-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJoK2G3mg1lPmFBjuuvcaK0QB7uCvw8mpjuVJz3E9GHxb/lNU/iteaQA2e/1u833 gNLQv6lrnn1h6rLQ6SZH6w== 0000899243-01-501259.txt : 20010815 0000899243-01-501259.hdr.sgml : 20010815 ACCESSION NUMBER: 0000899243-01-501259 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAINS RESOURCES INC CENTRAL INDEX KEY: 0000350426 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 132898764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10454 FILM NUMBER: 1711621 BUSINESS ADDRESS: STREET 1: 500 DALLAS STREET 2: STE 700 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136541414 MAIL ADDRESS: STREET 1: 1600 SMITH STREET STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 d10q.txt FORM 10-Q FOR THE QUARTER ENDED 06/30/2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-9808 PLAINS RESOURCES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2898764 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 500 DALLAS STREET, SUITE 700 HOUSTON, TEXAS 77002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (713) 654-1414 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 --- --- 26,539,390 shares of common stock $0.10 par value, issued and outstanding at, July 31, 2001. PLAINS RESOURCES INC. AND SUBSIDIARIES TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets: June 30, 2001 and December 31, 2000................................ 3 Consolidated Income Statements: For the three months and six months ended June 30, 2001 and 2000... 4 Condensed Consolidated Statements of Cash Flows: For the six months ended June 30, 2001 and 2000.................... 5 Notes to Consolidated Financial Statements.............................. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................ 21 PART II. OTHER INFORMATION.............................................. 29 2 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
June 30, December 31, 2001 2000 ---------- ----------- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 38,371 $ 5,080 Accounts receivable and other 35,534 375,485 Inventory 10,306 54,844 --------- ---------- 84,211 435,409 --------- ---------- PROPERTY AND EQUIPMENT Oil and natural gas properties - full cost method 873,576 804,826 Crude oil pipeline, gathering and terminal assets - 470,460 Other property and equipment 3,847 6,453 --------- ---------- 877,423 1,281,739 Less allowance for depreciation, depletion and amortization (423,132) (437,465) --------- ---------- 454,291 844,274 --------- ---------- INVESTMENT IN PLAINS ALL AMERICAN PIPELINE LP 52,067 - --------- ---------- OTHER ASSETS Linefill - 34,312 Deferred income taxes - 47,974 Other 17,801 32,360 --------- ---------- 17,801 114,646 --------- ---------- $ 608,370 $1,394,329 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other current liabilities $ 85,614 $ 413,309 Notes payable and other current obligations 511 1,811 --------- ---------- 86,125 415,120 --------- ---------- LONG-TERM DEBT Bank debt - 27,300 Bank debt of subsidiary - 320,000 Subordinated debt 277,353 277,543 Other 1,533 1,533 --------- ---------- 278,886 626,376 OTHER LONG-TERM LIABILITIES 3,252 3,422 DEFERRED INCOME TAXES 21,527 - MINORITY INTEREST IN PLAINS ALL AMERICAN PIPELINE LP - 162,271 CUMULATIVE CONVERTIBLE PREFERRED STOCK - 50,000 STOCKHOLDERS' EQUITY 218,580 137,140 --------- ---------- $ 608,370 $1,394,329 ========= ==========
See notes to consolidated financial statements. 3 PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- ---------- -------- ---------- REVENUES Crude oil and liquids $ 45,655 $ 34,759 $ 92,715 $ 65,456 Natural gas 12,346 2,689 23,518 4,559 Other operating revenues 423 - 423 - Midstream revenues - 1,387,821 - 3,389,937 -------- ---------- -------- ---------- 58,424 1,425,269 116,656 3,459,952 -------- ---------- -------- ---------- COSTS AND EXPENSES Production expenses 17,850 15,396 34,030 30,623 Midstream costs and expenses - 1,355,473 - 3,321,427 General and administrative 11,479 10,514 15,560 21,595 Depreciation, depletion and amortization 6,585 10,157 13,384 25,257 Loss (gain) on disposition of assets - - - (48,188) -------- ---------- -------- ---------- 35,914 1,391,540 62,974 3,350,714 -------- ---------- -------- ---------- INCOME FROM OPERATIONS 22,510 33,729 53,682 109,238 OTHER INCOME (EXPENSE) Equity in earnings of PAA 3,755 - 10,591 - Gain on PAA units 148,213 - 150,171 - Interest expense (6,827) (12,943) (13,823) (28,817) Interest and other income and expense (669) 1,775 (2) 6,589 -------- ---------- -------- ---------- INCOME BEFORE MINORITY INTEREST, INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 166,982 22,561 200,619 87,010 Minority interest in PAA - (7,820) - (37,404) Income tax expense Current (8,449) (521) (8,927) (521) Deferred (58,431) (5,228) (70,638) (18,825) -------- ---------- -------- ---------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 100,102 8,992 121,054 30,260 Extraordinary item - (3,623) - (4,988) Cumulative effect of accounting change - - (1,986) (121) -------- ---------- -------- ---------- NET INCOME 100,102 5,369 119,068 25,151 Preferred dividend requirement (24,947) (3,694) (26,546) (7,412) -------- ---------- -------- ---------- INCOME ATTRIBUTABLE TO COMMON SHARES $ 75,155 $ 1,675 $ 92,522 $ 17,739 ======== ========== ======== ========== EARNINGS PER SHARE Income Before Extraordinary Item and Cumulative Effect of Accounting Change Basic $3.83 $0.29 $5.10 $1.27 Diluted $2.68 $0.28 $3.38 $1.02 Net Income Basic $3.83 $0.09 $4.99 $0.99 Diluted $2.68 $0.09 $3.31 $0.85 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 19,631 17,981 18,547 17,964 Diluted 28,494 18,742 28,757 29,614
See notes to consolidated financial statements. 4 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ---------------------- 2001 2000 --------- --------- Cash Flows from Operating Activities Net income $ 119,068 $ 25,151 Items not affecting cash flows from operating activities: Depreciation, depletion and amortization 13,384 25,257 Equity in earnings of PAA (10,591) - Distributions from PAA 17,907 - Minority interest in income of a subsidiary - 30,434 Gain on sale of PAA units (150,171) - Gain on sale of assets - (48,188) Deferred income taxes 71,384 15,635 Cumulative effect of accounting change 1,986 121 Change in derivative fair value 1,227 - Noncash compensation expense 4,246 - Other noncash items 679 10,443 Change in assets and liabilities from operating activities: Current and other assets 11,267 150,267 Current and other liabilities (12,682) (205,450) --------- --------- Net cash provided by operating activities 67,704 3,670 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Oil and gas properties and equipment (62,067) (28,548) Midstream properties and equipment - (5,009) Other properties and equipment (405) (1,827) Sale of PAA units 105,899 - Sale of assets - 223,859 Investment in PAA (2,763) - --------- --------- Net cash provided by investing activities 40,664 188,475 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in long-term debt (27,300) (165,150) Net change in short-term debt - (55,719) Costs in connection with financing arrangements - (6,500) Exercise of stock options 2,892 - Treasury stock purchases (39,528) - Preferred stock dividends paid (7,648) (6,043) Distributions to PAA unitholders - (14,499) Other (68) (385) --------- --------- Net cash used in financing activities (71,652) (248,296) --------- --------- Net increase (decrease) in cash and cash equivalents 36,716 (56,151) Decrease in cash due to deconsolidation of PAA (3,425) - Cash and cash equivalents, beginning of period 5,080 68,228 --------- --------- Cash and cash equivalents, end of period $ 38,371 $ 12,077 ========= =========
See notes to consolidated financial statements. 5 PLAINS RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION AND ACCOUNTING POLICIES The consolidated financial statements of income and cash flows for the periods ended June 30, 2000 and the consolidated balance sheet at December 30, 2000 include the accounts of Plains Resources Inc. ("Plains", "our" or "we"), our wholly owned subsidiaries and Plains All American Pipeline, L.P. ("PAA"). In June 2001 we reduced our interest in PAA from 54% to 33% as discussed in Note 2 and as a result we no longer have the ability to exercise control over the operations of PAA. Accordingly, our minority interest investment in PAA is accounted for using the equity method of accounting, presented retroactively to January 1, 2001. Under the equity method, we no longer consolidate the assets, liabilities and operating activities of PAA, but instead record our proportionate share of PAA's results of operations. The accompanying consolidated financial statements and related notes present our consolidated financial position as of June 30, 2001, and December 31, 2000, the results of our operations for the three months and six months ended June 30, 2001 and 2000, and our cash flows for the six months ended June 30, 2001 and 2000. The financial statements have been prepared in accordance with the instructions with respect to interim reporting as prescribed by the Securities and Exchange Commission ("SEC"). For further information, refer to our Form 10-K for the year ended December 31, 2000, filed with the SEC. All adjustments, consisting only of normal recurring adjustments, that in the opinion of management were necessary for a fair statement of the results for the interim periods, have been reflected. All significant intercompany transactions have been eliminated. The results for the six months ended June 30, 2001, are not necessarily indicative of the final results to be expected for the full year. Certain reclassifications have been made to prior periods to conform to the current period presentation. We evaluate the capitalized costs of our oil and natural gas properties on an ongoing basis and have utilized the most recently available information to estimate our reserves at June 30, 2001, in order to determine the realizability of such capitalized costs. Future events, including drilling activities, product prices and operating costs, may affect future estimates of such reserves. NOTE 2 - INVESTMENT IN PAA In the second quarter of 2001 PAA issued approximately 4 million common units in a public equity offering. We recognized a $19.6 million gain resulting from the increase in the book value of our equity in PAA to reflect our proportionate share of the increase in the underlying net assets of PAA due to the sale of the units. In a series of transactions on June 8, 2001, we sold a portion of our interest in PAA to a group of investors and certain members of PAA management for aggregate consideration of approximately $155 million (consisting of $110 million in cash and $45 million in Series F Preferred Stock) and recognized a pre tax gain of $128.6 million. In addition, certain holders of shares of our Series F Cumulative Convertible Preferred Stock (the "Series F Preferred Stock") and Series H Convertible Preferred Stock (the "Series H Preferred Stock") converted such shares into shares of our common stock (the "Transactions"). We sold (i) 5.2 million Subordinated Units of PAA (the "Subordinated Units") in exchange for $69.5 million in cash and the redemption of 23,108 shares of our Series F Preferred Stock, valued at $45 million; and (ii) an aggregate 54% ownership interest in the general partner of PAA for $40.5 million in cash. In addition, the investor group and certain other stockholders converted 26,892 shares of Series F Preferred Stock and 132,022 shares of Series H Preferred Stock into a total of 6.6 million shares of our common stock. As a result of the Transactions, all of the Series F Preferred Stock and all but approximately 36,000 shares of the Series H Preferred Stock were retired or converted. Also as a result of the Transactions, certain of our employees received transaction- related bonuses and other payments and vested in benefits in accordance with the terms of certain of our employee benefit plans. Certain members of PAA management have the option to acquire an aggregate additional 2% ownership interest in the general partner of PAA. The excess of the fair value of the Series F Preferred Stock redeemed as consideration for PAA Units over the carrying value of the Series F Preferred Stock is deemed to be a dividend to preferred stockholders and is deducted in determining the income available to common stockholders for the purpose of determining basic and fully diluted earnings per share. The Subordinated Units are subordinated in right to distributions from PAA and are not publicly traded, however, PAA's partnership agreement provides that, if certain financial tests are met, the Subordinated Units (including those retained by us) will convert into common units on a one-for-one basis commencing in 2003. In connection with the Transactions, we entered into Value Assurance Agreements with such purchasers of the Subordinated Units under the terms of which we will pay the purchasers an amount per fiscal year, payable on a quarterly basis, equal to $1.85 per unit less the actual amount distributed during that year. The Value Assurance Agreements will expire upon the earlier of (a) the conversion of the Subordinated Units to common units or (b) June 8, 2006. PAA recently announced a quarterly distribution, payable in the third quarter of 2001, of $0.50 per unit ($2.00 annualized). 6 In connection with the conversion of the Series F Preferred Stock into common stock, we made a $2.5 million payment representing a 20% premium to the amount of dividends that would accrue on the Series F Preferred Stock between the closing of the Transactions and the first date we could potentially cause such conversion. At March 31, 2001, our aggregate ownership interest in PAA was approximately 54%. Following the sale of common units by PAA in a public equity offering in May 2001 and the Transactions, our aggregate ownership interest in PAA was approximately 33%. Our aggregate ownership in PAA consists of: (i) a 46% ownership interest in the 2% general partner interest and incentive distribution rights, (ii) 45%, or approximately 4.5 million, of the Subordinated Units and (iii) 28% or approximately 7.9 million of the common units (including approximately 1.3 million Class B common units). As a result of the transactions, our minority investment in PAA is accounted for using the equity method of accounting presented retroactively to January 1, 2001. Under the equity method, we will no longer consolidate the assets, liabilities and operating activities of PAA, but will instead record our proportionate share of PAA's results of operations. The following table presents summarized financial statement information of PAA (in thousands of dollars):
3 MONTHS ENDED 6 MONTHS ENDED JUNE 30, 2001 JUNE 30, 2001 -------------- ------------- Revenues 1,586,617 3,106,741 Expenses 1,550,230 3,037,624 Gross margin 36,387 69,117 Operating income 14,843 33,914 Income before cumulative effect of accounting change 7,067 19,574 Net income 7,067 20,082 AT JUNE 30, 2001 ------------- Current assets 566,453 Property and equipment, net 588,242 Other assets 59,137 Total assets 1,213,832 Current liabilities 537,829 Long-term debt 372,580 Other long-term liabilities 1,017 Partners' capital 302,406 Total liabilities and partners' capital 1,213,832
NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 137 and SFAS 138 ("SFAS 133"). Under SFAS 133, all derivative instruments are recorded on the balance sheet at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or loss on the derivative is recognized currently in earnings. To qualify for hedge accounting, the derivative must qualify either as a fair value hedge, cash flow hedge or foreign currency hedge. Currently, we use only cash flow hedges and the remaining discussion will relate exclusively to this type of derivative instrument. If the derivative qualifies for hedge accounting, the gain or loss on the derivative is deferred in accumulated Other Comprehensive Income ("OCI"), a component of Stockholders' Equity, to the extent the hedge is effective. The relationship between the hedging instrument and the hedged item must be highly effective in achieving the offset of changes in cash flows attributable to the hedged risk both at the inception of the contract and on an ongoing basis. Hedge accounting is discontinued prospectively when a hedge instrument becomes ineffective. Gains and losses deferred in OCI related to cash flow hedges that become ineffective remain unchanged until the related product is delivered. If it is determined that it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately. Gains and losses on hedging instruments related to OCI and adjustments to carrying amounts on hedged volumes are included in oil and gas revenues in the period that the related volumes are delivered. Gains and losses of hedging 7 instruments, which represent hedge ineffectiveness and changes in the time value component of the fair value, are included in earnings in the period in which they occur. We utilize various derivative instruments, for purposes other than trading, to hedge our exposure to price fluctuations on crude oil sales. The derivative instruments consist primarily of option contracts traded on the New York Mercantile Exchange and crude oil swap contracts entered into with financial institutions. We do not currently have any natural gas hedges. We also utilize interest rate swaps and collars to manage the interest rate exposure on our long-term debt. On January 1, 2001, in accordance with the transition provisions of SFAS 133, we recorded a gain of $4.5 million in OCI representing the cumulative effect of an accounting change to recognize at fair value all cash flow derivatives, including our equity in the cash flow derivatives of PAA. We recorded cash flow hedge derivative assets and liabilities of $20.6 million and $18.1 million, respectively, and a net-of-tax non-cash charge of $2.0 million was recorded in earnings as a cumulative effect adjustment. During the first six months of 2001 losses of $7.6 million (which were included in the cumulative effect adjustment) were transferred from OCI and the fair value of open positions decreased $7.0 million. At December 31, 2000, we had an interest rate swap arrangement to protect interest rate fluctuations on a portion of our outstanding debt. The position was terminated prior to maturity and as a result $0.9 million related to such position was relieved from OCI at June 30, 2001 and the associated debt was repaid. At June 30, 2001, a $1.9 million unrealized loss was recorded to OCI together with related assets and liabilities of $2.8 million and $4.0 million, respectively, and oil and gas revenues include a $4.4 million non-cash loss related to the ineffective portion of the cash flow hedges representing the fair value change in the time value of certain options. Our hedge related assets are included in other current assets ($3.2 million) and other assets ($2.3 million) and our hedge related liabilities are included in other current liabilities ($4.3 million) and other long-term liabilities ($1.0 million). As of June 30, 2001, $1.4 million of deferred net losses on derivative instruments recorded in OCI are expected to be reclassified to earnings during the next twelve-month period. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. Hedge effectiveness is measured on a quarterly basis. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. No amounts were excluded from the computation of hedge effectiveness. At June 30, 2001, there were no positions which did not qualify for hedge accounting. At June 30, 2001, we had the following open crude oil hedge positions (barrels per day):
---------------- 2001 ---------------- 3rd Qtr 4th Qtr 2002 2003 ------- ------- ------ ----- Collars Average floor price $20.00/bbl Average cap price $27.00/bbl Average cap limit $30.00/bbl 6,000 6,000 - - Puts Average price $20.00/bbl 6,000 6,000 - - Average price $20.31/bbl - - 4,000 - Calls Average price $35.74/bbl 9,000 9,000 - - Average price $35.17/bbl - - 9,000 - Swaps Average price $26.59/bbl 8,500 8,500 - - Average price $24.42/bbl - - 15,000 - Average price $23.23/bbl - - - 5,000
Our collars consist of three separate options: a purchased put, which establishes a floor price, a sold call which establishes a cap price and a purchased call which gives us upside potential at a price above the cap price. 8 NOTE 4 - COMPREHENSIVE INCOME Comprehensive income includes net income and certain items recorded directly to Stockholders' Equity and classified as OCI. We recorded OCI for the first time in the first quarter of 2001. Following the adoption of SFAS 133, we recorded a credit to OCI of $4.5 million related to the change in fair value of certain derivative financial instruments that qualified for cash flow hedge accounting. The following table reflects comprehensive income for the six months ended June 30, 2001 (in thousands of dollars): Net Income 119,068 Other Comprehensive Income (Loss) Cumulative effect of change in accounting principle - January 1, 2001 Plains Resources Inc. 6,856 Equity in PAA (2,340) ------- 4,516 ------- Reclassification adjustment for settled contracts (733) Changes in fair value of open hedging positions (6,813) Equity in OCI changes of PAA 1,152 ------- (6,394) ------- Comprehensive Income 117,190 =======
The cumulative effect of changes in accounting principle includes a $6.8 million net-of-tax gain with respect to Plains Resources less a $2.3 million net-of-tax loss related to our equity interest in PAA. The reclassification adjustment for settled contracts includes a $1.2 million loss plus a $0.5 million deferred income tax benefit. Changes in fair value of open hedging positions includes an $11.2 million loss plus a $4.4 million deferred income tax benefit. Our comprehensive loss for the six months ended June 30, 2001 was $1.9 million. NOTE 5 -- LONG-TERM DEBT AND CREDIT FACILITIES 10.25% Senior Subordinated Notes Due 2006 In March 2001 we exchanged $75.0 million principal amount of our 10.25% Senior Subordinated Notes Due 2006, Series E, for 10.25% Senior Subordinated Notes Due 2006, Series F. The Series F Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Series E Notes for which they were exchanged, except for certain transfer restrictions relating to the Series E Notes. Revolving Credit Facility We are currently in compliance with the covenants contained in our revolving credit facility. At June 30, 2001, we could have borrowed the full $225.0 million available under the facility. No amounts were outstanding under the revolving credit facility at June 30, 2001. 9 NOTE 6 -- EARNINGS PER SHARE The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations for income from continuing operations before extraordinary items and cumulative effect of accounting change for the three and six months ended June 30, 2001 and 2000 (in thousands, except per share amounts):
FOR THE THREE MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 2001 2000 ------------------------------- ------------------------------- Income Shares Per Income Shares Per (Numera- (Denomi- Share (Numera- (Denomi- Share tor) nator) Amount tor) nator) Amount --------- -------- ------ -------- -------- ------- Income before extraordinary item and cumulative effect of accounting change $100,102 $ 8,992 Less: preferred stock dividends (24,947) (3,694) --------- -------- Income available to common stockholders 75,155 19,631 $ 3.83 5,298 17,981 $0.29 ====== ======= Effect of dilutive securities: Convertible preferred stock 1,067 7,972 - - Employee stock options and warrants - 891 - 761 --------- -------- -------- -------- Income available to common stockholders assuming dilution $ 76,222 28,494 $ 2.68 $ 5,298 18,742 $0.28 ========= ======== ====== ======== ======== =======
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------------------------------- 2001 2000 ------------------------------- ------------------------------- Income Shares Per Income Shares Per (Numera- (Denomi- Share (Numera- (Denomi- Share tor) nator) Amount tor) nator) Amount --------- -------- ------ -------- -------- ------- Income before extraordinary item and cumulative effect of accounting change $121,054 $30,260 Less: preferred stock dividends (26,546) (7,412) --------- -------- Income available to common stockholders 94,508 18,547 $ 5.10 22,848 17,964 $1.27 ====== ======= Effect of dilutive securities: Convertible preferred stock 2,666 9,349 7,412 10,935 Employee stock options and warrants - 861 - 715 --------- -------- -------- -------- Income available to common stockholders assuming dilution $ 97,174 28,757 $ 3.38 $30,260 29,614 $1.02 ========= ======== ====== ======== ======== =======
Note 7 -- Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for under the purchase method. For all business combinations for which the date of acquisition is after June 30, 2001, this Standard also establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain, rather than deferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: (i) goodwill and intangible assets with indefinite lives will no longer be amortized; (ii) goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and (iii) the amortization period for intangible assets with finite lives will no longer be limited to forty years. The issuance of SFAS 141 and SFAS 142 have no effect on our financial statements. We will account for all future business combinations in accordance with the provisions of SFAS 141 and SFAS 142. In June 2001, the FASB also issued SFAS No. 143 "Asset Retirement Obligations". SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (i) the timing of the liability recognition, (ii) initial measurement of the liability, (iii) allocation of asset retirement cost to expense, (iv) subsequent measurement of the liability and (v) financial statement disclosures. SFAS 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and 10 rational method. We will adopt the statement effective January 1, 2003, as required. The transition adjustment resulting from the adoption of SFAS 143 will be reported as a cumulative effect of a change in accounting principle. At this time, we cannot reasonably estimate the effect of the adoption of this statement on either our financial position, results of operations, or cash flow. NOTE 8 -- CONTINGENCIES Texas Securities Litigation. On November 29, 1999, a class action lawsuit was filed in the United States District Court for the Southern District of Texas entitled Di Giacomo v. Plains All American Pipeline, et al. The suit alleged that Plains All American Pipeline, L.P. and certain of the general partner's officers and directors violated federal securities laws, primarily in connection with unauthorized trading by a former employee. An additional nineteen cases have been filed in the Southern District of Texas, some of which name the general partner and us as additional defendants. All of the federal securities claims have been consolidated into two actions. The first consolidated action was filed by purchasers of our common stock and options, and is captioned Koplovitz v. Plains Resources Inc., et al. The second consolidated action was filed by purchasers of PAA's common units, and is captioned Di Giacomo v. Plains All American Pipeline, L.P., et al. Plaintiffs alleged that the defendants were liable for securities fraud violations under Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934 and for making false registration statements under Sections 11 and 15 of the Securities Act of 1933. We and PAA reached an agreement with representatives for the plaintiffs for the settlement of all of the class actions, and in January 2001 PAA deposited approximately $30.0 million under the terms of the settlement agreement. The total cost of the settlement to us and PAA, including interest and expenses and after insurance reimbursements, was $14.9 million. Of that amount, $1.0 million was allocated to us by agreement between special independent committees of our board of directors and the board of directors of Plains All American Inc., the then general partner of PAA ("PAAI") and now known as Plains Holdings Inc. The settlement is subject to final approval by the court. The settlement agreement does not affect the Texas Derivative Litigation and Delaware Derivative Litigation described below. Delaware Derivative Litigation. On December 3, 1999, two derivative lawsuits were filed in the Delaware Chancery Court, New Castle County, entitled Susser v. Plains All American Inc., et al and Senderowitz v. Plains All American Inc., et al. These suits, and three others which were filed in Delaware subsequently, named PAAI the then general partner of PAA, its directors and certain of its officers as defendants, and alleged that the defendants breached the fiduciary duties that they owed to PAA and its unitholders by failing to monitor properly the activities of its employees. The court has consolidated all of the cases under the caption In Re Plains All American Inc. Shareholders Litigation, and has designated the complaint filed in Sussex v. Plains All American Inc. as the operative complaint in the consolidated action. A motion to dismiss was filed on behalf of the defendants on August 11, 2000. The plaintiffs in the Delaware derivative litigation seek that the defendants: . account for all losses and damages allegedly sustained by PAA from the unauthorized trading losses; . establish and maintain effective internal controls ensuring that PAA affiliates and persons responsible for its affairs do not engage in wrongful practices detrimental to PAA; . pay for the plaintiffs' costs and expenses in the litigation, including reasonable attorneys' fees, accountants' fees and experts' fees; and . provide the plaintiffs any additional relief as may be just and proper under the circumstances. An agreement in principle has been reached with the plaintiffs, subject to approval by the Delaware court, to settle the Delaware litigation by PAA making an aggregate payment of approximately $1.1 million. Texas Derivative Litigation. On July 11, 2000, a derivative lawsuit was filed in the United States District Court for the Southern District of Texas entitled Fernandez v. Plains All American Inc., et al., naming PAAI the then general partner of PAA, its directors and certain of its officers as defendants. This lawsuit contains the same claims and seeks the same relief as the Delaware derivative litigation described above. A motion to dismiss was filed on behalf of the defendants on August 14, 2000. We intend to vigorously defend the claims made in the Texas derivative litigation. We believe that Delaware court approval of the settlement of the Delaware derivative litigation will effectively preclude prosecution of the Texas derivative litigation. However, there can be no assurance that we will be successful in our defense or that this lawsuit will not have a material adverse effect on our financial position, results of operations or cash flows. 11 We, in the ordinary course of business, are a claimant and/or defendant in various other legal proceedings. Management does not believe that the outcome of these legal proceedings, individually and in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows. NOTE 9 -- CONSOLIDATING FINANCIAL STATEMENTS The following financial information presents consolidating financial statements which include: . the parent company only ("Parent"); . the guarantor subsidiaries on a combined basis ("Guarantor Subsidiaries"); . the nonguarantor subsidiaries on a combined basis ("Nonguarantor Subsidiaries"); . elimination entries necessary to consolidate the Parent, the Guarantor Subsidiaries and the Nonguarantor Subsidiaries; and . Plains Resources Inc. on a consolidated basis. These statements are presented because our Series A-F subordinated notes are not guaranteed by the Nonguarantor Subsidiaries. Because of the Transactions, our investment in PAA is presented on the equity method of accounting, retroactive to January 1, 2001. 12 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) (IN THOUSANDS) JUNE 30, 2001
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,883 $ (6,383) $ 30,871 $ - $ 38,371 Accounts receivable and other 5,646 31,244 (1,356) - 35,534 Inventory - 10,306 - - 10,306 --------- --------- -------- --------- --------- 19,529 35,167 29,515 - 84,211 --------- --------- -------- --------- --------- PROPERTY AND EQUIPMENT 240,664 636,759 - - 877,423 Less allowance for depreciation, depletion and amortization (216,871) (206,212) (49) - (423,132) --------- --------- -------- --------- --------- 23,793 430,547 (49) - 454,291 --------- --------- -------- --------- --------- INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY ADVANCES 544,188 (255,306) 52,222 (289,037) 52,067 --------- --------- -------- --------- --------- OTHER ASSETS 7,393 10,408 - - 17,801 --------- --------- -------- --------- --------- $ 594,903 $ 220,816 $ 81,688 $(289,037) $ 608,370 ========= ========= ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other current liabilities $ 10,728 $ 49,860 $ 25,537 $ - $ 86,125 Notes payable and other current obligations - - - - - --------- --------- -------- --------- --------- 10,728 49,860 25,537 - 86,125 LONG-TERM DEBT Bank debt - - - - - Bank debt of subsidiary - - - - - Subordinated debt 277,353 - - - 277,353 Other - 1,533 - - 1,533 --------- --------- -------- --------- --------- 277,353 1,533 - - 278,886 --------- --------- -------- --------- --------- OTHER LONG-TERM LAIBILITIES 3,252 - - - 3,252 --------- --------- -------- --------- --------- DEFERRED INCOME TAXES 112,178 (12,560) 7,898 (85,989) 21,527 --------- --------- -------- --------- --------- STOCKHOLDERS' EQUITY 191,392 181,983 48,253 (203,048) 218,580 --------- --------- -------- --------- --------- $ 594,903 $ 220,816 $ 81,688 $(289,037) $ 608,370 ========= ========= ======== ========= =========
13 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET (IN THOUSANDS) DECEMBER 31, 2000
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 4 $ 597 $ 4,479 $ - $ 5,080 Accounts receivable and other 12,193 15,596 347,696 - 375,485 Inventory - 8,063 46,781 - 54,844 --------- --------- -------- --------- ---------- 12,197 24,256 398,956 - 435,409 --------- --------- -------- --------- ---------- PROPERTY AND EQUIPMENT 237,591 570,677 473,471 - 1,281,739 Less allowance for depreciation, depletion and amortization (215,942) (138,871) (27,266) (55,386) (437,465) --------- --------- -------- --------- ---------- 21,649 431,806 446,205 (55,386) 844,274 --------- --------- -------- --------- ---------- INVESTMENTS IN SUBSIDIARIES AND INTERCOMPANY ADVANCES 389,467 (237,286) (23,977) (128,204) - --------- --------- -------- --------- ---------- OTHER ASSETS 8,151 16,005 90,490 - 114,646 --------- --------- -------- --------- ---------- $ 431,464 $ 234,781 $911,674 $(183,590) $1,394,329 ========= ========= ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other current liabilities $ 7,105 $ 46,368 $359,823 $ 13 $ 413,309 Notes payable and other current obligations - 511 1,300 - 1,811 --------- --------- -------- --------- ---------- 7,105 46,879 361,123 13 415,120 LONG-TERM OBLIGATIONS Bank debt 27,300 - - - 27,300 Bank debt of subsidiary - - 320,000 - 320,000 Subordinated debt 277,543 - - - 277,543 Other - 1,533 - - 1,533 --------- --------- -------- --------- ---------- 304,843 1,533 320,000 - 626,376 --------- --------- -------- --------- ---------- OTHER LONG-TERM LIABILITIES 2,413 - 1,009 - 3,422 --------- --------- -------- --------- ---------- MINORITY INTEREST (70,037) - 232,216 92 162,271 --------- --------- -------- --------- ---------- CUMULATIVE CONVERTIBLE PREFERRED STOCK 50,000 - - - 50,000 --------- --------- -------- --------- ---------- STOCKHOLDERS' EQUITY 137,140 186,369 (2,674) (183,695) 137,140 --------- --------- -------- --------- ---------- $ 431,464 $ 234,781 $911,674 $(183,590) $1,394,329 ========= ========= ======== ========= ==========
14 PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 2001
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ Revenues Oil and natural gas sales $ - $58,001 $ - $ - $ 58,001 Other operating revenues - 423 - - 423 -------- ------- -------- --------- -------- - 58,424 - - 58,424 -------- ------- -------- --------- -------- COSTS AND EXPENSES Production expenses - 17,850 - - 17,850 General and administrative 9,387 2,092 - - 11,479 Depreciation, depletion and amortization 1,451 5,085 49 - 6,585 -------- ------- -------- --------- -------- 10,838 25,027 49 - 35,914 -------- ------- -------- --------- -------- INCOME FROM OPERATIONS (10,838) 33,397 (49) - 22,510 OTHER INCOME (EXPENSE) Equity in earnings of PAA - - 3,755 - 3,755 Equity in earnings of subsidiaries 195,629 - - (195,629) - Gain on PAA units - - 148,213 - 148,213 Interest expense (945) (5,882) - - (6,827) Interest and other income (expense) (707) (136) 174 - (669) -------- ------- -------- --------- -------- INCOME BEFORE INCOME TAXES, 183,139 27,379 152,093 (195,629) 166,982 Income tax (expense) benefit: Current - - (8,449) - (8,449) Deferred (99,768) 7,277 (51,929) 85,989 (58,431) -------- ------- -------- --------- -------- NET INCOME 83,371 34,656 91,715 (109,640) 100,102 Preferred dividend requirement (24,947) - - - (24,947) -------- ------- -------- --------- -------- INCOME ATTRIBUTABLE TO COMMON SHARES $ 58,424 $34,656 $ 91,715 $(109,640) $ 75,155 ======== ======= ======== ========= ========
15 PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS) THREE MONTHS ENDED JUNE 30, 2000
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ Revenues Oil and natural gas sales $ - $37,023 $ - $ 425 $ 37,448 Other operating revenues - - - - - Midstream revenues - - 1,388,246 (425) 1,387,821 -------- ------- ---------- ----- ---------- - 37,023 1,388,246 - 1,425,269 -------- ------- ---------- ----- ---------- COSTS AND EXPENSES Production expenses - 15,396 - - 15,396 Midstream costs and expenses - - 1,355,473 - 1,355,473 General and administrative 560 1,959 7,995 - 10,514 Depreciation, depletion and amortization 861 4,601 4,695 - 10,157 -------- ------- ---------- ----- ---------- 1,421 21,956 1,368,163 - 1,391,540 -------- ------- ---------- ----- ---------- INCOME FROM OPERATIONS (1,421) 15,067 20,083 - 33,729 OTHER INCOME (EXPENSE) Interest expense (2,338) (5,424) (6,087) 906 (12,943) Interest and other income (expense) (462) 59 3,084 (906) 1,775 -------- ------- ---------- ----- ---------- INCOME BEFORE MINORITY INTEREST, INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (4,221) 9,702 17,080 - 22,561 Minority interest in PAA - - (7,820) - (7,820) Income tax (expense) benefit: Current (185) (104) (232) - (521) Deferred (8,161) (2,186) 5,119 - (5,228) -------- ------- ---------- ----- ---------- INCOME BEFORE EXTRAORDINARY ITEM (12,567) 7,412 14,147 - 8,992 Extraordinary item - - (3,623) - (3,623) -------- ------- ---------- ----- ---------- NET INCOME (12,567) 7,412 10,524 - 5,369 Preferred dividend requirement (3,694) - - - (3,694) -------- ------- ---------- ----- ---------- INCOME ATTRIBUTABLE TO COMMON SHARES $(16,261) $ 7,412 $ 10,524 $ - $ 1,675 ======== ======= ========== ===== ==========
16 PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ Revenues Oil and natural gas sales $ - $116,233 $ - $ - $116,233 Other operating revenues - 423 - - 423 -------- -------- -------- --------- -------- - 116,656 - - 116,656 -------- -------- -------- --------- -------- COSTS AND EXPENSES Production expenses 2 34,028 - - 34,030 General and administrative 10,434 5,113 13 - 15,560 Depreciation, depletion and amortization 1,362 11,924 98 - 13,384 -------- -------- -------- --------- -------- 11,798 51,065 111 - 62,974 -------- -------- -------- --------- -------- INCOME FROM OPERATIONS (11,798) 65,591 (111) - 53,682 OTHER INCOME (EXPENSE) Equity in earnings of PAA - - 10,591 - 10,591 Equity in earnings of subsidiaries 215,368 - - (215,368) - Gain on PAA units - - 150,171 - 150,171 Interest expense (2,266) (11,557) - - (13,823) Interest and other income (expense) (685) 423 260 - (2) -------- -------- -------- --------- -------- INCOME BEFORE MINORITY INTEREST, INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 200,619 54,457 160,911 (215,368) 200,619 Minority interest in PAA - - - - - Income tax (expense) benefit: Current 1,788 - (10,715) - (8,927) Deferred (100,071) (3,454) (53,102) 85,989 (70,638) -------- -------- -------- --------- -------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 102,336 51,003 97,094 (129,379) 121,054 Cumulative effect of accounting change - (2,129) 143 - (1,986) -------- -------- -------- --------- -------- NET INCOME 102,336 48,874 97,237 (129,379) 119,068 Preferred dividend requirement (26,546) - - - (26,546) -------- -------- -------- --------- -------- INCOME ATTRIBUTABLE TO COMMON SHARES $ 75,790 $ 48,874 $ 97,237 $(129,379) $ 92,522 ======== ======== ======== ========= ========
17 PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ Revenues Oil and natural gas sales $ - $ 69,199 $ - $ 816 $ 70,015 Midstream revenues - - 3,390,753 (816) 3,389,937 ------- -------- ---------- -------- ---------- - 69,199 3,390,753 - 3,459,952 ------- -------- ---------- -------- ---------- COSTS AND EXPENSES Production expenses - 30,623 - - 30,623 Midstream costs and expenses - - 3,321,427 - 3,321,427 General and administrative 1,062 3,887 16,646 - 21,595 Depreciation, depletion and amortization 1,675 8,715 14,867 - 25,257 Gain on disposition of assets - - (48,188) - (48,188) ------- -------- ---------- -------- ---------- 2,737 43,225 3,304,752 - 3,350,714 ------- -------- ---------- -------- ---------- INCOME FROM OPERATIONS (2,737) 25,974 86,001 - 109,238 OTHER INCOME (EXPENSE) Equity in earnings of subsidiaries 42,413 - - (42,413) - Interest expense (6,155) (10,624) (15,100) 3,062 (28,817) Interest and other income (expense) (1,044) 101 10,594 (3,062) 6,589 ------- -------- ---------- -------- ---------- INCOME BEFORE MINORITY INTEREST, INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 32,477 15,451 81,495 (42,413) 87,010 Minority interest in PAA - - (37,404) - (37,404) Income tax (expense) benefit: Current (185) (104) (232) - (521) Deferred (6,732) (3,628) (8,465) - (18,825) ------- -------- ---------- -------- ---------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 25,560 11,719 35,394 (42,413) 30,260 Extraordinary item - - (4,988) - (4,988) Cumulative effect of accounting change - (121) - - (121) ------- -------- ---------- -------- ---------- NET INCOME 25,560 11,598 30,406 (42,413) 25,151 Preferred dividend requirement (7,412) - - - (7,412) ------- -------- ---------- -------- ---------- INCOME ATTRIBUTABLE TO COMMON SHARES $18,148 $ 11,598 $ 30,406 $(42,413) $ 17,739 ======= ======== ========== ======== ==========
18 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 102,336 $ 48,874 $ 97,237 $(129,379) $ 119,068 Items not affecting cash flows from operating activities: Depreciation, depletion and amortization 1,362 11,924 98 - 13,384 Equity in earnings of PAA - - (10,591) - (10,591) Minority interest in income of a subsidiary (215,368) - - 215,368 - Gain on sale of PAA units - - (150,171) - (150,171) Distributions from PAA - - 17,907 - 17,907 Deferred income taxes 100,071 4,200 53,102 (85,989) 71,384 Cumulative effect of adoption of SFAS 133 - 2,129 (143) - 1,986 Change in derivative fair value - 1,227 - - 1,227 Noncash compensation expense 4,246 - - - 4,246 Other noncash items 679 - - - 679 Change in assets and liabilities from operating activities: Current and other assets 10,644 (9,252) 9,875 - 11,267 Current and other liabilities 3,623 (5,597) (10,708) - (12,682) --------- -------- --------- --------- --------- Net cash provided by operating activities 7,593 53,505 6,606 - 67,704 --------- -------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Properties and equipment (1,987) (60,485) - - (62,472) Sale of PAA units - - 105,899 - 105,899 Investment in PAA - - (2,763) (2,763) --------- -------- --------- --------- --------- Net cash provided by (used in) investing activities (1,987) (60,485) 103,136 - 40,664 --------- -------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in long-term debt (27,300) - - - (27,300) Sale of common stock 2,892 - - - 2,892 Treasury stock purchases (39,528) - - - (39,528) Dividends paid 79,925 - (79,925) - - Preferred stock dividends paid (7,648) - - - (7,648) Other (68) - - - (68) --------- -------- --------- --------- --------- Net cash provided by (used in) financing activities 8,273 - (79,925) - (71,652) --------- -------- --------- --------- --------- Net increase (decrease) in cash and cash equivalent 13,879 (6,980) 29,817 - 36,716 Decrease in cash due to deconsolidation of PAA - - (3,425) - (3,425) Cash and cash equivalents, beginning of period 4 597 4,479 - 5,080 --------- -------- --------- --------- --------- Cash and cash equivalents, end of period $ 13,883 $ (6,383) $ 30,871 $ - $ 38,371 ========= ======== ========= ========= =========
19 PLAINS RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NONGUARANTOR INTERCOMPANY PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 25,560 $ 11,598 $ 30,406 $(42,413) $ 25,151 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion, and amortization 1,675 8,715 14,867 - 25,257 Gain on sale of assets - - (48,188) - (48,188) Minority interest in income of a subsidiary - - 30,434 - 30,434 Equity in earnings of subsidiary (42,413) - - 42,413 - Cumulative effect of accounting change - 121 - - 121 Deferred income tax 6,732 3,628 5,275 - 15,635 Other noncash items 5,731 - 4,712 - 10,443 Change in assets and liabilities resulting from operating activities: Current and other assets (7,702) (5,720) 163,689 - 150,267 Current and other liabilities 1,520 637 (207,607) - (205,450) Advances from (to) affiliates 125,773 4,921 (130,694) - - --------- -------- --------- -------- --------- NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 116,876 23,900 (137,106) - 3,670 --------- -------- --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Midstream properties and equipment - - (5,009) - (5,009) 0.1 and gas properties and equipment (1,108) (27,440) - - (28,548) Other properties and equipment (117) (1,173) (537) - (1,827) Proceeds from sale of assets - - 223,859 - 223,859 --------- -------- --------- -------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,225) (28,613) 218,313 - 188,475 --------- -------- --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in long-term debt (122,300) - (42,850) - (165,150) Net change in short-term debt - - (55,719) - (55,719) Costs incurred in connection with financing arrangements - - (6,500) - (6,500) Dividends paid (6,043) - - - (6,043) Distribution to unitholders 12,474 - (26,973) - (14,499) Other (385) - - - (385) --------- -------- --------- -------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (116,254) - (132,042) - (248,296) --------- -------- --------- -------- --------- Net decrease in cash and cash equivalents (603) (4,713) (50,835) - (56,151) Cash and cash equivalents, beginning of period 9,241 5,134 53,853 - 68,228 --------- -------- --------- -------- --------- Cash and cash equivalents, end of period $ 8,638 $ 421 $ 3,018 $ - $ 12,077 ========= ======== ========= ======== =========
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Prior to the second quarter of 2001 we described Plains Resources Inc. as an independent energy company that was engaged in two related lines of business within the energy sector industry. The first line of business, which we referred to as "upstream", acquires, exploits, develops, explores and produces crude oil and natural gas. The second line of business, which we referred to as "midstream", engaged in the marketing, transportation and terminalling of crude oil. The midstream business was conducted through our majority ownership in Plains All American Pipeline, L.P. ("PAA"). For financial statement purposes, the assets, liabilities and earnings of PAA were included in our consolidated financial statements, with the public unitholders' interest reflected as a minority interest. We have undergone a significant corporate reorganization. In a series of transactions on June 8, 2001, we sold a portion of our interest in PAA to a group of investors and certain members of PAA management for aggregate consideration of approximately $155 million (consisting of $110 million in cash and $45 million in Series F Preferred Stock) and recognized a pre-tax gain of $128.6 million. In addition, certain holders of shares of our Series F Cumulative Convertible Preferred Stock (the "Series F Preferred Stock") and Series H Convertible Preferred Stock (the "Series H Preferred Stock") converted such shares into shares of our common stock (the "Transactions"). We sold (i) 5.2 million Subordinated Units of PAA (the "Subordinated Units") for $69.5 million in cash and the redemption of 23,108 shares of Series F Preferred Stock, valued at $45 million; and (ii) an aggregate 54% ownership interest in the general partner of PAA for $40.5 million in cash. In addition, the investor group and certain other stockholders converted 26,892 shares of Series F Preferred Stock and 132,022 shares of Series H Preferred Stock into a total of 6.6 million shares of our common stock. As a result of the Transactions, all of the Series F Preferred Stock and all but approximately 36,000 shares of the Series H Preferred Stock were retired or converted. Also as a result of the Transactions, certain of our employees received transaction-related bonuses and other payments and vested in benefits in accordance with the terms of certain of our employee benefit plans. Certain members of PAA management have the option to acquire an aggregate additional 2% ownership interest in the general partner of PAA. The excess of the fair value of the Series F Preferred Stock redeemed as consideration for the PAA Units over the carrying value of the Series F Preferred Stock is deemed to be a dividend to preferred stockholders and is deducted in determining the income available to common stockholders for the purpose of determining basic and fully diluted earnings per share. In connection with the conversion of the Series F Preferred Stock into common stock, we made a $2.5 million payment representing a 20% premium to the amount of dividends that would accrue on the Series F Preferred Stock between the closing of the Transactions and the first date we could potentially cause such conversion. The Subordinated Units are subordinated in right to distributions from PAA and are not publicly traded, however, PAA's partnership agreement provides that, if certain financial tests are met, the Subordinated Units (including those retained by us) will convert into common units on a one-for-one basis commencing in 2003. In connection with the Transactions we entered into Value Assurance Agreements with such purchasers of the Subordinated Units under the terms of which we will pay the purchasers an amount per fiscal year, payable on a quarterly basis, equal to $1.85 per unit less the actual amount distributed during that year. The Value Assurance Agreements will expire upon the earlier of (a) the conversion of all of the Subordinated Units to common units or (b) June 8, 2006. PAA recently announced a quarterly distribution, payable in the third quarter of 2001, of $0.50 per unit ($2.00 annualized). At March 31, 2001, our aggregate ownership interest in PAA was approximately 54%. Following the sale of common units by PAA in a public equity offering in May 2001 and the Transactions, our aggregate ownership interest in PAA is approximately 33%. Our aggregate ownership in consists of: (i) a 46% ownership interest in the 2% general partner interest and incentive distribution rights, (ii) 45%, or approximately 4.5 million, of the Subordinated Units and (iii) 28% or approximately 7.9 million of the common units (including approximately 1.3 million Class B common units). As a result of the Transactions, our minority investment in PAA is accounted for using the equity method of accounting presented retroactively to January 1, 2001. Under the equity method, we no longer consolidate the assets, liabilities and operating activities of PAA, but instead record our proportionate share of PAA's results of operations. As a result of the Transactions, our primary line of business is upstream. While our 33% ownership in PAA represents a significant investment in the midstream business, because of the reduced ownership and the inability to control the operations of PAA, it is no longer considered to be a line of business of ours. PAA continues to be the purchaser of all our crude oil production. Also, in connection with the Transactions, we entered into a separation agreement with PAA pursuant to which, among other things, (a) we agreed to indemnify PAA, the general partner of PAA, and the subsidiaries of PAA against any losses or liabilities resulting from (i) the operation of the upstream business or (ii) federal or state securities laws, or the regulations of any self-regulatory authority, or other similar claims resulting from acts or omissions by us, our subsidiaries, PAA or PAA's subsidiaries on or before the closing of the Transactions; and (b) PAA agreed to indemnify us and our subsidiaries against any losses or liabilities resulting from the operation of the midstream business. We also entered into a pension and employee benefits assumption and transition agreement pursuant to which the general partner of PAA and us agreed to the transition of certain employees to such general partner, the provision of certain benefits with respect to such transfer, and the provision of other transition services by us. In addition, in connection with the Transactions, our Board of Directors elected James C. Flores Chairman of the Board and Chief Executive Officer and has also elected a new Chief Operating Officer, Chief Financial Officer and General Counsel/Secretary. We have entered into an employment agreement, a performance stock option agreement and a registration rights agreement with Mr. Flores. 21 RESULTS OF OPERATIONS As a result of the change to the equity method of accounting for our investment in PAA, our income statement presentation for 2001 is not comparable to our income statement presentation for 2000. The following table reflects our 2001 income statement compared to our 2000 income statement adjusted to reflect PAA on the equity method of accounting. Our discussion of the results of operations will be based on the income statement presentation reflected herein.
