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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, 1997
Commission file number 1-10473
PRIDE COMPANIES, L.P.
(Name of registrant)
Delaware 75-2313597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1209 North Fourth Street, Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 674-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class: Exchange on Which Registered:
- - ------------------- ----------------------------
Common Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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. [X]
Number of Common Units outstanding as of March 26, 1998:
4,950,000
The aggregate market value of the 4,626,365 Common Units
held by non-affiliates of the Partnership as of March 26, 1998
was approximately $6.9 million, which was computed using the
closing sales price of the Common Units on March 26, 1998.
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 (i) a crude oil
gathering business (the "Crude Gathering System") that gathers,
transports, resells and redelivers crude oil in the Texas and New
Mexico markets and (ii) certain integrated products pipelines and
terminal operations in San Angelo, Texas and Aledo, Texas (the
"Products System"). The Partnership also owns a modern simplex
petroleum refinery facility (the "Refinery") which was mothballed
on March 22, 1998. Under an agreement with Texaco Trading and
Transportation, Inc. ("TTTI"), the Partnership will begin
purchasing refined products from TTTI in April 1998 to market
through the Products System and its other products terminal in
Abilene, Texas that had been included as part of the Refinery
(see "-Long-Term Product Supply Agreement" below). Prior to
mothballing the Refinery, the Partnership's operations were
considered a single industry segment, the refining of crude oil
and the sale of the resulting petroleum products. The primary
purpose of the Crude Gathering System was to supply the Refinery
with crude oil. In that connection, it purchased and resold
crude oil in order to provide a supply of the appropriate grade
of crude oil at strategic locations to be used as feedstock for
the Refinery. In connection with the TTTI agreement and the
mothballing of the Refinery, the Crude Gathering System will
primarily market crude oil to other refineries and the
Partnership will now operate two separate and distinct industry
segments, the Crude Gathering System segment and the marketing
and products pipeline segment. The Crude Gathering System
consists of pipeline gathering systems and a fleet of trucks
which transport crude oil into third party pipelines and into the
system's primary asset, a common carrier pipeline. The Products
System consisted of two products pipelines that originated at the
Refinery and terminated at the Partnership's marketing terminals.
In connection with the mothballing of the Refinery, the products
pipeline that extends from the Refinery to the Aledo terminal was
idled, since TTTI's pipeline is connected to the Partnership's
Aledo terminal.
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 the Special General Partner (collectively the "General
Partners") collectively own a 2% general partner interest.
Effective December 31, 1996, the Partnership adopted certain
amendments to its partnership agreement (the "Amendments"), which
modified the capital structure of the Partnership. In addition
to its general partner interest, the Special General Partner owns
a 4.9% interest in the Partnership through ownership of common
limited partner units with terms specified by the Amendments
("Common Units"). Public ownership represented by the remaining
Common Units is 93.1%. Prior to the effectiveness of the
Amendments, the Special General Partner owned a 51.7% limited
partner interest in the Partnership through ownership of common
limited partner units ("Old Common Units"), and the public owned
a 46.3% interest in the Partnership through ownership of
convertible preferred limited partner units ("Preferred Units").
Prior to the mothballing of the Refinery, the Partnership's
principal business consisted of refining crude oil into
commercial and military aviation fuel, conventional gasoline, low
sulfur diesel fuel, vacuum gas oil, liquefied petroleum gas and
vacuum residuum. In addition, the Partnership owns and operates
a crude oil gathering system connected by pipeline into the
Refinery and two common carrier products pipeline systems, one of
which transported products from the Refinery to Dyess Air Force
Base ("Dyess") in Abilene, and to the Partnership's products
terminal at San Angelo, Texas. The other pipeline formerly
transported products from the Refinery to the Partnership's
products terminal in Aledo, Texas (southwest of Fort Worth,
Texas) and was idled when the Refinery was mothballed. Prior to
January 20, 1997, the Partnership operated an additional 13-mile
pipeline segment that carried military aviation fuel from the
Partnership's products terminal in Aledo, Texas into Naval Air
Station Fort Worth located northwest of Fort Worth (formerly
Carswell Air Force Base), but shut that pipeline segment down due
to reduced military aviation fuel requirements for that base and
other economic considerations. The Partnership now trucks the
military aviation fuel from the Aledo products terminal to Naval
Air Station Fort Worth.
The Partnership owns the Texas Plains Pipeline System
("Texas Plains System") which consists of 271 miles of pipeline
transporting crude oil and vacuum gas oil from the Partnership's
Refinery to Borger, Texas, and then via Diamond Shamrock Refining
and Marketing Company's ("Diamond Shamrock") pipeline to its
refinery in McKee, Texas. As a result of the Refinery being
mothballed, the Texas Plains System will only ship crude oil.
See "Partnership Operations and Products" below.
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. Fina, Inc. ("Fina"), a competitor of the Partnership,
currently has products pipeline access into Abilene, while the
Partnership is the only supplier with a products pipeline into
San Angelo. TTTI recently converted an existing crude pipeline
into a products pipeline that will deliver gasoline, diesel and
military aviation fuel to the Partnership in Abilene and Aledo
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. Naval
Air Station Fort Worth, Dyess, and certain other military
installations have been long-time customers for 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 awarded under the
recently awarded contract have been significantly reduced from
prior years since the Partnership no longer receives preferential
treatment under the small business set-aside program and due to
increasing competition. See "-Partnership Operations and
Products" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors and Trends
Affecting Operating Results." Gasoline and diesel tankage and
sales facilities at the Partnership's Aledo products terminal
allow the Partnership access to the smaller communities west of
the Dallas-Fort Worth ("DFW") market along Interstate 20 for
gasoline and the DFW market for diesel. See "-Markets and
Competition" below.
Partnership Operations and Products
Products System. The Partnership's primary product delivery
facilities consisted of a pipeline that connects the Refinery to
the Partnership's Aledo products terminal (the "Aledo Pipeline")
and a pipeline that connects the Refinery to Dyess in Abilene,
Texas, and the Partnership's products terminal at San Angelo,
Texas (the "San Angelo Pipeline"). In conjunction with the
Refinery being mothballed, TTTI will deliver product to Abilene
and Aledo. The Partnership will deliver a portion of the product
received from TTTI in Abilene to Dyess and to the products
terminal in San Angelo. The Aledo pipeline will be idled since
TTTI's pipeline is connected to the Partnership's Aledo terminal.
Prior to January 20, 1997, the Partnership operated an
additional 13-mile segment of pipeline that carried military
aviation fuel from the Partnership's products terminal in Aledo
into Naval Air Station Fort Worth located northwest of Fort
Worth, Texas. This pipeline segment was closed due to reduced
military aviation fuel requirements for that base and other
economic considerations.
The Partnership now trucks the military aviation fuel from
the Aledo products terminal to Naval Air Station Fort Worth and
delivers military aviation fuel through the San Angelo Pipeline.
Conventional gasoline is marketed through the Partnership's Aledo
products terminal and is delivered through the San Angelo
Pipeline to the Partnership's San Angelo products terminal for
marketing to non-military customers in the communities west of
the Dallas-Fort Worth ("DFW") metropolitan area along Interstate
20 and in the San Angelo area, respectively. Diesel fuel is also
delivered to the Aledo and San Angelo products terminals for
marketing to non-military customers in the DFW metropolitan area
and the San Angelo area. Additional products are delivered by
truck and rail throughout the Partnership's market area.
Military aviation fuel delivered by the San Angelo Pipeline
to Dyess is sold f.o.b. the Refinery 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. Fina recently purchased Conoco's product
terminal in Abilene and is constructing its own pipeline from its
terminal to Dyess that will enable Fina to deliver military
aviation fuel into Dyess.
Sales of military aviation fuel constitute a significant
portion of the Partnership's revenues. See "-Markets and
Competition" below. Such sales are under annual contracts
awarded by the Defense Fuel Supply Center after a bidding
process. The bidding process is conducted on a base-by-base
basis and is subject to the small business set-aside program.
When the bids are received, the Defense Fuel Supply Center
determines both the lowest overall bid and the lowest bid
submitted by a small business (defined as a refinery with a
throughput capacity of less than 75,000 BPD and fewer than 1,500
employees). If the lowest bid is not submitted by a small
business, the lowest small business bidder is offered the
opportunity to obtain a contract for a set percentage of the
base's requirements by matching the lowest overall bid. Prior to
the contract that begins April 1, 1998 and ends March 31, 1999,
the Partnership was considered a small business. As a result of
the planned mothballing of the Refinery and the agreement to
purchase products from TTTI, the Partnership could not bid as a
small business for the contract that begins April 1, 1998 and
ends March 31, 1999 nor will the Partnership be able to bid on
any future contracts as a small business. Since the Partnership
was not able to match the price of the lowest large business
under the small business set-aside program, the volumes under the
recently awarded contract are approximately 51% of the volumes
under the prior contract which is partially offset by an
approximate 2 cents improvement in the award price compared to
the base reference price net of transportation from the prior
contract. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors and Trends
Affecting Operating Results."
The Partnership and its predecessors have been supplying
products to Naval Air Station Fort Worth and Dyess since the
early 1960s. Management believes that the military will continue
to be a major customer of the Partnership into the foreseeable
future. 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
the contract that is effective from April 1, 1997 through March
31, 1998, the Partnership contracted to sell military aviation
fuel to Dyess, Sheppard Air Force Base in Wichita Falls, Texas,
Fort Hood Military Installation in Killeen, Texas, Naval Air
Station Dallas in Dallas, Texas, E-Systems, Inc. in Greenville,
Texas, Naval Air Station Fort Worth, AASF in Dallas, Texas, and
Tinker Air Force Base in Oklahoma City, Oklahoma. Additionally,
the Partnership is selling jet fuel to Altus Air Force Base in
Altus, Oklahoma and Cannon Air Force Base in Clovis, New Mexico,
under a contract that is effective from October 1, 1997 through
September 30, 1998. Under the new contract that is effective
from April 1, 1998 through March 31, 1999, the Partnership will
supply military aviation fuel to Dyess, Sheppard Air Force Base,
Naval Air Station Fort Worth, Fort Hood Military Installation,
and E-Systems, Inc. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors and
Trends Affecting Operating Results - Other Factors."
Crude Oil Gathering Operations. The Partnership's Crude
Gathering System is divided into two distinct areas: (i) truck-
based crude oil gathering and (ii) pipeline operations. The
trucking operations comprise six district offices located in the
Abilene, Dallas, Graham, Lubbock, Midland, and San Angelo, Texas
areas. These districts utilize a fleet of 103 trucks to
transport crude oil from individual leases or small gathering
systems to injection stations owned and operated by the
Partnership along common carrier pipeline systems. As of
December 31, 1997, the Crude Gathering System operated 44 crude
oil injection stations located on various common carrier pipeline
systems including the Amoco, Arco, Chevron, Comyn, Conoco, EOTT,
Mobil, Sun, Texaco, Texas Plains System and other Texas-New
Mexico pipeline systems. The Partnership maintains 21 trucking
locations throughout the area for operation of its truck fleet.
In December 1997, the average length of travel for the
Partnership's trucks in its gathering operations was
approximately 76 miles round trip.
As of December 31, 1997, the pipeline assets utilized in the
Crude Gathering System consisted of in excess of 900 miles of
active pipeline, the major portion of which is the Comyn pipeline
system with approximately 414 miles of trunkline and 190 miles of
gathering lines and the Texas Plains System consisting of an
additional 242 miles of trunkline and 29 miles of gathering
lines. Ownership of the trunkline segments of the Comyn pipeline
system from Hawley to Comyn, Texas (90 miles), from Hearne to
Comyn, Texas (143 miles), and from Comyn to Ranger, Texas (37
miles) along with certain related pumping facilities was retained
by Pride SGP when the Partnership was formed. For the years
ended December 31, 1997, 1996 and 1995, the crude oil transported
through the active segment of the Comyn pipeline system which is
owned by Pride SGP accounted for approximately 64%, 51% and 72%,
respectively, of the total crude oil received by the Refinery.
At December 31, 1997, twelve miles of the 37-mile segment noted
above were inactive but are being reactivated in connection with
the TTTI agreement. The 143-mile section from Hearne to Comyn
transports 10,671 barrels per day ("BPD") of crude oil from the
eastern portion of the Austin Chalk formation. The Partnership
and Pride SGP have a lease agreement wherein the Partnership has
been granted the right to use the segments of the Comyn pipeline
owned by Pride SGP. The Partnership is entitled to use the
pipeline sections in exchange for its agreement to provide
maintenance and repair valued at approximately $250,000 annually.
In addition, the Partnership pays the taxes, insurance, and other
costs. Pursuant to the lease agreement, the Partnership was
accruing rentals to Pride SGP of $0.20 per barrel for all crude
oil transported by the Partnership, or third parties with
contractual relationships with it, through the 143-mile section
from Hearne to Comyn. Rentals accruing to Pride SGP from the
Partnership for the years ended December 31, 1997, 1996 and 1995
totaled approximately $788,000, $919,000, and $873,000,
respectively, for the lease of the pipeline. The original term
of the lease agreement ran through 2000. During 1992, the lease
was amended, whereby at the Partnership's option, the lease may
be extended through March 2013 as long as certain minimum
throughput levels are maintained. If such throughput levels are
not maintained during the extended term, the lease is cancelable
by Pride SGP with ninety days' notice. At any time during the
term of the amended lease agreement, the Partnership may upon 30
days' notice to Pride SGP purchase the Comyn pipeline for $10
million. On December 31, 1997, the lease was amended to reduce
the rental to a maximum of $400,000 annually as long as certain
debt is outstanding. See "Certain Relationships and Related
Transactions."
The Comyn pipeline is a common carrier pipeline that charges
a transportation fee in accordance with a published tariff
schedule filed with the Texas Railroad Commission. Shipments of
crude oil to the Refinery accounted for approximately 88% of the
crude oil shipped through the Comyn line. The Comyn pipeline is
also allowed to charge each customer's account with a line loss
allowance of 0.25% for each barrel transported in the system.
The Partnership owns the Texas Plains System, a crude oil
pipeline system that prior to the mothballing of the Refinery
also transported vacuum gas oil. It consists of 271 miles of
pipeline extending from Hawley, Texas, which is located near the
Partnership's Refinery, to Borger, Texas. The system has a total
capacity of 38,000 BPD, and an average of approximately 31,000
BPD of crude oil and vacuum gas oil was shipped on the pipeline
for the year ended December 31, 1997. After the mothballing of
the Refinery, the Partnership plans on shipping crude oil that
previously went to the Refinery to Diamond Shamrock's refinery in
McKee, Texas, in place of the vacuum gas oil. Prior to the
mothballing of the Refinery, the Partnership had sold all the
vacuum gas oil and a small portion of the crude oil transported
on the pipeline to Diamond Shamrock.
In addition to the Comyn system and Texas Plains System, the
Partnership owns and operates two smaller pipelines in West
Texas: Carlsbad in Tom Green County and East Broadview in
Lubbock County.
Crude oil from the Crude Gathering System pipelines can be
delivered to a variety of locations, including storage tanks
located at the Refinery, tank storage areas which facilitate
trucking to injection stations, and several different common
carrier crude oil pipelines.
The Crude Gathering System is the first purchaser of a
portion of the crude oil it gathers. These first purchase
barrels have traditionally been either resold to other companies
or shipped to the Refinery. The Partnership also gathers crude
oil for custom gathering customers and charges gathering fees
depending on several factors (including the transportation
distance involved) and delivers these barrels to an agreed upon
location by contract. The Crude Gathering System assumes title
to both first purchase and custom gathered barrels and the total
of the two categories is considered to be total gathered barrels.
The custom gathering area has been the fastest growing segment of
the Crude Gathering System operations. While first purchase
barrels have declined from 39,000 BPD in 1986 to 28,000 BPD for
the year ended December 31, 1997, custom gathered barrels have
grown from 5,000 BPD to 24,000 BPD for the same period. The
custom gathered barrels have declined over the last two years as
the Partnership has eliminated some of the marginal custom
gathered contracts. Both first purchase barrels and custom
gathered barrels are subject to decline if drilling activity
slows down as a result of declines in crude oil prices.
Refining. Prior to March 22, 1998, the principal business
of the Partnership was crude oil refining at its Refinery located
approximately ten miles north of Abilene, Texas. The Refinery
has a throughput capacity of 49,500 barrels per day ("BPD") and
is permitted to process 44,500 BPD. For the year ended December
31, 1997, the Refinery processed crude oil into refined products
at an average rate of approximately 31,400 BPD.
The Refinery produced vacuum residuum, which was sold to
third parties for processing into roofing material and similar
products, and distillates that included atmospheric gas oil for
blending with vacuum gas oils, diesel for sale as motor fuel,
kerosene, and heavy and light naphthas. Kerosene was produced
and sold as various grades of jet fuel. The light naphtha was
subjected to further processing to remove butane and propane to
produce liquefied petroleum gas and the remaining light naphtha
was used for a gasoline blend stock. The Refinery allowed heavy
naphtha to be converted into a high octane unleaded gasoline
blend stock. The Refinery produced up to 7,500 BPD of unleaded
gasoline. The Refinery also produced diesel fuel that complied
with federal environmental regulations restricting the amount of
sulfur allowed in highway use diesel fuel.
As previously mentioned, the Refinery was mothballed on
March 22, 1998. The Partnership currently plans to retain these
assets for possible future use should the long-term outlook in
the refining business improve. However, as a result of the
mothballing of the Refinery, the Partnership wrote down such
assets $40.0 million.
Markets and Competition
Fina, 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 Hawley, Midland, and Wichita
Falls, Texas and the Midcontinent. 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. TTTI recently converted an existing crude pipeline into a
products pipeline that will deliver gasoline, diesel and military
aviation fuel from the Gulf Coast to the Partnership's Abilene
and Aledo products terminals. 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, diesel, commercial and military aviation
fuel, and kerosene. In the case of each product, however, demand
tends to vary by locality and season. Aviation fuel consumption
is limited to regional military and civilian air facilities.
Fina and Holly Corp. ("Holly") announced a plan in February
1997 to convert existing crude oil and natural gas pipelines and
lay 110 miles of new pipeline to bring additional gasoline and
diesel products to West Texas, New Mexico and Arizona. The
system will be supplied by Fina's refineries in Big Spring and
Port Arthur, Texas, a pipeline terminal in Duncan, Oklahoma, and
Holly's refinery in Artesia, New Mexico. Fina has indicated that
it believes Gulf Coast petroleum products will not be needed for
another five years. Other companies are also considering
projects to bring petroleum products into West Texas, New Mexico
and Arizona from the Gulf Coast. These proposals, if
implemented, 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 diesel, 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 diesel. Prior to
the mothballing of the Refinery, the secondary market was
accessible from the Refinery via the Aledo Pipeline and the Aledo
products terminal. Now the Aledo products terminal is supplied
by TTTI's pipeline that connects directly to the Aledo terminal.
As a result of the reformulated gasoline requirement for the
Dallas-Fort Worth metropolitan area effective January 1, 1995,
most products terminals are supplying reformulated gasoline in
the area with only a small number having the capability of
supplying conventional gasoline. The Partnership's Aledo
products terminal is strategically located to take advantage of
this marketing opportunity, and the Partnership has entered into
supply and exchange agreements with three major oil companies at
that location. The San Angelo market area is accessible via the
San Angelo Pipeline that is connected to storage tanks at the
Refinery. 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 does not generally sell its products through
its own direct retail distribution system, but primarily sells to
other branded product companies and branded Pride dealers. 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 or exchange refined products include Chevron,
Citgo, Conoco, Diamond Shamrock, Exxon, Fina, Phillips, Shell,
Star Enterprise and Texaco. The Partnership has five exchange
agreements and three sales agreements with these companies for
products supplied out of the San Angelo products terminal, one
exchange agreement and two sales agreements with these companies
for product supplied out of the Aledo products terminal, and two
exchange agreements and one sales agreement with these companies
for product supplied out of the Abilene products terminal. The
exchange agreements have enabled the Partnership to expand its
marketing area to Amarillo, Texas, El Paso, Texas, Lubbock,
Texas, Midland/Odessa, Texas, and Wichita Falls, Texas without
incurring transportation costs to these cities. Management also
expects that the Partnership will continue to sell conventional
gasoline and diesel to jobbers who will own and operate service
stations under the Pride brand. The Partnership also currently
operates five retail fueling facilities. These facilities are
located in Central and West Texas. Sales by such facilities
accounted for less than 1% of the Partnership's revenues for the
year ended December 31, 1997.
As a result of the Refinery being mothballed on March 22,
1998, the Partnership will now market to third parties the crude
oil it previously sold to the Refinery. These third parties
include other refiners and companies that buy, sell and exchange
crude oil. The Partnership recently entered into a two-year
contract to sell Gary-Williams Energy, Corporation (Gary-
Williams) a portion of the crude oil sold to the Refinery. The
Partnership is also in final negotiations with another refiner to
sell them the remainder of the crude oil on a long-term contract.
Customers
The Partnership delivers a substantial amount of its
military aviation fuels to the Defense Fuel Supply Center. The
Partnership entered into a three-year agreement with Diamond
Shamrock to supply them with vacuum gas oil through December 31,
1998 for use in Diamond Shamrock's refining operations. The
Partnership's revenues pursuant to the military aviation fuel
supply contracts and the Diamond Shamrock agreement accounted for
11% and 21%, respectively, of its total revenues for the year
ended December 31, 1997. The Partnership has proposed supplying
Diamond Shamrock with vacuum gas oil the Partnership would
purchase from TTTI and ship to Diamond Shamrock through the end
of the contract which is December 31, 1998. See "Legal
Proceedings".
Long-Term Product Supply Agreement
The Partnership announced on June 20, 1997 that it had
executed a long-term product supply agreement (the "Agreement")
with TTTI, a wholly-owned subsidiary of Texaco, Inc. The
Agreement has a 10-year primary term which begins in April 1998,
the date TTTI completes its system of pipelines and terminals.
The 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 TTTI determines that shipment
of products on its new products pipeline is no longer economical
due to non-economical product prices, then TTTI may notify the
Partnership of proposed redetermined prices. If the Partnership
does not accept such redetermined prices, then TTTI may elect to
terminate the Agreement by 18 months written notice. After the
Primary Term, if either party under the Agreement can demonstrate
that the prices for delivered products under the 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 Agreement not less than one year prior
to the end of the current term. The Agreement may furthermore be
terminated upon any breach by the other party which continues
beyond 30 days following notice of breach. Additionally, the
Agreement provides that the Partnership will purchase all
gasoline, diesel and jet fuel, which it may desire to purchase,
exclusively from TTTI. 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 will use
TTTI products to supply its existing customer base, which
includes wholesale customers, exchange partners, and military
bases, primarily using the Partnership's existing pipelines and
terminals.
In connection with the Agreement, the Partnership mothballed
its Refinery, but will continue to utilize part of the Refinery
for a products and crude oil storage and terminalling facility.
See also "Financial Condition - Financial Resources and
Liquidity." The Partnership estimates the closure cost and
related severance costs at approximately $1.8 million. The
Partnership accrued this amount as of December 31, 1997. The
Agreement with TTTI will allow the Partnership to expand its
crude gathering operations, conducted under the name Pride
Pipeline Company. The arrangement with TTTI enables the
Partnership to transport the crude oil it previously gathered and
shipped to the Refinery to other attractive markets. A large
portion of Pride Pipeline Company's gathered crude oil was
restricted to use as feedstock for the Refinery. The Partnership
anticipates that the new arrangement will produce operating cash
flows similar to the level that the Partnership has experienced
for the last four years. However, the Partnership believes that
cash flows should be less volatile since the Agreement will
result in more stable product margins and eventually decrease the
Partnership's exposure to volatility in refining margins. The
Partnership also believes that the Agreement will better enable
the Partnership to remain competitive as environmental standards
change and the industry trends toward consolidation and
realignments in the future.
Employees
As of December 31, 1997, the Partnership had 340 employees,
of which 119 were employed in the Refinery and Products System
and 221 were employed in the Crude Gathering System. As a result
of the mothballing of the Refinery, the Partnership expects the
number of employees for the Refinery and Products System to
eventually decrease to 55 employees. None of the Partnership's
employees are subject to collective bargaining or similar
agreements.
Environmental Matters
The Partnership's activities involve the transportation,
storage, and handling of crude oil and 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 certain 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors and Trends
Affecting Operating Results" and "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 conditions in the future are: (i) the margins between
the prices obtained for the Partnership's refined petroleum
products and the cost of such products, (ii) the volume
throughput on and margins from the transportation and resale of
crude oil from the Partnership's Crude Gathering System, (iii)
the impact of current and future laws and governmental
regulations affecting the petroleum industry in general and the
Partnership's operations in particular, (iv) the ability of the
Partnership to sustain cash flow from operations sufficient to
realize its investment in operating assets of the Partnership,
(v) the settlement of outstanding contract issues, and (vi) the
receipt of certain consents and approvals to modify the
Partnership's capital structure, as described in "Management's
Discussion and Analysis of Financial Condition and Results of
Operation - Financial Condition."
Item 3. Legal Proceedings
The Partnership has filed a substantial claim against the
Defense Fuel Supply Center relating to erroneous pricing of fuel
purchased over a period of several years from the Partnership and
its predecessors (the "DFSC Claim"). The ultimate outcome of
this matter cannot presently be determined.
The Partnership is contractually committed to supply Diamond
Shamrock with vacuum gas oil through December 31, 1998. The
Partnership has proposed supplying Diamond Shamrock with vacuum
gas oil that it would purchase from TTTI and ship to Diamond
Shamrock through the end of the contract. If this proposal is
acceptable to Diamond Shamrock and the Partnership can make the
appropriate arrangements to ship the vacuum gas oil to Diamond
Shamrock, the change to the contract is not expected to have a
material effect on the Partnership. If that proposal, or other
alternative proposals, are not acceptable, or the Partnership
cannot make the appropriate arrangements, there could be a
material adverse effect on the Partnership.
The Partnership is involved in various claims and routine
litigation incidental to its business for which damages are
sought. Management believes that the outcome of all claims and
litigation is either adequately insured or will not have a
material adverse effect on the Partnership's financial position
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during fiscal 1997.
PART II
Item 5. Market for Partnership's Preferred Units, Common Units,
and Related Unitholder Matters
The Partnership adopted certain Amendments to its
partnership agreement effective at the close of business on
December 31, 1996 which modified the capital structure of the
Partnership. Prior to the effectiveness of the Amendments, the
Partnership had 4,700,000 Preferred Units listed on the New York
Stock Exchange under the symbol "PRF". On January 2, 1997, the
Common Units began trading on the New York Stock Exchange under
the same symbol. The following table sets forth, for the periods
indicated, the high and low closing prices of the Preferred Units
in 1996 and the Common Units in 1997 as reported on the New York
Stock Exchange Composite Tape. No distributions were made with
respect to the Preferred Units, the Old Common Units, or the
Common Units during the past two fiscal years. Information with
respect to accumulated arrearages has been omitted from the
following table since the Amendments cancelled those arrearages
as of the close of business on December 31, 1996.
1996 HIGH LOW
____ ____ ___
First Quarter $ 3-1/2 $ 2-1/8
Second Quarter 5-1/8 2-3/4
Third Quarter 4-1/2 3-3/8
Fourth Quarter 5-3/8 3-3/8
1997
____
First Quarter $ 3-3/4 $ 3-1/4
Second Quarter 3-3/4 2-15/16
Third Quarter 3-3/16 2-7/16
Fourth Quarter 2-1/2 1-9/16
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,
1997 to be approximately 3,100.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity" for a discussion of certain
restrictions imposed by the Partnership's lenders on the payment
of distributions to unitholders throughout the term of the
Partnership's credit facility with such lenders, which terminates
on December 31, 2002.
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. The summary income statement data for each
of the five years in the period ended December 31, 1997, as well
as the summary balance sheet data for December 31, 1993, 1994,
1995, 1996 and 1997 are all extracted from the audited financial
statements of the Partnership. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The earnings per share amounts prior to 1997 have been
restated as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share. For further
discussion of earnings per share and the impact of Statement No.
128, see the notes to the consolidated financial statements
beginning on page F-7.
(The following table should be printed on 14" x 8.5" paper)
SELECTED FINANCIAL DATA
(In thousands, except per unit amounts)
Year Ended December 31,
________________________________________________________________
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Income Statement Data:
Revenues
Refinery and Products Systems $ 253,008 $ 220,610 $ 235,136 $ 294,328 $ 277,179
Crude Gathering System 609,772 553,847 527,212 597,425 494,155
Intrasystem and other (205,518) (184,551) (201,735) (276,550) (236,437)
________ ________ ________ ________ ________
Total revenues 657,262 589,906 560,613 615,203 534,898
________ ________ ________ ________ ________
Costs of sales and operating
expenses, excluding depreciation 636,102 570,877 543,425 596,841 516,146
Refinery closure costs - - - - 41,396
Marketing, general and administrative
expenses 12,834 11,059 10,274 10,111 8,955
Depreciation 5,881 6,546 7,006 6,976 6,872
________ ________ ________ ________ ________
Operating income (loss) 2,445 1,424 (92) 1,275 (38,471)
________ ________ ________ ________ ________
Other net 252 28 175 179 564
Interest expense (3,707) (5,191) (6,575) (5,808) (5,316)
Credit and loan fees (1,138) (1,651) (2,172) (2,109) (1,952)
________ ________ ________ ________ ________
Loss before income taxes and
cumulative effect of change in
accounting principle (2,148) (5,390) (8,664) (6,463) (45,175)
Income tax benefit - - 47 48 144
________ ________ ________ ________ ________
Loss before cumulative effect
of change in accounting principle (2,148) (5,390) (8,617) (6,415) (45,031)
Cumulative effect of change in
accounting principle (3,605) - - - -
________ _______ ________ ________ ________
Net loss $ (5,753) $ (5,390) $ (8,617) $ (6,415) $ (45,031)
======== ======= ======== ======== ========
Before conversion :
Basic and diluted loss per Unit
before cumulative effect:
Preferred Units $ (0.21) $ (0.53) $ (0.85) $ (0.63) -
Old Common Units $ (0.21) $ (0.53) $ (0.85) $ (0.63) -
Cumulative effect on prior years of
changing to LIFO per Unit :
Preferred Units $ (0.36) - - - -
Old Common Units $ (0.36) - - - -
Basic and diluted net loss per Unit:
Preferred Units $ (0.57) $ (0.53) $ (0.85) $ (0.63) -
Old Common Units $ (0.57) $ (0.53) $ (0.85) $ (0.63) -
After conversion :
Basic and diluted loss per Common
Unit before cumulative effect $ (0.43) $ (1.07) $ (1.71) $ (1.27) $ (8.92)
Cumulative effect on prior years of
changing to LIFO per Common
Unit $ (0.71) - - - -
Basic and diluted net loss per
Common Unit $ (1.14) $ (1.07) $ (1.71) $ (1.27) $ (8.92)
Numerator:
Net loss $ (5,753) $ (5,390) $ (8,617) $ (6,415) $ (45,031)
2% general partners' interest (115) (108) (172) (128) (901)
Numerator for basic and diluted
earnings per unit (5,638) (5,282) (8,445) (6,287) (43,230)
Denominator:
Denominator for basic and diluted
earnings per unit before
conversion :
Preferred Units 4,700 4,700 4,700 - -
Old Common Units 5,250 5,250 5,250 - -
Common Units - - - 4,950 4,950
Denominator for basic and diluted
earnings per unit after
conversion :
Common Units 4,950 4,950 4,950 4,950 4,950
Balance Sheet Data (at end of period):
Net property, plant and equipment $ 106,032 $110,884 $ 104,837 $ 99,554 $ 47,588
Total assets 138,562 146,552 138,306 139,716 95,281
Long-term debt (including current
maturities) 50,383 58,890 56,500 56,933 43,171
Redeemable preferred equity 0 0 0 0 19,529
Partners' capital (deficiency) 50,020 44,630 36,013 29,598 (15,433)
Operating Data (BPD):
Refinery
Crude oil throughput 32,215 30,483 29,806 32,555 31,449
Products refined 31,883 29,815 29,031 31,681 30,619
Products System
Transportation volumes 12,719 13,722 15,585 13,509 11,415
Crude Gathering System
Crude oil gathered 77,875 74,676 66,869 58,775 51,305
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
writeoff of certain Refinery assets offset by $721,000 in accruals that were reversed as a result of the Refinery being
mothballed.
Credit and loan fees include costs associated with the restructuring of the Partnership of $873,000, $1,064,000, and
$613,000 for 1995, 1996 and 1997, respectively.
This is the cumulative effect on prior years of the change in accounting method for inventory from the First-in/First-
out method to the Last-in/First-out method (LIFO).
On December 31, 1996 after the market closed the Preferred Units were converted to Common Units on a one-for-one basis.
At the same time, the Old Common Units were converted to Common Units on a one-for-twenty-one reverse unit split. The
"Before Conversion" section reflects the per unit information based on both the outstanding Preferred Units and Old
Common Units, whereas the "After Conversion" section reflects the pro forma per unit information based on the
outstanding Common Units.
Calculations exclude 299,996 officer and employee unit appreciation rights and 2,987,000 units attributed to the
redeemable preferred equity because the effect would be antidilutive. Also excludes 70,000 director unit appreciation
rights because the plan states they will be settled for cash.
At December 31, 1993, 1994, 1995, 1996 and 1997 current maturities were $300,000, $6,626,000, $3,447,000, $6,516,000
and $2,084,000, respectively.
/TABLE
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.
Prior to the TTTI Agreement, the Partnership's operating
results depended principally on the rate of utilization of the
Refinery, the margins between the prices of its refined petroleum
products and the cost of crude oil, the volume throughput on the
Products System, and the volume throughput on and margins from
the transportation and resale of crude oil from its Crude
Gathering System. Higher Refinery utilization allows the
Partnership to spread its fixed costs across more barrels,
thereby lowering the fixed costs per barrel of crude oil
processed. The refining business is highly competitive, and the
Partnership's margins were significantly impacted by general
industry margins. Industry margins are determined by a variety
of regional, national, and global trends, including oil prices,
weather, and economic conditions, among other things. The
Refinery's military aviation fuel prices were influenced by these
trends since the pricing for military aviation fuel is based on
Jet A, a kerosene-based product, and the price of diesel and
heating fuels affect the price of kerosene.
As a result of mothballing the Refinery, the Partnership's
future operating results depend principally on the margins
between the cost at which petroleum products are purchased under
the TTTI agreement and the price realizable by the Partnership
for such products, the volume throughput on the Products System,
and the volume throughput on and margins from the transportation
and resale of crude oil from its Crude Gathering System. The
price the Partnership is able to realize on the resale of its
petroleum products is influenced by the level of competition in
the Partnership's markets. Since the Crude Gathering System will
primarily market crude oil to other refineries, the Partnership
will now operate two separate and distinct industry segments, the
Crude Gathering Systems segment and the marketing and products
pipeline segment.
Margins in the Crude Gathering System are influenced by the
level of competition and the price of crude oil. When prices are
higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges trend upward when higher
crude oil prices stimulate increased exploration and development.
Conversely, when crude oil prices decrease, margins on the resale
of crude oil as well as transportation charges tend to decrease.
The intrasystem pricing of crude oil between the Refinery
and the Crude Gathering System was based in part on an adjusted
Midland spot price for crude oil above the Partnership's posted
price for the purchase of such crude oil (the "Premium"), which
represented the approximate amount above posting that would be
realized on the sale of such crude oil to an unrelated third
party. The total intrasystem price for crude oil between the
Refinery and the Crude Gathering System included the Premium, the
Partnership's posted price and transportation costs. An increase
in the Premium for crude oil had a negative impact on the
Refinery and a positive impact on the Crude Gathering System. On
the other hand, a decrease in the Premium for crude oil had a
positive impact on the Refinery and a negative impact on the
Crude Gathering System. For the years ended December 31, 1997,
1996, and 1995, the average Premium for crude oil was $1.91,
$2.38 and $1.76, respectively.
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. Also important to
the evaluation of the Refinery's performance are barrels of crude
oil refined, gross margin (revenue less cost of crude) per
barrel, and operating expenses per barrel, excluding
depreciation.
Year ended December 31, 1997 compared with year ended December
31, 1996
General. Net loss for the year ended December 31, 1997
increased to $45.0 million as compared to $6.4 million for the
year ended December 31, 1996. The results for the year ended
December 31, 1997 included $41.4 million in costs associated with
ceasing Refinery operations. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, net loss was
$3.6 million for the year ended December 31, 1997. The closure
costs included a $40.0 million noncash charge for impairment of
certain Refinery fixed assets, $1.8 million related to the
closure of the Refinery and related severance costs and $367,000
related to the writeoff of certain Refinery assets offset by
$721,000 in accruals that were reversed since the Refinery is
being mothballed. Non-operating expenses decreased $1.0 million
for the year ended December 31, 1997 as compared to the same
period in 1996 due primarily to decreased interest expense and
credit and loan fees and a gain on the sale of the Partnership's
products trucks. Interest expense decreased $492,000 which is
attributable to lower interest rates that became effective upon
approval of the Amendments by the Unitholders. Credit and loan
fees for the year ended December 31, 1996 were reduced by a one-
time nonrecurring reversal of an accrual for facility fees of
$534,000 for periods prior to 1996. Such fees were eliminated by
the Partnership's principal creditors concurrent with the
amendments to the credit agreements in November 1996. For the
year ended December 31, 1997, the Partnership expensed $613,000
related to the restructuring compared to $1.1 million for the
same period in 1996. Depreciation expense was $6.9 million for
the year ended December 31, 1997 compared to $7.0 million for the
year ended December 31, 1996.
Operating loss for the year ended December 31, 1997 was
$38.5 million as compared to operating income of $1.3 million for
the year ended December 31, 1996. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
income was $2.9 million for the year ended December 31, 1997.
The results for the Refinery and Products System, excluding the
costs associated with ceasing Refinery operations, improved due
to strong refining margins. This was partially offset by weak
crude gathering margins. Operating loss, excluding depreciation,
for the year ended December 31, 1997 was $31.6 million as
compared to operating income, excluding depreciation, of $8.3
million for the year ended December 31, 1996. Excluding the
$41.4 million of costs associated with ceasing Refinery
operations, operating income, excluding depreciation, was $9.8
million for the year ended December 31, 1997.
Refinery and Products System. Operating loss for the
Refinery and Products System was $40.9 million for the year ended
December 31, 1997 compared to $7.7 million for the year ended
December 31, 1996. Excluding the $41.4 million of costs
associated with ceasing Refinery operations, operating income for
the Refinery and Products System was $537,000 for the year ended
December 31, 1997. The results for the Refinery and Products
System, excluding the costs associated with ceasing Refinery
operations, improved due to stronger refining margins.
Depreciation expense for the Refinery and Products System was
$5.0 million for both the year ended December 31, 1997 and for
the year ended December 31, 1996. Operating loss, excluding
depreciation, of the Refinery and Products System was $35.9
million for the year ended December 31, 1997 compared to $2.7
million for the year ended December 31, 1996. Excluding the
$41.4 million of costs associated with ceasing Refinery
operations, operating income, excluding depreciation, for the
Refinery and Products System was $5.5 million for the year ended
December 31, 1997.
Operating income for the Products System decreased to
$655,000 for the year ended December 31, 1997 from $1.2 million
for the year ended December 31, 1996. Depreciation expense for
the Products System decreased to $870,000 for the year ended
December 31, 1997 from $880,000 for the year ended December 31,
1996. Operating income, excluding depreciation, for the Products
System decreased to $1.5 million for the year ended December 31,
1997 from $2.1 million for the year ended December 31, 1996 as a
result of decreased transportation volumes on the San Angelo
pipeline. Transportation volumes decreased to 11,415 BPD for the
year ended December 31, 1997 from 13,509 BPD for the year ended
December 31, 1996.
Operating loss for the Refinery alone was $41.5 million for
the year ended December 31, 1997 compared to an operating loss of
$8.9 million for the same period in 1996. Excluding the $41.4
million of costs associated with ceasing Refinery operations,
operating loss for the Refinery was $51,000 for the year ended
December 31, 1997. Depreciation expense for the Refinery was
$4.1 million for both the years ended December 31, 1997 and 1996.
Operating loss, excluding depreciation, of the Refinery alone was
$37.4 million for the year ended December 31, 1997 compared to
operating loss, excluding depreciation, of $4.8 million for the
year ended December 31, 1996. Excluding the $41.4 million of
costs associated with ceasing Refinery operations, operating
income, excluding depreciation, for the Refinery was $4.0 million
for the year ended December 31, 1997.
Refinery gross margin per barrel was $1.76 for the year
ended December 31, 1997 compared to $1.09 for the year ended
December 31, 1996. The increase in the gross margin for the year
ended December 31, 1997 reflects the decline in the Premium for
crude oil, the increased margin on the military aviation fuel
sold to the government under the contract that began April 1,
1997, and the lower residuum yield experienced in 1997. The
lower residuum yield positively affects the Partnership since the
value of residuum is substantially lower than other refined
products that the Partnership sells. The residuum increased in
1996 as a result of the Refinery running a slightly heavier slate
of crude. Towards the end of 1996, the Partnership began running
a lighter slate of crude which resulted in a decreased residuum
yield in 1997. Refinery throughput averaged 31,449 BPD during
the year ended December 31, 1997 compared to 32,555 BPD for the
year ended December 31, 1996. Operating expenses per barrel,
excluding depreciation, increased to $4.61 for the year ended
December 31, 1997 from $1.09 for the year ended December 31,
1996. Excluding the $41.4 million of costs associated with
ceasing Refinery operations, operating expenses per barrel,
excluding depreciation, were $1.00 for the year ended December
31, 1997.
Crude Gathering System. Operating income for the Crude
Gathering System was $2.4 million for the year ended December 31,
1997 compared to $8.9 million for the year ended December 31,
1996 due to a decline in crude gathering margins. The Premium
for crude oil sold to the Refinery was substantially lower for
the year ended December 31, 1997 than the same period in 1996,
but the amount paid above posting for such crude oil to third
parties did not decrease accordingly. The amount paid above
posting for crude oil to third parties should decrease in the
future assuming the crude oil market's expectation for a high
Premium diminishes. Depreciation expense for the Crude Gathering
System decreased to $1.9 million for the year ended December 31,
1997 from $2.0 million for the year ended December 31, 1996.
Operating income, excluding depreciation, for the Crude Gathering
System decreased to $4.3 million for the year ended December 31,
1997 from $10.9 million for the year ended December 31, 1996.
Due to the elimination of several marginal contracts, the volume
of crude oil gathered by the Crude Gathering System decreased to
51,305 BPD for the year ended December 31, 1997 from 58,775 BPD
for the year ended December 31, 1996. For the year ended
December 31, 1997, net margin decreased to $0.13 per barrel from
$0.42 per barrel for the year ended December 31, 1996 resulting
from the lower Premium and the higher acquisition cost above
posting for crude oil during the year ended December 31, 1997.
Year ended December 31, 1996 compared with year ended
December 31, 1995
General. Net loss for the year ended December 31, 1996
decreased to $6.4 million as compared to a net loss of $8.6
million for the year ended December 31, 1995. The improvement
was a result of improved operations and lower non-operating
expenses. Non-operating expenses decreased $834,000 for the year
ended December 31, 1996 over the same period in 1995 due
primarily to decreased interest expense and credit and loan fees.
Of the decrease, $767,000 is related to lower interest expense
which is attributable to a lower average prime rate in 1996
compared to the 1995 average and the lowered interest rates in
the new credit agreement. Also, the credit and loan fees for the
year ended December 31, 1996 have been reduced by a one-time
nonrecurring reversal of an accrual for facility fees of $534,000
for periods prior to 1996 compared to a $234,000 reversal in 1995
for periods prior to 1995. Such fees were eliminated by the
Partnership's principal creditors concurrent with the amendments
to the credit agreements in November 1996 and August 1995. For
the year ended December 31, 1996, the Partnership expensed $1.1
million related to the restructuring compared to $873,000 for the
same period in 1995. Depreciation expense was $7.0 million for
both the years ended December 31, 1996 and 1995.
Operating income for the year ended December 31, 1996
increased to $1.3 million as compared to an operating loss of
$92,000 for the year ended December 31, 1995. The improved
results for the year ended December 31, 1996 were due to
significantly stronger crude gathering margins resulting from the
higher Premium for crude oil, partially offset by weak refining
margins. Operating income, excluding depreciation, increased for
the year ended December 31, 1996 to $8.3 million as compared to
$6.9 million for the year ended December 31, 1995.
Refinery and Products System. Operating loss for the
Refinery and Products System was $7.7 million for the year ended
December 31, 1996 compared to an operating loss of $3.9 million
for the year ended December 31, 1995. Depreciation expense for
the Refinery and Products System was $5.0 million for both the
year ended December 31, 1996 and the year ended December 31,
1995. Operating loss, excluding depreciation, of the Refinery
and Products System was $2.7 million for the year ended December
31, 1996 compared to operating income, excluding depreciation, of
$1.1 million for the year ended December 31, 1995.
Operating income for the Products System decreased to $1.2
million for the year ended December 31, 1996 from $1.7 million
for the year ended December 31, 1995. Depreciation expense for
the Products System increased to $880,000 for the year ended
December 31, 1996 from $874,000 for the year ended December 31,
1995. Operating income, excluding depreciation, for the Products
System decreased to $2.1 million for the year ended December 31,
1996 from $2.6 million for the year ended December 31, 1995
resulting from decreased transportation volumes. Transportation
volumes decreased to 13,509 BPD for the year ended December 31,
1996 from 15,585 BPD for the year ended December 31, 1995.
Operating loss for the Refinery alone was $8.9 million for
the year ended December 31, 1996 compared to an operating loss of
$5.6 million for the same period in 1995. Depreciation expense
for the Refinery was $4.1 million for both the years ended
December 31, 1996 and 1995. Operating loss, excluding
depreciation, of the Refinery alone was $4.8 million for the year
ended December 31, 1996 compared to operating loss, excluding
depreciation, of $1.5 million for the year ended December 31,
1995.
Refinery gross margin per barrel was $1.09 for the year
ended December 31, 1996 compared to $1.42 for the year ended
December 31, 1995. The decrease in the gross margin reflects the
increased Premium for crude oil, the decreased margin on the
military aviation fuel sold to the government under the contract
that began April 1, 1996, and the increased residuum yield
experienced in 1996. The increased residuum yield negatively
affects the Partnership since the value of residuum is
substantially lower than other refined products that the
Partnership sells. The residuum increased in 1996 as a result of
the Refinery running a slightly heavier slate of crude. Towards
the end of 1996, the Partnership began running a lighter slate of
crude which has resulted in a decreased residuum yield. Refinery
throughput averaged 32,555 BPD during the year ended December 31,
1996 compared to 29,806 BPD for the year ended December 31, 1995.
The Partnership was able to operate the refinery at a higher
throughput for the year ended December 31, 1996 due to the new
gas oil contract signed in early 1996. Operating expenses per
barrel, excluding depreciation, increased to $1.09 for the year
ended December 31, 1996 from $1.07 for the year ended December
31, 1995 due to increased utility costs and maintenance costs
during 1996.
Crude Gathering System. Operating income for the Crude
Gathering System was $8.9 million for the year ended December 31,
1996 compared to $3.8 million for the year ended December 31,
1995. Depreciation expense for the Crude Gathering System
decreased to $2.0 million for the year ended December 31, 1996
from $2.1 million for the year ended December 31, 1995.
Operating income, excluding depreciation, for the Crude Gathering
System increased to $10.9 million for the year ended December 31,
1996 from $5.8 million for the year ended December 31, 1995. Due
to the elimination of several marginal contracts, the volume of
crude oil gathered by the Crude Gathering System decreased to
58,775 BPD for the year ended December 31, 1996 from 66,869 BPD
for the year ended December 31, 1995. For the year ended
December 31, 1996, net margin increased to $0.42 per barrel from
$0.15 per barrel for the year ended December 31, 1995 resulting
from the higher Premium for crude oil for the year ended December
31, 1996.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's
operating results, both indirectly and directly, such as
environmental compliance, other regulatory requirements, industry
trends, price of crude oil, inventory prices, and, with respect
to certain products, seasonality and weather. The Managing
General Partner expects that such conditions will continue to
affect the Partnership's business to varying degrees in the
future. The order in which these factors are discussed is not
intended to represent their relative significance.
Environmental Compliance. Increasing public and
governmental concern about air quality is expected to result in
continued regulation of air emissions. Regulations relating to
carbon monoxide and regulations on oxygen content in gasoline and
sulfur content in diesel fuel are expected to be increasingly
important in urban areas. See "Business and Properties --
Environmental Matters." In addition, the Partnership plans to
spend up to approximately $1.5 million in 1998 and 1999 on
several projects to maintain compliance with various other
environmental requirements including approximately $1.2 million
related to mothballing the Refinery.
Effective January 1, 1995, the Clean Air Act Amendment of
1990 required that certain areas of the country use reformulated
gasoline ("RFG"). The Abilene and San Angelo market areas do not
require RFG. Collin, Dallas, Denton, and Tarrant Counties, which
comprise the Dallas-Fort Worth ("DFW") metroplex area, do require
RFG; however, the Partnership's Aledo terminal lies outside this
area and is allowed to supply conventional gasoline that is not
destined for sale in these four counties. In addition to the
requirement for RFG in certain areas, new but much less
restrictive regulations took effect that impose new quality
standards for conventional gasoline in the rest of the country.
Management does not anticipate that these have had or will have a
material adverse effect on the Partnership's operations.
Other Regulatory Requirements. The Partnership is subject
to the rules and regulations of Occupational Safety and Health
Administration, Texas Air Control Board, Texas Railroad
Commission, and Texas Water Commission.
Industry Trends and Price of Crude Oil. Industry trends and
the price of crude oil will continue to affect the Partnership's
business. In the last three years, the posting price for WTI
crude oil has varied from approximately $11.00 to $25.00 per
barrel. While refined products are generally sold at a margin
above crude oil prices, fluctuations in the price of crude oil
can have a significant short-term effect on refining margins
because there is usually a lag in the movement of product prices,
both up and down, after a change in crude oil prices. As a
result of purchasing product from TTTI, the Partnership will be
impacted by fluctuations in the cost of those products versus
fluctuations in the price realized by the Partnership on the sale
of such products and the amount of competition in its markets.
The general level of crude oil prices can also have a significant
effect on the margins in the crude gathering business. Margins
in the Crude Gathering System generally tend to be influenced by
competition and the general price level of crude oil. When
prices are higher, crude oil can generally be resold at higher
margins. Additionally, transportation charges are slightly less
competitive when higher crude oil prices result in increased
exploration and development. Conversely, when oil prices
decrease, margins on the resale of crude oil and transportation
charges generally tend to decrease.
Inventory Prices. The Partnership utilizes the last-
in/first-out (LIFO) method of determining inventory values. LIFO
minimizes the effect of fluctuations in inventory prices on
earnings by matching current costs with current revenue. The
LIFO method is the predominant method used in the refining
industry.
Seasonality and Weather. Gasoline consumption is typically
highest in the United States in the summer months and lowest in
the winter months. Diesel consumption in the southern United
States is generally higher just prior to and during the winter
months when commercial trucking is routed on southern highways to
avoid severe weather conditions further north.
Other Factors. The Partnership has entered into five
exchange agreements and three sales agreements with major oil
companies in the Abilene, San Angelo and Aledo markets. These
exchange agreements have allowed Pride to expand into Amarillo,
Texas, El Paso, Texas, Lubbock, Texas, Midland/Odessa, Texas, and
Wichita Falls, Texas without incurring transportation costs to
these cities.
The United States Government awarded the Partnership the
right to supply 52,510,000 gallons of military aviation fuel for
the contract period that begins April 1, 1998 and ends March 31,
1999. The award is for deliveries to Dyess, Sheppard Air Force
Base in Wichita Falls, Texas, Naval Air Station Fort Worth in
Fort Worth, Texas, Fort Hood Military Installation in Killeen,
Texas, and E-Systems in Greenville, Texas. The contract is for
approximately 51% of the volumes under the prior contract due to
the Partnership no longer being considered a small business and
thus not being allowed to match the price of the lowest large
business. Under the new contract, the prices awarded compared to
the base reference price net of transportation for such military
aviation fuel improved an average of approximately 2 cents from
last year's contract which partially offsets the reduced volumes.
See "Partnership Operations and Products."
Financial Condition
Inflation
The Partnership's operations would be adversely impacted by
significant, sustained increases in crude oil and other energy
prices. Although the Partnership's operating costs are generally
impacted by inflation, the Managing General Partner does not
expect general inflationary trends to have a material adverse
impact on the Partnership's operations.
Financial Resources and Liquidity
The Partnership receives payments from the United States
Government, major oil companies, and other customers within
approximately 7 to 15 days from shipment in the case of product
sales and by the 20th of the following month in the case of
third-party crude oil sales and exchanges. The Partnership
maintains refined products inventory in the amount of
approximately 5 to 10 days of sales and crude inventory of
approximately 10 to 15 days of sales. The Partnership will pay
for the refined products 10 days after receipt from TTTI and
crude oil feedstock on the 20th of the month following the month
in which it is received. As a result, the Partnership's
operating cycle is such that there is a lag on when it receives
payment for the refined products versus when it pays for such
products. Letters of credit are an integral part of the
operations of the Crude Gathering System since the Partnership
takes title to both first purchased barrels and custom gathered
barrels.
Restructuring and Recapitalization Plan. On December 31,
1997, the final phase of the restructuring and recapitalization
of the Partnership's debt and equity was completed as described
in the Partnership's 1996 consent solicitation. The initial
phase called for the execution of documents with the
Partnership's previous bank lenders and was completed on August
13, 1996. Effective December 31, 1996, the Unitholders adopted
the Amendments to the Partnership Agreement which included
conversion of the outstanding preferred units into common units
and the cancellation of all preferred and common unit arrearages.
As part of the 1996 restructuring plan, the previous lenders
converted a portion of their term loan into notes, lowered
certain interest rates and credit and loan fees and extended the
maturity. Varde Partners, Inc. ("Varde") assumed the rights and
obligations of the previous lenders in the Old Bank Debt,
BankBoston, N.A. ("BankBoston") subsequently provided the
Partnership with a letter of credit facility and a term loan
commitment of $21.0 million, and Pride SGP converted two notes
into redeemable preferred equity securities. During 1997, 1996
and 1995, the Partnership expensed $613,000, $1,064,000 and
$873,000, respectively, related to the restructuring and
recapitalization. The Partnership also capitalized $6.6 million
of fees and other costs including $3.3 million in noncash fees in
1997 related to the restructuring and recapitalization and has
included $1.3 million in prepaid expenses and $5.3 million in
deferred financing costs on the December 31, 1997 balance sheet.
Refinancing of Revolver, Term Loan, Convertible Notes and
Letter of Credit Facility. On December 31, 1997, Varde purchased
and assumed the lenders' rights and obligations under the
Partnership's Old Bank Debt (as defined below). In conjunction
with Varde's purchase and assumption of the lenders' rights and
obligations under the Old Bank Debt, BankBoston refinanced the
Partnership's letter of credit and revolver facilities (the "New
Revolver") on December 31, 1997 and agreed to fund $21.0 million
of term financing at a future date (the "Proposed Term Loan"), in
each case for a 5-year term.
The New Revolver from BankBoston provides for the issuance
of letters of credit to third parties to support the
Partnership's purchase or exchange of crude oil and petroleum
products, in an aggregate amount not to exceed $65.0 million,
with a sublimit of $10.0 million for direct cash borrowings for
general working capital purposes. Amounts available under the
New Revolver are subject to a borrowing base calculated as the
sum of the Partnership's cash and cash equivalents, certain
receivables, deposits, inventory and other amounts, reduced by a
portion of crude oil royalties payable and certain other amounts
payable.
Though no advances had been drawn under the letter of credit
facility at December 31, 1997, the Partnership did have
approximately $36.4 million in outstanding letters of credit to
cover the letters of credit outstanding with the previous banks.
The fee on outstanding letters of credit was 2.75% per annum as
of December 31, 1997. There is also an issuance fee of 0.125%
per annum on the face amount of each letter of credit. The fee
for the unused portion of the New Revolver is 0.5% per annum. At
the Partnership's discretion, cash borrowings under the New
Revolver at December 31, 1997 bore interest at either LIBOR plus
3.25% or prime plus 2%. LIBOR and the prime rate were 5.625% and
8.5%, respectively, at December 31, 1997. The credit agreement
evidencing the New Revolver also requires the Partnership to pay
an agency fee of up to $70,000 per annum depending on the number
of participants in the credit facility and restricts the payment
of distributions to unitholders throughout the term of the credit
agreement.
If and when funded, the Proposed Term Loan would be expected
to be used to refinance a $20.0 million bridge loan held by Varde
and to provide an additional $1.0 million for general working
capital purposes. The Partnership pays 0.5% per annum for the
Proposed Term Loan commitment.
On December 31, 1997, Varde assumed the rights and
obligations of the previous lenders, which equaled $45.8 million
and made an additional new loan of $4.7 million ("New Loan") (the
"Closing"). As of the Closing, the prior bank debt consisted of
(i) a standby letter of credit facility (the "Old LC Facility"),
(ii) a $12.0 million revolving line of credit, of which $6.9
million was outstanding (the "Old Revolver"), (iii) a $22.0
million term loan (the "Old Term Loan") and (iv) three series of
convertible senior secured notes in an aggregate principal amount
of $16.8 million (the "Old Convertible Notes," consisting of the
"Old Series A Note," the "Old Series B Note" and the "Old Series
C Note"). (The Old Revolver, Old Term Loan and Old Convertible
Notes are collectively the "Old Bank Debt".) As of the Closing,
no advances had been drawn under the Old LC Facility, which had
approximately $36.4 million in outstanding letters of credit.
The Managing General Partner and Pride SGP were guarantors of the
Old Bank Debt and have guaranteed the Partnership's obligations
to Varde and BankBoston. Substantially all of the Partnership's
assets were pledged as collateral in connection with the credit
agreements, and Pride SGP had pledged its assets at no cost to
the Partnership as additional collateral for such debt.
As a result of Varde's assumption of the Old Bank Debt and
the New Loan, Varde holds a term loan of $20.0 million ("A Term
Loan"), a term loan of $9.5 million ("B Term Loan"), a term loan
of $4.7 million ("C Term Loan") and an unsecured note of $2.5
million ("Subordinate Note A"). The A Term Loan bears interest
rates of 11% in the first two years and 13% in the third year,
15% in the fourth and 17% in the fifth year. The B Term Loan and
C Term Loan bear interest rates of 11% in the first three years,
13% in the fourth year and 15% in the fifth year except
$3,000,000 of the B Term Loan which is subject to interest rates
of 12% through maturity. If the A Term Loan is not repaid with
borrowings under the Proposed Term Loan or otherwise, the
interest rates applicable to the A Term Loan, B Term Loan and C
Term Loan would be 11%, 13%, 15%, 17% and 19% for the first,
second, third, fourth and fifth years, respectively, during all
or any portion of the period after February 1998 that the A Term
Loan is held by Varde, except $3.0 million of the B Term Loan
which is subject to interest rates of 18% through maturity. The
Subordinate Note A is convertible into 397,000 Common Units and
bears interest at prime plus one percent.
The cash interest and dividend payments on the B Term Loan,
C Term Loan, Subordinate Note A and the redeemable preferred
equity held by Varde are limited to $90,833 per month or $1.1
million annually. To the extent the interest and dividends on
the various Varde securities exceed the cap on cash payments,
such excess will be paid in kind. The A Term Loan is due December
31, 2002. The B Term Loan, C Term Loan and Subordinate Note A
are due December 31, 2002 if the A Term Loan has not been
refinanced, otherwise 180 days after the maturity of the Proposed
Term Loan, but no later than June 30, 2003 if the A Term Loan has
been refinanced. The Partnership is required to make quarterly
principal payments on the A Term Loan as set forth in the Varde
credit agreement as well as make payments of excess cash flow for
the preceding year. Accordingly, the Partnership has classified
$1.5 million of the A Term Loan as current as of December 31,
1997. The Partnership will not have to make principal payments
prior to the scheduled maturity on the B Term Loan, C Term Loan
and Subordinate Note A except in the case the Partnership
receives proceeds related to the DFSC Claim and certain other
transactions. See "Legal Proceedings."
Under the prior credit facility, the Partnership had a $6.5
million standby letter of credit facility for general corporate
purposes and the purchase of crude oil and other refinery
feedstocks and a $42.5 million standby letter of credit facility
for the purchase of crude oil. The fee on outstanding standby
letters of credit was 1.5% per annum. For the unused portion of
the standby letter of credit facility, the fee was 0.5% per
annum. Though no advances had been drawn under either facility,
the Partnership did have approximately $721,000 and $35.7
million, respectively, in outstanding standby letters of credit
at December 31, 1997 which were backed by a letter of credit
issued by BankBoston in the same amount. The prior credit
agreement also provided, at the banks' discretion, an additional
$8.0 million standby letter of credit facility for the purchase
of crude oil and other refinery feedstocks. The Partnership had
no outstanding letters of credit under such facility as of
December 31, 1997.
During the year ended December 31, 1997, the Partnership had
drawn up to approximately $8.5 million on the Revolver and Old
Revolver (collectively, the "Revolvers"). The weighted average
amount outstanding under the Revolvers was approximately $3.8
million. The weighted average interest rate during the 1997
period for these facilities was approximately 10.0%. During the
year ended December 31, 1996, the Partnership had drawn up to
approximately $7.3 million on the Old Revolver and $2.0 million
on an uncommitted line (the "Uncommitted Line"); the weighted
average amount outstanding under the Old Revolver and Uncommitted
Line was approximately $1.1 million and $21,000, respectively.
The weighted average interest rate during the 1996 period for
these facilities was approximately 10.5%.
Advances under the Old Revolver and Old Term Loan accrued
interest at prime plus 1.5% and 2%, respectively, payable
monthly. The prime rate was 8.5% as of December 31, 1997. The
Old Convertible Notes issued to the lenders under the credit
facility consisted of $2.5 million in Convertible Senior Secured
Series A Promissory Notes ("Old Note A"), $9.3 million in
Convertible Senior Secured Series B Promissory Notes ("Old Note
B"), and $5.0 million in Convertible Senior Secured Series C
Promissory Notes ("Old Note C"). The Old Convertible Notes
accrued interest at prime plus 1% payable monthly.
The Partnership or management has a three-year call on
Varde's position for an amount equal to a 40% return to Varde,
subject to a minimum payment of $7.5 million over Varde's cost.
The securities held by Varde will have certain antidilution
provisions and registration rights. Any litigation proceeds
received by the Partnership related to the DFSC Claim will be
used to retire up to $6.0 million of either the A Term Loan or
the Proposed Term Loan, whichever is then outstanding, and up to
$5.0 million of either the B Term Loan or New Series A Preferred,
whichever is then outstanding, with any excess divided one-third
to Varde to be used to retire Varde's most senior securities and
two-thirds to the Partnership.
At the Closing, certain members of management agreed to
invest an aggregate of $2.0 million in the form of a note payable
to Varde and will receive a one-third economic non-directive
interest in $6.0 million of the B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The note payable to Varde
will be secured by management's interest in such securities. Any
cash yield on management's share of such securities will be paid
to Varde as interest, net of applicable federal income tax.
Other Indebtedness. The Partnership had two outstanding
financing agreements to fund working capital with Pride SGP which
were entered into on March 26, 1993 and September 7, 1995. Pride
SGP made the unsecured loans to the Partnership in the aggregate
principal amount of $2.5 million bearing interest at prime plus
1%. On December 31, 1997, Pride SGP agreed to convert the two
notes into redeemable preferred equity securities.
Other installment loans include a $6.0 million nonrecourse
note, due 2014, payable monthly with interest at 8% and a balance
of $5.7 million at December 31, 1997. The note is supported by a
minimum throughput agreement. The assets of Pride Borger, Inc.,
a wholly-owned subsidiary of the Partnership, are pledged as
collateral. Monthly principal payments are based on the number
of throughput barrels. The Partnership has classified $146,000
as current at December 31, 1997.
The Partnership converted certain non-interest bearing
accounts payable to the U. S. Government Defense Fuel Supply
Center related to pricing adjustments which had been accrued
since 1993 to a $2.4 million installment loan, payable in monthly
installments of $84,000, with a balance of $420,000 at December
31, 1997. The loan bears interest based on the rate set semi-
annually by the Secretary of the Treasury. This rate was 6.75%
as of December 31, 1997. The Partnership has classified the
entire balance as current.
Conversion of Debt by Pride SGP into Preferred Equity. At
the Closing, Pride SGP agreed to convert (i) a $2.0 million note
of the Partnership payable to Pride SGP to Series E Cumulative
Convertible Preferred Units ("Series E Preferred Units") which is
convertible into 317,000 Common Units and (ii) a $450,000 note
owed to Pride SGP into Series F Cumulative Preferred Units
("Series F Preferred Units"). The Series E Preferred Units and
Series F Preferred Units will be subordinated to the Series B
Preferred Units, Series C Preferred Units and Series D Preferred
Units. The preferential quarterly payments on the Series E
Preferred Units and Series F Preferred Units will be 6% per annum
in the first three years after issuance, 12% per annum in the
fourth and fifth years and 15% per annum thereafter or may be
paid in kind at 8% per annum in the first three years, 12% per
annum in the fourth and fifth years and 15% per annum thereafter
until mandatory redemption at December 31, 2002. Upon funding of
the Proposed Term Loan, the maturity will be extended 180 days
past the maturity of the Proposed Term Loan but no later than
June 30, 2003.
Amendment to Pipeline Lease Agreement. In connection with
the Varde transaction, Pride SGP agreed to amend that certain
Pipeline Lease Agreement dated March 29, 1990, between Pride SGP
and the Partnership to provide that during the term of the Varde
indebtedness, the aggregate annual consideration payable by the
Partnership for use of the reactivated portion of the pipeline
would be capped at $400,000 unless Varde otherwise agreed.
Varde Equity Participation. At the Closing, Varde received
preferred equity securities including $9.3 million of Series B
Cumulative Convertible Preferred Units ("Series B Preferred
Units"), $5.0 million of Series C Cumulative Convertible
Preferred Units ("Series C Preferred Units") and $2.8 million of
Series D Cumulative Preferred Units ("Series D Preferred Units")
which initially mature December 31, 2002. On funding of the
Proposed Term Loan, the maturity date of the preferred equity
securities would be extended 180 days past the maturity of the
Proposed Term Loan but no later than June 30, 2003. The Series B
Preferred Units and Series C Preferred Units are convertible into
1,480,000 and 793,000 Common Units, respectively. The
preferential quarterly payments on the Series B Preferred Units
and Series C Preferred Units will be 6% per annum in the first
three years after issuance, 12% per annum in the fourth and fifth
years and 15% per annum thereafter or may be paid in kind at 8%
per annum in the first three years, 12% per annum in the fourth
and fifth years and 15% per annum thereafter. The preferential
quarterly payments on the Series D Preferred Units will be 11%
per annum in the first three years after issuance, 13% per annum
in the fourth and fifth years and 15% per annum thereafter or be
paid in kind through maturity at 13% per annum in the first five
years and 15% per annum thereafter. Any payments of principal on
the securities held by Varde shall be applied in the following
order: A Term Loan (if then outstanding), B Term Loan, C Term
Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units, and Series D Preferred Units.
Future Stages of the Varde Transaction, Proposed
Restructuring. The documentation under which Varde acquired the
Old Bank Debt contemplated two possible future transactions.
First, if and when the Proposed Term Loan is funded, such
proceeds will be used to retire Varde's A Term Loan for $20.0
million and an additional $1.0 million in borrowings will be made
available for working capital purposes.
Second, Varde has proposed an additional restructuring of
its investment ("Restructuring") that could further reduce the
Partnership's bank debt in connection with the authorization and
issuance of new preferred equity, which would in turn be
convertible into Common Units, if approved by the unitholders
pursuant to a consent solicitation on or before October 1, 1999
(the "Restructuring Consent Solicitation"). Subject to
unitholder authorization of additional preferred equity in
connection with the Restructuring Consent Solicitation, Varde has
agreed to exchange a total of $33.8 million of debt and preferred
equity securities composed of $9.5 million of B Term Loan, $4.7
million of C Term Loan, $2.5 million of Subordinate Note A, $9.3
million of Series B Preferred Units, $5.0 million of Series C
Preferred Units and $2.8 million of Series D Preferred Units
(including any paid in kind distributions on these instruments)
for the following series of newly authorized redeemable preferred
equity:
(i) Nonconvertible preferred equity in the amount of
$9.5 million ("New Series A Preferred Units")
which includes $500,000 that was Varde's
transaction fee for bridging the A Term Loan,
(ii) Convertible preferred equity in the amount of $2.5
million ("New Series B Preferred Units"), which
would be convertible into 10% of the Common Units
outstanding, and
(iii) Convertible preferred equity in the amount of $2.5
million ("New Series C Preferred Units") which
would be convertible into an additional 42% of the
Common Units outstanding, plus an additional 8% of
the Common Units for Varde's account if the A Term
Loan continues to be held by Varde.
As part of the proposed Restructuring, Pride SGP will be asked,
subject to unitholder approval, to approve the Partnership
recapitalization and convert $2.4 million of claims and the
Series E Preferred Units and Series F Preferred Units into a
total of 7.5% of the outstanding Common Units.
If all requisite unitholder consents are received and all
proposed transactions are consummated, including the
restructuring of certain claims of Pride SGP and the
authorization and issuance of additional preferred equity, Varde
will convert the $33.8 million of debt and equity securities that
it holds of the Partnership into $14.5 million of newly
authorized equity securities.
Operations. Cash flows have been and will continue to be
significantly affected by fluctuations in the cost and volume of
crude oil and refined products held in inventory and the timing
of accounts receivable collections. For the year ended December
31, 1997, cash was provided by a decrease in accounts receivable
(resulting from lower crude oil prices and refined product
prices) and a decrease in inventories (resulting from the lower
inventory levels). This was partially offset by a decrease in
accounts payable (resulting from the lower crude oil prices).
For the year ended December 31, 1996, cash was provided by
increases in accounts payable (resulting from higher crude oil
prices). This was partially offset by an increase in inventory
(resulting from an increase of volumes on hand) and increases in
accounts receivable (resulting from the higher crude oil prices
and refined product prices).
The Partnership is currently not in compliance with certain
covenants under its credit agreements with BankBoston and Varde
due to the $40.0 million noncash charge for impairment of fixed
assets. The Partnership had originally estimated the impairment
to be a maximum of $30.0 million and had the covenant set based
on that original estimate. As a result of the additional $10.0
million impairment, the Partnership is in violation of certain
covenants and obtained waivers.
The Partnership has incurred recurring operating losses and
has working capital and partners' deficiencies. In addition, the
Partnership has not historically complied with certain of the
financial and performance covenants included in its credit
facilities with lenders and management and is not certain whether
the Partnership will be able to comply with various financial
covenants contained in these credit facilities throughout 1998.
Although the Partnership intends to request waivers from such
lenders, it is not certain that certain waivers will be granted.
Such covenant violations could enable the lenders to notice a
default and to accelerate the Partnership's loans with such
lenders. The ability of the Partnership to operate in future
periods may be adversely affected by these conditions.
The net loss for the year ended December 31, 1997 increased
from December 31, 1996; however, excluding the $41.4 million in
costs associated with ceasing refining operations, the loss for
December 31, 1997 decreased to $3.7 million as a result of
stronger refining margins. This was partially offset by weak
crude gathering margins during 1997. Under the new military
aviation fuel contract with the U. S. Government which begins
April 1, 1998 and ends March 31, 1999, the Partnership will
supply approximately 51% of the volumes that it supplied under
the contract which began April 1, 1997 and ends March 31, 1998;
however, the prices awarded compared to the base reference price
net of transportation under this contract are an average of
approximately 2 cents per gallon higher than the prices in the
previous contract which partially offsets the reduced volumes.
Since 1993, the Partnership has been able to achieve continuous
reductions in marketing, general and administrative expenses.
The move of the Partnership's corporate offices has resulted in a
cost reduction since the beginning of 1995. Also, during 1995,
certain initiatives were taken to reduce crude gathering costs.
The Partnership's ability to generate profits is principally
dependent upon increased volumes and/or improved profit margins,
as well as continued cost control initiatives. The ability to
generate profits could be affected if other Gulf Coast refiners
bring refined products into West Texas from the Gulf Coast via
pipeline. Though management has and will continue to pursue
options regarding increasing volumes and margins and reducing
costs, including limiting any significant capital expenditures,
these improvements, if achieved, will be gradual and, in many
cases, will take sustained periods of time to implement in order
to achieve profitability. As a result, management is also
reviewing other strategic alternatives including redeployment of
its operating assets, possible asset sales and alliances with
other companies.
1996 Amendments. The Amendments to the Agreement of Limited
Partnership ("Partnership Agreement") for the Partnership were
submitted to the preferred unitholders, common unitholders and
the Special General Partner pursuant to a Consent Solicitation
Statement dated October 7, 1996 (the "1996 Consent
Solicitation"). The Amendments modified the capital structure of
the Partnership. Generally, the Amendments provided for the
Partnership's Preferred Units and the Partnership's Old Common
Units to be treated as a single class of limited partner units
with identical rights and privileges, and the elimination of
certain existing contingent distribution preferences of the
General Partners. The Amendments resulted in the elimination of
the respective cumulative distribution arrearages of both the
outstanding Preferred and Old Common Units and the elimination of
distribution and liquidation preferences attributable to such
Preferred Units. The Amendments also provided that the
outstanding Old Common Units would be subject to a 1 for 21
reverse unit split.
The Amendments also included certain other changes to the
Partnership Agreement including the terms of certain new
redeemable preferred equity securities which were issued to the
Partnership's bank lenders in lieu of payment for certain
Partnership debt when the Partnership successfully refinanced its
existing credit facility with other third party creditors in
December 1997.
Capital Expenditures
Maintenance capital expenditures additions totaled $2.1
million for the year ended December 31, 1997 compared to $1.9
million for the year ended December 31, 1996.
Year 2000 Compliance
The Partnership has determined that it will need to modify
or replace significant portions of its software so that its
computer systems will function properly with respect to dates in
the year 2000 and beyond. The Partnership also has initiated
discussions with its significant suppliers, large customers and
financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their
systems interface with the Partnership's systems or otherwise
impact its operations. The Partnership is assessing the extent
to which its operations are vulnerable should those organizations
fail to remediate properly their computer systems.
The Partnership's comprehensive Year 2000 initiative is
being managed by a team of internal staff and outside
consultants. The team's activities are designed to ensure that
there is no adverse effect on the Partnership's core business
operations and that transactions with customers, suppliers, and
financial institutions are fully supported. The Partnership is
well under way with these efforts, which are scheduled to be
completed in early 1999. While the Partnership believes its
planning efforts are adequate to address its Year 2000 concerns,
there can be no guarantee that the systems of other companies on
which the Partnership's systems and operations rely will be
converted on a timely basis and will not have a material effect
on the Partnership. The cost of the Year 2000 initiatives is not
expected to be material to the Partnership's results of operation
or financial position.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Partnership, together with
the report thereon of Ernst & Young LLP, appear on pages F-2
through F-18 of this report. See the Index to Financial
Statements on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
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, 1997 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 69 Chairman of the Board
Brad Stephens 47 Chief Executive Officer, Treasurer,
and Director
D. Wayne Malone 54 President, Chief Operating Officer
and Director
Douglas Y. Bech 52 Director
Clark Johnson 52 Director
Robert Rice 75 Director
Craig Sincock 45 Director
Dave Caddell 48 Vice President and General Counsel
George Percival 38 Chief Financial Officer
Judy Sharrow 38 Secretary
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 of Club Regina Resorts,
Inc. and the founding partner of Raintree Capital Company,
L.L.C., a merchant banking firm. From 1994 to 1997, 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 Houston
office 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 Wainoco Oil
Corporation and Jetfax, Inc. 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
Frontier Oil Corporation, a refining and marketing company which
is a subsidiary of Wainoco Oil Corporation. He also serves as
Senior Vice President of Wainoco Oil. Prior to those positions,
he held the positions of 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 and
corporate director. He is a director of First Olsen Tankers,
Ltd., ATCO Ltd., and Hvide Marine Incorporated. 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 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).
Judy Sharrow. Ms. Sharrow has served as Secretary of the
Managing General Partner since October 1992. In addition, she is
Manager of Investor Relations for the Partnership. Ms. Sharrow
has been associated with the Predecessor Companies since 1983.
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, 1997, 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.
Effective December 31, 1996, the special participation
interest of the Special General Partner and the incentive
interests of the Managing General Partner were eliminated as a
result of the adoption of the Second Amended and Restated
Agreement of Limited Partnership. For the year ended December
31, 1997, the Special General Partner did not receive any
distributions in respect of the Common Units. The Partnership
reimburses the General Partners for all their direct and indirect
costs (including general and administrative costs) allocable to
the Partnership. See "Certain Relationships and Related
Transactions."
(b) Summary Officers' Compensation Table. The following
table sets forth certain compensation paid during fiscal 1997 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
Long-Term
Compensation
------------
Securities
Underlying
Options/ All Other
Year Salary Bonus UARs Compensation
---- -------- ------- ------------ ------------
Brad Stephens 1997 $225,000 $ - - $ 8,800
Chief Executive Officer 1996 225,000 - 56,000 8,500
1995 242,000 - - 8,000
D. Wayne Malone 1997 225,000 - - 8,900
Chief Operating Officer 1996 225,000 - 56,000 8,500
1995 242,000 - - 8,000
Dave Caddell 1997 165,000 - - 7,300
Vice President/General 1996 165,000 - 32,000 7,300
Counsel 1995 178,000 - - 7,000
George Percival 1997 100,000 - - 4,000
Chief Financial Officer 1996 100,000 20,000 16,000 4,200
1995 100,000 15,000 - 5,000
The Partnership implemented a Unit Appreciation Rights Plan under which certain key
employees of the Partnership received unit appreciation rights ("UARs"). This column
represents the number of UARs granted to each of the officers listed in the table. See "-
(c) Benefit Plans - Unit Appreciation Rights". Effective December 31, 1997, the number of
UARs previously granted to the officers was reduced retroactive to December 31, 1996.
In this column is the Partnership's contribution to the Section 401(k) Plan for each
officer and reimbursement of income taxes on certain perquisites. See "-Benefit Plans -
Section 401(k) Plan" below.
Messrs. Stephens, Malone and Caddell received a salary increase on August 1, 1994, from
the Board of Directors, but chose to defer such increase. Such deferred amounts were paid
in 1995.
/TABLE
(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 and middle managers employed by the Partnership
through an Annual Incentive Plan. The Plan 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 $8 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 $8 million, plus 12%
of the next $4 million of Cash Flow, plus 15% of any Cash Flow in
excess of $14 million. The bonus pool for middle managers
consists of up to 4% of Cash Flow, provided that Cash Flow
exceeds $8 million.
Unit Appreciation Rights. During 1996, the Partnership
implemented a Unit Appreciation Rights Plan under which certain
key employees of the Partnership receive UARs, which entitle such
key employees, upon exercise of such rights, to either receive
cash or Common Units equal to the difference in the market price
of the units on the exercise date and the market price of the
units on the date on which such UARs were granted. It is
anticipated that UARs aggregating approximately 10% of the total
units will be reserved for issuance to key employees. However,
no Common Units are expected to be issued under this plan. The
employees to whom awards are made and the number of UARs awarded
are subject to the discretion of the board of directors of the
Managing General Partner.
On December 9, 1996, four officers and twelve employees were
awarded a total of 293,000 UARs at a grant price of $3.75 per
unit. Since the fair market value of the UARs did not exceed the
grant price at December 9, 1996, no compensation expense has been
accrued. Effective December 31, 1997, the number of UARs was
increased to 299,996, reallocated among the officers and
employees, and the exercise price was reduced to $1.94 per unit.
(This page should be printed on 11" x 8.5" paper)
OPTION/UNIT APPRECIATION RIGHTS ("UARs")
GRANTS IN LAST FISCAL YEAR
Potential
Realizable Value
at Assumed
Annual Rates of
Unit Price Appreciation
Individual Grants for UAR Term
______________________________________________________________ ____________________
Number of
Securities % of Total
Underlying Options/UARs
Options/ Granted to Exercise
UARs Employees of Base
Granted In Fiscal Price Expiration
Name (#) Year ($/Unit) Date 5%($) 10%($)
_______________ _______ __________ ________ __________ ________ _________
Brad Stephens 56,000 19% $ 1.94 12/09/06 $68,000 $173,000
D. Wayne Malone 56,000 19% 1.94 12/09/06 68,000 173,000
Dave Caddell 32,000 11% 1.94 12/09/06 39,000 99,000
George Percival 16,000 5% 1.94 12/09/06 20,000 49,000
Assumes Messrs. Stephens, Malone, Caddell and Percival exercised such UARs at the
end of two years when they become fully vested. The plan allows an individual the right
to
exercise such UARs at any time after becoming fully vested through the year 2006.
/TABLE
As of December 31, 1997, two-thirds of the officer and employee
UARs could be exercised, however, none were exercised. The
rights will fully vest on December 31, 1998.
A one-time award of 70,000 UARs was made in 1996 to non-
employee directors at a grant price of $3.75. Effective December
31, 1997, the exercise price was reduced to $1.94 per unit. At
December 31, 1997, the non-employee directors' UARs were fully
vested, however, none were exercised.
Section 401(k) Plan. Participants in the Partnership's
Section 401(k) Plan (formerly the Employees' Pension Plan) may
make contributions to such plan in amounts ranging from 1% to 15%
of their salary. The Partnership will make mandatory
contributions each year in an amount equal to 3% of compensation
and will match dollar for dollar up to 3% of an employee's
contribution depending on the Partnership's cash flow for such
year. The employee's contribution to the plan may not exceed the
limitation as outlined under Internal Revenue Code section
402(g). The Partnership's contributions under the Section 401(k)
Plan will vest 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, 1998.
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,
1998. All of such securities are held directly.
Percent
of
Title of Class Name and Address Amount Class
______________ ________________ ______ _______
Common Units James B. Stovell 930,000 18.8%
Mountain Lake
Lake Wales, FL 33859
Common Units Pride SGP, Inc. 250,000 5.1%
1209 North Fourth Street
Abilene, TX 79601
Common Units Pride SGP, Inc. 317,000
1209 North Fourth Street
Abilene, TX 79601
Common Units Varde Partners, Inc. 2,670,000
3600 West 80th Street
Suite 225
Minneapolis, MN 55431
[FN]
At the Closing, Pride SGP agreed to convert certain indebtedness
into a Series E Cumulative Convertible Preferred Unit which is
convertible into 317,000 Common Units. If converted as of
December 31, 1997, such 317,000 Common Units would represent 4.0%
of the 7,937,000 potentially outstanding Common Units as a result
of the conversion of all convertible securities. See "Financial
Condition -Financial Resources and Liquidity - Conversion of Debt
by Pride SGP into Preferred Equity."
At the Closing, Varde received preferred equity securities
including $9.3 million of Series B Cumulative Convertible
Preferred Units and $5.0 million of Series C Cumulative
Convertible Preferred Units. The Series B Preferred Units and
Series C Preferred Units are convertible into 1,480,000 and
793,000 Common Units, respectively. Additionally, Varde
purchased and assumed the Old Series A Note from the previous
lenders which was converted to the Subordinate Note A. The
Subordinate Note A is convertible into 397,000 Common Units. If
all such securities were converted as of December 31, 1997, such
2,670,000 Common Units could represent 33.6% of the 7,937,000
potentially outstanding Common Units as a result of the
conversion of all convertible securities. See "Financial
Condition - Financial Resources and Liquidity - Varde Equity
Participation."
b) Security Ownership of Management
The following table sets forth certain information, as of
February 28, 1998, concerning the beneficial ownership of Common
Units by each director of the Managing General Partner and by all
directors and officers of the Managing General Partner as a
group.
Percentage of
Name Number of Common Units Class
____ ______________________ _____________
E. Peter Corcoran 64,100 1.3%
Brad Stephens 1,100
D. Wayne Malone 4,135
Douglas Y. Bech 300
Clark Johnson - -
Robert Rice 3,000
Craig Sincock - -
Dave Caddell 1,000
George Percival - -
Judy Sharrow - -
------ -----
All directors and officers
as a group 73,635 1.5%
(10 persons)
[FN]
Unless otherwise indicated, the persons named above have sole
voting and investment power over the Common Units reported.
Each of these directors of the Managing General Partners owned
beneficially, as of February 28, 1998, less than 1% of the Common
Units outstanding on such date.
The foregoing does not include any Common Units which would
be obtained by those members of management as a consequence of
their purchase of an interest from Varde in the B Term Note, C
Term Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units and Series D Preferred Units. See "Financial
Condition - Financial Resources and Liquidity - Refinancing of
Revolving Term Loan, Convertible Notes and Letters of Credit
Facility."
Item 13. Certain Relationships and Related Transactions
The Partnership is managed by the Managing General Partner
pursuant to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership. See "Business and Properties -
General" and "Executive Compensation - Compensation of the
General Partners" for certain information related to compensation
and reimbursement of the General Partners. The Special General
Partner, Pride SGP, is beneficially owned approximately 18% by
Mr. Schumacher (a past officer and director of the Managing
General Partner), 10% by Mr. W.E. Rector (a business partner of
Mr. Schumacher), 9% by Mr. Malone, 7% by Mr. Stephens, 5% by Mr.
T. M. Broyles (a past officer of the Managing General Partner),
4% by Mr. Corcoran, 2% by Mr. Caddell, 34% by trusts established
for the relatives of certain deceased members of management, and
11% by relatives of certain deceased members of management. 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.
Effective March 30, 1990, the Partnership entered into an
agreement with Pride SGP to lease certain pipeline 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 is currently estimated to be approximately $250,000
annually. In addition, the Partnership pays the taxes,
insurance, etc. The Partnership also agreed to pay Pride SGP
$0.20 per barrel additional rental on the Hearne to Comyn segment
of the pipeline which was activated in August 1992. For the year
ended December 31, 1997, the Partnership transported 10,671 BPD
of high quality crude oil to the Refinery through this pipeline.
For the years ended December 31, 1997, 1996, and 1995, rentals
accruing to Pride SGP were approximately $788,000, $919,000, and
$873,000, respectively, for the lease of the pipeline. For the
periods between August 1995 through November 1996 and March 1997
through December 1997, payments to Pride SGP were suspended
pursuant to the terms of an amendment to the then existing credit
agreement. Approximately $1,846,000 and $1,201,000 are included
in other long-term liabilities at December 31, 1997 and December
31, 1996, respectively, related to unpaid rentals. On December
31, 1997, the lease was amended to reduce the rental to a maximum
of $400,000 annually as long as certain debt is outstanding. The
lease agreement with Pride SGP was not entered into on an arm's-
length basis. The original rent under the lease was determined
based on the revenue generated from an expected throughput of
20,000 BPD. While management is not able to determine whether
the terms of the agreement are comparable to those which could
have been obtained by unaffiliated parties, management believes
such terms are fair and reasonable given the importance to the
Partnership of the Hearne to Comyn pipeline segment which, as
discussed under "Business and Properties -- Partnership
Operations and Products -- Crude Oil Gathering Operations,"
currently enables the Partnership to gather and transport a
greater supply of high quality crude oil for sale to other
refiners. In addition, management believes the value of the
leased segment of the Comyn pipeline system has increased with
the development of the Austin Chalk formation in South Central
Texas and the increasing need for crude oil transportation in
that area.
The Partnership's right to use the leased segment of the
pipeline originally extended until 2000. During 1992, the lease
was amended, whereby at the Partnership's option, the lease may
be extended through March 2013 as long as certain minimum
throughput levels are maintained. If such throughput levels are
not maintained during the extended term, the lease is cancelable
by Pride SGP with ninety days notice. The lease agreement was
amended in early 1993 to provide that any time during the lease,
the Partnership may, upon 30 days' notice to Pride SGP, purchase
the Comyn pipeline for $10 million instead of the original $15
million purchase price.
During the period from January 1, 1996 through July 19, 1996
and the year ended December 31, 1995, the Partnership sold
approximately $3.8 million and $4.0 million, respectively, of
refined product to Dunigan Fuels. Mike Dunigan was a minority
shareholder of Dunigan Fuels and is also a beneficiary of two
trusts that own stock in Pride SGP. On July 19, 1996, Dunigan
Fuels was sold to a third party; therefore, Dunigan Fuels is no
longer considered to be a related party to the Partnership.
The Partnership utilizes a plane from time to time, as
needed, on a per hour market rate basis from an entity controlled
by Messrs. Malone and Stephens, officers of the Managing General
Partner. Payments to this entity totaled approximately $83,000,
$62,000 and $72,000 during 1997, 1996 and 1995, respectively.
The Partnership leases property from a relative of Mr.
Stephens. Lease payments related to this property were
approximately $38,000 in 1997, and $36,000 during both 1996 and
1995.
Firms associated with Mr. Bech, a current director of the
Managing General Partner, were paid $55,000, $208,000 and
$155,000 for legal services during 1997, 1996 and 1995,
respectively.
Pride SGP made two unsecured loans to the Partnership on
March 26, 1993 and September 7, 1995 in the aggregate principal
amount of $2.5 million, and required the Partnership to pay
interest only during the term of such loans. The loans were used
to fund working capital. Beginning in the latter part of 1995,
the Partnership ceased making interest payments on the loans to
Pride SGP in accordance with an amendment to the then existing
credit agreement. Accrued interest payable at December 31, 1997
and 1996 was $548,000 and $320,000, respectively. On December
31, 1997, the two unsecured loans were converted into the Series
E Preferred Units of $2.0 million and the Series F Preferred
Units of $450,000. The Series E Preferred Units are convertible
into 317,000 Common Units. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Financial Condition - Financial Resources and Liquidity."
At the Closing, certain members of management agreed to
invest an aggregate of $2.0 million in the form of a note payable
to Varde and will receive a one-third economic non-directive
interest in $6.0 million of the B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The note payable to Varde
will be secured by management's interest in such securities. Any
cash yield on management's share of such securities will be paid
to Varde as interest, net of applicable federal income tax.
Varde has proposed additional restructuring of its
investment, subject to receipt of required consents and the
authorization and issuance of additional preferred equity and
consummation of all proposed transactions, that could give Varde
(and management through the participation discussed above) the
collective right to receive a total of up to 52% of the
Partnership's Common Units provided BankBoston funds the Proposed
Term Loan. Otherwise, Varde (and management through the
participation discussed above) would have the collective right to
receive a total of up to 60% of the Partnership's Common Units
subject to receipt of required consents and the authorization and
issuance of additional preferred equity and consummation of all
proposed transactions. See "Management's Discussion and Analysis
of Operations and Financial Condition - Financial Resources and
Liquidity - Future Stages of the Varde Transaction, Proposed
Restructuring."
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 on page F-1 for
financial statements and financial statement schedules filed as a
part of this Report.
(3) Exhibits: See Index to Exhibits on page E-1 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, 1997:
The Partnership filed Form 8K on January 15, 1998 related to
the assumption by Varde of the Old Bank Debt and the refinancing
by BankBoston of the Partnership's letter of credit facility on
December 31, 1997.
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: /Brad Stephens/
Brad Stephens
Chief Executive Officer, Treasurer, and Director
DATED: March 31, 1998
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
_________ _____ ____
E. Peter Corcoran Chairman and Director March 31, 1998
Brad Stephens Chief Executive Officer, March 31, 1998
Treasurer, and Director
D. Wayne Malone President, Chief Operating March 31, 1998
Officer, and Director
Douglas Y. Bech Director March 31, 1998
Clark Johnson Director March 31, 1998
Robert Rice Director March 31, 1998
Craig Sincock Director March 31, 1998
Dave Caddell Vice President and March 31, 1998
General Counsel
George Percival Chief Financial Officer March 31, 1998
(Principal Financial Officer)
Judy Sharrow Secretary March 31, 1998
Bob Lee Controller (Principal March 31, 1998
Accounting Officer)
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of the
Managing General Partner
We have audited the accompanying balance sheets of Pride
Companies, L.P. as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' capital
(deficiency), and cash flows for each of the three years in the
period ended December 31, 1997. 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.
We conducted our audits in accordance with 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. at December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
February 18, 1998, except for
Note 4, as to which the
date is April 15, 1998
BALANCE SHEETS
PRIDE COMPANIES, L.P.
At December 31, 1997 and 1996
(In thousands, except unit amounts)
1997 1996
____ ____
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,008 $ 472
Accounts receivable, less allowance
for doubtful accounts of $59 and
$142, respectively--Note 6 14,543 18,163
Inventories--Note 2 13,036 19,171
Prepaid expenses 2,096 1,286
-------- --------
TOTAL CURRENT ASSETS 34,683 39,092
PROPERTY, PLANT AND EQUIPMENT, net--Note 3 47,588 99,554
ASSETS NO LONGER USED IN THE
BUSINESS--Note 3 7,353 -
DEFERRED FINANCING COSTS--Note 1 5,254 -
OTHER ASSETS 403 1,070
-------- --------
$ 95,281 $139,716
======== ========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 26,670 $ 32,316
Accrued payroll and related
benefits--Note 1 1,870 1,498
Accrued taxes 3,323 4,805
Other accrued liabilities--Note 1 2,811 1,774
Current portion long-term debt--Note 4 2,084 6,516
-------- --------
TOTAL CURRENT LIABILITIES 36,758 46,909
LONG-TERM DEBT, including $2,450
at December 31, 1996 to a related
party--Note 4 41,087 50,417
DEFERRED INCOME TAXES--Note 1 2,405 2,590
OTHER LONG-TERM LIABILITIES--Note 1 10,935 10,202
COMMITMENTS AND CONTINGENCIES--Note 5
REDEEMABLE PREFERRED EQUITY, including
$2,450 at December 31, 1997 to a
related party--Note 8 19,529 -
PARTNERS' CAPITAL (DEFICIENCY)
Common Units (5,275,000 units
authorized and 4,950,000 units
outstanding)--Notes 4 and 9 (14,656) 29,474
General partners' interest (777) 124
-------- --------
$ 95,281 $139,716
======== ========
See accompanying notes.
/TABLE
STATEMENTS OF OPERATIONS
PRIDE COMPANIES, L.P.
Years ended December 31, 1997, 1996 and 1995
(In thousands, except per unit amounts)
1997 1996 1995
____ ____ ____
Revenues--Note 6:
Refinery and Products System $ 277,179 $ 294,328 $ 235,136
Crude Gathering System 494,155 597,425 527,212
Intrasystem and other (236,437) (276,550) (201,735)
-------- -------- --------
534,897 615,203 560,613
Cost of sales and operating expenses,
excluding depreciation--Note 7 516,145 596,841 543,425
Refinery closure costs--Note 1 41,396 - -
Marketing, general and administrative
expenses--Note 7 8,955 10,111 10,274
Depreciation 6,872 6,976 7,006
-------- -------- --------
OPERATING INCOME (LOSS) (38,471) 1,275 (92)
Other income (expense):
Interest expense (5,316) (5,808) (6,575)
Credit and loan fees (1,952) (2,109) (2,172)
Other - net 564 179 175
-------- -------- --------
(6,704) (7,738) (8,572)
-------- -------- --------
LOSS BEFORE INCOME TAXES (45,175) (6,463) (8,664)
Income tax benefit 144 48 47
-------- -------- --------
NET LOSS $ (45,031) $ (6,415) $ (8,617)
======== ======== ========
Before Conversion (Note 9):
Basic and diluted net loss per Unit:
Preferred Units - $ (0.63) $ (0.85)
Old Common Units - $ (0.63) $ (0.85)
After Conversion (Note 9):
Basic and diluted earnings per
Common Unit:
Net loss per Common Unit $ (8.92) $ (1.27) $ (1.71)
Numerator:
Net loss (45,031) (6,415) (8,617)
2% general partner interest (901) (128) (172)
Preferred dividends - - -
Numerator for basic and diluted
earnings per unit (43,230 (6,287) (8,445)
Denominator:
Denominator for basic and diluted
earnings per unit before conversion:
Preferred Units - 4,700 4,700
Old Common Units - 5,250 5,250
Denominator for basic and diluted
earnings per unit after conversion:
Common Units 4,950 4,950 4,950
See accompanying notes.
/TABLE
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
PRIDE COMPANIES, L.P.
Years ended December 31, 1997, 1996 and 1995
(In thousands)
General
Preferred Common Partners'
Units Units Interest Total
--------- --------- --------- -------
Balance at December 31, 1994 $ 21,729 $ 22,476 $ 425 $44,630
Net loss (3,990) (4,454) (173) (8,617)
--------- --------- -------- ------
Balance at December 31, 1995 17,739 18,022 252 36,013
Net loss (2,970) (3,317) (128) (6,415)
Conversion of Preferred Units
into Common Units (14,769) 14,769 - -
--------- --------- -------- ------
Balance at December 31, 1996 - 29,474 124 29,598
Net Loss - (44,130) (901) (45,031)
_________ _________ ________ _______
Balance at December 31, 1997 $ - $ (14,656) $ (777) $(15,433)
========= ======== ========= ========
See accompanying notes.
/TABLE
STATEMENTS OF CASH FLOWS
PRIDE COMPANIES, L.P.
Years ended December 31, 1997, 1996 and 1995
(In thousands)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(45,031) $ (6,415) $ (8,617)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Noncash charges(credits) to earnings:
Depreciation 6,872 6,976 7,006
Retirement of property,
plant and equipment 220 - -
Deferred tax benefit (185) (128) (109)
Asset impairment 40,000 - -
(Gain) loss on sale of property,
plant and equipment (319) (40) 11
Net effect of changes in:
Accounts receivable 3,620 (1,958) 1,095
Inventories 6,135 (4,923) 3,419
Prepaid expenses 506 320 262
Accounts payable and other
long-term liabilities (5,667) 7,566 3,223
Accrued liabilities (73) 226 (255)
------- ------- -------
Total adjustments 51,109 8,039 14,652
------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,078 1,624 6,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (2,087) (1,944) (1,224)
Proceeds on sale of property,
plant and equipment 450 61 262
Other 144 13 68
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,493) (1,870) (894)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit
facilities 134,919 47,799 45,706
Payments on debt and credit
facilities (132,452) (47,366) (50,496)
Deferred financing costs (2,516) - -
Other - (3) (98)
------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (49) 430 (4,888)
------- ------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 4,536 184 253
Cash and cash equivalents at beginning
of the period 472 288 35
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 5,008 $ 472 $ 288
======== ======== ========
See accompanying notes.
/TABLE
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations: Pride Companies, L.P., a
Delaware limited partnership (the "Partnership"), owns and
operates a crude oil gathering system, that gathers, transports,
resells and redelivers crude oil in the Texas and New Mexico
markets and certain integrated products pipelines and terminals.
The Partnership also owns a modern simplex petroleum refinery
facility which was mothballed on March 22, 1998 (see "Property,
Plant and Equipment and Assets No Longer Used in the Business"
below). Under an agreement with Texaco Trading and
Transportation, Inc. ("TTTI"), the Partnership will begin
purchasing refined products from TTTI in April 1998 ("TTTI Supply
Agreement") to market through the Partnership's existing
terminals. Prior to 1998, the Partnership's operations were
considered a single industry segment -- the refining of crude oil
and the sale of the resulting petroleum products. The primary
purpose of the crude oil gathering system was to supply the
refinery with crude oil. In that connection, it purchased and
resold crude oil in order to provide a supply of the appropriate
grade of crude oil at strategic locations to be used as feedstock
for the refinery. In connection with the TTTI Supply Agreement
and the mothballing of the refinery, the crude oil gathering
system will primarily market crude oil to other refineries and
the Partnership will now operate two separate and distinct
industry segments, the crude gathering system segment and the
marketing and products pipeline segment. The crude gathering
system consists of a series of gathering lines and a fleet of
trucks which transport crude into third party pipelines and into
the system's primary asset, a common carrier pipeline. The
products pipelines consisted of two products pipelines that
originated at the refinery and terminated at two of the
Partnership's marketing terminals. In connection with the
mothballing of the refinery, the products pipeline that extends
from the refinery to the Aledo terminal was idled since TTTI's
pipeline connects with the Aledo terminal. The Partnership's
operations are conducted primarily in the State of Texas.
Pride SGP, Inc. ("Pride SGP") serves as special general
partner of the Partnership and owns a 0.1% general partner
interest and an approximate 4.9% limited partner interest as of
December 31, 1997. Pride Refining, Inc. serves as the managing
general partner of the Partnership and owns a 1.9% general
partner interest (the "Managing General Partner"). In accordance
with the Amended and Restated Agreement of Limited Partnership of
Pride Companies, L.P. ("Partnership Agreement"), the Managing
General Partner conducts, directs and exercises control over
substantially all of the activities of the Partnership. The
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 majority owned subsidiaries including limited partnership
interests where the Partnership has significant control through
related parties. All significant intercompany transactions have
been eliminated and minority interest has been provided where
applicable.
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.
Operating Environment and Adverse Financial Condition: The
Partnership's operations have generated losses in each of the
last seven years, current ratios of less than one to one in each
of the last five years and a partners' deficiency at December 31,
1997. In addition, the Partnership has not complied with certain
covenants of its credit facilities with lenders and current
projections indicate that the Partnership will be unable to
comply with certain other covenants of its credit facilities with
lenders in 1998. The ability of the Partnership to operate in
future periods may be adversely affected by these conditions.
Management believes this situation to be significant and has
taken certain actions and is in the process of taking further
action to alleviate these conditions. The success of these
actions is not known at this time. In the event of the
unsuccessful execution of these actions and the unfavorable
outcome of the above conditions, the recoverability and
classification of assets and the amounts and classification of
liabilities may differ from that presented in the financial
statements.
The Partnership's operating results are primarily a result
of depressed refining margins. Crude gathering volumes also
decreased in each of the last four years. The net loss for the
year ended December 31, 1997 increased from December 31, 1996;
however, excluding the $41,396,000 in "refinery closure costs"
(see Statement of Operations), the loss for December 31, 1997
decreased to $3,635,000 as a result of stronger refining margins
partially offset by weak crude gathering margins during 1997.
