes for the 2001
fiscal year are as follows: depreciation for tax purposes is
$1,825,000 greater than for financial purposes and accrued expenses
for tax purposes are $185,000 less than for financial purposes.
Deferred income taxes were previously provided for Pride Borger,
Inc., a corporate subsidiary, which was a separate taxable entity.
This subsidiary was disposed of as part of the sale of the Crude
Gathering System in 1999 and the tax effects are included in
discontinued operations.
In April 2001, a Common Unitholder notified the Partnership he
believes the Partnership should be classified as a corporation rather
than a partnership for federal income tax purposes. At issue is the
requirement that a publicly traded partnership have a sufficient
percentage of income that consists of "qualifying income" under
Section 7704(d)(1) of the Internal Revenue Code to be taxed as a
partnership, rather than a corporation, for federal income tax
purposes. The Partnership believes that a sufficient portion of its
income constitutes "qualifying income" and, therefore, should be
classified as a partnership for federal tax purposes (see Note 5).
Retirement Plan: The Pride Employees' 401(k) Retirement Plan and
Trust ("Plan") is a defined contribution plan covering substantially
all full-time employees. Under the Plan, the Partnership must make a
mandatory contribution equal to 3% of a participant's compensation and
may make discretionary matching contributions of up to an additional
3% of a participant's compensation depending on the Partnership's cash
flow for such year. Beginning January 1, 2002, contributions will
vest over a six year period (prior to January 1, 2002, contributions
vested over a seven year period), subject to immediate vesting upon
retirement. Retirement plan expense for continuing operations for the
years ended December 31, 2001, 2000 and 1999 was $53,000, $102,000 and
$0, respectively.
Incentive Compensation Plan: The Partnership has elected to follow
Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25) and related Interpretations in
accounting for its Unit Appreciation Rights ("Rights"). Under APB 25,
if the exercise price of the Rights equals or exceeds the market of
the underlying units on the date of grant, no compensation expense is
recognized at the date of grant. To the extent the price of the
Partnership's units increase above that at the grant date, such excess
value to be paid upon exercise is charged to operations over the
respective vesting period.
Fair Value of Financial Instruments: The carrying amount of cash and
cash equivalents, receivables, and accounts payable approximates fair
value. Since the C Term Loan, Subordinate Note A and Varde Unsecured
Claim were retired on January 22, 2002 , Management believes the fair
value of that debt approximates the amount recorded in the financial
statements as of December 31, 2001.
Statements of Cash Flows: For purposes of the statements of cash
flows, Management considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Restrictions on Certain Cash Balances: At December 31, 2001 and 2000,
the Partnership had $0 and $16,751,000, respectively, on deposit with
the Texas Court in connection with the Varde dispute (see Note 5),
$778,000 and $754,000, respectively, invested in certificates of
deposit to secure a letter of credit and credit card payments, a
restricted money market account with Alexander Insurance Group with a
balance of $61,000 and $59,000, respectively, and an escrow account of
$70,000 for both periods with American International Recovery as a
condition of its insurance policies.
Recent Accounting Standard: In June 1998, Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), was issued. This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that all
derivatives be recognized as either assets or liabilities in the
statement of financial position and that those instruments be measured
at fair value. The Company adopted SFAS 133 on January 1, 2001. The
statement did not have a significant impact on its financial position
or results of operation.
NOTE 3--PROPERTY, PLANT AND EQUIPMENT AND ASSETS NO LONGER USED IN
THE BUSINESS
A summary of property, plant and equipment at December 31 follows
(in thousands):
Estimated
Useful
2001 2000 Lives
-------- -------- -----------
Terminal and storage facilities $ 7,253 $ 7,205 4-30 years
Pipelines and related facilities 11,525 11,503 5-30 years
Transportation and terminal equipment 8,710 8,668 3-5 years
Marketing facilities and equipment 803 803 3-5 years
Administrative facilities and equipment 2,481 2,444 2-5 years
Construction-in-progress - 43
-------- --------
30,772 30,666
Less accumulated depreciation 16,809 15,365
-------- --------
$ 13,963 $ 15,301
======== ========
As previously discussed, the assets no longer used in the
business of $4,235,000 as of December 31, 2001 were sold to Alon on
January 18, 2002 for $5,400,000 (see Note 1).
NOTE 4--DEBT AND CREDIT FACILITIES
On December 31, 1997, Varde purchased and assumed the then
existing lenders' rights and obligations under the Partnership's Prior
Bank Debt (see Note 1). In conjunction with Varde's purchase and
assumption of the lenders' rights and obligations under such bank
debt, BankBoston refinanced the Partnership's letter of credit
facility and provided a new revolver facility (the "BankBoston
Revolver") on December 31, 1997.
At the request of BankBoston, the BankBoston Revolver was reduced
to zero during the third quarter of 2000. At that time, the
Partnership began banking with Wells Fargo Bank, N.A. ("Wells Fargo")
and had Wells Fargo issue a letter of credit for $721,000 which is
secured by a certificate of deposit (see Note 2).
Under the Varde loan documents, the Partnership was required to
make quarterly principal payments on the Series A Term Loan. In
addition, the Varde loan documents provided for the following
prepayments: (a) prepayments at the Partnership's option, (b)
prepayments of excess cash flow, (c) prepayments of proceeds from the
issuance of new securities, (d) prepayments from asset sales and (e)
prepayments from proceeds of legal claims, which included DESC
Proceeds (see Notes 1 and 5) (the "Prepayments"). On receipt of
proceeds from legal claims, the loan documents required that the
Partnership must first retire the A Term Loan which with accrued
interest was $3,657,000 as of July 25, 2000 and pay $5,000,000 towards
the B Term Loan which with accrued interest was $12,949,000 as of July
25, 2000. The amounts outstanding on the A Term Loan and B Term Loan
shown above were before the three payments on July 25, 2000 and July
26, 2000 to Varde totaling $16,606,000 (the "Payments") from the DESC
Proceeds. In addition, Varde also was entitled to receive one-third
of the remaining DESC Proceeds after reduction for the $8,657,000
applied to the A Term Loan and B Term Loan mentioned above ("Varde
One-Third"). However, as a result of the dispute with Varde (see
Notes 1 and 5), the Partnership did not pay the entire amount of the
Varde One-Third and instead deposited $16,360,000 with the Texas Court
to cover the remaining Varde One-Third plus retire additional
securities with a portion of the Partnership's two-thirds. The
Partnership believed it was allowed to retain any remaining DESC
Proceeds after the payment of the Varde One-Third; however, the
Partnership planned on using a portion of the remaining proceeds to
further reduce Debt and Redeemable Preferred Equity thereby reducing
future interest expense and accumulated arrearages, respectively.
Additionally, there was a dispute about whether the DESC Proceeds were
also reduced by the legal fees paid to the Partnership's attorneys in
calculating the Varde One-Third (see Note 5). Under the Varde credit
agreement, the Partnership believed the Varde One-Third must be
applied to the Debt and Redeemable Preferred Equity. Likewise, the
Bankruptcy Court concluded in its Initial Ruling that the Varde One-
Third must be so applied (see Note 5). Therefore, the Payments of
$16,606,000 were applied against the A Term Loan and B Term Loan and
those notes were considered to be retired in July of 2000.
As a result of Varde's assumption of the outstanding bank debt,
additional loans to the Partnership, subsequent interest being paid in
kind, proceeds from the Crude Gathering Sale being applied to the A
Term Loan, scheduled principal payments, payments out of the DESC
Proceeds and payments under the Varde Settlement Agreement, Varde's
interest in such Debt was completely paid off. As of December 31,
2001, Management held the remaining balance of the C Term Loan of
$2,055,000 and Subordinate Note A of $1,111,000. As previously
discussed, those two notes along with Management's one-third interest
in the Redeemable Preferred Equity was converted into the New
Redeemable Preferred Equity on January 22, 2002 (see Notes 1, 5, 7 8,
and 13).
Prior to the Bankruptcy Court's Initial Ruling, the Partnership
had accrued interest expense at the statutory rate of 6% ("Statutory
Rate") on $6,171,000 of the C Term Loan and $2,000,000 of the
Subordinate Note A beginning July 27, 2000 as a result of the tender
by the Partnership to Varde of $8,171,000 on such date (the "Tender").
In the Initial Ruling, the Bankruptcy Court determined that Varde was
not entitled to interest on the Tender. When the Partnership
deposited $9,360,000 in the Texas Court on August 23, 2000 (the "First
Deposit"), the Partnership considered this a tender and originally
accrued interest expense at the Statutory Rate on an additional
$1,188,000 of the Subordinate Note A which is what would have been the
remaining balance of the Subordinate Note A had Varde accepted the
Tender on July 27, 2000; however, the Bankruptcy Court's Initial
Ruling concluded the First Deposit was not a valid tender and interest
continued to accrue on $1,188,000 of the Subordinate Note A at the
contractual rate. The outstanding balance on the C Term Loan of
$2,055,000 after payments to Varde under the Varde Settlement
Agreement is included in the current portion of long-term debt,
whereas the outstanding balance on the Subordinate Note A of
$1,111,000 after payments to Varde under the Varde Settlement
Agreement is included in current liabilities subject to compromise at
December 31, 2001 (see Note 12). Prior to the Bankruptcy Court's
Initial Ruling, the Partnership had accrued total interest expense of
$342,000 and $172,000 at the Statutory Rate on the C Term Loan and
Subordinate Note A, respectively; however, the accrual was reversed in
the third quarter of 2001 and the Partnership recorded paid in kind
interest of $134,000 on the Subordinate Note A for the period August
23, 2000 to December 31, 2001 as a result of the Initial Ruling.
On August 31, 2000, the Partnership deposited another $7,000,000
in the Texas Court (the "Second Deposit"). The Partnership believed
the Second Deposit and $1,000 of the First Deposit would be used to
redeem a portion of the Redeemable Preferred Equity along with paying
accumulated arrearages on those securities (see Notes 1 and 8). The
First Deposit and Second Deposit are collectively referred to as the
deposits (the "Deposits"). For the years ended December 31, 2001 and
2000, the Deposits with the Texas Court accrued interest income of
$684,000 and $391,000, respectively.
Prior to the Bankruptcy, cash interest and distributions were
limited under the loan documents. Interest in excess of those
limitations on the A Term Loan, B Term Loan, C Term Loan and
Subordinate Note A were paid in kind. Distributions in excess of
those limitations on the Redeemable Preferred Equity accumulated in
arrears. Prior to the Payments and the Tender, the A Term Loan, B
Term Loan, and C Term Loan bore interest rates of 11%, 13%, 15%, 17%
and 18% for the first, second, third, fourth and fifth years,
respectively, except for $4,779,000 of the B Term Loan as of July 25,
2000 which was subject to interest rates of 18% through maturity. As
mentioned before, the Partnership originally accrued interest expense
on the C Term Loan at the Statutory Rate of 6% per annum after the
Tender on July 27, 2000 and on the Subordinate Note A at the Statutory
Rate after the Tender on July 27, 2000 and the First Deposit on August
23, 2000; however, the accruals were reversed as a result of the
Bankruptcy Court's Initial Ruling. The Subordinate Note A was
convertible into 176,000 Common Units as of December 31, 2001 and bore
interest at prime plus one percent which was 4.75% at December 31,
2001.
Because a portion of the Debt was subject to increasing rates of
interest in 2000 and before, the Partnership was accruing interest at
the effective rate over the term of the Debt. Interest expense for
the years ended December 31, 2000 and 1999 reflects the reversal of an
accrual of $1,345,000 and an accrual of $315,000, respectively, which
is based on the difference between the effective interest rates and
the stated rates.
As a result of the cash interest and principal payment
limitations, interest on the B Term Loan, C Term Loan, and the
Subordinate Note A had been paid in kind prior to the Payments and the
Tender. Since the Tender only covered $2,000,000 of the Subordinate
Note A, interest continued to be paid in kind on $1,118,000 of the
Subordinate Note A through November 21, 2001. From November 22, 2001
through December 31, 2001, interest continued to be paid in kind on
$438,000 of the Subordinate Note A owned by Management. The preferred
distributions continued accumulating in arrears on the entire balance
of the Redeemable Preferred Equity through November 21, 2001 (see
Notes 5 and 8). From November 22, 2001 through December 31, 2001, the
distributions continued accumulating in arrears on the Redeemable
Preferred Equity owned by Management.
The A Term Loan, B Term Loan, C Term Loan and Subordinate Note A
were originally due December 31, 2002. As previously mentioned, the
Partnership was required to make quarterly principal payments on the A
Term Loan as well as Prepayments under certain circumstances. Varde
agreed to forego all regular principal payments in 1998 and 1999.
However, the Partnership applied $15,000,000 of the cash proceeds from
the Crude Gathering Sale to the A Term Loan on October 1, 1999, made a
quarterly principal payment of $1,353,000 on the A Term Loan in the
second quarter of 2000, and used $3,657,000 and $12,949,000 of the
Payments to retire the A Term Loan and B Term Loan, respectively. On
November 21, 2001, Varde received $12,000,000 and the Allowed
Unsecured Claim for $11,000,000 (net of a $2,000,000 discount) from
the Partnership under the Varde Settlement Agreement and retired
Varde's two-thirds interest in the C Term Loan, Subordinate Note A,
and Redeemable Preferred Equity for financial purposes which was
$4,110,000, $2,216,000 and $16,491,000 (which includes accrued
distributions of $5,104,000), respectively (see Notes 1, 5, 8 and 13).
At December 31, 2001, the Allowed Unsecured Claim was shown net of the
$2,000,000 discount and $4,000,000 of the claim was included in
current liabilities subject to compromise and the other $7,000,000 was
included in long-term liabilities subject to compromise (see Note 13).
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 and the
Allowed Unsecured Claim of $11,000,000 exceeded Varde's share of the
Debt and Redeemable Preferred Equity as of November 21, 2001. The
Allowed Unsecured Claim of $11,000,000 did not accrue any interest
from November 21, 2001, to January 22, 2002, the date it was paid.
Prior to the sale of the remaining Refinery equipment and the
Aledo Pipeline for $5,400,000 and the reduction in the Shell deposit
of $4,000,000 (see Note 1), the Partnership believed it would need a
new working capital facility once it was out of Bankruptcy. However,
now the Partnership plans to wait to obtain a new working capital
facility and hopefully obtain more favorable terms than are now
available.
The C Term Loan of $2,055,000 held by Management was secured by
substantially all of the Partnership's assets. On January 22, 2002,
Management received New Redeemable Preferred Equity for the C Term
Loan and as a result no longer has a security interest in the
Partnership's assets.
The New York Court issued a temporary restraining order on
September 7, 2000, which imposed restrictions on the Partnership's use
of DESC Proceeds (see Note 5). Because of those constraints,
Management agreed to extend a revolving loan to the Partnership of
$4,200,000 ("Management Revolver") from the Bonuses paid to Management
as a result of the successful litigation of the DESC Claim (see Notes
1, 5 and 7). A note evidencing the Management Revolver was executed
September 18, 2000. During the third and fourth quarters of 2000,
Management made advances under this facility. Although the note
accrued interest at prime plus 1.75%, Management waived such interest
for the period it was outstanding. The facility was subsequently
cancelled.
Amounts outstanding under these credit facilities at December 31
included in long-term debt included (in thousands):
2001 2000
-------- --------
C Term Loan $ 2,055 $ 6,171
Subordinate Note A - 3,188
-------- --------
2,055 9,359
Less current portion 2,055 9,359
-------- --------
$ - $ -
======== ========
Amounts outstanding under these credit facilities at December 31
included in liabilities subject to compromise (see Note 13 for other
items included in liabilities subject to compromise) included (in
thousands):
2001 2000
-------- --------
Subordinate Note A $ 1,111 $ -
Allowed Unsecured Claim 11,000 -
-------- --------
12,111 -
Less current portion 5,111 -
-------- --------
$ 7,000 $ -
======== ========
Interest paid (excluding paid in kind interest subsequently paid
on retirement of the Debt and interest paid on the note assumed by
Sun) for the years ended December 31, 2001, 2000 and 1999 was $19,000,
$697,000 and $2,040,000, respectively.
NOTE 5--COMMITMENTS AND CONTINGENCIES
At December 31, 2001, the Partnership was committed to operating
leases which require fixed monthly rentals for administrative office
space, transportation equipment, computers and related equipment and
other miscellaneous equipment, some of which contain residual value
guarantees. Excluding rentals accrued to Pride SGP prior to October
1, 1999 (see Note 7) for certain pipeline segments, rental expense for
the continuing operations for the years ended December 31, 2001, 2000
and 1999 was $108,000, $163,000 and $194,000, respectively. The
minimum future rentals under noncancellable operating leases at
December 31, 2001 are as follows (in thousands):
2002 $ 85
2003 83
2004 57
2005 23
2006 -
Thereafter -
-------
$ 248
=======
At December 31, 2001, Pride SGP held G Preferred Units with a
stated value of $3,144,000 (see Note 9). The G Preferred Units were
subordinate to the B Preferred Units, C Preferred Units and D
Preferred Units at December 31, 2001 (see Notes 1 and 8). On January
22, 2002, the C Term Loan, Subordinate Note A, B Preferred Units, C
Preferred Units and D Preferred Units owned by Management were
converted into the New Redeemable Preferred Equity (see below). As
discussed in Note 1, the Partnership, the Managing General Partner and
Management entered into the Pride SGP Settlement Agreement with Pride
SGP and the Departing Shareholders of Pride SGP on January 8, 2002.
Under the Pride SGP Settlement Agreement, the Partnership agreed to
redeem $2,630,000 of the $3,144,000 G Preferred Units held by Pride
SGP or the Departing Shareholders of Pride SGP for $1,275,000 (see
Notes 1, 7, 9 and 13). The remaining $514,000 of G Preferred Units
will not accrue any distributions prior to October 1, 2004. Beginning
October 1, 2004, distributions will accrue on the G Preferred Units at
a rate equal to the lesser of (i) the Partnership's net income less
any distributions accrued or paid on any outstanding senior securities
or (ii) 10% per annum.
At December 31, 2001 and 2000, 4,950,000 Common Units were
outstanding, representing a 98% limited partner interest. As of
February 28, 2002, Pride SGP, Management and the public owned 250,000,
1,219,000 and 3,481,000 Common Units, respectively.
The terms of the G Preferred Units prohibit the payment of
distributions on the Common Units as long as any G Preferred Units are
outstanding. In addition, the terms of the New Redeemable Preferred
Equity require that all distributions on the New Redeemable Preferred
Equity must be current before any distributions are paid on the G
Preferred Units or Common Units. Further, under the Partnership
Agreement, distributions payable on the Common Units are equal to 98%
of the Available Cash (as defined in the Partnership Agreement) of the
Partnership for a particular quarter. Generally, Available Cash is
equal to the net income of the Partnership plus depreciation less debt
payments and payments with respect to certain preferred equity,
capital expenditures and investments. Available Cash may also be
increased or decreased by reductions of or additions to, respectively,
certain reserves established by the Managing General Partner in
accordance with the Partnership Agreement. Based on current
operations, annual payments on the New Redeemable Preferred Equity and
restrictions on distributions contained in the G Preferred Unit
instrument, Management does not expect to pay distributions to Common
Unitholders for the foreseeable future.
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.
The Partnership has no off-balance sheet arrangements or
transactions with unconsolidated, special purpose entities that would
expose the Partnership to liability that is not reflected on the face
of its financial statements.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the remaining cost to comply with
this study approximates $50,000 and had accrued for this amount at
December 31, 2001. Management does not believe any significant
additional amounts will be required to maintain compliance with this
study or other environmental requirements other than routine
expenditures in the ordinary course of business.
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America, also referred to as the DESC (see Note 1), relating to
erroneous pricing of jet fuel purchased over a period of several years
from the Partnership and its predecessors (the "DESC Claim"). The
Partnership had sued the DESC based on an illegal economic price
adjustment ("EPA") provision present in 12 jet fuel contracts between
the Partnership and the DESC. Although the DESC acknowledged the
illegality of the EPA provision, the parties disagreed on whether the
Partnership had incurred damages.
On May 10, 2000, the presiding judge in the Partnership's lawsuit
against the DESC rendered a judgment in favor of the Partnership in
the amount of $45,706,000 (comprised of an additional long-term
contract premium of $23.4 million and a transportation premium of
$22.3 million), plus statutory interest of $15,815,000 under the
Contract Disputes Act. The DESC Proceeds were $61,521,000 from which
the Partnership paid Legal Fees of $5,908,000 and Bonuses of
$6,967,000 (see Note 1). The DESC Proceeds less the Legal Fees and
Bonuses were $48,646,000 ("DESC Income" or "Net DESC Proceeds").
The Partnership used the Net DESC Proceeds for the Payments of
$16,606,000 on the Varde Debt and the Deposits of $16,360,000 (see
Note 4). The total of the Payments and the Deposits is $32,966,000
(the "Disbursements"). The balance of the Net DESC Proceeds after the
Disbursements was $15,680,000 and was used by the Partnership for
working capital to the extent permitted under temporary injunctions
issued by both the Texas Court and New York Court and subject to the
supervision of the Bankruptcy Court (see below).
Due to various layers of debt and the Partnership's preferred
equity securities, and taking into consideration preferential calls on
available cash contained in the Partnership's debt instruments and
preferred equity securities instruments (including distributions paid
in kind on debt and accumulated arrearages owed on Redeemable
Preferred Equity), Legal Fees and payments under the Partnership's
bonus plan, Common Unitholders were allocated income from the DESC
Proceeds without a corresponding distribution of cash to offset the
tax liability that arose from such income. The Partnership had
originally estimated that the net taxable income from the DESC
Proceeds that would be allocable to common unitholders would be
approximately $41.0 million (or $8.28 per Common Unit). However, as a
result of the dispute with Varde, the net taxable income actually
allocated to Common Unitholders from the DESC Proceeds was $45,168,000
(or $9.12 per Common Unit). Before the dispute with Varde, the
Partnership had planned on retiring the Redeemable Preferred Equity
with the DESC Proceeds in conjunction with a new working capital
facility, which would have reduced the income allocated to the Common
Unitholders as a result of the payment of accumulated arrearages on
such Redeemable Preferred Equity. As a result of the DESC Claim being
paid in two installments, such net income was reported to Common
Unitholders in two different months (see below).