3 MONTHS ENDED JUNE 30, 6 MONTHS ENDED JUNE 30, ----------------------- ----------------------- 2001 2000 2001 2000 -------- -------- -------- -------- PRO FORMA PRO FORMA REVENUES Crude oil and liquids $ 45,655 $ 34,334 $ 92,715 $ 64,640 Natural gas 12,346 2,689 23,518 4,559 Other operating revenues 423 - 423 - -------- -------- -------- -------- 58,424 37,023 116,656 69,199 -------- -------- -------- -------- COSTS AND EXPENSES Production costs 17,850 15,396 34,030 30,623 General and administrative 11,479 2,566 15,560 5,020 Depletion, depreciation and amortization 6,585 5,496 13,384 10,458 -------- -------- -------- -------- 35,914 23,458 62,974 46,101 -------- -------- -------- -------- INCOME FROM OPERATIONS 22,510 13,565 53,682 23,098 OTHER INCOME (EXPENSE) Equity in earnings of PAA 3,755 9,244 10,591 43,959 Gain on PAA Units 148,213 - 150,171 - Interest expense (6,827) (7,762) (13,823) (16,779) Interest and other income and expense (669) (306) (2) (672) -------- -------- -------- -------- INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 166,982 14,741 200,619 49,606 Income Taxes Current expense (8,449) (521) (8,927) (521) Deferred expense (58,431) (5,228) (70,638) (18,825) -------- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 100,102 8,992 121,054 30,260 Extraordinary item - (3,623) - (4,988) Cumulative effect of accounting change - - (1,986) (121) -------- -------- -------- -------- NET INCOME 100,102 5,369 119,068 25,151 Preferred dividend requirement (24,947) (3,694) (26,546) (7,412) -------- -------- -------- -------- INCOME ATTRIBUTABLE TO COMMON SHARES $ 75,155 $ 1,675 $ 92,522 $ 17,739 ======== ======== ======== ========
22 The following table reflects the components of our oil and gas revenues and sets forth our revenues and costs and expenses on a BOE basis:
3 MONTHS ENDED JUNE 30, 6 MONTHS ENDED JUNE 30, ----------------------- ----------------------- 2001 2000 2001 2000 ------- ------- ------- ------- DAILY AVERAGE SALES VOLUMES Total Oil and liquids (Bbls) 23,693 24,018 24,657 22,821 Natural Gas (Mcf) 9,695 8,275 8,989 7,935 BOE 25,309 25,397 26,156 24,144 Oil and Liquids (Bbls) Onshore California 15,938 13,699 15,330 13,615 Offshore California 3,490 4,543 3,654 4,280 Illinois 2,705 2,858 2,749 2,848 Florida 1,560 2,918 2,924 2,078 ------- ------- ------- ------- 23,693 24,018 24,657 22,821 ======= ======= ======= ======= Natural Gas (Mcf) Onshore California 9,695 8,275 8,989 7,935 ======= ======= ======= ======= UNIT ECONOMICS (IN DOLLARS) Average Liquids Sales Price ($/Bbl) Average NYMEX $ 27.98 $ 28.69 $ 28.40 $ 28.73 Hedging gain (loss) (1.54) (7.86) (1.66) (8.31) Differential (5.26) (4.93) (5.97) (4.66) ------- ------- ------- ------- Net realized $ 21.18 $ 15.90 $ 20.77 $ 15.76 ======= ======= ======= ======= Average Gas Sales Price ($/Mcf) $ 14.00 $ 3.57 $ 14.45 $ 3.16 Average Sales Price per BOE(1) $ 25.19 $ 16.20 $ 24.55 $ 15.93 Average Production Costs per BOE (7.75) (6.66) (7.19) (6.97) ------- ------- ------- ------- Gross Margin per BOE 17.44 9.54 17.36 8.96 G&A per BOE (2) (1.62) (1.09) (1.42) (1.13) ------- ------- ------- ------- Gross Profit per BOE $ 15.82 $ 8.45 $ 15.94 $ 7.83 ======= ======= ======= ======= DD&A per BOE (oil and gas properties) $ 2.64 $ 2.21 $ 2.64 $ 2.21
(1) BOE - barrel of oil equivalent (2) Excludes costs associated with corporate reorganization and noncash compensation expense. THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000 Total revenues for 2001 were 58% higher than in 2000, primarily reflecting higher realized prices for oil and gas. Realized oil prices increased by 33% from $15.90 per barrel in 2000 to $21.18 per barrel in 2001. The 2000 realized price was significantly impacted by hedges that were put into place in the latter part of 1999 when crude oil prices were considerably lower. Average natural gas sales prices increased significantly, from $3.57 per Mcf in 2000 to $14.00 per Mcf in 2001, reflecting the well-publicized high natural gas prices in California. Oil sales volumes for the two periods were approximately the same, with higher sales in onshore California, reflecting the continuing development of our producing properties, being partially offset by lower sales in Florida resulting primarily from the timing of deliveries to purchasers. Due to the location of our Florida properties and the transportation issues involved, reported sales volumes are impacted by the timing of the barges that transport the crude oil. Oil production volumes averaged 24,936 barrels per day in the second quarter of 2001, a 5% increase over the 23,688 barrels per day in the second quarter of 2000. Natural gas sales volumes increased by 17%, again reflecting the continuing development of our California properties. Production costs increased by $2.5 million from $6.66 per BOE in 2000 to $7.75 per BOE in 2001, primarily reflecting higher costs for electricity and fuels. General and administrative expense includes approximately $7.8 million of nonrecurring costs, 23 primarily associated with the corporate reorganization. Such amounts include $4.2 million of noncash compensation that is primarily associated with the vesting of performance-based stock options. On an ongoing basis, general and administrative expense is expected to return to the $2.6 million level reported in 2000. Depletion, depreciation and amortization ("DD&A") increased by $1.1 million, primarily due to an increase in the DD&A rate with respect to oil and gas properties from $2.21 per BOE in 2000 to $2.64 per BOE in 2001. Equity in earnings of PAA represents our interest in the income before extraordinary items of PAA of $7.1 million in 2001 and $17.1 million in 2000. We reported equity in earnings of $3.8 million in 2001 compared to $3.3 million in 2000 (after deducting our $5.9 million equity in PAA's extraordinary item). Our equity in earnings for 2001 was reduced by our $1.9 million share of PAA's noncash compensation expenses related to the vesting of partnership units in connection with the Transactions. The 2001 amounts reflect the reduction in our interest to approximately 33% effective June 8, 2001 as a result of the Transactions. The gain on PAA units reflects: (i) a $19.6 million gain resulting from the increase in the book value of our equity in PAA to reflect our proportionate share of the increase in the underlying net assets of PAA resulting from PAA's recent public offering of common units; and (ii) a $128.6 million gain resulting from the sale of a portion of our investment in PAA as discussed in "General". Interest expense decreased from $7.8 million in 2000 to $6.8 million in 2001, reflecting lower bank debt and interest rates. The extraordinary item in 2000 represents our equity in a $11.0 million extraordinary item of PAA (net of related income taxes). Preferred dividends include: (i) a $21.4 million deemed preferred dividend representing the difference between the fair value of the Series F Preferred Stock tendered as consideration in the Transactions and our carrying value of such stock; and (ii) a $2.5 million inducement-to-convert payment made to certain holders of Series F Preferred Stock. SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000 Total revenues for 2001 were 69% higher than in 2000, primarily reflecting higher realized prices for oil and gas. Realized oil prices increased by 32% from $15.76 per barrel in 2000 to $20.77 per barrel in 2001. The 2000 realized price was significantly impacted by hedges that were put into place in the latter part of 1999 when crude oil prices were considerably lower. Average natural gas sales prices increased significantly, from $3.16 per Mcf in 2000 to $14.45 per Mcf in 2001, reflecting the well-publicized high natural gas prices in California. Oil sales volumes for the two periods were approximately the same, with higher sales in onshore California, reflecting the continuing development of our producing properties, being partially offset by lower sales in Florida resulting primarily from the timing of deliveries to purchasers. Oil production volumes averaged 24,551 barrels per day the first half of 2001, a 7% increase over the 22,930 barrels per day in the first half of 2000. Natural gas sales volumes increased by 13%, again reflecting the continuing development of our California properties. Production costs increased by $3.4 million from $6.97 per BOE in 2000 to $7.19 per BOE in 2001, primarily reflecting higher costs for electricity and fuels. General and administrative expense includes approximately $8.8 million of nonrecurring costs, primarily associated with the corporate reorganization. Such amounts include $4.2 million of noncash compensation that is primarily associated with the vesting of performance-based stock options. DD&A increased by $2.9 million, primarily due to an increase in the DD&A rate with respect to oil and gas properties from $2.21 per BOE in 2000 to $2.64 per BOE in 2001. Equity in earnings of PAA represents our interest in the income before extraordinary items of PAA of $19.6 million in 2001 and $81.4 million in 2000. PAA's earnings in 2000 included a $48.2 million gain on the sale of assets. We reported equity in earnings of $10.6 million in 2001 compared to $35.7 million in 2000 (after deducting our $8.2 million equity in PAA's extraordinary item). Our equity in earnings for 2001 was reduced by our $1.9 million share of PAA's noncash compensation expenses related to the vesting of partnership units in connection with the Transactions. The 2001 amounts reflect the reduction in our interest in PAA to approximately 33% effective June 8, 2001 as a result of the Transactions. The gain on PAA units reflects: (i) a $19.6 million gain resulting from the increase in the book value of our equity in PAA to reflect our proportionate share of the increase in the underlying net assets of PAA resulting from PAA's recent public offering of common units; (ii) a $128.6 million gain resulting from the sale of a portion of our investment in PAA as discussed in 24 "General"; and (iii) a $2.0 million gain in the first quarter of 2001 related to the vesting of certain unit grants. Interest expense decreased from $16.8 million in 2000 to $13.8 million in 2001, reflecting lower bank debt and interest rates. The extraordinary item in 2000 represents our equity in a $15.1 million extraordinary item of PAA (net of related income taxes). The cumulative effect of accounting change in 2001 represents the effect of the adoption, effective January 1, 2001, of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as discussed in Note 3. to the Consolidated Financial Statements. The cumulative effect of accounting change in 2000 represents the effect of the adoption of SEC Staff Accounting Bulletin 101 "Revenue Recognition in Financial Statements" which requires that we record revenue from crude oil production in the period it is sold as opposed to when it is produced and carry any unsold production in inventory. Preferred dividends include: (i) a $21.4 million deemed preferred dividend representing the difference between the fair value of the Series F Preferred Stock tendered as consideration in the Transactions and our carrying value of such stock; and (ii) a $2.5 million inducement-to-convert payment made to certain holders of Series F Preferred stock. LIQUIDITY AND CAPITAL RESOURCES As a result of the Transactions, at June 30, 2001 we had no bank debt (we do still have $275 million of subordinated debt), full availability under our $225 million revolving credit facility and $38.4 million in cash. Our Series F Preferred Stock has been eliminated, saving approximately $5 million a year in dividends. In addition, our Standard & Poor's general corporate rating has been increased from BB- to BB with Stable Outlook. We expect capital expenditures for the second half of 2001 to be $51 to $56 million, all of which will be funded by cash on hand and cash generated by operations. In the first half of 2001 we purchased 1.6 million shares of treasury stock for $39.5 million, completing the three million common share repurchase program which had been approved by the Board of Directors. The Board has approved a new five million share repurchase program. One measure we use to evaluate our performance is recurring earnings before interest, taxes and DD&A ("EBITDA"). Recurring Upstream EBITDA for the second quarter and first six months of 2001 was $39.2 million and $80.3 million, respectively, compared to $20.3 million and $37.3 million, respectively, for the same periods in 2000. The increases in 2001 primarily reflect higher net realized prices for crude oil and natural gas. Recurring Upstream EBITDA is calculated as Income from Operations plus (i) DD&A; (ii) reorganization costs; (iii) noncash compensation; and (iv) the change in the fair value of hedge options ($2.3 million and $4.4 million in the second quarter and first six months of 2001, respectively). Combined Recurring EBITDA (Upstream EBITDA plus distributions received from PAA) was $48.3 million and $98.2 million for the three and six months ended June 30, 2001, respectively, compared to $28.9 million and $49.7 million, respectively, for the same periods in 2000. In the second quarter of 2001 we received a cash distribution from PAA of $9.1 million, including $0.5 million for our 100% interest in the general parter. Based on the $0.50 per unit distribution recently declared by PAA and our reduced ownership interest, the distribution we will receive in the third quarter of 2001 will be approximately $6.7 million, including $0.3 million for our 46% interest in the general partner. Cash provided by operating activities for the first six months of 2001 totaled $67.7 million and net proceeds from the Transactions totaled $105.9 million. Our primary expenditures were capital expenditures of $62.5 million, retirement of debt of $27.3 million and purchases of treasury stock of $39.5 million. Cash increased by $36.7 million during the period. Since our announcement in November 1999 of PAA's losses resulting from unauthorized trading by a former employee, numerous class action lawsuits have been filed against PAA, certain of its general partner's officers and directors and in some of these cases, its then general partner and us alleging violations of the federal securities laws. In addition, derivative lawsuits were filed against PAA's then general partner, its directors and certain of its officers alleging the defendants breached the fiduciary duties owed to PAA and its unitholders by failing to monitor properly the activities of its traders. These suits, for the most part, have been settled. See Part II - "Other Information" - - Item 1. -"Legal Proceedings." Although we maintain an inspection program designed to prevent and, as applicable, to detect and address releases of crude oil into the environment from our upstream operations, we may experience such releases in the future, or discover releases that were previously unidentified. Damages and liabilities incurred due to any future environmental releases from our assets may substantially affect our business. 25 OUTLOOK Our activities are affected by changes in crude oil prices, which historically have been volatile. Although we have routinely hedged a substantial portion of our crude oil production and intend to continue this practice, substantial future crude oil price declines would adversely affect our overall results, and therefore our liquidity. Furthermore, low crude oil prices could affect our ability to raise capital on favorable terms. Decreases in the prices of crude oil and natural gas have had, and could have in the future, an adverse effect on the carrying value of our proved reserves and our revenues, profitability and cash flow. To manage our exposure to commodity price risk, we routinely hedge a portion of our crude oil production. For the second half 2001, we have entered into various arrangements, using a combination of swaps, collars and purchased puts and calls, which will provide for us to receive an average minimum NYMEX price of approximately $22.73 per barrel on 20,500 barrels per day with full market price participation up to an average of $26.59 per barrel. We then have further upside participation on approximately 29% of those hedged barrels to $30.00 per barrel, upside participation on 59% of hedged barrels beyond a NYMEX price of $30.00 and 100% upside participation on hedged barrels above a NYMEX price of $35.74. For 2002, we have entered into various arrangements that provide for us to receive an average minimum NYMEX price of $23.56 per barrel on 19,000 barrels per day with full market price participation on 20% of the hedged barrels up to $35.17 per barrel and 100% upside participation on approximately 68% of the hedged barrels beyond $35.17. For 2003, we have hedged 5,000 barrels per day at an average minimum NYMEX price of $23.23 per barrel. Location and quality differentials attributable to our properties and the cost of the hedges are not included in the foregoing prices for 2001, 2002 and 2003. Because of the quality and location of our crude oil production, these adjustments will reduce our net price per barrel. The fair value of the hedges is included in our balance sheet at June 30, 2001. Our management intends to continue to maintain hedging arrangements for a significant portion of our production. These contracts may expose us to the risk of financial loss in certain circumstances. Our hedging arrangements provide us protection on the hedged volumes if crude oil prices decline below the prices at which these hedges are set. But ceiling prices in our hedges may cause us to receive less revenue on the hedged volumes than we would receive in the absence of hedges. See "Quantitative and Qualitative Disclosures About Market Risk". ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations initiated after June 30, 2001, to be accounted for under the purchase method. For all business combinations for which the date of acquisition is after June 30, 2001, this Standard also establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain, rather than deferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: (i) goodwill and intangible assets with indefinite lives will no longer be amortized; (ii) goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and (iii) the amortization period for intangible assets with finite lives will no longer be limited to forty years. The issuance of SFAS 141 and SFAS 142 have no effect on our financial statements. We will account for all future business combinations in accordance with the provisions of SFAS 141 and SFAS 142. In June 2001, the FASB also issued SFAS No. 143 "Asset Retirement Obligations". SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (i) the timing of the liability recognition, (ii) initial measurement of the liability, (iii) allocation of asset retirement cost to expense, (iv) subsequent measurement of the liability and (v) financial statement disclosures. SFAS 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. We will adopt the statement effective January 1, 2003, as required. The transition adjustment resulting from the adoption of SFAS 143 will be reported as a cumulative effect of a change in accounting principle. At this time, we cannot reasonably estimate the effect of the adoption of this statement on either our financial position, results of operations, or cash flow. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including volatility in crude oil commodity prices and interest rates. To manage our exposure, we monitor our expectations of future commodity prices and interest rates when making decisions with respect to risk management. We do not enter into derivative transactions for speculative trading purposes that would expose us to price risk. Substantially all of our derivative contracts are exchanged or traded with major financial institutions and the risk of credit loss is considered remote. On January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS 137 and SFAS 138 ("SFAS 133"). Under SFAS 133, all derivative instruments are recorded on the balance sheet at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or loss on the derivative is recognized currently in earnings. To qualify for hedge accounting, the derivative must qualify either as a fair value hedge, cash flow hedge or foreign currency hedge. Currently, we use only cash flow hedges and the remaining discussion will relate exclusively to this type of derivative instrument. If the derivative qualifies for hedge accounting, the gain or loss on the derivative is deferred in accumulated Other Comprehensive Income ("OCI"), a component of Stockholders' Equity, to the extent the hedge is effective. We utilize various derivative instruments, for purposes other than trading, to hedge our exposure to price fluctuations on crude oil sales. The derivative instruments consist primarily of option contracts traded on the New York Mercantile Exchange and crude oil swap contracts entered into with financial institutions. We do not currently have any natural gas hedges. We also utilize interest rate swaps and collars to manage the interest rate exposure on our long-term debt. During the first six months of 2001 losses of $7.6 million (which were included in the cumulative effect adjustment) were transferred from OCI and the fair value of open positions decreased $7.0 million. At December 31, 2000, we had an interest rate swap arrangement to protect interest rate fluctuations on a portion of our outstanding debt. The position was terminated prior to maturity and as such $0.9 million related to such position was relieved from OCI at June 30, 2001 and the associated debt was repaid. 26 At June 30, 2001, a $1.9 million unrealized loss was recorded to OCI together with related assets and liabilities of $2.8 million and $4.0 million, respectively, and oil and gas revenues include a $4.4 million non-cash loss related to the ineffective portion of the cash flow hedges, representing the fair value change in the time value of certain options. Our hedge related assets are included in other current assets ($3.2 million) and other assets ($2.3 million) and our hedge related liabilities are included in other current liabilities ($4.3 million) and other long-term liabilities ($1.0 million). As of June 30, 2001, $1.4 million of deferred net losses on derivative instruments recorded in OCI are expected to be reclassified to earnings during the next twelve-month period. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. Hedge effectiveness is measured on a quarterly basis. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. No amounts were excluded from the computation of hedge effectiveness. At June 30, 2001, there were no positions which did not qualify for hedge accounting. At June 30, 2001, we had the following open crude oil hedge positions (barrels per day):
---------------- 2001 ---------------- 3rd Qtr 4th Qtr 2002 2003 Collars Average floor price $20.00/bbl Average cap price $27.00/bbl Average cap limit $30.00/bbl 6,000 6,000 - - Puts Average price $20.00/bbl 6,000 6,000 - - Average price $20.31/bbl - - 4,000 - Calls Average price $35.74/bbl 9,000 9,000 - - Average price $35.17/bbl - - 9,000 - Swaps Average price $26.59/bbl 8,500 8,500 - - Average price $24.42/bbl - - 15,000 - Average price $23.23/bbl - - - 5,000
Our collars consist of three separate options: a purchased put, which establishes a floor price, a sold call which establishes a cap price and a purchased call which gives us upside potential at a price above the cap price. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS All statements, other than statements of historical fact, included in this report are forward-looking statements, including, but not limited to, statements identified by the words "anticipate," "believe," "estimate," "expect," "plan," "intend" and "forecast" and similar expressions and statements regarding our business strategy, plans and objectives of our management for future operations. These statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. These statements, however, are subject to certain risks, uncertainties and assumptions, including, but not limited to: . uncertainties inherent in the exploration for and development and production of oil and gas and in estimating reserves; . unexpected future capital expenditures (including the amount and nature thereof); . impact of crude oil price fluctuations; . the effects of competition; . the success of our risk management activities; . the availability (or lack thereof) of acquisition or combination opportunities; . the impact of current and future laws and governmental regulations; . environmental liabilities that are not covered by an indemnity or insurance, and . general economic, market or business conditions. 27 If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those in the forward-looking statements. Except as required by applicable securities laws, we do not intend to update these forward-looking statements and information. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Texas Securities Litigation. On November 29, 1999, a class action lawsuit was filed in the United States District Court for the Southern District of Texas entitled Di Giacomo v. Plains All American Pipeline, et al. The suit alleged that Plains All American Pipeline, L.P. and certain of the general partner's officers and directors violated federal securities laws, primarily in connection with unauthorized trading by a former employee. An additional nineteen cases have been filed in the Southern District of Texas, some of which name the general partner and us as additional defendants. All of the federal securities claims have been consolidated into two actions. The first consolidated action was filed by purchasers of our common stock and options, and is captioned Koplovitz v. Plains Resources Inc., et al. The second consolidated action was filed by purchasers of PAA's common units, and is captioned Di Giacomo v. Plains All American Pipeline, L.P., et al. Plaintiffs alleged that the defendants were liable for securities fraud violations under Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934 and for making false registration statements under Sections 11 and 15 of the Securities Act of 1933. We and PAA reached an agreement with representatives for the plaintiffs for the settlement of all of the class actions, and in January 2001, PAA deposited approximately $30.0 million under the terms of the settlement agreement. The total cost of the settlement to us and PAA, including interest and expenses and after insurance reimbursements, was $14.9 million. Of that amount, $1.0 million was allocated to us by agreement between special independent committees of our board of directors and the board of directors of Plains All American Inc., the then general partner of PAA ("PAAI") and now known as Plains Holdings, Inc. The settlement is subject to final approval by the court. The settlement agreement does not affect the Texas Derivative Litigation and Delaware Derivative Litigation described below. Delaware Derivative Litigation. On December 3, 1999, two derivative lawsuits were filed in the Delaware Chancery Court, New Castle County, entitled Susser v. Plains All American Inc., et al and Senderowitz v. Plains All American Inc., et al. These suits, and three others which were filed in Delaware subsequently, named PAAI, the then general partner of PAA, its directors and certain of its officers as defendants, and alleged that the defendants breached the fiduciary duties that they owed to PAA and its unitholders by failing to monitor properly the activities of its employees. The court has consolidated all of the cases under the caption In Re Plains All American Inc. Shareholders Litigation, and has designated the complaint filed in Sussex v. Plains All American Inc. as the operative complaint in the consolidated action. A motion to dismiss was filed on behalf of the defendants on August 11, 2000. The plaintiffs in the Delaware derivative litigation seek that the defendants: . account for all losses and damages allegedly sustained by PAA from the unauthorized trading losses; . establish and maintain effective internal controls ensuring that PAA affiliates and persons responsible for its affairs do not engage in wrongful practices detrimental to PAA; . pay for the plaintiffs' costs and expenses in the litigation, including reasonable attorneys' fees, accountants' fees and experts' fees; and . provide the plaintiffs any additional relief as may be just and proper under the circumstances. An agreement in principle has been reached with the plaintiffs, subject to approval by the Delaware court, to settle the Delaware litigation by PAA making an aggregate payment of approximately $1.1 million. Texas Derivative Litigation. On July 11, 2000, a derivative lawsuit was filed in the United States District Court for the Southern District of Texas entitled Fernandez v. Plains All American Inc., et al., naming PAAI the then general partner of PAA, its directors and certain of its officers as defendants. This lawsuit contains the same claims and seeks the same relief as the Delaware derivative litigation described above. A motion to dismiss was filed on behalf of the defendants on August 14, 2000. We intend to vigorously defend the claims made in the Texas derivative litigation. We believe that Delaware court approval of the settlement of the Delaware derivative litigation will effectively preclude prosecution of the Texas derivative litigation. However, there can be no assurance that we will be successful in our defense or that this lawsuit will not have a material adverse effect on our financial position or results of operations or cash flows. We, in the ordinary course of business, are a claimant and/or defendant in various other legal proceedings. Management does not believe that the outcome of these legal proceedings, individually and in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows. 29 ITEMS 2, 3 & 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following items were presented for approval to stockholders of record on June 11, 2001 at the Company's 2001 annual meeting of stockholders which was held on July 11, 2001 in Houston, Texas:
(i) Election of Directors: ABSTAINED OR FOR AGAINST WITHHELD --- ------- -------- James C. Flores 23,149,226 - 229,029 Jerry L. Dees 23,149,186 - 229,069 Tom H. Dellmitros 23,149,186 - 229,069 William H. Hitchcock 23,148,976 - 229,279 Dan M. Krausse 23,149,186 - 229,069 John H. Lollar 23,149,186 - 229,069 D. Martin Phillips 23,149,186 - 229,069 Robert V. Sinnott 23,149,186 - 229,069 J. Taft Symonds 23,149,186 - 229,069 (ii) Ratification of PricewaterhouseCoopers LLC, independent certified public accountants, as auditors of the Company's financial statements for 2001. 22,526,408 851,559 288 (iii) Approval of 2001 Stock Incentive Plan 12,525,319 6,761,604 4,091,332 Of the 24,325,545 shares of common stock issued and outstanding on June 11, 2001, 23,378,255 were voted. All matters received the required number of votes for approval.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits 2.1 Unit Transfer and Contribution Agreement, dated as of May 8, 2001, among Sable Investments, L.P., Sable Holdings, L.P., James C. Flores, Plains Resources Inc., Plains All American Inc. and PAAI LLC (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K filed on May 10, 2001). 2.2 Unit Transfer and Contribution Agreement, dated as of May 8, 2001, among KAFU Holdings, LLC, Plains Resources Inc., Plains All American Inc., and PAAI LLC (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K filed on May 10, 2001). 2.3 First Amendment, dated as of June 8, 2001, to Unit Transfer and Contribution Agreement, dated as of May 8, 2001, among KAFU Holdings, LLC, Plains Resources Inc., Plains All American Inc., and PAAI LLC (incorporated by reference to Exhibit 99.9 to the Company's Current Report on Form 8-K filed on June 13, 2001). 2.4 Unit Transfer and Contribution Agreement, dated as of May 8, 2001, among E-Holdings III, L.P., Plains Resources Inc., Plains All American Inc. and PAAI LLC (incorporated by reference to Exhibit 99.4 to the Company's Current Report on Form 8-K filed on May 10, 2001). 2.5 First Amendment, dated as of June 8, 2001, to Unit Transfer and Contribution Agreement, dated as of May 8, 2001, among E-Holdings III, L.P., Plains Resources Inc., Plains All American Inc. and PAAI LLC (incorporated by reference to Exhibit 99.10 to the Company's Current Report on Form 8-K filed on June 13, 2001). 2.6 Unit Transfer and Contribution Agreement, dated as of June 8, 2001, among Strome Hedgecap Fund, L.P., Plains Resources Inc., Plains All American Inc. and PAAI LLC (incorporated by reference to Exhibit 99.5 to the Company's Current Report on Form 8-K filed on June 13, 2001). 2.7 Unit Transfer and Contribution Agreement, dated as of June 8, 2001, among Mark E. Strome, Plains Resources Inc., Plains All American Inc., and PAAI LLC (incorporated by reference to Exhibit 99.6 to the Company's Current Report on Form 8-K filed on June 13, 2001). 2.8 Unit Transfer and Contribution Agreement, dated as of June 8, 2001, among John T. Raymond, Plains Resources Inc., Plains All American Inc. and PAAI LLC (incorporated by reference to Exhibit 99.7 to the Company's Current Report on Form 8-K filed on June 13, 2001). 2.9 Contribution Agreement, dated as of June 8, 2001, among PAA Management, L.P., Plains Resources Inc., Plains All American Inc., and PAAI LLC (incorporated by reference to Exhibit 99.8 to the Company's Current Report on Form 8-K filed on June 13, 2001). 3.1* First Amendment to the Plains Resources Inc. Bylaws. 10.1 Employment Agreement, dated as of May 8, 2001 between Plains Resources Inc. and James C. Flores, dated (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2001). 10.2* Performance Stock Option Agreement, dated as of May 8, 2001 between Plains Resources Inc. and James C. Flores 10.3* Separation Agreement dated as of June 8, 2001 by and among Plains Resources Inc., Plains All American Inc., Plains All American GP LLC, Plains AAP, LP and Plains All American Pipeline, L.P. 10.4* Pension and Employee Benefits Assumption and Transition Agreement, dated as of June 8, 2001, by and between, Plains Resources Inc., Plains All American Inc. and Plains All American GP LLC. 10.5* Value Assurance Agreement, dated as of June 8, 2001 by and among Plains Resources Inc. and Sable Holdings L.P. and schedule of other Value Assurance Agreements substantially identical thereto. 10.6* Contribution, Assignment and Amendment Agreement, dated as of June 8, 2001, between Plains All American Inc., Plains AAP, L.P. and Plains All American GP LLC. 10.7* Registration Rights Agreement, dated as of May 8, 2001, among Plains Resources Inc. and James C. Flores. 10.8* Registration Rights Agreement, dated as of June 8, 2001, among Plains Resources Inc., Strome Hedgecap Fund L.P., Strome Series Fund 1, Strome Series Fund 2 and Mark E. Strome. 10.9* Registration Rights Agreement, dated as of June 8, 2001, among Plains All American Pipeline, L.P., Sable Holdings, L.P., E-Holdings III, L.P., KAFU Holdings, LP, PAA Management, L.P., Mark E. Strome, Strome Hedgecap Fund, L.P., John T. Raymond, and Plains All American Inc. 10.10* Registration Rights Agreement dated as of June 8, 2001, among Plains Resources Inc. and EnCap Energy Capital Fund III, L.P., EnCap Energy Capital Fund III-B, L.P., BOCP Energy Partners, L.P. and Energy Capital Investment Company PLC. 10.11* Registration Rights Agreement, dated as of June 8, 2001 among Plains Resources Inc. and Kayne Anderson Capital Advisors, L.P. 10.12* Amended and Restated Limited Liability Company Agreement of Plains All American GP LLC, dated as of June 8, 2001. 10.13* Amended and Restated Limited Partnership Agreement of Plains AAP, L.P., dated June 8, 2001. 10.14* Eighth Amendment to Fourth Amended and Restated Credit Agreement dated as of May 30, 2001 by and among Plains Resources Inc. and First Union National Bank, as Agent. 10.15* Plains Resources Inc. 2001 Stock Incentive Plan. 10.16* Amendment and Transfer Agreement-Plains Resources Inc. 401(k) Plan and Trust and the Plains All American 401(k) Plan and Trust. ----------------- * Filed herewith B. Reports on Form 8-K A Current Report on Form 8-K was filed on May 10, 2001 with respect to the signing of a definitive agreement to sell a portion of our interest in Plains All American Pipeline, L.P. to an investor group. A Current Report on Form 8-K was filed on June 13, 2001 with respect to the consummation of the transactions to sell a portion of our interest in Plains All American Pipeline, L.P. to an investor group and to file proforma financial statements with respect to such transactions. A Current Report on Form 8-K was filed on July 17, 2001 with respect to the approval by the Board of Directors of a five million share common stock repurchase program. A Current Report on Form 8-K was filed on August 8, 2001 with respect to current estimates of certain results for the third quarter of 2001, the fourth quarter of 2001 and the year 2001. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized. PLAINS RESOURCES INC. Date: August 14, 2001 By: /s/ Cynthia A. Feeback -------------------------------- Cynthia A. Feeback, Vice President - Accounting and Treasurer (Principal Accounting Officer) 31 EX-3.1 3 dex31.txt FIRST AMENDMENT TO PR1 BYLAWS EXHIBIT 3.1 FIRST AMENDMENT TO THE PLAINS RESOURCES INC. BYLAWS This First Amendment to the Plains Resources Inc. Bylaws, dated as of December 18, 1992 (the "Bylaws"), hereby amends the Bylaws as follows effective as of May 15, 2001: 1. Article IV is hereby amended and restated to read in its entirety as follows: "ARTICLE IV OFFICERS -------- Section 1. General. The officers of the Corporation shall be chosen by --------- ------- the Board of Directors and shall be a Chief Executive Officer, a President, a Secretary and a Treasurer. The Board of Directors may also choose a Chairman of the Board of Directors (who must be a director), one or more Vice-Chairmen (who must be directors) and one or more Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman and any Vice-Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held --------- -------- after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal by the Chief Executive Officer or the Board of Directors. Any officer elected by the Board of Directors may be removed at any time by action of the Chief Executive Officer or by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors or a duly authorized committee thereof. Section 3. Voting Securities Owned by the Corporation. Powers of --------- ------------------------------------------ attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President or any Vice-President, and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Duties. The officers of the Corporation shall have such powers --------- ------ and duties as generally pertain to their officers, except as modified herein or by the Board of Directors or the Chief Executive Officer. The Chairman of the Board, if there is one, shall have such duties as may be assigned to him by the Board of Directors and shall preside at meetings of the Board of Directors and at meetings of the stockholders. The Chief Executive Officer shall be the chief executive officer of the Corporation and shall have the general supervision over the business, affairs and property of the Corporation. The Secretary and Assistant Secretary of the Corporation shall record all proceedings at meetings and actions in writing of stockholders, directors and committee of directors, and shall exercise such additional authority and perform such additional duties as the Board of Directors or the Chief Executive Officer may assign." 2. As amended and restated by the foregoing, the Bylaws shall remain in full force and effect. PLAINS RESOURCES INC. By: /s/ JAMES C. FLORES ------------------- James C. Flores Chairman of the Board and Chief Executive Officer EX-10.2 4 dex102.txt PERFORMANCE STOCK OPTION AGREEMENT EXHIBIT 10.2 EXECUTION COPY PERFORMANCE STOCK OPTION AGREEMENT THIS AGREEMENT, made as of the 8th day of May, 2001 (the "Grant Date"), between Plains Resources Inc., a Delaware corporation (the "Company"), and James C. Flores (the "Optionee"). WHEREAS, the Company has adopted the Plains Resources Inc. 2001 Stock Incentive Plan (the "Plan") in order to provide additional incentive to certain officers and employees of the Company and its Subsidiaries; and WHEREAS, the Committee responsible for administration of the Plan has determined to grant an option to the Optionee as provided herein; NOW, THEREFORE, the parties hereto agree as follows: 1. Grant of Option. 1.1 The Company hereby grants, subject to the shareholder approval of the Plan, to the Optionee the right and option (the "Option") to purchase all or any part of an aggregate of 1,000,000 whole Shares subject to, and in accordance with, the terms and conditions set forth in this Agreement. 1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. 1.3 This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are incorporated herein by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan; provided, however, that the terms Cause, Change in Control, Good Reason, Disability, Term and Date of Termination shall have the definitions set forth in the Optionee's employment agreement with the Company dated as of the date hereof (the "Employment Agreement"). 2. Purchase Price. The price at which the Optionee shall be entitled to purchase Shares upon the exercise of the Option shall be $23.00 per Share, the Fair Market Value of a Share on the Grant Date. 3. Duration of Option, Vesting and Exercisability. 3.1 The Option granted hereunder shall vest on the first to occur of the following: (A) day prior to the fifth anniversary of the Grant Date, (B) with respect to 50% of the shares subject to the Option, a period of 10 trading days during a period of 20 consecutive trading days upon which the closing price of the Common Stock equals or exceeds 150% of the exercise price of the Option, (C) with respect to 100% of the shares subject to the Option, a period of 10 trading days during a period of 20 consecutive trading days upon which the closing price of the Common Stock equals or exceeds 200% of the exercise price of the Option, (D) termination of the Optionee's employment: (1) by the Company for any reason other than Cause, (2) due to the death of Optionee, or (3) upon the Optionee's resignation for Good Reason, (E) a Change in Control, or if earlier, a "change in control" (as defined in the Plan), or (F) at any such time that Optionee is not a member of the Board. 3.2 If any portion of the Option vests in accordance with clause (A) of Section 3.1, such portion of the Option shall be exercisable until the eighth anniversary of the Grant Date; provided, however, that if Optionee's employment is terminated for any reason (other than Cause) prior to such eighth anniversary, the Option shall remain exercisable only until the first anniversary of the Date of Termination. If any portion of the Option vests in accordance with clauses (B) or (C) of Section 3.1, or if any portion vests under clause (F) of Section 3.1 and the performance goals under either clause (B) or (C) are later met during the Term, the Option, to the extent that the performance goals have been met under either such clause, shall remain exercisable for a period of ten years from the Grant Date, notwithstanding termination of Optionee's employment for any reason (other than Cause) or the earlier vesting of the Option in accordance with clause (F) of Section 3.1. If the Company terminates Optionee's employment during the Term for any reason (other than Cause or Disability), or if Optionee resigns for Good Reason, any portion of the Option that has vested due to such termination shall be exercisable until the later of (A) the fifth anniversary of the Grant Date or (B) one year from the Date of Termination plus six months for each anniversary that has occurred coincident with or prior to the Date of Termination. Upon termination of Optionee's employment due to death or termination by the Company due to Disability, any portion of the Option that has vested due to such termination shall be exercisable until the later of (A) the fifth anniversary of the Grant Date or (B) one year from the Date of Termination. If any portion of the Option vests under clause (E) of Section 3.1, or under clause (F) of Section 3.1 and the performance goals under clauses (A) or (B) are not later met during the Term, such portion shall remain outstanding until the later of (A) the fifth anniversary of the Grant Date or (B) one year from the Date of Termination for any reason (other than Cause). The Option shall in no event remain outstanding for a period greater than ten years from the Grant Date. Upon a termination of employment for 2 Cause, the Option shall immediately terminate and be forfeited unless otherwise provided by the Board upon termination of employment. 3.3 In the event of inconsistencies between this Section 3 and the vesting and exercisability provisions in the Employment Agreement relating to the Option, the terms of the Employment Agreement shall apply. 4. Manner of Exercise and Payment. 4.1 Subject to the terms and conditions of this Agreement and the Plan, the Option may be exercised by delivery in person, by telecopy or by mail of written notice to the Company, at its principal executive office. Such notice shall state that the Optionee is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. If requested by the Committee, such person or persons shall (i) deliver this Agreement to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option. 4.2 The notice of exercise described in Section 4.1 hereof shall be accompanied by payment of the full purchase price for the Shares in respect of which the Option is being exercised in either of the following forms, (i) cash or (ii) the transfer of Shares to the Company that have a Fair Market Value on the day preceding the date of exercise equal to the cash amount for which such Shares are substituted and have been held by the Optionee for at least six (6) months, or a combination of cash and the transfer of Shares. 4.3 Upon receipt of notice of exercise and full payment for the Shares in respect of which the Option is being exercised, the Company shall, subject to Section 6 of the Plan, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective. 4.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to any Shares subject to the Option until (i) the Option shall have been exercised pursuant to the terms of this Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised, (ii) the Company shall have issued and delivered the Shares to the Optionee, and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company, whereupon the Optionee shall have full voting and other ownership rights with respect to such Shares. 3 5. Nontransferability. The Option shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. 6. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right with respect to continuance of employment by the Company, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate the Optionee's employment at any time. 7. Adjustments. In the event of a Change in Capitalization, the Committee may make appropriate adjustments to the number and class of Shares or other stock or securities subject to the Option and the purchase price for such Shares or other stock or securities. The Committee's adjustment shall be made in accordance with the provisions of Section 12 of the Plan and shall be effective and final, binding and conclusive for all purposes of the Plan and this Agreement. 8. Effect of a Merger, Consolidation or Liquidation. Subject to Section 5 hereof, upon the effective date of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Option shall continue in effect in accordance with its terms and the Optionee shall be entitled to receive in respect of all Shares subject to the Option, upon exercise of the Option, the same number and kind of stock, securities, cash, property or other consideration that each holder of Shares was entitled to receive in the Transaction. 9. Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to the Optionee an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to the Option. If the Optionee is entitled to receive Shares upon exercise of the Option, the Optionee shall pay the Withholding Taxes to the Company in cash prior to the issuance of such Shares. Subject to Section 16(b) of the Exchange Act (if applicable), in satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election") to have withheld a portion of the Shares issuable to him upon exercise of the Option, having an aggregate Fair Market Value, on the date preceding the date of such issuance, equal to the Withholding Taxes. 4 10. Optionee Bound by the Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. 11. Modification of Agreement. This Agreement may be modified, amended, suspended, or terminated, and any terms or conditions may be waived, but only by a written instrument executed by the parties hereto. 12. Severability. Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms. 13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof. 14. Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Optionee's legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee's heirs, executors, administrators and successors. 15. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and Company for all purposes. 16. Shareholder Approval. The effectiveness of this Agreement and of the grant of the Option pursuant hereto is subject to the approval of the Plan by the stockholders of the Company in accordance with the terms of the Plan and in accordance with Section 4(b)(i) of the Employment Agreement. 5 PLAINS RESOURCES INC. By: /s/ Tim Moore ------------------------------- Tim Moore /s/ James C. Flores ---------------------------------- James C. Flores 6 EX-10.3 5 dex103.txt SEPARATION AGREEMENT EXHIBIT 10.3 EXECUTION COPY SEPARATION AGREEMENT DATED AS OF JUNE 8, 2001 BY AND AMONG PLAINS RESOURCES INC., PLAINS ALL AMERICAN, INC., PLAINS ALL AMERICAN GP LLC, PLAINS AAP, L.P. AND PLAINS ALL AMERICAN PIPELINE, L.P. TABLE OF CONTENTS -----------------
Page ---- ARTICLE I CERTAIN DEFINITIONS 1.01. CERTAIN DEFINITIONS................................................... 1 ARTICLE II OTHER AGREEMENTS 2.01. PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT..... 4 2.02. OMNIBUS AGREEMENT; MARKETING AGREEMENT................................ 4 ARTICLE III CERTAIN BUSINESS MATTERS 3.01. EXCHANGE OF INFORMATION............................................... 4 3.02. COMPENSATION FOR PROVIDING INFORMATION................................ 5 3.03. RECORD RETENTION...................................................... 5 3.04. LIMITATION OF LIABILITY............................................... 5 3.05. PRODUCTION OF WITNESSES, RECORDS AND COOPERATION...................... 5 3.06. CONFIDENTIALITY....................................................... 6 ARTICLE IV INDEMNIFICATION 4.01. INDEMNIFICATION....................................................... 7 4.02. INDEMNIFICATION PROCEDURES............................................ 7 4.03. CERTAIN LIMITATIONS................................................... 8 4.04. DIRECTOR AND OFFICER INDEMNIFICATION - PLX............................ 9 4.05. DIRECTOR AND OFFICER INDEMNIFICATION - PAAI........................... 10 ARTICLE V INSURANCE MATTERS 5.01. MIDSTREAM INSURANCE COVERAGE DURING THE INSURANCE TRANSITION PERIOD... 11 5.02. INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD.............. 12 ARTICLE VI FURTHER ASSURANCE AND ADDITIONAL COVENANTS
i
6.01. FURTHER ASSURANCES.................................................... 12 6.02. DISPUTE RESOLUTION.................................................... 13 6.03. NAMES................................................................. 13 ARTICLE VII MISCELLANEOUS 7.01. EFFECTIVENESS......................................................... 13 7.02. SUCCESSORS AND ASSIGNS................................................ 13 7.03. NO THIRD-PARTY BENEFICIARIES.......................................... 13 7.04. ENTIRE AGREEMENT...................................................... 13 7.05. AMENDMENT............................................................. 14 7.06. WAIVERS............................................................... 14 7.07. SEVERABILITY.......................................................... 14 7.08. HEADINGS.............................................................. 14 7.09. NOTICES............................................................... 14 7.10. GOVERNING LAW......................................................... 14 7.11. COUNTERPARTS.......................................................... 15 7.12. REMEDIES.............................................................. 15
ii SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (this "Agreement") is made and entered into as of this 8th day of June, 2001 (the "Effective Date") by and among Plains Resources Inc., a Delaware corporation ("PLX"), Plains All American Inc., a Delaware corporation ("PAAI"), Plains All American GP LLC, a Delaware limited liability company ("Newco GP LLC"), Plains AAP LP, a Delaware limited partnership ("Newco LP") and Plains All American Pipeline, L.P., a Delaware limited partnership ("PAA"). The parties to this Agreement are collectively referred to as the "Parties," and singularly as a "Party." WHEREAS, PAAI is currently the general partner of PAA; WHEREAS, PLX and PAAI have entered into certain Unit Transfer and Contribution Agreements with the persons named therein (the "Unit Transfer and Contribution Agreements"), each of which provides that at the Closing (as defined in the Unit Transfer and Contribution Agreements), Newco GP LLC will succeed to the management and business activities formerly performed by PAAI and Newco LP shall be the general partner of PAA; and WHEREAS, it is appropriate and desirable to set forth certain agreements that will govern certain matters relating to the relationship between the Upstream Parties (as defined below) and the Midstream Parties (as defined below) after the closing under the Unit Transfer and Contribution Agreements (the date of such closing, the "Closing Date"). NOW, THEREFORE, the Parties agree, intending to be legally bound, as follows: ARTICLE I CERTAIN DEFINITIONS 1.01. CERTAIN DEFINITIONS. (a) As used in this Agreement, in addition to the terms defined in the Preamble and Recitals hereof, the following terms shall have the following meanings, applicable to both the singular and plural forms of the terms described: "ACTION" shall mean any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local or foreign or international Governmental Authority or any arbitration or mediation tribunal. "AFFILIATE" shall mean with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "AGREEMENT" shall have the meaning ascribed to it in the Preamble. "BUSINESS DAY" means any calendar day which is not a Saturday, Sunday or public holiday under the laws of the State of New York. "GOVERNMENTAL AUTHORITY" shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory administrative or governmental authority. "HYDROCARBONS" means crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas liquids, plant products, liquefied petroleum gas and other liquid or gaseous hydrocarbons produced in association therewith, including, without limitation, coalbed methane and gas and CO\\2\\. "INFORMATION" means any information, whether or not patentable or copyrightable in written, oral or electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototype samples, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys, memos and other materials prepared by attorneys and any other technical, financial, employee or business information or data. "MARKETING AGREEMENT" means that certain Crude Oil Marketing Agreement, dated November 23, 1998, among PLX, Plains Illinois Inc., Stocker Resources, L.P., Calumet Florida, Inc. and Plains Marketing, L.P., as amended from time to time. "MIDSTREAM BUSINESS" means all Hydrocarbon gathering, transportation, terminalling, storage, and marketing and all operations related thereto, including, without limitation, (a) the acquisition, construction, installation, maintenance or remediation and operation of pipelines, gathering lines, compressors, facilities, storage facilities and equipment, and (b) the gathering of Hydrocarbons from fields, interstate and intrastate transportation by pipeline, trucks or barges, tank storage of Hydrocarbons, transferring Hydrocarbons from pipelines and storage tanks to trucks, barges or other pipelines, acquisitions of Hydrocarbons at the well or bulk purchase at pipeline and terminal facilities and subsequent resale thereof. "MIDSTREAM PARTIES" means Newco LP, Newco GP LLC and PAA and their respective subsidiaries. "OMNIBUS AGREEMENT" means that certain Omnibus Agreement, dated November 23, 1998, among PLX, PAAI, Plains Marketing, L.P., All American Pipeline, L.P. and PAA, as amended from time to time. "OTHER PARTIES" means the Midstream Parties, in the case of the Upstream Parties, and the Upstream Parties, in the case of the Midstream Parties. "PERSON" means any individual, corporation, partnership, limited liability company or partnership, joint venture, association, governmental entity, or any other entity. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of 2 any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of either (x) the partnership or other similar ownership interest thereof, or (y) the stock or other equity interest of such partnership, association or other business entity's general partner, managing member or similar controlling Person is at the time owned or controlled, directly or indirectly, by such Person or one or more subsidiaries of that Person or a combination thereof. "THIRD-PARTY CLAIM" means any claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission, or any arbitration tribunal asserted by a Person other than the parties hereto or their respective Affiliates that gives rise to a right of indemnification hereunder. "UPSTREAM BUSINESS" means all the business conducted by the Upstream Parties except the Midstream Business as conducted by the Midstream Parties. "UPSTREAM PARTIES" means PLX and PAAI and their respective Subsidiaries except for the Midstream Parties. (b) Each of the following terms is defined in the section set forth opposite such term. Term Section - ---- ------- Agreement...............................................................Preamble Closing Date...................................................................1 Covered Parties..........................................................5.01(a) Disputes....................................................................6.02 Effective Date..........................................................Preamble Indemnifying Party.......................................................4.02(a) Indemnitee...............................................................4.02(a) Insurance Transition Period..............................................5.01(a) Listed Policies..........................................................5.01(a) Local Counsel............................................................4.02(b) Losses...................................................................4.04(c) Midstream Indemnitees....................................................4.01(a) Newco GP LLC............................................................Preamble Newco LP................................................................Preamble PAA.....................................................................Preamble PAAI....................................................................Preamble PAAI D&O Indemnified Party...............................................4.05(c) PAAI Maximum Premium.....................................................4.05(b) Party...................................................................Preamble PLX.....................................................................Preamble PLX D&O Indemnified Party................................................4.04(c) PLX Maximum Premium......................................................4.04(b) Primary Counsel..........................................................4.02(b) 3 Representatives..........................................................3.06(a) Separate Counsel.........................................................4.02(b) Transition Agreement........................................................2.01 Unit Transfer and Contribution Agreements...............................Preamble Upstream Indemnitees.....................................................4.01(b) ARTICLE II OTHER AGREEMENTS 2.01. PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT. Concurrently with the execution of this Agreement, Parent, PAAI and Newco GP LLC shall execute that certain Pension and Employee Benefits Assumption and Transition Agreement, dated as of the date hereof, by and among PLX, PAAI and Newco GP LLC (the "Transition Agreement). 2.02. OMNIBUS AGREEMENT; MARKETING AGREEMENT. The Parties hereto agree and intend that the Omnibus Agreement and the Marketing Agreement shall continue in full force and effect in accordance with the terms thereof. ARTICLE III CERTAIN BUSINESS MATTERS 3.01. EXCHANGE OF INFORMATION. (a) Each of PAAI and Newco GP LLC agrees to provide or cause to provide to the other at any time after the Closing as soon as reasonably practicable after written notice therefor any Information relating to time periods prior to the expiration of the Transition Period (as defined in the Transition Agreement) in the possession or in control of such Party that the requesting Party reasonably needs: (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting Party or its subsidiaries (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting Party, (ii) for use in any other judicial, regulatory, administrative tax or other proceedings or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement or the Transition Agreement; provided, however, if any Party determines that any such a provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the Parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) After the Closing Date, the Midstream Parties and the Upstream Parties shall each have access during regular business hours (as in effect from time to time) to the documents and objects of historical significance that relate to the Midstream Business or the Upstream Business, as the case may be, that are located in the records of the Upstream Parties and the Midstream Parties, respectively. (c) After the Closing Date, the Midstream Parties shall provide or cause to be provided to PLX in such form as PLX shall request all financial and other data and information 4 that PLX determines necessary in order to prepare PLX's financial statements and reports or filings with any Governmental Authority. 3.02. COMPENSATION FOR PROVIDING INFORMATION. The Party requesting such Information shall reimburse the other Party for the reasonable cost, if any, of creating, gathering or copying such Information, to the extent that such costs are incurred for the benefit of the requesting Party. Except as may be otherwise specifically provided elsewhere in this Agreement or any other Agreement between the Parties, such cost shall be computed in accordance with the providing Party's standard methodology and procedures. 3.03. RECORD RETENTION. To facilitate the possible exchange of Information pursuant to this Agreement after the Effective Date, the Parties agree to use their reasonable best efforts to retain all Information in their respective possession or control consistent with the records retention policies of PLX and PAAI as in effect of the Effective Date as such may from time to time be changed. Neither the Upstream Parties nor the Midstream Parties will destroy or permit any of their subsidiaries to destroy any financial Information which the Other Parties may have the right to obtain pursuant to this Agreement prior to the third anniversary of the Effective Date. Furthermore, neither the Upstream Parties nor the Midstream Parties will destroy or permit any of its subsidiaries to destroy any Information which the Other Parties may have the right to obtain pursuant to this Agreement prior to the sixth (6th) anniversary of the Effective Date without first using its reasonable best efforts to notify the Other Parties of the proposed destruction and giving the Other Parties the opportunity to take possession of such Information prior to such destruction; provided, however, that in the case of any Information relating to taxes or to environmental liabilities, such period shall be extended to expiration of the applicable statute of limitations (giving effect to any extensions thereof). 3.04. LIMITATION OF LIABILITY. Neither the Upstream Parties nor the Midstream Parties makes any representation or warranty to the Other Parties with respect to the accuracy or completeness of any Information exchanged or provided pursuant to this Agreement. Neither the Upstream Parties nor the Midstream Parties shall have any liability to the Other Parties if any Information is destroyed after the reasonable best efforts by such Parties to comply with the provisions of this Agreement. 3.05. PRODUCTION OF WITNESSES, RECORDS AND COOPERATION. After the Effective Date, each of the Upstream Parties and the Midstream Parties shall use its reasonable best efforts to make available to the Other Parties upon written request its former, current and future directors, officers, employees, other personnel and agents as witnesses, and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (given consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may be reasonably required in connection with any Action in which the requesting Party may from time to time be involved regardless of whether such Action is a matter with respect to which indemnification may be sought. The requesting Party shall bear all costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith. 5 3.06. CONFIDENTIALITY. (a) Subject to Section 3.06(c) and (d) below, each of the Upstream Parties and the Midstream Parties agrees to hold, and cause its respective directors, officers, employees, agents, accountants and other advisors and representatives (collectively, "Representatives") to hold, in strict confidence, with at least the same degree of care that applies to its own confidential and proprietary information, all Information concerning the Other Parties that is either in its possession (including Information in its possession prior to the Effective Date) or furnished by the Other Parties at any time pursuant to this Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been: (i) in the public domain through no breach of this Section 3.06 by such Party or any of its Representatives, (ii) later lawfully acquired from other sources by such Party or any of its Representatives which sources to the knowledge of such Party or such Representative are not themselves bound by a confidentiality obligation), or (iii) independently generated without reference to any proprietary or confidential Information of the Other Parties. (b) Subject to Section 3.06(c) and (d) below, each Party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its Representatives who need to know such Information (who shall be advised of their obligations hereunder with respect to such Information), except in compliance with this Section 3.06. Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement, each Party will promptly after request of the other Party either return to the other Party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon). (c) The Upstream Parties may release or disclose, or permit to be released or disclosed, any such Information to any Person (and such Person's Representatives) in connection with the bona fide sale to such Person of all or a portion of the Upstream Parties' ownership interest in the Midstream Parties; provided, however, that any such release or disclosure shall be pursuant to a confidentiality agreement in form and substance reasonably satisfactory to the Midstream Parties and the Upstream Parties shall be and remain liable for any breach of such confidentiality agreement by any such Person or such Person's Representatives. Prior to any such release or disclosure, the Upstream Parties shall provide prior notice to the Midstream Parties of the intended release or disclosure including, with reasonable specificity, the Information proposed to be released or disclosed. (d) In the event that any of the Upstream Parties or the Midstream Parties either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of the Other Parties (or their Representatives) that is subject to the confidentiality provisions hereof, such Party shall notify the Other Parties prior to disclosing or providing such Information and shall cooperate at the expense of the requesting Other Party in seeking any reasonable protective arrangements requested by such Party. Subject to the foregoing, the Party that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. 6 ARTICLE IV INDEMNIFICATION 4.01. INDEMNIFICATION. (a) The Upstream Parties shall indemnify, defend and hold harmless the Midstream Parties (the "Midstream Indemnitees"), against any and all actions, claims, damages, losses, or liabilities resulting from, relating to or arising, whether prior to or following the Effective Date, out of or in connection with (i) operation of the Upstream Business or (ii) federal or state securities laws or regulations, or the regulations of any self- regulatory authority or similar body, or other similar claims (including any actions, claims, damages, losses or liabilities with respect to which the indemnification obligations in Sections 4.04 or 4.05 would apply) in connection with the Upstream Business or the Midstream Business based upon or resulting from acts or omissions, or alleged acts or omissions, by the Upstream Parties or the Midstream Parties occurring on or prior to the Effective Date, and the Upstream Parties shall reimburse each Midstream Indemnitee for any and all reasonable costs and expenses (including attorneys' fees) incurred by any of them in connection with investigating and/or defending any such action, claim, damage, loss, or liability, other than legal fees incurred prior to the Effective Date. (b) The Midstream Parties shall indemnify, defend and hold harmless the Upstream Parties (the "Upstream Indemnitees") against any and all actions, claims, damages, losses, or liabilities (other than actions, claims, damages, losses or liabilities with respect to which the indemnification obligations in Sections 4.04 or 4.05 would apply) resulting from, relating to or arising, whether prior to or following the Effective Date, out of or in connection with the operation of the Midstream Business, and the Midstream Parties shall reimburse each Upstream Indemnitee for any and all reasonable costs and expenses (including attorneys' fees) incurred by any of them in connection with investigating and/or defending any such action, claim, damage, loss or liability, other than legal fees incurred prior to the Effective Date. 4.02. INDEMNIFICATION PROCEDURES. (a) If an Upstream Indemnitee or Midstream Indemnitee (collectively, an "Indemnitee") receives notice of the assertion of any Third-Party Claim with respect to which a Midstream Party or Upstream Party, respectively is, or is likely to be, obligated under this Agreement to provide indemnification (an "Indemnifying Party"), such Indemnitee shall promptly give such Indemnifying Party notice thereof (together with a copy of such Third-Party Claim, process or other legal pleading) promptly after becoming aware of such Third-Party Claim; provided, however, that the failure of any Indemnitee to give notice as provided in this Section 4.02 shall not relieve any Indemnifying Party of its obligations under this Section 4.02, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. Such notice shall describe such Third-Party Claim in reasonable detail. (b) An Indemnifying Party, at such Indemnifying Party's own expense and through counsel chosen by such Indemnifying Party (which counsel shall be reasonably acceptable to the Indemnitee), may elect to defend any Third-Party Claim. If an Indemnifying Party elects to defend a Third-Party Claim in accordance with the foregoing, then, within ten (10) Business Days after receiving notice of such Third-Party Claim (or sooner, if the nature of such Third Party claim so requires), such Indemnifying Party shall notify the Indemnitee of its intent to do so, and such Indemnitee shall cooperate in the defense of such Third-Party Claim. 7 Such Indemnifying Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in connection with such cooperation. Such Indemnifying Party shall keep the Indemnitee reasonably informed as to the status of the defense of such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third-Party Claim, such Indemnifying Party shall not be liable to such Indemnitee under this Section 4.02 for any attorneys' fees or other expenses subsequently incurred by such Indemnitee in connection with the defense thereof other than those expenses referred to in the second preceding sentence; provided, however, that such Indemnitee shall have the right to employ one law firm as counsel ("Primary Counsel"), together with a local law firm in each applicable jurisdiction (collectively, "Local Counsel") (and together with Primary Counsel, "Separate Counsel"), to represent such Indemnitee in any action or group of related actions (which firm or firms shall be reasonably acceptable to the Indemnifying Party) if, in the reasonable judgment of such Indemnitee's counsel at any time, either a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim, or counsel to such Indemnitee advises in writing there may be defenses available to such Indemnitee which are significantly different from or in addition to those available to such Indemnifying Party and the representation of both Parties by the same counsel would, in the reasonable judgment of the Indemnitee, be inappropriate, and in that event (i) the reasonable fees and expenses of such Separate Counsel shall be paid by such Indemnifying Party (it being understood, however, that the Indemnifying Party shall not be liable for the expenses of more than one Primary Counsel and one Local Counsel in any one jurisdiction with respect to any Third-Party Claim (even if against multiple Indemnitees)) and (ii) each of such Indemnifying Party and such Indemnitee shall have the right to conduct its own defense in respect of such claim. If an Indemnifying Party: (i) elects not to defend against a Third-Party Claim; (ii) fails to notify an Indemnitee of its election as provided in this Section 4.02 within the period of ten (10) Business Days described above; or (iii) elects to defend a Third Party Claim but, in the reasonable judgment of the Indemnitee, fails to timely, properly and adequately defend such claim, the Indemnitee may defend, compromise, and settle such Third-Party Claim and shall be entitled to indemnification hereunder (to the extent permitted hereunder); provided, however, that no such Indemnitee may compromise or settle any such Third-Party claim without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, the Indemnifying Party shall not, without the prior written consent of the Indemnitee, (i) settle or compromise any Third-Party Claim or consent to the entry of any judgment which does not include as an unconditional term thereof the dismissal without prejudice of such Third Party Claim or delivery by the claimant or plaintiff to the Indemnitee of a written release from all liability in respect of such Third-Party Claim or (ii) settle or compromise any Third- Party Claim in any manner that would be reasonably likely to have a material adverse effect on the Indemnitee. 4.03. CERTAIN LIMITATIONS. (a) The amount of any indemnifiable losses or other liability for which indemnification is provided under this Agreement shall be net of any amounts actually recovered by the Indemnitee from third parties (including, without limitation, amounts actually recovered under insurance policies) with respect to such indemnifiable losses or other liability. Any Indemnifying Party hereunder shall be subrogated to the rights of the Indemnitee upon payment in full of the amount of the relevant indemnifiable loss. An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provision hereof, have any 8 subrogation rights with respect thereto. If any Indemnitee recovers an amount from a third party in respect of an indemnifiable loss for which indemnification is provided in this Agreement after the full amount of such indemnifiable loss has been paid by an Indemnifying Party or after an Indemnifying Party has made a partial payment of such indemnifiable loss and the amount received from the third party exceeds the remaining unpaid balance of such indemnifiable loss, then the Indemnitee shall promptly remit to the Indemnifying Party the excess (if any) of (A) the sum of the amount theretofore paid by such Indemnifying Party in respect of such indemnifiable loss plus the amount received from the third party in respect thereof less (B) the full amount of such indemnifiable loss or other liability. Nothing in this Section 4.03(a) shall obligate any Indemnitee to seek to recover any amounts from any third party (including, without limitation, amounts recoverable under insurance policies) prior to, or as a condition to, seeking indemnification under this Article IV. (b) The amount of any loss or other liability for which indemnification is provided under this Agreement shall be (i) increased to take account of any net tax cost incurred by the Indemnitee arising from the receipt or accrual of an indemnification payment hereunder (grossed up for such increase) and (ii) reduced to take account of any net tax benefit realized by the Indemnitee arising from incurring or paying such loss or other liability. In computing the amount of any such tax cost or tax benefit, the Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt or accrual of any indemnification payment hereunder or incurring or paying any indemnified loss. Any indemnification payment hereunder shall initially be made without regard to this Section 4.03(b) and shall be increased or reduced to reflect any such net tax cost (including gross-up) or net tax benefit only after the Indemnitee has actually realized such cost or benefit. For purposes of this Agreement, an Indemnitee shall be deemed to have "actually realized" a net tax cost or a net tax benefit to the extent that, and at such time as, the amount of taxes payable by such Indemnitee is increased above or reduced below, respectively, the amount of taxes that such Indemnitee would be required to pay but for the receipt or accrual of the indemnification payment or the incurrence or payment of such loss, as the case may be. The amount of any increase or reduction hereunder shall be adjusted to reflect any final determination with respect to the Indemnitee's liability for taxes, and payments between such indemnified parties to reflect such adjustment shall be made if necessary. 4.04. DIRECTOR AND OFFICER INDEMNIFICATION - PLX. (a) PLX shall honor all PLX's obligations to indemnify (including any obligations to advance funds for expenses to) the current or former directors or officers of PLX (each, a "PLX D&O Indemnified Party") for acts or omissions by such directors and officers occurring on or prior to the Effective Date to the extent that such obligations of PLX or any of its subsidiaries exist on the date immediately prior to the Effective Date, whether pursuant to the certificate of incorporation of PLX or otherwise, and such obligations shall survive and shall continue in full force and effect in accordance with the terms of the certificate of incorporation of PLX from the Effective Date until the expiration of the applicable statute of limitations with respect to any claims against such directors or officers arising out of such acts or omissions. (b) For a period of six years from and after the Effective Date, PLX shall cause to be maintained in effect for the benefit of the PLX D&O Indemnified Parties the current policies of directors' and officers' liability insurance maintained by PLX with coverage limits of 9 $15,000,000 (provided that PLX may substitute therefor policies with reputable and financially sound carriers of at least the same coverage and amounts containing terms and conditions which are no less advantageous and so long as such substitution results in continuous coverage) with respect to claims arising from or related to facts or events which occurred at or before the Effective Date; provided, however, that PLX shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 150% of the annual premiums paid as of the date hereof by PLX for such insurance (such 150% amount, the "Maximum Premium"). If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, PLX shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium. (c) From and after the Effective Date, to the fullest extent permitted by Law and without limitation on the obligations of PLX pursuant to Sections 4.04(a) and (b), PLX shall indemnify, defend and hold harmless the PLX D&O Indemnified Parties") against all losses, claims, damages, liabilities, fees and expenses (including attorneys' fees and disbursements), judgments, fines and amounts paid in settlement (in the case of settlements, with the approval of the indemnifying party (which approval shall not be unreasonably withheld or delayed)) (collectively, "Losses"), as incurred (payable monthly upon written request which request shall include reasonable evidence of the Losses set forth therein) to the extent arising from, relating to, or otherwise in respect of, any actual or threatened action, suit, proceeding or investigation, in respect of actions or omissions occurring at or prior to the Effective Date in connection with such Indemnified Party's duties as an officer or director of PLX to the extent they are based on or arise out of or pertain to the transactions contemplated by this Agreement or the Unit Transfer and Contribution Agreements. (d) In the event that PLX or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successor and assign of such party assumes the obligations of such party set forth in this Section 4.04, and in such event all references to PLX in this Section 4.04 shall be deemed a reference to such successor and assign. 4.05. DIRECTOR AND OFFICER INDEMNIFICATION - PAAI. (a) PLX shall, to the fullest extent permitted by Law, cause PAAI to, and PAAI shall honor all PAAI's obligations to indemnify (including any obligations to advance funds for expenses to) the current or former directors or officers of PAAI (each, a "PAAI D&O Indemnified Party") for acts or omissions by such directors and officers occurring on or prior to the Effective Date to the extent that such obligations of PAAI or any of its subsidiaries exist on the date immediately prior to the Effective Date, whether pursuant to the certificate of incorporation of PAAI or otherwise, and such obligations shall survive and shall continue in full force and effect in accordance with the terms of the certificate of incorporation of PAAI from the Effective Date until the expiration of the applicable statute of limitations with respect to any claims against such directors or officers arising out of such acts or omissions. 10 (b) For a period of six years from and after the Effective Date, PLX or PAAI shall cause to be maintained in effect for the benefit of the PAAI D&O Indemnified Parties the current policies of directors' and officers' liability insurance maintained by PLX with coverage limits of $15,000,000 (provided that PLX or PAAI may substitute therefor policies with reputable and financially sound carriers of at least the same coverage and amounts containing terms and conditions which are no less advantageous and so long as such substitution results in continuous coverage) with respect to claims arising from or related to facts or events which occurred at or before the Effective Date; provided, however, that PLX shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 150% of the Maximum Premium. If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, PLX or PAAI shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium. (c) From and after the Effective Date, to the fullest extent permitted by Law and without limitation on the obligations of PLX or PAAI pursuant to Sections 4.05(a) and (b), PLX shall, and shall cause PAAI to, indemnify, defend and hold harmless the PAAI D&O Indemnified Parties against all Losses as incurred (payable monthly upon written request which request shall include reasonable evidence of the Losses set forth therein) to the extent arising from, relating to, or otherwise in respect of, any actual or threatened action, suit, proceeding or investigation, in respect of actions or omissions occurring at or prior to the Effective Date in connection with such Indemnified Party's duties as an officer or director of PAAI to the extent they are based on or arise out of or pertain to the transactions contemplated by this Agreement or the Unit Transfer and Contribution Agreements. (d) In the event that PLX or PAAI or any of their successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers or conveys all or substantially all its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successor and assign of such party assumes the obligations of such party set forth in this Section 4.05, and in such event all references to PLX or PAAI, as the case may be, in this Section 4.05 shall be deemed a reference to such successor and assign. ARTICLE V INSURANCE MATTERS 5.01. MIDSTREAM INSURANCE COVERAGE DURING THE INSURANCE TRANSITION PERIOD. (a) Throughout the period beginning on the Effective Date and ending on the date set next to each insurance policy listed on Schedule A hereto (the "Listed Policies") or such earlier dates as the parties agree (with respect to each Listed Policy, the "Insurance Transition Period"), the Upstream Parties shall maintain the Listed Policies for the benefit of the Midstream Parties (collectively, the "Covered Parties"), except as the parties otherwise agree. Except as otherwise provided below, during the Insurance Transition Period, the Listed Policies shall cover Covered Parties for liabilities and losses insured prior to the Effective Date. (b) Newco GP LLC, on behalf of the Midstream Parties, shall promptly pay or reimburse the Upstream Parties, as the case may be, for its share of premium expenses and all 11 applicable self-insurance retentions, deductibles, retrospective premium adjustments and similar amounts with respect to the Listed Policies during the Insurance Transition Period, and Newco GP LLC shall promptly pay or reimburse the Upstream Parties for any costs and expenses which the Upstream Parties may incur in connection with the insurance coverages maintained pursuant to this Section 5.01, including but not limited to any subsequent premium adjustments. Newco GP LLC's share of such expenses shall be determined in a manner consistent with the allocation of such expenses between PLX and PAA prior to the Effective Date. All payments and reimbursements by Newco GP LLC to the Upstream Parties shall be made within fifteen (15) days after Newco GP LLC's receipt of an invoice from the Upstream Parties. (c) The control and administration of the Listed Policies shall remain with PLX; provided, however, that any such action taken by PLX shall treat fairly all insured parties and their respective claims and shall not unduly favor one insured party over another. Newco GP LLC shall be provided, upon request, with copies of the Listed Policies as in effect on the date of such request. (d) The provisions of this Article V represent only an allocation of cost between the Parties with respect to the Listed Policies and shall in no way affect the coverage provided by the Listed Policies or guarantee recovery by the Midstream Parties under such policies. 5.02. INSURANCE COVERAGE AFTER THE INSURANCE TRANSITION PERIOD. From and after expiration of the Insurance Transition Period with respect to each Listed Policy, Newco GP LLC, on behalf of the Midstream Parties, shall be solely responsible for obtaining and maintaining insurance programs for its risk of loss with respect to the subject matter of the relevant Listed Policy and such insurance arrangements shall be separate and apart from the Upstream Parties' insurance programs unless the parties otherwise agree. ARTICLE VI FURTHER ASSURANCE AND ADDITIONAL COVENANTS 6.01. FURTHER ASSURANCES. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the Parties hereto shall use its reasonable best efforts, prior to, on and after the Closing Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Transition Agreement. (b) Without limiting the foregoing, prior to, on and after the Closing Date, each Party hereto shall cooperate with the other Parties, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any consents or governmental approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party hereto from time to time, consistent with the terms of this 12 Agreement and the Transition Agreement, in order to effectuate the provisions and purposes of this Agreement and the Transition Agreement. (c) Prior to the Closing Date, if one or more of the Parties identifies any commercial or other service that is needed to assure a smooth and orderly transition of the businesses in connection with the consummation of the transactions contemplated by the Unit Transfer and Contribution Agreements that is not otherwise governed by the provisions of this Agreement or the Transition Agreement, the Parties shall cooperate in determining whether there is a mutually acceptable arm's-length basis on which one or more of the other Parties will provide such service. 6.02. DISPUTE RESOLUTION. Resolution of any and all disputes arising from or in connection with this Agreement, whether based on contract, tort, or otherwise (collectively, "Disputes"), shall be exclusively governed by and settled in accordance with the provisions of this Section 6.02. The parties hereto shall use all commercially reasonable efforts to settle all Disputes without resorting to mediation, arbitration, litigation or other third party dispute resolution mechanisms. If any Dispute remains unsettled, the parties hereby agree to mediate such Dispute using a mediator reasonably acceptable to all parties involved in such Dispute. If the parties are unable to resolve such dispute through mediation, each party will be free to commence proceedings for the resolution thereof. No party shall be entitled to consequential, special, exemplary or punitive damages. 6.03. NAMES. As soon as reasonably possible after the date hereof, and in no event later than the date that is 60 days from the date hereof, each of PAAI and PAAI LLC, a wholly owned subsidiary of PAAI ("PAAI LLC"), shall take all action necessary to change the names of PAAI and PAAI LLC to names bearing no similarity to "Plains All American." ARTICLE VII MISCELLANEOUS 7.01. EFFECTIVENESS. This Agreement shall become effective at the close of business on the Closing Date. 7.02. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Parties hereto and their respective successors and permitted assigns and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by either Party hereto to any other person without the prior written consent of the other Party hereto. 7.03. NO THIRD-PARTY BENEFICIARIES. Except for the Persons entitled to indemnification hereunder, each of whom is an intended third-party beneficiary hereunder, nothing expressed or implied in this Agreement shall be construed to give any person or entity other than the Parties hereto any legal or equitable rights hereunder. 7.04. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof. 13 7.05. AMENDMENT. This Agreement may not be amended except by an instrument signed by the Parties hereto. 7.06. WAIVERS. No waiver of any term shall be construed as a subsequent waiver of the same term, or a waiver of any other term, of this Agreement. The failure of any Party to assert any of its rights hereunder shall not constitute a waiver of any such rights. 7.07. SEVERABILITY. If any provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, such provision shall be deemed severable and all other provisions of this Agreement shall nevertheless remain in full force and effect. 7.08. HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 7.09. NOTICES. All notices given in connection with this Agreement shall be in writing. Service of such notices shall be deemed complete: (i) if hand delivered, on the date of delivery; (ii) if by mail, on the fourth Business Day following the day of deposit in the United States mail, by certified or registered mail, first-class postage prepaid; (iii) if sent by Federal Express or equivalent courier service, on the next Business Day; or (iv) if by telecopier, upon receipt by sender of confirmation of successful transmission. Such notices shall be addressed to the Parties at the following address or at such other address for a Party as shall be specified by like notice (except that notices of change of address shall be effective upon receipt): If to Parent or PAAI: Plains Resources Inc. 500 Dallas Street, Suite 700 Houston, TX 77002 Attention: Tim Stephens Fax No.: (713) 654-1523 If to Newco GP LLC, Newco LP or PAA: Plains All American GP LLC 333 Clay Street, 29th Floor Houston, TX 77002 Attention: Tim Moore Fax No.: (713) 646-4572 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with, the laws of the State of Texas, without giving effect to the principles of conflict of laws of such state or any other jurisdiction. 14 7.11. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument. 7.12. REMEDIES. Each of the parties hereto shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys' fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. Each of the parties hereto acknowledges and agrees that under certain circumstances the breach by any of the parties hereto of a term or provision of this Agreement will materially and irreparably harm the other party, that money damages will accordingly not be an adequate remedy for such breach and that the non-defaulting party, in its sole discretion and in addition to its rights under this Agreement and any other remedies it may have at law or in equity, may apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any breach of the provisions of this Agreement. 15 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first written above. PLAINS RESOURCES, INC. BY: /s/ James C. Flores -------------------------------- NAME: James C. Flores TITLE: Chairman and Chief Execitive Officer PLAINS ALL AMERICAN INC. BY: /s/ Greg L. Armstrong -------------------------------- NAME: Greg L. Armstrong TITLE: Chief Executive Officer PLAINS ALL AMERICAN GP LLC BY: /s/ Greg L. Armstrong -------------------------------- NAME: Greg L. Armstrong TITLE: Chief Executive Officer PLAINS AAP L.P. BY: PLAINS ALL AMERICAN GP LLC, its general partner BY: /s/ Greg L. Armstrong -------------------------------- NAME: Greg L. Armstrong TITLE: Chief Executive Officer 16 PLAINS ALL AMERICAN PIPELINE, L.P. BY: PLAINS AAP L.P., its general partner BY: PLAINS ALL AMERICAN GP LLC, its general partner BY: /s/ Greg L. Armstrong -------------------------------- NAME: Greg L. Armstrong TITLE: Chief Executive Officer 17 Schedule A None. 18 EX-10.4 6 dex104.txt EMPLOYEE BENEFITS EXHIBIT 10.4 EXECUTION COPY PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT THIS PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT, dated as of June 8, 2001 (this "Agreement"), is entered into by and between Plains Resources Inc., a Delaware corporation ("Parent"), Plains All American Inc., a Delaware corporation and wholly-owned subsidiary of Parent ("PAAI") and Plains All American GP LLC, a Delaware limited liability company (the "Successor GP"). Capitalized terms used herein, unless otherwise defined herein, shall have the meanings assigned to them in the Contribution Agreement (defined below). WITNESSETH WHEREAS, pursuant to multiple Unit Transfer and Contribution Agreements, dated as of May 8, 2001 or thereafter, each as amended from time to time (collectively, the "Contribution Agreement"), by and among Parent, PAAI and certain purchasers ("Buyers"), Buyers are purchasing certain subordinated units, a portion of the general partner interest and incentive distribution rights of Plains All American Pipeline, L.P. (the "MLP"), effective as of the Closing Date of the Contribution Agreement; WHEREAS, prior to the Closing Date, PAAI was the sole general partner of the MLP and certain affiliates of the MLP; WHEREAS, prior to the Closing Date, PAAI has, among other actions, formed the Successor GP pursuant to the Delaware Limited Liability Company Act and in connection with the Contribution Agreement, all of the property used in the trade or business of PAAI as general partner of the MLP will be transferred to the Successor GP; WHEREAS, in connection with the Contribution Agreement, all of the property used in the trade or business associated with the headquarter employees described in Section 1(a)(ii) of this Agreement will be transferred by Parent to the Successor GP; WHEREAS, in connection with the Contribution Agreement, the Successor GP will succeed to the management and business activities formerly performed by PAAI; WHEREAS, pursuant to Section 5.10(a) of the Contribution Agreement, as of the Closing Date, Parent, PAAI and the Successor GP shall (i) identify the headquarter employees of Parent engaged in the business of managing the MLP that will be transferred to the Successor GP and (ii) provide for the immediate transfer of employment of such headquarter employees and the immediate transfer of all of the current employees of PAAI to the Successor GP (collectively, the "Transferred Employees") and make such arrangements as are necessary with respect to compensation and employee benefit plans for Transferred Employees, all as immediately as practicable; 1 WHEREAS, pursuant to Section 5.10(a) of the Contribution Agreement, as of the Closing Date, Parent, PAAI and the Successor GP are to determine the treatment of obligations and liabilities under certain employee benefit plans in which Transferred Employees participate and enter into any transition services arrangements deemed necessary by the parties for a period of no more than three months following the Closing Date; WHEREAS, Parent, PAAI and the Successor GP desire to set forth their obligations and liabilities with respect to Transferred Employees and to establish necessary transition services arrangements for Transferred Employees; and WHEREAS, this Agreement is being executed simultaneously with the Closing of the Contribution Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: Section 1. Transferred Employees' Covenants. (a) Transferred Employees. The Transferred Employees shall include (i) all of the employees employed by PAAI immediately prior to the Closing Date and (ii) the headquarter employees employed by Parent immediately prior to the Closing Date who perform services related to the business of managing the MLP and are identified on Schedule A attached hereto. (b) Employment Agreements. Effective as of the Closing Date, the Successor GP will assume the obligations under the employment agreements between Parent and Greg Armstrong dated March 1, 1993, as amended, and between Parent and Harry Pefanis dated November 23, 1998, in accordance with the amendment and restatement of such employment agreements as approved by the Board of Directors of PAAI as sole member of the Successor GP. (c) Transition and Retention Bonuses. The transition bonuses approved by the Compensation Committee of Parent on May 7, 2001 for certain Transferred Employees will be paid by Parent to each such Transferred Employee for the account of the Successor GP as soon as practicable following the date such bonuses are earned. In addition, any portion of the retention bonus under the Parent's retention bonus program announced to employees in December 2000 with respect to a Transferred Employee that is unpaid as of the Closing Date will be paid by Parent to each such Transferred Employee for the account of the Successor GP as soon as practicable following the date such bonus is earned in accordance with the retention bonus program. Parent shall grant each Transferred Employee credit for service with the Successor GP for all purposes under the Parent's retention bonus program. (d) 1996 Stock Incentive Plan. (i) With respect to options granted to Transferred Employees (who are not key employees described in Section 1(d)(ii) below) under Parent's 1996 Stock Incentive Plan that are unvested and forfeitable as of the Closing Date, each 2 such Transferred Employee shall receive an amount of cash equal to the difference between (A) the average of the closing sales prices on the American Stock Exchange of the Parent stock for the five trading days immediately preceding the date hereof and (B) the option exercise price of such options, multiplied by the number of unvested shares subject to such options. Such amount shall be paid by Parent as soon as practicable following the Closing Date . (ii) With respect to options granted to certain key Transferred Employees (identified on Schedule B attached hereto) under Parent's 1996 Stock Incentive Plan that are unvested on the Closing Date, PAAI shall grant, and the Successor GP shall assume administrative responsibility for, phantom equity awards payable in subordinated units of the MLP (or, to the extent such subordinated units have been converted into common units, payable in common units) comparable in value to such options and subject to the same vesting schedule as such options. The number of subordinated units of the MLP subject to such phantom equity awards shall be determined for each such Transferred Employee by (A) multiplying the difference between (1) the average of the closing sales prices on the American Stock Exchange of the Parent stock for the five trading days immediately preceding the date hereof and (2) the option exercise price of such options, by the number of unvested shares subject to such options, and (B) dividing the result in clause (A) by $22.00, rounded up to the nearest whole unit. Such phantom equity awards shall provide for distribution equivalent rights ("DERs"), i.e., the right to receive the cash equivalent of any distributions made with respect to a subordinated unit during the period from the Closing Date and prior to the vesting of such phantom equity award, that shall be payable in cash on the vesting of the applicable phantom equity award. Parent shall, or shall cause its Affiliates to, deliver to each such Transferred Employee for the account of the Successor GP on or prior to vesting such number of subordinated units of the MLP subject to phantom equity awards and cash equal to the DERs as determined above in accordance with the vesting schedule of such phantom equity awards. Documents evidencing such grants shall be delivered as soon as practicable after the Closing Date. (e) Officers' Retirement Plan. The vesting service for each of the Transferred Employees with a Deferred Compensation Agreement on the date hereof is set forth in Schedule C attached hereto. With respect to the vested portion of his Deferred Compensation Agreement, each such Transferred Employee shall have the option to receive (X) (i) such number of subordinated units of the MLP valued at $22.00 equal to the Present Value of such obligation on the date hereof rounded up to the nearest whole unit, or (ii) cash equal in value to the Present Value of such obligation on the date hereof (provided such Transferred Employee applies such cash (net of taxes required under (Y) below) to the purchase of an interest in PAA Management LLC and PAA Management, L.P.) (Y) less applicable tax withholding. Present Value for this purpose shall have the meaning set forth in the applicable Deferred Compensation Agreement. Parent hereby agrees that it shall pay or deliver such amounts with respect to each such Transferred Employee's Deferred Compensation Agreement as soon as practicable on or following the date hereof in accordance with the Transferred Employee's instructions. In 3 consideration of the receipt of the amounts described in the foregoing provisions of this clause (e), each Transferred Employee shall agree to relinquish all rights with respect to such Transferred Employee's Deferred Compensation Agreement. (f) Long-Term Incentive Plan. Effective as of the Closing Date, the Successor GP shall assume the PAAI 1998 Long-Term Incentive Plan and all outstanding awards granted thereunder that are unvested as of the Closing Date on the same terms and conditions. All non-employee director awards will vest on the date hereof in accordance with their terms. Such director awards shall be paid by PAAI or its Affiliates in accordance with the terms of the plan as soon as practicable following the date hereof and PAAI shall be reimbursed by the MLP for such payments in accordance with the MLP Partnership Agreement. Except with respect to such director awards, Parent and PAAI shall have no future liability with respect to such plan and such unvested awards; provided, however, that the parties hereto acknowledge that the Successor GP, upon vesting of such awards, may seek to satisfy such awards by the purchase of common units of the MLP directly or indirectly from Parent or PAAI. (g) Qualified Retirement Plans. (i) Parent 401(k) Plan. (A) As soon as practicable after the date hereof, the Successor GP shall establish or designate, and maintain, a qualified defined contribution plan (the "Successor 401(k) Plan") to provide benefits to the Transferred Employees who, on the Closing Date, are participants in the Parent 401(k) Plan ("Plan Participants") which are substantially equivalent to the benefits provided to participants under the Parent 401(k) Plan (provided, however, that all matching contributions may be paid in cash). The Successor 401(k) Plan shall be qualified under Sections 401(a) and 401(k) of the Code and shall provide the Plan Participants credit for service with Parent and its affiliates (including PAAI) and their respective predecessors prior to the Closing Date for all purposes for which service was recognized under the Parent 401(k) Plan. (B) As soon as practicable after the filing of the determination letter request described in clause (C) below, Parent shall cause the trustee of the Parent 401(k) Plan to transfer to the trust forming a part of the Successor 401(k) Plan cash or assets in which Plan Participants are currently invested (or with respect to participant loans granted prior to the Closing Date, if any, such loans and any promissory notes or other documents evidencing such loans) in an amount equal to the account balances of Plan Participants as of a valuation date (the "Valuation Date") not more than 60 days preceding the date of transfer, increased by any contributions due for periods prior to the Closing Date and not made as of the Valuation Date, reduced by any benefits paid during the period following such Valuation Date to the date of transfer, and adjusted for any investment earnings or losses during the period following such Valuation Date to the date of transfer (the "Account Balances"). 4 (C) No later than 60 days after the Closing Date, the Successor GP shall file a request for a determination letter with the IRS that the Successor 401(k) Plan and related trust satisfy the requirements for qualification under Sections 401(a) and 401(k) of the Code. The Successor GP agrees that it shall amend the Successor 401(k) Plan in any respect as may be required by the IRS in order to receive a favorable determination letter from the IRS that the Successor 401(k) Plan and related trust satisfy the requirements for qualification under Sections 401(a) and 401(k) of the Code. No transfer shall be made unless the Successor GP files with the IRS the request for determination letter referred to in this clause (C). (D) In consideration of the agreements of Parent contained in clauses (B) and (C) of this Section 1(g)(i), the Successor GP shall, effective as of the Closing Date, assume all of the liabilities and obligations of Parent and its affiliates in respect of the Plan Participants and their beneficiaries under the Parent 401(k) Plan, and Parent and its affiliates and the Parent 401(k) Plan shall, except to the extent set forth in this Agreement, be relieved of all liabilities and obligations to the Plan Participants and their beneficiaries arising out of the Parent 401(k) Plan. (ii) Permian Plans. Effective as of the Closing Date, the Successor GP acknowledges and agrees that it shall take all actions necessary to assume the responsibilities and activities formerly performed by Parent and PAAI with respect to the administration of the Permian Corporation Savings Plan and Permian Corporation Retirement Plan. Parent and PAAI shall have no future liability with respect to such responsibilities and activities. (h) W-2 Matters. Pursuant to IRS Revenue Procedure 96-60, the Successor GP shall assume Parent's and PAAI's respective obligations to furnish Forms W-2 to Transferred Employees for the calendar year in which the Closing Date occurs. Parent and PAAI will provide the Successor GP with any information relating to periods ending on the Closing Date necessary for the Successor GP to prepare and distribute Forms W-2 to Transferred Employees for the calendar year in which the Closing Date occurs, which Forms W-2 will include all remuneration earned by Transferred Employees from Parent, PAAI and the Successor GP during such year, and the Successor GP will prepare and distribute such forms. (i) The Successor GP Plans. No later than the end of the Transition Period (as defined below): (i) the Successor GP shall establish, for the benefit of the Transferred Employees, employee benefit plans (the "Successor GP Plans") that will provide benefits comparable to those provided to the Transferred Employees under the Parent Plans identified in Schedule D hereto, and (ii) the Transferred Employees will be participants in the Successor GP Plans to the extent that any such Transferred Employees were participants in the Parent Plans during the Transition Period. Further, (i) the Transferred Employees who are participants in the Successor GP Plans shall receive credit for service with Parent and PAAI to the same extent service was counted under similar Parent Plans; (ii) with respect to medical, dental and health plans established by the Successor GP, any 5 such plans (a) shall not include pre-existing conditions exclusions except to the extent that such exclusions were applicable under the similar Parent Plan immediately prior to the end of the Transition Period, and (b) shall provide credit in the current year for any deductibles and co-payments applied or made with respect to each Transferred Employee. Section 2. Transition Period. Except as otherwise provided herein, during the period commencing after the close of business on the Closing Date and ending on June 30, 2001, or such earlier date as mutually agreed upon by the parties hereto (the "Transition Period"), the Transferred Employees will continue to be provided with the benefits under certain employee benefits plans of Parent and PAAI as set forth herein. For purposes of Section 1 of this Agreement, the Closing Date shall be the last day of the Transition Period. Section 3. Services. (a) Transition Services. During the Transition Period, Parent shall provide (or cause its Affiliates to provide) the following services (the "Transition Services") to the Successor GP on behalf of the Transferred Employees: (i) payroll processing, payroll deduction, tax withholding and tax reporting services. (ii) maintenance and administration of the plans of Parent and PAAI identified on Schedule D hereto (the "Parent Plans") for the benefit of the Transferred Employees in accordance with and subject to the terms of the Parent Plans. All employee contributions of Transferred Employees under the Parent Plans shall be deducted in accordance with the payroll deduction processes maintained by Parent consistent with past practice and paid by Parent to the Parent Plans in accordance with the terms of the Parent Plans. (b) For twelve months following the date hereof (and for such longer period as to which the parties may hereafter agree), Parent shall provide the services of the Parent's Environmental Health and Safety Manager to the Successor GP on the same basis that such services were provided to PAAI. Section 4. Standard of Services. (a) Parent shall perform the Transition Services at comparable levels of performance, completeness, care and attention and in accordance with service standards- and operating procedures, that are consistent with the practices of Parent in performing such services prior to the Closing Date of the Contribution Agreement. (b) The Successor GP shall make available to Parent on a timely basis all data, information and other materials within its control that are reasonably necessary for Parent to perform, or cause to be performed, the Transition Services. The parties hereto agree that Parent shall have no liability for any failure to perform or for the late performance of any of the Transition Services to the extent such non-performance or late performance 6 results from having failed to provide, or cause be provided to, Parent, the data, information or other materials required to perform the Transition Services. (c) Parent shall (i) maintain records regarding Transition Services in the same manner that it has kept records for itself prior to the date hereof, and (ii) provide the Successor GP with reasonable access to such records. Section 5. Employee Benefits Costs and Reimbursements. Parent shall invoice the Successor GP for, and Successor GP shall pay or cause to be paid, all employee benefits and compensation costs and reimbursements in amounts and in time periods consistent with past practice utilized by Parent and PAAI in connection with employee services provided to the MLP. In addition, employee benefits and compensation costs and reimbursements with respect to services provided by Parent's Environmental Health and Safety Manager to the Successor GP shall be payable by the Successor GP under this Agreement consistent with past practice of such employee's provision of services to PAAI. Section 6. Covenants. Notwithstanding anything in this Agreement to the contrary, in the event that, following the date hereof, Parent, PAAI and the Successor GP determine any additional transition services not described in this Agreement exist, Parent, PAAI and the Successor GP hereby agree to cooperate and negotiate in good faith with respect to the provision of any such transition services for a period of up to three months following the Closing Date. Section 7. Independent Contractor. Parent shall not have any responsibility with respect to the management or operation of the business being transferred to Successor GP, and its responsibilities shall be limited to providing the Transition Services described herein. Parent shall provide the Transition Services as an independent contractor only, and this Agreement does not and shall not be construed as creating a joint venture, partnership or agency relationship between the parties. No employee of one party shall be considered an employee of the other party for any purpose. Section 8. Indemnification. (a) Indemnification by Parent and PAAI. Notwithstanding any other provisions of this Agreement, each of Parent and PAAI hereby agrees to indemnify and hold harmless: (i) the Successor GP, (ii) each of the Successor GP's Subsidiaries and Affiliates (each as defined in the Contribution Agreement), and (iii) each of their respective directors, officers, employees, agents, representatives, successors and assigns, from and against, any liability, loss, damage, cost or expense (including reasonable attorneys' fees and disbursements), incurred or suffered by any such indemnified person with respect to, (1) any claims or suits brought by any third party against any such indemnified person with respect to, or arising out of, any action (or omission) by a Transferred Employee identified on Schedule A attached hereto on or before the last day of the Transition Period; or (2) any claims or suits brought by any Transferred Employee identified on Schedule A attached hereto (or his or her beneficiary, representative or estate) against any such indemnified person (X) with respect to, or arising out of, any 7 action (or omission) by such indemnified person occurring or deemed incurred on or before the last day of the Transition Period, or (Y) with respect to, or arising out of, or relating to all claims under the applicable Parent Plans, occurring or deemed incurred on or before the last day of the Transition Period. In addition, each of Parent and PAAI hereby agrees to indemnify and hold harmless: (i) the Successor GP, (ii) each of the Successor GP's Subsidiaries and Affiliates (each as defined in the Contribution Agreement), and (iii) each of their respective directors, officers, employees, agents, representatives, successors and assigns, from and against any liability, loss, damage, cost or expense (including reasonable attorney's fees and disbursements), incurred or suffered by any such indemnified person with respect to, (i) any claim for health benefits (including, without limitation, claims for medical, prescription drug, dental or vision care expenses), (ii) any claim for medical or disability benefits and (iii) any claim for benefits other than health benefits (e.g., life insurance benefits or any claim relating to employment laws), to which any Transferred Employee (or his or her beneficiary, representative or estate) is entitled under the Parent Plans. For purposes of this Agreement, (i) a claim for health benefits (including, without limitation, claims for medical, prescription drug, dental and vision care expenses) will be deemed to have been incurred on the date on which the related medical service or benefit was rendered or received, (ii) a claim for medical, or disability benefits will be deemed to have been incurred upon the occurrence of the event giving rise to such claims, and (iii) in the case of any claim for benefits other than health benefits (e.g., life insurance benefits or any claim relating to employment laws), a claim will be deemed to have been incurred upon the occurrence of the event giving rise to such claims . (b) Indemnification by the Successor GP. Notwithstanding any other provision of this Agreement, the Successor GP hereby agrees to indemnify and hold harmless: (i) each of Parent and PAAI, (ii) each of Parent and PAAI's Subsidiaries and Affiliates (each as defined in the Contribution Agreement), and (iii) each of their respective directors, officers, employees, agents, representatives, successors and assigns, from and against, any liability, loss, damage, cost or expense (including reasonable attorneys' fees and disbursements), incurred or suffered by any such indemnified person with respect to, (A) any claims or suits brought by any third party against any such indemnified person with respect to, or arising out of, any action (or omission) by a Transferred Employee (except that, with respect to a Transferred Employee identified on Schedule A attached hereto, such indemnification shall relate to any action or omission by such Transferred Employee after the last day of the Transition Period), (B) any claims or suits brought by any Transferred Employee (or his or her beneficiary, representative or estate) against any such indemnified person (X) with respect to, or arising out of, any action (or omission) by the Successor GP, occurring or deemed incurred after the last day of the Transition Period, or (Y) to the extent not indemnified pursuant to the second sentence of Section 8(a), with respect to, or arising out of, or relating to all claims under the applicable Parent Plans or any other claim arising out of or related to a Transferring Employee's employment (except that, with respect to a Transferred Employee identified on Schedule A attached hereto, such indemnification shall relate to any such claim occurring or deemed incurred after the last day of the Transition Period) or (C) with respect to or arising out of, or relating to any claims by third parties in connection with the provision by Parent of the Transition Services if Parent shall have complied with the 8 standard of service set forth in Section 4(a) in connection with the event giving rise to the claim. Section 9. Notices. All notices which are required or may be given pursuant to the terms of this Agreement shall be deemed to have been duly given if such notice is given in accordance with the terms of the Contribution Agreement or to such other address as either party may, from time to time, designate by written notice given in like manner. Section 10. Waiver. Any waiver of any term of this Agreement must be in writing and signed by the party against whom enforcement of the waiver is sought. No waiver of any condition, or of the breach of any provision hereof, in any one or more instances, shall be deemed to be a further or continuing waiver of such condition or breach. Delay or failure to exercise any right or remedy shall not be deemed the waiver hereof. Section 11. Entire Agreement. This Agreement and the schedules attached hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral and written between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by either party which is not embodied in this Agreement or such other documents, and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. Section 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas applicable to contracts executed in and to be performed in that state and without regard to any applicable conflicts of law. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined in any Texas state or federal Court located in Houston, Texas. In connection with the foregoing, each of the parties to this Agreement irrevocably (i) consents to submit itself to the personal jurisdiction of the state and federal Courts of competent jurisdiction located in Houston, Texas, (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such Court, and (iii) hereby consents to service of process pursuant to the notice provisions set forth in Section 9 of this Agreement. Section 13. Headings. The headings appearing at the beginning of sections contained herein have been inserted for identification and reference purposes and shall not be used to determine the construction or interpretation of this Agreement. Section 14. Counterparts. This Agreement may be executed in counterpart copies, all of which when taken together shall be deemed to constitute one and the same original instruments. Section 15. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 9 Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or any reason of this Agreement. Section 16. Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld. Section 17. Contribution Agreement. This Agreement and the obligations of the parties hereunder shall be conditioned upon the closing of the Contribution Agreement. If the closing of the Contribution Agreement does not occur, or if the Contribution Agreement is terminated or abandoned, this Agreement shall become null and void. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. PLAINS RESOURCES INC. By: /s/ James C. Flores --------------------------- Name: James C. Flores Title: Chairman and Chief Executive Officer PLAINS ALL AMERICAN INC. By: /s/ Greg L. Armstrong --------------------------- Name: Greg L. Armstrong Title: Chief Executive Officer PLAINS ALL AMERICAN GP LLC By: /s/ Greg L. Armstrong --------------------------- Name: Greg L. Armstrong Title: Chief Executive Officer 11 SCHEDULE A TO PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT Greg L. Armstrong Monya Churchill Mary Denton A. Pat Diamond Linda Kennedy Philip D. Kramer Tim Moore Harry N. Pefanis Al Swanson Carolyn Tice i SCHEDULE B TO PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT Greg L. Armstrong A. Pat Diamond Philip D. Kramer Tim Moore Harry N. Pefanis Al Swanson ii SCHEDULE C TO PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT Employee Years of Service - -------------------- ---------------- Greg L. Armstrong 15 Philip D. Kramer 15 Tim Moore 5 Harry N. Pefanis 15 iii SCHEDULE D TO PENSION AND EMPLOYEE BENEFITS ASSUMPTION AND TRANSITION AGREEMENT PARENT PLANS 1) Plains Resources, Inc. Group Health, Dental and Drug Plan 2) Plains Resources, Inc. 401k Savings Plan 3) Plains Resources, Inc. Life and Accidental Death and Dismemberment Plan 4) Plains Resources, Inc. Voluntary Life and Accidental Death and Dismemberment Plan 5) Plains Resources Inc. Section 125 Cafeteria Plan 6) Plains Resources, Inc. Long Term Disability Plan 7) The Permian Corporation Savings Plan 8) The Permian Corporation Retirement Plan iv EX-10.5 7 dex105.txt VALUE ASSURANCE AGREEMENT EXHIBIT 10.5 EXECUTION COPY VALUE ASSURANCE AGREEMENT This Value Assurance Agreement is made as of June 8, 2001, by and among Plains Resources Inc., a Delaware corporation ("Rodeo"), and Sable Holdings, L.P. (the "Initial Holder"). RECITALS: WHEREAS, the Initial Holder and Rodeo are parties to that certain Unit Transfer and Contribution Agreement dated as of May 8, 2001 (the "Transfer Agreement") whereby, among other things, PAAI LLC, a wholly owned, indirect subsidiary of Rodeo has agreed to sell to the Initial Holder and the Initial Holder has agreed to purchase from PAAI LLC, 1,905,627 subordinated units of limited partner interests (the "Subordinated Units") of Plains All American Pipeline, L.P. (the "Company"). WHEREAS, it is the intent of the parties that during the term of this Agreement the Unit Holders shall receive quarterly distributions per Subordinated Unit in an amount equal to at least the Minimum Distribution (as hereinafter defined). WHEREAS, Rodeo has agreed to pay to the Unit Holders (as hereinafter defined), on the terms and conditions hereinafter set forth as an adjustment to the purchase price of the Subordinated Units, such amounts per Subordinated Unit as are necessary to assure that the Minimum Distributions are realized. WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Transfer Agreement, Rodeo is required to execute and deliver this Agreement. NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the receipt and sufficiency of all of which are hereby acknowledged, the parties hereby agree as follows: AGREEMENT Section 1. Certain Definitions. As used herein the following terms shall have the following meanings: "Actual Distributions" means, for any Quarter, the amount of Available Cash distributed by the Company per Subordinated Unit pursuant to Article VI of the Partnership Agreement. "Agreement" means this Value Assurance Agreement, as it may be amended from time to time in accordance with its terms. "Available Cash" has the meaning given such term in the Partnership Agreement. "Common Unit" has the meaning given such term in the Partnership Agreement. "Minimum Distribution" means $0.4625 per Subordinated Unit per Quarter, subject to proportional adjustment in the event of any distribution, combination or subdivision (whether effected by a distribution payable in Units or otherwise) of Units or other Partnership Securities in accordance with Section 5.10 of the Partnership Agreement. "Partnership Agreement" means the Second Amended and Restated Agreement of Limited Partnership of the Company dated as of November 23, 1998, as amended, modified, supplemented or restated from time to time. "Partnership Securities" has the meaning given such term in the Partnership Agreement. "Quarter" has the meaning given such term in the Partnership Agreement. "Shortfall Payment" means an amount equal to the product of (A) the Minimum Distribution less the Actual Distribution, times (B) the number of Subordinated Units held of record by a particular Unit Holder. "Subordinated Units" has the meaning given such term in the Recitals hereof. "Transfer Agreement" has the meaning given such term in the Recitals hereof. "Unit" has the meaning given such term in the Partnership Agreement. "Unit Holders" means initially the Initial Holder as owner of the Subordinated Units and shall include any subsequent permitted transferee in accordance with Section 6 hereof that is the record holder of Subordinated Units. Section 2. Assurance of Minimum Distributions. In the event the Actual Distribution is less than the Minimum Distribution, Rodeo shall pay to each Unit Holder their respective Shortfall Payment within 50 days after the end of such Quarter; provided, however, that no Unit Holder shall be entitled to any Shortfall Payment if the aggregate amount of Actual Distributions and Shortfall Payments made to date for that fiscal year (the "Aggregate Payment Amount") is greater than $1.85 (an "Excess Payment"); provided, further, that if any payment of any Shortfall Payment would result in an Excess Payment, such Shortfall Payment shall be reduced so that the Aggregate Payment Amount through and including the date of such Shortfall Payment equals $1.85 (the "Guaranteed Amount"). If Rodeo shall fail to timely make any Shortfall Payment as contemplated by this Section 2, Rodeo agrees to pay interest in respect of any delinquent amount under this Agreement at the rate per annum that Citibank, N.A. or any successor entity thereto, announces from time to time as its prime lending rate. All Shortfall Payments, and other payments hereunder, shall be made in immediately available funds to the account of each of the Unit Holders, or their respective successors and permitted assignees, as appropriate without offset, deduction or counterclaim of any kind (except as provided for in Section 3 below). A Unit Holder shall not be entitled to receive any Shortfall Payment with respect to any Subordinated Unit that has been converted into a Common Unit other than with respect to any distributions of Available Cash declared but not paid prior to such Conversion. 2 Section 3. True-Up. In the event that the Aggregate Payment Amount for any fiscal year is greater than the Guaranteed Amount, each Unit Holder shall reimburse Rodeo in an amount equal to the product of (x) the lesser of (A) the aggregate amount of Shortfall Payments per Subordinated Unit made during that year and (B) the difference between the Aggregate Payment Amount and the Guaranteed Amount in respect of such fiscal year (such lesser amount, the "True- Up Amount") and (y) the number of Subordinated Units held of record by that Unit Holder. Such reimbursement shall be made in cash within 50 days after the end of the fiscal year. If any Unit Holder shall fail to timely make any reimbursement contemplated by this Section 3, such Unit Holder shall pay interest in respect of any delinquent amount at the rate per annum that Citibank, N.A. or any successor entity thereto, announces from time to time as its prime lending rate, and if not paid prior to the date on which any subsequent Shortfall Payment is to be made, the True-Up Amount shall be set off against such Shortfall Payment. In the event a Unit Holder has transferred Subordinated Units during such fiscal year, transferor and transferee shall each be responsible for proportional payment of the True-Up Amount based upon the Shortfall Payments made to each of them. Section 4. Absolute Obligation. Rodeo hereby agrees that this Agreement constitutes an irrevocable and unconditional obligation to pay and perform all obligations due hereunder on demand. Rodeo agrees to make payment and to perform strictly in accordance with terms hereof regardless of any law, regulation or equitable principle now or hereafter in effect which would modify or restrict either the obligations of Rodeo or the rights of the Unit Holders with respect to this Agreement, and Rodeo waives defenses to the payment or performance by Rodeo hereunder. Rodeo and the Unit Holders, with respect to Section 3 hereof, each hereby agree to the prompt, complete, and full payment of all expenses and fees (including, without limitation, reasonable attorneys' fees) incurred in the enforcement of this Agreement. Section 5. Representations and Warranties. Rodeo hereby represents and warrants to the Unit Holders as of the date hereof as follows: Section 5.1. Organization and Good Standing. Rodeo is duly organized, validly existing and in good standing under the laws of the State of Delaware. Rodeo has the power and authority to conduct its business as it is presently being conducted and to own or use its properties and assets. Section 5.2. Power, Authority and Enforceability. Rodeo has all requisite power and authority to execute, deliver and perform this Agreement. This Agreement has been duly and validly authorized and executed by persons with authority to bind Rodeo and constitutes the legal, valid and binding obligation of the Rodeo, enforceable against Rodeo in accordance with its terms. Section 5.3. No Conflicts; Consents. The execution, delivery and performance by Rodeo of this Agreement does not and will not conflict with, contravene, violate or result in a breach of or default under any laws applicable to Rodeo or any order, decree or judgment of any court or governmental authority binding on Rodeo or any agreement or instrument to which Rodeo is a party or by which it or any of its assets are bound, and will not result in or require the creation or imposition of any lien, charge or encumbrance upon any assets of Rodeo. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other 3 regulatory body or third party is required for the due execution, delivery and performance by Rodeo of this Agreement. Section 5.4. Legal Proceedings. There is no action, suit or proceeding pending or, to the knowledge of Rodeo, threatened against or otherwise affecting Rodeo before any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality that would reasonably be expected to materially and adversely affect Rodeo's financial condition, properties or operations or ability to perform its obligations hereunder. Section 5.5. Solvency. Rodeo is solvent and able to pay its debts as they become due. Rodeo's capital is adequate for the businesses in which it is engaged and intends to be engaged. Rodeo has not incurred, nor does Rodeo intend to incur or believe that it will incur, debts which will be beyond its ability to pay as such debts mature. Section 6. Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assignees. Rodeo shall not be allowed to assign or otherwise transfer this Agreement and its rights or obligations hereunder except by operation of law. A Unit Holder may assign, grant a participation in, or otherwise transfer any of its rights or interests hereunder without the consent of the other parties (i) to any third party in connection with the transfer of Subordinated Units that is permitted by, and in accordance with, the Transfer Agreement, whereupon such transferee shall then be a "Unit Holder" for all purposes under this Agreement, and (ii) to any lender to secure indebtedness of the Unit Holder, or in the event of a default in any indebtedness of the Unit Holder. Section 7. Termination. This Agreement shall terminate with respect to any Subordinated Unit at the conversion of such Subordinated Unit into a Common Unit. This Agreement shall terminate upon the first to occur of the following: (i) the date on which all of the Subordinated Units shall have converted into Common Units or (ii) the fifth anniversary of the date of this Agreement. A termination of this Agreement shall have no effect on nor diminish, alter, nor affect (i) any rights or obligations of the parties hereto which accrued or arose on or before the date of such termination and (ii) any right or cause of action and related remedies arising out of a party's breach of this Agreement. Section 8. General. Section 8.1. Choice of Law. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. The parties agree to submit all disputes arising under or relating to this Agreement to the exclusive jurisdiction of the state courts and/or United States federal courts located in Harris County in the State of Texas and consent to the jurisdiction of such courts. Section 8.2. Entire Agreement and Amendments. This Agreements constitute the entire agreement between the parties and supersedes all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter 4 hereof. This Agreement may not be amended, supplemented or otherwise modified except by a written agreement executed by all parties hereto. Section 8.3. Severability. If any provision of this Agreement is held to be unenforceable or invalid by a court of competent jurisdiction, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid as a whole. Rather, such provision shall be stricken from the Agreement and the remaining provisions shall be fully enforceable. Section 8.4. Notices. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. Section 8.5. Headings. The headings used herein are for purposes of convenience only and shall not be used in construing the provisions hereof. Section 8.6. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 8.7. Treatment of Payments. Any Shortfall Payment made hereunder shall be treated for all purposes as an adjustment to the purchase price paid by the Unit Holder for the Subordinated Units to PAAI LLC. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. PLAINS RESOURCES INC. By: /s/ James C. Flores ---------------------------------- Name: James C. Flores ------------------------------- Title: Chairman and CEO ------------------------------- Address: 500 Dallas Street, Suite 700 Houston, Texas 77002 Facsimile: (713) 654-1523 SABLE HOLDINGS, L.P. By: Sable Holdings, LLC its general partner By: /s/ James C. Flores ---------------------------------- Name: James C. Flores ------------------------------- Title: Sole Member ------------------------------- Address: P.O. Box 1083 Houston, TX 77251 Facsimile: (713) 654-1523 6 SCHEDULE TO VALUE ASSURANCE AGREEMENT, -------------------------------------- DATED AS OF JUNE 8, 2001, BY AND AMONG -------------------------------------- PLAINS RESOURCES INC. AND SABLE HOLDINGS, L.P.* ----------------------------------------------- Value Assurance Agreement, dated as of June 8, 2001, by and among Plains Resources Inc. and KAFU Holdings, LP.* Value Assurance Agreement, dated as of June 8, 2001, by and among Plains Resources Inc. and E-Holdings III, L.P.* Value Assurance Agreement, dated as of June 8, 2001, by and among Plains Resources Inc. and Strome Hedgecap Fund, L.P.* Value Assurance Agreement, dated as of June 8, 2001, by and among Plains Resources Inc. and Mark E. Strome.* Value Assurance Agreement, dated as of June 8, 2001, by and among Plains Resources Inc. and John T. Raymond.* *These agreements are substantially identical in all material respects except as to the parties thereto. EX-10.6 8 dex106.txt CONTRIBUTION, ASSIGNMENT AGREEMENT EXHIBIT 10.6 Draft of June 4, 2001 CONTRIBUTION, ASSIGNMENT AND AMENDMENT AGREEMENT This CONTRIBUTION, ASSIGNMENT AND AMENDMENT AGREEMENT is made as of June 8, 2001, between Plains All American Inc., a Delaware corporation (the "DEPARTING GP"), Plains AAP, L.P., a Delaware limited partnership (the "GP LP") and Plains All American GP LLC, a Delaware limited liability company ("SUCCESSOR GP LLC"). Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Investor Agreements (as defined below). RECITALS WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of May 8, 2001, as amended (the "KAFU AGREEMENT"), among Kafu Holdings, LLC, Plains Resources Inc. ("PARENT"), the Departing GP and PAAI LLC ("SELLER"); WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of May 8, 2001 (the "SABLE AGREEMENT"), among Sable Investments, L.P., Sable Holdings, L.P., James C. Flores, Parent, the Departing GP and Seller; WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of May 8, 2001, as amended (the "ENCAP AGREEMENT"), among E-Holdings III, L.P., Parent, the Departing GP and Seller; WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of June 8, 2001 ( the "RAYMOND AGREEMENT") among John T. Raymond, Parent, the Departing GP and Seller; WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of June 8, 2001 (the "STROME AGREEMENT") among Mark E. Strome, Parent, the Departing GP and Seller; WHEREAS, the Departing GP has entered into a Unit Transfer and Contribution Agreement, dated as of June 8, 2001 (the "STROME HEDGECAP FUND AGREEMENT") among Strome Hedgecap Fund L.P., Parent, the Departing GP and Seller; WHEREAS, the Departing GP has entered into a Contribution Agreement, dated as of June 8, 2001 (the "MANAGEMENT ENTITY CONTRIBUTION AGREEMENT" and together with the Kafu Agreement, the Sable Agreement, the EnCap Agreement, the Raymond Agreement, the Strome Agreement and the Strome Hedgecap Fund Agreement, the "INVESTOR AGREEMENTS") among PAA Management, L.P., Parent and the Departing GP; WHEREAS, the Departing GP has agreed, as a condition to the closing of the transactions contemplated by the Investor Agreements, to contribute the LLC Incentive Distribution Rights to Successor GP LLC as its capital contribution as a member of Successor GP LLC; 1 WHEREAS, Successor GP LLC has agreed, as a condition to the closing of the transactions contemplated by the Investor Agreements, to contribute the LLC Incentive Distribution Rights to the GP LP as its capital contribution as the general partner of the GP LP; WHEREAS, the Departing GP has agreed, as a condition to the closing of the transactions contemplated by the Investor Agreements, to contribute, among other things, the GP Interest, the Operating Partnerships GP Interests and the LP Incentive Distribution Rights to the GP LP as its capital contribution as the GP LP's limited partner; WHEREAS, the GP LP desires to assume the rights and duties of the general partner of Plains All American Pipeline, L.P. (the "PARTNERSHIP") and the Operating Partnerships and to be bound by the provisions of the Second Amended and Restated Agreement of Limited Partnership of the Partnership dated as of November 23, 1998, as amended (the "PARTNERSHIP AGREEMENT"), and the Operating Partnership Agreements; and WHEREAS, the GP LP desires to consent, pursuant to Section 10.2 of the Partnership Agreement, to the admission of Sable Holdings, Raymond, Strome Hedgecap, Strome, Kafu and E-Holdings as Substituted Limited Partners (as defined in the Partnership Agreement) in the Partnership. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I. CONTRIBUTIONS OF PARTNERSHIP INTERESTS AND INCENTIVE DISTRIBUTION RIGHTS 1.1 Contribution by Departing GP to Successor GP LLC. Departing GP hereby grants, contributes, transfers and conveys to Successor GP LLC, its successors and assigns, all right, title and interest in and to the LLC Incentive Distribution Rights and Successor GP LLC hereby accepts the LLC Incentive Distribution Rights as a contribution to the capital of Successor GP LLC. TO HAVE AND TO HOLD the LLC Incentive Distribution Rights unto Successor GP LLC, its successors and assigns, together with all and singular the rights and appurtenances thereto in anywise belonging, subject, however, to the terms and conditions stated in this Agreement, forever. 1.2 Contribution by Successor GP LLC to GP LP. Successor GP LLC hereby grants, contributes, transfers and conveys to GP LP, its successors and assigns, all right, title and interest in and to the LLC Incentive Distribution Rights and GP LP hereby accepts the LLC Incentive Distribution Rights as a contribution to the capital of GP LP. TO HAVE AND TO HOLD the LLC Incentive Distribution Rights unto GP LP, its successors and assigns, together with all and singular the rights and appurtenances thereto in anywise belonging, subject, however, to the terms and conditions stated in this Agreement, forever. 1.3 Contribution by Departing GP to GP LP. Departing GP hereby grants, contributes, transfers and conveys to GP LP, its successors and assigns, all right, title and interest in and to the LP Incentive Distribution Rights, the GP Interest and the Operating Partnerships GP Interests and 2 GP LP hereby accepts the LP Incentive Distribution Rights, the GP Interest and the Operating Partnerships GP Interests as a contribution to the capital of GP LP. TO HAVE AND TO HOLD the LP Incentive Distribution Rights, the GP Interest and the Operating Partnerships GP Interests unto GP LP, its successors and assigns, together with all and singular the rights and appurtenances thereto in anywise belonging, subject, however, to the terms and conditions stated in this Agreement, forever. The Partnership hereby acknowledges receipt of the opinion of counsel required in Section 4.6(c) of the Partnership Agreement. 1.4 Further Assurances. From time to time after the date hereof, and without any further consideration, Departing GP shall execute, acknowledge and deliver all such additional assignments, stock powers, instruments, notices, releases, acquittances and other documents, and will do all such other acts and things, all in accordance with applicable law, as may be reasonably necessary or appropriate more fully and effectively to assure GP LP and Successor GP LLC, their respective successors and assigns, all of the properties, rights, titles, interests, estates, remedies, powers and privileges by this Agreement granted to GP LP and Successor GP LLC with respect to the LLC Incentive Distribution Rights, the LP Incentive Distribution Rights, the GP Interest and the Operating Partnerships GP Interests or which are intended so to be and to more fully and effectively carry out the purposes and intent of this Agreement. ARTICLE II. SUCCESSION OF GENERAL PARTNER OF THE PARTNERSHIP AND THE OPERATING PARTNERSHIPS 2.1 Withdrawal of Departing GP as General Partner of Operating Partnerships. Effective immediately prior to the contribution of the GP Interest and the Operating Partnerships GP Interests pursuant to Section 1.3 and, pursuant to Section 11.1(a)(ii) of each of the Partnership Agreement and the Operating Partnership Agreements, Departing GP hereby withdraws as general partner of the Partnership and the Operating Partnerships and proposes GP LP to act and serve as sole general partner of the Partnership and the Operating Partnerships. 2.2 GP LP as Successor General Partner of the Partnership and the Operating Partnerships. Effective immediately prior to the transfer to GP LP of the GP Interest and the Operating Partnerships GP Interests pursuant to Section 1.3, GP LP accepts and agrees to duly and timely pay, perform and discharge the rights, duties and obligations of the general partner of the Partnership and the Operating Partnerships and all of the terms and conditions of the Partnership Agreement and the Operating Partnership Agreements in accordance with Section 10.3 of the Partnership Agreement and Section 10.4 of the Operating Partnership Agreements, and GP LP agrees to serve as general partner of the Partnership and the Operating Partnerships and to be bound by the Partnership Agreement and the Operating Partnership Agreements, as each is amended by this Agreement or as may be further amended by the terms of the Partnership Agreement and the Operating Partnership Agreements, as applicable, and GP LP is hereby admitted as the successor general partner of the Partnership and the Operating Partnerships. 3 ARTICLE III. ASSUMPTION OF AND INDEMNIFICATION FOR CERTAIN LIABILITIES 3.1 Assumption of Certain Liabilities and Obligations of Departing GP by GP LP. In connection with the transfer of the GP Interest and the Operating Partnerships GP Interests and the succession by GP LP as general partner of the Partnership and the Operating Partnerships, GP LP hereby assumes and agrees to duly and timely pay, perform and discharge all liabilities and obligations of the Partnership and each Operating Partnership to the full extent (and only to the extent) that Departing GP, as general partner, has been or would have been in the future, were it not for the execution and delivery of this Agreement, obligated to pay, perform and discharge such liabilities and obligations; provided, however, that such assumption by GP LP is subject to the indemnification provided in Section 3.2. 3.2 Indemnification of GP LP and Successor GP LLC. Upon the transfer of the GP Interest and the Operating Partnerships GP Interests to GP LP pursuant to Section 1.3 hereof, Departing GP hereby indemnifies, defends and holds harmless GP LP and Successor GP LLC from and against any and all claims, demands, costs, liabilities and expenses (including court costs and reasonable attorneys' fees) arising from or relating to any liability of GP LP or Successor GP LLC, whether as general partner of the Partnership or an Operating Partnership or pursuant to the assumption by GP LP and Successor GP LLC of liabilities and obligations of the Partnership or an Operating Partnership pursuant to Section 3.1, for liabilities of the Partnership and each Operating Partnership existing at the time of the assignment of the GP Interest and the Operating Partnerships GP Interests to GP LP pursuant to Section 1.3, but only to the extent that Departing GP's share of such liabilities immediately prior to any assignment under Section 1.3 exceeds Departing GP's federal income tax basis in its aggregate partnership interest in the Operating Partnerships. For purposes of this provision, liabilities shall mean only those shown on the balance sheet of the Partnership and the Operating Partnerships as of the date of this Agreement. ARTICLE IV. AMENDMENTS TO PARTNERSHIP AGREEMENT 4.1 Amendments to the Partnership Agreement. In order to further the purposes of this Agreement and to evidence the increased interest of the general partner in the Partnership issued in exchange for the contributions to the Partnership made pursuant to Section 2.1 hereof, Departing GP, as general partner of the Partnership, having determined that the following amendments would not materially adversely affect the limited partners of the Partnership or have a material adverse effect on the holders of any class of the Partnership's outstanding units, hereby exercises its rights and powers to amend the Partnership Agreement without the approval of any limited partner or assignee pursuant to Section 13.1(d)(i) of the Partnership Agreement and hereby approves and adopts the following amendments to the Partnership Agreement in accordance with Article XIII thereof: (a) Section 1.1 is hereby amended by amending the definition of the following term to read in its entirety as follows: "Conflicts Committee" means a committee of the Board of Directors of the general partner of the General Partner (or the applicable governing body of any successor to the General Partner) composed entirely of two or more directors who are neither security 4 holders, officers nor employees of the General Partner nor officers, directors or employees of any Affiliate of the General Partner. (b) References in the Partnership Agreement to the Board of Directors and officers of the General Partner are hereby amended to refer to the Board of Directors (or the comparable governing body of any successor to the General Partner) and officers (or the comparable governing officials of any successor to the General Partner) of the general partner of the General Partner. (c) Section 4.4(c) is hereby amended to read in its entirety as follows: (c) Nothing contained in this Agreement shall be construed to prevent a disposition by any stockholder, member, partner or owner of the General Partner of any or all of the issued and outstanding stock, membership interests or partnership interests or other ownership interests of the General Partner. 4.2 Restatement of Partnership Agreements. Each of the partners of the Partnership and the Operating Partnerships that is a party hereto agrees to execute and deliver, within a reasonable period of time following the Closing Date, a restated and amended version of each of the Partnership Agreement and the Operating Partnership Agreements to which it is a party incorporating the amendments to such agreement adopted by this Agreement together with such other amendments intended to clarify the agreement as the general partner of such limited partnership determines as are appropriate and not having a material adverse effect on the limited partners of the partnership, and in the case of the Partnership, the holders of outstanding common units therein. ARTICLE V. CONSENT TO ADMISSION OF SUBSTITUTED LIMITED PARTNERS GP LP hereby consents, pursuant to Section 10.2 of the Partnership Agreement, to the admission of Sable Holdings, Raymond, Strome Hedgecap, Strome, Kafu and E-Holdings as Substituted Limited Partners (as defined in the Partnership Agreement) in the Partnership. GP LP represents that as of the date hereof such admissions have been reflected on the books and records of the Partnership. ARTICLE VI. MISCELLANEOUS 6.1 Other Assurances. From time to time after the date hereof, and without any further consideration, each of the parties to this Agreement shall execute, acknowledge and deliver all such additional instruments, notices and other documents, and will do all such other acts and things, all in accordance with applicable law, as may be necessary or appropriate to more fully and effectively carry out the purposes and intent of this Agreement. 6.2 Consents; Restriction on Assignment. If there are prohibitions against or conditions to the contribution and assignment of one or more portions of the assets contributed pursuant to 5 Article II without the prior written consent of third parties, including, without limitation, governmental agencies (other than consents of a ministerial nature that are normally granted in the ordinary course of business), which if not satisfied would result in a breach of such prohibitions or conditions or would give an outside party the right to terminate the GP LP's rights with respect to such portion of the contributed assets (herein called a "Restriction"), then any provision contained in this Agreement to the contrary notwithstanding, the transfer of title to or interest in each such portion of the contributed assets (herein called the "Restriction-Asset") pursuant to this Agreement shall not become effective unless and until such Restriction is satisfied, waived or no longer applies. When and if such a Restriction is so satisfied, waived or no longer applies, to the extent permitted by applicable law and any applicable contractual provisions, the assignment of the Restriction-Asset subject thereto shall become effective automatically, without further action on the part of GP LP or Departing GP and Departing GP agrees to use its reasonable best efforts to obtain satisfaction of any Restriction on a timely basis. In the event that any Restriction-Asset exists, Departing GP agrees to hold such Restriction-Asset in trust for the exclusive benefit of the assignee or GP LP, as the case may be, and to otherwise use its reasonable best efforts to provide the assignee with the benefits thereof, and Departing GP will enter into other agreements, or take such other action as it may deem reasonably necessary, in order to help ensure that such assignee is entitled to the benefits of the contributed assets and concomitant rights in all material respects. 6.3 Costs. The Partnership shall pay all sales, use and similar taxes arising out of the contributions, assignments and deliveries to be made hereunder, and shall pay all documentary, filing, recording, transfer, deed, and conveyance taxes and fees required in connection therewith. In addition, the Partnership shall be responsible for all costs, liabilities and expenses (including court costs and reasonable attorneys' fees) incurred in connection with the satisfaction or waiver of any Restriction pursuant to Section 6.2. 6.4 Headings; References; Interpretation. All Article and Section headings in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any of the provisions hereof. The words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement. All references herein to Articles and Sections shall, unless the context requires a different construction, be deemed to be references to the Articles, and Sections of this Agreement, respectively. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders, and the singular shall include the plural and vice versa. The use herein of the word "including" following any general statement, term or matter shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as "without limitation," "but not limited to," or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. 6.5 Successors and Assigns. The Agreement shall be binding upon and inure to the benefit of the parties signatory hereto and their respective successors and assigns. 6.6 No Third Party Rights. The provisions of this Agreement are intended to bind the parties signatory hereto as to each other and are not intended to and do not create rights in any other 6 person or confer upon any other person any benefits, rights or remedies and no person is or is intended to be a third party beneficiary of any of the provisions of this Agreement. 6.7 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one agreement binding on the parties hereto. 6.8 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts made and to be performed wholly within such state without giving effect to conflict of law principles thereof, except to the extent that it is mandatory that the law of some other jurisdiction, wherein the contributed assets are deemed located, shall apply. 6.9 Severability. If any of the provisions of this Agreement are held by any court of competent jurisdiction to contravene, or to be invalid under, the laws of any political body having jurisdiction over the subject matter hereof, such contravention or invalidity shall not invalidate the entire Agreement. Instead, this Agreement shall be construed as if it did not contain the particular provision or provisions held to be invalid, and an equitable adjustment shall be made and necessary provision added so as to give effect to the intention of the parties as expressed in this Agreement at the time of execution of this Agreement. 6.10 Assignment. To the extent required by applicable law, this Agreement shall also be an "assignment" of the assets transferred and contributed as set forth in Article II hereof. 6.11 Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement of all the parties hereto. 6.12 Integration. This Agreement supersedes all previous understandings or agreements between the parties, whether oral or written, with respect to its subject matter. This document is an integrated agreement which contains the entire understanding of the parties. No understanding, representation, promise or agreement, whether oral or written, is intended to be or shall be included in or form part of this Agreement unless it is contained in a written amendment hereto executed by the parties hereto after the date of this Agreement. [signature page follows] 7 IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date first above written. PLAINS ALL AMERICAN INC., a Delaware corporation By: /s/ Tim Moore -------------------------------- Name: Tim Moore Title: Vice President PLAINS AAP, L.P., a Delaware limited partnership By: Plains All American GP LLC By: /s/ Tim Moore -------------------------------- Name: Tim Moore Title: Vice President PLAINS ALL AMERICAN GP LLC, a Delaware limited liability company By: /s/ Tim Moore -------------------------------- Name: Tim Moore Title: Vice President 8 EX-10.7 9 dex107.txt FLORES RIGHTS AGREEMENT EXHIBIT 10.7 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of May 8, 2001 (this "AGREEMENT"), among Plains Resources Inc., a Delaware corporation (the "ISSUER"), and James C. Flores ("FLORES", and together with his permitted transferees, the "HOLDERS" and each a "HOLDER"). W I T N E S S E T H: WHEREAS, Flores and the Issuer have entered into an Employment Agreement dated as of May 8, 2001 (the "EMPLOYMENT AGREEMENT"). WHEREAS, Flores and the Issuer desire to enter into this Agreement in connection with Flores' employment by the Issuer pursuant to the Employment Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "BOARD" means the Issuer's board of directors. "COMMISSION" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "COMMON STOCK" means common stock, par value $0.10 per share, of the Issuer. "DEMAND REGISTRATION" shall have the meaning ascribed thereto in Section 2.1(a). "DEMAND REQUEST" shall have the meaning ascribed thereto in Section 2.1(a). "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Issuer with the Commission. "LOSS" shall have the meaning ascribed thereto in Section 2.7(a). "PERSON" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, limited liability company, unincorporated entity or other entity. "REGISTRABLE SECURITIES" shall mean Common Stock at any time beneficially owned by any Holder whether now owned or hereafter acquired, including, without limitation, any stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged and any other stock or securities issued to Holders of such Common Stock (or such stock or other securities into which or for which such stock is so changed, converted or exchanged) upon any reclassification, combination, subdivision, dividend, exchange, merger, consolidation or similar transaction or event. Notwithstanding the foregoing, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, (iii) such Registrable Securities have been sold in a transaction exempt from the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (iv) such Registrable Securities are able to be sold pursuant to Rule 144(k); or (v) such Registrable Securities are held by a Holder that does not "beneficially own" more than 1% of the outstanding Common Stock and such Common Stock is able to be sold under Rule 144 (other than Rule 144(k)). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (ii) the fees, disbursements and expenses of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (iii) the reasonable fees, disbursements and expenses of one counsel for the Selling Holders (not to exceed $15,000 for any one registration) selected by them with the approval of the Issuer; (iv) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda (which shall not include legal fees); (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) fees and expenses of other Persons reasonably necessary in connection with such offering, including experts, transfer agents and registrars; (vii) all security engraving and security printing expenses; and (viii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Registrable Securities are then listed; provided that Registration Expenses shall exclude all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of any Registrable Securities. 2 "RULE 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "RULE 415 OFFERING" shall mean an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING HOLDER" shall mean any Holder who sells Registrable Securities pursuant to a registration hereunder. SECTION 1.2 INTERNAL REFERENCES. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS SECTION 2.1 DEMAND REGISTRATION. (a) Upon written notice to the Issuer from a Holder or Holders holding at least 30% of the Registrable Securities (the "DEMAND REQUEST") requesting that the Issuer effect the registration under the Securities Act of all or part of the Registrable Securities held by such requesting Holders (the "REQUESTING HOLDERS"), the Issuer shall prepare as soon as practicable and file with the Commission, within 30 days after such request, a registration statement with respect to such Registrable Securities and thereafter use its best efforts to cause such registration statement to be declared effective under the Securities Act as soon as practicable. A registration effected pursuant to a Demand Request pursuant to this Section 2.1(a) shall be referred to herein as a "DEMAND REGISTRATION." (b) Notwithstanding any other provision of this Agreement to the contrary, a Demand Registration requested by Holders pursuant to this Section 2.1 shall not be deemed to have been effected, and, therefore, not requested and the rights of each Holder shall be deemed not to have been exercised for purposes of paragraph (a) above, if (i) such Demand Registration has not become effective under the Securities Act or (ii) such Demand Registration, after it became effective under the Securities Act, was not maintained effective under the Securities Act for at least 180 days (or such shorter period ending when all the Registrable Securities covered thereby have been disposed of pursuant thereto) and, as a result thereof, the Registrable Securities requested to be registered cannot be distributed in accordance with the plan of distribution set forth in the related registration statement. (c) If the Requesting Holders initiating the Demand Registration intend to distribute the Registrable Securities covered by their request by means of an underwritten offering, they shall so advise the Issuer as a part of their Demand Request and the Issuer shall include such information in the written notice referred to in Section 2.1(d). In such event, the 3 right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Requesting Holders initiating the registration (which underwriter or underwriters shall be reasonably acceptable to the Issuer). Notwithstanding any other provision of this Section 2.1, if the managing underwriter advises the Issuer that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities), then the Issuer shall so advise all Requesting Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated to the Requesting Holders on a pro rata basis based on the number of Registrable Securities held by all Requesting Holders; provided, however, that the number of Registrable Securities to be included in such underwriting and registration will not be reduced unless all other securities of the Issuer that are entitled by contract or otherwise to be included therein are first entirely excluded from such underwriting and registration. If, as a result of the reduction specified in the immediately previous sentence, the Requesting Holders are required to reduce the securities they sought to register by 50% or more then the registration shall not constitute a Demand Registration under this Section 2.1. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (d) Within five days after delivery of a Demand Request by a Holder, the Issuer shall provide a written notice to all other Holders, advising each such Holder of its right to include all or part of the Registrable Securities held by such Holder for sale pursuant to the Demand Registration and advising such Holder of procedures to enable such Holder to elect to so include Registrable Securities for sale in the Demand Registration. Any Holder may, within 10 days of delivery to such Holder of a notice pursuant to this Section 2.1(d), elect to so include all or any portion of such Holder's Registrable Securities in the Demand Registration by written notice to such effect to the Issuer specifying the number of Registrable Securities desired to be so included by such Holder. All Holders requesting to have their Registrable Securities included in a Demand Registration pursuant to this Section 2.1(d) shall be deemed "Requesting Holders" for purposes of this Article 2. (e) The Demand Registrations requested pursuant to Section 2.1(a) are subject to all the following limitations: (i) the Issuer shall not be required to effect more than three Demand Registrations; (ii) the Issuer shall not be required to effect more than one registration statement on Form S-1 or any similar long form registration statement in any 12 month period and (iii) a registration statement on Form S-1 or any similar long form registration statement must include Registrable Securities with an aggregate public offering price of at least $10,000,000. (f) Notwithstanding anything contained herein, upon the written request ("FORM S-3 REQUEST") of a Holder, the Issuer shall prepare and file with the Commission within 30 days after such request one or more registration statements on Form S-3 (which may at the Holder's request be a Rule 415 Offering) covering the resale of Registrable Securities in an 4 amount as requested by such Holder, and the Issuer shall use its best efforts to obtain the effectiveness of such registration statement as soon as practicable after filing and to maintain the effectiveness of such registration statement until the Registrable Securities have been sold pursuant thereto; provided, however, that the Issuer shall not be obligated to effect any such registration pursuant to this Section 2.1(f): (i) if Form S-3 is not available or (ii) if the Holders, together with the holders of any other securities of the Issuer entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $10,000,000. No registration pursuant to this Section 2.1(f) shall be deemed a Demand Registration for purposes of Section 2.1(e). SECTION 2.2 Piggyback Registrations. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities under the Securities Act (other than registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) for sale to the public, whether for the account of the Issuer or the account of any securityholder, the Issuer shall give prompt written notice to each Holder of Registrable Securities, which notice shall be given not less than 20 days prior to the proposed initial filing date of the Issuer's registration statement and shall offer each such Holder the opportunity to include in such registration all or part of the Registrable Securities held by such Holder. Each Holder who desires to include Registrable Securities in such registration shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 15 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.2(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. (b) Priority on Piggyback Registrations. If the registration statement under which the Issuer gives notice under this Section 2.2 is for an underwritten offering, the Issuer shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of the Agreement, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of securities to be underwritten, the number of securities that may be included in the underwriting shall be allocated as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata 5 based on the number of securities proposed by such Persons to be included in the offering; and (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.2(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. SECTION 2.3 CERTAIN DELAY RIGHTS. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 90 days (or, if longer, 90 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the Demand Request or Form S-3 Request, the Issuer or any of its subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board determines in good faith that such disclosure would be materially detrimental to the Issuer and its securityholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within ten (10) business days following its receipt of a Demand Request or Form S-3 Request, the Issuer decides to effect a public offering of the Issuer's securities of the same class as Registrable Securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request or Form S-3 Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering. A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.3 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a registration statement pursuant to this Section 2.3, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.3 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders or the Holder who delivered the Form S-3 Request and for which registration was previously requested may withdraw such Demand Request or Form S-3 Request, as applicable, by giving notice to the Issuer. If withdrawn, the Demand Request or Form S-3 Request, as applicable, shall be deemed not to have been made for all purposes of this Agreement other than this Section 2.3. The Issuer 6 may defer the filing of a particular registration statement pursuant to this Section 2.3 only once during any 12-month period. SECTION 2.4 EXPENSES. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing; (i) each Holder shall be responsible for all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of securities by such Holder, and (ii) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.5(g). SECTION 2.5 REGISTRATION AND QUALIFICATION. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 180 days after such registration statement becomes effective, provided, that such 180-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.5(e) below is given by the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.5(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such underwriter may reasonably request (it being understood that, subject to Section 2.9 and the requirements of the Securities Act and applicable state securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); 7 (d) use its reasonable best efforts to obtain an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request and furnish to each underwriter a copy of such opinion and such letter; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post- effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event that the Issuer becomes aware of, as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Units are then listed; (g) use its reasonable best efforts to assist the Holders in the marketing of Common Units in connection with underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.4; (h) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its reasonable best efforts to keep each such registration or 8 qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the 9 issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. SECTION 2.6 UNDERWRITING; DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.7, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.5(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.7. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Selling Holders and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) each Holder and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. SECTION 2.7 INDEMNIFICATION AND CONTRIBUTION. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) ("LOSSES") insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as 10 amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation or alleged violation by the Issuer of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws, except insofar as such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder (or any representative thereof) expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.7(a). The reimbursement required by this Section 2.7(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading information previously furnished to the Issuer. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.7(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was 11 actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.7 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.7 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any Loss referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the Loss, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.7, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such 12 untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.7(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.7 shall be in addition to any liability which any party may otherwise have to any other party. SECTION 2.8 AVAILABLE INFORMATION. The Issuer agrees to use its reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) File with the Commission, in a timely manner, all reports and other documents required of the Issuer under the Exchange Act; and (c) furnish to a Holder forthwith upon request: a written statement by the Issuer as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly report of the Issuer; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any of the Issuer's securities without registration. SECTION 2.9 SUSPENSION OF DISPOSITIONS. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Issuer of the happening of any event of the kind described in Section 2.5(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "ADVICE") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.5(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. 13 ARTICLE 3 MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. SECTION 3.2 NO CONFLICTING RIGHTS. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. SECTION 3.3 ASSIGNMENT. Except as otherwise provided herein, no party may assign any of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties. A Holder may assign its rights and interests hereunder to (i) any Affiliate of the Holder and (ii) any other Person in connection with the transfer of the lesser of (x) at least 5% of the then outstanding Registrable Securities and (y) 25% of the Registrable Securities then beneficially owned by the Holder; provided, however, the rights and interests hereunder transferred under (ii) shall apply only with respect to the Registrable Securities transferred and such transferee under (ii) shall not be permitted to further assign its rights and interests hereunder. Subject to the provisions of this Section 3.3, each transferee shall be a "Holder" for all purposes under this Agreement upon execution and delivery of its written agreement to be bound by the terms hereof. SECTION 3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders. SECTION 3.5 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. SECTION 3.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. SECTION 3.7 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law 14 or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 3.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. SECTION 3.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. SECTION 3.10 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 3.11 COUNTERPARTS. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. [Signature page follows] 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. Plains Resources Inc., a Delaware corporation By: /s/ Greg L. Armstrong --------------------------------- Name: Greg L. Armstrong --------------------------------- Title: President and Chief Executive Officer --------------------------------- Address: 500 Dallas Street, Suite 2700 Houston, Texas 77002 Facsimile No. (713) 654-1523 /s/ James C. Flores -------------------------------------- James C. Flores Address: ------------------------------ ------------------------------ ------------------------------ Facsimile No.: ------------------------ S-1 EX-10.8 10 dex108.txt STROME HEDGECAP RIGHTS AGREEMENT EXHIBIT 10.8 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of June 8, 2001 (this "AGREEMENT"), among Plains Resources Inc., a Delaware corporation (the "ISSUER"), Strome Hedgecap Fund, L.P. ("Strome"), Strome Series Fund 1 ("Fund 1"), Strome Series Fund 2 ("Fund 2") and Mark E. Strome ("MES" and collectively with Strome, Fund 1 and Fund 2, the "Strome Entities"). Each Strome Entity and its permitted transferees shall be referred to herein collectively as the "HOLDERS" and individually as a "HOLDER." W I T N E S S E T H: WHEREAS, Strome, Fund 1, Fund 2 and the Issuer have entered into a Letter Agreement dated as of June 8, 2001 (the "LETTER AGREEMENT"). WHEREAS, as an inducement to cause the Conversion (as defined in the Letter Agreement) the Issuer has agreed to extend to the Strome Entities certain registration rights, and the Strome Entities and the Issuer desire to enter into this Agreement in connection with the transactions contemplated by the Letter Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "BOARD" means the Issuer's board of directors. "COMMISSION" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "COMMON STOCK" means common stock, par value $0.10 per share, of the Issuer. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Issuer with the Commission. "LOSS" shall have the meaning ascribed thereto in Section 2.6(a). "PERSON" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, limited liability company, unincorporated entity or other entity. "REGISTRABLE SECURITIES" shall mean Common Stock issued upon conversion of the Series F Stock and the Series H Stock beneficially owned by any Holder, including, without limitation, any stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged and any other stock or securities issued to Holders of such Common Stock (or such stock or other securities into which or for which such stock is so changed, converted or exchanged) upon any reclassification, combination, subdivision, dividend, exchange, merger, consolidation or similar transaction or event. Notwithstanding the foregoing, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, (iii) such Registrable Securities have been sold in a transaction exempt from the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (iv) such Registrable Securities are in the opinion of counsel reasonably acceptable to Holder able to be sold pursuant to Rule 144(k); or (v) such Registrable Securities are held by a Holder that does not "beneficially own" more than 1% of the outstanding Common Stock and such Common Stock is able to be sold under Rule 144 (other than Rule 144(k)). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (ii) the fees, disbursements and expenses of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (iii) the reasonable fees, disbursements and expenses of one counsel for the Selling Holders (not to exceed $15,000 for any one registration) selected by them with the approval of the Issuer (which shall not be unreasonably withheld); (iv) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda (which shall not include legal fees of the underwriters); (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) fees and expenses of other Persons reasonably necessary in connection with such offering, including experts, transfer agents and registrars; (vii) all security engraving and security printing expenses; and (viii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Registrable Securities are then listed; provided that Registration Expenses shall exclude all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of any Registrable Securities. "RULE 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING HOLDER" shall mean any Holder who sells Registrable Securities pursuant to a registration hereunder. "SERIES F STOCK" means the Series F Cumulative Convertible Preferred Stock of the Issuer. "SERIES H STOCK" means the Series H Cumulative Convertible Preferred Stock of the Issuer. SECTION 1.2 INTERNAL REFERENCES. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS SECTION 2.1 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities under the Securities Act (other than registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) for sale to the public, whether for the account of the Issuer or the account of any securityholder, the Issuer shall give prompt written notice to each Holder of Registrable Securities, which notice shall be given not less than 20 days prior to the proposed initial filing date of the Issuer's registration statement and shall offer each such Holder the opportunity to include in such registration all or part of the Registrable Securities held by such Holder. Each Holder who desires to include Registrable Securities in such registration shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 15 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.1(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. (b) Priority on Piggyback Registrations. If the registration statement under which the Issuer gives notice under this Section 2.1 is for an underwritten offering, the Issuer shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of the Agreement, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of securities to be underwritten, the number of securities that may be included in the underwriting shall be allocated as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by such Persons to be included in the offering; and (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.1(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. SECTION 2.2 CERTAIN DELAY RIGHTS. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 90 days (or, if longer, 90 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the request contemplated by Section 2.1, the Issuer or any of its subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board determines in good faith that such disclosure would be materially detrimental to the Issuer and its securityholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within ten (10) business days following its receipt of a Demand Request or Form S-3 Request, the Issuer decides to effect a public offering of the Issuer's securities of the same class as Registrable Securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request or Form S-3 Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering. A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.2 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a registration statement pursuant to this Section 2.2, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.2 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders or the Holder who delivered the Form S-3 Request and for which registration was previously requested may withdraw such Demand Request or Form S-3 Request, as applicable, by giving notice to the Issuer. If withdrawn, the Demand Request or Form S-3 Request, as applicable, shall be deemed not to have been made for all purposes of this Agreement other than this Section 2.2. The Issuer may defer the filing of a particular registration statement pursuant to this Section 2.2 only once during any 12-month period. SECTION 2.3 EXPENSES. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing; (i) each Holder shall be responsible for all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of securities by such Holder, and (ii) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.4(g). SECTION 2.4 REGISTRATION AND QUALIFICATION. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 180 days after such registration statement becomes effective, provided, that such 180-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.4(e) below is given by the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.4(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such underwriter may reasonably request (it being understood that, subject to Section 2.8 and the requirements of the Securities Act and applicable state securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); (d) use its reasonable best efforts to obtain an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request and furnish to each underwriter a copy of such opinion and such letter; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event that the Issuer becomes aware of, as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Stock is then listed; (g) use its reasonable best efforts to assist the Holders in the marketing of Common Stock in connection with underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.3; (h) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. SECTION 2.5 UNDERWRITING; DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.4(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Selling Holders and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) each Holder and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. SECTION 2.6 INDEMNIFICATION AND CONTRIBUTION. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) ("LOSSES") insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation or alleged violation by the Issuer of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws, except insofar as such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder (or any representative thereof) expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.6(a). The reimbursement required by this Section 2.6(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading information previously furnished to the Issuer. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.6(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.6 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.6 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any Loss referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the Loss, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.6 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.6, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.6(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.6 shall be in addition to any liability which any party may otherwise have to any other party. SECTION 2.7 AVAILABLE INFORMATION. The Issuer agrees to use its reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) File with the Commission, in a timely manner, all reports and other documents required of the Issuer under the Exchange Act; and (c) furnish to a Holder forthwith upon request: a written statement by the Issuer as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly report of the Issuer; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any of the Issuer's securities without registration. SECTION 2.8 SUSPENSION OF DISPOSITIONS. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Issuer of the happening of any event of the kind described in Section 2.4(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "ADVICE") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.4(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. ARTICLE 3 MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. The parties agree that this Agreement shall not modify or otherwise affect any of the registration rights of the Holders and the obligations of the Issuer relating thereto under (i) that certain Stock Purchase Agreement dated December 15, 1999 (as amended), by and among the Issuer, the Holders and other parties relating to the purchase and sale of the Series F Stock and (ii) that certain Stock Purchase Agreement dated July 30, 1998 (as amended), by and among the Issuer, the Holders and other parties relating to the purchase and sale of the Series H Stock (which was acquired by exchange of Series G Cumulative Preferred Stock of the Issuer that was acquired by exchange of Series E Cumulative Preferred Stock of the Issuer). SECTION 3.2 NO CONFLICTING RIGHTS. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. SECTION 3.3 ASSIGNMENT. Except as otherwise provided herein, no party may assign any of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties. A Holder may assign its rights and interests hereunder to any Affiliate of the Holder. Subject to the provisions of this Section 3.3, each transferee shall be a "Holder" for all purposes under this Agreement upon execution and delivery of its written agreement to be bound by the terms hereof. SECTION 3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders. SECTION 3.5 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. SECTION 3.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. SECTION 3.7 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 3.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. SECTION 3.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. SECTION 3.10 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 3.11 COUNTERPARTS. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. [Signature page follows] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. PLAINS RESOURCES INC. By:/s/ JAMES C. FLORES --------------------------- Name: James C. Flores Title: Chairman and Chief Executive Officer Address: 500 Dallas Street Houston, Texas 77002 Facsimile No.: (713) 654-1523 STROME HEDGECAP FUND, L.P. By:/s/ JEFFREY S. LAMBERT --------------------------- Name: Jeffrey S. Lambert Title: Chief Operating Officer Address: Strome Investment Management, L.P. 100 Wilshire Boulevard, Suite 1500 Santa Monica, California 90901 Facsimile No.: (310) 260-6881 STROME SERIES FUND 1 By:/s/ JEFFREY S. LAMBERT --------------------------- Name: Jeffrey S. Lambert Title: COO of General Partner of Investment Advisor Address: Strome Investment Management, L.P. 100 Wilshire Boulevard, Suite 1500 Santa Monica, California 90901 Facsimile No.: (310) 260-6881 S-1 STROME SERIES FUND 2 By:/s/ JEFFREY S. LAMBERT ---------------------------- Name: Jeffrey S. Lambert Title: COO of General Parner of Investment Advisor Address: Strome Investment Management, L.P. 100 Wilshire Boulevard, Suite 1500 Santa Monica, California 90901 Facsimile No.: (310) 260-6881 /s/ MARK E. STROME ------------------------------ Mark E. Strome Address: Strome Investment Management, L.P. 100 Wilshire Boulevard, Suite 1500 Santa Monica, California 90901 Facsimile No.: (310) 260-6881 S-2 EX-10.9 11 dex109.txt SABLE RIGHTS AGREEMENT EXHIBIT 10.9 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of June 8, 2001 (this "AGREEMENT"), among Plains All American Pipeline, L.P., a Delaware limited partnership (the "ISSUER"), Sable Holdings, L.P., a Delaware limited partnership ("SABLE"), E-Holdings III, L.P., a Texas limited partnership ("E-HOLDINGS"), KAFU Holdings, LP, a Delaware limited partnership ("KAFU"), PAA Management, L.P., a Delaware limited partnership ("MANAGEMENT ENTITY"), Mark E. Strome ("STROME"), Strome Hedgecap Fund, L.P., a Delaware limited partnership ("STROME HEDGECAP"), John T. Raymond ("RAYMOND") and Plains All American Inc., a Delaware corporation ("PAAI" and together with Sable, E-Holdings, Kafu, Management Entity, Strome, Strome Hedgecap and Raymond and their permitted transferees, the "HOLDERS" and each a "HOLDER"). W I T N E S S E T H: WHEREAS, each of Sable, E-Holdings, Kafu, Strome, Strome Hedgecap and Raymond has entered into Unit Transfer and Contribution Agreements (the "UNIT TRANSFER AND CONTRIBUTION AGREEMENTS"); WHEREAS, the Management Entity may acquire Registerable Securities pursuant to a management incentive plan; and WHEREAS, as a condition to the closing of the transactions contemplated by the Unit Transfer and Contribution Agreements the Holders have each requested that the Issuer extend to it certain registration rights, and the Issuer and Holders desire to enter into this Agreement in connection therewith. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "COMMISSION" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "COMMON UNIT" shall have the meaning ascribed thereto in the Partnership Agreement. "DEMAND REGISTRATION" shall have the meaning ascribed thereto in Section 2.1(a). "DEMAND REQUEST" shall have the meaning ascribed thereto in Section 2.1(a). "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Issuer with the Commission. "FORM S-3 REQUEST" shall have the meaning ascribed thereto in Section 2.1(f). "LOSS" shall have the meaning ascribed thereto in Section 2.7(a). "PARTNERSHIP AGREEMENT" shall mean that certain Second Amended and Restated Agreement of Limited Partnership of Plains All American Pipeline, L.P. dated as of November 23, 1998, as amended, modified, supplemented or restated from time to time. "PERSON" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, limited liability company, unincorporated entity or other entity. "REGISTRABLE SECURITIES" shall mean Common Units at any time beneficially owned by any Holder whether now owned or hereafter acquired, including, without limitation, Common Units issued or issuable upon conversion of Subordinated Units and any units or other securities into which or for which such Common Units may hereafter be changed, converted or exchanged and any other units or securities issued to Holders of such Common Units (or such units or other securities into which or for which such units are so changed, converted or exchanged) upon any reclassification, combination, subdivision, dividend, exchange, merger, consolidation or similar transaction or event. Notwithstanding the foregoing, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, (iii) such Registrable Securities have been sold in a transaction exempt from the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (iv) such Registrable Securities are in the opinion of counsel reasonably acceptable to Holder able to be sold pursuant to Rule 144(k); or (v) such Registrable Securities are held by a Holder that does not "beneficially own" more than 1% of the outstanding Common Units and such Common Units are able to be sold under Rule 144 (other than Rule 144(k)). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (ii) the fees, disbursements and expenses 2 of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (iii) the reasonable fees, disbursements and expenses of one counsel for the Selling Holders (not to exceed $15,000 for any one registration) selected by them with the approval of the Issuer (which shall not be unreasonably withheld); (iv) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda (which shall not include legal fees of the underwriters); (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) fees and expenses of other Persons reasonably necessary in connection with such offering, including experts, transfer agents and registrars; (vii) all security engraving and security printing expenses; and (viii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Registrable Securities are then listed; provided that Registration Expenses shall exclude all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of any Registrable Securities. "RULE 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "RULE 415 OFFERING" shall mean an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING HOLDER" shall mean any Holder who sells Registrable Securities pursuant to a registration hereunder. "SUBORDINATED UNIT" shall have the meaning ascribed thereto in the Partnership Agreement. SECTION 1.2 INTERNAL REFERENCES. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS SECTION 2.1 DEMAND REGISTRATION. (a) Upon written notice to the Issuer from a Holder or Holders holding at least 10% of the Registrable Securities (the "DEMAND REQUEST") requesting that the Issuer effect the registration under the Securities Act of all or part of the Registrable Securities held by such requesting Holders (the "REQUESTING HOLDERS"), the Issuer shall prepare as soon as practicable and file with the Commission, within 30 days after such request, a registration statement with respect to such Registrable Securities and thereafter use its best efforts to cause such registration statement to be declared effective under the Securities Act as soon as practicable. A registration 3 effected pursuant to a Demand Request pursuant to this Section 2.1(a) shall be referred to herein as a "DEMAND REGISTRATION." (b) Notwithstanding any other provision of this Agreement to the contrary, a Demand Registration requested by Holders pursuant to this Section 2.1 shall not be deemed to have been effected, and, therefore, not requested and the rights of each Holder shall be deemed not to have been exercised for purposes of paragraph (a) above, if (i) such Demand Registration has not become effective under the Securities Act or (ii) such Demand Registration, after it became effective under the Securities Act, was not maintained effective under the Securities Act for at least 180 days (or such shorter period ending when all the Registrable Securities covered thereby have been disposed of pursuant thereto) and, as a result thereof, the Registrable Securities requested to be registered cannot be distributed in accordance with the plan of distribution set forth in the related registration statement. (c) If the Requesting Holders initiating the Demand Registration intend to distribute the Registrable Securities covered by their request by means of an underwritten offering, they shall so advise the Issuer as a part of their Demand Request and the Issuer shall include such information in the written notice referred to in Section 2.1(d). In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Requesting Holders initiating the registration (which underwriter or underwriters shall be reasonably acceptable to the Issuer). Notwithstanding any other provision of this Section 2.1, if the managing underwriter advises the Issuer that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities), then the Issuer shall so advise all Requesting Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated to the Requesting Holders on a pro rata basis based on the number of Registrable Securities held by all Requesting Holders; provided, however, that the number of Registrable Securities to be included in such underwriting and registration will not be reduced unless all other securities of the Issuer that are entitled by contract or otherwise to be included therein are first entirely excluded from such underwriting and registration. If, as a result of the reduction specified in the immediately previous sentence, the Requesting Holders are required to reduce the securities they sought to register by 50% or more then the registration shall not constitute a Demand Registration under this Section 2.1. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (d) Within five days after delivery of a Demand Request by a Holder, the Issuer shall provide a written notice to all other Holders, advising each such Holder of its right to include all or part of the Registrable Securities held by such Holder for sale pursuant to the Demand Registration and advising such Holder of procedures to enable such Holder to elect to so include Registrable Securities for sale in the Demand Registration. Any Holder may, within 10 days of delivery to such Holder of a notice pursuant to this Section 2.1(d), elect to so include all or any portion of such Holder's Registrable Securities in the Demand Registration by written 4 notice to such effect to the Issuer specifying the number of Registrable Securities desired to be so included by such Holder. All Holders requesting to have their Registrable Securities included in a Demand Registration pursuant to this Section 2.1(d) shall be deemed "Requesting Holders" for purposes of this Article 2. (e) The Demand Registrations requested pursuant to Section 2.1(a) are subject to all the following limitations: (i) the Issuer shall not be required to effect more than three Demand Registrations (including registrations pursuant to a Form S-3 Request); (ii) the Issuer shall not be required to effect more than one registration statement on Form S-1 or any similar long form registration statement in any 12 month period and (iii) a registration statement on Form S-1 or any similar long form registration statement must include Registrable Securities with an aggregate public offering price of at least $20,000,000; (f) Notwithstanding anything contained herein, upon the written request ("FORM S-3 REQUEST") of a Holder, the Issuer shall prepare and file with the Commission within 30 days after such request one or more registration statements on Form S-3 (which may at the Holder's request be a Rule 415 Offering) covering the resale of Registrable Securities in an amount as requested by such Holder, and the Issuer shall use its best efforts to obtain the effectiveness of such registration statement as soon as practicable after filing and to maintain the effectiveness of such registration statement until the Registrable Securities have been sold pursuant thereto; provided, however, that the Issuer shall not be obligated to effect any such registration pursuant to this Section 2.1(f): (i) if Form S-3 is not available or (ii) if the Holders, together with the holders of any other securities of the Issuer entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $20,000,000. SECTION 2.2 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities under the Securities Act (other than registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) for sale to the public, whether for the account of the Issuer or the account of any securityholder, the Issuer shall give prompt written notice to each Holder of Registrable Securities, which notice shall be given not less than 20 days prior to the proposed initial filing date of the Issuer's registration statement and shall offer each such Holder the opportunity to include in such registration all or part of the Registrable Securities held by such Holder. Each Holder who desires to include Registrable Securities in such registration shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 15 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.2(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. 5 (b) Priority on Piggyback Registrations. If the registration statement under which the Issuer gives notice under this Section 2.2 is for an underwritten offering, the Issuer shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of the Agreement, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of securities to be underwritten, the number of securities that may be included in the underwriting shall be allocated as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by such Persons to be included in the offering; and (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.2(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. SECTION 2.3 CERTAIN DELAY RIGHTS. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 90 days (or, if longer, 90 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the Demand Request or Form S-3 Request, the Issuer or any of its subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the general partner of the Issuer determines in good faith that such disclosure would be materially detrimental to the Issuer and its securityholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within ten (10) business days following its receipt of a Demand Request or Form S-3 Request, the Issuer decides to effect a public offering of the Issuer's securities of the same class as Registrable Securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request or Form S-3 Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering. A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.3 shall be lifted, and the 6 requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a registration statement pursuant to this Section 2.3, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the general partner of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.3 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders or the Holder who delivered the Form S-3 Request and for which registration was previously requested may withdraw such Demand Request or Form S-3 Request, as applicable, by giving notice to the Issuer. If withdrawn, the Demand Request or Form S-3 Request, as applicable, shall be deemed not to have been made for all purposes of this Agreement other than this Section 2.3. The Issuer may defer the filing of a particular registration statement pursuant to this Section 2.3 only once during any 12-month period. SECTION 2.4 EXPENSES. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing, (i) each Holder shall be responsible for all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of securities by such Holder, and (ii) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.5(g). SECTION 2.5 REGISTRATION AND QUALIFICATION. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 180 days after such registration statement becomes effective, provided, that such 180-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.5(e) below is given by 7 the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.5(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such underwriter may reasonably request (it being understood that, subject to Section 2.9 and the requirements of the Securities Act and applicable state securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); (d) use its reasonable best efforts to obtain an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request and furnish to each underwriter a copy of such opinion and such letter; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post- effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event that the Issuer becomes aware of, as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; 8 (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Units are then listed; (g) use its reasonable best efforts to assist the Holders in the marketing of Common Units in connection with underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.4; (h) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; 9 (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. SECTION 2.6 UNDERWRITING; DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.7, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.5(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.7. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Selling Holders and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) each Holder and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. 10 SECTION 2.7 INDEMNIFICATION AND CONTRIBUTION. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) ("LOSSES") insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation or alleged violation by the Issuer of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws, except insofar as such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder (or any representative thereof) expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.7(a). The reimbursement required by this Section 2.7(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading information previously furnished to the Issuer. 11 Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.7(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.7 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.7 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any Loss referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the Loss, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to 12 include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.7, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.7(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.7 shall be in addition to any liability which any party may otherwise have to any other party. SECTION 2.8 AVAILABLE INFORMATION. The Issuer agrees to use its reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) File with the Commission, in a timely manner, all reports and other documents required of the Issuer under the Exchange Act; and (c) furnish to a Holder forthwith upon request: a written statement by the Issuer as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly report of the Issuer; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any of the Issuer's securities without registration. SECTION 2.9 SUSPENSION OF DISPOSITIONS. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Issuer of the happening of any event of the kind described in Section 2.5(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "ADVICE") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.5(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have 13 received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. ARTICLE 3 MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. The parties understand and agree that the rights provided pursuant to this Agreement are in furtherance of, and not in addition to, any rights granted pursuant to Section 7.12 of the Partnership Agreement. SECTION 3.2 NO CONFLICTING RIGHTS. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. SECTION 3.3 ASSIGNMENT. Except as otherwise provided herein, no party may assign any of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties. A Holder may assign its rights and interests hereunder to any Affiliate of the Holder. Subject to the provisions of this Section 3.3, each transferee shall be a "Holder" for all purposes under this Agreement upon execution and delivery of its written agreement to be bound by the terms hereof. Notwithstanding anything else contained in this Agreement to the contrary, Kafu may assign its rights and interests hereunder to First Union Investors, Inc. SECTION 3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders provided that no amendment or modification to this Agreement may be made that would materially adversely effect the rights of a Holder hereunder unless such Holder has consented in writing to such amendment or modification. SECTION 3.5 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. SECTION 3.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and 14 enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. SECTION 3.7 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 3.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. SECTION 3.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. SECTION 3.10 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 3.11 COUNTERPARTS. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. [Signature page follows] 15 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. Plains All American Pipeline, L.P., a Delaware limited partnership By: Plains All American Inc., its general partner By:/s/ GREG L. ARMSTRONG ----------------------------------- Name: Greg L. Armstrong Title: Chief Executive Officer Address: 500 Dallas Street, Suite 700 Houston, Texas 77002 Facsimile No.: (713) 654-1523 Sable Holdings, L.P., a Delaware limited partnership By: Sable Holdings, L.L.C, its general partner By:/s/ JAMES C. FLORES ----------------------------------- Name: James C. Flores Title: Sole Member Address: P.O. Box 1083 Houston, Texas 77251 Facsimile No.: (713) 654-1523 E-Holdings III, L.P., a Texas limited partnership By: E-Holdings III GP, LLC; its general partner By:/s/ GARY R. PETERSON ----------------------------------- Name: Gary R. Peterson Title: Managing Director Address: c/o EnCap Investments L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Facsimile No.: (713) 659-6130 KAFU Holdings, LP, a Delaware limited partnership By: Kafu Holdings, LLC, its general partner By:/s/ ROBERT V. SINNOTT ----------------------------------- Name: Robert V. Sinnott Title: Managing Director Address: 1800 Avenue of the Stars, Suite 200 Los Angeles, CA 90067 Facsimile No.: (310) 284-6444 Plains All American Inc., a Delaware corporation By:/s/ GREG L. ARMSTRONG ----------------------------------- Name: Greg L. Armstrong Title: Chief Executive Officer Address: 500 Dallas Street, Suite 700 Houston, Texas 77002 Facsimile No.: (713) 654-1523 PAA Management L.P., a Delaware limited partnership By: PAA Management LLC, its general partner By:/s/ GREG L. ARMSTRONG ----------------------------------- Name: Greg L. Armstrong Title: Chief Executive Officer Address: 333 Clay Street, Suite 2900 Houston, Texas 77002 Facsimile No.: (713) 646-4572 /s/ MARK E. STROME ------------------------------------- Mark E. Strome Address: 100 Wilshire Boulevard, Suite 1500 Santa Monica, CA 90401 Facsimile No.: (310) 260-6881 Strome Hedgecap Fund, L.P., By: Strome Investment Management, L.P., its general partner By: SSCO, Inc., its general partner By:/s/ BRADFORD GRIMM ----------------------------------- Name: Bradford Grimm Title: General Counsel Address: 100 Wilshire Boulevard, Suite 1500 Santa Monica, CA 90401 Facsimile No.: (310) 260-6881 /s/ JOHN T. RAYMOND --------------------------------------- John T. Raymond Address: 500 Dallas Street, Suite 700 Houston, Texas 77002 Facsimile No.: (713) 654-1523 EX-10.10 12 dex1010.txt ENCAP ENERGY RIGHTS AGREEMENT EXHIBIT 10.10 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of June 8, 2001 (this "AGREEMENT"), among Plains Resources Inc., a Delaware corporation (the "ISSUER"), and EnCap Energy Capital Fund III, L.P. ("FUND III"), EnCap Energy Capital Fund III-B, L.P. ("FUND III-B"), BOCP Energy Partners, L.P. ("BOCP"), and Energy Capital Investment Company PLC ("ENCAP PLC" and collectively with Fund III, Fund III-B, BOCP and EnCap PLC, "ENCAP"). Each EnCap entity and its permitted transferees shall be referred to herein collectively as the "HOLDERS" and individually as a "HOLDER." W I T N E S S E T H: WHEREAS, EnCap and the Issuer have entered into a Letter Agreement dated as of June 8, 2001 (the "LETTER AGREEMENT"). WHEREAS, as an inducement to cause the Conversion (as defined in the Letter Agreement) the Issuer has agreed to extend to EnCap certain registration rights, and EnCap and the Issuer desire to enter into this Agreement in connection with the transactions contemplated by the Letter Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "BOARD" means the Issuer's board of directors. "COMMISSION" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "COMMON STOCK" means common stock, par value $0.10 per share, of the Issuer. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Issuer with the Commission. "LOSS" shall have the meaning ascribed thereto in Section 2.6(a). "PERSON" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, limited liability company, unincorporated entity or other entity. "REGISTRABLE SECURITIES" shall mean Common Stock issued upon conversion of the Series F Stock and the Series H Stock beneficially owned by any Holder, including, without limitation, any stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged and any other stock or securities issued to Holders of such Common Stock (or such stock or other securities into which or for which such stock is so changed, converted or exchanged) upon any reclassification, combination, subdivision, dividend, exchange, merger, consolidation or similar transaction or event. Notwithstanding the foregoing, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, (iii) such Registrable Securities have been sold in a transaction exempt from the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (iv) such Registrable Securities are in the opinion of counsel reasonably acceptable to Holder able to be sold pursuant to Rule 144(k); or (v) such Registrable Securities are held by a Holder that does not "beneficially own" more than 1% of the outstanding Common Stock and such Common Stock is able to be sold under Rule 144 (other than Rule 144(k)). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (ii) the fees, disbursements and expenses of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (iii) the reasonable fees, disbursements and expenses of one counsel for the Selling Holders (not to exceed $15,000 for any one registration) selected by them with the approval of the Issuer (which shall not be unreasonably withheld); (iv) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda (which shall not include legal fees of the underwriters); (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) fees and expenses of other Persons reasonably necessary in connection with such offering, including experts, transfer agents and registrars; (vii) all security engraving and security printing expenses; and (viii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Registrable Securities are then listed; provided that Registration Expenses shall exclude all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of any Registrable Securities. "RULE 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING HOLDER" shall mean any Holder who sells Registrable Securities pursuant to a registration hereunder. "SERIES F STOCK" means the Series F Cumulative Convertible Preferred Stock of the Issuer. "SERIES H STOCK" means the Series H Cumulative Convertible Preferred Stock of the Issuer. SECTION 1.2 INTERNAL REFERENCES. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS SECTION 2.1 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities under the Securities Act (other than registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) for sale to the public, whether for the account of the Issuer or the account of any securityholder, the Issuer shall give prompt written notice to each Holder of Registrable Securities, which notice shall be given not less than 20 days prior to the proposed initial filing date of the Issuer's registration statement and shall offer each such Holder the opportunity to include in such registration all or part of the Registrable Securities held by such Holder. Each Holder who desires to include Registrable Securities in such registration shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 15 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.1(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. (b) Priority on Piggyback Registrations. If the registration statement under which the Issuer gives notice under this Section 2.1 is for an underwritten offering, the Issuer shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of the Agreement, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of securities to be underwritten, the number of securities that may be included in the underwriting shall be allocated as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by such Persons to be included in the offering; and (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.1(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. SECTION 2.2 CERTAIN DELAY RIGHTS. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 90 days (or, if longer, 90 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the request contemplated by Section 2.1, the Issuer or any of its subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board determines in good faith that such disclosure would be materially detrimental to the Issuer and its securityholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within ten (10) business days following its receipt of a Demand Request or Form S-3 Request, the Issuer decides to effect a public offering of the Issuer's securities of the same class as Registrable Securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request or Form S-3 Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering. A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.2 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a registration statement pursuant to this Section 2.2, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.2 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders or the Holder who delivered the Form S-3 Request and for which registration was previously requested may withdraw such Demand Request or Form S-3 Request, as applicable, by giving notice to the Issuer. If withdrawn, the Demand Request or Form S-3 Request, as applicable, shall be deemed not to have been made for all purposes of this Agreement other than this Section 2.2. The Issuer may defer the filing of a particular registration statement pursuant to this Section 2.2 only once during any 12-month period. SECTION 2.3 EXPENSES. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing; (i) each Holder shall be responsible for all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of securities by such Holder, and (ii) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.4(g). SECTION 2.4 REGISTRATION AND QUALIFICATION. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 180 days after such registration statement becomes effective, provided, that such 180-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.4(e) below is given by the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.4(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such underwriter may reasonably request (it being understood that, subject to Section 2.8 and the requirements of the Securities Act and applicable state securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); (d) use its reasonable best efforts to obtain an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request and furnish to each underwriter a copy of such opinion and such letter; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post- effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event that the Issuer becomes aware of, as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Stock is then listed; (g) use its reasonable best efforts to assist the Holders in the marketing of Common Stock in connection with underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.3; (h) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. SECTION 2.5 UNDERWRITING; DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.4(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Selling Holders and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) each Holder and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. SECTION 2.6 INDEMNIFICATION AND CONTRIBUTION. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) ("LOSSES") insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation or alleged violation by the Issuer of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws, except insofar as such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder (or any representative thereof) expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.6(a). The reimbursement required by this Section 2.6(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement thereto which corrected or made not misleading information previously furnished to the Issuer. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.6(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.6 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.6 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any Loss referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the Loss, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.6 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.6, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.6(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.6 shall be in addition to any liability which any party may otherwise have to any other party. SECTION 2.7 AVAILABLE INFORMATION. The Issuer agrees to use its reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) File with the Commission, in a timely manner, all reports and other documents required of the Issuer under the Exchange Act; and (c) furnish to a Holder forthwith upon request: a written statement by the Issuer as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly report of the Issuer; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any of the Issuer's securities without registration. SECTION 2.8 SUSPENSION OF DISPOSITIONS. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Issuer of the happening of any event of the kind described in Section 2.4(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "ADVICE") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set forth in Section 2.4(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. ARTICLE 3 MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. The parties agree that this Agreement shall not modify or otherwise affect any of the registration rights of the Holders and the obligations of the Issuer relating thereto under (i) that certain Stock Purchase Agreement dated December 15, 1999 (as amended), by and among the Issuer, the Holders and other parties relating to the purchase and sale of the Series F Stock and (ii) that certain Stock Purchase Agreement dated July 30, 1998 (as amended), by and among the Issuer, the Holders and other parties relating to the purchase and sale of the Series H Stock (which was acquired by exchange of Series G Cumulative Preferred Stock of the Issuer that was acquired by exchange of Series E Cumulative Preferred Stock of the Issuer). SECTION 3.2 NO CONFLICTING RIGHTS. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. SECTION 3.3 ASSIGNMENT. Except as otherwise provided herein, no party may assign any of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties. A Holder may assign its rights and interests hereunder to any Affiliate of the Holder. Subject to the provisions of this Section 3.3, each transferee shall be a "Holder" for all purposes under this Agreement upon execution and delivery of its written agreement to be bound by the terms hereof. SECTION 3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders. SECTION 3.5 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. SECTION 3.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. SECTION 3.7 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 3.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. SECTION 3.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. SECTION 3.10 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 3.11 COUNTERPARTS. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. [Signature page follows] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. PLAINS RESOURCES INC. By: /s/ James C. Flores ----------------------------------- Name: James C. Flores --------------------------------- Title: Chairman and Chief Executive Officer -------------------------------- Address: 500 Dallas Street Houston, Texas 77002 Facsimile No.: (713) 654-1523 ENCAP ENERGY CAPITAL FUND III, L.P. By: EnCap Investments L.L.C., its general partner By: /s/ Gary R. Peterson ----------------------------------- Name: Gary R. Peterson --------------------------------- Title: Managing Director -------------------------------- Address: c/o EnCap Investments L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Facsimile No.: (713) 659-6130 S-1 ENCAP ENERGY CAPITAL FUND III-B, L.P. By: EnCap Investments L.L.C., its general partner By: /s/ Gary R. Peterson ----------------------------------- Name: Gary R. Peterson --------------------------------- Title: Managing Director -------------------------------- Address: c/o EnCap Investments L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Facsimile No.: (713) 659-6130 BOCP ENERGY PARTNERS, L.P. By: EnCap Investments L.L.C., its Manager By: /s/ Gary R. Peterson ----------------------------------- Name: Gary R. Peterson --------------------------------- Title: Managing Director -------------------------------- Address: c/o EnCap Investments L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Facsimile No.: (713) 659-6130 S-2 ENERGY CAPITAL INVESTMENT COMPANY PLC By: /s/ Gary R. Peterson ----------------------------------- Name: Gary R. Peterson --------------------------------- Title: Director -------------------------------- Address: c/o EnCap Investments L.L.C. 1100 Louisiana, Suite 3150 Houston, Texas 77002 Facsimile No.: (713) 659-6130 S-3 EX-10.11 13 dex1011.txt KAYNE ANDERSON RIGHTS AGREEMENT EXHIBIT 10.11 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made as of June 8, 2001 (this "AGREEMENT"), among Plains Resources Inc., a Delaware corporation (the "ISSUER"), and Kayne Anderson Capital Advisors, L.P. ("KAYNE ANDERSON," and together with its permitted transferees, the "HOLDERS" and each a "HOLDER"). W I T N E S S E T H: WHEREAS, Kayne Anderson and the Issuer have entered into a Letter Agreement dated as of May 8, 2001 (the "LETTER AGREEMENT"). WHEREAS, as an inducement to cause the Conversion (as defined in the Letter Agreement) the Issuer has agreed to extend to Kayne Anderson certain registration rights, and Kayne Anderson and the Issuer desire to enter into this Agreement in connection with the transactions contemplated by the Letter Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "BOARD" means the Issuer's board of directors. "COMMISSION" shall mean the Securities and Exchange Commission or any successor governmental body or agency. "COMMON STOCK" means common stock, par value $0.10 per share, of the Issuer. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Issuer with the Commission. "LOSS" shall have the meaning ascribed thereto in Section 2.6(a). "PERSON" shall mean any natural person, firm, individual, business trust, association, corporation, partnership, joint venture, company, limited liability company, unincorporated entity or other entity. "REGISTRABLE SECURITIES" shall mean Common Stock issued upon conversion of the Series F Stock and the Series H Stock beneficially owned by any Holder, including, without limitation, any stock or other securities into which or for which such Common Stock may hereafter be changed, converted or exchanged and any other stock or securities issued to Holders of such Common Stock (or such stock or other securities into which or for which such stock is so changed, converted or exchanged) upon any reclassification, combination, subdivision, dividend, exchange, merger, consolidation or similar transaction or event. Notwithstanding the foregoing, as to any particular Registrable Securities, such Registrable Securities shall cease to be Registrable Securities as soon as (i) such Registrable Securities have been sold or otherwise disposed of pursuant to a registration statement that was filed with the Commission in accordance with this Agreement and declared effective under the Securities Act, (ii) such Registrable Securities shall have been otherwise sold, transferred or disposed of by a Holder to any Person that is not a Holder, (iii) such Registrable Securities have been sold in a transaction exempt from the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, (iv) such Registrable Securities are able to be sold pursuant to Rule 144(k); or (v) such Registrable Securities are held by a Holder that does not "beneficially own" more than 1% of the outstanding Common Stock and such Common Stock is able to be sold under Rule 144 (other than Rule 144(k)). "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article 2, including, without limitation, (i) all expenses, including filing fees, in connection with the preparation, printing and filing of one or more registration statements hereunder; (ii) the fees, disbursements and expenses of the Issuer's counsel and accountants (including in connection with the delivery of opinions and/or comfort letters) in connection with this Agreement and the performance of the Issuer's obligations hereunder; (iii) the reasonable fees, disbursements and expenses of one counsel for the Selling Holders (not to exceed $15,000 for any one registration) selected by them with the approval of the Issuer; (iv) the cost of printing or producing any agreements among underwriters, underwriting agreements, and blue sky or legal investment memoranda (which shall not include legal fees of the underwriters); (v) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the securities to be disposed of; (vi) fees and expenses of other Persons reasonably necessary in connection with such offering, including experts, transfer agents and registrars; (vii) all security engraving and security printing expenses; and (viii) all fees and expenses payable in connection with the listing of the Registrable Securities on any securities exchange or automated interdealer quotation system on which the Registrable Securities are then listed; provided that Registration Expenses shall exclude all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of any Registrable Securities. "RULE 144" shall mean Rule 144 (or any successor rule to similar effect) promulgated under the Securities Act. 2 "RULE 415 OFFERING" shall mean an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule to similar effect) promulgated under the Securities Act. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING HOLDER" shall mean any Holder who sells Registrable Securities pursuant to a registration hereunder. "SERIES F STOCK" means the Series F Cumulative Convertible Preferred Stock of the Issuer. "SERIES H STOCK" means the Series H Cumulative Convertible Preferred Stock of the Issuer. SECTION 1.2 INTERNAL REFERENCES. Unless the context indicates otherwise, references to Articles, Sections and paragraphs shall refer to the corresponding articles, sections and paragraphs in this Agreement, and references to the parties shall mean the parties to this Agreement. ARTICLE 2 REGISTRATION RIGHTS SECTION 2.1 PIGGYBACK REGISTRATIONS. (a) Right to Piggyback. Each time the Issuer proposes to register any of its equity securities under the Securities Act (other than registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) for sale to the public, whether for the account of the Issuer or the account of any securityholder, the Issuer shall give prompt written notice to each Holder of Registrable Securities, which notice shall be given not less than 20 days prior to the proposed initial filing date of the Issuer's registration statement and shall offer each such Holder the opportunity to include in such registration all or part of the Registrable Securities held by such Holder. Each Holder who desires to include Registrable Securities in such registration shall so advise the Issuer in writing (stating the number of Registrable Securities desired to be registered or sold) within 15 days after the date of such notice from the Issuer. Any Holder shall have the right to withdraw such Holder's request for inclusion of such Holder's Registrable Securities in any offering pursuant to this Section 2.1(a) by giving written notice to the Issuer of such withdrawal. The Issuer may at any time withdraw or cease proceeding with any such registration if it shall at the same time withdraw or cease proceeding with the registration of all other equity securities originally proposed to be registered. (b) Priority on Piggyback Registrations. If the registration statement under which the Issuer gives notice under this Section 2.1 is for an underwritten offering, the Issuer shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.1 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable 3 Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters. Notwithstanding any other provision of the Agreement, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of securities to be underwritten, the number of securities that may be included in the underwriting shall be allocated as follows: (i) with respect to an offering initiated by the Issuer on its own behalf, first, to the Issuer, and second to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by such Persons to be included in the offering; and (ii) with respect to an offering pursuant to demand registration rights of securityholders of the Issuer other than the Holders, first to the securityholders pursuant to their demand registration rights, second to the Issuer, and third, to the Holders and any other securityholders of the Issuer who have the right to include securities in such offering pro rata based on the number of securities proposed by the Holders and such other securityholders to be included in such offering. If as a result of the provisions of this Section 2.1(b) any Holder shall not be entitled to include all Registrable Securities in an offering that such Holder has requested to be so included, such Holder may withdraw such Holder's request to include Registrable Securities in such offering prior to completion of the offering. SECTION 2.2 CERTAIN DELAY RIGHTS. The Issuer may defer the filing or effectiveness (but not the preparation) of a registration statement required by Section 2.1 for a period not to exceed 90 days (or, if longer, 90 days after the effective date of the registration statement contemplated by clause (ii) or (iii) below) if (i) at the time the Issuer receives the Demand Request or Form S-3 Request, the Issuer or any of its subsidiaries are engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such registration statement (but would not be required if such registration statement were not filed), and the Board determines in good faith that such disclosure would be materially detrimental to the Issuer and its securityholders or would have a material adverse effect on any such confidential negotiations or other confidential business activities, (ii) within ten (10) business days following its receipt of a Demand Request or Form S-3 Request, the Issuer decides to effect a public offering of the Issuer's securities of the same class as Registrable Securities for the Issuer's account, or (iii) prior to the receipt of any Demand Request or Form S-3 Request, another Person has exercised demand registration rights and the Issuer has begun preparations or planning for the offering. A deferral of the filing or effectiveness of a registration statement pursuant to this Section 2.2 shall be lifted, and the requested registration statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) or (iii) of the preceding sentence, the proposed offering for the Issuer's or another securityholder's account is abandoned. In order to defer the filing or effectiveness of a 4 registration statement pursuant to this Section 2.2, the Issuer shall promptly (but in any event within three (3) business days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the Issuer stating that the Issuer is deferring such filing pursuant to this Section 2.2 and a general statement of the reason for such deferral, and an approximation of the anticipated delay. Within 20 days after receiving such certificate, the holders of a majority of the Registrable Securities held by the Requesting Holders or the Holder who delivered the Form S-3 Request and for which registration was previously requested may withdraw such Demand Request or Form S-3 Request, as applicable, by giving notice to the Issuer. If withdrawn, the Demand Request or Form S-3 Request, as applicable, shall be deemed not to have been made for all purposes of this Agreement other than this Section 2.2. The Issuer may defer the filing of a particular registration statement pursuant to this Section 2.2 only once during any 12-month period. SECTION 2.3 EXPENSES. Except as provided herein, the Issuer shall be responsible for all Registration Expenses with respect to each registration hereunder, whether or not any registration statement becomes effective. Notwithstanding the foregoing; (i) each Holder shall be responsible for all underwriting discounts, selling commissions and transfer taxes, if any, in connection with the sale of securities by such Holder, and (ii) the Issuer shall be responsible for all out-of-pocket costs and expenses of the Issuer and its officers and employees incurred in connection with providing the assistance and/or attending analyst or investor presentations or any "road show" undertaken in connection with the registration and/or marketing of any Registrable Securities as contemplated in Section 2.4(g). SECTION 2.4 REGISTRATION AND QUALIFICATION. If and whenever the Issuer is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2.1, the Issuer shall as promptly as practicable (but subject to the provisions of Section 2.1): (a) prepare, file and cause to become effective a registration statement under the Securities Act relating to the Registrable Securities to be offered in accordance with the intended method of disposition thereof; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (i) such time as all Registrable Securities proposed to be sold therein have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (ii) the expiration of 180 days after such registration statement becomes effective, provided, that such 180-day period shall be extended for such number of days that equals the number of days elapsing from (x) the date the written notice contemplated by Section 2.4(e) below is given by the Issuer to (y) the date on which the Issuer delivers to the Holders of Registrable Securities the supplement or amendment contemplated by Section 2.4(e) below; (c) furnish to the Holders of Registrable Securities and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and 5 of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act and such documents incorporated by reference in such registration statement or prospectus as the Holders of Registrable Securities or such underwriter may reasonably request (it being understood that, subject to Section 2.8 and the requirements of the Securities Act and applicable state securities law, the Issuer consents to the use of the prospectus and any amendment or supplement thereto by each Selling Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment to supplement is a part); (d) use its reasonable best efforts to obtain an opinion of counsel for the Issuer and a "cold comfort" letter signed by the independent public accountants who have audited the financial statements of the Issuer included in or incorporated by reference into the applicable registration statement, in each such case covering substantially such matters with respect to such registration statement (and the prospectus included therein) and the related offering as are customarily covered in opinions of issuer's counsel with respect thereto and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as such underwriters may reasonably request and furnish to each underwriter a copy of such opinion and such letter; (e) promptly notify the Selling Holders and each underwriter in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to a registration statement or any post- effective amendment, when the same has become effective, (ii) of the issuance by any state securities or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (iii) at any time when a prospectus relating to a registration pursuant to Section 2.1 is required to be delivered under the Securities Act, of the happening of any event that the Issuer becomes aware of, as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (iv) of any request by the Commission, or any other regulatory body or other body having jurisdiction, for any amendment or supplement to any registration statement or other document relating to such offering, and in either such case, at the request of the Selling Holders, promptly prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (f) use its reasonable best efforts to list all such Registrable Securities covered by such registration on each securities exchange or automated interdealer quotation system on which the Common Stock is then listed; 6 (g) use its reasonable best efforts to assist the Holders in the marketing of Common Stock in connection with underwritten offerings hereunder (including, to the extent reasonably consistent with work commitments, using reasonable efforts to have officers of the Issuer attend "road shows" and analyst or investor presentations scheduled in connection with such registration), with all out-of-pocket costs and expenses incurred by the Issuer or such officers in connection with such attendance or assistance to be paid by the Issuer as provided in Section 2.3; (h) use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as the managing underwriter reasonably requests; use its reasonable best efforts to keep each such registration or qualification (or exemption therefrom) effective during the period in which such registration statement is required to be kept effective; and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder in such jurisdictions (provided, however, that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction); (i) make generally available to the Holders an earning statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Issuer's first fiscal quarter commencing after the effective date of a registration statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Issuer timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act, and otherwise complies with Rule 158 under the Securities Act; (j) if requested by the managing underwriter or any Selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any Selling Holder reasonably requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (k) as promptly as practicable after filing with the Commission of any document which is incorporated by reference into a registration statement (in the form in which it was incorporated), deliver a copy of each such document to each Selling Holder; (l) provide a CUSIP number for the Registrable Securities included in any registration statement not later than the effective date of such registration statement; (m) cooperate with each Selling Holder and each underwriter participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; 7 (n) prepare and file with the Commission promptly any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for the Issuer or the managing underwriter, is required in connection with the distribution of the Registrable Securities; and (o) advise each Selling Holder of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. SECTION 2.5 UNDERWRITING; DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article 2, the Issuer shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Issuer and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6, and agreements as to the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 2.4(d). Such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.6. (b) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article 2, the Issuer shall give the Selling Holders and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books, records and properties and such opportunities to discuss the business and affairs of the Issuer with its officers and the independent public accounts who have certified the financial statements of the Issuer as shall be necessary, in the opinion of such Holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided that (i) each Holder and the underwriters and their respective counsel and accountants shall have entered into a confidentiality agreement reasonably acceptable to the Issuer and (ii) each Holder and the underwriters and their respective counsel and accountants shall use their reasonable best efforts to minimize the disruption to the Issuer's business and coordinate any such investigation of the books, records and properties of the Issuer and any such discussions with the Issuer's officers and accountants so that all such investigations occur at the same time and all such discussions occur at the same time. 8 SECTION 2.6 INDEMNIFICATION AND CONTRIBUTION. (a) The Issuer agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder and each of its employees, advisors, agents, representatives, partners, officers and directors, and each Person, if any, who controls such Selling Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) ("LOSSES") insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation or alleged violation by the Issuer of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities laws, except insofar as such Losses are caused by any such untrue statement or omission or alleged untrue statement or omission made in reliance upon information furnished to the Issuer in writing by such Selling Holder (or any representative thereof) expressly for use therein. The Issuer also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by the Issuer of the Selling Holders provided in this Section 2.6(a). The reimbursement required by this Section 2.6(a) will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred. (b) Each Selling Holder agrees to indemnify and hold harmless the Issuer, its employees, advisors, agents, representatives, directors, the officers who sign the registration statement and each Person, if any who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all Losses, insofar as such Losses are caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any amendment thereof, any preliminary prospectus or prospectus (as amended or supplemented if the Issuer shall have furnished any amendments or supplements thereto) relating to the Registrable Securities, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to information furnished in writing by such Selling Holder (or any representative thereof) expressly for use in a registration statement, any preliminary prospectus, prospectus or any amendments or supplements thereto; provided that the obligation to indemnify will be several, not joint and several, among such Selling Holders, and the liability of each Selling Holder will be in proportion to, and provided further that such liability will be limited to, the net amount received by such seller from the sale of Registrable Securities pursuant to such registration statement; provided, however, that such Selling Holder shall not be liable in any such case to the extent that prior to the filing of any such registration statement or prospectus or amendment thereof or supplement thereto, such Selling Holder has furnished in writing to the Issuer information expressly for use in such registration statement or prospectus or any amendment or supplement 9 thereto which corrected or made not misleading information previously furnished to the Issuer. Each Selling Holder also agrees to indemnify any underwriter of the Registrable Securities so offered and each Person, if any, who controls such underwriter on substantially the same basis as that of the indemnification by such Selling Holder of the Issuer provided in this Section 2.6(b). (c) Each party indemnified under paragraph (a) or (b) above shall, promptly after receipt of notice of a claim or action against such indemnified party in respect of which indemnity may be sought hereunder, notify the indemnifying party in writing of the claim or action; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) above except to the extent that the indemnifying party was actually prejudiced by such failure, and in no event shall such failure relieve the indemnifying party from any other liability that it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall have notified the indemnifying party thereof, unless based on the written advice of counsel to such indemnified party a conflict of interest between such indemnified party and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 2.6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof. Any indemnifying party against whom indemnity may be sought under this Section 2.6 shall not be liable to indemnify an indemnified party if such indemnified party settles such claim or action without the consent of the indemnifying party. The indemnifying party may not agree to any settlement of any such claim or action, other than solely for monetary damages for which the indemnifying party shall be responsible hereunder, the result of which any remedy or relief shall be applied to or against the indemnified party, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld and unless such settlement contains a full and unconditional release of the indemnified party. In any action hereunder as to which the indemnifying party has assumed the defense thereof, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. (d) If the indemnification provided for in this Section 2.6 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified party in respect of any Loss referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Issuer on the one hand and the Selling Holders on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer or a Selling Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such 10 statement or omission. The amount paid or payable by an indemnified party as a result of the Loss, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Issuer and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 2.6 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding any other provision of this Section 2.6, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations in this Section 2.6(d) to contribute shall be several in proportion to the amount of Registrable Securities registered by them and not joint. (e) The obligations of the parties under this Section 2.6 shall be in addition to any liability which any party may otherwise have to any other party. SECTION 2.7 AVAILABLE INFORMATION. The Issuer agrees to use its reasonable best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144; (b) File with the Commission, in a timely manner, all reports and other documents required of the Issuer under the Exchange Act; and (c) furnish to a Holder forthwith upon request: a written statement by the Issuer as to its compliance with the reporting requirements of Rule 144 and of the Exchange Act; a copy of the most recent annual or quarterly report of the Issuer; and such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any of the Issuer's securities without registration. SECTION 2.8 SUSPENSION OF DISPOSITIONS. Each Holder agrees by acquisition of any Registrable Securities that, upon receipt of any notice (a "SUSPENSION NOTICE") from the Issuer of the happening of any event of the kind described in Section 2.4(e)(iii), such Holder will forthwith discontinue disposition of Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus, or until it is advised in writing (the "ADVICE") by the Issuer that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Issuer, such Holder will deliver to the Issuer all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Issuer shall give any such notice, the time period regarding the effectiveness of registration statements set 11 forth in Section 2.4(b) hereof shall be extended by the number of days during the period from and including the date of the giving of the Suspension Notice to and including the date when each Selling Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus or the Advice. The Issuer shall use its best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable. ARTICLE 3 MISCELLANEOUS SECTION 3.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. SECTION 3.2 NO CONFLICTING RIGHTS. The Issuer represents and warrants that no other Person has registration rights that conflict with the rights granted to the Holders hereunder. SECTION 3.3 ASSIGNMENT. Except as otherwise provided herein, no party may assign any of its rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties. A Holder may assign its rights and interests hereunder to any Affiliate of the Holder. Subject to the provisions of this Section 3.3, each transferee shall be a "Holder" for all purposes under this Agreement upon execution and delivery of its written agreement to be bound by the terms hereof. SECTION 3.4 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Issuer and Holders representing a majority of the Registrable Securities then held by all Holders. SECTION 3.5 NOTICES. All notices under this Agreement shall be in writing and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre-paid, or (c) on the third business day following the date on which it was sent by United States mail, postage prepaid, to a party at the address or fax number, as the case may be, of such party as set forth on the signature page of this Agreement or such other address as a party may specify in writing. SECTION 3.6 SEVERABILITY. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 12 SECTION 3.7 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 3.8 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person who or which is not a party hereto; provided, that, this Agreement is also intended to be for the benefit of and is enforceable by each Holder. SECTION 3.9 GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Texas other than the conflict of laws rules thereof. SECTION 3.10 DESCRIPTIVE HEADINGS. The descriptive headings used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 3.11 COUNTERPARTS. This Agreement may be executed in counterpart, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement. [Signature page follows] 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. PLAINS RESOURCES INC. By: /s/ James C. Flores --------------------------------------- Name: James C. Flores ------------------------------------ Title: Chairman and CEO ------------------------------------ Address: 500 Dallas Street Houston, Texas 77002 Facsimile No.: (713) 654-1523 KAYNE ANDERSON CAPITAL ADVISORS, L.P. By: /s/ Robert V. Sinnott --------------------------------------- Name: Robert V. Sinnott ------------------------------------ Title: Managing Director ------------------------------------ Address: 1800 Avenue of the Stars, Second Floor Los Angeles, CA 90067 Facsimile No.: (310) 284-6444 S-1 EX-10.12 14 dex1012.txt LIABILITY COMPANY AGREEMENT EXHIBIT 10.12 EXECUTION COPY ================================================================================ AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF PLAINS ALL AMERICAN GP LLC dated as of June 8, 2001 ================================================================================ EXECUTION COPY TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE 1 DEFINITIONS......................................................... 1 ARTICLE 2 GENERAL............................................................. 9 2.1 Formation....................................................... 9 2.2 Principal Office................................................ 10 2.3 Registered Office and Registered Agent.......................... 10 2.4 Purpose of the Company.......................................... 10 2.5 Date of Dissolution............................................. 10 2.6 Qualification................................................... 10 2.7 Members......................................................... 10 2.8 Reliance by Third Parties....................................... 11 ARTICLE 3 CAPITALIZATION OF THE COMPANY....................................... 11 3.1 Initial Capital Contributions................................... 11 3.2 Additional Capital Contributions................................ 11 3.3 Loans........................................................... 12 3.4 Maintenance of Capital Accounts................................. 12 3.5 Capital Withdrawal Rights, Interest and Priority................ 13 ARTICLE 4 DISTRIBUTIONS....................................................... 13 4.1 Distributions of Available Cash................................. 13 4.2 Persons Entitled to Distributions............................... 13 4.3 Limitations on Distributions.................................... 14 ARTICLE 5 ALLOCATIONS......................................................... 14 5.1 Profits......................................................... 14 5.2 Losses.......................................................... 14 5.3 Regulatory Allocations.......................................... 14 5.4 Tax Allocations: Code Section 704(c)............................ 15 5.5 Change in Percentage Interests.................................. 16 5.6 Withholding..................................................... 16 ARTICLE 6 MEMBERS' MEETINGS................................................... 16 6.1 Meetings of Members; Place of Meetings.......................... 16 6.2 Quorum; Voting Requirement...................................... 17 6.3 Proxies......................................................... 17 6.4 Action Without Meeting.......................................... 17 6.5 Notice.......................................................... 17 6.6 Waiver of Notice................................................ 17
i EXECUTION COPY ARTICLE 7 MANAGEMENT AND CONTROL.............................................. 17 7.1 Board of Directors.............................................. 17 7.2 Meetings of the Board........................................... 19 7.3 Quorum and Acts of the Board.................................... 19 7.4 Electronic Communications....................................... 20 7.5 Committees of Directors......................................... 20 7.6 Compensation of Directors....................................... 20 7.7 Directors as Agents............................................. 20 7.8 Officers; Agents................................................ 20 7.9 Matters Requiring Member Approval............................... 21 ARTICLE 8 LIABILITY AND INDEMNIFICATION....................................... 22 8.1 Limitation on Liability of Members, Directors and Officers...... 22 8.2 Indemnification................................................. 23 ARTICLE 9 TRANSFERS OF MEMBERSHIP INTERESTS................................... 24 9.1 General Restrictions............................................ 24 9.2 Permitted Transferees........................................... 25 9.3 Substitute Members.............................................. 26 9.4 Effect of Admission as a Substitute Member...................... 26 9.5 Consent......................................................... 27 9.6 No Dissolution.................................................. 27 9.7 Additional Members.............................................. 27 9.8 Right of First Refusal.......................................... 27 9.9 Registration Rights Agreement................................... 28 9.10 Transfer to Management Entity................................... 28 ARTICLE 10 DISSOLUTION AND TERMINATION........................................ 28 10.1 Events Causing Dissolution...................................... 28 10.2 Final Accounting................................................ 29 10.3 Distributions Following Dissolution and Termination............. 29 10.4 Termination of the Company...................................... 30 10.5 No Action for Dissolution....................................... 30 ARTICLE 11 TAX MATTERS........................................................ 30 11.1 Tax Matters Member.............................................. 30 11.2 Certain Authorizations.......................................... 31 11.3 Indemnity of Tax Matters Member................................. 31 11.4 Information Furnished........................................... 32 11.5 Notice of Proceedings, etc...................................... 32 11.6 Notices to Tax Matters Member................................... 32 11.7 Preparation of Tax Returns...................................... 32 11.8 Tax Elections................................................... 32 11.9 Taxation as a Partnership....................................... 32
ii EXECUTION COPY ARTICLE 12 ACCOUNTING AND BANK ACCOUNTS....................................... 32 12.1 Fiscal Year and Accounting Method............................... 32 12.2 Books and Records............................................... 32 12.3 Delivery to Members; Inspection................................. 33 12.4 Financial Statements............................................ 33 12.5 Filings......................................................... 33 12.6 Non-Disclosure.................................................. 33 ARTICLE 13 NON-COMPETITION AND NON-SOLICITATION............................... 34 13.1 Non-Competition................................................. 34 13.2 Non-Solicitation................................................ 34 13.3 Damages......................................................... 35 13.4 Limitations..................................................... 35 ARTICLE 14 MISCELLANEOUS...................................................... 35 14.1 Waiver of Default............................................... 35 14.2 Amendment....................................................... 35 14.3 No Third Party Rights........................................... 36 14.4 Severability.................................................... 36 14.5 Nature of Interest in the Company............................... 36 14.6 Binding Agreement............................................... 36 14.7 Headings........................................................ 36 14.8 Word Meanings................................................... 36 14.9 Counterparts.................................................... 36 14.10 Entire Agreement................................................ 36 14.11 Partition....................................................... 36 14.12 Governing Law; Consent to Jurisdiction and Venue................ 37