The $41,396,000 in refinery closure costs included a $40,000,000
noncash charge for impairment of certain refinery fixed assets,
$1,750,000 related to the closure of the refinery and related
severance costs, and $367,000 related to the writeoff of certain
refinery assets offset by $721,000 in accruals that were reversed
since the refinery is being mothballed. Of the $1,750,000,
$1,200,000 and $550,000 was included in the balance sheet under
"Other accrued liabilities" and "Accrued payroll and related
benefits," respectively. Under the new military aviation fuel
contract with the U. S. Government which begins April 1, 1998 and
ends March 31, 1999, the Partnership will supply approximately
51% of the volumes that it supplied under the contract which
began April 1, 1997 and ends March 31, 1998; however, the prices
awarded compared to the base reference price net of
transportation under this contract are an average of
approximately 2 cents per gallon higher than the prices in the
previous contract which partially offsets the reduced volumes.
Since 1993, the Partnership has been able to achieve continuous
reductions in marketing, general and administrative expenses.
The move of the Partnership's corporate offices has resulted in a
cost reduction since the beginning of 1995. Also, during 1995,
certain initiatives were taken to reduce crude gathering costs.
The Partnership's ability to generate profits is principally
dependent upon increased volumes and/or improved profit margins,
as well as continued cost control initiatives. The ability to
generate profits could be affected if other Gulf Coast refiners
bring refined products into West Texas from the Gulf Coast via
pipeline. Though management has and will continue to pursue
options regarding increasing volumes and margins and reducing
costs, including limiting any significant capital expenditures,
these improvements, if achieved, will be gradual, in many cases,
will take sustained periods of time to implement in order to
achieve profitability and cannot be assured. As a result,
management is also reviewing other strategic alternatives
including redeployment of its operating assets, possible asset
sales and alliances with other companies.
Restructuring and Recapitalization Plan: On December 31, 1997,
the final phase of the restructuring and recapitalization of the
Partnership's debt and equity was completed as described in the
Partnership's 1996 consent solicitation dated October 7, 1996.
The initial phase called for the execution of documents with the
Partnership's previous bank lenders and was completed on August
13, 1996. Effective December 31, 1996, the Unitholders adopted
amendments to the Partnership Agreement which included conversion
of the outstanding preferred units into common units and the
cancellation of all preferred and common unit arrearages. As
part of the 1996 restructuring plan, the previous lenders
converted a portion of their term loan into notes, lowered
certain interest rates and credit and loan fees and extended the
maturity. Varde Partners, Inc. ("Varde") assumed the rights and
obligations of the previous lenders in the Old Revolver, the Old
Term Loan and the Old Convertible Notes (collectively "Old Bank
Debt") (see Note 4), BankBoston, N.A. ("BankBoston") subsequently
provided the Partnership with a letter of credit facility and a
commitment for a term loan of $21,000,000, and Pride SGP
converted two notes into redeemable preferred equity securities
(see Note 4) (the "Closing"). During 1997, 1996 and 1995, the
Partnership expensed $613,000, $1,064,000 and $873,000,
respectively, related to the restructuring and recapitalization.
The Partnership also capitalized $6,571,000 of fees and other
costs including $3,257,000 in noncash fees in 1997 related to the
restructuring and recapitalization and has included $1,317,000 in
"Prepaid expenses" and $5,254,000 in "Deferred financing costs"
on the December 31, 1997 balance sheet.
Varde Transaction: 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 (the "New Loan"),
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, representing the first $20,000,000 of Varde's
investment, which is subject to repayment as early as
April 1998 with borrowings under the Proposed Term Loan
(see Note 4),
(ii) Series B Term Loan ("B Term Loan") maturing December
31, 2002 in the amount of $9,500,000, which represents
certain of the amounts paid to the banks to purchase
the Old Bank Debt plus the amount of the New Loan and a
transaction fee of $500,000 for bridging the A Term
Loan,
(iii) Series C Term Loan ("C Term Loan") maturing December
31, 2002 in the amount of $4,689,000 which represents
Old Bank Debt that is not represented by any other
security held by Varde,
(iv) Series A Unsecured Loan ("Subordinate Note A") in the
amount of $2,500,000 maturing December 31, 2002,
representing the conversion of the Old Series A Note
(see Note 4) in accordance with the 1996 consent
solicitation,
(v) Series B Cumulative Convertible Preferred Units
("Series B Preferred Units") in the amount of
$9,322,000, representing the conversion of the Old
Series B Note (see Note 4) in accordance with the 1996
consent solicitation, which Series B Preferred Units
are subject to mandatory redemption at December 31,
2002,
(vi) Series C Cumulative Convertible Preferred Units
("Series C Preferred Units") in the amount of
$5,000,000, representing the conversion of the Old
Series C Note (see Note 4) in accordance with the 1996
consent solicitation, which Series C Preferred Units
are subject to mandatory redemption at December 31,
2002, and
(vii) Series D Cumulative Preferred Units ("Series D
Preferred Units") in the amount of $2,757,000 issued as
a result of the increase in the purchase price of the
Old Bank Debt, which Series D Preferred Units are
subject to mandatory redemption at December 31, 2002.
Upon funding of the Proposed Term Loan (see Note 4), the maturity
of the B Term Loan, C Term Loan, Subordinate Note A, Series B
Preferred Units, Series C Preferred Units and Series D Preferred
Units will be extended 180 days after the maturity date of the
Proposed Term Loan, but no later than June 30, 2003.
At the Closing, certain members of management agreed to
invest an aggregate of $2,000,000 in the form of a note payable
to Varde and will receive a one-third economic non-directive
interest in $6,000,000 of the B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The note payable to Varde
will be secured by Management's interest in such securities. Any
cash yield on Management's share of such securities will be paid
to Varde as interest, net of applicable federal income tax.
The documentation under which Varde acquired the Old Bank
Debt contemplated two possible future transactions. First, if
and when the Proposed Term Loan is funded, such proceeds will be
used to retire Varde's A Term Loan for $20,000,000 and an
additional $1,000,000 in borrowings will be made available for
working capital purposes.
Second, Varde has proposed an additional restructuring of
its investment ("Restructuring") that could further reduce the
Partnership's bank debt in connection with the authorization and
issuance of new preferred equity, which would in turn be
convertible into Common Units, if approved by the unitholders
pursuant to a consent solicitation on or before October 1, 1999
(the "Restructuring Consent Solicitation"). Subject to
unitholder authorization of additional preferred equity in
connection with the Restructuring Consent Solicitation, Varde has
agreed to exchange a total of $33,768,000 of debt and preferred
equity securities composed of $9,500,000 of B Term Loan,
$4,689,000 of C Term Loan, $2,500,000 of Subordinate Note A,
$9,322,000 of Series B Preferred Units, $5,000,000 of Series C
Preferred Units and $2,757,000 of Series D Preferred Units
(including any paid in kind distributions on these instruments)
for the following series of newly authorized redeemable preferred
equity:
(i) Nonconvertible preferred equity in the amount of
$9,500,000 ("New Series A Preferred Units") which
includes $500,000 that was Varde's transaction fee for
bridging the A Term Loan,
(ii) Convertible preferred equity in the amount of
$2,500,000 ("New Series B Preferred Units"), which
would be convertible into 10% of the Common Units
outstanding, and
(iii) Convertible preferred equity in the amount of
$2,500,000 ("New Series C Preferred Units") which would
be convertible into an additional 42% of the Common
Units outstanding, plus an additional 8% of the Common
Units for Varde's account if the A Term Loan continues
to be held by Varde.
As part of the proposed Restructuring, Pride SGP will be asked,
subject to unitholder approval, to approve the Partnership
recapitalization and convert $2,394,000 of claims and the Series
E Preferred Units and Series F Preferred Units (see Note 8) into
a total of 7.5% of the outstanding Common Units.
If all requisite unitholder consents are received and all
proposed transactions are consummated, including the
restructuring of certain claims of Pride SGP and the
authorization and issuance of additional preferred equity, Varde
will convert the $33,768,000 of debt and equity securities that
it holds of the Partnership into $14,500,000 of newly authorized
equity securities.
The Partnership or management has a three-year call on
Varde's position for an amount equal to a 40% return to Varde,
subject to a minimum payment of $7,500,000 over Varde's cost.
The securities held by Varde have certain antidilution provisions
and registration rights. Any litigation proceeds received
related to the claim against the Defense Fuel Supply Center will
be used to retire up to $6,000,000 of either the A Term Loan or
the Proposed Term Loan (see Note 4), whichever is then
outstanding, and up to $5,000,000 of either B Term Loan or New
Series A Preferred Units, whichever is then outstanding, with any
excess divided one-third to Varde to be used to retire Varde's
most senior securities and two-thirds to the Partnership.
Revenue Recognition: Revenue is recognized from the sale of
crude oil and refined products at the time of delivery to the
customer. Transportation fees are recognized when the crude oil
or products are delivered to the contracted destination.
Net Loss Per Unit: In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share." This statement is
effective for the Partnership's fiscal quarter ending December
31, 1997. The Statement redefines earnings per share under
generally accepted accounting principles. Under the new
standard, primary earnings per share is replaced by basic
earnings per share and fully diluted earnings per share is
replaced by diluted earnings per share. Basic net income (loss)
per common unit is computed using the weighted average number of
common units outstanding. Diluted net income per unit is
computed by adjusting the primary units outstanding and net
income for the potential effect of the conversion of the
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series E Preferred Units (see Note 8) outstanding
during the period and the elimination of the related interest and
dividends and the potential effect of the exercise of officers'
and employees' unit appreciation rights. When the effect of
including the conversion of the convertible preferred equity and
the exercise of unit appreciation rights on basic or diluted net
income (loss) per unit is antidilutive, as is the case for the
year ended December 31, 1997, they are not included in the
calculation of diluted net income (loss) per unit.
Inventories: Inventories are stated at the lower of cost or
market value. Crude oil and refined product exchanges are
accounted for on the inventory method. Cost is determined using
the last-in, first-out (LIFO) method. Management believes that
the LIFO method better matches current costs with current
revenues and minimizes the effects of price changes on
inventories. In addition, the LIFO method is the predominant
method used in the refining industry.
Property, Plant and Equipment and Assets No Longer Used In
Business: Property, plant and equipment is stated at cost or at
the carryover basis of the Partnership's predecessor which was
historical cost. Depreciation is computed by the straight-line
method for financial reporting purposes 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 the years ended December 31, 1997, 1996 and 1995 was
$4,058,000, $4,115,000 and $3,539,000, respectively.
Assets no longer used in business are stated at fair market
value. During 1997, the Partnership announced plans to mothball
the refinery in the first quarter of 1998; however, some refinery
assets will still be used in connection with the TTTI Supply
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 fair value. Fair value was based on
independent appraisals discounted at a market rate of interest.
Other Long-Term Liabilities: In connection with its crude
gathering system operations, as first purchaser of crude oil the
Partnership makes distributions of payments to the various
revenue and royalty interest owners. Often, the legal rights of
the interest owners are unclear or the owners cannot be located
for long periods of time. When such is the case, the Partnership
retains the liability for the payments until the ownership
interest is clarified or the owners located, at which time
payment is made. When an owner cannot be located, state statutes
generally require 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 classified as current accounts payable, with the
remainder classified as other long-term liabilities. At December
31, 1997 and 1996, other long-term liabilities included
$8,541,000 and $8,680,000, respectively, related to these
interest owners.
Also included in other long-term liabilities is payables to
Pride SGP for accrued interest and accrued pipeline rentals. At
December 31, 1997 and 1996, other long-term liabilities included
$2,394,000 and $1,522,000, respectively, related to these
accruals.
Income Taxes and Deferred 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. 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 assets and
liabilities (other than Pride Borger, Inc. ("Pride Borger")) are
greater than the bases for financial reporting purposes by
approximately $19,000,000 at December 31, 1997. The taxable loss
reported by the Partnership for the year ended December 31, 1997
is $11,983,000. The major reconciling items between financial
income and taxable income reported are the impairment of fixed
assets ($40,000,000) and the difference in cost of goods sold due
to inventory methods ($5,544,000).
The Partnership has two corporate subsidiaries, Pride Borger
and Pride Marketing of Texas, Inc., which are separate taxable
entities. As separate taxable entities, Pride Borger's and Pride
Marketing of Texas' operating results are subject to federal
income taxes. The carryover tax bases of certain pipeline assets
acquired by Pride Borger in 1994 were significantly less than the
purchase price. As a result, a deferred tax liability was
established in the accounting records of Pride Borger as part of
the purchase price allocation. At December 31, 1997 and 1996,
deferred income taxes were $2,405,000 and $2,590,000,
respectively.
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. The Partnership's contributions vest over a seven
year period, subject to immediate vesting upon retirement.
Retirement plan expense for the years ended December 31, 1997,
1996 and 1995 was $209,000, $217,000 and $485,000, 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 approximates fair value. The fixed interest
rates associated with substantially all the Partnership's long-
term debt, and the rates associated with standby letters of
credit approximate current market rates. As a result, management
believes that the carrying amount of the Partnership's credit
facilities approximate fair value.
A portion of the Partnership's debt is at stated rates below
current market rates. This includes the notes, in the original
principal amounts of $6,000,000 and $2,400,000, discussed in Note
4. The carrying amount of such debt at December 31, 1997 is
$6,127,000 and the estimated fair value is $5,897,000. The fair
value is estimated using discounted cash flow analyses, based on
the Partnership's current incremental borrowing rates for similar
types of borrowing arrangements.
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.
Changes in Presentation: Certain prior year amounts have been
reclassified to conform to the 1997 presentation.
NOTE 2--INVENTORIES
At December 31, inventories consist of (in thousands):
1997 1996
------- -------
Crude oil $ 8,388 $ 14,543
Refined products and blending materials 6,473 12,002
------- -------
14,861 26,545
LIFO reserve (2,837) (8,381)
------- -------
Petroleum inventories 12,024 18,164
Spare parts and supplies 1,012 1,007
------- -------
$ 13,036 $ 19,171
======= =======
At December 31, 1997 and 1996, petroleum inventories valued
using the LIFO method were less than current cost determined
using the FIFO method by $2,837,000 and $8,381,000, respectively.
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
1997 1996 Lives
-------- ------- ----------
Refinery and related facilities $ 6,602 $ 71,006 4-30 years
Pipelines and related facilities 46,668 52,387 5-30 years
Transportation and terminal equipment 9,913 9,940 3-5 years
Marketing facilities and equipment 1,202 1,202 3-5 years
Administrative facilities and equipment 1,908 1,855 2-5 years
Construction-in-progress 960 388
------- -------
67,253 136,778
Less accumulated depreciation 19,665 37,224
_______ _______
$ 47,588 $ 99,554
======= =======
In connection with the mothballing of the refinery, certain assets, net of
accumulated depreciation, have been written down to fair market value (see
Note 1) and reclassified in the balance sheet from "Property, Plant and
Equipment" to "Assets No Longer Used in the Business."
NOTE 4--DEBT AND CREDIT FACILITIES
As previously mentioned (see Note 1) Varde purchased and assumed the
lenders' rights and obligations under the Partnership's Old Bank Debt. In
conjunction with Varde's purchase and assumption of the lenders' rights and
obligations under the Old Bank Debt, BankBoston refinanced the
Partnership's letter of credit and revolver facilities (the "New Revolver")
on December 31, 1997 and agreed to fund certain term financing at a future
date (the "Proposed Term Loan"), in each case for a 5-year term.
The New Revolver from BankBoston provides for the issuance of letters
of credit to third parties to support the Partnership's purchase or
exchange of crude oil and petroleum products, in an aggregate amount not to
exceed $65,000,000, with a sublimit of $10,000,000 for direct cash
borrowings for general working capital purposes. Amounts available under
the New Revolver are subject to a borrowing base calculated as the sum of
the Partnership's cash and cash equivalents, certain receivables, deposits,
inventory and other amounts, reduced by a portion of crude oil royalties
payable and certain other amounts payable. The borrowing base at December
31, 1997 was $6,377,000.
Though no advances had been drawn under the letter of credit facility
at December 31, 1997, the Partnership did have approximately $36,430,000 in
outstanding letters of credit to cover the letters of credit outstanding
with the previous banks. The fee on outstanding letters of credit was
2.75% per annum as of December 31, 1997. There is also an issuance fee of
0.125% per annum on the face amount of each letter of credit. The fee for
the unused portion of the New Revolver is 0.5% per annum. At the
Partnership's discretion, cash borrowings under the New Revolver at
December 31, 1997 bore interest at either LIBOR plus 3.25% or prime plus
2%. LIBOR and the prime rate were 5.625% and 8.5%, respectively, at
December 31, 1997. The credit agreement evidencing the New Revolver also
requires the Partnership to pay an agency fee of up to $70,000 per annum
depending on the number of participants in the credit facility.
If and when funded, the Proposed Term Loan would be expected to be
used to refinance the A Term Loan held by Varde and to provide an
additional $1,000,000 for general working capital purposes. The
Partnership pays 0.5% per annum for the Proposed Term Loan commitment.
At the Closing, Varde assumed the rights and obligations under the Old
Bank Debt, which equaled $45,775,000 and made the New Loan of $4,693,000.
As of the Closing, the Old Bank Debt consisted of (i) a standby letter of
credit facility (the "Old LC Facility"), (ii) a $12,000,000 revolving line
of credit, of which $6,907,000 was outstanding (the "Old Revolver"), (iii)
a $22,045,000 term loan (the "Old Term Loan") and (iv) three series of
convertible senior secured notes in an aggregate principal amount of
$16,822,000 (the "Old Convertible Notes," consisting of the "Old Series A
Note," the "Old Series B Note" and the "Old Series C Note"). As of the
Closing, no advances had been drawn under the Old LC Facilities, which had
approximately $36,430,000 in outstanding letters of credit. The Managing
General Partner and Pride SGP were guarantors of the Old Bank Debt and have
guaranteed the Partnership's obligations to Varde and BankBoston.
Substantially all of the Partnership's assets were pledged as collateral
for the Old Bank Debt, and Pride SGP had pledged its assets at no cost to
the Partnership as additional collateral for such debt. All of such assets
have been pledged to Varde and BankBoston in connection with the credit
agreements.
As a result of Varde's assumption of the Old Bank Debt and the New
Loan, Varde holds the A Term Loan of $20,000,000, B Term Loan of
$9,500,000, C Term Loan of $4,689,000 and Subordinate Note A of $2,500,000.
The A Term Loan bears interest rates of 11% in the first two years and 13%
in the third year, 15% in the fourth and 17% in the fifth year. The B Term
Loan and C Term Loan bear interest rates of 11% in the first three years,
13% in the fourth year and 15% in the fifth year except $3,000,000 of the B
Term Loan which is subject to interest rates of 12% through maturity. If
the A Term Loan is not repaid with borrowings under the Proposed Term Loan
or otherwise, the interest rates applicable to the A Term Loan, B Term Loan
and C Term Loan would be 11%, 13%, 15%, 17% and 19% for the first, second,
third, fourth and fifth years, respectively, during all or any portion of
the period after February 1998 that the A Term Loan is held by Varde,
except $3,000,000 of the B Term Loan which is subject to interest rates of
18% through maturity. The Subordinate Note A is convertible into 397,000
Common Units and bears interest at prime plus one percent. The prime rate
was 8.5% as of December 31, 1997.
The cash interest and dividend payments on the B Term Loan, C Term
Loan, Subordinate Note A and the preferred units held by Varde (see Note 8)
are limited to $90,833 per month or $1,090,000 annually. To the extent the
interest and dividends on the various Varde securities exceed the cap on
cash payments, such excess will be paid in kind. The A Term Loan is due
December 31, 2002. The B Term Loan, C Term Loan and Subordinate Note A are
due December 31, 2002 if the A Term Loan has not been refinanced, otherwise
180 days after the maturity of the Proposed Term Loan but no later than
June 30, 2003 if the A Term Loan has been refinanced. The Partnership is
required to make quarterly principal payments on the A Term Loan as set
forth in the Varde Agreement as well as make payments of excess cash flow
for the preceding year. Accordingly, the Partnership has classified $1.5
million of the A Term Loan as current as of December 31, 1997. The
Partnership will not have to make principal payments prior to the scheduled
maturity on the B Term Loan, C Term Loan and Subordinate Note A except in
the case the Partnership receives litigation proceeds related to the DFSC
Claim and certain other transactions (see Note 5).
Under the prior credit facility, the Partnership had a $6,500,000
standby letter of credit facility for general corporate purposes and the
purchase of crude oil and other refinery feedstocks and a $42,500,000
standby letter of credit facility for the purchase of crude oil. The fee
on outstanding standby letters of credit was 1.5% per annum. For the
unused portion of the standby letter of credit facility, the fee was 0.5%
per annum. Though no advances had been drawn under either facility, the
Partnership did have approximately $721,000 and $35,709,000, respectively,
in outstanding standby letters of credit at December 31, 1997 which were
backed by a letter of credit issued by BankBoston in the same amount. The
prior credit agreement also provided, at the banks' discretion, an
additional $8,000,000 standby letter of credit facility for the purchase of
crude oil and other refinery feedstocks. The Partnership had no
outstanding letters of credit under such facility as of December 31, 1997.
The Partnership had available to it a revolving line of credit of
$12,000,000 Old Revolver, a $22,045,000 Old Term Loan and a total of
$16,822,000 in Old Convertible Notes.
Advances under the Old Revolver and Old Term Loan accrued interest at
prime plus 1.5% and 2%, respectively, payable monthly. The prime rate was
8.5% as of December 31, 1997. The Old Convertible Notes issued to the
lenders under the credit facility consisted of $2,500,000 in Convertible
Senior Secured Series A Promissory Notes ("Old Note A"), $9,322,000 in
Convertible Senior Secured Series B Promissory Notes ("Old Note B"), and
$5,000,000 in Convertible Senior Secured Series C Promissory Notes ("Old
Note C"). The Old Convertible Notes accrued interest at prime plus 1%
payable monthly.
The Partnership must maintain compliance with certain financial and
other covenants, as defined in the credit agreements with the new lenders.
In addition, the agreements contain restrictive covenants including, among
other things, provisions concerning additional indebtedness and
commitments, restriction on payments, sale of assets, and certain affiliate
transactions. At December 31, 1997 the Partnership was in violation of
certain financial covenants of the credit agreements which were
subsequently waived by the lenders on April 15, 1998, in connection with
amendments to the credit agreements.
The Partnership had two outstanding financing agreements to fund
working capital with Pride SGP which were entered into on March 26, 1993
and September 7, 1995. Pride SGP made the unsecured loans to the
Partnership in the aggregate principal amount of $2,450,000 bearing
interest at prime plus 1%. On December 31, 1997, Pride SGP agreed to
convert the two notes into redeemable preferred equity securities (see Note
8).
Other installment loans include a $6,000,000 nonrecourse note, due
2014, payable monthly with interest at 8% and a balance of $5,707,000 at
December 31, 1997 ($5,835,000 at December 31, 1996). The note is supported
by a minimum throughput agreement. The assets of Pride Borger are pledged
as collateral. Monthly principal payments are based on the number of
throughput barrels. The Partnership has classified $146,000 as current at
December 31, 1997.
The Partnership converted certain non-interest bearing accounts
payable to the U. S. Government Defense Fuel Supply Center related to
pricing adjustments which had been accrued since 1993 to a $2,402,000
installment loan, payable in monthly installments of $84,000, with a
balance of $420,000 at December 31, 1997 ($1,369,000 at December 31, 1996).
The note bears interest based on the rate set semi-annually by the
Secretary of the Treasury. This rate was 6.75% as of December 31, 1997.
The Partnership has classified the entire balance as current.
Amounts outstanding under these credit facilities at December 31 (in
thousands):
1997 1996
------ -------
Old Revolver $ - $ 5,085
Old Term Loan - 25,000
Old Note A - 2,500
Old Note B - 9,322
Old Note C - 5,000
Related Party Loans - 2,450
A Term Loan 20,000 -
B Term Loan 9,500 -
C Term Loan 4,689 -
Subordinate Note A 2,500 -
Other Installment Loans 6,482 7,576
------ -------
43,171 56,933
Less current portion 2,084 6,516
------ ------
$41,087 $50,417
====== ======
Approximate debt maturities for the next five years are expected as
follows: 1998-$2,084,000; 1999-$2,416,000; 2000-$2,964,000; 2001-
$3,147,000; and 2002-$27,585,000.
Interest paid for the years ended December 31, 1997, 1996 and 1995 was
$5,142,000, $5,944,000 and $6,345,000, respectively.
NOTE 5--COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Partnership is 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 paid to Pride SGP (see Note 7) for certain pipeline
segments, rental expense for the years ended December 31, 1997, 1996 and
1995 was $2,658,000, $3,187,000 and $3,039,000, respectively. The minimum
future rentals under noncancelable operating leases at December 31, 1997,
excluding Pride SGP, are as follows (in thousands):
1998 $ 1,750
1999 1,003
2000 475
2001 184
2002 135
Thereafter 135
------
$ 3,682
======
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 will not have a
material effect on the Partnership's financial position or results of
operations.
In order to comply with known future compliance requirements of the
Texas Water Commission and other agencies, certain expenditures will have
to be incurred during 1998 and 1999. Management's estimates of the costs
of compliance aggregate approximately $1,500,000 including $1,200,000
associated with closing the refinery.
The Partnership has filed a substantial claim against the
U. S. Government Defense Fuel Supply Center (DFSC) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership. The ultimate outcome of this matter cannot presently be
determined.
NOTE 6--MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
One of the Partnership's major customers is the DFSC. Revenues from
the DFSC comprised 11% in 1997 and 1996, and 10% in 1995 of total revenues.
Substantially all other customers are engaged in various aspects of the
petroleum industry, one of which accounted for 21% of total revenues in
1997, 19% in 1996, and 13% in 1995.
At December 31, 1997, the Partnership had receivables from the DFSC
and one petroleum industry customer in the amount of $1,615,000 and
$4,011,000, respectively. 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
The Partnership has an agreement with Pride SGP to lease defined
segments of the Crude Gathering System pipeline until 2000, with an option
to extend the lease through March 2013, as long as certain minimum
throughput levels are maintained. If such throughput levels are not
maintained during the extended term, the lease is cancelable by Pride SGP
with ninety days' notice. As consideration for this lease, the Partnership
has agreed to perform all routine and emergency maintenance and repair
operations to the pipelines as well as pay all taxes, insurance, etc. The
Partnership also agreed to pay Pride SGP $0.20 per barrel additional rental
for use of a section of this pipeline which was idle prior to 1992. While
management is not able to determine if the terms of the lease are
comparable to those which could have been obtained by unaffiliated parties,
management believes such terms are fair and reasonable given the importance
to the Partnership of this segment of pipeline. During 1997 and years
prior, the rental under the lease was determined based upon the revenue
generated from the expected throughput, which management believes
represents a fair return on the value of the pipeline as appraised by a
consultant. Rentals accruing to Pride SGP during 1997, 1996 and 1995
totaled $788,000, $919,000 and $873,000, respectively. The Partnership has
the option to purchase these pipeline segments for $10,000,000. During the
periods of August 1995 through November 1996 and March 1997 through
December 1997, payments to Pride SGP were suspended pursuant to the terms
of an amendment to the Partnership's credit agreement. Approximately
$1,846,000 and $1,201,000 are included in other long-term liabilities at
December 31, 1997 and December 31, 1996, respectively, related to unpaid
rentals. On December 31, 1997, the lease was amended to reduce the rental
to a maximum of $400,000 annually as long as certain debt is outstanding.
During the period from January 1, 1996 through July 19, 1996 and the
year ended December 31, 1995, the Partnership sold $3,800,000 and
$3,960,000, respectively, of refined product to a company in which a
stockholder of Pride SGP had a minority interest. On July 19, 1996, the
company was sold to a third party; therefore, the company is no longer
considered to be a related party to the Partnership.
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 $83,000,
$62,000 and $72,000, during 1997, 1996 and 1995, respectively.
The Partnership leases property from a relative of one of the officers
of the Managing General Partner. Lease payments were approximately $38,000
in 1997, and $36,000 in 1996 and 1995.
Firms associated with a director of the Managing General Partner were
paid $55,000, $208,000 and $155,000, for legal services during 1997, 1996
and 1995, respectively.
Beginning the latter part of 1995, the Partnership ceased interest
payments on its note payable to Pride SGP. Accrued interest payable at
December 31, 1997 and 1996 amounted to $548,000 and $320,000, respectively,
and has been included in other long-term liabilities. The notes payable to
Pride SGP were converted to redeemable preferred equity on December 31,
1997 (see Note 8). The Managing General Partner has a 1.9% interest in the
income and cash distributions of the Partnership, subject to certain
adjustments. Certain members of the management of the Managing General
Partner are also members of the management of Pride SGP, which has a 0.1%
general partner interest and 4.9% limited partner interest in the
Partnership as discussed in Note 9. 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 of the Closing, Varde and management of the Managing General
Partner ("Management") have the right to receive a total of up to
approximately 33.6% of the Partnership's Common Units as described in the
Partnership's 1996 consent solicitation. Varde has proposed additional
restructuring of its investment, subject to receipt of required consents
and the authorization and issuance of additional preferred equity and
consummation of all proposed transactions, that could give Varde and
management the right to receive a total of up to 52% of the Partnership's
Common Units provided BankBoston funds the Proposed Term Loan. Otherwise,
Varde and management would have the right to receive a total of up to 60%
of the Partnership's Common Units subject to receipt of required consents
and the authorization and issuance of additional preferred equity and
consummation of all proposed transactions.
Certain conflicts of interest, including potential non-arm's-length
transactions, could arise as a result of the relationships described above.
The Board of Directors and management of the Managing General Partner have
a duty to manage the Partnership in the best interests of the Unitholders
and, consequently, must exercise good faith and integrity in handling the
assets and affairs of the Partnership.
NOTE 8--REDEEMABLE PREFERRED EQUITY
At the Closing, Varde received preferred equity securities including
$9,322,000 of Series B Preferred Units, $5,000,000 of Series C Preferred
Units and $2,757,000 of Series D Preferred Units which initially mature
December 31, 2002. On funding of the Proposed Term Loan, the maturity date
of the preferred equity securities would be extended 180 days after the
maturity date of the Proposed Term Loan but no later than June 30, 2003.
The Series B Preferred Units and Series C Preferred Units are convertible
into 1,480,000 and 793,000 Common Units, respectively. The preferential
quarterly payments on the Series B Preferred Units and Series C Preferred
Units will be 6% per annum in the first three years after issuance, 12% per
annum in the fourth and fifth years and 15% per annum thereafter or may be
paid in kind at 8% per annum in the first three years, 12% per annum in the
fourth and fifth years and 15% per annum thereafter. The preferential
quarterly payments on the Series D Preferred Units will be 11% per annum in
the first three years after issuance, 13% per annum in the fourth and fifth
years and 15% per annum thereafter or be paid in kind through maturity at
13% per annum in the first five years and 15% per annum thereafter. As
previously mentioned, the cash interest payments on the debt and preferred
equity held by Varde are limited to $1,090,000 annually, excluding cash
interest payments on the A Term Loan. Any excess will be paid in kind.
Any payments of principal on the securities held by Varde shall be applied
in the following order: A Term Loan (if then outstanding), B Term Loan, C
Term Loan, Subordinate Note A, Series B Preferred Units, Series C Preferred
Units, and Series D Preferred Units.
At the Closing, Pride SGP agreed to convert (i) a $2,000,000 note of
the Partnership payable to Pride SGP to Series E Cumulative Convertible
Preferred Units ("Series E Preferred Units") which is convertible into
317,000 Common Units outstanding and (ii) a $450,000 note owed to Pride SGP
into Series F Cumulative Preferred Units ("Series F Preferred Units"). The
Series E Preferred Units and Series F Preferred Units will be subordinated
to the Series B Preferred Units, Series C Preferred Units and Series D
Preferred Units. The preferential quarterly payments on the Series E
Preferred Units and Series F Preferred Units will be 6% per annum in the
first three years after issuance, 12% per annum in the fourth and fifth
years and 15% per annum thereafter or may be paid in kind at 8% per annum
in the first three years, 12% per annum in the fourth and fifth years and
15% per annum thereafter until mandatory redemption at December 31, 2002.
Upon funding of the Proposed Term Loan, the maturity will be extended 180
days past the maturity of the Proposed Term Loan but no later than June 30,
2003.
Redeemable preferred equity outstanding at December 31 (in thousands):
1997 1996
------- ------
Series B Preferred Units $ 9,322 $ -
Series C Preferred Units 5,000 -
Series D Preferred Units 2,757 -
Series E Preferred Units 2,000 -
Series F Preferred Units 450 -
------- ------
$ 19,529 $ -
======= =======
NOTE 9--PARTNERS' CAPITAL (DEFICIENCY)
Effective December 31, 1996, the Preferred Units were converted into
newly issued common units ("Common Units") on a one-to-one basis pursuant
to the Amendments to the limited partnership agreement. The 4,700,000 of
Common Units held by the previously existing preferred unitholders
represent an approximate 93.1% limited partner interest in the Partnership.
The previously outstanding common units were converted to 250,000 Common
Units in a reverse 21-for-1 stock split.
Prior to the Amendments to the limited partnership agreement, the
units were cumulative and entitled to a minimum quarterly distribution of
$0.65 per unit. However, all arrearages were cancelled under the
Amendments as of December 31, 1996. Arrearages cancelled were $14.30 per
previously outstanding common unit which totaled $75,075,000 and $12.65 per
preferred unit which totaled $59,455,000. The general partners are
entitled to 2% of all distributions.
Both Varde and Pride SGP hold debt and equity securities which are
convertible into 2,987,000 Common Units. Varde holds the Series B
Preferred Units, Series C Preferred Units and Subordinate Note A which are
convertible into 2,670,000 Common Units. Pride SGP holds Series E
Preferred Units which are convertible into 317,000 Common Units. If both
Varde and Pride SGP converted all their securities into Common Units, the
number of Common Units outstanding would increase from 4,950,000 Common
Units to 7,937,000 Common Units.
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 the holder of
the Rights is entitled to receive in cash or in Common Units the increase,
if any, between the grant 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 for
ten years from the grant date.
UAR transactions for December 31, 1996 and 1997 are as follows:
Officers/
Employees Directors Total
--------- --------- -----
Outstanding at December 31, 1995 - - -
Granted 292,760 70,000 362,760
Exercised - - -
Terminated - - -
Outstanding at December 31, 1996 292,760 70,000 362,760
Granted 7,236 - 7,236
Exercised - - -
Terminated - - -
------- ------ -------
Outstanding at December 31, 1997 299,996 70,000 369,996
======= ====== =======
On December 9, 1996, four officers and twelve employees were
granted Rights at an exercise price of $3.75 per unit, none of
which were exercised in 1996. Effective December 31, 1997, the
exercise price of the 1996 Rights was amended and reduced to
$1.94 per unit, 7,236 additional Rights were awarded, and the
outstanding Rights were reallocated among four officers and
eleven employees. The Rights will fully vest on December 31,
1998. Rights exercisable under the plan were 195,000 and 97,586
at December 31, 1997 and 1996. Since the fair market value of
the Rights did not exceed the grant price at the grant date, no
compensation expense has been accrued in accordance with APB 25.
A one-time award 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.
Pro forma information regarding net income and earnings per
unit required by Statement 123 was determined as if the
Partnership had accounted for its Rights under the fair value
method of the Statement. The fair value for these Rights was
estimated at the date of grant using a Black-Scholes option
pricing model. The effect of applying the fair value method to
the Rights results in net income and earnings per unit that are
not materially different from amounts reported.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected unit price volatility.
Because the Partnership's Rights have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employees' Rights.
NOTE 11--QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Basic Diluted
Operating Net Income Income
Net Income Income (Loss) (Loss)
Quarter Ended Revenues (Loss) (Loss) per Unit per Unit
- - ------------- -------- --------- -------- ------- --------
March 31, 1996 $150,364 $ 2,758 $ 508 $ 0.10 $ 0.10
June 30, 1996 154,422 739 (1,356) (0.27) (0.27)
September 30, 1996 145,884 (982) (3,185) (0.63) (0.63)
December 31, 1996 164,533 (1,240) (2,382) (0.47) (0.47)
March 31, 1997 142,455 (1,025) (2,913) (0.58) (0.58)
June 30, 1997 127,624 557 (602) (0.12) (0.12)
September 30, 1997 134,734 2,604 771 0.15 0.14
December 31, 1997 130,085 (364) (42,287) (8.37) (8.37)
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards
No. 128, Earnings per Share. The 1996 amounts have also been restated to
reflect the proforma per unit information based on the outstanding Common
Units after conversion (see Note 9).
INDEX TO EXHIBITS TO REPORT ON FORM 10-K
Exhibit Number
(Reference to
Item 601 of
Regulation S-K) Description
_______________ ___________
3.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31,
1990 (Commission File No. 1-10473)).
3.2 Second Amended and Restated Agreement of Limited Partnership of
the Partnership (incorporated by reference to Exhibit 3.2 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (Commission File No. 1-10473)).
4.1 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)).
4.4 Form of Depositary Receipt for Old Common Units of Pride
Companies, L.P. (included as Exhibit B to the Deposit Agreement,
which is 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)).
4.5 Form of Depositary Receipt for Common Units of Pride Companies,
L.P. (incorporated by reference to Exhibit 4.5 of the
Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (Commission File No. 1-10473)).
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).
10.5 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)).
10.6 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)).
10.7 Partnership Agreement for Desulfur Partnership, dated as of
August 10, 1993, which is 99% owned by the Partnership and 1%
owned by Pride Marketing of Texas, a wholly-owned subsidiary of
the Partnership (incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the quarter ended
September 30, 1993 (Commission File No. 1-10473)).
10.8 Bill of Sale, dated as of August 10, 1993, for the sale of the
desulfurization unit by the Partnership to the Desulfur
Partnership, a subsidiary of the Partnership (incorporated by
reference to Exhibit 28.2 of the Partnership's Quarterly Report
on Form 10Q for the quarter ended September 30, 1993 (Commission
File No. 1-10473)).
10.9 Promissory Note, dated as of August 10, 1993, related to the sale
of the desulfurization unit by the Partnership ("Payee") to the
Desulfur Partnership ("Maker") (incorporated by reference to
Exhibit 28.3 of the Partnership's Quarterly Report on Form 10Q
for the quarter ended September 30, 1993 (Commission File No. 1-
10473)).
10.10 Master Lease Agreement, dated as of August 10, 1993, between the
Partnership (Lessee) and the Desulfur Partnership (a subsidiary
partnership) (Lessor), for the lease of the desulfurization unit
(incorporated by reference to Exhibit 28.4 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993 (Commission File No. 1-10473)).
10.11 Letter, dated November 10, 1993, from Ernst & Young (the
Partnership's independent auditors) to the Partnership concerning
the change to the LIFO method of accounting for inventories
(incorporated by reference to Exhibit 28.7 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended September 30,
1993 (Commission File No. 1-10473)).
10.12 Stock Purchase Agreement, dated as of September 1, 1994, between
Pride Refining, Inc. (Purchaser), Diamond Shamrock Refining and
Marketing Company (Seller), and D-S Pipeline Corporation
(Acquired Company) (incorporated by reference to Exhibit 10.15 of
the Partnership's Annual Report on Form 10K for the fiscal year
ended December 31, 1994 (Commission File No. 1-10473)).
10.13 First Amendment to Stock Purchase Agreement between Pride
Refining, Inc. (Purchaser), Diamond Shamrock Refining and
Marketing Company (Seller), and D-S Pipeline Corporation
(Acquired Company) (incorporated by reference to Exhibit 10.16 of
the Partnership's Annual Report on Form 10K for the fiscal year
ended December 31, 1994 (Commission File No. 1-10473)).
10.14 Limited Partnership Agreement of Pride Texas Plains, L.P.
(Partnership) dated as of January 12, 1995, by and among Pride
Refining, Inc. and Pride Texas Plains GP, LLC (the General
Partners) and Pride Borger, Inc. (Limited Partner) (incorporated
by reference to Exhibit 10.17 of the Partnership's Annual Report
on Form 10K for the fiscal year ended December 31, 1994
(Commission File No. 1-10473)).
10.15 Promissory Note dated as of January 9, 1995, between United Bank
& Trust ("Lender") and the Partnership ("Borrower") related to
the renovation and refinancing of the Partnership's
administrative offices (incorporated by reference to Exhibit 28.1
of the Partnership's Quarterly Report on Form 10Q for the quarter
ended June 30, 1995 (Commission File No. 1-10473)).
10.16 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)).
10.17 Promissory Note, dated January 18, 1996, between the Defense
Finance and Accounting Service ("Lender") and the Partnership
("Borrower") related to certain pricing adjustments (incorporated
by reference to Exhibit 10.22 of the Partnership's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995
(Commission File No. 1-10473)).
10.18 Exchange Agreement between Scurlock Permian Corporation and the
Partnership dated February 21, 1996 (incorporated by reference to
Exhibit 10.23 of the Partnership's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (Commission File No. 1-
10473)).
10.19 Award Contract dated March 15, 1996, issued to the Partnership by
the United States Defense Fuel Supply Center (incorporated by
reference to Exhibit 10.24 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (Commission
File No. 1-10473)).
10.20 Fifth Restated and Amended Credit 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 28.1 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended June 30, 1996
(Commission File No. 1-10473)).
10.21 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)).
10.22 First Amendment to Loan Agreement, dated as of August 27, 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 28.1 of the Partnership's Quarterly Report
on Form 10Q for the quarter ended September 30, 1996 (Commission
File No. 1-10473)).
10.23 Agreement, dated as of November 14, 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 September 30, 1996 (Commission File No. 1-10473)).
10.24 Second Amendment to Loan Agreement, dated as of February 25,
1997, 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 10.24 of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (Commission File No. 1-10473)).
10.25 Third Amendment to Loan Agreement, dated as of March 31, 1997,
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 10.25 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (Commission
File No. 1-10473)).
10.26 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)).
10.27 Fourth Amendment to Loan Agreement, dated as of May 15, 1997,
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 28.1 of the Partnership's Quarterly Report
on Form 10-Q for the period ended March 31, 1997 (Commission File
No. 1-10473)).
10.28 Fifth Amendment to Loan Agreement, dated as of August 14, 1997,
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 28.1 of the Partnership's Quarterly Report
on Form 10-Q for the period ended June 30, 1997 (Commission File
No. 1-10473)).
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
10.36 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.
10.37 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.
10.38 Equity Conversion Agreement, dated December 31, 1997, between
Pride SGP, Inc., Pride Companies, L.P., and Varde Partners, Inc.
10.39 Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 31, 1997, between Pride SGP, Inc. and Pride Companies,
L.P.
11.1 Statement regarding computation of per unit earnings (included on
page F-9 of this Report).
25.1 Power of Attorney (included on the signature page of this
Report).
27.1 Financial Data Schedule.
EXHIBIT 10.29
SIXTH RESTATED AND AMENDED CREDIT AGREEMENT
This Sixth Restated and Amended Credit Agreement (the
"Agreement") is entered into as of the 30th day of December, 1997
("Effective Date"), by and among PRIDE COMPANIES, L.P., a Delaware
limited partnership ("Borrower"), PRIDE REFINING, INC., a Texas
corporation, PRIDE SGP, INC., a Texas corporation, DESULFUR
PARTNERSHIP, a Texas general partnership, PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC., a Texas corporation, PRIDE BORGER, INC., a
Delaware corporation and VARDE PARTNERS, INC., a Delaware
corporation (the "Lender").
W I T N E S S E T H :
RECITALS:
A. The Borrower, NationsBank of Texas, N.A.
("NationsBank"), as Agent (in such capacity, the "Original Agent"),
the Lenders described therein (the "Original Lenders"), and each of
the Guarantors described therein are parties to a certain Fifth
Restated and Amended Credit Agreement, dated as of August 13, 1996
(as amended from time to time, the "1996 Credit Agreement"),
pursuant to which the Lenders agreed to (a) make Revolving Loans in
an amount not to exceed an aggregate principal amount of
$8,000,000, (b) renew those certain Original Term Loans as new Term
Loans (the Term Loans, together with the Revolving Loans,
collectively, the "Original Loans") in an aggregate principal
amount not to exceed $42,301,851, (c) make available a Letter of
Credit Facility consisting of (i) a Facility A Letter of Credit in
an aggregate amount not to exceed $6,500,000 and (ii) a Facility B
Letter of Credit in an amount not to exceed $45,000,000, and
(d) make available an Uncommitted Line at the Original Lenders'
sole discretion.
B. The Borrower executed and delivered to the Original
Lenders that certain First Restated Security Agreement, dated as of
August 13, 1996 (as amended), in favor of the Original Agent for
the ratable benefit of the Original Lenders.
C. The Lender and NationsBank are parties to an
Assignment Agreement, dated as of November 24, 1997 (the
"NationsBank Agreement"), pursuant to which NationsBank sold to the
Lender immediately prior to the Effective Date all of its right,
title and interest in, to and under the Original Loans and the 1996
Credit Agreement.
D. The Lender and Bank One, Texas, N.A. ("Bank One") are
parties to an Assignment Agreement, dated as of November 24, 1997
(the "Bank One Agreement"), pursuant to which Bank One sold to the
Lender immediately prior to the Effective Date all of its right,
title and interest in, to and under the Original Loans and the 1996
Credit Agreement.
E. The Borrower, Pride SGP, Inc., Pride Refining, Inc.
and the Lender are concurrently herewith entering into a certain
Restructuring and Override Agreement, dated as of December 30, 1997
(as amended, modified or otherwise supplemented from time to time
in accordance with its terms, the "Restructuring Agreement"),
pursuant to which the parties thereto have agreed, among other
things, to amend and restate the 1996 Credit Agreement, on the
terms and conditions set forth below.
F. As contemplated by the Restructuring Agreement, the
parties hereto have agreed, among other things, (i) that certain
Original Loans outstanding under the 1996 Credit Agreement shall
automatically be designated as Series A Term Loans, Series B-1 Term
Loans and Series C Term Loans (each as defined herein) upon the
terms and subject to the conditions set forth herein, (ii) the
Borrower, the Guarantors and the Lender shall enter into that
certain Seventh Amendment to Fifth Restated and Amended Credit
Agreement, dated as of December 30, 1997 (the "Seventh Amendment"),
pursuant to which the 1996 Credit Agreement shall be amended to
increase the Revolver Commitment (as defined in the 1996 Credit
Agreement) to $14,900,000, (iii) the Borrower shall deliver a
Notice of Borrowing (as defined in the 1996 Credit Agreement) to
the Lender requesting a Borrowing under its Revolver Commitment,
and (iv) the Lender shall make or be deemed to have made Original
Loans in the amount set forth in such Notice of Borrowing to the
Borrower and such additional Original Loans shall automatically be
designated as Series B-1 Term Loans, Series B-2 Term Loans and
Series B-3 Term Loans (each as defined herein) upon the terms and
subject to the conditions set forth herein.
AGREEMENT:
In consideration of the mutual promises herein contained
and for other valuable consideration, the parties hereto hereby
agree that the 1996 Credit Agreement shall, as of the date hereof
(but subject to the satisfaction of the conditions precedent
specified in Section 4 hereof), be amended and restated as set
forth below. Each of the Original Loans outstanding under the 1996
Credit Agreement on the Effective Date shall continue and remain
outstanding after the Effective Date. Each of the Revolving
Commitment and Letter of Credit Facility under the 1996 Credit
Agreement shall be terminated.
ARTICLE I
DEFINITION OF TERMS
I.1 Definitions. For the purposes of this Agreement,
unless the context otherwise requires, the following terms shall
have the respective meanings assigned to them in this Article I or
in the section or recital referred to below:
"Acceleration" has the meaning specified in Section 8.2.
"Accumulated Benefit Obligations" shall mean the actual
present value of the accumulated benefit obligations under any
Plan, calculated in accordance with Statement No. 87 of the
Financial Accounting Standards Board.
"Affiliate" of any Person shall mean any other Person
directly or indirectly, controlling, controlled by, or under common
control with, such Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person.
"BankBoston" shall mean BankBoston, N.A.
"BankBoston Credit Agreement" shall mean that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Borrower, the Guarantors, the Lenders from
time to time party thereto and BankBoston, N.A. both in its
capacity as a Lender and in its capacity as Agent for itself and
the other Lenders, and Lehman Commercial Paper Inc., both in its
capacity as a Lender and in its capacity as Documentation Agent for
itself and the other Lenders, as from time to time in effect.
"BankBoston Loans" shall mean the "Revolving Loans" and
"Term Loan" each as defined in the BankBoston Credit Agreement.
"BankBoston Loan Documents" shall mean the "Credit
Documents" as defined in the BankBoston Credit Agreement.
"BankBoston Maturity Date" shall mean the "Final Maturity
Date" as defined in the BankBoston Credit Agreement.
"Bank One" has the meaning specified in the Recitals
hereto.
"Bank One Agreement" has the meaning specified in the
Recitals hereto.
"Borrower" shall mean Pride Companies, L.P., a Delaware
limited partnership, whose general partners are Pride Refining and
Pride SGP.
"Business Day" shall mean a day, other than Saturday or
Sunday, on which commercial banks in Minneapolis, Minnesota are
authorized or required by law to be closed.
"By-Laws" shall mean all written by-laws, rules,
regulations and all other documents relating to the management,
governance or internal regulation of any Person other than an
individual, or interpretive of the Charter of such Person, all as
from time to time in effect.
"Calendar Quarter" means the period beginning on the 1st
day of January, April, July and October, during the term of this
Agreement and ending on the last day of the month preceding the
next Calendar Quarter.
"Capital Expenditure" shall mean, for any period, amounts
added or required to be added to the property, plant and equipment
or other fixed assets account on the Consolidated balance sheet of
the Borrower and its Subsidiaries, prepared in accordance with
GAAP, in respect of (a) the acquisition, construction, improvement
or replacement of land, buildings, machinery, equipment, leaseholds
and any other real or personal property, (b) to the extent not
included in clause (a) above, materials, contract labor and direct
labor relating thereto (excluding amounts properly expensed as
repairs and maintenance in accordance with GAAP) and (c) software
development costs to the extent not expensed; provided, however,
that Capital Expenditures shall not include the purchase price for
the acquisition of another Person (or substantially all the assets
of another Person) as a going concern if permitted hereunder.
"Capitalized Lease" shall mean any lease which is
required to be capitalized on the balance sheet of the lessee in
accordance with GAAP, including Statement Nos. 13 and 98 of the
Financial Accounting Standards Board.
"Capitalized Lease Obligations" shall mean the amount of
liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board.
"Capitalized Series A Interest" has the meaning specified
in Section 2.6(a)(i).
"Cash" shall mean currency, wire transfers of money and
other forms of immediately available funds approved by the Lender.
"Cash Equivalents" shall mean:
(a) negotiable certificates of deposit, time
deposits (including sweep accounts), demand deposits and
bankers' acceptances having a maturity of nine months or less
and issued by any United States financial institution having
capital and surplus and undivided profits aggregating at least
$100,000,000 and rated at least Prime-1 by Moody's or A-1 by
S&P;
(b) corporate obligations having a maturity of nine
months or less and rated at least Prime-1 by Moody's or Aa-1
by S&P;
(c) any direct obligation of the United States of
America or any agency or instrumentality thereof, or of any
state or municipality thereof, (i) which has a remaining
maturity at the time of purchase of not more than one year or
which is subject to a repurchase agreement with Collateral
Agent exercisable within one year from the time of purchase
and (ii) which, in the case of obligations of any state or
municipality, is rated at least AAA by Moody's or AAA by S&P;
and
(d) any mutual fund or other pooled investment
vehicle rated at least Aa by Moody's or AA by S&P which
invests principally in obligations described above.
"Cedar Building" shall mean that certain office building
of the Related Persons located at 1209 N. 4th Abilene, Texas.
"Charter" shall mean the articles of organization,
certificate of incorporation, statute, constitution, joint venture
agreement, partnership agreement, trust indenture, limited
liability company agreement or other charter document of any Person
other than an individual, each as from time to time in effect.
"Claim" has the meaning specified in Section 6.16.
"Collateral" shall mean property in which Liens are
granted to secure the Obligations, partially or fully in the
Collateral Documents.
"Collateral Agent" shall mean BankBoston as "Collateral
Agent" as defined in the Intercreditor Agreement.
"Collateral Documents" shall mean all security
agreements, mortgages, deeds of trust, assignments, pledges,
financing statements, stock or bond powers, and other agreements,
instruments and documents, including any amendments thereto and
extensions thereof, which provide for the grant, perfection and/or
alienability of Liens in Collateral, which secure partially or
fully, directly or indirectly, the Obligations, whether executed
and/or delivered or filed prior to, contemporaneously with, or at
any time after the Effective Date.
"Computation Covenants" shall mean Sections 6.2,
7.1(viii) and 7.7.
"Consolidated" and "Consolidating", when used with
reference to any term, shall mean that terms as applied to the
accounts of the Borrower (or other specified Person) and all of its
Subsidiaries (or other specified group of Persons), or such of its
Subsidiaries as may be specified, consolidated (or combined) or
consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.
"Consolidated Current Assets" shall mean, at any date,
all amounts carried as current assets on the balance sheet of the
Borrower and its Subsidiaries determined in accordance with GAAP on
a Consolidated basis.
"Consolidated Current Liabilities" shall mean, at any
date, all amounts that are or should be carried as current
liabilities on the balance sheet of the Borrower and its
Subsidiaries determined in accordance with GAAP on a Consolidated
basis, excluding the current maturities of long-term debt but
including all of the outstanding balance of the Revolving Loans (as
defined in the BankBoston Credit Agreement).
"Consolidated Debt Service" shall mean, for any period,
the sum of:
(a) Consolidated Interest Expense less PIK Interest
on the Series B Term Loan, Series C Term Loan, Series A
Unsecured Note, Preferred Securities and Pride SGP Securities,
plus
(b) the aggregate amount of all mandatory scheduled
payments, mandatory scheduled prepayments and sinking fund
payments, all with respect to Financing Debt of the Borrower
and its Subsidiaries in accordance with GAAP on a Consolidated
basis, including payments in the nature of principal under
Capitalized Leases, but in no event including contingent
prepayments required by Section 2.7, plus
(c) any mandatory cash dividends or other
Distributions (excluding any distributions paid in kind) paid
or payable by the Borrower or any of its Subsidiaries to third
parties;
provided, however, that for the purposes of calculating compliance
with Section 6.2(c) hereof the Consolidated Debt Service (i) for
the period of four consecutive fiscal quarters ended March 31, 1998
shall be deemed to be the sum of the Consolidated Debt Service for
the fiscal quarter ended that date (excluding amounts described in
clause (b) above) times four plus the current maturities of
long-term debt shown on the Consolidated balance sheet of the
Borrower and its Subsidiaries as of December 31, 1997, (ii) for the
period of four consecutive fiscal quarters ended June 30, 1998
shall be deemed to be the sum of the Consolidated Debt Service for
the period of two consecutive fiscal quarters ended that date
(excluding amounts described in clause (b) above) times two plus
the current maturities of long-term debt shown on the Consolidated
balance sheet of the Borrower and its Subsidiaries as of
December 31, 1997 and (iii) for the period of four consecutive
fiscal quarters ended September 30, 1998 shall be deemed to be the
sum of the Consolidated Debt Service for the period of three
consecutive fiscal quarters ended that date (excluding amounts
described in clause (b) above) times one and one-third plus the
current maturities of long-term debt shown on the Consolidated
balance sheet of the Borrower and its Subsidiaries as of
December 31, 1997.
"Consolidated EBITDA" shall mean, for any period, the
gross revenues of the Borrower and its Subsidiaries from
operations, determined in accordance with GAAP on a Consolidated
basis, minus (a) the sum of (i) the cost of operations of the
Borrower and its Subsidiaries for such period, determined in
accordance with GAAP on a Consolidated basis, and (ii) the selling,
general and administrative expenses of the Borrower and its
Subsidiaries for such period, determined in accordance with GAAP on
a Consolidated basis plus (b) all amounts included in clause (a) as
deductions in respect of depreciation and amortization; provided,
that for the purposes of calculating compliance with the provisions
of Sections 6.2(a), (b) and (c) (and for no other purpose of this
Agreement) the Consolidated EBITDA for each of the four consecutive
fiscal quarters of the Borrower commencing January 1, 1997 and
ending December 31, 1997 shall be assumed to be one-quarter of
(x) the actual Consolidated EBITDA of the Borrower and its
Subsidiaries for the fiscal year ended December 31, 1997 excluding
(y) the lesser of the accrual taken in such fiscal year with
respect to the Refinery conversion expenses or $1,800,000; and
provided, further, that any writedown on or prior to December 31,
1998 of the Refinery assets associated with the Refinery conversion
referred to in the proviso to clauses (c) of the definition of
"Consolidated Net Income" herein, to the extent that the same would
reflect a non-cash item and a reduction of Consolidated EBITDA,
shall not be deducted in calculating Consolidated EBITDA.
"Consolidated Excess Cash Flow" means, for any period,
the total of:
(a) Consolidated Operating Cash Flow,
minus (b) Consolidated Debt Service (but in no event
including contingent prepayments required by
Section 2.7)
minus (c) Discretionary Capital Expenditures (to the
extent not financed by debt for borrowed money).
"Consolidated Interest Coverage" means, for any period,
the ratio of (i) the Consolidated EBITDA for such period over
(ii) the sum of Consolidated Interest Expense less PIK Interest on
the Series B Term Loan, Series C Term Loan, Series A Unsecured
Note, Preferred Securities and Pride SGP Securities for such period
plus Distributions on the Series B Term Loan and Preferred
Securities paid but not included in Consolidated Interest Expense
for such period.
"Consolidated Interest Expense" shall mean, for any
period, the total of the aggregate amount of interest, including
commitment fees, letter of credit fees, payments in the nature of
interest under Capitalized Leases, net payments under Interest Rate
Protection Agreements and other finance fees, accrued by the
Borrower and its Subsidiaries (whether such interest is reflected
as an item of expense or capitalized in accordance with GAAP on a
Consolidated basis), but excluding (i) closing fees due to
BankBoston under the Fee Letter (as defined in the BankBoston
Credit Agreement), (ii) PIK Interest and (iii) closing fees due to
the Lender hereunder.
"Consolidated Net Income" shall mean, for any period, the
net income (or loss) of the Borrower and its Subsidiaries,
determined in accordance with GAAP on a Consolidated basis;
provided, however, that Consolidated Net Income shall not include:
(a) the income (or loss) of any Person accrued
prior to the date such Person becomes a Subsidiary or is
merged into or consolidated with the Borrower or any of its
Subsidiaries;
(b) the income (or loss) of any Person (other than
a Subsidiary) in which the Borrower or any of its Subsidiaries
has an ownership interest; provided, however, that (i)
Consolidated Net Income shall include amounts in respect of
the income of such Person when actually received in Cash by
the Borrower or such Subsidiaries in the form of dividends or
similar Distributions and (ii) Consolidated Net Income shall
be reduced by the aggregate amount of all Investments,
regardless of the form thereof, made by the Borrower or any of
its Subsidiaries in such Person for the purpose of funding any
deficit or loss of such Person;
(c) all amounts included in computing such net
income (or loss) in respect of the write-up or write-down of
any asset or the retirement of any Indebtedness or equity at
less than face value after December 31, 1996; provided,
however that such write-downs shall be limited to the
consequences of the conversion of the Refinery, shall be
rendered on or prior to December 31, 1998 and shall not exceed
in aggregate $30,000,000;
(d) extraordinary and nonrecurring gains;
(e) the income of any Subsidiary to the extent the
payment of such income in the form of a Distribution or
repayment of Indebtedness to the Borrower or a Wholly Owned
Subsidiary is not permitted, whether on account of any charter
or by-law restriction, any agreement, instrument, deed or
lease or any law, statute, judgment, decree or governmental
order, rule or regulation applicable to such Subsidiary; and
(f) any after-tax gains or losses attributable to
returned surplus assets of any Plan.
"Consolidated Net Working Capital" means, at any date,
the remainder of (a) the Consolidated Current Assets of the
Borrower and its Subsidiaries as of such date minus (b) the
Consolidated Current Liabilities of the Borrower and its
Subsidiaries as of such date; provided, that notwithstanding any
other provision of this Agreement, in computing Consolidated
Current Assets for the purpose of calculating Consolidated Net
Working Capital, the "First-In-First-Out" ("FIFO") inventory
valuation method will be used.
"Consolidated Net Worth" shall mean, at any date, the
total of partners' equity of the Borrower and its Subsidiaries
determined in accordance with GAAP on a Consolidated basis,
excluding the effect of any foreign currency translation
adjustments.
"Consolidated Operating Cash Flow" shall mean, for any
period, the remainder of Consolidated EBITDA for such period minus
the Non-Discretionary Capital Expenditures of the Borrower and its
Subsidiaries for such period, minus the amounts of all taxes based
upon or measured by net income paid or payable by the Borrower and
its Subsidiaries for such period. For the purpose of determining
Consolidated Operating Cash Flow, Non-Discretionary Capital
Expenditures will be deemed to be $187,500 for each of the fiscal
quarters ended March 31, June 30, and September 30, 1997.
"Controlled Group" shall mean (i) the controlled group of
corporations as defined in Section 1563 of the United States
Internal Revenue Code of 1986, as amended, or (ii) the group of
trades or businesses under common control as defined in Section
414(c) of the United States Internal Revenue Code of 1986, as
amended, of which Borrower is a party or may become a part.
"Debtor Laws" shall mean all applicable liquidation,
conservatorship, bankruptcy, moratorium, arrangement, receivership,
insolvency, reorganization or similar laws from time to time in
effect affecting the rights of creditors generally.
"Default" shall mean any of the events specified in
Section 8.1, regardless of whether there shall have occurred any
passage of time or giving of notice or both that would be necessary
in order to constitute such event an Event of Default.
"Default Rate" shall mean with respect to the Loans, a
rate per annum equal to the lesser of (i) the Maximum Rate or (ii)
the sum of the Interest Rate in effect from day to day plus three
percent (3%).
"Desulfur Partnership" means Desulfur Partnership, a
Texas general partnership.
"DFSC Claim" shall mean all interests of Borrower arising
pursuant to that certain Proposal for Additional Compensation,
dated October 24, 1994, from Borrower to the Defense Fuel Supply
Center, including without limitation any certified claim Borrower
may submit in connection therewith after the Effective Date.
"D-S Note" shall mean that certain Promissory Note dated
November 24, 1994, made by Borrower to Diamond Shamrock Refining
and Marketing Borrower in the original principal amount of
$6,000,000.
"Discretionary Capital Expenditures" shall mean Capital
Expenditures relating to the construction of new property and/or
the acquisition of assets.
"Distributions" shall mean, with respect to the Borrower
(or other specified Person):
(a) the declaration or payment of any dividend or
distribution on or in respect of any shares of any class of
capital stock of or other equity interests in the Borrower (or
such specified Person);
(b) the purchase, redemption or other retirement of
any shares of any class of capital stock of or other equity
interest in the Borrower (or such specified Person) or of
options, warrants or other rights for the purchase of such
shares, directly, indirectly through a Subsidiary or
otherwise;
(c) any other distribution on or in respect of any
shares of any class of capital stock of or equity or other
beneficial interest in the Borrower (or such specified
Person);
(d) any payment of principal or interest with
respect to, or any purchase, redemption or defeasance of, the
Pride SGP Securities and any other Financing Debt of the
Company (or such specified Person) which by its terms or the
terms of any agreement is subordinated to the payment of the
Obligations; and
(e) any payment, loan or advance by the Borrower
(or such specified Person) to, or any other Investment by the
Borrower (or such specified Person) in, the holder of any
shares of any class stock of or equity interest in the
Borrower (or such specified Person), or any Affiliate of such
holder (including the payment of management and transaction
fees and expenses);
provided, however, that the term "Distribution" shall not include
(i) dividends payable in perpetual common stock of or other similar
equity interests in the Borrower (or such specified Person) or
(ii) payments in the ordinary course of business in respect of
(A) reasonable compensation paid to employees, officers and
directors, (B) advances and reimbursements to employees for travel
expenses, drawing accounts and similar expenditures, or (C) rent
paid to, or accounts payable for services rendered or goods sold
by, non-Affiliates that own capital stock of or other interests in
the Company (or such specified Person) or (iii) payments of
interest and principal on the BankBoston Loans.
"Dollars" and the sign "$" refer to currency of the
United States of America.
"Effective Date" shall mean the date specified in the
introductory paragraph hereof.
"Environmental Laws" shall mean all federal, state and
local laws, rules, regulations, codes, ordinances, and consent
decrees relating to health, safety, hazardous substances, and
environmental matters applicable to Borrower's business and
facilities (whether or now owned by it). Such laws and regulations
include but are not limited to the Resource Conservation and
Recovery Act, Comprehensive Environmental Response, Compensation
and Liability Act, Toxic Substances Control Act, Clean Water Act,
Clean Air Act, Comprehensive Environmental Response, Compensation
and Liability Information System, all state and federal superlien
and environmental cleanup programs, and the U.S. Department of
Transportation regulations.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, together with all regulations
issued pursuant thereto.
"Equipment" shall have the meaning given that term in
Section 9.109 of the Texas Business and Commerce Code.
"Event of Default" has the meaning specified in Section
8.1.
"Expenses" shall mean all expenses to be paid by Borrower
pursuant to Section 9.5, plus all amounts owing by Borrower under
the Loan Documents which are not included in the definitions of
Notes and Loans, or are not interest owing on the Notes or any
Loans.
"FACA" shall mean the Federal Assignment of Claims Act of
1940, as amended.
"Financial Officer" of the Borrower (or other specified
Person) shall mean the chief executive officer, chief financial
officer, chief operating officer, chairman, president, treasurer or
controller of Pride Refining or any of its vice presidents whose
primary responsibility is for its financial affairs, in each case
whose incumbency and signatures have been certified to the Lender
by the secretary or other appropriate attesting officer of the
Borrower (or such specified Person).
"Financing Debt" shall mean each of the items described
in clauses (a) through (f) of the definition of the term
"Indebtedness" and, without duplication, any Guarantees of such
items.
"FLSA" has the meaning specified in Section 5.22.
"GAAP" shall mean accepted accounting principles as from
time to time in effect, including the statements and
interpretations of the United States Financial Accounting Standards
Board; provided, however, that (a) for purposes of compliance with
Section 2.7(b) (other than Section 6.1) and the related
definitions, "GAAP" means such principles as in effect on December
31, 1996 as applied by the Borrower and its Subsidiaries in the
preparation of the most recent annual statements referred to in
Section 5.6, and consistently followed, without giving effect to
any subsequent changes thereto and (b) in the event of a change in
generally accepted accounting principles after such date, either
the Borrower or the Lender may request a change in the definition
of "GAAP", in which case the parties hereto shall negotiate in good
faith with respect to an amendment of this Agreement implementing
such change.
"Government Note" shall mean that certain promissory note
dated January 18, 1996 in the original principal amount of
$2,402,296.98, executed by Borrower and payable to Defense Finance
and Accounting Service - Columbus Center (DFAS - CO).
"Guarantors" shall mean, collectively, Pride Refining,
Pride SGP, Desulfur Partnership, Pride Marketing, Pride Borger, and
each other Person who now or hereafter executes a Guaranty in
connection herewith for the benefit of Collateral Agent and the
Lender.
"Guaranty" of any Person shall mean any contract,
agreement or understanding of such Person pursuant to which such
Person guarantees, or in effect guarantees, any Indebtedness of any
other Person in any manner, whether directly or indirectly,
including without limitation agreements: (i) to purchase such
Indebtedness or any property constituting security therefor, (ii)
to advance or supply funds (A) for the purchase or payment of such
Indebtedness, or (B) to maintain net worth or working capital or
other balance sheet conditions, or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness,
(iii) to purchase property, securities or service primarily for the
purpose of assuring the holder of such Indebtedness of the ability
of the primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guaranty"
shall not include the endorsement by Borrower in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Guaranty Agreement" shall mean, collectively, the Third
Restated Guaranty Agreements executed by Pride Refining, Pride SGP,
Desulfur Partnership, Pride Marketing, and Pride Borger, each dated
of even date herewith, for the benefit of Lender in form
satisfactory to Lender.
"Hazardous Substances" has the meaning specified in
Section 5.25.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or
similar instruments;
(c) Capitalized Lease Obligations;
(d) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(e) mandatory redemption or dividend rights on
capital stock (or other equity);
(f) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(g) unfunded pension liabilities;
(h) obligations that are immediately and directly
due and payable out of the proceeds of or production from
property;
(i) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(j) all Guarantees in respect of Indebtedness of
others.
"Indemnitees" has the meaning specified in Section 6.16.
"Interest Payment Date" shall mean the last day of each
Month, beginning on January 31, 1998.
"Intercreditor Agreement" shall mean that certain
Intercreditor and Agency Agreement, dated as of December 30, 1997,
by and among BankBoston, the Collateral Agent and the Lender.
"Interest Rate" shall mean with respect to each Loan (i)
from the Effective Date until but not including the Refinancing
Date, a rate per annum equal to the lesser of (x) the rate per
annum set forth on Schedule 1.1 hereto set forth opposite each Loan
for the applicable year and (y) the Maximum Rate; (ii) from and
including the Refinancing Date until the Maturity Date, a rate per
annum equal to the lesser of (x) the rate per annum set forth on
Schedule 1.2 hereto set forth opposite each Loan for the applicable
year and (y) the Maximum Rate, and (iii) if the Refinancing Date
shall not occur prior to the Stage 3 Closing Date, from the Stage
3 Closing Date until the Maturity Date, a rate per annum equal to
the lesser of (x) a rate per annum equal to the rate per annum set
forth on Schedule 1.3 hereto set forth opposite each Loan for the
applicable year and (y) the Maximum Rate.
"Interest Rate Protection Agreement" shall mean any
interest rate swap, interest rate cap, interest rate hedge or other
contractual arrangement that converts variable interest rates into
fixed rates, fixed interest rates into variable rates or other
similar arrangements.
"Inventory" shall mean Borrower's crude oil, other
hydrocarbons, refined products thereof, and proceeds thereof.
"Investment" shall mean, with respect to the Borrower (or
other specified Person);
(a) any share of capital stock, partnership or
other equity interest, evidence of Indebtedness or other
security issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other
Person;
(d) any acquisition of all, or any division or
similar operating unit of, the business of any other Person or
the assets comprising such business, division or unit; and
(e) any other similar investment.
The investments described in the foregoing clauses (a)
through (e) shall be included in the term "Investment" whether they
are made or acquired by purchase, exchange, issuance of stock or
other securities, merger, reorganization or any other method;
provided, however, that the term "Investment" shall not include
(i) trade and customer accounts receivable for property leased,
goods furnished or services rendered in the ordinary course of
business and payable on a current basis in accordance with
customary trade terms, (ii) deposits, advances or prepayments to
suppliers for property leased or licensed, goods furnished and
services rendered in the ordinary course of business,
(iii) advances to employees for relocation and travel expenses,
drawing accounts and similar expenditures, (iv) stock or other
securities acquired in connection with the satisfaction or
enforcement of Indebtedness or claims due to the Borrower (or such
specified Person) or as security for any Indebtedness or claim or
(v) demand deposits in banks or similar financial institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost
thereof minus any returns of capital in cash on such
Investment (determined in accordance with GAAP without regard
to amounts realized as income on such Investment);
(B) the amount of any Investment in respect of a
purchase described in clause (d) shall include the amount of
any Financing Debt assumed in connection with such purchase or
secured by any asset acquired in such purchase (whether or not
any Financing Debt is assumed) or for which any Person that
becomes a Subsidiary is liable on the date on which the
securities of such Person are acquired; and
(C) no Investment shall be increased as the result
of an increase in the undistributed retained earnings of the
Person in which the Investment was made or decreased as a
result of an equity interest in the losses of such Person.
"Lender" shall mean Varde Partners, Inc. as stated in the
introductory paragraph hereof.
"Leverage Ratio" shall mean, as of the last day of any
fiscal quarter of the Borrower, the ratio of (i) the Consolidated
Financing Debt of the Borrower and its Subsidiaries less (but only
to the extent included in Consolidated Financing Debt) the
principal balance of the Series B Term Loans, the Series C Term
Loans, the Series A Unsecured Note, the Preferred Securities, the
Pride SGP Securities and the Revolving Loan (as defined in the
BankBoston Credit Agreement) outstanding as of such day to (ii) the
Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on such day.
"Lien" shall mean any lien, mortgage, security interest,
tax lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise.
"Loan Documents" shall mean this Agreement, the Notes
(including any renewals, extensions and refundings thereof), the
Collateral Documents, the Intercreditor Agreement, the
Restructuring Agreement, each Guaranty and any and all other or
additional agreements or documents (and with respect to this
Agreement, and such other agreements and documents, any amendments
or supplements thereto or modifications thereof) executed or
delivered pursuant to the terms of this Agreement.
"Loans" shall mean, collectively, the Series A Term
Loans, the Series B Term Loans and the Series C Term Loans.
"Maturity Date" shall mean the earlier to occur of
December 31, 2002 or the date of any Acceleration provided that
beginning on the Refinancing Date and at all times thereafter, the
term "Maturity Date" shall mean the earlier to occur of the date
which is one hundred and eighty days from and after the BankBoston
Maturity Date or the date of any Acceleration, but no later than
June 30, 2003.
"Maximum Rate" shall mean, on any day, the highest
nonusurious rate of interest (if any) permitted by applicable law
on such day that at any time, or from time to time, may be
contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Notes under the laws which are
presently in effect of the United States of America and the State
of Texas applicable to the holders of the Notes and such
Indebtedness or, to the extent permitted by law, under such
applicable laws of the United States of America and the State of
Texas which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
Lender hereby notifies Borrower that, and discloses to Borrower
that, for purposes of Tex. Rev. Civ. Stat. Arm. Art. 5069-1.04, as
it may from time to time be amended, the "applicable rate ceiling"
shall be the "indicated rate" ceiling from time to time in effect
as limited by Art. 5069-1.04(b); provided, however, that to the
extent permitted by applicable law, Lender reserves the right to
change the "applicable rate ceiling" from time to time by further
notice and disclosure to Borrower; and, provided further, that the
"highest nonusurious rate of interest permitted by applicable law"
for purposes of this Agreement and the Notes shall not be limited
to the applicable rate ceiling under Art. 5069-1.04 if federal laws
or other state laws now or hereafter in effect and applicable to
this Agreement and the Notes (and the interest contracted for,
charged and collected hereunder or thereunder) shall permit a
higher rate of interest.
"Month" shall mean calendar month.
"Moody's" shall mean Moody's Investors Service, Inc.
"NationsBank" has the meaning specified in the Recitals
hereto.
"NationsBank Agreement" has the meaning specified in the
Recitals hereto.
"1996 Credit Agreement" has the meaning specified in the
Recitals hereto.
"Net Asset Sale Proceeds" shall mean the cash proceeds of
the sale or disposition of assets (including by way of merger), and
the cash proceeds of any insurance payments on account of the
destruction or loss of property, by the Borrower or any of its
Subsidiaries after the Effective Date, net of (a) any Indebtedness
permitted by Section 7.1(viii) (purchase money Indebtedness and
Capitalized Leases) secured by assets being sold in such
transaction required to be paid from such proceeds, (b) income
taxes that, as estimated by the Borrower in good faith, will be
required to be paid by the Borrower or any of its Subsidiaries in
cash as a result of, and within 16 months after, such sale or
disposition, (c) reasonable reserves for liabilities resulting from
the sale of assets and (d) all reasonable expenses of the Borrower
or any of its Subsidiaries payable in connection with the sale or
disposition; provided, however, that "Net Asset Sale Proceeds"
shall not include:
(i) cash proceeds of asset sales permitted by
Section 7.7;
(ii) cash proceeds of mergers permitted by
Section 7.9;
(iii) cash proceeds that will be used to acquire
replacement or other assets within 360 days after such sale,
disposition, destruction or loss; provided, however, that if
any amount in this clause (iii) is not actually used to
acquire replacement or other assets within such 360-day
period, such amount shall become Net Asset Sale Proceeds; and
provided, further, that this clause (iii) shall not apply in
the case of a sale or disposition of Refinery assets; or
(iv) the first $1,000,000 of such cash proceeds
(determined on a cumulative basis) received by the Borrower
and its Subsidiaries following the date hereof.
"Net Debt Proceeds" shall mean cash proceeds (net of
reasonable out-of-pocket transaction and expenses) from the
incurrence by any of the Related Persons after the Effective Date
of Financing Debt other than Financing Debt permitted by
Sections 7.1(i) (the Loan and BankBoston Loans), 7.1(viii)
(purchase money Indebtedness and Capitalized Leases) and 7.1(x)
(intercompany Indebtedness).
"Net Equity Proceeds" shall mean the cash proceeds (net
of reasonable out-of-pocket fees and expenses) received by any of
the Related Persons in connection with any issuance by any of the
Related Persons after the Effective Date of any shares of its
common partnership units, preference partnership units or other
capital stock, other equity interests or options, warrants or other
purchase rights to acquire such capital stock or other equity
interests to, or receipt of a capital contribution from, any Person
(other than any Related Persons or their officers, employees and
directors).
"Net Worth" shall mean for any Person, at any date, the
total equity of any Person, determined in accordance with GAAP,
excluding the effect of any foreign currency translation
adjustments.
"New Preferred Units" shall mean, collectively, the New
Preferred Unit A, the New Preferred Unit B and the New Preferred
Unit C.
"New Preferred Unit A" shall mean the New Preferred
Unit A of Borrower as described in the Restructuring Agreement.
"New Preferred Unit B" shall mean the New Preferred
Unit B of Borrower as described in the Restructuring Agreement.
"New Preferred Unit C" shall mean the New Preferred
Unit C of Borrower as described in the Restructuring Agreement.
"Non-Discretionary Capital Expenditures" shall mean
Capital Expenditures incurred to maintain property, plant and
equipment of the Borrower and its Subsidiaries in accordance with
applicable environmental laws and other applicable regulations and
all other Capital Expenditures that are not Discretionary Capital
Expenditures.
"Note Agreement" shall mean that certain Note Agreement
dated as of August 13, 1996 among Borrower and the Original
Lenders.
"Notes" shall mean, collectively, the Series A Term Note,
Series B-1 Term Note, Series B-2 Term Note, Series B-3 Term Note
and the Series C Term Note, each in substantially the form set
forth as Exhibit "A" hereto.
"Obligations" means:
(i) all present and future indebtedness,
obligations and liabilities of Borrower to Lender including,
but not limited to any indebtedness, obligations or
liabilities arising pursuant to this Agreement, regardless of
whether such indebtedness, obligations and liabilities are
direct, indirect, fixed, contingent, joint, several, or joint
and several and including without limitation (A) the Notes,
(B) interest on any part of the Obligations, and (C) Expenses;
(ii) without limitation of the foregoing, all
present and future indebtedness, obligations and liabilities
of Borrower to Lender evidenced by or arising pursuant to any
of the Loan Documents (excluding the Restructuring Agreement);
(iii) all costs incurred by Lender to obtain,
preserve, perfect and enforce the liens and security interests
securing payments of such indebtedness, liabilities and
obligations, and to maintain, preserve and collect the
property in which Collateral Agent or Lender has been granted
a Lien to secure payment of the Loans or any part thereof,
including but not limited to, taxes, assessments, insurance
premiums, repairs, reasonable attorneys' fees and legal
expenses, rent, storage charges, advertising costs, brokerage
fees and expenses of sale; and
(iv) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing
clauses, or any part thereof.
"Original Agent" has the meaning specified in the
Recitals hereto.
"Original Lenders" has the meaning specified in the
Recitals hereto.
"Original Loans" has the meaning specified in the
Recitals hereto.
"Payment Office" shall mean Chase Manhattan, ABA: 021-
000-021, A/C: Goldman Sachs & Co., A/C# 930-1-011483, For final
credit to: Varde Fund IV-A, L.P., A/C# 002-041820, Reference:
Pride, or such other place as Lender may notify Borrower from time
to time.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation, and any successor to all or any of the Pension Benefit
Guaranty Corporation's functions under ERISA.
"Permitted Liens" shall mean: (i) Liens granted to
Collateral Agent and the Lender to secure the Obligations, (ii)
Liens described on Exhibit "B" attached hereto, (iii) pledges or
deposits made to secure payment of worker's compensation insurance
(or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social
security programs, (iv) Liens imposed by mandatory provisions of
law such as for materialmen's, mechanics', warehousemen's and other
like Liens arising in the ordinary course of business, securing
Indebtedness whose payment is not yet due, (v) Liens for taxes,
assessments and governmental charges or levies imposed upon a
Person or upon such Person's income or profits or property, if the
same are not yet due and payable or if the same are being contested
in good faith and as to which adequate cash reserves in accordance
with GAAP have been provided, (vi) Liens arising from good faith
deposits in connection with tenders, leases, real estate bids or
contracts (other than contracts involving the borrowing of money)
otherwise permitted under this Agreement, pledges or deposits to
secure public or statutory obligations and deposits to secure (or
in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other
similar charges, (vii) encumbrances consisting of zoning
restrictions, easements, or other restrictions on the use of real
property, provided that such items do not impair the use of such
property for the purposes intended, and none of which is violated
by existing or proposed structures or land use, or (viii) Liens
arising pursuant to any depository agreements between Borrower and
Collateral Agent.
"Person" shall mean an individual, a corporation, a joint
venture, a general or limited partnership, a trust, an
unincorporated organization, limited liability Borrower, a Tribunal
or other legal recognized entity.
"PIK Interest" shall mean any accrued interest payments
on Financing Debt that are postponed or made through the issuance
of "payment-in-kind" notes or other similar securities (including
book-entry accrual with respect to such postponed interest
payments), all in accordance with the terms of such Financing Debt;
provided, however, that in no event shall PIK Interest include
payments made with Cash or Cash Equivalents.
"Plan" shall mean an employee benefit plan or other plan
maintained by Borrower for employees of Borrower and covered by
Title IV of ERISA, or subject to the minimum funding standards
under Section 412 of the Internal Revenue Code of 1986, as amended.
"Preferred Securities" shall mean, collectively, the New
Preferred Units and the Preferred Units.
"Preferred Units" shall mean, collectively, the Series B
Units, the Series C Units and the Series D Units.
"Pride Borger" shall mean Pride Borger, Inc., a Delaware
corporation.
"Pride Marketing" shall mean Pride Marketing of Texas
(Cedar Wind), Inc., a Texas corporation.
"Pride Refining" shall mean Pride Refining, Inc., a Texas
corporation.
"Pride SGP" shall mean Pride SGP, Inc., a Texas
corporation.
"Pride SGP Agreement" shall mean the Equity Conversion
Agreement by and among Pride SGP, Borrower and Lender, dated
December 30, 1997 (including the subordination agreement to be
executed in connection therewith).
"Pride SGP Securities" shall mean the Indebtedness of the
Borrower to Pride SGP and the Series D Preferred Units of the
Borrower issued to Pride SGP and described in the BankBoston Credit
Agreement.
"Principal Payment Date" shall mean (i) the last Business
day of each Calendar Quarter, beginning on the first such date
after the Effective Date and (ii) the Maturity Date.
"Process Agent" shall mean Brad Stephens, whose address
is 1209 N. 4th, Abilene, Texas 79601.
"Purchase Money Security Interest" shall have the meaning
set forth in Section 9.107 of the Texas Business and Commerce Code.
"Ranger Pipeline" shall mean that certain pipeline
extending from Comyn, Texas to Ranger, Texas.
"Redemption Price" shall have the meaning given it in the
applicable Certificate of Designations for any Preferred
Securities.
"Refinancing Date" shall mean the date on which the
outstanding principal amount of the Series A Loan and all accrued
but unpaid interest thereon shall have been repaid in full from
proceeds of the BankBoston Credit Agreement by BankBoston or from
another financial institution acceptable to the Lender and the
Borrower.
"Refinery" shall mean certain refinery known as the Pride
Refinery, located in Jones County, Texas.
"Refinery Deed of Trust" shall mean that certain Deed of
Trust (with Security Agreement and Assignment of Rents and Leases),
dated as of May 22, 1992, from Borrower and Pride Refining, Inc.,
to Marcia L. Bunnell, as Trustee, for the benefit of Original
Agent, which instrument is recorded in Book 21, Page 19 of the Deed
of Trust Records of Jones County, Texas, as same may have
heretofore been, may contemporaneously herewith be or may hereafter
be, amended, supplemented or otherwise modified, as assigned to
Collateral Agent on the Effective Date.
"Refinery Deed of Trust Amendment" shall mean the
amendments to the Refinery Deed of Trust reflecting the assignment
of the Refinery Deed of Trust to the Collateral Agent for the
benefit of the Lender.
"Related Persons" shall mean, collectively, Borrower and
each Guarantor.
"Rentals" of any Person shall mean, as of any date, the
aggregate amount of the obligations and liabilities (including
future obligations and liabilities not yet due and payable) of such
Person to make payments under all leases, subleases and similar
arrangements for the use of real, personal or mixed property.
"Reportable Event" has the meaning specified in Title IV
of ERISA.
"Restructuring Agreement" has the meaning specified in
the Recitals hereto.
"S&P" shall mean Standard & Poor's, a division of The
McGraw Hill Companies, Inc.
"Second Restated Security Agreement" shall mean the
Second Restated Security Agreement, dated December 30, 1997, as
amended from time to time, executed by Borrower in favor of the
Collateral Agent for the benefit of the Lender.
"Series" has the meaning specified in Section 1.3.
"Series A Term Loans" shall mean the "Series A Term
Loans" provided for in Section 2.1.
"Series A Term Note" shall mean the promissory note
provided for by Section 4.1(a) and all promissory notes delivered
in substitution or exchange therefor, in each case as the same
shall be modified and supplemented and in effect from time to time.
"Series B Term Loans" shall mean, collectively, the
Series B-1 Term Loan, Series B-2 Term Loan and Series B-3 Term
Loan.
"Series B-1 Term Loans" shall mean the "Series B-1 Term
Loans" provided for by Section 2.1.
"Series B-1 Term Note" shall mean the promissory note
provided for by Section 4.1(a) and all promissory notes delivered
in substitution or exchange therefor, in each case as the same
shall be modified and supplemented and in effect from time to time.
"Series B-2 Term Loans" shall mean the "Series B-2 Term
Loans" provided for by Section 2.1.
"Series B-2 Term Note" shall mean the promissory note
provided for by Section 4.1(a) and all promissory notes delivered
in substitution or exchange therefor, in each case as the same
shall be modified and supplemented and in effect from time to time.
"Series B-3 Term Loans" shall mean the "Series B-3 Term
Loans" provided for by Section 2.1.
"Series B-3 Term Note" shall mean the promissory note
provided for by Section 4.1(a) and all promissory notes delivered
in substitution or exchange therefor, in each case as the same
shall be modified and supplemented and in effect from time to time.
"Series C Term Loans" shall mean the "Series C Term
Loans" provided for in Section 2.1.
"Series C Term Note" shall mean the promissory note
provided for by Section 4.1(a) and all promissory notes delivered
in substitution or exchange therefor, in each case as the same
shall be modified and supplemented and in effect from time to time.
"Series A Unsecured Note" shall mean the unsecured
promissory note into which the Convertible Senior Secured Series A
Promissory Notes of Borrower in the original aggregate principal
amount of $2,500,000 issued pursuant to the Note Agreement has been
converted in accordance with the Note Agreement on the Effective
Date.
"Series B Notes" shall mean the Convertible Senior
Secured Series B Promissory Notes of Borrower in the original
aggregate principal amount of up to $12,500,000 issued pursuant to
the Note Agreement.
"Series B Units" shall mean the Series B Cumulative
Convertible Preferred Units of Borrower into which the Series B
Notes have been converted on the Effective Date.
"Series C Notes" shall mean the Convertible Senior
Secured Series C Promissory Notes of Borrower issued pursuant to
the Note Agreement.
"Series C Units" shall mean the Series C Cumulative
Convertible Preferred Units of Borrower into which the Series C
Notes have been converted on the Effective Date.
"Series D Units" shall mean the Series D Cumulative
Preferred Units of Borrower issued on the Effective Date in
connection with the Restructuring Agreement.
"Seventh Amendment" has the meaning specified in the
Recitals hereto.
"Stage 3 Closing Date" shall mean the date on which the
Stage 3 Transactions (as defined in the Restructuring Agreement)
have been approved and adopted as a partnership amendment of the
Borrower as contemplated by the Restructuring Agreement and all
conditions precedent to the issuance of the New Preferred Units
shall have been satisfied or waived and the Stage 3 Closing Date
shall have occurred.
"Stated Value" shall mean the Stated Value per New
Preferred Unit or Preferred Unit, in each case $1,000 per unit.
"Subordinated Note" and "$450,000 Note" shall have the
meaning specified in Section 7.1.
"Subsidiary" shall mean, with respect to any Person, any
corporation, association, partnership, joint venture, or other
business or corporate entity, enterprise or organization which is
directly or indirectly (through one or more intermediaries)
controlled by or owned fifty percent or more by such Person.
"Taxes" shall mean all taxes, assessments, fees or other
charges from time to time or at any time imposed by any Tribunal.
"Tribunal" means any state, commonwealth, federal,
foreign, territorial or other court or governmental department,
commission, board, bureau, agency or instrumentality.
"Wholly Owned Subsidiary" shall mean any Subsidiary of
which all of the outstanding capital stock (or other shares of
beneficial interest) entitled to vote generally (other than
directors' qualifying shares) is owned by the Borrower (or other
specified Person) directly, or indirectly through one or more
Wholly Owned Subsidiaries.
"Year" shall mean calendar year.
I.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have
the above-defined meanings when used in the Notes or any Loan
Documents, certificate, report or other document made or delivered
pursuant to this Agreement, unless the context shall otherwise
require.
(b) Defined terms used herein in the singular shall
import the plural and vice versa.
(c) The words "hereof," "herein," "hereunder" and
similar terms when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.
(d) Unless the context shall otherwise require,
terms used herein which are not otherwise defined and which are
defined in the Chapters 1 and/or 9 of the Texas Business & Commerce
Code shall have the meaning therein, and in the event of conflict
between such Chapters 1 and 9, Chapter 9 will prevail.
I.3 Series and Types of Loans. Loans hereunder are
distinguished by "Series". The "Series" of a Loan refers to
whether such Loan is a Series A Term Loan, a Series B-1 Term Loan,
a Series B-2 Term Loan, a Series B-3 Term Loan, or a Series C Term
Loan, each of which constitutes a Series.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
II.1 Existing Loans. On the Effective Date, Original
Loans outstanding under the 1996 Credit Agreement in an aggregate
amount equal to [$37,000,000] shall automatically, and without any
action on the part of any Person, be designated as Series A Term
Loans, Series B-1 Term Loans, Series B-2 Term Loans, Series B-3
Term Loans and Series C Term Loans hereunder in the respective
amounts indicated on Schedule 2.1 hereto. Borrower shall not be
entitled to reborrow, and the Lender shall not be obligated to
loan, any sum that may be, or has been, repaid on the Loans.
II.2 Intentionally Omitted.
II.3 Intentionally Omitted.
II.4 Intentionally Omitted
II.5 Intentionally Omitted.
II.6 Repayment and Interest.
(a) Repayment. Borrower shall repay the
outstanding principal balances of the Loans, together with accrued
interest from time to time outstanding on such outstanding
principal balances, as follows:
(i) all accrued and unpaid interest on the
Loans shall be due and payable on the Interest Payment Date,
commencing on January 31, 1998, and continuing on each
Interest Payment Date thereafter until the Maturity Date;
provided, however, that on any date upon which interest shall
be payable hereunder, the Borrower shall pay the applicable
amount of PIK Interest hereunder on (x) the Series A Term Loan
by adding the amount of such interest to the principal (such
amount when so added, "Capitalized Series A Interest") of the
Series A Term Loan (any such interest so added to the
principal of such Series A Term Loan shall bear interest
hereunder as if it had originally been part of the principal
of the Series A Term Loan), and (y) the Series B-3 Term Loan
by adding the amount of such interest to the principal of the
Series B-3 Term Loan (and any such interest so added to the
principal of such Series B-3 Term Loan shall bear interest
hereunder as if it had originally been part of the principal
of the Series B-3 Term Loan);
(ii) on each Principal Payment Date in each
Year set forth below, the Borrower will pay to the Lender as
a prepayment of the Series A Term Loan the lesser of (x) the
amount set forth below for such date or (y) the amount of the
Series A Term Loan then outstanding:
Principal Payment Date Amount
1998 $375,000
1999 $562,500
2000 $625,000
2001 $750,000
2002 $750,000;
(iii) on June 30, 1998, the Borrower will
pay to the Lender as a prepayment of the Series A Term Loan
the amount of the Series A Capitalized Interest then
outstanding; and
(iv) all amounts outstanding on all Loans shall
be due and payable on the Maturity Date.
(b) Interest Rates.
(i) Loans. The principal balance from time to
time outstanding under the Loans shall bear interest at the
Interest Rate.
(ii) Maximum Rate Interest Adjustments.
Notwithstanding the foregoing provisions of this Section
2.6(b), if the amount of interest payable hereunder on any
Interest Payment Date in respect of the immediately preceding
interest computation period would, if based solely upon the
Interest Rate, exceed the maximum amount allowed by law, the
amount of interest payable on such Interest Payment Date shall
be automatically reduced to the maximum amount allowed by law.
If the amount of interest payable hereunder in respect of any
interest computation period is reduced based upon the Maximum
Rate or the maximum amount of interest allowed by law and the
amount of interest payable hereunder in respect of any
subsequent interest computation period would be less than the
maximum amount allowed by law, then the amount of interest
payable hereunder in respect of such subsequent interest
computation period shall be automatically increased to such
maximum amount allowed by law, until such time as the interest
that would have been payable under the immediately preceding
sentence is fully paid.
(iii) Maturity. Each Loan and any other
amount becoming due hereunder, by acceleration or otherwise,
shall bear interest after maturity or date due at a rate per
annum equal to the Default Rate.
II.7 Prepayments.
(a) Optional Prepayments. The Borrower may from
time to time prepay all or any portion of the Loans (in a minimum
amount of $1,000,000 and in integral multiples of $500,000, or such
lesser amount as is then outstanding), without premium or penalty
of any type. Prepayments made under this Section 2.7 shall be
applied to the Series A Term Loan until the Series A Term Loan is
prepaid in full, then ratably to each of the respective Series B
Term Loans until the Series B Term Loans are prepaid in full, and
then to the Series C Term Loan until the Series C Term Loan is
prepaid in full; provided, however, that from and after the
Refinancing Date, the Borrower shall not prepay any Loans under
this Section 2.7 until the Term Loan (as defined in the BankBoston
Credit Agreement) shall have been prepaid in full. The Borrower
shall give the Lender at least five days prior notice of its
intention to prepay the Loans under this Section 2.7, specifying
the date of payment, the total amount of the Loans to be paid on
such date and the amount of interest to be paid with such
prepayment.
(b) Excess Cash Flow. Within five Business Days
after the date annual financial statements have been (or are
required to have been) furnished by the Borrower to the Lender in
accordance with Section 6.1, commencing with such financial
statements for the fiscal year ended December 31, 1998, the
Borrower shall pay to the Lender as a prepayment of the Loans, to
be applied as provided in Section 2.7(f), in an amount equal to 75%
of Consolidated Excess Cash Flow for its most recently completed
fiscal year; provided, however, that from and after the Refinancing
Date, the Borrower shall not prepay any Loans under this Section
2.7 until the Term Loan (as defined in the BankBoston Credit
Agreement) shall have been prepaid in full.
(c) Proceeds from New Securities Issuances. Within
30 days of the issuance by any of the Related Persons of any Net
Debt Proceeds or Net Equity Proceeds, the Borrower shall pay to the
Lender as a prepayment of the Loans, to be applied as provided in
Section 2.7(f), one hundred percent (100%) of such proceeds
realized by the Related Persons from such issuance of debt or
equity securities; provided, however, that from and after the
Refinancing Date, the Borrower shall not prepay any Loans under
this Section 2.7 until the Term Loan (as defined in the BankBoston
Credit Agreement) shall have been prepaid in full.
(d) Proceeds from Asset Sales and Issuance. With
30 days after the receipt by any of the Related Persons of any Net
Asset Sale Proceeds, the Borrower shall pay to the Lender as a
prepayment of the Loans, to be applied as provided in
Section 2.7(f), one hundred percent (100%) of such proceeds;
provided, however, that from and after the Refinancing Date, the
Borrower shall not prepay any Loans under this Section 2.7 until
the Term Loan (as defined in the BankBoston Credit Agreement) shall
have been prepaid in full.
(e) Proceeds from Legal Claims. The Borrower shall
immediately pay to the Lender as a prepayment of the Loans, to be
applied as provided in Section 2.7(f), all proceeds from the
settlement of or successful prosecution of any legal claims;
provided, however, that from and after the Refinancing Date, the
Borrower shall not prepay any Loans under this Section 2.7 until
the Term Loan (as defined in the BankBoston Credit Agreement) shall
have been prepaid in full; provided further, however, that any
proceeds from the DFSC Claim shall be applied as follows: (x) the
first $6,000,000 (or, if less, all of such proceeds) to reduce the
Series A Term Loan, (y) the next $5,000,000 to ratably reduce each
of the respective Series B Term Loans or if applicable, redeem the
New Preferred Unit A held by Lender provided, however, that funds
applied to the redemption of New Preferred Unit A as provided
herein shall be so applied with respect to the initial Stated Value
of the New Preferred Units being redeemed and any portion of the
Redemption Price of such New Preferred Units attributable to
adjustments to Stated Value shall be paid out of other funds of
Borrower, and (z) the remainder, if any, shall be paid (i) two-
thirds to the Borrower (and need not be applied to prepay the
Loans) and (ii) one-third to Lender (and applied first to prepay
any Loans (if not previously prepaid), then to prepay the Series A
Unsecured Note, and then to redeem the Preferred Units or New
Preferred Units, as the case may be, held by Lender.
(f) Order of Application. Prepayment of the Loans
made pursuant to Sections 2.7(b)-(e) shall be applied first to the
principal amount of the Series A Term Note which is due on the
Maturity Date and then to the installments required to be made to
the Series A Term Loan pursuant to Section 2.6(a) in the inverse
order of the maturity thereof so that no partial prepayment of the
Series A Term Loan shall affect the obligation of the Borrower to
make prepayments required by Section 2.6(a). Thereafter,
prepayments shall be applied ratably amongst the Series B Term
Notes until the Series B Term Loans are paid in full, and then to
the Series C Term Note until the Series C Term Loan is paid in
full.
(g) Payment with Accrued Interest, etc. At the
time of any prepayments of the Loans, the Borrower shall pay to the
Lender the principal amount to be prepaid, together with unpaid
interest in respect thereof accrued to the date of prepayment. If
notice of prepayment is given in accordance with Section 2.7(a),
the amount specified to be prepaid shall become due and payable on
the date specified for prepayment in such notice.
II.8 Payments and Computations.
(a) Time of Payment. Borrower shall make each
payment hereunder and under the Notes not later than 11:30 A.M.
(Minneapolis, Minnesota time) on the day when due in lawful money
of the United States of America to Lender at its Payment Office in
immediately available funds. For purposes of determining the time
of payment only, receipt by Lender of a Federal Reserve reference
number with respect to a payment by Borrower will be deemed to be
receipt by Lender of such payment.
(b) Computation of Interest and Fees. All
computations of interest shall be made by Lender on the basis of a
year of 365 or 366 days, as the case may be, in each case for the
actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is
payable.
(c) Business Day Payment. Whenever any payment to
be made hereunder or under the Notes shall be stated to be due on
a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest.
II.9 Notation on Schedule. Lender shall, and is hereby
authorized by Borrower to, place appropriate notations on the
schedule to the Notes evidencing the date, amount and maturity of
each Loan and the amount of each payment of principal; provided,
however, the failure of Lender to make any such notation shall not
limit or otherwise affect the obligations of Borrower under the
Notes or this Agreement.
II.10 Intentionally Omitted.
II.11 Existing Collateral. Borrower and each
Guarantor hereby acknowledge, ratify and confirm that each and
every security agreement, mortgage, deed of trust, assignment,
pledge, financing statement, stock or bond power or other security
document or instrument heretofore executed by Borrower or such
Guarantor in favor of the Original Agent or Original Lenders, as
security for the obligations of Borrower or such Guarantor, or any
of them, under the 1996 Credit Agreement or otherwise (including,
without limitation, the Refinery Deed of Trust), do and shall also
secure the Obligations and each and all other or additional
liabilities of Borrower and each Guarantor, or any of them,
hereunder or under the Loan Documents (excluding the Restructuring
Agreement) and each part of the Obligations and such other
liabilities and any and all renewals, extensions, modifications and
amendments thereof or thereto.
ARTICLE III
INTENTIONALLY OMITTED
ARTICLE IV
CONDITIONS PRECEDENT
IV.1 Effectiveness. The effectiveness of this Agreement
(and the amendment and restatement of the 1996 Credit Agreement to
be effected hereby), and the obligation of the Lender to make Loans
hereunder on the Effective Date, are subject to (i) the condition
precedent that such effectiveness shall occur on or before December
31, 1997 and (ii) the receipt by the Lender of the following
documents, each of which shall be satisfactory to the Lender in
form and substance.
(a) Notes. The duly executed Series A Term Note,
Series B-1 Term Note, Series B-2 Term Note, Series B-3 Term Note
and Series C Term Note for the Lender.
(b) Assignment of Collateral Security. Instrument
of transfer executed by the Original Agent pursuant to which the
Original Agent shall have transferred to the Collateral Agent for
the benefit of the Lender all rights of the Original Agent and
Original Lenders under each security agreement, pledge agreement,
deed of trust or similar instrument executed in favor of the
Original Agent pursuant to the 1996 Credit Agreement or any
previous credit agreement.
(c) Collateral Documents. Multiple counterparts
of the following, duly executed by the applicable party(ies)
thereto;
(i) such supplements, amendments and/or
modifications of and to the existing Collateral Documents as
the Lender shall request, in form and substance acceptable to
the Lender, to reflect of record the execution of this
Agreement and the Notes and that such Collateral Documents
secure the Obligations;
(ii) a Third Restated Guaranty Agreement
executed by Pride Refining;
(iii) a Third Restated Guaranty Agreement
executed by Pride SGP;
(iv) a Second Restated Guaranty Agreement
executed by Pride Borger;
(v) a Second Restated Guaranty Agreement
executed by Pride Marketing;
(vi) a Third Restated Guaranty Agreement
executed by Desulfur Partnership;
(vii) a Second Restated Security Agreement
executed by the Borrower; and
(viii) such other or additional security
agreements, collateral pledges, financing statements, title
opinions, certificates, agreements and other documents as the
Lender shall request.