As a result of the expected retirement of the Debt with the
Payments and the Deposits, the Partnership wrote-off $2,556,000 of
deferred financing costs that were being amortized over the life of
the loans in the third quarter of 2000.
In accordance with the Partnership Agreement, the Managing
General Partner determined that for tax purposes it was necessary to
establish a convention for the Partnership under which the income and
certain expenses attributable to the judgment would be allocated to
the Common Unitholders. Under that convention, Common Unitholders as
of July 31, 2000 and August 31, 2000 were allocated the income
attributable to the portion of the proceeds from the judgment actually
received by the Partnership during those months. The Partnership also
took the position that suspended losses would be available to Common
Unitholders to offset net income attributable to the judgment;
however, it is not certain the Internal Revenue Service will agree
with that position. The actual tax impact on a Common Unitholder
depends upon such Common Unitholder's overall personal tax situation
and whether such Common Unitholder has suspended losses which can be
used to offset the allocation of income. The Partnership suggested
that Common Unitholders should consult with their own tax advisor
regarding the use of suspended losses.
Under the various loan documents with Varde, one-third of the
remaining DESC Proceeds after certain payments on the A Term Loan and
B Term Loan were required to be paid to Varde. The Partnership had
planned on eventually retiring all of the Debt and Redeemable
Preferred Equity with the DESC Proceeds after a replacement working
capital facility was in place; however, after the Partnership made the
Payments of $16,606,000 to Varde, Varde claimed for the first time
that it was entitled to the Varde One-Third (see Note 4) as a
transaction fee rather than being required to apply the Payments
against the Debt and Redeemable Preferred Equity. The Partnership
believed this position conflicted with the credit agreement between
Varde and the Partnership in that it required that the Varde One-Third
must be applied to the Debt and Redeemable Preferred Equity. However,
Varde's position was that since another loan document executed at the
same time as the credit agreement did not specifically require
application of the Varde One-Third to the Debt and Redeemable
Preferred Equity that the Varde One-Third should be treated as a
transaction fee ("Transaction Fee"). The Bankruptcy Court's Initial
Ruling found that the Varde One-Third must be applied to the Debt and
Redeemable Preferred Equity.
Additionally, Varde also argued that the term "proceeds" as used
in the credit agreement was before the Legal Fees associated with the
DESC Claim and, therefore, the amount of proceeds used to calculate
the Varde One-Third should have been the $61,521,000 rather than the
$55,613,000 (after Legal Fees of $5,908,000) that the Partnership
believed was correct. The Bankruptcy Court's Initial Ruling found
that the Varde One-Third should have been based on $55,613,000 which
is after the Legal Fees.
If Varde's interpretations of the loan documents had been
correct, the Varde One-Third would have equaled $17,621,000 and Varde
would have received such amount as a Transaction Fee and would not
have had to apply it to any of the Debt and Redeemable Preferred
Equity.
Due to the dispute with Varde, and rather than making additional
payments to Varde which Varde indicated that it would not apply in
accordance with the Partnership's interpretation of the loan
documents, the Partnership deposited $16,360,000 of the Net DESC
Proceeds with the Texas Court.
The Partnership advised Varde that it did not intend to make any
further payments until the above issues were resolved. The
Partnership filed suit against Varde in the Texas Court, on August 3,
2000, demanding, among other things, that Varde apply the proceeds
from the DESC Claim in accordance with the credit agreement. The
trial which was scheduled in the Texas Court for February 2, 2001, was
removed to the Bankruptcy Court by Varde.
On August 14, 2000, the Partnership requested an injunction from
the Texas Court to prevent Varde from accelerating the loans and
foreclosing on the collateral. On August 28, 2000, a hearing was held
and the Texas Court signed an order on September 15, 2000 that, among
other things, restrained Varde from seizing or foreclosing on any
collateral while the case was pending.
On August 8, 2000, Varde filed a new lawsuit in New York, a
notice of motion for summary judgment in lieu of complaint, in the
amount of $18,592,000 plus interest from August 8, 2000, on the ground
that the action was based upon an instrument for the payment of money
only and that there was no defense to payment. The $18,592,000 is the
amount Varde claimed was still outstanding on the B Term Loan, C Term
Loan and the remaining balance of a Transaction Fee based on the first
receipt of $45,706,000 of DESC Proceeds before reduction for Legal
Fees.
On August 31, 2000, Varde filed a second New York lawsuit
claiming $48,749,000, the amount Varde claimed was still outstanding
on the B Term Loan, C Term Loan, Subordinate Note A, B Preferred
Units, C Preferred Units, D Preferred Units and the remaining balance
of the Transaction Fee associated with the receipt of the DESC
Proceeds. Varde claimed that due to the defaults, all of the
aforementioned Debt and Redeemable Preferred Equity was due.
On September 7, 2000, Varde requested and received a temporary
restraining order from the New York Court which, among other things,
enjoined the Partnership from transferring or otherwise disposing of
any personal or real property (including cash) to the extent of
$48,749,000 received as a result of the DESC Claim.
On October 10, 2000, the New York Court issued a preliminary
injunction, replacing the temporary restraining order, enjoining the
Partnership from transferring or disposing of any property to the
extent of the amount claimed of $48,749,000.
The New York Court issued a temporary restraining order on
September 7, 2000 which imposed restrictions on the Partnership's use
of DESC Proceeds. Because of these constraints, Management agreed to
extend the Management Revolver of $4,200,000 from the Bonuses paid to
Management as a result of the successful litigation of the DESC Claim
(see Notes 1, 4 and 7). During the third and fourth quarters of 2000,
Management made advances under this facility. The facility was
subsequently cancelled.
The trial in the New York Court that was scheduled for January
18, 2001 was automatically stayed by the Bankruptcy. The Partnership
was authorized to continue managing and operating its business as a
debtor in possession subject to the control and supervision of the
Bankruptcy Court (see Notes 1 and 12). As previously discussed, the
filing was necessitated by certain actions taken by Varde which was
the Partnership's primary lender and also owned two-thirds of the
Redeemable Preferred Equity.
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing each filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code in the Northern
District of Texas, Abilene Division, and were authorized to continue
managing and operating their businesses as debtors in possession
subject to the control and supervision of the Bankruptcy Court (see
Note 1).
On January 31, 2001, Varde removed the Partnership's suit from
the Texas Court to the Bankruptcy Court and filed a motion with the
Bankruptcy Court for appointment of a trustee. Varde subsequently
removed both of the New York state lawsuits to New York federal court.
The motion for appointment of a trustee was heard on March 6, 2001 and
the Bankruptcy Court denied Varde's request on March 22, 2001.
In March 2001, the Partnership and Varde agreed to let the
Bankruptcy Court hear all disputes from each of the removed Texas and
New York lawsuits. Closing arguments were heard by the Bankruptcy
Court on April 6, 2001.
In April 2001, a Common Unitholder notified the Partnership he
believes the Partnership should be classified as a corporation rather
than a partnership for federal income tax purposes. At issue is the
requirement that a publicly traded partnership have a sufficient
percentage of income that consists of "qualifying income" under
Section 7704(d)(1) of the Internal Revenue Code to be taxed as a
partnership, rather than a corporation, for federal income tax
purposes. The Common Unitholder demanded that the Partnership
immediately withdraw its Schedule K-1's; however, the Partnership did
not change its position that it will continue to be taxed as a
partnership because a sufficient portion of its income constitutes
"qualifying income" and, therefore, the Partnership does not plan on
withdrawing the Schedule K-1's.
If the Partnership were taxed as a corporation rather than a
partnership for federal income tax purposes, the Partnership's results
of operations, and the tax treatment to the Partnership and its Common
Unitholders, would materially differ from the amounts presented
herein. However, the Partnership intends to vigorously defend its
status as a partnership for federal income tax purposes.
On September 4, 2001, the Bankruptcy Court issued initial
findings of fact and conclusions of law in the adversary proceeding
between Varde and the Partnership held in April 2001 (the "Initial
Ruling"). The Bankruptcy Court found, among other things, that the
Varde One-Third had to be applied against the Debt and Redeemable
Preferred Equity; the Tender was effective and, as a result, interest
ceased accruing on the Debt to the extent of the Tender; and the
Deposits were not an effective tender and, therefore, the Debt and
Redeemable Preferred Equity expected to be retired with such Deposits
continued to accrue interest and accumulate arrearages at the
contractual rates. The Bankruptcy Court did not rule on the propriety
or significance of Varde's acceleration of the Debt.
Varde, the Partnership and Management had planned on asking the
Bankruptcy Court to review certain points of the Initial Ruling.
However, prior to briefing those points, Varde, the Partnership and
Management entered into the Varde Settlement Agreement on October 18,
2001 and the Bankruptcy Court approved it on November 15, 2001 thus
ending the litigation between the various parties.
Under the Varde Settlement Agreement, Varde received $12,000,000
and the Allowed Unsecured Claim of $11,000,000 (net of a $2,000,000
discount) on November 21, 2001 from the Partnership, of which
$4,000,000 was to be paid on the Effective Date of the Plan and the
Partnership would give Varde an unsecured note in the principal amount
of $9,000,000 (subject to a $2,000,000 discount) ("Varde Unsecured
Note") which was to mature on January 22, 2005. As a result of paying
Varde a total of $11,000,000 on January 22, 2002, the Partnership
received the $2,000,000 discount on the Varde Unsecured Note.
The Partnership also recorded a premium of $183,000 in connection
with the Varde Settlement Agreement since the $12,000,000 and the
Allowed Unsecured Claim of $11,000,000 exceeded Varde's share of the
Debt and Redeemable Preferred Equity as of November 21, 2001. The
Allowed Unsecured Claim of $11,000,000 did not accrue any interest
from November 21, 2001, to January 22, 2002, the date it was paid.
The Varde Settlement Agreement also provided that Management
would hold allowed claims against the Partnership with respect to the
various securities Varde assigned to them in December 1997 (see Notes
1, 4, 7, 8 and 13). As of December 31, 2001, this included the C Term
Loan of $2,055,000, the Subordinate Note A of $1,111,000 and the
Redeemable Preferred Equity of $8,353,000 (collectively "Management
Securities"). Management agreed that if Varde were paid off on
January 22, 2002 that it would accept $3,200,000 of New Redeemable
Preferred Equity for the C Term Loan and Subordinate Note A in
addition to the $8,300,000 of New Redeemable Preferred Equity that it
would receive under the Plan for the Redeemable Preferred Equity owned
by Management. The New Redeemable Preferred Equity issued to
Management accrues distributions at 7.5% per annum. Pursuant to the
Plan, Management's C Term Loan and Subordinate Note A were converted
into $3,200,000 of New Redeemable Preferred Equity which matures
January 22, 2012 and is amortized in ten equal annual installments
beginning on January 22, 2003 and Management's Redeemable Preferred
Equity was converted into $8,300,000 of New Redeemable Preferred
Equity which matures January 22, 2017 and is amortized in fifteen
equal annual installments beginning on January 22, 2003. Management
had further agreed to discount the New Redeemable Preferred Equity up
to $2,000,000 to the extent the discount on the Varde Unsecured Note
was less than $2,000,000. However, Management's New Redeemable
Preferred Equity was not discounted since the Partnership received the
full $2,000,000 discount on the Varde Unsecured Note.
Under the Varde Settlement Agreement, the Partnership owed
approximately the same amount as it did prior to the settlement after
factoring in the $2,000,000 discount on the Varde Unsecured Note;
however, debt was converted into New Redeemable Preferred Equity, the
distribution rates are substantially lower, the maturity dates were
extended and the Partnership avoided having to further litigate the
issues in dispute with Varde.
For the years ended December 31, 2001 and 2000, the Partnership
incurred legal fees and other expenses of $900,000 and $1,172,000 in
connection with the dispute with Varde and $1,294,000 (includes a
premium of $183,000 related to the Varde Settlement Agreement) and
$55,000, respectively, related to the Bankruptcy.
In connection with the Bankruptcy, several material proofs of
claim were filed with the Bankruptcy Court that the Partnership
disputed. The Partnership has resolved all of the material proof of
claims with the exception of those filed by the former employees. As
previously discussed (see Notes 1 and 12), the Bankruptcy Court
decided that the Partnership owed the former employees something and
is currently deciding how much. The Partnership had accrued $72,000
in severance prior to the Bankruptcy Court's initial ruling, but has
not accrued an additional liability as a result of such ruling since
the Partnership does not feel it has enough information to estimate
the amount of the liability at this time.
NOTE 6--MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Two of the Partnership's major customers are the DESC and
ChevronTexaco, Corp. ("Chevron"). Revenues from the DESC comprised
12.8%, 17.2% and 13.6% of total revenues from the Products Marketing
Business in 2001, 2000 and 1999, respectively. Revenues from Chevron
comprised 7.5%, 8.1% and 6.7% of total revenues from the Products
Marketing Business in 2001, 2000 and 1999, respectively.
At December 31, 2001 and 2000, the Partnership had $537,000 and
$1,544,000, respectively, in receivables from the DESC and $971,000
and $303,000, respectively, in receivables from Chevron. In some
cases, the Partnership requires letters of credit from customers.
Historically, the Partnership's credit losses have been insignificant.
NOTE 7--RELATED PARTY TRANSACTIONS
Prior to the Crude Gathering Sale, the Partnership had an
agreement with Pride SGP to lease defined segments of the Crude
Gathering System. As consideration for this lease, the Partnership
agreed to perform all routine and emergency maintenance and repair
operations to the pipelines. The value of such services was
approximately $300,000 annually. In addition, the Partnership paid
the taxes, insurance, and other costs. Rentals accruing to Pride SGP
from the Partnership for the year ended December 31, 1999 totaled
$300,000 for the lease of the pipeline and are included in income from
discontinued operations in the statements of operations. For certain
periods between August 1995 and December 1997, payments to Pride SGP
were suspended pursuant to the terms of an amendment to the then
existing credit agreement. Beginning January 1, 1999, rental payments
to Pride SGP were suspended again. The lease agreement with Pride SGP
was not entered into on an arm's-length basis. While Management was
not able to determine whether the terms of the lease were comparable
to those which could have been obtained by unaffiliated parties,
Management believed such terms were fair and reasonable given the
importance to the Partnership of the Hearne to Comyn pipeline segment
which enabled the Partnership to gather and transport a greater supply
of high quality crude oil for sale to other refiners.
Pride SGP made two unsecured loans to the Partnership on March
26, 1993 and September 7, 1995 in the aggregate principal amount of
$2,450,000 and required the Partnership to pay interest only during
the term of such loans. The loans were used to fund working capital.
Beginning the latter part of 1995, the Partnership ceased interest
payments on the loans to Pride SGP in accordance with an amendment to
the then existing credit agreement. On December 31, 1997, the two
unsecured loans were converted into the E Preferred Units of
$2,000,000 and the F Preferred Units of $450,000 (see Notes 1 and 8).
In connection with the Crude Gathering Sale on October 1, 1999,
Pride SGP exchanged (a) the pipeline mentioned above, (b) interest
payable to Pride SGP from the Partnership of $548,000, (c) rentals
payable to Pride SGP from the Partnership of $2,146,000, (d) the E
Preferred Units with a stated value of $2,000,000 held by Pride SGP,
and (e) the F Preferred Units with a stated value of $450,000 held by
Pride SGP for (y) $2,000,000 in cash and (z) the G Preferred Units
with a stated value of $3,144,000 (see Notes 1, 5 and 9).
The Partnership utilizes an airplane from time to time, as
needed, on a per hour market rate basis from an entity controlled by
two officers of the Managing General Partner. Payments to this entity
totaled $66,000, $79,000 and $70,000 during 2001, 2000 and 1999,
respectively.
The Partnership leases property from a relative of one of the
officers of the Managing General Partner. Lease payments were
approximately $42,000, $41,000 and $40,000 in 2001, 2000 and 1999,
respectively.
The Managing General Partner has a 1.9% interest in the income
and cash distributions of the Partnership, subject to certain
adjustments. Members of management of the Managing General Partner
were, until September 20, 2001, also members of the management of
Pride SGP, which has a 0.1% general partner interest, $3,144,000 in G
Preferred Units prior to April 3, 2002 ($514,000 in G Preferred Units
as of April 3, 2002), and a 4.9% limited partner interest in the
Partnership (see Notes 9 and 13). As a result of the Pride SGP
Settlement Agreement, members of management of the Managing General
Partner will eventually take over management of Pride SGP.
Compensation of directors and officers of the Managing General Partner
and any other expenses incurred on behalf of the Partnership by the
Managing General Partner and Pride SGP are paid by the Partnership.
As a result of the temporary restraining order imposed by the New
York Court on September 7, 2000, Management agreed to extend the
Management Revolver of $4,200,000 from the Bonuses paid to Management
as a result of the successful litigation of the DESC Claim (see Notes
1, 4 and 5). The note was executed September 18, 2000. During the
third and fourth quarters of 2000, Management made advances under this
facility. Although the note accrued interest at prime plus 1.75%,
Management waived such interest for the period it was outstanding.
The facility was subsequently cancelled.
On December 1, 2000, the Managing General Partner of the
Partnership exercised a call option and purchased 930,000 Common Units
of the Partnership for $251,000. The Managing General Partner of the
Partnership paid $150,000 on July 25, 2000 to J-Hawk Corporation for
the call option. In January, 2001, the Managing General Partner sold
95,000 of those Common Units to certain members of Management and
distributed the remaining 835,000 Common Units it held to its
shareholders.
The Common Units underlying the call option were acquired by J-
Hawk Corporation in a separate transaction that also closed on July
25, 2000. The Managing General Partner was paid a $50,000 finder's
fee by the Seller.
Effective December 31, 1997, Management invested an aggregate of
$2,000,000 in the form of a note payable to Varde and received a one-
third economic non-directive interest in the following: (i) $6,000,000
of the B Term Loan, (ii) C Term Loan, (iii) Subordinate Note A, (iv) B
Preferred Units, (v) C Preferred Units and (vi) D Preferred Units.
The note payable to Varde was secured by Management's interest in such
securities. Any current cash yield on Management's share of such
securities was payable to Varde as interest, net of applicable federal
income tax. On January 22, 2002, Management received $11,500,000 in
New Redeemable Preferred Equity for its one-third interest in the
Remaining Debt and Redeemable Preferred Equity (see Notes 1, 5 and 8).
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP Settlement Agreement with
Pride SGP and the Departing Shareholders of Pride SGP (see Note 13).
Under the Pride SGP Settlement Agreement, the Partnership agreed to
redeem $2,630,000 of the $3,144,000 G Preferred Units held by Pride
SGP and the Departing Shareholders of Pride SGP for $1,275,000
($2,526,000 of the G Preferred Units were subsequently distributed by
Pride SGP to the Departing Shareholders of Pride SGP in exchange for
their interest in Pride SGP and were redeemed by the Partnership from
the Departing Shareholders for $1,225,000)(see Notes 1 and 9). On
March 18, 2002, the Partnership redeemed $104,000 of the G Preferred
Units held by Pride SGP for $50,000. On April 3, 2002, the
Partnership redeemed $2,526,000 of the G Preferred Units from the
Departing Shareholders for $500,000 and a non-interest bearing payable
of $725,000 due on September 30, 2002.
The Partnership purchased an aircraft for $1,817,000 in March of
2002. In order to conserve working capital, the Partnership plans to
sell the aircraft to the owners of the Managing General Partner and
the Chief Financial Officer at the same price and then lease it back
at a monthly rental of $18,000 over a term of seven years. In
addition, the Partnership will be responsible for taxes, insurance and
maintenance and any other expenses of the aircraft during the lease
term. At the end of seven years, the Partnership will have the option
to continue leasing the aircraft or purchasing it for $1,300,000. The
planned sale and lease is expected to be completed in April 2002.
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 Common Unitholders and, consequently, must
exercise good faith and integrity in handling the assets and affairs
of the Partnership.
NOTE 8--REDEEMABLE PREFERRED EQUITY
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and Redeemable Preferred Equity effective as
of January 1, 1998. As a result of the amendment, distributions on
the Redeemable Preferred Equity accumulated in arrears rather than
being paid in kind. This reduced the amount of preferred equity on
the balance sheet and also affected the tax treatment of the
distributions to the Common Unitholders and holders of the Redeemable
Preferred Equity.
In conjunction with Varde's assumption of the Prior Bank Debt,
Varde received $17,079,000 of Redeemable Preferred Equity, which
included $9,322,000 of B Preferred Units, $5,000,000 of C Preferred
Units and $2,757,000 of D Preferred Units (see Note 1). Management
purchased a one-third interest in the Redeemable Preferred Equity
effective December 31, 1997 (see Notes 1 and 7). As part of the Varde
Settlement Agreement, Varde received cash and the Allowed Unsecured
Claim of $11,000,000 (net of a $2,000,000 discount) for its two-thirds
interest in the Remaining Debt and Redeemable Preferred Equity which
was $6,326,000 and $16,491,000 (which includes accrued distributions
of $5,104,000), respectively as of November 21, 2001. At December 31,
2001, Management owned the balance of the Redeemable Preferred Equity
which was $5,693,000 and included B Preferred Units, C Preferred Units
and D Preferred Units of $3,107,000, $1,667,000 and $919,000,
respectively. At December 31, 2001, the B Preferred Units and C
Preferred Units were convertible into 493,000 and 265,000 Common
Units, respectively, or a total of 758,000 Common Units. The
preferential quarterly payments on the B Preferred Units and C
Preferred Units were 6% per annum in the first three years after
issuance, 12% per annum in the fourth and fifth years and 15% per
annum thereafter or at the Partnership's option accumulated in arrears
at 8% per annum in the first three years. The preferential quarterly
payments on the D Preferred Units were 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
accumulated in arrears at 13% per annum in the first three years.