iii EXECUTION COPY AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF PLAINS ALL AMERICAN GP LLC THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this "AGREEMENT") of Plains All American GP LLC, a Delaware limited liability company (the "COMPANY"), is made and entered into as of the 8th day of June, 2001 by and among the Persons executing this Agreement on the signature pages hereto as a member (together with such other Persons that may hereafter become members as provided herein, referred to collectively as the "MEMBERS" or, individually, as a "MEMBER"). WHEREAS, Plains All American Inc., a Delaware corporation ("RODEO, INC."), as the Company's initial member, formed the Company on May 21, 2001 as a limited liability company under the Act (as defined below) by causing a certificate of formation of the Company to be filed with the Delaware Secretary of State and has made a capital contribution of the LLC Incentive Distribution Rights (as defined in the Transfer Agreement (as hereinafter defined)) to the Company; WHEREAS, Rodeo, Inc. and the other Members desire to enter into this Agreement pursuant to which such other Members shall be admitted to the Company; WHEREAS, all of the property used in the trade or business of Rodeo, Inc. as General Partner (as defined in the Rodeo, L.P. Partnership Agreement) associated with the headquarter employees described in Section 1(a)(ii) of that certain Pension and Employee Benefits Assumption and Transition Agreement, dated as of the date hereof, by and among Rodeo, Rodeo, Inc. and the Company (the "TRANSITION AGREEMENT") has been transferred by Rodeo to the Company; WHEREAS, in connection with the Contribution Agreement, the Company will have succeeded to the management and business activities formerly performed by Rodeo, Inc. as General Partner (as defined in the Rodeo, L.P. Partnership Agreement). NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties agree as follows: ARTICLE 1 DEFINITIONS As used herein, the following terms shall have the following meanings, unless the context otherwise requires: "ACCEPTANCE NOTICE" shall have the meaning set forth in Section 9.8(b). "ACT" means the Delaware Limited Liability Company Act, 6 Del. C. Section 18-101, et seq., as amended from time to time. EXECUTION COPY "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to a Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments: (a) Credit to such Capital Account any amounts which such Member is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to Regulation Sections 1.704- 1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5); and (b) Debit to such Capital Account the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704- 1(b)(2)(ii)(d)(6). "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "AGREEMENT" shall have the meaning set forth in the preamble hereof, as the same may be amended from time to time in accordance with the terms hereof. "AUTHORIZED REPRESENTATIVE" shall have the meaning set forth in Section 6.1. "AVAILABLE CASH" means, with respect to a fiscal quarter, all cash and cash equivalents of the Company at the end of such quarter less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of the Board to (a) provide for the proper conduct of the business of the Company (including reserves for future capital expenditures and for anticipated future credit needs of the Company) subsequent to such quarter or (b) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Company is a party or by which it is bound or its assets or Property is subject; provided, however, that disbursements made by the Partnership to the Company or cash reserves established, increased or reduced after the expiration of such quarter but on or before the date of determination of Available Cash with respect to such quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, during such quarter if the Board so determines in its reasonable discretion. "BOARD" means the Board of Directors of the Company. "BUSINESS" means all Hydrocarbon gathering, transportation, terminalling, storage, and marketing and all operations related thereto, including, without limitation, (a) the acquisition, construction, installation, maintenance or remediation and operation of pipelines, gathering lines, compressors, facilities, storage facilities and equipment, and (b) the gathering of Hydrocarbons from fields, interstate and intrastate transportation by pipeline, trucks or barges, tank storage of Hydrocarbons, transferring Hydrocarbons from pipelines and storage tanks to trucks, barges or other pipelines, acquisition of Hydrocarbons at the well or bulk purchase at pipeline and terminal facilities and subsequent resale thereof. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York. 2 EXECUTION COPY "CAPITAL ACCOUNT" means, with respect to any Member, a separate account established by the Company and maintained for each Member in accordance with Section 3.4 hereof. "CAPITAL CONTRIBUTION" means, with respect to any Member, the amount of money and the initial Gross Asset Value of any Property (other than money) contributed to the Company with respect to the interests purchased by such Member pursuant to the terms of this Agreement, in return for which the Member contributing such capital shall receive a Membership Interest. "CAUSE" shall have the meaning set forth in the Flores Employment Agreement. "CERTIFICATE" means the Certificate of Formation of the Company filed with the Secretary of State of Delaware, as amended or restated from time to time. "CODE" means the United States Internal Revenue Code of 1986, as amended. "COMPANY" shall have the meaning set forth in the preamble hereof. "COMPANY AFFILIATE" shall have the meaning set forth in Section 8.2. "COMPENSATORY UNITS" shall have the meaning set forth in Section 3.4(v). "CREDIT AGREEMENTS" shall have the meaning set forth in the Transfer Agreement, as such credit agreements may be amended, modified or supplemented from time to time, including, without limitation, amendments, modifications, supplements and restatements thereof giving effect to increases, renewals, extensions, refundings, deferrals, restructurings, replacements or refinancings of, or additions to, the arrangements provided in such credit agreements. "DEPRECIATION" means, for each Taxable Year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Taxable Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Taxable Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such Taxable Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Taxable Year is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the Board. "DIRECTORS" shall have the meaning set forth in Section 7.1(a). "E-HOLDINGS" means E-Holdings III, L.P., a Texas limited partnership. "EMPLOYEES" shall have the meaning set forth in Section 13.2. "ENCAP" shall have the meaning set forth in Section 13.1. "ENCUMBRANCE" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance, adverse claim, any defect or 3 EXECUTION COPY imperfection in title, preferential arrangement or restriction, right to purchase, right of first refusal or other burden or encumbrance of any kind, other than those imposed by this Agreement. "FLORES EMPLOYMENT AGREEMENT" means the Employment Agreement dated May 8, 2001 between JCF and Rodeo. "FIRST REFUSAL NOTICE" shall have the meaning set forth in Section 9.8(a). "FIRST UNION" shall have the meaning set forth in Section 9.1. "GENERAL PARTNER'S PERCENTAGE" means the "Percentage Interest" as to the "General Partner" (with respect to its "General Partner Interest") as such terms are defined in the Rodeo L.P. Partnership Agreement. "GOOD REASON" shall have the meaning set forth in the Flores Employment Agreement. "GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows and as otherwise provided in Section 3.2(b): (a) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the gross fair market value of such asset, as reasonably determined by the Board; provided, however, that the initial Gross Asset Values of the assets contributed to the Company pursuant to Section 3.1 hereof shall be as set forth in such section or the schedule referred to therein; (b) The Gross Asset Values of all Company assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as reasonably determined by the Board as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company property as consideration for an interest in the Company; and (iii) the liquidation of the Company within the meaning of Regulation Section 1.704-1(b)(2)(ii)(g); and (c) The Gross Asset Value of any item of Company assets distributed to any Member shall be adjusted to equal the gross fair market value (taking Code Section 7701(g) into account) of such asset on the date of distribution as reasonably determined by the Board. If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (b), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses. "HYDROCARBONS" means crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas liquids, plant products, liquefied petroleum gas and other liquid or gaseous hydrocarbons produced in association therewith, including, without limitation, coalbed methane and gas and CO\\2\\. 4 EXECUTION COPY "INDEPENDENT DIRECTOR" means a Director who is eligible to serve on the Conflicts Committee (as defined, and provided for, in the Rodeo, L.P. Partnership Agreement) and is otherwise independent as defined in Sections 303.01(B)(2)(a) and (3) or any successor provisions of the listing standards of the New York Stock Exchange. "INITIAL CAPITAL CONTRIBUTION DATE" means the earlier to occur of (i) the Closing Date (as defined in the Transfer Agreements), or (ii) such date as may be determined by the Board upon not less than three Business Days' notice to the Members of such date. "INITIAL DESIGNATING MEMBERS" means Rodeo, Inc., E-Holdings, Kafu and Sable. "INITIAL DIRECTORS" shall have the meaning set forth in Section 7.1(a)(i). "INITIAL MEMBERS" means Rodeo, Inc., E-Holdings, Kafu, Sable, Management Entity, Strome, Strome Hedgecap and Raymond. "JCF" means James C. Flores. "KAFU" means KAFU Holdings, LP, a Delaware limited partnership. "KAYNE ANDERSON" shall have the meaning set forth in Section 13.1. "LIMITED PARTNERSHIP INTEREST" means, with respect to a Member, such Member's limited partnership interest in the Partnership, which refers to all of such Member's rights and interests in the Partnership in such Member's capacity as a limited partner thereof, all as provided in the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act. "LIQUIDATING TRUSTEE" shall have the meaning set forth in Section 10.3. "LLC INCENTIVE DISTRIBUTION RIGHTS" has the meaning set forth in the Transfer Agreement. "LOSSES" has the meaning set forth in the definition of "Profits" and "Losses". "MAJORITY IN INTEREST" means, with respect to the Members or to any specified group or class of Members, Members owning more than fifty percent (50%) of the total Percentage Interests held by all Members or such specified group or class of Members, as applicable. "MANAGEMENT ENTITY" shall mean PAA Management, L.P. "MANAGEMENT SALE" shall have the meaning set forth in Section 9.10. "MEMBER" or "MEMBERS" shall have the meaning set forth in the preamble hereof. "MEMBERSHIP INTEREST" means a Member's limited liability company interest in the Company which refers to all of a Member's rights and interests in the Company in such Member's capacity as a Member, all as provided in this Agreement and the Act. "MEMBERSHIP TRANSFER" shall have the meaning set forth in Section 9.1(b). 5 EXECUTION COPY "NON-SELLING MEMBERS" shall have the meaning set forth in Section 9.8(b). "NOTICE" means a writing, containing the information required by this Agreement to be communicated to a party, and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre- paid, or (c) on the third Business Day following the date on which it was sent by United States mail, postage prepaid, to such party at the address or fax number, as the case may be, of such party as shown on the records of the Company. "OFFER" shall have the meaning set forth in Section 9.8(a). "OFFEROR" shall have the meaning set forth in Section 9.8(a). "OFFICER" shall have the meaning set forth in Section 7.8. "OPTIONED INTEREST" shall have the meaning set forth in Section 9.8(a). "PARTNERSHIP" means Plains AAP, L.P., a Delaware limited partnership. "PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of the date hereof, by and between the Company, as the general partner, Rodeo, Inc., Sable Investments, L.P., E- Holdings, Kafu, Management Entity, Raymond, Strome, Strome Hedgecap and any other Persons who become partners in the Partnership as provided therein, as amended from time to time in accordance with the terms thereof. "PARTNERSHIP TRANSFER" shall have the meaning set forth in Section 9.1(b). "PERCENTAGE INTEREST" of a Member means the aggregate percentage of Membership Interests of such Member set forth on Schedule 1 hereto, as the same may be modified from time to time as provided herein. "PERMITTED TRANSFER" shall mean: (a) a Transfer of any or all of the Membership Interest by any Member who is a natural person to (i) such Member's spouse, children (including legally adopted children and stepchildren), spouses of children or grandchildren or spouses of grandchildren; (ii) a trust for the benefit of the Member and/or any of the Persons described in clause (i); or (iii) a limited partnership or limited liability company whose sole partners or members, as the case may be, are the Member and/or any of the Persons described in clause (i) or clause (ii); provided, that in any of clauses (i), (ii) or (iii), the Member transferring such Membership Interest, or portion thereof, retains exclusive power to exercise all rights under this Agreement; (b) a Transfer of any or all of the Membership Interest by any Member to the Company; or 6 EXECUTION COPY (c) a Transfer of any or all of the Membership Interest by a Member to any Affiliate of such Member; provided, however, that such transfer shall be a Permitted Transfer only so long as such Membership Interest, or portion thereof, is held by such Affiliate or is otherwise transferred in another Permitted Transfer. Provided, however, that no Permitted Transfer shall be effective unless and until the transferee of the Membership Interest, or portion thereof, so transferred complies with Sections 9.1(b). Except in the case of a Permitted Transfer pursuant to clause (b) above, from and after the date on which a Permitted Transfer becomes effective, the Permitted Transferee of the Membership Interest, or portion thereof, so transferred shall have the same rights, and shall be bound by the same obligations, under this Agreement as the transferor of such Membership Interest, or portion thereof, and shall be deemed for all purposes hereunder a Member and such Permitted Transferee shall, as a condition to such Transfer, agree in writing to be bound by the terms of this Agreement. No Permitted Transfer shall conflict with or result in any violation of any judgment, order, decree, statute, law, ordinance, rule or regulation or require the Company, if not currently subject, to become subject, or if currently subject, to become subject to a greater extent, to any statute, law, ordinance, rule or regulation, excluding matters of a ministerial nature that are not materially burdensome to the Company. "PERMITTED TRANSFEREE" shall mean any Person who shall have acquired and who shall hold a Membership Interest, or portion thereof, pursuant to a Permitted Transfer. "PERSON" means any individual, partnership, corporation, limited liability company, trust, incorporated or unincorporated organization or other legal entity of any kind. "PROFITS" and "LOSSES" means, for each Taxable Year, an amount equal to the Company's net taxable income or loss for a taxable year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in computing such taxable income or loss), with the following adjustments: (a) Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss; (b) Any expenditures of the Company described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss; (c) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; 7 EXECUTION COPY (d) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Taxable Year, computed in accordance with the definition of Depreciation; and (f) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulation Sections 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Member's interest in the Company, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses. "PROPERTY" means all assets, real or intangible, that the Company may own or otherwise have an interest in from time to time. "RAYMOND" means John T. Raymond. "REGULATIONS" means the regulations, including temporary regulations, promulgated by the United States Department of Treasury with respect to the Code, as such regulations are amended from time to time, or corresponding provisions of future regulations. "REGULATORY ALLOCATIONS" shall have the meaning set forth in Section 5.3(c). "RODEO" means Plains Resources Inc., a Delaware corporation. "RODEO, INC." shall have the meaning set forth in the preamble hereof. "RODEO, L.P." means Plains All American Pipeline, L.P., a Delaware limited partnership. "RODEO, L.P. PARTNERSHIP AGREEMENT" means the Second Amended and Restated Agreement of Limited Partnership of Rodeo, L.P., as amended from time to time. "SABLE" means Sable Investments, L.P. A "SABLE CHANGE OF CONTROL" shall be deemed to occur if: any Person or "Group" (as such term is used in Section 13(d) of the Exchange Act), other than JCF or any entity or entities controlled by JCF, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), of (a) more than 50% of the general or limited partnership interests in Sable or (b) stock or other equity interests of any legal entity that controls Sable representing more than 50% of the voting interests entitled to vote generally for the election of the board of directors or other governing body of such entity. 8 EXECUTION COPY "SELLING MEMBER" shall have the meaning set forth in Section 9.8(a). "STROME" means Mark E. Strome. "STROME HEDGECAP" means Strome Hedgecap Fund, L.P. "SUBSIDIARY" means, with respect to a Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association or other business entity, a majority of either (x) the partnership or other similar ownership interest thereof or (y) the stock or equity interest of such partnership, association or other business entity's general partner, managing member or other similar controlling Person, is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of that Person or a combination thereof. For purposes of this Agreement, with respect to the Company, each of the Partnership and Rodeo, L.P., and each of their respective Subsidiaries, shall be a Subsidiary of the Company. "SUPER MAJORITY IN INTEREST" means Members owning Membership Interests with Percentage Interests aggregating at least 66 2/3%. "TAXABLE YEAR" shall mean the calendar year. "TAX MATTERS MEMBER" shall have the meaning set forth in Article 11. "TRANSFER" or "TRANSFERRED" means to give, sell, exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, voluntarily or involuntarily, by operation of law or otherwise. When referring to a Membership Interest, "Transfer" shall mean the Transfer of such Membership Interest whether of record, beneficially, by participation or otherwise. "TRANSFER AGREEMENTS" means those certain Unit Transfer and Contribution Agreements, dated as of May 8, 2001, by and among PAAI LLC, Rodeo, Rodeo, Inc. and each of (i) Sable, Sable Holdings, L.P. and JCF; (ii) E-Holdings; (iii) Kafu Holdings, LLC; (iv) Strome; (v) Strome Hedgecap; and (vi) Raymond, as may be amended from time to time. "TRANSITION AGREEMENT" has the meaning set forth in the preamble hereof. ARTICLE 2 GENERAL 2.1 Formation. The name of the Company is Plains All American GP LLC. The rights and liabilities of the Members shall be as provided in the Act for Members except as provided herein. To the extent that the rights or obligations of any Member are different by 9 EXECUTION COPY reason of any provision of this Agreement than they would be in the absence of such provision, to the extent permitted by the Act, this Agreement shall control. 2.2 Principal Office. The principal office of the Company shall be located at 333 Clay Street, 29th Floor, Houston, Texas 77002 or at such other place(s) as the Board may determine from time to time. 2.3 Registered Office and Registered Agent. The location of the registered office and the name of the registered agent of the Company in the State of Delaware shall be as stated in the Certificate or as determined from time to time by the Board. 2.4 Purpose of the Company. The Company's purposes, and the nature of the business to be conducted and promoted by the Company, are (a) to act as the general partner of the Partnership in accordance with the terms of the Partnership Agreement and (b) to engage in any and all activities necessary, advisable, convenient or incidental to the foregoing. 2.5 Date of Dissolution. The Company shall have perpetual existence unless the Company is dissolved pursuant to Article 10 hereof. The existence of the Company as a separate legal entity shall continue until cancellation of the Certificate in the manner required by the Act. 2.6 Qualification. The President and Chief Executive Officer, any Vice President, the Secretary and any Assistant Secretary of the Company is hereby authorized to qualify the Company to do business as a foreign limited liability company in any jurisdiction in which the Company may wish to conduct business and each is hereby designated as an authorized person, within the meaning of the Act, to execute, deliver and file any amendments or restatements of the Certificate and any other certificates and any amendments or restatements thereof necessary for the Company to so qualify to do business in any such state or territory. 2.7 Members. (a) Powers of Members. The Members shall have the power to exercise any and all rights or powers granted to the Members pursuant to the express terms of this Agreement. Except as expressly provided herein, the Members shall have no power to bind the Company and no authority to act on behalf of the Company. (b) Partition. Each Member waives any and all rights that it may have to maintain an action for partition of the Company's Property. (c) Resignation. Except upon a Transfer of all of its Membership Interests in accordance with this Agreement, a Member may not resign from the Company prior to the dissolution and winding up of the Company. A Member ceases to be a Member only upon: (i) a Permitted Transfer of all of such Member's Membership Interest and the transferee's admission as a substitute Member, all in accordance with the terms of this Agreement, or (ii) completion of dissolution and winding up of the Company pursuant to Article 10. (d) Ownership. Each Member shall be entitled to receive a Membership Interest in exchange for a Capital Contribution. Each Membership Interest shall correspond to a "limited liability company interest" as is provided in the Act. The Company shall be the owner of the 10 EXECUTION COPY Property. No Member shall have any ownership interest or right in the Property, including Property conveyed by a Member to the Company, except indirectly by virtue of a Member's ownership of a Membership Interest. 2.8 Reliance by Third Parties. Except with respect to certain tax matters, Persons dealing with the Company shall be entitled to rely conclusively upon the power and authority of an Officer. ARTICLE 3 CAPITALIZATION OF THE COMPANY 3.1 Initial Capital Contributions. On June 8, 2001, Rodeo, Inc. made a Capital Contribution to the capital of the Company consisting of the LLC Incentive Distribution Rights. On the Initial Capital Contribution Date, each Initial Member shall make a Capital Contribution to the capital of the Company consisting of cash as set forth opposite such Member's name on Schedule 1 hereto, which shall immediately be distributed to Rodeo, Inc. The initial Percentage Interest of such Member following such Capital Contribution on the Initial Capital Contribution Date shall be as set forth on Schedule 1 hereto, which shall be amended from time to time in accordance with the terms hereof (including, but not limited to, upon the making of additional Capital Contributions pursuant to Section 3.2(b)) to reflect appropriate adjustments to such Percentage Interests and Capital Contributions. 3.2 Additional Capital Contributions. (a) Except as set forth in Section 3.1 and for Capital Contributions from each Member in proportion to such Member's then outstanding Percentage Interest in respect of the General Partner's Percentage for equity issuances by Rodeo, L.P., and for equity issuances approved pursuant to Section 7.9(b)(ii), no Member shall be required to make any additional Capital Contribution. (b) Subject to the approval of a Majority in Interest pursuant to Section 7.9, the Company may offer additional Membership Interests to any Person with the approval of the Board. Such approval of the Majority in Interest shall also include their approval of any related valuations of Gross Asset Value by the Board and, if such Majority in Interest approves such issuance without approving such valuation, Gross Asset Value shall be determined by a third Person familiar with the valuation of such transactions selected by the Majority in Interest not later than ten (10) days after their approval of such issuance or, if the Majority in Interest fails to so select a third Person, then such third Person will be selected in accordance with the rules and procedures of the American Arbitration Association in Houston, Texas. If any additional Capital Contributions are made by Members but not in proportion to their respective Percentage Interests, the Percentage Interest of each Member shall be adjusted such that each Member's revised Percentage Interest determined immediately following each such additional Capital Contribution shall be equal to a fraction (i) the numerator of which is the sum of (A) the positive Capital Account balance of the Member determined immediately preceding the date such additional Capital Contribution is made (such Capital Account to be computed by adjusting the book value for Capital Account purposes of each Company asset to equal its Gross Asset Value as of such date, as provided in subparagraph (b) of the definition herein of "Gross Asset Value"), 11 EXECUTION COPY and (B) such additional Capital Contribution, if any, made by such Member, and (ii) the denominator of which is the sum of the positive Capital Account balances immediately preceding the date such additional Capital Contribution is made plus additional Capital Contributions of all Members on the date of such additional Capital Contribution, including Capital Contributions of any new Members (in each case calculated as provided in (i) above). The names, addresses and Capital Contributions of the Members shall be reflected in the books and records of the Company. 3.3 Loans. (a) No Member shall be obligated to loan funds to the Company. Loans by a Member to the Company shall not be considered Capital Contributions. The amount of any such loan shall be a debt of the Company owed to such Member in accordance with the terms and conditions upon which such loan is made. (b) A Member may (but shall not be obligated to) guarantee a loan made to the Company. If a Member guarantees a loan made to the Company and is required to make payment pursuant to such guarantee to the maker of the loan, then the amounts so paid to the maker of the loan shall be treated as a loan by such Member to the Company and not as an additional Capital Contribution. 3.4 Maintenance of Capital Accounts. (a) The Company shall maintain for each Member a separate Capital Account with respect to the Membership Interest owned by such Member in accordance with the following provisions: (i) To each Member's Capital Account there shall be credited (A) such Member's Capital Contributions, (B) such Member's share of Profits and (C) the amount of any Company liabilities assumed by such Member or which are secured by any Property distributed to such Member. The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Company by the maker of the note (or a Member related to the maker of the note within the meaning of Regulation Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Member until the Company makes a taxable disposition of the note or until (and only to the extent) principal payments are made on the note, all in accordance with Regulation Section 1.704- 1(b)(2)(iv)(d)(2); (ii) To each Member's Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any Property distributed or treated as an advance distribution to such Member pursuant to any provision of this Agreement (including without limitation any distributions pursuant to Section 4.1), (B) such Member's share of Losses and (C) the amount of any liabilities of such Member assumed by the Company or which are secured by any Property contributed by such Member to the Company; (iii) In the event Membership Interests are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the 12 EXECUTION COPY transferor to the extent such Capital Account relates to the Transferred Membership Interests; and (iv) In determining the amount of any liability for purposes of Sections 3.4(a)(i) and (ii) there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (v) For purposes hereof, the Capital Account of Rodeo, Inc. shall be increased by the fair market value of the subordinated units in Rodeo, L.P. delivered to employees of the Company by Rodeo or an affiliate of Rodeo pursuant to Section 1(d)(ii) of the Transition Agreement of even date herewith (the "COMPENSATORY UNITS") and by an amount equal to the payment of transition bonuses to employees of the Company pursuant to the Transition Agreement for which a deduction is allocated to Rodeo, Inc. pursuant to Section 5.3(d). (b) The foregoing Section 3.4(a) and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulation Section 1.704-1(b) and, to the greatest extent practicable, shall be interpreted and applied in a manner consistent with such Regulation. The Board in its discretion and to the extent otherwise consistent with the terms of this Agreement shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Members and the amount of capital reflected on the Company's balance sheet, as computed for book purposes, in accordance with Regulation Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulation Section 1.704-1(b). 3.5 Capital Withdrawal Rights, Interest and Priority. Except as expressly provided in this Agreement, no Member shall be entitled to (a) withdraw or reduce such Member's Capital Contribution or to receive any distributions from the Company, or (b) receive or be credited with any interest on the balance of such Member's Capital Contribution at any time. ARTICLE 4 DISTRIBUTIONS 4.1 Distributions of Available Cash. An amount equal to 100% of Available Cash with respect to each fiscal quarter of the Partnership shall be distributed to the Members in proportion to their relative Percentage Interests within forty-five days after the end of such quarter. 4.2 Persons Entitled to Distributions. All distributions of Available Cash to Members for a fiscal quarter pursuant to Section 4.1 shall be made to the Members shown on the records of the Company to be entitled thereto as of the last day of such quarter, unless the transferor and transferee of any Membership Interest otherwise agree in writing to a different distribution and such distribution is consented to in writing by the Board. 13 EXECUTION COPY 4.3 Limitations on Distributions. (a) Notwithstanding any provision of this Agreement to the contrary, no distributions shall be made except pursuant to this Article 4 or Article 10. (b) Notwithstanding any provision of this Agreement to the contrary, no distribution hereunder shall be permitted if such distribution would violate Section 18-607 of the Act or other applicable law. ARTICLE 5 ALLOCATIONS 5.1 Profits. Profits for any Taxable Year shall be allocated: (a) first, to those Members to which Losses have previously been allocated pursuant to Section 5.2(c) hereof so as to bring each such Member's Capital Account to zero, pro rata in accordance with the sum of each such Member's Losses; and (b) second, any remaining Profits shall be allocated among the Members in proportion to their respective Percentage Interests. 5.2 Losses. Losses for any Taxable Year shall be allocated: (a) first, to the Members to which Profits have previously been allocated pursuant to Section 5.1(b) to the extent of such Profits; (b) second, to Members in proportion to their positive Capital Account balances until such Capital Account balances have been reduced to zero; and (c) third, any remaining Losses shall be allocated among the Members in proportion to their respective Percentage Interests. 5.3 Regulatory Allocations. (a) Gross Income Allocation. In the event any Member has an Adjusted Capital Account Deficit at the end of any Taxable Year, such Member shall be specially allocated items of Company income and gain in the amount of such deficit balance as quickly as possible; provided, that an allocation pursuant to this Section 5.3(a) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit balance after all other allocations provided for in this Article 5 have been made. (b) Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided, that an allocation pursuant to this Section 5.3(b) 14 EXECUTION COPY shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 5 have been made. (c) Curative Allocations. The allocations set forth in Sections 5.3(a) and (b) hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss or deduction pursuant to this Section 5.3(c). Therefore, notwithstanding any other provision of this Article 5 (other than the Regulatory Allocations), the Board shall make such offsetting special allocations of income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement and all such items were allocated pursuant to Sections 5.1 and 5.2 without regard to the Regulatory Allocations. (d) Special Allocation. Rodeo, Inc. shall be allocated any deductions arising from the delivery of Compensatory Units or the payment by Rodeo, Inc. or an affiliate of Rodeo, Inc. of transition bonuses pursuant to the Transition Agreement to employees of the Company. 5.4 Tax Allocations: Code Section 704(c). (a) Except as otherwise provided herein, for federal income tax purposes, (i) each item of income, gain, loss and deduction shall be allocated among the Members in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 5.1 and 5.2, and (ii) each tax credit shall be allocated to the Members in the same manner as the receipt or expenditure giving rise to such credit is allocated pursuant to Section 5.1 or 5.2. (b) In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any Property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such Property to the Company for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition herein of "Gross Asset Value"). The Company shall use the remedial method of allocations specified in Treas. Reg. (S)1.704-3(d), or successor regulations, unless otherwise required by law, with respect to the initial contribution property set forth on Schedule I. (c) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraph (b) of the definition herein of "Gross Asset Value", subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. (d) Any elections or other decisions relating to such allocations shall be made by the Board in any manner that reasonably reflects the purpose and intention of this Agreement; provided, that the Company, in the discretion of the Board, may make, or not make, "curative" or 15 EXECUTION COPY "remedial" allocations (within the meaning of the Regulations under Code Section 704(c)) including, but not limited to, "curative" allocations which offset the effect of the "ceiling rule" for a prior Taxable Year (within the meaning of Regulation Section 1.704-3(c)(3)(ii)) and "curative" allocations from disposition of contributed property (within the meaning of Regulation Section 1.704-3(c)(3)(iii)(B)). Allocations pursuant to this Section 5.4 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 5.5 Change in Percentage Interests. In the event that the Members' Percentage Interests change during a Taxable Year, Profits and Losses shall be allocated taking into account the Members' varying Percentage Interests for such Taxable Year, determined on a daily, monthly or other basis as determined by the Board, using any permissible method under Code Section 706 and the Regulations thereunder. 5.6 Withholding. Each Member hereby authorizes the Company to withhold from income or distributions allocable to such Member and to pay over any taxes payable by the Company or any of its Affiliates as a result of such Member's participation in the Company; if and to the extent that the Company shall be required to withhold any such taxes, such Member shall be deemed for all purposes of this Agreement to have received a distribution from the Company as of the time such withholding is required to be paid, which distribution shall be deemed to be a distribution to such Member to the extent that the Member is then entitled to receive a distribution. To the extent that the aggregate of such distributions in respect of a Member for any period exceeds the distributions to which such Member is entitled for such period, the amount of such excess shall be considered a demand loan from the Company to such Member, with interest at the rate of interest per annum that Citibank, N.A., or any successor entity thereto, announces from time to time as its prime lending rate, which interest shall be treated as an item of Company income, until discharged by such Member by repayment, which may be made in the sole discretion of the Board out of distributions to which such Member would otherwise be subsequently entitled. The withholdings referred to in this Section 5.6 shall be made at the maximum applicable statutory rate under applicable tax law unless the Board shall have received an opinion of counsel or other evidence, satisfactory to the Board, to the effect that a lower rate is applicable, or that no withholding is applicable. ARTICLE 6 MEMBERS' MEETINGS 6.1 Meetings of Members; Place of Meetings. Regular meetings of the Members shall be held on an annual basis or more frequently as determined by a Majority in Interest. All meetings of the Members shall be held at a location either within or outside the State of Delaware as designated from time to time by the Board and stated in the Notice of the meeting or in a duly executed waiver of the Notice thereof. Special meetings of the Members may be held for any purpose or purposes, unless otherwise prohibited by law, and may be called by the Board or by a Majority in Interest. A Member expecting to be absent from a meeting shall be entitled to designate in writing (or orally; provided, that such oral designation is later confirmed in writing) a proxy (an "AUTHORIZED REPRESENTATIVE") to act on behalf of such Member with respect to such meeting (to the same extent and with the same force and effect as the Member who has 16 EXECUTION COPY designated such Authorized Representative). Such Authorized Representative shall have full power and authority to act and take actions or refrain from taking actions as the Member by whom such Authorized Representative has been designated. Members and Authorized Representatives may participate in a meeting of the Members by means of conference telephone or other similar communication equipment whereby all Members or Authorized Representatives participating in the meeting can hear each other. Participation in a meeting in this manner shall constitute presence in person at the meeting, except when a Member or Authorized Representative participates for the express purpose of objecting to the transaction of any business on the ground that the meeting was not lawfully called or convened. 6.2 Quorum; Voting Requirement. The presence, in person or by proxy, of a Majority in Interest of the Members shall constitute a quorum for the transaction of business by the Members. The affirmative vote of a Majority in Interest shall constitute a valid decision of the Members, except where a different vote is required by the Act or this Agreement. 6.3 Proxies. At any meeting of the Members, every Member having the right to vote thereat shall be entitled to vote in person or by proxy appointed by an instrument in writing signed by such Member and bearing a date not more than one year prior to the date of such meeting. 6.4 Action Without Meeting. Any action required or permitted to be taken at any meeting of Members of the Company may be taken without a meeting, without prior notice and without a vote if a consent in writing setting forth the action so taken is signed by Members having not less than the minimum Percentage Interest that would be necessary to authorize or take such action at a meeting of the Members. Prompt Notice of the taking of any action taken pursuant to this Section 6.4 by less than the unanimous written consent of the Members shall be given to those Members who have not consented in writing. 6.5 Notice. Notice stating the place, day and hour of the meeting of Members and the purpose for which the meeting is called shall be delivered personally or sent by mail or by telecopier not less than two (2) Business Days nor more than sixty (60) days before the date of the meeting by or at the direction of the Board or other Persons calling the meeting, to each Member entitled to vote at such meeting. 6.6 Waiver of Notice. When any Notice is required to be given to any Member hereunder, a waiver thereof in writing signed by the Member, whether before, at or after the time stated therein, shall be equivalent to the giving of such Notice. ARTICLE 7 MANAGEMENT AND CONTROL 7.1 Board of Directors. (a) (i) Except as otherwise provided hereunder, the business and affairs of the Company shall be managed by or under the direction of the Board, which shall, subject to Section 7.1(a)(iv), consist of seven (7) individuals designated as directors of the Company (the "DIRECTORS") as follows: (A) subject to Section 7.1(a)(iv), each Initial Designating Member shall be entitled to designate one (1) Director, (B) a Majority in Interest shall elect two (2) Directors, 17 EXECUTION COPY both of whom shall be Independent Directors, and (C) the Chief Executive Officer of the Company shall be a Director. As of the date hereof, the Directors shall be the individuals set forth on Schedule 7.1 to this Agreement (the "INITIAL DIRECTORS"), each to hold office until his or her successor is elected pursuant to this Section 7.1(a) or until his or her earlier death, resignation or removal. Subject to Section 7.1(a)(iv), an Initial Designating Member may assign its right to designate a Director in connection with the transfer of all of such Initial Designating Member's Membership Interest to a Permitted Transferee. (ii) At each annual meeting of the Members and at each special meeting of the Members called for the purpose of electing Directors (subject to the third to last sentence of this Section 7.1(a)(ii)), each Member shall be entitled to designate the number of Directors as set forth in Section 7.1(a)(i). Each Member shall cooperate with respect to calling and attending meetings of Members and electing the Directors designated by the Members, including voting in favor of Directors designated pursuant to Section 7.1(a)(i) and any replacement Directors pursuant to Section 7.1(a)(iii); provided, that the failure to hold any such meetings shall not limit or eliminate a Member's right to designate Directors pursuant to Section 7.1(a)(i). The initial term of the Initial Directors, and any successors thereto, shall expire on the third anniversary of the date hereof. Thereafter, Directors shall be elected to serve annual terms expiring on the date of the annual meeting of Members following such election. Each Director shall hold office until his or her successor is elected pursuant to this Section 7.1(a) or until his or her earlier death, resignation or removal. The provisions of Section 7.1(a)(i), (ii) and (iii) are subject to the limitations contained in Section 7.1(a)(iv). (iii) Any individual designated by a Member as a Director (other than Independent Directors and the Chief Executive Officer of the Company) may be removed at any time, with or without cause, only by such designating Member and the Members shall cooperate with respect to such removal, including voting in favor of such removal. Persons elected as an Independent Director may be removed at any time, with or without cause, by a vote of a Majority in Interest. Subject to Section 7.1(a)(iv), in the event of the death, resignation or removal of a Director (other than an Independent Director, the Chief Executive Officer of the Company), the Member that designated such Director may designate a replacement Director. In the event of the death, resignation or removal of an Independent Director, a Majority in Interest may designate a replacement Director. In the event the individual serving as Chief Executive Officer of the Company no longer holds such office for any reason, such individual shall be automatically removed as a Director and the successor to such individual as Chief Executive Officer of the Company shall, by virtue of such appointment, be designated to replace such individual as a Director. (iv) Each Initial Designating Member shall have the right to designate a Director pursuant to Section 7.1(a)(i)(A) so long as such Member's Percentage Interest is greater than 10% of all Membership Interests or, in the case of E- Holdings, 9% of all Membership Interests. In the event a Member ceases to have the right to designate a Director pursuant to Section 7.1(a)(i)(A), such individual designated by such Member shall be automatically removed as a Director and any Member with a Percentage Interest of greater than 25% and not otherwise entitled to designate a Director shall designate a replacement Director, or, if there is no such Member, a Majority in Interest shall elect a replacement Director and in either case such Director shall serve a term expiring on the date of the annual meeting of Members following such election 18 EXECUTION COPY and shall hold office until his or her successor is elected; provided, however, in the event that there is more than one Member with a Percentage Interest greater than 25% and not otherwise entitled to designate a Director, the Member who first accumulated a Percentage Interest of 25% or greater shall be entitled to designate the replacement Director. At such time as no Member has the right to designate Directors pursuant to Section 7.1(a)(i)(A) or this Section 7.1(a)(iv), then the provisions of Sections 7.1(a)(i), (ii) and (iii) and the second sentence of this Section 7.2(a)(iv) shall terminate and the number of Directors comprising the Board shall be seven (7) and shall consist of at least two (2) Independent Directors and the Chief Executive Officer of the Company. All such Directors shall be elected by a Majority in Interest and shall serve annual terms expiring on the date of the annual meeting of Members following such election. Each such Director shall hold office until his or her successor is elected pursuant to this Section 7.1(a)(iv) or until his or her earlier death, resignation or removal. Any Director elected pursuant to this Section 7.1(a)(iv) may be removed, with or without cause, by a Majority in Interest. In the event of the death, resignation or removal of a Director, the remaining Directors may appoint a replacement Director. Notwithstanding any other provision of this Agreement, in no event shall both a Member and its Permitted Transferee be entitled to designate a Director pursuant to Section 7.1(a)(i)(A). (b) Except as otherwise expressly provided herein, the power and authority granted to the Board hereunder shall include all those necessary or convenient for the furtherance of the purposes of the Company and shall include the power to make or delegate to Officers all decisions with regard to the management, operations, assets, financing and capitalization of the Company. 7.2 Meetings of the Board. The Board may hold meetings, both regular and special, within or outside the State of Delaware. Regular meetings of the Board may be called by the Chief Executive Officer or two or more of the Directors upon delivery of written Notice at least ten (10) days prior to the date of such meeting. Special meetings of the Board may be called at the request of the Chief Executive Officer or any two or more of the Directors upon delivery of written Notice sent to each other Director by the means most likely to reach such Director as may be determined by the Secretary in his best judgment so as to be received at least twenty-four (24) hours prior to the time of such meeting. Notwithstanding anything contained herein to the contrary, such Notice may be telephonic if no other reasonable means are available. Such Notices shall be accompanied by a proposed agenda or statement of purpose. 7.3 Quorum and Acts of the Board. A majority of the Directors shall constitute a quorum for the transaction of business at all meetings of the Board, and, except as otherwise provided in this Agreement, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board. If a quorum shall not be present at any meeting of the Board, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. 19 EXECUTION COPY 7.4 Electronic Communications. Members of the Board, or any committee designated by the Board, may participate in a meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment through which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. If all the participants are participating by conference telephone or similar communications equipment, the meeting shall be deemed to be held at the Company's principal place of business. 7.5 Committees of Directors. The Board, by unanimous resolution of all Directors present and voting at a duly constituted meeting of the Board or by unanimous written consent, may designate one or more committees, each committee to consist of one (1) or more of the Directors. In the event of the disqualification or resignation of a committee member, the Board shall appoint another member of the Board to fill such vacancy. Any such committee, to the extent provided in the Board's resolution, shall have and may exercise all the powers and authority of the Board in the management of the Company's business and affairs subject to any limitations contained herein or in the Act. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report the same to the Board when required. 7.6 Compensation of Directors. Each Director shall be entitled to reimbursement from the Company for all reasonable direct out-of-pocket expenses incurred by such Director in connection with attending Board meetings and such compensation as may be approved by a Majority in Interest. 7.7 Directors as Agents. The Board, acting as a body pursuant to this Agreement, shall constitute a "manager" for purposes of the Act. No Director, in such capacity, acting singly or with any other Director, shall have any authority or right to act on behalf of or bind the Company other than by exercising the Director's voting power as a member of the Board, unless specifically authorized by the Board in each instance. 7.8 Officers; Agents. The Board shall have the power to appoint any Person or Persons as the Company's officers (the "OFFICERS") to act for the Company and to delegate to such Officers such of the powers as are granted to the Board hereunder. Any decision or act of an Officer within the scope of the Officer's designated or delegated authority shall control and shall bind the Company (and any business entity for which the Company exercises direct or indirect executory authority). The Officers may have such titles as the Board shall deem appropriate, which may include (but need not be limited to) Chairman of the Board, President, Chief Executive Officer, Executive Vice President, Vice President, Chief Operating Officer, Chief Financial Officer, Treasurer, Controller or Secretary. A Director may be an Officer. The initial Officers are set forth on Schedule 7.4. Unless the authority of an Officer is limited by the Board, any Officer so appointed shall have the same authority to act for the Company as a corresponding officer of a Delaware corporation would have to act for a Delaware corporation in the absence of a specific delegation of authority. The Officers shall hold office until their respective successors are chosen and qualify or until their earlier death, resignation or removal. Any Officer elected or appointed by the Board may be removed at any time by the affirmative 20 EXECUTION COPY vote of a majority of the Board. Any vacancy occurring in any office of the Company shall be filled by a majority of the Board. 7.9 Matters Requiring Member Approval. (a) Without the prior written consent of a Super Majority in Interest, the Company shall not, and shall not permit any of its Subsidiaries to, effect any: (i) Merger, consolidation or share exchange into or with any other Person, or any other similar business combination transaction (other than any such transaction entered into solely between the Company and any of its Subsidiaries or among any of them) involving the Company or any of its Significant Subsidiaries (as defined in Rule 1-02(w) of Regulation S-X promulgated by the Securities and Exchange Commission, as amended and which shall be deemed to include Rodeo L.P.) or financial restructuring of the Company or the Partnership; provided, however, that in the event not all Members receive identical consideration, whether in their capacity as a Member or as a limited partner of the Partnership, both in form and amount (in proportion to their Membership Interests or Limited Partner Interests, as the case may be) in such transaction, such transaction shall require the prior written consent of any Member receiving consideration that differs from the consideration to be received by a Majority in Interest; (ii) voluntary filing for bankruptcy, liquidation, dissolution or winding up of the Company or any of its Subsidiaries or any event that would cause a dissolution or winding up of the Company or any of its Subsidiaries or any consent by the Company or any of its Subsidiaries to any action brought by any other Person relating to any of the foregoing; (iii) amendment or repeal of the Certificate, the Partnership Agreement or the Partnership's certificate of limited partnership; provided, however, that if any amendment to the Partnership Agreement that would, if proposed with respect to this Agreement, require the prior written consent of a particular Member, then such amendment shall require the prior written consent of such Member in its capacity as a limited partner of the Partnership; (iv) sale, lease, transfer, pledge or other disposition of all or substantially all of the properties or assets of the Company or the Company and any of its Subsidiaries taken as a whole, other than sales, leases, transfers, pledges or other dispositions of assets in the ordinary course of business or refinancing of the Credit Agreements; (b) Without the prior written consent of a Majority in Interest, the Company shall not, and shall not permit the Partnership to, effect any: (i) except for distributions of Available Cash pursuant to Section 4.1 and distributions pursuant to Section 10.3, and distributions required pursuant to the Partnership Agreement (as amended from time to time in accordance with the terms thereof), declaration or payment of any dividends or other distributions on the Membership Interests, partnership interests, capital stock or other debt or equity 21 EXECUTION COPY securities by the Company or the Partnership, including, without limitation, any dividend or other distribution by means of a redemption or repurchase of such securities; (ii) other than equity securities issued upon exercise of convertible securities outstanding on the date hereof or subsequently approved pursuant to this Section 7.9, authorization, sale and/or issuance by the Company or the Partnership of any of their respective Membership Interests, partnership interests, capital stock, or other equity securities, whether in a private or public offering, including an initial public offering, or the grant, sale or issuance of other securities (including rights, warrants and options) convertible into, exchangeable for or exercisable for any of their respective Membership Interests, partnership interests, capital stock, or other equity securities, whether or not presently convertible, exchangeable or exercisable; (iii) (a) incurrence of any indebtedness by the Company or the Partnership, (b) the assumption, incurrence, or undertaking by the Company or the Partnership of, or the grant by the Company or the Partnership of any security (other than a pledge of substantially all of the properties or assets of the Company or the Company and any of its Subsidiaries taken as a whole) for, any financial commitment of any type whatsoever, including without limitation, any purchase, sale, lease, loan, contract, borrowing or expenditure, or (c) the lending of money by the Company or the Partnership to, or the guarantee by the Company or the Partnership of the debts of, any other Person; (iv) capital expenditures, or commitment to make capital expenditures, in excess of fifteen percent (15%) of the amount budgeted for capital expenditures in any fiscal year by the Company or the Partnership; or (v) any repurchase or redemption by the Company of any of its Membership Interests, or other debt or equity securities. ARTICLE 8 LIABILITY AND INDEMNIFICATION 8.1 Limitation on Liability of Members, Directors and Officers. No Member (when not acting in violation of this Agreement or applicable law), Director or Officer shall have any liability to the Company or the Members for any losses sustained or liabilities incurred as a result of any act or omission of such Member, Director or Officer in connection with the conduct of the business of the Company if, in the case of an Officer, the Officer acted in a manner he or she reasonably believed to be in, or not opposed to, the interests of the Company or applicable law and to be within the scope of his or her authority and, in the case of a Member (when not acting in violation of this Agreement or applicable law), Director or Officer, the conduct did not constitute bad faith, fraud, gross negligence or willful misconduct. To the fullest extent permitted by Section 18-1101(c) of the Act, a Director (other than Independent Directors), in performing his or her obligations under this Agreement, shall be entitled to act or omit to act at the direction of the Member who designated such Director, considering only such factors, including the separate interests of the designating Member, as such Director or the designating Member chooses to consider, and any action of a Director or failure to act, taken or omitted in good faith reliance on the foregoing provisions of this Section 8.1 shall not constitute a breach of 22 EXECUTION COPY any duty including any fiduciary duty on the part of the Director or designating Member to the Company or any other Member or Director. Except as required by the Act, the Company's debts, obligations, and liabilities, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Officer, Member or Director shall be personally responsible for any such debt, obligation or liability of the Company solely by reason of being an Officer, Member or Director. The Members shall be liable to the Company for the capital contributions specified in Section 3.1. No Member shall be responsible for any debts, obligations or liabilities, whether arising in contract, tort or otherwise, of any other Member. 8.2 Indemnification. (a) The Company shall indemnify and hold harmless the Members (when not acting in violation of this Agreement or applicable law), Directors and Officers (individually a "COMPANY AFFILIATE") from and against any and all losses, claims, demands, costs, damages, liabilities, expenses of any nature (including reasonable attorneys' fees and disbursements), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which a Company Affiliate may be involved, or threatened to be involved, as a party or otherwise, arising out of or incidental to the business of the Company, regardless of whether a Company Affiliate continues to be a Company Affiliate at the time any such liability or expense is paid or incurred, if, in the case of an Officer, such Officer acted in a manner he or she reasonably believed to be in, or not opposed to, the interests of the Company or applicable law and to be in the scope of his or her authority and, in the case of a Member (when not acting in violation of this Agreement or applicable law), Director or Officer, the conduct of the Member, Director or Officer did not constitute fraud, bad faith, gross negligence or willful misconduct and with respect to any criminal proceeding, had no reason to believe his, her or its conduct was unlawful. (b) Expenses incurred by a Company Affiliate in defending any claim, demand, action, suit or proceeding subject to Section 8.2(a) shall, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Company Affiliate to repay such amounts if it is ultimately determined that the Company Affiliate is not entitled to be indemnified as authorized in this Section 8.2. (c) The indemnification provided by this Section 8.2 shall be in addition to any other rights to which a Company Affiliate may be entitled pursuant to any approval of a Majority in Interest, as a matter of law or equity, or otherwise, and shall continue as to a Company Affiliate who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, and administrators of such Company Affiliate; provided, however, that in the event such Company Affiliate is also an Affiliate of a Member, such Member's Percentage Interest shall be disregarded for purposes of determining a Majority in Interest for purposes of this Section 8.2(c). The Company shall not be required to indemnify any Member in connection with any losses, claims, demands, actions, disputes, suits or proceedings, of any Member against any other Member. 23 EXECUTION COPY (d) The Company may purchase and maintain directors and officers insurance or similar coverage for its Directors and Officers in such amounts and with such deductibles or self-insured retentions as determined in the sole discretion of the Board. (e) Any indemnification hereunder shall be satisfied only out of the assets of the Company, and the Members shall not be subject to personal liability by reason of the indemnification provisions under this Section 8.2. (f) A Company Affiliate shall not be denied indemnification in whole or in part under this Section 8.2 because the Company Affiliate had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement and all material facts relating to such indemnitee's interest were adequately disclosed to the Board at the time the transaction was consummated. (g) Subject to Section 8.2(c), the provisions of this Section 8.2 are for the benefit of the Company Affiliates and the heirs, successors, assigns and administrators of the Company Affiliates and shall not be deemed to create any rights for the benefit of any other Persons. (h) Any repeal or amendment of any provisions of this Section 8.2 shall be prospective only and shall not adversely affect any Company Affiliates' rights existing at the time of such repeal or amendment. ARTICLE 9 TRANSFERS OF MEMBERSHIP INTERESTS 9.1 General Restrictions. (a) No Member may Transfer all or any part of such Member's Membership Interest to any Person except (i) to a Permitted Transferee pursuant to Section 9.2, (ii) pursuant to the terms of Section 9.8, or (iii) in the case of Kafu, a transfer of up to a 6% Membership Interest to First Union Investors, Inc. ("FIRST UNION") within 90 days from the date hereof; provided, however, any such Transfer under (i), (ii) or (iii) above shall comply with the terms of Section 9.1(b). Any purported Transfer of a Membership Interest or a portion thereof in violation of the terms of this Agreement shall be null and void and of no force and effect. Except upon a Transfer of all of a Member's Membership Interest in accordance with this Section 9.1, no Member shall have the right to withdraw as a Member of the Company. (b) As a condition to a Transfer by a Member of all or any part of such Member's Membership Interest to a transferee as permitted under Section 9.1(a)(i) or (ii), (a "MEMBERSHIP TRANSFER"), such Member shall simultaneously Transfer (the "PARTNERSHIP TRANSFER") to such transferee an amount of such Member's Limited Partnership Interest equal to: (i) such Member's Limited Partnership Interest, multiplied by (ii) a percentage equal to (1) the Percentage Interest of such Member to be Transferred to such transferee, divided by (2) such Member's Percentage Interest immediately before such Transfer. If for any reason the Partnership Transfer does not occur simultaneously with the Membership Transfer, then the Membership Transfer and the Partnership Transfer shall be null and void and of no force and effect. 24 EXECUTION COPY (c) Notwithstanding any other provision of this Agreement, no Member may pledge, mortgage or otherwise subject its Member Interest to any Encumbrance. (d) So long as it or its Permitted Transferee remains a Member, Sable may not effect a Sable Change of Control. (e) In the event that JCF resigns, other than for Good Reason, from his position as Chief Executive Officer of Rodeo, or is terminated for Cause, during the eighteen month period ending November 8, 2002, the occurrence of such event shall be deemed a Transfer to a Non-Qualifying Transferee of the Membership Interest of Sable Investments; provided; however, that fair market value, with respect to such deemed Transfer for purposes of Section 9.2, shall not be less than Sable's initial Capital Contribution. 9.2 Permitted Transferees. (a) Notwithstanding the provisions of Section 9.8, each Member shall, subject to Section 9.1(b), have the right to Transfer (but not to substitute the transferee as a substitute Member in such Member's place, except in accordance with Section 9.3), by a written instrument, all or any part of a Member's Membership Interest to a Permitted Transferee. Notwithstanding the previous sentence, if the Permitted Transferee is such because it was an Affiliate of the transferring Member at the time of such Transfer or the Transfer was a Permitted Transfer under clause (a) of the definition of Permitted Transfer and, at any time after such Transfer, such Permitted Transferee ceases to be an Affiliate of such Member or such Transfer or such Permitted Transferee ceases to qualify under such clause (a) (a "NON-QUALIFYING TRANSFEREE"), such Transfer shall be deemed to not be a Permitted Transfer and shall be subject to Section 9.8. Pursuant to Section 9.8, such transferring Member, or such transferring Member's legal representative, shall deliver the First Refusal Notice promptly after the time when such transferee ceases to be an Affiliate of such transferring Member, or such Transfer or such Permitted Transferee ceases to qualify under clause (a) of the definition of Permitted Transfer, and such transferring Member shall otherwise comply with the terms of Section 9.8 with respect to such Transfer; provided, that the purchase price for such Transfer for purposes of Section 9.8 shall be an amount agreed upon by such transferring Member and a Majority in Interest (excluding such transferring Member's Percentage Interest) or, if such Member and such Majority in Interest cannot agree on a price within five (5) Business Days after delivery of the First Refusal Notice, such price shall be the fair market value of the Membership Interest transferred pursuant to the Transfer as of the date the transferee ceased to be an Affiliate of such transferring Member or such Transfer or such Permitted Transferee ceases to qualify under clause (a) of the definition of Permitted Transfer (such date, the "Non-Qualifying Date"), as determined at the Company's expense by a nationally recognized investment banking firm mutually selected by such transferring Member and a Majority in Interest (excluding such transferring Member's Percentage Interest). If such transferring Member and such Majority in Interest are unable, within ten (10) days after the expiration of such five (5) Business Day period, to mutually agree upon an investment banking firm, then each of such transferring Member and such Majority in Interest shall choose a nationally recognized investment banking firm and the two investment banking firms so chosen shall choose a third nationally recognized investment banking firm which shall determine the fair market value of the Membership Interest transferred pursuant to such Transfer at the Company's expense. The determination of fair market value 25 EXECUTION COPY shall be based on the value that a willing buyer with knowledge of all relevant facts would pay a willing seller for all the outstanding equity securities of the Company in connection with an auction for the Company as a going concern and shall not take into account any acquisitions made by the Company or its Affiliates or any other events subsequent to the Non-Qualifying Date and shall not be subject to any discount for a sale of a minority interest. If such transferring Member fails to comply with all the terms of Section 9.8, such Transfer shall be null and void and of no force and effect. No Non-Qualifying Transferee shall be entitled to receive any distributions from the Company on or after the Non-Qualifying Date and any distributions made in respect of the Membership Interests on or after the Non-Qualifying Date and held by such Non- Qualifying Members shall be paid to the Member who transferred such Membership Interest or otherwise to the rightful owner thereof as reasonably determined by the Board. (b) Unless and until admitted as a substitute Member pursuant to Section 9.3, a transferee of a Member's Membership Interest in whole or in part shall be an assignee with respect to such Transferred Membership Interest and shall not be entitled to participate in the management of the business and affairs of the Company or to become, or to exercise the rights of, a Member, including the right to appoint Directors, the right to vote, the right to require any information or accounting of the Company's business, or the right to inspect the Company's books and records. Such transferee shall only be entitled to receive, to the extent of the Membership Interest Transferred to such transferee, the share of distributions and profits, including distributions representing the return of Capital Contributions, to which the transferor would otherwise be entitled with respect to the Transferred Membership Interest. The transferor shall have the right to vote such Transferred Membership Interest until the transferee is admitted to the Company as a substitute Member with respect to the Transferred Membership Interest. 