(d) Opinions of Counsel. Favorable opinions of
legal counsel for Borrower and each Guarantor, in such form as
shall be acceptable to Lender and Lender's counsel.
(e) Partner's Closing Certificates. A certificate
signed by a Financial Officer of Pride Refining, as managing
general partner of Borrower, stating that (to the best knowledge
and belief of such Person, after reasonable and due investigation
and review of matters pertinent to the subject matter of such
certificate): (i) all of the representations and warranties
contained herein and the other Loan Documents are true and correct
as of the date hereof and (ii) no event has occurred and is
continuing, or would result from the execution of this Agreement,
which constitutes a Default or an Event of Default.
(f) Incumbency Certificates. A certificate of an
officer of Pride Refining, as managing general partner of Borrower
and an officer of each Guarantor which shall certify the names of
the Person authorized to sign each of the Loan Documents to be
executed by such Person and the other documents or certificates to
be delivered by such Person pursuant to the Loan Documents,
together with the true signatures of each such Person. Lender may
conclusively rely on the certificates until Lender shall receive a
further certificate of a partner of Borrower or an officer of a
Guarantor canceling or amending the prior certificate and
submitting the signatures of the persons named in such further
certificate.
(g) Resolutions. Resolutions of each Guarantor
duly adopted by the Board of Directors of each Guarantor in form
and content satisfactory to Lender and Lender's counsel.
(h) Corporate Certificates. A copy of the Charter
and By-Laws of each Guarantor and all amendments thereto, certified
by the corporate secretary of the applicable Guarantor, together
with certificates of existence and good standing (or other similar
instruments) for such Guarantor issued by the Secretary of State of
the state of incorporation of such Guarantor, and certificates of
qualification and good standing (or other similar instruments) for
such Guarantor issued by the Secretary of State of each of the
states wherein such Guarantor is qualified to do business as a
foreign corporation, each dated within ten days of the Effective
Date.
(i) Shareholder Agreement. A copy of the
shareholder agreement of each Guarantor, and all amendments
thereto, certified by the secretary or assistant secretary of such
Guarantor as being true, correct and complete as of the date of
such certification.
(j) Partnership Agreement. A copy of the Second
Amended and Restated Partnership Agreement and Certificate of
Limited Partnership for Borrower and all amendments thereto,
certified by the corporate secretary of Pride Refining as the
managing general partner of Borrower, and certificates of
qualification and good standing (or similar instruments) for
Borrower issued by the Secretary of State of the state of formation
of Borrower and of each of the states wherein Borrower is qualified
to do business, each dated within ten (10) days of the Effective
Date.
(k) Litigation. Certificates signed by a Financial
Officer of Pride Refining, as managing general partner of Borrower
stating that no litigation, investigation or proceeding before or
by an arbitrator or tribunal is continuing or threatened against
such party or any of their officers, directors, partners or
affiliates (i) with respect to this Agreement, the Collateral
Documents, any other Loan Documents or any of the transactions
contemplated hereby or thereby, or (ii) which could have a material
adverse effect on Borrower, except as described in the certificate
and acceptable to Lender. Lender shall also receive either a
summary and analysis of all litigation in which such party or any
of the officers, directors, partners or affiliates are involved or
an opinion of counsel, in form and substance acceptable to Lender,
to the effect that no litigation in which such party is involved
would, in the event of an adverse determination, have a material
adverse effect.
(l) Insurance. Evidence satisfactory to Lender
that Borrower has obtained the insurance policies required by this
Agreement and the Collateral Documents.
(m) Perfection of Security. Each Related Party
shall have duly authorized, executed, acknowledged, delivered,
filed, registered and recorded such security agreements, notices,
financing statements and other instruments, including without
limitation filings under FACA, as the Lender may have reasonably
requested in order to perfect the Liens purported or required
pursuant to the Collateral Documents to be created in the
Collateral and shall have paid all filing or recording fees or
taxes required to be paid in connection therewith, including any
recording, mortgage, documentary, transfer or intangible taxes.
(n) Fees and Expenses. Evidence satisfactory to
Lender that Borrower has paid all fees and expenses provided herein
to be paid by Borrower, including, without limitation, (i) all fees
and expenses of counsel to the Lender as of the Effective Date in
connection with this Agreement and/or the transactions contemplated
hereby and (ii) the Transaction Fee and Additional Purchase Price
Adjustment Fee (each as defined in the Seventh Amendment), provided
that the Lender shall be deemed to have made a Revolving Loan (as
defined in the 1996 Credit Agreement) to the Borrower immediately
prior to the Effective Date which shall be applied to the payment
of the Transaction Fee and Additional Purchase Price Adjustment
Fee.
(o) Refinery Deed of Trust and Title Opinions .
The following documents each of which shall be executed (and, where
appropriate, acknowledged) by Persons satisfactory to the Lender:
(i) the Refinery Deed of Trust Amendment, duly
executed and delivered by the Borrower in recordable form (in
such number of copies as the Lender shall have requested); and
(ii) title opinions with respect to the
validity and priority of the Liens created under certain of
the Collateral Documents, subject only to such exceptions as
are satisfactory to the Lender.
(p) Intercreditor Agreement. The Intercreditor
Agreement, duly executed and delivered by BankBoston, the Lender
and the Collateral Agent, which each of the Related Parties shall
have consented thereto.
(q) Reorganization Transactions. Evidence that
prior to or concurrently with the effectiveness of this Agreement,
each of the following actions shall have been taken, in each case
upon terms, and in a manner, in form and substance satisfactory to
the Lender:
(i) each of the conditions precedent specified
in Section 1 of the Restructuring Agreement shall have been
satisfied in all material respects (or waived with the consent
of the Lender); and
(ii) the Borrower shall have unconditionally
released each of the Original Lenders from any claim, known or
unknown, actual or contingent and whether or not liquidated in
amount, that the Borrower may possess against any of the
Original Lenders under or in connection with the 1996 Credit
Agreement, or otherwise.
(r) BankBoston Credit Agreement. Evidence that
BankBoston shall have made available to the Borrower revolving
credit facilities for the purposes of providing working capital
financing for the operations of the Borrower, in each case upon
terms (and pursuant to agreements and other instruments that shall
have been executed and delivered by BankBoston and the relevant
Related Persons) in form and substance satisfactory to the Lender.
In addition, the Lender shall have received copies of (x) each
BankBoston Loan Document, each as in effect on the Effective Date,
and (y) each agreement, certificate, opinion of counsel or other
writing delivered by any party to the BankBoston Loan Documents in
connection with the closings thereunder, together with a letter
from counsel to the Borrower authorizing reliance by the Lender on
any opinion delivered by such counsel in connection therewith.
(s) Absence of Defaults; Truth of Representations.
Evidence that, both immediately prior to such effectiveness (and
the making of any such Loan) and also after giving effect thereto
and to the other transactions contemplated hereunder to occur on
the Effective Date:
(i) no Default shall have occurred and be
continuing; and
(ii) the representations and warranties made by
the Related Persons in Section 5, and by each Related Person
in each of the other Loan Documents to which it is a party,
shall be true and complete on and as of the Effective Date
with the same force and effect as if made on and as of the
Effective Date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as
of such specific date.)
In addition, the Lender shall have received a certificate of a
senior officer of the Borrower, dated the Effective Date, to the
effect set forth in the preceding sentence.
(t) 1996 Credit Agreement Matters. Evidence that
all accrued and unpaid interest, fees and other amounts (other than
principal of such "Original Loans" being designated as Loans) owing
under the 1996 Credit Agreement on the Effective Date shall have
been paid in full and (iii) all "Letters of Credit" (as defined
therein) outstanding on the Effective Date shall have been
terminated (or arrangements for the respective reimbursement
obligations thereunder to be paid shall have been made in a manner
satisfactory to the Lender).
(u) Additional Information. Such other information
and documents as may reasonably be required by Lender and Lender's
counsel.
(v) Pride SGP Agreement. The Pride SGP Agreement,
duly executed and delivered by Pride SGP and Borrower, in form and
substance satisfactory to the Lender.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, each
Related Person represents and warrants to Lender that:
V.1 Organization and Good Standing.
(a) Each Related Person which is a corporation or
partnership is duly organized and validly existing in good standing
under the laws of the state of its organization.
(b) Each Related Person is duly qualified as a
foreign corporation or partnership and in good standing in all
states in which it is doing business and has all corporate or
partnership power and authority to own its properties and assets
and to transact the business in which it is engaged and is or will
be qualified in those states wherein it proposes to transact
business in the future.
V.2 Authorization and Power.
(a) Each Related Person has full corporate or
partnership power and requisite authority to execute, deliver and
perform the Loan Documents to which it is a party. Each Related
Person is duly authorized to, and has taken all action necessary to
authorize such Related Person to execute, deliver and perform the
Loan Documents executed by such Related Person. Each Related
Person is and will continue to be duly authorized to perform the
Loan Documents executed by such Related Person.
(b) Each Related Person possesses all franchises,
certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities, free
from burdensome restrictions, that (i) are necessary for the
ownership, maintenance and operations of its properties and assets,
and (ii) the loss of which could have a material adverse effect on
such Related Person's business, and such Related Person is not in
violation of any provision thereof.
V.3 No Conflicts or Consents. Neither the execution
and delivery of the Loan Documents, nor the consummation or any of
the transactions therein contemplated, nor compliance with the
terms and provisions thereof, will contravene or materially
conflict with any provision of law, statute or regulation to which
any Related Person is subject or any judgment, license, order or
permit applicable to any Related Person, or any indenture, loan
agreement, mortgage, deed of trust, or other agreement or
instrument to which any Related Person may be bound, or to which
any Related Person may be subject, or violate any provision of any
Related Person's Charter or By-Laws. No consent, approval,
authorization or order of any Tribunal or third party is required
in connection with the execution and delivery by the Related
Persons of the Loan Documents or to consummate the transactions
contemplated hereby or thereby.
V.4 Enforceable Obligations. The Loan Documents have
been duly executed and delivered by each Related Person which is a
party thereto, and are the legal and binding obligations of such
Related Person, enforceable in accordance with their respective
terms, except as limited by Debtor Laws.
V.5 No Liens. Except for Permitted Liens, all of the
properties and assets of each Related Person are free and clear of
all Liens and other adverse claims of any nature, and each Related
Person has good and indefeasible title to such properties and
assets.
V.6 Financial Condition. Borrower has delivered to
Lender copies of (i) the audited annual financial statements dated
as of December 31, 1996, and (ii) the unaudited quarterly financial
statements dated as of September 30, 1997 certified by Borrower
that such financial statements are true and correct, fairly
represent the financial condition of the Related Persons as at such
date and have been prepared in accordance with GAAP applied on a
basis consistent with that of prior periods. As of the Effective
Date, there are no obligations, liabilities or Indebtedness
(including contingent and indirect liabilities and obligations) of
any Related Person which are (separately or in the aggregate)
material and are not reflected in such financial statements and no
changes having a material adverse effect have occurred since the
date of such financial statements.
V.7 Full Disclosure. There is no material fact that
the Related Persons have not disclosed to Lender which could have
a material adverse effect on the properties, business, prospects or
condition (financial or otherwise) of Borrower or any other Related
Person. Neither the financial statements referenced in Section
5.6, nor any certificate or statement delivered herewith or
heretofore by any Related Person to Lender in connection with
negotiations of this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary to keep
the statements contained herein or therein from being misleading.
V.8 No Default. No event has occurred and is
continuing which constitutes a (i) Default or an Event of Default
or (ii) Default or Event of Default (each as defined in the
BankBoston Credit Agreement) under the BankBoston Credit Agreement.
V.9 Material Agreements. No Related Person is in
default in any material respect under any contract, lease, loan
agreement, indenture, mortgage, security agreement or other
material agreement or obligation to which such Related Person is a
party or by which any of its properties is bound. Exhibit "C"
hereto sets forth all agreements and instruments material to the
Borrower and its Subsidiaries on a Consolidated basis.
V.10 No Litigation. Except as set forth on Exhibit "D",
there are no actions, suits or legal, equitable, arbitration or
administrative proceedings pending, or to the knowledge of any
Related Person threatened, against such Related Person that could,
if adversely determined, have a material adverse effect.
V.11 Burdensome Contracts. No Related Person is a party
to, or bound by, any contract which is a burdensome contract having
a material adverse effect.
V.12 Regulatory Defects. As of the date hereof, no
Related Person has been advised nor has actual knowledge of its
failure to comply with all applicable laws, rules, regulations, and
all orders of any Tribunal applicable to it or any of its property,
business or operations or transactions thereto would, if adversely
determined, have a material adverse effect.
V.13 Use of Proceeds; Margin Stock. The proceeds of the
Loans will be used by Borrower to renew and extend the principal
amount outstanding under the Original Loans or for the working
capital requirements of the Borrower. None of such proceeds will
be used for the purpose of purchasing or carrying any "margin
stock" as defined in Regulation U, Regulation X, or Regulation G,
or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry a margin stock or for
any other purpose which might constitute this transaction a
"purpose credit" within the meaning of such Regulation U,
Regulation X, or Regulation G. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or
carrying margin stocks. Neither Borrower nor any Person acting on
behalf of Borrower has taken or will take any action which might
cause the Notes or any of the other Loan Documents, including this
Agreement, to violate Regulation U, Regulation X, or Regulation G
or any other regulations of the Board of Governors of the Federal
Reserve System or to violate Section 8 of the Securities Exchange
Act of 1934 or any rule or Regulation thereunder, in each case as
now in effect or as the same may hereinafter be in effect.
V.14 No Financing of Corporate Takeovers. None of the
proceeds of the Loans will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, including particularly (but without
limitation) Sections 13(d) and 14(d) thereof.
V.15 Taxes. All tax returns required to be filed by any
Related Person in any jurisdiction have been filed or properly
extended and all taxes (including mortgage recording taxes),
assessments, fees and other governmental charges upon any Related
Person or upon any of its properties, income or franchises have
been paid prior to the time that such taxes could give rise to a
Lien thereon. There is no proposed tax assessment against any
Related Person, except as disclosed pursuant to Section 4.1(k).
V.16 Principal Office, Etc. The principal office, chief
executive office and principal place of business of each Related
Person is 1209 N. 4th, Abilene, Texas 79601. Each Related Person
maintains its principal records and books at such address.
V.17 ERISA. (a) No Reportable Event has occurred and is
continuing with respect to any Plan; (b) PBGC has not instituted
proceedings to terminate any Plan; (c) neither any Related Person,
any member of the Controlled Group, nor any duly-appointed
administrator of a Plan (i) has incurred any liability to PBGC with
respect to any Plan other than for premiums not yet due or payable,
or (ii) has instituted or intends to institute proceedings to
terminate any Plan under Sections 4041 or 4041A of ERISA or
withdraw from any Multi-Employer Pension Plan (as that term is
defined in Section 3(37) of ERISA); and (d) each Plan of each
Related Person has been maintained and funded in all material
respects in accordance with its terms and with all provisions of
ERISA applicable thereto.
V.18 Compliance with Law. Each Related Person is in
compliance with all laws, rules, regulations, orders and decrees
which are applicable to such Related Person, or its properties.
V.19 Government Relation. No Related Person is subject
to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Investment Company Act of 1940 (as any
of the preceding acts have been amended), or any other law (other
than Regulation X) which regulates the incurring by such Related
Person of Indebtedness, including but not limited to laws relating
to common contract carriers or the sale of electricity, gas, steam,
water, or other public utility services.
V.20 Intentionally Omitted.
V.21 Subsidiaries and Stock. Borrower does not own
capital stock or other ownership interests in any Person, except a
99% ownership interest in Desulfur Partnership, 100% ownership of
Pride Marketing and 100% ownership of Pride Borger. Pride Refining
does not own capital stock or other ownership interests in any
Person, except a 1.9% general partnership interest in Borrower.
Pride SGP does not own capital stock or other ownership interests
in any Person; except a 0.1% general partnership interest and a
4.9% common limited partnership interest in Borrower. Pride
Marketing does not own capital stock or other ownership interests
in any Person except a 1% general partnership interest in Desulfur
Partnership. Pride Borger does not own capital stock or other
ownership interests in any Person. Desulfur Partnership does not
own any capital stock or other ownership interest in any Person.
V.22 Fair Labor Standards Act. Each Related Person has
complied with, and will continue to comply with, the provisions of
the Fair Labor Standards Act of 1938, 29 U.S.C. Section 200, et
seq., as amended from time to time (the "FLSA"), including
specifically, not without limitation, 29 U.S.C. Section 215(a).
This representation and warranty shall constitute written assurance
from each Related Person, given as of the date hereof, that each
Related Person has complied with the requirements of the FLSA, in
general, and Section 215(a)(1), thereof, in particular.
V.23 Casualties. Neither the business nor the
properties of any Related Person is currently affected by any
environmental hazard, fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or other casualty (whether or not covered by insurance),
which could have a material adverse effect.
V.24 Investment Company Act. No Related Person is an
"investment company" registered or required to be registered under
the Investment Company Act of 1940, as amended, and is not
controlled by such a company.
V.25 Hazardous Substances.
(a) To the best of each Related Person's
knowledge: (i) all environmental permits, certificates, licenses,
approvals, registrations and authorizations required under all
Environmental Laws in connection with the business of such Related
Person has been obtained and (ii) such Related Person's business
operations are in compliance with all Environmental Laws.
(b) Except as disclosed on Exhibit "E", no
unremedied notice, citation, summons or order has been issued, no
unremedied complaint has been filed, no unremedied penalty has been
assessed and, to the best of each Related Person's knowledge, no
investigation or review is pending or threatened by any
governmental entity under any Environmental Law or with respect to
any generation, treatment, storage, recycling, transportation or
disposal of any hazardous or toxic or polluting substance or waste
(including petroleum products and radioactive materials) generated
or used ("Hazardous Substances") by such Related Person.
(c) Except as disclosed on Exhibit "E", no Related
Person has received any request for information, notice of claim,
demand or other notification that such Related Person is or may be
potentially responsible with respect to any investigation or clean-
up of any threatened or actual release of any Hazardous Substance
or any other violation of any Environmental Laws.
(d) Except as disclosed on Exhibit "E", there are
no underground storage tanks, active or abandoned, at any property
now owned, operated or leased by any Related Person.
(e) Except as set forth on Exhibit "E", no
environmental inspections, investigations, studies, audits, tests,
reviews or other analyses are currently being conducted in relation
to any property or business now owned, operated, or leased by any
Related Person, and each Related Person shall promptly forward a
copy to Lender of any such environmental inspections,
investigations, studies, tests, reviews or other analyses;
provided, that no Related Person makes any representation or
warranty with respect to environmental inspections, investigations,
studies, audits, tests, reviews or other analyses conducted by or
on behalf of Lender.
V.26 Collateral Documents; Description of Assets.
Subject to the terms of the Intercreditor Agreement, the Collateral
Documents constitute perfected first priority Liens in favor of
Collateral Agent for the benefit of Lender upon all of the right,
title and interest of each Related Person in and to (i) Refinery
and all real and personal property owned or used in connection
therewith, subject only to Permitted Liens and (ii) all of the
properties described in Exhibit "F" attached hereto and all real
and personal property owned or used in connection therewith,
subject only to Permitted Liens. No other filings, approvals,
consents, authorizations or orders of any Tribunal or third party
is required to maintain the effectiveness and priority of the Liens
under the Collateral Documents.
V.27 Corporate Name. No Related Person has during the
preceding five years, been known as or used any other partnership,
corporate, fictitious or trade names. Except as set forth on
Exhibit "G", no Related Person has been, during the preceding five
years, the survivor of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
V.28 Representations and Warranties. The delivery of
any document to Lender under the terms of this Agreement shall
constitute, without the necessity of specifically containing a
written statement, a representation and warranty by Borrower that
no Default or Event of Default exists and that all representations
and warranties contained in this Article V or in any other Loan
Document are true and correct on and as of such date.
V.29 Survival of Representations and Warranties. All
representations and warranties by the Related Persons herein shall
survive delivery of the Notes, and any investigation at any time
made by or on behalf of Lender shall not diminish Lender's right to
rely thereon.
V.30 Solvency. As of the Effective Date, no obligation
shall have been incurred by any Related Person pursuant to any Loan
Document with the intent to hinder, delay, disturb or defraud
creditors of any Related Person and no Related Person (i) shall be
insolvent (within the meaning of Section 101(32) of Title 11 of the
United States Code, as amended or Section 2 of the Uniform
Fraudulent Transfer Act) or shall become "insolvent" (after giving
effect to the transactions contemplated in any Loan Document) as a
result of the incurrence of any such obligation; (ii) shall be
engaged in any business or transaction with unreasonably small
capital (after giving effect to the transactions contemplated in
any Loan Document); and (iii) shall be unable to perform its
contingent obligations and other commitments as they mature in the
normal course of business.
V.31 Intentionally Omitted.
V.32 BankBoston. Each representation and warranty made
by each Related Person in any BankBoston Loan Document is true and
correct.
V.33 Original Collateral Documents. Exhibit "H" sets
forth all of the existing security agreements, pledge agreements,
deeds of trust, guarantees or similar instruments executed in favor
of the Original Agent and Original Lenders as in effect immediately
prior to the Effective Date.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until payment in full of the Notes and the payment in
full and performance of the Obligations, and the termination of
this Agreement, each Related Person agrees that (unless Lender
shall otherwise consent in writing) it will comply with the
following covenants:
VI.1 Financial Statements and Reports. Each of the
Borrower and its Subsidiaries shall maintain a system of accounting
in which correct entries shall be made of all transactions in
relation to their business and affairs in accordance with generally
accepted accounting practice. The fiscal quarters of the Borrower
and its Subsidiaries shall end on March 31, June 30, September 30
and December 31 in each year.
(a) Annual Reports. The Borrower shall furnish
to the Lender as soon as available, and in any event within 90 days
after the end of each fiscal year (or, if such 90th day is not a
Business Day, the next succeeding Business Day), the audited
Consolidated balance sheet of the Borrower and its Subsidiaries as
at the end of such fiscal year, the Consolidated statements of
income and Consolidated statements of changes in partners' equity
and cash flows of the Borrower and its Subsidiaries for such fiscal
year (all in reasonable detail) and comparative figures for the
immediately preceding fiscal year, all accompanied by:
(i) Reports of Ernst & Young LLP (or, if they
cease to be auditors of the Borrower and its Subsidiaries,
other independent certified public accountants of recognized
national standing reasonably satisfactory to the Lender),
containing no material qualification, to the effect that they
have audited the foregoing Consolidated financial statements
in accordance with generally accepted auditing standards and
that such Consolidated financial statements present fairly, in
all material respects, the financial position of the Borrower
and its Subsidiaries covered thereby at the dates thereof and
the results of their operations for the periods covered
thereby in conformity with GAAP.
(ii) The statement of such accountants
that they have caused this Agreement to be reviewed and that
in the course of their audit of the Borrower and its
Subsidiaries no facts have come to their attention that they
have no knowledge of any Default under Sections 6.2 through
6.15, or Sections 6.17 through 6.20, or, if such is not the
case, specifying such Default and the nature thereof. This
statement is furnished by such accountants with the
understanding that the examination of such accountants cannot
be relied upon to give such accountants knowledge of any such
Default except as it related to accounting and auditing
matters within the scope of their audit.
(iii) A certificate of the Borrower signed
by a Financial Officer to the effect that such officer has
caused this Agreement to be reviewed and has no knowledge of
any Default, of if such officer has such knowledge, specifying
such Default and the nature thereof, and what action the
Borrower has taken, is taking or proposes to take with respect
thereto.
(iv) Computations by the Borrower
comparing the financial statements referred to above with the
most recent budget for such fiscal year furnished to the
Lender in accordance with Section 6.1(d).
(v) Computations by the Borrower in
substantially the form of Exhibit "I" demonstrating, as of the
end of the fiscal year, compliance with the Computation
Covenants, signed by a Financial Officer.
(vi) Calculations, as of the end of such
fiscal year, of (i) the Accumulated Benefit Obligations for
each Plan (other than Multiemployer Plans) and (ii) the fair
market value of the assets of such Plan allocable to such
benefits.
(vii) Supplements to the Exhibits to the
Second Restated Security Agreement showing any changes in the
information set forth in such exhibits not previously
furnished to the Lender in writing, as well as any changes in
the Charter, By-Laws or incumbency of officers of the Related
Persons from those previously certified to the Lender.
(viii) In the event of a change in GAAP
after December 31, 1996, computations by the Borrower, signed
by a Financial Officer, reconciling the financial statements
referred to above with the financial condition of the Borrower
and its Subsidiaries as at the end of and for the year covered
by such financial statements.
(ix) In reasonable detail, management's
discussion and analysis of the results of operations and the
financial condition of the Borrower and its Subsidiaries as at
the end of and for the year covered by such financial
statements.
(b) Quarterly Reports. The Borrower shall
furnish to the Lender as soon as available and, in any event,
within 45 days after the end of each of the first three fiscal
quarters of the Borrower (or, if such 45th day is not a Business
Day, the next succeeding Business Day), the internally prepared
Consolidated balance sheet of the Borrower and its Subsidiaries as
of the end of such fiscal quarter, the Consolidated statements of
income, of changes in partners' equity and of cash flows of the
Borrower and its Subsidiaries for such fiscal quarter and for the
portion of the fiscal year then ended (all in reasonable detail)
and comparative figures for the same period in the preceding fiscal
year, all accompanied by:
(i) A certificate of the Borrower signed by a
Financial Officer to the effect that such financial statements
have been prepared in accordance with GAAP and present fairly,
in all material respects, the financial position of the
Borrower and its Subsidiaries covered thereby at the dates
thereof and the results of their operations for the periods
covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(ii) A certificate of the Borrower signed
by a Financial Officer to the effect that such officer has
caused this Agreement to be reviewed and has no knowledge of
any Default, or if such officer has such knowledge, specifying
such Default and the nature thereof and what action the
Borrower has taken, is taking or proposes to take with respect
thereto.
(iii) Computations by the Borrower
comparing the financial statements referred to above with the
most recent budget for the period covered thereby furnished to
the Lender in accordance with Section 6.1(d).
(iv) Computations by the Borrower in
substantially the form of Exhibit "I" demonstrating, as of the
end of such quarter, compliance with the Computation
Covenants, signed by a Financial Officer.
(v) Supplements to the Exhibits to the
Restated Security Agreements showing any changes in the
information set forth in such exhibits not previously
furnished to the Lenders in writing, as well as any changes in
the Charter, By-Laws or incumbency of officers of the Related
Persons from those previously certified to the Lender.
(vi) In reasonable detail, management's
discussion and analysis of the results of operations and
financial condition of the Borrower and its Subsidiaries as at
the end of and for the fiscal period covered by the financial
statements referred to above.
(c) Monthly Reports. The Borrower shall
furnish to the Lender as soon as available and, in any event,
within 30 days after the end of each Month (or, if such 30th day is
not a Business Day, the next succeeding Business Day), the
internally prepared Consolidated balance sheet of the Borrower and
its Subsidiaries as at the end of such Month and the Consolidated
statements of income of the Borrower and its Subsidiaries for such
month (all in reasonable detail), all accompanied by a certificate
of the Borrower signed by a Financial Officer to the effect that
such financial statements were prepared in accordance with GAAP and
present fairly, in all material respects, the financial position of
the Persons covered thereby at the date thereof and the results of
the of their operations for the periods covered thereby, subject
only to normal year-end audit adjustments and the addition of
footnotes.
(d) Other Reports. The Borrower shall promptly
furnish to the Lender:
(i) As soon as prepared and in any event at
least 30 days prior to the beginning of each fiscal year, an
annual budget and operating projections for such fiscal year
of the Borrower and its Subsidiaries, prepared in a manner
consistent with the manner in which the financial projections
described in Section 5.6 were prepared.
(ii) Any material updates to such budget
and projections.
(iii) Any management letters furnished to
the Borrower or any of its Subsidiaries by the Borrower's
auditors.
(iv) All budgets, projections, statements
of operations and other reports furnished generally to the
shareholders of the Borrower.
(v) Such registration statements, proxy
statements and reports, including Forms S-1, S-2, S-3, S-4,
10-K, 10-Q and 8-K, as may be filed by the Borrower or any of
its Subsidiaries with the Securities and Exchange Commission
and all press releases issued by any Related Persons.
(vi) Any 90-day letter or 30-day letter
from the federal Internal Revenue Service (or the equivalent
notice received from state or other taxing authorities)
asserting tax deficiencies against the Borrower or any of its
Subsidiaries.
(vii) The financial statements of Pride SGP
and Pride Refining for each fiscal year, such financial
statements to include the balance sheet, income statement and
cash flow statement for such period, and be delivered as so as
available and in any event within 90 days after the end of the
each fiscal year.
(viii) Within 120 days after the end of the
Borrower's fiscal year, an annual projections model,
satisfactory in both form and context to the Lender, which
model shall cover a minimum of three projected years.
(ix) As soon as available, copies of the
minutes of all meetings of the boards of directors of each of
Pride SGP or Pride Refining and all meetings of holders of the
equity securities of any Related Person.
(e) Other Information. Such other information
concerning the business, properties or financial condition of
Borrower as Lender shall reasonably request.
VI.2 Certain Financial Tests.
(a) Leverage Ratio. The Leverage Ratio shall
not on the last day of each fiscal quarter of the Borrower ending
on a date during each period specified below exceed the percentage
set forth in the table below next to such period.
Fiscal Quarter Ending Percentage
- - --------------------- ----------
On or after December 31, 1997
and prior to March 31, 1999 350%
On or after March 31, 1999
and prior to December 31, 1999 300%
On or after December 31, 1999 250%
(b) Consolidated Interest Coverage. For each
period of four consecutive fiscal quarters of the Borrower ending
on a date during each period specified below, the Consolidated
Interest Coverage shall equal or exceed the percentage set forth in
the table below next to such period, measured as of the last day of
such period.
Fiscal Quarter Ending Percentage
- - --------------------- ----------
On or after December 31, 1998
and prior to December 31, 1999 175%
On or after December 31, 1999
and prior to December 31, 2000 200%
On or after December 31, 2000
and prior to December 31, 2001 225%
On or after December 31, 2001 250%
(c) Consolidated Operating Cash Flow to
Consolidated Debt Service. For each period of four consecutive
fiscal quarters of the Borrower ending on a date during each period
specified below, the Consolidated Operating Cash Flow shall equal
or exceed the percentage of Consolidated Debt Service specified in
the table below, measured as of the last day of such period:
Fiscal Quarter Ending Percentage
- - --------------------- ----------
On or after March 31, 1998
and prior to March 31, 1999 110%
On or after March 31, 1999
and prior to December 31, 1999 115%
On or after December 31, 1999 120%
(d) Capital Expenditures. The aggregate amount of
Capital Expenditures of the Borrower and its Subsidiaries,
determined on a Consolidated basis, for the fiscal year of the
Borrower ending December 31, 1998 will not exceed $2,000,000;
provided, that the portion of such Capital Expenditures relating to
properties other than the Ranger Pipeline connection and a new
computer system will not exceed $1,000,000. The aggregate amount
of Capital Expenditures of the Borrower and its Subsidiaries,
determined on a Consolidated basis, for each fiscal year of the
Borrower ending on or after December 31, 1999 shall not exceed the
sum of $1,250,000 plus the amount by which Capital Expenditures
made in the immediately preceding fiscal year were less than
$1,250,000.
(e) Consolidated Net Worth. Consolidated Net Worth shall
at all times on or after December 31, 1997 equal or exceed the sum
of (a) the Consolidated Net Worth as of December 31, 1997 less
$5,000,000 plus (b) the amount by which Consolidated Net Worth has
been increased after December 31, 1997 as a result of capital
contributions, the issuance of partnership units or other equity
interests of the Borrower or any of its Subsidiaries, the issuance
of warrants, options or other rights to acquire such partnership
units or other equity interests or the exercise of warrants,
options or other rights or the conversion of securities into
partnership units of other equity interest plus (c) 50% of
Consolidated Net Income (if positive) for each fiscal quarter of
the Borrower thereafter, plus (d) 100% of Net Equity Proceeds
realized by the Borrower after December 31, 1997, minus (e) the
amount of any reduction of Consolidated Net Worth as the result of
writedowns taken on or prior to December 31, 1998 in connection
with the Refinery conversion not exceeding in the aggregate
$30,000,000.
(f) Minimum Consolidated EBITDA. (a) For each
fiscal quarter of the Borrower, commencing with the fiscal quarter
ending December 31, 1997, the Consolidated EBITDA shall equal or
exceed zero; and (b) for each period of four consecutive fiscal
quarters of the Borrower ending on a date during each period
specified below, the Consolidated EBITDA of the Borrower shall
equal or exceed the amount set fort below next to such period.
Fiscal Quarter Ending Amount
- - --------------------- -------
On December 31, 1997 $ 8,800,000
After December 31, 1997
and prior to March 31, 1999 $ 8,500,000
On or after March 31, 1999
and prior to December 31, 1999 $ 9,000,000
On or after December 31, 1999 $10,000,000
(g) Net Working Capital. Consolidated Net
Working Capital shall not on any date be less than $1.00.
VI.3 Payment of Taxes and Other Indebtedness. Each
Related Person shall pay and discharge (i) all taxes, assessments
and governmental charges of levies imposed upon it or upon its
income or profits, or upon any property belonging to it, that the
failure to pay would have a material adverse effect and (ii) all
lawful claims (including claims for labor, materials and supplies),
which, if unpaid might give rise to a Lien upon any of its
property, provided, however, that no Related Person shall be
required to pay any such tax, assessment, charge or levy if and so
long as the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and
appropriate accruals and cash reserves therefor have been
established in accordance with GAAP.
VI.4 Maintenance of Existence and Rights; Conduct of
Business. Each Related Person shall preserve and maintain its
existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business, and
conduct its business in an orderly and efficient manner consistent
with good business practices and in accordance with all valid
regulations and orders of any Tribunal.
VI.5 Notice of Default. Borrower shall furnish to
Lender immediately upon becoming aware of the existence of any
condition or event which constitutes a Default or would become a
Default or an Event of Default, written notice specifying the
nature and period of existence thereof and the action which the
Related Persons are taking or propose to take with respect thereto.
VI.6 Other Notices. Borrower shall promptly notify
Lender of (i) any material adverse change in the financial
condition of any Related Person or their businesses, (ii) any
default under any material agreement, contract, or other instrument
to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any Indebtedness owing by
any Related Person, (iii) any material adverse claim or contingent
obligation against or affecting Borrower or any Subsidiary or any
of its properties, and (iv) the commencement of, and any material
determination in, any litigation with any third party or any
proceeding before any Tribunal affecting any Related Person.
VI.7 Compliance with Loan Documents. Any and all
covenants and provisions of the Loan Documents shall be complied
with by each Person whose compliance is agreed to or required
thereunder.
VI.8 Compliance with Material Agreements. Each Related
Person shall comply in all material respects with all material
agreements, indentures, mortgages or documents binding on it or
affecting its properties or business.
VI.9 Operations and Properties. Each Related Person
shall act prudently and in accordance with customary industry
standards in managing or operating its assets, properties, business
and investments. Each Related Person shall keep in good working
order and condition, ordinary wear and tear excepted, all of its
assets and properties which are necessary to the conduct of its
business.
VI.10 Books and Records; Access. Each Related Person
shall give any representative of Lender access during all business
hours to, and permit such representative to examine, copy or make
excerpts from, any and all books, records and documents in the
possession of such Related Person and relating to its affairs, and
to inspect any of the properties of such Related Person. Each
Related Person shall maintain complete and accurate books and
records of its transactions in accordance with good accounting
practices. Lender shall have the right to send any representatives
of Lender or an audit firm acceptable to Lender to any Related
Person's place of business to examine its books and records and
inspect its properties from time to time during reasonable business
hours. The cost for such examination and inspection shall be
included in Expenses payable by Borrower.
VI.11 Compliance with Law. Each Related Person shall
comply with all applicable laws, rules, regulations, and all orders
of any Tribunal applicable to it or any of its property, business
operations or transactions, a breach of which could have a material
adverse effect.
VI.12 Insurance. Each Related Person shall maintain
worker's compensation insurance, liability insurance (including
environmental insurance), business interruption insurance and
insurance on its properties, assets and business, whether now owned
or hereafter acquired, with such insurance companies, against such
casualties, risks and contingencies, and in such types and amounts,
as are consistent with customary practices and standards of
companies engaged in similar business as such Related Person and as
shall be acceptable to the Lender. All of such casualty and
business interruption insurance of Borrower or Pride SGP shall name
Collateral Agent as loss payee for the benefit of Lender. Prior to
Default, proceeds of insurance covering items of Inventory,
Equipment and fixed assets, if received prior to the Maturity Date
shall be used, if Borrower elects, to repair or replace the covered
item in the ordinary course of business, provided that the
replacement of any item having a replacement cost of $500,000 or
more will require Lender's consent. After Default, all proceeds of
collateral insurance shall be paid to Collateral Agent to be
applied to the Notes and Expenses (with such applications being
made first to Expenses and then to the Notes in accordance with the
provisions of Section 2.7 of this Agreement). The insurance
coverage previously disclosed to Lender accurately reflects the
Related Person's current insurance coverage.
VI.13 Authorizations and Approvals. Each Related
Person shall promptly obtain, from time to time at its own expense,
all such governmental licenses, authorizations, consents, permits
and approvals which may be required or necessary in their business
or with respect to their assets if the failure to obtain could have
a material adverse effect.
VI.14 ERISA Compliance. Each Related Person shall
(i) at all times, make prompt payment of all contributions required
under all Plans and required to meet the minimum funding standard
set forth in ERISA with respect to its Plans, (ii) within thirty
days after the filing thereof, furnish to Lender copies of each
annual report/return (Form 5500 Series), as well as all schedules
and attachments required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA, and the
regulations promulgated thereunder, in connection with each of its
Plans for each Plan year, (iii) notify Lender immediately of any
fact, including, but not limited to, any Reportable Event arising
in connection with any of its Plans, which might constitute grounds
for termination thereof by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer
such Plan, together with a statement, if requested by Lender, as to
the reason therefor and the action, if any, proposed to be taken
with respect thereto, and (iv) furnish to Lender, upon its request,
such additional information concerning any of its Plans as may be
reasonably requested.
VI.15 Further Assurances. Each Related Person shall
make, execute or endorse, and acknowledge and deliver or file or
cause the same to be done, all such vouchers, invoices, notices,
certifications and additional agreements, guaranties, undertakings,
conveyances, deeds of trust, mortgages, transfers, assignments,
financing statements or other assurances, and take any and all such
other action, as Lender may, from time to time, deem reasonably
necessary or proper in connection with any of the Loan Documents,
the obligations of such Related Person thereunder, or for better
assuring and confirming unto Lender all or part of the security for
any of such obligations, or for granting to Lender any security for
the Obligations which Lender may request from time to time.
VI.16 Indemnity by Related Person.
(a) Indemnification. Except as provided below,
each Related Person shall indemnify, save, and hold harmless Lender
and its directors, officers, agents, attorneys, and employees
(collectively, the "Indemnitees") from and against: (i) any and
all claims, demands, actions, or causes of action (a "Claim") that
are asserted against any Indemnitee by any Person if the Claim
directly or indirectly relates to a Claim that the Person asserts
or may assert against any Related Person, any Affiliate of any
Related Person or any officer, director or shareholder of any
Related Person, (ii) any and all Claims that are asserted against
any Indemnitee if the Claim directly or indirectly relates to the
Obligations, use of proceeds of the Notes or the relationship of
the Related Person and Lender under this Agreement or any
transaction contemplated pursuant to this Agreement, (iii) any
administrative or investigative proceeding by any Tribunal directly
or indirectly related to a Claim described in clauses (i) or (ii)
above, and (iv) any and all liabilities, losses, costs, or expenses
(including attorneys' fees and disbursements) that any indemnitee
suffers or incurs as a result of any of the foregoing. Subject
only to the limitation set forth in Section 6.16(b) below, THE
FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH CLAIMS,
LIABILITIES, LOSSES, COSTS OR EXPENSES, ARISE, IN WHOLE OR IN PART,
UNDER ANY THEORY OF STRICT LIABILITY, OR ARE IN ANY WAY OR TO ANY
EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY LENDER. Each Related Person hereby
releases all Claims it may have against any Indemnitee arising
pursuant to any action or inaction by such Indemnitee or the
Original Lenders taken or failed to be taken prior to this
Agreement.
(b) Limitation. No Related Person shall have
any obligation under this Section to Lender with respect to any of
the foregoing arising out of: (i) the gross negligence or willful
misconduct of Lender, (ii) the breach by Lender of this Agreement,
and (iii) the transfer or disposition of any Notes by Lender;
provided, however, that this clause (iii) shall not affect each
Related Person's obligation to provide the benefits of this
Section 6.16 to each assignee of Lender (or any assignee thereof).
(c) Notice. If any Claim is asserted against
any Indemnitee, such Indemnitee shall promptly notify the Related
Person, but the failure to so promptly notify the Related Person
shall not affect the Related Person's obligations under this
Section unless such failure materially prejudices the Related
Person's right to participate in the contest of such Claim as
hereinafter provided.
(d) Settlement. If requested by the Related
Person in writing and so long as no Default or Event of Default
shall have occurred and be continuing, such Indemnitee shall in
good faith contest the validity, applicability and amount of such
Claim and shall permit the Related Person to participate in such
contest. Any Indemnitee that proposes to settle or compromise any
claim or proceeding for which the Related Person may be liable for
payment of indemnity hereunder shall give the Related Person
written notice of the terms of such proposed settlement or
compromise reasonably in advance of settling or compromising such
claim or proceeding and shall obtain the Related Person's
concurrence thereto, which shall not be unreasonably withheld or
delayed.
(e) Counsel. Each Indemnitee is authorized to
employ counsel in enforcing its rights hereunder and in defending
against any Claim covered by this Section; provided, however, that
each Indemnitee shall endeavor, but shall not be obligated, in
connection with any matter covered by this Section which also
involves other Indemnitees, to use reasonable efforts to avoid
unnecessary duplication of effort by counsel for all Indemnitees.
(f) Survival. Any obligation or liability of
the Related Person to any Indemnitee under this Section shall
survive the expiration or termination of this Agreement and the
repayment of the Obligations.
VI.17 Bank Accounts. No Related Person shall maintain
a deposit account with any bank or other financial institution
other BankBoston unless either (a) the balance in such deposit
account shall at no time exceed $25,000 and the total of the
balances in all such deposit accounts shall at no time exceed
$100,000 or (b) such Related Person and the depository institution
in which such account is maintained shall have executed and
delivered to BankBoston an Agency Account Agreement (as defined in
the BankBoston Credit Agreement) relating to such deposit account,
together with such addition documents as are required to perfect
Collateral Agent's interest in such deposit account.
VI.18 Ownership of Pride Refining. Each of Wayne
Malone and Brad Stephens shall continue to own the shares of Pride
Refining owned by each such Person on the Effective Date. Pride
Refining shall own and continue to own the shares of Pride
Refining, formerly owned by C. Alan Stevens on the Effective Date.
Additionally, the aggregate shares of Pride Refining owned by Wayne
Malone and Brad Stephens shall at all times equal or exceed the
controlling voting interest. Borrower shall continue to own 100%
of the corporate stock and other indicia of ownership of Pride
Marketing and Pride Borger.
VI.19 Managing Partner. Pride Refining shall remain
the managing partner of Borrower.
VI.20 Mandatory Prepayment/Cash Collateral. In the
event Borrower refinances or repays in full the BankBoston Loans,
Borrower agrees to concurrently therewith repay the Notes in full.
VI.21 Additional Collateral. In order to further
secure the Obligations, upon request by Lender from time-to-time
until the Obligations are paid in full, each Related Person shall
immediately execute and deliver to the Collateral Agent, for the
benefit of the Lender, such security agreements, collateral
pledges, mortgages, deeds of trust, financing statements and other
or additional security or collateral documents, in form and
substance satisfactory to Lender and counsel to Lender, as Lender
shall request, covering such Related Person's respective assets and
properties, whether now owned or hereafter acquired, as shall be
acceptable, from time-to-time, to Lender.
ARTICLE VII
NEGATIVE COVENANTS
Until payment in full of the Obligation and the
termination of this Agreement, each Related Person agrees that
(unless Lender shall otherwise consent in writing) it will not
violate the following covenants:
VII.1 Limitation on Indebtedness. Borrower shall not
incur, create, contract, waive, assume, have outstanding, guarantee
or otherwise be or become, directly or indirectly, liable in
respect of any Indebtedness, except (i) Indebtedness arising out of
this Agreement or the BankBoston Loan Documents, (ii) current
liabilities for taxes and assessments, wages, employee benefits,
general and administrative expenses not otherwise prohibited
herein, incurred in the ordinary course of business,
(iii) Indebtedness in respect of current accounts payable (other
than for borrowed funds or purchase money obligations) accrued and
incurred in the ordinary course of business, provided that all such
liabilities, accounts and claims shall be promptly paid and
discharged when due or in conformity with customary trade terms,
(iv) Indebtedness arising out of leases, provided the leases do
not result in liability for Rentals in excess of the amount
permitted in Section 7.14, (v) Indebtedness arising under the
depository agreement between Borrower and Collateral Agent,
(vi) Indebtedness of Borrower to Pride SGP pursuant to that certain
promissory note, dated March 26, 1993, in the original principal
amount of $2,000,000, executed by Borrower and payable to the order
of Pride SGP (the "Subordinated Note"), which Indebtedness has been
subordinated to the Indebtedness arising under this Agreement
pursuant to a subordination agreement in form and substance
satisfactory to Lender, (vii) Indebtedness incurred to
(a) refinance the outstanding principal balance of the mortgage
indebtedness on the Cedar Building of up to the amount of $200,000,
and (b) finance renovation and refurbishment of such building and
expenses related to relocation of Borrowers offices to such
building, up to the amount of $200,000; (viii) Indebtedness
representing Purchase Money Security Interests and Capitalized
Leases not to exceed $150,000 in an aggregate amount outstanding at
any time, (ix) Indebtedness of Borrower to Pride SGP in the
original principal amount of $450,000 representing an advance of
Pride SGP to Borrower in such amount, which Indebtedness has been
subordinated to the Indebtedness arising under this Agreement
pursuant to a subordination agreement in form and substance
satisfactory to Lender (the "$450,000 Note"), (x) Indebtedness of
Borrower under the Government Note, (xi) Indebtedness in respect of
inter-company loans and advances among the Company and its
Subsidiaries which are not prohibited by Section 7.4, and
(xii) other Indebtedness subordinated to the Obligations upon terms
satisfactory to Lender in its sole discretion. Neither Pride
Refining nor any Subsidiary of Borrower shall incur, create,
contract, assume, have outstanding, guarantee or otherwise be or
become, directly or indirectly, liable in respect to any
Indebtedness except Indebtedness of the type described in the
preceding clauses (i), (ii), (iii) and (iv) and Indebtedness of
Pride Borger to Diamond Shamrock Refining and Marketing Borrower
evidenced by the D-S Note.
VII.2 Negative Pledge. Except for Permitted Liens,
no Related Person shall create, incur, permit or suffer to exist
any Lien upon any of its respective assets or properties, whether
now owned or hereafter acquired.
VII.3 Restrictions on Distributions and Purchases of
Interests. Neither the Borrower nor any of its Subsidiaries shall
make any Distribution (or become contractually committed to do so),
unless a written consent from the Lender is granted, except that so
long as no Default shall have occurred and be continuing and after
effect thereto no Default shall exist, the Borrower may
(a) make Distributions required to be made pursuant
to the terms of the Preferred Securities; and
(b) may redeem unit appreciate rights in respect
of its limited partnership units issued to employees of the
Borrower, provided that the amounts paid in respect of such
redemption shall not exceed $750,000 in any fiscal year or
$2,000,000 in the aggregate.
VII.4 Limitation on Investments. No Related Person
shall make or have outstanding any Investments in any Person,
except for (i) loans, advances and extensions of credit in the
ordinary course of business not to exceed, when aggregated with
such loans, advances and extensions of credit made by such Related
Person or other Related Persons, $100,000 outstanding at any time,
(ii) the partnership interests in Borrower owned by Pride SGP and
Pride Refining, respectively, on the Effective Date, and (iii) the
ownership interests of Borrower in Pride Marketing, Desulfur
Partnership and Pride Borger on the Effective Date.
VII.5 Affiliate Transactions. No Related Person
shall enter into any transaction with, or pay any amount to, any
Affiliate except as described on Exhibit "J" and except for
Indebtedness of such Related Person to any such Affiliate to the
extent that such Indebtedness is permitted by Section 7.1 of this
Agreement.
VII.6 Intentionally Omitted.
VII.7 Limitation on Sale of Properties. No Related
Person shall sell, assign, convey, exchange, lease or otherwise
dispose of any of its properties, rights, assets or business,
whether now owned or hereafter acquired, except that any Related
Person or any of their Subsidiaries may sell or otherwise dispose
of (a) inventory and Cash Equivalents in the ordinary course of
business, (b) tangible assets (i) that will be replaced in the
ordinary course of business within 12 months by other tangible
assets of equal or greater value or (ii) that are no longer used or
useful in the business of such Related Person or such Subsidiary;
provided, however that the aggregate fair market value (book value,
if greater) of all assets sold under this clause (b) in any fiscal
year shall not exceed $2,000,000 and (c) doubtful accounts
receivable for collection purposes in the ordinary course of
business.
VII.8 Name, Fiscal Year and Accounting Method. No
Related Person shall change its name, fiscal year or method of
accounting except as required by GAAP provided, however, any
Related Person may change its name if such Related Person shall
have given Lender sixty days prior written notice of such name
change and taken such action as Lender deems necessary to continue
the perfection of the Liens securing payment of the Obligations.
VII.9 Liquidation, Mergers, Consolidations and
Dispositions of Substantial Assets. No Related Person shall
dissolve or liquidate, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or
substantially all of the assets or capital stock of any Person, or
sell, transfer, lease or otherwise dispose of all or any
substantial part of its property, assets or business; provided,
however, that any Wholly Owned Subsidiary of the Borrower may merge
or be liquidated into the Borrower or any other Wholly Owned
Subsidiary of the Borrower so long as after giving effect to any
such merger to which the Borrower is a party the Borrower shall be
the surviving or resulting Person.
VII.10 Lines of Business. No Related Person shall
directly or indirectly engage in any business other than those in
which it is presently engaged, or discontinue any of its existing
lines of business or substantially alter its method of doing
business.
VII.11 No Amendments. Except in connection with the
Stage 3 Transactions (as defined in the Restructuring Agreement),
Borrower shall not amend its certificate of limited partnership
agreement.
VII.12 Purchase of Substantial Assets. No Related
Person shall purchase, lease or otherwise acquire all or
substantially all of the assets of any other Person.
VII.13 Guaranties. No Related Person shall become or
be liable in respect of any Guaranty except for the Guaranty
Agreements.
VII.14 Rentals. Pride SGP may accept, receive,
collect or ask for, Rentals from Borrower in the amounts set forth
in, and pursuant to the terms of, the Pipeline Agreement, and
Borrower may make such payments, provided that at the time of any
such payment, (i) all scheduled payments of interest and principal
then due on the Loans and the Series A Unsecured Note and all
cumulative distributions on all outstanding Preferred Units or New
Preferred Units, as applicable, have been paid (or
contemporaneously are declared and paid) for all prior distribution
periods, and (ii) the aggregate of such Rentals payments shall not
exceed $400,000 per year. If Borrower shall have paid any
distributions on the Preferred Units or New Preferred Units, as
applicable, or made any scheduled payments of interest on the
Loans, in either case in kind (and not in cash), the condition
specified in clause (i) of the immediately preceding sentence shall
not be deemed to be satisfied unless either (x)(i) all Preferred
Units or New Preferred Units, as applicable, issued in payment of
such distributions have been redeemed by Borrower for cash and (ii)
all scheduled payments of interest on the Loans which have been
paid in kind shall have been prepaid in cash, or (y) the Borrower
shall have made all cash interest payments and cash distributions
to Lender (including Lender in its capacity as holder of the Series
A Unsecured Note and Preferred Securities) which are permitted
under the terms of the Restructuring Agreement (which cash payments
and cash distributions are in the aggregate amount of $1,090,000 as
of the Effective Date). For purposes of this Section 7.14, the
term "Pipeline Agreement" shall mean that certain Pipeline Lease
Agreement effective as of March 29, 1990, between Pride SGP, as
lessee, and Borrower, as lessor, as amended by Amendment No. 1 to
Pipeline Lease Agreement and Amendment No. 2 to Pipeline Lease
Agreement each effective as of March 29, 1990.
VII.15 Employment Agreement. Without the prior
written consent of the Lender, no Related Person shall enter into,
or consent to the execution of, any employment agreement with any
officer or employee of such Related Person who is also a director
or a shareholder of such Related Person or any other Related
Person.
ARTICLE VIII
EVENTS OF DEFAULT
VIII.1 Events of Default. An "Event of Default" shall
exist if any one or more of the following events (herein
collectively called "Events of Default") shall occur and be
continuing:
(a) Borrower shall fail to pay when due interest
on the Obligations, or any Expenses and such default shall continue
for five (5) days; or
(b) Borrower shall fail to pay any principal of the
Obligations, or any part thereof, when due; or
(c) any representation or warranty made under this
Agreement, or any of the other Loan Documents, or in any
certificate or statement furnished or made to Lender pursuant
hereto or in connection herewith or with the Obligations, shall
prove to be untrue or inaccurate in any material respect as of the
date on which such representation or warranty is made; or
(d) default shall occur in the performance of any
of the covenants or agreements of the Related Persons contained in
Sections 6.1, 6.2, 6.3, 6.4, 6.11, 6.12, 6.13, 6.14 or 7.2 or of
comparable provisions in any of the other Loan Documents and shall
continue for fifteen (15) days after Borrower has knowledge of such
default; or
(e) default shall occur in the performance of
covenants and agreements of any Related Person herein or in the
other Loan Documents, which are not the subject of other clauses of
this Section 8.1; or
(f) default shall occur in the payment of any
material Indebtedness of any Related Person in excess of
$500,000.00 (other than the Obligations); default shall occur in
respect of any note, loan agreement or credit agreement relating to
any such Indebtedness and such default shall continue for more than
the period of grace, if any, specified therein (or if there is no
such grace period, for more than ten (10) days) or any such
Indebtedness shall become due before its stated maturity by
acceleration of the maturity thereof or shall become due by its
terms and shall not be paid or extended within ten (10) days; or
(g) any of the Loan Documents shall cease to be
legal, valid and binding agreements enforceable against the Person
executing the same in accordance with the respective terms thereof
or shall in any way be terminated or become or be declared
ineffective or inoperative or shall in any way whatsoever cease to
give or provide the respective Liens, security interests, rights,
titles, interests, remedies, powers or privileges intended to be
created thereby; or
(h) any Related Person shall (i) apply for or
consent to the appointment of a receiver, trustee, custodian,
intervenor or liquidator of itself or of all or a substantial part
of such Person's assets, (ii) file a voluntary petition in
bankruptcy, admit in writing that such Person is unable to pay such
Person's debts as they become due or generally not pay such
Persons's debts as they become due, (iii) make a general assignment
for the benefit of creditors, (iv) file a petition or answer
seeking reorganization or an arrangement with creditors or to take
advantage of any Debtor Laws, (v) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate
action for the purpose of effecting any of the foregoing; or
(i) an involuntary petition or complaint shall be
filed against any Related Person seeking bankruptcy or
reorganization of such Person or the appointment of a receiver,
custodian, trustee, intervenor or liquidator of such Person, or all
or substantially all of such Person's assets, and such petition or
complaint shall not have been dismissed within sixty (60) days of
the filing thereof; or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or
other competent authority approving a petition or complaint seeking
reorganization of any Related Person or any subsidiary of any such
Persons or appointing a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such
Person's assets; or
(j) any final judgment(s) for the payment of money
in excess of the sum of $250,000 in the aggregate shall be rendered
against any Related Person and such judgment or judgments shall not
be satisfied or discharged at least ten (10) days prior to the date
on which its assets could be lawfully sold to satisfy such
judgment; or
(k) both the following events shall occur: (i)
either (x) proceedings shall have been instituted to terminate, or
a notice of termination shall have been filed with respect to, any
Plan (other than a Multi-Employer Pension Plan as that term is
defined in Section 3(37) of ERISA) by any Related Person, any
member of the Controlled Group, PBGC or any representative of any
thereof, or any such Plan shall be terminated, in each case under
Section 4041 or 4042 of ERISA, or (y) a Reportable Event, the
occurrence of which would cause the imposition of a Lien under
Section 4068 of ERISA, shall have occurred with respect to any Plan
(other than a Multi-Employer Pension Plan as that term is defined
in Section 3(37) of ERISA) and be continuing for a period of sixty
(60) days; and (ii) the sum of the estimated liability to PBGC
under Section 4062 of ERISA and the currently payable obligations
of any Related Person to fund liabilities (in excess of amounts
required to be paid to satisfy the minimum finding standard of
Section 412 of the Code) under the Plan or Plans subject to such
event shall exceed ten percent (10%) of such Related Person's Net
Worth at such time; or
(l) any or all of the following events shall occur
with respect to any Multi-Employer Pension Plan (as that term is
defined in Section 3(37) of ERISA) to which any Related Person
contributes or contributed on behalf of its employees: (i) any
Related Person incurs a withdrawal liability under Section 4201 of
ERISA; or (ii) any such plan is "in reorganization" as that term is
defined in Section 4241 of ERISA; or (iii) any such Plan is
terminated under Section 4041A of ERISA and Lender determines in
good faith that the aggregate liability likely to be incurred by
Borrower, as a result of all or any of the events specified in
Subsections (i), (ii) and (iii) above occurring, shall have a
material adverse effect; or
(m) any default or event of default shall occur in
respect of the Series A Unsecured Note and such default or event of
default has not been cured or permanently waived prior to the
expiration of any applicable grace period.
VIII.2 Remedies Upon Event of Default. If an Event
of Default shall have occurred and be continuing, then Lender may
exercise any one or more of the following rights and remedies, and
any other remedies provided in any of the Loan Documents, as the
Lender in its sole discretion may deem necessary or appropriate:
(a) declare the Obligations, including without
limitation the Notes, to be forthwith due and payable
("Acceleration"), whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default,
notice of acceleration or of intention to accelerate or other
notice of any kind, all of which each Related Person hereby
expressly waives, anything contained herein or in the Notes to the
contrary notwithstanding;
(b) reduce any claim to judgment;
(c) (i) demand and Borrower and Pride SGP shall
each immediately deliver to Collateral Agent a Lien in favor of
Lender on all of the properties and assets of each of Borrower and
Pride SGP, in form and content acceptable to Lender and Lender's
counsel (a demand pursuant to this item (c) shall be deemed an
"Acceleration");
(d) exercise any right of offset;
(e) without notice of default or demand, pursue and
enforce any of Lender's rights and remedies under the Loan
Documents, or otherwise provided under or pursuant to any
applicable law or agreement; provided, however, that if any Event
of Default specified in Sections 8.1(h) or (i) shall occur, the
Obligations, including without limitation the Notes, shall
thereupon become due and payable concurrently therewith, without
any further action by Lender and without presentment, demand,
protest, notice of default, notice of acceleration or of intention
to accelerate or other notice of any kind, all of which each
Related Person hereby expressly waives (such actions in this
provisions shall be deemed an "Acceleration"); and/or
(f) exercise any other remedy at law or in equity.
VIII.3 Performance by Lender. Should any Related
Person fail to perform any covenant, duty or agreement contained
herein or in any of the Loan Documents, Lender may perform or
attempt to perform such covenant, duty or agreement on behalf of
such Related Person. In such event, Borrower shall, at the request
of Lender, promptly pay any amount expended by Lender in such
performance or attempted performance to Lender at the Payment
Office, together with interest thereon at the Maximum Rate from the
date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that Lender does not assume
any liability or responsibility for the performance of any duties
of any Related Person hereunder or under any of the Loan Documents
or other control over the management and affairs of any Related
Person.
ARTICLE IX
MISCELLANEOUS
IX.1 Strict Compliance. If any action or failure to act
by any Related Person violates any covenant or obligation of such
Related Person contained herein, then such violation shall not be
excused by the fact that such action or failure to act would
otherwise be required or permitted by any covenant or exception to
any covenant other than the covenant violated.
IX.2 Modification. All modifications, consents,
amendments or waivers of any provision of any Loan Document, or
consent to any departure by any Related Person therefrom, shall be
effective only if the same shall be in writing and concurred in by
the Lender and then shall be effective only in the specific
instance and for the purpose for which given.
IX.3 Accounting Terms and Reports. All accounting terms
not specifically defined in this Agreement shall be construed in
accordance with GAAP consistently applied on the basis used by
Borrower in prior years. All financial reports furnished by
Borrower and/or any Guarantor to Lender pursuant to this Agreement
shall be prepared in such form and such detail as shall be
satisfactory to Lender, shall be prepared on the same basis as
those prepared by Borrower or the applicable Guarantor in prior
years and shall be the same financial reports as those furnished to
the partners, employees and agents of Borrower or the applicable
Guarantor. All financial projections by Borrower to Lender
pursuant to this Agreement shall be satisfactory to Lender and
shall be prepared on the same basis as the financial reports
furnished by Borrower to Collateral Agent.
IX.4 Waiver. No failure to exercise, and no delay in
exercising, on the part of Lender, any right hereunder or under any
Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of
Lender hereunder and under the Loan Documents shall be in addition
to all other rights provided by law. No modification or waiver of
any provision of this Agreement, the Notes or any Loan Documents,
nor consent to departure therefrom, shall be effective unless in
writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice
or demand.
IX.5 Payment of Expenses. Each Related Person agrees to
pay (a) all costs and expenses of Lender (including without
limitation, all reasonable attorneys' fees) incurred by any party
in connection with the administration, preservation and enforcement
of this Agreement, the Notes, and/or the other Loan Documents, and
(b) all reasonable costs and expenses of Lender (including without
limitation reasonable fees and expenses of legal counsel) in
connection with the negotiation, preparation, execution and
delivery of this Agreement, the Notes, and the other Loan Documents
and any and all amendments, modifications, maintenance, and
supplements thereof or thereto.
IX.6 Notices. Any notices or other communications
required or permitted to be given by this Agreement or any other
documents and instruments referred to herein must be (i) given in
writing (the references to "in writing" elsewhere in this Agreement
are for emphasis and are not a way of limitation of the generality
of the requirement that notices or other communications shall be in
writing), (ii) be personally delivered or mailed by prepaid mail,
or by telex or telecopy delivered or transmitted to the party to
whom such notice or communication is directed, to the address of
such party as follows:
(a) Borrower: 1209 N. 4th
Abilene, Texas 79601
(Attention: Mr. Brad Stephens)
Telex No. 794888
Fax No. 915/676-8792; and
(b) Guarantors, 1209 N. 4th
or any of Abilene, Texas 79601
them: (Attention: Mr. Brad Stephens)
Telex No. 794888
Fax No. 915/676-8792; and
(c) Lender: to it, marked to the attention of its
officer and at its address or telex number or
fax number shown below its name on the
signature page.
Any notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is mailed by
prepaid certified or registered mail, or personally delivered as
aforesaid or, if transmitted by telex or telecopy or fax machine,
on the day that such notice is transmitted as aforesaid, and
otherwise when actually received. Any party may, for purposes of
the Loan Documents, change its address, telex number, fax number or
the Person to whom a notice or other communication is marked to the
attention of, by giving notice of such change to the other parties
pursuant to this Section 9.6.
IX.7 GOVERNING LAW. THIS AGREEMENT HAS BEEN PREPARED,
IS BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN
THE STATE OF NEW YORK, AND THE SUBSTANTIVE LAWS OF SUCH STATE AND
THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT AND ALL OF THE LOAN DOCUMENTS.
IX.8 Choice of Forum; Consent to Service of Process and
Jurisdiction; Waiver of Jury Trial. Any suit, action or proceeding
against Borrower or any Guarantor with respect to this Agreement,
the Notes or any Loan Documents or any judgment entered by any
court in respect thereof, may be brought in the courts of New York
City, New York, or in the United States courts located in New York
City, New York as Lender in its sole discretion may elect and
Borrower and each Guarantor hereby submit to the nonexclusive
jurisdiction of such courts for the purpose of any such suit,
action or proceeding. Borrower and each Guarantor hereby agree
that service of all writs, process and summonses in any such suit,
action or proceeding brought in the courts located in New York
City, New York may be brought upon the Process Agent, and Borrower
and each Guarantor hereby irrevocably appoint the Process Agent, as
its true and lawful attorney-in-fact in the name, place and stead
of Borrower and such Guarantor to accept such service of any and
all such writs, process and summonses, and agrees that the failure
of Process Agent to give any notice of such service of process to
them shall not impair or affect the validity of such service or of
any judgment based thereon. Borrower and each Guarantor hereby
irrevocably consent to the service of process in any suit, action
or proceeding in said court by the mailing thereof by Lender by
registered or certified mail, postage prepaid, to the Process
Agent's address set forth above. Borrower and each Guarantor
hereby irrevocably waive any objections which it may now or
hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any Loan
Document brought in the courts located in New York City, New York,
and hereby further irrevocably waives any claim that any such suit;
action or proceeding brought in any such court has been brought in
an inconvenient forum. BORROWER, EACH GUARANTOR AND LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH ANY OF THEM
ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT, DUTY IMPOSED BY LAW OR OTHERWISE) IN
ANYWAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENTS, OR THE RELATIONSHIP ESTABLISHED
HEREUNDER AND WHETHER ARISING OR ASSERTED BEFORE OR AFTER THE DATE
HEREOF OR BEFORE OR AFTER THE PAYMENT AND PERFORMANCE IN FULL OF
ANY OBLIGATIONS OF BORROWER OR ANY GUARANTOR UNDER ANY OF THE LOAN
DOCUMENTS.
IX.9 LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY
BORROWER OR ANY GUARANTOR AGAINST LENDER OR ITS AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS FOR ANY SPECIAL,
INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT,
TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR
IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND
RELATIONSHIPS ESTABLISHED BY THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH. BORROWER AND EACH GUARANTOR HEREBY WAIVE,
RELEASE AND AGREE NOT TO SUE UPON SUCH CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO
EXIST IN ITS FAVOR.
IX.10 Invalid Provisions. If any provision of any
Loan Document is held to be illegal, invalid or unenforceable under
present or future laws during the term of this Agreement, such
provision shall be fully severable; such Loan Document shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of such Loan Document; and the
remaining provisions of such Loan Document shall remain in full
force and effect and shall not be affected by the illegal, invalid
or unenforceable provisions or by its severance from such Loan
Document. Furthermore, in lieu of each such illegal, invalid or
unenforceable provision there shall be added as part of such Loan
Document a provision mutually agreeable to Borrower or Guarantors,
as applicable, and Lender as similar in terms to such illegal,
invalid or unenforceable provisions as may be possible and still be
legal, valid and enforceable. In the event Borrower or Guarantors,
as applicable, and Lender are unable to agree upon a provision to
be added to the Loan Document within a period of ten Business Days
after a provision of the Loan Document is held to be illegal,
invalid or unenforceable there shall be added automatically to such
Loan Document such amendment as is needed to reform the Loan
Document so that is legal, valid and enforceable and still meets
the general intended purpose of such Loan Document. In either
case, the effective date of the added provision shall be the date
upon which the prior provision was held to be illegal, invalid or
unenforceable.
IX.11 Maximum Interest Rate. Regardless of any
provision contained in any of the Loan Documents, no Lender shall
ever be entitled to receive, collect or apply as interest on the
Obligations or any portion thereof, any amount in excess of
interest calculated at the Maximum Rate, and, in the event that
Lender ever receives, collects or applies as interest any such
excess, the amount which would be excessive interest shall be
deemed to be a partial prepayment of principal and treated
hereunder as such; and, if the principal amount of the Obligations
is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or
payable on the Notes or any other portion of the Obligations under
any specific contingency exceeds interest calculated at the Maximum
Rate, Borrower, each Guarantor and Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as
interest; (ii) exclude voluntary prepayments and the effects
thereof; and (iii) amortize, pro rate, allocate and spread the
total amount of interest throughout the entire contemplated term of
the Notes or other portion of the Obligations upon which the
interest is determined such that the interest does not exceed the
Maximum Rate; provided that, if the Notes or other portion of the
Obligations upon which the interest is determined are paid and
performed in full prior to the end of the full contemplated term
thereof, and if the interest received for the actual period of
existence thereof exceeds interest calculated at the Maximum Rate,
Lender shall refund to Borrower the amount of such excess or credit
the amount of such excess against the principal amount of the Notes
or other portion of the Obligations and, in such event, Lender
shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving or receiving interest
in excess of interest calculated at the Maximum Rate.
IX.12 Confidentiality. Lender agrees to hold any
confidential information which it may receive from any Related
Person pursuant to this Agreement in confidence, except for
disclosure to (i) the Collateral Agent or participants, (ii) legal
counsel, accountants, and other professional advisors,
(iii) regulatory officials, (iv) as required by law or legal
process or in connection with any legal proceeding, and (v) to
another financial institution in connection with a disposition or
proposed disposition of Lender's interests hereunder or under the
Notes.
IX.13 Nonliability of Lender. The relationship
between Borrower, the Guarantors and Lender is, and shall at all
times remain, solely that of borrower, guarantor and lender, and
Lender does not undertake or assume any responsibility or duty to
Borrower or any Guarantor to review, inspect, supervise, pass
judgment upon, or inform Borrower or any Guarantor of any matter in
connection with any phase of the business, operations, or
condition, financial or otherwise of Borrower or any Guarantor.
Borrower and each Guarantor shall rely entirely upon its own
judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment, or information supplied to
Borrower or any Guarantor by Lender in connection with any such
matter is for the protection of Lender, and neither Borrower nor
any Guarantor nor any third party is entitled to rely thereon.
IX.14 Set-Off. Borrower and each Guarantor hereby
grant to Lender the right of set-off without notice or demand to or
upon Borrower or Guarantors, or any of them (any such notice and/or
demand being hereby waived by Borrower and each Guarantor), to
secure repayment of the Obligations, regardless of whether Lender
shall have made any demand therefor and whether all or any part of
the Obligations are or may be unmatured, upon any and all monies,
securities or other property of Borrower or any Guarantor and the
proceeds therefrom, now or hereafter held or received by or in
transit to Lender or any of its agents, from or for the account of
Borrower or such Guarantor, whether for safe keeping, custody,
pledge, transmission, collection or otherwise, and also upon any
and all deposits (general or special) and credits of Borrower or
any Guarantor, and any and all claims of Borrower or such Guarantor
against Lender at any time existing.
IX.15 Guaranties of Subsidiaries. Each Subsidiary
of each Related Person now existing or created, acquired or coming
into existence after the Effective Date shall, promptly upon
request by Lender, execute and deliver to Lender an absolute and
unconditional guaranty of the timely repayment of the Obligations
and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Lender in form
and substance. Each Related Person will cause each of its
Subsidiaries to deliver to Lender, simultaneously with its delivery
of such a guaranty, written evidence satisfactory to Lender and its
counsel that such Subsidiary has taken all corporate or partnership
action necessary to duly approve and authorize its execution,
delivery and performance of such guaranty and any other documents
which it is required to execute.
IX.16 Intentionally Omitted.
IX.17 Guarantor Waivers. Notwithstanding anything
to the contrary contained in this Agreement or in any other Loan
Document, each Guarantor hereby irrevocably waives, releases and
relinquishes any and all rights that it may now have or that it may
hereafter acquire with respect to Borrower or the property of
Borrower by virtue of (i) any payment made by such Guarantor with
respect to the obligations or liabilities of Borrower to the
Lender, whether such payment be made pursuant to any guaranty
agreement, the Guarantor's position as a general partner of
Borrower or otherwise or (ii) any property of such Guarantor that
may now or hereafter be pledged, mortgaged or otherwise encumbered
to secure the payment of any obligations or liabilities of Borrower
to the Lender.
IX.18 Binding Effect. The Loan Documents shall be
binding upon and inure to the benefit of Borrower, each Guarantor
and Lender and their successors, assigns and legal representatives;
provided, however, that Borrower may not, without the prior written
consent of Lender, assign any rights, power, duties or obligations
hereunder.
IX.19 Headings. Section headings area for
convenience of reference only and shall in no way affect the
interpretation of this Agreement.
IX.20 Survival. All representations and warranties
made by any Related Person herein shall survive delivery of the
Notes.
IX.21 Participations. Subject to the provisions
hereof, Lender shall have the right to enter into one or more
participation agreements with any other Person with respect to the
Notes, but such participation(s) shall not affect the rights and
duties of Lender hereunder vis-a-vis Borrower.
IX.22 No Third Party Beneficiary. The parties do not
intend the benefits of this Agreement to inure to any third party
(other than any Indemnitee as provided by Section 6.16), nor shall
this Agreement be construed to make or render Lender liable to any
materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower or any Guarantor, or for
debts or claims accruing to any such Persons against Borrower or
any Guarantor. Notwithstanding anything contained herein or in the
Notes, or in any other Loan Document, or any conduct or course of
conduct by any or all of the parties hereto, before or after
signing this Agreement or any other Loan Document, nothing
contained in this Agreement shall be construed as creating any
right, claim or cause of action against Lender, or any of its
officers, directors, agents or employees, in favor of any
materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower or any Guarantor, nor to
any other Person other than Borrower or any Guarantor.
IX.23 Multiple Counterparts. This Agreement may be
executed in any number of counterparts, all of which taken together
shall constitute one and the same agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart.
IX.24 NO ORAL AGREEMENTS. THIS WRITTEN LOAN
AGREEMENT, TOGETHER WITH THE LOAN DOCUMENTS 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 OF THE
PARTIES.
IX.25 Transfer of Interest. Lender may sell,
transfer or otherwise assign all or any portion of its rights and
obligations under this Agreement and any Loan Document at any time
and from time to time. Any such assignee shall be a party to and,
to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment, have the rights and
obligations of a Lender hereunder. If such assignment is approved
in writing by Borrower, the assigning party shall, to the extent of
such assignment, be released by Borrower and each Guarantor from
all liability hereunder and under all Loan Documents.
IX.26 NO DEFENSES. EACH RELATED PERSON HEREBY AGREES
THAT NO ACTION OR CONDUCT PERFORMED OR TAKEN BY THE ORIGINAL
LENDERS SHALL CREATE A DEFENSE TO THE PAYMENT OF THE OBLIGATIONS OR
CREATE ANY RIGHT OF SET-OFF, RECOUPMENT OF COUNTERCLAIM IN FAVOR OF
SUCH RELATED PERSON WITH RESPECT TO THE OBLIGATIONS.
ARTICLE X
[Intentionally Omitted]
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
BORROWER:
PRIDE COMPANIES, L.P., a Delaware limited partnership
By: PRIDE REFINING, INC., a Texas corporation,
Managing General Partner
By:
Dave Caddell
Vice President
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
GUARANTORS:
PRIDE REFINING, INC.
By:
Dave Caddell
Vice President
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
PRIDE SGP, INC.
By:
Dave Caddell
Vice President
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
PRIDE MARKETING OF TEXAS (CEDAR WIND), INC.
By:
Dave Caddell
Secretary
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas (Cedar Wind), Inc., its General
Partner
By:
Dave Caddell
Vice President
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
PRIDE BORGER, INC.
By:
Dave Caddell
Vice President
1209 N. 4th
Abilene, Texas 79601
(915) 676-8792 (Fax)
LENDER:
VARDE PARTNERS, INC.
By:
George Hicks
Vice President
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
EXHIBIT 10.30
SEVENTH AMENDMENT TO FIFTH RESTATED AND
AMENDED CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT
AGREEMENT (herein called the "Amendment"), is made as of the 30th
day of December, 1997, by and among Pride Companies, L.P., a
Delaware limited partnership ("Borrower"), Pride Refining, Inc., a
Texas corporation ("Pride Refining"), Pride SGP, Inc., a Texas
corporation ("Pride SGP"), Desulfur Partnership, a Texas general
partnership ("Desulfur Partnership"), Pride Marketing of Texas
(Cedar Wind), Inc., a Texas corporation ("Pride Marketing"), Pride
Borger, Inc., a Delaware corporation ("Pride Borger"), and Varde
Partners, Inc. (the "Lender"):
WITNESSETH:
WHEREAS, Borrower, Pride Refining, Pride SGP, Desulfur
Partnership, Pride Marketing, Pride Borger, NationsBank of Texas,
N.A., as Agent (the "Original Agent") and the Lenders party thereto
(the "Original Lenders") have entered into that certain Fifth
Restated and Amended Credit Agreement dated as of August 13, 1996,
as amended by that certain First Amendment to Fifth Restated and
Amended Credit Agreement dated as August 17, 1996, that certain
Second Amendment to Fifth Restated and Amended Credit Agreement
dated as of February 25, 1997, that certain Third Amendment to
Fifth Restated and Amended Credit Agreement dated as of March 31,
1997, that certain Fourth Amendment to Fifth Restated and Amended
Credit Agreement dated as of May 15, 1997, that certain Fifth
Amendment to Fifth Restated and Amended Credit Agreement dated as
of August 14, 1997 and that certain Sixth Amendment to Fifth
Restated and Amended Credit Agreement dated as of November 14, 1997
(as so amended, the "Original Agreement") for the purpose and
consideration therein expressed, whereby Original Lenders became
obligated to make loans to Borrower as therein provided;
WHEREAS, the Lender and NationsBank of Texas, N.A.
("NationsBank") are party to an Assignment Agreement, dated as of
November 24, 1997, pursuant to which NationsBank sold to the Lender
all of its right, title and interest in, to and under the Loans and
the Original Agreement;
WHEREAS, the Lender and Bank One, Texas, N.A. ("Bank One") are
party to an Assignment Agreement, dated as of November 24, 1997,
pursuant to which Bank One sold to the Lender all of its right,
title and interest in, to and under the Loans and the Original
Agreement;
WHEREAS, the Lender and Borrower have entered into that
certain Letter Agreement (the "Letter Agreement"), pursuant to
which, among other things, Borrower has agreed that Lender shall
receive (x) a $500,000 transaction fee (the "Transaction Fee"),
(y) up to a $3,000,000 Purchase Price Adjustment Amount (the
"Additional Purchase Price Adjustment Fee") and (z) an additional
amount if the aggregate outstanding Revolving Loans as of the date
hereof are less than $7,400,000 (the "Revolver Adjustment Amount"),
upon consummation of the transactions contemplated thereby;
WHEREAS, the aggregate outstanding Revolving Loans as of the
date hereof equals $6,907,000;
WHEREAS, the Borrower and Lender have agreed that (x) the
Borrower may request that Lender make a Revolving Loan to Borrower
which Borrower shall use to pay the Transaction Fee and (y) upon
receipt of such request the Lender shall be deemed to have made a
$500,000 Revolving Loan to the Borrower equal to the Transaction
Fee (the "First Revolving Loan");
WHEREAS, the Borrower and Lender have agreed that (x) Borrower
may request that Lender make a Revolving Loan to Borrower which
Borrower shall use to pay the Additional Purchase Price Adjustment
Fee and (y) upon receipt of such request Lender shall be deemed to
have made a $3,000,000 Revolving Loan to the Borrower which amount
shall be equal to the Additional Purchase Price Adjustment Fee (the
"Second Revolving Loan");
WHEREAS, the Borrower and the Lender have agreed that (x) the
Borrower may request that Lender make a Revolving Loan to Borrower
which Borrower shall use to pay the Revolver Adjustment Amount and
(y) upon receipt of such request Lender shall make a $493,000
Revolving Loan to the Borrower equal to the Revolver Adjustment
Amount (the "Third Revolving Loan").
WHEREAS, the Letter Agreement provides that Lender shall make
a $4,000,000 loan to the Borrower (the "Additional Loan");
WHEREAS, the Lender and Borrower have agreed that Lender shall
satisfy its obligation to make the Additional Loan by making a
Revolving Loan to the Borrower in an amount equal to the Additional
Loan (the "Fourth Revolving Loan," and together with the First
Revolving Loan, Second Revolving Loan and Third Revolving Loan,
collectively, the "Additional Revolving Loans");
WHEREAS, the Lender, Borrower, Pride Refining, Pride SGP,
Desulfur Partnership, Pride Marketing and Pride Borger have agreed
to enter into that certain Sixth Restated and Amended Credit
Agreement, dated as of December 30, 1997 (the "Restated Credit
Agreement"), in the form attached hereto as Exhibit A;
WHEREAS, under the Restated Credit Agreement (i) the First
Revolving Loan shall be designated as a Series B-2 Term Loan (as
defined therein); (ii) the Second Revolving Loan shall be
designated as a Series B-3 Term Loan (as defined therein),
(iii) the Third Revolving Loan shall be designated as a Series B-1
Term Loan (as defined therein) and (iv) the Fourth Revolving Loan
shall be designated as a Series B-1 Term Loan;
WHEREAS, Borrower does not have sufficient availability under
the existing Revolver Commitment for Lender to make the Additional
Revolving Loans contemplated by the Letter Agreement;
WHEREAS, Borrower has requested Lender to increase the
Revolver Commitment, and Lender has agreed to do so, subject to the
terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein and in the
Original Agreement and in consideration of the Revolving Loans
which may be made by Lender to Borrower pursuant hereto, and for
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I.
Definitions and References
Section I.1 Terms Defined in the Original Agreement.
Unless the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section I.2 Other Defined Terms. Unless the context
otherwise requires, the following terms when used in this Amendment
shall have the meanings assigned to them in this Section 1.2.
"Amendment" shall mean this Sixth Amendment to Fifth Restated
and Amended Credit Agreement.
"Credit Agreement" shall mean the Original Agreement as
amended hereby.
ARTICLE II.
Amendments to Original Agreement
Section II.1 Defined Terms. The definition of "Revolver
Commitment" in Section 1.1 of the Original Agreement is hereby
amended in its entirety to read as follows:
"'Revolver Commitment' shall mean the aggregate maximum
obligation, of each Lender to make Advances under this
Agreement (as such commitment may be reduced pursuant to
Section 2.04 or at the applicable Maturity Date) which
obligation shall at no time exceed $14,900,000."
ARTICLE III.
Conditions of Effectiveness
Section III.1 Effective Date. This Amendment shall become
effective as of the date first above written when, and only when
Lender shall have received, at Lender's office, a counterpart of
this Amendment executed and delivered by each Related Person and
Lender.
Section III.2 Conditions Subsequent. This Amendment shall no
longer be effective and it shall be an Event of Default under the
Credit Agreement if the Effective Date (as defined in the Restated
Credit Agreement) does not occur simultaneously herewith.
ARTICLE IV.
Representations and Warranties
Section IV.1 Representations and Warranties of Borrower. In
order to induce Lender to enter into this Amendment, each Related
Person represents and warrants to Lender that:
(1) The representations and warranties contained in
Article V of the Original Agreement are true and correct at
and as of the time of the effectiveness hereof.
(2) Each Related Person is duly authorized to execute
and deliver this Amendment, and Borrower is and will continue
to be duly authorized to borrow monies and to perform its
obligations under the Credit Agreement. Each Related Person
has duly taken all corporate and partnership action necessary
to authorize the execution and delivery of this Amendment and
to authorize the performance of the obligations of such
Related Person hereunder and thereunder.
(3) The execution and delivery by each Related Person of
this Amendment, the performance by each Related Person of its
obligations hereunder and the consummation of the transactions
contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the
partnership agreement, articles of incorporation and bylaws of
any Related Person, or of any material agreement, judgment,
license, order or permit applicable to or binding upon any
Related Person, or result in the creation of any lien, charge
or encumbrance upon any assets or properties of any Related
Person. Except for those which have been obtained, no
consent, approval, authorization or order of any court or
governmental authority or third party is required in
connection with the execution and delivery by each Related
Person of this Amendment or to consummate the transactions
contemplated hereby.
(4) When duly executed and delivered, this Agreement
will be a legal and binding obligation of each Related Person,
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and by
equitable principles of general application.
ARTICLE V.
Miscellaneous
Section V.1 Ratification of Agreements. The Original
Agreement as hereby amended and all other Loan Documents are hereby
ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a
reference to the Original Agreement as hereby amended. The
execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lender under the Credit Agreement or any
other Loan Document nor constitute a waiver of any provision of the
Credit Agreement, the Notes or any other Loan Document nor
constitute a waiver of any Default or Event of Default.
Section V.2 Survival of Agreements. All representations,
warranties, covenants and agreements of the Related Person herein
shall survive the execution and delivery of this Amendment and the
performance hereof, including, without limitation, the making or
granting of the Loans, and shall further survive until all of the
Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any Related
Person hereunder or under the Credit Agreement to Lender shall be
deemed to constitute representations and warranties by, and/or
agreements and covenants of, Borrower under this Amendment and
under the Credit Agreement.
Section V.3 Loan Documents. This Amendment is a Loan
Document, and all provisions in the Credit Agreement pertaining to
Loan Documents apply hereto.
SECTION V.4 GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF) AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN
ALL RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section V.5 Collateral Documents. Each Related Person
hereby agrees to deliver to Lender within ten days from the date
hereof, such supplements, amendments and/or modifications of and to
the existing Collateral Documents as the Lender shall request, in
form and substance acceptable to the Lender, to reflect of record
the increase in the Revolver Commitment.
Section V.6 Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
Section V.7 Borrowing. Upon this Amendment becoming
effective in accordance with Section 3.1 hereof, Borrower shall be
deemed to have delivered a Notice of Borrowing to the Lender in the
form attached to the Credit Agreement requesting a Borrowing in the
amount of $7,993,000. Lender, upon its receipt of such Notice of
Borrowing, shall (x) be deemed to have made a Revolving Loan to
Borrower in the amount of $3,500,000 (which shall include the First
Revolving Loan and Second Revolving Loan) and (y) make a Revolving
Loan to Borrower in the amount of $4,493,000 (which shall include
the Third Revolving Loan and Fourth Revolving Loan), subject to and
in accordance with the terms and conditions contained in the
Original Agreement.
[Intentionally Left Blank]
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS 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 OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date
first above written.
BORROWER:
PRIDE COMPANIES, L.P.,
a Delaware limited partnership
By: PRIDE REFINING, INC.,
a Texas corporation,
Managing General Partner
By:___________________________
Dave Caddell
Vice President
GUARANTORS:
PRIDE REFINING, INC.
By:_________________________________
Dave Caddell
Vice President
PRIDE SGP, INC.
By:_________________________________
Dave Caddell
Vice President
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By:_________________________________
Dave Caddell
Secretary
DELSULFUR PARTNERSHIP
By: Pride marketing of Texas
(Cedar Wind), Inc.,
its General Partner
By:_________________________________
Dave Caddell
Vice President
PRIDE BORGER, INC.
By:_________________________________
Dave Caddell
Vice President
LENDER:
VARDE PARTNERS, INC.
By:_________________________________
George Hicks
Vice President
CONSENT AND AGREEMENT
Each of Pride Refining, Pride SGP and Desulfur Partnership
hereby consents to the provisions of this Amendment and the
transactions contemplated herein, and hereby ratifies and confirms
the Second Restated Guaranty Agreement dated as of August 13, 1996,
made by it for the benefit of Original Agent and Original Lenders,
and agrees that its obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect.
PRIDE REFINING, INC.
By:________________________
Name:
Title:
PRIDE SGP, INC.
By:________________________
Name:
Title:
DELSULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its general partner
By:________________________
Name:
Title:
CONSENT AND AGREEMENT
Pride Marketing hereby consents to the provisions of this
Amendment and the transactions contemplated herein and hereby
ratifies and confirms the Restated Guaranty Agreement dated as of
August 13, 1996, made by it for the benefit of Original Agent and
Original Lenders, and agrees that its obligations and covenants
thereunder are unimpaired hereby and shall remain in full force and
effect.
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By:________________________
Name:
Title:
PRIDE BORGER, INC.
By:________________________
Name:
Title:
CONSENT AND AGREEMENT
Each of Pride Refining, Pride SGP and Desulfur Partnership
hereby consents to the provisions of this Agreement and the
transactions contemplated herein, and hereby ratifies and confirms
the Second Restated Guaranty Agreement dated as of August 13, 1996,
made by it for the benefit of Original Agent, Original Lenders and
Purchasers and agrees that its obligations and covenants thereunder
are unimpaired hereby and shall remain in full force and effect.
PRIDE REFINING, INC.
By:________________________
Dave Caddell
Vice President
PRIDE SGP, INC.
By:________________________
Dave Caddell
Vice President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its general partner
By:________________________
Dave Caddell
Vice President
CONSENT AND AGREEMENT
Each of the undesigned hereby consents to the provisions of
this Agreement and the transactions contemplated herein, and hereby
ratifies and confirms the Restated Guaranty Agreement dated as of
August 13, 1996, made by it for the benefit of Original Agent,
Original Lenders and Purchasers and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in full
force and effect.
PRIDE BORGER, INC.
By:________________________
David Caddell
Vice President
PRIDE MARKETING OF TEXAS
(CEDAR WIND ), INC.
By:________________________
Dave Caddell
Secretary
EXHIBIT 10.31
RESTRUCTURING AND OVERRIDE AGREEMENT
Restructuring and Override Agreement, dated as of December 30,
1997 (the "Agreement"), by and among Varde Partners, Inc., a
Delaware corporation ("Varde"), Pride Companies, L.P., a Delaware
limited partnership ("Pride"), Pride Refining, Inc., a Texas
corporation ("MGP"), as the managing general partner of Pride and
Pride SGP, Inc., a Texas corporation ("SGP"), as the special
general partner of Pride. Capitalized terms used herein but not
otherwise defined herein shall have the meaning set forth in the
Credit Agreement (as hereinafter defined).
W I T N E S S E T H :
WHEREAS, pursuant to a certain Fifth Restated and Amended
Credit Agreement, dated as of August 13, 1996 (as amended by the
First through Sixth Amendments thereto, the "Original Credit
Agreement"), by and among Pride, NationsBank of Texas, N.A.
("NationsBank"), Bank One, Texas, N.A. ("Bank One") and the
guarantors described therein, Pride has, among other things,
outstanding Term Loans and Revolving Loans (as defined therein)
owing to NationsBank and Bank One in the amounts set forth on
Schedule I;
WHEREAS, pursuant to a certain Note Agreement, dated as of
August 13, 1996 (as amended by three subsequent amending
Agreements, the "Original Note Agreement"), Pride has issued the
Series A Notes, the Series B Notes and the Series C Notes (as
defined therein, and collectively, the "Convertible Notes") to
NationsBank and Bank One in the amounts set forth on Schedule I;
WHEREAS, but for the transactions described in this
Agreement, Pride's obligations under the Term Loans, the Revolving
Loans and the Convertible Notes would have either (i) become due
and payable by the terms thereof or (ii) by virtue of defaults,
been accelerated by NationsBank or Bank One;
WHEREAS, Pride, MGP, SGP and Varde desire to enter into this
Agreement and to consummate the transactions contemplated hereby in
order to maximize the value of Pride for its benefit and for the
benefit of its creditors and owners;
WHEREAS, in view of the circumstances described above, Varde
and NationsBank have entered into an Assignment Agreement, dated
November 24, 1997, and Varde and Bank One have entered into a
second Assignment Agreement, also dated November 24, 1997
(together, the "Assignment Agreements"), pursuant to which
NationsBank and Bank One agreed to sell, and Varde agreed to buy,
subject to the terms and conditions thereof, all of NationsBank's
and Bank One's right, title and interest in, to, under and relating
to the Term Loans, the Convertible Notes and the Revolving Loans
(the "Original Debt");
WHEREAS, Pride, MGP, SGP and Varde have agreed to enter into
this Agreement and to consummate the transactions contemplated
hereby, upon the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Stage 1 Restructuring.
Stage 1 Transactions. Each of Pride, MGP, SGP and Varde hereby
acknowledges, and agrees and consents to all of the transactions
described in this Section 1.1 (the "Stage 1 Transactions"). Each
of Pride, MGP, SGP and Varde acknowledges and agrees that the
respective obligations of the parties hereto to consummate each
Stage 1 Transaction, is conditioned upon the occurrence of each of
the other Stage 1 Transactions and upon the satisfaction of the
Stage 1 Closing Conditions (as hereinafter defined) which are for
its benefit.
Immediately upon Varde's acquisition of the Original Debt from
NationsBank and Bank One, Varde will hold the following:
Principal Amounts
-----------------
Term Loans $ 22,046,000
Series A Notes $ 2,500,000
Series B Notes $ 9,321,851
Series C Notes $ 5,000,000
Revolving Loans $ 6,907,000
The parties hereby agree that immediately upon Varde's acquisition
of the Original Debt, the "Refinancing Trigger Date" (as defined in
the Original Note Agreement) will be deemed to have occurred, and
in accordance with the terms of such Original Note Agreement, the
Convertible Notes shall automatically convert as follows:
Principal Amounts or Stated Values
Before the Conversion After the Conversion
--------------------- ---------------------
Series A Notes $2,500,000 Series A $2,500,000
Unsecured Note
Series B Notes $9,321,851 Series B Units $9,321,851
Series C Notes $5,000,000 Series C Units $5,000,000
The terms of the Series B Units and the Series C Units shall be as
set forth in their respective Certificates of Designations,
attached hereto as Exhibit A.
Concurrently with Varde's acquisition of the Original Debt, the
Seventh Amendment to the Fifth Restated and Amended Credit
Agreement, dated as of December 30, 1997 and attached hereto as
Exhibit B, shall be executed and delivered by Pride and Varde,
increasing the aggregate amount outstanding under the Revolver
Commitment to $14,900,000.
Concurrently with Varde's acquisition of the Original Debt, the
Term Loans and the Revolving Loans shall be restructured as
follows:
Principal Amounts or Stated Values
Before Restructuring After Restructuring
- - -------------------- -------------------
Term Loans $ 22,046,000 Series A Term Loans $ 20,000,000
Revolving Loans $ 14,900,000 Series B-1 Term Loans $ 6,000,000
Series B-2 Term Loans $ 500,000
Series B-3 Term Loans $ 3,000,000
Series C Term Loans $ 4,688,924
Series D Units $ 2,757,076
The terms of the Series D Units shall be as set forth in its
Certificate of Designations, attached hereto as Exhibit C.
The Sixth Restated and Amended Credit Agreement, dated as of
December 30, 1997 (the "Credit Agreement," and attached hereto as
Exhibit D) by and among Pride, Varde and the guarantors described
therein, together with the ancillary documents set forth therein
and required to be executed concurrently therewith (collectively,
the "Loan Documents"), shall be entered into, reflecting the new
credit and financing arrangements described in Sections 1.1(b), (c)
and (d) above.
Varde shall reduce the aggregate annual interest and dividend cash
payment owed to it by Pride with respect to the Outstanding
Securities (as hereinafter defined), other than the Series A Term
Loans, to $1,090,000, and Pride shall pay such amount annually in
cash as interest and distribution payments on the Outstanding
Securities other than the Series A Term Loans. Subject to
Section 1.4(f), the amount of interest and dividends in excess of
this amount shall be accrued and paid in kind (as hereinafter
defined) in the following manner: First, the cash payment shall be
applied in the following order: Series B-1 Term Loans, Series B-2
Term Loans, Series B-3 Term Loans, Series C Term Loans, Series A
Unsecured Note, Series B Units, Series C Units and Series D Units
(or the New Preferred Unit A, the New Preferred Unit B and the New
Preferred Unit C, in the event the Stage 3 Transactions (as
hereinafter defined) have been effected). Then, subject to
Section 1.4(f), the distribution shall be paid in kind on the
remaining securities as to which the interest or dividend was not
paid in full in cash.
As used herein, "paid in kind," when used in reference to any
distribution payable with respect to any of the Outstanding
Securities (as hereinafter defined), means payment of the
distribution by issuance of (i) additional notes in the principal
amount equal to the dollar amount of accrued but unpaid interest or
(ii) additional number of Units (as hereinafter defined) with an
aggregate Stated Value (as hereinafter defined) equal to the
dollar amount of accrued and unpaid dividends. Units issued as
distributions payable in kind shall be duly authorized and validly
issued and, upon issuance, shall have rights (including without
limitation distribution, voting, conversion and redemption rights)
identical to the outstanding Units in respect of which they are
issued.
As used herein, "Unit" or "Units" refers to the preferred limited
partnership units of Pride. As of the Stage 1 Closing, Pride shall
have the Series B Units, the Series C Units, and the Series D
Units, each with a stated value per Unit of $1,000 (the "Stated
Value").
1.2 Closing. The closing of the Stage 1 Transactions (the
"Stage 1 Closing") shall take place at the office of Ropes & Gray
in New York, New York, at 10:00 A.M., local time, on December 30,
1997 (the "Stage 1 Closing Date").
1.3 Closing Conditions. The obligations of each party hereto to
consummate the Stage 1 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 1 Closing, of the
following conditions (the "Stage 1 Closing Conditions"):
(1) For the benefit of all parties:
(i) Varde shall have acquired the Term Loans, the
Convertible Notes and the Revolving Loans from NationsBank and Bank
One, pursuant to the Assignment Agreements.
(ii) The Credit Agreement and the Loan Documents shall
have been duly executed and delivered and be in full force and
effect, and no Default or Event of Default (as defined therein)
shall have occurred and be continuing thereunder.
(iii) The Revolving Credit and Term Loan Agreement, dated
as of December 30, 1997 (the "BankBoston Agreement," and attached
hereto as Exhibit E), by and among Pride, BankBoston, N.A.
("BankBoston") and the other parties thereto, pursuant to which
BankBoston shall provide $86,000,000 in total aggregate facilities
in the forms of (i) a secured letter of credit and revolving credit
facility and (ii) a secured term loan, shall have been duly
executed and delivered and be in full force and effect, and no
Default or Event of Default (as defined therein) shall have
occurred and be continuing thereunder.
(iv) All permits, approvals, consents and filings
required to be obtained or made by any of the parties with respect
to this Agreement, the Credit Agreement, the Loan Documents or the
BankBoston Agreement, or the transactions contemplated hereby or
thereby, shall have been obtained and be in full force and effect.
(v) No injunction, writ, temporary restraining order,
decree or any order of any nature shall have been issued by any
court or other governmental authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement
or the transactions contemplated hereby.
(vi) The Agreement of Pride SGP, dated as of August 13,
1996, by and between SGP and Pride, shall have been duly amended
and restated as the Pride SGP Equity Conversion Agreement, attached
hereto as Exhibit F, and be in full force and effect.
(2) For the benefit of Varde:
(i) Pride shall have issued and delivered to Varde the
Series A Unsecured Note, attached hereto as Exhibit G, and no
default or event of default shall have occurred and be continuing
in respect of the Series A Unsecured Note.
(ii) Pride shall have delivered to Varde duly authorized
and validly issued Series B Units, Series C Units and Series D
Units in the aggregate Stated Values set forth in Sections 1.1(b)
and 1.1(d).
(iii) Varde shall have acquired all of NationsBank's and
Bank One's right, title and interest in to, under and relating to
the two Warrants to Purchase Common Units, each dated as of
December 31, 1996, issued to NationsBank and Bank One,
respectively.
(iv) The Registration Rights and Transfer Restriction
Agreement, dated as of December 31, 1996, by and among Pride,
NationsBank and Bank One, and relating to the Series B Units and
the Series C Units shall have been duly amended and restated as the
Amended and Restated Registration Rights Agreement (the "Amended
and Restated Registration Rights Agreement," and attached hereto as
Exhibit H), and be in full force and effect.
(v) A new Registration Rights Agreement, dated as of
December 30, 1997 (the "Registration Rights Agreement," and
attached hereto as Exhibit I), by and between Pride and Varde, and
relating to the New Preferred Unit B and the New Preferred Unit C,
shall have been duly executed and delivered and be in full force
and effect.
(vi) The representations and warranties of Pride, MGP and
SGP contained in this Agreement, the Credit Agreement, the Loan
Documents and the BankBoston Agreement, shall be true and correct
on and as of the Stage 1 Closing Date, with the same force and
effect as though made on and as of the Stage 1 Closing Date. Each
of Pride, MGP and SGP shall have performed and complied with all
covenants and conditions required by this Agreement, the Credit
Agreement, the Loan Documents and the BankBoston Agreement to be
performed or complied with by such party on or prior to the Stage
1 Closing Date.
(vii) No claims shall be pending or, to the knowledge of
Varde, be threatened to restrain or prohibit, or to obtain damages
or a discovery order in respect of this Agreement, the Credit
Agreement, the Loan Documents or the BankBoston Agreement, or the
transactions contemplated hereby or thereby.
(viii) There shall have been no material adverse change
to the business, condition (financial or otherwise), management,
assets, properties, income or prospects of Pride since September
30, 1997.
(ix) All actions and proceedings hereunder, and all
documents required to be delivered hereunder or in connection with
the consummation of the Stage 1 Transactions and all other related
matters, shall be reasonably acceptable to counsel to Varde, as to
their form and substance.
(x) Opinion of Andrews & Kurth L.L.P., counsel to Pride,
addressed to Varde, shall have been delivered to Varde in form and
substance satisfactory to Varde.
(3) For the benefit of Pride:
(i) Varde shall have delivered the Convertible Notes
marked "canceled" to Pride.
(ii) The representations and warranties of Varde
contained
in this Agreement, the Credit Agreement and the Loan Documents
shall be true and correct on and as of the Stage 1 Closing Date,
with the same force and effect as though made on and as of the
Stage 1 Closing Date. Varde shall have performed and complied with
all covenants and conditions required by this Agreement, the Credit
Agreement and the Loan Documents to be performed or complied with
by it on or prior to the Stage 1 Closing Date.
(iii) No claims shall be pending or, to the knowledge of
Pride, MGP or SGP, be threatened to restrain or prohibit, or to
obtain damages or a discovery order in respect of this Agreement,
the Credit Agreement, the Loan Documents or the BankBoston
Agreement, or the transactions contemplated hereby or thereby.
(iv) All actions and proceedings hereunder, and all
documents required to be delivered hereunder or in connection with
the consummation of the Stage 1 Transactions and all other related
matters, shall be reasonably acceptable to counsel to Pride, as to
their form and substance.
(v) Opinion of counsel to Varde, addressed to Pride,
shall have been delivered to Pride in form and substance
satisfactory to Pride.