The Partnership had expected prior to the Bankruptcy that once
the dispute with Varde was resolved that the Second Deposit of
$7,000,000 and $1,000 from the First Deposit (see Note 4) would be
used to redeem $3,117,000 of the B Preferred Units and $1,672,000 of
the C Preferred Units or a total of $4,789,000, along with payment of
accumulated arrearages on the Redeemable Preferred Equity of
$2,212,000 or a total of $7,001,000. From August 31, 2000 to June 30,
2001, the Partnership accrued interest expense at the Statutory Rate
in the amount of $348,000 (see Note 4) on the B Preferred Units and C
Preferred Units to the extent that the Second Deposit and $1,000 of
the First Deposit were expected to be applied to such securities. As
a result of the Bankruptcy Court's Initial Ruling, the Partnership
reversed the interest expense accrual in the third quarter of 2001 and
increased the accumulated arrearages on the B Preferred Units and C
Preferred Units by $626,000 for the period August 31, 2000 to June 30,
2001. For the years ended December 31, 2001 and 2000, the Partnership
accumulated arrearages of $2,806,000 (which includes the adjustment of
$626,000 mentioned above for the period August 31, 2000 to June 30,
2001) and $1,683,000, respectively, on the Redeemable Preferred
Equity. At December 31, 2001, the Redeemable Preferred Equity owned
by Management had total accumulated arrearages of $2,660,000. On
November 21, 2001, the accumulated arrearages were reduced by
$5,104,000 as a result of Varde receiving $12,000,000 and the Allowed
Unsecured Claim of $11,000,000 (net of a $2,000,000 discount) under
the Varde Settlement Agreement for its two-thirds interest in the
Remaining Debt and Redeemable Preferred Equity.
As discussed (see Notes 1, 4, 5 and 7), the Debt and Redeemable
Preferred Equity including accumulated arrearages which were owned by
Management converted into the New Redeemable Preferred Equity of
$11,500,000 on January 22, 2002.
The Partnership also accumulated arrearages of $343,000 on the E
Preferred Units and F Preferred Units owned by Pride SGP through the
third quarter of 1999. These accumulated arrearages were canceled on
October 1, 1999 as part of an exchange between Pride SGP and the
Partnership.
NOTE 9--PARTNERS' CAPITAL (DEFICIENCY)
At December 31, 2001, Pride SGP held G Preferred Units with a
stated value of $3,144,000. The G Preferred Units were subordinate to
the B Preferred Units, C Preferred Units and D Preferred Units at
December 31, 2001 (see Notes 1 and 8). On January 22, 2002, the C
Term Loan, Subordinate Note A, B Preferred Units, C Preferred Units
and D Preferred Units owned by Management were converted into the New
Redeemable Preferred Equity (see Notes 1, 4, 5, 7 and 8). As
previously discussed (see Notes 1 and 5), the Partnership, the
Managing General Partner and Management entered into the Pride SGP
Settlement Agreement with Pride SGP and the Departing Shareholders of
Pride SGP on January 8, 2002. Under the Pride SGP Settlement
Agreement, the Partnership agreed to redeem $2,630,000 of the
$3,144,000 G Preferred Units held by Pride SGP or the Departing
Shareholders of Pride SGP (see below) for $1,275,000. On March 18,
2002, the Partnership redeemed $104,000 of the G Preferred Units held
by Pride SGP for $50,000. On April 3, 2002, the Partnership redeemed
$2,526,000 of the G Preferred Units from the Departing Shareholders
for $500,000 and a non-interest bearing payable of $725,000 due on
September 30, 2002. The remaining $514,000 of G Preferred Units held
by Pride SGP will not accrue any distributions prior to October 1,
2004. Beginning October 1, 2004, distributions will accrue on the G
Preferred Units at a rate equal to the lesser of (i) the Partnership's
net income less any distributions accrued or paid on the New
Redeemable Preferred Equity or (ii) 10% per annum.
At December 31, 2001 and 2000, 4,950,000 Common Units were
outstanding, representing a 98% limited partner interest. As of
February 28, 2002, Pride SGP, Management and the public owned 250,000,
1,219,000 and 3,481,000 Common Units, respectively.
The terms of the G Preferred Units prohibit the payment of
distributions on the Common Units as long as any G Preferred Units are
outstanding. In addition, the terms of the New Redeemable Preferred
Equity require that all distributions on the New Redeemable Preferred
Equity must be current before any distributions are paid on the G
Preferred Units or Common Units. Further, under the Partnership
Agreement, distributions payable on the Common Units are equal to 98%
of the Available Cash (as defined in the Partnership Agreement) of the
Partnership for a particular quarter. Generally, Available Cash is
equal to the net income of the Partnership plus depreciation less debt
payments and payments with respect to certain preferred equity,
capital expenditures and investments. Available Cash may also be
increased or decreased by reductions of or additions to, respectively,
certain reserves established by the Managing General Partner in
accordance with the Partnership Agreement. Based on current
operations, annual payments on the New Redeemable Preferred Equity and
restrictions on distributions contained in the G Preferred Unit
instrument, Management does not expect to pay distributions to Common
Unitholders for the foreseeable future.
At December 31, 2001, $1,111,000 of the Subordinate Note A,
$3,107,000 of the B Preferred Units and $1,667,000 of the C Preferred
Units owned by Management were convertible into 934,000 Common Units.
If Management converted all their securities into Common Units, the
number of Common Units outstanding would have increased from 4,950,000
Common Units to 5,884,000 Common Units.
At December 31, 2001, the Common Units ranked behind debt, as
well as the B Preferred Units, C Preferred Units, D Preferred Units
and G Preferred Units. Beginning January 22, 2002, the Common Units
rank behind debt, as well as the New Redeemable Preferred Equity and G
Preferred Units. As a result of debt and preferred equity securities
ahead of the Common Units and taking into consideration the various
preferential calls on available cash contained in the preferred equity
securities instruments (including annual distributions and required
amortization of the New Redeemable Preferred Equity), Common
Unitholders could be allocated taxable income under the Partnership
Agreement in the future without a corresponding distribution of cash
to offset any potential tax liability.
In accordance with the Bankruptcy rules, certain of the
Partnership's debt is being cancelled because the holders of such
claims did not file timely proofs of claim or because such claims are
not allowed even though proofs of claim were timely filed. As a
result, the Partnership is required to recognize income with respect
to such debt cancellation and, subject to the possible availability of
offsetting deductions, to allocate the resulting net taxable income to
Common Unitholders even though the Common Unitholders do not receive a
distribution of cash. The Partnership estimates taxable income of
$9,600,000 related to cancellation of indebtedness income of which 98%
will be allocated to Common Unitholders based on the number of months
each Common Unitholder held his or her Common Units during the taxable
year that ends December 31, 2002.
On January 18, 2002, the Partnership sold the remaining Refinery
equipment and Aledo Pipeline for $5,400,000 since those assets were no
longer used in its business and to further increase working capital.
The gain from the sale of those assets for tax purposes is estimated
to be $3,100,000 of which 98% will be allocated to Common Unitholders
before any basis adjustment attributable to specific Common
Unitholders. Common Unitholders who purchased Common Units after July
of 2000 do not have any basis in these assets based on the trading
price of the Common Units after such date. Therefore, those Common
Unitholders will be allocated gain from the sale of those assets of
$5,400,000. Such gain will be allocated to those Common Unitholders
who held Common Units on January 31, 2002.
As a result of the Partnership paying Varde $11,000,000 on
January 22, 2002, Varde will be allocated $3,454,000 of gross income,
thus decreasing the amount of gross income allocable to Common
Unitholders by 98% of that amount. The reduction in gross income
allocated to Common Unitholders will be based on the number of months
each Common Unitholder held his or her Common Units during the taxable
year that ends December 31, 2002.
Common Unitholders will also be allocated 98% of a loss of
$2,100,000 on a loan to a subsidiary that is now considered worthless.
The deduction will be allocated to Common Unitholders based on the
number of months each Common Unitholder held his or her Common Units
during the taxable year that ends December 31, 2002.
The above allocations are in addition to the 98% of taxable
income that will be allocated to Common Unitholders from normal
operations for the taxable year ended December 31, 2002 adjusted for
basis adjustment attributable to specific Common Unitholders. The
actual tax impact on a Common Unitholder depends upon such Common
Unitholder's overall personal tax situation and whether such Common
Unitholder has suspended losses which can be used to offset the
allocation of income. Each Common Unitholder should consult with
their own tax advisor regarding the use of suspended losses.
NOTE 10--UNIT APPRECIATION RIGHTS
During 1996, the Partnership implemented an incentive
compensation plan for officers and key employees. Under the plan,
individual employees can be granted unit appreciation rights
("Rights") whereby a holder of the Rights is entitled to receive in
cash or in Common Units the increase, if any, between the exercise
price, as determined by the board of directors of the Managing General
Partner at the date of grant, and the fair market value on the
exercise date. The employees awarded and the number of Rights awarded
to the employees are subject to the discretion of the board of
directors of the Managing General Partner. The term of all awards is
ten years from the grant date.
Rights transactions from December 31, 1997 are as follows:
Officers/
Employees Directors Total
--------- --------- ---------
-------- -------- --------
Outstanding at December 31, 1997
and 1998 299,996 70,000 369,996
Granted - - -
Exercised - - -
Terminated (22,348) - (22,348)
-------- -------- --------
Outstanding at December 31, 1999 277,648 70,000 347,648
Granted - - -
Exercised - - -
Terminated (70,044) - (70,044)
-------- -------- --------
Outstanding at December 31, 2000 207,604 70,000 277,604
Granted - - -
Exercised - - -
Terminated (47,604) - (47,604)
-------- -------- --------
Outstanding at December 31, 2001 160,000 70,000 230,000
======== ======== ========
On December 9, 1996, four officers and twelve employees were
awarded a total of 292,760 Rights at an exercise price of $3.75 per
unit. Because the fair market value of the Rights did not exceed the
exercise price at December 9, 1996, no compensation was accrued.
Effective December 31, 1997, the number of Rights was increased to
299,996, reallocated among four officers and eleven employees and the
exercise price was reduced to $1.94 per unit. The Rights of the
eleven employees were terminated in 1999, 2000 and 2001 thus reducing
the total outstanding Rights to the officers and employees to 160,000
at December 31, 2001. A one-time award of 70,000 Rights was made in
1996 to five non-employee directors at an exercise price of $3.75
which fully vested on December 31, 1998. Effective December 31, 1997,
the exercise price was amended and reduced to $1.94 per unit.
The Rights fully vested on December 31, 1998; however, none have
been exercised. Rights exercisable under the plan were 230,000,
277,604 and 347,648 at December 31, 2001, 2000 and 1999, respectively.
Since the fair market value of the Rights did not exceed the exercise
price at the grant date nor at the repricing date, no compensation
expense has been accrued in accordance with APB 25.
The weighted average fair value of the Rights granted is
approximately $1.40 per Right and the pro forma effect (as required by
Statement 123) is not material to the operations of the Partnership.
NOTE 11--DISCONTINUED OPERATIONS
On October 1, 1999, the Partnership sold the operating assets
utilized by the Crude Gathering System to Sun for $29,595,000 in cash
proceeds and the assumption by Sun of certain indebtedness in the
amount of $5,334,000. Accordingly, the operating results of the Crude
Gathering System have been segregated from the continuing operations
and are reported as discontinued operations. Since August 1, 1999 was
the measurement date for computing gain (loss) on disposal,
discontinued operations for the year ended December 31, 1999 are based
on operations through July 31, 1999. Interest expense, except for
interest on the note assumed by Sun, and general corporate
administrative expenses were not allocated to the discontinued
operations. However, interest expense related to continuing
operations declined since $15,000,000 of the proceeds were used to
reduce the A Term Loan (see Notes 1 and 4).
After the sale, the Partnership continues to be responsible for
certain environmental liabilities associated with the Crude Gathering
System including three on-going remediation sites, any refined product
contamination associated with the assets sold and certain inactive
crude gathering lines retained by the Partnership. Other than $93,000
currently accrued for remediation of the sites, the Partnership does
not expect future expenditures related to these retained environmental
liabilities to be material.
Revenues for the Crude Gathering System were $241,483,000 for the
first nine months of 1999. Under the terms of the asset sale, the
Partnership retained receivables of $13,669,000, other payables
excluding suspense liability of $20,410,000, and crude suspense
liability of $10,935,000 as of the disposal date of October 1, 1999.
In connection with the Crude Gathering System operations, as
first purchaser of crude oil the Partnership was responsible for
distribution of payments to the various revenue and royalty interest
owners. Often, the legal rights of the interest owners were unclear
or the owners could not be located for long periods of time. When
such was the case, the Partnership retained the liability for the
payments until the ownership interest was clarified or the owners
located, at which time payment was made. When an owner could not be
located, state statutes generally required that the unpaid amounts be
escheated to the state after the passage of a specified number of
years. Because such liabilities take years to be resolved and paid,
an estimate has been made of the amounts expected to be paid during
the next year and such amounts have been included in current
liabilities with the remainder included in long-term liabilities. At
December 31, 2001 and 2000, long-term liabilities included $8,680,000
and $8,484,000, respectively, related to crude suspense liabilities.
In accordance with the Bankruptcy rules, a significant portion of
this debt will be cancelled in the first quarter of 2002 because the
holders of such claims did not file timely proofs of claim or because
such claims are not allowed even though proofs of claim were timely
filed (see Notes 1 and 9).
At December 31, 2000, the assets and liabilities of the Crude
Gathering System have been segregated from the continuing operations
and are considered to be discontinued operations. As a result of the
Bankruptcy, the liabilities of the discontinued operation are included
in liabilities subject to compromise along with other prepetition
liabilities of the continuing operations at December 31, 2001.
Current liabilities subject to compromised at December 31, 2001
and net current liabilities of discontinued operations at December 31,
2000 included the following components (in thousands) from the Crude
Gathering System:
2001 2000
-------- --------
Accounts payable $ 430 455
Crude suspense liability 361 460
Accrued payroll and related benefits 70 77
Accrued taxes (50) (50)
-------- --------
$ 811 $ 942
======== ========
Long-term liabilities subject to compromise at December 31, 2001
and net long-term liabilities of discontinued operations at December
31, 2000 included the following components (in thousands) from the
Crude Gathering System:
2001 2000
-------- --------
Other assets $ - $ (38)
Crude suspense liability 8,680 8,484
-------- --------
$ 8,680 $ 8,446
======== ========
NOTE 12--BANKRUPTCY
As previously mentioned (see Note 1 and 5), on January 17, 2001,
the Partnership filed Bankruptcy and was authorized to continue
managing and operating its business as a debtor in possession subject
to the control and supervision of the Bankruptcy Court. As previously
discussed, the filing was necessitated by certain actions taken by
Varde which was the Partnership's primary lender and also owned two-
thirds of the Redeemable Preferred Equity (see Notes 1 and 8). Varde
was claiming a $17,621,000 Transaction Fee and the rights to certain
securities it had assigned to Management effective December 31, 1997
(see Notes 1, 5 and 7). An adversary proceeding involving all of the
contested issues between Varde and the Partnership was completed on
April 6, 2001. The Bankruptcy Court issued the Initial Ruling on
September 4, 2001 (see Note 5).
Under Chapter 11, certain claims against the Partnership in
existence prior to the filing of the petition for relief under the
federal bankruptcy laws were stayed while the Partnership continued
business as a debtor in possession. These claims are reflected in the
December 31, 2001 balance sheet as "liabilities subject to
compromise." Additional claims (liabilities subject to compromise)
may have arisen or may arise subsequent to the filing date resulting
from rejection of executory contracts, including leases, and from
determination by the Bankruptcy Court (or agreed to by parties in
interest) of allowed claims for contingencies and other disputed
amounts such as the claims of the former employees (see below).
Claims secured by the Partnership's assets ("Secured Claims") also
were stayed, although the holders of such claims had the right to move
the Bankruptcy Court for relief from the stay. The Secured Claims
were secured primarily by the Partnership's cash, accounts
receivables, and property, plant and equipment.
At December 31, 2001, current liabilities subject to compromise
included liabilities of the Products Marketing Business (continuing
operations) of $7,707,000 and liabilities of the Crude Gathering
System (discontinued operations) of $861,000, whereas long-term
liabilities subject to compromise included $7,000,000 of liabilities
from the Products Marketing Business (continuing operations) and
$8,680,000 of liabilities from the Crude Gathering System
(discontinued operations) (see Notes 1 and 11).
The Partnership paid or incurred $1,294,000 (includes a premium
of $183,000 related to the Varde Settlement Agreement) and $55,000 in
bankruptcy related expenses for the years ended December 31, 2001 and
2000.
The Partnership received approval from the Bankruptcy Court to
pay or otherwise honor certain prepetition obligations, including
employee wages, liabilities for excise taxes and accounts payable owed
to Shell for the purchase of refined product.
On January 18, 2001, the Managing General Partner, Special
General Partner and Pride Marketing each filed a voluntary petition
under Chapter 11 of the Federal Bankruptcy Code in the Northern
District of Texas, Abilene Division and each of them was authorized to
continue managing and operating its business as debtors in possession
subject to the control and supervision of the Bankruptcy Court.
On or about May 17, 2001, the Partnership, the Managing General
Partner, and Pride SGP filed their proposed Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code and Disclosure
Statement for Debtors' Joint Chapter 11 Plan of Reorganization with
the Bankruptcy Court.
On September 24, 2001, the Partnership and the Managing General
Partner filed their proposed First Amended and Restated Debtors' Joint
Plan of Reorganization under Chapter 11 of the Bankruptcy Code and
First Amended and Restated Joint Disclosure Statement with the
Bankruptcy Court to reflect the Bankruptcy Court's Initial Ruling.
As a result of the Varde Settlement Agreement, the Partnership
and Managing General Partner filed their proposed Second Amended and
Restated Joint Plan of Reorganization and Second Amended and Restated
Joint Disclosure Statement for Debtors' Joint Chapter 11 Plan of
Reorganization on November 9, 2001.
A hearing before the Bankruptcy Court was held on November 15,
2001 to determine the adequacy of the disclosure in the Partnership's
proposed Second Amended and Restated Joint Plan of Reorganization and
Second Amended Disclosure Statement for Debtors' Joint Chapter 11 Plan
of Reorganization. During the hearing, the Partnership agreed to
certain modifications and incorporated those modifications into the
Third Amended and Restated Joint Plan of Reorganization (as amended by
modifications thereto filed Janaury 8, 2002 and January 11, 2002,
repectively, the "Plan") and Third Amended and Restated Joint
Disclosure Statement for Debtors' Joint Chapter 11 Plan of
Reorganization (the "Disclosure Statement") dated November 19, 2001.
The Plan and Disclosure Statement was mailed to the impaired creditors
and equity holders and notice was given to all creditors.
On January 11, 2002 (the "Confirmation Date"), the Bankruptcy
Court signed an order confirming the Plan after the Court heard
testimony on January 8, 2002 that all classes entitled to vote
("Impaired Classes") had voted in favor of the Plan and certain agreed
to modifications were made to the Plan. The Partnership and Managing
General Partner emerged from Bankruptcy on January 22, 2002 (the
"Effective Date").
On May 22, 2001, Messrs. Doug Morris, Brad Morris, Jimmy Morris,
Tommy Broyles, and Mike Dunigan, as beneficiary of certain Dunigan
family trusts, (collectively the "Claimants") each filed a proof of
claim against the Partnership and the Managing General Partner in the
amount of $14,541,000 each plus interest, attorney fees and costs.
The Claimants are shareholders of Pride SGP and directors of Pride SGP
with the exception of Mr. Jimmy Morris who was an advisory director.
The Claimants alleged that they and Pride SGP were wrongfully deprived
of assets, rents payable, interest due and other claims as a result of
certain transactions beginning in 1994. On December 10, 2001, those
shareholders and Pride SGP withdrew their proof of claim (see Note 1).
On January 8, 2002, the Partnership, the Managing General Partner
and Management entered into the Pride SGP Settlement Agreement with
Pride SGP and the Departing Shareholders of Pride SGP (see Notes 1 and
13). Under the Pride SGP Settlement Agreement, the Partnership agreed
to redeem $2,630,000 of the $3,144,000 G Preferred Units held by Pride
SGP and the Departing Shareholders of Pride SGP for $1,275,000
($2,526,000 of the G Preferred Units were subsequently distributed by
Pride SGP to the Departing Shareholders of Pride SGP in exchange for
their interest in Pride SGP and were redeemed by the Partnership from
the Departing Shareholders for $1,225,000), Pride SGP agreed to vote
in favor of the Plan and all parties agree to mutual releases (see
Notes 1, 5, 7 and 9). On March 18, 2002, the Partnership redeemed
$104,000 of the G Preferred Units held by Pride SGP for $50,000. On
April 3, 2002, the Partnership redeemed $2,526,000 of the G Preferred
Units from the Departing Shareholders for $500,000 and a non-interest
bearing payable of $725,000 due on September 30, 2002. As a result of
the acquisition of the interests in Pride SGP owned by the Departing
Shareholders, all of the outstanding stock of Pride SGP is now owned
by Messrs. Stephens, Malone and Caddell.
On May 22, 2001, five former employees filed proofs of claim
totaling $3,213,000 plus amounts unknown related to unpaid
compensation for 1998 through 2000. On November 26, 2001, an
adversary hearing was held by the Bankruptcy Court to determine
whether to allow the proofs of claim. On December 21, 2001, the
Bankruptcy Court issued its initial ruling and held that the
Partnership owed the former employees some amount but did not specify
how much was owed. The Bankruptcy Court requested that the parties
attempt to settle their controversy based on its initial ruling.
Since the parties were unable to settle the case, the Bankruptcy Court
held a hearing on February 28, 2002 to hear additional evidence on
damages. The Partnership had accrued $72,000 in severance prior to
the Bankruptcy Court's initial ruling, but has not accrued an
additional liability as a result of such ruling since the Partnership
does not feel it has enough information to estimate the amount of the
liability at this time.
Several other parties have filed proofs of claim which the
Partnership has objected to or plans on objecting to; however, those
disputed claims are not expected to have a material effect on the
Partnership.
In accordance with the Bankruptcy rules, certain of the
Partnership's debt is being cancelled because the holders of such
claims did not file timely proofs of claim or because such claims are
not allowed even though proofs of claim were timely filed. As a
result, the Partnership is required to recognize income with respect
to such debt cancellation and, subject to the possible availability of
offsetting deductions, to allocate 98% of the resulting net taxable
income to Common Unitholders even though the Common Unitholders do not
receive a distribution of cash. The Partnership estimates taxable
income of $9,600,000 related to cancellation of indebtedness income of
which 98% will be allocated to Common Unitholders based on the number
of months each Common Unitholder held his or her Common Units during
the taxable year that ends December 31, 2002 (see Note 9).