9.3 Substitute Members. No transferee of all or part of a Member's Membership Interest shall become a substitute Member in place of the transferor unless and until: (a) Such Transfer is in compliance with the terms of Section 9.1; (b) the transferee has executed an instrument in form and substance reasonably satisfactory to the Board accepting and adopting, and agreeing to be bound by, the terms and provisions of the Certificate and this Agreement; and (c) the transferee has caused to be paid all reasonable expenses of the Company in connection with the admission of the transferee as a substitute Member. Upon satisfaction of all the foregoing conditions with respect to a particular transferee, the President and Chief Executive Officer shall cause the books and records of the Company to reflect the admission of the transferee as a substitute Member to the extent of the Transferred Membership Interest held by such transferee. 9.4 Effect of Admission as a Substitute Member. A transferee who has become a substitute Member has, to the extent of the Transferred Membership Interest, all the rights, powers and benefits of, and is subject to the obligations, restrictions and liabilities of a Member under, the Certificate, this Agreement and the Act. Upon admission of a transferee as a substitute Member, the transferor of the Membership Interest so held by the substitute Member 26 EXECUTION COPY shall cease to be a Member of the Company to the extent of such Transferred Membership Interest. 9.5 Consent. Each Member hereby agrees that upon satisfaction of the terms and conditions of this Article 9 with respect to any proposed Transfer, the transferee may be admitted as a Member without any further action by a Member hereunder. 9.6 No Dissolution. If a Member Transfers all of its Membership Interest pursuant to this Article 9 and the transferee of such Membership Interest is admitted as a Member pursuant to Section 9.3, such Person shall be admitted to the Company as a Member effective on the effective date of the Transfer and the Company shall not dissolve pursuant to Section 10.1. 9.7 Additional Members. Subject to Section 3.2 and Section 7.9, any Person acceptable to the Board may become an additional Member of the Company for such consideration as the Board shall determine, provided that such additional Member complies with all the requirements of a transferee under Section 9.3(b) and (c). 9.8 Right of First Refusal. The Members shall have the following right of first refusal: (a) If at any time any of the Members (a "SELLING MEMBER") has received and wishes to accept a bona fide offer (the "OFFER") for cash from a third party (the "OFFEROR") for all or part of such Selling Member's Membership Interest (and a proportionate amount of such Selling Member's Limited Partnership Interest in accordance with Section 9.1(b)), such Selling Member shall give Notice thereof (the "FIRST REFUSAL NOTICE") to each of the other Members, other than any Non-Purchasing Members (as hereinafter defined), and the Company. The First Refusal Notice shall state the portion of the Selling Member's Membership Interest and Limited Partnership Interest that the Selling Member wishes to sell (the "OPTIONED INTEREST"), the price and all other material terms of the Offer, the name of the Offeror, and certification from the Selling Member affirming that the Offer is bona fide and that the description thereof is true and correct, and that the Offeror has stated that it will purchase the Optioned Interest if the rights of first refusal herein described are not exercised. (b) Each of the Members other than the Selling Member and any Non- Purchasing Member (the "NON-SELLING MEMBERS") shall have the right exercisable by Notice (an "ACCEPTANCE NOTICE") given to the Selling Member and the Company within twenty (20) days after receipt of the First Refusal Notice, to agree that it will purchase up to 100% of the Optioned Interest on the terms set forth in the First Refusal Notice; provided, however, if the Non-Selling Members in the aggregate desire to purchase more than 100% of the Optioned Interest, each such Non-Selling Member's right to purchase the Optioned Interest shall be reduced (pro rata based on the percentage of Optioned Interest for which such Non- Selling Member has exercised its right to purchase hereunder compared to all other Non-Selling Members, but not below such Non-Selling Member's Membership Interest as a percentage of the aggregate Membership Interests of all Non- Selling Members who have exercised their right to purchase) so that such Non- Selling Members purchase no more than 100% of the Optioned Interest. If a Non- Selling Member does not submit an Acceptance Notice within the twenty (20) day period set forth in this Section 9.8(b), such Non-Selling Member shall be deemed to have rejected the offer to purchase any portion of the Optioned Interest. 27 EXECUTION COPY (c) If the Non-Selling Members do not in the aggregate exercise the right to purchase all of the Optioned Interest by the expiration of the twenty (20) day period set forth in Section 9.8(b), then any Acceptance Notice shall be void and of no effect, and the Selling Member shall be entitled to complete the proposed sale at any time in the thirty (30) day period commencing on the date of the First Refusal Notice, but only upon the terms set forth in the First Refusal Notice. If no such sale is completed in such thirty (30) day period, the provisions hereof shall apply again to any proposed sale of the Optioned Interest. (d) If any Non-Selling Member exercises the right to purchase the Optioned Interest as provided herein and such Non-Selling Member(s) have elected to purchase all of the Optioned Interest, the purchase of such Optioned Interest shall be completed within the thirty (30) day period commencing on the date of delivery of the First Refusal Notice. If such Non-Selling Member does not consummate the Purchase of such Optioned Interest, (x) the Selling Member shall be entitled to all expenses of collection and (y) such Non-Selling Member shall be deemed a "NON-PURCHASING MEMBER" for the duration of this Agreement. 9.9 Registration Rights Agreement. Each of the Initial Members as of the date hereof and Rodeo, L.P. shall enter into a Registration Rights Agreement, substantially in the form attached hereto as Exhibit A, on the date hereof. 9.10 Transfer to Management Entity. Notwithstanding any other provision of this Agreement, Rodeo, Inc. may, within ninety (90) days from the date hereof sell up to 2% of the total Membership Interests as of that date (the "MANAGEMENT SALE") to the Management Entity. The Management Sale shall be on substantially the same economic terms as the initial capital contribution of each of Sable, Kafu, E-Holdings, Strome, Raymond, Strome Hedgecap and the Management Entity. ARTICLE 10 DISSOLUTION AND TERMINATION 10.1 Events Causing Dissolution. (a) The Company shall be dissolved and its affairs wound up upon the first to occur of the following events: (i) The affirmative vote of a Super Majority in Interest to dissolve; (ii) The Transfer of all or substantially all of the assets of the Company and the receipt and distribution of all the proceeds therefrom; or (iii) The entry of a decree of judicial dissolution pursuant to Section 18-802 of the Act. (b) The withdrawal, death, retirement, resignation, expulsion, bankruptcy or dissolution of any Member or the occurrence of any other event that terminates the continued membership of any Member in the Company shall not, in and of itself, cause the Company's dissolution. 28 EXECUTION COPY 10.2 Final Accounting. Upon dissolution and winding up of the Company, an accounting will be made of the accounts of the Company and each Member and of the Company's assets, liabilities and operations from the date of the last previous accounting to the date of such dissolution. 10.3 Distributions Following Dissolution and Termination. (a) Liquidating Trustee. Upon the dissolution of the Company, such party as is designated by a Majority in Interest will act as liquidating trustee of the Company (the "LIQUIDATING TRUSTEE") and proceed to wind up the business and affairs of the Company in accordance with the terms of this Agreement and applicable law. The Liquidating Trustee will use its reasonable best efforts to sell all Company assets (except cash) in the exercise of its best judgment under the circumstances then presented, that it deems in the best interest of the Members. The Liquidating Trustee will attempt to convert all assets of the Company to cash so long as it can do so consistently with prudent business practice. The Members and their respective designees will have the right to purchase any Company property to be sold on liquidation, provided that the terms on which such sale is made are no less favorable than would otherwise be available from third parties. The gains and losses from the sale of the Company assets, together with all other revenue, income, gain, deduction, expense, loss and credit during the period, will be allocated in accordance with Article 5. A reasonable amount of time shall be allowed for the period of winding up in light of prevailing market conditions and so as to avoid undue loss in connection with any sale of Company assets. This Agreement shall remain in full force and effect during the period of winding up. In addition, upon request of the Board and if the Liquidating Trustee determines that it would be imprudent to dispose of any non-cash assets of the Company, such assets may be distributed in kind to the Members in lieu of cash, proportionately to their right to receive cash distributions hereunder. (b) Accounting. The Liquidating Trustee will then cause proper accounting to be made of the Capital Account of each Member, including recognition of gain or loss on any asset to be distributed in kind as if such asset had been sold for consideration equal to the fair market value of the asset at the time of the distribution. The Members intend that the allocations provided herein shall result in Capital Account balances in proportion to the Percentage Interests of the Members. (c) Liquidating Distributions. In settling accounts after dissolution of the Company, the assets of the Company shall be paid to creditors of the Company and to the Members in the following order: (i) to creditors of the Company (including Members) in the order of priority as provided by law whether by payment or the making of reasonable provision for payment thereof, and in connection therewith there shall be withheld such reasonable reserves for contingent, conditioned or unconditioned liabilities as the Liquidating Trustee in its reasonable discretion deems adequate, such reserves (or balances thereof) to be held and distributed in such manner and at such times as the Liquidating Trustee, in its discretion, deems reasonably advisable; provided, however, that such amounts be maintained in a separate bank account and that any amounts in such bank account remaining after three years be distributed to 29 EXECUTION COPY the Members or their successors and assigns as if such amount had been available for distribution under Section 10.3(c)(ii); and then (ii) to the Members in proportion to the positive balances of their Capital Accounts, as fully adjusted pursuant to Section 3.4, including adjustment for all gains and losses actually or deemed realized upon disposition or distribution of assets in connection with the liquidation and winding up of the Company. (iii) Any distribution to the Members in liquidation of the Company shall be made by the later of the end of the taxable year in which the liquidation occurs or 90 days after the date of such liquidation. For purposes of the preceding sentence, the term "liquidation" shall have the same meaning as set forth in Regulation Section 1.704-1(b)(2)(ii) as in effect at such time and liquidating distributions shall be further deemed to be made pursuant to this Agreement upon the event of a liquidation as defined in such Regulation for which no actual liquidation occurs with a deemed recontribution by the Members of such deemed liquidating distributions to the continuing Company pursuant to this Agreement. (d) The provisions of this Agreement, including, without limitation, this Section 10.3, are intended solely to benefit the Members and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Company, and no such creditor of the Company shall be a third-party beneficiary of this Agreement, and no Member or Director shall have any duty or obligation to any creditor of the Company to issue any call for capital pursuant to this Agreement. 10.4 Termination of the Company. The Company shall terminate when all assets of the Company, after payment or due provision for all debts, liabilities and obligations of the Company, shall have been distributed to the Members in the manner provided for in this Article 10, and the Certificate shall have been canceled in the manner required by the Act. 10.5 No Action for Dissolution. The Members acknowledge that irreparable damage would be done to the goodwill and reputation of the Company if any Member should bring an action in court to dissolve the Company under circumstances where dissolution is not required by Section 10.1. Accordingly, except where the Board has failed to cause the liquidation of the Company as required by Section 10.1 and except as specifically provided in Section 18-802, each Member hereby to the fullest extent permitted by law waives and renounces his right to initiate legal action to seek dissolution of the Company or to seek the appointment of a receiver or trustee to wind up the affairs of the Company, except in the cases of fraud, violation of law, bad faith, gross negligence, willful misconduct or willful violation of this Agreement. ARTICLE 11 TAX MATTERS 11.1 Tax Matters Member. Rodeo, Inc. shall be the Tax Matters Member of the Company as provided in the Regulations under Section 6231 of the Code and analogous provisions of state law. The Board shall have the authority to remove or replace the Tax Matters Member of the Company and designate its successor. 30 EXECUTION COPY 11.2 Certain Authorizations. The Tax Matters Member shall represent the Company, at the Company's expense, in connection with all examinations of the Company's affairs by tax authorities including any resulting administrative or judicial proceedings. Without limiting the generality of the foregoing, and subject to the restrictions set forth herein, the Tax Matters Member, but only with the consent of a Majority in Interest, is hereby authorized: (a) to enter into any settlement agreement with respect to any tax audit or judicial review, in which agreement the Tax Matters Member may expressly state that such agreement shall bind the other Members except that such settlement agreement shall not bind any Member that has not approved such settlement agreement in writing; (b) if a notice of a final administrative adjustment at the Company level of any item required to be taken into account by a Member for tax purposes is mailed to the Tax Matters Member, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the Tax Court, the District Court of the United States for the district in which the Company's principal place of business is located, or elsewhere as allowed by law, or the United States Claims Court; (c) to intervene in any action brought by any other Member for judicial review of a final adjustment; (d) to file a request for an administrative adjustment at any time and, if any part of such request is not allowed, to file a petition for judicial review with respect to such request; (e) to enter into an agreement with the Internal Revenue Service to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Member for tax purposes, or an item affected by such item; and (f) to take any other action on behalf of the Members (with respect to the Company) or the Company in connection with any administrative or judicial tax proceeding to the extent permitted by applicable law or the Regulations. Each Member shall have the right to participate in any such actions and proceedings to the extent provided for under the Code and Regulations. 11.3 Indemnity of Tax Matters Member. To the maximum extent permitted by applicable law and without limiting Article 8, the Company shall indemnify and reimburse the Tax Matters Member for all expenses (including reasonable legal and accounting fees) incurred as Tax Matters Member pursuant to this Article 11 in connection with any administrative or judicial proceeding with respect to the tax liability of the Members as long as the Tax Matters Member has determined in good faith that the Tax Matters Member's course of conduct was in, or not opposed to, the best interest of the Company. The taking of any action and the incurring of any expense by the Tax Matters Member in connection with any such proceeding, except to the extent provided herein or required by law, is a matter in the sole discretion of the Tax Matters Member. 31 EXECUTION COPY 11.4 Information Furnished. To the extent and in the manner provided by applicable law and Regulations, the Tax Matters Member shall furnish the name, address, profits and loss interest, and taxpayer identification number of each Member to the Internal Revenue Service. 11.5 Notice of Proceedings, etc. The Tax Matters Member shall use its reasonable best efforts to keep each Member informed of any administrative and judicial proceedings for the adjustment at the Company level of any item required to be taken into account by a Member for income tax purposes or any extension of the period of limitations for making assessments of any tax against a Member with respect to any Company item, or of any agreement with the Internal Revenue Service that would result in any material change either in Profits or Losses as previously reported. 11.6 Notices to Tax Matters Member. Any Member that receives a notice of an administrative proceeding under Section 6233 of the Code relating to the Company shall promptly provide Notice to the Tax Matters Member of the treatment of any Company item on such Member's Federal income tax return that is or may be inconsistent with the treatment of that item on the Company's return. Any Member that enters into a settlement agreement with the Internal Revenue Service or any other government agency or official with respect to any Company item shall provide Notice to the Tax Matters Member of such agreement and its terms within sixty (60) days after the date of such agreement. 11.7 Preparation of Tax Returns. The Tax Matters Member shall arrange for the preparation and timely filing of all returns of Company income, gains, deductions, losses and other items necessary for Federal, state and local income tax purposes and shall use all reasonable efforts to furnish to the Members within ninety (90) days of the close of the taxable year a Schedule K-1 and such other tax information reasonably required for Federal, state and local income tax reporting purposes. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the cash or accrual method of accounting for Federal income tax purposes, as the Board shall determine in its sole discretion in accordance with applicable law. 11.8 Tax Elections. Subject to Section 11.9, a Majority in Interest shall, in its sole discretion, determine whether to make any available election. 11.9 Taxation as a Partnership. No election shall be made by the Company or any Member for the Company to be excluded from the application of any of the provisions of Subchapter K, Chapter I of Subtitle A of the Code or from any similar provisions of any state tax laws or to be treated as a corporation for federal tax purposes. ARTICLE 12 ACCOUNTING AND BANK ACCOUNTS 12.1 Fiscal Year and Accounting Method. The fiscal year and taxable year of the Company shall be the calendar year. The Company shall use an accrual method of accounting. 12.2 Books and Records. The Company shall maintain at its principal office, or such other office as may be determined by the Board, all the following: 32 EXECUTION COPY (a) A current list of the full name and last known business or residence address of each Member, and of each member of the Board, together with information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Member and which each Member has agreed to contribute in the future, and the date on which each Member became a Member of the Company; (b) A copy of the Certificate and this Agreement, including any and all amendments to either thereof, together with executed copies of any powers of attorney pursuant to which the Certificate, this Agreement, or any amendments have been executed; (c) Copies of the Company's Federal, state, and local income tax or information returns and reports, if any, which shall be retained for at least six fiscal years; (d) The financial statements of the Company; and (e) The Company's books and records. 12.3 Delivery to Members; Inspection. Upon the request of any Member, for any purpose reasonably related to such Member's interest as a member of the Company, the Board shall cause to be made available to the requesting Member the information required to be maintained by clauses (a) through (e) of Section 12.2 and such other information regarding the business and affairs and financial condition of the Company as any Member may reasonably request. 12.4 Financial Statements. The Board shall cause to be prepared for the Members at least annually, at the Company's expense, financial statements of the Company, and its subsidiaries, prepared in accordance with generally accepted accounting principles and audited by a nationally recognized accounting firm. The financial statements so furnished shall include a balance sheet, statement of income or loss, statement of cash flows, and statement of Members' equity. In addition, the Board shall provide on a timely basis to the Members monthly and quarterly financials, statements of cash flow, any available internal budgets or forecast or other available financial reports, as well as any reports or notices as are provided by the Company, or any of its Subsidiaries to any financial institution. 12.5 Filings. At the Company's expense, the Board shall cause the income tax returns for the Company to be prepared and timely filed with the appropriate authorities and to have prepared and to furnish to each Member such information with respect to the Company as is necessary (or as may be reasonably requested by a Member) to enable the Members to prepare their Federal, state and local income tax returns. The Board, at the Company's expense, shall also cause to be prepared and timely filed, with appropriate Federal, state and local regulatory and administrative bodies, all reports required to be filed by the Company with those entities under then current applicable laws, rules, and regulations. The reports shall be prepared on the accounting or reporting basis required by the regulatory bodies. 12.6 Non-Disclosure. Each Member agrees that, except as otherwise consented to by the Board in writing, all non-public and confidential information furnished to it pursuant to this Agreement will be kept confidential and will not be disclosed by such Member, or by any of its agents, representatives, or employees, in any manner whatsoever, in whole or in part, except that 33 EXECUTION COPY (a) each Member shall be permitted to disclose such information to those of its agents, representatives, and employees who need to be familiar with such information in connection with such Member's investment in the Company (collectively, "Representatives") and are apprised of the confidential nature of such information, (b) each Member shall be permitted to disclose information to the extent required by law, legal process or regulatory requirements, so long as such Member shall have used its reasonable efforts to first afford the Company with a reasonable opportunity to contest the necessity of disclosing such information, (c) each Member shall be permitted to disclose such information to possible purchasers of all or a portion of the Member's Membership Interest, provided that such prospective purchaser shall execute a suitable confidentiality agreement in a form approved by the Company containing terms not less restrictive than the terms set forth herein, and (d) each Member shall be permitted to disclose information to the extent necessary for the enforcement of any right of such Member arising under this Agreement. Each Member shall be responsible for any breach of this Section 12.6 by its Representatives. ARTICLE 13 NON-COMPETITION AND NON-SOLICITATION 13.1 Non-Competition. Each of the Members hereby acknowledges that the Company and Rodeo L.P. operate in a competitive business and compete with other Persons operating in the midstream segment of the oil and gas industry for acquisition opportunities. Each of the Members agrees that during the period that it is a Member, it shall not, directly or indirectly, use any of the confidential information it receives as a Member or which its designee receives as a Director of the Company to compete, or to engage in or become interested financially in as a principal, employee, partner, shareholder, agent, manager, owner, advisor, lender, guarantor of any Person that competes in North America with the business conducted by the Company, the Partnership and Rodeo L.P. Each of the Members also acknowledge that EnCap Investments L.L.C. and Persons that it controls ("ENCAP"), Kayne Anderson Capital Advisors L.P. and its Affiliates ("KAYNE ANDERSON") and First Union and its affiliates may make and manage investments in the energy industry in the ordinary course of business (such investments "INSTITUTIONAL INVESTMENTS"). The Members agree that EnCap, Kayne Anderson and First Union and its affiliates may make Institutional Investments, even if such Institutional Investments are competitive with the Company's and its Subsidiaries' business, so long as such Institutional Investments are not in violation of the provisions of Section 12.6 or the second sentence of this Section 13.1 or obligations owed to the Company under applicable law with respect to usurption of an opportunity legally belonging to the Company or its Subsidiaries. Each of the Members confirms that the restrictions in this Section 13.1 are reasonable and valid and all defenses to the strict enforcement thereof are hereby waived by each of the Members. The restrictions contained in this Section 13.1 shall in no way impair the rights granted (i) to JCF pursuant to the Flores Employment Agreement or (ii) to Raymond pursuant to any employment agreement between Raymond and Rodeo. 13.2 Non-Solicitation. Each of the Members undertakes toward the Company and is obligated, without the prior written consent of the Company, during the period that it is a Member and for a period of one year thereafter, not to solicit or hire, directly or indirectly, in any manner whatsoever (except in response to a general solicitation or a non-directed executive search), in the capacity of employee, consultant or in any other capacity whatsoever, one or more 34 EXECUTION COPY of the employees, directors or officers or other Persons (hereinafter collectively referred to as "EMPLOYEES") who at the time of solicitation or hire, or in the 90-day period prior thereto, are working full-time or part-time for the Company or any of its Affiliates and not to endeavor, directly or indirectly, in any manner whatsoever, to encourage any of said Employees to leave his or her job with the Company or any of its Affiliates and not to endeavor, directly or indirectly, and in any manner whatsoever, to incite or induce any client of the Company or any of its Affiliates to terminate, in whole or in part, its business relations with the Company or any of its Affiliates. 13.3 Damages. Each of the Members acknowledges that damages may not be an adequate compensation for the losses which may be suffered by the Company as a result of the breach by such Member of the covenants contained in this Article 13 and that the Company shall be entitled to seek injunctive relief with respect to any such breach in lieu of or in addition to any recourse in damages without the posting of a bond or other security. 13.4 Limitations. In the event that a court of competent jurisdiction decides that the limitations set forth in Section 13.1 hereof are too broad, such limitations shall be reduced to those limitations that such court deems reasonable. ARTICLE 14 MISCELLANEOUS 14.1 Waiver of Default. No consent or waiver, express or implied, by the Company or a Member with respect to any breach or default by the Company or a Member hereunder shall be deemed or construed to be a consent or waiver with respect to any other breach or default by any party of the same provision or any other provision of this Agreement. Failure on the part of the Company or a Member to complain of any act or failure to act of the Company or a Member or to declare such party in default shall not be deemed or constitute a waiver by the Company or the Member of any rights hereunder. 14.2 Amendment. (a) Except as otherwise expressly provided elsewhere in this Agreement, this Agreement shall not be altered, modified or changed except by an amendment approved by a Super Majority in Interest; provided, however, that no modification of the terms of this Agreement that (i) increases or extends any financial obligation or liability of a Member, (ii) alters the method of division of profits and losses or a method of distributions made to a Member, (iii) adversely affects a Member's ability to designate Directors or (iv) otherwise adversely affects the obligations or rights of a Member (as a Member under this Agreement) in a manner different than a Majority in Interest shall be effective without the prior written consent of such Member; provided, further, that no amendment of Section 7.3, 7.9(a)(iii), 13.1 or this Section 14.2 that adversely affects the obligations or rights of a Member shall be effective as to any Member without the prior written consent of that Member. (b) In addition to any amendments otherwise authorized herein, the Board may make any amendments to any of the Schedules to this Agreement from time to time to reflect 35 EXECUTION COPY transfers of Membership Interests and issuances of additional Membership Interests. Copies of such amendments shall be delivered to the Members upon execution thereof. (c) The Board shall cause to be prepared and filed any amendment to the Certificate that may be required to be filed under the Act as a consequence of any amendment to this Agreement. (d) Any modification or amendment to this Agreement or the Certificate made in accordance with this Section 14.2 shall be binding on all Members and the Board. 14.3 No Third Party Rights. Except as provided in Article 8, none of the provisions contained in this Agreement shall be for the benefit of or enforceable by any third parties, including creditors of the Company. 14.4 Severability. In the event any provision of this Agreement is held to be illegal, invalid or unenforceable to any extent, the legality, validity and enforceability of the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect and shall be enforced to the greatest extent permitted by law. 14.5 Nature of Interest in the Company. A Member's Membership Interest shall be personal property for all purposes. 14.6 Binding Agreement. Subject to the restrictions on the disposition of Membership Interests herein contained, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. 14.7 Headings. The headings of the sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any of the terms or provisions hereof. 14.8 Word Meanings. The words "herein", "hereinafter", "hereof", and "hereunder" refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The singular shall include the plural, and vice versa, unless the context otherwise requires. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." When verbs are used as nouns, the nouns correspond to such verbs and vice versa. 14.9 Counterparts. This Agreement may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all the parties have not signed the same counterpart. 14.10 Entire Agreement. This Agreement contains the entire agreement between the parties hereto and thereto and supersedes all prior writings or agreements with respect to the subject matter hereof. 14.11 Partition. The Members agree that the Property is not and will not be suitable for partition. Accordingly, each of the Members hereby irrevocably waives any and all right such 36 EXECUTION COPY Member may have to maintain any action for partition of any of the Property. No Member shall have any right to any specific assets of the Company upon the liquidation of, or any distribution from, the Company. 14.12 Governing Law; Consent to Jurisdiction and Venue. This Agreement shall be construed according to and governed by the laws of the State of Delaware without regard to principles of conflict of laws. The parties hereby submit to the exclusive jurisdiction and venue of the state courts of Harris County, Texas or to the Court of Chancery of the State of Delaware and the United States District Court for the Southern District of Texas and of the United States District Court for the District of Delaware, as the case may be, and agree that the Company or Members may, at their option, enforce their rights hereunder in such courts. [SIGNATURE PAGE FOLLOWS] 37 EXECUTION COPY IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. PLAINS ALL AMERICAN, INC. By: /s/ Greg L. Armstrong ---------------------------------------------- Name: Greg L. Armstrong -------------------------------------------- Title: Chief Executive Officer ------------------------------------------- SABLE INVESTMENTS, L.P. By: Sable Investments, LLC, its general partner By: /s/ James C. Flores ---------------------------------------------- Name: James C. Flores -------------------------------------------- Title: Sole Member ------------------------------------------- KAFU HOLDINGS, L.P. By: Kafu Holdings, LLC, its general partner By: /s/ Robert V. Sinnott ---------------------------------------------- Name: Robert V. Sinnott -------------------------------------------- Title: Managing Director ------------------------------------------- E-HOLDINGS III, L.P. By: E-Holdings III GP, LLC, its general partner By: /s/ Gary R. Peterson ---------------------------------------------- Name: Gary R. Peterson -------------------------------------------- Title: Managing Director ------------------------------------------- PAA MANAGEMENT, L.P. By: PAA Management LLC, its general partner By: /s/ Greg L. Armstrong ---------------------------------------------- Name: Greg L. Armstrong -------------------------------------------- Title: Chief Executive Officer ------------------------------------------- EXECUTION COPY /s/ John T. Raymond ------------------------------------------------- John T. Raymond /s/ Mark E. Strome ------------------------------------------------- Mark E. Strome STROME HEDGECAP FUND, L.P. By: Strome Investment Management, L.P., its general partner By: SSCO, Inc., its general partner By: /s/ Mark E. Strome ---------------------------------------------- Name: Mark E. Strome -------------------------------------------- Title: President ------------------------------------------- EXECUTION COPY SCHEDULE I Members, Capital Contributions and Percentage Interests
Total Gross Capital Percentage Name and Address Cash Contributed Asset Value Contribution Interest ---------------- ---------------- ----------- ------------ ----------- Plains All American Inc. $ 0 $345,000 $345,000 46.000% Sable Investments, L.P. $142,500 $142,500 19.000% Kafu Holdings, L.P. $148,500 $148,500 19.800% E-Holdings III, L.P. $ 67,500 $ 67,500 9.000% PAA Management, L.P. $ 15,000 $ 15,000 2.000% Mark E. Strome $ 16,005 $ 16,005 2.134% Strome Hedgecap Fund, L.P. $ 7,995 $ 7,995 1.066% John T. Raymond $ 7,500 $ 7,500 1.000%
EXECUTION COPY SCHEDULE 7.1 Initial Directors Greg L. Armstrong John T. Raymond Robert V. Sinnott Everardo Goyanes Arthur L. Smith Gary R. Petersen Taft Symonds EXECUTION COPY SCHEDULE 7.4 INITIAL SLATE OF OFFICERS Name Title ---- ----- Greg L. Armstrong Chairman and Chief Executive Officer Harry N. Pefanis President and Chief Operating Officer Phil Kramer Executive Vice President and Chief Financial Officer George R. Coiner Senior Vice President Tim Moore Vice President, General Counsel and Secretary Mark F. Shires Vice President - Operations Al Lindseth Vice President - Administration Al Swanson Treasurer Lawrence J. Dreyfuss Associate General Counsel and Assistant Secretary EXECUTION COPY EXHIBIT A REGISTRATION RIGHTS AGREEMENT EX-10.13 15 dex1013.txt PLAINS AAP LIMITED PARTNERSHIP AGREEMENT EXHIBIT 10.13 EXECUTION COPY - -------------------------------------------------------------------------------- PLAINS AAP, L.P. A Delaware Limited Partnership AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT June 8, 2001 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS............................................. 1 ARTICLE II ORGANIZATION........................................... 8 2.1 Formation of Limited Partnership...................... 8 2.2 Name of Partnership................................... 8 2.3 Principal Office; Registered Office................... 8 2.4 Term of Partnership................................... 9 2.5 Purpose of Partnership................................ 9 2.6 Actions by Partnership................................ 9 2.7 Reliance by Third Parties............................. 9 ARTICLE III CAPITAL............................................... 9 3.1 Capital Contributions................................. 9 3.2 Additional Capital Contributions...................... 9 3.3 Loans................................................. 10 3.4 Maintenance of Capital Accounts....................... 10 3.5 Capital Withdrawal Rights, Interest and Priority...... 11 ARTICLE IV DISTRIBUTIONS.......................................... 11 4.1 Distributions of Available Cash....................... 11 4.2 Special Distribution.................................. 12 4.3 Persons Entitled to Distributions..................... 12 4.4 Limitations on Distributions.......................... 12 ARTICLE V ALLOCATIONS............................................. 12 5.1 Profits............................................... 12 5.2 Losses................................................ 12 5.3 Regulatory Allocations................................ 13 5.4 Tax Allocations: Code Section 704(c).................. 13 5.5 Change in Partnership Percentage...................... 14 5.6 Withholding........................................... 14 ARTICLE VI MANAGEMENT............................................. 15 6.1 Duties and Powers of the General Partner.............. 15 6.2 No Liability to Limited Partners...................... 15 6.3 Indemnification of General Partner.................... 16 6.4 Rights of Limited Partners............................ 16 ARTICLE VII TRANSFERS OF PARTNERSHIP INTERESTS.................... 16 7.1 Transfer of Limited Partnership Interests............. 16 7.2 Permitted Transferees................................. 17 7.3 Substitute Limited Partners........................... 18 7.4 Effect of Admission as a Substitute Limited Partner... 19 - i - Page 7.5 Consent............................................... 19 7.6 No Dissolution........................................ 19 7.7 Additional Limited Partners........................... 19 7.8 Right of First Refusal................................ 19 7.9 Transfer to Management Entity......................... 20 ARTICLE VIII DISSOLUTION AND LIQUIDATION.......................... 20 8.1 Dissolution of Partnership............................ 20 8.2 Final Accounting...................................... 21 8.3 Distributions Following Dissolution and Termination... 21 8.4 Termination of the Partnership........................ 23 8.5 No Action for Dissolution............................. 23 ARTICLE IX ACCOUNTING; BOOKS AND RECORDS.......................... 23 9.1 Fiscal Year and Accounting Method..................... 23 9.2 Books and Records..................................... 23 9.3 Delivery to Partners; Inspection...................... 24 9.4 Financial Statements.................................. 24 9.5 Filings............................................... 24 9.6 Non-Disclosure........................................ 24 ARTICLE X NON-COMPETITION......................................... 25 10.1 Non-Competition....................................... 25 10.2 Damages............................................... 26 10.3 Limitations........................................... 26 ARTICLE XI GENERAL PROVISIONS..................................... 26 11.1 Waiver of Default..................................... 26 11.2 Amendment of Partnership Agreement.................... 26 11.3 No Third Party Rights................................. 27 11.4 Severability.......................................... 27 11.5 Nature of Interest in the Partnership................. 27 11.6 Binding Agreement..................................... 27 11.7 Headings.............................................. 27 11.8 Word Meanings......................................... 27 11.9 Counterparts.......................................... 27 11.10 Entire Agreement...................................... 27 11.11 Partition............................................. 28 11.12 Governing Law; Consent to Jurisdiction and Venue...... 28 - ii - EXHIBIT 10.13 EXECUTION COPY AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF PLAINS AAP, L.P. THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT (this "AGREEMENT") of Plains AAP, L.P., a Delaware limited partnership (the "PARTNERSHIP"), is made and entered into as of this 8th day of June, 2001 by and among Plains All American GP LLC, a Delaware limited liability company, as the general partner, and the Persons listed as limited partners in Schedule I hereto (the "LIMITED PARTNERS"). This Agreement amends and restates in its entirety the original Limited Partnership Agreement dated as of June 8, 2001 between General Partner and Plains All American Inc. ARTICLE I DEFINITIONS For purposes of this Agreement: "ACCEPTANCE NOTICE" shall have the meaning set forth in Section 7.8(b). "ACT" means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time. "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to a Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments: (a) Credit to such Capital Account any amounts which such Partner is obligated to restore pursuant to any provision of this Agreement or is deemed to be obligated to restore pursuant to Regulation Sections 1.704-1(b)(2)(ii)(c), 1.704-2(g)(1) and 1.704-2(i)(5); and (b) Debit to such Capital Account the items described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). "AFFILIATE" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "AGREEMENT" means this Amended and Restated Limited Partnership Agreement, as amended from time to time in accordance with its terms. "AVAILABLE CASH" means, with respect to a fiscal quarter, all cash and cash equivalents of the Partnership at the end of such quarter less the amount of cash reserves that is necessary or appropriate in the reasonable discretion of the General Partner to (a) provide for the proper conduct of the business of the Partnership (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership) subsequent to such quarter or (b) comply 1 EXECUTION COPY with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership is a party or by which it is bound or its assets or Property is subject; provided, however, that disbursements made by the Master Limited Partnership to the Partnership or cash reserves established, increased or reduced after the expiration of such quarter but on or before the date of determination of Available Cash with respect to such quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, during such quarter if the General Partner so determines in its reasonable discretion. "BUSINESS" means all Hydrocarbon gathering, transportation, terminalling, storage, and marketing and all operations related thereto, including, without limitation, (a) the acquisition, construction, installation, maintenance or remediation and operation of pipelines, gathering lines, compressors, facilities, storage facilities and equipment, and (b) the gathering of Hydrocarbons from fields, interstate and intrastate transportation by pipeline, trucks or barges, tank storage of Hydrocarbons, transferring Hydrocarbons from pipelines and storage tanks to trucks, barges or other pipelines, acquisition of Hydrocarbons at the well or bulk purchase at pipeline and terminal facilities and subsequent resale thereof. "BUSINESS DAY" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in the City of New York. "CAPITAL ACCOUNT" means, with respect to any Partner, a separate account established by the Partnership and maintained for each Partner in accordance with Section 3.4 hereof. "CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Property (other than money) contributed to the Partnership with respect to the interests purchased by such Partner pursuant to the terms of this Agreement, in return for which the Partner contributing such capital shall receive a Partnership Interest. "CAUSE" shall have the meaning set forth in the Flores Employment Agreement. "CERTIFICATE" means the Certificate of Limited Partnership of the Partnership filed with the Secretary of State of Delaware, as amended or restated from time to time. "CODE" means the United States Internal Revenue Code of 1986, as amended. "CONTRIBUTED UNITS" means the subordinated units in the Master Limited Partnership contributed to the Partnership in proportion to the Unit Percentages. "DEPRECIATION" means, for each Taxable Year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such Taxable Year, except that if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such Taxable Year, Depreciation shall be an amount which bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such Taxable Year bears to such beginning adjusted tax basis; provided, however, that if the adjusted basis for federal income tax purposes of an asset at the beginning of such Taxable Year is zero, Depreciation shall 2 EXECUTION COPY be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. "E-HOLDINGS" means E-Holdings, III L.P., a Texas limited partnership. "ENCAP" shall have the meaning set forth in Section 10.1. "ENCUMBRANCE" means any security interest, pledge, mortgage, lien (including, without limitation, environmental and tax liens), charge, encumbrance, adverse claim, any defect or imperfection in title, preferential arrangement or restriction, right to purchase, right of first refusal or other burden or encumbrance of any kind, other than those imposed by this Agreement. "FIRST REFUSAL NOTICE" shall have the meaning set forth in Section 7.8(a). "FIRST UNION" shall have the meaning set forth in Section 7.1. "FLORES EMPLOYMENT AGREEMENT" means the Employment Agreement dated May 8, 2001 between Rodeo and JCF. "GENERAL PARTNER" means Plains All American GP LLC, a Delaware limited liability company, any successor thereto, and any Persons hereafter admitted as additional general partners, each in its capacity as a general partner of the Partnership. "GOOD REASON" shall have the meaning set forth in the Flores Registration Rights Agreement. "GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows and as otherwise provided in Section 3.2(b): (a) The initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset, as reasonably determined by the General Partner; provided, however, that the initial Gross Asset Values of the assets contributed to the Partnership pursuant to Section 3.1 hereof shall be as set forth in such section or the schedule referred to therein; (b) The Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values (taking Code Section 7701(g) into account), as reasonably determined by the General Partner as of the following times: (i) the acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership; and (iii) the liquidation of the Partnership within the meaning of Regulation Section 1.704- 1(b)(2)(ii)(g); and (c) The Gross Asset Value of any item of Partnership assets distributed to any Partner shall be adjusted to equal the gross fair market value (taking Code Section 3 EXECUTION COPY 7701(g) into account) of such asset on the date of distribution as reasonably determined by the General Partner. If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (b), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset, for purposes of computing Profits and Losses. "HYDROCARBONS" means crude oil, natural gas, casinghead gas, condensate, sulphur, natural gas liquids, plant products, liquefied petroleum gas and other liquid or gaseous hydrocarbons produced in association therewith, including, without limitation, coalbed methane and gas and CO\\2\\. "JCF" means James C. Flores. "KAFU" means KAFU Holdings LP, a Delaware limited partnership. "KAYNE ANDERSON" shall have the meaning set forth in Section 10.1. "LIMITED PARTNER" means any Person admitted to the Partnership as a Limited Partner and who is shown as such on the books and records of the Partnership. "LIMITED PARTNERSHIP INTEREST" means, with respect to a Member, such Member's limited partnership interest in the Partnership, which refers to all of such Member's rights and interests in the Partnership in such Member's capacity as a limited partner thereof, all as provided in the Partnership Agreement and the Delaware Revised Uniform Limited Partnership Act. "LIQUIDATING TRUSTEE" has the meaning set forth in Section 8.3(a). "LLC AGREEMENT" means the Amended and Restated Agreement Limited Liability Company Agreement of the General Partner, dated as of the date hereof, by and among Plains All American Inc., as the initial member, Sable, Kafu, E-Holdings, Management Entity, Raymond, Strome, Strome Hedgecap and any other Persons who become members in the General Partner as provided therein, as amended from time to time in accordance with the terms thereof. "LOSSES" has the meaning set forth in the definition of "Profits" and "Losses". "MANAGEMENT ENTITY" shall mean PAA Management, L.P. "MANAGEMENT SALE" shall have the meaning set forth in Section 7.9. "MASTER LIMITED PARTNERSHIP" means Plains All American Pipeline, L.P., and any successor thereto. "MASTER LIMITED PARTNERSHIP AGREEMENT" means the Second Amended and Restated Agreement of Limited Partnership of the Master Limited Partnership, dated as of November 23, 4 EXECUTION COPY 1998, as amended, modified, supplemented or restated from time to time in accordance with the terms thereof. "MEMBER" means a record holder of a Membership Interest. "MEMBERSHIP INTEREST" means, with respect to a Partner, such Partner's limited liability company interest in the General Partner, which refers to all of such Partner's rights and interests in the General Partner in such Partner's capacity as a member thereof, all as provided in the LLC Agreement and the Delaware Limited Liability Company Act. "MEMBERSHIP TRANSFER" shall have the meaning set forth in Section 7.1(b). "NON-PURCHASING PARTNER" shall have the meaning set forth in Section 7.8(d). "NON-SELLING PARTNER" shall have the meaning set forth in Section 7.8(b). "NOTICE" means a writing, containing the information required by this Agreement to be communicated to a party, and shall be deemed to have been received (a) when personally delivered or sent by telecopy, (b) one day following delivery by overnight delivery courier, with all delivery charges pre- paid, or (c) on the third Business Day following the date on which it was sent by United States mail, postage prepaid, to such party at the address or fax number, as the case may be, of such party as shown on the records of the Partnership. "OFFER" shall have the meaning set forth in Section 7.8(a). "OFFEROR" shall have the meaning set forth in Section 7.8(a). "OPTIONED INTEREST" shall have the meaning set forth in Section 7.8(a). "PARTNER" means the General Partner or any of the Limited Partners, and "Partners" means the General Partner and all of the Limited Partners. "PARTNERSHIP" shall have the meaning set forth in the preamble hereof. "PARTNERSHIP INTEREST" means a Partner's limited partnership or general partnership interest in the Partnership which refers to all of a Partner's rights and interests in the Partnership in such Partner's capacity as a Partner, all as provided in this Agreement and the Act. "PARTNERSHIP PERCENTAGE" of a Partner means the aggregate percentage of Partnership Interests of such Partner set forth in Schedule I hereto, as the same may be modified from time to time as provided herein. "PERMITTED TRANSFER" shall mean: (a) a Transfer of any or all of the Partnership Interest by any Partner who is a natural person to (i) such Partner's spouse, children (including legally adopted children and stepchildren), spouses of children or grandchildren or spouses of grandchildren; (ii) a trust for the benefit of the Partner and/or any of the Persons described in clause (i); or (iii) 5 EXECUTION COPY a limited partnership or limited liability company whose sole partners or members, as the case may be, are the Partner and/or any of the Persons described in clause (i) or clause (ii); provided, that in any of clauses (i), (ii) or (iii), the Partner transferring such Partnership Interest, or portion thereof, retains exclusive power to exercise all rights under this Agreement; (b) a Transfer of any or all of the Partnership Interest by any Partner to the Partnership; (c) a Transfer of any or all of the Partnership Interest by a Partner to any Affiliate of such Partner; provided, however, that such transfer shall be a Permitted Transfer only so long as such Partnership Interest, or portion thereof, is held by such Affiliate or is otherwise transferred in another Permitted Transfer. Provided, however, that no Permitted Transfer shall be effective unless and until the transferee of the Partnership Interest, or portion thereof, so transferred complies with Sections 7.1(b). Except in the case of a Permitted Transfer pursuant to clause (b) above, from and after the date on which a Permitted Transfer becomes effective, the Permitted Transferee of the Partnership Interest, or portion thereof, so transferred shall have the same rights, and shall be bound by the same obligations, under this Agreement as the transferor of such Partnership Interest, or portion thereof, and shall be deemed for all purposes hereunder a Partner and such Permitted Transferee shall, as a condition to such Transfer, agree in writing to be bound by the terms of this Agreement. No Permitted Transfer shall conflict with or result in any violation of any judgment, order, decree, statute, law, ordinance, rule or regulation or require the Company, if not currently subject, to become subject, or if currently subject, to become subject to a greater extent, to any statute, law, ordinance, rule or regulation, excluding matters of a ministerial nature that are not materially burdensome to the Company. "PERMITTED TRANSFEREE" shall mean any Person who shall have acquired and who shall hold a Partnership Interest, or portion thereof, pursuant to a Permitted Transfer. "PERSON" means any individual, partnership, corporation, limited liability company, trust, incorporated or unincorporated organization or other legal entity of any kind. "PROFITS" and "LOSSES" means, for each Taxable Year, an amount equal to the Partnership's net taxable income or loss for a taxable year, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in computing such taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses shall be added to such taxable income or loss; (b) Any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code or treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Profits or Losses, shall be subtracted from such taxable income or loss; 6 EXECUTION COPY (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of the asset) or an item of loss (if the adjustment decreases the Gross Asset Value of the asset) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses; (d) Gain or loss resulting from any disposition of Property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Property disposed of, notwithstanding that the adjusted tax basis of such Property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Taxable Year, computed in accordance with the definition of Depreciation; and (f) To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulation Sections 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis) from the disposition of such asset and shall be taken into account for purposes of computing Profits or Losses. "PROPERTY" means all assets, real or intangible, that the Partnership may own or otherwise have an interest in from time to time. "RAYMOND" means John T. Raymond. "REGULATIONS" means the regulations, including temporary regulations, promulgated by the United States Department of Treasury with respect to the Code, as such regulations are amended from time to time, or corresponding provisions of future regulations. "REGULATORY ALLOCATIONS" shall have the meaning set forth in Section 5.3(c). "RODEO" means Plains Resources Inc., a Delaware corporation. "RODEO, INC." means Plains All American Inc., a Delaware corporation. "SABLE" means Sable Investments, L.P. A "SABLE CHANGE OF CONTROL" shall be deemed to occur if: any Person or "Group" (as such term is used in Section 13(d) of the Exchange Act), other than JCF or any entity or entities controlled by JCF, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of (a) more than 50% of the general or limited partnership interests in Sable or (b) stock or other equity interests of any legal entity that controls Sable representing 7 EXECUTION COPY more than 50% of the voting interests entitled to vote generally for the election of the board of directors or other governing body of such entity. "SELLING PARTNER" shall have the meaning set forth in Section 7.8(a). "STROME" means Mark E. Strome. "STROME HEDGECAP" means Strome Hedgecap Fund, L.P. "TAXABLE YEAR" shall mean the calendar year. "TRANSFER" or "TRANSFERRED" means to give, sell, exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, voluntarily or involuntarily, by operation of law or otherwise. When referring to a Partnership Interest, "Transfer" shall mean the Transfer of such Partnership Interest whether of record, beneficially, by participation or otherwise. "TRANSFER AGREEMENTS" means those certain Unit Transfer and Contribution Agreements, dated as of May 8, 2001, by and among PAAI LLC, Rodeo, Rodeo, Inc. and each of (i) Sable, Sable Holdings, L.P. and JCF; (ii) E-Holdings, (iii) Kafu Holdings, LLC, (iv) Strome, (v) Strome Hedgecap and (vi) Raymond, as may be amended from time to time in accordance with the terms thereof. "UNIT PERCENTAGES" means the Unit Percentages set forth on Schedule I. ARTICLE II ORGANIZATION 2.1 FORMATION OF LIMITED PARTNERSHIP The General Partner has previously formed the Partnership as a limited partnership pursuant to the provisions of the Act and the parties hereto hereby agree to amend and restate the original Limited Partnership Agreement of the Partnership in its entirety. The parties hereto acknowledge that they intend that the Partnership be taxed as a partnership and not as an association taxable as a corporation for federal income tax purposes. No election may be made to treat the Partnership as other than a partnership for federal income tax purposes. 2.2 NAME OF PARTNERSHIP The name of the Partnership is Plains AAP, L.P. or such other name as the General Partner may hereafter adopt from time to time. The General Partner shall execute and file in the proper offices such certificates as may be required by any assumed name act or similar law in effect in the jurisdictions in which the Partnership may elect to conduct business. 2.3 PRINCIPAL OFFICE; REGISTERED OFFICE The principal office address of the Partnership is located at 333 Clay Street, 29th Floor, Houston, Texas 77002, or such other place as the General Partner designates from time to time. 8 EXECUTION COPY The registered office address and the name of the registered agent of the Partnership for service of process on the Partnership in the State of Delaware is as stated in the Certificate or as designated from time to time by the General Partner. 2.4 TERM OF PARTNERSHIP The term of the Partnership commenced on May 21, 2001 and shall continue until dissolved pursuant to Section 8.1 hereof. The legal existence of the Partnership as a separate legal entity continues until the cancellation of the Certificate. 2.5 PURPOSE OF PARTNERSHIP The Partnership is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Partnership is, (a) acting as the general partner of the Master Limited Partnership pursuant to the Master Limited Partnership Agreement, (b) holding the GP Interest, the Incentive Distribution Rights and the Operating Partnerships GP Interests (as such terms are defined in the Transfer Agreement) and (c) engaging in any and all activities necessary or incidental to the foregoing. 2.6 ACTIONS BY PARTNERSHIP The Partnership may execute, deliver and perform all contracts, agreements and other undertakings and engage in all activities and transactions as may in the opinion of the General Partner be necessary or advisable to carry out its objects. 2.7 RELIANCE BY THIRD PARTIES Persons dealing with the Partnership are entitled to rely conclusively upon the power and authority of the General Partner as herein set forth. ARTICLE III CAPITAL 3.1 CAPITAL CONTRIBUTIONS (a) On or before the date of this Agreement, each Partner agrees to make, or shall have made, a Capital Contribution consisting of cash or property as set forth opposite such Partner's name on Schedule I hereto. (b) Each Partner agrees to make Capital Contributions in proportion to such Partner's Partnership Percentage for equity issuances by the Master Limited Partnership pursuant to Section 5.2(b) of the Master Limited Partnership Agreement approved by the Members pursuant to the LLC Agreement. 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS (a) No Partner shall be required to make any additional Capital Contribution other than as required under Section 3.1. 9 EXECUTION COPY (b) The Partnership may offer additional Partnership Interests to any Person with the approval of the General Partner. If any additional Capital Contributions are made by Partners but not in proportion to their respective Percentage Interests, the Percentage Interest of each Partner shall be adjusted such that each Partner's revised Percentage Interest determined immediately following each such additional Capital Contribution shall be equal to a fraction (i) the numerator of which is the sum of (A) the positive Capital Account balance of the Partner determined immediately preceding the date such additional Capital Contribution is made (such Capital Account to be computed by adjusting the book value for Capital Account purposes of each Partnership asset to equal its Gross Asset Value as of such date, as provided in subparagraph (b) of the definition herein of "Gross Asset Value"), and (B) such additional Capital Contribution, if any, made by such Partner, and (ii) the denominator of which is the sum of the positive Capital Account balances immediately preceding the date such additional Capital Contribution is made plus additional Capital Contributions of all Partners on the date of such additional Capital Contribution, including Capital Contributions of any new Partners (in each case calculated as provided in (i) above). The names, addresses and Capital Contributions of the Partners shall be reflected in the books and records of the Partnership. 3.3 LOANS (a) No Partner shall be obligated to loan funds to the Partnership. Loans by a Partner to the Partnership shall not be considered Capital Contributions. The amount of any such loan shall be a debt of the Partnership owed to such Partner in accordance with the terms and conditions upon which such loan is made. (b) A Partner may (but shall not be obligated to) guarantee a loan made to the Partnership. If a Partner guarantees a loan made to the Partnership and is required to make payment pursuant to such guarantee to the maker of the loan, then the amounts so paid to the maker of the loan shall be treated as a loan by such Partner to the Partnership and not as an additional Capital Contribution. 3.4 MAINTENANCE OF CAPITAL ACCOUNTS (a) The Partnership shall maintain for each Partner a separate Capital Account with respect to the Partnership Interest owned by such Partner in accordance with the following provisions: (i) To each Partner's Capital Account there shall be credited (A) such Partner's Capital Contributions, (B) such Partner's share of Profits and (C) the amount of any Partnership liabilities assumed by such Partner or which are secured by any Property distributed to such Partner. The principal amount of a promissory note which is not readily traded on an established securities market and which is contributed to the Partnership by the maker of the note (or a Partner related to the maker of the note within the meaning of Regulation Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Partner until the Partnership makes a taxable disposition of the note or until (and only to the extent) principal payments are made on the note, all in accordance with Regulation Section 1.704-1(b)(2)(iv)(d)(2); 10 EXECUTION COPY (ii) To each Partner's Capital Account there shall be debited (A) the amount of money and the Gross Asset Value of any Property distributed or treated as an advance distribution to such Partner pursuant to any provision of this Agreement (including without limitation any distributions pursuant to Section 4.1), (B) such Partner's share of Losses and (C) the amount of any liabilities of such Partner assumed by the Partnership or which are secured by any Property contributed by such Partner to the Partnership; (iii) In the event Partnership Interests are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent such Capital Account relates to the Transferred Partnership Interests; and (iv) In determining the amount of any liability for purposes of Sections 3.4(a)(i) and (ii) there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (b) The foregoing Section 3.4(a) and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulation Section 1.704-1(b) and, to the greatest extent practicable, shall be interpreted and applied in a manner consistent with such Regulation. The General Partner in its discretion and to the extent otherwise consistent with the terms of this Agreement shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulation Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulation Section 1.704-1(b). 