1.4 Covenants.
(1) Any proceeds (the "DFSC Proceeds") received by Pride in
connection with a certain Proposal for Additional Compensation,
dated October 24, 1994, from Pride to the Defense Fuel Supply
Center, shall be applied as follows: (x) the first $6,000,000 (or,
if less, all of such proceeds) to reduce the Series A Term Loan,
(y) the next $5,000,000 to ratably reduce each of the respective
Series B Term Loans or if applicable, redeem the New Preferred
Unit A held by Varde provided, however, that funds applied to the
redemption of New Preferred Unit A as provided herein shall be so
applied with respect to the initial Stated Value of the New
Preferred Units being redeemed and any portion of the Redemption
Price of such Units attributable to adjustments to Stated Value
shall be paid out of other funds of Pride, and (z) the remainder,
if any, shall be paid (i) two-thirds to Pride and (ii) one-third to
Varde in immediately available funds, no later than two Business
Days after Pride's receipt thereof. To the extent, if any,
required by clause (ii) of Section 4.3.5 of the BankBoston
Agreement, any amount paid to Varde under clause (z)(ii) of this
Section 1.4(a) shall be applied as set forth in such section.
(2) Each of Pride and MGP agree to use its best efforts to
have the Board of Directors of MGP approve, as soon as practicable
after the date hereof, the election to the Board of Directors of
the Managing General Partner of the Company of one additional
director (the "Series B and C Director") of the Managing General
Partner (out of a total Board of Directors consisting of nine
directors) who is a principal of Varde or who is designated by
Varde and acceptable to the Managing General Partner if: no holder
of Series B Units, Series C Units or Series D Units (or any
Affiliate of such a holder) holds, directly or indirectly, any debt
of the Company (other than the Series A Term Loans, the Series B
Term Loans, the Series C Term Loans and the Series A Unsecured
Note), and (i) the Company shall have failed to pay in full in cash
the amounts required to be paid per annum under Section 1.1(f) of
this Agreement for six quarterly distribution periods (whether or
not consecutive), or (ii) the Company shall have failed to redeem
in full for cash all outstanding Series B Units, Series C Units or
Series D Units on or before any date on which such redemption is
required, or (iii) the Company shall have defaulted in the
performance of any of its covenants or agreements contained in the
Partnership Agreement or the respective Certificates of
Designations with respect to the Series B Units, Series C Units or
Series D Units. If such approval is obtained, appropriate
amendments shall be made to the certificates of designations and
appropriate voting agreements with the stockholders shall be
executed and delivered.
(3) At any time on or prior to the third anniversary of the
Stage 1 Closing Date, Pride or certain members of Pride's
management designated in writing by Pride (the "Designated
Management") shall have the right (the "Call Option"), upon not
less than thirty Business Days written notice (the "Call Notice")
to Varde, to require Varde to sell all, but not less than all, of
its interest in all of the securities acquired in connection with
the Stage 1 Closing (including all of the securities into which the
initially acquired securities have been converted pursuant to the
Stage 3 Transactions (as hereinafter defined)) and all securities
issued as payments in kind with respect to such initially acquired
securities (collectively, the "Outstanding Securities"). The
closing of this sale and purchase (the "Option Closing") shall take
place thirty Business Days (as hereinafter defined) after receipt
of the Call Notice by Varde, and any exercise by Pride or the
Designated Management of the Call Option shall become irrevocable
once exercised. The exercise price (the "Exercise Price") for the
Call Option shall be, as of any date, set at an amount such that
the Exercise Price will produce the sum of (i) all amounts
outstanding under the Series B-2 Term Loans (including all accrued
interest thereon and other amounts payable with respect thereto)
plus (ii) a 40% IRR (as hereinafter defined) to Varde, subject to
a minimum Exercise Price of $7,500,000 plus the cost to Varde of
acquiring the Outstanding Securities then subject to the Call
Option. The Exercise Price shall be paid by Pride to Varde at the
Option Closing by wire transfer in immediately available funds. In
exchange, Varde shall deliver the securities with respect to which
the Call Option has been exercised to Pride or Designated
Management, without any representations or warranties other than
its ownership thereof free and clear of any lien or other
encumbrance, which securities shall be taken subject to Pride
Management's (as hereinafter defined) interest therein as set forth
in the Management Agreements (as hereinafter defined).
Notwithstanding the foregoing, Pride or the Designated Management
may exercise the Call Option only with respect to the Outstanding
Securities other than the Series B-2 Term Loans, in which event the
Exercise Price shall exclude clause (i) of the definition thereof
and the Series B-2 Term Loans shall remain outstanding after such
exercise.
As used herein, "Business Day" means any day other than a Saturday,
Sunday or other day on which commercial banks in the City of New
York are authorized or required by law or executive order to close.
As used herein, "IRR" means a compounded internal rate of return
derived by taking into account (i) the $29,000,000, representing
the amount invested in Pride by Varde in respect of the Outstanding
Securities other than the Series B-2 Term Loans, (ii) the amount of
any interest or dividend payments, or other distributions on the
Outstanding Securities, as the case may be, received by Varde on
such Outstanding Securities (as of the dates received), (iii) the
amount of any proceeds received by Varde upon the cancellation or
redemption prior to any date of determination of its IRR of all or
any portion of such Outstanding Securities (as of the dates
received) and (iv) without duplication, the amount of any DFSC
Proceeds received by Varde in accordance with clause (z)(ii) of
Section 1.4(a) hereof. The determination of Varde's IRR shall be
made by Varde in accordance with the provisions hereof and shall be
conclusive and binding on Pride in the absence of manifest error.
As used herein, "Pride Management" means those certain members of
the management of Pride, designated by Pride, who are parties to
the Management Agreements (as hereinafter defined).
As used herein, "Management Agreements" means the Assignment
Agreements by and between Varde and each member of Pride
Management, a form of which is attached hereto as Exhibit J.
(4) Varde agrees, upon the execution and delivery to Varde
of each of the Notes, the Security Agreements and the Employment
Agreements (each as defined in the Management Agreements, forms of
which are attached hereto as Exhibit K), and a legal opinion from
Andrews & Kurth L.L.P. in form and substance satisfactory to Varde,
to execute and deliver the Management Agreements.
(5) Pride agrees not to modify, rescind or amend any
Employment Agreement without the prior written consent of Varde.
(6) Pride agrees to cooperate with Varde to ensure that the
holder of the Outstanding Securities is entitled to preferential
distributions which will not be taxable to such holder if such
preferential distributions are not paid in cash and that such
preferential distributions will not be characterized as "guaranteed
payments" for purposes of the Internal Revenue Code of 1986, as
amended. Pride may accomplish the intent of this Section 1.4(f) by
amending the Outstanding Securities or exchanging the Outstanding
Securities for new securities that have identical terms and
conditions to those for which they are exchanged other than changes
necessary to accomplish the intent of this section. In connection
with such cooperation, Pride will take into account the benefit to
the holder of the Outstanding Securities contemplated by this
section and any adverse impact on Pride and its partners and will
use its reasonable efforts to give effect to the intent of this
Section 1.4(f) unless the tax benefits to the holder of the
Outstanding Securities realizable on a current cash basis are not
greater than the tax detriment, if any, to Pride and its partners
on a current cash basis. Pride agrees that the inability to take
a deduction for guaranteed payments shall not be considered a tax
detriment. Varde acknowledges that certain actions that may be
taken in connection with herewith may require the approval of
Pride's Unitholders (as hereinafter defined).
2. Stage 2 Restructuring.
2.1 Stage 2 Transactions. Each of MGP, Pride, SGP and
Varde hereby acknowledges, agrees and consents to the transaction
described in this Section 2.1 (the "Stage 2 Transactions"). Each
of Pride, MGP, SGP and Varde acknowledges and agrees that the
respective obligations of the parties hereto to consummate each
Stage 2 Transaction, is conditioned upon the satisfaction of the
Stage 2 Closing Conditions (as hereinafter defined) which are for
its benefit:
(a) Pride shall repay in full, all of the outstanding
amounts under the Series A Term Loans, beginning with all accrued
interest thereon and any other amounts payable with respect
thereto.
2.2 Closing. The closing of the Stage 2 Transactions
(the "Stage 2 Closing") shall take place simultaneously with the
satisfaction of the Stage 2 Closing Conditions under Section
2.3(b)(i) below.
2.3 Closing Conditions. The obligations of each party
hereto to consummate the Stage 2 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 2 Closing, of the
following conditions (the "Stage 2 Closing Conditions"):
(1) For the benefit of all parties:
(i) The Stage 1 Transactions shall have been
consummated.
(ii)A third-party lender (including, but not limited
to, BankBoston) acceptable to Pride and Varde shall have provided
sufficient financing to enable Pride to repay the full outstanding
balance under the Series A Term Loans, including all accrued
interest thereon and any other amounts payable with respect thereto
(collectively, the "Series A Term Loan Repayment Amount").
(iii) All permits, approvals, consents and filings
required to be obtained or made by any of the parties with respect
to the Stage 2 Transactions shall be obtained and be in full force
and effect.
(2) For the benefit of Varde:
(i) Varde shall have received by wire transfer, in
immediately available funds, the Series A Term Loan Repayment
Amount.
(ii) All actions and proceedings hereunder, and all
documents required to be delivered hereunder or otherwise in
connection with the consummation of the Stage 2 Transactions and
all other related matters, shall be reasonably acceptable to
counsel to Varde as to their form and substance.
(3) For the benefit of Pride:
(1) Pride shall have received the Series A Term Note
marked canceled or the Series A Term Loans shall have been assigned
to the new third party lender.
(2) All actions and proceedings hereunder, and all
documents required to be delivered hereunder or in connection with
the consummation of the Stage 2 Transactions and all other related
matters, shall be reasonably acceptable to counsel to Pride as to
their form and substance.
2.4 Covenants. Pride and MGP hereby jointly and
severally covenant and agree with Varde, subject to no condition
other than the consummation of the Stage 1 Transactions, that:
(1) The supply contract, by and between Pride and Texaco
Trading and Transportation, Inc., a Delaware corporation (the
"Texaco Supply Contract") shall be in full force and effect as of
the date hereof, and each of Pride, MGP and SGP shall use
reasonable efforts to achieve all operational prerequisites for
receiving product under the Texaco Supply Contract as promptly as
practicable, but no later than March 31, 1998.
(2) Each of Pride and MGP shall use reasonable efforts to
cease operations of Pride's refinery located in Jones County, Texas
and provide a written confirmation of the same to Varde by June 30,
1998.
(3) Each of Pride and MGP shall use its reasonable best
efforts to satisfy all of the conditions set forth in Article 5 of
the BankBoston Agreement which must be satisfied in order to effect
the Stage 2 Transaction.
3. Stage 3 Restructuring.
3.1 Stage 3 Transactions. Each of Pride, MGP, SGP and
Varde hereby acknowledges, and agrees and consents to all of the
transactions described in this Section 3.1 (the "Stage 3
Transactions"). Each of Pride, MGP, SGP and Varde acknowledges and
agrees that the respective obligations of the parties hereto to
consummate each Stage 3 Transaction, is conditioned upon the
occurrence of each of the other Stage 3 Transactions and upon the
satisfaction of the Stage 3 Closing Conditions (as hereinafter
defined) which are for its benefit.
(1) Varde agrees to exchange the Outstanding Securities
for the following:
Principal Amounts or Stated Values
Before the Exchange After the Exchange
- - ------------------- ------------------
Series B Term Loans $9,500,000 New Preferred Unit A $9,500,000
Series C Term Loans $4,688,924 New Preferred Unit B $2,500,000
Series A Unsecured
Note $2,500,000 New Preferred Unit C $2,500,000
Series B Units $9,321,851
Series C Units $5,000,000
Series D Units $2,757,076
(2) The terms of the New Preferred Unit A and the New
Preferred Unit C (together with the New Preferred Unit B,
collectively, the "New Preferred Units") shall be substantially
the same as the terms of the New Preferred Unit B, the Form of
Certificate of Designations of which is attached hereto as
Exhibit L, with the following exceptions:
(1) The New Preferred Unit B shall rank junior to the
New Preferred Unit A, and the New Preferred Unit C shall rank
junior to the New Preferred Unit A and the New Preferred Unit B,
as to distributions or upon liquidation, dissolution or winding
up.
(2) Each series of New Preferred Units shall vote as
a separate class.
(3) The dividend rates per annum on the New Preferred
Units shall be as follows:
Percentage of
Stated Value
New Preferred Unit A 12%
New Preferred Unit B 5%
New Preferred Unit C 5%
Except as provided in Section 1.1(f) above, all distributions
shall be paid solely in cash.
(4) The New Preferred Units shall be convertible into the
Common (as hereinafter defined) at such a conversion price
determined on the basis of the total number of Common outstanding
as of the Stage 3 Closing Date, calculated on a fully diluted
basis. If all of the outstanding New Preferred Units are
converted into the Common on the Stage 3 Closing Date, they shall
result in the following percentages of the total number of Common
outstanding (on a fully diluted basis):
Percentage of
Common
New Preferred Unit A None
New Preferred Unit B 10%
New Preferred Unit C 42%
As used herein, the "Common" refers to the common limited
partnership units of Pride.
(3) In the event the Stage 2 Transactions have not
occurred, but the Stage 3 Transactions do take place, the
dividend rates and the conversion features of the New Preferred
Units shall be as follows:
Dividend Conversion
New Preferred Unit A 12% None
New Preferred Unit B 5% 10%
New Preferred Unit C 5% 50%
The interest rates on the outstanding Series A Term Loans shall
be as set forth in the Credit Agreement.
3.2 Closing. The closing of the Stage 3 Transactions (the
"Stage 3 Closing") shall take place as soon as practicable,
subject to the satisfaction of the Stage 3 Closing Conditions,
but in any event no later than such date (the "Stage 3 Closing
Date") that is no later than ten Business Days after the
Unitholder approval has been obtained pursuant to Section 3.4(a)
below.
As used herein, "Unitholder" refers to the holders of
Pride's Series B Units, Series C Units and the Common.
3.3 Closing Conditions. The obligations of each party
hereto to consummate the Stage 3 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 3 Closing, of the
following conditions (the "Stage 3 Closing Conditions"):
(1) For the benefit of all parties:
(1) The Stage 1 Transactions shall have been
consummated.
(2) Pride shall have obtained the approval of
its Unitholders for the exchange of the Outstanding Securities for
the New Preferred Units.
(3) Pride shall have obtained the approval of
the New York Stock Exchange and any other required regulatory
authority for the exchange of the Outstanding Securities for the
New Preferred Units.
(4) The Second Amended and Restated Agreement
of Limited Partnership of Pride Companies, L.P. shall be amended in
connection with the issuance of the New Preferred Units with such
amended terms and conditions satisfactory to Pride and Varde.
(2) For the benefit of Varde:
(1) The Stage 3 Closing shall have occurred on
or before October 1, 1999.
(2) Pride shall have delivered to Varde duly
authorized and validly issued New Preferred Unit A, New Preferred
Unit B and New Preferred Unit C in the aggregate Stated Values
set forth in Section 3.1(a). The terms of the New Preferred
Units shall be as set forth in this Agreement and in their
respective Certificates of Designations, a form of which is
attached hereto as Exhibit L.
(3) The representations and warranties of
Pride, MGP and SGP contained in this Agreement (including, without
limitation, each of the representations and warranties contained
in Section 4.1 of this Agreement) shall be true and correct on
and as of the Stage 3 Closing Date, with the same force and
effect as though made on and as of the Stage 3 Closing Date.
Each of Pride, MGP and SGP shall have performed and complied with
all covenants and conditions required by this Agreement to be
performed or complied with by such party on or prior to the Stage
3 Closing Date.
(4) There shall have been no material adverse
change to the business, condition (financial or otherwise),
management, assets, properties, income or prospects of Pride
since September 30, 1997.
(5) The Credit Agreement, the Loan Documents
and the BankBoston Agreement continue to be in full force and
effect, and no default or event of default shall have occurred and
be continuing thereunder (including, without limitation, under
Sections 8.1(h) and 8.1(i) of the Credit Agreement and Section
8.1.10 of the BankBoston Agreement).
(6) Pride shall not be a party to any agreement
involving a merger, consolidation or sale of any substantial
portion of the assets of Pride or have announced a
recapitalization. For the purposes of this Section 3.3(b)(vi),
any line of business of Pride shall be deemed to constitute a
substantial portion of the assets of Pride.
(7) Opinion of Andrews & Kurth L.L.P. counsel
to Pride, addressed to Varde, shall have been delivered to Varde in
form and substance satisfactory to Varde.
(3) For the benefit of Pride:
(1) Varde shall have delivered to Pride the
Series B Term Loans, the Series C Term Loans, the Series A
Unsecured Note and the Series B Units and the Series C Units
marked "canceled."
(2) The representations and warranties of Varde
contained in this Agreement shall be true and correct on and as
of the Stage 3 Closing Date, with the same force and effect as
though made on and as of the Stage 3 Closing Date. Varde shall
have performed and complied with all covenants and conditions
required by this Agreement to be performed or complied with by
Varde on or prior to the Closing Date.
3.4 Covenants.
(1) Pride agrees to use its best efforts to
solicit the consents of its Unitholders in order to effect the
Stage 3 Transactions. Pride agrees, prior to October 1, 1999, to
cause a meeting or solicitation of the Unitholders to be duly
called or made, for the purpose of voting on or soliciting the
approval of the Stage 3 Transactions. The general partners of
Pride shall recommend the approval and adoption of the Stage 3
Transactions submitted to the Unitholders. In connection with
the Unitholder Meeting, Pride: (i) shall promptly prepare and
file with the Securities and Exchange Commission ("SEC"), in
accordance with the Securities Exchange Act of 1934 (the
"Exchange Act"), a consent solicitation (the "Consent
Solicitation"), which, when filed, shall contain all of the
information required to be set forth therein by the applicable
provisions of the Exchange Act; (ii) shall use all reasonable
efforts to have the Consent Solicitation and/or any amendment or
supplement thereto cleared by the SEC, and shall promptly as
practicable thereafter mail such Consent Solicitation to its
Unitholders; (iii) shall use all reasonable efforts to obtain the
necessary approvals by its Unitholders of the Stage 3
Transactions; and (iv) shall otherwise comply with all legal
requirements applicable to such a meeting of Unitholders.
(2) Varde agrees to provide Pride with such
information relating to Varde which is required to be disclosed
for the purpose of obtaining the consents of Pride's Unitholders.
(3) Pride hereby agrees to comply with each of the
Additional Covenants set forth on Schedule II attached hereto.
4.0 Representations and Warranties.
4.1 Pride, MGP and SGP hereby jointly and severally
represent and warrant to Varde as of the Stage 1 Closing Date, as
follows:
(1) Each of Pride, MGP and SGP is a limited
partnership or a corporation, respectively, duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its formation, and has all requisite power and
authority to execute and deliver this Agreement and all other
agreements, instruments and documents (collectively, the "Related
Documents") executed and delivered by it in connection herewith,
and to consummate the transactions contemplated hereby and by the
Related Documents, and has obtained all consents and approvals
and made all registrations required to be made or obtained by it
in connection herewith and therewith.
(2) The execution, delivery and performance of this
Agreement and the Related Documents executed and delivered by
Pride, MGP or SGP in connection herewith do not violate (i) any
law, rule, regulation, order, writ, judgment, injunction, decree,
or determination presently in effect and having applicability to
such party, (ii) any contract, indenture, mortgage, loan
agreement, note, lease or other instrument by which Pride, MGP or
SGP may be bound or to which any of the assets of such party is
subject, or (iii) any provision of Pride's, MGP's or SGP's
organizational documents, subject, in the case of the Stage 3
Transactions, to the approval of Pride's Unitholders.
(3) Each of this Agreement and the Related Documents
to which Pride, MGP or SGP is a party constitutes the legal,
valid and binding obligation of Pride, MGP and SGP, enforceable
against Pride, MGP and SGP in accordance with its terms.
(4) There are no, and after giving effect to the
transactions contemplated hereby there will not be, any actions,
suits, proceedings, claims or disputes pending, or to the best
knowledge of Pride, MGP or SGP, threatened, at law, in equity, in
arbitration or before any governmental authority against Pride,
MGP or SGP with respect to this Agreement, the Related Documents,
or any of the transactions contemplated hereby or thereby.
(5) No information disclosed to Varde by or on behalf
of Pride, MGP or SGP in connection with (i) the ability of Pride,
MGP or SGP to perform its respective obligations as set forth in
this Agreement, or (ii) any other matter relating to the
transactions contemplated hereby or by the Related Documents,
contains any untrue statement of material fact or omits to state
a material fact necessary in order to make such information taken
as a whole, in light of the circumstances under which it was
disclosed, not misleading.
(6) There are 4,950,000 Common Units issued and
outstanding and 7,938,252 Common Units outstanding on a fully
diluted basis.
(7) Each of the Series B Units, Series C Units and
Series D Units will be duly authorized and validly issued, upon
issuance pursuant to this Agreement, with all rights and
privileges pertaining thereto set forth in their respective
Certificate of Designations. Upon issuance, each of the New
Preferred Units issued pursuant to the Stage 3 Transactions shall
be duly authorized and validly issued.
(8) The representations and warranties contained in
the Credit Agreement, the BankBoston Agreement and this Agreement
are true and correct. No default or event of default has
occurred and is continuing under the Credit Agreement or the
BankBoston Agreement.
4.2 Varde's Representations. Varde hereby represents and
warrants as of the date hereof as follows:
(1) Varde is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its formation, and has all requisite power and authority to
execute and deliver this Agreement and the Related Documents
executed and delivered by it in connection herewith and to
consummate the transactions contemplated hereby and by such
Related Documents, and has obtained all consents and approvals
and made all registrations required to be made by it in
connection herewith and therewith.
(2) The execution, delivery and performance of this
Agreement and the Related Documents executed and delivered by
Varde in connection herewith do not violate (i) any law, rule,
regulation, order, writ, judgment, injunction, decree, or
determination presently in effect and having applicability to
Varde, (ii) any contract, indenture, mortgage, loan agreement,
note, lease or other instrument by which Varde may be bound or to
which any of the assets of Varde is subject or (iii) any
provision of Varde's organizational documents.
(3) This Agreement constitutes the legal, valid and
binding obligation of Varde, enforceable against Varde in
accordance with its terms.
(4) Varde is acquiring the Outstanding Securities
solely for investment purposes, and not with a view to, or for
resale in connection with, any distribution of the Outstanding
Securities in violation of applicable securities laws. Varde
understands that the Outstanding Securities have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws by reason of
specific exemptions under the provisions thereof, the
availability of which depend in part upon the bona fide nature of
its investment intent and upon the accuracy of its
representations made in this Section 4. Varde understands that
Pride is relying in part upon the representations and agreements
contained in this Section 4 for the purpose of determining
whether this transaction meets the requirements for such
exemptions.
(5) Varde is an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(6) Varde has such knowledge, skill and experience in
business, financial and investment matters that it is capable of
evaluating the merits and risks of an investment in the
Outstanding Securities.
(7) Varde understands that the Outstanding Securities
are "restricted securities" under applicable federal securities
laws, that the Securities Act and the rules promulgated
thereunder provide in substance that it may dispose of the
Outstanding Securities only pursuant to an effective registration
statement under the Securities Act or an exemption therefrom, and
that Pride has no obligation or intention to register any of the
Outstanding Securities, or securities issuable upon conversion or
exercise thereof, thereunder (except pursuant to the Amended and
Restated Registration Rights Agreement and the Registration
Rights Agreement).
5.0 Indemnities.
Pride, MGP and SGP hereby jointly and severally agree to
indemnify and hold Varde and its agents, affiliates, and
controlling persons, and each of their officers, partners,
directors, and employees (collectively, the "Indemnitees"),
harmless from and against any and all expenses (including,
without limitation, reasonable attorneys' fees and
disbursements), costs, losses, claims, damages or liabilities
(collectively, "Losses") which are incurred by the Indemnitees or
any of them, caused or in any way resulting from or relating to
this Agreement, any of the Related Documents or in connection
with any of the transactions contemplated hereby and thereby.
Notwithstanding the foregoing, no Indemnitee shall be indemnified
for any Losses resulting from (i) adverse market conditions or
changes or (ii) the willful misconduct or gross negligence of
such Indemnitee.
6.0 Miscellaneous
6.1 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns;
provided, however, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by Pride,
MGP, SGP or any of their subsidiaries, except as provided in
Section 1.4(c) hereof.
6.2 Notices. All notices, demands or other communications
between any of the parties hereto shall be in writing. Notices
delivered personally or by telecopier shall be deemed received on
the same Business Day if delivered personally or by telecopier
before 3:00 p.m. (recipient's local time) on such day, and
otherwise on the next Business Day. Any notice, demand or other
communication so addressed to the relevant parties shall be
deemed to have been received (i) if given or made by certified or
registered mail, by hand delivery or by courier service, when
actually delivered to the relevant address (and such location is
open for business) and (ii) if given or made by facsimile, on the
date that the communication is received by a responsible employee
of the recipient in legible form (and being agreed that the
burden of proving receipt will be on the sender and will not be
met by a transmission report generated by the sender's facsimile
machine).
All notices to Pride shall be given to:
Pride Companies L.P.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to MGP shall be given to:
Pride Refining, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to SGP shall be given to:
Pride SGP, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to Varde shall be given to:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George G. Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
6.3 Termination. In the event the Stage 1 Closing does not
occur on or prior to January 31, 1998, any party may immediately
terminate this Agreement upon written notice to the other
parties, and this Agreement shall become null and void and have
no further force or effect. Notwithstanding anything to the
contrary herein, this Section 6.3 and Sections 1.4(b), 2.4(d),
3.4(d) and 5 shall survive such termination and remain in full
force and effect and any such termination shall not affect any
obligation of any party which is due and remains unfulfilled
(including, without limitation, any amounts due and unpaid under
this Agreement or under any Related Document).
6.4 Final Integration. This Agreement, together with the
exhibits and schedules attached hereto and the Related Documents
executed and delivered in connection herewith, shall serve as the
final integration and expression of all agreements between Pride
and any other party or parties with respect to the subject matter
hereof, and any previous agreement, representation or warranty,
whether oral or written, shall have no further force and effect.
6.5 Publicity. Except as may be required by applicable law
or the rules of any national securities exchange or national
market, none of Pride, MGP or SGP shall issue a publicity release
or announcement or otherwise make any public disclosure
concerning this Agreement, any Related Document or any of the
transactions contemplated hereby or thereby, without prior
approval by Varde. If any announcement is required by law to be
made by Pride, MGP or SGP, prior to making such announcement,
Pride, MGP or SGP, as the case may be, will deliver a draft of
such announcement to Varde and shall give Varde an opportunity to
comment thereon.
6.6 Governing Law. The laws of the State of New York
(without regard to principles of conflict of laws that would
cause the application of the laws of any other jurisdiction)
shall govern the construction, interpretation and enforceability
of this Agreement in any dispute, case or controversy arising in
or under or related to or connected with this Agreement or the
relationship between or among the parties hereto.
6.7 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING TO WHICH ANY OF THEM ARE PARTIES INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT, DUTY IMPOSED BY LAW OR OTHERWISE) IN ANYWAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED
DOCUMENT, OR THE RELATIONSHIP ESTABLISHED HEREUNDER AND WHETHER
ARISING OR ASSERTED BEFORE OR AFTER THE DATE HEREOF OR BEFORE OR
AFTER THE PAYMENT OBSERVANCE AND PERFORMANCE IN FULL OF ANY
OBLIGATIONS OF ANY PARTY UNDER THIS AGREEMENT OR ANY OF THE
RELATED DOCUMENTS.
6.8 LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY
PRIDE, MGP OR SGP AGAINST VARDE OR ITS AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, OR ATTORNEYS FOR ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL
CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR
DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR IN ANY
WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIPS
ESTABLISHED BY THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH.
EACH OF PRIDE, MGP AND SGP HEREBY WAIVE, RELEASE AND AGREE NOT TO
SUE UPON SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED
AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
6.9 Survival of Representations. All representations,
warranties, covenants, disclaimers, acknowledgments and
agreements made by the parties hereto shall be considered to have
been relied upon by the parties hereto, and shall be true and
correct as of the date hereof and as of the Stage 1 Closing Date
and the Stage 3 Closing Date, and shall survive the execution,
performance and delivery of this Agreement and all other
documents contemplated hereby for a period of three years from
the Stage 1 Closing Date.
6.10 Further Assurances. Each of the parties hereto agrees
to execute and deliver, or cause to be executed and delivered,
all such instruments and to take all such action as the other
party may reasonably request in order to effectuate the intent
and purposes of and to carry out the terms of this Agreement and
the transactions contemplated hereby.
6.11 Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed
by Pride, MGP, SGP and Varde. No waiver of any provision of this
Agreement nor consent to any departure by the parties therefrom,
shall be effective unless it is in writing and signed by each of
the other parties, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given.
6.12 Headings. The headings of the Sections of this
Agreement are for information purposes only and do not constitute
a part of this Agreement.
6.13 Expenses. Pride shall pay all of the actual out-of-
pocket expenses (including, without limitation, reasonable
attorneys' fees and disbursements) of Varde up to $250,000
arising out of, relating to or incidental to this Agreement and
the transactions contemplated hereby, including the discussions,
evaluations, negotiations and documentations of this Agreement
and the transactions contemplated hereby plus all such expenses
incurred in connection with Section 1.1 of the Management
Agreements.
6.14 Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be original
but all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
their duly authorized officers to execute this Agreement on the
date first above written.
VARDE PARTNERS, INC.
By: /s/ George G. Hicks
Name: George G. Hicks
Title: Vice President
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc., Its Managing General Partner
By:/s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
PRIDE REFINING, INC.
By:/s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
PRIDE SGP, INC.
By:/s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
Schedule I
Original Debt
Borrower: Pride Companies, L.P.
Lenders: NationsBank of Texas, N.A.
Bank One, Texas, N.A.
Amount Owed as of
Type of Loan December 30, 1997
------------ -----------------
Term Loans $22,046,000
Series A Notes $ 2,500,000
Series B Notes $ 9,321,851
Series C Notes $ 5,000,000
Revolving Loans* $ 6,907,000
Total $45,774,851
*Amount outstanding as of December 30, 1997
Schedule II
Additional Covenants
1.0 Financial Statements and Reports. Each of
Pride and its Subsidiaries shall maintain a system of accounting in
which correct entries shall be made of all transactions in
relation to their business and affairs in accordance with
generally accepted accounting practice. The fiscal year of Pride
and its Subsidiaries shall end on March 31, June 30, September 30
and December 31 in each year.
(1) Annual Reports. Pride shall furnish to
Varde as soon as available, and in any event within 90 days after
the end of each fiscal year (or, if such 90th day is not a
Business Day, the next succeeding Business Day), the audited
Consolidated balance sheet of Pride and its Subsidiaries as at
the end of such fiscal year, the Consolidated statements of
income and Consolidated statements of changes in partners' equity
and of cash flows of Pride and its Subsidiaries for such fiscal
year (all in reasonable detail) and comparative figures for the
immediately preceding fiscal year, all accompanied by:
(1) Reports of Ernst & Young LLP (or, if they cease
to be auditors of Pride and its Subsidiaries, other
independent certified public accountants of recognized
national standing reasonably satisfactory to Varde),
containing no material qualification, to the effect that
they have audited the foregoing Consolidated financial
statements in accordance with generally accepted auditing
standards and that such Consolidated financial statements
present fairly, in all material respects, the financial
position of Pride and its Subsidiaries covered thereby at
the dates thereof and the results of their operations for
the periods covered thereby in conformity with GAAP.
(2) Computations by Pride comparing the financial
statements referred to above with the most recent budget
for such fiscal year furnished to Varde in accordance with
Section 6.1(d) of the Credit Agreement.
(3) Calculations, as of the end of such fiscal
year, of (i) the Accumulated Benefit Obligations for each
Plan (other than Multiemployer Plans) and (ii) the fair
market
value of the assets of such Plan allocable to such
benefits.
(4) In the event of a change in GAAP after December
31, 1997, computations by Pride, signed by a Financial
Officer, reconciling the financial statements referred to
above with the financial condition of Pride and its
Subsidiaries as at the end of and for the year covered by
such financial statements.
(5) In reasonable detail, management's discussion
and analysis of the results of operations and the
financial condition of Pride and its Subsidiaries as at
the end of and for the year covered by such financial
statements.
(2) Quarterly Reports. Pride shall furnish
to Varde as soon as available and, in any event, within 45 days
after the end of each of the first three fiscal quarters of Pride
(or, if such 45th day is not a Business Day, the next succeeding
Business Day), the internally prepared Consolidated balance sheet
of Pride and its Subsidiaries as of the end of such fiscal
quarter, the Consolidated statements of income, of changes in
partners' equity and of cash flows of Pride and its Subsidiaries
for such fiscal quarter and for the portion of the fiscal year
then ended (all in reasonable detail) and comparative figures for
the same period in the preceding fiscal year, all accompanied by:
(1) A certificate of Pride signed by a Financial
Officer to the effect that such financial statements have
been prepared in accordance with GAAP and present fairly,
in all material respects, the financial position of Pride
and its Subsidiaries covered thereby at the dates thereof
and the results of their operations for the periods
covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.
(2) Computations by the Borrower comparing the
financial statements referred to above with the most
recent budget for the period covered thereby furnished to
Varde in accordance with Section 6.1(d) of the Credit
Agreement.
(3) In reasonable detail, management's discussion
and analysis of the results of operations and financial
condition of Pride and its Subsidiaries as at the end of
and for the fiscal period covered by the financial
statements referred to above.
(3) Monthly Reports. Pride shall furnish to
Varde as soon as available and, in any event, within 30 days
after the end of each Month (or, if such 30th day is not a
Business Day, the next succeeding Business Day, the internally
prepared Consolidated balance sheet of Pride and its Subsidiaries
as at the end of such Month and the Consolidated statements of
income of Pride and its Subsidiaries for such month (all in
reasonable detail), all accompanied by a certificate of Pride
signed by a Financial Officer to the effect that such financial
statements were prepared in accordance with GAAP and present
fairly, in all material respects, the financial position of the
Persons covered thereby at the date thereof and the results of
the of their operations for the periods covered thereby, subject
only to normal year-end audit adjournments and the addition of
footnotes.
(4) Other Reports. Pride shall promptly
furnish to the Varde:
(i) As soon as prepared and in any event at
least 30 days prior to the beginning of each fiscal year,
an annual budget and operating projections for such fiscal
year of Pride and its Subsidiaries, prepared in a manner
consistent with the manner in which the financial
projections described in Section 5.6 of the Credit
Agreement were prepared.
(ii) Any material updates such budget and
projections.
(iii) Any management letters furnished to
Pride
or any of its Subsidiaries by the Pride's auditors.
(iv) All budgets, projections, statements of
operations and other reports furnished generally to
the shareholders and Pride.
(v) Such registration statements, proxy
statements and reports, including Forms S-1, S-2,
S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by the
Pride or any of its Subsidiaries with the Securities
and Exchange Commission and all press releases issued
by Pride or any of the guarantors under the Credit
Agreement (the "Guarantor").
(vi) Any 90-day letter or 30-day letter from
the federal Internal Revenue Service (or the
equivalent notice received from state or other taxing
authorities) asserting tax deficiencies against Pride
or any of its Subsidiaries.
(vii) The financial statements of MGP and SGP
for each fiscal year, such financial statements to
include the balance sheet, income statement and cash
flow statement for such period, and be delivered as
so as available and in any event within 90 days after
the end of the each fiscal year.
(viii) Within 120 days after the end of
Pride's fiscal year, an annual projections model,
satisfactory in both form and context to Varde, which
model shall cover a minimum of three projected years.
(ix) As soon as available, copies of the
minutes
of all meetings of the boards of directors of each of
MGP or SGP and all meetings of holders of the equity
securities of the Guarantors.
(5) Other Information. Such other
information concerning the business, properties or financial
condition of Pride as Varde shall reasonably request.
2.0 Other Notices. Pride shall promptly notify
Varde of (i) any material adverse change in the financial condition
of Pride or any of the Guarantors, or their businesses, (ii) any
default under any material agreement, contract, or other instrument
to which it is a party or by which any of its properties are bound,
or any acceleration of the maturity of any Indebtedness owing by
Pride or any of the Guarantors, (iii) any material adverse claim
against any affecting Pride or any Subsidiary or any of its
properties, and (iv) the commencement of, and any material
determination in, any material litigation with any third party or
any proceeding before any Tribunal affecting Pride or any of the
Guarantors.
EXHIBIT 10.32
CERTIFICATE OF DESIGNATIONS
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Second Amended and Restated Agreement
of Limited Partnership
effective as of December 30, 1997
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, a series of preferred limited partnership units
of the Company has been duly established, and that such series has
the designations, rights, powers, preferences, qualifications,
limitations and restrictions set forth below:
SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series B Cumulative
Convertible Preferred Units" (herein referred to as the "Series B
Units"), which shall consist of a maximum of 15,850 Units, with a
Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions
set forth elsewhere herein, the following terms shall have the
meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series B Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series B Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series B Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Partnership Agreement" means that certain Second Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of December 31, 1996, as such agreement may be
amended.
"payable in kind" or "paid in kind," when used in
reference to any distribution payable with respect to the Units,
means payment of the distribution by issuance of that number (or
fraction) of additional Series B Units that has an aggregate Stated
Value equal to the dollar amount of the distribution then payable.
Units issued as distributions payable in kind shall be duly
authorized and validly issued and, upon issuance, shall have rights
(including, without limitation, distribution, voting, conversion
and redemption rights) identical to the outstanding Series B Units
in respect of which they are issued.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series B Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series C Units" means the Series C Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series C
Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December
30, 1997, relating to such series. Series D Units are Junior
Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $2,000,000 Loan. Series E
Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $450,000 Loan. Series F
Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series B Units.
"Units" means any or all or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions. (a) The Company shall pay to
the holders of the Series B Units, out of the assets of the Company
at any time legally available for the payment of distributions,
preferential quarterly distributions at the times and at the rates
provided for in this Section 3. Distributions shall accrue
cumulatively on each Unit from and including the date of original
issuance of such Unit to and including the date on which such Unit
shall have been converted into Common Units or redeemed and the
redemption price shall have been paid in full as contemplated by
Section 6 hereof, whether or not such distributions are declared by
the Company and whether or not there shall be (at the time such
distribution becomes payable or at any other time) profits, surplus
or other funds of the Company legally available for the payment of
distributions.
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Unit outstanding at
the following rates:
(i) during the three-year period beginning on
the Initial Issuance Date and ending on the date immediately
preceding the third anniversary thereof, at the rate of 6% per
annum of the Stated Value of the Unit, if paid in cash, or at
the rate of 8% per annum of such Stated Value, if paid in kind
in accordance with subsection (c) below;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Unit, payable in cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Unit, with respect to the
first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Units shall be
payable in cash or payable in kind, at the Company's option.
Notwithstanding the foregoing or anything else contained herein to
the contrary, however, (i) distributions payable on any Redemption
Date (as defined in Section 6 below) or on any final distribution
date relating to a dissolution, liquidation or winding up of the
Company, shall be payable in cash only and, if the payment date
does not occur on a regular Distribution Payment Date, shall be
calculated on the basis of the actual number of days elapsed
including the Redemption Date or such final distribution date and
(ii) all distributions payable on any Distribution Date in the
three-year period referred to in subsection (b)(i) shall be payable
only in cash to the extent that payments to Varde pursuant to
Section 1.1(f) of the Restructuring Agreement in any year are less
than $1,090,000.00. Distributions payable on the Units for any
period of less than a full quarterly distribution period shall be
computed on the basis of actual days elapsed, excluding the last
preceding Distribution Payment Date and including the last day of
such period, and on the basis of 360 days.
(d) To the extent not paid on a Distribution
Payment Date, all distributions which shall have accrued on each
Unit outstanding as of such Distribution Payment Date shall be
added to the Stated Value of such Unit and shall remain a part
thereof until paid, and distributions shall accrue and be paid on
such Unit on the basis of the Stated Value, as so adjusted;
provided, that any such unpaid distributions accruing during the
three-year period referred to in subsection (b)(i) shall be added
to such Stated Value at the rate specified in such subsection for
distributions paid in kind. Nothing in this subsection (d) or any
other provision hereof shall give the Company any right not to pay
any distribution as and to the extent required by subsection (b) of
this Section 3 or to defer or delay such payment beyond the
applicable Distribution Payment Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Units as they
appear on the books of the Company at the close of business on the
tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series B Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series B Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series B Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series B Units so that the amounts of
distributions per unit declared and paid on the Series B Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series B Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions on all
outstanding Series B Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner. If the Company shall have
paid any distributions on the Series B Units in kind, the
condition specified in the preceding sentence shall not be
deemed to be satisfied unless all Units issued in payment of
such distributions have been redeemed by the Company for cash.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
Section 4. Certain Covenants and Restrictions. So long
as any Series B Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities (except for Series B Units and Series C Units
issued as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations), or
any units or other securities or any options, warrants, notes,
bonds, debentures or other instruments convertible into,
exchangeable for or having rights to purchase any Senior Securities
or any Parity Securities or (ii) reclassify or modify any Junior
Security so that it becomes a Parity Security or Senior Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series B Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series B
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement; and
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series B Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series B Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units in accordance with Section 6 hereof;
provided, that funds applied to the redemption of Series B Units as
provided in clause (iii) shall be so applied with respect to the
initial Stated Value of the Units being redeemed and any portion of
the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings"), including, without
limitation, any Rights Offering as defined in Section 11, shall
consist of cash and shall be applied (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series B Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series B Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company. The Company may use up to $4.5
million, in the aggregate, of proceeds of Equity Offerings for
capital expenditures in excess of normal maintenance capital
expenditures if, out of every dollar so applied, no more than 60%
is applied to such excess capital expenditures and at least 40% is
applied in the manner provided in clauses (i), (ii) and (iii) of
this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series B Units one (1) copy of each of the following:
(i) Monthly Statements. As soon as available, and
in any event within 30 days after the end of each calendar
month, copies of the consolidated balance sheet of the Company
as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
(ii) Annual Statements. As soon as available after
each fiscal year end, and in any event within 90 days
thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series B Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon its
becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other information
concerning the business, properties or financial condition of
the Company as the holders of Series B Units representing 51%
or more of the aggregate Stated Value of the outstanding
Series B Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series B
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event of
any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series B Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all accrued and unpaid distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series B Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series B Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. For purposes of this Section 5,
neither a consolidation or merger of the Company with one or more
partnerships, corporations or other entities nor a sale, lease,
exchange or transfer of all or any part of the Company's assets for
cash, securities or other property shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary if
the surviving entity in any such consolidation, merger, sale,
lease, exchange or transfer assumes in writing all the Company's
obligations under this Certificate of Designations, the Amended and
Restated Registration Rights Agreement referred to in Section 12
hereof, the Pride SGP Equity Conversion Agreement, and the Warrants
to Purchase Common Units, issued by the Company to each holder of
Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series B
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series B Units shall not be entitled to share therein.
(c) Written notice of the commencement of any
proceeding for or that may result in any liquidation, dissolution
or winding up of the Company shall be given to holders of Series B
Units in accordance with Section 10(k), but neither the giving of
such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain
consent from holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a) The
Company may, at the option of the Managing General Partner, redeem
for cash at any time after the Retirement Date, from any source of
funds legally available therefor, in whole or in part, in the
manner provided below any and all of the outstanding Series B Units
at a redemption price per Unit (the "Redemption Price") equal to
the Stated Value per Unit redeemed plus an amount in cash equal to
the aggregate dollar amount of all accrued and unpaid distributions
through the Redemption Date (including a prorated distribution from
the most recent Distribution Payment Date to the Redemption Date)
that have not been added to the Stated Value of such Units.
"Redemption Date" means the date fixed by the Managing General
Partner for redemption. "Retirement Date" means the date on which
the Series A Term Loan, the Series B Term Loans, the Series C Term
Loan and the Series A Unsecured Note (each as defined in the Credit
Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series B Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series B Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series B Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series B
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series B Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series B Units (on a pro rata basis from all
holders of Series B Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series B Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series B Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series B Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Units, at least 20 days and not more than 60 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series B Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the outstanding
Series B Units are to be redeemed and the total number of
Series B Units being redeemed;
(ii) the number of Series B Units held by the
holder that the Company intends to redeem;
(iii) the Redemption Date and the Redemption Price;
(iv) that the holder is to surrender to the
Company, in the manner and at the place designated, the
certificate or certificates representing the Series B Units to
be redeemed; and
(v) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Units to be redeemed the funds necessary for such
redemption with a bank or trust company having capital and surplus
of at least $500 million and approved in writing by the holders of
Series B Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series B Units (the "Escrow Agent").
Any such funds (i) that represent the Redemption Price of Units
converted into Common Units pursuant to Section 10 prior to the
applicable Redemption Date or (ii) that are unclaimed at the end of
two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow
Agent shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Units entitled to receive any of such funds shall thereafter look
only to the Company for the payment of the Redemption Price. Any
interest on funds included in the Escrow Account shall be for the
account of the Company. The failure to establish the Escrow
Account by the date specified in this paragraph shall cause the
Redemption Notice that required such Escrow Account to have been
established to be ineffective, and the Company shall not have any
right to redeem any Units pursuant to such Redemption Notice. Such
failure shall not relieve the Company of any obligation to effect
a mandatory redemption of Units.
On or before the Redemption Date each holder of Series B
Units shall surrender to the Company the certificate or
certificates representing such Units to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for such Units shall be payable in cash on the
Redemption Date to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the
event that less than all Units represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Units.
In the event of a redemption of only a portion of the
then outstanding Series B Units, the Company shall effect such
redemption pro rata according to the number of Units held by each
holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series B Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Holders of all Series B Units shall have the right at any
time from and after the date on which the Company calls any Series
B Units for redemption and prior to the Redemption Date for such
Units to convert all or any part of the outstanding Units held by
them into Common Units at the Conversion Price (as defined in
Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to
effect such conversion at such time pursuant to Section 10.
Section 7. Prohibitions on Issuance. All Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series B Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) No equity securities of the
Company shall rank senior to the Series B Units with respect to the
payments required or permitted to be made to the holders thereof
pursuant to their respective governing instruments and the payments
required to be made to holders of the Series B Units pursuant
hereto. The Company shall not issue any debt security (except as
permitted by Section 4(e)).
(b) The following equity securities of the Company,
and no others, shall rank on a parity with the Series B Units with
respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments
and the payments required to be made to holders of the Series B
Units pursuant hereto: the Series C Units.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series B Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series B Units
pursuant hereto: the Series D Units, the Series E Units, the Series
F Units and the Common Units.
Section 9. Voting. (a) So long as any Series B Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series B Units and Series C Units representing
two-thirds or more of the aggregate Stated Value of the then
outstanding Series B Units and Series C Units, voting as one class,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that prescribe
the terms and conditions of the Series B Units or Series C Units;
provided, however, that any proposed amendment, alteration or
rescission of any provision of the Partnership Agreement or of the
Certificate of Designations of the Series B Units or Series C
Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the
holders of Series C Units representing two-thirds or more of the
aggregate Stated Value of the then outstanding Series B Units and
Series C Units, respectively, each voting as a separate class.
(b) So long as any Series B Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series B Units and Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units and Series C Units, voting as one class, (i) create,
authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B Units or
Series C Units (other than Series B Units or Series C Units issued
as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations);
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series B Units or Series C Units; (iii) commence
any voluntary proceeding (under bankruptcy, insolvency or similar
laws or otherwise) for or that may result in the liquidation,
dissolution or winding up of the Company, consent to the entry of
an order for relief in an involuntary proceeding under any federal
or state bankruptcy, insolvency or similar laws or to the
appointment of a receiver, liquidator, assignee, custodian, trustee
or other similar official of the Company or of any substantive part
of its properties, or make an assignment for the benefit of its
creditors or admit in writing its inability to pay its debts
generally as they become due; or (iv) reorganize, reclassify or
change any outstanding securities, consolidate or merge with or
into another partnership, corporation or other entity or sell or
transfer the property of the Company as an entirety or
substantially as an entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series B Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. Conversion Rights. (a) Each Series B Unit
shall be convertible at the option of the holder thereof into fully
paid Common Units at any time during the Conversion Period. The
number of Common Units deliverable upon conversion of one Series B
Unit shall be determined by dividing the Stated Value of the Series
B Unit by the Conversion Price (as defined below) then in effect.
The "Conversion Period" shall commence on March 31, 1998 and shall
end on the date on which all outstanding Series B Units have been
redeemed and the aggregate Redemption Price has been paid full in
accordance with Section 6 hereof.
(b) Conversion of any Series B Unit may be effected
by the holder thereof by the surrender of the certificate for such
Unit to the Company at the principal office of the Transfer Agent
in the State of Texas or at the office of any successor Transfer
Agent for the Series B Units, or to such other agent or agents of
the Company as may be designated by the Managing General Partner.
If any Series B Units are called for redemption pursuant to a
Redemption Notice in accordance Section 6 hereof, such right of
conversion shall cease and terminate as to the Units called for
redemption at the close of business on the Redemption Date, unless
the Company shall default in the payment of the Redemption Price
(in which event, such conversion right shall remain in effect until
full payment of the Redemption Price has been made) or shall have
failed to establish an Escrow Account as required by Section 6 (in
which event such call for redemption shall be ineffective, as
provided in Section 6, and such conversion right shall be
unaffected by such Redemption Notice).
(c) The price at which holders of Series B Units
may acquire Common Units pursuant to the conversion rights set
forth in this Section 10 (the "Conversion Price") initially shall
be $6.30 per Common Unit, which price has been determined on the
basis of the number of outstanding Common Units, on a fully diluted
basis, as of the Initial Issuance Date, so that if Series B Units
had been convertible and converted into Common Units on such date,
the holders of Series B Units representing an aggregate Stated
Value of $1.0 million would have received 2.0% of such outstanding
Common Units, on a fully diluted basis, as of such date. For this
purpose, the number of outstanding Common Units, on a fully diluted
basis, includes (i) Common Units actually outstanding on the
Initial Issuance Date and (ii) Common Units into which all
convertible securities, convertible debt and other convertible
instruments (including without limitation the Series B Units and
the Series C Units) and all warrants, options or other rights to
acquire any Common Units of the Company issued and outstanding on
the Initial Issuance Date are convertible, exchangeable or
exercisable (notwithstanding that such conversion, exchange or
exercise rights may not have been fully vested on the Initial
Issuance Date). The Conversion Price and Stated Value of the
Units, for purposes of conversion, are subject to adjustment as
provided herein.
(d) The Stated Value of each Series B Unit, for
purposes of conversion, shall be $1,000.00 plus the amount of
accrued and unpaid distributions for all distribution payment
periods ending on or prior to the date such Units are surrendered
to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent
Distribution Payment Date through and including the date on which
such Units are surrendered for conversion. Notwithstanding the
foregoing, holders of Series B Units surrendered for conversion
shall have the option to require the Company to make payment in
cash of all such accrued and unpaid distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally
available therefor and whether or not declared.
(e) As promptly as practicable after the surrender
of Series B Units for conversion, the Company shall issue and
deliver or cause to be issued and delivered to the holder of such
Units certificates representing the number of Common Units into
which such Series B Units have been converted in accordance with
the provisions of this Section 10. Subject to the following
provisions of this Section 10, such conversion shall be deemed to
have been made as of the close of business on the date on which the
Series B Units shall have been surrendered for conversion in the
manner herein provided, so that the rights of the holder of the
Series B Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon
conversion thereof shall be treated for all purposes as having
become the record holder or holders of such Common Units at such
time; provided, however, that any such surrender on any date when
the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights
of the holder or holders of the Series B Units so surrendered for
conversion and to constitute the Person or Persons entitled to
receive such Common Units as the record holder or holders thereof
for all purposes, at the opening of business on the next succeeding
day on which such transfer books are open and such conversion shall
be at the Conversion Price in effect at such time. The Company
will not at any time close its transfer books against the transfer
of any Series B Unit or of any Common Unit issued or issuable upon
the conversion of any Series B Unit in any manner which interferes
with the timely conversion of such Series B Unit.
(f) The Company shall not at any time limit the
number of Common Units that may be issued by the Company or take
any other action that would impair the Company's ability to issue
Common Units sufficient to permit the conversion of all outstanding
Series B Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into
or exercisable for Common Units. The Company shall not, by
amendment of its Partnership Agreement or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Section 10 by
the Company or any of the terms of its Partnership Agreement which
are applicable to Common Units issuable upon conversion of the
Series B Units, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section 10 and in the
taking of all such other action as may reasonably be requested by
any holder in order to protect the conversion privilege and other
rights of the Series B Units and of the Common Units issuable upon
conversion of the Series B Units against any impairment.
(g) The Company covenants and agrees that all
Common Units that may be issued upon the exercise of the conversion
rights of Series B Units will, upon issuance, be fully paid,
without any obligations to make additional capital contributions to
the Company, and free from all taxes, liens and charges with
respect to the issue thereof.
(h) The number and kind of securities purchasable
upon the exercise of the conversion rights of the Series B Units
shall be subject to adjustment from time to time upon the happening
of certain events, as follows:
(i) If the Company, at any time while any of the
Series B Units are outstanding, shall subdivide or combine its
Common Units, the Conversion Price shall be proportionately
reduced, in case of subdivision of units, as of the effective
date of such subdivision, or if the Company shall take a
record of holders of its Common Units for the purpose of so
subdividing, as of such record date, whichever is earlier, or
shall be proportionately increased, in the case of a
combination of units, as of the effective date of such
combination or, if the Company shall take a record of holders
of its Common Units for the purpose of so combining, as of
such record date, whichever is earlier; provided, however,
that nothing in this paragraph shall be deemed to permit the
Company to effect any such subdivision or combination in
violation of any other provision, including Section 4(c),
hereof.
(ii) If the Company at any time while any of the
Series B Units are outstanding shall:
(1) Make any distribution of Additional
Common Units (as defined below), the Conversion Price
shall be adjusted, as of the date the Company shall take
a record of the holders of its Common Units for the
purpose of receiving such distribution (or if no such
record is taken, as of the date of such distribution), to
that price determined by multiplying the Conversion Price
in effect immediately prior to such record date (or if no
such record is taken, then immediately prior to such
distribution) by a fraction (i) the numerator of which
shall be the total number of Common Units outstanding
immediately prior to such distribution, and (ii) the
denominator of which shall be the total number of Common
Units outstanding immediately after such distribution
(plus in the event that the Company paid cash for
fractional units, the number of Additional Common Units
which would have been outstanding had the Company issued
fractional units in connection with such distribution);
provided, however, that nothing in this paragraph shall
be deemed to permit the Company to effect any such
distribution in violation of any other provision,
including Section 3(f) or 4(b), hereof; or
(2) Issue any Additional Common Units to
the Special General Partner (regardless of any
consideration received by the Company for such issuance)
or make any payments under the Pipeline Lease in the form
of Additional Common Units, the Conversion Price shall be
adjusted, as of the date of such issuance or payment, to
that price determined by multiplying the Conversion Price
in effect immediately prior to such date by a fraction
(i) the numerator of which shall be the total number of
Common Units outstanding immediately prior to such
issuance or payment, and (ii) the denominator of which
shall be the total number of Common Units outstanding
immediately after such issuance or payment.
(iii) If the Company, at any time while any of the
Series B Units are outstanding and the Fair Market Price of
the Common Units is less than or equal to the Conversion
Price, shall issue any Additional Common Units (other than as
provided in the foregoing paragraphs (i) and (ii) of this
subsection) at a price per unit less than the Conversion Price
or without consideration, then the Conversion Price upon each
such issuance shall be reduced (but never increased) to a
price determined by multiplying the existing Conversion Price
by the following fraction, where O is the number of Common
Units outstanding, on a fully diluted basis, prior to such
issuance; N is the number of Additional Common Units being
issued; P is the amount of consideration received per unit by
the Company in exchange for issuance of such Additional Common
Units; and C is the existing Conversion Price:
O + (N x P divided by C)
------------------------
O + N
(iv) If the Company, at any time while any of the
Series B Units are outstanding and the Fair Market Price of
the Common Units is greater than the Conversion Price, shall
issue any Additional Common Units (other than as provided in
paragraphs (i) and (ii) of this subsection) at a price per
unit that is less than Fair Market Price, then the Conversion
Price upon each such issuance shall be reduced (but never
increased) to a price determined by multiplying the existing
Conversion Price by the following fraction, where O, N and P
have the meanings specified in paragraph (ii) of this
subsection (h) and M is the Fair Market Price:
O + (N x P divided by M)
------------------------
O + N
(v) If the Company at any time while any of the
Series B Units are outstanding shall issue any Common Unit
Equivalents (as defined below) and the price per unit for
which Additional Common Units may be issuable thereafter
pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but
greater than the Conversion Price, or if, after any such
issuance, the price per unit for which Additional Common Units
may be issuable thereafter is amended and such price as so
amended is less than the Conversion Price, or less than the
Fair Market Price but greater than the Conversion Price, at
the time of such amendment, then the Conversion Price upon
each such issuance or amendment shall be adjusted as provided
in paragraph (ii), (iii) or (iv) of this subsection, as
applicable, as if the underlying Additional Common Units had
been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall
be the consideration received by the Company for issuing such
Common Unit Equivalents plus the additional consideration
payable to the Company upon the exercise, conversion or
exchange of such Common Unit Equivalents. If the Conversion
Price is adjusted upon the issuance of Common Unit Equivalents
and such Common Unit Equivalents are thereafter canceled
without having been converted or exercised, and without any
Additional Common Units having been issued in respect thereof,
then the Conversion Price shall be readjusted to the
Conversion Price that would have been in effect if such Common
Unit Equivalents had never been issued. No adjustment of the
Conversion Price shall be made under paragraph (ii), (iii) or
(iv) of this subsection (h) upon the issuance of any
Additional Common Units that are issued pursuant to any Common
Unit Equivalents if upon the issuance of such Common Unit
Equivalents adjustments shall previously have been made
pursuant to this paragraph (v) to the same extent as would
have been made under paragraph (ii), (iii) or (iv) if such
Additional Common Units had been issued directly.
(vi) No adjustment shall be made to the Conversion
Price with respect to the issuance of any Additional Common
Units (or any Common Unit Equivalents pursuant to which such
Additional Common Units are issuable) at a price per unit that
is greater than both the Conversion Price and the Fair Market
Price.
(vii) For purposes of making the adjustments in the
Conversion Price as provided in this Section 10(h), the
consideration received by the Company shall be deemed to be
the following: to the extent that any Additional Common Units
or any Common Unit Equivalents shall be issued for cash
consideration, the consideration received by the Company
therefor; if such Additional Common Units or Common Unit
Equivalents are offered by the Company for subscription, the
subscription price; if such Additional Common Units or Common
Unit Equivalents are sold to underwriters or dealers for
public offering, the initial public offering price, in any
such case excluding any amount received for accrued interest
or accrued distributions and without deduction of any
commissions, discounts or expenses paid or incurred by the
Company in connection with the issue thereof; and to the
extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the
time of such issuance as determined in good faith by the
Managing General Partner of the Company. In the event of the
issuance at any time of any Additional Common Units or Common
Unit Equivalents in payment or satisfaction of any
distribution upon any class or series of units other than
Common Units, the Company shall be deemed to have received for
such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid
or satisfied; provided, that nothing herein shall be deemed to
permit the Company to issue Common Units for such purpose
under circumstances in which such issuance is not otherwise
permitted. In any case in which the consideration to be
received shall be other than cash, the Managing General
Partner shall notify each holder of Series B Units of its
determination of the fair market value of such consideration
prior to accepting receipt thereof. If, within 10 days of
receipt of such notice, the holders of Series B Units
representing 51% or more of the aggregate Stated Value of
Series B Units then outstanding shall notify the Managing
General Partner in writing of their objection to such
determination, a determination of the fair market value of
such consideration shall be made by an independent investment
banker (with an established national reputation) selected by
the Managing General Partner, with the written approval of the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units.
(viii) If any event occurs as to which, in the good
faith judgment of the holders of Series B Units representing
51% or more of the aggregate Stated Value of the outstanding
Series B Units, the other provisions of this Section 10(h) are
not strictly applicable or if strictly applicable would not
fairly protect the conversion rights of the holders of Series
B Units in accordance with the essential intent and principles
of such provisions, then the Managing General Partner shall
appoint a firm of independent public accountants (with an
established national reputation) who are satisfactory to the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units
(which may be the Company's regular independent auditors)
which shall give their opinion upon the adjustment, if any, on
a basis consistent with such essential intent and principles,
necessary to preserve, without dilution, the rights of the
holders of Series B Units. Upon receipt of such opinion, the
Managing General Partner shall forthwith make the adjustments
described therein; provided, that no such adjustment shall
have the effect of increasing the Conversion Price as
otherwise determined pursuant to this Section 10.
(ix) The Company may give notice to the holders
that the proceeds of certain Additional Common Units will be
used to redeem all outstanding Series B Units, which notice
shall be given prior to the actual issuance of such Additional
Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof,
such Additional Common Units shall not be considered in
determining an adjustment to the Conversion Price under this
Section 10(h) with respect to any Series B Units which become
subject to an election to convert after delivery of such
notice.
(i) If at any time the Company shall be a party to
any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all the Company's
assets, liquidation, or recapitalization of the Common Units) in
which the previously outstanding Common Units shall be changed into
or exchanged for different securities of the Company or common
stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any
combination of any of the foregoing or in which the Common Units
cease to be a publicly traded security either listed on the New
York Stock Exchange or the American Stock Exchange or quoted by the
NASDAQ National Market System or any successor thereto or
comparable system (each such transaction being herein called the
"Transaction," the date of consummation of the Transaction being
herein called the "Consummation Date," the Company (in the case of
a recapitalization of the Common Units or any other such
transaction in which the Company retains substantially all its
assets and survives as a limited partnership) or such other
corporation or entity (in each other case) being herein called the
"Acquiring Company," and the common stock (or equivalent equity
interests) of the Acquiring Company being herein called the
"Acquirer's Common Stock"), then, as a condition of the
consummation of the Transaction, lawful and adequate provisions
shall be made so that the holder of Series B Units, upon the
conversion thereof at any time on or after the Consummation Date
(but subject, in the case of an election pursuant to clause (B) or
(C) below, to the time limitation hereinafter provided for such
election),
(A) shall be entitled to receive, and such
Series B Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet
the requirements set forth in clauses (D), (E), and (F)
below, in which case shares of the common stock of the
corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring
Company if it meets the requirements set forth in
clauses (D), (E), and (F) below, at a conversion price
per share equal to the lesser of (1) the Conversion Price
in effect immediately prior to the Consummation Date
multiplied by a fraction the numerator of which is the
market price per share (determined in the same manner as
provided in the definition of Fair Market Price) of the
Acquirer's Common Stock or the Parent's common stock or
equivalent equity security, as the case may be,
immediately prior to the Consummation Date and the
denominator of which is the Fair Market Price immediately
prior to the Consummation Date, or (2) the market price
per share (as so determined) of the Acquirer's Common
Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the
Consummation Date (subject in each case to adjustments
from and after the Consummation Date as nearly equivalent
as possible to the adjustments provided for in this
Section 10),
or at the election of the holder of Series B Units pursuant to
notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy
statement relating to the vote on the Transaction by the holders of
the Common Units,
(B) shall be entitled to receive, and such
Series B Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
upon the consummation of the Transaction if such holder
had converted such holder's Series B Units immediately
prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the
adjustments provided for in this Section 10), provided
that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of more than 50%
of the outstanding Common Units, and if the holder of
Series B Units so designates in such notice given to the
Company, the holder of Series B Units shall be entitled
to receive in lieu thereof, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
if such holder had converted the Series B Units prior to
the expiration of such purchase, tender or exchange offer
and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or
exchange offer as nearly equivalent as possible to the
adjustments provided for in this Section 10),
or, if neither the Acquiring Company nor the Parent meets the
requirements set forth in clauses (D), (E), and (F) below, at the
election of the holder of Series B Units pursuant to notice given
to the Company on or before the later of (1) the 30th day following
the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units,
(C) shall be entitled to receive, within 15
days after such election, in full satisfaction of the
conversion rights afforded to such holder under this
Section 10, an amount in cash equal to the fair market
value of such conversion rights as of the Consummation
Date, as determined by an independent investment banker
(with an established national reputation as a valuer of
equity securities) selected by the Managing General
Partner, with the written approval of the holders of
Series B Units representing 51% or more of the aggregate
Stated Value of the then outstanding series B units, such
fair market value to be determined with regard to all
material relevant factors (including without limitation
the holder's right to receive the consideration described
in paragraphs (A) and (B) above, including the provisos
thereto, if applicable) but without regard to the effects
on such value of the Transaction.
The Company agrees to obtain, and deliver to each holder of Series
B Units a copy of, the determination of the independent investment
banker (selected and approved as provided above) necessary for the
valuation under clause (C) above within 15 days after the
Consummation Date of any Transaction to which clause (C) is
applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after the
Consummation Date:
(D) it is a solvent corporation organized
under the laws of any state of the United States of
America having its common stock (or equivalent equity
security, if not a corporation) listed on the New York
Stock Exchange or the American Stock Exchange or quoted
by the NASDAQ National Market System or any successor
thereto or comparable system, and such common stock (or
equivalent equity security) continues to meet such
requirements for such listing or quotation;
(E) it is required to file, and in each of its
three fiscal years immediately preceding the Consummation
Date has filed, reports with the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(F) in the case of the Parent, such Parent is
required to include the Acquiring Company in the
consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission and is not itself
included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary, the
Company shall not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
Company) which may be required to deliver any securities or other
property upon the conversion of Series B Units, the surrender of
Series B Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to
each holder of Series B Units, the obligation to deliver to such
holder such securities or other property to which, in accordance
with the foregoing provisions, such holder may be entitled, and
such corporation or entity shall have similarly delivered to each
holder of Series B Units an opinion of counsel for such corporation
or entity, satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the
then outstanding Series B Units, which opinion shall state that
Series B Units, including, without limitation, the conversion
provisions applicable to Series B Units, shall thereafter continue
in full force and effect and shall be enforceable against such
corporation or entity in accordance with the terms hereof, together
with such other matters as such holder may reasonably request.
Notwithstanding any of the foregoing provisions of this
subsection (i), in connection with any Transaction, each holder of
Series B Units, at its election, pursuant to notice given to the
Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units, shall be entitled to receive, and such Series B Units
shall thereafter be convertible into, in lieu of the Common Units
issuable upon such conversion prior to the Consummation Date, an
amount in cash equal to the aggregate Stated Value of such Series
B Units plus the amount of accrued and unpaid distributions thereon
for all distribution payment periods ending on or prior to the date
on which such cash payment is received by the holder and for the
partial distribution period beginning on the date immediately
following the most recent Distribution Payment Date through and
including the date of such receipt.
(j) Upon the occurrence of any event requiring an
adjustment of the Conversion Price, then and in each such case the
Company shall promptly deliver to each holder of Series B Units an
officer's certificate stating the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number
of Common Units issuable upon conversion of each Series B Unit,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. If, within 10 days
of receipt of any such officer's certificate, the holders of Series
B Units representing not less than 51% of the aggregate Stated
Value of the then outstanding Series B Units shall notify the
Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice
from such holders, the Company will obtain and deliver to each
holder of Series B Units the opinion of its regular independent
auditors or another firm of independent public accountants of
recognized national standing selected by the Managing General
Partner who are satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the
outstanding Series B Units, which opinion shall confirm the
statements and calculations in such officer's certificate. It is
understood and agreed that the independent public accountants
rendering any such opinion shall be entitled expressly to assume in
such opinion the accuracy of any determination of Fair Market
Price, or of the fair market value of conversion rights, made by an
independent investment banker in accordance with this Section 10.
(k) If at any time (i) the Company shall commence
any Rights Offering (as defined in Section 11); (ii) there shall be
any capital reorganization or reclassification of the Common Units,
or consolidation or merger of the Company with, or sale of all or
substantially all its assets to, another partnership, corporation
or other entity; (iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company; or (iv)
there shall be any other Transaction, then, in any one or more of
such cases, the Company shall give to all holders of Series B Units
(a) at least 30 days prior to any event referred to in clause (i),
(ii) or (iii) above, and within five business days after it has
knowledge of any pending Transaction, written notice of the date on
which the books of the Company shall close or a record shall be
taken for such distribution or Rights Offering or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up, or Transaction known to the
Company, at least 30 days prior written notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such
distribution or Rights Offering, the date on which the holders of
Common Units shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Units shall be entitled to
exchange their Common Units for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up,
or Transaction, as the case may be. Such notice shall also state
that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act
of 1933, as amended, or to a favorable vote of security holders, if
either is required.
(l) No fractional Common Units shall be issued in
connection with any conversion hereunder, but in lieu of such
fractional Common Units, the Company shall make a cash payment
therefor upon the basis of the Conversion Price then in effect.
(m) For purposes of this Section 10, the following
definitions shall apply:
(i) "Additional Common Units" shall mean all Common
Units of the Company issued or to be issued by the Company
after the Initial Issuance Date, except Common Units which
have been or may be issued upon conversion of the Series B
Units, the Series C Units and the other convertible
securities, convertible instruments, warrants, options and
rights outstanding on the Initial Issuance Date referred to in
subsection (c) of this Section 10.
(ii) "Common Unit Equivalent" shall mean any
convertible security or any warrant, option or other right to
subscribe for or purchase any Additional Common Units or any
such convertible security. The term "convertible security"
means any evidence of indebtedness, limited partnership unit
or other security that is convertible into or exchangeable for
Additional Common Units.
(iii) "Common Units" shall be deemed to include the
Common Units and any other Junior Securities the issuance of
which would have any dilutive effect on the value of the
Common Units issuable upon conversion of the Series B Units.
(iv) For purposes of any computation under this
Section 10, the "Fair Market Price" per Common Unit on any
date shall be deemed to be (1) the average of the daily last
reported sale prices of the Common Units for the 20
consecutive Business Days commencing 25 Business Days before
such date, as reported on the principal national securities
exchange on which the Common Units are then listed, or if the
Common Units are not then listed on a national securities
exchange, the average of the daily last reported sale prices
for such Business Days on the Nasdaq National Market System or
in the over-the-counter market as reported by Nasdaq, (2) if
last sale prices are not reported for the Common Units, the
average of the daily closing bid and asked prices on such
Business Days as so reported or (3) if no last sale prices or
bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent
investment banker (with an established national reputation as
a valuer of equity securities) selected by the Managing
General Partner, with the written approval of the holders of
Series B Units representing not less than 51% of the aggregate
Stated Value of the then outstanding Series B Units.
Section 11. Rights Offerings. (a) If the Company, at
any time while any of the Series B Units are outstanding, shall
distribute pro rata to holders of Common Units any warrants or
other rights ("Rights") to purchase Additional Common Units (a
"Rights Offering"), the holder of each Series B Unit shall receive
the number of Rights that such holder would have been entitled to
receive in connection with the Rights Offering if the holder had
converted the Series B Unit into Common Units in accordance with
Section 10, at the then current Conversion Price and Stated Value,
immediately prior to the record date for distribution of the Rights
(or if no record date is established, prior to the date on which
the Rights Offering otherwise commences). Holders of Series B
Units shall receive Rights as provided in the preceding sentence
whether or not such holders are at such time entitled to convert
their Series B Units into Common Units pursuant to Section 10.
Holders of Series B Units shall have the right to exercise such
Rights (including any step-up or over-subscription privileges) as
fully as any other recipient thereof, without the necessity of
converting any Series B Units into Common Units.
(b) Subject to compliance with subparagraph (a) ,
the distribution of Common Units pursuant to any Rights Offering
shall not trigger any adjustment of the Conversion Price pursuant
to the terms of Section 10(h) hereof.
(c) The Company shall not commence or conduct more
than one Rights Offering in any 12-month period nor more than two
Rights Offerings within the four-year period following the
consummation of the Stage 1 Closing, as defined in the
Restructuring Agreement. The exercise price of any Rights (as
initially distributed or subsequently amended) shall not be less
than 66 2/3% of the Conversion Price in effect at the time of
distribution of such Rights. The Company shall not, while any
Series B Units are outstanding, commence or conduct Rights
Offerings that result in, or are likely to result in, aggregate
cash proceeds to the Company from all such Rights Offerings in
excess of $7.5 million. The Company shall provide reports to the
holders of Series B Units on a regular basis for the duration of
the period during which Rights may be exercised, but in any event
no less frequently than weekly, setting forth the number of Rights
exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering
(separately identifying Rights that have been exercised by the
Company or its Affiliates).
(d) If any Rights distributed by the Company are
transferable, the Company shall have an assignable right of first
refusal to purchase Rights proposed to be sold, assigned,
transferred or otherwise disposed of ("transferred") by a holder of
Series B Units in certain circumstances, as follows:
(i) The Company's right of first refusal provided
herein shall be applicable only with respect to proposed
transfers of Rights by Varde, which is the initial holder of
Series B Units, and shall not be applicable with respect to
proposed transfers of Rights by Varde to any of its respective
Affiliates. In the event of a transfer to such an Affiliate,
the Affiliate shall receive and hold the Rights subject to the
terms and provisions of this section 11(d).
(ii) If Varde desires to transfer all or any part
of its Rights, other than to an Affiliate, Varde shall give
written notice to the Managing General Partner of its
intention to transfer all or a specified part of its Rights
(which notice shall set forth in reasonable detail the terms
and provisions of the proposed transfer) and shall by such
notice offer such Rights for sale to the Company at the
aggregate purchase price offered by a bona fide third party
purchaser. The Company, at its option within 20 days after
delivery of such notice of intention, shall have the right to
purchase all, but not less than all, of the Rights being
offered at the specified price and shall give written notice
to Varde within such 20-day period of the exercise of its
right to purchase all such Rights.
(iii) If the Company does not elect to purchase all
the Rights proposed to be transferred by Varde, Varde shall
then be free to transfer the Rights to the third party, at the
price previously specified to the Managing General Partner, at
any time within 90 days after the expiration of the 20-day
period referred to in paragraph (ii) above. If such transfer
is not completed within that 90-day period, the Rights will
again be subject to the terms and provisions of this
Subsection (d).
(iv) If the Company elects to purchase all the
Rights proposed to be transferred by Varde, Varde shall,
within 10 days after receipt of written notice from the
Managing General Partner of the exercise by the Company of its
right to purchase, deliver the certificate or certificates
representing the Rights to be sold at the principal place of
business of the Managing General Partner, duly endorsed for
transfer or accompanied by appropriate transfer documents.
The Company shall, simultaneously with the delivery of the
Rights to the principal place of business of the Managing
General Partner, pay to Varde in cash at such principal place
of business the specified price of the Rights being purchased.
(v) Any attempted transfer of Rights without
compliance with the terms of this subsection (d) shall be
invalid and of no effect, and the Company shall have the right
to compel the holder or the purported transferee to transfer
and deliver the same to the Company in accordance herewith, in
which event the price payable by the Company for such Rights
shall be the price paid or that was to have been paid by the
purported transferee.
(e) The Company and the Managing General Partner
will use their reasonable best efforts to cause an active trading
market to be established and maintained for any Rights distributed
by it and to engage an independent investment banker (with an
established national reputation) to serve as a "standby"
underwriter to support any Rights Offering by agreeing to purchase
from the Company any Common Units offered in the Rights Offering
and not subscribed for.
Section 12. Registration Rights and Transfer
Restrictions. Holders of Series B Units have certain registration
rights with respect to Common Units issued upon the exercise of
Series B Units, and the transfer of such Common Units is subject to
certain restrictions, all as set forth in that certain Amended and
Restated Registration Rights Agreement dated as of December 30,
1997, by and between the Company and Varde.
Section 13. Record Holders. The Company and the
Transfer Agent may deem and treat the record holder of any Units as
the true and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series B Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The provisions
applicable to Series B Units shall bind and inure to the benefit of
and be enforceable by the Company, the respective successors to the
Company and by any holder of Series B Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 30th day of December, 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: /s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
CERTIFICATE OF DESIGNATIONS
of
SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Second Amended and Restated Agreement
of Limited Partnership
effective as of December 30, 1997
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, a series of preferred limited partnership units
of the Company has been duly established, and that such series has
the designations, rights, powers, preferences, qualifications,
limitations and restrictions set forth below:
SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series C Cumulative
Convertible Preferred Units" (herein referred to as the "Series C
Units"), which shall consist of a maximum of 15,000 Units, with a
Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the
definitions set forth elsewhere herein, the following terms shall
have the meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series C Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series C Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series C Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Partnership Agreement" means that certain Second Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of December 31, 1996, as such agreement may be
amended.
"payable in kind" or "paid in kind," when used in
reference to any distribution payable with respect to the Units,
means payment of the distribution by issuance of that number (or
fraction) of additional Series C Units that has an aggregate Stated
Value equal to the dollar amount of the distribution then payable.
Units issued as distributions payable in kind shall be duly
authorized and validly issued and, upon issuance, shall have rights
(including, without limitation, distribution, voting, conversion
and redemption rights) identical to the outstanding Series C Units
in respect of which they are issued.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series C Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series B Units" means the Series B Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series B
Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December
30, 1997, relating to such series. Series D Units are Junior
Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $2,000,000 Loan. Series E
Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $450,000 Loan. Series F
Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series C Units.
"Units" means all or any or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions. (a) The Company shall pay
to the holders of the Series C Units, out of the assets of the
Company at any time legally available for the payment of
distributions, preferential quarterly distributions at the times
and at the rates provided for in this Section 3. Distributions
shall accrue cumulatively on each Unit from and including the date
of original issuance of such Unit to and including the date on
which such Unit shall have been converted into Common Units or
redeemed and the redemption price shall have been paid in full as
contemplated by Section 6 hereof, whether or not such distributions
are declared by the Company and whether or not there shall be (at
the time such distribution becomes payable or at any other time)
profits, surplus or other funds of the Company legally available
for the payment of distributions.
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Unit outstanding at
the following rates:
(i) during the three-year period beginning on
the Initial Issuance Date and ending on the date immediately
preceding the third anniversary thereof, at the rate of 6% per
annum of the Stated Value of the Unit, if paid in cash, or at
the rate of 8% per annum of such Stated Value, if paid in kind
in accordance with subsection (c) below;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Unit, payable in cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Unit, with respect to the
first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Units shall be
payable in cash or payable in kind, at the Company's option.
Notwithstanding the foregoing or anything else contained herein to
the contrary, however, (i) distributions payable on any Redemption
Date (as defined in Section 6 below) or on any final distribution
date relating to a dissolution, liquidation or winding up of the
Company, shall be payable in cash only and, if the payment date
does not occur on a regular Distribution Payment Date, shall be
calculated on the basis of the actual number of days elapsed
including the Redemption Date or such final distribution date and
(ii) all distributions payable on any Distribution Date in the
three-year period referred to in subsection (b)(i) shall be payable
only in cash to the extent that payments to Varde pursuant to
Section 1.1(f) of the Restructuring Agreement in any year are less
than $1,090,000.00. Distributions payable on the Units for any
period of less than a full quarterly distribution period shall be
computed on the basis of actual days elapsed, excluding the last
preceding Distribution Payment Date and including the last day of
such period, and on the basis of 360 days.
(d) To the extent not paid on a Distribution
Payment Date, all distributions which shall have accrued on each
Unit outstanding as of such Distribution Payment Date shall be
added to the Stated Value of such Unit and shall remain a part
thereof until paid, and distributions shall accrue and be paid on
such Unit on the basis of the Stated Value, as so adjusted;
provided, that any such unpaid distributions accruing during the
three-year period referred to in subsection (b)(i) shall be added
to such Stated Value at the rate specified in such subsection for
distributions paid in kind. Nothing in this subsection (d) or any
other provision hereof shall give the Company any right not to pay
any distribution as and to the extent required by subsection (b) of
this Section 3 or to defer or delay such payment beyond the
applicable Distribution Payment Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Units as they
appear on the books of the Company at the close of business on the
tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series C Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series C Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series C Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series C Units so that the amounts of
distributions per unit declared and paid on the Series C Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series C Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions
on all outstanding Series C Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner. If the Company shall have
paid any distributions on the Series C Units in kind, the
condition specified in the preceding sentence shall not be
deemed to be satisfied unless all Units issued in payment of
such distributions have been redeemed by the Company for cash.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
Section 4. Certain Covenants and Restrictions. So
long as any Series C Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities (except for Series B Units and Series C Units
issued as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations), or
any units or other securities or any options, warrants, notes,
bonds, debentures or other instruments convertible into,
exchangeable for or having rights to purchase any Senior Securities
or any Parity Securities or (ii) reclassify or modify any Junior
Security so that it becomes a Parity Security or Senior Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series C Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series C
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement;
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series C Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series C Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series C Units in accordance with Section 6 hereof;
provided, that funds applied to the redemption of Series C Units as
provided in clause (iii) shall be so applied with respect to the
initial Stated Value of the Units being redeemed and any portion of
the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings"), including, without
limitation, any Rights Offering as defined in Section 11, shall
consist of cash and shall be applied (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series C Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series C Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company. The Company may use up to $4.5
million, in the aggregate, of proceeds of Equity Offerings for
capital expenditures in excess of normal maintenance capital
expenditures if, out of every dollar so applied, no more than 60%
is applied to such excess capital expenditures and at least 40% is
applied in the manner provided in clauses (i), (ii) and (iii) of
this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series C Units one (1) copy of each of the following:
(i) Monthly Statements. As soon as available,
and in any event within 30 days after the end of each calendar
month, copies of the consolidated balance sheet of the Company
as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
(ii) Annual Statements. As soon as available
after each fiscal year end, and in any event within 90 days
thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series C Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon
its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other information
concerning the business, properties or financial condition of
the Company as the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the outstanding
Series C Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series C
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event
of any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series C Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all accrued and unpaid distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series C Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series C Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. For purposes of this Section 5,
neither a consolidation or merger of the Company with one or more
partnerships, corporations or other entities nor a sale, lease,
exchange or transfer of all or any part of the Company's assets for
cash, securities or other property shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary if
the surviving entity in any such consolidation, merger, sale,
lease, exchange or transfer assumes in writing all the Company's
obligations under this Certificate of Designations, the Amended and
Restated Registration Rights Agreement referred to in Section 12
hereof, the Pride SGP Equity Conversion Agreement, and the Warrants
to Purchase Common Units, issued by the Company to each holder of
Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series C
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series C Units shall not be entitled to share therein.
(c) Written notice of the commencement of any
proceeding for or that may result in any liquidation, dissolution
or winding up of the Company shall be given to holders of Series C
Units in accordance with Section 10(k), but neither the giving of
such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain
consent from holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a)
The Company may, at the option of the Managing General Partner,
redeem for cash at any time after the Retirement Date, from any
source of funds legally available therefor, in whole or in part, in
the manner provided below any and all of the outstanding Series C
Units at a redemption price per Unit (the "Redemption Price") equal
to the Stated Value per Unit redeemed plus an amount in cash equal
to the aggregate dollar amount of all accrued and unpaid
distributions through the Redemption Date (including a prorated
distribution from the most recent Distribution Payment Date to the
Redemption Date) that have not been added to the Stated Value of
such Units. "Redemption Date" means the date fixed by the Managing
General Partner for redemption. "Retirement Date" means the date
on which the Series A Term Loan, the Series B Term Loans, the
Series C Term Loan and the Series A Unsecured Note (each as defined
in the Credit Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series C Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series C Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series C Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series C Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series C
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series C Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series C Units (on a pro rata basis from all
holders of Series C Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series C Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series C Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series C Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Units, at least 20 days and not more than 60 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series C Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the
outstanding Series C Units are to be redeemed and the total
number of Series C Units being redeemed;
(ii) the number of Series C Units held by the
holder that the Company intends to redeem;
(iii) the Redemption Date and the
Redemption Price;
(iv) that the holder is to surrender to the
Company, in the manner and at the place designated, the
certificate or certificates representing the Series C Units to
be redeemed; and
(v) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Units to be redeemed the funds necessary for such
redemption with a bank or trust company having capital and surplus
of at least $500 million and approved in writing by the holders of
Series C Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series C Units (the "Escrow Agent").
Any such funds (i) that represent the Redemption Price of Units
converted into Common Units pursuant to Section 10 prior to the
applicable Redemption Date or (ii) that are unclaimed at the end of
two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow
Agent shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Units entitled to receive any of such funds shall thereafter look
only to the Company for the payment of the Redemption Price. Any
interest on funds included in the Escrow Account shall be for the
account of the Company. The failure to establish the Escrow
Account by the date specified in this paragraph shall cause the
Redemption Notice that required such Escrow Account to have been
established to be ineffective, and the Company shall not have any
right to redeem any Units pursuant to such Redemption Notice. Such
failure shall not relieve the Company of any obligation to effect
a mandatory redemption of Units.
On or before the Redemption Date each holder of Series C
Units shall surrender to the Company the certificate or
certificates representing such Units to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for such Units shall be payable in cash on the
Redemption Date to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the
event that less than all Units represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Units.
In the event of a redemption of only a portion of the
then outstanding Series C Units, the Company shall effect such
redemption pro rata according to the number of Units held by each
holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series C Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Holders of all Series C Units shall have the right at any
time from and after the date on which the Company calls any Series
C Units for redemption and prior to the Redemption Date for such
Units to convert all or any part of the outstanding Units held by
them into Common Units at the Conversion Price (as defined in
Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to
effect such conversion at such time pursuant to Section 10.
Section 7. Prohibitions on Issuance. All Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series C Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) No equity securities of the
Company shall rank senior to the Series C Units with respect to the
payments required or permitted to be made to the holders thereof
pursuant to their respective governing instruments and the payments
required to be made to holders of the Series C Units pursuant
hereto. The Company shall not issue any debt security (except as
permitted by Section 4(e)).
(b) The following equity securities of the Company,
and no others, shall rank on a parity with the Series C Units with
respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments
and the payments required to be made to holders of the Series C
Units pursuant hereto: the Series B Units.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series C Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series C Units
pursuant hereto: the Series D Units, the Series E Units, the Series
F Units and the Common Units.
Section 9. Voting. (a) So long as any Series C Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series B Units and Series C Units representing
two-thirds or more of the aggregate Stated Value of the then
outstanding Series B Units and Series C Units, voting as one class,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that prescribe
the terms and conditions of the Series B Units or Series C Units;
provided, however, that any proposed amendment, alteration or
rescission of any provision of the Partnership Agreement or of the
Certificate of Designations of the Series B Units or Series C
Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the
holders of Series C Units representing two-thirds or more of the
aggregate Stated Value of the then outstanding Series B Units and
Series C Units, respectively, each voting as a separate class.
(b) So long as any Series C Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series B Units and Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units and Series C Units, voting as one class, (i) create,
authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B Units or
Series C Units (other than Series B Units or Series C Units issued
as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations);
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series B Units or Series C Units; (iii) commence
any voluntary proceeding (under bankruptcy, insolvency or similar
laws or otherwise) for or that may result in the liquidation,
dissolution or winding up of the Company, consent to the entry of
an order for relief in an involuntary proceeding under any federal
or state bankruptcy, insolvency or similar laws or to the
appointment of a receiver, liquidator, assignee, custodian, trustee
or other similar official of the Company or of any substantive part
of its properties, or make an assignment for the benefit of its
creditors or admit in writing its inability to pay its debts
generally as they become due; or (iv) reorganize, reclassify or
change any outstanding securities, consolidate or merge with or
into another partnership, corporation or other entity or sell or
transfer the property of the Company as an entirety or
substantially as an entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series C Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. Conversion Rights. (a) Each Series C
Unit shall be convertible at the option of the holder thereof into
fully paid Common Units at any time during the Conversion Period.
The number of Common Units deliverable upon conversion of one
Series C Unit shall be determined by dividing the Stated Value of
the Series C Unit by the Conversion Price (as defined below) then
in effect. The "Conversion Period" shall commence on March 31,
1998 and shall end on the date on which all outstanding Series C
Units have been redeemed and the aggregate Redemption Price has
been paid full in accordance with Section 6 hereof.
(b) Conversion of any Series C Unit may be effected
by the holder thereof by the surrender of the certificate for such
Unit to the Company at the principal office of the Transfer Agent
in the State of Texas or at the office of any successor Transfer
Agent for the Series C Units, or to such other agent or agents of
the Company as may be designated by the Managing General Partner.
If any Series C Units are called for redemption pursuant to a
Redemption Notice in accordance Section 6 hereof, such right of
conversion shall cease and terminate as to the Units called for
redemption at the close of business on the Redemption Date, unless
the Company shall default in the payment of the Redemption Price
(in which event, such conversion right shall remain in effect until
full payment of the Redemption Price has been made) or shall have
failed to establish an Escrow Account as required by Section 6 (in
which event such call for redemption shall be ineffective, as
provided in Section 6, and such conversion right shall be
unaffected by such Redemption Notice).
(c) The price at which holders of Series C Units
may acquire Common Units pursuant to the conversion rights set
forth in this Section 10 (the "Conversion Price") initially shall
be $6.30 per Common Unit, which price has been determined on the
basis of the number of outstanding Common Units, on a fully diluted
basis, as of the Initial Issuance Date, so that if Series C Units
had been convertible and converted into Common Units on such date,
the holders of Series C Units representing an aggregate Stated
Value of $1.0 million would have received 2.0% of such outstanding
Common Units, on a fully diluted basis, as of such date. For this
purpose, the number of outstanding Common Units, on a fully diluted
basis, includes (i) Common Units actually outstanding on the
Initial Issuance Date and (ii) Common Units into which all
convertible securities, convertible debt and other convertible
instruments (including without limitation the Series B Units and
the Series C Units) and all warrants, options or other rights to
acquire any Common Units of the Company issued and outstanding on
the Initial Issuance Date are convertible, exchangeable or
exercisable (notwithstanding that such conversion, exchange or
exercise rights may not have been fully vested on the Initial
Issuance Date). The Conversion Price and Stated Value of the
Units, for purposes of conversion, are subject to adjustment as
provided herein.
(d) The Stated Value of each Series C Unit, for
purposes of conversion, shall be $1,000.00 plus the amount of
accrued and unpaid distributions for all distribution payment
periods ending on or prior to the date such Units are surrendered
to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent
Distribution Payment Date through and including the date on which
such Units are surrendered for conversion. Notwithstanding the
foregoing, holders of Series C Units surrendered for conversion
shall have the option to require the Company to make payment in
cash of all such accrued and unpaid distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally
available therefor and whether or not declared.
(e) As promptly as practicable after the surrender
of Series C Units for conversion, the Company shall issue and
deliver or cause to be issued and delivered to the holder of such
Units certificates representing the number of Common Units into
which such Series C Units have been converted in accordance with
the provisions of this Section 10. Subject to the following
provisions of this Section 10, such conversion shall be deemed to
have been made as of the close of business on the date on which the
Series C Units shall have been surrendered for conversion in the
manner herein provided, so that the rights of the holder of the
Series C Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon
conversion thereof shall be treated for all purposes as having
become the record holder or holders of such Common Units at such
time; provided, however, that any such surrender on any date when
the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights
of the holder or holders of the Series C Units so surrendered for
conversion and to constitute the Person or Persons entitled to
receive such Common Units as the record holder or holders thereof
for all purposes, at the opening of business on the next succeeding
day on which such transfer books are open and such conversion shall
be at the Conversion Price in effect at such time. The Company
will not at any time close its transfer books against the transfer
of any Series C Unit or of any Common Unit issued or issuable upon
the conversion of any Series C Unit in any manner which interferes
with the timely conversion of such Series C Unit.
(f) The Company shall not at any time limit the
number of Common Units that may be issued by the Company or take
any other action that would impair the Company's ability to issue
Common Units sufficient to permit the conversion of all outstanding
Series C Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into
or exercisable for Common Units. The Company shall not, by
amendment of its Partnership Agreement or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Section 10 by
the Company or any of the terms of its Partnership Agreement which
are applicable to Common Units issuable upon conversion of the
Series C Units, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section 10 and in the
taking of all such other action as may reasonably be requested by
any holder in order to protect the conversion privilege and other
rights of the Series C Units and of the Common Units issuable upon
conversion of the Series C Units against any impairment.
(g) The Company covenants and agrees that all
Common Units that may be issued upon the exercise of the conversion
rights of Series C Units will, upon issuance, be fully paid,
without any obligations to make additional capital contributions to
the Company, and free from all taxes, liens and charges with
respect to the issue thereof.
(h) The number and kind of securities purchasable
upon the exercise of the conversion rights of the Series C Units
shall be subject to adjustment from time to time upon the happening
of certain events, as follows:
(i) If the Company, at any time while any of
the Series C Units are outstanding, shall subdivide or combine
its Common Units, the Conversion Price shall be
proportionately reduced, in case of subdivision of units, as
of the effective date of such subdivision, or if the Company
shall take a record of holders of its Common Units for the
purpose of so subdividing, as of such record date, whichever
is earlier, or shall be proportionately increased, in the case
of a combination of units, as of the effective date of such
combination or, if the Company shall take a record of holders
of its Common Units for the purpose of so combining, as of
such record date, whichever is earlier; provided, however,
that nothing in this paragraph shall be deemed to permit the
Company to effect any such subdivision or combination in
violation of any other provision, including Section 4(c),
hereof.
(ii) If the Company at any time while any of
the Series C Units are outstanding shall:
(1) Make any distribution of Additional
Common Units (as defined below), the Conversion Price
shall be adjusted, as of the date the Company shall take
a record of the holders of its Common Units for the
purpose of receiving such distribution (or if no such
record is taken, as of the date of such distribution), to
that price determined by multiplying the Conversion Price
in effect immediately prior to such record date (or if no
such record is taken, then immediately prior to such
distribution) by a fraction (i) the numerator of which
shall be the total number of Common Units outstanding
immediately prior to such distribution, and (ii) the
denominator of which shall be the total number of Common
Units outstanding immediately after such distribution
(plus in the event that the Company paid cash for
fractional units, the number of Additional Common Units
which would have been outstanding had the Company issued
fractional units in connection with such distribution);
provided, however, that nothing in this paragraph shall
be deemed to permit the Company to effect any such
distribution in violation of any other provision,
including Section 3(f) or 4(b), hereof; or
(2) Issue any Additional Common Units to
the Special General Partner (regardless of any
consideration received by the Company for such issuance)
or make any payments under the Pipeline Lease in the form
of Additional Common Units, the Conversion Price shall be
adjusted, as of the date of such issuance or payment, to
that price determined by multiplying the Conversion Price
in effect immediately prior to such date by a fraction
(i) the numerator of which shall be the total number of
Common Units outstanding immediately prior to such
issuance or payment, and (ii) the denominator of which
shall be the total number of Common Units outstanding
immediately after such issuance or payment.
(iii) If the Company, at any time while any
of the Series C Units are outstanding and the Fair Market
Price of the Common Units is less than or equal to the
Conversion Price, shall issue any Additional Common Units
(other than as provided in the foregoing paragraphs (i) and
(ii) of this subsection) at a price per unit less than the
Conversion Price or without consideration, then the Conversion
Price upon each such issuance shall be reduced (but never
increased) to a price determined by multiplying the existing
Conversion Price by the following fraction, where O is the
number of Common Units outstanding, on a fully diluted basis,
prior to such issuance; N is the number of Additional Common
Units being issued; P is the amount of consideration received
per unit by the Company in exchange for issuance of such
Additional Common Units; and C is the existing Conversion
Price:
O + (N x P divided by C)
------------------------
O + N
(iv) If the Company, at any time while any of
the Series C Units are outstanding and the Fair Market Price
of the Common Units is greater than the Conversion Price,
shall issue any Additional Common Units (other than as
provided in paragraphs (i) and (ii) of this subsection) at a
price per unit that is less than Fair Market Price, then the
Conversion Price upon each such issuance shall be reduced
(but never increased) to a price determined by multiplying the
existing Conversion Price by the following fraction, where O,
N and P have the meanings specified in paragraph (ii) of this
subsection (h) and M is the Fair Market Price:
O + (N x P divided by M)
------------------------
O + N
(v) If the Company at any time while any of
the Series C Units are outstanding shall issue any Common Unit
Equivalents (as defined below) and the price per unit for
which Additional Common Units may be issuable thereafter
pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but
greater than the Conversion Price, or if, after any such
issuance, the price per unit for which Additional Common Units
may be issuable thereafter is amended and such price as so
amended is less than the Conversion Price, or less than the
Fair Market Price but greater than the Conversion Price, at
the time of such amendment, then the Conversion Price upon
each such issuance or amendment shall be adjusted as provided
in paragraph (ii), (iii) or (iv) of this subsection, as
applicable, as if the underlying Additional Common Units had
been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall
be the consideration received by the Company for issuing such
Common Unit Equivalents plus the additional consideration
payable to the Company upon the exercise, conversion or
exchange of such Common Unit Equivalents. If the Conversion
Price is adjusted upon the issuance of Common Unit Equivalents
and such Common Unit Equivalents are thereafter canceled
without having been converted or exercised, and without any
Additional Common Units having been issued in respect thereof,
then the Conversion Price shall be readjusted to the
Conversion Price that would have been in effect if such Common
Unit Equivalents had never been issued. No adjustment of the
Conversion Price shall be made under paragraph (ii), (iii) or
(iv) of this subsection (h) upon the issuance of any
Additional Common Units that are issued pursuant to any Common
Unit Equivalents if upon the issuance of such Common Unit
Equivalents adjustments shall previously have been made
pursuant to this paragraph (v) to the same extent as would
have been made under paragraph (ii), (iii) or (iv) if such
Additional Common Units had been issued directly.
(vi) No adjustment shall be made to the
Conversion Price with respect to the issuance of any
Additional Common Units (or any Common Unit Equivalents
pursuant to which such Additional Common Units are issuable)
at a price per unit that is greater than both the Conversion
Price and the Fair Market Price.
(vii) For purposes of making the
adjustments in the Conversion Price as provided in this
Section 10(h), the consideration received by the Company shall
be deemed to be the following: to the extent that any
Additional Common Units or any Common Unit Equivalents shall
be issued for cash consideration, the consideration received
by the Company therefor; if such Additional Common Units or
Common Unit Equivalents are offered by the Company for
subscription, the subscription price; if such Additional
Common Units or Common Unit Equivalents are sold to
underwriters or dealers for public offering, the initial
public offering price, in any such case excluding any amount
received for accrued interest or accrued distributions and
without deduction of any commissions, discounts or expenses
paid or incurred by the Company in connection with the issue
thereof; and to the extent that such issuance shall be for a
consideration other than cash, then, except as herein
otherwise expressly provided, the fair market value of such
consideration at the time of such issuance as determined in
good faith by the Managing General Partner of the Company. In
the event of the issuance at any time of any Additional Common
Units or Common Unit Equivalents in payment or satisfaction of
any distribution upon any class or series of units other than
Common Units, the Company shall be deemed to have received for
such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid
or satisfied; provided, that nothing herein shall be deemed to
permit the Company to issue Common Units for such purpose
under circumstances in which such issuance is not otherwise
permitted. In any case in which the consideration to be
received shall be other than cash, the Managing General
Partner shall notify each holder of Series C Units of its
determination of the fair market value of such consideration
prior to accepting receipt thereof. If, within 10 days of
receipt of such notice, the holders of Series C Units
representing 51% or more of the aggregate Stated Value of
Series C Units then outstanding shall notify the Managing
General Partner in writing of their objection to such
determination, a determination of the fair market value of
such consideration shall be made by an independent investment
banker (with an established national reputation) selected by
the Managing General Partner, with the written approval of the
holders of Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series C Units.
(viii) If any event occurs as to which, in
the good faith judgment of the holders of Series C Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units, the other provisions of this
Section 10(h) are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of
the holders of Series C Units in accordance with the essential
intent and principles of such provisions, then the Managing
General Partner shall appoint a firm of independent public
accountants (with an established national reputation) who are
satisfactory to the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series C Units (which may be the Company's regular independent
auditors) which shall give their opinion upon the adjustment,
if any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the
rights of the holders of Series C Units. Upon receipt of such
opinion, the Managing General Partner shall forthwith make the
adjustments described therein; provided, that no such
adjustment shall have the effect of increasing the Conversion
Price as otherwise determined pursuant to this Section 10.
(ix) The Company may give notice to the holders
that the proceeds of certain Additional Common Units will be
used to redeem all outstanding Series C Units, which notice
shall be given prior to the actual issuance of such Additional
Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof,
such Additional Common Units shall not be considered in
determining an adjustment to the Conversion Price under this
Section 10(h) with respect to any Series C Units which become
subject to an election to convert after delivery of such
notice.
(i) If at any time the Company shall be a party to
any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all the Company's
assets, liquidation, or recapitalization of the Common Units) in
which the previously outstanding Common Units shall be changed into
or exchanged for different securities of the Company or common
stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any
combination of any of the foregoing or in which the Common Units
cease to be a publicly traded security either listed on the New
York Stock Exchange or the American Stock Exchange or quoted by the
NASDAQ National Market System or any successor thereto or
comparable system (each such transaction being herein called the
"Transaction," the date of consummation of the Transaction being
herein called the "Consummation Date," the Company (in the case of
a recapitalization of the Common Units or any other such
transaction in which the Company retains substantially all its
assets and survives as a limited partnership) or such other
corporation or entity (in each other case) being herein called the
"Acquiring Company," and the common stock (or equivalent equity
interests) of the Acquiring Company being herein called the
"Acquirer's Common Stock"), then, as a condition of the
consummation of the Transaction, lawful and adequate provisions
shall be made so that the holder of Series C Units, upon the
conversion thereof at any time on or after the Consummation Date
(but subject, in the case of an election pursuant to clause (B) or
(C) below, to the time limitation hereinafter provided for such
election),
(A) shall be entitled to receive, and such
Series C Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet
the requirements set forth in clauses (D), (E), and (F)
below, in which case shares of the common stock of the
corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring
Company if it meets the requirements set forth in
clauses (D), (E), and (F) below, at a conversion price
per share equal to the lesser of (1) the Conversion Price
in effect immediately prior to the Consummation Date
multiplied by a fraction the numerator of which is the
market price per share (determined in the same manner as
provided in the definition of Fair Market Price) of the
Acquirer's Common Stock or the Parent's common stock or
equivalent equity security, as the case may be,
immediately prior to the Consummation Date and the
denominator of which is the Fair Market Price immediately
prior to the Consummation Date, or (2) the market price
per share (as so determined) of the Acquirer's Common
Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the
Consummation Date (subject in each case to adjustments
from and after the Consummation Date as nearly equivalent
as possible to the adjustments provided for in this
Section 10),
or at the election of the holder of Series C Units pursuant to
notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy
statement relating to the vote on the Transaction by the holders of
the Common Units,
(B) shall be entitled to receive, and such
Series C Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
upon the consummation of the Transaction if such holder
had converted such holder's Series C Units immediately
prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the
adjustments provided for in this Section 10), provided
that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of more than 50%
of the outstanding Common Units, and if the holder of
Series C Units so designates in such notice given to the
Company, the holder of Series C Units shall be entitled
to receive in lieu thereof, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
if such holder had converted the Series C Units prior to
the expiration of such purchase, tender or exchange offer
and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or
exchange offer as nearly equivalent as possible to the
adjustments provided for in this Section 10),
or, if neither the Acquiring Company nor the Parent meets the
requirements set forth in clauses (D), (E), and (F) below, at the
election of the holder of Series C Units pursuant to notice given
to the Company on or before the later of (1) the 30th day following
the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units,
(C) shall be entitled to receive, within 15
days after such election, in full satisfaction of the
conversion rights afforded to such holder under this
Section 10, an amount in cash equal to the fair market
value of such conversion rights as of the Consummation
Date, as determined by an independent investment banker
(with an established national reputation as a valuer of
equity securities) selected by the Managing General
Partner, with the written approval of the holders of
Series C Units representing 51% or more of the aggregate
Stated Value of the then outstanding Series C Units, such
fair market value to be determined with regard to all
material relevant factors (including without limitation
the holder's right to receive the consideration described
in paragraphs (A) and (B) above, including the provisos
thereto, if applicable) but without regard to the effects
on such value of the Transaction.