Pride Marketing which is currently inactive is expected to be
liquidated in the near future.
Current liabilities subject to compromise at December 31,
included the following components (in thousands):
2001
--------
Continuing Operations:
Subordinate Note A $ 1,111
Allowed Unsecured Claim (Current) 4,000
Accounts payable 1,415
Accrued liabilities 1,181
Discontinued Operations:
Accounts payable 430
Crude suspense liability 361
Accrued payroll and related benefits 70
--------
$ 8,568
========
Long-term liabilities subject to compromise at December 31,
included the following components (in thousands):
2001
--------
Continuing Operations:
Allowed Unsecured Claim (Long-term) $ 7,000
Discontinued Operations:
Crude suspense liability 8,680
--------
$ 15,680
========
NOTE 13--PLAN OF REORGANIZATION
On January 11, 2002, the Bankruptcy Court signed an order, after
a hearing on January 8, 2002, confirming, under Chapter 11 of the
United States Bankruptcy Code, the Plan submitted by the Partnership
and the Managing General Partner. The Plan took effect on January 22,
2002 and the two companies emerged from bankruptcy at that time. All
creditors whose claims are not disputed or who filed proofs of claim
that are allowed under the Bankruptcy Code are expected to be paid in
full as provided in the Plan. The following summary of the Plan is
qualified in its entirety by reference to the Plan. Capitalized terms
that are not defined herein shall have the meanings given them in the
Plan.
The Plan provides for the following treatment for the Allowed
Claims and Allowed Interests of Creditors and Interest holders of the
Partnership:
(i) Varde was deemed to have an Allowed Unsecured Claim against
the Partnership in the amount of $11,000,000 (net of a $2,000,000
discount) that would be paid by the Partnership as follows: (1)
$4,000,000 paid in cash on the Effective Date; and (2) the balance
paid by delivery of the Varde Unsecured Note in the original principal
amount of $9,000,000 (before the $2,000,000 discount). The
Partnership paid Varde $11,000,000 on the Effective Date and as a
result received the $2,000,000 discount on the Varde Unsecured Note.
(ii) Certain Claims and Interests of Management are treated
as follows:
a. The Allowed Secured Claims of Management (which is
referred to as the C Term Loan in the financial statements) against
the Partnership were satisfied with a separate series of New
Redeemable Preferred Equity with an aggregate $2,100,000 liquidation
preference, which provides for cumulative distributions of 7.5% per
annum, and is subject to mandatory redemption in equal annual
installments as necessary to fully redeem such series of New
Redeemable Preferred Equity over 10 years.
b. The Allowed Unsecured Claims of Management (which
includes the Subordinate Note A and amounts due under indemnity
agreements) against the Partnership was satisfied as follows: (i) the
Partnership paid $388,000 to Management on January 22, 2002 for their
Allowed Unsecured Claims arising under indemnity obligations of the
Partnership, plus (ii) Management received New Redeemable Preferred
Equity with an aggregate $1,100,000 liquidation preference, which
provides for cumulative distributions of 7.5% per annum, and is
subject to mandatory redemption in equal annual installments as
necessary to fully redeem such series of New Redeemable Preferred
Equity over 10 years.
c. The Allowed Existing Partnership Preferred Interests
(which is referred to as the Redeemable Preferred Equity in the
financial statements) of Management was satisfied by Management's
receipt of New Redeemable Preferred Equity with an aggregate
$8,300,000 liquidation preference, which provides cumulative
distributions of 7.5% per annum, and is subject to mandatory
redemption in equal annual installments as necessary to fully redeem
such series of New Redeemable Preferred Equity over 15 years. The New
Redeemable Preferred Equity was subject to a $2,000,000 potential
discount depending on when the Varde Unsecured Note was retired.
Since Varde was paid $11,000,000 on the Effective Date, the New
Redeemable Preferred Equity owned by Management was not discounted.
(iii) Other Creditors are treated as follows:
a. Allowed Administrative Expenses of the Partnership will
be paid in full as soon as practical after the Effective Date, or
after such expense is Allowed by the Court.
b. Allowed Unsecured Priority Tax Claims of the Partnership
will be paid in full on the later of (1) as soon as practicable after
the Effective Date, (2) as soon as practicable after such Claim
becomes an Allowed Claim, or (3) if the payment on the Claim is not
due as of the Confirmation Date, when the payment is due in the
ordinary course of the Partnership's business.
c. Allowed Secured Tax Claims of the Partnership will be
paid with interest at 8% per annum in the ordinary course of the
respective Partnership's business as described more fully in the Plan.
Creditors will retain any liens until the tax is paid.
d. Allowed Non-Tax Priority Claims will be paid in full by
the Partnership as soon as practical after the Effective Date or after
such claim is Allowed, whichever is later.
e. The Allowed Secured Claim of Fleet National Bank against
the Partnership will be paid in full by the Partnership as soon as
practical after the Effective Date or after such claim is allowed,
whichever is earlier.
f. Allowed Royalty Claims against the Partnership will be
paid in full by the Partnership as due in the ordinary course of its
business, on the later of the Effective Date or such date that the
Claim becomes due in accord with the Texas Natural Resources Code (see
Note 11).
g. Allowed General Unsecured Claims of the Partnership will
be paid by the Partnership in full with 7.5% interest per annum from
the Effective Date upon the later of six months after the Effective
Date or when Allowed; however, if such claims are not disputed the
Partnership plans on paying them earlier.
(iv) Interest holders received the following treatment pursuant to
the Plan:
a. The Managing General Partner retained its Allowed
Existing Partnership General Partnership Interest.
b. At the Confirmation Hearing, the Partnership, the
Managing General Partner and Management, on the one hand, and Pride
SGP and certain of its shareholders (referred to herein as
the "Departing Shareholders"), on the other hand entered into the
Pride SGP Settlement Agreement. Messrs. Malone, Stephens and Caddell
retained their interest in Pride SGP. All other shareholders of Pride
SGP are Departing Shareholders (see Note 7). Under the Pride SGP
Settlement Agreement, Pride SGP retained its Existing Partnership
General Partnership Interest since the agreement was approved by the
Bankruptcy Court.
c. Pride SGP retained its Allowed Existing Partnership
Subordinated Preferred Interests (which is referred to as the G
Preferred Units in the financial statements) and such interest
continues to be subordinated to the New Redeemable Preferred Equity.
Pursuant to the SGP Settlement Agreement, however, the Plan was
amended to provide for the following alternative treatment since
certain Conditions Precedent were satisfied:
i. The Partnership paid the Departing Shareholders of
Pride SGP, who were holders of units of the Existing Partnership
Subordinated Preferred Interests (or G Preferred Units), $500,000 in
cash on April 3, 2002 (the "First Payment"). On September 30, 2002,
the Partnership will pay the Departing Shareholders an additional
$725,000 (the "Second Payment"). (Collectively, the First Payment and
Second Payment are referred to as the "Pride SGP Payments".) The
Pride SGP Payments will be in full and final settlement and redemption
of $2,526,000 (based on the stated value thereof) of the Existing
Partnership Subordinated Preferred Interests (or G Preferred Units)
that were distributed by Pride SGP to the Departing Shareholders. The
Pride SGP Payments will be made to Tommy Broyles as Trustee for the
Departing Shareholders and he shall be responsible for allocating the
Pride SGP Payments among the Departing Shareholders (see "Item 13.
Certain Relationships and Related Transactions").
ii. The Partnership paid Pride SGP $50,000 in cash on
March 18, 2002 to redeem $104,000 (based on the stated value thereof)
of the Existing Partnership Subordinated Interests (or G Preferred
Units) held by Pride SGP.
d. Allowed Existing Partnership Common Interests retained
their Interests.
As of the Confirmation Date, there were 4,950,000 Common Units
outstanding. Holders of Allowed Existing Partnership Common Interests
retained such interests, and such interests remained outstanding
pursuant to the Plan. Also, as described above, existing Redeemable
Preferred Equity owned by Management was cancelled and New Redeemable
Preferred Equity was issued with respect thereto. In addition, Pride
SGP retained its Existing Partnership Subordinated Preferred Interests
(or G Preferred Units) and its Existing Partnership General
Partnership Interest remained outstanding and certain of its Existing
Partnership Subordinated Preferred Interests (or G Preferred Units)
were redeemed pursuant to the Pride SGP Settlement Agreement.
Under the Plan, the Partnership had proposed a reverse Common
Unit split so that the number of Common Unitholders would be less than
300 and the Partnership could avoid the expenses of being a public
company. Since the requisite number of Common Unitholders did not
vote for the reverse Common Unit split, the Common Units that they own
were unaffected by the Plan. All other voting classes in the
bankruptcy voted in favor of the Plan.
(This page should be printed on 11" x 8.5" paper)
NOTE 14--QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Net income Basic Diluted
Operating Net (loss) after Income Income
Net Income Income preferred (Loss) (Loss)
Quarter Ended Revenues (Loss) (Loss) distributions per Unit per Unit
- ------------- -------- --------- -------- ------------- -------- --------
March 31, 2000 50,293 152 (1,080) (1,532) (0.30) (0.30)
June 30, 2000 63,721 124 (1,050) (1,512) (0.30) (0.30)
September 30, 2000 97,486 35,797 46,429 46,003 9.11 6.33
December 31, 2000 59,686 96 (890) (1,233) (0.25) (0.25)
March 31, 2001 56,894 (59) (334) (796) (0.16) (0.16)
June 30, 2001 74,987 1,511 826 351 0.07 0.07
September 30, 2001 63,364 1,229 1,940 595 0.12 0.12
December 31, 2001 41,265 (329) (1,012) (1,536) (0.30) (0.30)
Net revenues, operating income (loss), and net income (loss) for the quarter
ended September 30, 2000 includes $36,257,000, $36,257,000 and $48,646,000,
respectively, as a result of the DESC Claim (see Notes 1 and 5).
INDEX TO EXHIBITS TO REPORT ON FORM 10-K
Exhibit Number
(Reference to
Item 601 of
Regulation S-K) Description
_______________ ___________
3.1 Third Amended and Restated Agreement of Limited Partnership
of the Partnership (incorporated by reference to Exhibit 3.3
of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (Commission File No. 1-10473)).
4.1 Deposit Agreement among the Partnership and the Depository
(incorporated by reference to Exhibit 4.1 of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990 (Commission File No. 1-10473)).
4.2 Transfer Application (included as Exhibit A to the Deposit
Agreement, which is incorporated by reference to Exhibit 4.2
of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-10473)).
4.3 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit
4.5 of the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (Commission
File No. 1-10473)).
10.1 Pipeline Lease Agreement by and between the Partnership and
Pride SGP, Inc. (incorporated by reference to Exhibit 10.2
of the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-10473)).
10.2 Amendment 1 to Pipeline Lease Agreement by and between the
Partnership and Pride SGP, Inc. (incorporated by reference to
Exhibit 10.3 of the Partnership's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (Commission File
No. 1-10473)).
10.3 Registration Rights Agreement dated March 30, 1990, by and
between the Partnership and Pride SGP, Inc. (incorporated by
reference to Exhibit 10.5 of the Partnership's Registration
Statement on Form S-1 (Commission File No. 33-42115), as
amended).
10.4 Promissory Note between Pride SGP, Inc. ("Lender") and the
Partnership ("Borrower") dated March 26, 1993 (incorporated
by reference to Exhibit 10.14 of the Partnership's Annual
Report on Form 10K for the fiscal year ended December 31,
1992 (Commission File No. 1-10473)).
10.5 Amendment 2 to Pipeline Lease Agreement by and between the
Partnership and Pride SGP, Inc. (incorporated by reference
to Exhibit 10.16 of the Partnership's Annual Report on Form
10K for the fiscal year ended December 31, 1992 (Commission
File No. 1-10473)).
10.6 Promissory Note between Pride SGP, Inc. ("Lender") and the
Partnership ("Borrower") dated September 7, 1995 (incorporated
by reference to Exhibit 28.2 of the Partnership's Quarterly
Report on Form 10Q for the quarter ended September 30, 1995
(Commission File No. 1-10473)).
10.7 Note Agreement dated August 13, 1996, among the Partnership
("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and
Pride Borger, Inc. (collectively Guarantors), and NationsBank
of Texas, N.A. as Agent, and NationsBank of Texas, N.A. and
Bank One Texas, N.A. as Lenders (incorporated by reference to
Exhibit 28.2 of the Partnership's Quarterly Report on Form 10Q
for the quarter ended June 30, 1996 (Commission File No.
1-10473)).
10.8 Unit Appreciation Rights Plan (incorporated by reference
to Exhibit 10.26 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996
(Commission File No. 1-10473)).
10.9 Sixth Restated and Amended Credit Agreement, dated as
of December 30, 1997, by and among Pride Companies, L.P.
("Borrower"), Pride Refining, Inc., Pride SGP, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc., as Guarantors, and
Varde Partners, Inc. as Lender (incorporated by
reference to Exhibit 10.29 of the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 (Commission File No. 1-10473)).
10.10 Seventh Amendment to the Fifth Restated and Amended Credit
Agreement, dated as of December 30, 1997, by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc., as Guarantors, and Varde
Partners, Inc. as Lender (incorporated by reference to Exhibit
10.30 of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (Commission File No. 1-
10473)).
10.11 Restructuring and Override Agreement, dated as of December 30,
1997, by and among Varde Partners, Inc., Pride Companies,
L.P., Pride Refining, Inc., and Pride SGP, Inc. (Commission
File No. 1-10473).
10.12 Certificates of Designation - Series B and Series C Cumulative
Convertible Preferred Units of Pride Companies, L.P., pursuant
to the Second Amended and Restated Agreement of Limited
Partners, effective as of December 30, 1997 (Commission File
No. 1-10473).
10.13 Revolving Credit and Term Loan Agreement, dated as of December
30, 1997, among Pride Companies, L.P., Pride SGP, Inc., Pride
Refining, Inc., Desulfur Partnership, Pride Borger, Inc. and
Pride Marketing of Texas (Cedar Wind), Inc., BankBoston, N.A.,
as an Agent and as a Lender, Lehman Commercial Paper Inc., as
a Lender and as Documentation Agent (Commission File No. 1-
10473).
10.14 Guarantee and Security Agreement, dated as of December 30,
1997, among Pride Companies, L.P., Pride SGP, Inc., Pride
Refining, Inc., Desulfur Partnership, Pride Marketing of
Texas (Cedar Wind), Inc., Pride Borger, Inc. and BankBoston,
N.A., as Agent. (Commission File No. 1-10473).
10.15 Intercreditor and Agency Agreement, dated as of December 30,
1997, among BankBoston, N.A., as Agent and Collateral Agent,
Varde Partners, Inc., as Term Lender, and acknowledged and
consented to by Pride Companies, L.P., as Company, and Pride
SGP, Inc., Pride Refining, Inc., Pride Borger, Inc., Desulfur
Partnership, and Pride Marketing of Texas (Cedar Wind), Inc.,
as Guarantors (Commission File No. 1-10473).
10.16 Pride SGP Subordination Agreement, dated December 30, 1997,
among Pride Companies, L.P., Pride Refining, Inc., Pride
Borger, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., as the Obligors, Pride SGP, Inc., and
BankBoston, N.A., as Agent (Commission File No. 1-10473).
10.17 Varde Subordination Agreement, dated as of December 30, 1997,
among Pride Companies, L.P., Pride SGP, Inc., Pride Refining,
Inc., Pride Borger, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., as Obligors, Varde Partners, Inc.,
and BankBoston, N.A., as Agent (Commission File No. 1-10473).
10.18 Equity Conversion Agreement, dated December 31, 1997, between
Pride SGP, Inc., Pride Companies, L.P., and Varde Partners,
Inc. (Commission File No. 1-10473).
10.19 Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 31, 1997, between Pride SGP, Inc. and Pride Companies,
L.P.(Commission File No. 1-10473).
10.20 First Amendment to Sixth Restated and Amended Credit Agreement
dated as of April 15, 1998, by and among Pride Companies, L.P.
("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and
Pride Borger, Inc. (collectively Guarantors) and Varde
Partners, Inc. as Lender (incorporated by reference to Exhibit
28.1 of the Partnership's Quarterly Report on Form 10Q for the
quarter ended June 30, 1998 (Commission File No. 1-10473)).
10.21 Amendment No. 1 to the Revolving Credit and Term Loan
Agreement, dated as of April 15, 1998, among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as an Agent and
as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent (incorporated by
reference to Exhibit 28.2 on Form 10Q for the quarter
ended June 30, 1998 (Commission File No. 1-10473)).
10.22 Waiver dated as of October 29, 1998 to the First Amendment
to Sixth Restated and Amended Credit Agreement among Pride
Companies, L.P. as borrower, Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc. and Pride Borger, Inc., as guarantors, and Varde
Partners, Inc., as lender (incorporated by reference to
Exhibit 28.1 of the Partnership's Quarterly Report on Form
10Q for the quarter ended September 30, 1998 (Commission
File No. 1-10473)).
10.23 Waiver dated as of August 1, 1998 to the Revolving Credit
and Term Loan Agreement dated December 30, 1997, as amended,
among Pride Companies, L.P., as borrower, Pride SGP, Inc.,
Pride Refining, Inc., Desulfur Partnership, Pride Borger, Inc.
and Pride Marketing of Texas (Cedar Wind), Inc., BankBoston,
N.A., as Agent, Lehman Commercial Paper, Inc., as Documentation
Agent, and BankBoston, N.A., Lehman Commercial Paper Inc. and
Union Bank of California, N.A. (incorporated by reference to
Exhibit 28.2 of the Partnership's Quarterly Report on Form 10Q
for the quarter ended September 30, 1998 (Commission File No.
1-10473)).
10.24 Second Amendment to the Sixth Restated and Amended Credit
Agreement dated as of November 20, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors)
and Varde Partners, Inc. as Lender (incorporated by reference
to Exhibit 10.33 of the Partnership's Annual Report on Form
10K for the year ended December 31, 1998 (Commission File No.
1-10473)).
10.25 Third Amendment to the Sixth Restated and Amended Credit
Agreement dated as of December 1, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors)
and Varde Partners, Inc. as Lender (incorporated by reference
to Exhibit 10.34 of the Partnership's Annual Report on Form
10K for the year ended December 31, 1998 (Commission File
No. 1-10473)).
10.26 Fourth Amendment to the Sixth Restated and Amended Credit
Agreement dated as of December 31, 1998 by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., and Pride Borger, Inc. (collectively
Guarantors) and Varde Partners, Inc. as Lender (incorporated
by reference to Exhibit 10.35 of the Partnership's Annual
Report on Form 10K for the year ended December 31, 1998
(Commission File No. 1-10473)).
10.27 Fifth Amendment to the Sixth Restated and Amended Credit
Agreement dated as of March 1999 by and among Pride Companies,
L.P. ("Borrower"), Pride Refining, Inc., Pride SGP, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind),
Inc., and Pride Borger, Inc. (collectively Guarantors) and
Varde Partners, Inc. as Lender (incorporated by reference
to Exhibit 10.36 of the Partnership's Annual Report on Form
10K for the year ended December 31, 1998 (Commission File No.
1-10473)).
10.28 Amendment No. 2 to the Revolving Credit and Term Loan
Agreement, dated as of November 20, 1998, among Pride
Companies, L.P., Pride SGP, Inc., Pride Refining, Inc.,
Desulfur Partnership, Pride Borger, Inc., Pride Marketing of
Texas (Cedar Wind), Inc., and BankBoston, N.A., as an Agent
and as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent (incorporated by reference
to Exhibit 10.37 of the Partnership's Annual Report on Form
10K for the year ended December 31, 1998 (Commission File
No. 1-10473)).
10.29 Amendment No. 3 to the Revolving Credit and Term Loan
Agreement, dated as of December 31, 1998, among Pride
Companies, L.P., Pride SGP, Inc., Pride Refining, Inc.,
Desulfur Partnership, Pride Borger, Inc., Pride Marketing of
Texas (Cedar Wind), Inc., and BankBoston, N.A., as an Agent
and as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent (incorporated by reference
to Exhibit 10.38 of the Partnership's Annual Report on
Form 10K for the year ended December 31, 1998 (Commission File
No. 1-10473)).
10.30 Amendment No. 4 to the Revolving Credit and Term Loan
Agreement, dated as of March 1999, among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as an Agent and
as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent (incorporated by
reference to Exhibit 10.39 of the Partnership's Annual
Report on Form 10K for the year ended December 31, 1998
(Commission File No. 1-10473)).
10.31 Amendment No. 5 to the Revolving Credit and Term Loan
Agreement dated as of April 15, 1999 among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as an Agent and
as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent (incorporated by
reference to Exhibit 10.1 of the Partnership's Quarterly
Report on Form 10Q for the quarter ending March 31, 1999
(Commission File No. 1-10473)).
10.32 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. (incorporated by reference to Exhibit 10.1 of
the Partnership's Quarterly Report on Form 10Q for the quarter
ending June 30, 1999 (Commission File No. 1-10473)).
10.33 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 (incorporated by reference to Exhibit 10.2 of the
Partnership's Quarterly Report on Form 10Q for the quarter
ending June 30 1999 (Commission File No. 1-10473)).
10.34 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 (incorporated by reference to
Exhibit 10.3 of the Partnership's Quarterly Report on Form 10Q
for the quarter ending June 30, 1999 (Commission File No. 1-
10473)).
10.35 Waiver and Consent dated as of October 1, 1999 among Pride
Companies, L.P. (the "Borrower"), Pride Refining, Inc., Pride
SGP, Inc., Pride Marketing of Texas (Cedar Wind), Inc. and
Pride Borger, Inc. (collectively, the "Guarantors"), and Varde
Partners, Inc., ("Lender") (incorporated by reference to
Exhibit 10.1 of the Partnership's Quarterly Report on Form 10Q
for the quarter ending September 30, 1999 (Commission File No.
1-10473)).
10.36 Amendment No. 6 to the Revolving Credit and Term Loan
Agreement, dated as of October 1, 1999 among Pride Companies,
L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur
Partnership, Pride Borger, Inc., Pride Marketing of Texas
(Cedar Wind), Inc., and BankBoston, N.A., as Agent and as a
Lender, Lehman Brothers Commercial Paper, Inc. as a Lender and
as a Documentation Agent (incorporated by reference to Exhibit
10.2 of the Partnership's Quarterly Report on Form 10Q for the
quarter ending September 30, 1999 (Commission File No. 1-
10473)).