The Company agrees to obtain, and deliver to each holder of Series
C Units a copy of, the determination of the independent investment
banker (selected and approved as provided above) necessary for the
valuation under clause (C) above within 15 days after the
Consummation Date of any Transaction to which clause (C) is
applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after the
Consummation Date:
(D) it is a solvent corporation organized
under the laws of any state of the United States of
America having its common stock (or equivalent equity
security, if not a corporation) listed on the New York
Stock Exchange or the American Stock Exchange or quoted
by the NASDAQ National Market System or any successor
thereto or comparable system, and such common stock (or
equivalent equity security) continues to meet such
requirements for such listing or quotation;
(E) it is required to file, and in each of its
three fiscal years immediately preceding the Consummation
Date has filed, reports with the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(F) in the case of the Parent, such Parent is
required to include the Acquiring Company in the
consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission and is not itself
included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary, the
Company shall not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
Company) which may be required to deliver any securities or other
property upon the conversion of Series C Units, the surrender of
Series C Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to
each holder of Series C Units, the obligation to deliver to such
holder such securities or other property to which, in accordance
with the foregoing provisions, such holder may be entitled, and
such corporation or entity shall have similarly delivered to each
holder of Series C Units an opinion of counsel for such corporation
or entity, satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the
then outstanding Series C Units, which opinion shall state that
Series C Units, including, without limitation, the conversion
provisions applicable to Series C Units, shall thereafter continue
in full force and effect and shall be enforceable against such
corporation or entity in accordance with the terms hereof, together
with such other matters as such holder may reasonably request.
Notwithstanding any of the foregoing provisions of this
subsection (i), in connection with any Transaction, each holder of
Series C Units, at its election, pursuant to notice given to the
Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units, shall be entitled to receive, and such Series C Units
shall thereafter be convertible into, in lieu of the Common Units
issuable upon such conversion prior to the Consummation Date, an
amount in cash equal to the aggregate Stated Value of such Series
C Units plus the amount of accrued and unpaid distributions thereon
for all distribution payment periods ending on or prior to the date
on which such cash payment is received by the holder and for the
partial distribution period beginning on the date immediately
following the most recent Distribution Payment Date through and
including the date of such receipt.
(j) Upon the occurrence of any event requiring an
adjustment of the Conversion Price, then and in each such case the
Company shall promptly deliver to each holder of Series C Units an
officer's certificate stating the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number
of Common Units issuable upon conversion of each Series C Unit,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. If, within 10 days
of receipt of any such officer's certificate, the holders of Series
C Units representing not less than 51% of the aggregate Stated
Value of the then outstanding Series C Units shall notify the
Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice
from such holders, the Company will obtain and deliver to each
holder of Series C Units the opinion of its regular independent
auditors or another firm of independent public accountants of
recognized national standing selected by the Managing General
Partner who are satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the
outstanding Series C Units, which opinion shall confirm the
statements and calculations in such officer's certificate. It is
understood and agreed that the independent public accountants
rendering any such opinion shall be entitled expressly to assume in
such opinion the accuracy of any determination of Fair Market
Price, or of the fair market value of conversion rights, made by an
independent investment banker in accordance with this Section 10.
(k) If at any time (i) the Company shall commence
any Rights Offering (as defined in Section 11); (ii) there shall be
any capital reorganization or reclassification of the Common Units,
or consolidation or merger of the Company with, or sale of all or
substantially all its assets to, another partnership, corporation
or other entity; (iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company; or (iv)
there shall be any other Transaction, then, in any one or more of
such cases, the Company shall give to all holders of Series C Units
(a) at least 30 days prior to any event referred to in clause (i),
(ii) or (iii) above, and within five business days after it has
knowledge of any pending Transaction, written notice of the date on
which the books of the Company shall close or a record shall be
taken for such distribution or Rights Offering or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up, or Transaction known to the
Company, at least 30 days prior written notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such
distribution or Rights Offering, the date on which the holders of
Common Units shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Units shall be entitled to
exchange their Common Units for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up,
or Transaction, as the case may be. Such notice shall also state
that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act
of 1933, as amended, or to a favorable vote of security holders, if
either is required.
(l) No fractional Common Units shall be issued in
connection with any conversion hereunder, but in lieu of such
fractional Common Units, the Company shall make a cash payment
therefor upon the basis of the Conversion Price then in effect.
(m) For purposes of this Section 10, the following
definitions shall apply:
(i) "Additional Common Units" shall mean all
Common Units of the Company issued or to be issued by the
Company after the Initial Issuance Date, except Common Units
which have been or may be issued upon conversion of the Series
B Units, the Series C Units and the other convertible
securities, convertible instruments, warrants, options and
rights outstanding on the Initial Issuance Date referred to in
subsection (c) of this Section 10.
(ii) "Common Unit Equivalent" shall mean any
convertible security or any warrant, option or other right to
subscribe for or purchase any Additional Common Units or any
such convertible security. The term "convertible security"
means any evidence of indebtedness, limited partnership unit
or other security that is convertible into or exchangeable for
Additional Common Units.
(iii) "Common Units" shall be deemed to
include the Common Units and any other Junior Securities the
issuance of which would have any dilutive effect on the value
of the Common Units issuable upon conversion of the Series C
Units.
(iv) For purposes of any computation under this
Section 10, the "Fair Market Price" per Common Unit on any
date shall be deemed to be (1) the average of the daily last
reported sale prices of the Common Units for the 20
consecutive Business Days commencing 25 Business Days before
such date, as reported on the principal national securities
exchange on which the Common Units are then listed, or if the
Common Units are not then listed on a national securities
exchange, the average of the daily last reported sale prices
for such Business Days on the Nasdaq National Market System or
in the over-the-counter market as reported by Nasdaq, (2) if
last sale prices are not reported for the Common Units, the
average of the daily closing bid and asked prices on such
Business Days as so reported or (3) if no last sale prices or
bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent
investment banker (with an established national reputation as
a valuer of equity securities) selected by the Managing
General Partner, with the written approval of the holders of
Series C Units representing not less than 51% of the aggregate
Stated Value of the then outstanding Series C Units.
Section 11. Rights Offerings. (a) If the Company, at
any time while any of the Series C Units are outstanding, shall
distribute pro rata to holders of Common Units any warrants or
other rights ("Rights") to purchase Additional Common Units (a
"Rights Offering"), the holder of each Series C Unit shall receive
the number of Rights that such holder would have been entitled to
receive in connection with the Rights Offering if the holder had
converted the Series C Unit into Common Units in accordance with
Section 10, at the then current Conversion Price and Stated Value,
immediately prior to the record date for distribution of the Rights
(or if no record date is established, prior to the date on which
the Rights Offering otherwise commences). Holders of Series C
Units shall receive Rights as provided in the preceding sentence
whether or not such holders are at such time entitled to convert
their Series C Units into Common Units pursuant to Section 10.
Holders of Series C Units shall have the right to exercise such
Rights (including any step-up or over-subscription privileges) as
fully as any other recipient thereof, without the necessity of
converting any Series C Units into Common Units.
(b) Subject to compliance with subparagraph (a) ,
the distribution of Common Units pursuant to any Rights Offering
shall not trigger any adjustment of the Conversion Price pursuant
to the terms of Section 10(h) hereof.
(c) The Company shall not commence or conduct more
than one Rights Offering in any 12-month period nor more than two
Rights Offerings within the four-year period following the
consummation of the Stage 1 Closing, as defined in the
Restructuring Agreement. The exercise price of any Rights (as
initially distributed or subsequently amended) shall not be less
than 66 2/3% of the Conversion Price in effect at the time of
distribution of such Rights. The Company shall not, while any
Series C Units are outstanding, commence or conduct Rights
Offerings that result in, or are likely to result in, aggregate
cash proceeds to the Company from all such Rights Offerings in
excess of $7.5 million. The Company shall provide reports to the
holders of Series C Units on a regular basis for the duration of
the period during which Rights may be exercised, but in any event
no less frequently than weekly, setting forth the number of Rights
exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering
(separately identifying Rights that have been exercised by the
Company or its Affiliates).
(d) If any Rights distributed by the Company are
transferable, the Company shall have an assignable right of first
refusal to purchase Rights proposed to be sold, assigned,
transferred or otherwise disposed of ("transferred") by a holder of
Series C Units in certain circumstances, as follows:
(i) The Company's right of first refusal
provided herein shall be applicable only with respect to
proposed transfers of Rights by Varde, which is the initial
holder of Series C Units, and shall not be applicable with
respect to proposed transfers of Rights by Varde to any of its
respective Affiliates. In the event of a transfer to such an
Affiliate, the Affiliate shall receive and hold the Rights
subject to the terms and provisions of this section 11(d).
(ii) If Varde desires to transfer all or any
part of its Rights, other than to an Affiliate, Varde shall
give written notice to the Managing General Partner of its
intention to transfer all or a specified part of its Rights
(which notice shall set forth in reasonable detail the terms
and provisions of the proposed transfer) and shall by such
notice offer such Rights for sale to the Company at the
aggregate purchase price offered by a bona fide third party
purchaser. The Company, at its option within 20 days after
delivery of such notice of intention, shall have the right to
purchase all, but not less than all, of the Rights being
offered at the specified price and shall give written notice
to Varde within such 20-day period of the exercise of its
right to purchase all such Rights.
(iii) If the Company does not elect to
purchase all the Rights proposed to be transferred by Varde,
Varde shall then be free to transfer the Rights to the third
party, at the price previously specified to the Managing
General Partner, at any time within 90 days after the
expiration of the 20-day period referred to in paragraph
(ii) above. If such transfer is not completed within that 90-
day period, the Rights will again be subject to the terms and
provisions of this Subsection (d).
(iv) If the Company elects to purchase all the
Rights proposed to be transferred by Varde, Varde shall,
within 10 days after receipt of written notice from the
Managing General Partner of the exercise by the Company of its
right to purchase, deliver the certificate or certificates
representing the Rights to be sold at the principal place of
business of the Managing General Partner, duly endorsed for
transfer or accompanied by appropriate transfer documents.
The Company shall, simultaneously with the delivery of the
Rights to the principal place of business of the Managing
General Partner, pay to Varde in cash at such principal place
of business the specified price of the Rights being purchased.
(v) Any attempted transfer of Rights without
compliance with the terms of this subsection (d) shall be
invalid and of no effect, and the Company shall have the right
to compel the holder or the purported transferee to transfer
and deliver the same to the Company in accordance herewith, in
which event the price payable by the Company for such Rights
shall be the price paid or that was to have been paid by the
purported transferee.
(e) The Company and the Managing General Partner
will use their reasonable best efforts to cause an active trading
market to be established and maintained for any Rights distributed
by it and to engage an independent investment banker (with an
established national reputation) to serve as a "standby"
underwriter to support any Rights Offering by agreeing to purchase
from the Company any Common Units offered in the Rights Offering
and not subscribed for.
Section 12. Registration Rights and Transfer
Restrictions. Holders of Series C Units have certain registration
rights with respect to Common Units issued upon the exercise of
Series C Units, and the transfer of such Common Units is subject to
certain restrictions, all as set forth in that certain Amended and
Restated Registration Rights Agreement dated as of December 30,
1997, by and between the Company and Varde.
Section 13. Record Holders. The Company and the
Transfer Agent may deem and treat the record holder of any Units as
the true and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series C Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The
provisions applicable to Series C Units shall bind and inure to the
benefit of and be enforceable by the Company, the respective
successors to the Company and by any holder of Series C Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 30th day of December, 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: /s/ Dave Caddell
Name: Dave Caddell
Title: Vice President
EXHIBIT 10.33
PRIDE COMPANIES, L.P.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Dated as of December 30, 1997
BANKBOSTON, N.A., Agent
BANCBOSTON SECURITIES INC.,
Syndication Agent and Manager
LEHMAN COMMERCIAL PAPER INC.,
Documentation Agent
PRIDE COMPANIES, L.P.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
This Agreement, dated as of December 30, 1997, is among
Pride Companies, L.P., a Delaware limited partnership (the
"Company"), the general partners of the Company, Pride SGP, Inc.,
a Texas corporation (the "Special General Partner") and Pride
Refining, Inc., a Texas corporation (the "Managing General
Partner"), Desulfur Partnership, a Texas general partnership, the
Subsidiaries of the Company from time to time party hereto,
including Pride Borger, Inc., a Delaware corporation, and Pride
Marketing of Texas (Cedar Wind), Inc., a Texas corporation, the
Lenders from time to time party hereto, BankBoston, N.A., both in
its capacity as a Lender and in its capacity as Agent for itself
and the other Lenders, and Lehman Commercial Paper Inc., both in
its capacity as a Lender and in its capacity as Documentation
Agent for itself and the other Lenders. The parties agree as
follows:
Recitals: Pursuant to this Agreement and subject to the
terms and conditions set forth herein, the Lenders are agreeing
to extend to the Company a $65,000,000 letter of credit and
revolving loan facility, including a $10,000,000 sub-allotment
for direct borrowings, and a $21,000,000 term loan facility.
Both credit facilities mature on December 31, 2002. These credit
facilities are guaranteed by the Company's General Partners and
the Company's Subsidiaries and are secured by Liens on
substantially all the assets (including the stock of
Subsidiaries) of the Company, the Company's General Partners and
the Company's Subsidiaries. The proceeds of these credit
facilities may be used for the issuance of letters of credit to
third parties to support the Company's purchase or exchange of
crude oil and petroleum products, to refinance that certain
senior term loan made to the Company by Varde Partners, Inc. and
for general partnership purposes of the Company as provided
herein.
1. Definitions; Certain Rules of Construction. Certain
capitalized terms are used in this Agreement and in the other
Credit Documents with the specific meanings defined below in this
Section 1. Except as otherwise explicitly specified to the
contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this
Agreement, (b) the capitalized term "Exhibit" refers to exhibits
to this Agreement, (c) references to a particular Section include
all subsections thereof, (d) the word "including" shall be
construed as "including without limitation", (e) accounting terms
not otherwise defined herein have the meaning provided under
GAAP, (f) references to a particular statute or regulation
include all rules and regulations thereunder and any successor
statute, regulation or rules, in each case as from time to time
in effect, (g) references to a particular Person include such
Person's successors and assigns to the extent not prohibited by
this Agreement and the other Credit Documents and (h) references
to "Dollars" or "$" mean United States Funds. References to "the
date hereof" mean the date first set forth above.
"Acceptable Issuer" means a financial institution domiciled
in the United States or acting through a branch or agency located
in the United States which has capital surplus and undivided
profits of at least $500,000,000 and whose unsecured, unenhanced
short-term debt is rated A-1 by S&P or P-1 by Moody's.
"Accounts" includes all "accounts" as defined in Section 9-
106 of the Uniform Commercial Code as in effect in The
Commonwealth of Massachusetts, including without limitation all
Eligible Receivables, Uninvoiced Receivables, Pre-approved
Receivables and Net Government Accounts Receivable.
"Accumulated Benefit Obligations" means the actuarial
present value of the accumulated benefit obligations under any
Plan, calculated in accordance with Statement No. 87 of the
Financial Accounting Standards Board.
"Affected Lender" is defined in Section 11.3.
"Affiliate" means, with respect to the Company (or any other
specified Person), any other Person directly or indirectly
controlling, controlled by or under direct or indirect common
control with the Company (or such specified Person), and shall
include (a) any officer or director or general partner of the
Company (or such specified Person), (b) any Person of which the
Company (or such specified Person) or any Affiliate (as defined
in clause (a) above) of the Company (or such specified Person)
shall, directly or indirectly, beneficially own either (i) at
least 10% of the outstanding equity securities having the general
power to vote or (ii) at least 10% of all equity interests or (c)
any Person directly or indirectly controlling the Company (or
such specified Person) through a management agreement, voting
agreement or other contract.
"Agency Account Agreement" means each Agency Account
Agreement provided by the Company or another Obligor and its
depository bank in favor of the Collateral Agent, substantially
in the form of Exhibit 5.1.5(b) hereto.
"Agent" means BankBoston in its capacity as agent for the
Lenders hereunder, as well as its successors and assigns in such
capacity pursuant to Section 10.6, and references to the Agent in
the Credit Documents shall include the Agent acting as Collateral
Agent.
"Agreement" means this Credit Agreement as from time to time
amended, modified and in effect.
"Applicable Base Rate Margin" means (a) on each day
preceding the earlier to occur of the Refinery Closing Date and
June 30, 1998, 2.00%, (b) if the Refinery Closing Date shall not
have occurred on or prior to June 30, 1998, then on each day on
or following June 30, 1998 and preceding the Refinery Closing
Date, 2.25%, (c) if the Refinery Closing Date shall occur prior
to December 31, 1998, on each day on or following the Refinery
Closing Date and preceding December 31, 1998, 1.75% and (d) on
the later of the Refinery Closing Date and December 31, 1998 and
on each day thereafter, the percentage in the table below set
opposite the Interest Coverage Ratio for the most recent period
of four consecutive fiscal quarters for which financial
statements have been furnished to the Lenders in accordance with
Sections 6.4.1 and 6.4.2 prior to the first day of such month:
Applicable Base
Interest Coverage Ratio Rate Margin
----------------------- ----------------
Equal to or greater than 1.25%
3.0 to 1.0
Less than 3.0 to 1.0 and equal 1.50%
to or greater than 2.25 to 1.0
Less than 2.25 to 1.0 1.75%
Changes in the Applicable Base Rate Margin shall occur on the
first day of each month after quarterly financial statements have
been furnished to the Lenders in accordance with Sections 6.4.1
or 6.4.2 from time to time. In the event that the financial
statements required to be delivered pursuant to Section 6.4.1 or
6.4.2, as applicable, are not delivered when due, then during the
period from the first day of the month following the date such
financial statements were due until the date upon which they are
actually delivered, the Applicable Base Rate Margin shall be the
highest amount set forth in the table above.
"Applicable Eurodollar Rate Margin" means (a) on each day
preceding the earlier to occur of the Refinery Closing Date and
June 30, 1998, 3.25%, (b) if the Refinery Closing Date shall not
have occurred on or prior to June 30, 1998, then on each day on
or following June 30, 1998 and preceding the Refinery Closing
Date, 3.50%, (c) if the Refinery Closing Date shall occur prior
to December 31, 1998, on each day on or following the Refinery
Closing Date and preceding December 31, 1998, 3.00% and (d) on
the later of the Refinery Closing Date and December 31, 1998 and
on each day thereafter, the percentage in the table below set
opposite the Interest Coverage Ratio for the most recent period
of four consecutive fiscal quarters for which financial
statements have been furnished to the Lenders in accordance with
Sections 6.4.1 and 6.4.2 prior to the first day of such month:
Applicable Eurodollar
Interest Coverage Ratio Rate Margin
----------------------- ----------------------
Equal to or greater than 2.50%
3.0 to 1.0
Less than 3.0 to 1.0 and equal 2.75%
to or greater than 2.25 to 1.0
Less than 2.25 to 1.0 3.00%
Changes in the Applicable Eurodollar Rate Margin shall occur on
the first day of each month after quarterly financial statements
have been furnished to the Lenders in accordance with Section
6.4.1 or 6.4.2 from time to time. In the event that the
financial statements required to be delivered pursuant to Section
6.4.1 or 6.4.2, as applicable, are not delivered when due, then
during the period from the first day of the month following the
date such financial statements were due until the date upon which
they are actually delivered, the Applicable Eurodollar Rate
Margin shall be the highest amount set forth in the table above.
"Applicable Fee Rate" means (a) on each day preceding the
earlier to occur of the Refinery Closing Date and June 30, 1998,
2.75%, (b) if the Refinery Closing Date shall not have occurred
on or prior to June 30, 1998, then on each day on or following
June 30, 1998 and preceding the Refinery Closing Date, 3.00%, (c)
if the Refinery Closing Date shall occur prior to December 31,
1998 on each day on or following the Refinery Closing Date and
preceding December 31, 1998, 2.50% and (d) on the later of the
Refinery Closing Date and December 31, 1998 and on each day
during any month thereafter, the percentage in the table below
set opposite the Interest Coverage Ratio for the most recent
period of four consecutive fiscal quarters for which financial
statements have been furnished to the Lenders in accordance with
Sections 6.4.1 and 6.4.2 prior to the first day of such month:
Interest Coverage Ratio Applicable Fee Rate
----------------------- -------------------
Equal to or greater 2.25%
than 3.0 to 1.0
Less than 3.0 to 1.0 2.50%
Changes in the Applicable Fee Rate shall occur on the first day
of each month after quarterly financial statements have been
furnished to the Lenders in accordance with Section 6.4.1 or
6.4.2 from time to time. In the event that the financial
statements required to be delivered pursuant to Section 6.4.1 or
6.4.2, as applicable, are not delivered when due, then during the
period from the first day of the month following the date such
financial statements were due until the date upon which they are
actually delivered, the Applicable Fee Rate shall be the highest
amount set forth in the table above.
"Applicable Rate" means, at any date:
(a) with respect to each portion of the Revolving
Loan subject to a Eurodollar Pricing Option, the sum of the
Applicable Eurodollar Rate Margin (which may change during
the Eurodollar Interest Period for such Eurodollar Pricing
Option in accordance with the definition of "Applicable
Eurodollar Rate Margin") PLUS the Eurodollar Rate with
respect to such Eurodollar Pricing Option;
(b) with respect to each other portion of the
Revolving Loan, the sum of the Applicable Base Rate Margin
PLUS the Base Rate;
(c) with respect to each portion of the Term Loan
subject to a Eurodollar Pricing Option, the sum of the
Applicable Eurodollar Rate Margin (which may change during
the Eurodollar Interest Period for such Eurodollar Pricing
Option in accordance with the definition of "Applicable
Eurodollar Rate Margin") PLUS the Eurodollar Rate with
respect to such Eurodollar Pricing Option, PLUS .50%; and
(d) with respect to each other portion of the Term
Loan, the sum of the Applicable Base Rate Margin PLUS the
Base Rate plus .50%;
on the day the Agent provides written notice to the Company that
the interest rates hereunder are increasing as a result of the
occurrence and continuance of an Event of Default until the
earlier of such time as (i) such Event of Default is no longer
continuing or (ii) such Event of Default is deemed no longer to
exist, in each case pursuant to Section 8.3, the Applicable Rate
on all of the Loan shall equal the Base Rate plus 3.00%.
"Assignee" is defined in Section 11.1.1.
"Assignment and Acceptance" is defined in Section 11.1.1.
"BankBoston" means BankBoston, N.A.
"Banking Day" means any day other than Saturday, Sunday or
a day on which banks in Boston, Massachusetts are authorized or
required by law or other governmental action to close and, if
such term is used with reference to a Eurodollar Pricing Option,
any day on which dealings are effected in the Eurodollars in
question by first-class banks in the inter-bank Eurodollar
markets in New York, New York.
"Bankruptcy Code" means Title 11 of the United States Code.
"Bankruptcy Default" means an Event of Default referred to
in Section 8.1.10.
"Base Rate" means, on any date, the greater of (a) the rate
of interest announced by BankBoston at the Boston Office as its
Base Rate or (b) the sum of 1/2% PLUS the Federal Funds Rate.
"Borrowing Base" means, on any date, an amount equal to the
sum of (without duplication):
100% of Cash and Cash Equivalents of the Company held in Pledged
Accounts;
a. 90% of Net Government Accounts Receivable;
b. 90% of Pre-approved Receivables;
c. 85% of Eligible Receivables and Uninvoiced Receivables not
included in clause (b) or (c) above; provided, however, that to
the extent that the aggregate amount of all Eligible Receivables
and Uninvoiced Receivables included in this clause (d) are owed
by any single account debtor and its Affiliates exceed ten
percent of the aggregate amount of all Eligible Receivables and
Uninvoiced Receivables included in this clause (d), such excess
shall not be included in the calculation of the portion of the
Borrowing Base provided in this clause (d), except with the prior
written consent of the Agent;
d. 85% of Eligible Margin Deposits;
e. 85% of the future sales price, net of storage and
transportation costs, of Hedged Eligible Inventory;
f. 80% of Eligible Inventory other than Hedged Eligible
Inventory; plus
g. 100% of Paid but Unexpired Letters of Credit;
provided, however, that there shall be deducted from the
foregoing sum an amount equal to the total of the following:
(x) 100% of Crude Royalties Payable; and
(y) 50% of accounts payable of the Company arising
in the ordinary course of business with respect to the
purchase of crude oil and other petroleum products,
excluding,
without duplication, (i) Crude Royalties Payable, (ii) other
accounts payable which have been deducted in calculating
Eligible Receivables and Uninvoiced Receivables included in
clauses (c) and (d) above and (iii) accounts payable of the
Company arising in the ordinary course of business to the
extent secured by Letters of Credit.
"Boston Office" means the principal banking office of
BankBoston in Boston, Massachusetts.
"By-laws" means all written by-laws, rules, regulations and
all other documents relating to the management, governance or
internal regulation of any Person other than an individual, or
interpretive of the Charter of such Person, all as from time to
time in effect.
"Capital Expenditures" means, for any period, amounts added
or required to be added to the property, plant and equipment or
other fixed assets account on the Consolidated balance sheet of
the Company and its Subsidiaries, prepared in accordance with
GAAP, in respect of (a) the acquisition, construction,
improvement or replacement of land, buildings, machinery,
equipment, leaseholds and any other real or personal property,
(b) to the extent not included in clause (a) above, materials,
contract labor and direct labor relating thereto (excluding
amounts properly expensed as repairs and maintenance in
accordance with GAAP) and (c) software development costs to the
extent not expensed.
"Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board.
"Capitalized Lease Obligations" means the amount of the
liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance
with GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board.
"Cash" means currency, wire transfers of money and other
forms of immediately available funds approved by the Collateral
Agent.
"Cash Concentration Account" is defined in Section 8.5.
"Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and
bankers' acceptances having a maturity of nine months
or less and issued by any United States financial
institution having capital and surplus and undivided
profits aggregating at least $100,000,000 and rated
at least Prime-1 by Moody's or A-1 by S&P or issued
by any Lender;
corporate obligations having a maturity of nine months or less
and rated at least Prime-1 by Moody's or A-1 by S&P or issued by
any Lender;
any direct obligation of the United States of America or any
agency or instrumentality thereof, or of any state or
municipality thereof, (i) which has a remaining maturity at the
time of purchase of not more than one year or which is subject to
a repurchase agreement with any Lender (or any other financial
institution referred to in clause (a) above) exercisable within
one year from the time of purchase and (ii) which, in the case of
obligations of any state or municipality, is rated at least Aaa
by Moody's or AAA by S&P; and
any mutual fund or other pooled investment vehicle rated at least
Aa by Moody's or AA by S&P which invests principally in
obligations described above.
"CERCLA" means the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980.
"Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement,
partnership agreement, trust indenture, limited liability company
agreement or other charter document of any Person other than an
individual, each as from time to time in effect.
"Closing Date" means the Initial Closing Date, the Term Loan
Closing Date and each other date on which any extension of credit
is made pursuant to Section 2.1, 2.2 or 2.3.
"Code" means the federal Internal Revenue Code of 1986.
"Collateral Agent" means the Agent in its capacity as the
holder of collateral granted by the Company, its General Partners
and its Subsidiaries for the benefit of the Lenders and of the
holders of the Varde Term Loan.
"Commitment" means, with respect to any Lender, such
Lender's obligations to extend the respective credits
contemplated by Section 2. The original Commitments are set
forth in Exhibit 10.1 and the subsequent Commitments are recorded
from time to time in the Register.
"Company" means Pride Companies, L.P., a Delaware limited
partnership.
"Computation Covenants" means Sections 6.5, 6.6.7, 6.10.1,
6.10.2, 6.10.3, 6.10.4, 6.11.1, 6.16 and 6.19.3.
"Consolidated" and "Consolidating", when used with reference
to any term, mean that term as applied to the accounts of the
Company (or other specified Person) and all of its Subsidiaries
(or other specified group of Persons), or such of its
Subsidiaries as may be specified, consolidated (or combined) or
consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests
in Subsidiaries.
"Consolidated Current Assets" means, at any date, all
amounts carried as current assets on the balance sheet of the
Company and its Subsidiaries determined in accordance with GAAP
on a Consolidated basis.
"Consolidated Current Liabilities" means, at any date, all
amounts that are or should be carried as current liabilities on
the balance sheet of the Company and its Subsidiaries determined
in accordance with GAAP on a Consolidated basis, excluding the
current maturities of long-term debt but including all of the
outstanding balance of the Revolving Loan
"Consolidated Debt Service" means, for any period, the sum
of:
(a) Consolidated Interest Expense less PIK Interest
on Varde Securities and SGP Securities, plus
(b) the aggregate amount of all mandatory scheduled
payments, mandatory scheduled prepayments and sinking fund
payments, all with respect to Financing Debt of the Company
and its Subsidiaries in accordance with GAAP on a
Consolidated basis, including payments in the nature of
principal under Capitalized Leases, but in no event
including contingent prepayments required by Section 4.3,
plus
(c) any mandatory cash dividends or other
Distributions (excluding any Distributions paid in kind)
paid or payable by the Company or any of its Subsidiaries to
third parties;
provided, however, that for the purposes of calculating
compliance with Section 6.5.3 hereof the Consolidated Debt
Service (i) for the period of four consecutive fiscal quarters
ended March 31, 1998 shall be deemed to be the sum of the
Consolidated Debt Service for the fiscal quarter ended that date
(excluding amounts described in clause (b) above) times four plus
the current maturities of long-term debt shown on the
Consolidated balance sheet of the Company and its Subsidiaries as
of December 31, 1997, (ii) for the period of four consecutive
fiscal quarters ended June 30, 1998 shall be deemed to be the sum
of the Consolidated Debt Service for the period of two
consecutive fiscal quarters ended that date (excluding amounts
described in clause (b) above) times two plus the current
maturities of long-term debt shown on the Consolidated balance
sheet of the Company and its Subsidiaries as of December 31, 1997
and (iii) for the period of four consecutive fiscal quarters
ended September 30, 1998 shall be deemed to be the sum of the
Consolidated Debt Service for the period of three consecutive
fiscal quarters ended that date (excluding amounts described in
clause (b) above) times one and one-third plus the current
maturities of long-term debt shown on the Consolidated balance
sheet of the Company and its Subsidiaries as of December 31,
1997.
"Consolidated EBITDA" means, for any period, the gross
revenues of the Company and its Subsidiaries from operations,
determined in accordance with GAAP on a Consolidated basis, minus
(a) the sum of (i) the cost of operations of the Company and its
Subsidiaries for such period, determined in accordance with GAAP
on a Consolidated basis, and (ii) the selling, general and
administrative expenses of the Company and its Subsidiaries for
such period, determined in accordance with GAAP on a Consolidated
basis plus (b) all amounts included in clause (a) as deductions
in respect of depreciation and amortization; provided, that for
the purposes of calculating compliance with the provisions of
Sections 6.5.1, 6.5.2 and 6.5.3 hereof (and for no other purpose
of this Agreement) the Consolidated EBITDA for each of the four
consecutive fiscal quarters of the Company commencing January 1,
1997 and ending December 31, 1997 shall be assumed to be one-
quarter of (x) the actual Consolidated EBITDA of the Company and
its Subsidiaries for the fiscal year ended December 31, 1997
excluding (y) the lesser of the accrual taken in such fiscal year
with respect to the Refinery conversion expenses or $1,800,000;
and provided, further, that any writedown on or prior to December
31, 1998 of the Refinery assets associated with the Refinery
conversion referred to in the proviso to clause (c) of the
definition of "Consolidated Net Income" herein, to the extent
that the same would reflect both a non-cash item and a reduction
of Consolidated EBITDA, shall not be deducted in calculating
Consolidated EBITDA.
"Consolidated Excess Cash Flow" means, for any period, the
total of:
(d) Consolidated Operating Cash Flow,
minus (b) Consolidated Debt Service (but in no event
including contingent prepayments required by Section 4.3)
minus (c) Discretionary Capital Expenditures (to the extent
not financed by debt for borrowed money).
"Consolidated Interest Coverage" means, for any period, the
ratio of (i) the Consolidated EBITDA for such period over (ii)
the sum of the Consolidated Interest Expense less PIK Interest on
Varde Securities and SGP Securities for such period plus
Distributions paid on Varde Securities permitted under Section
6.10.1 but not included in Consolidated Interest Expense for such
period.
"Consolidated Interest Expense" means, for any period, the
total of the aggregate amount of interest, including commitment
fees, letter of credit fees, payments in the nature of interest
under Capitalized Leases, net payments under Interest Rate
Protection Agreements and other finance fees, accrued by the
Company and its Subsidiaries (whether such interest is reflected
as an item of expense or capitalized in accordance with GAAP on a
Consolidated basis), but excluding closing fees due to the
Lenders under the Fee Letter.
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Company and its Subsidiaries, determined
in accordance with GAAP on a Consolidated basis; provided,
however, that Consolidated Net Income shall not include:
(e) the income (or loss) of any Person accrued
prior
to the date such Person becomes a Subsidiary or is merged
into or consolidated with the Company or any of its
Subsidiaries;
(f) the income (or loss) of any Person (other than
a Subsidiary) in which the Company or any of its
Subsidiaries
has an ownership interest; provided, however, that
(i) Consolidated Net Income shall include amounts in respect
of the income of such Person when actually received in cash
by the Company or such Subsidiary in the form of dividends
or similar Distributions and (ii) Consolidated Net Income
shall be reduced by the aggregate amount of all Investments,
regardless of the form thereof, made by the Company or any
of its Subsidiaries in such Person for the purpose of
funding any deficit or loss of such Person;
(g) all amounts included in computing such net
income
(or loss) in respect of the write-up or write-down of any
asset or the retirement of any Indebtedness or equity at
less than face value after December 31, 1996; provided,
however, that such write-downs shall be limited to the
consequences of the conversion of the Refinery, shall be
taken on or prior to December 31, 1998 and shall not exceed
in the aggregate $30,000,000;
(h) extraordinary and nonrecurring gains;
(i) the income of any Subsidiary to the extent the
payment of such income in the form of a Distribution or
repayment of Indebtedness to the Company or a Wholly Owned
Subsidiary is not permitted, whether on account of any
Charter or By-law restriction, any agreement, instrument,
deed or lease or any law, statute, judgment, decree or
governmental order, rule or regulation applicable to such
Subsidiary; and
(j) any after-tax gains or losses attributable to
returned surplus assets of any Plan.
"Consolidated Net Working Capital" means, at any date, the
remainder of (a) the Consolidated Current Assets of the Company
and its Subsidiaries as of such date minus (b) the Consolidated
Current Liabilities of the Company and its Subsidiaries as of
such date; provided, that notwithstanding any other provision of
this Agreement, in computing Consolidated Current Assets for the
purpose of calculating Consolidated Net Working Capital, the
"First-In-First-Out" ("FIFO") inventory valuation method will be
used.
"Consolidated Net Worth" means, at any date, the total of
partners' equity of the Company and its Subsidiaries determined
in accordance with GAAP on a Consolidated basis, excluding the
effect of any foreign currency translation adjustments.
"Consolidated Operating Cash Flow" means, for any period,
the remainder of Consolidated EBITDA for such period minus the
Non-Discretionary Capital Expenditures of the Company and its
Subsidiaries for such period, minus the amounts of all taxes
based upon or measured by net income paid or payable by the
Company and its Subsidiaries for such period. For the purpose of
determining Consolidated Operating Cash Flow, Non-Discretionary
Capital Expenditures will be deemed to be $187,500 for each of
the fiscal quarters ended March 31, June 30, September 30 and
December 31, 1997.
"Credit Documents" means:
(k) this Agreement, the Notes, each Letter of
Credit,
each draft presented or accepted under a Letter of Credit,
the Guarantee and Security Agreement, the Varde
Subordination Agreement, the Pride SGP Subordination
Agreement, each Pledge of Deposit Agreement, each Agency
Account Agreement, each Deed of Trust, the Intercreditor
Agreement, the Fee Letter, and each Interest Rate Protection
Agreement provided by a Lender (or an Affiliate of a Lender)
to the Company or any of its Subsidiaries, each as from time
to time in effect; and
(l) any other present or future agreement or
instrument from time to time entered into among the Company,
any of its Subsidiaries or any other Obligor, on one hand,
and the Agent, any Letter of Credit Issuer or all the
Lenders, on the other hand, relating to, amending or
modifying this Agreement or any other Credit Document
referred to above or which is stated to be a Credit
Document, each as from time to time in effect.
"Credit Obligations" means all present and future
liabilities, obligations and Indebtedness of the Company, any of
its Subsidiaries or any other Obligor owing to the Agent or any
Lender (or any Affiliate of a Lender) under or in connection with
this Agreement or any other Credit Document, including
obligations in respect of principal, interest, reimbursement
obligations under Letters of Credit and Interest Rate Protection
Agreements provided by a Lender (or an Affiliate of a Lender),
commitment fees, Letter of Credit fees, amounts provided for in
Sections 3.2.4, 3.5 and 9 and other fees, charges, indemnities
and expenses from time to time owing hereunder or under any other
Credit Document (all whether accruing before or after a
Bankruptcy Default and regardless of whether allowed as a claim
in bankruptcy or similar proceedings).
"Credit Participant" is defined in Section 11.2.
"Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge
(or intended or required so to be subjected pursuant to the
Guarantee and Security Agreement, the Deeds of Trust, the Pledge
of Deposit Agreement or any other Credit Document) to secure the
payment or performance of any of the Credit Obligations on a pari
passu basis, including the assets described in Section 3.1 of the
Guarantee and Security Agreement.
"Crude Royalties Payable" shall mean on any date the
Consolidated accounts payable of the Company and the Guarantors
arising from the purchase of crude oil during the current and
next preceding calendar month, but specifically excluding all
such accounts payable which are supported by Letters of Credit.
"Current Asset Security" means all Cash, Cash Equivalents,
deposit accounts, Eligible Margin Deposits, Accounts and
Inventory of the Company and each Guarantor, all contract rights
relating thereto, all proceeds of the exercise of any right of
set-off and all proceeds of the foregoing; provided that in the
event of a sale or other realization upon any partnership
interest, common stock interest or other equity security included
in the Credit Security, the term "Current Asset Security" shall
include a portion of the net proceeds of such sale or other
realization equal to such percentage thereof as shall be
determined by the Collateral Agent in its reasonable judgment to
be attributable to the Current Asset Security of the issuer of
such interest or other equity security; and provided, further,
that to the extent that Cash or setoff amounts include
identifiable proceeds of real property or equipment (including
proceeds of casualty insurance) included in the Term Asset
Security, such Cash or setoff amounts shall be considered Term
Asset Security rather than Current Asset Security.
"Current Asset Subaccount" is defined in Section 8.5.
"Deed of Trust" means each of the Refinery Deed of Trust,
the Terminals Deed of Trust, the Texas Plains Deed of Trust and
each other mortgage, deed of trust or similar instrument
conveying to the Collateral Agent a Lien securing the Credit
Obligations on real property of the Company or any other Obligor.
"Default" means any Event of Default and any event or
condition which with the passage of time or giving of notice, or
both, would become an Event of Default, including the filing
against the Company, any of its Subsidiaries or any other Obligor
of a petition commencing an involuntary case under the Bankruptcy
Code.
"Delinquency Period" is defined in Section 10.4.4.
"Delinquent Lender" is defined in Section 10.4.4.
"Delinquent Payment" is defined in Section 10.4.4.
"DFSC" means the Defense Fuel Supply Center, an agency of
the Department of Defense of the United States of America.
"DFSC Claim" means all interests of the Company arising
pursuant to that certain Proposal for Additional Compensation
dated October 24, 1994 from the Company to the DFSC.
"Discretionary Capital Expenditures" means Capital
Expenditures relating to the construction of new property and/or
the acquisition of assets.
"Distribution" means, with respect to the Company (or other
specified Person):
(m) the declaration or payment of any dividend or
distribution on or in respect of any shares of any class of
capital stock of or other equity interests in the Company
(or such specified Person);
(n) the purchase, redemption or other retirement of
any shares of any class of capital stock of or other equity
interest in the Company (or such specified Person) or of
options, warrants or other rights for the purchase of such
shares, directly, indirectly through a Subsidiary or
otherwise;
(o) any other distribution on or in respect of any
shares of any class of capital stock of or equity or other
beneficial interest in the Company (or such specified
Person);
(p) any payment of principal or interest with
respect
to, or any purchase, redemption or defeasance of, the Varde
Securities, the SGP Securities and any other Financing Debt
of the Company (or such specified Person) which by its terms
or the terms of any agreement is subordinated to the payment
of the Credit Obligations; and
(q) any payment, loan or advance by the Company (or
such specified Person) to, or any other Investment by the
Company (or such specified Person) in, the holder of any
shares of any class of capital stock of or equity interest
in the Company (or such specified Person), or any Affiliate
of such holder (including the payment of management and
transaction fees and expenses);
provided, however, that the term "Distribution" shall not include
(i) dividends payable in perpetual common stock of or other
similar equity interests in the Company (or such specified
Person) or (ii) payments in the ordinary course of business in
respect of (A) reasonable compensation paid to employees,
officers and directors, (B) advances and reimbursements to
employees for travel expenses, drawing accounts and similar
expenditures, or (C) rent paid to, or accounts payable for
services rendered or goods sold by, non-Affiliates that own
capital stock of or other equity interests in the Company (or
such specified Person) or (iii) payments of interest and
principal on the Varde Term Loan or (iv) accruals of PIK Interest
on the Varde Term Loan or the Varde Securities.
"Documentation Agent" means Lehman Commercial Paper Inc. in
its capacity as Documentation Agent hereunder for the benefit of
the Lenders.
"Domestic Subsidiary" means any Subsidiary that is not a
Foreign Subsidiary.
"D-S Note" means that certain promissory note dated November
24, 1994 made by the Company to Diamond Shamrock Refining and
Marketing Company in the original principal amount of $6,000,000.
"Eligible Inventory" means, on any date, the aggregate
amount of all inventories of crude oil or refined petroleum
products owned by the Company and held at a storage location
identified in Exhibit 7.1 hereto located in the State of Texas or
New Mexico (or, from and after the filing in the State of
Oklahoma of appropriate Form UCC-1 financing statements
sufficient in the judgment of the Collateral Agent to protect its
security interest in any Credit Security located in such State,
the State of Oklahoma) or another location agreed to in writing
by the Collateral Agent, valued on a marked-to-market basis and
which inventory meet all of the following requirements:
(r) is subject to a valid, first priority,
perfected lien and security interest in favor of the
Collateral Agent, on behalf of the Lenders;
(s) is in good saleable condition;
(t) is owned by the Company free and clear of all
liens, security interests or encumbrances whatsoever other
than those in favor of the Collateral Agent and statutory
liens in the favor of storage facility owners;
(u) has not been placed by the Company on
consignment with a consignee; and
(v) is otherwise satisfactory to the Required
Revolving Lenders in their sole discretion using reasonable
business judgment.
"Eligible Margin Deposits" means net equity of the Company
in margin deposit accounts with commodities brokers on nationally
recognized exchanges subject to three-party agreements among the
Company, the Collateral Agent and commodities brokers creating
Liens on such accounts in favor of the Collateral Agent and
satisfactory in form and substance to the Collateral Agent.
"Eligible Receivables" means, on any date, the aggregate
amount of all accounts receivable carried on the books of the
Company in accordance with GAAP arising in the ordinary course of
business, less all reserves with respect to such accounts
receivable and less any and all offsets, counterclaims or contras
in respect thereof, and which accounts receivable meet all of the
following requirements:
(w) are not outstanding more than 60 days past
invoice date;
(x) constitute the valid, binding and legally
enforceable obligation of the account debtor thereon and are
not subordinate to any other claim against such account
debtor;
(y) are not evidenced by any instrument, unless
such instrument has been pledged and delivered to the
Collateral Agent;
(z) are owned by the Company free and clear of all
liens, security interests or encumbrances whatsoever, other
than those in favor of the Collateral Agent;
(aa) are not the subject of a return, rejection,
loss
of or damage to the goods, the sale of which gave rise to
the account receivable, or any request for credit or
adjustment, or any other dispute with the account debtor on
the account receivable relating to its payment, in each case
which has been formally asserted by the account debtor;
(ab) if the account debtor on any such accounts
receivable is located outside the United States, such
accounts receivable are payable in full in United States
Funds and backed by a letter of credit issued by, and
presentable in the United States of America upon, an
Acceptable Issuer;
(ac) are with respect to an account debtor for
which
the Company has received no written notice from the Agent
or the Required Revolving Lenders that in the reasonable
business judgment of the Agent or the Required Revolving
Lenders such account debtor is not creditworthy;
(ad) the account debtor has not filed a petition
for relief under any existing or future law relating to
bankruptcy, insolvency, reorganization or relief of debtors,
made a general assignment for the benefit of creditors, had
filed against it any petition of creditors, had filed
against it any petition or other application for relief
under any existing or future law relating to bankruptcy,
insolvency, reorganization or relief of debtors, failed,
suspended business operations, become insolvent, called a
meeting of its creditors for the purpose of obtaining any
financial concession or accommodation, or had or suffered a
receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs;
(ae) are subject to a valid first priority,
perfected lien and security interest in favor of the
Collateral Agent, on behalf of the Lenders; and
(af) are otherwise satisfactory to the Required
Revolving Lenders in their sole discretion using reasonable
business judgment.
For the purpose of this definition, to the extent that the
Company is at any time directly or contingently indebted for any
reason to any account debtor, the accounts receivable owing to
the Company by such account debtor shall be deemed to be subject
to an offset, counterclaim or contra in the amount of such
Indebtedness; provided, however, to the extent that any
Indebtedness of the Company to any account debtor is secured by a
Letter of Credit, the portion of the Indebtedness so secured (not
to exceed the face amount of the Letter of Credit) shall not be
deemed to be an offset, counterclaim or contra with respect to
the accounts receivable of such account debtor owing to the
Company.
"Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and
guidelines (including consent decrees and administrative orders)
relating to public health and safety and protection of the
environment, including the federal Occupational Health and Safety
Act.
"ERISA" means the federal Employee Retirement Income
Security Act of 1974.
"ERISA Group Person" means the Company, any of its
Subsidiaries and any Person which is a member of the controlled
group or under common control with the Company or any of its
Subsidiaries within the meaning of section 414 of the Code or
section 4001(a)(14) of ERISA.
"Eurodollars" means, with respect to any Lender, deposits of
United States Funds in a non-United States office or an
international banking facility of such Lender.
"Eurodollar Basic Rate" means, for any Eurodollar Interest
Period, the sum of the Eurodollar Basic Reference Rates furnished
by the Reference Lenders to the Agent divided by the number of
such Reference Lenders.
"Eurodollar Basic Reference Rate" means, for any Eurodollar
Interest Period and any Reference Lender, the rate of interest at
which Eurodollar deposits which have a term corresponding to such
Eurodollar Interest Period are offered by such Reference Lender
to the Agent by first class banks in the inter-bank Eurodollar
market for delivery in immediately available funds at a
Eurodollar Office on the first day of such Eurodollar Interest
Period as determined by such Reference Lender at approximately
10:00 a.m. (Boston time) two Banking Days prior to the date upon
which such Eurodollar Interest Period is to commence (which
determination by such Reference Lender shall, in the absence of
manifest error, be conclusive) and as furnished promptly
thereafter by such Reference Lender to the Agent.
"Eurodollar Interest Period" means any period, selected as
provided in Section 3.2.1, of one, two, three or six months,
commencing on any Banking Day and ending on the corresponding
date in the subsequent calendar month so indicated (or, if such
subsequent calendar month has no corresponding date, on the last
day of such subsequent calendar month); provided, however, that
subject to Section 3.2.3, if any Eurodollar Interest Period so
selected would otherwise begin or end on a date which is not a
Banking Day, such Eurodollar Interest Period shall instead begin
or end, as the case may be, on the immediately preceding or
succeeding Banking Day as determined by the Agent in accordance
with the then current banking practice in the inter-bank
Eurodollar market with respect to Eurodollar deposits at the
applicable Eurodollar Office, which determination by the Agent
shall, in the absence of manifest error, be conclusive.
"Eurodollar Office" means such non-United States office or
international banking facility of any Lender as such Lender may
from time to time select.
"Eurodollar Pricing Options" means the options granted
pursuant to Section 3.2.1 to have the interest on any portion of
the Loan computed on the basis of a Eurodollar Rate.
"Eurodollar Rate" for any Eurodollar Interest Period means
the rate, rounded upward to the nearest 1/100%, obtained by
dividing (a) the Eurodollar Basic Rate for such Eurodollar
Interest Period by (b) an amount equal to 1 minus the Eurodollar
Reserve Rate; provided, however, that if at any time during such
Eurodollar Interest Period the Eurodollar Reserve Rate applicable
to any outstanding Eurodollar Pricing Option changes, the
Eurodollar Rate for such Eurodollar Interest Period shall
automatically be adjusted to reflect such change, effective as of
the date of such change to the extent required by the Legal
Requirement implementing such change.
"Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic,
supplemental, marginal or emergency reserve or any reserve
asset), if any, as from time to time in effect, required by any
Legal Requirement to be maintained by any Lender against (a)
"Eurocurrency liabilities" as specified in Regulation D of the
Board of Governors of the Federal Reserve System applicable to
Eurodollar Pricing Options, (b) any other category of liabilities
that includes Eurodollar deposits by reference to which the
interest rate on portions of the Loan subject to Eurodollar
Pricing Options is determined, (c) the principal amount of or
interest on any portion of the Loan subject to a Eurodollar
Pricing Option or (d) any other category of extensions of credit,
or other assets, that includes loans subject to a Eurodollar
Pricing Option by a non-United States office of any of the
Lenders to United States residents, in each case without the
benefits of credits for prorations, exceptions or offsets that
may be available to a Lender.
"Event of Default" is defined in Section 8.1.
"Exchange Act" means the federal Securities Exchange Act of
1934.
"Exchange Transaction" means a transaction in which the
Company is obligated to deliver a stated amount of crude oil or
hydrocarbon products in exchange for crude oil or hydrocarbon
products received by it.
"Expert" means Vector Associates or another engineering or
consulting firm satisfactory to the Agent.
"FACA" means the federal Assignment of Claims Act of 1940,
as amended.
"Federal Funds Rate" means, for any day, the rate equal to
the weighted average (rounded upward to the nearest 1/8%) of (a)
the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as
such weighted average is published for such day (or, if such day
is not a Banking Day, for the immediately preceding Banking Day)
by the Federal Reserve Bank of New York or (b) if such rate is
not so published for such Banking Day, quotations received by the
Agent from three federal funds brokers of recognized standing
selected by the Agent. Each determination by the Agent of the
Federal Funds Rate shall, in the absence of manifest error, be
conclusive.
"Fee Letter" means the letter agreement dated November 17,
1997 between BankBoston and the Company providing for certain
fees to be payable in respect of the transactions contemplated by
this Agreement, as such letter agreement is from time to time
amended.
"Final Maturity Date" means December 31, 2002.
"Financial Officer" of the Company (or other specified
Person) means the chief executive officer, chief financial
officer, chief operating officer, chairman, president, treasurer
or controller of the Managing General Partner or any of its vice
presidents whose primary responsibility is for its financial
affairs, in each case whose incumbency and signatures have been
certified to the Agent by the secretary or other appropriate
attesting officer of the Company (or such specified Person).
"Financing Debt" means each of the items described in
clauses (a) through (f) of the definition of the term
"Indebtedness" and, without duplication, any Guarantees of such
items.
"Foreign Subsidiary" means each Subsidiary that is organized
under the laws of, and conducting its business primarily in a
jurisdiction outside of, the United States of America.
"Funding Liability" means (a) any Eurodollar deposit which
was used (or deemed by Section 3.2.6 to have been used) to fund
any portion of the Loan subject to a Eurodollar Pricing Option,
and (b) any portion of the Loan subject to a Eurodollar Pricing
Option funded (or deemed by Section 3.2.6 to have been funded)
with the proceeds of any such Eurodollar deposit.
"GAAP" means generally accepted accounting principles as
from time to time in effect, including the statements and
interpretations of the United States Financial Accounting
Standards Board; provided, however, that (a) for purposes of
compliance with Sections 4.3.2, 6 (other than Section 6.4) and
the related definitions, "GAAP" means such principles as in
effect on December 31, 1996 as applied by the Company and its
Subsidiaries in the preparation of the most recent annual
statements referred to in Section 7.2.1(a), and consistently
followed, without giving effect to any subsequent changes thereto
and (b) in the event of a change in generally accepted accounting
principles after such date, either the Company or the Required
Lenders may request a change in the definition of "GAAP", in
which case the parties hereto shall negotiate in good faith with
respect to an amendment of this Agreement implementing such
change.
"General Partners" means the Company's special general
partner, Pride SGP, Inc., a Texas corporation, the Company's
managing general partner, Pride Refining, Inc., a Texas
corporation, and any other Person which holds or shall hold a
general partner interest or similar interest in the Company.
"Guarantee" means, with respect to the Company (or other
specified Person):
(ag) any guarantee by the Company (or such
specified
Person) of the payment or performance of, or any contingent
obligation by the Company (or such specified Person) in
respect of, any Indebtedness or other obligation of any
primary obligor;
(ah) any other arrangement whereby credit is
extended
to a primary obligor on the basis of any promise or
undertaking of the Company (or such specified Person),
including any binding "comfort letter" or "keep well
agreement" written by the Company (or such specified
Person), to a creditor or prospective creditor of such
primary obligor, to (i) pay the Indebtedness of such primary
obligor, (ii) purchase an obligation owed by such primary
obligor, (iii) pay for the purchase or lease of assets or
services regardless of the actual delivery thereof or (iv)
maintain the capital, working capital, solvency or general
financial condition of such primary obligor;
(ai) any liability of the Company (or such
specified
Person), as a general partner of a partnership in respect of
Indebtedness or other obligations of such partnership;
(aj) any liability of the Company (or such
specified
Person) as a joint venturer of a joint venture in respect of
Indebtedness or other obligations of such joint venture;
(ak) any liability of the Company (or such
specified
Person) with respect to the tax liability of others as a
member of a group (other than a group consisting solely of
the Company and its Subsidiaries) that is consolidated for
tax purposes; and
(al) reimbursement obligations, whether contingent
or matured, of the Company (or such specified Person) with
respect to letters of credit, bankers acceptances, surety
bonds, other financial guarantees and Interest Rate
Protection Agreements,
in each case whether or not any of the foregoing are reflected on
the balance sheet of the Company (or such specified Person) or in
a footnote thereto; provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Guarantee and the
amount of Indebtedness resulting from such Guarantee shall be the
maximum amount that the guarantor may become obligated to pay in
respect of the obligations (whether or not such obligations are
outstanding at the time of computation).
"Guarantee and Security Agreement" is defined in Section
5.1.4.
"Guarantor" means each of the Company, each General Partner
and each Subsidiary of the Company which is a party to, or which
subsequently becomes a party to, the Guarantee and Security
Agreement as a Guarantor.
"Hazardous Material" means any pollutant, toxic or hazardous
material or waste, including any "hazardous substance" or
"pollutant" or "contaminant" as defined in section 101(14) of
CERCLA or any other Environmental Law or regulated as toxic or
hazardous under RCRA or any other Environmental Law.
"Hedged Eligible Inventory" means Eligible Inventory which
has been hedged on the New York Mercantile Exchange, or otherwise
in a manner satisfactory to the Agent.
"Inactive Subsidiary" means any Subsidiary which conducts no
business and in which the net Investment of the Company and its
Subsidiaries is less than $10,000.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Company (or other
specified Person) as liabilities, but in any event including
(without duplication):
(am) borrowed money;
(an) indebtedness evidenced by notes, debentures or
similar instruments;
(ao) Capitalized Lease Obligations;
(ap) the deferred purchase price of assets,
services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(aq) mandatory redemption or dividend rights on
capital stock (or other equity);
(ar) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(as) unfunded pension liabilities;
(at) obligations that are immediately and directly
due and payable out of the proceeds of or production from
property;
(au) liabilities secured by any Lien existing on
property owned or acquired by the Company (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(av) all Guarantees in respect of Indebtedness of
others.
"Indemnified Party" is defined in Section 9.2.
"Initial Closing Date" means December 31, 1997 or such other
date on or prior to December 31, 1997 agreed to by the Company
and the Agent as the first Closing Date hereunder.
"Intercreditor Agreement" means the Intercreditor and Agency
Agreement dated as of the date hereof among the Agent, the
Collateral Agent and Varde, as from time to time in effect.
"Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap, interest rate hedge or other contractual
arrangement that converts variable interest rates into fixed
interest rates, fixed interest rates into variable interest rates
or other similar arrangements.
"Inventory" includes all "inventory" as defined in Section
9-109 of the Uniform Commercial Code as in effect in The
Commonwealth of Massachusetts, including without limitation all
Eligible Inventory and Hedged Eligible Inventory.
"Investment" means, with respect to the Company (or other
specified Person):
(aw) any share of capital stock, partnership or
other equity interest, evidence of Indebtedness or other
security issued by any other Person;
(ax) any loan, advance or extension of credit to,
or contribution to the capital of, any other Person;
(ay) any Guarantee of the Indebtedness of any other
Person;
(az) any acquisition of all, or any division or
similar operating unit of, the business of any other Person
or the assets comprising such business, division or unit;
and
(ba) any other similar investment.
The investments described in the foregoing clauses
(a) through (e) shall be included in the term "Investment"
whether they are made or acquired by purchase, exchange, issuance
of stock or other securities, merger, reorganization or any other
method; provided, however, that the term "Investment" shall not
include (i) trade and customer accounts receivable for property
leased, goods furnished or services rendered in the ordinary
course of business and payable on a current basis in accordance
with customary trade terms, (ii) deposits, advances or
prepayments to suppliers for property leased or licensed, goods
furnished and services rendered in the ordinary course of
business, (iii) advances to employees for relocation and travel
expenses, drawing accounts and similar expenditures, (iv) stock
or other securities acquired in connection with the satisfaction
or enforcement of Indebtedness or claims due to the Company (or
such specified Person) or as security for any such Indebtedness
or claim or (v) demand deposits in banks or similar financial
institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost
thereof minus any returns of capital in cash on such
Investment (determined in accordance with GAAP without
regard to amounts realized as income on such Investment);
(B) the amount of any Investment in respect of a
purchase described in clause (d) above shall include the
amount of any Financing Debt assumed in connection with such
purchase or secured by any asset acquired in such purchase
(whether or not any Financing Debt is assumed) or for which
any Person that becomes a Subsidiary is liable on the date
on which the securities of such Person are acquired; and
(C) no Investment shall be increased as the result
of an increase in the undistributed retained earnings of the
Person in which the Investment was made or decreased as a
result of an equity interest in the losses of such Person.
"Legal Requirement" means any present or future requirement
imposed upon any of the Lenders or the Company and its
Subsidiaries by any law, statute, rule, regulation, directive,
order, decree or guideline (or any interpretation thereof by
courts or administrative bodies) of the United States of America,
or any jurisdiction in which any Eurodollar Office is located or
any state or political subdivision of any of the foregoing, or by
any board, governmental or administrative agency, central bank or
monetary authority of the United States of America, any
jurisdiction in which any Eurodollar Office is located or where
the Company or any of its Subsidiaries owns property or conducts
its business, or any political subdivision of any of the
foregoing. Any such law, statute, rule, regulation, directive,
order, decree, guideline or interpretation imposed on any of the
Lenders not having the force of law shall be deemed to be a Legal
Requirement for purposes of Section 3 if such Lender reasonably
believes that compliance therewith is customary commercial
practice.
"Lender" means each of the Persons listed as lenders on the
signature page hereto, including BankBoston in its capacity as a
Lender and such other Persons who may from time to time own a
Percentage Interest in the Credit Obligations, but the term
"Lender" shall not include any Credit Participant.
"Lending Officer" means such individuals whom the Agent may
designate by notice to the Company from time to time as an
officer or employee who may receive telephone requests for
extensions of credit under Sections 2.1.3 and 2.3.2.
"Letter of Credit" is defined in Section 2.3.1.
"Letter of Credit Exposure" means, at any date, the sum of
(a) the aggregate face amount of all drafts that may then or
thereafter be presented by beneficiaries under all Letters of
Credit then outstanding, plus (b) the aggregate face amount of
all drafts that the Letter of Credit Issuer has previously
accepted under Letters of Credit but has not paid.
"Letter of Credit Issuer" means, for any Letter of Credit,
BankBoston or, in the event BankBoston does not for any reason
issue a requested Letter of Credit, another Lender selected by
the Company to issue such Letter of Credit.
"Leverage Ratio" means, as of the last day of any fiscal
quarter of the Company, the ratio of (i) the Consolidated
Financing Debt of the Company and its Subsidiaries less (but only
to the extent included in Consolidated Financing Debt) the
principal balance of the Varde Securities, the SGP Securities and
the Revolving Loan outstanding as of such day to (ii) the
Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on such day.
"Lien" means, with respect to the Company (or any other
specified Person):
(bb) any lien, encumbrance, mortgage, pledge,
charge or security interest of any kind upon any property or
assets
of the Company (or such specified Person), whether now owned
or hereafter acquired, or upon the income or profits
therefrom;
(bc) the acquisition of, or the agreement to
acquire,
any property or asset upon conditional sale or subject to
any other title retention agreement, device or arrangement
(including a Capitalized Lease);
(bd) the sale, assignment, pledge or transfer for
security of any accounts, general intangibles or chattel
paper of the Company (or such specified Person), with or
without recourse;
(be) the transfer of any tangible property or
assets
for the purpose of subjecting such items to the payment of
previously outstanding Indebtedness in priority to payment
of the general creditors of the Company (or such specified
Person); and
(bf) the existence for a period of more than 120
consecutive days of any Indebtedness against the Company (or
such specified Person) which if unpaid would by law or upon
a Bankruptcy Default be given any priority over general
creditors.
"LIFO" is defined in Section 6.4.
"Loan" means, collectively, the Revolving Loan and the Term
Loan.
"Managing General Partner" is defined in the first paragraph
of this Agreement.
"Margin Stock" means "margin stock" within the meaning of
Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System.
"Material Adverse Change" means, since any specified date or
from the circumstances existing immediately prior to the
happening of any specified event, a material adverse change in
(a) the business, assets, financial condition, income or
prospects of the Company (on an individual basis) or the Company
and its Subsidiaries (on a Consolidated basis), whether as a
result of (i) general economic conditions affecting the petroleum
industry, (ii) difficulties in obtaining supplies and raw
materials, (iii) fire, flood or other natural calamities, (iv)
environmental pollution, (v) regulatory changes, judicial
decisions, war or other governmental action or (vi) any other
event or development, whether or not related to those enumerated
above or (b) the ability of the Obligors taken as a whole to
perform their collective obligations under the Credit Documents
or (c) the rights and remedies of the Agent, the Collateral Agent
and the Lenders under the Credit Documents.
"Material Agreements" is defined in Section 7.2.2.
"Maximum Amount of Revolving Credit" is defined in Section
2.1.3.
"Maximum Amount of Revolving Credit Outstanding" is defined
in Section 2.1.2.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" as defined in section 4001(a)(3) of ERISA.
"Net Asset Sale Proceeds" means the cash proceeds of the
sale or disposition of assets (including by way of merger), and
the cash proceeds of any insurance payments on account of the
destruction or loss of property, by the Company or any of its
Subsidiaries after the Initial Closing Date, net of (a) any
Indebtedness permitted by Section 6.6.7 (purchase money
Indebtedness and Capitalized Leases) secured by assets being sold
in such transaction required to be paid from such proceeds, (b)
income taxes that, as estimated by the Company in good faith,
will be required to be paid by the Company or any of its
Subsidiaries in cash as a result of, and within 16 months after,
such sale or disposition, (c) reasonable reserves for liabilities
resulting from the sale of assets and (d) all reasonable expenses
of the Company or any of its Subsidiaries payable in connection
with the sale or disposition; provided, however, that "Net Asset
Sale Proceeds" shall not include:
(i) cash proceeds of asset sales permitted by
Section 6.11.1;
(ii) cash proceeds of mergers permitted by Section
6.11.2;
(iii) cash proceeds that will be used to acquire
replacement or other assets within 360 days after such sale,
disposition, destruction or loss; provided, however, that if
any amount in this clause (iii) is not actually used to
acquire replacement or other assets within such 360-day
period, such amount shall become Net Asset Sale Proceeds;
and provided, further, that this clause (iii) shall not
apply in the case of a sale or disposition of Refinery
assets; or
(iv) the first $1,000,000 of such cash proceeds
(determined on a cumulative basis) received by the Company
and its Subsidiaries following the date hereof.
"Net Debt Proceeds" means cash proceeds (net of reasonable
out-of-pocket transaction fees and expenses) from the incurrence
by any of the Pride Parties after the Initial Closing Date of
Financing Debt other than Financing Debt permitted by Sections
6.6.1 (the Loan), 6.6.7 (purchase money Indebtedness and
Capitalized Leases) and 6.6.9 (intercompany Indebtedness).
"Net Equity Proceeds" means the cash proceeds (net of
reasonable out-of-pocket fees and expenses) received by any of
the Pride Parties in connection with any issuance by any of the
Pride Parties after the Initial Closing Date of any shares of its
common partnership units, preference partnership units or other
capital stock, other equity interests or options, warrants or
other purchase rights to acquire such capital stock or other
equity interests to, or receipt of a capital contribution from,
any Person (other than any Obligors or their officers, employees
and directors).
"Net Government Accounts Receivable" means Eligible
Receivables owed by the United States government or any agency
thereof, including without limitation the DFSC; provided that no
account owed by any such party shall be included in Eligible
Receivables or Net Government Accounts Receivable if, within 30
days following written request thereof from the Agent, the
account debtor shall have failed to acknowledge the assignment of
such account pursuant to and in full compliance with FACA.
"Non-Discretionary Capital Expenditures" means Capital
Expenditures incurred to maintain property, plant and equipment
of the Company and its Subsidiaries in accordance with applicable
environmental laws and other applicable regulations and all other
Capital Expenditures that are not Discretionary Capital
Expenditures.
"Nonperforming Lender" is defined in Section 10.4.4.
"Notes" means, collectively, the Revolving Notes and the
Term Notes.
"Obligor" means the Company, each other Guarantor and each
other Person guaranteeing or providing collateral for the Credit
Obligations.
"Offering Memorandum" is defined in Section 7.2.1.
"Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.
"Paid but Unexpired Letters of Credit" means, on any date,
the excess, if any, of (a) the aggregate outstanding stated
amount of all Letters of Credit established by the Agent or any
Revolving Lender in connection with the purchase of crude oil or
refined petroleum product for resale minus (b) the aggregate
outstanding amounts paid or payable by the Company to the
suppliers of such crude oil or refined petroleum product in
connection with such purchase.
"Payment Date" means (a) the last Banking Day of each March,
June, September and December, beginning on the first such date
after the Initial Closing Date and (b) the Final Maturity Date.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
"Percentage Interest" means, with respect to any Lender, the
Commitment of such Lender with respect to the respective portions
of the Revolving Loan and Letter of Credit Exposure or, as the
case may be, the Term Loan. For purposes of determining votes or
consents by the Lenders, the Percentage Interest of any Lender
shall be computed as follows: (a) at all times when no Event of
Default under Section 8.1.1 and no Bankruptcy Default exists, the
ratio that the respective Revolving Commitment or Term Commitment
of such Lender bears to the total Revolving Commitments or Term
Commitments, as the case shall be, of all Lenders as from time to
time in effect and reflected in the Register, and (b) at all
other times, the ratio that the respective amounts of the
outstanding Revolving Loan and Letter of Credit Exposure or the
outstanding Term Loan owing to such Lender bear to the total
outstanding Revolving Loan and Letter of Credit Exposure or Term
Loan, as the case shall be, owing to all Lenders.
"Performing Lender" is defined in Section 10.4.4.
"Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited
liability, joint stock or other company, business trust, trust,
organization, business or government or any governmental agency
or political subdivision thereof.
"PIK Interest" means any accrued interest payments on
Financing Debt (including without limitation the Varde Securities
and the SGP Securities included in Financing Debt) that are
postponed or made through the issuance of "payment-in-kind" notes
or other similar securities (including book-entry accrual with
respect to such postponed interest payments), all in accordance
with the terms of such Financing Debt; provided, however, that in
no event shall PIK Interest include payments made with cash or
Cash Equivalents.
"Plan" means, at any date, any pension benefit plan subject
to Title IV of ERISA maintained, or to which contributions have
been made or are required to be made, by any ERISA Group Person
within six years prior to such date.
"Pledged Accounts" means each depository account of the
Company subject to a security in favor of the Collateral Agent
pursuant to a Pledge of Deposit Agreement and, if applicable, an
Agency Account Agreement.
"Pledge of Deposit Agreement" means each agreement by an
Obligor in favor of the Collateral Agent creating a security
interest in a deposit account of such Obligor, substantially in
the form of Exhibit 5.1.5(a) hereto.
"Pre-approved Receivables" means Eligible Receivables and
Uninvoiced Receivables which are pre-approved by the Agent and
are owed by an account debtor (i) which is considered to be a
"major oil company", as determined by the Required Revolving
Lenders, (ii) whose unsecured, unenhanced debt is rated
investment grade by either Moody's or S&P, (iii) whose account
receivable owing to the Company is guaranteed by any entity whose
unsecured, unenhanced debt is rated investment grade by either
Moody's or S&P or (iv) whose account receivable owing to the
Company is secured by a letter of credit of an Acceptable Issuer.
"Pride Parties" means the Company, the General Partners and
the Subsidiaries of the Company.
"Pride SGP Subordination Agreement" is defined in Section
5.1.7.
"Prior Credit Agreement" means that certain Fifth Restated
and Amended Credit Agreement among the Pride Parties and
NationsBank of Texas, N.A. and Bank One of Texas, N.A., dated as
of August 13, 1996, as amended.
"Ranger Pipeline" means that certain pipeline extending from
Comyn, Texas to Ranger, Texas.
"RCRA" means the federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 690, et seq.
"Reference Lender" means BankBoston.
"Refinery" means that certain refinery known as the Pride
Refinery, located in Jones County, Texas.
"Refinery Conversion Date" is defined in Section 5.3.3.
"Refinery Deed of Trust" means the Deed of Trust (with
Security Agreement and Assignment of Rents and Leases) dated as
of December 24, 1997 from the Company and the Managing General
Partner to certain trustees for the benefit of the Collateral
Agent, relating to the Refinery.
"Register" is defined in Section 11.1.3.
"Related Fund" means, with respect to any Lender that is a
fund that invests in senior bank loans, any other fund that
invests in senior bank loans and is managed by the same
investment advisor as such Lender or by an Affiliate of such
investment advisor.
"Replacement Lender" is defined in Section 11.3.
"Required Lenders" means, with respect to any approval,
consent, modification, waiver or other action to be taken by the
Agent, the Collateral Agent or the Lenders under the Credit
Documents which require action by the Required Lenders, both of
(a) the Required Revolving Lenders and (b) the Required Term
Lenders; provided, however, that with respect to any matters
referred to in the proviso to Section 15.1, Required Lenders
means such Lenders as own at least the respective portions of the
Percentage Interests required by Section 15.1.
"Required Revolving Lenders" means such Revolving Lenders as
own at least two-thirds of the Percentage Interests in the
Revolving Commitments or, if clause (b) of the definition of
"Percentage Interest" applies, in the outstanding Revolving Loan
and Letter of Credit Exposure.
"Required Term Lenders" means such Term Lenders as own at
least two-thirds of the Percentage Interests in the Term
Commitments or, if clause (b) of the definition of "Percentage
Interest" applies, in the outstanding Term Loan.
"Restructuring Agreement" means the Restructuring and
Override Agreement dated as of December 30, 1997 among the
Company, the Managing General Partner, the Special General
Partner and Varde.
"Revolving Commitment" means a Commitment to extend
Revolving Loans under Section 2.1 and to issue or participate in
Letters of Credit under Section 2.3.
"Revolving Lender" means each Lender which has in effect a
Revolving Commitment, holds a portion of the Revolving Loan or is
the issuer of or a participant in a Letter of Credit.
"Revolving Loan" is defined in Section 2.1.5.
"Revolving Notes" is defined in Section 2.1.5.
"S&P" means Standard & Poor's, a division of The McGraw Hill
Companies, Inc.
"Securities Act" means the federal Securities Act of 1933.
"Security Documents" means, collectively, each document
creating or evidencing a Lien securing any of the Credit
Obligations, including specifically but without limitation the
Guarantor and Security Agreement, each Pledge of Deposit
Agreement, each Agency Account Agreement, each Deed of Trust and
each three-party agreement described in the definition of
"Eligible Margin Deposits" herein. All references to any
Security Document shall mean such Security Document as at the
time supplemented or amended in accordance with the terms
thereof.
"SGP Securities" means the Indebtedness of the Company to
the Special General Partner and the Series D Preferred Units of
the Company more fully described in Exhibit 5.1.9.
"Shared Proceeds" is defined in Section 8.5.
"Special General Partner" is defined in the first paragraph
of this Agreement.
"Stage 3 Closing Date" has the meaning provided in the Varde
Credit Agreement as in effect on the date hereof.
"Subordinated Debt" means the Varde Securities and the SGP
Securities which constitute Financing Debt.
"Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly
through one or more of its Subsidiaries, (a) own at least 50% of
the outstanding capital stock (or other shares of beneficial
interest) entitled to vote generally, (b) hold at least 50% of
the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer.
"Syndication Agent" means BancBoston Securities Inc., a
Delaware corporation.
"Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any
time required by any Legal Requirement (a) to be paid by any
Lender or (b) to be withheld or deducted from any payment
otherwise required hereby to be made to any Lender, in each case
on or with respect to its obligations hereunder, the Loan, any
payment in respect of the Credit Obligations or any Funding
Liability not included in the foregoing; provided, however, that
the term "Tax" shall not include taxes imposed upon or measured
by the net income of such Lender (other than withholding taxes)
or franchise taxes that are imposed in lieu of income taxes.
"Term Asset Security" means Credit Security other than
Current Asset Security.
"Term Asset Subaccount" is defined in Section 8.5.
"Term Commitment" means a Commitment to extend a portion of
the Term Loan under Section 2.2.
"Term Lender" means each Lender which has in effect a Term
Commitment or holds a portion of the Term Loan.
"Term Loan" is defined in Section 2.2.1.
"Term Loan Closing Date" means the date on which any
extension of credit is made pursuant to Section 2.2.
"Term Loan Commitment Amount" is defined in Section 2.2.1.
"Term Note" is defined in Section 2.2.3.
"Terminals Deed of Trust" means the Mortgage, Deed of Trust,
Assignment, Security Agreement and Financing Statement dated as
of December 24, 1997 from the Company, the Managing General
Partner and the Special General Partner to certain trustees for
the benefit of the Collateral Agent, relating to certain
terminals and other real property.
"Texaco Supply Contract" is defined in Section 5.1.20.
"Texas Plains Deed of Trust" means the Mortgage, Deed of
Trust, Assignment, Security Agreement and Financing Statement
dated as of December 24, 1997 from the Company and Pride Borger,
Inc. (as successor in interest to Pride Texas Plains, L.P.) in
favor of the Collateral Agent, covering the interests of the
Company and Pride Borger, Inc. in the Texas Plains pipeline.
"TNRCC" is defined in Section 2.4.3.
"Uniform Customs and Practice" is defined in Section 2.3.6.
"Uninvoiced Receivables" means, on any date, the aggregate
amount owing to the Company in respect of deliveries and exchange
deliveries made in the ordinary course of business during the
current calendar month which have not yet been invoiced to the
customer or recorded as accounts receivable on the books of the
Company, less any and all reserves, offsets, counterclaims or
contras in respect thereof, which owed amounts (if deemed to be
accounts receivable as of such date) would constitute Eligible
Receivables.
"United States Funds" means such coin or currency of the
United States of America as at the time shall be legal tender
therein for the payment of public and private debts.
"Varde" means Varde Partners, Inc., a Delaware corporation.
"Varde Credit Agreement" means that certain Sixth Restated
and Amended Credit Agreement, dated as of December 30, 1997,
among the Company, the General Partners, Pride Borger, Inc.,
Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc.
and Varde.
"Varde Securities" means (i) the Indebtedness of the Company
to Varde (excluding the Varde Term Loan and any interest accrued
thereon) and (ii) the Series B, C and D Preferred Units of the
Company or the New Preferred Unit A, New Preferred Unit B and New
Preferred Unit C, as the case may be, each as more fully
described in the Restructuring Agreement and in Exhibit 5.1.9.
"Varde Subordination Agreement" is defined in Section 5.1.7.
"Varde Term Loan" means the Series A-1 Term Loan extended by
Varde to the Company on or before the Initial Closing Date in the
principal amount of $20,000,000 under the Varde Credit Agreement.
"Wholly Owned Subsidiary" means any Subsidiary of which all
of the outstanding capital stock (or other shares of beneficial
interest) entitled to vote generally (other than directors'
qualifying shares and, in the case of Foreign Subsidiaries,
shares required by Legal Requirements to be held by foreign
nationals) is owned by the Company (or other specified Person)
directly, or indirectly through one or more Wholly Owned
Subsidiaries.
2. The Credits.
2.1. Revolving Credit.
2.1.1. Revolving Loan. Subject to all the terms
and conditions of this Agreement and so long as no Default
exists, from time to time on and after the Initial Closing
Date and prior to the Final Maturity Date the Revolving
Lenders will, severally in accordance with their respective
Revolving Commitments, make loans to the Company in such
amounts as may be requested by the Company in accordance
with Section 2.1.4. The sum of the aggregate principal
amount of loans made under this Section 2.1.1 at any one
time outstanding shall in no event exceed $10,000,000. The
sum of the aggregate principal amount of loans made under
this Section 2.1.1 at any one time outstanding plus the
Letter of Credit Exposure shall in no event exceed the
Maximum Amount of Revolving Credit Outstanding. In no event
will the principal amount of loans at any one time
outstanding made by any Revolving Lender pursuant to this
Section 2.1, together with such Revolving Lender's
Percentage Interest in the Letter of Credit Exposure, exceed
the Revolving Commitment of such Revolving Lender.
2.1.2. Maximum Amount of Revolving Credit
Outstanding. The term "Maximum Amount of Revolving Credit
Outstanding" means, on any date, the lesser of (a) the
Maximum Amount of Revolving Credit and (b) the Borrowing
Base most recently required to be and actually reported to
the Revolving Lenders pursuant to Section 6.4.
2.1.3. Maximum Amount of Revolving Credit. The
term
"Maximum Amount of Revolving Credit" means the lesser of (a)
$65,000,000 or (b) the amount (in an integral multiple of
$1,000,000) to which the then applicable amount set forth in
clause (a) shall have been irrevocably reduced from time to
time by notice from the Company to the Agent.
2.1.4. Borrowing Requests. The Company may from
time
to time request a loan under Section 2.1.1 by providing to
the Agent a notice (which may be given by a telephone call
received by a Lending Officer if promptly confirmed in
writing). Such notice must be not later than noon (Boston
time) on the Banking Day constituting the requested Closing
Date (third Banking Day if any portion of such loan will be
subject to a Eurodollar Pricing Option on the requested
Closing Date) prior to the requested Closing Date for such
loan. The notice must specify (a) the amount of the
requested loan, which shall be not less than $250,000 and an
integral multiple of $50,000 and (b) the requested Closing
Date therefor, which shall be a Banking Day, and shall be
accompanied by a calculation of the amount available to be
borrowed under Section 2.1.1 based on the most recent
calculation of the Borrowing Base and on the Letter of
Credit Exposure and the balance of the Revolving Loan as in
effect on the requested Closing Date. Upon receipt of such
notice, the Agent will promptly inform each other Revolving
Lender (by telephone or otherwise). Each such loan will be
made on the requested Closing Date at the Boston Office by
depositing the amount thereof to the general account of the
Company with the Agent. In connection with each such loan,
the Company shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1.
2.1.5. Revolving Notes. The aggregate principal
amount of the loans outstanding from time to time under this
Section 2.1 is referred to as the "Revolving Loan". The
Agent shall keep a record of the Revolving Loan as part of
the Register. The Revolving Loan shall be deemed owed to
each Revolving Lender severally in accordance with such
Revolving Lender's Percentage Interest therein, and all
payments thereon shall be for the account of each Revolving
Lender in accordance with its Percentage Interest therein.
The Company's obligations to pay each Revolving Lender's
Percentage Interest in the Revolving Loan shall be evidenced
by a separate note of the Company in substantially the form
of Exhibit 2.1.5 (the "Revolving Notes"), payable to each
Revolving Lender in accordance with such Revolving Lender's
Percentage Interest in the Revolving Loan.
2.2. Term Credit.
2.2.1. Term Loan. Subject to all the terms and
conditions of this Agreement and so long as no Default
exists, on the Term Loan Closing Date the Term Lenders will,
in accordance with their respective Term Commitments,
severally lend to the Company as a term loan, an amount
equal to the Term Loan Commitment Amount; provided, however,
that if each of the conditions to the advances of the Term
Loan shall not have been satisfied, and the Term Loan
advanced, on or prior to June 30, 1998, then the obligation
hereunder of the Term Lenders to advance the Term Loan shall
expire and the Term Loan Commitments shall be of no further
force and effect. The term "Term Loan Commitment Amount"
means the least of (a) $21,000,000 minus any scheduled
required prepayments provided for in Section 4.2, (b) the
amount to which such figure shall have been reduced by
operation of Section 4.3.6 and (c) such lesser amount (in an
integral multiple of $100,000) to which the then applicable
amount set forth in clause (a) or (b) shall have been
irrevocably reduced from time to time by notice from the
Company to the Agent. The aggregate principal amount of the
loans made pursuant to this Section 2.2.1 at any one time
outstanding is referred to as the "Term Loan".
2.2.2. Term Loan Borrowing Request. The Company
may
request that the Term Loan be advanced under Section 2.2.1
by providing to the Agent a notice in writing not later than
noon (Boston time) on the second Banking Day, (third Banking
Day if any portion of the Term Loan will be subject to a
Eurodollar Pricing Option on the requested Term Loan Closing
Date) prior to the requested Term Loan Closing Date. The
notice shall (a) specify (i) the requested amount of the
Term Loan and (ii) the requested Term Loan Closing Date,
which shall be a Banking Day, and (b) direct that the Agent
advance a portion of such amount equivalent to the
outstanding principal amount of the Varde Term Loan and
accrued and unpaid interest thereon directly to Varde at its
Payment Office (as defined in the Varde Credit Agreement) to
be applied to payment in full of the Varde Term Loan. Upon
receipt of such notice the Agent will promptly inform each
Term Lender (by telephone or otherwise). The Term Loan will
be made at the Boston Office by advancing by wire transfer
in immediately available funds to Varde as provided in
clause (b) above the amount specified therein and by
advancing the remainder thereof to the general account of
the Company with the Agent. In connection with the Term
Loan Borrowing Request, the Company shall furnish to the
Agent a certificate in substantially the form of Exhibit
5.3.1.
2.2.3. Term Notes. The Term Loan shall be made at
the Boston Office by crediting the amount of such loan to
the general account of the Company with the Agent against
delivery to the Agent of the separate term notes of the
Company (the "Term Notes") payable to the respective Term
Lenders. The Term Note issued to each Term Lender shall be
in a principal amount equal to such Term Lender's Percentage
Interest in the Term Loan, and shall be in substantially the
form of Exhibit 2.2.3.
2.3. Letters of Credit.
2.3.1. Issuance of Letters of Credit. Subject to
all the terms and conditions of this Agreement and so long
as no
Default exists, from time to time on and after the Initial
Closing Date and prior to the Final Maturity Date, the
Letter of Credit Issuer will issue for the account of the
Company one or more irrevocable documentary or standby
letters of credit (the "Letters of Credit"). The sum of
Letter of Credit Exposure plus the Revolving Loan shall in
no event exceed the Maximum Amount of Revolving Credit
Outstanding.
2.3.2. Requests for Letters of Credit. The Company
may from time to time request a Letter of Credit to be
issued by providing to the Letter of Credit Issuer (and the
Agent if the Letter of Credit Issuer is not the Agent) a
notice which is actually received not less than three
Banking Days prior to the requested Closing Date for such
Letter of Credit specifying (a) the amount of the requested
Letter of Credit, (b) the beneficiary thereof, (c) the
requested Closing Date and (d) the principal terms of the
text for such Letter of Credit and shall be accompanied by
a calculation of the amount of Letters of Credit available
to be issued under Section 2.3.1 based on the most recent
calculation of the Borrowing Base and on the Letter of
Credit Exposure and the balance of the Revolving Loan as in
effect on the requested Closing Date. Each Letter of Credit
will be issued by forwarding it to the Company or to such
other Person as directed in writing by the Company. In
connection with the issuance of any Letter of Credit, the
Company shall furnish to the Letter of Credit Issuer (and
the Agent if the Letter of Credit Issuer is not the Agent)
a certificate in substantially the form of Exhibit 5.2.1 and
any customary application forms required by the Letter of
Credit Issuer. In the event of any inconsistency between
such application forms and this Agreement, this Agreement
shall govern.
2.3.3. Form and Expiration of Letters of Credit.
Each Letter of Credit issued under this Section 2.3 and each
draft accepted or paid under such a Letter of Credit shall
be issued, accepted or paid, as the case may be, by the
Letter of Credit Issuer at its principal office. No Letter
of Credit shall provide for the payment of drafts drawn
thereunder, and no draft shall be payable, at a date which
is later than the earlier of (a) the date 70 days after the
date of issuance or (b) five Banking Days prior to the Final
Maturity Date; provided, however, that (i) with respect to
Letters of Credit issued for the benefit of working interest
lease operators, the period provided in clause (a) above
shall be extended to 90 days, and (ii) with respect to
Letters of Credit not exceeding $1,000,000 in aggregate
stated amount at any time outstanding, the period provided
in clause (a) above shall be extended to one year. Each
Letter of Credit and each draft accepted under a Letter of
Credit shall be in such form and minimum amount, and shall
contain such terms, as the Letter of Credit Issuer and the
Company may agree upon at the time such Letter of Credit is
issued.
2.3.4. Revolving Lenders' Participation in Letters
of Credit. Upon the issuance of any Letter of Credit, a
participation therein, in an amount equal to each Revolving
Lender's Percentage Interest in the stated amount of such
Letter of Credit, shall automatically be deemed granted by
the Letter of Credit Issuer to each such Revolving Lender on
the date of such issuance and such Revolving Lenders shall
automatically be obligated, as set forth in Section 10.4, to
reimburse the Letter of Credit Issuer to the extent of such
respective Percentage Interests for all obligations incurred
by the Letter of Credit Issuer to third parties in respect
of such Letter of Credit not reimbursed by the Company. The
Letter of Credit Issuer will send to each Revolving Lender
(and the Agent if the Letter of Credit Issuer is not the
Agent) a confirmation regarding the participations in
Letters of Credit outstanding during such month.
2.3.5. Reimbursement of Payment. At such time as
a Letter of Credit Issuer makes any payment on a draft
presented or accepted under a Letter of Credit, the Company
will on demand pay to the Agent in immediately available
funds the amount of such payment. Unless the Company shall
otherwise pay to the Agent the amount required by the
foregoing sentence, such amount shall be considered a loan
under Section 2.1.1 and part of the Revolving Loan as if the
Company had paid in full the amount required with respect to
the Letter of Credit by borrowing such amount under Section
2.1.1 to the extent such amount does not cause the Revolving
Loan to exceed $10,000,000 and the sum of the Revolving Loan
and the Letter of Credit Exposure to exceed the Maximum
Amount of Revolving Credit Outstanding.
2.3.6. Uniform Customs and Practice. The Uniform
Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No.
500, and any subsequent revisions thereof approved by a
Congress of the International Chamber of Commerce and
adhered to by the Letter of Credit Issuer (the "Uniform
Customs and Practice"), shall be binding on the Company and
the Letter of Credit Issuer except to the extent otherwise
provided herein, in any Letter of Credit or in any other
Credit Document. Anything in the Uniform Customs and
Practice to the contrary notwithstanding:
(a) Neither the Company nor any beneficiary of any
Letter of Credit shall be deemed an agent of any Letter of
Credit Issuer.
(b) With respect to each Letter of Credit, neither
the Letter of Credit Issuer nor its correspondents shall be
responsible for or shall have any duty to ascertain (unless
the Letter of Credit Issuer or such correspondent is grossly
negligent or willful in failing so to ascertain):
(i) the genuineness of any signature or the
validity,
form, sufficiency, accuracy, genuineness or legal effect of
any endorsements;
(ii) delay in giving, or failure to give, notice of
arrival, notice of refusal of documents or of discrepancies
in respect of which any Letter of Credit Issuer refuses the
documents or any other notice, demand or protest;
(iii) the performance by any beneficiary under any
Letter of Credit of such beneficiary's obligations to the
Company;
(iv) inaccuracy in any notice received by the
Letter of Credit Issuer;
(v) the validity, form, sufficiency, accuracy,
genuineness or legal effect of any instrument, draft,
certificate or other document required by such Letter of
Credit to be presented before payment of a draft if such
instrument, draft, certificate or other document appears on
its face to comply with the requirements of the Letter of
Credit, or the office held by or the authority of any Person
signing any of the same; or
(vi) failure of any instrument to bear any
reference
or adequate reference to such Letter of Credit, or failure
of any Person to note the amount of any instrument on the
reverse of such Letter of Credit or to surrender such Letter
of Credit or to forward documents in the manner required by
such Letter of Credit.
(c) Except insofar as a particular Letter of Credit
contains express, contrary instructions, the Letter of
Credit Issuer may honor as complying with the terms of any
Letter of Credit and with this Agreement any drafts or other
documents otherwise in order signed or issued by an
administrator, executor, conservator, trustee in bankruptcy,
debtor in possession, assignee for benefit of creditors,
liquidator, receiver or other legal representative of the
party authorized under such Letter of Credit to draw or
issue such drafts or other documents.
(d) The occurrence of any of the events referred
to in the Uniform Customs and Practice or in the preceding
clauses of this Section 2.3.6 shall not affect or prevent
the vesting of any of the Letter of Credit Issuer's rights
or powers hereunder or the Company's obligation to make
reimbursement of amounts paid under any Letter of Credit or
any draft accepted thereunder.
(e) The Company will promptly examine (i) each
Letter
of Credit (and any amendments thereof) sent to it by the
Letter of Credit Issuer and (ii) all instruments and
documents delivered to it from time to time by the Letter of
Credit Issuer. The Company will notify the Letter of Credit
Issuer of any claim of noncompliance by notice actually
received within one Banking Day after receipt of any of the
foregoing documents, the Company being conclusively deemed
to have waived any such claim against such Letter of Credit
Issuer and its correspondents unless such notice is given.
The Letter of Credit Issuer shall have no obligation or
responsibility to send any such Letter of Credit or any such
instrument or document to the Company.
(f) In the event of any conflict between the
provisions of this Agreement and the Uniform Customs and
Practice, the provisions of this Agreement shall govern.
DY\WPD Subrogation. Upon any payment by a Letter
of Credit Issuer under any Letter of Credit and until the
reimbursement of such Letter of Credit Issuer by the Company
with respect to such payment, the Letter of Credit Issuer
shall be entitled to be subrogated to, and to acquire and
retain, the rights which the Person to whom such payment is
made may have against the Company, all for the benefit of
the Revolving Lenders. The Company will take such action as
the Letter of Credit Issuer may reasonably request,
including requiring the beneficiary of any Letter of Credit
to execute such documents as the Letter of Credit Issuer may
reasonably request, to assure and confirm to the Letter of
Credit Issuer such subrogation and such rights, including
the rights, if any, of the beneficiary to whom such payment
is made in accounts receivable, inventory and other
properties and assets of any Obligor.
2.3.8. Modification, Consent, etc. If the Company
requests or consents in writing to any modification or
extension of any Letter of Credit, or waives any failure of
any draft, certificate or other document to comply with the
terms of such Letter of Credit, and if the Letter of Credit
Issuer consents thereto, the Letter of Credit Issuer shall
be entitled to rely on such request, consent or waiver.
This Agreement shall be binding upon the Company with
respect to such Letter of Credit as so modified or extended,
and with respect to any action taken or omitted by such
Letter of Credit Issuer pursuant to any such request,
consent or waiver.
2.4. Application of Proceeds.
2.4.1. Revolving Loan. Subject to Section 2.4.4,
the Company will apply the proceeds of the Revolving Loan
for working capital requirements of the Company and its
Subsidiaries.
2.4.2. Term Loan. The Company will apply the
proceeds of the Term Loan to refinance the Varde Term Loan
and for working capital requirements of the Company and its
Subsidiaries.
2.4.3. Letters of Credit. Letters of Credit shall
be issued only to support the Company's purchase or exchange
of crude oil and petroleum products, to support certain
contingent obligations of the Company to the Texas Natural
Resources Conservation Commission (the "TNRCC") and for
general working capital requirements of the Company and its
Subsidiaries.
2.4.4. Specifically Prohibited Applications. The
Company will not, directly or indirectly, apply any part of
the proceeds of any extension of credit made pursuant to the
Credit Documents to purchase or to carry Margin Stock or to
any transaction prohibited by the Credit Documents or by
Legal Requirements applicable to the Lenders.
2.5. Nature of Obligations of Lenders to Make Extensions
of Credit. The Lenders' obligations to extend credit under this
Agreement are several and are not joint or joint and several. If
on any Closing Date any Lender shall fail to perform its
obligations under this Agreement, the aggregate amount of
Commitments to make the extensions of credit under this Agreement
shall be reduced by the amount of unborrowed Commitment of the
Lender so failing to perform and the Percentage Interests shall
be appropriately adjusted. Lenders that have not failed to
perform their obligations to make the extensions of credit
contemplated by Section 2 may, if any such Lender so desires,
assume, in such proportions as such Lenders may agree, the
obligations of any Lender who has so failed and the Percentage
Interests shall be appropriately adjusted. The provisions of
this Section 2.5 shall not affect the rights of the Company
against any Lender failing to perform its obligations hereunder.
3. Interest; Eurodollar Pricing Options; Fees.
3.1. Interest. The Loan shall accrue and bear interest at
a rate per annum which shall at all times equal the Applicable
Rate. Prior to any stated or accelerated maturity of the Loan,
the Company will, on the last day of each calendar month, pay the
accrued and unpaid interest on the portion of the Loan which was
not subject to a Eurodollar Pricing Option. On the last day of
each Eurodollar Interest Period or on any earlier termination of
any Eurodollar Pricing Option, the Company will pay the accrued
and unpaid interest on the portion of the Loan which was subject
to the Eurodollar Pricing Option which expired or terminated on
such date. In the case of any Eurodollar Interest Period longer
than three months, the Company will also pay the accrued and
unpaid interest on the portion of the Loan subject to the
Eurodollar Pricing Option having such Eurodollar Interest Period
at three-month intervals, the first such payment to be made on
the last Banking Day of the three-month period which begins on
the first day of such Eurodollar Interest Period. On the stated
or any accelerated maturity of the Loan, the Company will pay all
accrued and unpaid interest on the Loan, including any accrued
and unpaid interest on any portion of the Loan which is subject
to a Eurodollar Pricing Option. Upon the occurrence and during
the continuance of an Event of Default, the Lenders may require
accrued interest to be payable on demand or at regular intervals
more frequent than each Payment Date. All payments of interest
hereunder shall be made to the Agent for the account of each
Lender in accordance with such Lender's Percentage Interest
therein.
3.2. Eurodollar Pricing Options.
3.2.1. Election of Eurodollar Pricing Options.
Subject to all of the terms and conditions hereof and so
long as no Default exists, the Company may from time to
time, by irrevocable notice to the Agent actually received
by noon (Boston time) not less than three Banking Days prior
to the commencement of the Eurodollar Interest Period
selected in such notice, elect to have such portion of the
Loan as the Company may specify in such notice accrue and
bear interest during the Eurodollar Interest Period so
selected at the Applicable Rate computed on the basis of the
Eurodollar Rate. In the event the Company at any time does
not elect a Eurodollar Pricing Option under this Section
3.2.1 for any portion of the Loan (upon termination of a
Eurodollar Pricing Option or otherwise), then such portion
of the Loan will accrue and bear interest at the Applicable
Rate based on the Base Rate. A single Eurodollar Option may
include any portion of the Revolving Loan or Term Loan
designated by the Company in the notice referred to above so
long as the Percentage Interests of the Lenders are the same
for each such Tranche so included. No election of a
Eurodollar Pricing Option shall become effective:
(a) if, prior to the commencement of any such
Eurodollar Interest Period, the Agent determines that
(i) the electing or granting of the Eurodollar Pricing
Option in question would violate a Legal Requirement,
(ii) Eurodollar deposits in an amount comparable to the
principal amount of the Loan as to which such Eurodollar
Pricing Option has been elected and which have a term
corresponding to the proposed Eurodollar Interest Period are
not readily available in the inter-bank Eurodollar market,
or (iii) by reason of circumstances affecting the inter-bank
Eurodollar market, adequate and reasonable methods do not
exist for ascertaining the interest rate applicable to such
deposits for the proposed Eurodollar Interest Period; or
(b) if the Required Lenders shall have advised the
Agent by telephone or otherwise at or prior to noon (Boston
time) on the second Banking Day prior to the commencement of
such proposed Eurodollar Interest Period (and shall have
subsequently confirmed in writing) that, after reasonable
efforts to determine the availability of such Eurodollar
deposits, the Required Lenders reasonably anticipate that
Eurodollar deposits in an amount equal to the Percentage
Interest of the Required Lenders in the portion of the Loan
as to which such Eurodollar Pricing Option has been elected
and which have a term corresponding to the Eurodollar
Interest Period in question will not be offered in the
Eurodollar market to the Required Lenders at a rate of
interest that does not exceed the anticipated Eurodollar
Basic Rate.
3.2.2. Notice to Lenders and Company. The Agent
will
promptly inform each Lender (by telephone or otherwise) of
each notice received by it from the Company pursuant to
Section 3.2.1 and of the Eurodollar Interest Period
specified in such notice. Upon determination by the Agent
of the Eurodollar Rate for such Eurodollar Interest Period
or in the event such election shall not become effective,
the Agent will promptly notify the Company and each Lender
(by telephone or otherwise) of the Eurodollar Rate so
determined or why such election did not become effective, as
the case may be.
DATA51 Selection of Eurodollar Interest Periods.
Eurodollar Interest Periods shall be selected so that:
(a) the minimum portion of the Loan subject to any
Eurodollar Pricing Option shall be $1,000,000 and an
integral multiple of $1,000,000;
(b) no more than six Eurodollar Pricing Options
shall be outstanding at any one time;
(c) a portion of the Term Loan equal to or greater
than the amount of each mandatory prepayment required by
Section 4.2 shall not be subject to a Eurodollar Pricing
Option on the date such mandatory prepayment is required to
be made;
(d) no Eurodollar Interest Period shall expire
later than the Final Maturity Date; and
(e) prior to the date the Agent informs the Company
that the proposed syndication of the credit facilities
provided hereby will close, no Eurodollar Interest Period
shall be selected with respect to the Revolving Loan except
with the written consent of the Agent. The Company and the
Agent shall confer about the appropriate scheduling of the
selection of Eurodollar Interest Periods to facilitate the
anticipated syndication of the credit facilities provided
herein to other Lenders.
3.2.4. Additional Interest. If any portion of the
Loan subject to a Eurodollar Pricing Option is repaid, or
any Eurodollar Pricing Option is terminated for any reason
(including acceleration of maturity), on a date which is
prior to the last Banking Day of the Eurodollar Interest
Period applicable to such Eurodollar Pricing Option, the
Company will pay to the Agent for the account of each Lender
in accordance with such Lender's Percentage Interest, in
addition to any amounts of interest otherwise payable
hereunder, an amount equal to the present value (calculated
in accordance with this Section 3.2.4) of interest for the
unexpired portion of such Eurodollar Interest Period on the
portion of the Loan so repaid, or as to which a Eurodollar
Pricing Option was so terminated, at a per annum rate equal
to the excess, if any, of (a) the rate applicable to such
Eurodollar Pricing Option minus (b) the rate of interest
obtainable by the Agent upon the purchase of debt securities
customarily issued by the Treasury of the United States of
America which have a maturity date approximating the last
Banking Day of such Eurodollar Interest Period. The present
value of such additional interest shall be calculated by
discounting the amount of such interest for each day in the
unexpired portion of such Eurodollar Interest Period from
such day to the date of such repayment or termination at a
per annum interest rate equal to the interest rate
determined pursuant to clause (b) of the preceding sentence,
and by adding all such amounts for all such days during such
period. The determination by the Agent of such amount of
interest shall, in the absence of manifest error, be
conclusive. For purposes of this Section 3.2.4, if any
portion of the Loan which was to have been subject to a
Eurodollar Pricing Option is not outstanding on the first
day of the Eurodollar Interest Period applicable to such
Eurodollar Pricing Option other than for reasons described
in Section 3.2.1 or as a result of the failure of any Lender
to perform its obligations under Section 2, the Company
shall be deemed to have terminated such Eurodollar Pricing
Option.