10.37 Certificates of Designation of Series G Subordinate Preferred
Units of Pride Companies, L.P. pursuant to the Third Amended
and Restated Agreement of Limited Partnership effective as of
October 1, 1999 (incorporated by reference to Exhibit 10.46 of
the Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999 (Commission File No. 1-10473)).
10.38 Promissory Note dated September 18, 2000, between Pride
Companies, L.P., as borrower, and Dave Caddell, in his
individual capacity and as trustee for Brad Stephens, Wayne
Malone, and George Percival, as lenders (incorporated by
reference to Exhibit 10.47 of the Partnership's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000
(Commission File No. 1-10473)).
10.39 Compromise and Settlement Agreement executed October 18,
2001, by and among Varde Partners, Inc., Pride Companies,
L.P. and Pride Refining, Inc. and Brad Stephens, Wayne
Malone, Dave Caddell and George Percival (incorporated by
reference to Exhibit 10.1 of the Partnership's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2001 (Commission File No. 1-10473)).
10.40 Third Amended and Restated Debtors' Joint Plan of
Reorganization, dated November 19, 2001; Modification
to Third Amended and Restated Debtors' Joint Plan of
Reorganization dated January 8, 2002; and Second
Modification to Third Amended and Restated Debtors'
Joint Plan of Reorganization dated January 11, 2002
(incorporated by reference to Exhibit 2.1 of the
Partnership's Current Report on Form 8-K dated January 11,
2002 (Commission File No. 1-10473)).
10.41 Findings of Fact, Conclusions of Law and Order
Confirming the Debtors' Third Amended and Restated
Joint Plan of Reorganization dated January 11, 2002,
(incorporated by reference to Exhibit 2.2 of the
Partnership's Current Report on Form 8-K dated January 11,
2002 (Commission File No. 1-10473)).
10.42 Certificate of Designation for Senior Preferred Units
executed as of January 22, 2002.
10.43 Promissory Note dated January 22, 2002, in the principal
amount of $9,000,000, executed by the Partnership and
Pride Refining and payable to Varde Partners, Inc.
10.44 Settlement Agreement and Release of Claims executed
January 8, 2002 by and among the Partnership, Brad
Stephens, C. David Caddell, D. Wayne Malone George
Percival, Pride SGP, Inc. and those persons identified
as the "Departing SGP Shareholders" therein.
25.1 Power of Attorney (included on the signature page of this
Report).
EXHIBIT 10.41
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
ABILENE DIVISION
In re: )( Chapter 11
)(
PRIDE COMPANIES L.P., and )( Case No. 01-10041-RLJ-11
PRIDE REFINING, INC. )( Case No. 01-10043-RLJ-11
)(
Debtors. )(
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
CONFIRMING THE DEBTORS' THIRD AMENDED AND RESTATED
JOINT PLAN OF REORGANIZATION, AS AMENDED
Pride Companies, L.P. ("Pride") and Pride Refining, Inc.
("Refining") (collectively, the "Debtors" or "Plan Proponents") have
proposed for confirmation the Third Amended and Restated Debtors'
Joint Plan of Reorganization, which they filed with the Court on
November 19, 2001, as it has been modified by the modifications
described below (the "Plan"). All capitalized terms, not otherwise
defined herein, shall have the meanings ascribed to them in the Plan.
On November 19, 2001, the Plan Proponents filed the Debtors'
Third Amended and Restated Joint Disclosure Statement (the "Disclosure
Statement"). After reviewing the Disclosure Statement and hearing any
objections to it, the Court entered an order approving the Disclosure
Statement and finding that it contained adequate information under
Section 1125 of the Bankruptcy Code (the "Disclosure Statement
Order"). The Disclosure Statement Order was entered on November 20,
2001. The Disclosure Statement Order provided for the Plan
solicitation material to be sent out by December 2, 2001; ballots to
be due on January 4, 2002; objections to confirmation to be due on
December 31, 2001; and the hearing on confirmation of the Plan (the
"Confirmation Hearing") to commence on January 8, 2002.
On January 8, 2002, the Debtors filed their Modification to Third
Amended and Restated Debtors' Joint Plan of Reorganization (the "First
Modification").
The Court commenced and completed the Confirmation Hearing on
January 8, 2002.
At the Confirmation Hearing, the Debtors announced an additional
modification to the Plan on the record, which modification was to
effectuate a settlement reached between and among the Debtors and
Management (Brad Stephens, Dave Caddell, Wayne Malone, and George
Percival), on the one hand, and Pride SGP and certain parties referred
to herein as the Departing Shareholders, on the other. Based on
the settlement, Pride SGP and the Departing Shareholders, withdrew
their objection to the Plan and, to the extent they voted against the
Plan, changed their vote(s) to one in favor of the Plan. The Debtors
announced to the Court at the Confirmation Hearing that they would
file a Second Modification setting forth the terms of the
modification, which they did on January 9, 2002. Together the First
Modification and Second Modification are referred to as the
"Modifications".
The Departing Shareholders include (a) Bradley A. Morris,
Individually and as Trustee for the Sue Morris Trust and
the Gregory B. Adams Separate Share Trust; (b) John D.
Morris, Individually and as Trustee for the Jimmy Morris,
Jr. Separate Share Trust, Marilyn McClung Trust, Melinda
Jean Morris Trust A, and the Melinda J. Morris Separate
Share Trust; (c) Jimmy R. Morris, Jr., Individually and
as Trustee for John D. Morris Separate Share Trust; (d)
Tommy M. Broyles; (e) Carole A. Malone; (f) Mike Dunigan,
Individually and as Trustee for the JMD 1977 Trust; (g)
Paul Lenker, as Trustee for the DDP-JMD Trust and the
JMD 1977 Trust; (h) R.J. Schumacher; and (i) Andrew C.
Rector as Trustee for the 1981 Rector Irrevocable
Insurance Trust.
Having conducted the Confirmation Hearing, reviewed the evidence,
objections to confirmation, and arguments of counsel, THE COURT HEREBY
FINDS AS FOLLOWS:
1. Debtor Pride Companies, L.P. filed its petition on January
17, 2001 and Debtor Pride Refining, Inc. filed its Chapter 11
bankruptcy petition on January 18, 2001.
2. The Plan, Disclosure Statement, Ballots and other
appropriate material were transmitted to holders of Claims and
Interests in accordance with the Disclosure Statement Order.
3. Notice of the Confirmation Hearing was adequate; holders
of Claims and Interests have received adequate notice and an
opportunity to be heard and were accorded due process in the
adjudication of the issues presented by confirmation of the Plan;
acceptances of the Plan were solicited in accordance with Section 1125
of the Bankruptcy Code and other applicable Bankruptcy Code
provisions.
4. The following classes of Creditors and Interest holders
have voted to accept, or are deemed to have accepted, the Plan:
Partnership Class 1 Accepted
Partnership Class 2 Deemed Accepted
Partnership Class 3 Accepted
Partnership Class 4 Deemed Accepted
Partnership Class 5 Accepted
Partnership Class 6 Accepted
Partnership Class 7 Deemed Accepted
Partnership Class 8 Accepted
Partnership Class 9 Deemed Accepted
Partnership Class 10 Accepted
Partnership Class 11 Accepted
Partnership Class 12 Deemed Accepted
Refining Class 1 Deemed Accepted
Refining Class 2 Deemed Accepted
Refining Class 3 Accepted
Refining Class 4 Accepted
Refining Class 5 Accepted
5. Partnership Class 13 (Existing Partnership Common
Interests) has voted to reject the Plan. The effect of the rejection
by Class 13 means that Pride will not proceed with the reverse stock
split proposed in the Plan. Rather, the holders of Existing
Partnership Common Interests shall retain their Interests, such that
they are unimpaired and are deemed to have accepted the Plan.
6. Pursuant to Section 1124 of the Bankruptcy Code,
Partnership Classes 1, 3, 5, 6, 8, 10 and 11 and Pride Refining
Classes 3, 4 and 5 are impaired and have accepted the Plan pursuant to
Sections 1126 and 1129(a)(8) of the Bankruptcy Code.
7. Debtors have operated their businesses, and formulated and
filed the Plan, obtained approval of the Disclosure Statement, and
sought confirmation of the Plan all in good faith.
8. The classification of claims contained in the Plan is
appropriate under Section 1122 of the Bankruptcy Code.
9. The Plan complies with Section 1123 of the Bankruptcy Code
in that (a) the Plan provides adequate means for its implementation,
(b) to the extent applicable, the Debtors' charters do not permit
issuance of non-voting securities, and (c) the Debtors have made
adequate disclosures of their post-Effective Date officers and
directors and any compensation promised to be paid to them.
10. The solicitation materials which the Plan Proponents sent
pursuant to the Disclosure Statement Order contained adequate
information in accordance with Section 1125 of the Bankruptcy Code and
were otherwise appropriate.
11. The Plan complies with the applicable provisions of the
Bankruptcy Code as required by Section 1129(a)(1) thereof.
12. The Plan Proponents have complied with the applicable
provisions of the Bankruptcy Code as required by Section 1129(a)(2)
thereof.
13. The Plan has been proposed in good faith by the Plan
Proponents and not by any means forbidden by law in compliance with
Section 1129(a)(3) of the Bankruptcy Code.
14. The Plan offers the highest implied value for the
Debtors' assets and is a plan that is both (i) feasible and (ii) has
substantial Creditor support.
15. Each Plan Proponent has solicited acceptances of the Plan
in good faith and in compliance with all applicable provisions of the
Bankruptcy Code, including Section 1125(e). They have participated in
good faith and in compliance with the applicable provisions of the
Bankruptcy Code in the offer, issuance, sale and purchase of any
securities offered, issued or sold under the Plan, and the Court thus
finds they are not liable for violation of any applicable law, rule or
regulation governing the solicitation of acceptance or rejection of
the Plan or the offer, issuance, sale or purchase of any securities in
connection with the Plan.
16. Any payment made or to be made by the Debtors, or by a
person issuing securities or acquiring property under the Plan, for
services or for costs and expenses in or in connection with these
Bankruptcy Cases, or in connection with the Plan and incident to these
Bankruptcy Cases has been approved by, or is subject to the approval
of, the Court as reasonable as required by Section 1129(a)(4) of the
Bankruptcy Code.
17. At the Confirmation Hearing, the Debtors complied with
Section 1129(a)(5) by disclosing the identity and affiliations of each
of the individuals proposed to serve, after the Effective Date of the
Plan, as directors and officers of the Reorganized Debtors. The
continuance or appointment of such individuals to such offices is
consistent with the interests of Creditors and Interest holders and
with public policy. The Debtors have also disclosed the identity of
any insider that will be employed or retained by the Reorganized
Debtors, and the nature of any compensation for such insider that is
being approved by Court (in the Plan or otherwise), as well as
compensation which has been negotiated for any post-Effective Date
officers and directors. Any compensation for officers of the
Reorganized Debtors proposed by the Plan has been fully disclosed.
18. The Plan does not provide for any rate changes requiring
the approval of a governmental regulatory commission as contemplated
by Section 1129(a)(6) of the Bankruptcy Code.
19. With respect to each Impaired Class of Allowed Claims or
Interests under the Plan, each holder of an Allowed Claim or Interest
of such Class (i) has duly and timely accepted the Plan, or (ii) will
receive or retain under the Plan on account of such Claim or Interest
property of a value, as of the Effective Date, that is not less than
the amount that such holder would receive or retain if the Debtors
were liquidated under Chapter 7 of the Bankruptcy Code as provided by
Section 1129(a)(7) of the Bankruptcy Code.
20. With respect to each Class of Allowed Claims and Allowed
Interests under the Plan, each Class has accepted the Plan or is not
impaired under the Plan, as required by Section 1129(a)(8) of the
Bankruptcy Code.
21. Except to the extent that the holder of a particular
Claim has agreed to a different treatment of such Claim (including,
without limitation, such agreements relating to certain claims
incurred in the ordinary course of the Debtors' businesses), the Plan
provides, as required by Section 1129(a)(9) of the Bankruptcy Code,
that
a. with respect to an Allowed Administrative Expense of a
kind specified in Section 507(a)(1) of the Bankruptcy Code, on
the Effective Date, the holder of such Claim will receive on
account of such Claim cash equal to the Allowed amount of such
Claim as required by Section 1129(a)(9)(A) of the Bankruptcy
Code;
b. with respect to an Allowed Claim of a kind specified
in Section 507(a)(3) or 507(a)(4) of the Bankruptcy Code, the
holder of such Claim will receive cash on the Effective Date
equal to the Allowed amount of such Claim as required by Section
1129(a)(9)(B) of the Bankruptcy Code; and
c. with respect to an Allowed Claim of a kind specified
in Section 507(a)(8) of the Bankruptcy Code (i.e., Priority Tax
Claims) the holder of such Claim will receive on account of such
Claim cash equal to the Allowed amount of such Claim on the
Effective Date or when the payment is due in the ordinary course
of the respective Debtor's business, which exceeds the
requirement of Section 1129(1)(9)(C) of the Bankruptcy Code.
22. The Plan provides for the payment of any Claim of a kind
specified in Sections 507(a)(1), 507(a)(3), 507(a)(4) and 507(a)(8) of
the Bankruptcy Code (but which has not been Allowed as of the
Effective Date of the Plan) to be paid as soon as practical after such
claim is Allowed. The Court finds this provision to be an appropriate
means of providing for the payment of Disputed Claims asserting such
priority and which have not been Allowed as of the Effective Date.
23. There do not exist any Claims against the Debtors of a
kind specified in Sections 507(a)(5) or 507(a)(6) of the Bankruptcy
Code, and Section 507(a)(2) and (7) of the Bankruptcy Code are not
applicable in these Cases.
24. Impaired Partnership Classes 1, 5 and 8 and Refining 3
and 5 have voted to accept the Plan, and the Court therefore finds
that at least one impaired Class of Claims has accepted the Plan,
which acceptance has been determined without including any acceptance
of the Plan by any insider holding a Claim of such class as required
by Section 1129(a)(10) of the Bankruptcy Code.
25. The Plan meets the requirements of Section 1129(a)(11)
because it is feasible and not likely to be followed by liquidation or
the need for further financial reorganization. This finding is
premised on, among other things, the following findings:
a. All of the conditions to Confirmation set forth in
the Plan have been met or waived;
b. Plan Proponents have filed with the Court drafts of
the implementing documents referred to in Section 6.2 of the
Plan, and defined in the Plan as the Plan Documents, other than
the Amended Partnership Agreement; the Debtors shall amend
Pride's Partnership Agreement as necessary to incorporate and
reflect the terms of the Plan;
c. Debtors have established that they will have
sufficient cash resources to satisfy all cash obligations due
under the Plan on or as soon as practical after the Effective
Date;
d. Debtors have established that they should have
sufficient liquidity to satisfy their obligations pursuant to the
Plan;
e. Debtors' projections of cash flow and liquidity
over the first two years after the Effective Date are reasonable;
and
f. Debtors have established that they will have
sufficient cash resources over the first two years after the
Effective Date to satisfy all cash obligations that they must pay
under the Plan and still remain solvent and viable.
26. Because the Reorganized Debtors will be able to satisfy
all Allowed Administrative Expenses in the manner provided by the
Plan, as well as any Disputed Administrative Expenses or other
Disputed Claims that are ultimately Allowed, the Court finds that the
Debtors need not deposit in a segregated account any amounts that may
be required to pay Disputed Claims that may be allowed after the
confirmation of the Plan.
27. All fees payable under 28 U.S.C. Section 1930 have been
paid,
or the Plan provides for the payment of all such fees on the Effective
Date as required by Section 1129(a)(12) of the Bankruptcy Code.
28. The Plan provides for the continuation after the
Effective Date of payment of all retiree benefits, as that term is
defined in Section 1114 of the Bankruptcy Code, and that the Debtors'
obligations under employee benefit plans shall survive Confirmation of
the Plan, remain unaffected thereby, and not be discharged.
Accordingly, the Plan satisfies Section 1129(a)(13).
29. All documents necessary to implement the Plan, including
without limitation, the Plan Documents, and all other documents useful
to consummation of the Plan shall, upon execution, be valid, binding
and enforceable.
30. After the Effective Date, the Reorganized Debtors shall
continue to engage in their businesses and the Plan does not provide
for the liquidation of all or substantially all of the property of the
Debtors' estates.
31. The Debtors have made a careful review of their executory
contracts and unexpired leases, and it is a reasonable exercise of the
Debtors' business judgment for them to assume all such executory
contracts and unexpired leases. With regard to the Fleet Lease
Agreement with Associates Fleet Services, a Division of Associates
Leasing, Inc. (the "Associates Agreement"), however, the Debtors
reserve all rights to oppose the proof of claim filed by Associates
and all defenses and objections to that claim and the Agreement.
32. The Modifications do not adversely change the treatment
of the Claim of any Creditor or the Interest of any holder of an
Interest under the Plan.
33. The Modifications are deemed to be accepted by all
Creditors and Interest holders who have previously accepted the Plan,
pursuant to Fed.R.Bankr.P. 3019.
34. The Modifications comply with the requirements of Section
1127 of the Bankruptcy Code and do not require further disclosure
or materially alter the treatment of Creditors or Interest holders so
as to require additional solicitation.
Therefore, THIS COURT HEREBY CONCLUDES, as a matter of law, that:
1. This is a core proceeding within the meaning of 28 U.S.C.
Section 157.
2. As to all Classes, the Plan complies with all elements of
Section 1129(a) of the Bankruptcy Code and is confirmable.
3. Findings of Fact may be considered Conclusions of Law, and
vice versa, as appropriate.
Now, upon the motion of the Debtors and after due deliberation,
the Court hereby ORDERS, ADJUDGES AND DECREES that:
1. The Findings and Conclusions of this Court set forth above
shall constitute Findings of Fact and Conclusions of Law pursuant to
Bankruptcy Rule 7052, made applicable to this matter by Bankruptcy
Rule 9014.
2. To the extent that any provision designated herein as a
Finding of Fact is more properly characterized as a Conclusion of Law,
it is adopted as such. To the extent that any provision designated
herein as a Conclusion of Law is more properly characterized as a
Finding of Fact, it is adopted as such.
3. The terms of the Plan and the Modifications are
incorporated in this Order and shall be treated as a part hereof. The
provisions of this Order are integrated with each other and are
mutually dependent and not severable.
4. The Plan, as modified by the Modifications, is confirmed
in all respects pursuant to Section 1129 of the Bankruptcy Code.
5. The record of the Confirmation Hearing is closed.
6. In accordance with the Plan and Section 1141 of the
Bankruptcy Code, and except as otherwise specifically provided herein,
in the Plan, or in the Plan Documents, the consideration distributed
under the Plan shall be in exchange for and in complete satisfaction,
discharge, release, and termination of, all Claims of any nature
whatsoever against any Debtor or any of its assets or properties and
all Interests in the Debtors; and, except as otherwise specifically
provided herein, in the Plan or in the Plan Documents, upon the
Effective Date (i) each Debtor shall be discharged and released
pursuant to Section 1141(d)(1)(A) of the Bankruptcy Code from any and
all Claims, including but not limited to demands and liabilities that
arose before the Effective Date, and all debts of the kind specified
in Section 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or
not (a) a proof of claim based upon such debt is filed or deemed filed
under Section 501 of the Bankruptcy Code, (b) a Claim based upon such
debt is allowed under Section 502 of the Bankruptcy Code, or (c) the
holder of a Claim based upon such debt has accepted the Plan; and (ii)
the Interests to be cancelled pursuant to the Plan shall be terminated
pursuant to 11 U.S.C. Section 1141(d)(1)(B) of the Bankruptcy Code.
7. The Interests to be cancelled pursuant to the Plan are
cancelled and extinguished on the Effective Date.
8. In accordance with Section 1141 of the Bankruptcy Code,
the Plan and its provisions shall be binding upon the Debtors and
their successors and any other entity created pursuant to the Plan,
any Person or entity issuing securities under the Plan, any Person or
entity acquiring or receiving property under the Plan, any lessor or
lessee of property to or from the Debtors, and any holder of a Claim
against the Debtors or an Interest in the Debtors.
9. On the Effective Date, the transfers of assets by the
Debtors contemplated by the Plan will be legal, valid, binding and
effective transfers of property and will vest in the respective
transferee good title to such property, free and clear of all liens,
Claims and encumbrances, except as otherwise specifically provided for
herein, in the Plan, or in the Plan Documents.
10. In accordance with Section 1141 of the Bankruptcy Code,
any property transferred or otherwise dealt with in the Plan (whether
by transfer to third party or revesting in the Debtors) shall be free
and clear of all Claims against the Debtors and Interests in the
Debtors, except those specifically provided herein, in the Plan, or in
the Plan Documents, and all such property of the Debtors' estates (as
defined in Section 541 of the Bankruptcy Code or other applicable law)
that the Plan provides to revest in the Reorganized Debtors shall so
vest on the Effective Date free of any such Claims and Interests.
11. On the Effective Date, as to every discharged debt, Claim
and Interest, the holder of such Claim or Interest is permanently
enjoined and precluded from asserting against the Reorganized Debtors,
or against their assets or properties or any transferee thereof, any
such Claim or Interest based upon any document, instrument, act,
omission, transaction or other activity of any kind or nature that
occurred prior to the Effective Date, except as expressly set forth
herein, in the Plan, or the Plan Documents.
12. In accordance with Section 524 of the Bankruptcy Code,
this Order:
(i) voids any judgment at any time obtained, to the
extent that such judgment is a determination of the personal
liability of the Debtors with respect to any debt of, Claim or
Interest discharged hereby; and
(ii) operates as an injunction against the commencement
or continuation of an action, the employment of process, or an
act, to collect, recover or offset any such debt, Claim or
Interest as a personal liability of the Debtors or the
Reorganized Debtors.
13. Each of the Plan Documents is hereby approved in all
respects in substantially the form filed with the Court. The Debtors
are hereby authorized to make additional amendments to the Plan
Documents necessary or appropriate to incorporate and reflect the
terms of the Plan; provided, however, all such amendments are
non-material and are wholly consistent with the terms of the Plan.