3.2.5. Violation of Legal Requirements. If any
mandatory Legal Requirement shall prevent any Lender from
funding or maintaining through the purchase of deposits in
the interbank Eurodollar market any portion of the Loan
subject to a Eurodollar Pricing Option or otherwise from
giving effect to such Lender's obligations as contemplated
by Section 3.2, (a) the Agent may by notice to the Company
terminate all of the affected Eurodollar Pricing Options,
(b) the portion of the Loan subject to such terminated
Eurodollar Pricing Options shall immediately bear interest
thereafter at the Applicable Rate computed on the basis of
the Base Rate and (c) the Company shall make any payment
required by Section 3.2.4.
3.2.6. Funding Procedure. The Lenders may fund any
portion of the Loan subject to a Eurodollar Pricing Option
out of any funds available to the Lenders. Regardless of
the source of the funds actually used by any of the Lenders
to fund any portion of the Loan subject to a Eurodollar
Pricing Option, however, all amounts payable hereunder,
including the interest rate applicable to any such portion
of the Loan and the amounts payable under Sections 3.2.4 and
3.5, shall be computed as if each Lender had actually funded
such Lender's Percentage Interest in such portion of the
Loan through the purchase of deposits in such amount of the
type by which the Eurodollar Basic Rate was determined with
a maturity the same as the applicable Eurodollar Interest
Period relating thereto and through the transfer of such
deposits from an office of the Lender having the same
location as the applicable Eurodollar Office to one of such
Lender's offices in the United States of America.
3.3. Commitment Fees.
3.3.1. Revolving Commitments. In consideration of
the Revolving Lenders' commitments to make the extensions of
credit provided for in Sections 2.1 and 2.3, while such
commitments are outstanding, the Company will pay to the
Agent for the account of the Revolving Lenders in accordance
with the Revolving Lenders' respective Revolving
Commitments, on each Payment Date, an amount equal to
interest computed at the rate of 0.50% per annum on the
amount by which (a) the daily Maximum Amount of Revolving
Credit during the three-month period or portion thereof
ending on such Payment Date exceeded (b) the sum of (i) the
daily Revolving Loan during such period or portion thereof
plus (ii) the daily Letter of Credit Exposure during such
period or portion thereof; provided, however, that the first
such payment shall be for the period beginning on the
Initial Closing Date and ending on the first Payment Date.
3.3.2. Term Commitments. In consideration of the
Term Lenders' commitments to advance the Term Loan provided
for in Section 2.2, which such commitments are outstanding,
the Company will pay to the Agent for the account of the
Term Lenders in accordance with the Term Lenders' respective
Term Commitments, on each Payment Date, (and on the Term
Loan Closing Date or, if the Term Loan is not advanced on or
prior to June 30, 1998, on that date), an amount equal to
the interest computed at the rate of 0.50% per annum on the
average daily Term Loan Commitment Amount in effect during
the three-month period or portion thereof ending on such
Payment Date (or such other date); provided, however, that
the first such period shall be for the period beginning on
the Initial Closing Date and ending on the first Payment
Date.
3.4. Letter of Credit Fees. The Company will pay to the
Agent for the account of each of the Lenders, in accordance with
the Lenders' respective Percentage Interests, on the last day of
each month, a Letter of Credit fee equal to interest at a rate
per annum equal to the Applicable Fee Rate on the average daily
Letter of Credit Exposure during the one-month period or portion
thereof ending on such Payment Date. In addition, the Company
will pay a fee of 0.125% per annum of the face amount of each
Letter of Credit to the Issuing Bank as a Letter of Credit
issuance fee. The Company will pay to the Letter of Credit
Issuer customary service charges and expenses for its services in
connection with the Letters of Credit at the times and in the
amounts from time to time in effect in accordance with its
general rate structure, including fees and expenses relating to
issuance, amendment, negotiation, cancellation and similar
operations.
3.5. Changes in Circumstances; Yield Protection.
3.5.1. Reserve Requirements, etc. If any Legal
Requirement arising subsequent to the date hereof (including
without limitation any modification or change in the
interpretation or administration of any pre-existing Legal
Requirement) shall (a) impose, modify, increase or deem
applicable any insurance assessment, reserve, special
deposit or similar requirement against any Funding Liability
or the Letters of Credit, (b) impose, modify, increase or
deem applicable any other requirement or condition with
respect to any Funding Liability or the Letters of Credit,
or (c) change the basis of taxation of Funding Liabilities
or payments in respect of any Letter of Credit (other than
changes in the rate of taxes measured by the overall net
income of such Lender) and the effect of any of the
foregoing shall be to increase the cost to any Lender of
issuing, making, funding or maintaining its respective
Percentage Interest in any portion of the Loan subject to a
Eurodollar Pricing Option or any Letter of Credit, to reduce
the amounts received or receivable by such Lender under this
Agreement or to require such Lender to make any payment or
forego any amounts otherwise payable to such Lender under
this Agreement (other than any Tax or any reserves that are
included in computing the Eurodollar Reserve Rate), then
such Lender may claim compensation from the Company under
Section 3.5.5.
3.5.2. Taxes. All payments of the Credit
Obligations
shall be made without set-off or counterclaim and free and
clear of any deductions, including deductions for Taxes,
unless the Company is required by law to make such
deductions. If (a) any Lender shall be subject to any Tax
with respect to any payment of the Credit Obligations or its
obligations hereunder or (b) the Company shall be required
to withhold or deduct any Tax on any payment on the Credit
Obligations, then such Lender may claim compensation from
the Company under Section 3.5.5 to the extent such Lender is
then in compliance with any applicable requirements of
Section 13. Whenever Taxes must be withheld by the Company
with respect to any payments of the Credit Obligations, the
Company shall promptly furnish to the Agent for the account
of the applicable Lender official receipts (to the extent
that the relevant governmental authority delivers such
receipts) evidencing payment of any such Taxes so withheld.
If the Company fails to pay any such Taxes when due or fails
to remit to the Agent for the account of the applicable
Lender the required receipts evidencing payment of any such
Taxes so withheld or deducted, the Company shall indemnify
the affected Lender for any incremental Taxes and interest
or penalties that may become payable by such Lender as a
result of any such failure. In the event any Lender
receives a refund of any Taxes for which it has received
payment from the Company under this Section 3.5.2, such
Lender shall promptly pay the amount of such refund to the
Company, together with any interest thereon actually earned
by such Lender.
3.5.3. Capital Adequacy. If any Lender shall
determine that compliance by such Lender with any Legal
Requirement arising subsequent to the date hereof (including
without limitation any modification or change in the
interpretation or administration of any pre-existing Legal
Requirement) regarding capital adequacy of banks or bank
holding companies has or would have the effect of reducing
the rate of return on the capital of such Lender and its
Affiliates as a consequence of such Lender's commitment to
make the extensions of credit contemplated hereby, or such
Lender's maintenance of the extensions of credit
contemplated hereby, to a level below that which such Lender
could have achieved but for such compliance (taking into
consideration the policies of such Lender and its Affiliates
with respect to capital adequacy immediately before such
compliance and assuming that the capital of such Lender and
its Affiliates was fully utilized prior to such compliance)
by an amount deemed by such Lender to be material, then such
Lender may claim compensation from the Company under Section
3.5.5.
3.5.4. Regulatory Changes. If any Lender shall
determine that (a) any change in any Legal Requirement
(including any new Legal Requirement) after the date hereof
shall directly or indirectly (i) reduce the amount of any
sum received or receivable by such Lender with respect to
the Loan or the Letters of Credit or the return to be earned
by such Lender on the Loan or the Letters of Credit, (ii)
impose a cost on such Lender or any Affiliate of such Lender
that is attributable to the making or maintaining of, or
such Lender's commitment to make, its portion of the Loan or
the Letters of Credit, or (iii) require such Lender or any
Affiliate of such Lender to make any payment on, or
calculated by reference to, the gross amount of any amount
received by such Lender under any Credit Document (other
than Taxes or income or franchise taxes), and (b) such
reduction, increased cost or payment shall not be fully
compensated for by an adjustment in the Applicable Rate or
the Letter of Credit fees, then such Lender may claim
compensation from the Company under Section 3.5.5.
3.5.5. Compensation Claims. Within 15 days after
the receipt by the Company of a certificate from any Lender
setting forth why it is claiming compensation under this
Section 3.5 and computations (in reasonable detail) of the
amount thereof, the Company shall pay to such Lender such
additional amounts as such Lender sets forth in such
certificate as sufficient fully to compensate it on account
of the foregoing provisions of this Section 3.5, together
with interest on such amount from the 15th day after receipt
of such certificate until payment in full thereof at the
Overdue Reimbursement Rate; provided, however that the
Company shall not be required to pay any amount or portion
thereof claimed under this Section 3.5.5 unless the claim is
made not later than 180 days after the Lender's accrual of
such claim and receipt of actual notice of the amount
thereof and the basis therefor. The determination by such
Lender of the amount to be paid to it and the basis for
computation thereof hereunder shall be conclusive so long as
(a) such determination is made in good faith, (b) no
manifest error appears therein and (c) the Lender uses
reasonable averaging and attribution methods. The Company
shall be entitled to replace any such Lender in accordance
with Section 11.3.
3.5.6. Mitigation. Each Lender shall take such
commercially reasonable steps as it may determine are not
disadvantageous to it, including changing lending offices to
the extent feasible, in order to reduce amounts otherwise
payable by the Company to such Lender pursuant to Sections
3.2.4 and 3.5 or to make Eurodollar Pricing Options
available under Sections 3.2.1 and 3.2.5.
3.6. Computations of Interest and Fees. For purposes of
this Agreement, interest, commitment fees and Letter of Credit
fees (and any other amount expressed as interest or such fees)
shall be computed on the basis of a 365-day year for actual days
elapsed; provided, that interest in respect of Eurodollar Pricing
Options shall be computed on the basis of a 360-day year for
actual days elapsed. If any payment required by this Agreement
becomes due on any day that is not a Banking Day, such payment
shall, except as otherwise provided in the definition of
"Eurodollar Interest Period", be made on the next succeeding
Banking Day. If the due date for any payment of principal is
extended as a result of the immediately preceding sentence,
interest shall be payable for the time during which payment is
extended at the Applicable Rate.
4. Payment.
4.1. Payment at Maturity. On the Final Maturity Date or
any accelerated maturity of the Loan, the Company will pay to the
Agent an amount equal to the Loan then outstanding, together with
all accrued and unpaid interest and fees with respect thereto and
all other Credit Obligations then outstanding.
4.2. Scheduled Required Prepayments. On each Payment Date
in each year set forth below, the Company will pay to the Agent
as a prepayment of the Term Loan the lesser of (a) the amount set
forth below for such date or (b) the amount of the Term Loan then
outstanding.
Year Amount per Payment Date
---- -----------------------
1998 $375,000
1999 $562,500
2000 $625,000
2001 $750,000
2002 $750,000;
provided that the amount due on the Final Maturity Date shall be
the lesser of (x) $9,500,000 or (b) the amount of the Term Loan
then outstanding.
4.3. Contingent Required Prepayments.
4.3.1. Excess Credit Exposure. If at any time the
Revolving Loan exceeds the limits set forth in Section 2.1,
the Company shall within one Banking Day pay the amount of
such excess to the Agent as a prepayment of the Revolving
Loan. If at any time the Letter of Credit Exposure exceeds
the limits set forth in Section 2.3, the Company shall
within one Banking Day pay the amount of such excess to the
Agent to be applied as provided in Section 4.5.
4.3.2. Excess Cash Flow. Within five Banking Days
after the date annual financial statements have been (or are
required to have been) furnished by the Company to the
Lenders in accordance with Section 6.4.1, commencing with
such financial statements for the fiscal year ending
December 31, 1998, the Company shall pay to the Agent as a
prepayment of the Term Loan, to be applied as provided in
Section 4.6.2, in an amount equal to the lesser of (a) 75%
of Consolidated Excess Cash Flow for its most recently
completed fiscal year or (b) the amount by which the
outstanding principal amount of the Term Loan exceeds
$10,000,000; provided, that once the outstanding principal
amount of the Term Loan shall have been reduced to
$10,000,000, no further prepayments shall be required under
this Section 4.3.2.
4.3.3. Proceeds from New Securities Issuances.
Within 30 days of the issuance by any of the Pride Parties
of any Net Debt Proceeds or Net Equity Proceeds, the Company
shall pay to the Agent as a prepayment of the Term Loan, to
be applied as provided in Section 4.6.2, one hundred percent
(100%) of such Proceeds realized by the Pride Parties from
such issuance of debt or equity securities, until the Term
Loan shall have been prepaid in full.
4.3.4. Proceeds from Asset Sales and Insurance.
Within 30 days after the receipt by any of the Pride Parties
of any Net Asset Sale Proceeds, the Company shall pay to the
Agent as a prepayment of the Term Loan, to be applied as
provided in Section 4.6.2, one hundred percent (100%) of
such Proceeds, until the Term Loan shall have been prepaid
in full.
4.3.5. Proceeds from Legal Claims. The Company
shall immediately pay to the Agent as a prepayment of the
Term Loan, to be applied as provided in Section 4.6.2, all
proceeds from the settlement of or successful prosecution of
any legal claims; provided, however, that any proceeds from
the DFSC Claim shall be applied as follows: (x) the first
$6,000,000 (or, if less, all of such proceeds) to reduce the
Term Loan, until such time as the Term Loan shall have been
prepaid in full (or, if the Term Loan Closing Date has not
yet occurred, to reduce the Varde Term Loan), (y) the next
$5,000,000 to redeem Varde Securities and (z) the remainder,
if any, shall be paid (i) two-thirds to the Company (and
need not be applied to prepay the Term Loan) and (ii) one-
third to Varde (and must be applied to redeem Varde
Securities); provided, that payment on Varde Securities
under this Section 4.3.5 shall not be made if an Event of
Default has occurred and is continuing and, if there is no
such Event of Default, the payment on Varde Securities under
this Section 4.3.5 shall be applied first to Indebtedness
owing to Varde and then to other Varde Securities.
4.3.6. Reduction of Term Commitment. In the event
that any event contemplated by Section 4.3.2, 4.3.3, 4.3.4
or 4.3.5 shall occur prior to the Term Loan Closing Date,
the amount of the Term Commitment shall be reduced by the
amount of the Term Loan that would have been required to
have been prepaid prior to such date under Section 4.3.2,
4.3.3, 4.3.4 or 4.3.5, as the case may be, had such event
occurred prior to the Term Loan Closing Date.
4.4. Voluntary Prepayments. In addition to the
prepayments
required by Sections 4.2 and 4.3, the Company may from time to
time prepay all or any portion of the Loan (in a minimum amount
of $1,000,000 and an integral multiple of $500,000, or such
lesser amount as is then outstanding), without premium or penalty
of any type (except as provided in Section 3.2.4 with respect to
the early termination of Eurodollar Pricing Options).
Prepayments made under this Section 4.4 shall be applied to the
Term Loan until the Term Loan is prepaid in full, and then to
reductions of the Revolving Loan. The Company shall give the
Agent at least one Banking Day prior notice of its intention to
prepay the Revolving Loan under this Section 4.4, specifying the
date of payment and the total amount to be paid on such date.
The Company shall give the Lenders at least five days prior
notice of its intention to prepay the Term Loan under this
Section 4.4, specifying the date of payment, the total amount of
the Term Loan to be paid on such date and the amount of interest
and premium, if any, to be paid with such prepayment. If the
Company elects to prepay all or any portion of the Term Loan on
or prior to December 31, 1998, the prepayment price shall be the
sum of (a) 102% of the principal amount of the Term Loan or
portion thereof so prepaid, plus (b) any accrued and unpaid
interest on the Term Loan or such portion. If the Company elects
to prepay all of the Term Loan after December 31, 1998 but on or
prior to December 31, 1999, the prepayment price shall be the sum
of (a) 101% of the principal amount of the Term Loan or portion
thereof so prepaid, plus (b) any accrued and unpaid interest on
the Term Loan or such portion.
4.5. Letters of Credit. If on the Final Maturity Date or
any accelerated maturity of the Credit Obligations the Lenders
shall be obligated in respect of a Letter of Credit or a draft
accepted under a Letter of Credit, the Company will either:
(a) prepay such obligation by depositing cash with
the Agent, or
(b) deliver to the Agent a standby letter of credit
(designating the Agent as beneficiary and issued by a bank
and on terms reasonably acceptable to the Agent),
in each case in an amount equal to the portion of the then Letter
of Credit Exposure issued for the account of the Company. Any
such cash so deposited and the cash proceeds of any draw under
any standby Letter of Credit so furnished, including any interest
thereon, shall be returned by the Agent to the Company only when,
and to the extent that, the amount of such cash held by the Agent
exceeds the Letter of Credit Exposure at such time and no Default
then exists; provided, however, that if an Event of Default
occurs and the Credit Obligations become or are declared
immediately due and payable, the Agent may apply such cash,
including any interest thereon, to the payment of any of the
Credit Obligations as provided in Section 3.5.6 of the Guarantee
and Security Agreement.
4.6. Reborrowing; Application of Payments, etc.
4.6.1. Reborrowing. The amounts of the Revolving
Loan prepaid pursuant to Section 4.4 may be reborrowed from
time to time prior to the Final Maturity Date in accordance
with Section 2.1, subject to the limits set forth therein.
No portion of the Term Loan prepaid hereunder may be
reborrowed.
4.6.2. Order of Application. Prepayments of the
Term Loan made pursuant to Sections 4.3.2, 4.3.3, 4.3.4,
4.3.5 or
4.4 shall be applied first to the principal amount of the
Term Note which is due on the Final Maturity Date and then
to the installments required to be made on the Term Loan
pursuant to Section 4.2 in the inverse order of the maturity
thereof so that no partial prepayment of the Term Loan shall
affect the obligation of the Company to make the prepayments
required by Section 4.2. Subject to the foregoing, any
prepayment of the Loan shall be applied first to the portion
of the Revolving Loan or Term Loan, as the case may be, not
then subject to Eurodollar Pricing Options, then the balance
of any such prepayment shall be applied to the portion of
the Revolving Loan or Term Loan, as the case may be, then
subject to Eurodollar Pricing Options, in the chronological
order of the respective maturities thereof (or as the
Company may otherwise specify in writing), together with any
payments required by Section 3.2.4.
4.6.3. Payment with Accrued Interest, etc. At the
time of any prepayments of the Term Loan, the Company shall
pay to the Agent the principal amount to be prepaid,
together with unpaid interest in respect thereof accrued to
the date of prepayment. If notice of prepayment is given in
accordance with Section 4.4, and whether or not notice is
given of prepayments pursuant to Sections 4.2 and 4.3, the
amount specified to be prepaid shall become due and payable
on the date specified for prepayment in such notice.
4.6.4. Payments for Lenders. All payments of
principal hereunder shall be made to the Agent for the
account of the Lenders in accordance with the Lenders'
respective Percentage Interests in the Credit Obligations so
repaid.
5. Conditions to Extending Credit.
5.1. Conditions on Initial Closing Date. The obligations
of the Revolving Lenders to make any extension of credit pursuant
to Section 2.1 or 2.3 shall be subject to the satisfaction, on or
before the Initial Closing Date, of the conditions set forth in
this Section 5.1 as well as the further conditions in Section
5.2. If the conditions set forth in this Section 5.1 are not met
on or prior to the Initial Closing Date, the Revolving Lenders
shall have no obligation to make any extensions of credit
hereunder.
5.1.1. Notes. The Company shall have duly executed
and delivered to the Agent a Revolving Note for each
Revolving Lender having a Revolving Commitment.
5.1.2. Payment of Fees. The Company shall have
paid
all fees owing to the Lenders, the Agent, the Syndication
Agent and the Collateral Agent provided in the Fee Letter or
the Agent Fee Letter that are due and payable on or prior to
the Initial Closing Date.
5.1.3. Legal Opinions. On the Initial Closing
Date,
the Lenders shall have received from the following counsel
their respective opinions with respect to the transactions
contemplated by the Credit Documents, which opinions shall
be in form and substance reasonably satisfactory to the
Required Lenders:
(a) Andrews & Kurth L.L.P., special counsel for the
Company and the Guarantors, and
(b) Ropes & Gray, special counsel for the Agent.
The Company authorizes and directs its special
counsel to furnish the foregoing opinion.
5.1.4. Guarantee and Security Agreement. Each of
the Company and the Guarantors shall have duly authorized,
executed and delivered to the Collateral Agent a Guarantee
and Security Agreement in substantially the form of Exhibit
5.1.4 (the "Guarantee and Security Agreement"), as well as
any patent and trademark security agreements and copyright
security agreements contemplated therein.
5.1.5. Deposit Accounts. Each of the Company and
any Guarantor that maintains deposit accounts with any bank
or other financial institution shall have executed and
delivered to the Collateral Agent a Pledge of Deposit
Agreement with respect to each such account and, with
respect to any deposit account held by a bank or financial
institution other than BankBoston in which the Company or
any Guarantor maintains or expect to maintain balances at
any time totaling more than $25,000 in any single account or
more than $100,000 in all such accounts taken together, an
Agency Account Agreement with respect to each such account.
5.1.6. Perfection of Security. Each Obligor shall
have duly authorized, executed, acknowledged, delivered,
filed, registered and recorded such security agreements,
notices, financing statements and other instruments,
including without limitation filings under FACA, as the
Collateral Agent may have reasonably requested in order to
perfect the Liens purported or required pursuant to the
Credit Documents to be created in the Credit Security and
shall have paid all filing or recording fees or taxes
required to be paid in connection therewith, including any
recording, mortgage, documentary, transfer or intangible
taxes.
5.1.7. Subordination Agreements. The Pride Parties
and Varde shall have duly authorized, executed and delivered
to the Agent a Subordination Agreement in substantially the
form of Exhibit 5.1.7(a) (the "Varde Subordination
Agreement"). The Company and the Special General Partner
shall have duly authorized, executed and delivered to the
Agent a Subordination Agreement in substantially the form of
Exhibit 5.1.7(b) (the "Pride SGP Subordination Agreement").
5.1.8. Intercreditor Agreement. The Agent, the
Collateral Agent and Varde shall have duly authorized,
executed and delivered the Intercreditor Agreement, and the
Company and Guarantors shall have consented thereto.
5.1.9. Financial Information.
(a) The Company and its Subsidiaries, taken as a
whole:
(i) will have assets having a fair saleable value
in excess of the amount required to pay their probable
liability on their existing debts as such debts become
absolute and mature;
(ii) will have access to adequate capital for the
conduct of their business; and
(iii) will have the ability to pay their debts from
time to time incurred as such debts mature.
(b) The Company shall have furnished to the Lenders
a certificate, signed by a Financial Officer, to such
effect, together with detailed computations verifying the
items in
clauses (a) and (b) above and calculations pursuant to
Section 7.2.1(e) with respect to the Computation Covenants,
in each case giving pro forma effect to the incurrence of
the Credit Obligations.
(c) The Company's Borrowing Base as of December 22,
1997 shall be at least $6,000,000 more than the initial
balance of the Revolving Loan and the initial Letter of
Credit Exposure extended to the Company pursuant to this
Agreement on the Initial Closing Date, and the Company shall
have delivered to the Agent calculations in reasonable
detail demonstrating compliance with this requirement.
(d) On the Initial Closing Date, the Company's
capitalization shall be substantially as provided in Exhibit
5.1.9 hereto.
5.1.10. Varde Closing; Assignment of Prior Credit
Agreement. On or prior to the Initial Closing Date, the
Stage 1 Transactions, as defined in the Restructuring
Agreement, shall have occurred as provided in Section 1 of
the Restructuring Agreement. Contemporaneously with the
initial advances hereunder, the Company and its Subsidiaries
shall have paid in full all principal, interest and other
accrued and outstanding amounts under the Prior Credit
Agreement, all commitments to extend further credit under
the Prior Credit Agreement shall have been terminated, all
Liens securing amounts owing under the Prior Credit
Agreement shall have been released and the Prior Credit
Agreement shall have become terminated and of no further
force or effect (except for indemnity provisions that by
their terms survive the termination of the Prior Credit
Agreement); provided, however, that the Prior Credit
Agreement may survive to the extent that the rights of the
lenders thereunder shall have been assigned to Varde and
incorporated in the Varde Credit Agreement and the rights of
such lenders under the related security documents shall have
been assigned to the Collateral Agent.
5.1.11. Adverse Market Change. Since December 31,
1996, no Material Adverse Change shall have occurred in the
business, assets, management, financial condition, income or
prospects of the Company or its Affiliates, nor in the
syndication, financial or capital markets for credit
facilities similar in nature to this Agreement and no
material disruption of or Material Adverse Change in the
financial, banking or capital markets that would have an
adverse effect on such syndication, financial or capital
markets shall have occurred, in each case as determined by
the Agent, the Lenders and the Syndication Agent in their
sole discretion.
5.1.12. Proper Proceedings. This Agreement, each
other Credit Document and the transactions contemplated
hereby and thereby shall have been authorized by all
necessary corporate or other proceedings. All necessary
consents, approvals and authorizations of any governmental
or administrative agency or any other Person of any of the
transactions contemplated hereby or by any other Credit
Document shall have been obtained and shall be in full force
and effect.
5.1.13. Environmental Review. The Agent shall have
received from ENSR Corporation the report dated December
1997 referred to in Section 7.14.6 regarding the Company's
crude gathering system, storage and terminalling facilities
and the refinery, the substance and conclusions of which
shall be satisfactory to the Agent, and a review regarding
the Company's refinery shutdown plan, the results of which
review shall be reasonably satisfactory to the Agent.
5.1.14. Vector Report. The Agent shall have
received
written permission and authority from Vector Associates to
use and rely on the report dated December 3, 1997 by Vector
Associates on the Company's crude marketing and refined
products operation plan after the contemplated conversion of
the Refinery, such report to include a valuation done by
Vector Associates of the Company's crude gathering and
products marketing system, which valuation shall be at least
$45,000,000.
5.1.15. Commercial Finance Exam. The Agent or an
agent of the Agent shall have conducted a commercial finance
exam of the Company, the results of which shall be
reasonably satisfactory to the Agent.
5.1.16. Solvency Opinion. The Agent shall have
received an opinion from Valuation Research Corporation, or
such other entity qualified to render such an opinion
selected by the Agent, regarding the solvency of the
Company, which opinion shall be in form and substance
reasonably satisfactory to the Agent.
5.1.17. Diligence; Financial Information. The
Agent shall have received all information about the Company,
its Affiliates and its business as may be requested by the
Agent on or before the Initial Closing Date and shall be
reasonably satisfied with the results of their
investigations regarding the capitalization and financial
condition of the Company. There shall be no material
misstatements in or omissions from the materials furnished
to the Agent for its review and the Agent shall be
reasonably satisfied that any financial statements delivered
to it fairly present the business and financial condition of
the Company and its Subsidiaries, and that there has been no
Material Adverse Change in the assets, business, financial
condition, income or prospects of the Company and its
Subsidiaries, taken as a whole, since the date of the most
recent financial information delivered to the Agent.
5.1.18. Litigation. No action shall have been
instituted at or prior to the Initial Closing Date by any
Person, or instituted or threatened by any public authority,
pertaining to this Agreement or any of the transactions
contemplated hereby, the results of which action or
proceeding could prevent or make illegal the consummation of
such transaction or could otherwise cause a Material Adverse
Change with respect to the Company and its Subsidiaries,
taken as a whole.
5.1.19. Absence of Default. No default under any
material contract or agreement of the Company or any of its
Subsidiaries shall have occurred or threatened to occur
prior to the Initial Closing Date, which such default or
threatened default shall go unremedied at or prior to the
Initial Closing Date.
5.1.20. Texaco Supply Contract. The supply
contract
dated June 11, 1997, between the Company and Texaco Trading
and Transportation, Inc., a Delaware corporation (the
"Texaco Supply Contract") shall be in full force and effect
and unmodified from the form provided to the Agent prior to
the date hereof.
5.1.21. Real Estate Collateral. The Obligors shall
have duly authorized, executed, acknowledged and delivered
to the Collateral Agent as security for the Credit
Obligations a Deed of Trust on each material real property
owned by the Company and its Subsidiaries and a leasehold
mortgage on each material real property leased by the
Company and its Subsidiaries, with a landlord's consent and
waiver and any other documents required to allow for the
recording or filing of a leasehold mortgage, in each case in
form and substance reasonably satisfactory to the Agent,
together with, for each such real property: (a) a title
opinion of such legal counsel, in such form and with such
exceptions, as are reasonably satisfactory to the Agent,
provided that the title opinions with respect to the real
property covered by the Terminals Deed of Trust may be
restricted to the period from and after the most recent
prior title opinions or title insurance policies relating to
such properties, (b) an environmental site assessment report
in such form, with such conclusions and from such
environmental engineering firm as are reasonably
satisfactory to the Agent, (c) if and to the extent
available, a survey of each real property owned by the
Company and its Subsidiaries that is reasonably satisfactory
to the Agent and (d) a legal opinion of local counsel with
respect to enforceability of such Deeds of Trust and
leasehold mortgages in form and substance reasonably
satisfactory to the Agent. Each obligor shall have duly
authorized, executed acknowledged, delivered, filed,
registered and recorded such Deeds of Trust and leasehold
mortgages and such other security agreements, notices,
financing statements and other instruments as the Agent may
have reasonably requested in order to perfect the Liens
purported or required pursuant to the Credit Documents to be
created in the Credit Security and shall have paid all
filing or recording fees or taxes required to be paid in
connection therewith, including any recording, mortgage,
documentary, transfer or intangible taxes.
5.1.22. General. All legal and corporate
proceedings
in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and
substance to the Agent and the Agent shall have received
copies of all documents, including certified copies of the
Charter and By-Laws of the Company and the other Obligors,
records of corporate proceedings, certificates as to
signatures and incumbency of officers and opinions of
counsel, which the Agent may have reasonably requested in
connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
5.2. Conditions to Each Extension of Credit. The
obligations of the Lenders to make any extension of credit
pursuant to Section 2 shall be subject to the satisfaction, on or
before the Closing Date for such extension of credit, of the
following conditions:
5.2.1. Officer's Certificate. The representations
and warranties contained in Section 7 shall be true and
correct on and as of such Closing Date with the same force
and effect as though made on and as of such date (except as
to any representation or warranty which refers to a specific
earlier date and except to the extent that any such lack of
correctness shall have been permitted or waived by the
Required Lenders); no Default shall exist on such Closing
Date prior to or immediately after giving effect to the
requested extension of credit; no Material Adverse Change
shall have occurred since December 31, 1996; and the Company
shall have furnished to the Agent in connection with the
requested extension of credit a certificate to these
effects, in substantially the form of Exhibit 5.2.1, signed
by a Financial Officer.
5.2.2. Legality, etc. The making of the requested
extension of credit shall not (a) subject any Lender to any
penalty or special tax (other than a Tax for which the
Company is required to reimburse the Lenders under Section
3.5), (b) be prohibited by any Legal Requirement or
(c) violate any credit restraint program of the executive
branch of the government of the United States of America,
the Board of Governors of the Federal Reserve System or any
other governmental or administrative agency so long as any
Lender reasonably believes that compliance therewith is
customary commercial practice.
5.3. Conditions on Term Loan Closing Date. The
obligations
of the Lenders to make any extension of credit pursuant to
Section 2.2 shall be subject to the satisfaction, on or before
June 30, 1998, of the conditions set forth in this Section 5.3 as
well as the continued satisfaction of the conditions set forth in
Sections 5.1.6, 5.1.11, 5.1.12, 5.1.15, 5.1.17, 5.1.18 and
5.1.19. If the conditions set forth in this Section 5.3 as well
as the conditions set forth in Sections 5.1.6, 5.1.11, 5.1.12,
5.1.15, 5.1.17, 5.1.18 and 5.1.19 are not met on or prior to June
30, 1998, the Lenders shall have no obligation to make any
extensions of credit pursuant to Section 2.2.
5.3.1. Officer's Certificate. The representations
and warranties contained in Section 7 shall be true and
correct on and as of the Term Loan Closing Date with the
same force and effect as though made on and as of such date
(except as to any representation or warranty which refers to
a specific earlier date); no Default shall exist on the Term
Loan Closing Date prior to or immediately after giving
effect to the Term Loan; no Material Adverse Change shall
have occurred since the Initial Closing Date; the conditions
set forth in Sections 5.1.6, 5.1.11, 5.1.12, 5.1.15, 5.1.17,
5.1.18 and 5.1.19 shall have been satisfied on or prior to
and remain satisfied on the Term Loan Closing Date; the
conditions set forth in Sections 5.3.3, 5.3.4, 5.3.5, 5.3.6
and 5.3.7 shall have been satisfied on or prior to the Term
Loan Closing Date; and the Company shall have furnished to
the Agent in connection with the extension of the Term Loan
a certificate to these effects, in substantially the Term of
Exhibit 5.3.1, signed by a Financial Officer.
5.3.2. Closing of the Revolver. Prior to or
contemporaneously with the closing of the Term Loan, the
Lenders shall have been obligated to make an extension of
credit pursuant to Sections 2.1 and 2.3 on the Initial
Closing Date.
5.3.3. Confirmation of Refinery Conversion Date.
The Agent shall have received the certificate of the Expert
provided for in Section 6.19.1, including written notice
from the Expert addressed to the Agent and the Lenders of
the date by which the Refinery shall have ceased refinery
operations (the "Refinery Conversion Date").
5.3.4. Payment of Fees. The Company shall have
paid
all fees owing to the Lenders, the Agent, the Syndication
Agent and the Collateral Agent provided in the Fee Letter
that are due and payable on or prior to the Term Loan
Closing Date.
5.3.5. Texaco Supply Contract. The Agent shall
have received a written certificate from the Expert
satisfactory
to the Agent that all operational prerequisites for
receiving product under the Texaco Supply Contract shall
have been achieved, and the Texaco Supply Contract shall
have become effective and all parties to such contract shall
have commenced performance or be capable of fully performing
their duties under the Texaco Supply Contract, including but
not limited to the transport of crude oil and petroleum
products as contemplated in such agreement.
5.3.6. Interest Rate Hedging. The Company shall
maintain interest rate hedging agreements on fifty percent
(50%) of the amount outstanding under the Term Loan with the
terms of such agreements acceptable to the Agent.
5.3.7. Legal Opinions. On the Term Loan Closing
Date
the Lenders shall have received from the following counsel
their respective opinions with respect to the transaction
contemplated by the Credit Documents, which opinions shall
be in form and substance reasonably satisfactory to the
Required Lenders:
(a) Andrews & Kurth L.L.P., special counsel for the
Company and the Guarantors, and
(b) Ropes & Gray, special counsel for the Agent.
The Company authorizes and directs its special
counsel to furnish the foregoing opinion.
5.3.8. Varde Acknowledgment. The Agent shall have
received a written acknowledgment from Varde that Varde's
rights with respect to collateral held by the Collateral
Agent for the benefit of the holders of the Varde Term Loan
and the Varde Securities (and any other collateral held by
or for the benefit of Varde) will be released and
extinguished upon payment to Varde of the amount specified
by the Company pursuant to clause (b) of the second sentence
of Section 2.2.2, subject only to reinstatement of such
collateral to the extent permitted by law if any payment
made to Varde in respect of the Varde Term Loan is required
to be returned by Varde.
5.3.9. Term Notes. The Company shall have duly
executed and delivered to the Agent a Term Note for each
Term Lender in a principal amount equal to such Term
Lender's Percentage Interest in the Term Loan.
5.3.10. Title Opinions. The Company shall have
provided to the Agent title opinions of such legal counsel,
in such form and with such exceptions as are reasonably
acceptable to the Agent with respect to the recordation of
the Refinery Deed of Trust and the Terminals Deed of Trust
and with respect to encumbrances on the real property
covered by the Terminals Deed of Trust relating to periods
prior to those covered by the opinions referred to in clause
(a) of 5.1.21.
6. General Covenants. Each of the Pride Parties and the other
Guarantors covenants that, until all of the Credit Obligations
shall have been paid in full and until the Lenders' commitments
to extend credit under this Agreement and any other Credit
Document shall have been irrevocably terminated, the Pride
Parties will comply with the following provisions:
6.1. Taxes and Other Charges; Accounts Payable.
6.1.1. Taxes and Other Charges. Each of the
Company
and its Subsidiaries shall duly pay and discharge, or cause
to be paid and discharged, before the same becomes in
arrears, all taxes, assessments and other governmental
charges imposed upon such Person and its properties, sales
or activities, or upon the income or profits therefrom, as
well as all claims for labor, materials or supplies which if
unpaid might by law become a Lien upon any of its property;
provided, however, that any such tax, assessment, charge or
claim need not be paid if the validity or amount thereof
shall at the time be contested in good faith by appropriate
proceedings and if such Person shall, in accordance with
GAAP, have set aside on its books adequate reserves with
respect thereto; and provided, further, that each of the
Company and its Subsidiaries shall pay or bond, or cause to
be paid or bonded, all such taxes, assessments, charges or
other governmental claims immediately upon the commencement
of proceedings to foreclose any Lien which may have attached
as security therefor (except to the extent such proceedings
have been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Company and
its
Subsidiaries shall promptly pay when due, or in conformity
with customary trade terms, all accounts payable incident to
the operations of such Person not referred to in Section
6.1.1; provided, however, that any such accounts payable
need not be paid if the validity or amount thereof shall at
the time be contested in good faith and if such Person
shall, in accordance with GAAP, have set aside on its books
adequate reserves with respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Company and its
Subsidiaries shall engage only in the business of (a) crude
gathering, storage and distribution and petroleum
distribution and (b) other activities related thereto;
provided, that the Company may continue to operate the
Refinery until completion of all DFSC contracts existing or
pending on the Initial Closing Date if the Refinery
Conversion Date cannot be achieved prior to that time as
provided in Section 6.19.1.
6.2.2. Maintenance of Properties. Each of the
Company and its Subsidiaries:
(a) shall keep its properties in such repair,
working
order and condition, and shall from time to time make such
repairs, replacements, additions and improvements thereto,
as are necessary for the efficient operation of its
businesses and shall comply at all times in all material
respects with all material franchises, licenses and leases
to which it is party so as to prevent any loss or forfeiture
thereof or thereunder, except where (i) compliance is at the
time being contested in good faith by appropriate
proceedings and (ii) failure to comply with the provisions
being contested has not resulted, and does not create a
material risk of resulting, in the aggregate in any Material
Adverse Change; and
(b) shall do all things necessary to preserve,
renew
and keep in full force and effect and in good standing its
legal existence and authority necessary to continue its
business; provided, however, that this Section 6.2.2(b)
shall not prevent the merger, consolidation or liquidation
of Subsidiaries permitted by Section 6.11.
6.2.3. Statutory Compliance. Each of the Company
and
its Subsidiaries shall comply in all material respects with
all valid and applicable Legal Requirements, except where
(a) compliance therewith shall at the time be contested in
good faith by appropriate proceedings and (b) failure so to
comply with the provisions being contested has not resulted,
and does not create a material risk of resulting, in the
aggregate in any Material Adverse Change.
6.2.4. Compliance with Material Agreements. Each
of the Company and its Subsidiaries shall comply in all
material respects with the Material Agreements (to the
extent not in violation of the other provisions of this
Agreement or any other Credit Document). Without the prior
written consent of the Required Lenders, no Material
Agreement shall be amended, modified, waived or terminated
in any manner that would have in any material respect an
adverse effect on the interests of the Lenders.
6.3. Insurance.
6.3.1. Business Interruption Insurance. Each of
the
Company and its Subsidiaries shall maintain with financially
sound and reputable insurers insurance related to
interruption of business, either for loss of revenues or for
extra expense, in the manner customary for businesses of
similar size engaged in similar activities.
6.3.2. Property Insurance. Each of the Company and
its Subsidiaries shall keep its assets which are of an
insurable character insured by financially sound and
reputable insurers against theft and fraud and against loss
or damage by fire, explosion and hazards insured against by
extended coverage to the extent, in amounts and with
deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar
activities.
6.3.3. Liability Insurance. Each of the Company
and
its Subsidiaries shall maintain with financially sound and
reputable insurers insurance against liability for hazards,
risks and liability to persons and property, including
product liability insurance, to the extent, in amounts and
with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar
activities; provided, however, that it may effect workers'
compensation insurance or similar coverage with respect to
operations in any particular state or other jurisdiction
through an insurance fund operated by such state or
jurisdiction or by meeting the self-insurance requirements
of such state or jurisdiction.
6.3.4. Flood Insurance. Each of the Company and
its
Subsidiaries shall at all times keep each parcel of real
property owned or leased by it which is (a) included in the
Credit Security, (b) in an area determined by the Director
of the Federal Emergency Management Agency to be subject to
special flood hazard and (c) in a community participating in
the National Flood Insurance Program, insured against such
special flood hazards in an amount necessary to ensure
compliance with the federal National Flood Insurance Act of
1968.
6.4. Financial Statements and Reports. Each of the
Company and its Subsidiaries shall maintain a system of accounting
in which correct entries shall be made of all transactions in
relation to their business and affairs in accordance with
generally accepted accounting practice. The fiscal year of the
Company and its Subsidiaries shall end on December 31 in each
year and the fiscal quarters of the Company and its Subsidiaries
shall end on March 31, June 30, September 30 and December 31 in
each year. The Company and its Subsidiaries currently use the
Last-In-First-Out ("LIFO") inventory valuation method and will
continue to use that method unless and until a change is
consented to in writing by the Required Lenders.
6.4.1. Annual Reports. The Company shall furnish
to the Agent as soon as available, and in any event within
90 days after the end of each fiscal year (or, if such 90th
day is not a Banking Day, the next succeeding Banking Day),
the audited Consolidated balance sheet of the Company and
its Subsidiaries as at the end of such fiscal year, the
Consolidated statements of income and Consolidated
statements of changes in partners' equity and of cash flows
of the Company and its Subsidiaries for such fiscal year
(all in reasonable detail) and, comparative figures for the
immediately preceding fiscal year, all accompanied by:
(a) Reports of Ernst & Young LLP (or, if they cease
to be auditors of the Company and its Subsidiaries, other
independent certified public accountants of recognized
national standing reasonably satisfactory to the Required
Lenders), containing no material qualification, to the
effect that they have audited the foregoing Consolidated
financial statements in accordance with generally accepted
auditing standards and that such Consolidated financial
statements present fairly, in all material respects, the
financial position of the Company and its Subsidiaries
covered thereby at the dates thereof and the results of
their operations for the periods covered thereby in
conformity with GAAP.
(b) The statement of such accountants that they
have
caused this Agreement to be reviewed and that in the course
of their audit of the Company and its Subsidiaries no facts
have come to their attention that cause them to believe that
any Default exists and in particular that they have no
knowledge of any Default under Sections 6.5 through 6.19 or,
if such is not the case, specifying such Default and the
nature thereof. This statement is furnished by such
accountants with the understanding that the examination of
such accountants cannot be relied upon to give such
accountants knowledge of any such Default except as it
relates to accounting or auditing matters within the scope
of their audit.
(c) A certificate of the Company signed by a
Financial Officer to the effect that such officer has caused
this Agreement to be reviewed and has no knowledge of any
Default, or if such officer has such knowledge, specifying
such Default and the nature thereof, and what action the
Company has taken, is taking or proposes to take with
respect thereto.
(d) Computations by the Company comparing the
financial statements referred to above with the most recent
budget for such fiscal year furnished to the Lenders in
accordance with Section 6.4.4.
(e) Computations by the Company in substantially
the form of Exhibit 6.4 demonstrating, as of the end of such
fiscal year, compliance with the Computation Covenants,
signed by a Financial Officer.
(f) Calculations, as at the end of such fiscal
year,
of (i) the Accumulated Benefit Obligations for each Plan
(other than Multiemployer Plans) and (ii) the fair market
value of the assets of such Plan allocable to such benefits.
(g) Supplements to Exhibits 7.1, 7.3, 7.14 and 7.15
and exhibit 3.3 to the Guarantee and Security Agreement
showing any changes in the information set forth in such
exhibits not previously furnished to the Lenders in writing,
as well as any changes in the Charter, By-laws or incumbency
of officers of the Obligors from those previously certified
to the Agent.
(h) In the event of a change in GAAP after December
31, 1996, computations by the Company, signed by a Financial
Officer, reconciling the financial statements referred to
above with financial statements prepared in accordance with
GAAP as applied to the other covenants in Section 6 and
related definitions.
(i) In reasonable detail, management's discussion
and analysis of the results of operations and the financial
condition of the Company and its Subsidiaries as at the end
of and for the year covered by such financial statements.
6.4.2. Quarterly Reports. The Company shall
furnish
to the Agent as soon as available and, in any event, within
45 days after the end of each of the first three fiscal
quarters of the Company (or if such 45th day is not a
Banking Day, the next succeeding Banking Day), the
internally prepared Consolidated balance sheet of the
Company and its Subsidiaries as of the end of such fiscal
quarter, the Consolidated statements of income, of changes
in partners' equity and of cash flows of the Company and its
Subsidiaries for such fiscal quarter and for the portion of
the fiscal year then ended (all in reasonable detail) and
comparative figures for the same period in the preceding
fiscal year, all accompanied by:
(a) A certificate of the Company signed by a
Financial Officer to the effect that such financial
statements have been prepared in accordance with GAAP and
present fairly, in all material respects, the financial
position of the Company and its Subsidiaries covered thereby
at the dates thereof and the results of their operations for
the periods covered thereby, subject only to normal year-end
audit adjustments and the addition of footnotes.
(b) A certificate of the Company signed by a
Financial Officer to the effect that such officer has caused
this Agreement to be reviewed and has no knowledge of any
Default, or if such officer has such knowledge, specifying
such Default and the nature thereof and what action the
Company has taken, is taking or proposes to take with
respect thereto.
(c) Computations by the Company comparing the
financial statements referred to above with the most recent
budget for the period covered thereby furnished to the
Lenders in accordance with Section 6.4.4.
(d) Computations by the Company in substantially
the form of Exhibit 6.4 demonstrating, as of the end of such
quarter, compliance with the Computation Covenants, signed
by a Financial Officer.
(e) Supplements to Exhibits 7.1, 7.3, 7.14 and 7.15
and exhibit 3.3 to the Guarantee and Security Agreement
showing any changes in the information set forth in such
exhibits not previously furnished to the Lenders in writing,
as well as any changes in the Charter, Bylaws or incumbency
of officers of the Obligors from those previously certified
to the Agent.
(f) In reasonable detail, management's discussion
and analysis of the results of operations and financial
condition of the Company and its Subsidiaries as at the end
of and for the fiscal period covered by the financial
statements referred to above.
6.4.3. Monthly Reports. The Company shall furnish
to the Agent as soon as available and, in any event, within
30 days after the end of each month (or, if such 30th day is
not a Banking Day, the next succeeding Banking Day), the
internally prepared Consolidated balance sheet of the
Company and its Subsidiaries as at the end of such month and
the Consolidated statement of income of the Company and its
Subsidiaries for such month (all in reasonable detail), all
accompanied by a certificate of the Company signed by a
Financial Officer to the effect that such financial
statements were prepared in accordance with GAAP and present
fairly, in all material respects, the financial position of
the Persons covered thereby at the dates thereof and the
results of their operations for the periods covered thereby,
subject only to normal year-end audit adjustments and the
addition of footnotes.
6.4.4. Other Reports. The Company shall promptly
furnish to the Agent:
(a) As soon as prepared and in any event at least
30 days prior to the beginning of each fiscal year, an
annual budget and operating projections and Borrowing Base
availability projections for such fiscal year of the Company
and its Subsidiaries, prepared in a manner consistent with
the manner in which the financial projections described in
Section 7.2.1 were prepared.
(b) Any material updates of such budget and
projections.
(c) Any management letters furnished to the Company
or any of its Subsidiaries by the Company's auditors.
(d) All budgets, projections, statements of
operations and other reports furnished generally to the
shareholders of the Company.
(e) Such registration statements, proxy statements
and reports, including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q
and 8-K, as may be filed by the Company or any of its
Subsidiaries with the Securities and Exchange Commission and
all press releases issued by the Company or any other
Guarantors.
(f) Any 90-day letter or 30-day letter from the
federal Internal Revenue Service (or the equivalent notice
received from state or other taxing authorities) asserting
tax deficiencies against the Company or any of its
Subsidiaries.
(g) A borrowing base report substantially in the
form
of Exhibit 6.4.4 submitted to the Agent three times each
month detailing the calculation of the Company's Borrowing
Base. The first such report shall be dated as of the
fifteenth (15th) of the month and delivered to the Agent
within three Banking Days thereof; the second report shall
be dated at month end and be delivered to the Agent with
three Banking Days thereof; and the third such report shall
be dated at month's end and be delivered within fifteen days
thereof (or, if such 15th day is not a Banking Day, the next
succeeding Banking Day). Reports may be required more
frequently as determined by the Agent.
(h) The financial statements of the Special General
Partner and the Managing General Partner for each fiscal
year, such financial statements to include the balance
sheet, income statement and cash flow statement for such
period, and be delivered as soon as available and in any
event within 90 days after the end of each fiscal year.
(i) Within 120 days after the end of the Company's
fiscal year, an annual projections model, satisfactory in
both form and context to the Agent, which model shall cover
a minimum of three projected years.
(j) As soon as available, copies of the minutes of
all meetings of the boards of directors of each of the
General Partners and all meetings of holders of the equity
securities of the Company or any other Guarantor.
6.4.5. Notice of Litigation, Defaults, etc. The
Company shall promptly furnish to the Agent notice of any
litigation or any administrative or arbitration proceeding
(a) which creates a material risk of resulting, after giving
effect to any applicable insurance, in the payment by the
Company and its Subsidiaries of more than $500,000 or (b)
which results, or creates a material risk of resulting, in
a Material Adverse Change. Promptly upon acquiring
knowledge
thereof, the Company shall notify the Lenders of the
existence of any Default or Material Adverse Change,
specifying the nature thereof and what action the Company or
any Subsidiary has taken, is taking or proposes to take with
respect thereto.
6.4.6. ERISA Reports. The Company shall furnish to
the Agent as soon as available the following items with
respect to any Plan:
(a) any request for a waiver of the funding
standards or an extension of the amortization period,
(b) notice of any reportable event (as defined in
section 4043 of ERISA), unless the notice requirement with
respect thereto has been waived by regulation,
(c) any notice received by any ERISA Group Person
that the PBGC has instituted or intends to institute
proceedings to terminate any Plan, or that any Multiemployer
Plan is insolvent or in reorganization,
(d) notice of the possibility of the termination of
any Plan by its administrator pursuant to section 4041 of
ERISA, and
(e) notice of the intention of any ERISA Group
Person to withdraw, in whole or in part, from any
Multiemployer Plan.
6.4.7. Other Information; Audit. From time to time
at reasonable intervals upon request of any authorized
officer of the Agent, each of the Company and its
Subsidiaries shall furnish to the Agent such other
information regarding the business, assets, financial
condition, income or prospects of the Company and its
Subsidiaries as such officer may reasonably request,
including copies of all tax returns, licenses, agreements,
leases and instruments to which any of the Company or its
Subsidiaries is party. The Agent's authorized officers and
representatives shall have the right during normal business
hours upon reasonable notice and at reasonable intervals to
examine the books and records of the Company and its
Subsidiaries, to make copies and notes therefrom for the
purpose of ascertaining compliance with or obtaining
enforcement of this Agreement or any other Credit Document.
The Agent, upon reasonable advance notice, may undertake to
have the Company and its Subsidiaries reviewed by the
Agent's commercial financial examiners and fixed asset
appraisers or by a third party designated by the Agent.
Provided that no Default exists, these commercial finance
exams shall not exceed two per annum and the costs of such
examinations shall be for the account of the Company.
6.5. Certain Financial Tests.
6.5.1. Leverage Ratio. The Leverage Ratio shall
not
on the last day of each fiscal quarter of the Company ending
on a date during each period specified below exceed the
percentage set forth in the table below next to such period.
Fiscal Quarter Ending Percentage
--------------------- ----------
On or after December 31, 1997 350%
and prior to March 31, 1999
On or after March 31, 1999 300%
and prior to December 31, 1999
On or after December 31, 1999 250%
6.5.2. Consolidated Interest Coverage. For each
period of four consecutive fiscal quarters of the Company
ending on a date during each period specified below, the
Consolidated Interest Coverage shall equal or exceed the
percentage set forth in the table below next to such period,
measured as of the last day of such period.
Fiscal Quarter Ending Percentage
--------------------- ----------
On or after December 31, 1998 175%
and prior to December 31, 1999
On or after December 31, 1999 200%
and prior to December 31, 2000
On or after December 31, 2000 225%
and prior to December 31, 2001
On or after December 31, 2001 250%
6.5.3. Consolidated Operating Cash Flow to
Consolidated Debt Service. For each period of four
consecutive fiscal quarters of the Company ending on a date
during each period specified below, the Consolidated
Operating Cash Flow shall equal or exceed the percentage of
Consolidated Debt Service specified in the table below,
measured as of the last day of such period:
First Quarter Ending Percentage
-------------------- ----------
On or after March 31, 1998 110%
and prior to March 31, 1999
On or after March 31, 1999 115%
and prior to December 31, 1999
On or after December 31, 1999 120%
6.5.4. Capital Expenditures. The aggregate amount
of Capital Expenditures of the Company and its Subsidiaries,
determined on a Consolidated basis, for the fiscal year of
the Company ending December 31, 1998 will not exceed
$2,000,000; provided, that the portion of such Capital
Expenditures relating to properties other than the Ranger
Pipeline connection and a new computer system will not
exceed $1,000,000. The aggregate amount of Capital
Expenditures of the Company and its Subsidiaries, determined
on a Consolidated basis, for each fiscal year of the Company
ending on or after December 31, 1999 shall not exceed the
sum of $1,250,000 plus the amount by which Capital
Expenditures made in the immediately preceding fiscal year
were less than $1,250,000.
6.5.5. Minimum Consolidated EBITDA. (a) For each
fiscal quarter of the Company, commencing with the fiscal
quarter ending December 31, 1997, the Consolidated EBITDA
shall equal or exceed zero; and (b) for each period of four
consecutive fiscal quarters of the Company ending on a date
during each period specified below, the Consolidated EBITDA
of the Company shall equal or exceed the amount set forth
below next to such period.
Fiscal Quarter Ending Amount
--------------------- ------
On December 31, 1997 $ 8,800,000
After December 31, 1997 $ 8,500,000
and prior to March 31, 1999
On and after March 31, 1999 $ 9,000,000
and prior to December 31, 1999
On and after December 31, 1999 $10,000,000
6.5.6. Net Working Capital. Consolidated Net
Working Capital shall not on any date be less than $1.00.
6.5.7. Consolidated Net Worth. Consolidated Net
Worth shall at all times on and after December 31, 1997
equal or exceed the sum of (a) the Consolidated Net Worth as
of December 31, 1997 minus $5,000,000 plus (b) the amount by
which Consolidated Net Worth has been increased after
December 31, 1997 as a result of capital contributions, the
issuance of partnership units or other equity interests of
the Company or any of its Subsidiaries, the issuance of
warrants, options or other rights to acquire such
partnership units or other equity interests or the exercise
of warrants, options or other rights or the conversion of
securities into such partnership units or other equity
interests plus (c) 50% of Consolidated Net Income (if
positive) for each fiscal quarter of the Company thereafter,
plus (d) 100% of Net Equity Proceeds realized by the Company
after December 31, 1997, minus (e) the amount of any
reduction of Consolidated Net Worth as the result of
writedowns taken on or prior to December 31, 1998 in
connection with the Refinery conversion not exceeding in the
aggregate $30,000,000.
6.6. Indebtedness. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or otherwise become or
remain liable with respect to any Indebtedness (or become
contractually committed to do so), except the following:
6.6.1. Indebtedness in respect of the Credit
Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Current liabilities, other than Financing
Debt, incurred in the ordinary course of business.
6.6.4. To the extent that payment thereof shall not
at the time be required by Section 6.1, Indebtedness in
respect of taxes, assessments, governmental charges and
claims for labor, materials and supplies.
6.6.5. Indebtedness secured by Liens of carriers,
warehouses, mechanics and landlords permitted by
Sections 6.8.5 and 6.8.6.
6.6.6. Indebtedness in respect of judgments or
awards (a) which have been in force for less than the
applicable
appeal period or (b) in respect of which the Company or any
Subsidiary shall at the time in good faith be prosecuting an
appeal or proceedings for review and, in the case of each of
clauses (a) and (b), the Company or such Subsidiary shall
have taken appropriate reserves therefor in accordance with
GAAP and execution of such judgment or award shall not be
levied.
6.6.7. To the extent permitted by Section 6.8.7,
Indebtedness in respect of Capitalized Lease Obligations or
secured by purchase money security interests not to exceed
$150,000 in aggregate principal amount at any time
outstanding.
6.6.8. Indebtedness in respect of deferred taxes
arising in the ordinary course of business.
6.6.9. Indebtedness in respect of inter-company
loans and advances among the Company and its Subsidiaries
which are not prohibited by Section 6.9.
6.6.10. Prior to the advance of the Term Loan on
the Term Loan Closing Date, Indebtedness of the Obligors in
respect of the Varde Term Loan, so long as the interest rate
paid in cash on the Varde Term Loan is not in excess of the
Eurodollar Rate plus 350 basis points (with the remainder to
accrue as PIK Interest) for interest accruing through June
30, 1998 and that interest accruing on the Varde Term Loan,
if any, after June 30, 1998 shall not exceed the per annum
rate of 11% in 1998, 13% in 1999, 15% in 2000, 17% in 2001
and 19% in 2002 (subject to reduction by 2% in each year
after 1998 from and after the occurrence of the Stage 3
Closing Date).
6.6.11. Indebtedness of the Obligors in respect of
the Varde Securities, so long as such Indebtedness is
subordinated to the Credit Obligations in accordance with
the Varde Subordination Agreement.
6.6.12. Indebtedness of the Company to the Special
General Partner, so long as such Indebtedness is
subordinated to the Credit Obligations in accordance with
the Pride SGP Subordination Agreement
6.6.13. Unfunded pension liabilities and
obligations
with respect to Plans so long as the Company and all other
ERISA Group Persons are in compliance with Section 6.16.
6.6.14. Other Indebtedness outstanding on the date
hereof and described in Exhibit 7.3 and (except with respect
to the Prior Credit Agreement, which shall be terminated on
the Initial Closing Date) all renewals and extensions
thereof not in excess of the amount thereof outstanding
immediately prior to such renewal or extension.
6.7. Guarantees; Letters of Credit. Neither the Company
nor any of its Subsidiaries shall become or remain liable with
respect to any Guarantee, including reimbursement obligations,
whether contingent or matured, under letters of credit or other
financial guarantees by third parties (or become contractually
committed do to so), except the following:
6.7.1. Letters of Credit and Guarantees of the
Credit Obligations.
6.7.2. Guarantees by the Company of Indebtedness
and other obligations incurred by its Subsidiaries and permitted
by Section 6.6.
6.8. Liens. Neither the Company nor any of its
Subsidiaries shall create, incur or enter into, or suffer to be
created or incurred or to exist, any Lien (or become contractually
committed to do so), except the following:
6.8.1. Liens on the Credit Security that secure the
Credit Obligations.
6.8.2. Liens to secure taxes, assessments and other
governmental charges, to the extent that payment thereof
shall not at the time be required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection
with, or to secure payment of, workers' compensation,
unemployment insurance, old age pensions or other social
security, (b) in connection with casualty insurance
maintained in accordance with Section 6.3, (c) to secure the
performance of bids, tenders, contracts (other than
contracts relating to Financing Debt) or leases, (d) to
secure statutory obligations or surety or appeal bonds,
(e) to secure indemnity, performance or other similar bonds
in the ordinary course of business or (f) in connection with
contested amounts to the extent that payment thereof shall
not at that time be required by Section 6.1.
6.8.4. Liens in respect of judgments or awards, to
the extent that such judgments or awards are permitted by
Section 6.6.6 but only to the extent that such Liens are
junior to the Liens on the Credit Security granted to secure
the Credit Obligations.
6.8.5. Liens of carriers, warehouses, mechanics and
similar Liens, in each case (a) in existence less than
90 days from the date of creation thereof or (b) being
contested in good faith by the Company or any Subsidiary in
appropriate proceedings (so long as the Company or such
Subsidiary shall, in accordance with GAAP, have set aside on
its books adequate reserves with respect thereto).
6.8.6. Encumbrances in the nature of (a) zoning
restrictions, (b) easements, (c) restrictions of record on
the use of real property, (d) landlords' and lessors' Liens
on rented premises and (e) restrictions on transfers or
assignment of leases, which in each case do not materially
detract from the value of the encumbered property or impair
the use thereof in the business of the Company or any
Subsidiary.
6.8.7. Liens constituting (a) purchase money
security
interests (including mortgages, conditional sales,
Capitalized Leases and any other title retention or deferred
purchase devices) in real property, interests in leases or
tangible personal property (other than inventory) existing
or created on the date on which such property is acquired,
and (b) the renewal, extension or refunding of any security
interest referred to in the foregoing clause (a) in an
amount not to exceed the amount thereof remaining unpaid
immediately prior to such renewal, extension or refunding;
provided, however, that (i) each such security interest
shall attach solely to the particular item of property so
acquired, and the principal amount of Indebtedness
(including Indebtedness in respect of Capitalized Lease
Obligations) secured thereby shall not exceed the cost
(including all such Indebtedness secured thereby, whether or
not assumed) of such item of property; and (ii) the
aggregate principal amount of all Indebtedness secured by
Liens permitted by this Section 6.8.7 shall not exceed the
amount permitted by Section 6.6.7.
6.8.8. Restrictions under federal and state
securities laws on the transfer of securities.
6.8.9. The sale of doubtful accounts receivable for
collection in the ordinary course of business.
6.8.10. Prior to the advance of the Term Loan on
the
Term Loan Closing Date, Liens securing the Varde Term Loan
and the Varde Securities, so long as such Liens are subject
to the Intercreditor Agreement.
6.8.11. Liens as in effect on the date hereof
described in Exhibit 7.3 and securing Indebtedness permitted
by Section 6.6.12.
6.9. Investments and Acquisitions. Neither the Company
nor any of its Subsidiaries shall have outstanding, acquire or hold
any Investment (including any Investment consisting of the
acquisition of any business) (or become contractually committed
to do so), except the following:
6.9.1. Investments of the Company and its
Subsidiaries in Wholly Owned Subsidiaries which are
Guarantors as of the date hereof; provided, however, that no
such Investment shall involve the transfer by the Company or
any Subsidiary of the Company of any material assets other
than cash.
6.9.2. Intercompany loans and advances from any
Wholly Owned Subsidiary to the Company but in each case only
to the extent reasonably necessary for Consolidated tax
planning and working capital management.
6.9.3. Investments in Cash Equivalents.
6.9.4. Guarantees permitted by Section 6.7.
6.10. Distributions. Neither the Company nor any of
its Subsidiaries shall make any Distribution (or become
contractually committed to do so), unless a written consent from
the Agent is granted, except that so long as no Event of Default
shall have occurred and be continuing and after giving effect
thereto no Event of Default shall exist, the Company may do the
following:
6.10.1. The Company may make Distributions of cash
in an amount equal to the scheduled, mandatory cash payments
owed to Varde with respect to the Varde Securities;
provided, however, that such payments shall not exceed
$1,090,000 in any fiscal year of the Company.
6.10.2. The Company may make the payments to Varde
from proceeds of the DFSC Claim provided in Section 4.3.5.
6.10.3. The Company may redeem unit appreciation
rights in respect of its limited partnership units issued to
employees of the Company, provided that the amounts paid in
respect of such redemption shall not exceed $750,000 in any
fiscal year or $2,000,000 in the aggregate.
6.10.4. The Company may pay to the Special General
Partner pipeline rentals not exceeding in any fiscal year
$400,000 or such larger amount as shall have been approved
in writing by the Required Lenders acting in their
discretion.
6.10.5. From and after the date that neither the
Varde Term Loan nor the Term Loan shall remain or be
outstanding (and no commitment to make the Term Loan shall
remain in effect), the Company may make the required
prepayments in respect of the Varde Securities provided in
Sections 2.7(b) through 2.7(e) of the Varde Credit
Agreement, but only so long as immediately after giving
effect to such payments the Consolidated Net Working Capital
of the Company and its Subsidiaries shall be not less than
$6,000,000.
6.11. Asset Dispositions and Mergers. Neither the
Company nor any of its Subsidiaries shall merge or enter into a
consolidation or sell, lease, exchange, sell and lease back,
sublease or otherwise dispose of any of its assets (or become
contractually committed to do so), except the following:
6.11.1. The Company and any of its Subsidiaries may
sell or otherwise dispose of (a) inventory and Cash
Equivalents in the ordinary course of business, (b) tangible
assets (i) that will be replaced in the ordinary course of
business within 12 months by other tangible assets of equal
or greater value or (ii) that are no longer used or useful
in the business of the Company or such Subsidiary; provided,
however that the aggregate fair market value (book value, if
greater) of all assets sold under this clause (b) in any
fiscal year shall not exceed $2,000,000 and (c) doubtful
accounts receivable for collection purposes in the ordinary
course of business.
Any Wholly Owned Subsidiary of the Company
(other than the Company) may merge or be liquidated into the
Company or any other Wholly Owned Subsidiary of the Company
so long as after giving effect to any such merger to which
the Company is a party the Company shall be the surviving or
resulting Person.
6.11.3. Licensing of products and intangible assets
for fair value in the ordinary course of business.
6.12. Issuance of Stock by Subsidiaries; Subsidiary
Distributions.
6.12.1. Issuance of Stock by Subsidiaries. No
Subsidiary shall issue or sell any shares of its capital
stock or other evidence of beneficial ownership to any
Person other than (a) the Company or any Wholly Owned
Subsidiary of the Company, which shares shall have been
pledged to the Collateral Agent as part of the Credit
Security to the extent required by the Guarantee and
Security Agreement and (b) directors of Subsidiaries as
qualifying shares to the extent required by Legal
Requirements and, in the case of Foreign Subsidiaries,
shares required by Legal Requirements to be held by foreign
nationals.
6.12.2. No Restrictions on Subsidiary
Distributions.
Except for this Agreement and the Credit Documents, neither
the Company nor any Subsidiary shall enter into or be bound
by any agreement (including covenants requiring the
maintenance of specified amounts of net worth or working
capital) restricting the right of any Subsidiary to make
Distributions or extensions of credit to the Company
(directly or indirectly through another Subsidiary).
6.13. Voluntary Prepayments of Other Indebtedness.
Neither the Company nor any of its Subsidiaries shall make any
voluntary prepayment (other than mandatory scheduled payments) of
principal of or interest on any Financing Debt (other than the
Varde Term Loan and the Credit Obligations) or make any voluntary
redemptions or repurchases of Financing Debt (other than the
Varde Term Loan and the Credit Obligations), except as permitted
by Sections 4.3.5 and 6.10. The Company shall make no payment of
principal (including accrued PIK Interest) on the Varde Term Loan
except to the extent of payments permitted under Section 4.3.5,
payments that otherwise would have been required to be applied to
payment of the Term Loan under Sections 4.2, 4.3.2, 4.3.3 and
4.3.4 and payment in full of the Varde Term Loan (including PIK
Interest) upon the occurrence of the Term Loan Closing Date.
6.14. Derivative Contracts. Neither the Company nor any
of its Subsidiaries shall enter into any Interest Rate Protection
Agreement, foreign currency exchange contract or other financial
or commodity derivative contracts except to provide hedge
protection for an underlying economic transaction in the ordinary
course of business.
6.15. Negative Pledge Clauses. Neither the Company nor
any of its Subsidiaries shall enter into any agreement,
instrument, deed or lease which prohibits or limits the ability
of the Company or any of its Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of their respective
properties, assets or revenues, whether now owned or hereafter
acquired, or which requires the grant of any collateral for such
obligation if collateral is granted for another obligation,
except the following:
6.15.1. This Agreement and the other Credit
Documents.
6.15.2. Covenants in documents creating Liens
permitted by Section 6.8 prohibiting further Liens on the
assets encumbered thereby.
6.15.3. Covenants in documents relating to
Indebtedness of Subsidiaries acquired by the Company after
date hereof; provided that such covenants restrict only
Liens relating to assets of such Subsidiaries in existence
on the date of such acquisition.
6.15.4. The provisions of Section 7.2 and 7.7 of
the Varde Credit Agreement, so long as such provisions do
not restrict the granting of Liens to secure the Credit
Obligations.
6.16. ERISA, etc. Each of the Company and its
Subsidiaries shall comply, and shall cause all ERISA Group
Persons to comply, in all material respects, with the provisions
of ERISA and the Code applicable to each Plan. Each of the
Company and its Subsidiaries shall meet, and shall cause all
ERISA Group Persons to meet, all minimum funding requirements
applicable to them with respect to any Plan pursuant to section
302 of ERISA or section 412 of the Code, without giving effect to
any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the
Accumulated Benefit Obligations under any Plan that is not a
Multiemployer Plan exceed the fair market value of the assets of
such Plan allocable to such benefits by more than $1,000,000.
The Company and its Subsidiaries shall not withdraw, and shall
cause all other ERISA Group Persons not to withdraw, in whole or
in part, from any Multiemployer Plan so as to give rise to
withdrawal liability exceeding $1,000,000 in the aggregate. At
no time shall the actuarial present value of unfunded liabilities
for post-employment health care benefits (other than COBRA
continuation coverage benefits), whether or not provided under a
Plan, calculated in a manner consistent with Statement No. 106 of
the Financial Accounting Standards Board, exceed $1,000,000.
6.17. Transactions with Affiliates. Neither the
Company nor any of its Subsidiaries shall effect any transaction
with any of their respective Affiliates (except for the Company and
its Subsidiaries) on a basis less favorable to the Company and its
Subsidiaries than would be the case if such transaction had been
effected with a non-Affiliate. Any fees owed by the Company to
any member of its management or any other fees or indebtedness
payable to any Affiliate of the Company or any representatives of
such Affiliates shall be subordinated to the Loans, provided,
however, that this sentence shall not apply to amounts (including
both principal and interest) owing to Varde in respect of the
Varde Term Loan or to salaries, wages, bonuses or directors' fees
owed to officers or employees.
6.18. Environmental Laws.
6.18.1. Compliance with Law and Permits. Each of
the Company and its Subsidiaries shall use and operate all
of its facilities and properties in material compliance with
all Environmental Laws, keep in effect all necessary
permits, approvals, certificates, licenses and other
authorizations relating to environmental matters and remain
in material compliance therewith, and handle all Hazardous
Materials in material compliance with all applicable
Environmental Laws.
6.18.2. Notice of Claims, etc. Each of the Company
and its Subsidiaries shall immediately notify the Agent, and
provide copies upon receipt, of all written claims,
complaints, notices or inquiries from governmental
authorities relating to the condition of its facilities and
properties or compliance with Environmental Laws, and shall
promptly cure and have dismissed with prejudice to the
reasonable satisfaction of the Agent any actions and
proceedings relating to compliance with Environmental Laws.
6.19. Other Covenants.
6.19.1. Refinery Conversion. As soon as all
operational prerequisites for receiving product under the
Texaco Supply Contract have been met, the Company will
appropriately request all required approvals from DFSC to
substitute the manufacturing origination site of product
under all pertinent DFSC contracts and shall use best
efforts to secure such approvals. Upon receipt from DFSC of
all required approvals to substitute product under each
existing or pending DFSC contract, the Company within 30
days shall shut down the refinery operations and refinery
facilities at the Refinery, maintaining it thereafter as a
refined products terminal. The occurrence of the Refinery
Conversion Date shall be determined by written certificate
of the Company satisfactory to the Agent addressed to the
Lenders to the effect that the refinery operations at the
Refinery have been shut down and any conditions thereto
satisfied and the business operations of the Company at the
Refinery have been reconfigured to substitute Texaco product
for the refinery production. In addition, the Agent shall
have received written certificates of the Expert with
respect to the shutdown of refinery operations in accordance
with the procedures and forms of certificates attached
hereto as Exhibit 6.19.1, but without any exception or
qualification except as may have been approved by the Agent
in writing.
6.19.2. Texaco Supply Contract. All operational
prerequisites for receiving product under the Texaco Supply
Contract shall be achieved, and the Texaco Supply Contract
shall become effective and all parties to such agreement
shall have commenced performance or be fully capable of
performing their duties under the Texaco Supply Contract,
including the transport of crude oil and petroleum products
as contemplated in such agreement, not later than March 31,
1998.
6.19.3. Maximum Open Inventory. The Company shall
maintain a maximum open inventory position no greater than
1,000,000 barrels prior to the Refinery Conversion Date and
750,000 barrels thereafter.
6.19.4. Interest Rate Hedging. The Company shall
maintain interest rate hedging agreements on fifty percent
(50%) of the amount outstanding under the Term Loan with the
terms of such agreements acceptable to the Agent.
6.19.5. Take-or-pay. No Obligor will enter into or
maintain any "take-or-pay" contract or other contract or
other arrangement for the purchase of goods or services
which obligates such Obligor to pay for such goods or
services regardless of whether they are delivered or
furnished to or accepted by such Obligor.
6.19.6. Deposit Accounts. Neither the Company nor
any Guarantor will maintain a deposit account with any bank
or other financial institution other than BankBoston unless
either (a) the balance in such deposit account shall at no
time exceed $25,000 and the total of the balances in all
such deposit accounts shall at no time exceed $100,000, or
(b) the Company or the applicable Guarantor and the
depository institution in which such account is maintained
shall have executed and delivered to the Collateral Agent an
Agency Account Agreement relating to such deposit account,
together with such additional documents as the Collateral
Agent shall reasonably request to perfect its interest in
such deposit account.
7. Representations and Warranties. In order to induce the
Lenders to extend credit to the Company hereunder, each of the
Pride Parties and the other Guarantors jointly and severally
represents and warrants as follows:
7.1. Organization and Business.
7.1.1. The Company. The Company is a duly
organized
and validly existing limited partnership, in good standing
under the laws of Delaware, with all power and authority,
corporate or otherwise, necessary to (a) enter into and
perform this Agreement and each other Credit Document to
which it is party, (b) guarantee the Credit Obligations, (c)
grant the Agent for the benefit of the Lenders the security
interests in the Credit Security owned by it to secure the
Credit Obligations and (d) own its properties and carry on
the business now conducted or proposed to be conducted by
it. Certified copies of the Charter and By-laws of the
Company have been previously delivered to the Agent and are
correct and complete. Exhibit 7.1, as from time to time
hereafter supplemented in accordance with Sections 6.4.1 and
6.4.2, sets forth, as of the later of the date hereof or the
end of the most recent fiscal quarter for which financial
statements are required to be furnished in accordance with
such Sections, (i) the jurisdiction of incorporation of the
Company, (ii) the address of the Company's principal
executive office and chief place of business, (iii) each
name, including any trade name, under which the Company
conducts its business and (iv) the jurisdictions in which
the Company keeps tangible personal property.
7.1.2. Subsidiaries. Each Subsidiary of the
Company
is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized,
with all power and authority, corporate or otherwise,
necessary to (a) enter into and perform this Agreement and
each other Credit Document to which it is party, (b)
guarantee (in the case of the Company, incur) the Credit
Obligations, (c) grant the Agent for the benefit of the
Lenders the security interest in the Credit Security owned
by such Subsidiary to secure the Credit Obligations and (d)
own its properties and carry on the business now conducted
or proposed to be conducted by it. Certified copies of the
Charter and By-laws of each Subsidiary of the Company have
been previously delivered to the Agent and are correct and
complete. Exhibit 7.1, as from time to time hereafter
supplemented in accordance with Sections 6.4.1 and 6.4.2,
sets forth, as of the later of the date hereof or the end of
the most recent fiscal quarter for which financial
statements are required to be furnished in accordance with
such Sections, (i) the name and jurisdiction of organization
of each Subsidiary of the Company, (ii) the address of the
chief executive office and principal place of business of
each such Subsidiary, (iii) each name under which each such
Subsidiary conducts its business, (iv) each jurisdiction in
which each such Subsidiary keeps tangible personal property,
and (v) the number of authorized and issued shares and
ownership of each such Subsidiary.
7.1.3. Qualification. Each of the Pride Parties is
duly and legally qualified to do business as a foreign
corporation or other entity and is in good standing in each
state or jurisdiction in which such qualification is
required and is duly authorized, qualified and licensed
under all laws, regulations, ordinances or orders of public
authorities, or otherwise, to carry on its business in the
places and in the manner in which it is conducted, except
for failures to be so qualified, authorized or licensed
which would not in the aggregate result, or create a
material risk of resulting, in any Material Adverse Change.
7.1.4. Capitalization. No options, warrants,
conversion rights, preemptive rights or other statutory or
contractual rights to purchase shares of capital stock or
other securities of any Subsidiary now exist, nor has any
Subsidiary authorized any such right, nor is any Subsidiary
obligated in any other manner to issue shares of its capital
stock or other securities.
7.2. Financial Statements and Other Information; Material
Agreements.
7.2.1. Financial Statements and Other Information.
The Company has previously furnished to the Lenders copies
of the following:
(a) The audited Consolidated balance sheets of the
Company and its Subsidiaries as at December 31 in each of
1994, 1995 and 1996 and the audited Consolidated statements
of income and the audited Consolidated statements of changes
in shareholders' equity and of cash flows of the Company and
its Subsidiaries for the fiscal years of the Company then
ended.
(b) The unaudited Consolidated balance sheet of the
Company and its Subsidiaries as at September 30, 1997 and
the unaudited Consolidated statements of income, of changes
in shareholders' equity and of cash flows of the Company and
its Subsidiaries for the portion of the fiscal year then
ended.
(c) The Company's report on Form 10-K for its
fiscal year ended December 31, 1996, and report on Form 10-Q
for its fiscal quarter ended September 30, 1997, each as
filed with the Securities and Exchange Commission.
(d) Management's five-year financial and
operational projections for the Company and its
Subsidiaries.
(e) Calculations with respect to the Computation
Covenants as of the end of the most recent month preceding
the date hereof on a pro forma basis giving effect to the
incurrence of the Credit Obligations.
(f) Offering Memorandum of the Company presented by
Simmons & Company International, dated November 1997 (the
"Offering Memorandum").
The audited Consolidated financial statements
(including the notes thereto) referred to in clause (a)
above were prepared in accordance with GAAP and fairly
present in all material respects the financial position of
the Company and its Subsidiaries on a Consolidated basis at
the respective dates thereof and the results of their
operations for the periods covered thereby. The unaudited
Consolidated financial statements referred to in clause (b)
above were prepared in accordance with GAAP and fairly
present in all material respects the financial position of
the Company and its Subsidiaries at the respective dates
thereof and the results of their operations for the periods
covered thereby, subject to normal year-end audit
adjustments and the addition of footnotes in the case of
interim financial statements. Neither the Company nor any
of its Subsidiaries has any known contingent liability
material to the Company and its Subsidiaries on a
Consolidated basis which is not reflected in the balance
sheets referred to in clauses (a) or (b) above (or delivered
pursuant to Sections 6.4.1 or 6.4.2) or in the notes
thereto.
The Form 10-K and Form 10-Q referred to in clause (c)
above contained all information required to be contained
therein and otherwise complied in all material respects with
the Exchange Act and the rules and regulations thereunder.
Such forms did not contain any untrue statement of material
fact or omit to state a material fact necessary in order to
make the statements contained therein not misleading in the
light of the circumstances under which they were made.
In the Company's judgment, the financial and
operational projections referred to in clause (d) above
constitute a reasonable basis as of the Initial Closing Date
for the assessment of the future performance of the Company
and its Subsidiaries during the periods indicated therein,
it being understood that any projected financial information
represents an estimate, based on various assumptions, of
future results of operations which may or may not in fact
occur. The Company anticipates that costs associated with
closing the Refinery will not exceed $700,000 with respect
to employee severance and $1,200,000 with respect to other
shut-down costs (including environmental costs) and will not
exceed $1,800,000 in the aggregate.
As of the date thereof, the Offering Memorandum did
not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the
statements contained therein not misleading in light of the
circumstances under which they were made; provided, however,
that the descriptions in the Offering Memorandum of other
documents and agreements are intended to be summaries only
and do not provide comprehensive descriptions of the terms
and conditions contained in such documents and agreements.
7.2.2. Material Agreements. The Company has
previously furnished to the Lenders correct and complete
copies, including all exhibits, schedules and amendments
thereto, of the agreements and instruments, each as in
effect on the date hereof, listed in Exhibit 7.2.2, which
constitute all agreements and instruments material to the
Company and its Subsidiaries on a Consolidated basis (the
"Material Agreements").
7.3. Agreements Relating to Financing Debt, Investments,
etc. Exhibit 7.3, as from time to time hereafter supplemented in
accordance with Sections 6.4.1 and 6.4.2, sets forth (a) the
amounts (as of the dates indicated in Exhibit 7.3, as so
supplemented) of all Financing Debt of the Company and its
Subsidiaries and all agreements which relate to such Financing
Debt, (b) all Liens and Guarantees with respect to such Financing
Debt, (c) all agreements which directly or indirectly require the
Company or any Subsidiary to make any Investment, (d) material
license agreements with respect to the products of the Company
and its Subsidiaries, including the parties thereto and the
expiration dates thereof and (e) all trademarks, tradenames,
service marks, service names and patents registered with the
federal Patent and Trademark Office (or with respect to which
applications for such registration have been filed). The Company
has furnished the Lenders correct and complete copies of any
agreements described in clauses (a) through (e) above requested
by the Required Lenders.
7.4. Changes in Condition. Since December 31, 1996 no
Material Adverse Change has occurred and between December 31,
1996 and the date hereof, neither the Company nor any Subsidiary
of the Company has entered into any material transaction outside
the ordinary course of business except for the transactions
contemplated by this Agreement and the Material Agreements.
7.5. Title to Assets. The Obligors have good and
indefeasible title to all assets necessary for or used in the
operations of their business as now conducted by them and
reflected in the most recent balance sheet referred to in
Section 7.2.1 (or the balance sheet most recently furnished to
the Lenders pursuant to Sections 6.4.1 or 6.4.2), and to all
assets acquired subsequent to the date of such balance sheet,
subject to no Liens except for Liens permitted by Section 6.8 and
except for assets disposed of as permitted by Section 6.11.
7.6. Operations in Conformity With Law, etc. The
operations
of the Company and its Subsidiaries as now conducted or proposed
to be conducted are not in violation of, nor is the Company or
its Subsidiaries in default under, any Legal Requirement
presently in effect, except for such violations and defaults as
do not and will not, in the aggregate, result, or create a
material risk of resulting, in any Material Adverse Change. The
Company has received no notice of any such violation or default
and has no knowledge of any basis on which the operations of the
Company or its Subsidiaries, as now conducted and as currently
proposed to be conducted after the date hereof, would be held so
as to violate or to give rise to any such violation or default.
7.7. Litigation. No litigation, at law or in equity, or
any proceeding before any court, board or other governmental or
administrative agency or any arbitrator is pending or, to the
knowledge of the Company, the Company or any Guarantor,
threatened which involves any material risk of any final
judgment, order or liability which, after giving effect to any
applicable insurance, has resulted, or creates a material risk of
resulting, in any Material Adverse Change or which seeks to
enjoin the consummation, or which questions the validity, of any
of the transactions contemplated by this Agreement or any other
Credit Document. No judgment, decree or order of any court,
board or other governmental or administrative agency or any
arbitrator has been issued against or binds the Company or any of
its Subsidiaries which has resulted, or creates a material risk
of resulting, in any Material Adverse Change. A description of
all of the pending litigation of the Company and the Guarantors
is set forth in Exhibit 7.7 hereto.
7.8. Authorization and Enforceability. Each of the
Company and each other Obligor has taken all corporate action
required to execute, deliver and perform this Agreement and each
other Credit Document to which it is party. No consent of
stockholders of the Company is necessary in order to authorize the
execution, delivery or performance of this Agreement or any other
Credit Document to which the Company is party. Each of this
Agreement and each other Credit Document constitutes the legal,
valid and binding obligation of each Obligor party thereto and is
enforceable against such Obligor in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws relating to or affecting the enforceability of
creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is sought in a
proceeding in equity or at law.
7.9. No Legal Obstacle to Agreements. Neither the
execution and delivery of this Agreement or any other Credit
Document, nor the making of any borrowings hereunder, nor the
guaranteeing of the Credit Obligations, nor the securing of the
Credit Obligations with the Credit Security, nor the consummation
of any transaction (other than the Acquisition) referred to in or
contemplated by this Agreement or any other Credit Document, nor
the fulfillment of the terms hereof or thereof (other than the
consummation of the Acquisition) or of any other agreement,
instrument, deed or lease contemplated by this Agreement or any
other Credit Document (other than the Acquisition Agreement), has
constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of
any agreement, instrument, deed or lease to which the
Company, any of its Subsidiaries or any other Obligor is a
party or by which it is bound, or of the Charter or By-laws
of the Company, any of its Subsidiaries or any other
Obligor;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable
to the Company, any of its Subsidiaries or any other
Obligor;
(c) the creation under any agreement, instrument,
deed or lease of any Lien (other than Liens on the Credit
Security which secure the Credit Obligations) upon any of
the assets of the Company, any of its Subsidiaries or any
other Obligor; or
(d) any redemption, retirement or other repurchase
obligation of the Company, any of its Subsidiaries or any
other Obligor under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to
or filing with, any governmental or administrative authority or
any other Person is required to be obtained or made by the
Company, any of its Subsidiaries or any other Obligor in
connection with the execution, delivery and performance of this
Agreement, the Notes or any other Credit Document, the
transactions contemplated hereby or thereby, the making of any
borrowing hereunder, the guaranteeing of the Credit Obligations
or the securing of the Credit Obligations with the Credit
Security (other than filings necessary to perfect the Agent's
security interest in the Credit Security).
7.10. Defaults. Neither the Company nor any of its
Subsidiaries is in default under any provision of its Charter or
By-laws or of this Agreement or any other Credit Document.
Neither the Company nor any of its Subsidiaries is in default
under any provision of any agreement, instrument, deed or lease
to which it is party or by which it or its property is bound so
as to result, or create a material risk of resulting, in any
Material Adverse Change.
7.11. Licenses, etc. The Company and its
Subsidiaries
have all patents, patent applications, patent licenses, patent
rights, trademarks, trademark rights, trade names, trade name
rights, copyrights, licenses, franchises, permits, authorizations
and other rights as are necessary for the conduct of the business
of the Company and its Subsidiaries as now conducted by them.
All of the foregoing are in full force and effect in all material
respects, and each of the Company and its Subsidiaries is in
substantial compliance with the foregoing without any known
conflict with the valid rights of others which has resulted, or
creates a material risk of resulting, in any Material Adverse
Change. No event has occurred which permits, or after notice or
lapse of time or both would permit, the revocation or termination
of any such license, franchise or other right or which affects
the rights of any of the Company and its Subsidiaries thereunder
so as to result, or to create a material risk of resulting, in
any Material Adverse Change.
7.12. Tax Returns. Each of the Company and its
Subsidiaries has filed all material tax and information returns
which are required to be filed by it and has paid, or made
adequate provision for the payment of, all taxes which have or
may become due pursuant to such returns or to any assessment
received by it, other than taxes and assessments being contested
by the Company and its Subsidiaries in good faith by appropriate
proceedings and for which adequate reserves have been taken in
accordance with GAAP. Neither the Company nor any of its
Subsidiaries knows of any material additional assessments or any
basis therefor. The Company reasonably believes that the
charges, accruals and reserves on the books of the Company and
its Subsidiaries in respect of taxes or other governmental
charges are adequate.
7.13. Certain Business Representations.
7.13.1. Labor Relations. No dispute or controversy
between the Company or any of its Subsidiaries and any of
their respective employees has resulted, or is reasonably
likely to result, in any Material Adverse Change, and
neither the Company nor any of its Subsidiaries anticipates
that its relationships with its unions or employees will
result, or are reasonably likely to result, in any Material
Adverse Change. The Company and each of its Subsidiaries is
in compliance in all material respects with all federal and
state laws with respect to (a) non-discrimination in
employment with which the failure to comply, in the
aggregate, has resulted, or creates a material risk of
resulting, in a Material Adverse Change and (b) the payment
of wages.
7.13.2. Antitrust. Each of the Company and its
Subsidiaries is in compliance in all material respects with
all federal and state antitrust laws relating to its
business and the geographic concentration of its business.
7.13.3. Consumer Protection. Neither the Company
nor any of its Subsidiaries is in violation of any rule,
regulation, order, or interpretation of any rule, regulation
or order of the Federal Trade Commission (including truth-
in-lending), with which the failure to comply, in the
aggregate, has resulted, or creates a material risk of
resulting, in a Material Adverse Change.
7.13.4. Extraordinary Obligations. Neither the
Company nor any of its Subsidiaries is party to or bound by
any agreement, instrument, deed or lease or is subject to
any Charter, By-law or other restriction, commitment or
requirement which, in the opinion of the management of such
Person, is so unusually burdensome as in the foreseeable
future to result, or create a material risk of resulting, in
a Material Adverse Change.
7.13.5. Future Expenditures. Neither the Company
nor any of its Subsidiaries anticipate that the future
expenditures, if any, by the Company and its Subsidiaries
needed to meet the provisions of any federal, state or
foreign governmental statutes, orders, rules or regulations
will be so burdensome as to result, or create a material
risk of resulting, in any Material Adverse Change.
7.14. Environmental Regulations.
7.14.1. Environmental Compliance. Each of the
Company and its Subsidiaries is in compliance in all
material respects with the Clean Air Act, the Federal Water
Pollution Control Act, the Marine Protection Research and
Sanctuaries Act, RCRA, CERCLA and any other Environmental
Law in effect in any jurisdiction in which any properties of
the Company or any of its Subsidiaries are located or where
any of them conducts its business, and with all applicable
published rules and regulations (and applicable standards
and requirements) of the federal Environmental Protection
Agency and of any similar agencies in states or foreign
countries in which the Company or its Subsidiaries conducts
its business other than those which in the aggregate have
not resulted, and do not create a material risk of
resulting, in a Material Adverse Change.
7.14.2. Environmental Litigation. No suit, claim,
action or proceeding of which the Company or any of its
Subsidiaries has been given notice or otherwise has
knowledge is now pending before any court, governmental
agency or board or other forum, or to the Company's or any
of its Subsidiaries knowledge, threatened by any Person (nor
to the Company's or any of its Subsidiaries' knowledge, does
any factual basis exist therefor) for, and neither the
Company nor any of its Subsidiaries have received written
correspondence from any federal, state or local governmental
authority with respect to:
(a) noncompliance by the Company or any of its
Subsidiaries with any Environmental Law;
(b) personal injury, wrongful death or other
tortious
conduct relating to materials, commodities or products used,
generated, sold, transferred or manufactured by the Company
or any of its Subsidiaries (including products made of,
containing or incorporating asbestos, lead or other
Hazardous Material; or
(c) the release into the environment by the Company
or any of its Subsidiaries of any Hazardous Material
generated by the Company or any of its Subsidiaries whether
or not occurring at or on a site owned, leased or operated
by the Company or any of its Subsidiaries.
7.14.3. Hazardous Material. Exhibit 7.14 (as from
time to time hereafter supplemented in accordance with
Sections 6.4.1 and 6.4.2) contains a list as of the date
hereof of all waste disposal or dump sites at which
Hazardous Material generated by either the Company or any of
its Subsidiaries has been disposed of directly by the
Company or any of its Subsidiaries and all independent
contractors to whom the Company and its Subsidiaries have
delivered Hazardous Material, or to the Company's or any of
its Subsidiaries' knowledge, where Hazardous Material
finally came to be located, and indicates all such sites
which are or have been included (including as a potential or
suspect site) in any published federal, state or local
"superfund" or other list of hazardous or toxic waste sites.
Any waste disposal or dump sites at which Hazardous Material
generated by either the Company or any of its Subsidiaries
has been disposed of directly by the Company or any of its
Subsidiaries and all independent contractors to whom the
Company or any of its Subsidiaries have delivered Hazardous
Material, or to the Company's or any of its Subsidiaries'
knowledge, where Hazardous Material finally came to be
located, has not resulted, and does not create a material
risk of resulting, in a Material Adverse Change.
7.14.4. Environmental Condition of Properties.
None of the properties owned or leased by the Company or any
of its Subsidiaries has been used as a treatment, storage or
disposal site for Hazardous Material, other than as
disclosed in Exhibit 7.14 (as from time to time hereafter
supplemented in accordance with Sections 6.4.1 and 6.4.2).
No Hazardous Material is present in any real property
currently or formerly owned or operated by the Company or
any of its Subsidiaries except that which has not resulted,
and does not create a material risk of resulting, in a
Material Adverse Change.
7.14.5. Remediation Costs. The cost in current
dollars of required environmental remediation at the
facilities of the Company and the Obligors does not exceed
$3,600,000.
7.14.6. ENSR Report. The information set forth in
the Environmental Due Diligence and Compliance Investigation
of Pride Facilities dated December 1997 prepared by ENSR
Corporation for the Company and BankBoston is incorporated
herein by reference as a representation of the Company.
7.14.7. TNRCC Investigation. The total cost to the
Company and the Obligors in current dollars of the
liabilities associated with the RCRA Facility Investigation
plan pending before the TNRCC will not exceed in the
aggregate $150,000.
7.15. Pension Plans. Each Plan (other than a
Multiemployer Plan) and, to the knowledge of the Company and its
Subsidiaries, each Multiemployer Plan is in material compliance
with the applicable provisions of ERISA and the Code. Each
Multiemployer Plan and each Plan that constitutes a "defined
benefit plan" (as defined in ERISA) are set forth in Exhibit 7.15
(as from time to time hereafter supplemented in accordance with
Sections 6.4.1 and 6.4.2). Each ERISA Group Person has met all
of the funding standards applicable to all Plans that are not
Multiemployer Plans, and no condition exists which would permit
the institution of proceedings to terminate any Plan that is not
a Multiemployer Plan under section 4042 of ERISA. To the
knowledge of the Company and each Subsidiary, no Plan that is a
Multiemployer Plan is currently insolvent or in reorganization or
has been terminated within the meaning of ERISA.
7.16. Government Regulation; Margin Stock.
7.16.1. Government Regulation. Neither the Company
nor any of its Subsidiaries, nor any Person controlling the
Company or any of its Subsidiaries or under common control
with the Company or any of its Subsidiaries, is subject to
regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Investment Company Act of
1940, the Interstate Commerce Act or any statute or
regulation which regulates the incurring by the Company or
any of its Subsidiaries of Financing Debt as contemplated by
this Agreement and the other Credit Documents.
7.16.2. Margin Stock. Neither the Company nor any
of its Subsidiaries owns any Margin Stock.
7.17. Disclosure. Neither this Agreement nor any
other Credit Document nor any financial statement, report, notice,
mortgage, assignment or certificate furnished or to be furnished
to the Lenders or the Agent by or on behalf of the Company or any
of its Subsidiaries in connection with the transactions
contemplated hereby or by such Credit Document, taken as a whole,
contains any untrue statement of material fact or omits to state
a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the
circumstances under which they were made. No fact is actually
known to the Company or any of its Subsidiaries which has
resulted or, (so far as the Company or any of its Subsidiaries
can reasonably foresee) creates a material risk of resulting, in
any Material Adverse Change, except to the extent that present or
future general economic conditions may result in a Material
Adverse Change.
8. Defaults.
8.1. Events of Default. The following events are referred
to as "Events of Default":
8.1.1. Payment. The Company shall fail to make any
payment in respect of: (a) interest or any fee on or in
respect of any of the Credit Obligations owed by it as the
same shall become due and payable, and such failure shall
continue for a period of three Banking Days, or (b) any
Credit Obligation with respect to payments made by any
Letter of Credit Issuer under any Letter of Credit or any
draft drawn thereunder within three Banking Days after
demand therefor by such Letter of Credit Issuer or (c)
principal of any of the Credit Obligations owed by it as the
same shall become due, whether at maturity or by
acceleration or otherwise.
8.1.2. Specified Covenants. Any of the Pride
Parties
shall fail to perform or observe any of the provisions of
Section 6.4.5 or Sections 6.5 through 6.19.
8.1.3. Other Covenants. The Pride Parties or any
other Obligor shall fail to perform or observe any other
covenant, agreement or provision to be performed or observed
by it under this Agreement or any other Credit Document, and
such failure shall not be rectified or cured to the written
satisfaction of the Required Lenders within 30 days (or
three days in the case of any failure to perform under
Section 6.4.4(g)) after the earlier of (a) notice thereof by
the Agent to the Company or (b) a Financial Officer shall
have actual knowledge thereof.
8.1.4. Representations and Warranties. Any
representation or warranty of or with respect to the Pride
Parties or any other Obligor made to the Lenders or the
Agent in, pursuant to or in connection with this Agreement
or any other Credit Document, or in any financial statement,
report, notice, mortgage, assignment or certificate
delivered to the Agent or any of the Lenders by the Company,
any of its Subsidiaries or any other Obligor in connection
herewith or therewith, shall be false in any material
respect on the date as of which it was made.
8.1.5. Cross Default, etc.
(a) The Company or any of its Subsidiaries shall
fail to make any payment when due (after giving effect to
any applicable grace periods) in respect of any Financing
Debt (other than the Credit Obligations) outstanding in an
aggregate amount of principal (whether or not due) and
accrued interest exceeding $250,000;
(b) the Company or any of its Subsidiaries shall
fail to perform or observe the terms of any agreement or
instrument relating to such Financing Debt referred to in
clause (a) above, and such failure shall continue, without
having been duly cured, waived or consented to, beyond the
period of grace, if any, specified in such agreement or
instrument, and such failure shall permit the acceleration
of such Financing Debt;
(c) all or any part of such Financing Debt of the
Company or any of its Subsidiaries shall be accelerated or
shall become due or payable prior to its stated maturity
(except with respect to voluntary prepayments thereof) for
any reason whatsoever;
(d) any Lien on any property of the Company or any
of its Subsidiaries securing any such Financing Debt shall
be enforced by foreclosure or similar action;
(e) any holder of any such Financing Debt shall
exercise any right of rescission with respect to the
issuance thereof or put, mandatory prepayment or repurchase
rights against any Obligor with respect to such Financing
Debt (other than any such rights that may be satisfied with
"payment in kind" notes or other similar securities); or
(f) there shall occur any "Event of Default" within
the meaning of Section 8.1 of the Varde Credit Agreement.
8.1.6. Ownership; Liquidation; etc. Except as
permitted by Section 6.11:
(a) the Company shall cease to own, directly or
indirectly, all the capital stock of its Subsidiaries,
except to the extent permitted by Section 6.12.1; or
(b) any Person (excluding Varde and members of the
existing management of the Company), together with
"affiliates" and "associates" of such Person within the
meaning of Rule 12b-2 of the Exchange Act, or any "group"
including such Person under sections 13(d) and 14(d) of the
Exchange Act, shall acquire after the date hereof beneficial
ownership within the meaning of Rule 13d-3 of the Exchange
Act of 51% or more of the partnership interests or similar
interests of the Company or of either of the General
Partners;
(c) Brad Stephens shall cease to be actively
involved
in the executive management of the Company and a replacement
reasonably satisfactory to the Required Lenders shall not
have been selected within 60 days; or
(d) the Company or any of its Subsidiaries or any
other Obligor shall initiate any action to dissolve,
liquidate or otherwise terminate its existence.
8.1.7. Enforceability, etc. Any Credit Document
shall cease for any reason (other than the scheduled
termination thereof in accordance with its terms) to be
enforceable in accordance with its terms or in full force
and effect; or any party to any Credit Document shall so
assert in a judicial or similar proceeding; or the security
interests created by this Agreement or any other Credit
Documents shall cease to be enforceable and of the same
effect and priority purported to be created hereby.
8.1.8. Judgments. A final judgment (a) which, with
other outstanding final judgments against the Company and
its Subsidiaries, exceeds an aggregate of $250,000 in excess
of applicable insurance coverage shall be rendered against
the Company or any of its Subsidiaries, or (b) which grants
injunctive relief that results, or creates a material risk
of resulting, in a Material Adverse Change and, in either
case, if (i) within 30 days after entry thereof, such
judgment shall not have been discharged or execution thereof
stayed pending appeal or (ii) within 30 days after the
expiration of any such stay, such judgment shall not have
been discharged.
8.1.9. ERISA. Any "reportable event" (as defined
in
section 4043 of ERISA) shall have occurred that reasonably
could be expected to result in termination of a Plan or the
appointment by the appropriate United States District Court
of a trustee to administer any Plan or the imposition of a
Lien in favor of a Plan; or any ERISA Group Person shall
fail to pay when due amounts aggregating in excess of
$250,000 which it shall have become liable to pay to the
PBGC or to a Plan under Title IV of ERISA; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate
or to cause a trustee to be appointed to administer any Plan
or a proceeding shall be instituted by a fiduciary of any
Plan against any ERISA Group Person to enforce section 515
or 4219(c)(5) of ERISA and such proceeding shall not have
been dismissed within 30 days thereafter; or a condition
shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Plan must be
terminated.
8.1.10. Bankruptcy, etc. The Company, any of its
Subsidiaries or any other Obligor shall:
(a) commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board
of directors or other governing body, the commencement of
such a voluntary case;
(b) (i) have filed against it a petition commencing
an involuntary case under the Bankruptcy Code that shall not
have been dismissed within 60 days after the date on which
such petition is filed, or (ii) file an answer or other
pleading within such 60-day period admitting or failing to
deny the material allegations of such a petition or seeking,
consenting to or acquiescing in the relief therein provided,
or (iii) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(c) seek relief as a debtor under any applicable
law,
other than the Bankruptcy Code, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief;
(d) have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or
insolvent, (ii) ordering or approving its liquidation or
reorganization as a debtor or any modification or alteration
of the rights of its creditors or (iii) assuming custody of,
or appointing a receiver or other custodian for, all or a
substantial portion of its property; or
(e) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or
consent to the appointment of, or suffer to exist a receiver
or other custodian for, all or a substantial portion of its
property.
8.2. Certain Actions Following an Event of Default. If
any one or more Events of Default shall occur, then in each and
every such case:
8.2.1. Terminate Obligation to Extend Credit. Upon
written request of the Required Lenders, the Agent shall
terminate the obligations of the Lenders to make any further
extensions of credit under the Credit Documents by
furnishing notice of such termination to the Company.