14. Upon execution and delivery of each of the Plan
Documents, such documents shall constitute, to the extent applicable,
legal, valid and binding obligations of the Reorganized Debtors,
enforceable against them in accordance with their respective terms.
15. The Debtors are hereby authorized to amend Pride's Third
Amended and Restated Agreement of Limited Partnership in such respects
as Pride determines are necessary or appropriate to incorporate and
reflect the terms of the Plan.
16. In accordance with Section 1142 of the Bankruptcy Code,
the Debtors, all parties in interest, and any other entity created or
Person designated pursuant to the Plan or any Plan Document and their
directors, officers, agents, attorneys and representatives, are
authorized, empowered and directed to forthwith issue, execute,
deliver, file and record any Plan Document or any other agreement,
document, instrument or certificate referred to in or contemplated by
the Plan or any Plan Document (collectively, the "Documents"), and to
take any corporate or other action necessary, useful or appropriate to
implement, effectuate and consummate the Plan and the Documents in
accordance with their respective terms.
17. Pursuant to Section 1142(b) of the Bankruptcy Code, all
Persons holding Claims or Interests that are dealt with under the Plan
and their directors, officers, agents, attorneys and representatives
are directed to execute, deliver, file or record any document, and to
take any and all actions necessary, useful or appropriate to
implement, effectuate and consummate the Plan in accordance with its
terms, and all such Persons shall be bound by the terms and provisions
of all documents to be executed by them in connection with the Plan,
whether or not such documents actually have been executed by such
Persons.
18. The Reorganized Debtors shall be, and hereby are,
authorized and directed to enter into the Plan Documents, to execute
and deliver each of the Plan Documents, to be dated as of the
Effective Date, and to take such actions and perform such acts as may
be necessary or appropriate to implement the Plan Documents. The
Reorganized Debtors shall each be, and hereby is, authorized and
directed to do or perform all acts, to make, execute and deliver all
instruments, documents.
19. Each and every federal, state, commonwealth, local or
other governmental agency or department is hereby directed to accept
any and all documents and instruments necessary, useful or appropriate
to effectuate, implement or consummate the transactions contemplated
by the Plan or the documents described in Section 6.2 of the Plan or
this Order.
20. From and after the Effective Date, the Reorganized
Debtors may use, operate and deal with their respective assets, and
may conduct and change their businesses, without any supervision by
the Bankruptcy Court or the Office of the United States Trustee, and
free of any restrictions imposed on the Debtors by the Bankruptcy Code
or by the Court during these Bankruptcy Cases.
21. Unless arising from an avoidance action, any new or
amended proof of claim (except to the extent provided in Section 7.2
of the Plan) filed after the Confirmation Date shall be of no further
force and effect, shall be deemed Disallowed in full and expunged
without any action by the Debtors or Reorganized Debtors. All
contested Claims shall be litigated until Final Order; provided,
however, that the Reorganized Debtors shall have the authority, in
their sole discretion to compromise and settle an objection to a Claim
or Interest by written stipulation with Bankruptcy Court approval or
to withdraw an objection so long as such compromise does not otherwise
diminish the amounts to be distributed as required by the Plan.
22. Applications for the allowance and payment of
Administrative Expenses, other than Professional fees and expenses,
must be filed on or before the twentieth (20th) day following the
entry of the Confirmation Order.
23. No Distribution under the Plan shall be required to be
made on a Claim until such Claim becomes an Allowed Claim by Final
Order. Once a Claim becomes an Allowed Claim, the holder thereof
shall receive a Distribution from the next regularly scheduled
Distribution for the relevant Class in which such an Allowed Claim is
included.
24. The Debtors, the Reorganized Debtors and all parties in
interest herein are authorized, empowered and directed to issue all
securities under the Plan.
25. Pursuant to Section 1145(a)(1)(A) of the Bankruptcy Code,
the issuance of the securities provided for in the Plan shall be
exempt from the provisions of Section 5 of the Securities Act of 1933,
as amended (15 U.S.C. Section 77(e), as amended) and any state or
local law requiring registration for the offer or sale of a security
or registration or licensing of an issuer of, underwriter of, or
broker or dealer in, a security. All such securities so to be issued
shall be freely transferable by the initial recipients thereof (i)
except for any such securities held by an underwriter within the
meaning of Section 1145(b) of the Bankruptcy Code that does not engage
in "ordinary trading transactions" or is an issuer of such securities
within the meaning of Section 2(11) under said Securities Act, and
(ii) subject to any restrictions contained in the terms of such
securities themselves or in the Plan. For purposes of said Securities
Act, the offers and sales of the such securities pursuant to the Plan
shall not be considered part of or otherwise "integrated" with any
offers or sales by any of the Debtors pursuant to any financing or
other transaction consummated on or after the Effective Date. Upon
the issuance of the securities issued in accordance with the Plan,
such securities will have been authorized and validly issued, and will
be fully paid and nonassessable.
26. Each of the members of the Creditors' Committee and each
of the Debtors (and each of their respective members, affiliates,
agents, attorneys, advisors, and directors) shall not be liable at any
time for violation of any applicable law, rule or regulation governing
the solicitation of acceptance or rejection of the Plan or the offer,
sale or purchase of the securities thereunder. All requirements of
state, local and federal law, including, without limitation, the
Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, with respect to the issuance of the rights have been
duly complied with.
27. The Reorganized Debtors are deemed the successors to the
Debtors and have all the rights of a debtor under the Bankruptcy Code,
including the right to assert all Causes of Action, including Causes
of Action arising under Chapter 5 of the Bankruptcy Code.
28. Pursuant to Section 1146(c) of the Bankruptcy Code, but
subject to any stipulation between the Debtors and any taxing
authority previously approved and so ordered by the Court, neither the
issuance, distribution, transfer or exchange of a security under the
Plan nor the revesting, transfer and sale of any real or personal
property of the Debtors in accordance with the Plan shall subject the
Reorganized Debtors (or transfer or other agents therefor) to any
state or local sales, use, transfer, documentary, recording, gains or
original issue tax.
29. All distributions of cash, securities or other
consideration required to be made pursuant to the Plan shall be made
within such time as provided by the Plan and all such Distributions
shall be timely and proper if mailed by regular mail, postage prepaid,
on or before the Distribution dates set forth in the Plan in
accordance with Section 7.6 of the Plan.
30. The Debtors are authorized to assume all their executory
contracts and unexpired leases; provided that the assumption of the
Associates' Agreement is without prejudice to the Debtors' right to
object to the proof of claim filed by Associates or without waiver of
any of its rights or defenses as to that Agreement. All such
assumptions shall occur on the Effective Date.
31. In connection with the assumption of its agreement with
Equiva Trading Company, as agent for Equilon Enterprises, L.L.C.
("Equiva"), the proof of claim filed by Equiva in the amount of
$8,259,298.12, which Claim has already been paid in accord with a
prior order of this Court, is deemed to be an Allowed Secured Claim.
32. The TNRCC and the Debtors are authorized to agree to
offset amounts they agree are owing to each other without further
order of the Court.
33. Unless withdrawn with prejudice, all objections to
confirmation of the Plan (if any) are overruled and denied by this
Court.
34. Pursuant to Bankruptcy Rule 3020(c), within ten (10) days
after entry of this Order, the Debtors shall serve notice of the entry
of this Order as provided in Bankruptcy Rule 2002(f) to all Creditors,
Interest holders and other parties in interest, to be sent by
first-class mail, postage prepaid, except to such parties who may be
served by hand or facsimile or overnight courier, which service is
hereby authorized.
35. Within 180 days after entry of this Order, or within such
further time as this Court may allow, the Reorganized Debtors shall
file with this Court a report which shall set forth the actions taken
and the progress made towards the full and complete consummation of
the Plan.
36. In accordance with the Plan, the Creditors' Committee
shall cease to exist after the Effective Date, or at such time as its
functions under the Plan have been completed.
37. Notwithstanding confirmation of the Plan, this Court
retains jurisdiction over the Debtors' Bankruptcy Cases pursuant to
and for the purposes set forth in (a) Sections 105(a) and 1127 of the
Bankruptcy Code, (b) Article 12.1 of the Plan and (c) for such other
purposes as may be necessary or useful to aid in the confirmation and
consummation of the Plan and its implementation. This continuing
jurisdiction shall include jurisdiction to consider the Motion for
Order Authorizing (I) the Sale of Certain Assets Pursuant to 11 U.S.C.
Section 363 Free and Clear of Liens, Claims and Encumbrances; (II)
Payment of Related Administrative Expenses, and (III) the Assumption
and Assignment of Unexpired Executory Contracts.
Signed January ______, 2002, Lubbock, Texas.
/s/ Honorable Robert L. Jones
HON. ROBERT L. JONES
UNITED STATES BANKRUPTCY JUDGE
APPROVED AS TO FORM ONLY:
/s/ David Weitman
David Weitman
HUGHES & LUCE, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Telephone: 214/939-5427
and
David Langston
MULLIN, HOARD, BROWN, LANGSTON,
CARR, HUNT & JOY L.L.P.
1500 Broadway, Suite 700
P.O. Box 2585
Lubbock, Texas 79408-2585
Telephone: 806/765-7491
COUNSEL FOR VARDE PARTNERS
EXHIBIT 10.42
PRIDE COMPANIES, L.P.
CERTIFICATE OF DESIGNATION
for
SENIOR PREFERRED UNITS
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
Pride Refining, Inc., a Texas corporation, as Managing General
Partner of Pride Companies, L.P., a Delaware limited partnership (the
"Partnership"), does hereby certify that, pursuant to authority
contained in that certain Third Amended and Restated Agreement of
Limited Partnership of the Partnership, dated as of December 30, 1997
(as amended, restated or otherwise modified from time to time, the
"Partnership Agreement") and the Plan, as confirmed by the
Confirmation Order dated January 11, 2002 of the United States
Bankruptcy Court for the Northern District of Texas, Abilene Division
(the "Confirmation Order"), the Partnership has duly established two
series of senior preferred limited partnership units having the
respective designations, rights, powers, preferences, qualifications,
limitations and restrictions set forth below:
Section 1. Number of Units and Designation. There is hereby
established (a) a series of senior preferred limited partnership units
of the Partnership with the designation "Series A Senior Preferred
Units" (herein referred to as the "Series A Units"), which shall
consist of a maximum of 8,300 units, and (b) a series of senior
preferred limited partnership units of the Partnership with the
designation "Series B Senior Preferred Units" (herein referred to as
the "Series B Units"), which shall consist of a maximum of 3,200
units. Each of the Series A Units and the Series B Units shall have a
stated value per unit of $1,000.00 (the "Stated Value"), and the
Series A Units and Series B Units shall herein sometimes be referred
to, collectively, as the "Senior Units".
Section 2. Rank. The Senior Units shall, with respect to
distribution rights or rights upon any Liquidation (as defined
hereinafter) or redemption, rank junior to any series or class of the
Partnership's limited partnership units hereafter issued that is
expressly designated as ranking senior to the Senior Units with
respect to such rights (collectively, the "Senior Securities"). The
Senior Units shall, with respect to distribution rights or rights upon
any Liquidation or redemption, rank pari passu with any series or
class of the Partnership's limited partnership units hereafter issued
that is expressly designated as ranking pari passu with the Senior
Units with respect to such rights (collectively, the "Parity
Securities"). The Senior Units shall, with respect to distribution
rights or rights upon any Liquidation or redemption, rank senior to
the Partnership's common limited partnership units (the "Common
Units") and any series or class of the Partnership's limited
partnership units hereafter issued that is not expressly designated as
Parity Securities or Senior Securities with respect to such rights
(collectively, the "Junior Securities"). Except as expressly set
forth herein, this Certificate of Designation for Senior Preferred
Units (this "Certificate of Designation") shall not be construed to
prohibit the Partnership from authorizing or issuing, in accordance
with the Partnership Agreement, as the same may be amended and in
effect from time to time, any classes or series of equity securities
of the Partnership ranking senior to or pari passu with the Senior
Units with respect to distribution rights or rights upon any
Liquidation or redemption.
Section 3. Distributions; Allocation of Income.
(a) Subject to the rights of holders of any Senior
Securities, the holders of Senior Units shall be entitled
to receive, if, as and when declared by the Managing
General Partner out of assets of the Partnership legally
available therefor, cumulative, preferential
distributions to be paid in cash, annually on January
15th of each year, beginning on January 15, 2003 (in each
case, a "Distribution Payment Date"), on each Senior Unit
held either (i) at a rate of seven and one-half percent
(7.50%) per annum of the Stated Value thereof (the
"Stated Rate") or (ii) if any Senior Units are not
redeemed when they would be required to be redeemed
pursuant to Section 5(b), (c), (g) or (h) hereof assuming
the Partnership had sufficient legally available funds to
redeem all outstanding Senior Units, then from the date
such Senior Units would have been so required to be
redeemed through the date such Senior Units are actually
redeemed, at the rate of fifteen percent (15%) per annum
(the "Default Rate"). In the event that any Distribution
Payment Date shall fall on a date other than a Business
Day, the applicable preferential distribution shall be
payable on the next following Business Day. To the
extent not paid on the Distribution Payment Date on which
they are originally due, such preferential distributions
shall thereafter accrue at the Default Rate and shall
accumulate and compound (as described below) on each
Senior Unit to and including the date on which such
Senior Unit shall have been redeemed and the Redemption
Price (as defined below) shall have been paid in full.
(b) Distributions shall commence to accrue on the Senior
Units and be cumulative from and after the Effective Date
(as defined hereinafter). The amount of the preferential
distribution payable on each Distribution Payment Date
shall be determined by applying the Stated Rate or the
Default Rate, as applicable, from and including the date
immediately following the last previous Distribution
Payment Date (or from and including the Effective Date,
with respect to the first distribution period) to and
including the Distribution Payment Date, on the basis of
a year of 360 days.
(c) Distributions payable on the Senior Units for any period
of time less than a full annual distribution period shall
be computed on the basis of actual days elapsed since the
last preceding Distribution Payment Date, excluding the
last preceding Distribution Payment Date and including
the last day of such period, and on the basis of a year
of 360 days.
(d) To the extent that a preferential distribution is not
paid on a Distribution Payment Date with respect to a
Senior Unit, the amount with respect to which subsequent
preferential distributions on such Senior Unit shall be
calculated shall include such unpaid preferential
distribution, and such unpaid preferential distributions,
together with all additional deferred preferential
distributions with respect thereto, shall be payable
prior to any current preferential distributions or
payments being made with respect to such Senior Unit.
Nothing in this Section 3(d) shall give the Partnership
any right not to pay any preferential distribution
as and to the extent required by Section 3(a) above.
(e) Distributions payable on each Distribution Payment Date
shall be paid to record holders of the Senior Units as
they appear on the books of the Partnership at the close
of business on the tenth Business Day immediately
preceding the applicable Distribution Payment Date. All
distributions paid with respect to Senior Units pursuant
to this Section 3 shall be declared and paid pro rata to
all holders of the Senior Units outstanding as of the
applicable record date.
(f) So long as any of the Senior Units remain outstanding:
(i) 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 Junior
Securities, including, without limitation, distributions
payable in cash or other property or in Units of any
Junior Security or other securities of the Partnership.
Distributions may be declared and paid on Junior
Securities pursuant to the terms thereof to the extent
that full cumulative distributions have been paid (or
contemporaneously are declared and paid) in respect of
each Senior Unit through and including the most recent
Distribution Payment Date (including any Distribution
Payment Date occurring on the date that any distributions
are declared or paid in respect of such Junior
Securities). The condition specified in the preceding
sentence shall not be deemed to be satisfied if any
Senior Unit scheduled to have been redeemed as of a
certain date pursuant to Section 5(b) or Section 5(c)
hereof has not been so redeemed by the Partnership.
(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 Senior 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 Senior Units and any Parity Securities,
all distributions declared on such Parity Securities
shall be declared and paid pro rata with the Senior Units
so that the amounts of distributions per unit declared
and paid on the Senior Units and such Parity Securities
shall in all cases bear to each other the same ratio that
unpaid cumulative distributions per unit on the Senior
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.
For purposes of this Section 3(f), unless expressly stated
otherwise herein, "distribution" shall include, without limitation,
any distribution by the Partnership of cash, evidences of
indebtedness, securities or other properties or assets of the
Partnership, 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 Partnership legally available for the payment of distributions.
(g) The holders of the Senior Units will be allocated an
amount of gross income equal to the amount of any
preferential distributions provided for in this Section 3
paid on the Senior Units prior to any allocation of
income to the holders of Junior Securities.
Section 4. Liquidation Preference.
(a) Subject to the rights of holders of any Senior
Securities, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of
the Partnership (each such event, a "Liquidation"), the
holder of each Senior Unit then outstanding shall be
entitled to be paid out of the assets of the Partnership
available for distribution, before any payment or
distribution of the assets of the Partnership (whether
capital or surplus) shall be made to or set apart for the
holders of any class or series of Junior Securities, an
amount equal to the Stated Value of such Senior Unit plus
an amount equal to the aggregate dollar amount of all
unpaid preferential distributions on such Senior Unit
through the date of final distribution (including a
prorated distribution from the most recent Distribution
Payment Date). No payment on account of any such
Liquidation of the Partnership 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 Senior Units proportionate amounts in cash
determined ratably in proportion to the full amounts to
which the holders of all outstanding Senior Units and the
holders of all such outstanding Parity Securities are
respectively entitled with respect to such distribution.
For purposes of this Section 4, neither a consolidation
or merger of the Partnership with one or more Persons,
nor a sale, lease, exchange or transfer of all or any
part of the Partnership's assets for cash, securities or
other property shall be deemed to be a Liquidation.
(b) Subject to the rights of the holders of any class or
series of Parity Securities or Senior Securities, upon
any Liquidation of the Partnership, after payment shall
have been made in full to the holders of Senior Units, as
provided in this Section 4, 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 Senior Units shall not be
entitled to share therein.
(c) In the event of a distribution pursuant to this Section
4, such distribution shall be paid in cash or, in the
event that cash is not available for distribution, in
securities and property. Whenever such distribution
shall be in securities or property other than cash, the
value of such securities or property other than cash
shall be the fair market value of such securities or
other property as determined by the Managing General
Partner in good faith using any valuation method it
determines is appropriate, and the market value so
determined shall be final and binding upon all holders of
limited partnership units of the Partnership.
(d) Written notice of such Liquidation, stating a payment
date, the amount of the liquidation payments, and the
place where said liquidation payments shall be payable,
shall be given by mail, postage prepaid, not less than 15
days prior to the date stated therein, to the holders of
the Senior Units, such notice to be addressed to each
such holder at its address as shown by the records of the
Partnership.
Section 5. Redemption Rights.
(a) Optional Redemption. The Partnership may, at the option
of the Managing General Partner, redeem for cash at any
time after the Effective Date all or any portion of the
outstanding Senior Units at a redemption price per Senior
Unit so redeemed equal to the Stated Value of such Senior
Unit plus an amount equal to the aggregate dollar amount
of all accrued and unpaid preferential distributions on
such Senior Unit through the date of redemption (the
"Redemption Price"). Any such redemption shall be made
in the manner provided in Section 5(f), and solely from
sources of funds legally available therefor. "Redemption
Date" means the date fixed by the Managing General
Partner for any redemption effected pursuant to this
Section 5(a).
(b) Series A Mandatory Redemption. The Partnership shall
redeem, to the extent of funds legally available
therefor, the Series A Units in fifteen (15) annual
installments beginning on the first Business Day to occur
on or after January 15, 2003 and continuing thereafter on
the first Business Day to occur on or after each of the
following fourteen anniversaries of January 15, 2003
(each a "Mandatory Redemption Date"). The number of
Series A Units that the Partnership shall be required to
redeem on any Mandatory Redemption Date shall be equal to
the number of Series A Units that would result (as nearly
as may be considering that no fractional Series A Units
will be redeemed) in the Stated Value of the Series A
Units so redeemed plus the amount of the preferential
distributions payable on the Series A Units pursuant to
Section 3 hereof on such Mandatory Redemption Date (or if
such Mandatory Redemption Date does not fall on January
15, then on the preceding January 15), assuming such
preferential distributions are determined based on the
Stated Rate, equaling one-fifteenth of the total of (x)
$8,300,000 (the aggregate Stated Value of the Series A
Units) and (y) the aggregate amount of the preferential
distributions payable on the Series A Units pursuant to
Section 3 hereof through the Mandatory Redemption Date in
2017, assuming such preferential distributions are
determined based on the Stated Rate (this provision is
intended to result, in effect, in equal amortization of
the Series A Units (based on the Stated Value thereof)
and the preferential distributions payable thereon at
the Stated Rate over the term that the Series A Units
are scheduled to be outstanding). The Partnership shall
effect such redemptions, in the manner provided in
Section 5(f), by paying cash in the amount of the
Redemption Price for each Series A Unit to be so
redeemed.
(c) Series B Mandatory Redemption. The Partnership shall
redeem, to the extent of funds legally available
therefor, the Series B Units in ten annual installments
beginning on the first Mandatory Redemption Date and
continuing thereafter on each of the following nine
Mandatory Redemption Dates. The number of Series B Units
that the Partnership shall be required to redeem on any
Mandatory Redemption Date shall be equal to the number of
Series B Units that would result (as nearly as may be
considering that no fractional Series B Units will be
redeemed) in the Stated Value of the Series B Units so
redeemed plus the amount of the preferential
distributions payable on the Series B Units pursuant to
Section 3 hereof on such Mandatory Redemption Date (or if
such Mandatory Redemption Date does not fall on January
15, then on the preceding January 15), assuming such
preferential distributions are determined based on the
Stated Rate, equaling 10% of the total of (x) $3,200,000
(the aggregate Stated Value of the Series B Units) and
(y) the aggregate amount of the preferential
distributions payable on the Series B Units pursuant to
Section 3 hereof through the Mandatory Redemption Date in
2012, assuming such preferential distributions are
determined based on the Stated Rate (this provision is
intended to result, in effect, in equal amortization of
the Series B Units (based on the Stated Value thereof)
and the preferential distributions payable thereon at the
Stated Rate over the term that the Series B Units are
scheduled to be outstanding). The Partnership shall
effect such redemptions, in the manner provided in
Section 5(f), by paying cash in the amount of the
Redemption Price for each Senior Unit to be so redeemed.