8.2.2. Specific Performance; Exercise of Rights.
Upon written request of the Required Lenders, the Agent
shall proceed to protect and enforce the Lenders' rights by
suit in equity, action at law and/or other appropriate
proceeding, either for specific performance of any covenant
or condition contained in this Agreement or any other Credit
Document (other than Interest Rate Protection Agreements) or
in any instrument or assignment delivered to the Lenders
pursuant to this Agreement or any other Credit Document
(other than Interest Rate Protection Agreements), or in aid
of the exercise of any power granted in this Agreement or
any other Credit Document (other than Interest Rate
Protection Agreements) or any such instrument or assignment.
8.2.3. Acceleration. Upon written request of the
Required Lenders, the Agent shall by notice in writing to
the Company (a) declare all or any part of the unpaid
balance of the Credit Obligations (other than amounts under
Interest Rate Protection Agreements) then outstanding to be
immediately due and payable, and (b) require the Company
immediately to deposit with the Agent in cash an amount
equal to the then Letter of Credit Exposure (which cash
shall be held and applied as provided in Section 4.5), and
thereupon such unpaid balance or part thereof and such
amount equal to the Letter of Credit Exposure shall become
so due and payable without presentation, protest or further
demand or notice of any kind, all of which are hereby
expressly waived; provided, however, that if a Bankruptcy
Default shall have occurred, the unpaid balance of the
Credit Obligations (other than amounts under Interest Rate
Protection Agreements) shall automatically become
immediately due and payable.
8.2.4. Enforcement of Payment; Credit Security;
Setoff. Upon written request of the Required Lenders, the
Agent shall proceed to enforce payment of the Credit
Obligations in such manner as it may elect, to cancel, or
instruct other Letter of Credit Issuers to cancel, any
outstanding Letters of Credit which permit the cancellation
thereof and to realize upon any and all rights in the Credit
Security. The Lenders may offset and apply toward the
payment of the Credit Obligations (and/or toward the curing
of any Event of Default) any Indebtedness from the Lenders
to the respective Obligors, including any Indebtedness
represented by deposits in any account maintained with the
Lenders, regardless of the adequacy of any security for the
Credit Obligations. The Lenders shall have no duty to
determine the adequacy of any such security in connection
with any such offset.
8.2.5. Cumulative Remedies. To the extent not
prohibited by applicable law which cannot be waived, all of
the Lenders' rights hereunder and under each other Credit
Document shall be cumulative.
8.3. Annulment of Defaults. Once an Event of Default has
occurred, such Event of Default shall be deemed to exist and be
continuing for all purposes of the Credit Documents (other than
Interest Rate Protection Agreements) until the Required Lenders
or the Agent (with the consent of the Required Lenders) shall
have waived such Event of Default in writing, stated in writing
that the same has been cured to such Lenders' reasonable
satisfaction or entered into an amendment to this Agreement which
by its express terms cures such Event of Default, at which time
such Event of Default shall no longer be deemed to exist or to
have continued. No such action by the Lenders or the Agent shall
extend to or affect any subsequent Event of Default or impair any
rights of the Lenders upon the occurrence thereof. The making of
any extension of credit during the existence of any Default or
Event of Default shall not constitute a waiver thereof.
8.4. Waivers. To the extent that such waiver is not
prohibited by the provisions of applicable law that cannot be
waived and is not against public policy, each of the Company and
the other Obligors waives:
(a) all presentments, demands for performance,
notices of nonperformance (except to the extent required by
this Agreement or any other Credit Document), protests,
notices of protest and notices of dishonor;
(b) any requirement of diligence or promptness on
the part of the Agent or any Lender in the enforcement of its
rights under this Agreement, the Notes or any other Credit
Document;
(c) any and all notices of every kind and
description which may be required to be given by any statute
or rule of law; and
(d) any defense (other than indefeasible payment)
which it may now or hereafter have with respect to its
liability under this Agreement, the Notes or any other
Credit Document or with respect to the Credit Obligations.
8.5. Application of Proceeds. There is hereby established
with the Agent a trust account (the "Cash Concentration
Account"), including two subaccounts (the "Current Asset
Subaccount" and the "Term Asset Subaccount"). The Cash
Concentration Account shall exist solely for the benefit of the
Lenders. All moneys received by the Collateral Agent in respect
of the foreclosure or other realization of the Credit Security
(collectively, the "Shared Proceeds"), shall, promptly upon
receipt, be deposited in the Cash Concentration Account, to be
held in trust for the benefit of the Lenders; provided, that all
moneys received in respect of the exercise of remedies in respect
of the Current Asset Security shall be deposited in the Current
Asset Subaccount and all moneys received in respect of the
exercise of remedies in respect of the Term Asset Security shall
be deposited in the Term Asset Subaccount. Such moneys shall be
held by the Collateral Agent without interest and shall be
applied promptly following their receipt as follows:
(a) The moneys in the Current Asset Subaccount and
the Term Asset Subaccount, as the Agent may elect, shall be
applied first to the payment of amounts described as
follows:
(i) any and all sums advanced by the Agent
(including
in its capacity as Collateral Agent under the Credit
Document) in accordance with the terms of the Security
Documents in order to preserve the Credit Security or
preserve its security interest in the Credit Security,
together with interest thereon at the Overdue Reimbursement
Rate; and
(ii) in the event of any proceeding for the
collection or enforcement of any indebtedness, obligations,
or liabilities of the Obligors, after an Event of Default
shall have occurred and be continuing, the expenses of
retaking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the Credit Security,
or of any exercise by the Collateral Agent of its rights
under any of the Security Documents, together with
reasonable attorneys' fees and court costs and all amounts
paid by any Lender or the Collateral Agent under any of the
Security Documents.
(b) The moneys remaining from time to time in the
Current Asset Subaccount shall be paid to the Agent to be
applied to the payment of the Revolving Loan and Letter of
Credit obligations, including without limitation, when
applicable, payment to the Agent to cash collateralize in
full the aggregate stated amount of letters of credit and
other contingent obligations outstanding under the Section
2.3 of Credit Agreement.
(c) The moneys remaining from time to time in the
Term Asset Subaccount shall be paid to the holders of the
Term Loan to be applied to the payment of the principal of
and interest on the Term Loan.
(d) Any moneys remaining in the Current Asset
Subaccount after payment in full of the Credit Obligations
referred to in clauses (a) and (b) shall be applied to the
payment of any principal of and interest on the Term Loan
remaining outstanding after application of the amounts
provided in clause (c).
(e) Any moneys remaining in the Term Asset
Subaccount
after payment in full of the obligations referred to in
clauses (a) and (c) shall be applied to the payment of the
Revolving Loan and Letter of Credit obligations (including,
without limitation, the cash collateralization of
obligations in respect of letters of credit and other
contingent obligations) remaining outstanding after
application of the amounts provided in clause (b).
(f) Any moneys remaining in the Cash Concentration
Account after payment in full of the Credit Obligations and
the termination of all of the obligations of the lenders
under the Credit Agreement shall be paid to the Company,
subject to the rights of third party creditors of which the
Collateral Agent has actual notice.
Until the Term Loan Closing Date, Section 4 of the
Intercreditor Agreement shall govern the application of proceeds
pursuant to this Section 8.5 hereof. In the event of a conflict
prior to the Term Loan Closing Date between the terms of this
Section 8.5 and Section 4 of the Intercreditor Agreement, the
terms of Section 4 of the Intercreditor Agreement shall govern.
From and after the Term Loan Closing Date, this Section 8.5 shall
govern the application of proceeds and Section 4 of the
Intercreditor Agreement shall be of no effect. In the event of a
conflict between the terms of this 8.5 and Section 4 of the
Intercreditor Agreement from and after the Term Loan Closing Date
the terms of this Section 8.5 shall govern.
9. Expenses; Indemnity.
9.1. Expenses. Whether or not the transactions
contemplated
hereby shall be consummated, the Company will pay:
(a) all reasonable expenses of the Agent and the
Syndication Agent (including the out-of-pocket expenses
related to forming the group of Lenders and reasonable fees
and disbursements of the counsel to the Agent and the
Syndication Agent; provided that to the extent feasible the
Agent and the Syndication Agent shall rely on the same firm
or firms of outside legal counsel) in connection with the
negotiation, preparation and duplication of this Agreement
and each other Credit Document, examinations by, and reports
of, the Agent's commercial financial examiners, fixed asset
appraisers and environmental consultants, the transactions
contemplated hereby and thereby and amendments, waivers,
consents and other operations hereunder and thereunder;
(b) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in
respect of this Agreement, any other Credit Document, any
Credit Security or the incurrence of the Credit Obligations;
and
(c) all other reasonable expenses incurred by the
Agent, the Lenders or the holder of any Credit Obligation in
connection with the enforcement of any rights hereunder or
under any other Credit Document or any work-out negotiations
relating to the Credit Obligations, including costs of
collection and reasonable attorneys' fees (including a
reasonable allowance for the hourly cost of attorneys
employed by the Lenders on a salaried basis) and expenses.
9.2. General Indemnity. The Company shall indemnify the
Lenders and the Agent and hold them harmless from any liability,
loss or damage resulting from the violation by the Company of
Section 2.4. In addition, the Company shall indemnify each
Lender, the Agent, the Syndication Agent, each of the Lenders' or
the Agent's or the Syndication Agent's directors, officers,
employees, agents, attorneys, accountants, consultants and each
Person, if any, who controls any Lender or the Agent (each
Lender, the Agent and each of such directors, officers,
employees, agents, attorneys, accountants, consultants and
control Persons is referred to as an "Indemnified Party") and
hold each of them harmless from and against any and all claims,
damages, liabilities and reasonable expenses (including
reasonable fees and disbursements of counsel with whom any
Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which
any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with (a) the Indemnified
Party's compliance with or contest of any subpoena or other
process issued against it in any proceeding involving the Company
or any of its Subsidiaries or their Affiliates, (b) any
litigation or investigation involving the Company, any of its
Subsidiaries or their Affiliates, or any officer, director or
employee thereof, (c) the existence or exercise of any security
rights with respect to the Credit Security in accordance with the
Credit Documents, or (d) this Agreement, any other Credit
Document or any transaction contemplated hereby or thereby;
provided, however, that the foregoing indemnity shall not apply
(i) to litigation commenced by the Company against the Lenders or
the Agent or the Syndication Agent which seeks enforcement of any
of the rights of the Company hereunder or under any other Credit
Document and is determined adversely to the Lenders or the Agent
or the Syndication Agent in a final nonappealable judgment or
(ii) to the extent such claims, damages, liabilities and expenses
result from the Indemnified Party's own gross negligence or
willful misconduct.
9.3. Indemnity With Respect to Letters of Credit. The
Company shall indemnify each Letter of Credit Issuer and its
correspondents and hold each of them harmless from and against
any and all claims, losses, liabilities, damages and reasonable
expenses (including reasonable attorneys' fees) arising from or
in connection with any Letter of Credit, including any such
claim, loss, liability, damage or expense arising out of any
transfer, sale, delivery, surrender or endorsement of any
invoice, bill of lading, warehouse receipt or other document at
any time held by the Agent, any other Letter of Credit Issuer or
held for their respective accounts by any of their
correspondents, in connection with any Letter of Credit, except
to the extent such claims, losses, liabilities, damages and
expenses result from gross negligence or willful misconduct on
the part of the Agent or any other Letter of Credit Issuer.
10. Operations; Agent.
10.1. Interests in Credits. The Percentage Interest
of each Lender in the respective portions of the Loan and Letter of
Credit Exposure, and the related Commitments, shall be computed
based on the maximum principal amount for each Lender as set
forth in the Register, as from time to time in effect. The
current Percentage Interests are set forth in Exhibit 10.1, which
may be updated by the Agent from time to time to conform to the
Register.
10.2. Agent's Authority to Act, etc. Each of the
Lenders appoints and authorizes BankBoston to act for the Lenders
as the Lenders' Agent in connection with the transactions
contemplated by this Agreement and the other Credit Documents
(other than Interest Rate Protection Agreements) on the terms set
forth herein and therein. All action in connection with the
enforcement of, or the exercise of any remedies (other than the
Lenders' rights of set-off as provided in Section 8.2.4 or in any
Credit Document) in respect of the Credit Obligations and Credit
Documents shall be taken by the Agent.
10.3. Company to Pay Agent, etc. The Company and
each Guarantor shall be fully protected in making all payments in
respect of the Credit Obligations (other than payments under
Interest Rate Protection Agreements) to the Agent, in relying
upon consents, modifications and amendments executed by the Agent
purportedly on the Lenders' behalf, and in dealing with the Agent
as herein provided. The Agent will charge the accounts of the
Company, on the dates when the amounts thereof become due and
payable, with the amounts of the principal of and interest on the
Loan, any amounts paid by the Letter of Credit Issuers to third
parties under Letters of Credit or drafts presented thereunder,
commitment fees, Letter of Credit fees and all other fees and
amounts owing under any Credit Document (other than Interest Rate
Protection Agreements).
10.4. Lender Operations for Advances, Letters of Credit,
etc.
10.4.1. Advances. On each Closing Date, each
Lender
shall advance to the Agent in immediately available funds
such Lender's Percentage Interest in the portion of the Loan
advanced on such Closing Date prior to 12:00 noon (Boston
time). If such funds are not received at such time, but all
applicable conditions set forth in Section 5 have been
satisfied, each Lender authorizes and requests the Agent to
advance for the Lender's account, pursuant to the terms
hereof, the Lender's respective Percentage Interest in such
portion of the Loan and agrees to reimburse the Agent in
immediately available funds for the amount thereof prior to
2:00 p.m. (Boston time) on the day any portion of the Loan
is advanced hereunder; provided, however, that the Agent is
not authorized to make any such advance for the account of
any Lender who has previously notified the Agent in writing
that such Lender will not be performing its obligations to
make further advances hereunder; and provided, further, that
the Agent shall be under no obligation to make any such
advance.
10.4.2. Letters of Credit. Each of the Lenders
authorizes and requests each Letter of Credit Issuer to
issue the Letters of Credit provided for in Section 2.3 and
to grant each Lender a participation in each of such Letters
of Credit in an amount equal to its Percentage Interest in
the amount of each such Letter of Credit. Promptly upon the
request of the Letter of Credit Issuer, each Lender shall
reimburse the Letter of Credit Issuer in immediately
available funds for such Lender's Percentage Interest in the
amount of all obligations to third parties incurred by the
Letter of Credit Issuer in respect of each Letter of Credit
and each draft accepted under a Letter of Credit to the
extent not reimbursed by the Company by 2:00 p.m. (Boston
time) on the Banking Day when due. The Letter of Credit
Issuer will notify each Lender of the issuance of any Letter
of Credit, the amount and date of payment of any draft drawn
or accepted under a Letter of Credit and whether in
connection with the payment of any such draft the amount
thereof was added to the Revolving Loan or was reimbursed by
the Company.
10.4.3. Agent to Allocate Payments, etc. All
payments of principal and interest in respect of the
extensions of credit made pursuant to this Agreement,
reimbursement of amounts paid by any Letter of Credit Issuer
to third parties under Letters of Credit or drafts presented
thereunder, commitment fees, Letter of Credit fees and other
fees under this Agreement shall, as a matter of convenience,
be made by the Company and the Guarantors to the Agent in
immediately available funds by noon (Boston time) on any
Banking Day. The share of each Lender shall be credited to
such Lender by the Agent in immediately available funds by
2:00 p.m. (Boston time) on such Banking Day in such manner
that the principal amount of the Credit Obligations to be
paid shall be paid proportionately in accordance with the
Lenders' respective Percentage Interests in such Credit
Obligations, except as otherwise provided in this Agreement.
Under no circumstances shall any Lender be required to
produce or present its Notes as evidence of its interests in
the Credit Obligations in any action or proceeding relating
to the Credit Obligations.
10.4.4. Delinquent Lenders; Nonperforming Lenders.
In the event that any Lender fails to reimburse the Agent
pursuant to Sections 10.4.1 or 10.4.2 for the Percentage
Interest of such lender (a "Delinquent Lender") in any
credit advanced by the Agent pursuant hereto, overdue
amounts (the "Delinquent Payment") due from the Delinquent
Lender to the Agent shall bear interest, payable by the
Delinquent Lender on demand, at a per annum rate equal to
(a) the Federal Funds Rate for the first three days overdue
and (b) the sum of 2% plus the Federal Funds Rate for any
longer period. Such interest shall be payable to the Agent
for its own account for the period commencing on the date of
the Delinquent Payment and ending on the date the Delinquent
Lender reimburses the Agent on account of the Delinquent
Payment (to the extent not paid by any Obligor as provided
below) and the accrued interest thereon (the "Delinquency
Period"), whether pursuant to the assignments referred to
below or otherwise. Upon notice by the Agent, the Company
will pay to the Agent the principal (but not the interest)
portion of the Delinquent Payment. During the Delinquency
Period, in order to make reimbursements for the Delinquent
Payment and accrued interest thereon, the Delinquent Lender
shall be deemed to have assigned to the Agent all interest,
commitment fees and other payments made by the Company under
Section 3 that would have thereafter otherwise been payable
under the Credit Documents to the Delinquent Lender. During
any other period in which any Lender is not performing its
obligations to extend credit under Section 2 (a
"Nonperforming Lender"), the Nonperforming Lender shall be
deemed to have assigned to each Lender that is not a
Nonperforming Lender (a "Performing Lender") all principal
and other payments made by the Company under Section 4 that
would have thereafter otherwise been payable under the
Credit Documents to the Nonperforming Lender. The Agent
shall credit a portion of such payments to each Performing
Lender in an amount equal to the Percentage Interest of such
Performing Lender in an amount equal to the Percentage
Interest of such Performing Lender divided by one minus the
Percentage Interest of the Nonperforming Lender until the
respective portions of the Loan owed to all the Lenders are
the same as the Percentage Interests of the Lenders
immediately prior to the failure of the Nonperforming Lender
to perform its obligations under Section 2. The foregoing
provisions shall be in addition to any other remedies the
Agent, the Performing Lenders or the Company may have under
law or equity against the Delinquent Lender as a result of
the Delinquent Payment or against the Nonperforming Lender
as a result of its failure to perform its obligations under
Section 2.
10.5. Sharing of Payments, etc. Each Lender agrees
that (a) if by exercising any right of set-off or counterclaim or
otherwise, it shall receive payment of (i) a proportion of the
aggregate amount due with respect to its Percentage Interest in
the Loan and Letter of Credit Exposure which is greater than (ii)
the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's
Percentage Interest in the Loan and Letter of Credit Exposure and
(b) if such inequality shall continue for more than 10 days, the
Lender receiving such proportionately greater payment shall
purchase participations in the Percentage Interests in the Loan
and Letter of Credit Exposure held by the other Lenders, and such
other adjustments shall be made from time to time (including
rescission of such purchases of participations in the event the
unequal payment originally received is recovered from such Lender
through bankruptcy proceedings or otherwise), as may be required
so that all such payments of principal and interest with respect
to the Loan and Letter of Credit Exposure held by the Lenders
shall be shared by the Lenders pro rata in accordance with their
respective Percentage Interests; provided, however, that this
Section 10.5 shall not impair the right of any Lender to exercise
any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of Indebtedness of
any Obligor other than such Obligor's Indebtedness with respect
to the Loan and Letter of Credit Exposure. Each Lender that
grants a participation in the Credit Obligations to a Credit
Participant shall require as a condition to the granting of such
participation that such Credit Participant agree to share
payments received in respect of the Credit Obligations as
provided in this Section 10.5. The provisions of this Section
10.5 are for the sole and exclusive benefit of the Lenders and no
failure of any Lender to comply with the terms hereof shall be
available to any Obligor as a defense to the payment of the
Credit Obligations.
10.6. Agent's Resignation. The Agent may resign at
any time by giving at least 60 days' prior written notice of its
intention to do so to each of the Lenders and the Company and
upon the appointment by the Required Lenders of a successor Agent
satisfactory to the Company. If no successor Agent shall have
been so appointed and shall have accepted such appointment within
45 days after the retiring Agent's giving of such notice of
resignation, then the retiring Agent may with the consent of the
Company, which shall not be unreasonably withheld, appoint a
successor Agent which shall be a bank or a trust company
organized under the laws of the United States of America or any
state thereof and having a combined capital, surplus and
undivided profit of at least $100,000,000; provided, however,
that any successor Agent appointed under this sentence may be
removed upon the written request of the Required Lenders, which
request shall also appoint a successor Agent reasonably
satisfactory to the Company. Upon the appointment of a new Agent
hereunder, the term "Agent" shall for all purposes of this
Agreement thereafter mean such successor. After any retiring
Agent's resignation hereunder as Agent, or the removal hereunder
of any successor Agent, the provisions of this Agreement shall
continue to inure to the benefit of such retiring or removed
Agent as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
10.7. Concerning the Agent.
10.7.1. Action in Good Faith, etc. The Agent and
its
officers, directors, employees and agents shall be under no
liability to any of the Lenders or to any future holder of
any interest in the Credit Obligations for any action or
failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of
its counsel shall conclusively be deemed to be in good
faith. The Agent shall in all cases be entitled to rely,
and shall be fully protected in relying, on instructions
given to the Agent by the Required Lenders.
10.7.2. No Implied Duties, etc. The Agent shall
have
and may exercise such powers as are specifically delegated
to the Agent under this Agreement or any other Credit
Document together with all other powers incidental thereto.
The Agent shall have no implied duties to any Person or any
obligation to take any action under this Agreement or any
other Credit Document except for action specifically
provided for in this Agreement or any other Credit Document
to be taken by the Agent.
10.7.3. Validity, etc. The Agent shall not be
responsible to any Lender or any future holder of any
interest in the Credit Obligations (a) for the legality,
validity, enforceability or effectiveness of this Agreement
or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or
made in connection with this Agreement or any other Credit
Document, (c) for the existence or value of any assets
included in any security for the Credit Obligations, (d) for
the effectiveness of any Lien purported to be included in
the Credit Security, (e) for the specification or failure to
specify any particular assets to be included in the Credit
Security, or (f) unless the Agent shall have failed to
comply with Section 10.7.1, for the perfection of the
security interests in the Credit Security.
10.7.4. Compliance. The Agent shall not be
obligated
to ascertain or inquire as to the performance or observance
of any of the terms of this Agreement or any other Credit
Document; and in connection with any extension of credit
under this Agreement or any other Credit Document, the Agent
shall be fully protected in relying on a certificate of the
Company as to the fulfillment by the Company of any
conditions to such extension of credit.
10.7.5. Employment of Agents and Counsel. The
Agent
may execute any of its duties as Agent under this Agreement
or any other Credit Document by or through employees, agents
and attorneys-in-fact and shall not be responsible to any of
the Lenders, the Company or any other Obligor for the
default or misconduct of any such agents or
attorneys-in-fact selected by the Agent acting in good
faith. The Agent shall be entitled to advice of counsel
concerning all matters pertaining to the agency hereby
created and its duties hereunder or under any other Credit
Document.
10.7.6. Reliance on Documents and Counsel. The
Agent shall be entitled to rely, and shall be fully
protected in
relying, upon any affidavit, certificate, cablegram,
consent, instrument, letter, notice, order, document,
statement, telecopy, telegram, telex or teletype message or
writing reasonably believed in good faith by the Agent to be
genuine and correct and to have been signed, sent or made by
the Person in question, including any telephonic or oral
statement made by such Person, and, with respect to legal
matters, upon an opinion or the advice of counsel selected
by the Agent.
10.7.7. Agent's Reimbursement. Each of the Lenders
severally agrees to reimburse the Agent, pro rata in
accordance with such Lender's Percentage Interest, for any
reasonable expenses not reimbursed by the Company or the
Guarantors (without limiting the obligation of the Company
or the Guarantors to make such reimbursement): (a) for
which the Agent is entitled to reimbursement by the Company
or the Guarantors under this Agreement or any other Credit
Document, and (b) after the occurrence of a Default, for any
other reasonable expenses incurred by the Agent on the
Lenders' behalf in connection with the enforcement of the
Lenders' rights under this Agreement or any other Credit
Document; provided, however, that the Agent shall not be
reimbursed for any such expenses arising as a result of its
gross negligence or willful misconduct.
10.8. Rights as a Lender. With respect to any
credit extended by it hereunder, BankBoston shall have the same
rights, obligations and powers hereunder as any other Lender and
may exercise such rights and powers as though it were not the
Agent, and unless the context otherwise specifies, BankBoston shall
be treated in its individual capacity as though it were not the
Agent hereunder. Without limiting the generality of the
foregoing, the Percentage Interest of BankBoston shall be
included in any computations of Percentage Interests. BankBoston
and its Affiliates may accept deposits from, lend money to, act
as trustee for and generally engage in any kind of banking or
trust business with the Company, any of its Subsidiaries or any
Affiliate of any of them and any Person who may do business with
or own an equity interest in the Company, any of its Subsidiaries
or any Affiliate of any of them, all as if BankBoston were not
the Agent and without any duty to account therefor to the other
Lenders.
10.9. Independent Credit Decision. Each of the
Lenders acknowledges that it has independently and without reliance
upon the Agent, based on the financial statements and other
documents referred to in Section 7.2, on the other representations
and warranties contained herein and on such other information with
respect to the Company and its Subsidiaries as such Lender
deemed appropriate, made such Lender's own credit analysis and
decision to enter into this Agreement and to make the extensions
of credit provided for hereunder. Each Lender represents to the
Agent that such Lender will continue to make its own independent
credit and other decisions in taking or not taking action under
this Agreement or any other Credit Document. Each Lender
expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to such
Lender, and no act by the Agent taken under this Agreement or any
other Credit Document, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by the Agent. Except for notices,
reports and other documents expressly required to be furnished to
each Lender by the Agent under this Agreement or any other Credit
Document, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information
concerning the business, operations, property, condition,
financial or otherwise, or creditworthiness of the Company or any
Subsidiary which may come into the possession of the Agent or any
of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
10.10. Indemnification. The Lenders shall severally
indemnify the Agent and its officers, directors, employees,
agents, attorneys, accountants, consultants and controlling
Persons (to the extent not reimbursed by the Obligors and without
limiting the obligation of any of the Obligors to do so), pro
rata in accordance with their respective Percentage Interests,
from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time be
imposed on, incurred by or asserted against the Agent or such
Persons relating to or arising out of this Agreement, any other
Credit Document, the transactions contemplated hereby or thereby,
or any action taken or omitted by the Agent in connection with
any of the foregoing; provided, however, that the foregoing shall
not extend to actions or omissions which are taken by the Agent
with gross negligence or willful misconduct.
10.11. Collateral Agent and Documentation Agent.
When acting in its capacity as the holder of collateral as
Collateral Agent under this Agreement or any other Credit Document,
the Agent shall be entitled to all of the rights, benefits,
protections and indemnities given to or bestowed upon the Agent
in this Agreement or any other Credit Document, including but not
limited to the rights, benefits protections and indemnities set
forth in this Section 10. In addition, the Documentation Agent,
when acting as such under this Agreement, shall be entitled to
the protections of Sections 10.6 through 10.10 hereof.
11. Successors and Assigns; Lender Assignments and
Participations. Any reference in this Agreement or any other
Credit Document to any of the parties hereto shall be deemed to
include the successors and assigns of such party, and all
covenants and agreements by or on behalf of the Company, the
other Obligors, the Agent or the Lenders that are contained in
this Agreement or any other Credit Document shall bind and inure
to the benefit of their respective successors and assigns;
provided, however, that (a) the Company and its Subsidiaries may
not assign their rights or obligations under this Agreement or
any other Credit Document except for mergers or liquidations
permitted by Section 6.11, and (b) the Lenders shall be not
entitled to assign their respective Percentage Interests in the
credits extended hereunder or their Commitments except as set
forth below in this Section 11.
11.1. Assignments by Lenders.
11.1.1. Assignees and Assignment Procedures. Each
Lender may (a) without the consent of the Agent or the
Company if the proposed assignee is already a Lender
hereunder, a Related Fund or a Wholly Owned Subsidiary of
the same corporate parent of which the assigning Lender or
any other Lender is a Subsidiary, or (b) otherwise with the
consents of the Agent and (so long as no Event of Default
exists) the Company (which consents will not be unreasonably
withheld), in compliance with applicable laws in connection
with such assignment, assign to one or more commercial
banks, investment companies, other financial institutions or
mutual funds (each, an "Assignee") all or a portion of its
interests, rights and obligations under this Agreement and
the other Credit Documents, including all or a portion,
which need not be pro rata between the Revolving Loan, Term
Loan and the Letter of Credit Exposure, of its Commitment,
the portion of the Loan and Letter of Credit Exposure at the
time owing to it and the Notes held by it, but excluding its
rights and obligations as a Letter of Credit Issuer;
provided, however, that:
(i) the aggregate amount of the Commitment of the
assigning Lender subject to each such assignment to any
Assignee other than another Lender, a Related Fund or a
Wholly Owned Subsidiary of the same corporate parent of
which the assigning Lender or any other Lender is a
Subsidiary (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to
the Agent) shall be not less than $2,500,000 and in
increments of $500,000 (or, if less, the entire remaining
amount of the assigning Lender's Commitment); and
(ii) the parties to each such assignment shall
execute and deliver to the Agent an Assignment and
Acceptance (the "Assignment and Acceptance") substantially
in the form of Exhibit 11.1.1, together with the Note
subject to such assignment and, except in the event of a
transfer pursuant to Section 11.3, a processing and
recordation fee of $3,000 payable to the Agent by the
assigning Lender (or as the assigning Lender and the
Assignee may otherwise agree between themselves).
Upon acceptance and recording pursuant to Section 11.1.4,
from and after the effective date specified in each
Assignment and Acceptance (which effective date shall be at
least five Banking Days after the execution thereof unless
waived by the Agent):
(A) the Assignee shall be a party hereto and, to
the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and
(B) the assigning Lender shall, to the extent
provided in such assignment, be released from its obligations
under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 3.2.4, 3.5 and 9, as well as
to any fees accrued for its account hereunder and not yet paid).
11.1.2. Terms of Assignment and Acceptance. By
executing and delivering an Assignment and Acceptance, the
assigning Lender and Assignee shall be deemed to confirm to
and agree with each other and the other parties hereto as
follows:
(a) other than the representation and warranty that
it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such
assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with
this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this
Agreement, any other Credit Document or any other instrument
or document furnished pursuant hereto;
(b) such assigning Lender makes no representation
or
warranty and assumes no responsibility with respect to the
financial condition of the Company and its Subsidiaries or
the performance or observance by the Company or any of its
Subsidiaries of any of its obligations under this Agreement,
any other Credit Document or any other instrument or
document furnished pursuant hereto;
(c) such Assignee confirms that it has received a
copy of this Agreement, together with copies of the most
recent financial statements delivered pursuant to Section
7.2 or Section 6.4 and such other documents and information
as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without
reliance upon the Agent, such assigning Lender or any other
Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement;
(e) such Assignee appoints and authorizes the Agent
to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and
(f) such Assignee agrees that it will perform in
accordance with the terms of this Agreement all the
obligations which are required to be performed by it as a
Lender.
11.1.3. Register. The Agent shall maintain at the
Boston Office a register (the "Register") for the
recordation of (a) the names and addresses of the Lenders
and the Assignees which assume rights and obligations
pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in
Exhibit 10.1 and (c) the amount of the Loan and Letter of
Credit Exposure owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence
of manifest error, and the Company, the Agent and the
Lenders may treat each Person whose name is registered
therein for all purposes as a party to this Agreement. The
Register shall be available for inspection by the Company or
any Lender at any reasonable time and from time to time upon
reasonable prior notice.
11.1.4. Acceptance of Assignment and Assumption.
Upon its receipt of a completed Assignment and Acceptance
executed by an assigning Lender and an Assignee (and any
necessary consent of the Agent and the Company) together
with the Note subject to such assignment, and the processing
and recordation fee referred to in Section 11.1.1, the Agent
shall (a) accept such Assignment and Acceptance, (b) record
the information contained therein in the Register and (c)
give prompt notice thereof to the Company. Within five
Banking Days after receipt of notice, the Company, at its
own expense, shall execute and deliver to the Agent, in
exchange for the surrendered Note, a new Note to the order
of such Assignee in a principal amount equal to the
applicable Commitment and Loan assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Lender
has retained a Commitment and Loan, a new Note to the order
of such assigning Lender in a principal amount equal to the
applicable Commitment and Loan retained by it. Such new
Note shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Note, and
shall be dated the date of the surrendered Note which it
replaces.
11.1.5. Federal Reserve Bank. Notwithstanding the
foregoing provisions of this Section 11, any Lender may at
any time pledge or assign all or any portion of such
Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank; provided, however, that
no such pledge or assignment shall release such Lender from
such Lender's obligations hereunder or under any other
Credit Document.
11.1.6. Further Assurances. The Company and its
Subsidiaries shall sign such documents and take such other
actions from time to time reasonably requested by an
Assignee to enable it to share in the benefits of the rights
created by the Credit Documents.
11.2. Credit Participants. Each Lender may, without
the consent of the Company or the Agent, in compliance with
applicable laws in connection with such participation, sell to
one or more commercial banks, other financial institutions or
mutual funds (each a "Credit Participant") participations in all
or a portion of its interests, rights and obligations under this
Agreement and the other Credit Documents (including all or a
portion of its Commitment, the Loan and Letter of Credit Exposure
owing to it and the Note held by it); provided, however, that:
(a) such Lender's obligations under this Agreement
shall remain unchanged;
(b) such Lender shall remain solely responsible to
the other parties hereto for the performance of such
obligations;
(c) the Credit Participant shall be entitled to the
benefit of the cost protection provisions contained in
Sections 3.2.4, 3.5 and 9, but shall not be entitled to
receive any greater payment thereunder than the selling
Lender would have been entitled to receive with respect to
the interest so sold if such interest had not been sold; and
(d) the Company, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations
under this Agreement and, under any agreements between such
Lender and such Credit Participant, such Lender shall retain
the sole right as one of the Lenders to vote (and to
determine how to vote) with respect to the enforcement of
the obligations of the Obligors relating to the Loan and
Letter of Credit Exposure and the approval of any amendment,
modification or waiver of any provision of this Agreement
(other than amendments, modifications, consents or waivers
described in clause (b) of the proviso to Section 15.1, with
respect to which the Credit Participant may determine how to
vote).
Each Obligor agrees, to the fullest extent permitted by
applicable law, that any Credit Participant and any Lender
purchasing a participation from another Lender pursuant to
Section 10.5 may exercise all rights of payment (including the
right of set-off), with respect to its participation as fully as
if such Credit Participant or such Lender were the direct
creditor of the Obligors and a Lender hereunder in the amount of
such participation.
11.3. Replacement of Lender. In the event that any
Lender or, to the extent applicable, any Credit Participant (the
"Affected Lender"):
(a) fails to perform its obligations to fund any
portion of the Loan or to issue any Letter of Credit on any
Closing Date when required to do so by the terms of the
Credit Documents, or fails to provide its portion of any
Eurodollar Pricing Option pursuant to Section 3.2.1 or on
account of a Legal Requirement as contemplated by Section
3.2.5;
(b) demands payment under the provisions of Section
3.5 in an amount materially in excess of the amounts with
respect thereto demanded by the other Lenders; or
(c) refuses to consent to a proposed amendment,
modification, waiver or other action requiring consent of
the holders of 100% of the Percentage Interests under
Section 15.1 that is consented to by Lenders owning at least
90% of the Percentage Interests;
then, so long as no Event of Default exists, the Company shall
have the right to seek a replacement lender which is reasonably
satisfactory to the Agent (the "Replacement Lender"). The
Replacement Lender shall purchase the interests of the Affected
Lender in the Loan, Letters of Credit and its Commitment and
shall assume the obligations of the Affected Lender hereunder and
under the other Credit Documents upon execution by the
Replacement Lender of an Assignment and Acceptance and the tender
by it to the Affected Lender of a purchase price agreed between
it and the Affected Lender (or, if they are unable to agree, a
purchase price in the amount of the Affected Lender's Percentage
Interest in the Loan and Letter of Credit Exposure, or
appropriate credit support for contingent amounts included
therein, and all other outstanding Credit Obligations then owed
to the Affected Lender). No assignment fee pursuant to Section
11.1.1(ii) shall be required in connection with such assignment.
Such assignment by any Affected Lender who has performed its
obligations hereunder shall be deemed an early termination of any
Eurodollar Pricing Option to the extent of such Affected Lender's
portion thereof, and the Company will pay to such Affected Lender
any resulting amounts due under Section 3.2.4. Upon consummation
of such assignment, the Replacement Lender shall become party to
this Agreement as a signatory hereto and shall have all the
rights and obligations of the Affected Lender under this
Agreement and the other Credit Documents with a Percentage
Interest equal to the Percentage Interest of the Affected Lender,
the Affected Lender shall be released from its obligations
hereunder and under the other Credit Documents, and no further
consent or action by any party shall be required. Upon the
consummation of such assignment, the Company, the Agent and the
Affected Lender shall make appropriate arrangements so that a new
Note is issued to the Replacement Lender if it has acquired a
portion of the Loan. The Company and the Guarantors shall sign
such documents and take such other actions reasonably requested
by the Replacement Lender to enable it to share in the benefits
of the rights created by the Credit Documents. Until the
consummation of an assignment in accordance with the foregoing
provisions of this Section 11.3, the Company shall continue to
pay to the Affected Lender any Credit Obligations as they become
due and payable.
12. Confidentiality. Each Lender will make no disclosure of
confidential information furnished to it by the Company or any of
its Subsidiaries unless such information shall have become
public, except:
(a) in connection with operations under or the
enforcement of this Agreement or any other Credit Document
to Persons who have a reasonable need to be furnished such
confidential information and who agree to comply with the
restrictions contained in this Section 12 with respect to
such information;
(b) pursuant to any statutory or regulatory
requirement or any mandatory court order, subpoena or other
legal process;
(c) to any parent or corporate Affiliate of such
Lender or to any Credit Participant, proposed Credit
Participant or proposed Assignee; provided, however, that
any such Person shall agree to comply with the restrictions
set forth in this Section 12 with respect to such
information;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to
keep such information confidential; and
(e) with the prior written consent of the Company,
to any other Person.
13. Foreign Lenders. If any Lender is not incorporated or
organized under the laws of the United States of America or a
state thereof, such Lender shall deliver to the Company and the
Agent the following:
(a) Two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor
form, as the case may be, certifying in each case that such
Person is entitled to receive payments under this Agreement,
the Notes and reimbursement obligations under Letters of
Credit payable to it, without deduction or withholding of
any United States federal income taxes; provided, however,
that if such Lender is not a "bank" within the meaning of
section 881(c)(3)(A) of the Code and cannot deliver Form
1001 or 4224, such Lender shall deliver to the Company and
the Agent a certificate to such effect; and
(b) A duly completed Internal Revenue Service Form
W-8 or W-9 or successor form, as the case may be, to
establish an exemption from United States backup withholding
tax.
Each such Lender that delivers to the Company and the Agent
a Form 1001 or 4224 and Form W-8 or W-9 pursuant to this Section
13 further undertakes to deliver to the Company and the Agent two
further copies of Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable form, or other manner of certification, as
the case may be, on or before the date that any such form expires
or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered
by it to the Company and the Agent. Such Forms 1001 or 4224
shall certify that such Lender is entitled to receive payments
under this Agreement without deduction or withholding of any
United States federal income taxes. The foregoing documents need
not be delivered in the event any change in treaty, law or
regulation or official interpretation thereof has occurred which
renders all such forms inapplicable or which would prevent such
Lender from delivering any such form with respect to it, or such
Lender advises the Company that it is not capable of receiving
payments without any deduction or withholding of United States
federal income tax and, in the case of a Form W-8 or W-9,
establishing an exemption from United States backup withholding
tax. Until such time as the Company and the Agent have received
such forms indicating that payments hereunder are not subject to
United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Company shall
withhold taxes from such payments at the applicable statutory
rate without regard to Section 3.5.
14. Notices. Except as otherwise specified in this Agreement or
any other Credit Document, any notice required to be given
pursuant to this Agreement or any other Credit Document shall be
given in writing. Any notice, consent, approval, demand or other
communication in connection with this Agreement or any other
Credit Document shall be deemed to be given if given in writing
(including telex, telecopy or similar teletransmission) addressed
as provided below (or to the addressee at such other address as
the addressee shall have specified by notice actually received by
the addressor), and if either (a) actually delivered in fully
legible form to such address (evidenced in the case of a telex by
receipt of the correct answerback) or (b) in the case of a
letter, unless actual receipt of the notice is required by any
Credit Document five days shall have elapsed after the same shall
have been deposited in the United States mails, with first-class
postage prepaid and registered or certified.
If to the Company or any of its Subsidiaries, to it at its
address set forth in Exhibit 7.1 (as supplemented pursuant to
Sections 6.4.1 and 6.4.2), to the attention of the chief
financial officer.
If to any Lender or the Agent, to it at its address set
forth on the signature pages of this Agreement or in the
Register, with a copy to the Agent.
15. Amendments, Consents, Waivers, etc.
15.1. Lender Consents for Amendments. Except as
otherwise set forth herein, the Agent may (and upon the written
request of the Required Lenders the Agent shall) take or refrain
from taking any action under this Agreement or any other Credit
Document, including giving its written consent to any
modification of or amendment to and waiving in writing compliance
with any covenant or condition in this Agreement or any other
Credit Document (other than an Interest Rate Protection
Agreement) or any Default or Event of Default, all of which
actions shall be binding upon all of the Lenders;
provided, however, that:
(a) Except as provided below, without the written
consent of the Required Lenders (disregarding the Percentage
Interest of any Delinquent Lender during the existence of a
Delinquency Period or of any Nonperforming Lender so long as
such Lender is treated equally with the other Lenders with
respect to any actions enumerated below), no written
modification of, amendment to, consent with respect to,
waiver of compliance with or waiver of a Default under, any
of the Credit Documents (other than an Interest Rate
Protection Agreement) shall be made.
(b) Without the written consent of such Lenders as
own 100% of the Percentage Interests (disregarding the
Percentage Interest of any Delinquent Lender during the
existence of a Delinquency Period or of any Nonperforming
Lender so long as such Lender is treated equally with the
other Lenders with respect to any actions enumerated below):
(i) No reduction shall be made in (A) the amount of
principal of the Loan or reimbursement obligations for
payments made under Letters of Credit, (B) the interest rate
on the Loan or (C) the Letter of Credit fees or commitment
fees with respect to the credit facility provided herein.
(ii) No change shall be made in the stated,
scheduled
time of payment of all or any portion of the Loan or
interest thereon or reimbursement of payments made under
Letters of Credit or fees relating to any of the foregoing
payable to all of the Lenders and no waiver shall be made of
any Default under Section 8.1.1.
(iii) No increase shall be made in the amount, or
extension of the term, of the stated Commitments beyond that
provided for under Section 2, and no amendment shall be made
of the definition of the term "Borrowing Base."
(iv) No alteration shall be made of the Lenders'
rights of set-off contained in Section 8.2.4.
(v) No release of all or a material portion of the
Credit Security or release of the Company or any Guarantor
shall be made (in any event, without the written consent of
the Lenders, the Agent may release particular items of
Credit Security or particular Guarantors in dispositions
permitted by Section 6.11, as modified by amendments thereto
approved by the Required Lenders, and may release all Credit
Security pursuant to Section 16.1 upon payment in full of
the Credit Obligations and termination of the Commitments).
(vi) No amendment to or modification of this
Section 15.1 or the definition of "Required Lenders" shall
be made.
(c) Without the written consent of the Agent or the
Collateral Agent, as applicable, no amendment or
modification of any Credit Document shall affect the rights
or duties of the Agent or the Collateral Agent,
respectively, under the Credit Documents.
15.2. Course of Dealing; No Implied Waivers. No
course of dealing between any Lender or the Agent, on one hand, and
the Company or any other Obligor, on the other hand, shall operate
as a waiver of any of the Lenders' or the Agent's rights under this
Agreement or any other Credit Document or with respect to the
Credit Obligations. In particular, no delay or omission on the
part of any Lender or the Agent in exercising any right under
this Agreement or any other Credit Document or with respect to
the Credit Obligations shall operate as a waiver of such right or
any other right hereunder or thereunder. A waiver on any one
occasion shall not be construed as a bar to or waiver of any
right or remedy on any future occasion. No waiver, consent or
amendment with respect to this Agreement or any other Credit
Document shall be binding unless it is in writing and signed by
the Agent or the Required Lenders.
16. General Provisions.
16.1. Defeasance. When all Credit Obligations have
been paid, performed and reasonably determined by the Agent to have
been indefeasibly discharged in full, and if at the time no
Lender continues to be committed to extend any credit to the
Company hereunder or under any other Credit Document, this
Agreement and the other Credit Documents shall terminate and, at
the Company's written request, accompanied by such certificates
and other items as the Agent shall reasonably deem necessary, the
Credit Security shall revert to the Obligors and the right, title
and interest of the Agent and the Lenders therein shall
terminate. Thereupon, on the Obligors' demand and at their cost
and expense, the Agent shall execute proper instruments,
acknowledging satisfaction of and discharging this Agreement and
the other Credit Documents, and shall redeliver to the Obligors
any Credit Security then in its possession; provided, however,
that Sections 3.2.4, 3.5, 9, 10.7.7, 10.10, 12 and 16 shall
survive the termination of this Agreement.
16.2. No Strict Construction. The parties have
participated jointly in the negotiation and drafting of this
Agreement and the other Credit Documents with counsel
sophisticated in financing transactions. In the event an
ambiguity or question of intent or interpretation arises, this
Agreement and the other Credit Documents shall be construed as if
drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of
the authorship of any provisions of this Agreement and the other
Credit Documents.
16.3. Certain Obligor Acknowledgments. Each of the
Company and the other Obligors acknowledges that:
(a) it has been advised by counsel in the
negotiation, execution and delivery of this Agreement and
the other Credit Documents;
(b) neither the Agent nor any Lender has any
fiduciary relationship with or duty to the Obligors arising
out of or in connection with this Agreement or any other
Credit Document, and the relationship between the Agent and
Lenders, on one hand, and the Obligors, on the other hand,
in connection herewith or therewith is solely that of debtor
and creditor; and
(c) no joint venture is created hereby or by the
other Credit Documents or otherwise exists by virtue of the
transactions contemplated hereby or thereby among the
Obligors and the Lenders.
16.4. Venue; Service of Process; Certain Waivers.
Each of the Company and the other Obligors, to the extent not
prohibited by applicable law that cannot be waived:
(a) irrevocably submits to the nonexclusive
jurisdiction of the state courts of The Commonwealth of
Massachusetts and to the nonexclusive jurisdiction of the
United States District Court for the District of
Massachusetts for the purpose of any suit, action or other
proceeding arising out of or based upon this Agreement or
any other Credit Document or the subject matter hereof or
thereof;
(b) waives and agrees not to assert, by way of
motion, as a defense or otherwise, in any such proceeding
brought in any of the above-named courts, any claim that it
is not subject personally to the jurisdiction of such court,
that its property is exempt or immune from attachment or
execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is
improper, or that this Agreement or any other Credit
Document, or the subject matter hereof or thereof, may not
be enforced in or by such court;
(c) consents to service of process in any such
proceeding in any manner at the time permitted by Chapter
223A of the General Laws of The Commonwealth of
Massachusetts and agrees that service of process by
registered or certified mail, return receipt requested, at
its address specified in or pursuant to Section 14 is
reasonably calculated to give actual notice; and
(d) waives any right it may have to claim or
recover
in any such proceeding any special, exemplary, punitive or
consequential damages.
16.5. WAIVER OF JURY TRIAL. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE
COMPANY, THE OTHER OBLIGORS, THE AGENT AND THE LENDERS WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY
CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT, THE
COMPANY OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER IN CONTRACT, TORT OR OTHERWISE. EACH OF THE COMPANY AND
THE OTHER OBLIGORS ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE
AGENT THAT THE FOREGOING SENTENCE CONSTITUTES A MATERIAL
INDUCEMENT UPON WHICH EACH OF THE LENDERS HAS RELIED AND WILL
RELY IN ENTERING INTO THIS AGREEMENT AND ANY OTHER CREDIT
DOCUMENT. ANY LENDER, THE AGENT, THE COMPANY OR ANY OTHER
OBLIGOR MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE COMPANY, THE OTHER OBLIGORS, THE AGENT AND THE LENDERS TO THE
WAIVER OF THEIR RIGHTS TO TRIAL BY JURY.
16.6. Interpretation; etc. All covenants,
agreements, representations and warranties made in this Agreement
or any other Credit Document or in certificates delivered pursuant
hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on
its behalf, and shall survive the execution and delivery to the
Lenders hereof and thereof. The invalidity or unenforceability
of any provision hereof shall not affect the validity or
enforceability of any other provision hereof, and any invalid or
unenforceable provision shall be modified so as to be enforced to
the maximum extent of its validity or enforceability. The
headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof. This
Agreement and the other Credit Documents constitute the entire
understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior and contemporaneous
understandings and agreements, whether written or oral. In the
event of any conflict between the provisions of this Agreement
and the provisions of any other Credit Document, the provisions
of this Agreement shall be controlling. This Agreement may be
executed in any number of counterparts and may be delivered in
original or facsimile form, all of which together shall
constitute one instrument.
16.7. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN
THE CONFLICT OF LAWS RULES) OF THE COMMONWEALTH OF MASSACHUSETTS.
Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first above written.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner
By______________________________________
Title:
PRIDE REFINING, INC.
By______________________________________
Title:
PRIDE SGP, INC.
By______________________________________
Title:
PRIDE BORGER, INC.
By______________________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR WIND), INC.
By______________________________________
Title:
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its General Partner
by Pride Refining, Inc., its Managing General Partner
By ______________________________________
Title:
and by Pride Marketing of Texas (Cedar Wind),
Inc., its General Partner
By ______________________________________
Title:
BANKBOSTON, N.A., for Itself and as Agent
By ______________________________________
Title:
BANKBOSTON, N.A.
Energy and Utilities Division
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-3652
LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent
By _____________________________________
Title:
LEHMAN COMMERCIAL PAPER INC.
3 World Financial Center
9th Floor
New York, New York 10285
Telecopy: (212) 526-6600
EXHIBIT 10.34
PRIDE COMPANIES, L.P.
GUARANTEE AND SECURITY AGREEMENT
Dated as of December 30, 1997
BANKBOSTON, N.A., as Agent
TABLE OF CONTENTS
Page
1. Reference to Credit Agreement; Definitions; Certain
Rules of Construction 1
1.1. "Accounts" 1
1.2. "Agreement" 1
1.4. "Hydrocarbons" 2
1.5. "Obligors" 2
1.6. "Pipeline Systems" 2
1.7. "Pledged Indebtedness" 2
1.8. "Pledged Rights" 2
1.9. "Pledged Securities" 2
1.10. "Pledged Stock" 2
1.11. "UCC" 2
2. Guarantee 2
2.1. Guarantee of Credit Obligations 2
2.2. Continuing Obligation 3
2.3. Waivers with Respect to Credit Obligations 3
2.4. Lenders' Power to Waive, etc 5
2.5. Information Regarding the Company, etc. 6
2.6. Certain Guarantor Representations 6
2.7. Subrogation 7
2.8. Subordination 7
2.9. Future Subsidiaries; Further Assurances 7
2.10. Contribution Among Guarantors 7
3. Security. 8
3.1. Credit Security 8
3.1.1. Tangible Personal Property 8
3.1.2. Cash, Rights to Payment of Money, etc 9
3.1.3. Intangibles 9
3.1.4. Pledged Stock 9
3.1.5. Pledged Rights 9
3.1.6. Pledged Indebtedness 9
3.1.7. Chattel Paper, Instruments, etc 10
3.1.8. Leases 10
3.1.9. Deposit Accounts 10
3.1.10. Collateral 10
3.1.11. Books and Records 10
3.1.12. Insurance 10
3.1.13. All Other Property 10
3.1.14. Proceeds and Products 10
3.1.15. Excluded Property 10
3.2. Additional Credit Security 11
3.2.1. Real Property 11
3.2.2. Pipeline Systems 11
3.3. Representations, Warranties and Covenants with Respect
to Credit Security 11
3.3.1. Pledged Stock 12
3.3.2. Accounts and Pledged Indebtedness 12
3.3.3. No Liens or Restrictions on Transfer or Change
of Control 12
3.3.4. Location of Credit Security 12
3.3.5. Trade Names. 13
3.3.6. Insurance 13
3.3.7. Deposit Accounts 13
3.3.8. Modifications to Credit Security 14
3.3.9. Delivery of Documents. 14
3.3.10. Perfection of Credit
Security 14
3.4. Administration of Credit Security 14
3.4.1. Use of Credit Security 14
3.4.2. Accounts 14
3.4.3. Distributions on Pledged Securities 15
3.4.4. Voting Pledged Securities 15
3.5. Right to Realize upon Credit Security 15
3.5.1. Assembly of Credit Security;
Receiver 16
3.5.2. General Authority 16
3.5.3. Marshaling, etc. 17
3.5.4. Sales of Credit Security 17
3.5.5. Sale without Registration 18
3.5.6. Application of Proceeds 18
3.6. Custody of Credit Security 19
4. General 19
PRIDE COMPANIES, L.P.
GUARANTEE AND SECURITY AGREEMENT
This Agreement, dated as of December 30, 1997 is among
Pride Companies, L.P., a Delaware limited partnership (the
"Company"), the general partners of the Company, Pride SGP, Inc.
("Pride SGP"), a Texas corporation, and Pride Refining, Inc., a
Texas corporation ("Pride Refining", and together with Pride SGP,
the "General Partners"), Desulfur Partnership, a Texas general
partnership ("Desulfur"), Pride Marketing of Texas (Cedar Wind),
Inc., a Texas corporation ("Pride Marketing"), Pride Borger,
Inc., a Delaware corporation ("Pride Borger", together with
Desulfur and Pride Marketing, the "Pride Parties"), any other
Subsidiaries of the Company from time to time party hereto and
BankBoston, N.A., as collateral agent (the "Agent") for itself
and the other Lenders under the Credit Agreement (as defined
below). The parties agree as follows:
1. Reference to Credit Agreement; Definitions; Certain Rules of
Construction. Reference is made to the Revolving Credit and Term
Loan Agreement dated as of the date hereof, as from time to time
in effect (the "Credit Agreement"), among the Company, the
General Partners, the Pride Parties, any other Subsidiaries of
the Company from time to time party thereto, the Lenders and the
Agent. Capitalized terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so
defined. Certain other capitalized terms are used in this
Agreement as specifically defined below in this Section 1.
Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement,
(b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section shall include
all subsections thereof, (d) the word "including" shall be
construed as "including without limitation", (e) terms defined in
the UCC and not otherwise defined herein have the meaning
provided under the UCC, (f) references to a particular statute or
regulation include all rules and regulations thereunder and any
successor statute, regulation or rules, in each case as from time
to time in effect and (g) references to a particular Person
include such Person's successors and assigns to the extent not
prohibited by this Agreement and the other Credit Documents.
References to "the date hereof" mean the date first set forth
above.
1.1. "Accounts" is defined in Section 3.1.2.
1.2. "Agreement" means this Guarantee and Security
Agreement as from time to time in effect.
1.3. "Guarantor" means each of the General Partners and
each of the Pride Parties.
1.4. "Hydrocarbons" means crude oil, gasoline, casinghead
gas, drip gasoline, natural gas, condensate and distillate, all
other liquid and gaseous hydrocarbons and all other minerals.
1.5. "Obligors" means the Company, the General Partners,
the Pride Parties and the other Subsidiaries of the Company party
hereto from time to time.
1.6. "Pipeline Systems" is defined in Section 3.1.1.
1.7. "Pledged Indebtedness" is defined in Section 3.1.6.
1.8. "Pledged Rights" is defined in Section 3.1.5.
1.9. "Pledged Securities" means the Pledged Stock, the
Pledged Rights and the Pledged Indebtedness, collectively.
1.10. "Pledged Stock" is defined in Section 3.1.4.
1.11. "UCC" means the Uniform Commercial Code as in effect
in Texas on the date hereof; provided, however, that with respect
to the perfection of the Agent's Lien in the Credit Security and
the effect of nonperfection thereof, the term "UCC" means the
Uniform Commercial Code as in effect in any jurisdiction the laws
of which are made applicable by section 9-103 of the Uniform
Commercial Code as in effect in Texas.
2. Guarantee.
2.1. Guarantee of Credit Obligations. Each Guarantor
unconditionally guarantees that the Credit Obligations will be
performed and paid in full in cash when due and payable, whether
at the stated or accelerated maturity thereof or otherwise, this
guarantee being a guarantee of payment and not of collectability
and being absolute and in no way conditional or contingent. In
the event any part of the Credit Obligations shall not have been
so paid in full when due and payable, each Guarantor will,
immediately upon notice by the Agent or, without notice,
immediately upon the occurrence of a Bankruptcy Default, pay or
cause to be paid to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests
therein the amount of such Credit Obligations which are then due
and payable and unpaid. The obligations of each Guarantor
hereunder shall not be affected by the invalidity,
unenforceability or irrecoverability of any of the Credit
Obligations as against the Company, any other Obligor, any other
guarantor thereof or any other Person. For purposes hereof, the
Credit Obligations shall be due and payable when and as the same
shall be due and payable under the terms of the Credit Agreement
or any other Credit Document notwithstanding the fact that the
collection or enforcement thereof may be stayed or enjoined under
the Bankruptcy Code or other applicable law.
2.2. Continuing Obligation. Each Guarantor acknowledges
that the Lenders have entered into the Credit Agreement (and, to
the extent that the Lenders or the Agent may enter into any
future Credit Document, will have entered into such agreement) in
reliance on this Section 2 being a continuing irrevocable
agreement, and such Guarantor agrees that its guarantee may not
be revoked in whole or in part. The obligations of the
Guarantors hereunder shall terminate when the commitment of the
Lenders to extend credit under the Credit Agreement shall have
terminated and all of the Credit Obligations have been
indefeasibly paid in full in cash and discharged; provided,
however, that:
(a) if a claim is made upon the Lenders at any time
for repayment or recovery of any amounts or any property
received by the Lenders from any source on account of any of
the Credit Obligations and the Lenders repay or return any
amounts or property so received (including interest thereon
to the extent required to be paid by the Lenders) or
(b) if the Lenders become liable for any part of such
claim by reason of (i) any judgment or order of any court or
administrative authority having competent jurisdiction, or
(ii) any settlement or compromise of any such claim,
then the Guarantors shall remain liable under this Agreement for
the amounts so repaid or property so returned or the amounts for
which the Lenders become liable (such amounts being deemed part
of the Credit Obligations) to the same extent as if such amounts
or property had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any
instrument or agreement evidencing any of the Credit Obligations.
Not later than five days after receipt of notice from the Agent,
the Guarantors shall pay to the Agent an amount equal to the
amount of such repayment or return for which the Lenders have so
become liable. Payments hereunder by a Guarantor may be required
by the Agent on any number of occasions.
2.3. Waivers with Respect to Credit Obligations. Except to
the extent expressly provided to the contrary in the Credit
Agreement or any other Credit Document, each Guarantor waives, to
the fullest extent permitted by the provisions of applicable law,
all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):
(a) presentment, demand for payment and protest of
nonpayment of any of the Credit Obligations, and notice of
protest, dishonor or nonperformance;
(b) notice of acceptance of this guarantee and notice
that credit has been extended in reliance on such
Guarantor's guarantee of the Credit Obligations;
(c) notice of any Default or of any inability to
enforce performance of the obligations of the Company or
any other Person with respect to any Credit Document or
notice of any acceleration of maturity of any Credit
Obligations;
(d) demand for performance or observance of, and any
enforcement of any provision of the Credit Agreement, the
Credit Obligations or any other Credit Document or any
pursuit or exhaustion of rights or remedies with respect to
any Credit Security or against the Company or any other
Person in respect of the Credit Obligations or any
requirement of diligence or promptness on the part of the
Agent or the Lenders in connection with any of the
foregoing;
(e) any act or omission on the part of the Agent or
the Lenders which may impair or prejudice the rights of such
Guarantor, including rights to obtain subrogation,
exoneration, contribution, indemnification or any other
reimbursement from the Company or any other Person, or
otherwise operate as a deemed release or discharge;
(f) failure or delay to perfect or continue the
perfection of any security interest in any Credit Security
or any other action which harms or impairs the value of, or
any failure to preserve or protect the value of, any Credit
Security;
(g) any statute of limitations or any statute or rule
of law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more
burdensome than the obligation of the principal;
(h) any "single action" or "anti-deficiency" law
which
would otherwise prevent the Lenders from bringing any
action, including any claim for a deficiency, against such
Guarantor before or after the Agent's or the Lenders'
commencement or completion of any foreclosure action,
whether judicially, by exercise of power of sale or
otherwise, or any other law which would otherwise require
any election of remedies by the Agent or the Lenders;
(i) all demands and notices of every kind with
respect to the foregoing; and
(j) to the extent not referred to above, all defenses
(other than payment) which the Company may now or hereafter
have to the payment of the Credit Obligations, together with
all suretyship defenses, which could otherwise be asserted
by such Guarantor.
No delay or omission on the part of the Agent or the Lenders
in exercising any right under any other Credit Document or under
any other guarantee of the Credit Obligations or with respect to
the Credit Security shall operate as a waiver or relinquishment
of such right. No action which the Agent or the Lenders or the
Company or any other Obligor may take or refrain from taking with
respect to the Credit Obligations shall affect the provisions of
this Agreement or the obligations of each Guarantor hereunder.
None of the Lenders' or the Agent's rights shall at any time in
any way be prejudiced or impaired by any act or failure to act on
the part of the Company or any other Obligor, or by any
noncompliance by the Company or any other Obligor with any Credit
Document, regardless of any knowledge thereof which the Agent or
the Lenders may have or otherwise be charged with.
2.4. Lenders' Power to Waive, etc. Each Guarantor grants
to the Agent and the Lenders full power in their discretion,
without notice to or consent of such Guarantor, such notice and
consent being expressly waived to the fullest extent permitted by
applicable law, and without in any way affecting the liability of
such Guarantor under its guarantee hereunder:
(a) To waive compliance with, and any Default under,
and to consent to any amendment to or modification or
termination of any provision of, or to give any waiver in
respect of, the Credit Agreement, any other Credit Document,
the Credit Security, the Credit Obligations or any guarantee
thereof (each as from time to time in effect);
(b) To grant any extensions of the Credit Obligations
(for any duration), and any other indulgence with respect
thereto, and to effect any total or partial release (by
operation of law or otherwise), discharge, compromise or
settlement with respect to the obligations of the Obligors
or any other Person in respect of the Credit Obligations,
whether or not rights against such Guarantor under this
Agreement are reserved in connection therewith;
(c) To take security in any form for the Credit
Obligations, and to consent to the addition to or the
substitution, exchange, release or other disposition of, or
to deal in any other manner with, any part of any property
contained in the Credit Security whether or not the
property, if any, received upon the exercise of such power
shall be of a character or value the same as or different
from the character or value of any property disposed of, and
to obtain, modify or release any present or future
guarantees of the Credit Obligations and to proceed against
any of the Credit Security or such guarantees in any order;
(d) To collect or liquidate or realize upon any of
the Credit Obligations or the Credit Security in any manner or to
refrain from collecting or liquidating or realizing upon any of
the Credit Obligations or the Credit Security; and
(e) To extend credit under the Credit Agreement, any
other Credit Document or otherwise in such amount as the
Lenders may determine, including increasing the amount of
credit and the interest rate and fees with respect thereto,
even though the condition of the Obligors (financial or
otherwise, on an individual or Consolidated basis) may have
deteriorated since the date hereof.
2.5. Information Regarding the Company, etc. Each
Guarantor has made such investigation as it deems desirable of
the risks undertaken by it in entering into this Agreement and is
fully satisfied that it understands all such risks. Each
Guarantor waives any obligation which may now or hereafter exist
on the part of the Agent or the Lenders to inform it of the risks
being undertaken by entering into this Agreement or of any
changes in such risks and, from and after the date hereof, each
Guarantor undertakes to keep itself informed of such risks and
any changes therein. Each Guarantor expressly waives any duty
which may now or hereafter exist on the part of the Agent or the
Lenders to disclose to such Guarantor any matter related to the
business, operations, character, collateral, credit, condition
(financial or otherwise), income or prospects of the Company and
its Affiliates or their properties or management, whether now or
hereafter known by the Agent or the Lenders. Each Guarantor
represents, warrants and agrees that it assumes sole
responsibility for obtaining from the Company all information
concerning the Credit Agreement and all other Credit Documents
and all other information as to the Company and its Affiliates or
their properties or management as such Guarantor deems necessary
or desirable.
2.6. Certain Guarantor Representations. Each Guarantor
represents that:
(a) it is in its best interest and in pursuit of the
purposes for which it was organized as an integral part of
the business conducted and proposed to be conducted by the
Company and its Subsidiaries, and reasonably necessary and
convenient in connection with the conduct of the business
conducted and proposed to be conducted by them, to induce
the Lenders to enter into the Credit Agreement and to extend
credit to the Company by making the Guarantee contemplated
by this Section 2;
(b) the credit available under the Credit Agreement
will directly or indirectly inure to its benefit;
(c) by virtue of the foregoing it is receiving at
least reasonably equivalent value from the Lenders for its
Guarantee;
(d) it will not be rendered insolvent as a result of
entering into this Agreement;
(e) after giving effect to the transactions
contemplated by this Agreement, it will have assets having a
fair saleable value in excess of the amount required to pay
its probable liability on its existing debts as such debts
become absolute and matured;
(f) it has, and will have, access to adequate capital
for the conduct of its business;
(g) it has the ability to pay its debts from time to
time incurred in connection therewith as such debts mature;
and
(h) it has been advised by the Agent that the Lenders
are unwilling to enter into the Credit Agreement unless the
Guarantee contemplated by this Section 2 is given by it.
2.7. Subrogation. Each Guarantor agrees that, until the
Credit Obligations are paid in full, it will not exercise any
right of reimbursement, subrogation, contribution, offset or
other claims against the Company or any other Obligor arising by
contract or operation of law in connection with any payment made
or required to be made by such Guarantor under this Agreement.
After the payment in full of the Credit Obligations, each
Guarantor shall be entitled to exercise against the Company and
the other Obligors all such rights of reimbursement, subrogation,
contribution and offset, and all such other claims, to the
fullest extent permitted by law.
2.8. Subordination. Each Guarantor covenants and agrees
that, after the occurrence of an Event of Default, all
Indebtedness, claims and liabilities then or thereafter owing by
the Company or any other Obligor to such Guarantor whether
arising hereunder or otherwise are subordinated to the prior
payment in full of the Credit Obligations and are so subordinated
as a claim against such Obligor or any of its assets, whether
such claim be in the ordinary course of business or in the event
of voluntary or involuntary liquidation, dissolution, insolvency
or bankruptcy, so that no payment with respect to any such
Indebtedness, claim or liability will be made or received while
any Event of Default exists.
2.9. Future Subsidiaries; Further Assurances. The
Company will from time to time cause (a) any present Wholly Owned
Subsidiary that is not a Guarantor within 30 days after notice
from the Agent or (b) any future Wholly Owned Subsidiary within
30 days after any such Person becomes a Wholly Owned Subsidiary,
to join this Agreement as a Guarantor pursuant to a joinder
agreement in form and substance satisfactory to the Agent;
provided, however, that in the event such a Wholly Owned
Subsidiary is prohibited by any valid law, statute, rule or
regulation from guaranteeing the Credit Obligations, or if such a
guarantee by any Foreign Subsidiary would result in a
repatriation of a material amount of foreign earnings under the
Code (including the "deemed dividend" provisions of section 956
of the Code), (i) such guarantee will be limited to the extent
necessary to comply with such prohibition or to prevent such
repatriation of foreign earnings or (ii) if such limitation on
the guaranteed amount is not sufficient to avoid such prohibition
or repatriation, the Company and its other Subsidiaries will
pledge the stock of such Wholly Owned Subsidiary (or as much of
such stock as may be pledged without resulting in such a
repatriation) to the Agent to secure the Credit Obligations
pursuant to a pledge agreement in form and substance satisfactory
to the Agent. Each Guarantor will, promptly upon the request of
the Agent from time to time, execute, acknowledge and deliver,
and file and record, all such instruments, and take all such
action, as the Agent deems necessary or advisable to carry out
the intent and purpose of this Section 2.
2.10. Contribution Among Guarantors. The Guarantors agree
that, as among themselves in their capacity as guarantors of the
Credit Obligations, the ultimate responsibility for repayment of
the Credit Obligations, in the event that the Company fails to
pay when due its Credit Obligations, shall be equitably
apportioned, to the extent consistent with the Credit Documents,
among the respective Guarantors (a) in the proportion that each,
in its capacity as a guarantor, has benefited from the extensions
of credit to the Company by the Lenders under the Credit
Agreement, or (b) if such equitable apportionment cannot
reasonably be determined or agreed upon among the affected
Guarantors, in proportion to their respective net worths
determined on or about the date hereof (or such later date as
such Guarantor becomes party hereto). In the event that any
Guarantor, in its capacity as a guarantor, pays an amount with
respect to the Credit Obligations in excess of its proportionate
share as set forth in this Section 2.10, each other Guarantor
shall, to the extent consistent with the Credit Documents, make a
contribution payment to such Guarantor in an amount such that the
aggregate amount paid by each Guarantor reflects its
proportionate share of the Credit Obligations. In the event of
any default by any Guarantor under this Section 2.10, each other
Guarantor will bear, to the extent consistent with the Credit
Documents, its proportionate share of the defaulting Guarantor's
obligation under this Section 2.10. This Section 2.10 is
intended to set forth only the rights and obligations of the
Guarantors among themselves and shall not in any way affect the
obligations of any Guarantor to the Lenders under the Credit
Documents (which obligations shall at all times constitute the
joint and several obligations of all the Guarantors).
3. Security.
3.1. Credit Security. As security for the payment and
performance of the Credit Obligations, each Obligor party hereto
mortgages, pledges and collaterally grants and assigns to the
Agent for the benefit of the Lenders and the holders from time to
time of any Credit Obligation, and creates a security interest in
favor of the Agent for the benefit of the Lenders and such
holders in, all of such Obligor's right, title and interest in
and to (but none of its obligations or liabilities with respect
to) the items and types of present and future property described
in Sections 3.1.1 through 3.1.14 (subject, however, to Section
3.1.15), whether now owned or hereafter acquired, all of which
shall be included in the term "Credit Security":
3.1.1. Tangible Personal Property. All goods,
machinery, equipment, inventory, Hydrocarbons, at any time
and from time to time in any of the pipeline systems owned
in whole or in part by any of the Obligors (the "Pipeline
Systems"), whether or not in transit or in storage, and all
other tangible personal property of any nature whatsoever,
wherever located, including the Pipeline Systems, pipelines,
gathering lines, trunk lines, lateral lines, compressors,
dehydration and pumping equipment, pumps, compressors,
dehydrations units, separators, heater treaters, valves,
flow lines, gauge meters, alarms, supplies, machinery,
equipment, derricks, pipe racks, stores of spare pipe,
consumables, buildings, tanks, casings, christmas trees,
tubing, rods, liquid extractors, engines, boilers, tools,
appliances, cables, wires, raw materials, work in process,
finished parts and products, supplies, spare parts,
replacement parts, merchandise for resale, computers, tapes,
disks and computer equipment.
3.1.2. Cash, Rights to Payment of Money, etc. All
Cash and Cash Equivalents and all rights to receive the
payment of money, including accounts and receivables, rights
to receive the payment of money under contracts, franchises,
licenses, permits, subscriptions or other agreements
(whether or not earned by performance), and rights to
receive payments from any other source (all such rights,
other than Financing Debt, being referred to herein as
"Accounts").
3.1.3. Intangibles. All of the following (to the
extent not included in Section 3.1.2): (a) contracts,
including, but not limited to, contracts for the purchase,
exchange, processing, transportation or sale of
Hydrocarbons, and all other contracts relating in any way to
all or part of the Pipeline Systems, franchises, licenses,
permits, subscriptions and other agreements and all other
rights thereunder; (b) rights granted by others which permit
such Obligor to sell or market items of personal property;
(c) United States and foreign common law and statutory
copyrights and rights in literary property and rights and
licenses thereunder; (d) trade names, United States and
foreign trademarks, service marks, any registrations thereof
and any related good will; (e) United States and foreign
patents and patent applications; (f) computer software,
designs, models, know-how, trade secrets, rights in
proprietary information, formulas, customer lists, backlog,
orders, subscriptions, royalties, catalogues, sales
material, documents, good will, inventions and processes;
(g) judgments, demands, causes in action and claims, whether
or not inchoate, including without limitation all rights to
any settlement of or payments associated with the DFSC
Claim; and (h) all other general intangibles and intangible
property and all rights thereunder.
3.1.4. Pledged Stock. (a) All shares of capital
stock
or other evidence of beneficial interest in any corporation,
business trust or limited liability company, (b) all limited
partnership interests in any limited partnership, (c) all
general partnership interests in any general partnership,
(d) all joint venture interests in any joint venture and (e)
all options, warrants and similar rights to acquire such
capital stock or such interests. All such capital stock,
interests, options, warrants and other rights are
collectively referred to as the "Pledged Stock".
3.1.5. Pledged Rights. All rights to receive profits
or surplus of, or other Distributions (including income,
return of capital and liquidating distributions) from, any
partnership, joint venture or limited liability company,
including any distributions by any such Person to partners,
joint venturers or members. All such rights are
collectively referred to as the "Pledged Rights".
3.1.6. Pledged Indebtedness. All Financing Debt from
time to time owing to such Obligor from any Person (all such
Financing Debt being referred to as the "Pledged
Indebtedness").
3.1.7. Chattel Paper, Instruments, etc. All chattel
paper, non-negotiable instruments, negotiable instruments,
documents and investment property.
3.1.8. Leases. All leases of personal property,
whether such Obligor is the lessor or the lessee thereunder.
3.1.9. Deposit Accounts. All general or special
deposit accounts, including any demand, time, savings,
passbook or similar account maintained by such Obligor with
any bank, trust company, savings and loan association,
credit union or similar organization, and all money, cash
and cash equivalents of such Obligor, whether or not
deposited in any such deposit account.
3.1.10. Collateral. All collateral granted by third
parties to, or held by, such Obligor with respect to the
Accounts, Pledged Securities, chattel paper, instruments,
leases and other items of Credit Security.
3.1.11. Books and Records. All books and records,
including books of account and ledgers of every kind and
nature, all electronically recorded data (including all
computer programs, disks, tapes, electronic data processing
media and software used in connection with maintaining such
Obligor's books and records), all files and correspondence
and all containers for the foregoing.
3.1.12. Insurance. All insurance policies which
insure against any loss or damage to any other Credit
Security or which are otherwise owned by such Obligor.
3.1.13. All Other Property. All other property,
assets and items of value of every kind and nature, tangible
or intangible, absolute or contingent, legal or equitable,
including without limitation all right, title and interest
of the Obligor in the property described in Exhibit 3.1.13
attached hereto.
3.1.14. Proceeds and Products. All rents, royalties,
issues, profits, revenues, proceeds, including insurance
proceeds, and products of the items of Credit Security
described or referred to in Sections 3.1.1 through 3.1.13
and, to the extent not included in the foregoing, all
Distributions with respect to the Pledged Securities.
3.1.15. Excluded Property. Notwithstanding
Sections 3.1.1 through 3.1.14, the payment and performance
of the Credit Obligations shall not be secured by:
(a) any contract, license, permit or franchise that
validly prohibits the creation by such Obligor of a security
interest in such contract, license, permit or franchise (or
in any rights or property obtained by such Obligor under
such contract, license, permit or franchise); provided,
however, that the provisions of this Section 3.1.15 shall
not prohibit the security interests created by this
Agreement from extending to the proceeds of such contract,
license, permit or franchise (or such rights or property) or
to the monetary value of the good will and other general
intangibles of the Obligors relating thereto; or
(b) any rights or property to the extent that any
valid and enforceable law or regulation applicable to such
rights or property prohibits the creation of a security
interest therein; provided, however, that the provisions of
this Section 3.1.15 shall not prohibit the security
interests created by this Agreement from extending to the
proceeds of such rights or property or to the monetary value
of the good will and other general intangibles of the
Obligors relating thereto.
In addition, in the event any Obligor disposes of assets to
third parties in a transaction permitted by Section 6.11 of the
Credit Agreement, such assets, but not the proceeds or products
thereof, shall be released from the Lien of the Credit Security.
3.2. Additional Credit Security. As additional Credit
Security, each Obligor covenants that it will mortgage, pledge
and collaterally grant and assign to the Agent for the benefit of
the Lenders and the holders from time to time of any Credit
Obligation, and will create a security interest in favor of the
Agent for the benefit of the Lenders and such holders in, all of
its right, title and interest in and to (but none of its
obligations with respect to) such of the following present or
future items as the Agent may from time to time specify by notice
to such Obligor, whether now owned or hereafter acquired, and the
proceeds and products thereof, except to the extent consisting of
rights or property of the types referred to in Section 3.1.15(a)
and (b), subject only to Liens permitted by Section 3.3.3, all of
which shall thereupon be included in the term "Credit Security":
3.2.1. Real Property. All real property and
immovable
property and fixtures, leasehold interests, rights-of-way,
surface leases, sub-surface leases, and easements wherever
located, together with all estates and interests of such
Obligor therein, including lands, buildings, stores,
manufacturing facilities, improvements and other structures
erected on such property, fixed plant, fixed equipment and
all permits, rights, including but not limited to all water
and water rights and rights to timber, crops and mineral
interests, licenses, benefits and other interests of any
kind or nature whatsoever in respect of such real and
immovable property, including but not limited to all of the
leases, rents, royalties, issues, profits, revenues or other
benefits of the real property and improvements thereon.
3.2.2. Pipeline Systems. All real property,
easements, leasehold interests, rights of way, leases and
other rights to property and equipment, wherever located,
associated with the Pipeline Systems.
3.3. Representations, Warranties and Covenants with Respect
to Credit Security. Each Obligor represents, warrants and
covenants that:
3.3.1. Pledged Stock. All shares of capital stock,
general partnership interests, limited partnership
interests, membership interests and similar securities
included in the Pledged Stock are and shall be at all times
duly authorized, validly issued, fully paid and (in the case
of capital stock and limited partnership interests)
nonassessable. Each Obligor will deliver to the Agent
certificates representing the Pledged Stock, registered, if
the Agent so requests, in the name of the Agent or its
nominee, as pledgee, or accompanied by a stock transfer
power executed in blank and, if the Agent so requests, with
the signature guaranteed, all in form and manner
satisfactory to the Agent. Pledged Stock that is not
evidenced by a certificate will be registered in the Agent's
name as pledgee on the issuer's records, all in form and
substance satisfactory to the Agent. The Agent may at any
time transfer into its name or the name of its nominee, as
pledgee, any Pledged Stock. In the event the Pledged Stock
includes any Margin Stock, the Obligors will furnish to the
Lenders Federal Reserve Form U-1 and take such other action
as the Agent may request to ensure compliance with
applicable laws.
3.3.2. Accounts and Pledged Indebtedness. Each
Obligor will, immediately upon the receipt thereof, deliver
to the Agent any promissory note or similar instrument
representing any Account or Pledged Indebtedness, after
having endorsed such promissory note or instrument in blank.
3.3.3. No Liens or Restrictions on Transfer or Change
of Control. All Credit Security shall be free and clear of
any Liens and restrictions on the transfer thereof,
including contractual provisions which prohibit the
assignment of rights under contracts, except for Liens
permitted by Section 6.8 of the Credit Agreement. Without
limiting the generality of the foregoing, each Obligor will
use reasonable efforts to exclude from agreements,
instruments, deeds or leases to which it becomes a party
after the date hereof provisions that would prevent such
Obligor from creating a security interest in such agreement,
instrument, deed or lease or any rights or property acquired
thereunder as contemplated hereby. None of the Pledged
Stock is subject to any option to purchase or similar rights
of any Person. Except with the written consent of the
Agent, no Obligor is, and none of them will be, party to or
bound by any agreement, instrument, deed or lease that
restricts the change of control or ownership, or the
creation of a security interest in the ownership, of any of
the Company's Subsidiaries.
3.3.4. Location of Credit Security. Each Obligor
shall at all times keep its records concerning the Accounts
at its chief executive office and principal place of
business, which office and place of business shall be set
forth in Exhibit 3.3 (as from time to time supplemented in
accordance with Sections 6.4.1 and 6.4.2 of the Credit
Agreement) or, so long as such Obligor shall have taken all
steps reasonably necessary to perfect the Lenders' security
interest in the Credit Security with respect to such new
address, at such other address as such Obligor may specify
by notice actually received by the Agent not less than ten
Banking Days prior to such change of address. No Obligor
shall at any time keep tangible personal property of the
type referred to in Section 3.1.1 in any jurisdiction other
than the jurisdictions specified in Exhibit 3.3 (as so
supplemented) or, so long as such Obligor shall have taken
all steps reasonably necessary to perfect the Lenders'
security interest in the Credit Security with respect to
such other jurisdiction, other jurisdictions as such Obligor
may specify by notice actually received by the Agent not
less than ten days prior to moving such tangible personal
property into such other jurisdiction.
3.3.5. Trade Names. No Obligor will adopt or do
business under any name other than its name or names
designated in Exhibit 3.3 (as from time to time supplemented
in accordance with Sections 6.4.1 and 6.4.2 of the Credit
Agreement) or any other name specified by notice actually
received by the Agent not less than ten Banking Days prior
to the conduct of business under such additional name.
Since its inception, no Obligor has changed its name or
adopted or conducted business under any trade name other
than a name specified on Exhibit 3.3 (as so supplemented).
3.3.6. Insurance. Each insurance policy included in,
or insuring against loss or damage to, the Credit Security
shall name the Agent as additional insured party or as loss
payee. No such insurance policy shall be cancelable or
subject to termination or reduction in amount or scope of
coverage until after at least 30 days' prior written notice
from the insurer to the Agent. At least ten days prior to
the expiration of any such insurance policy for any reason,
each Obligor shall furnish the Agent with a renewal or
replacement policy and evidence of payment of the premiums
therefor when due. Each Obligor grants to the Agent full
power and authority as its attorney-in-fact, effective upon
notice to such Obligor after the occurrence of an Event of
Default, to obtain, cancel, transfer, adjust and settle any
such insurance policy and to endorse any drafts thereon.
Any amounts that the Agent receives under any such policy
(including return of unearned premiums) insuring against
loss or damage to the Credit Security prior to the
occurrence of an Event of Default shall be delivered to the
Obligors for the replacement, restoration and maintenance of
the Credit Security. Any such amounts that the Agent
receives after the occurrence of an Event of Default shall,
at the Agent's option, be applied to payment of the Credit
Obligations or to the replacement, restoration and
maintenance of the Credit Security. If any Obligor fails to
provide insurance as required by this Agreement, the Agent
may, at its option, purchase such insurance, and such
Obligor will on demand pay to the Agent the amount of any
payments made by the Agent or the Lenders for such purpose,
together with interest on the amounts so disbursed from five
Banking Days after the date demanded until payment in full
thereof at the Overdue Reimbursement Rate.
3.3.7. Deposit Accounts. Each Obligor shall keep all
its bank and deposit accounts only with the Agent, other
Lenders or the financial institutions listed on Exhibit 3.3
(as from time to time supplemented in accordance with
Sections 6.4.1 and 6.4.2 of the Credit Agreement), and shall
use reasonable efforts to cause such financial institutions
to enter into Agency Account Agreements with the Agent in
form and substance reasonably satisfactory to the Agent.
3.3.8. Modifications to Credit Security. No Obligor
shall amend or modify, or waive any of its rights under or
with respect to, any material Accounts, general intangibles,
Pledged Securities or leases if the effect of such
amendment, modification or waiver would be to reduce the
amount of any such items or to extend the time of payment
thereof, to waive any default by any other party thereto, or
to waive or impair any remedies of the Obligors or the
Lenders under or with respect to any such Accounts, general
intangibles, Pledged Securities or leases, except in each
case in a manner consistent with past practice in the
ordinary course of business and on an arm's-length basis or
otherwise with the prior written consent of the Agent. Each
Obligor will promptly give the Agent written notice of any
request by any Person for any material credit or adjustment
with respect to any Account, general intangible, Pledged
Securities or leases.
3.3.9. Delivery of Documents. Upon the Agent's
request, each Obligor shall deliver to the Agent, promptly
upon such Obligor's receipt thereof, copies of any
agreements, instruments, documents or invoices comprising or
relating to the Credit Security. Pending such request, such
Obligor shall keep such items at its chief executive office
and principal place of business (as specified pursuant to
Section 3.3.4).
3.3.10. Perfection of Credit Security. Upon the
Agent's request from time to time, the Obligors will execute
and deliver, and file and record in the proper filing and
recording places, all such instruments, including financing
statements, collateral assignments of copyrights, trademarks
and patents, mortgages or deeds of trust and notations on
certificates of title, and will take all such other action,
as the Agent deems advisable for confirming to it the Credit
Security or to carry out any other purpose of this Agreement
or any other Credit Document.
3.4. Administration of Credit Security. The Credit
Security shall be administered as follows, and if an Event of
Default shall have occurred, Section 3.5 shall also apply.
3.4.1. Use of Credit Security. Until the Agent
provides written notice to the contrary, each Obligor may
use, commingle and dispose of any part of the Credit
Security in the ordinary course of its business, all subject
to Section 6.11 of the Credit Agreement.
3.4.2. Accounts. To the extent specified by prior
written notice from the Agent, after the occurrence of an
Event of Default, all sums collected or received and all
property recovered or possessed by any Obligor in connection
with any Credit Security shall be received and held by such
Obligor in trust for and on the Lenders' behalf, shall be
segregated from the assets and funds of such Obligor, and
shall be delivered to the Agent for the benefit of the
Lenders. Without limiting the foregoing, upon the Agent's
request after the occurrence of an Event of Default, each
Obligor shall institute depository collateral accounts,
lock-box receipts and similar credit procedures providing
for the direct receipt of payment on Accounts at a separate
address, the segregation of such proceeds for direct payment
to the Agent and appropriate notices to Account debtors.
Upon the Agent's request, each Obligor will cause its
accounting books and records to be marked with such legends
and segregated in such manner as the Agent may specify.
3.4.3. Distributions on Pledged Securities.
(a) Until an Event of Default shall occur, the
respective Obligors shall be entitled, to the extent
permitted by the Credit Documents, to receive all
Distributions on or with respect to the Pledged Securities
(other than Distributions constituting additional Pledged
Securities). All Distributions constituting additional
Pledged Securities will be retained by the Agent (or if
received by any Obligor shall be held by such Person in
trust and shall be immediately delivered by such Person to
the Agent in the original form received, endorsed in blank)
and held by the Agent as part of the Credit Security.
(b) If an Event of Default shall have occurred, all
Distributions on or with respect to the Pledged Securities
shall be retained by the Agent (or if received by any
Obligor shall be held by such Person in trust and shall be
immediately delivered by it to the Agent in the original
form received, endorsed in blank) and held by the Agent as
part of the Credit Security or applied by the Agent to the
payment of the Credit Obligations in accordance with Section
3.5.6.
3.4.4. Voting Pledged Securities.
(a) Until an Event of Default shall occur, the
respective Obligors shall be entitled to vote or consent
with respect to the Pledged Securities in any manner not
inconsistent with the terms of any Credit Document, and the
Agent will, if so requested, execute appropriate revocable
proxies therefor.
(b) If an Event of Default shall have occurred, if
and
to the extent that the Agent shall so notify in writing the
Obligor pledging the Pledged Securities in question, only
the Agent shall be entitled to vote or consent or take any
other action with respect to the Pledged Securities (and any
Obligor will, if so requested, execute appropriate proxies
therefor).
3.5. Right to Realize upon Credit Security. Except to the
extent prohibited by applicable law that cannot be waived, this
Section 3.5 shall govern the Lenders' and the Agent's rights to
realize upon the Credit Security if any Event of Default shall
have occurred. The provisions of this Section 3.5 are in
addition to any rights and remedies available at law or in equity
and in addition to the provisions of any other Credit Document.
In the case of a conflict between this Section 3.5 and any other
Credit Document, this Section 3.5 shall govern.
3.5.1. Assembly of Credit Security; Receiver. Each
Obligor shall, upon the Agent's request, assemble the Credit
Security and otherwise make it available to the Agent. The
Agent may have a receiver appointed for all or any portion
of the Obligors' assets or business which constitutes the
Credit Security in order to manage, protect, preserve, sell
and otherwise dispose of all or any portion of the Credit
Security in accordance with the terms of the Credit
Documents, to continue the operations of the Obligors and to
collect all revenues and profits therefrom to be applied to
the payment of the Credit Obligations, including the
compensation and expenses of such receiver.
3.5.2. General Authority. To the extent specified in
written notice from the Agent to the Obligor in question,
each Obligor grants the Agent full and exclusive power and
authority, subject to the other terms hereof and applicable
law, to take any of the following actions (for the sole
benefit of the Agent on behalf of the Lenders and the
holders from time to time of any Credit Obligations, but at
such Obligor's expense):
(a) To ask for, demand, take, collect, sue for and
receive all payments in respect of any Accounts, general
intangibles, Pledged Securities or leases which such Obligor
could otherwise ask for, demand, take, collect, sue for and
receive for its own use.
(b) To extend the time of payment of any Accounts,
general intangibles, Pledged Securities or leases and to
make any allowance or other adjustment with respect thereto.
(c) To settle, compromise, prosecute or defend any
action or proceeding with respect to any Accounts, general
intangibles, Pledged Securities or leases and to enforce all
rights and remedies thereunder which such Obligor could
otherwise enforce.
(d) To enforce the payment of any Accounts, general
intangibles, Pledged Securities or leases, either in the
name of such Obligor or in its own name, and to endorse the
name of such Obligor on all checks, drafts, money orders and
other instruments tendered to or received in payment of any
Credit Security.
(e) To notify the third party payor with respect to
any Accounts, general intangibles, Pledged Securities or
leases of the existence of the security interest created
hereby and to cause all payments in respect thereof
thereafter to be made directly to the Agent; provided,
however, that whether or not the Agent shall have so
notified such payor, such Obligor will at its expense render
all reasonable assistance to the Agent in collecting such
items and in enforcing claims thereon.
(f) To sell, transfer, assign or otherwise deal in or
with any Credit Security or the proceeds thereof, as fully
as such Obligor otherwise could do.
3.5.3. Marshaling, etc. Neither the Agent nor the
Lenders shall be required to make any demand upon, or pursue
or exhaust any of their rights or remedies against, any
Obligor or any other guarantor, pledgor or any other Person
with respect to the payment of the Credit Obligations or to
pursue or exhaust any of their rights or remedies with
respect to any collateral therefor or any direct or indirect
guarantee thereof. Neither the Agent nor the Lenders shall
be required to marshal the Credit Security or any guarantee
of the Credit Obligations or to resort to the Credit
Security or any such guarantee in any particular order, and
all of its and their rights hereunder or under any other
Credit Document shall be cumulative. To the extent it may
lawfully do so, each Obligor absolutely and irrevocably
waives and relinquishes the benefit and advantage of, and
covenants not to assert against the Agent or the Lenders,
any valuation, stay, appraisement, extension, redemption or
similar laws now or hereafter existing which, but for this
provision, might be applicable to the sale of any Credit
Security made under the judgment, order or decree of any
court, or privately under the power of sale conferred by
this Agreement, or otherwise. Without limiting the
generality of the foregoing, each Obligor (a) agrees that it
will not invoke or utilize any law which might prevent,
cause a delay in or otherwise impede the enforcement of the
rights of the Agent or any Lender in the Credit Security,
(b) waives all such laws, and (c) agrees that it will not
invoke or raise as a defense to any enforcement by the Agent
or any Lender of any rights and remedies relating to the
Credit Security or the Credit Obligations any legal or
contractual requirement with which the Agent or any Lender
may have in good faith failed to comply. In addition, each
Obligor waives any right to prior notice (except to the
extent expressly required by this Agreement) or judicial
hearing in connection with foreclosure on or disposition of
any Credit Security, including any such right which such
Obligor would otherwise have under the Constitution of the
United States of America, any state or territory thereof or
any other jurisdiction.
3.5.4. Sales of Credit Security. All or any part of
the Credit Security may be sold for cash or other value in
any number of lots at public or private sale, without
demand, advertisement or notice; provided, however, that
unless the Credit Security to be sold threatens to decline
speedily in value or is of a type customarily sold on a
recognized market, the Agent shall give the Obligor granting
the security interest in such Credit Security ten days'
prior written notice of the time and place of any public
sale, or the time after which a private sale may be made,
which notice each of the Obligors and the Agent agrees to be
reasonable. At any sale or sales of Credit Security, any
Lender or any of its respective officers acting on its
behalf, or such Lender's assigns, may bid for and purchase
all or any part of the property and rights so sold, may use
all or any portion of the Credit Obligations owed to such
Lender as payment for the property or rights so purchased,
and upon compliance with the terms of such sale may hold and
dispose of such property and rights without further
accountability to the respective Obligors, except for the
proceeds of such sale or sales pursuant to Section 3.5.6.
The Obligors acknowledge that any such sale will be made by
the Agent on an "as is" basis with disclaimers of all
warranties, whether express or implied. The respective
Obligors will execute and deliver or cause to be executed
and delivered such instruments, documents, assignments,
waivers, certificates and affidavits, will supply or cause
to be supplied such further information and will take such
further action, as the Agent shall request in connection
with any such sale.
3.5.5. Sale without Registration. If, at any time
when the Agent shall determine to exercise its rights
hereunder to sell all or part of the securities included in
the Credit Security, the securities in question shall not be
effectively registered under the Securities Act (or other
applicable law), the Agent may, in its sole discretion, sell
such securities by private or other sale not requiring such
registration in such manner and in such circumstances as the
Agent may deem necessary or advisable in order that such
sale may be effected in accordance with applicable
securities laws without such registration and the related
delays, uncertainty and expense. Without limiting the
generality of the foregoing, in any event the Agent may, in
its sole discretion, (a) approach and negotiate with a
single purchaser or one or more possible purchasers to
effect such sale, (b) restrict such sale to one or more
purchasers each of whom will represent and agree that such
purchaser is purchasing for its own account, for investment
and not with a view to the distribution or sale of such
securities and (c) cause to be placed on certificates
representing the securities in question a legend to the
effect that such securities have not been registered under
the Securities Act (or other applicable law) and may not be
disposed of in violation of the provisions thereof. Each
Obligor agrees that such manner of disposition is
commercially reasonable, that it will upon the Agent's
request give any such purchaser access to such information
regarding the issuer of the securities in question as the
Agent may reasonably request and that the Agent and the
Lenders shall not incur any responsibility for selling all
or part of the securities included in the Credit Security at
any private or other sale not requiring such registration,
notwithstanding the possibility that a substantially higher
price might be realized if the sale were deferred until
after registration under the Securities Act (or other
applicable law) or until made in compliance with certain
other rules or exemptions from the registration provisions
under the Securities Act (or other applicable law). Each
Obligor acknowledges that no adequate remedy at law exists
for breach by it of this Section 3.5.5 and that such breach
would not be adequately compensable in damages and therefore
agrees that this Section 3.5.5 may be specifically enforced.
3.5.6. Application of Proceeds. The proceeds of all
sales and collections in respect of any Credit Security or
other assets of any Obligor, all funds collected from the
Obligors and any cash contained in the Credit Security, the
application of which is not otherwise specifically provided
for herein, shall be applied as follows:
(a) First, to the payment of the costs and expenses of
such sales and collections, the reasonable expenses of the
Agent and the reasonable fees and expenses of its special
counsel;
(b) Second, any surplus then remaining to the payment
of the Credit Obligations and, if applicable, the Varde Term
Loan in accordance with Section 8.5 of the Credit Agreement
or Section 4 of the Intercreditor Agreement; and
(c) Third, any surplus then remaining shall be paid to
the Obligors, subject, however, to the rights of the holder of
any then existing Lien of which the Agent has actual notice.
3.6. Custody of Credit Security. Except as provided by
applicable law that cannot be waived, the Agent will have no duty
as to the custody and protection of the Credit Security, the
collection of any part thereof or of any income thereon or the
preservation or exercise of any rights pertaining thereto,
including rights against prior parties, except for the use of
reasonable care in the custody and physical preservation of any
Credit Security in its possession. The Lenders will not be
liable or responsible for any loss or damage to any Credit
Security, or for any diminution in the value thereof, by reason
of the act or omission of any agent selected by the Agent acting
in good faith.
4. General. Addresses for notices, consent to jurisdiction,
jury trial waiver, defeasance and numerous other provisions
applicable to this Agreement are contained in the Credit
Agreement. The invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of any
other provision hereof, and any invalid or unenforceable
provision shall be modified so as to be enforceable to the
maximum extent of its validity or enforceability. The headings in
this Agreement are for convenience of reference only and shall
not limit, alter or otherwise affect the meaning hereof. This
Agreement and the other Credit Documents constitute the entire
understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral. This
Agreement is a Credit Document and may be executed in any number
of counterparts, which together shall constitute one instrument.
This Agreement shall be governed by and construed in accordance
with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts; except as may be required by the
UCC of other jurisdictions with respect to matters involving the
perfection of the Agent's Lien on the Credit Security located in
such other jurisdictions.
5. Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first written above.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc.,
its Managing General Partner
By ________________________________
Title:
PRIDE REFINING, INC.
By ________________________________
Title:
PRIDE SGP, INC.
By ________________________________
Title:
PRIDE BORGER, INC.
By________________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR WIND), INC.
By______________________________
Title:
DESULFUR PARTNERSHIP
by Pride Marketing of Texas (Cedar
Wind), Inc., its General Partner
By________________________________
Title:
and by Pride Companies, L.P., its
General Partner by Pride Refining, Inc.,
its Managing General Partner
By________________________________
Title:
BANKBOSTON, N.A., as Collateral Agent
By ________________________________
Authorized Officer
EXHIBIT 10.35
BANKBOSTON, N.A.,
in its capacity as Agent under the
Credit Agreement herein defined
VARDE PARTNERS, INC.,
as Term Lender
and
BANKBOSTON, N.A.,
in its capacity as Collateral
Agent hereunder
INTERCREDITOR AND AGENCY AGREEMENT
Dated as of December 30, 1997
TABLE OF CONTENTS
Section 1. Term Loan Agreement; Credit Agreement;
Appointment; Defined Terms. . . . . . . . . . . . . . . .-1-
Section 2. Security. . . . . . . . . . . . . . . . . . .-2-
Section 3. Enforcement of Security by Collateral Agent;
Direction Notice. . . . . . . . . . . . . . . . . . . . .-2-
Section 4. Application of Moneys by Collateral Agent . .-3-
Section 5. Payments by Collateral Agent, etc.. . . . . .-5-
Section 6. Notices, etc., under Security Documents . . .-5-
Section 7. Amendments, etc., of this Agreement and Security
Documents.. . . . . . . . . . . . . . . . . . . . . . . .-5-
Section 8. Restrictions on Actions.. . . . . . . . . . .-5-
Section 9. Concerning the Collateral Agent . . . . . . .-6-
Section 10. Resignation and Replacement of Collateral
Agent . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
Section 11. Successor Collateral Agent by Merger,
Consolidation, etc.; Eligibility; Appointment of
Separate or Co-Collateral Agent . . . . . . . . . . . . .-9-
Section 12. Intercreditor Arrangements . . . . . . . . .-9-
Section 13. Termination. . . . . . . . . . . . . . . . -12-
Section 14. Notices, etc.. . . . . . . . . . . . . . . -12-
Section 15. Miscellaneous. . . . . . . . . . . . . . . -12-
INTERCREDITOR AND AGENCY AGREEMENT
INTERCREDITOR AND AGENCY AGREEMENT (as amended, modified or
supplemented from time to time, this "Agreement"), dated as of
December 30, 1997, among BankBoston, N.A., in its capacity as
Agent under the Credit Agreement and any successors or assigns
thereof (as more fully defined in Appendix A, the "Agent"), Varde
Partners, Inc., a Delaware corporation, as the original Term
Lender and any successors or assigns thereof (as more fully
defined in Appendix A, the "Term Lender"), and BankBoston, N.A.,
in its capacity as Collateral Agent hereunder for the Secured
Creditors (the "Collateral Agent").
W I T N E S S E T H
WHEREAS, the Term Lender, the Agent on behalf of the Banks
and the Collateral Agent desire to enter into this Agreement (i)
pursuant to which the Secured Creditors appoint BankBoston, N.A.
to act as Collateral Agent for the Secured Creditors as specified
herein, and (ii) to provide for certain agreements among the
parties;
WHEREAS, it is a condition precedent to the effectiveness of
the Term Loan Agreement and to all extensions of credit under the
Credit Agreement that the Term Lender and the Agent on behalf of
the Banks, respectively, execute and deliver this Agreement to
the Collateral Agent; and
NOW THEREFORE, in consideration of the premises and of the
covenants hereinafter contained, the parties hereto agree as
follows:
I. Term Loan Agreement; Credit Agreement; Appointment; Defined
Terms.
A. Reference is made to (i) the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997 (together with any
agreement or instrument governing or evidencing indebtedness and
other obligations incurred in connection with any extension,
renewal, refunding or refinancing of the foregoing permitted
pursuant to Section 6.6 of the Credit Agreement, the "Term Loan
Agreement"), by and among the Obligors and the Term Lender,
executed counterparts of which are being delivered to the
Collateral Agent herewith, providing for certain extensions of
credit by the Term Lender, consisting of $20,000,000 aggregate
principal amount of the Company's Series A Term Loan (the "Varde
Term Loan") and $6,000,000 aggregate principal amount of the
Company's Series B-1 Term Loan, $500,000 aggregate principal
amount of the Company's Series B-2 Term Loan, $3,000,000
aggregate principal amount of the Company's Series B-3 Term
Loan and $4,688,924 aggregate principal amount of the Company's
Series C Term Loan (collectively, the "Varde Junior Debt") and
the obligations of the Company and the other Obligors to pay
principal of, interest on and expenses relating to such
extensions of credit and all other amounts from time to time
arising under the Term Loan Agreement and the other Loan
Documents (together with the Varde Term Loan and the Varde Junior
Debt, collectively, the "Term Loan Obligations") and (ii) the
Revolving Credit and Term Loan Agreement dated as of December 30,
1997 (together with any agreement or instrument governing or
evidencing indebtedness and other obligations incurred in
connection with any extension, renewal, refunding or refinancing
of the foregoing permitted pursuant to Section 7.1 of the Term
Loan Agreement, the "Credit Agreement"), by and among the
Obligors, the Agent, the Banks and Lehman Commercial Paper Inc.,
as Documentation Agent, executed counterparts of which are being
delivered to the Collateral Agent herewith, providing for the
extension of loans and letters of credit by the Banks in the
aggregate principal amount and/or stated amount of up to
$86,000,000 and to the obligation of the Company and the other
Obligors under the Credit Agreement and the Credit Documents (as
defined in the Credit Agreement) to pay principal of and interest
on loans advanced under the Credit Agreement, fees and
reimbursement amounts in respect of letters of credit issued
under the Credit Agreement and all other amounts from time to
time owing under the Credit Agreement and the other Credit
Documents (collectively, the "Credit Obligations").