(d) Partial Mandatory Redemption; Insufficient Funds. If
there are insufficient legally available funds for
redemption of the number of Senior Units that would be
required to be redeemed pursuant Section 5(b) and Section
5(c) if adequate funds were legally available, the
Partnership shall redeem such lesser number of Senior
Units (on a pro rata basis as between Series A units and
Series B Units) as may be redeemed using funds legally
available therefor, and shall, thereafter, redeem all or
part of the remainder of the Senior Units required to be
redeemed under Section 5(b) and Section 5(c) as soon as
the Partnership has sufficient funds that are legally
available therefor; provided, however, that the
Partnership shall not be required to redeem Senior Units
more frequently than once each calendar quarter. If any
redemption is delayed because of insufficient legally
available funds, distributions shall continue to accrue
on each Senior Unit outstanding, and shall be added to
and become a part of the Redemption Price of such Senior
Unit, until the Redemption Price, as so adjusted, for
such Senior Unit is paid in full.
(e) Pro Rata Redemption. Subject to the provisions of
Section 5(d), any redemption effected pursuant to Section
5(a), 5(b) or 5(c) shall be made on a pro rata basis
among the holders of Senior Units to be redeemed in
proportion to the number of Senior Units to be redeemed
then held by them; provided, however, that no fractional
Senior Units shall be required to be redeemed and,
therefore the Partnership may, in its reasonable
discretion, round up or down the number of Senior Units
to be redeemed from each holder.
(f) Redemption Procedures. In connection with any redemption
of Senior Units, at least 15 but no more than 45 days
prior to the Redemption Date or Mandatory Redemption
Date, as applicable, written notice (the "Redemption
Notice") shall be sent by certified mail, return receipt
requested, to each holder of record of the Senior Units
at the post office address last shown on the records of
the Partnership for such holder. The Redemption Notice
shall state:
(i) whether all or less than all the outstanding
Senior Units are to be redeemed and the total number of
Senior Units (identified by Series) being redeemed;
(ii) the number of Senior Units (identified by
Series) held by the holder that the Partnership intends
to redeem;
(iii) the Redemption Date or Mandatory Redemption
Date, as applicable, and the Redemption Price;
(iv) that the holder is to surrender to the
Partnership, in the manner and at the place designated,
the certificate or certificates representing the Senior
Units to be redeemed (or, in the event that the Senior
Units are held pursuant to book entry, that the holder is
to provide written acknowledgment of the relinquishment
of its interest in the Senior Units to be redeemed); and
(v) the place at which payment may be made. On
or after the Redemption Date or Mandatory Redemption
Date, as applicable, each holder of Senior Units to be
redeemed shall surrender to the Partnership the
certificate or certificates representing such Senior
Units (or, as applicable, provide written acknowledgment
of the relinquishment of its interest in the Senior Units
to be redeemed), in the manner and at the place
designated in the Redemption Notice, and thereupon the
Redemption Price of each Senior Unit to be redeemed
pursuant to such Redemption Notice shall be payable to
the order of the Person whose name appears on such
certificate or certificates (or, as applicable, in the
books of the Partnership) as the owner thereof and each
surrendered certificate shall be cancelled. In the event
that less than all of the Senior Units represented by a
certificate are redeemed, a new certificate shall be
issued representing the unredeemed Senior Units.
On or after the Redemption Date or Mandatory Redemption Date, as
applicable, each holder of Senior Units to be redeemed shall surrender
to the Partnership the certificate or certificates representing such
Senior Units (or, as applicable, provide written acknowledgment of the
relinquishment of its interest in the Senior Units to be redeemed), in
the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of each Senior Unit to be redeemed
pursuant to such Redemption Notice shall be payable to the order of
the person whose name appears on such certificate or certificates (or,
as applicable, in the books of the Partnership) as the owner thereof
and each surrendered certificate shall be cancelled. In the event
that less than all of the Senior Units represented by a certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Senior Units.
From and after the Redemption Date or Mandatory Redemption Date,
as applicable, unless there shall have been a default in payment of
the Redemption Price in respect of any Senior Unit required to be
redeemed, all rights of the holders of Senior Units designated for
redemption in the Redemption Notice as holders of the Senior Unit
(except the right to receive the Redemption Price in respect of each
such Senior Unit without interest upon surrender of their certificate
or certificates or, as applicable, upon providing their written
acknowledgment of relinquishment) shall cease with respect to such
Senior Units.
(g) Redemption Upon Change of Control. Notwithstanding
anything contained in this Section 5 to the contrary, in
the event of a "Change of Control" (as defined below) the
Partnership shall, not later than 20 days prior to the
effective date of any such Change of Control, or
immediately upon notification to the Partnership thereof,
if later, give written notice thereof to each holder of
Senior Units and, except to the extent that within 15
days after receipt of such notice, any holder or holders
of Senior Units shall elect, by written notice to the
Partnership, not to have any of its or their Senior Units
redeemed, the Partnership shall redeem, to the extent of
funds legally available therefor, all outstanding Senior
Units (in the manner set forth in Section 5(f)) not later
than the effective date of such Change of Control, or 30
days after notification of a Change of Control if later
than the effective date thereof. If there are
insufficient legally available funds for redemption of
the number of Senior Units that would be required to be
redeemed pursuant this Section 5(g) if adequate funds
were legally available, the Partnership shall redeem such
lesser number of Senior Units as may be redeemed using
funds legally available therefor, and shall, thereafter,
redeem all or part of the remainder of the Senior Units
required to be redeemed under this Section 5(g) as soon
as the Partnership has sufficient funds that are legally
available therefore.
"Change of Control" shall mean the occurrence of any event
(including without limitation any merger or consolidation of the
Partnership with or into another Person, any merger of any Person into
another Person, any merger of another Person into the Partnership, or
any other similar transaction) that results in either (i) in the case
of any merger, consolidation or other similar transaction, a surviving
entity other than the Partnership, (ii) a Person other than Pride
Refining, Inc. becoming the Managing General Partner, or (iii) the
removal of either Brad Stephens or D. Wayne Malone from his current
positions of management (or positions of equivalent executory
authority) of the Partnership (excepting only events of death,
disability or voluntary resignation or leave of absence).
(h) Redemption Upon Change in Financial Condition.
Notwithstanding anything contained in this Section 5 to
the contrary, in the event of a "Change in Financial
Condition" (as defined below) the Partnership shall, not
later than 45 days after the end of the month in which
the Change in Financial Condition occurs, give written
notice thereof to each holder of Senior Units and, except
to the extent that within 15 days after receipt of such
notice, any holder or holders of Senior Units shall
elect, by written notice to the Partnership, not to have
any of its or their Senior Units redeemed, the
Partnership shall redeem, to the extent of funds legally
available therefore, all outstanding senior units (in the
manner set forth in Section 5(f)) not later than 70 days
after the end of the month in which the Change in
Financial Condition occurs. If there are insufficient
legally available funds for redemption of the number of
Senior Units that would be required to be redeemed
pursuant to this Section 5(h) if adequate funds were
legally available, the Partnership shall redeem such
lesser number of Senior Units as may be redeemed using
funds legally available therefor, and shall, thereafter,
redeem all or part of the remainder of the Senior Units
required to be redeemed under this Section 5(h) as soon
as the Partnership has sufficient funds that are legally
available therefor.
"Change in Financial Condition" shall mean the occurrence of
either of the following: (i) the working capital (as defined below)
of the Partnership as of the end of any month after the Effective Date
is less than the working capital of the Partnership as of the
Effective Date (determined after giving effect to the payment, on or
prior to the Effective Date, of $13 million to Varde Partners, Inc., a
Delaware corporation, pursuant to Section 5.5 of the Plan) by an
amount greater than or equal to five million dollars ($5,000,000) or
(ii) the net equity (as defined below) of the Partnership as of the
end of any month after the Effective Date is less than the net equity
of the Partnership as of the Effective Date by an amount greater than
or equal to eight million dollars ($8,000,000). "Working capital"
shall mean the amount determined by subtracting the Partnership's
current liabilities from the Partnership's current assets (each
determined in accordance with U.S. generally accepted accounting
principles, as in effect from time to time, applied on a basis
consistent with the calculation of the Partnership's working capital
as of the Effective Date). "Net equity" shall mean the amount
determined by subtracting the Partnership's total liabilities from the
Partnership's total assets (each determined in accordance with U.S.
generally accepted accounting principles, as in effect from time to
time, applied on a basis consistent with the calculation of the
Partnership's net equity as of the Effective Date).
Section 6. Voting.
(a) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law,
holders of Senior Units shall not have any right to vote
on any question presented to the holders of voting
securities of the Partnership.
(b) So long as any Series A Units remain outstanding, the
Partnership will not, without the affirmative vote at a
meeting, or by written consent with or without a meeting,
of the holders of Series A Units representing 51% or more
of the aggregate Stated Value of the then outstanding
Series A Units (i) amend, alter or rescind any of the
provisions of the Partnership Agreement or this
Certificate of Designation that prescribe the terms and
conditions of the Series A Units or otherwise protect the
rights of holders of the Series A Units, or (ii) create,
authorize, issue or reissue any class or series of Senior
Securities or Parity Securities, or any units of any such
class or series, of the Partnership. For purposes of
this Section 6(b), each holder of Series A Units shall be
entitled to one vote per Unit. So long as any Series B
Units remain outstanding, the Partnership 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 representing 51% or more of the aggregate
Stated Value of the then outstanding Series B Units (i)
amend, alter or rescind any of the provisions of the
Partnership Agreement or this Certificate of Designation
that prescribe the terms and conditions of the Series B
Units or otherwise protect the rights of holders of the
Series B Units, or (ii) create, authorize, issue or
reissue any class or series of Senior Securities or
Parity Securities, or any units of any such class or
series, of the Partnership. For purposes of this Section
6(b), each holder of Series B Units shall be entitled to
one vote per Unit.
Section 7. Prohibitions on Issuance. All Senior Units repurchased,
redeemed or otherwise acquired by the Partnership shall be retired and
canceled and shall not be reissued, transferred on the books of the
Partnership or be deemed outstanding for any purpose whatsoever. No
authorized but unissued Senior Units shall be issued after the
Effective Date.
Section 8. Obligations of Partnership Subject to Senior Credit
Facility. Notwithstanding the foregoing Sections 3 and 5 to the
contrary, the Partnership shall not be required to make any
preferential distribution or to make any other payment to the holders
of Senior Units with respect to the Senior Units (a) during the
existence of any default or event of default under any agreement
executed by the Partnership relating to a senior secured credit
facility provided to the Partnership from time to time by any bank or
other commercial lending institution (a "Senior Credit Facility"), or
(b) to the extent that such distribution or payment would, or with the
passage of time would be reasonably likely to, cause either (i) a
default or event of default to exist under any agreement executed by
the Partnership relating to a Senior Credit Facility, (ii) otherwise
cause the breach of any covenant of the Partnership set forth in any
agreement relating to a Senior Credit Facility, or (iii) cause the
termination of, or suspension of loans under, a Senior Credit
Facility; provided, however, that nothing contained in this Section 8
shall in any way impair or otherwise affect the accumulation of
preferential distributions described in Section 3(d) above.
Section 9. Definitions. In addition to the definitions set forth
elsewhere herein, the following terms shall have the meanings
indicated:
"Business Day" means any day other than a Saturday, Sunday or a
day on which commercial banks in Dallas, Texas are required or
authorized to close.
"Effective Date" means the first Business Day that is ten (10)
days from and after the issuance of the Confirmation Order confirming
the Plan; however, in the event a stay of such Confirmation Order is
in effect on such date, the first Business Day following the date such
stay is vacated.
"Managing General Partner" means Pride Refining, Inc., a Texas
corporation, or such other Person designated to serve as managing
general partner of the Partnership pursuant to the Partnership
Agreement.
"Person" means any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated
organization, government or any department or agency thereof, or other
entity.
"Plan" means that certain Third Amended and Restated Debtors'
Joint Plan of Reorganization dated November 19, 2001, proposed by the
Partnership and its Managing General Partner in the bankruptcy
proceeding styled In re Pride Companies, L.P., Case No.
01-10041-RLJ-11 before the U.S. Bankruptcy Court for the Northern
Division of Texas, Abilene Division, as the same may be amended,
supplemented, restated or otherwise modified from time to time
thereafter, and all exhibits and schedules to the foregoing, as the
same may be in effect at the time such reference becomes operative.
Section 10. Record Holders. The Partnership may deem and treat the
record holder of any Senior Units as the true and lawful owner thereof
for all purposes.
Section 11. 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 Partnership, 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 Partnership designated as
permitted hereby; or (b) if to any holder of the Senior Units, to such
holder at the address of such holder as listed in the record books of
the Partnership, or to such other address as the Partnership or
holder, as the case may be, shall have designated by notice similarly
given.
Section 12. Successors and Transferees. The provisions applicable to
Senior Units shall bind and inure to the benefit of and be enforceable
by the Partnership, the respective successors to the Partnership and
by any holder of Senior Units.
Section 13. Incorporation of Certificate of Designation into
Partnership Agreement. Upon execution hereof, the Managing General
Partner shall attach this Certificate of Designation to the
Partnership Agreement as an annex, whereupon this Certificate of
Designation shall be incorporated in and made a part of the
Partnership Agreement pursuant to Section 4.2 of the Partnership
Agreement.
IN WITNESS WHEREOF, this Certificate has been executed by the
Managing General Partner, on behalf of the Partnership, as of the 22nd
day of January, 2002.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: /s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
EXHIBIT 10.43
PROMISSORY NOTE
$9,000,000.00 January 22, 2002
FOR VALUE RECEIVED, Pride Companies, L.P., a Delaware limited
partnership ("Pride"), and Pride Refining, Inc., a Texas corporation
(the "Refining"; and together with Pride sometimes herein referred to,
collectively, as the "Makers"), jointly and severally promise to pay
to the order of Varde Partners, Inc., a Delaware corporation
("Lender"), and any subsequent holder of this Note (Lender and any
subsequent holder being referred to herein, collectively, as the
"Holder"), pursuant to the terms hereof, the principal sum of NINE
MILLION AND NO/100 DOLLARS ($9,000,000.00), together with interest on
the unpaid principal balance of this Promissory Note (this "Note")
from time to time pursuant to the terms hereof.
SECTION 1. Principal and Interest.
(a) Interest. Interest on the unpaid principal balance of this
Note shall accrue (i) during the six-month period beginning on the
date hereof (or if the date hereof is after March 31, 2002, then
beginning on March 31, 2002) (such period being herein referred to as
the "Initial Interest Period"), at the per annum rate of 7.5%; (ii)
during the 18-month period beginning on the date immediately following
the Initial Interest Period, at the per annum rate of 10.0%; and (iii)
thereafter, at the per annum rate of 15.0%. Accrued interest on this
Note shall be calculated on the basis of a 365-day year.
For purposes of this Note, the term "Plan" shall mean that certain
Third Amended and Restated Debtors' Joint Plan of Reorganization,
dated November 19, 2001, filed by Makers, in the bankruptcy
proceedings styled In re: Pride Companies, L.P., and In re: Pride
Refining, Inc., Debtors; Case Nos. 01-10041-RLJ-11 and 01-10043-RLJ-11
before the U.S. Bankruptcy Court for the Northern Division of Texas,
Abilene Division (the "Bankruptcy Court"), together with the two
modifications thereto as of the date hereof and as the same may be
amended, supplemented, restated or otherwise modified from time to
time hereafter, and all exhibits and schedules to the foregoing, as
the same may be in effect at the time such reference becomes
operative. The term "Effective Date" shall mean January 22, 2002.
(b) Payment of Principal and Interest.
(i) All accrued and unpaid interest shall be due and
payable on the first anniversary of the date hereof.
(ii) A payment of principal and accrued and unpaid
interest, equal to One Million Six Hundred Eighty-Six
Thousand Nine Hundred Ninety-Six and 16/100 Dollars
($1,686,996.16), which is the amount of the annual
payment necessary to fully amortize the principal
balance of this Note together with interest thereon at
the imputed per annum rate of 10.0%, as provided for
herein, over the eight year period beginning on the
first anniversary of the date hereof, shall be due and
payable on the second anniversary of the date hereof.
(iii) The entire outstanding principal balance of this
Note and all accrued and unpaid interest thereon shall
be due and payable on the third anniversary of the date
hereof (the "Maturity Date").
(iv) Notwithstanding anything to the contrary set forth
in this Section 1(b), Makers shall be obligated to make
one or more prepayments of the outstanding indebtedness
hereunder (in any case, a "Mandatory Prepayment") in
the event that either Maker consummates any sale of
assets that either (a) includes any of the excess
assets of either Maker comprising what is commonly
referred to as the Carswell Pipeline (such assets being
herein referred to as the "Pipeline Assets"), or (b)
causes the aggregate net proceeds of all sales of
Makers' assets (excluding proceeds attributable to any
asset sold in the ordinary course of business, and any
proceeds attributable to the sale of any Pipeline
Asset) in any calendar year to exceed $500,000 (the
extent of such excess for any calendar year being the
"Excess Proceeds").
Makers shall provide to Lender an accounting of the
proceeds of any sale of assets with respect to which a
Mandatory Prepayment is required, in reasonable detail,
together with copies, if requested, of the documentation
pertaining to such sales.
The amount of any such Mandatory Prepayment shall equal
(x) the net proceeds attributable to the sale of any
Pipeline Asset or (y) the Excess Proceeds (calculated for
the calendar year in which the applicable sale is
consummated) from a sale of assets other than Pipeline
Assets, as applicable, in each case resulting from the
sale that gives rise to such Mandatory Prepayment. Each
Mandatory Prepayment shall be due three Business Days (as
hereinafter defined) following the receipt of cash with
respect to the sale that gives rise to such Mandatory
Prepayment. "Net proceeds" means, with respect to any
sale giving rise to a Mandatory Prepayment, the gross
cash receipts derived from such sale by Makers, less all
reasonable costs and expenses incurred by Makers directly
in connection therewith.
Makers shall be entitled to a Prepayment Discount (as
defined below) with respect to any such Mandatory
Prepayment.
All payments hereunder shall be applied first to accrued and unpaid
interest, and then to the reduction of the outstanding principal
balance hereunder.
SECTION 2. Prepayment Discount. Notwithstanding anything to
the contrary in this Note, a prepayment discount (the "Prepayment
Discount") in an amount not to exceed $2,000,000 of the outstanding
principal amount hereof, plus all accrued but unpaid interest on the
principal amount component of such Prepayment Discount, shall be
applied in reduction of the indebtedness hereunder upon any prepayment
of the indebtedness hereunder, provided that cash payments in
satisfaction of all other amounts of outstanding indebtedness of
Makers to Lender set forth in the Plan (collectively, the "Varde
Indebtedness") have been made to Lender. The amount of the Prepayment
Discount upon any prepayment in full of the indebtedness hereunder
shall be equal to (i) the product of $1,852 multiplied by the number
of days remaining until the Maturity Date as of the date of the
prepayment in full, plus (ii) the interest accrued and unpaid on the
amount calculated under the preceding clause (i). The Prepayment
Discount upon any prepayment in part, but not in full, of the
indebtedness under this Note shall be a pro rata portion of the
Prepayment Discount derived from a prepayment in full. For the
avoidance of doubt, if a Maker proffers payment of the entire
indebtedness owing hereunder twenty (20) days before the Maturity
Date, the outstanding principal balance hereunder would be discounted
by an amount equal to the product of $1,852 multiplied by twenty (20),
or $37,040, plus any accrued and unpaid interest on such $37,040.
Further for the avoidance of doubt, if a Maker proffers payment of
one-half (1/2) of the entire indebtedness owing hereunder twenty (20)
days before the Maturity Date, the outstanding principal balance
hereunder would be discounted by an amount equal to the product of
$926 multiplied by twenty (20), or $18,520, plus any accrued and
unpaid interest on such $18,520.
Makers shall be entitled to the Prepayment Discount set forth in
this Section 2 regardless of the source of the prepayment, including,
without limitation, any Mandatory Prepayment or any payment received
prior to the Maturity Date and retained by Lender pursuant to the
terms of that certain Subordination Agreement (the "Subordination
Agreement"), dated on or about the Effective Date, among Lender and
each of Brad Stephens, Wayne Malone, Dave Caddell or George Percival
(collectively, "Management"), together with a separate agreement
appearing as an Addendum thereto.
Makers shall have the right, at any time, to prepay, without any
prepayment fee or penalty, all or part of the unpaid principal balance
of this Note at any time during the term of this Note.
Upon payment of any amount due hereunder, as a condition to such
payment, the Holder shall execute and deliver to Makers appropriate
receipts, releases and acknowledgments.
SECTION 3. General Provisions as to Payment. Except as
otherwise provided herein, Makers shall make all payments of the
principal amount of, and interest accrued on, this Note in lawful
money of the United States of America in immediately available funds
by wire transfer to such account as the Holder may designate in
writing from time to time, or by a certified or bank cashier's check
delivered to Holder at 3600 West 80th Street, Suite 425, Minneapolis,
Minnesota 55431. Whenever any payment of the principal amount of, or
interest accrued on, this Note shall be due on a day that is not a
Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day. If the date for any payment of the
principal amount of this Note is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
As used herein, the term "Business Day" shall mean any day other than
a Saturday, Sunday or other day on which banks chartered under the
laws of the State of Texas are authorized or required by law to close.
Holder shall acknowledge the actual payment and the applicable related
Prepayment Discount, if any, in writing to Makers not later than three
Business Days after its receipt thereof, and shall mark the applicable
portion paid on this Note.
SECTION 4. Certain Covenants of Makers. For so long as any
indebtedness hereunder remains outstanding, each Maker, on a joint and
several basis, covenants as follows:
(a) Pride and Refining shall keep, and cause each of its
subsidiaries, if any, to keep, adequate records and books of account
with respect to its business activities in which proper entries are
made in accordance with GAAP reflecting all its financial
transactions; and cause to be prepared and furnished to Holder as soon
as available but not later than thirty (30) days after the end of each
month hereafter, including the last month of Pride's fiscal year,
unaudited interim financial statements of Pride and any subsidiaries
thereof as of the end of such month as prepared by Pride in the
ordinary course of business.