B. The Secured Creditors by their execution of this Agreement
or, in the case of the Banks, the Agent's execution hereof on
their behalf, and by their acceptance of the benefits of the
Security Documents, hereby and thereby (i) irrevocably designate
BankBoston, N.A. as Collateral Agent, to act as specified herein
and in each of the Security Documents, and (ii) irrevocably
authorize the Collateral Agent to take such action on their
behalf under the provisions of the Security Documents and any
other instruments and agreements referred to herein or therein
and to exercise such powers and to perform such duties hereunder
and thereunder as are specifically delegated to or required of
the Collateral Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The
Collateral Agent may perform any of its duties hereunder by or
through its agents or employees.
This Agreement is made for the purpose of setting forth
the duties and powers of the Collateral Agent with respect to the
security referred to in Section 2 hereof and with respect to
certain other commitments and understandings in connection with
the Term Loan Agreement and the Credit Agreement and is made for
the benefit of the Secured Creditors to secure the prompt and
complete payment and performance when due of all of the
Obligations.
C. All capitalized terms used herein and not defined herein
shall have the respective meanings specified in Appendix A
hereto.
II. Security. The Term Loan Obligations and the Credit
Obligations from time to time outstanding are entitled to the
benefits of the Security. The Collateral Agent shall keep all
Security Documents at all times at the principal corporate office
of the Collateral Agent in Boston, Massachusetts and shall permit
any Secured Creditor to inspect the same upon reasonable request.
III. Enforcement of Security by Collateral Agent; Direction
Notice.
A. The Collateral Agent, for the benefit of the Secured
Creditors, shall from time to time take such action for the
protection and enforcement of its rights under this Agreement and
the Security Documents as the Collateral Agent may in good faith
deem to be necessary or appropriate in the interest of the
Secured Creditors; provided that
1. unless and until a General Event of Default shall have
occurred and be continuing, the Collateral Agent shall not be
obligated to take any action under this Agreement or the Security
Documents except for the performance of such duties as are
specifically set forth herein or therein and except as may be
requested from time to time in a Direction Notice delivered in
accordance with this Section 3 or any of the Security Documents;
2. the Collateral Agent, in the absence of actual knowledge of
an officer of the Collateral Agent, shall not be deemed to have
knowledge of the existence of a General Default or a General
Event of Default, unless notified in writing by any Secured
Creditor; and
3. if and so long as a General Event of Default shall have
occurred and be continuing, the Collateral Agent shall exercise
such rights, powers and remedies (whether vested in it by this
Agreement or any other Security Documents or by law or in equity
or by statute or otherwise) for the protection and enforcement of
its rights under this Agreement and the Security Documents as the
Collateral Agent (in the absence of a Direction Notice) may in
good faith determine to be in the best interests of the Secured
Creditors, or as the Collateral Agent may be instructed in a
Direction Notice; provided that in the absence of a Direction
Notice (which may relate to the exercise of specific remedies or
to the exercise of remedies in general), the Collateral Agent
may, but shall be under no obligation to, foreclose any Lien on
the Security or exercise any other remedies available to it under
the Security Documents with respect to the Security or any part
thereof.
B. Whenever it is necessary to take any action to exercise any
remedies under Section 3(a), the Collateral Agent shall promptly
notify each Secured Creditor of the proposed action, shall
collect instructions from the Secured Creditors regarding such
action and shall notify all Secured Creditors of the results
thereof. If such action is approved by the Requisite Holders,
such instructions shall constitute a "Direction Notice." A
Direction Notice may also be received by the Collateral Agent
directly from Secured Creditors representing the Requisite
Holders. Subject to the terms of this Agreement, the Collateral
Agent shall follow the lawful instructions contained in any
Direction Notice.
IV. Application of Moneys by Collateral Agent. There is hereby
established with the Agent a trust account (the "Cash
Concentration Account"), including two subaccounts (the "Current
Asset Subaccount" and the "Term Asset Subaccount"). The Cash
Concentration Account shall exist solely for the benefit of the
Secured Creditors. All moneys received by the Collateral Agent
in respect of the foreclosure or other realization of the
Security including without limitation amounts paid to the
Collateral Agent pursuant to Section 12(e) (collectively, the
"Shared Proceeds") shall, promptly upon receipt, be deposited in
the Cash Concentration Account, to be held in trust for the
benefit of the Secured Creditors; provided, that all moneys
received in respect of the exercise of remedies in respect of the
Current Asset Security shall be deposited in the Current Asset
Subaccount and all moneys received in respect of the exercise of
remedies in respect of the Term Asset Security shall be deposited
in the Term Asset Subaccount. Such moneys shall be held by the
Collateral Agent without interest and shall be applied promptly
following their receipt as follows:
A. The moneys in the Current Asset Subaccount and the Term Asset
Subaccount, as the Collateral Agent may elect, shall be applied
first to the payment of amounts described in clauses (iii) and
(iv) of the definition of "Obligations" in Appendix A hereto;
provided, that such amounts shall be allocated between such
Subaccounts, to the extent reasonably feasible, in proportion to
the extent that each such amount relates to Current Asset
Security and/or Term Asset Security, as the case may be, as
determined in the reasonable judgment of the Collateral Agent.
B. The moneys remaining from time to time in the Current Asset
Subaccount shall be paid to the Agent to be applied to the
payment of the Credit Obligations, including without limitation,
when applicable, payment to the Agent to cash collateralize in
full the aggregate stated amount of letters of credit and other
contingent obligations outstanding under the Credit Agreement and
the other Credit Documents.
C. The moneys remaining from time to time in the Term Asset
Subaccount shall be paid to the Term Lender to be applied to the
payment of the principal of and interest on the Varde Term Loan.
D. Any moneys remaining in the Current Asset Subaccount after
payment in full of the Obligations referred to in clauses (a) and
(b) shall be applied to the payment of any principal of and
interest on the Varde Term Loan remaining outstanding after
application of the amounts provided in clause (c).
E. Any moneys remaining in the Term Asset Subaccount after
payment in full of the obligations referred to in clauses (a) and
(c) shall be applied to the payment of the Credit Obligations
(including, without limitation, the cash collateralization of
obligations in respect of letters of credit and other contingent
obligations) remaining outstanding after application of the
amounts provided in clause (b).
F. Any moneys remaining in the Cash Concentration Account after
payment in full of the Credit Obligations and the principal of
and interest on the Varde Term Loan and the termination of all of
the obligations of the lenders under the Credit Agreement (other
than such obligations as shall have been fully cash
collateralized) shall be paid to the Term Lender and applied to
the payment of the principal of and interest on the Varde Junior
Debt.
G. Any moneys remaining in the Cash Concentration Account after
payment in full of the Obligations and the termination of all of
the obligations of the lenders under both of the Credit Agreement
and the Term Loan Agreement shall be paid to the Company, subject
to the rights of third party creditors of which the Collateral
Agent has actual notice.
V. Payments by Collateral Agent, etc. All payments by the
Collateral Agent to the Agent hereunder shall be made in
immediately available funds at the Boston Office (as defined in
the Credit Agreement), or otherwise as notified in writing by the
Agent; and all payments by the Collateral Agent to the Term
Lender hereunder shall be made in immediately available funds at
the Payment Office (as defined in the Term Loan Agreement), or
otherwise as notified in writing by the Term Lender. Promptly
after any such payments, the Collateral Agent shall provide to
all Secured Creditors an itemization of all such payments,
showing the recipients of such payments and the calculations of
the amount of such payments in reasonable detail.
VI. Notices, etc., under Security Documents. The Collateral
Agent shall deliver to each Secured Creditor promptly upon
receipt thereof, duplicates or copies of all notices, requests
and other instruments received by the Collateral Agent under or
pursuant to the Security Documents, including without limitation
any notice received from any Secured Creditor pursuant to Section
12(f) of this Agreement.
VII. Amendments, etc., of this Agreement and Security Documents.
A. This Agreement may be amended and the observance of any term
of this Agreement may be waived only with the written consent of
each of the Collateral Agent, the Required Revolving Lenders and
the Required Term Lenders; provided that the holders of a
majority of the principal amount of the Varde Junior Debt at the
time outstanding shall be required of any amendment of Section
4(f).
(b) In any case where the agreement of the Collateral
Agent is required to any amendment, modification, cancellation or
termination of any of the Security Documents, or in any case
where the Collateral Agent is required to give any consent,
waiver or approval under any of the Security Documents, the
Collateral Agent shall agree to any such action pursuant to, and
only pursuant to, a written consent of each of the Required
Revolving Lenders and the Required Term Lenders.
VIII. Restrictions on Actions. The provisions of this Agreement
shall provide the exclusive method by which any Secured Creditor
may exercise rights and remedies under the Security Documents.
Therefore, each Secured Creditor shall, for the mutual benefit of
all Secured Creditors, except as permitted under this Agreement
refrain from taking or filing any action, judicial or otherwise,
to enforce any rights or pursue any remedies under the Security
Documents, except for delivering notices hereunder or exercising
any rights to request and receive information or documents or to
inspect or examine the Security and refrain from exercising any
rights or remedies under the Security Documents that may be
exercisable as a result of a General Event of Default; provided,
however, that the foregoing shall not prevent any Secured
Creditor from (i) imposing a default rate of interest in
accordance with the Credit Agreement or the Term Loan Agreement,
as applicable, (ii) raising any defenses in any action in which
it has been made a party defendant or has been joined as a third
party, except that the Collateral Agent may direct and control
any defense to the extent directly relating to the Security,
subject to and in accordance with the provisions of this
Agreement, (iii) upon the occurrence of a Bankruptcy Event,
filing a proof of claim, voting such claim in connection with a
plan of liquidation or reorganization and serving on the
appropriate creditors' committees in connection therewith, or
(iv) exercising its rights and remedies as a general creditor in
accordance with the Credit Documents (other than with respect to
the collection of security) or the Term Loan Agreement, as
applicable, and applicable law, including the right to commence
legal proceedings to collect any Obligation due and payable to
such Secured Creditor and remaining unpaid, to set off against
deposits and other obligations owed by such Secured Creditor to
any Obligor, to obtain a judgment and to enforce such judgment,
in each case to the same extent as if such Secured Creditor were
an unsecured creditor.
IX. Concerning the Collateral Agent. The Collateral Agent
hereby accepts the agency of this Agreement for benefit of the
Secured Creditors, but only upon the terms herein set forth,
including the following:
A. the Collateral Agent makes no representation and has no
responsibility as to the validity of the Security Documents or
this Agreement or the sufficiency of the Security;
B. in the absence of bad faith, gross negligence or willful
misconduct, the Collateral Agent shall be under no liability with
respect to any action taken in accordance with a written request
given as provided in Section 3 (including any investment of
funds), except that the Collateral Agent shall be under a duty to
examine such written request to determine whether or not it
conforms to the requirements of Section 3;
C. the Collateral Agent may rely and shall be protected in
acting upon any resolution, certificate, opinion, consent or
other document reasonably believed by it to be genuine and to
have been executed or presented by the proper party or parties;
D. whenever in the administration of its duties hereunder or
under the Security Documents, the Collateral Agent in its
reasonable discretion deems it necessary for a matter to be
proved or established prior to taking any action hereunder, the
Collateral Agent may request the Company to provide certification
regarding such matter, upon which the Collateral Agent shall
(subject to subsection (c) above) be protected in relying;
E. the Collateral Agent may act through agents duly appointed by
the Collateral Agent and shall not be responsible for the
misconduct or negligence of any such agent appointed with due
care hereunder;
F. the Collateral Agent may consult with Ropes & Gray or any
other counsel, accountants or other experts selected by it with
due care in connection with the fulfillment of its duties
hereunder and under the Security Documents, and the Collateral
Agent shall be entitled to rely and shall be fully protected in
relying on the advice of such counsel, accountants or other
experts in connection with any action taken, omitted to be taken
or suffered by the Collateral Agent in fulfilling its duties
hereunder and under the Security Documents; and the Collateral
Agent shall have the right at any time to seek instructions
concerning its duties hereunder and thereunder from any court of
competent jurisdiction;
G. if the Collateral Agent has been requested to take or omit to
take any action pursuant to a Direction Notice or otherwise, the
Collateral Agent shall not be under any obligation to exercise
any of the rights or powers vested in the Collateral Agent by
this Agreement or any Security Document unless Secured Creditors
shall have provided to the Collateral Agent security and
indemnity determined by the Collateral Agent in its reasonable
discretion to be adequate with respect to the costs, expenses and
liabilities which may be incurred by it in compliance with such
request or direction, including such reasonable advances as may
be requested by the Collateral Agent;
H. the Collateral Agent shall be obliged to perform such duties
and only such duties as are specifically set forth in this
Agreement or in any Security Document, and no implied covenants
or obligations shall be read into this Agreement or any Security
Document against the Collateral Agent; and except as otherwise
expressly provided herein, including, without limitation, upon
the receipt of a Direction Notice, the Collateral Agent shall not
be under any obligation to take any action which is discretionary
with the Collateral Agent under the provisions hereof or under
any Security Document.
The Collateral Agent shall not be responsible for any recital
herein, in the Credit Agreement or in the Term Loan Agreement or
for insuring the Security or for the validity of the execution by
the Company of this Agreement or any of the Security Documents or
of any supplements thereto or instruments of further assurance or
for the sufficiency of the Security for the Obligations or
intended to be secured by the Security Documents, or for the
value of the Security or the title of the Company or its
Subsidiaries to the Security or the perfection of the Security.
The Collateral Agent shall not be bound to ascertain or inquire
as to the performance or observance of any covenants, conditions
or agreements on the part of the Company or any other Obligor
under the Credit Agreement, the Term Loan Agreement or any
Security Documents but the Collateral Agent may require of the
Company or any other Obligor full performance in advance of any
such covenants.
The Secured Creditors shall severally indemnify the
Collateral Agent and its officers, directors, employees, agents,
attorneys, accountants, consultants and controlling Persons (to
the extent not reimbursed by the Obligors and without limiting
the obligation of any of the Obligors to do so), pro rata in
accordance with the respective proportionate interests of the
Secured Creditors in the maximum aggregate principal amount of
loans and/or stated amount of letters of credit provided under
the Credit Agreement and the Term Loan Agreement from and against
any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of
any kind whatsoever which may at any time be imposed on, incurred
by or asserted against the Collateral Agent or such Persons
relating to or arising out of this Agreement, any Security
Document, the transactions contemplated hereby or thereby, or any
action taken or omitted by the Collateral Agent in connection
with any of the foregoing; provided, however, that the foregoing
shall not extend to actions or omissions which are taken by the
Collateral Agent with gross negligence or willful misconduct.
The Collateral Agent is also the Agent under the Credit
Agreement and, when acting as Collateral Agent hereunder, is
entitled to all of the benefits and protections accorded to it as
Agent under the Credit Agreement by the parties thereto. The
holders of the Term Loan Obligations acknowledge and agree that
the Collateral Agent is acting on their behalf at their request
and for their convenience. The holders of the Term Loan
Obligations, having been advised by independent legal counsel,
recognize and approve the dual role of the Collateral Agent and
waive any and all claims based upon any actual or alleged
conflict of interest or conflicting duty of loyalty on the part
of the Collateral Agent and agree that the responsibilities and
obligations of the Collateral Agent to the holders of the Term
Loan Obligations shall be limited to those expressly set forth in
this Agreement and that no broader or fiduciary responsibilities
shall be implied herein or inferred herefrom. In addition, and
without limiting the foregoing, the holders of the Term Loan
Obligations specifically disavow any responsibility to them on
the part of the Collateral Agent with respect to the description,
value or perfection of the Security or the adequacy of the
documentation therefor (as to which matters such holders have
relied upon their own review, assisted by independent legal
counsel).
X. Resignation and Replacement of Collateral Agent. The
Collateral Agent or any successor Collateral Agent may resign at
any time by giving at least 30 days' prior written notice of
resignation to the Company, the Agent and the Term Lender, such
resignation to be effective on the later of (a) the date
specified in such notice and (b) the date on which a successor
agent is appointed to act as Collateral Agent hereunder and shall
accept such appointment. In case the office of Collateral Agent
shall become vacant for any reason, the Required Revolving
Lenders and the Required Term Lenders may appoint a successor
Collateral Agent (eligible as provided in Section 11) to fill
such vacancy by an instrument or instruments in writing delivered
to such successor Collateral Agent, the retiring Collateral
Agent, the Company, the Agent and each Term Lender. Upon the
appointment of any successor Collateral Agent pursuant to this
Section 10, such successor Collateral Agent shall immediately and
without any further action succeed to all the rights and
obligations of the retiring Collateral Agent hereunder and under
the Security Documents as if originally named herein and therein
and the retiring Collateral Agent shall duly assign, transfer and
deliver to such successor Collateral Agent all the rights and
moneys at the time held by the retiring Collateral Agent under
the Security Documents and hereunder and shall execute and
deliver such proper instruments as may be reasonably requested to
evidence such assignment, transfer and delivery.
XI. Successor Collateral Agent by Merger, Consolidation, etc.;
Eligibility; Appointment of Separate or Co-Collateral Agent.
A. Any corporation into which the Collateral Agent may be merged
or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the
Collateral Agent is a party, or any state or national bank or
trust company in any manner succeeding to all or substantially
all of the agency business of the Collateral Agent, if eligible
as provided in this Section 11, shall automatically succeed to
all of the rights and obligations of the Collateral Agent
hereunder and under the Security Documents without further action
on the party of any of the parties hereto. Such surviving or
succeeding corporation (if other than the Collateral Agent) shall
forthwith deliver to the Company, the Agent and the Term Lender
written notice of such succession to the rights and obligations
of the Collateral Agent hereunder and under the Security
Documents.
B. The Collateral Agent shall always be a state or national bank
or trust company in good standing, organized under the laws of
the United States of America or one of the States thereof or the
District of Columbia, having a capital, surplus and undivided
profits (as shown by its latest financial statements furnished to
its shareholders) aggregating at least $250,000,000, if there be
such a bank or trust company willing and able to accept such
agency upon reasonable and customary terms. In case at any time
the Collateral Agent shall cease to be eligible in accordance
with the provisions of this Section 11, the Collateral Agent
shall resign immediately in the manner and with the effect
specified in Section 10.
C. The Collateral Agent may and, upon the request of each of the
Required Revolving Lenders and the Required Term Lenders, shall
by an instrument in writing delivered to the Company, the Agent
and the Term Lender, appoint a bank or trust company or an
individual to act as separate collateral agent or co-collateral
agent with respect to the Obligations in a jurisdiction where the
Collateral Agent is disqualified from acting or for any other
purpose deemed by the Collateral Agent, the Agent or the Term
Lender to be advantageous to their respective interests, such
separate collateral agent or co-collateral agent to exercise only
such rights and to have only such duties as shall be specified in
the instrument of appointment.
XII. Intercreditor Arrangements.
A. The Collateral Agent and each of the Secured Lenders hereby
agree that in all circumstances the interest of the holders of
the Varde Junior Debt in the Security shall be junior and
subordinate to the interest therein of the holders of the Credit
Obligations and the Varde Term Loan and that no distribution of
the proceeds of any of the Security shall be paid with respect to
the Varde Junior Debt unless and until all of the Credit
Obligations and the Varde Term Loan shall have been paid in full
and all obligations of the Banks under the Credit Documents shall
have been terminated (other than such obligations as shall have
been fully cash collateralized).
B. The Collateral Agent and each of the Secured Creditors hereby
agree that the interests of the respective holders of the Credit
Obligations and the holders of the Varde Term Loan in the Liens
granted to the Collateral Agent in the Current Asset Security
shall be treated, as among such Secured Creditors, as bearing a
priority in favor of the holders from time to time of the Credit
Obligations over the holders from time to time of the Varde Term
Loan and that the interests of the respective holders of the
Credit Obligations and the holders of the Varde Term Loan in the
Liens granted to the Collateral Agent in the Term Asset Security
shall be treated, as among such Secured Creditors, as bearing a
priority in favor of the holders from time to time of the Varde
Term Loan over the holders from time to time of the Credit
Obligations.
C. The proceeds of the Security Documents shall at all times be
shared by the Secured Creditors as provided herein regardless of
any claim or defense (including without limitation any claims
under the fraudulent transfer, preference or similar avoidance
provisions of applicable bankruptcy, insolvency or other laws
affecting the rights of creditors generally) to which the
Collateral Agent or any Secured Creditor may be entitled or
subject and regardless of order in which any portion of the
Security was granted or perfected. The Agent, on behalf of the
Banks, and the Term Lender (i) recognize the existence and
validity of the Credit Obligations, in the case of the Term
Lender, and of the Term Loan Obligations in the case of the
Agent, and (ii) agree to refrain from making or asserting any
claim that the Credit Agreement, other Credit Documents or other
Security Documents, in the case of the Term Lender, or the Term
Loan Agreement, other Loan Documents and the Security Documents,
in the case of the Agent, are invalid or not enforceable in
accordance with their terms as a result of the circumstances
surrounding the incurrence of such obligations.
D. After the occurrence and during the continuation of any
General Event of Default, if any Secured Creditor acquires
custody, control or possession of any Security or proceeds
therefrom other than pursuant to the terms of this Agreement,
then such Secured Creditor shall promptly cause such Security or
proceeds to be delivered to or put in the custody, possession or
control of the Collateral Agent for disposition or distribution
in accordance with the provisions of this Agreement. Until such
time as the provisions of the immediately preceding sentence have
been complied with, such Secured Creditor shall be deemed to hold
such Security or proceeds in trust for the Persons entitled
thereto hereunder. Notwithstanding the foregoing, no Secured
Creditor shall be required to deliver to or put in the custody,
possession or control of the Collateral Agent or to hold in trust
as specified in the preceding sentence any amount of any
obligations paid or prepaid by any Obligor to it (and not
obtained by such Secured Creditor through any sale of or other
realization upon any Security as provided herein or in the
Security Documents) in accordance with the terms of the Credit
Agreement or the Term Loan Agreement, as applicable.
E. If any Secured Creditor exercises any right of setoff or
similar right with respect to any assets (regardless of whether
such assets shall constitute Security) of the Company or any
other Obligor for payment of any Obligations at any time that a
General Event of Default has occurred and is continuing, the
amounts so set off shall constitute Security for purposes of this
Agreement, and such Secured Creditor shall promptly cause such
amounts to be delivered to or put in the custody, possession or
control of the Collateral Agent for disposition or distribution
in accordance with the provisions of this Agreement. Until such
time as the provisions of the immediately preceding sentence have
been complied with, such Secured Creditor shall be deemed to hold
such Security in trust for the parties hereto entitled thereto
hereunder. Notwithstanding the foregoing, if any of the amounts
so set off shall be determined by a court of competent
jurisdiction to constitute a voidable preference with respect to
one or more Secured Creditors, under any applicable Bankruptcy
Law, the Secured Creditors, as to which such setoff is deemed to
constitute a voidable preference, shall not be entitled to share
in such setoff.
F. Each of the Secured Creditors shall use its best efforts to
give the Collateral Agent copies of any notice of the occurrence
or existence of any General Event of Default given by such
Secured Creditor to the Company or any other Obligor, but any
Secured Creditor's failure to do so shall not affect the validity
of such notice or create any cause of action against such Secured
Creditor for failing to give such notice or affect such Secured
Creditor's relative rights and remedies under this Agreement or
the Security Documents or create any claim or cause of action on
the part of any person against such Secured Creditor.
G. Except as may be otherwise expressly provided in this
Agreement, (i) each Secured Creditor may exercise all of its
rights and remedies with respect to the Obligations owed to it
without any obligation to the other Secured Creditors with
respect thereto, (ii) each Secured Creditor shall be entitled to
manage and supervise the Obligations owed to it in accordance
with applicable law, and (iii) no Secured Creditor shall have
liability to any other Secured Creditor for any actions which
such Secured Creditor takes or omits to take with respect to any
of the Obligations owed to it, or the occurrence of any General
Event of Default with respect to any such Obligations, or the
collection of any such Obligations from the Obligors.
H. Upon the occurrence of the Term Loan Closing Date and the
advance of the Term Loan under Section 2.2 of the Credit
Agreement, all right, title and interest in and to the Security
of the holders of the Term Loan Obligations shall cease and
terminate and be void, subject only to reinstatement to the
extent permitted by law if any payment made to Varde in respect
of the Varde Term Loan is required to be returned by Varde; and
upon the request of the Collateral Agent, the Agent or the
Company, the holders of the Term Loan Obligations shall execute
and deliver such instruments as may be reasonably requested to
acknowledge and certify the termination of such right, title and
interest.
I. Each Secured Creditor agrees that the Credit Agreement, the
Term Loan Agreement and the Security Documents are subject to the
terms of this Agreement, and the order of priorities in the
Security and the application of the proceeds of the Security set
forth in this Agreement shall govern regardless of the order of
filing or recordation or any other fact or circumstance.
XIII. Termination. Upon the earlier to occur of (a) the
occurrence of the Term Loan Closing Date and the payment in full
of the Term Loan under Section 2.2 of the Credit Agreement,
subject only to reinstatement to the extent permitted by law if
any payment made to Varde in respect of the Varde Term Loan is
required to be returned by Varde; and (b) the indefeasible
payment in full of both the Term Loan Obligations and the Credit
Obligations and the termination of both the Term Loan Agreement
and the Credit Agreement in accordance with their respective
terms, then this Agreement shall terminate and the
administration, disposition and allocation of proceeds of the
Security shall be determined as provided in the Credit Documents.
For purposes of this Section 13, the term Obligations shall not
include any indemnity obligation.
XIV. Notices, etc. All notices and other communications
hereunder shall be in writing and shall be delivered by hand, by
express courier service, by registered or certified mail, return
receipt requested, postage prepaid, by first-class mail or by
telecopy, addressed, (a) if the Company or any other Obligor at
1209 N. 4th, Abilene, Texas 79601, Attention: Mr. Brad Stephens,
or at such other address as the Company shall have furnished to
the Collateral Agent, the Agent and the Term Lender in writing,
or (b) if to the Collateral Agent at 100 Federal Street, Boston,
Massachusetts 02110, Attention: Energy and Utilities Division,
or at such other address as the Collateral Agent shall have
furnished to the Company, the Agent and the Term Lender in
writing, or (c) if to the Term Lender at 3600 West 80th Street,
Suite 225, Minneapolis, Minnesota 55431, Attention: George
Hicks, or such other address as the Term Lender shall have
furnished to the Company, the Agent and the Collateral Agent in
writing, or (d) if to the Agent, at BankBoston, N.A., 100 Federal
Street, Boston, Massachusetts 02110, Attention: Energy and
Utilities Division, or at such other addresses as the Agent shall
have furnished to the Company, the Term Lender and the Collateral
Agent in writing. Any notice so addressed and mailed or
delivered shall be deemed to be given (1) one Business Day after
being consigned to an express courier service, (2) three Business
Days after being mailed by registered, certified or first-class
mail, (3) on the same Business Day, if by hand, and (4) when
received, if by telecopy.
XV. Miscellaneous. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto
and the respective successors and assigns of the parties hereto.
This Agreement may be changed, waived, discharged or terminated
(other than by operation of Section 13) only by an instrument in
writing signed by the Collateral Agent as set forth in Section 7
hereof. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PRINCIPLES. EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING OR STATEMENTS (WHETHER ORAL OR WRITTEN) MADE BY THE
PARTIES HEREIN. Each reference herein to a particular section of
the Credit Agreement or the Term Loan Agreement shall be deemed a
reference to the analogous provision in any subsequent version of
such agreement incurred in compliance with the Credit Agreement
or the Term Loan Agreement, respectively. The headings in this
Agreement are for the purpose of reference only and shall not
limit or define the meaning hereof. This Agreement may be
executed in several counterparts, each of which shall be an
original, but all of which shall constitute one instrument. If
any term of this Agreement or any application thereof shall be
held to be invalid, illegal or unenforceable, the validity of
other terms of this Agreement or any other application of such
term shall in no way be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective
representatives thereunto duly authorized as of the date first
above written.
BANKBOSTON, N.A., as Agent under
the Credit Agreement herein defined
By:______________________________
Authorized Officer
VARDE PARTNERS, INC.
By:______________________________
Authorized Officer
BANKBOSTON, N.A., as Collateral
Agent hereunder
By:_______________________________
Authorized Officer
The foregoing Intercreditor and Agency
Agreement is acknowledged and consented to.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner
By ______________________________________
Title:
PRIDE REFINING, INC.
By ______________________________________
Title:
PRIDE SGP, INC.
By ______________________________________
Title:
PRIDE BORGER, INC.
By ______________________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR WIND), INC.
By ______________________________________
Title:
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its General Partner
by Pride Refining, Inc., its Managing General
Partner
By ______________________________________
Title:
and by Pride Marketing of Texas (Cedar Wind),
Inc., its General Partner
By ______________________________________
Title:
APPENDIX A
DEFINITIONS
As used herein the following terms have the following
respective meanings:
Accounts: all "accounts" as defined in Section 9-106 of the
Uniform Commercial Code as in effect in The Commonwealth of
Massachusetts, including without limitation all Eligible
Receivables, Uninvoiced Receivables, Pre-approved Receivables and
Net Government Accounts Receivable (each as defined in the Credit
Agreement).
Agent: BankBoston, N.A., as agent under the Credit
Agreement, together with its successors as such agent.
Bankruptcy Event: (a) the Company or any other Obligor
makes an assignment for the benefit of creditors or is generally
not paying its debts as such debts become due; or (b) any decree
or order for relief in respect of the Company or any other
Obligor is entered under any Bankruptcy Laws; (c) the Company or
any other Obligor petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of
the Company or any other Obligor, or of any substantial part of
the assets of the Company or any other Obligor, or commences a
voluntary case under the Bankruptcy Law of the United States or
any proceedings (other than proceedings for the voluntary
liquidation and dissolution of the Company or any other Obligor)
relating to the Company or any other Obligor under the Bankruptcy
Law of any other jurisdiction; or (d) any such petition or
application is filed, or any such proceedings are commenced,
against the Company or any other Obligor and Company or any other
Obligor by any act indicates its approval thereof, consents
thereto or acquiescences therein, or an order, judgment or decree
is entered appointing any such trustee, receiver, custodian,
liquidator or similar official, or approving the petition in any
such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 30 days.
Bankruptcy Law: any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect,
of any jurisdiction.
Banks: the several financial institutions from time to time
party to the Credit Agreement in their capacities as a "Lender"
thereunder, and any successors or assigns thereof.
Business Day: any day other than a Saturday, a Sunday or a
day on which commercial banks in Boston, Massachusetts,
Minneapolis, Minnesota or Abilene, Texas are required or
authorized by law or other government action to be closed.
Cash: currency, wire transfers of money and other forms of
immediately available funds approved by the Collateral Agent.
Cash Concentration Account: the meaning specified in
Section 4.
Cash Equivalents:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers'
acceptances having a maturity of nine months or less and
issued by any United States financial institution having
capital and surplus and undivided profits aggregating at
least $100,000,000 and rated at least Prime-1 by Moody's (as
defined in the Credit Agreement) or A-1 by S&P (as defined
in the Credit Agreement) or issued by any Bank;
(b) corporate obligations having a maturity of nine
months or less and rated at least Prime-1 by Moody's or A-1
by S&P or issued by any Bank;
(c) any direct obligation of the United States of
America or any agency or instrumentality thereof, or of any
state or municipality thereof, (i) which has a remaining
maturity at the time of purchase of not more than one year
or which is subject to a repurchase agreement with any Bank
(or any other financial institution referred to in clause
(a) above) exercisable within one year from the time of
purchase and (ii) which, in the case of obligations of any
state or municipality, is rated at least Aaa by Moody's or
AAA by S&P; and
(d) any mutual fund or other pooled investment vehicle
rated at least Aa by Moody's or AA by S&P which invests
principally in obligations described above.
Collateral Agent: BankBoston, N.A., as Collateral Agent
under this Agreement.
Company: Pride Companies, L.P., a Delaware limited
partnership.
Credit Agreement: the meaning specified in Section 1(a).
Credit Documents: as defined in the Credit Agreement.
Credit Obligations: the meaning specified in Section 1(a).
Current Asset Security: all Cash, Cash Equivalents, deposit
accounts, Eligible Margin Deposits (as defined in the Credit
Agreement), Accounts and Inventory of the Company and each
Guarantor, all contract rights relating thereto and all proceeds
of the exercise of a right of set-off; provided that in the event
of a sale or other realization upon any partnership interest,
common stock interest or other equity security included in the
Security, the term "Current Asset Security" shall include a
portion of the net proceeds of such sale or other realization
equal to such percentage as shall be determined by the Collateral
Agent in its reasonable judgment to be attributable to the
Current Asset Security of the issuer of such interest or other
equity security; and provided, further, that to the extent that
Cash or setoff amounts include identifiable proceeds of real
property or equipment (including proceeds of casualty insurance)
included in the Term Asset Security, such Cash or setoff amounts
shall be considered Term Asset Security rather than Current Asset
Security.
Current Asset Subaccount: The meaning specified in Section
4.
Default Rate: the Overdue Reimbursement Rate provided for
in the Credit Agreement.
Direction Notice: the meaning specified in Section 3(b).
Dollar and sign "$": lawful money of the United States of
America.
General Default: any Default under, and as defined in, (i)
the Term Loan Agreement or (ii) the Credit Agreement.
General Event of Default: any Event of Default under, and
as defined in, (i) the Term Loan Agreement or (ii) the Credit
Agreement.
Guarantors: Pride SGP, Inc., a Texas corporation, Pride
Refining, Inc., a Texas corporation, Pride Borger, Inc., a
Delaware corporation, Desulfur Partnership, a Texas general
partnership, Pride Marketing of Texas (Cedar Wind), Inc., a Texas
corporation, and each other guarantor from time to time party to
the Credit Agreement or any other Credit Document.
Inventory: all "inventory" as defined in Section 9-109 of
the Uniform Commercial Code as in effect in The Commonwealth of
Massachusetts, including without limitation all Eligible
Inventory and Hedged Eligible Inventory (each as defined in the
Credit Agreement).
Lien: any mortgage, pledge, security interest, encumbrance,
contractual deposit arrangement, lien (statutory or otherwise) or
charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction) or any other type of
preferential arrangement for the purpose, or having the effect,
of protecting a creditor against loss or securing the payment or
performance of an obligation, provided that neither negative
pledges, nor covenants to abstain from granting liens on or
security interests in the assets of the Company or any other
Obligor, shall constitute Liens, and the inclusion of any such
provisions in agreements of any such Person shall not constitute
a breach or violation of this Agreement.
Loan Documents: as defined in the Term Loan Agreement.
Managing General Partner: Pride Refining, Inc., a Texas
corporation, together with any successor managing general partner
under the limited partnership agreement of the Company.
Obligations:
(i) the Credit Obligations;
(ii) the Term Loan Obligations;
(iii) any and all sums advanced by the Collateral Agent in
accordance with the terms of the Security Documents in order to
preserve the Security or preserve its security interest in the
Security, together with interest thereon at the Default Rate; and
(iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities of
the Company, the other Obligors and the other parties referred to
in clauses (i) through (iii) above, after a General Event of
Default shall have occurred and be continuing, the expenses of
retaking, holding, preparing for sale or lease, selling or
otherwise disposing of or realizing on the Security, or of any
exercise by the Collateral Agent of its rights under any of the
Security Documents, together with reasonable attorneys' fees and
court costs and all amounts paid by any Secured Creditor or the
Collateral Agent under any of the Security Documents.
Obligors: The Company and the Guarantors.
Officers' Certificate: as to any corporation, a certificate
executed on its behalf by the Chairman of the board of directors
(if an officer) or its President or one of its Vice Presidents,
and its Treasurer, or Controller, or one of its Assistant
Treasurers or Assistant Controllers, and, as to any partnership,
a certificate executed on behalf of such partnership by its
general partner in a manner which would qualify such certificate
(a) if such general partner is a corporation, as an Officers'
Certificate of such general partner hereunder, or (b) if such
general partner is a partnership or other entity, as a
certificate executed on its behalf by Persons authorized to do so
pursuant to the constituting documents of such partnership or
other entity.
Person: an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
Required Revolving Lenders: as defined in the Credit
Agreement.
Required Term Lenders: the holders from time to time of
two-thirds in aggregate outstanding principal amount of the Varde
Term Loan.
Requisite Holders: at any time of determination, and prior
to the date on which all Obligations have been repaid in full,
collectively (and not individually): (x) the Required Revolving
Lenders (as defined in the Credit Agreement) plus (y) so long as
any payment event of default shall have occurred and be
continuing with respect to the Varde Term Loan or, from and after
July 1, 1998, if any event of default shall have occurred and be
continuing with respect to the Varde Term Loan, the Required Term
Lenders; provided, however, that for the purpose of rendering a
Direction Notice instructing the Collateral Agent to exercise
remedies solely with respect to all or any portion of the Current
Asset Security, the "Requisite Holders" at all times shall mean
only the Required Revolving Lenders and that (if a payment event
of default shall have occurred and be continuing with respect to
the Varde Term Loan or, from and after July 1, 1998, if any event
of default shall have occurred and be continuing with respect to
the Varde Term Loan) for the purpose of rendering a Direction
Notice instructing the Collateral Agent to exercise remedies
solely with respect to all or any portion of the Term Asset
Security, the "Requisite Holders" at all times shall mean only
the Required Term Lenders. In the event of any conflict between
a Direction Notice issued by the Requisite Holders as defined in
clause (x) and/or (y) above and a Direction Notice issued by the
Requisite Holders as defined in the proviso to this definition,
the Direction Notice issued by the Requisite Holders as defined
in the proviso shall be ignored.
Secured Creditors: the Term Lender, the Agent and the other
Banks.
Security: any property held and all rights of the
Collateral Agent or any Secured Creditor under the Security
Documents or in respect of such property and the Security
Documents, together with any additional property subject to and
any additional rights under any of the Security Documents.
Security Documents: collectively, each document creating or
evidencing a Lien securing any of the Obligations, including
specifically but without limitation each of the Credit Documents
and the Loan Documents creating or evidencing such a Lien. All
references to any Security Document shall mean such Security
Document as at the time supplemented or amended in accordance
with the terms thereof.
Shared Proceeds: the meaning specified in Section 4.
Term Asset Security: Security other than the Current Asset
Security.
Term Asset Subaccount: the meaning specified in Section 4.
Term Lender: Varde Partners, Inc., together with any of its
successors and assigns as lender under the Term Loan Agreement of
which the Collateral Agent shall have been notified in writing by
Varde Partners, Inc.
Term Loan Agreement: the meaning specified in Section 1(a).
Term Loan: as defined in the Credit Agreement
Term Loan Closing Date: as defined in the Credit Agreement.
UCC: unless otherwise specified, the Uniform Commercial
Code as it may be from time to time in effect in the State of
Texas.
EXHIBIT 10.36
PRIDE SGP SUBORDINATION AGREEMENT
This Agreement dated as of December 30, 1997 is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"),
Pride Refinery, Inc., a Texas corporation (the "MGP"), Pride
Borger, Inc., a Delaware corporation ("Borger"), Desulfur
Partnership, a Texas general partnership ("Desulfur"), and Pride
Marketing of Texas (Cedar Wind), Inc., a Texas corporation
(together with the Company, the MGP, Borger, Desulfur and each
Subsidiary of the Company which from time to time may become
party to the Credit Agreement or any other Credit Document, the
"Obligors"), Pride SGP, Inc., a Texas corporation (the "SGP"),
and BankBoston, N.A., as agent (the "Agent") for itself and the
other Lenders under the Credit Agreement (as defined below). The
parties agree as follows:
1. Reference to Credit Agreement; Certain Rules of Construction;
Definitions. Reference is made to the Revolving Credit and Term
Loan Agreement dated as of the date hereof, as from time to time
in effect (the "Credit Agreement"), among the Obligors, the SGP,
the Lenders, Lehman Commercial Paper Inc., in its capacity as
both a lender and as documentation agent for itself and the other
Lenders, and the Agent. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to
sections of this Agreement, (b) references to a particular
Section shall include all subsections thereof and (c) the word
"including" shall be construed as "including without limitation".
Capitalized terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so
defined. Certain other capitalized terms are used in this
Agreement as specifically defined in this Section 1 as follows:
1.1. "Junior Creditor" means the SGP and each other Person
becoming a party to this Agreement (or to a subordination
agreement in substantially the form of this Agreement) pursuant
to Section 9.1.
1.2. "Reorganization" means any voluntary or involuntary
dissolution, winding-up, liquidation, reorganization by judicial
proceedings, bankruptcy, insolvency, receivership or other
statutory or common law proceedings, including any case under
Title 11 of the United States Code or any similar law of any
other jurisdiction, involving the Company, any other Obligor or
any other guarantor of the Subordinated Indebtedness or any of
their present or future Subsidiaries or any of their respective
properties or the readjustment of the respective liabilities of
the Company or any such other Person or any assignment for the
benefit of creditors or any marshaling of the assets or
liabilities of the Company or any such other Person.
1.3. "Senior Indebtedness" means:
(a) all present and future liabilities, obligations
and Indebtedness of the Company, the MGP, any of the
Subsidiaries of the Company or any other Obligor owing to
the Agent or any Lender (or any Affiliate of a Lender),
under or in connection with the Credit Agreement or any
other Credit Document, including, without limitation:
(i) The obligation to pay the Revolving Loan and
the Term Loan from time to time outstanding;
(ii) Any contingent or matured obligations of the
Company or SGP or any other Obligor to the Agent or to
any of the Lenders in respect of Letters of Credit or
drafts accepted under Letters of Credit, including any
obligation of the Obligors arising under the Credit
Agreement or any other Credit Document to reimburse the
Agent or any of the Lenders for payments made under
Letters of Credit and to deposit with or to pay to the
Agent cash in an amount equal to all or part of the
Letter of Credit Exposure;
(iii) Obligations to pay interest owing under the
Credit Agreement or any other Credit Document, whether
such obligations arise before or after the institution
of any Reorganization and whether or not such
obligations are allowed claims in such Reorganization;
(iv) Any contingent or matured obligations of the
SGP or the Obligors to any Lender or any of its
Affiliates with respect to Interest Rate Protection
Agreements; and
(v) Obligations to pay commitment fees, Letter of
Credit fees, Agent's fees and other fees, charges,
indemnities and expenses from time to time owing under
the Credit Agreement or any other Credit Document,
whether such obligations arise before or after the
institution of any Reorganization and whether or not
such obligations are allowed claims in such
Reorganization; and
(b) All renewals, extensions and refinancings of the
items described in clause (a) above.
1.4. "Subordinated Indebtedness" means:
(a) The principal of and interest on each of the note
in the original principal amount of $450,000 executed by the
Company and made payable to the order of the SGP on
September 7, 1995 and the note in the original principal
amount of $2,000,000 executed by the Company and made
payable to the order of the SGP on March 26, 1993, and all
other Indebtedness or other obligations of the Obligors, or
any of them, to the Junior Creditor; and
(b) All other obligations of the Company and any other
Obligor to the Junior Creditor, whether now existing or
hereafter arising, including intercompany advances and any
claim of the Junior Creditor against the Company or any
other Obligor in respect of rescission, indemnification,
expenses, damages or otherwise.
2. Subordination Covenants. Each of the Obligors and the Junior
Creditor covenants that, so long as any part of the Senior
Indebtedness is outstanding and until the Lenders' obligations to
extend credit under each Credit Document shall have been
terminated, each of them will comply with the following
provisions:
2.1. Subordination. To the extent and in the manner
provided in this Agreement, the payment of any Subordinated
Indebtedness is and shall be expressly subordinated and junior in
right of payment to the prior payment in full of all Senior
Indebtedness, and the Subordinated Indebtedness is subordinated
as a claim against each Obligor, any guarantor of the Senior
Indebtedness or any of their respective assets to the prior
payment in full of the Senior Indebtedness, in each case whether
such claim is (a) in the ordinary course of business or (b) in
the event of any Reorganization.
2.2. Restricted Payments. Until such time as the Senior
Indebtedness shall have been paid in full and neither the Agent
nor any of the Lenders shall be obligated under the Credit
Agreement or any Credit Document, the Obligors will not make, and
the Junior Creditor will not accept or receive, any payment of
any Subordinated Indebtedness, whether in cash, securities or
other property or by way of conversion, exchange, set-off,
foreclosure or realization upon security or otherwise, and no
such payment shall become due; provided, however, that the
Company may make any Distribution permitted by Section 6.10 of
the Credit Agreement, subject to the limitations set forth
therein.
2.3. Reorganization. In the event of any Reorganization,
all Senior Indebtedness shall first be paid in full before any
payment is made on account of any Subordinated Indebtedness. In
any proceedings seeking to effect a Reorganization any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
respect of any such Subordinated Indebtedness shall be paid or
delivered directly to the Agent for application to payment of the
Senior Indebtedness, unless and until all Senior Indebtedness
shall have been paid in full. Notwithstanding the preceding
provisions of this Section 2.3, the Junior Creditor may retain
securities issued in payment of or exchange for the Subordinated
Indebtedness pursuant to a final order entered in a
Reorganization, so long as such securities are junior and
subordinate (to the same extent as the subordination provided
herein) to the Senior Indebtedness or securities issued to the
holders of the Senior Indebtedness in payment of or exchange for
the Senior Indebtedness in such Reorganization.
2.4. Specific Powers in Reorganization. In any proceedings
with respect to any Reorganization, the Junior Creditor
irrevocably authorizes the Agent:
(a) To prove and enforce any claims on the
Subordinated Indebtedness owed to the Junior Creditor either
in the name of the Agent or in the name of the Junior
Creditor as the attorney-in-fact of the Junior Creditor;
(b) To vote claims comprising any such Subordinated
Indebtedness and to accept or reject on behalf of the Junior
Creditor any plan proposed in connection with any such
Reorganization;
(c) To accept and execute receipts for any payment or
distribution made with respect to any such Subordinated
Indebtedness and to apply such payment or distribution to
the payment of the Senior Indebtedness; and
(d) To take any action and to execute any instruments
necessary to effectuate the foregoing, either in the name of
the Agent or in the name of the Junior Creditor as the
attorney-in-fact of the Junior Creditor.
2.5. Payments Held in Trust. If, notwithstanding the
foregoing, any payment or distribution of the assets of the
Obligor of any kind or character (other than payments permitted
by Section 2.2) shall be received, by way of set-off or
otherwise, by the Junior Creditor before all Senior Indebtedness
is paid in full and before the Lenders' obligations to extend
credit under all Credit Documents shall have been terminated,
such payment or distribution and the amount of any such set-off
shall be held in trust by the Junior Creditor and promptly paid
over to the Agent (who shall have the right to convert any such
assets into cash) for application to the payment of Senior
Indebtedness until all such Senior Indebtedness shall have been
paid in full, after giving effect to any concurrent payment or
distribution to the holders of Senior Indebtedness, and the
Lenders' obligations to extend credit under all Credit Documents
shall have been terminated.
2.6. Restrictions on Acceleration. Notwithstanding any
contrary provision of any Subordinated Indebtedness or of any
agreement or instrument relating thereto, (a) no Subordinated
Indebtedness (other than payments permitted by Section 2.2) shall
become or be declared to be due and payable prior to the date on
which the Senior Indebtedness becomes or is declared to be due
and payable and (b) if any Senior Indebtedness shall have become
or been declared to be due and payable prior to its stated
maturity, the Subordinated Indebtedness shall become immediately
due and payable.
2.7. Restrictions on Remedies. The Junior Creditor shall
not, without the Agent's prior written consent, institute
proceedings to enforce any Subordinated Indebtedness or any
security therefor, notwithstanding any provision to the contrary
contained in any Subordinated Indebtedness or in any agreement or
instrument relating thereto. Without limiting the generality of
the foregoing sentence, the Junior Creditor shall not, without
the Agent's prior written consent, commence or join with any
other creditor of the Company or any other Obligor in commencing
any proceeding against the Company or any other Obligor seeking
to effect a Reorganization.
2.8. No Collateral. Neither the Company nor any other
Obligor shall grant, and the Junior Creditor shall not demand,
accept or receive, any collateral, direct or indirect, for any
Subordinated Indebtedness.
2.9. No Other Subordination. The Junior Creditor
represents that the Subordinated Indebtedness is not subordinated
to any obligations other than the Senior Indebtedness and
covenants that it will not subordinate the Subordinated
Indebtedness to any other obligations except with the prior
written consent of the Agent.
2.10. Payment in Full. For the purposes of this Agreement,
no Senior Indebtedness shall be deemed to have been paid in full
unless the holder thereof shall have received cash equal to the
amount thereof then outstanding; provided, however, that if the
Lenders are required by reason of a judgment or order of any
court or administrative authority having competent jurisdiction
to repay any amounts or property received by the Lenders on
account of the Credit Obligations and the Lenders repay or return
such amounts or property, then the subordination provisions of
this Agreement shall be reinstated retroactively with respect to
the amounts so repaid or property so returned as if such amounts
or property had never been received by the Lenders,
notwithstanding any termination thereof or the cancellation of
any instrument or agreement evidencing any of the Credit
Obligations.
3. Effect of Provisions; Subrogation.
3.1. Effect of Provisions; Relative Rights. The provisions
hereof as to subordination are solely for the purpose of defining
the relative rights of the holders of Senior Indebtedness on one
hand and the Junior Creditor on the other hand, and such
provisions shall not impair as between any Obligor and the Junior
Creditor any obligation of such Obligor, which is unconditional
and absolute, to pay to the Junior Creditor the principal of any
Subordinated Indebtedness owed by such Obligor to the Junior
Creditor and interest thereon, and all other amounts in respect
thereof, nor shall any such provisions prevent the Junior
Creditor from exercising all remedies otherwise permitted by
applicable law or under the terms of such Subordinated
Indebtedness upon a default thereunder, except to the extent
prohibited by this Agreement.
3.2. Subrogation. When all Senior Indebtedness then
outstanding has been paid in full and the Lenders' obligations to
extend credit under all Credit Documents have been terminated,
the Junior Creditor shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or
distributions of assets of the Company or any other Obligor that
would be deemed payable on the Senior Indebtedness until the
Subordinated Indebtedness shall be paid in full. For the
purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property or
securities to which the Junior Creditor would be entitled except
for the provisions of this Agreement, and no payment over
pursuant to the provisions of this Agreement to the holders of
Senior Indebtedness by the Junior Creditor, shall, as between the
Company or any other Obligor and their creditors other than the
holders of Senior Indebtedness, on one hand, and the Junior
Creditor, on the other hand, be deemed to be a payment by the
Company or any other Obligor to or on account of Senior
Indebtedness.
4. Legend, etc. Each of the Obligors and the Junior Creditor
covenant to cause each instrument or certificate representing or
evidencing any of the Subordinated Indebtedness to have affixed
upon it a legend substantially as follows:
"This instrument is subject to the Subordination
Agreement dated as of December 30, 1997, as from time to
time in effect, among the maker, the payee and BankBoston,
N.A., as Agent, and certain other parties named therein,
which, among other things, subordinates the obligations of
the obligor hereunder to the prior payment of certain
obligations of the obligor to the holders of Senior
Indebtedness as defined therein."
Each Obligor shall cause any financial statement describing or
listing or otherwise reflecting the existence of any Indebtedness
included in the Subordinated Indebtedness to indicate clearly the
subordinated character thereof.
5. Further Assurances. Each of the Obligors and the Junior
Creditor covenant to execute and deliver to the Agent such
further instruments and to take such further action as the Agent
may at any time or times reasonably request in order to carry out
the provisions and intent of this Agreement.
6. Representations and Warranties. In order to induce the
Lenders to extend credit under the Credit Agreement, the SGP
represents and warrants that:
6.1. Organization and Business. The SGP is a duly
organized and validly existing corporation, in good standing
under the laws of the jurisdiction of its organization, with all
power and authority necessary (a) to enter into and perform this
Agreement and each other Credit Document to which it is a party
and (b) to own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of
the Charter and By-laws of the SGP have been previously delivered
to the Agent and are correct and complete.
6.2. Authorization and Enforceability. The SGP has taken
all corporate action required to execute, deliver and perform
this Agreement and each other Credit Document to which it is a
party. Each of this Agreement and each other Credit Document to
which the SGP is party constitutes the legal, valid and binding
obligation of the SGP, enforceable against the SGP in accordance
with its terms.
6.3. No Legal Obstacle to Agreements. Neither the
execution and delivery of this Agreement or any other Credit
Document, nor the consummation of any transaction referred to in
or contemplated by this Agreement or any other Credit Document,
nor the fulfillment of the terms hereof or thereof or of any
other agreement, instrument, deed or lease referred to in this
Agreement or any other Credit Document, has constituted or
resulted, or will constitute or result, in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the SGP is a
party or by which it is bound, or of the Charter or By-laws
of the SGP; or
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable
to the SGP.
No approval, authorization or other action by, or declaration to
or filing with, any governmental or administrative authority or
any other Person is required to be obtained or made by the SGP in
connection with the execution, delivery and performance of this
Agreement or any other Credit Document to which it is party or
the transactions contemplated hereby or thereby.
7. Information Regarding the Company. The Junior Creditor
expressly acknowledges and agrees that it has made such
investigation as it deems desirable of the risks undertaken by it
in entering into this Agreement and is fully satisfied that it
understands all such risks. The Junior Creditor waives any
obligation which may now or hereafter exist on the part of the
Agent or any holder of any Senior Indebtedness to inform the
Junior Creditor of the risks being undertaken by entering into
this Agreement or of any changes in such risks and the Junior
Creditor undertakes to keep itself informed of such risks and any
changes therein. The Junior Creditor expressly waives (except to
the extent prohibited by applicable law which cannot be waived)
any duty which may now or hereafter exist on the part of the
Agent or any holder of any Senior Indebtedness to disclose to the
Junior Creditor any matter related to the business, operations,
character, collateral, credit, condition (financial or
otherwise), income or prospects of the Company, the other
Obligors and their respective Affiliates, properties or
management, whether now or hereafter known by any Lender. The
Junior Creditor represents, warrants and agrees that it assumes
sole responsibility for obtaining from the Company, the other
Obligors and their respective Affiliates all information
concerning the Credit Agreement and all other Credit Documents
and all other information as to the Company, the other Obligors
and their respective Affiliates, properties or management or
anything relating to any of the above as it deems necessary or
desirable.
8.9. Continuing Agreement; Lender Powers; etc.
9.1. Continuing Agreement, etc. This Agreement shall be a
continuing agreement, shall be irrevocable by the Junior Creditor
and shall remain in full force and effect until the payment in
full of the Senior Indebtedness at a time when the Lenders'
obligations to extend credit under all Credit Documents shall
have been terminated.
9.2. Consent to Credit Agreement. The Junior Creditor
acknowledges receipt from the Company of a correct and complete
copy of the Credit Agreement as in effect as of the date hereof,
and consents to all of the provisions of the Credit Agreement as
in effect as of such date.
9.3. Power to Modify Credit Agreement, etc. To the extent
permitted by applicable law that cannot be waived, the Junior
Creditor agrees that the Agent and the Lenders, in their sole
discretion, without notice to or consent by the Junior Creditor
and without in any way affecting the subordination of the
Subordinated Indebtedness provided in this Agreement, may:
9.3.1. waive compliance with any Default under, and to
consent to any amendment or change of any terms of, the
Credit Agreement, any other Credit Document, the Credit
Security, the Credit Obligations or any Guarantee thereof
(each as from time to time in effect);
9.3.2. grant one or more extensions or renewals of the
Credit Obligations (for any duration), and any other
indulgence with respect thereto and to effect any total or
partial release (by operation of law or otherwise),
discharge, compromise or settlement with respect to the
obligations of the Obligors in respect of the Credit
Obligations, whether or not rights against the Obligors
under this Agreement are reserved in connection therewith;
9.3.3. take security in any form for the Credit
Obligations and to consent to the addition to or the
substitution, exchange, release, failure to perfect or any
other disposition of, and to deal in any other manner with,
any property which may from time to time secure the Credit
Obligations whether or not the property, if any, received
upon the exercise of such power shall be of a character or
value the same as or different from the character or value
of any property disposed of, and to obtain, modify or
release any present or future Guarantees of the Credit
Obligations and to proceed against any of the Credit
Security or such Guarantees in any order;
9.3.4. extend credit under the Credit Agreement or any
other Credit Document, or otherwise, in such amount as the
Lenders may determine, whether for a greater or lesser
amount than is presently in effect, even though the
financial condition of the Company and the other Obligors
may have deteriorated since the date hereof; and
9.3.5. collect or liquidate or realize upon any of the
Credit Obligations or the Credit Security in any manner or
to refrain from collecting or liquidating or realizing upon
any of the Credit Obligations or the Credit Security.
9.4. No Impairment by Obligors, Lenders, etc. No right of
the Lenders or any present or future holder of any Senior
Indebtedness shall at any time be prejudiced or impaired by any
conduct on the part of the Company or any other Obligor,
including any noncompliance by the Company or any other Obligor
with the terms of this Agreement, or by any conduct, in good
faith, by any Lender or any such holder, regardless of any
knowledge thereof which any Lender or any such holder may have or
otherwise be charged with.
9.5. Specific Performance. The Agent is authorized to
demand specific performance of this Agreement at any time when
the Company or any other Obligor or the Junior Creditor shall
have failed to comply with any provision hereof applicable to it,
and each of them irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to
the remedy of specific performance hereof in any action brought
therefor by the Lenders.
10. Transfers; Successors and Assigns.
10.1. Transfers. The Junior Creditor will not sell,
assign, transfer or otherwise dispose of any Subordinated
Indebtedness except to another Person which shall have entered
into this Agreement or another agreement with the Agent, in a
form reasonably satisfactory to the Agent, providing for
subordination of such Subordinated Indebtedness to the prior
payment of the Credit Obligations on the terms provided in this
Agreement.
10.2. Successors and Assigns. The provisions of this
Agreement shall inure to the benefit of the Lenders and their
successors and assigns and shall be binding upon each of the
Company, the other Obligors and the Junior Creditor and their
respective successors and assigns. The Company, the other
Obligors and the Junior Creditor may not assign their respective
rights or obligations under this Agreement except to the extent
provided in Section 9.1.
11. Notices. Any notice or other communication in connection
with this Agreement shall be deemed to be given if given in
writing (including telex, telecopy or similar teletransmission)
addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually
received by the addressor), and if either (a) actually delivered
in fully legible form to such address (evidenced in the case of a
telex by receipt of the correct answer back) or (b) in the case
of a letter, five business days shall have elapsed after the same
shall have been deposited in the United States mails, with first-
class postage prepaid and registered or certified.
If to the Company or any other Obligor, to it at the address
specified for the Company in or pursuant to Section 16 of the
Credit Agreement, to the attention of its chief financial
officer.
If to the Junior Creditor, to it at Pride SGP, Inc., c/o
Pride Companies, L.P., 1209 North Fourth, Abilene, Texas 79601,
Attention: Chief Executive Officer, Telephone: (915) 674-8000,
Fax: (915) 676-8792, with a copy to Andrews & Kurth, L.L.P., 600
Travis, Suite 4200, Houston, Texas 77002-3090, Attention: Thomas
J. Perich, Esq., Telephone: (713) 220-4268, Fax: (713) 238-7175.
If to the Agent, to it at its address specified in or
pursuant to Section 16 of the Credit Agreement.
12. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE AGENT, THE
COMPANY, THE OTHER OBLIGORS AND THE JUNIOR CREDITOR WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM, DEMAND OR ACTION ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE CREDIT AGREEMENT OR ANY OTHER
CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY
CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF
THE AGENT, THE COMPANY, THE OTHER OBLIGORS OR THE JUNIOR CREDITOR
IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR
OTHERWISE. Each of the Company, the other Obligors and the
Junior Creditor acknowledges that it has been informed by the
Agent that the provisions of this Section 12 constitute a
material inducement upon which each of the Lenders has relied, is
relying and will rely in entering into the Credit Agreement and
any other Credit Document, and that it has reviewed the
provisions of this Section 12 with its counsel. The Agent, the
Company, the other Obligors or the Junior Creditor may file an
original counterpart or a copy of this Section 12 with any court
as written evidence of the consent of the Agent, the Company, the
other Obligors and the Junior Creditor to the waiver of the right
to trial by jury.
13. General. All covenants, agreements, representations and
warranties made in this Agreement or any other Credit Document or
in certificates delivered pursuant hereto or thereto shall be
deemed to have been relied on by each Lender, notwithstanding any
investigation made by the Agent on its behalf, and shall survive
the execution and delivery to the Lenders hereof and thereof.
The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision
hereof, and any invalid or unenforceable provision shall be
modified so as to be enforced to the maximum extent of its
validity or enforceability. The headings in this Agreement are
for convenience of reference only and shall not limit, alter or
otherwise affect the meaning hereof. This Agreement and the
other Credit Documents constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and
supersede all prior and current understandings and agreements,
whether written or oral. This Agreement is a Credit Document and
may be executed in any number of counterparts, which together
shall constitute one instrument. This Agreement shall be
governed by and construed in accordance with the laws (other than
the conflict of laws rules) of The Commonwealth of Massachusetts.
Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first written above.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its Managing
General Partner
By________________________________
Title:
PRIDE REFINING, INC.
By________________________________
Title:
PRIDE SGP, INC.
By________________________________
Title:
PRIDE BORGER, INC.
By________________________________
Title:
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner
by Pride Refining, Inc., its
Managing Partner
By________________________________
Title:
DESULFUR PARTNERSHIP
by Pride Marketing of Texas,
(Cedar Wind), Inc., its General Partner
By________________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By_________________________________
Title:
BANKBOSTON, N.A.,
as Agent under the Credit Agreement
By________________________________
Authorized Officer:
EXHIBIT 10.37
VARDE SUBORDINATION AGREEMENT
This Agreement dated as of December 30, 1997 is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"),
Pride SGP, Inc., a Texas corporation (the "SGP"), Pride Refinery,
Inc., a Texas Corporation (the "MGP"), Pride Borger, Inc., a
Delaware corporation ("Borger"), Desulfur Partnership, a Texas
general partnership ("Desulfur"), and Pride Marketing of Texas
(Cedar Wind), Inc., a Texas corporation (together with the
Company, the SGP, the MGP, Borger, Desulfur and each Subsidiary
of the Company which from time to time may become party to the
Credit Agreement or any other Credit Document, the "Obligors"),
Varde Partners, Inc., a Delaware corporation ("Varde"), and
BankBoston, N.A., as agent (the "Agent") for itself and the other
Lenders under the Credit Agreement (as defined below). The
parties agree as follows:
1. Reference to Credit Agreement; Certain Rules of Construction;
Definitions. Reference is made to the Revolving Credit and Term
Loan Agreement dated as of the date hereof, as from time to time
in effect (the "Credit Agreement"), among the Obligors, the
Lenders, the Agent and Lehman Commercial Paper Inc., as
Documentation Agent. Except as the context otherwise explicitly
requires, (a) the capitalized term "Section" refers to sections
of this Agreement, (b) references to a particular Section shall
include all subsections thereof and (c) the word "including"
shall be construed as "including without limitation".
Capitalized terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings so
defined. Certain other capitalized terms are used in this
Agreement as specifically defined in this Section 1 as follows:
1.1. "Junior Creditor" means Varde and each other Person
becoming a party to this Agreement (or to a subordination
agreement in substantially the form of this Agreement) pursuant
to Section 9.1.
1.2. "Reorganization" means any voluntary or involuntary
dissolution, winding-up, liquidation, reorganization by judicial
proceedings, bankruptcy, insolvency, receivership or other
statutory or common law proceedings, including any case under
Title 11 of the United States Code or any similar law of any
other jurisdiction, involving the Company, any other Obligor or
any other guarantor of the Subordinated Indebtedness or any of
their present or future Subsidiaries or any of their respective
properties or the readjustment of the respective liabilities of
the Company or any such other Person or any assignment for the
benefit of creditors or any marshaling of the assets or
liabilities of the Company or any such other Person.
1.3. "Senior Indebtedness" means:
(a) all present and future liabilities, obligations
and Indebtedness of the Company, any of its Subsidiaries or
any other Obligor owing to the Agent or any Lender (or any
Affiliate of a Lender), under or in connection with the
Credit Agreement or any other Credit Document, including,
without limitation:
(i) The obligation to pay the Revolving Loan and
the Term Loan from time to time outstanding;
(ii) Any contingent or matured obligations of the
Company or any other Obligor to the Agent or to any of
the Lenders in respect of Letters of Credit or drafts
accepted under Letters of Credit, including any
obligation of the Obligors arising under the Credit
Agreement or any other Credit Document to reimburse the
Agent or any of the Lenders for payments made under
Letters of Credit and to deposit with or to pay to the
Agent cash in an amount equal to all or part of the
Letter of Credit Exposure;
(iii) Obligations to pay interest owing under the
Credit Agreement or any other Credit Document, whether
such obligations arise before or after the institution
of any Reorganization and whether or not such
obligations are allowed claims in such Reorganization;
(iv) Any contingent or matured obligations of the
Obligors to any Lender or any of its Affiliates with
respect to Interest Rate Protection Agreements; and
(v) Obligations to pay commitment fees, Letter of
Credit fees, Agent's fees and other fees, charges,
indemnities and expenses from time to time owing under
the Credit Agreement or any other Credit Document,
whether such obligations arise before or after the
institution of any Reorganization and whether or not
such obligations are allowed claims in such
Reorganization; and
(b) All renewals, extensions and refinancings of the
items described in clause (a) above.
1.4. "Subordinated Indebtedness" means:
(a) The principal of and interest on the Convertible
Unsecured Series A Promissory Note dated December 30, 1997
executed by the Company in favor of the Junior Creditor as
payee, each of the Series B-1 Term Loan in the principal
amount of $6,000,000, the Series B-2 Term Loan in the
principal amount of $500,000, the Series B-3 Term Loan in
the principal amount of $3,000,000 and the Series C Term
Loan in the principal amount of [$4,700,000] listed in
Schedule 2.1 to the Term Loan Agreement, the note in the
original principal amount of $2,000,000, executed by the
Company and made payable to the order of the SGP on November
14, 1994, and all other Indebtedness or other obligations of
the Obligors, or any of them, to the Junior Creditor, but
excluding, however, principal of, interest (including PIK
Interest) on and expenses relating solely to the Series A
Term Loan in the principal amount of $20,000,000 (the "Varde
Term Loan") identified in said Schedule 2.1; and
(b) All other obligations of the Company and any other
Obligor to the Junior Creditor, whether now existing or
hereafter arising, including intercompany advances and any
claim of the Junior Creditor against the Company or any
other Obligor in respect of rescission, indemnification,
expenses, damages or otherwise; provided, however, that
notwithstanding clause (a) or (b) of this Section 1.4,
Subordinated Indebtedness shall not include the principal
of, interest on and expenses relating solely to the Varde
Term Loan.
"Term Loan Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997 among the Company,
the other Obligors and Varde.
2. Subordination Covenants. Each of the Obligors and the Junior
Creditor covenants that, so long as any part of the Senior
Indebtedness is outstanding and until the Lenders' obligations to
extend credit under each Credit Document shall have been
terminated, each of them will comply with the following
provisions:
2.1. Subordination. To the extent and in the manner
provided in this Agreement, the payment of any Subordinated
Indebtedness is and shall be expressly subordinated and junior in
right of payment to the prior payment in full of all Senior
Indebtedness, and the Subordinated Indebtedness is subordinated
as a claim against each Obligor, any guarantor of the Senior
Indebtedness or any of their respective assets to the prior
payment in full of the Senior Indebtedness, in each case whether
such claim is (a) in the ordinary course of business or (b) in
the event of any Reorganization.
2.2. Restricted Payments. Until such time as the Senior
Indebtedness shall have been paid in full and neither the Agent
nor any of the Lenders shall be obligated under the Credit
Agreement or any Credit Document, the Obligors will not make, and
the Junior Creditor will not accept or receive, any payment of
any Subordinated Indebtedness, whether in cash, securities or
other property or by way of conversion, exchange, set-off,
foreclosure or other realization upon security or otherwise;
provided, however, that the Company may make, and the Junior
Creditor may receive, any Distribution permitted by Section 6.10
of the Credit Agreement, subject to the limitations set forth
therein.
2.3. Reorganization. In the event of any Reorganization,
all Senior Indebtedness shall first be paid in full before any
payment is made on account of any Subordinated Indebtedness. In
any proceedings seeking to effect a Reorganization any payment or
distribution of any kind or character, whether in cash or
property or securities, which may be payable or deliverable in
respect of any such Subordinated Indebtedness shall be paid or
delivered directly to the Agent for application to payment of the
Senior Indebtedness, unless and until all Senior Indebtedness
shall have been paid in full. Notwithstanding the preceding
provisions of this Section 2.3, the Junior Creditor may retain
securities issued in payment of or exchange for the Subordinated
Indebtedness pursuant to a final order entered in a
Reorganization, so long as such securities are junior and
subordinate (to the same extent as the subordination provided
herein) to the Senior Indebtedness or securities issued to the
holders of the Senior Indebtedness in payment of or exchange for
the Senior Indebtedness in such Reorganization.
2.4. Specific Powers in Reorganization. In any proceedings
with respect to any Reorganization, the Junior Creditor
irrevocably authorizes the Agent:
(a) At any time that the Junior Credit shall not have
proven any claim on the Subordinated Indebtedness, prove and
enforce any or all of such claims either in the name of the
Agent or in the name of the Junior Creditor as the attorney-
in-fact of the Junior Creditor;
(b) To accept and execute receipts for any payment or
distribution made with respect to any such Subordinated
Indebtedness and to apply such payment or distribution to
the payment of the Senior Indebtedness; and
(c) To take any action and to execute any instruments
necessary to effectuate the foregoing, either in the name of
the Agent or in the name of the Junior Creditor as the
attorney-in-fact of the Junior Creditor.
2.5. Payments Held in Trust. If, notwithstanding the
foregoing, any payment or distribution of the assets of the
Obligor of any kind or character (other than payments permitted
by Section 2.2) shall be received, by way of set-off or
otherwise, by the Junior Creditor before all Senior Indebtedness
is paid in full and before the Lenders' obligations to extend
credit under all Credit Documents shall have been terminated,
such payment or distribution and the amount of any such set-off
shall be held in trust by the Junior Creditor and promptly paid
over to the Agent (who shall have the right to convert any such
assets into cash) for application to the payment of Senior
Indebtedness until all such Senior Indebtedness shall have been
paid in full, after giving effect to any concurrent payment or
distribution to the holders of Senior Indebtedness, and the
Lenders' obligations to extend credit under all Credit Documents
shall have been terminated.
2.6. Restrictions on Acceleration. Notwithstanding any
contrary provision of any Subordinated Indebtedness or of any
agreement or instrument relating thereto, (a) no Subordinated
Indebtedness (other than payments permitted by Section 2.2) shall
become or be declared to be due and payable prior to the date on
which the Senior Indebtedness becomes or is declared to be due
and payable and (b) if any Senior Indebtedness shall have become
or been declared to be due and payable prior to its stated
maturity, the Subordinated Indebtedness shall become immediately
due and payable.
2.7. Restrictions on Remedies. From and after the date
that the Varde Term Loan shall have been repaid in full and so
long as any Event of Default under the Credit Agreement shall
have occurred and be continuing, the Junior Creditor shall not
(a) without the Agent's prior written consent, commence or join
with any other creditor of the Company or any other Obligor in
commencing any proceeding against the Company or any other
Obligor seeking to effect a Reorganization, or (b) unless the
Agent shall have commenced and be continuing a proceeding to
enforce any Senior Indebtedness or any security therefor,
institute proceedings to enforce any Subordinated Indebtedness or
any security therefor, notwithstanding any provision to the
contrary contained in any Subordinated Indebtedness or in any
agreement or instrument relating thereto.
2.8. No Collateral. Neither the Company nor any other
Obligor shall grant, and the Junior Creditor shall not demand,
accept or receive, any collateral, direct or indirect, for any
Subordinated Indebtedness; provided, however, that until (and
only until) the Varde Term Loan shall have been repaid in full,
the Subordinated Indebtedness listed in Schedule 2.1 to the Term
Loan Agreement, as in effect on the date hereof, may be secured
by Liens on property of the Obligors so long as such Liens are
junior in priority to the Liens on the Credit Security and are
subject to the terms of the Intercreditor Agreement.
2.9. No Other Subordination. The Junior Creditor
represents that the Subordinated Indebtedness is not subordinated
to any obligations other than the Senior Indebtedness and
covenants that it will not subordinate the Subordinated
Indebtedness to any other obligations except with the prior
written consent of the Agent.
2.10. Payment in Full. For the purposes of this Agreement,
no Senior Indebtedness shall be deemed to have been paid in full
unless the holder thereof shall have received cash equal to the
amount thereof then outstanding; provided, however, that if the
Lenders are required by reason of a judgment or order of any
court or administrative authority having competent jurisdiction
to repay any amounts or property received by the Lenders on
account of the Credit Obligations and the Lenders repay or return
such amounts or property, then the subordination provisions of
this Agreement shall be reinstated retroactively with respect to
the amounts so repaid or property so returned as if such amounts
or property had never been received by the Lenders,
notwithstanding any termination thereof or the cancellation of
any instrument or agreement evidencing any of the Credit
Obligations.
3. Effect of Provisions; Subrogation.
3.1. Effect of Provisions; Relative Rights. The provisions
hereof as to subordination are solely for the purpose of defining
the relative rights of the holders of Senior Indebtedness on one
hand and the Junior Creditor on the other hand, and such
provisions shall not impair as between any Obligor and the Junior
Creditor any obligation of such Obligor, which is unconditional
and absolute, to pay to the Junior Creditor the principal of any
Subordinated Indebtedness owed by such Obligor to the Junior
Creditor and interest thereon, and all other amounts in respect
thereof, nor shall any such provisions prevent the Junior
Creditor from exercising all remedies otherwise permitted by
applicable law or under the terms of such Subordinated
Indebtedness upon a default thereunder, except to the extent
prohibited by this Agreement.
3.2. Subrogation. When all Senior Indebtedness then
outstanding has been paid in full and the Lenders' obligations to
extend credit under all Credit Documents have been terminated,
the Junior Creditor shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or
distributions of assets of the Company or any other Obligor that
would be deemed payable on the Senior Indebtedness until the
Subordinated Indebtedness shall be paid in full. For the
purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness of any cash, property or
securities to which the Junior Creditor would be entitled except
for the provisions of this Agreement, and no payment over
pursuant to the provisions of this Agreement to the holders of
Senior Indebtedness by the Junior Creditor, shall, as between the
Company or any other Obligor and their creditors other than the
holders of Senior Indebtedness, on one hand, and the Junior
Creditor, on the other hand, be deemed to be a payment by the
Company or any other Obligor to or on account of Senior
Indebtedness.
4. Financial Statements. Each Obligor shall cause any financial
statement describing or listing or otherwise reflecting the
existence of any Indebtedness included in the Subordinated
Indebtedness to indicate clearly the subordinated character
thereof.
5. Further Assurances. Each of the Obligors and the Junior
Creditor covenant to execute and deliver to the Agent such
further instruments and to take such further action as the Agent
may at any time or times reasonably request in order to carry out
the provisions and intent of this Agreement.
6. Representations and Warranties. In order to induce the
Lenders to extend credit under the Credit Agreement, Varde
represents and warrants that:
6.1. Organization and Business. Varde is a duly organized
and validly existing corporation, in good standing under the laws
of the jurisdiction of its organization, with all power and
authority necessary (a) to enter into and perform this Agreement
and each other Credit Document to which it is a party and (b) to
own its properties and carry on the business now conducted or
proposed to be conducted by it. Certified copies of the Charter
and By-laws of Varde have been previously delivered to the Agent
and are correct and complete.
6.2. Authorization and Enforceability. Varde has taken all
corporate action required to execute, deliver and perform this
Agreement and each other Credit Document to which it is a party.
Each of this Agreement and each other Credit Document to which
Varde is party constitutes the legal, valid and binding
obligation of Varde, enforceable against Varde in accordance with
its terms.
6.3. No Legal Obstacle to Agreements. Neither the
execution and delivery of this Agreement or any other Credit
Document, nor the consummation of any transaction referred to in
or contemplated by this Agreement or any other Credit Document,
nor the fulfillment of the terms hereof or thereof or of any
other agreement, instrument, deed or lease referred to in this
Agreement or any other Credit Document, has constituted or
resulted, or will constitute or result, in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which Varde is a
party or by which it is bound, or of the Charter or By-laws
of Varde; or
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable
to Varde.
No approval, authorization or other action by, or declaration to
or filing with, any governmental or administrative authority or
any other Person is required to be obtained or made by Varde in
connection with the execution, delivery and performance of this
Agreement or any other Credit Document to which it is party or
the transactions contemplated hereby or thereby.
7. Information Regarding the Company. The Junior Creditor
expressly acknowledges and agrees that it has made such
investigation as it deems desirable of the risks undertaken by it
in entering into this Agreement and is fully satisfied that it
understands all such risks. The Junior Creditor waives any
obligation which may now or hereafter exist on the part of the
Agent or any holder of any Senior Indebtedness to inform the
Junior Creditor of the risks being undertaken by entering into
this Agreement or of any changes in such risks and the Junior
Creditor undertakes to keep itself informed of such risks and any
changes therein. The Junior Creditor expressly waives (except to
the extent prohibited by applicable law which cannot be waived)
any duty which may now or hereafter exist on the part of the
Agent or any holder of any Senior Indebtedness to disclose to the
Junior Creditor any matter related to the business, operations,
character, collateral, credit, condition (financial or
otherwise), income or prospects of the Company, the other
Obligors and their respective Affiliates, properties or
management, whether now or hereafter known by any Lender. The
Junior Creditor represents, warrants and agrees that it assumes
sole responsibility for obtaining from the Company, the other
Obligors and their respective Affiliates all information
concerning the Credit Agreement and all other Credit Documents
and all other information as to the Company, the other Obligors
and their respective Affiliates, properties or management or
anything relating to any of the above as it deems necessary or
desirable.
8. Continuing Agreement; Lender Powers; etc.
8.1. Continuing Agreement, etc. This Agreement shall be a
continuing agreement, shall be irrevocable by the Junior Creditor
and shall remain in full force and effect until the payment in
full of the Senior Indebtedness at a time when the Lenders'
obligations to extend credit under all Credit Documents shall
have been terminated.
8.2. Consent to Credit Agreement. The Junior Creditor
acknowledges receipt from the Company of a correct and complete
copy of the Credit Agreement as in effect as of the date hereof,
and consents to all of the provisions of the Credit Agreement as
in effect as of such date.
8.3. Power to Modify Credit Agreement, etc. To the extent
permitted by applicable law that cannot be waived, the Junior
Creditor agrees that the Agent and the Lenders, in their sole
discretion, without notice to or consent by the Junior Creditor
and without in any way affecting the subordination of the
Subordinated Indebtedness provided in this Agreement, may:
8.3.1. waive compliance with any Default under, and to
consent to any amendment or change of any terms of, the
Credit Agreement, any other Credit Document, the Credit
Security, the Credit Obligations or any Guarantee thereof
(each as from time to time in effect);
8.3.2. grant one or more extensions or renewals of the
Credit Obligations (for any duration), and any other
indulgence with respect thereto and to effect any total or
partial release (by operation of law or otherwise),
discharge, compromise or settlement with respect to the
obligations of the Obligors in respect of the Credit
Obligations, whether or not rights against the Obligors
under this Agreement are reserved in connection therewith;
8.3.3. take security in any form for the Credit
Obligations and to consent to the addition to or the
substitution, exchange, release, failure to perfect or any
other disposition of, and to deal in any other manner with,
any property which may from time to time secure the Credit
Obligations whether or not the property, if any, received
upon the exercise of such power shall be of a character or
value the same as or different from the character or value
of any property disposed of, and to obtain, modify or
release any present or future Guarantees of the Credit
Obligations and to proceed against any of the Credit
Security or such Guarantees in any order;
8.3.4. extend credit under the Credit Agreement or any
other Credit Document, or otherwise, in such amount as the
Lenders may determine, whether for a greater or lesser
amount than is presently in effect, even though the
financial condition of the Company and the other Obligors
may have deteriorated since the date hereof; and
8.3.5. collect or liquidate or realize upon any of the
Credit Obligations or the Credit Security in any manner or
to refrain from collecting or liquidating or realizing upon
any of the Credit Obligations or the Credit Security.
8.4. No Impairment by Obligors, Lenders, etc. No right of
the Lenders or any present or future holder of any Senior
Indebtedness shall at any time be prejudiced or impaired by any
conduct on the part of the Company or any other Obligor,
including any noncompliance by the Company or any other Obligor
with the terms of this Agreement, or by any conduct, in good
faith, by any Lender or any such holder, regardless of any
knowledge thereof which any Lender or any such holder may have or
otherwise be charged with.
8.5. Specific Performance. The Agent is authorized to
demand specific performance of this Agreement at any time when
the Company or any other Obligor or the Junior Creditor shall
have failed to comply with any provision hereof applicable to it,
and each of them irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to
the remedy of specific performance hereof in any action brought
therefor by the Lenders.
9. Transfers; Successors and Assigns.
9.1. Transfers. The Junior Creditor will not sell, assign,
transfer or otherwise dispose of any Subordinated Indebtedness
except to another Person which shall have entered into this
Agreement or another agreement with the Agent, in a form
reasonably satisfactory to the Agent, providing for subordination
of such Subordinated Indebtedness to the prior payment of the
Credit Obligations on the terms provided in this Agreement.
9.2. Successors and Assigns. The provisions of this
Agreement shall inure to the benefit of the Lenders and their
successors and assigns and shall be binding upon each of the
Company, the other Obligors and the Junior Creditor and their
respective successors and assigns. The Company, the other
Obligors and the Junior Creditor may not assign their respective
rights or obligations under this Agreement except to the extent
provided in Section 9.1.
10. Notices. Any notice or other communication in connection
with this Agreement shall be deemed to be given if given in
writing (including telex, telecopy or similar teletransmission)
addressed as provided below (or to the addressee at such other
address as the addressee shall have specified by notice actually
received by the addressor), and if either (a) actually delivered
in fully legible form to such address (evidenced in the case of a
telex by receipt of the correct answer back) or (b) in the case
of a letter, five business days shall have elapsed after the same
shall have been deposited in the United States mails, with first-
class postage prepaid and registered or certified.
If to the Company or any other Obligor, to it at the address
specified for the Company in or pursuant to Section 16 of the
Credit Agreement, to the attention of its chief financial
officer.
If to the Junior Creditor, to it at Varde Partners, Inc.,
3600 West 80th Street, Suite 225, Minneapolis, Minnesota 55431,
Attention: George Hicks, Telephone: (612) 893-1554, Fax: (612)
893-6913, with a copy to Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019,
Attention: Kenneth M. Schneider, Tel: (212) 373-3000, Fax:
(212) 757-3990.
If to the Agent, to it at its address specified in or
pursuant to Section 16 of the Credit Agreement.
11. Varde Term Loan. None of the provisions of this
Subordination Agreement shall be interpreted to limit or to
supplement any of the rights and remedies of Varde in respect of
the Varde Term Loan, interest thereon and expenses relating
solely thereto. Varde may exercise its rights and remedies with
respect to the foregoing as if this Agreement were never
executed.
12. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH OF THE AGENT, THE
COMPANY, THE OTHER OBLIGORS AND THE JUNIOR CREDITOR WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM
IN RESPECT OF ANY ISSUE, CLAIM, DEMAND OR ACTION ARISING OUT OF
OR BASED UPON THIS AGREEMENT, THE CREDIT AGREEMENT OR ANY OTHER
CREDIT DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY
CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF
THE AGENT, THE COMPANY, THE OTHER OBLIGORS OR THE JUNIOR CREDITOR
IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR
OTHERWISE. Each of the Company, the other Obligors and the
Junior Creditor acknowledges that it has been informed by the
Agent that the provisions of this Section 12 constitute a
material inducement upon which each of the Lenders has relied, is
relying and will rely in entering into the Credit Agreement and
any other Credit Document, and that it has reviewed the
provisions of this Section 12 with its counsel. The Agent, the
Company, the other Obligors or the Junior Creditor may file an
original counterpart or a copy of this Section 12 with any court
as written evidence of the consent of the Agent, the Company, the
other Obligors and the Junior Creditor to the waiver of the right
to trial by jury.
13. General. All covenants, agreements, representations and
warranties made in this Agreement or any other Credit Document or
in certificates delivered pursuant hereto or thereto shall be
deemed to have been relied on by each Lender, notwithstanding any
investigation made by the Agent on its behalf, and shall survive
the execution and delivery to the Lenders hereof and thereof.
The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision
hereof, and any invalid or unenforceable provision shall be
modified so as to be enforced to the maximum extent of its
validity or enforceability. The headings in this Agreement are
for convenience of reference only and shall not limit, alter or
otherwise affect the meaning hereof. This Agreement and the
other Credit Documents constitute the entire understanding of the
parties with respect to the subject matter hereof and thereof and
supersede all prior and current understandings and agreements,
whether written or oral. This Agreement is a Credit Document and
may be executed in any number of counterparts, which together
shall constitute one instrument. This Agreement shall be
governed by and construed in accordance with the laws (other than
the conflict of laws rules) of The Commonwealth of Massachusetts.
Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first written above.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its Managing
General Partner
By________________________________
Title:
PRIDE REFINING, INC.
By________________________________
Title:
PRIDE SGP, INC.
By________________________________
Title:
PRIDE BORGER, INC.
By_________________________________
Title:
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By_________________________________
Title:
DESULFUR PARTNERSHIP
by Pride Refining, Inc., its Managing
General Partner
By________________________________
Title:
and by Pride Marketing of Texas, (Cedar
Wind), Inc., its General Partner
By________________________________
Title:
BANKBOSTON, N.A.,
as Agent under the Credit Agreement
By________________________________
Authorized Officer:
VARDE PARTNERS, INC.
By________________________________
Title:
EXHIBIT 10.38
EQUITY CONVERSION AGREEMENT
THIS EQUITY CONVERSION AGREEMENT (this "Agreement") is
entered into by and between Pride SGP, Inc., a Texas corporation
("SGP"), Pride Companies, L.P., a Delaware partnership ("Pride")
and Varde Partners, Inc., a Delaware corporation ("Varde") as
follows.
WHEREAS, pursuant to that certain Fifth Restated and
Amended Credit Agreement, dated as of August 13, 1996 (as amended
by the First through Sixth Amendments thereto), by and among Pride,
NationsBank of Texas, N.A. ("NationsBank"), Bank One, Texas, N.A.
("Bank One") and the guarantors described therein, Pride has, among
other things, certain outstanding Term Loans and Revolving Loans
(as defined therein) owing to NationsBank and Bank One (the
"NationsBank/Bank One Debt");
WHEREAS, Varde, Pride and SGP have entered into that
certain Restructuring and Override Agreement of even date herewith
(the "Restructuring Agreement") which reflects the agreement of
Varde to purchase the NationsBank/Bank One Debt and to restructure
same as set forth in such Restructuring Agreement (such
transactions being collectively referred to herein as the "Varde
Transaction")
WHEREAS, but for the Varde Transaction, Pride's
obligations under the NationsBank/Bank One Debt would have either
(i) become due and payable by the terms thereof or (ii) by virtue
of defaults, been accelerated by NationsBank or Bank One;
WHEREAS, it is a condition to closing of the Varde
Transaction that SGP shall have entered into this Agreement wherein
SGP agrees to transfer and assign certain claims and securities
held by SGP to Pride in exchange for Common LP Units of Pride, on
the basis set forth in this Agreement;
WHEREAS, Pride, SGP and Varde are entering this Agreement
to provide for SGP's exchange of such claims for Common LP Units on
the basis and in accordance with the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I. DEFINITIONS, ETC.
Section A. Defined Terms. Unless the context
otherwise requires, the following terms shall have the following
meanings for all purposes of this Agreement:
"Agreement" shall have the meaning specified in the opening
paragraph hereof.
"Claims" means (i) all claims SGP has under or pursuant to
that certain promissory note from Pride to SGP dated March 26, 1993
in the original principal amount of $2,000,000 (the "$2,000,000 SGP
Note") or under the Series E Preferred Units into which said note
is converted, (ii) all claims SGP has under or pursuant to that
certain promissory note from Pride to SGP dated August 13, 1996 in
the original principal amount of $450,000 (the "$450,000 SGP Note")
or under the Series F Preferred Units into which said note is
converted, (iii) accrued but unpaid interest through the Closing
Date under the $2,000,000 SGP Note and the $450,000 SGP Note and
(iv) accrued but unpaid payment obligations owing by Pride to SGP
under Section 2 of that certain Pipeline Lease Agreement ("Pipeline
Lease Agreement") between Pride and Pride SGP dated March 29, 1990
as additional rentals for oil products shipped by Pride, or third
parties with contractual relationships with Pride, through the Idle
Portion (as defined in the Pipeline Lease Agreement) of the
Pipeline (as defined in the Pipeline Lease Agreement).
"Closing" shall have the meaning specified in Section 2.4
hereof.
"Closing Date" shall have the meaning specified in Section 2.4
hereof.
"Common LP Units" means common units of limited partnership
interests of Pride.
"Required Approvals" means (i) approval of the New York Stock
Exchange, (ii) approval of the common unitholders of Pride and
(iii) any other third party or regulatory approvals which are
determined by Varde, Pride and/or Pride SGP to be required to
accomplish the transactions contemplated by this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Series E Preferred Units" means Series E Preferred Units of
Pride having such rights and preferences as reflected in the
Certificate of Designation, Rights and Preferences adopted by Pride
for such series.
"Series F Preferred Units" means Series F Preferred Units of
Pride having such rights and preferences as reflected in the
Certificate of Designation, Rights and Preferences adopted by Pride
for such series.
ARTICLE II. THE EXCHANGE
Section A. Exchange of Claims for Common LP Units. On
the terms and subject to the conditions of this Agreement (a) SGP
hereby acknowledges and agrees that (i) the $2,000,000 SGP Note
will, effective upon the Stage 1 Closing Date (as referenced in the
Restructuring Agreement), be converted into Series E Preferred
Units in accordance with the terms of that certain Consent
Solicitation dated October 7, 1997 distributed by Pride to its
unitholders and subsequently approved by Pride's unitholders, and
(ii) the $450,000 SGP Note will, effective upon the Stage 1 Closing
Date (as referenced in the Restructuring Agreement), be converted
into Series E Preferred Units and (b) SGP agrees to and will,
subject to receipt of the Required Approvals and upon the Stage 3
Closing Date (as referenced in the Restructuring Agreement)
transfer the Series E Preferred Units and Series F Preferred Units
issued upon conversion of the $2,000,000 SGP Note and the $450,000
SGP Note, respectively, along with the remainder of the Claims to
Pride in exchange for Common LP Units representing 7.5% of the
Common LP Units (on a fully diluted basis), as calculated
immediately following the Stage 3 Closing.
Section B. Subordination Agreement. Contemporaneous
with execution of this Agreement, SGP has entered into a
subordination agreement with Varde which effectively subordinates
the rights of SGP under the Claims to the obligations of Pride to
make payments to Varde under the indebtedness and Series B and
Series C Preferred Units acquired by Varde pursuant to the Varde
Transaction.
Section C. Delivery of Claims and Certificates.
1. At the Closing, SGP shall deliver an assignment
agreement that transfers and assigns the Series E Preferred Units
and Series F Preferred Units along with all other Claims to Pride,
together with such additional instruments of transfer and
assignment as Pride or Varde may reasonably request.
2. At the Closing, Pride shall (i) accept and then
cancel the Series E Preferred Units and Series F Preferred Units
along with all other Claims and (ii) deliver to SGP a certificate
or certificates representing the number of Common LP Units to which
SGP is entitled pursuant to Section 2.1.
Section D. Closing. The closing (the "Closing") of
the transactions contemplated by this Agreement shall take place at
a location mutually agreeable to the Partnership, Varde and SGP on
the Stage 3 Closing Date (as referenced in the Restructuring
Agreement).
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SGP
SGP represents and warrants to the other parties hereto
as follows:
Section A. Authority; Non-Contravention; Approvals.
1. SGP has full corporate power and authority to enter
into this Agreement and, subject to the Required Approvals, to
consummate the transactions contemplated hereby. This Agreement
has been approved by the Board of Directors of SGP, and no other
corporate proceedings on the part of SGP are necessary to authorize
the execution and delivery of this Agreement or the consummation by
SGP of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by SGP, and, assuming the due
authorization, execution and delivery hereof by Varde and Pride,
constitutes a valid and legally binding agreement of SGP
enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
fraudulent conveyancing, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
2. Except for the Required Approvals, no declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this
Agreement by SGP or the consummation by SGP of the transactions
contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals
which, if not made or obtained, as the case may be, would not, in
the aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other),
results of operations or prospects of SGP.
Section B. Ownership and Cancellation of the Claims.
SGP has good and valid ownership of the Claims free and clear of
any liens, claims or encumbrances. SGP has the full legal right to
exchange, transfer and assign the Claims to Pride.
Section C. Compliance with the Securities Act. SGP
has sufficient knowledge and experience in financial and business
matters that it is capable of evaluating the economic risks of
investment in the Common LP Units, and SGP's financial condition is
adequate to bear the economic risks of an investment in the Common
LP Units. SGP is acquiring the Common LP Units for investment
purposes only for SGP and not for any other person or with a view
toward resale or distribution. SGP acknowledges that the Common LP
Units have not been registered under the Securities Act or any
state blue sky or securities laws and, therefore, cannot be resold
unless so registered or exempted from registration thereunder, and
that the certificates representing the Common LP Units will bear an
appropriate legend reflecting such restrictions on transfer.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF VARDE
Varde represents and warrants to the other parties hereto
as follows:
Section A. Authority; Non-Contravention; Approvals.
1. Varde has full corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been approved by the Board
of Directors of Varde, and no other corporate proceedings on the
part of Varde are necessary to authorize the execution and delivery
of this Agreement or the consummation by Varde of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by Varde, and, assuming the due authorization, execution
and delivery hereof by SGP and Pride, constitutes a valid and
legally binding agreement of Varde, enforceable against it in
accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
2. Except for the Required Approvals, no declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this
Agreement by Varde or the consummation by Varde of the transactions
contemplated hereby.
3. Varde hereby acknowledges its understanding,
acknowledgement, consent and approval that the Series E Preferred
Units and Series F Preferred Units will be issued to SGP as herein
provided.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PRIDE
Pride represents and warrants to the other parties
hereto as follows:
Section A. Authority; Non-Contravention; Approvals.
1. Pride has full partnership power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been approved by the Board
of Directors of Pride's general partner, and no other partnership
proceedings on the part of Pride are necessary to authorize the
execution and delivery of this Agreement or the consummation by
Pride of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Pride, and, assuming the due
authorization, execution and delivery hereof by SGP and Varde,
constitutes a valid and legally binding agreement of Pride,
enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyancing, moratorium or other
similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
2. Except for the Required Approvals, no declaration,
filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this
Agreement by Pride or the consummation by Pride of the transactions
contemplated hereby.
Section B. Validity of Common LP Units . When issued
to SGP in accordance with this Agreement, the Common LP Units will
be duly authorized, validly issued and free of preemptive rights.
ARTICLE VI. ADDITIONAL AGREEMENTS
Section A. Agreement to Cooperate. Subject to the
terms and conditions herein provided, each of the parties hereto
shall use all commercially reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement.
Section B. Public Statements. The parties shall
consult with each other prior to issuing any press release or any
written public statement with respect to this Agreement or the
transactions contemplated hereby, and shall not issue any such
press release or written public statement prior to such
consultation.
Section C. Amendment to Pipeline Lease Agreement.
Contemporaneously with the execution of this Agreement, SGP will
enter into Amendment No. 3 to that certain Pipeline Lease Agreement
dated March 29, 1990 as amended by Amendment No. 1 dated effective
March 29, 1990, and Amendment No. 2 dated effective March 29, 1990
(the "Pipeline Lease Agreement"), to reflect that certain rental
payments payable by Pride thereunder shall not exceed $400,000 per
annum during the time period that indebtedness (the "Varde Debt")
remains outstanding and is held by Varde under the Sixth Restated
and Amended Credit Agreement dated as of even date herewith by and
between Varde and Pride. After such time as the Varde Debt is paid
in full or no longer held by Varde, such $400,000 ceiling amount
shall no longer be applicable.
ARTICLE VII. CONDITIONS
Section A. Conditions to Obligation of SGP. Unless
waived by the parties, the obligations of the parties to effect the
transactions contemplated hereby shall be subject to the
fulfillment at or prior to the Closing Date of the following
conditions:
1. consummation of Stage 3 of the Varde Transaction;
and
2. receipt by SGP of all Required Approvals.
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER
Section A. Termination. This Agreement may be
terminated at any time prior to the Closing by either party if the
Restructuring Agreement has been terminated in accordance with its
terms.
Section B. Effect of Termination. In the event of
termination of this Agreement by any party, as provided in
Section 8.1, this Agreement shall forthwith become void and there
shall be no further obligation on the part of Pride, SGP or Varde
or their respective officers or directors (except as set forth in
this Section 8.2, which shall survive the termination). Nothing in
this Section 8.2 shall relieve any party from liability for any
breach of this Agreement.
Section C. Amendment. This Agreement may not be
amended except by an instrument in writing signed on behalf of each
of the parties hereto and in compliance with applicable law.
Section D. Waiver. At any time prior to the
Closing, the parties hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX. GENERAL PROVISIONS
Section A. Non-Survival of Representations and
Warranties. None of the representations and warranties in this
Agreement shall survive the Closing, and after the Closing none of
Pride, SGP or Varde or their respective officers or directors shall
have any further obligation with respect thereto.
Section B. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by registered or certified
mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to Varde:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Telephone: (612) 893-1554
Fax: (612) 893-9613
(b) If to SGP:
Pride SGP, Inc.
1209 North Fourth Street
Abilene, Texas 79604
Attention: Chief Executive Officer
Telephone: (915) 674-8304
Fax: (915) 674-8792
(c) If to Pride:
Pride Companies, L.P.
1209 North Fourth Street
Abilene, Texas 79604
Attention: Chief Executive Officer and General Counsel
Telephone: (915) 674-8304
Fax: (915) 674-8792
Section C. Interpretation. The headings contained in
this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. In
this Agreement, unless a contrary intention appears, (i) the words
"herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No
provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal
representative drafted such provision.
Section D. Miscellaneous. This Agreement (including
the documents and instruments referred to herein) (a) constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof, (b) is not
intended to confer upon any other person any rights or remedies
hereunder, and (c) shall not be assigned by operation of law or
otherwise. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF TEXAS APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED
WHOLLY WITHIN SUCH STATE.
Section E. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be deemed
to be an original, but all of which shall constitute one and the
same agreement.
Section F. Parties In Interest. This Agreement
shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this
Agreement to be signed by their respective officers as of the 31st
day of December 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc., its Managing General Partner
By:
Name:
Title:
PRIDE SGP, INC.
By:
Name:
Title:
VARDE PARTNERS, INC.
By:
Name:
Title:
EXHIBIT 10.39
AMENDMENT NO. 3 TO PIPELINE LEASE AGREEMENT
This Amendment No. 3 is entered into effective as of the 31st
day of December, 1997 between Pride SGP, Inc., a Texas corporation
("Pride SGP"), and Pride Companies, L.P., a Delaware limited
partnership ("Pride") as follows:
WHEREAS, Pride SGP and Pride have heretofore entered into
that certain Pipeline Lease Agreement dated March 29, 1990,
same being amended by Amendment No. 1 dated effective March
29, 1990 and Amendment No. 2 dated effective March 29, 1990
(the "Pipeline Lease Agreement");
WHEREAS, Pride SGP and Pride have agreed to amend certain
provisions of the Pipeline Lease Agreement as provided herein;
NOW, THEREFORE, in consideration of the provisions and
the representations, warranties, covenants and agreements
contained herein, Pride SGP and Pride, agree as follows:
1) Section number 2 "Consideration" in the Pipeline
Lease Agreement is revised, modified and restated to read
as follows:
"2. Consideration: In consideration for the lease
of the Pipeline, Lessee agrees to perform the
maintenance and repair operations specified in
paragraph 8, below. Lessee further agrees to pay
Lessor $.20 (twenty cents) per barrel as additional
rental for Oil Products shipped by Lessee, or third
parties with contractual relationships with Lessee,
through the Idle Portion (as defined below) of the
Pipeline, provided that Pride SGP agrees that
during the duration of the Varde Debt, Pride SGP
agrees that the aggregate annual consideration
payable by Pride as additional rental for use of
the Idle Portion of the Pipeline under this Section
2 (commencing with calendar year 1998) shall not
exceed $400,000 annually without the prior written
consent of Varde. For purposes hereof Varde Debt
means indebtedness under that certain Sixth
Restated and Amended Credit Agreement dated as of
December 31, 1997, by and between Pride and Varde
Partners, Inc. At such time as the Varde Debt has
been repaid or is no longer held by Varde and
BankBoston is not then requiring that the ceiling
be in place, the above referenced $400,000 ceiling
amount shall no longer be applicable."
2) No Other Changes. In all other respects, the
Pipeline Lease Agreement remains in full force and effect
and is hereby ratified and confirmed.
3) Choice of Laws. This Agreement shall be construed
in accordance with the laws of the State of Texas.
WITNESS the execution hereof as of the date hereinabove
provided.
Pride SGP Inc.
By: _________________________
Name: _______________________
Title: ________________________
Pride Companies, L.P.
By: Pride Refinery, Inc., its managing general partner
By: _________________________
Name: _______________________
Title: ________________________