(b) Unless Holder shall have first consented thereto in writing,
Pride shall not make any distributions or payments, either directly or
indirectly, in respect of any of its common interests or general
partnership interests.
(c) Unless Holder shall have first consented thereto in writing,
no Maker shall create or suffer to exist any lien upon any property,
income or profits of any Maker, whether now owned or hereafter
acquired, except:
(i) liens described in the Plan, consisting of liens securing
Allowed Secured Tax Claims, the Allowed Secured Claim of Fleet
National Bank, N.A., the Allowed Secured Claims of Management, and
the Contingent Secured Claims of Wells Fargo Bank, N.A. and Equiva
Trading Company, each of which is in the Pride case, and Allowed
Secured Tax Claims and Allowed Guaranty Claims of Management, each
of which is in the Refining case;
(ii) any lien created to secure repayment of money borrowed if
100% of the net proceeds of such borrowing is concurrently applied
to prepayment of indebtedness outstanding under this Note;
(iii) liens for taxes not yet due or being contested in
good faith and by appropriate proceedings and with respect to which
adequate reserves are maintained on the books of the applicable
Maker in accordance with GAAP;
(iv) liens arising in the ordinary course of either Maker's
business by operation of law or regulation, provided, however, that
(a) the underlying obligations are not overdue for a period of more
than 45 days, or (b) such liens are being contested in good faith
and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the applicable Maker in
accordance with GAAP;
(v) purchase money liens securing purchase money indebtedness
incurred in the ordinary course of either Maker's business;
(vi) liens in favor of the applicable lessor created pursuant
to any capital lease or operating lease in the ordinary course of
either Maker's business;
(vii) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects
incurred in the ordinary course of either Maker, which are not
material in amount, do not materially detract from the value of the
property subject thereto, and do not materially interfere with the
ordinary conduct of the business of either Maker;
(viii) liens arising by operation of law in connection with
judgments, which do not, in the aggregate, exceed $250,000;
(ix) liens on the proceeds of any property subject to a lien
permitted hereunder;
(x) liens (including extensions and renewals thereof)
on real or personal property, acquired after the date hereof
("New Property"); provided, however, that (a) such lien is
created solely for the purpose of securing indebtedness incurred
to finance the cost (including the cost of improvements or
construction) of New Property subject thereto and such lien is
created prior to or within six months after the later of the
acquisition, the completion of construction, or the commencement
of full operation of such New Property, (b) the principal amount
of the indebtedness secured by such lien does not exceed 100% of
such cost, including costs and fees related to the financing
thereof, and (c) any such lien shall not extend to or cover any
property or assets other than such item of New Property, any
improvements on such New Property and any agreements relating
directly to the operation of such New Property; and
(xi) liens securing indebtedness the net proceeds of
which are used exclusively to repay indebtedness of a Maker
then secured by a lien permitted hereunder.
SECTION 5. Events of Default. The occurrence of any one of
the following shall be an event of default under this Note ("Event of
Default"): (a) any principal, interest or other amount of money due
under this Note is not paid in full when due; (b) Pride shall fail to
perform, observe or comply with any covenant set forth in Section 4(b)
of this Note; (c) Makers shall fail to perform, observe or comply
with any covenant set forth in Section 4(a) or 4(c) of this Note and
the breach of such covenant is not cured to Holder's reasonable
satisfaction within thirty (30) days after Makers' receipt of notice
of such breach from Holder; (d) any principal, interest or other
amount of money due on the debt or equity securities of the Makers are
not made directly to Lender in accordance with the direction and
consent of Management, to the extent required by and as set forth in
the Subordination Agreement or in the Addendum thereto and the breach
of such covenant is not cured to Holder's reasonable satisfaction
within 30 days after Maker's receipt of notice of such breach from
Holder; or (e) the Bankruptcy of either Maker occurring after the date
hereof.
The "Bankruptcy" of a person or entity shall be deemed to have
occurred when the person or entity: (a) makes a general assignment for
the benefit of creditors; (b) is declared insolvent in any state
insolvency proceeding; (c) becomes the subject of an order for relief
under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C.
Section 101 et. seq., or successor statute (the "Bankruptcy Code");
(d) becomes a voluntary debtor in a case under Chapter 11 or 13 of the
Bankruptcy Code; (e) becomes an involuntary debtor in a case under any
of Chapters 7, 11, or 13 of the Bankruptcy Code and fails to achieve a
dismissal of the case within 60 days; or (f) consents to or is
subjected to the appointment of a trustee, receiver or liquidator with
respect to all or substantially all of the person's or entity's
properties, and, where such appointment was contested by the person or
entity, there has been a failure to vacate such appointment within 60
days of appointment.
Upon the occurrence of any Event of Default, the entire principal
amount due and any accrued and unpaid interest due thereon under this
Note, and any other liabilities of Makers hereunder, shall, at the
option of the Holder, become immediately due and payable all without
notice and without presentment, demand, protest, or notice of protest
or dishonor, all of which are hereby expressly waived by Makers.
If Makers shall fail to pay any portion of the principal amount
of, or interest on, this Note when the same becomes due and payable,
all unpaid amounts due under this Note, including principal and
interest, shall thereafter bear interest at a rate of interest equal
to the lesser of (i) fifteen percent (15%) per annum or (ii) the
Maximum Rate (as defined in Section 9 below); provided, however, that
the obligation to pay such interest is subject to the limitation
contained in Section 9 below.
SECTION 6. Collection Costs, Attorneys' Fees. If this
Note is placed in the hands of an attorney for collection after
Makers' failure to perform as required in this Note, or if collection
procedures are ever commenced by any means, including legal
proceedings or through a probate or bankruptcy court, Makers agree to
pay all of the Holder's reasonable costs of collection or attempted
collection, including reasonable attorneys' fees.
SECTION 7. Waiver by Makers. Except to the extent specifically
provided in this Note, Makers waive demand, notice of intent to
demand, presentment for payment, notice of nonpayment, protest, notice
of protest, grace, notice of dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, and diligence in
collection.
SECTION 8. No Waiver by Holder. No delay on the part of the
Holder in the exercise of any power or right under this Note shall
operate as a waiver thereof, nor shall a single or partial exercise of
power or right preclude other or further exercise thereof or exercise
of any other power or right. The Holder's failure to exercise its
option to accelerate upon any default shall not constitute a waiver of
the right to exercise it in the event of any subsequent default.
SECTION 9. Controlling Agreement. Makers and Holder intend that
this Note comply with any applicable usury laws from time to time in
effect. In furtherance thereof, Makers and Holder stipulate and agree
that none of the terms and provisions contained in this Note shall
be construed to create a contract to pay, as consideration for the
use, forbearance or detention of money, interest at a rate in excess
of the highest lawful rate under applicable law (the "Maximum Rate").
If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this
Note, or contracted for, charged, taken, reserved or received with
respect to the indebtedness evidenced by this Note, or if Holder's
exercise of the option to accelerate the maturity of this Note, or if
any prepayment by Makers results in Makers having paid any interest in
excess of that permitted by law, then it is the express intent of
Makers and Holder that all excess amounts theretofore collected by
Holder be credited on the principal balance of this Note (or, if this
Note has been paid in full, refunded to Makers), and the provisions of
this Note immediately be deemed reformed and the amounts thereafter
collectable hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called
for hereunder or thereunder. All sums paid, or agreed to be paid, by
Makers for the use, forbearance, detention, taking, charging,
receiving or reserving of the indebtedness of Makers to Holder under
this Note shall, to the maximum extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of
interest on account of such indebtedness does not exceed the usury
ceiling from time to time in effect and applicable to such
indebtedness for so long as such indebtedness is outstanding.
SECTION 10. Binding Effect. The covenants and obligations
specified in this Note shall inure to the benefit of the Holder, its
successors and assigns, and shall be binding upon Makers, their
successors and assigns.
SECTION 11. Severability. In case any of the provisions of
this Note shall for any reason be held to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall
not affect any other provision hereof and this Note shall be construed
as if such invalid, illegal or unenforceable provision had never been
contained herein.
SECTION 12. Notices. All notices and other communications
hereunder shall be in writing and shall be given by delivery in
person, by registered or certified mail (return receipt requested and
with postage prepaid thereon), by overnight mail or courier service,
or by facsimile transmission to the parties at the following addresses
(or at such other address as any party shall have furnished to the
others in accordance with the terms of this Section 12):
if to the Holder:
Varde Partners, Inc.
3600 West 80th Street
Suite 425
Minneapolis, Minnesota 55431
Facsimile: 952-893-9613
Attention: Mr. Jason R. Spaeth, Vice President
With a copy to (which shall not constitute notice):
David Weitman, Esq.
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Facsimile: 214-939-6100
if to either Maker:
c/o Pride Companies, L.P.
1209 North Fourth Street
Abilene, Texas 79601
Attention: Chief Executive Officer
Facsimile: (915) 677-1488
with a copy to (which shall not constitute notice):
Gardere Wynne Sewell LLP
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: Stephen A. McCartin, Esq.
Facsimile: (214) 999-4667
All notices and other communications hereunder that are addressed as
provided in or pursuant to this Section 12 shall be deemed duly and
validly given (a) if delivered in person, upon delivery, (b) if
delivered by registered or certified mail (return receipt requested
and with postage paid thereon), 72 hours after being placed in a
depository of the United States mails, (c) if delivered by overnight
courier service, upon delivery, and (d) if delivered by facsimile
transmission, upon transmission thereof and receipt of the appropriate
answer back. Makers and the Holder shall have the right to change
their address for notice hereunder to any other location within the
continental United States by the giving of ten days notice to the
other party in the manner set forth hereinabove.
SECTION 13. Attorneys' Fees in any Dispute. Except as otherwise
expressly provided herein, each party hereto shall pay its own cost,
expenses and attorneys' fees incurred in connection with the
performance by such party of its covenants, agreements, duties and
obligations hereunder; provided, however, that the losing party in any
dispute hereunder shall be responsible for the reasonable attorneys'
fees of each other party to such dispute.
SECTION 14. Applicable Law. This Note shall be construed in
accordance with the laws of the State of Texas and the laws of the
United States applicable to transactions in Texas.
SECTION 15. Jurisdiction. Makers and Holder (by its acceptance
hereof) agree that the Bankruptcy Court shall have exclusive
jurisdiction (unless it refuses to exercise jurisdiction) to resolve
any disputes with respect to this Note, including, without limitation,
any action or proceeding to enforce payment hereof, for a declaration
of such person's rights or obligations hereunder or for any other
judicial remedy in connection therewith, and all such proceedings
shall be commenced in the Bankruptcy Court. If the Bankruptcy Court
refuses to exercise jurisdiction with respect thereto, any such
proceedings may be commenced or maintained either (i) in a court of
competent jurisdiction of the State of Texas (with exclusive venue in
Taylor County) or (ii) the United States District Court (with
exclusive venue in the Northern District of Texas, Abilene Division).
SECTION 16. FINAL AGREEMENT. THIS WRITTEN INSTRUMENT, AND THE
OTHER WRITTEN INSTRUMENTS BEING EXECUTED OF EVEN DATE HEREWITH,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
(Signature Page Follows)
IN WITNESS WHEREOF, each Maker has caused this Promissory Note
to be duly executed by its duly authorized officer as of the 22nd day
of January, 2002.
PRIDE COMPANIES, L.P.,
a Delaware limited partnership
By: Pride Refining, Inc.,
its managing general partner
By: /s/ Brad Stephens
Name: Brad Stephens
Title: Chief Executive Officer
PRIDE REFINING, INC.,
a Texas corporation
By: /s/ Brad Stephens
Name: Brad Stephens
Title: Chief Executive Officer
EXHIBIT 10.44
SETTLEMENT AGREEMENT AND RELEASE OF CLAIMS
This Settlement Agreement and Release of Claims (hereinafter
referred to as the "Agreement") is entered into by Pride Companies,
L.P. ("hereinafter referred to as "Pride"); Brad Stephens, C. David
Caddell, D. Wayne Malone and George Percival ("hereinafter referred to
collectively as "Management"); Pride SGP, Inc. (hereinafter referred
to as "SGP"); and Bradley A. Morris, individually and as Trustee for
the Sue Morris Trust and the Gregory B. Adams Separate Share Trust;
John D. Morris, individually and as Trustee for the Melinda Jean
Morris Trust A, the Marilyn McClung Trust, the Jimmy Morris, Jr.
Separate Share Trust, and the Melinda J. Morris Separate Share Trust;
Tommy M. Broyles; Jimmy R. Morris, Jr., individually and as trustee
for the John D. Morris Separate Share Trust; Carole A. Malone; Mike
Dunigan, individually and as Trustee for the JMD 1977 Trust; Paul
Lenker, Trustee for the DDP-JMD Trust and the 1977 JMD Trust; Andrew
C. Rector, Trustee for the 1981 Rector Irrevocable Insurance Trust;
and R.J. Schumacher (hereinafter referred to collectively as the
"Departing SGP Shareholders"). The entities identified in this
paragraph may hereinafter be referred to collectively as the
"Parties".
AGREEMENT
In order to compromise and settle disputes at issue between them,
and in consideration of the mutual promises and agreements set forth
herein, subject to the approval of the Bankruptcy Court in both the
Pride Companies L. P./ Pride Refining Inc. and Pride SGP, Inc.
proceedings, the Parties agree as follows:
1. Pride will amend its Plan of Reorganization ("Plan") to
reflect alternative treatment as provided herein to SGP in the event
it completes the actions required in paragraph 8 and within thirty
days after the latter of the following occurs:(1) the Effective Date
of the Pride Plan, (2) Bankruptcy Court approval of this Agreement in
the SGP proceedings, and (3) the completion of the actions set forth
in paragraph 8 below, Pride will pay $500 thousand in cash followed by
an additional $725 thousand in cash within the six months following
the first payment, in full and final settlement and redemption of
$2.526 million of the $3.144 million Series G Preferred Units to the
Departing Shareholders who are holders of such units, assuming all
Departing Shareholders execute this Agreement, or such lesser amount
as adjusted on a pro rata basis if not all Departing Shareholders
execute this Agreement. Tommy Broyles shall serve as trustee for the
Departing Shareholders, and all payments to Departing Shareholders may
be made to Tommy Broyles, Trustee.
2. Pride will amend its Plan to reflect that on the Effective
Date of the Pride Plan and approval of this Agreement in the SGP
bankruptcy proceedings, Pride will pay SGP $50,000 in cash to redeem
$104,000 of the Series G Preferred Units currently held by SGP.
3. The Departing SGP Shareholders shall concurrently with the
payment of the $500 thousand described in paragraph 1 cause all
attorney's fees, accountant's fees, and any other fees incurred by SGP
following the change in management of SGP on September 12, 2001 to be
fully paid, and all such creditors of SGP will acknowledge that full
payment has been made. An amount necessary to satisfy all such fees
shall be withheld from the $500 thousand payment described in
paragraph 1, and escrowed, to be used for the payment of fees
described in this paragraph 3. Escrow arrangements will be mutually
acceptable to Tommy Broyles, Trustee and Pride.
4. The Departing SGP Shareholders shall immediately, upon
receipt of the $500,000 payment reflected in paragraph 1, restore the
cash in SGP's bank accounts to the amount contained in the accounts
prior to the change in management of SGP on September 12, 2001.
5. SGP shall immediately refile in the bankruptcy court its
request for authority to pay the income
and franchise taxes owed by SGP, and shall pay such taxes upon court
approval.
6. SGP and the Departing SGP Shareholders shall exclusively
support and vote in favor of the Plan, consistent with the terms
herein and pursuant to the requirements of the Bankruptcy Code. Pride
shall amend its Plan to incorporate alternative treatment to the
current treatment in the event the actions required by paragraph 8 are
completed which shall allow SGP to retain its general partner interest
and incorporate the terms of this Agreement, as necessary.
7. Pride SGP shall guarantee all debt obligations and Plan
payments of Pride and shall indemnify Pride Refining, Inc. to pay all
debts of Pride should Pride default on its obligations.
8. Prior to the cash payment in settlement and redemption as
set forth in paragraph 1 of this Agreement, the current management of
SGP must have, with Bankruptcy court approval, redeemed the common
stock equity interests in SGP of the Departing SGP Shareholders on a
pro rata basis in exchange for the $2.526 million of the $3.144
million Series G Preferred Units. This redemption will occur without
the consent, advice or participation by former management or Pride
except as signatories to this Agreement or as is necessary for SGP
shareholders to effect the redemption. If less than all of the
Departing Shareholders execute this Agreement, the $2.526 million
shall be reduced proportionately.
9. Following the actions set forth in paragraphs 3,4,5,6,7,
and 8 herein, the directors and officers of SGP shall, move for and
obtain either a dismissal of SGP's bankruptcy filing or a confirmed
Plan of Reorganization incorporating the terms herein, and the
directors and officers of SGP shall then resign from SGP.
10. In consideration of the obligations as set forth in this
Agreement, SGP and the Departing SGP Shareholders agree to release,
acquit and forever discharge Pride, its officers, directors,
employees, representatives, insurers, attorneys and agents, past,
present and future, and its affiliated entities, predecessors and
successors, past, present and future, from any and all claims or
causes of action. It is intended that this Agreement discharge and
release all claims, known or unknown, suspected or unsuspected, which
SGP and the Departing SGP Shareholders has, or may have had, against
Pride and Management; however, nothing herein shall constitute a
release of the obligations of the Parties as set forth in this
Agreement, or any documents or pleadings executed or filed in
connection therewith or otherwise contemplated thereby.
11. In consideration of the obligations as set forth in this
Agreement, Pride and Management agree to release, acquit and forever
discharge the Departing SGP Shareholders and SGP, its officers,
directors, employees, representatives, insurers, attorneys and agents,
past, present and future, and its affiliated entities, predecessors
and successors, past, present and future, from any and all claims or
causes of action. It is intended that this Agreement discharge and
release all claims, known or unknown, suspected or unsuspected, which
Pride and Management has, or may have had, against SGP and the
Departing SGP Shareholders; however, nothing herein shall constitute a
release of the obligations of the Parties as set forth in this
Agreement, or any documents or pleadings executed or filed in
connection therewith or otherwise contemplated thereby.
12. In entering into this Agreement, the Parties hereto
acknowledge that they have read and understood each of the provisions
of this Agreement, and that they have had the opportunity to consult
with an attorney of their own choosing regarding the terms of this
Agreement, and further that those terms are fully and voluntarily
accepted.
13. In the event any one or more of the provisions contained
in this Agreement shall be determined by a court to be invalid or
unenforceable in any respect, the determination shall not affect any
other provision, and this Agreement shall be enforced as if the
invalid provision did not exist.
14. Each of the persons executing this Agreement,
individually or on behalf of any other person or entity, specifically
acknowledges, represents and warrants that he or she is specifically
authorized to enter into this Agreement individually or on behalf of
the persons or entities for whom he or she purports to have authority,
and further, that no portion of any claim being released pursuant to
this Agreement has been assigned or conveyed to any other person,
party or entity, except as specifically set forth herein.
15. The Bankruptcy Court shall have exclusive jurisdiction to
resolve any disputes with respect to the subject matter hereof, and
the Parties hereto expressly consent to same. The losing party in any
dispute thereunder will be responsible for the reasonable attorneys'
fees of the other party.
17. The Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective successors,
assigns, heirs and devisees, if any.
18. It is understood and agreed that the Agreement may be
executed in a number of identical counterparts or with detachable
signature pages and shall constitute one agreement, binding upon all
Parties thereto as if all Parties signed the same document.
18. All Parties agree to cooperate fully and to execute any
and all supplementary or additional documents and to take any
additional action which may be necessary to give full force and effect
to the basic terms and conditions of this Agreement.
19. The Agreement embodies, merges, integrates, and
supersedes all prior and current agreements and understandings of the
Parties. No oral understandings, statements, promises or inducements
contrary to the terms of the Agreement exist. The Agreement cannot be
changed or terminated orally.
IN TESTIMONY OF THIS AGREEMENT, WITNESS THE SIGNATURES SET FORTH
BELOW.
PRIDE COMPANIES, L.P.
By: PRIDE REFINING, INC.
By: /s/ Brad Stephens
Its: CEO
Dated: 1/08/02
MANAGEMENT OF PRIDE COMPANIES, L.P.:
/s/ Brad Stephens
Brad Stephens
Dated: 1/08/02
/s/ D. Wayne Malone
D. Wayne Malone
Dated: 1/08/02
/s/ Dave Caddell
C. David Caddell
Dated: 1/08/02
/s/ George Percival
George Percival
Dated: 1/08/02
PRIDE SGP, INC.
By: /s/ Tommy Broyles
Its: President
Dated: 1/8/02
DEPARTING SGP SHAREHOLDERS:
/s/ Jimmy R. Morris, Jr.
Jimmy Morris, Jr.
Dated: 1/8/02
/s/ Bradley A. Morris
Bradley A. Morris, Individually and as
Trustee for the Sue Morris Trust and the
Gregory B. Adams Separate Share Trust
Dated: 1/8/02
/s/ John D. Morris
John D. Morris, Individually and as
Trustee for the Melinda Jean Morris Trust
A, the Marilyn McClung Trust, the Jimmy
Morris, Jr. Separate Share Trust and the
Melinda J. Morris Separate Share Trust
Dated: 1/8/02
/s/ Tommy Broyles
Tommy Broyles
Dated: 1/8/02
/s/ Mike Dunigan
Mike Dunigan, Individually and as Trustee
for the JMD 1977 Trust
Dated: 1/8/02
/s/ R. J. Schumacher
R.J. Schumacher
Dated: 1/8/02
/s/ Andrew C. Rector, Trustee
Andrew C. Rector, Trustee for the
1981 Rector Irrevocable Insurance Trust
Dated: 1/8/02
/s/ Carole A. Malone
Carole A. Malone
Dated: 1/15/02
/s/ Paul Lenker
Paul Lenker, Trustee for the
DDP-JMD Trust and the JMD 1977
Trust
Dated: 1/8/02
/s/ Jimmy R. Morris, Jr.
Jimmy R. Morris, Jr., Trustee
for the John D. Morris Separate
Share Trust
Dated: 1/8/02