3.5 CAPITAL WITHDRAWAL RIGHTS, INTEREST AND PRIORITY Except as expressly provided in this Agreement, no Partner shall be entitled to (a) withdraw or reduce such Partner's Capital Contribution or to receive any distributions from the Partnership, or (b) receive or be credited with any interest on the balance of such Partner's Capital Contribution at any time. ARTICLE IV DISTRIBUTIONS 4.1 DISTRIBUTIONS OF AVAILABLE CASH An amount equal to 100% of Available Cash with respect to each fiscal quarter of the Partnership shall be distributed to the Partners in proportion to their relative Percentage Interests within forty-five days after the end of such quarter. Notwithstanding any other provision of this Agreement, all cash attributable to the ownership or disposition by the Partnership of Contributed Units shall be distributed to the Partners in proportion to their relative Unit Percentages within forty-five days after the end of each quarter. 11 EXECUTION COPY 4.2 SPECIAL DISTRIBUTION Upon the closing of the transactions contemplated by the Transfer Agreements, the Partnership shall make a special distribution to Rodeo, Inc. in an amount equal to the amount contributed by the Limited Partners other than Rodeo, Inc. for their limited partner Partnership Interests hereunder on or before the date of such closing. 4.3 PERSONS ENTITLED TO DISTRIBUTIONS All distributions of Available Cash to Partners for a fiscal quarter pursuant to Section 4.1 shall be made to the Partners shown on the records of the Partnership to be entitled thereto as of the last day of such quarter, unless the transferor and transferee of any Partnership Interest otherwise agree in writing to a different distribution and such distribution is consented to in writing by the General Partner. 4.4 LIMITATIONS ON DISTRIBUTIONS (a) Notwithstanding any provision of this Agreement to the contrary, no distributions shall be made except pursuant to Article IV or Article VIII. (b) Notwithstanding any provision of this Agreement to the contrary, no distribution hereunder shall be permitted if such distribution would violate Section 17-607 of the Act or other applicable law. ARTICLE V ALLOCATIONS 5.1 PROFITS Profits for any Taxable Year shall be allocated: (a) first, to those Partners to which Losses have previously been allocated pursuant to Section 5.2(d) hereof so as to bring each such Partner's Capital Account to zero, pro rata in accordance with the sum of each such Partner's Losses; and (b) second, any remaining Profits shall be allocated among the Partners in proportion to their respective Percentage Interests. 5.2 LOSSES Losses for any Taxable Year shall be allocated: (a) first, to the Partners to which Profits have previously been allocated pursuant to Section 5.1(b) to the extent of such Profits; (b) second, among the Partners in proportion to their respective Percentage Interests provided; however, that no Partner shall be allocated any loss pursuant to this Section 5.2(b) which would result in a negative Capital Account balance for such Partner. 12 EXECUTION COPY (c) third, to Partners in proportion to their positive Capital Account balances until such Capital Account balances have been reduced to zero; and (d) fourth, any remaining Losses shall be allocated to the General Partner. 5.3 REGULATORY ALLOCATIONS (a) Gross Income Allocation. In the event any Partner has an Adjusted Capital Account Deficit at the end of any Taxable Year, such Partner shall be specially allocated items of Partnership income and gain in the amount of such deficit balance as quickly as possible; provided, that, an allocation pursuant to this Section 5.3(a) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit balance after all other allocations provided for in this Article V have been made. (b) Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704- 1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as possible, provided, that, an allocation pursuant to this Section 5.3(b) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been made. (c) Curative Allocations. The allocations set forth in Sections 5.3(a) and (b) hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain requirements of the Regulations. It is the intent of the Partners that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 5.3(c). Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Partner's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of this Agreement and all such items were allocated pursuant to Sections 5.1 and 5.2 without regard to the Regulatory Allocations. (d) Special Allocation. Notwithstanding any other provision of this Agreement, but subject to Section 5.4, all income, gain, loss and deduction related to the Contributed Units shall be allocated to the Partners in proportion to their relative Unit Percentages. 5.4 TAX ALLOCATIONS: CODE SECTION 704(c) (a) Except as otherwise provided herein, for federal income tax purposes, (i) each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 5.1 and 5.2, and (ii) each tax credit shall be allocated to the Partners in the same manner as the receipt or expenditure giving rise to such credit is allocated pursuant to Section 5.1 or 5.2. 13 EXECUTION COPY (b) In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and deduction with respect to any Property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such Property to the Partnership for federal income tax purposes and its initial Gross Asset Value (computed in accordance with the definition herein of "Gross Asset Value"). The Partnership shall use the remedial method of allocations specified in Treas. Reg. (S)1.704-3(d), or successor regulations, unless otherwise required by law, with respect to the initial contribution property set forth on Schedule I. (c) In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to subparagraph (b) of the definition herein of "Gross Asset Value", subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Regulations thereunder. (d) Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement; provided, that the Partnership, in the discretion of the General Partner, may make, or not make, "curative" or "remedial" allocations (within the meaning of the Regulations under Code Section 704(c)) including, but not limited to, "curative" allocations which offset the effect of the "ceiling rule" for a prior Taxable Year (within the meaning of Regulation Section 1.704-3(c)(3)(ii)) and "curative" allocations from disposition of contributed property (within the meaning of Regulation Section 1.704-3(c)(3)(iii)(B)). Allocations pursuant to this Section 5.4 are solely for purposes of federal, state, and local taxes and shall not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Profits, Losses, other items, or distributions pursuant to any provision of this Agreement. 5.5 CHANGE IN PARTNERSHIP PERCENTAGE In the event that the Partners' Partnership Percentages change during a Taxable Year, Profits and Losses shall be allocated taking into account the Partners' varying Percentage Interests for such Taxable Year, determined on a daily, monthly or other basis as determined by the General Partner, using any permissible method under Code Section 706 and the Regulations thereunder. 5.6 WITHHOLDING Each Partner hereby authorizes the Partnership to withhold from income or distributions allocable to such Partner and to pay over any taxes payable by the Partnership or any of its Affiliates as a result of such Partner's participation in the Partnership; if and to the extent that the Partnership shall be required to withhold any such taxes, such Partner shall be deemed for all purposes of this Agreement to have received a distribution from the Partnership as of the time such withholding is required to be paid, which distribution shall be deemed to be a distribution to such Partner to the extent that the Partner is then entitled to receive a distribution. To the extent that the aggregate of such distributions in respect of a Partner for any period exceeds the distributions to which such Partner is entitled for such period, the amount of such excess shall be considered a demand loan from the Partnership to such Partner, with interest at the rate of 14 EXECUTION COPY interest per annum that Citibank, N.A., or any successor entity thereto, announces from time to time as its prime lending rate, which interest shall be treated as an item of Partnership income, until discharged by such Partner by repayment, which may be made in the sole discretion of the General Partner out of distributions to which such Partner would otherwise be subsequently entitled. The withholdings referred to in this Section 5.6 shall be made at the maximum applicable statutory rate under applicable tax law unless the General Partner shall have received an opinion of counsel or other evidence, satisfactory to the General Partner, to the effect that a lower rate is applicable, or that no withholding is applicable. ARTICLE VI MANAGEMENT 6.1 DUTIES AND POWERS OF THE GENERAL PARTNER (a) The business and affairs of the Partnership shall be managed by the General Partner. Except for situations in which the approval of the Limited Partners is expressly required by this Agreement or by nonwaivable provisions of applicable law, the General Partner shall have full and complete authority, power and discretion to manage and control the business, affairs and property of the Partnership, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Partnership's business. Without limiting the generality of the foregoing, the General Partner has full power and authority to execute, deliver and perform such contracts, agreements and other undertakings on behalf of the Partnership, without the consent or approval of any other Partner, and to engage in all activities and transactions, as it may deem necessary or advisable for, or as may be incidental to, the conduct of the business and affairs of the Partnership. (b) Each Limited Partner agrees to cooperate with the General Partner and to execute and deliver such documents, agreements and instruments, and do all such further acts, as deemed necessary or advisable by the General Partner to give effect to the exercise of the General Partner's powers under this Section 6.1. Without limiting the foregoing, each Limited Partner hereby irrevocably appoints the General Partner as its proxy and attorney-in-fact (with full power of substitution and resubstitution) to vote or act by written consent with respect to its Partnership Interest as a Limited Partner as determined by the General Partner on all matters requiring the vote, approval or consent of the Limited Partners. The Partners acknowledge that such proxy is coupled with an interest and is irrevocable. (c) The General Partner is the tax matters partner for purposes of Section 6231 of the Code and analogous provisions of state law. The tax matters partner has the exclusive authority and discretion to make any elections required or permitted to be made by the Partnership under any provisions of the Code or any other applicable laws. 6.2 NO LIABILITY TO LIMITED PARTNERS Except in case of gross negligence or willful malfeasance of the person (the General Partner or any of the Members, managers, directors, officers, agents or employees of the General Partner) who is sought to be held liable, neither the General Partner nor the Members, managers, directors, officers, agents or employees of the General Partner will be liable to any Limited Partner or the 15 EXECUTION COPY Partnership (i) for any action taken with respect to the Partnership which is not in violation of the provisions of this Agreement, or (ii) for any action taken by any Member, manager, director, officer, agent or employee of the General Partner. 6.3 INDEMNIFICATION OF GENERAL PARTNER The Partnership shall indemnify the General Partner, the members, managers, directors, officers, agents and employees of the General Partner against any losses, liabilities, damages and expenses to which any of such persons may become subject, including attorneys' fees, judgments and amounts paid in settlement, actually and reasonably incurred by them, and advance all expenses to them, in connection with any threatened, pending or completed action, suit or proceeding to which any of them was or is a party or is threatened to be made a party by reason of the direct or indirect association by them with the Partnership to the maximum extent permitted by applicable law. 6.4 RIGHTS OF LIMITED PARTNERS The Limited Partners will not be personally liable for any obligations of the Partnership nor will they have any obligation to make contributions to the Partnership in excess of their respective Capital Contributions required under Section 3.1 or have any liability for the repayment or discharge of the debts and obligations of the Partnership except to the extent provided herein or as required by law. The Limited Partners shall take no part in the management, control or operation of the Partnership's business and shall have no power to bind the Partnership and no right or authority to act for the Partnership or to vote on matters other than the matters set forth in this Agreement or as required by applicable law. ARTICLE VII TRANSFERS OF PARTNERSHIP INTERESTS 7.1 TRANSFER OF LIMITED PARTNERSHIP INTERESTS (a) No Limited Partner may Transfer all or any part of such Partner's Partnership Interest to any Person except (i) to a Permitted Transferee pursuant to Section 7.2, or (ii) pursuant to the terms of Section 7.8, or (iii) in the case of Kafu, a transfer of up to a 6% Partnership Interest to First Union Investors, Inc. ("FIRST UNION") within 90 days from the date hereof; provided, however, any such Transfer under (i) or (ii) above shall comply with the terms of Section 7.1(b). Any purported Transfer of a Partnership Interest or a portion thereof in violation of the terms of this Agreement shall be null and void and of no force and effect. Except upon a Transfer of all of a Limited Partner's Partnership Interest in accordance with Section 7.1, no Limited Partner shall have the right to withdraw as a Partner of the Partnership. (b) As a condition to a Transfer by a Limited Partner of all or any part of such Partner's Partnership Interest to a transferee as permitted under Section 7.1(a)(i) or (ii) (a "PARTNERSHIP TRANSFER"), such Partner shall simultaneously Transfer (the "MEMBERSHIP TRANSFER") to such transferee an amount of such Partner's Membership Interest equal to: (i) such Partner's Membership Interest, multiplied by (ii) a percentage equal to (1) the portion of such Partner's Partnership Interest to be Transferred to such transferee, divided by (2) such Partner's Partnership Interest immediately before such Transfer. If for any reason the 16 EXECUTION COPY Membership Transfer does not occur simultaneously with the Partnership Transfer, then the Partnership Transfer shall be null and void and of no force and effect. (c) Notwithstanding any other provision of this Agreement, no Limited Partner may pledge, mortgage or otherwise subject its Limited Partnership Interest to any Encumbrance. (d) So long as it or its Permitted Transferee remains a Limited Partner, Sable may not effect a Sable Change of Control. (e) In the event that JCF resigns (other than for Good Reason) from his position as Chief Executive Officer of Rodeo, or is terminated for Cause, during the eighteen month period ending November 8, 2002, the occurrence of such event shall be deemed a Transfer to a Non-Qualifying Transferee of the Limited Partnership Interest of Sable Investments; provided, however, that fair market value, with respect to such deemed Transfer for purposes of Section 7.2, shall not be less than Sable's initial Capital Contribution. 7.2 PERMITTED TRANSFEREES (a) Notwithstanding the provisions of Section 7.8, each Limited Partner shall, subject to Section 7.1(b), have the right to Transfer (but not to substitute the transferee as a substitute Partner in such Partner's place, except in accordance with Section 7.3), by a written instrument, all or any part of a Limited Partner's Partnership Interest to a Permitted Transferee. Notwithstanding the previous sentence, if the Permitted Transferee is such because it was an Affiliate of the transferring Limited Partner at the time of such Transfer or the Transfer was a Permitted Transfer under clause (a) of the definition herein of "Permitted Transfer" and, at any time after such Transfer, such Permitted Transferee ceases to be an Affiliate of such Limited Partner or such Transfer or such Permitted Transferee ceases to qualify under such clause (a) (a "NON-QUALIFYING TRANSFEREE"), such Transfer shall be deemed to not be a Permitted Transfer and shall be subject to Section 7.8. Pursuant to Section 7.8, such transferring Limited Partner or such transferring Limited Partner's legal representative shall deliver the First Refusal Notice promptly after the time when such transferee ceases to be an Affiliate of such transferring Limited Partner or such Transfer or such Permitted Transferee ceases to qualify under clause (a) of the definition herein of "Permitted Transfer", and such transferring Limited Partner shall otherwise comply with the terms of Section 7.8 with respect to such Transfer; provided, that the purchase price for such Transfer for purposes of Section 7.8 shall be an amount agreed upon by such transferring Limited Partner and the General Partner or, if such Limited Partner and the General Partner cannot agree on a price within five (5) Business Days after delivery of the First Refusal Notice, such price shall be the fair market value of the Partnership Interest transferred pursuant to the Transfer as of the date the transferee ceased to be an Affiliate of such transferring Limited Partner or such Transfer or such Permitted Transferee ceases to qualify under clause (a) of the definition herein of "Permitted Transfer" (such date, the "NON-QUALIFYING DATE"), as determined at the Partnership's expense by a nationally recognized investment banking firm mutually selected by such transferring Limited Partner and the General Partner. If such transferring Limited Partner and the General Partner are unable, within ten (10) days after the expiration of such five (5) Business Day period, to mutually agree upon an investment banking firm, then each of such transferring Limited Partner and the General Partner shall choose a nationally recognized investment banking firm and the two investment banking firms so chosen 17 EXECUTION COPY shall choose a third nationally recognized investment banking firm which shall determine the fair market value of the Partnership Interest transferred pursuant to such Transfer at the Partnership's expense. The determination of fair market value shall be based on the value that a willing buyer with knowledge of all relevant facts would pay a willing seller for all the outstanding equity securities of the Partnership in connection with an auction for the Partnership as a going concern and shall not take into account any acquisitions made by the Partnership or its Affiliates or any other events subsequent to the Non- Qualifying Date and shall not be subject to any discount for a sale of a minority interest. If such transferring Limited Partner fails to comply with all the terms of Section 7.8, such Transfer shall be null and void and of no force and effect. No Non-Qualifying Transferee shall be entitled to receive any distributions from the Partnership on or after the Non-Qualifying Date and any distributions made in respect of the Partnership Interests on or after the Non- Qualifying Date and held by such Non-Qualifying Transferee shall be paid to the Limited Partner who transferred such Partnership Interests or otherwise to the rightful owner thereof as reasonably, determined by the General Partner. (b) Unless and until admitted as a substitute Limited Partner pursuant to Section 7.3, a transferee of a Limited Partner's Partnership Interest, in whole or in part, shall be an assignee with respect to such Transferred Partnership Interest and shall not be entitled to become, or to exercise the rights of, a Limited Partner, including the right to vote, the right to require any information or accounting of the Partnership's business, or the right to inspect the Partnership's books and records. Such transferee shall only be entitled to receive, to the extent of the Partnership Interest Transferred to such transferee, the share of distributions and profits, including distributions representing the return of Capital Contributions, to which the transferor would otherwise be entitled with respect to the Transferred Partnership Interest. Subject to the provisions of Section 6.1(b), the transferor shall have the right to vote such Transferred Partnership Interest until the transferee is admitted to the Partnership as a substitute Limited Partner with respect to the Transferred Partnership Interest. 7.3 SUBSTITUTE LIMITED PARTNERS No transferee of all or part of a Limited Partner's Partnership Interest shall become a substitute Limited Partner in place of the transferor unless and until: (a) such Transfer is in compliance with the terms of Section 7.1; (b) the transferee has executed an instrument in form and substance reasonably satisfactory to the General Partner accepting and adopting, and agreeing to be bound by, the terms and provisions of the Certificate and this Agreement; and (c) the transferee has caused to be paid all reasonable expenses of the Partnership in connection with the admission of the transferee as a substitute Limited Partner. Upon satisfaction of all the foregoing conditions with respect to a particular transferee, the General Partner shall cause the books and records of the Partnership to reflect the admission of the transferee as a substitute Limited Partner to the extent of the Transferred Partnership Interest held by such transferee. 18 EXECUTION COPY 7.4 EFFECT OF ADMISSION AS A SUBSTITUTE LIMITED PARTNER A transferee who has become a substitute Limited Partner has, to the extent of the Transferred Partnership Interest, all the rights, powers and benefits of, and is subject to the obligations, restrictions and liabilities of a Partner under, the Certificate, this Agreement and the Act. Upon admission of a transferee as a substitute Limited Partner, the transferor of the Partnership Interest so held by the substitute Limited Partner shall cease to be a Partner of the Partnership to the extent of such Transferred Partnership Interest. 7.5 CONSENT Each Partner hereby agrees that upon satisfaction of the terms and conditions of this Article VII with respect to any proposed Transfer, the transferee may be admitted as a Partner without any further action by a Partner hereunder. 7.6 NO DISSOLUTION If a Limited Partner Transfers all of its Partnership Interest pursuant to this Article VII and the transferee of such Partnership Interest is admitted as a Limited Partner pursuant to Section 7.3, such Person shall be admitted to the Partnership as a Partner effective on the effective date of the Transfer and the Partnership shall not dissolve pursuant to Section 8.1. 7.7 ADDITIONAL LIMITED PARTNERS Subject to Section 3.2, any Person acceptable to the General Partner may become an additional Limited Partner of the Partnership for such consideration as the General Partner shall determine, provided that such additional Limited Partner complies with all the requirements of a transferee under Section 7.3(b) and (c). 7.8 RIGHT OF FIRST REFUSAL The Limited Partners shall have the following right of first refusal: (a) If at any time any of the Limited Partners (a "SELLING PARTNER") has received and wishes to accept a bona fide offer (the "OFFER") for cash from a third party (the "OFFEROR") for all or part of such Selling Partner's Partnership Interest (and a proportionate amount of such Selling Partner's Membership Interest in accordance with Section 7.1(b)), such Selling Partner shall give Notice thereof (the "FIRST REFUSAL NOTICE") to each of the other Partners, other than any Non-Purchasing Partners (as hereinafter defined), and the Partnership. The First Refusal Notice shall state the portion of the Selling Partner's Partnership Interest and Membership Interest that the Selling Partner wishes to sell (the "OPTIONED INTEREST"), the price and all other material terms of the Offer, the name of the Offeror, and certification from the Selling Partner affirming that the Offer is bona fide and that the description thereof is true and correct, and that the Offeror has stated that it will purchase the Optioned Interest if the rights of first refusal herein described are not exercised. (b) Each of the Limited Partners other than the Selling Partner and any Non-Purchasing Partner (the "NON-SELLING PARTNERS") shall have the right exercisable by Notice (an 19 EXECUTION COPY "ACCEPTANCE NOTICE") given to the Selling Partner and the Partnership within twenty (20) days after receipt of the First Refusal Notice, to agree that it will purchase up to 100% of the Optioned Interest on the terms set forth in the First Refusal Notice; provided, however, if the Non-Selling Partners in the aggregate desire to purchase more than 100% of the Optioned Interest, each such Non-Selling Partner's right to purchase the Optioned Interest shall be reduced (pro rata based on the percentage of the Optioned Interest for which such Non- Selling Partner has exercised its right to purchase hereunder compared to all other Non-Selling Partners, but not below such Non-Selling Partner's Partnership Interest as a percentage of the aggregate Partnership Interests of all Non- Selling Partners who have exercised their right to purchase) so that such Non- Selling Partners purchase no more than 100% of the Optioned Interest. If a Non- Selling Partner does not submit an Acceptance Notice within the twenty (20) day period set forth in this Section 7.8(b), such Non-Selling Partner shall be deemed to have rejected the offer to purchase any portion of the Optioned Interest. (c) If the Non-Selling Partners do not in the aggregate exercise the right to purchase all of the Optioned Interest by the expiration of the twenty (20) day period set forth in Section 7.8(b), then any Acceptance Notice shall be void and of no effect, and the Selling Partner shall be entitled to complete the proposed sale at any time in the thirty (30) day period commencing on the date of the First Refusal Notice, but only upon the terms set forth in the First Refusal Notice. If no such sale is completed in such thirty (30) day period, the provisions hereof shall apply again to any proposed sale of the Optioned Interest. (d) If any Non-Selling Partner exercises the right to purchase the Optioned Interest as provided herein and such Non-Selling Partner(s) have elected to purchase all of the Optioned Interest, the purchase of such Optioned Interest shall be completed within the thirty (30) day period commencing on the date of delivery of the First Refusal Notice on the terms set forth in the First Refusal Notice. If such Non-Selling Partner does not consummate the Purchase of such Optioned Interest, (x) the Selling Partner shall be entitled to all expenses of collection and (y) such Non-Selling Partner shall be deemed a "NON- PURCHASING PARTNER" for the duration of this Agreement. 7.9 TRANSFER TO MANAGEMENT ENTITY Notwithstanding any other provision of this Agreement, Rodeo, Inc. may, on the date hereof or within ninety (90) days from the date hereof sell up to 1.98% of the total Partnership Interests as of that date (the "Management Sale") to the Management Entity. The Management Sale shall be on substantially the same economic terms as the initial capital contribution of each of Sable, Kafu, E- Holdings, Strome, Strome Hedgecap, Raymond and the Management Entity. ARTICLE VIII DISSOLUTION AND LIQUIDATION 8.1 DISSOLUTION OF PARTNERSHIP (a) The Partnership shall be dissolved and its affairs wound up upon the first to occur of the following events: 20 EXECUTION COPY (i) the written election of the General Partner, in its sole discretion, to dissolve the Partnership; (ii) the occurrence of any event that results in the General Partner ceasing to be the general partner of the Partnership under the Act, provided that the Partnership will not be dissolved and required to be wound up in connection with any such event if (A) at the time of the occurrence of such event there is at least one remaining general partner of the Partnership who is hereby authorized to and does carry on the business of the Partnership, or (B) within 90 days after the occurrence of such event, all of the Limited Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of such event, if required, of one or more additional general partners of the Partnership; (iii) the Transfer of all or substantially all of the assets of the Partnership and the receipt and distribution of all the proceeds therefrom; (iv) at any time that there are no limited partners of the Partnership, unless the business of the Partnership is continued in accordance with the Act; and (v) the entry of a decree of judicial dissolution under Section 17- 802 of the Act. (b) The withdrawal, death, dissolution, retirement, resignation, expulsion, liquidation or bankruptcy of a Partner, the admission to the Partnership of a new General Partner or Limited Partner, the withdrawal of a Partner from the Partnership, or the transfer by a Partner of its Partnership Interest to a third party shall not, in and of itself, cause the Partnership to dissolve. 8.2 FINAL ACCOUNTING Upon dissolution and winding up of the Partnership, an accounting will be made of the accounts of the Partnership and each Partner and of the Partnership's assets, liabilities and operations from the date of the last previous accounting to the date of such dissolution. 8.3 DISTRIBUTIONS FOLLOWING DISSOLUTION AND TERMINATION (a) Liquidating Trustee. Upon the dissolution of the Partnership, such party as is designated by the General Partner will act as liquidating trustee of the Partnership (the "LIQUIDATING TRUSTEE") and proceed to wind up the business and affairs of the Partnership in accordance with the terms of this Agreement and applicable law. The Liquidating Trustee will use its reasonable best efforts to sell all Partnership assets (except cash) in the exercise of its best judgment under the circumstances then presented, that it deems in the best interest of the Partners. The Liquidating Trustee will attempt to convert all assets of the Partnership to cash so long as it can do so consistently with prudent business practice. The Partners and their respective designees will have the right to purchase any Partnership property to be sold on liquidation, provided that the terms on which such sale is made are no less favorable than would otherwise be available from third parties. The gains and losses from the sale of the Partnership assets, together with all other revenue, income, gain, deduction, expense, loss and credit during 21 EXECUTION COPY the period, will be allocated in accordance with Article V. A reasonable amount of time shall be allowed for the period of winding up in light of prevailing market conditions and so as to avoid undue loss in connection with any sale of Partnership assets. This Agreement shall remain in full force and effect during the period of winding up. In addition, upon request of the General Partner and if the Liquidating Trustee determines that it would be imprudent to dispose of any non-cash assets of the Partnership, such assets may be distributed in kind to the Partners in lieu of cash, proportionately to their right to receive cash distributions hereunder. (b) Accounting. The Liquidating Trustee will then cause proper accounting to be made of the Capital Account of each Partner, including recognition of gain or loss on any asset to be distributed in kind as if such asset had been sold for consideration equal to the fair market value of the asset at the time of the distribution. The Partners intend that the allocations provided herein shall result in Capital Account balances in proportion to the Partnership Percentages of the Partners. (c) Liquidating Distributions. In settling accounts after dissolution of the Partnership, the assets of the Partnership shall be paid to creditors of the Partnership and to the Partners in the following order: (i) to creditors of the Partnership (including Partners) in the order of priority as provided by law whether by payment or the making of reasonable provision for payment thereof, and in connection therewith there shall be withheld such reasonable reserves for contingent, conditioned or unconditioned liabilities as the Liquidating Trustee in its reasonable discretion deems adequate, such reserves (or balances thereof) to be held and distributed in such manner and at such times as the Liquidating Trustee, in its discretion, deems reasonably advisable; provided, however, that such amounts be maintained in a separate bank account and that any amounts in such bank account remaining after three years be distributed to the Partners or their successors and assigns as if such amount had been available for distribution under Section 8.3(c)(ii); and then (ii) to the Partners in proportion to the positive balances of their Capital Accounts, as fully adjusted pursuant to Section 3.4, including adjustment for all gains and losses actually or deemed realized upon disposition or distribution of assets in connection with the liquidation and winding up of the Partnership. (iii) Any distribution to the Partners in liquidation of the Partnership shall be made by the later of the end of the taxable year in which the liquidation occurs or 90 days after the date of such liquidation. For purposes of the preceding sentence, the term "liquidation" shall have the same meaning as set forth in Regulation Section 1.704-2(b)(2)(ii) as in effect at such time and liquidating distributions shall be further deemed to be made pursuant to this Agreement upon the event of a liquidation as defined in such Regulation for which no actual liquidation occurs with a deemed recontribution by the Partners of such deemed 22 EXECUTION COPY liquidating distributions to the continuing Partnership pursuant to this Agreement . (d) The provisions of this Agreement, including, without limitation, this Section 8.3, are intended solely to benefit the Partners and, to the fullest extent permitted by law, shall not be construed as conferring any benefit upon any creditor of the Partnership, and no such creditor of the Partnership shall be a third-party beneficiary of this Agreement, and no Partner shall have any duty or obligation to any creditor of the Partnership to issue any call for capital pursuant to this Agreement. 8.4 TERMINATION OF THE PARTNERSHIP The Partnership shall terminate when all assets of the Partnership, after payment or due provision for all debts, liabilities and obligations of the Partnership, shall have been distributed to the Partners in the manner provided for in this Article VIII, and the Certificate shall have been canceled in the manner required by the Act. 8.5 NO ACTION FOR DISSOLUTION The Limited Partners acknowledge that irreparable damage would be done to the goodwill and reputation of the Partnership if any Limited Partner should bring an action in court to dissolve the Partnership under circumstances where dissolution is not required by Section 8.1. Accordingly, except where the General Partner has failed to cause the liquidation of the Partnership as required by Section 8.1 and except as specifically provided in Section 17-802, each Limited Partner hereby to the fullest extent permitted by law waives and renounces his right to initiate legal action to seek dissolution of the Partnership or to seek the appointment of a receiver or trustee to wind up the affairs of the Partnership, except in the cases of fraud, violation of law, bad faith, gross negligence, willful misconduct or willful violation of this Agreement. ARTICLE IX ACCOUNTING; BOOKS AND RECORDS 9.1 FISCAL YEAR AND ACCOUNTING METHOD The fiscal year and taxable year of the Partnership shall be the calendar year. The Partnership shall use an accrual method of accounting. 9.2 BOOKS AND RECORDS The Partnership shall maintain at its principal office, or such other office as may be determined by the General Partner, all the following: (a) A current list of the full name and last known business or residence address of each Partner, together with information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each Partner became a Partner of the Partnership; 23 EXECUTION COPY (b) A copy of the Certificate and this Agreement, including any and all amendments to either thereof, together with executed copies of any powers of attorney pursuant to which the Certificate, this Agreement, or any amendments have been executed; (c) Copies of the Partnership's Federal, state, and local income tax or information returns and reports, if any, which shall be retained for at least six fiscal years; (d) The financial statements of the Partnership; and (e) The Partnership's books and records. 9.3 DELIVERY TO PARTNERS; INSPECTION Upon the request of any Limited Partner, for any purpose reasonably related to such Partner's interest as a partner of the Partnership, the General Partner shall cause to be made available to the requesting Partner the information required to be maintained by clauses (a) through (e) of Section 9.2 and such other information regarding the business and affairs and financial condition of the Partnership as any Partner may reasonably request. 9.4 FINANCIAL STATEMENTS The General Partner shall cause to be prepared for the Partners at least annually, at the Partnership's expense, financial statements of the Partnership, and its subsidiaries, prepared in accordance with generally accepted accounting principles and audited by a nationally recognized accounting firm. The financial statements so furnished shall include a balance sheet, statement of income or loss, statement of cash flows, and statement of Partners' equity. In addition, the General Partner shall provide on a timely basis to the Partners monthly and quarterly financials, statements of cash flow, any available internal budgets or forecast or other available financial reports, as well as any reports or notices as are provided by the Partnership, or any of its Subsidiaries to any financial institution. 9.5 FILINGS At the Partnership's expense, the General Partner shall cause the income tax returns for the Partnership to be prepared and timely filed with the appropriate authorities and to have prepared and to furnish to each Partner such information with respect to the Partnership as is necessary (or as may be reasonably requested by a Partner) to enable the Partners to prepare their Federal, state and local income tax returns. The General Partner, at the Partnership's expense, shall also cause to be prepared and timely filed, with appropriate Federal, state and local regulatory and administrative bodies, all reports required to be filed by the Partnership with those entities under then current applicable laws, rules, and regulations. The reports shall be prepared on the accounting or reporting basis required by the regulatory bodies. 9.6 NON-DISCLOSURE Each Limited Partner agrees that, except as otherwise consented to by the General Partner in writing, all non-public and confidential information furnished to it pursuant to this Agreement will be kept confidential and will not be disclosed by such Partner, or by any of its agents, 24 EXECUTION COPY representatives, or employees, in any manner whatsoever, in whole or in part, except that (a) each Partner shall be permitted to disclose such information to those of its agents, representatives, and employees who need to be familiar with such information in connection with such Partner's investment in the Partnership (collectively, "REPRESENTATIVES") and are apprised of the confidential nature of such information, (b) each Partner shall be permitted to disclose information to the extent required by law, legal process or regulatory requirements, so long as such Partner shall have used its reasonable efforts to first afford the Partnership with a reasonable opportunity to contest the necessity of disclosing such information, (c) each Partner shall be permitted to disclose such information to possible purchasers of all or a portion of the Partner's Partnership Interest, provided that such prospective purchaser shall execute a suitable confidentiality agreement in a form approved by the General Partner and containing terms not less restrictive than the terms set forth herein, and (d) each Partner shall be permitted to disclose information to the extent necessary for the enforcement of any right of such Partner arising under this Agreement. Each Partner shall be responsible for any breach of this Section 9.6 by any of its Representatives. ARTICLE X NON-COMPETITION 10.1 NON-COMPETITION Each of the Limited Partners hereby acknowledges that the Partnership and the Master Limited Partnership operate in a competitive business and compete with other Persons operating in the midstream segment of the oil and gas industry for acquisition opportunities. Each of the Limited Partners agrees that during the period that it is a Limited Partner, it shall not, directly or indirectly, use any of the confidential information it receives as a Limited Partner to compete, or to engage in or become interested financially in as a principal, employee, partner, shareholder, agent, manager, owner, advisor, lender, guarantor of any Person that competes in North America with the business conducted by the General Partner, the Partnership and the Master Limited Partnership Each of the Limited Partners also acknowledges that EnCap Investments L.L.C. and Persons that it controls ("ENCAP"), Kayne Anderson Capital Advisors L.P. and its Affiliates ("KAYNE ANDERSON") and First Union and its affiliates make and manage investments in the energy industry in the ordinary course of business (such investments "Institutional Investments"). The Limited Partners agree that EnCap, Kayne Anderson and First Union and its affiliates may make Institutional Investments, even if such Institutional Investments are competitive with the Partnership's and its Subsidiaries' business, so long as such Institutional Investments are not in violation of the provisions of Section 9.6 or the second sentence of this Section 10.1 or obligations owed to the Partnership under applicable law with respect to usurption of an opportunity legally belonging to the Partnership or its Subsidiaries. Each of the Limited Partners confirms that the restrictions in this Section 10.1 are reasonable and valid and all defenses to the strict enforcement thereof are hereby waived by each of the Limited Partners. The restrictions contained in this Section 10.1 shall in no way impair the rights granted (i) to JCF pursuant to the Flores Employment Agreement or (ii) to Raymond pursuant to any employment agreement between Raymond and Rodeo. 25 EXECUTION COPY 10.2 DAMAGES Each of the Limited Partners acknowledges that damages may not be an adequate compensation for the losses which may be suffered by the Partnership as a result of the breach by such Limited Partner of the covenants contained in this Article X and that the Partnership shall be entitled to seek injunctive relief with respect to any such breach in lieu of or in addition to any recourse in damages without the posting of a bond or other security. 10.3 LIMITATIONS In the event that a court of competent jurisdiction decides that the limitations set forth in Section 10.1 hereof are too broad, such limitations shall be reduced to those limitations that such court deems reasonable. ARTICLE XI GENERAL PROVISIONS 11.1 WAIVER OF DEFAULT No consent or waiver, express or implied, by the Partnership or a Partner with respect to any breach or default by the Partnership or a Partner hereunder shall be deemed or construed to be a consent or waiver with respect to any other breach or default by any party of the same provision or any other provision of this Agreement. Failure on the part of the Partnership or a Partner to complain of any act or failure to act of the Partnership or a Partner or to declare such party in default shall not be deemed or constitute a waiver by the Partnership or the Partner of any rights hereunder. 11.2 AMENDMENT OF PARTNERSHIP AGREEMENT (a) Except as otherwise expressly provided elsewhere in this Agreement, this Agreement shall not be altered, modified or changed except by an amendment approved by the General Partner. (b) In addition to any amendments otherwise authorized herein, the General Partner may make any amendments to any of the Schedules to this Agreement from time to time to reflect transfers of Partnership Interests and issuances of additional Partnership Interests. Copies of such amendments shall be delivered to the Partners promptly upon execution thereof. (c) The General Partner shall cause to be prepared and filed any amendment to the Certificate that may be required to be filed under the Act as a consequence of any amendment to this Agreement. (d) Any modification or amendment to this Agreement or the Certificate made in accordance with this Section 11.2 shall be binding on all Partners. 26 EXECUTION COPY 11.3 NO THIRD PARTY RIGHTS Except as provided in Section 6.2 and Section 6.3, none of the provisions contained in this Agreement shall be for the benefit of or enforceable by any third parties, including creditors of the Partnership. 11.4 SEVERABILITY In the event any provision of this Agreement is held to be illegal, invalid or unenforceable to any extent, the legality, validity and enforceability of the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect and shall be enforced to the greatest extent permitted by law. 11.5 NATURE OF INTEREST IN THE PARTNERSHIP A Partner's Partnership Interest shall be personal property for all purposes. 11.6 BINDING AGREEMENT Subject to the restrictions on the disposition of Partnership Interests herein contained, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. 11.7 HEADINGS The headings of the sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any of the terms or provisions hereof. 11.8 WORD MEANINGS The words "herein", "hereinafter", "hereof", and "hereunder" refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The singular shall include the plural, and vice versa, unless the context otherwise requires. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". When verbs are used as nouns, the nouns correspond to such verbs and vice-versa. 11.9 COUNTERPARTS This Agreement may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all the parties have not signed the same counterpart. 11.10 ENTIRE AGREEMENT This Agreement contains the entire agreement between the parties hereto and thereto and supersedes all prior writings or agreements with respect to the subject matter hereof. 27 EXECUTION COPY 11.11 PARTITION The Partners agree that the Property is not and will not be suitable for partition. Accordingly, each of the Partners hereby irrevocably waives any and all right such Partner may have to maintain any action for partition of any of the Property. No Partner shall have any right to any specific assets of the Partnership upon the liquidation of, or any distribution from, the Partnership. 11.12 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE This Agreement shall be construed according to and governed by the laws of the State of Delaware without regard to principles of conflict of laws. The parties hereby submit to the exclusive jurisdiction and venue of the state courts of Harris County, Texas or to the Court of Chancery of the State of Delaware and the United States District Court for the Southern District of Texas and of the United States District Court for the District of Delaware, as the case may be, and agree that the Partnership or Partners may, at their option, enforce their rights hereunder in such courts. [SIGNATURE PAGE FOLLOWS] 28 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. GENERAL PARTNER: PLAINS ALL AMERICAN GP LLC By: /s/ Greg L. Armstrong _______________________________ Name: Greg L. Armstrong _____________________________ Title: Chief Executive Officer ____________________________ LIMITED PARTNERS: PLAINS ALL AMERICAN INC. By: /s/ Greg L. Armstrong _______________________________ Name: Greg L. Armstrong _____________________________ Title: Chief Executive Officer ____________________________ SABLE INVESTMENTS, L.P. By: Sable Investments, LLC, its general partner By: /s/ James C. Flores _______________________________ Name: James C. Flores _____________________________ Title: Sale Manager ____________________________ E-HOLDINGS III, L.P. By: E-Holdings III GP, LLC, its general partner By: /s/ Gary R. Peterson _______________________________ Name: Gary R. Peterson _____________________________ Title: Managing Director ____________________________ 29 EXECUTION COPY KAFU HOLDINGS, LP By: Kafu Holdings, LLC, its general partner By: /s/ Robert V. Sinnott _______________________________ Name: Robert V. Sinnott _____________________________ Title: Managing Director ____________________________ PAA MANAGEMENT L.P. By: PAA Management LLC, its general partner By: /s/ Greg L. Armstrong _______________________________ Name: Greg L. Armstrong _____________________________ Title: Chief Executive Officer ____________________________ MARK E. STROME /s/ Mark E. Strome __________________________________ STROME HEDGECAP FUND, L.P. By: Strome Investment Management, L.P., its general partner By: SSCO, Inc., its general partner By:/s/ Mark E. Strome _______________________________ Name: Mark E. Strome _____________________________ Title: President ____________________________ JOHN T. RAYMOND /s/ John T. Raymond __________________________________ 30 EXECUTION COPY SCHEDULE I Partners, Capital Contributions and Percentage Interests General Partner:
Initial Capital Accounts/ Total Cash Gross Capital Percentage Unit Name and Address Contributed Asset Value Contribution Interest Percentages Plains All American GP LLC $405,000 $345,000 $750,000 1% 0
LIMITED PARTNERS:
Initial Capital Accounts/ Total Cash Gross Capital Percentage Unit Name and Address Contributed Asset Value Contribution Interest Percentages Plains All American Inc. 0 $34,155,000 $34,155,000 45.540% 63.889% Sable Investments, L.P. $14,107,500 $14,107,500 18.810% 13.750% E-Holdings III, L.P. $ 6,682,500 $ 6,682,500 8.910% 6.250 % Kafu Holdings, L.P. $14,701,500 $14,701,500 19.602% 13.194% PAA Management, L.P. $ 1,485,000 $ 1,485,000 1.980% 0 Mark E. Strome $ 1,584,495 $ 1,584,495 2.113% 1.482% Strome Hedgecap Fund, L.P. $ 791,505 $ 791,505 1.055% 0.740% John T. Raymond $ 742,500 $ 742,500 0.990% 0.694%
31 EX-10.14 16 dex1014.txt CREDIT AGREEMENT EXHIBIT 10.14 EIGHTH AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT THIS EIGHTH AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") dated as of the 30th day of May, 2001, by and among PLAINS --------- RESOURCES INC., a Delaware corporation (the "Company"), FIRST UNION NATIONAL ------- BANK (assignee of ING (U.S.) Capital LLC, successor in interest to ING (U.S.) Capital Corporation), as Agent ("Agent"), and the Lenders named herein. ----- W I T N E S S E T H: WHEREAS, the Company, Agent and Lenders entered into that certain Fourth Amended and Restated Credit Agreement dated as of May 22, 1998, as amended by a First Amendment to Fourth Amended and Restated Credit Agreement dated November 17, 1998, a Second Amendment to Fourth Amended and Restated Credit Agreement dated March 15, 1999, a Third Amendment to Fourth Amended and Restated Credit Agreement dated June 21, 1999, a Fourth Amendment to Fourth Amended and Restated Credit Agreement dated September 15, 1999, a Fifth Amendment to Fourth Amended and Restated Credit Agreement dated December 1, 1999, a Limited Waiver and Consent dated as of January 28, 2000, a Sixth Amendment to Fourth Amended and Restated Credit Agreement dated as of June 12, 2000 and a Seventh Amendment to Fourth Amended and Restated Credit Agreement dated as of October 11, 2000 (as amended, the "Original Agreement") for the purposes and consideration therein ------------------ expressed, pursuant to which Lenders became obligated to make and made loans to the Company as therein provided; and WHEREAS, the Company, Agent and Lenders desire to amend the Original Agreement for the purposes described herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein and in the Original Agreement, in consideration of the loans which may hereafter be made by Lenders to the Company, 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 -------------------------- (S) 1.1. 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. (S) 1.2. 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 (S) 1.2. "Amendment" means this Eighth Amendment to Fourth Amended and --------- Restated Credit Agreement. 1 "Amendment Documents" means this Amendment. ------------------- "Credit Agreement" means the Original Agreement as amended ---------------- hereby. ARTICLE II. -- Amendments ---------- (S) 2.1. Definitions. (a) The definitions of "PAAI Transfer" and ----------- "Revolving Credit Termination Date" set forth in Section 1.01 of the Original Agreement are hereby amended in their entirety to read as follows: "PAAI Transfer" shall mean the occurrence of any of the following: ------------- (i) The Company, either directly or indirectly, shall cease to be the legal and beneficial owner of 100% of the outstanding capital stock of PAAI or 100% of the outstanding limited liability company interests of PAAI LLC. (ii) PAAI shall cease to be the legal and beneficial owner of 75% or more of the ownership interests (including all securities which are convertible into ownership interests) of Plains All American GP LLC owned by PAAI immediately following the consummation of the PAAI Sale Transaction. (iii) The Company or any of its Subsidiaries, PAAI or PAAI LLC, or any successor (by conversion, merger or otherwise) of any of them, or any combination of the foregoing Persons, either directly or indirectly, shall cease to be the legal and beneficial owner of 75% or more in the aggregate of the number of limited partner units of the MLP owned either directly or indirectly by the Company or any of its Subsidiaries, PAAI, PAAI LLC or each successor (by conversion, merger or otherwise) of each of them, or any combination of the foregoing Persons, in the aggregate immediately following the consummation of the PAAI Sale Transaction. "Revolving Credit Termination Date" shall mean the earlier of (a) July --------------------------------- 1, 2003 and (b) the date on which the Commitment is reduced to zero or terminated pursuant to Section 2.03 hereof. (b) The following definition of "PAAI Sale Transaction" is hereby added to Section 1.1 of the Original Agreement immediately following the definition of "PAAI", to read as follows: "PAAI Sale Transaction" means those transactions generally set forth in the Company's Form 8-K filed with the Securities and Exchange Commission on May 10, 2001 whereby the Company, PAAI and PAAI, LLC have entered into one or more agreements providing in part for the sale and transfer by PAAI of a portion of its general partner interests in the MLP and by PAAI LLC of certain of its subordinated interests in the MLP, together with all other transfers contemplated in connection therewith. 2 (S) 2.2. Repayment of Term Loans. Section 3.01(b) of the Original ----------------------- Agreement is hereby amended in its entirety to read as follows: (b) The Company will repay the principal of the Term Loans in eight installments payable on each Quarterly Date beginning October 1, 2003, with the final installment being due and payable on or before July 1, 2005. Each such installment shall be equal to one-eighth of the original principal amount of the Term Loans as of the Revolving Credit Termination Date. In any event all unpaid principal and interest shall be due and payable in full on the final maturity of July 1, 2005. As set forth in Section 2.07(c), all optional and mandatory prepayments made on the Term Loans shall be applied to the scheduled installments in inverse order of their maturity. (S) 2.3. Investments -- Stock Repurchases. Clause (c) of Section 8.11 of -------------------------------- the Original Agreement, excluding the proviso at the end thereof, is hereby amended to read as follows: (c) one or more Dividend Payments in cash, all such cash payments made on and after June 1, 2001 not to exceed $60,000,000 in the aggregate, to purchase, redeem, retire or otherwise acquire or effect the conversion of any shares of any one or more classes of stock of the Company, (S) 2.4. Waiver re: Value Assurance to Purchasers of the MLP's ----------------------------------------------------- Subordinated Units. In connection with the PAAI Sale Transaction, the Company - ------------------ may agree to make certain payments to the purchasers of the subordinated units issued by the MLP sold thereby in an annual amount equal to $1.85 per such sold subordinated unit minus the aggregate amount of all distributions per such sold subordinated unit made by the MLP during such period. Such agreement, and payments made pursuant thereto, may violate Section 8.35(b) of the Credit Agreement, which would constitute an Event of Default under Section 9(d). Lenders hereby consent to such agreement by the Company and any payments made in connection therewith, and waive any violation of Section 8.35(b) or any Event of Default caused thereby, provided, in no event shall such aggregate amount paid -------- by the Company to such holders with respect to any fiscal year exceed $10,020,000. (S) 2.5. Consent re: Affiliate Transition Agreements. In connection with ------------------------------------------- the PAAI Sale Transaction, the Company and/or its Subsidiaries may enter into transitional agreements with Unrestricted Subsidiaries with respect to certain management and operational matters, and such transactions with such Unrestricted Subsidiaries may violate Section 8.35(b) of the Credit Agreement, which would constitute an Event of Default under Section 9(d) of the Credit Agreement . Lenders hereby consent to the Company and/or its Subsidiaries entry into such transitional agreements with such Unrestricted Subsidiaries and waive any violation of Section 8.35(b) or Event of Default caused thereby; provided, such -------- transitional agreements shall be on terms which are no less favorable to the Company or such Subsidiary than those which would have been obtainable at the time in arm's-length transactions with Persons other than such Unrestricted Subsidiaries. (S) 2.6. Conversion of Series H Preferred; Retirement of Series F -------------------------------------------------------- Preferred. In connection with the PAAI Sale Transaction, the Company may (i) - --------- convert certain outstanding 3 shares of the Company's Series H Convertible Preferred Stock into common stock of the Company, and (ii) receive and retire certain outstanding shares of the Company's Series F Cumulative Convertible Preferred Stock, in each case without cash payment by the Company to the holders thereof. In addition, the Company may convert certain additional outstanding shares of the Company's Series F Cumulative Convertible Preferred Stock into common stock of the Company, subject to a cash payment by the Company to such holders in an amount with respect to dividends accruing thereon until the consummation of the PAAI Sale Transaction. Lenders hereby confirm that the conversion of such Series H Preferred Stock and Series F Cumulative Convertible Preferred Stock, and the retirement of such additional Series F Cumulative Convertible Preferred Stock, but not any cash payment by the Company to any holder of such Series F Cumulative Convertible Preferred Stock in exchange therefor, will not constitute a Dividend Payment. Furthermore, Lenders hereby consent to the cash payment by the Company to such holders of such Series F Cumulative Convertible Preferred Stock to effect such conversion thereof, and waive any Event of Default related thereto, provided, -------- the aggregate amount of all such payments shall not exceed $1,700,000 in the aggregate. (S) 2.7. New Borrowing Base -- PAAI Transfer. The consummation of the ----------------------------------- PAAI Sale Transaction will constitute a PAAI Transfer and entitle Lenders to a redetermination of the Borrowing Base pursuant to Section 2.08. Pursuant to Section 2.08 of the Credit Agreement, Agent hereby notifies the Company that Supermajority Lenders have redetermined the Borrowing Base as $225,000,000, effective for the period beginning on and including the date hereof and continuing until but not including the next date as of which the Borrowing Base is redetermined. Lenders hereby waive their right to redetermine the Borrowing Base upon the consummation of the PAAI Sale Transaction and resultant PAAI Transfer. ARTICLE III. -- Conditions of Effectiveness --------------------------- (S) 3.1. Effective Date. This Amendment shall become effective -------------- contemporaneous with the consummation of the PAAI Sale Transaction when and only when (i) Agent shall have received, at Agent's office, a counterpart of this Amendment executed and delivered by the Company and each Lender, and (ii) Agent shall have additionally received all of the following documents, each document (unless otherwise indicated) being dated the date of receipt thereof by Agent, duly authorized, executed and delivered, and in form and substance satisfactory to Agent: (A) Officer's Certificate. A certificate of a duly authorized --------------------- officer of the Company to the effect that all of the representations and warranties set forth in Article IV hereof are true and correct at and as of the date thereof. (B) Supporting Documents. Such supporting documents as Agent may -------------------- reasonably request. ARTICLE IV. -- Representations and Warranties ------------------------------ (S) 4.1. Representations and Warranties of the Company. In order to --------------------------------------------- induce Agent and Lenders to enter into this Amendment, the Company represents and warrants to Agent and Lenders that: 4 (a) The representations and warranties contained in Section 7 of the Original Agreement, are true and correct at and as of the time of the effectiveness hereof, except to the extent that such representation or warranty was made as of a specific date or updated, modified or supplemented as of a subsequent date with the consent of Majority Lenders[, subject to, in regard to the penultimate sentence of Section 7.02, the Unauthorized Trading Losses, as referred to in the Company's annual report on Form 10-K for the year ended December 31, 1999.] No Default has occurred and is continuing. (b) The Company and the Subsidiaries are duly authorized to execute and deliver this Amendment and the other Amendment Documents to the extent a party thereto, and the Company is and will continue to be duly authorized to borrow and perform its obligations under the Credit Agreement. The Company and the Subsidiaries have duly taken all corporate action necessary to authorize the execution and delivery of this Amendment and the other Amendment Documents, to the extent a party thereto, and to authorize the performance of their respective obligations thereunder. (c) The execution and delivery by the Company and the Subsidiaries of this Amendment and the other Amendment Documents, to the extent a party thereto, the performance by the Company and the Subsidiaries of their respective obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby, do not and will not conflict with any provision of law, statute, rule or regulation or of the certificate or articles of incorporation and bylaws of the Company or any Subsidiary, or of any material agreement, judgment, license, order or permit applicable to or binding upon the Company or any Subsidiary, or result in the creation of any lien, charge or encumbrance upon any assets or properties of the Company or any Subsidiary, except in favor of Agent for the benefit of Lenders. Except for those which have been duly 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 the Company or any Subsidiary of this Amendment or any other Amendment Document, to the extent a party thereto, or to consummate the transactions contemplated hereby and thereby. (d) When this Amendment and the other Amendment Documents have been duly executed and delivered, each of the Basic Documents, as amended by this Amendment and the other Amendment Documents, will be a legal and binding instrument and agreement of the Company and the Subsidiaries, to the extent a party thereto, enforceable in accordance with its terms, (subject, as to enforcement of remedies, to applicable bankruptcy, insolvency and similar laws applicable to creditors' rights generally and to general principles of equity). ARTICLE V. -- Miscellaneous ------------- (S) 5.1. Ratification of Agreements. The Original Agreement, as hereby -------------------------- amended, is hereby ratified and confirmed in all respects. The Basic Documents, as they may be amended or affected by this Amendment and/or the other Amendment Documents, are hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Basic Document shall 5 be deemed to refer to this Amendment also. The execution, delivery and effectiveness of this Amendment and the other Amendment Documents shall not, except as expressly provided herein or therein, operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Basic Document nor constitute a waiver of any provision of the Credit Agreement or any other Basic Document. (S) 5.2. Ratification of Security Documents. The Company, Agent and ---------------------------------- Lenders each acknowledge and agree that any and all indebtedness, liabilities or obligations arising under or in connection with the Notes are Obligations and is secured indebtedness under, and is secured by, each and every Security Document to which the Company is a party. The Company hereby re-pledges, re-grants and re-assigns a security interest in and lien on every asset of the Company described as collateral in any Security Document. (S) 5.3. Survival of Agreements. All representations, warranties, ---------------------- covenants and agreements of the Company herein and in the other Amendment Documents shall survive the execution and delivery of this Amendment and the other Amendment Documents and the performance hereof and thereof, including without limitation the making or granting of each Loan, 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 the Company or any Subsidiary hereunder, under the other Amendment Documents or under the Credit Agreement to Agent or any Lender shall be deemed to constitute representations and warranties by, or agreements and covenants of, the Company under this Amendment and under the Credit Agreement. (S) 5.4. Basic Documents. This Amendment and each of the other Amendment --------------- Documents is a Basic Document, and all provisions in the Credit Agreement pertaining to Basic Documents apply hereto and thereto. (S) 5.5. GOVERNING LAW. THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS -------- ---------------------------------------------------------------- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF - ------------------------------------------------------------------------------ NEW YORK AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL - ----------------------------------------------------------------------- RESPECTS, INCLUDING CONSTRUCTION, VALIDITY AND PERFORMANCE. - ----------------------------------------------------------- (S) 5.6. Counterparts. This Amendment and each of the other Amendment ------------ Documents 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 or Amendment Document, as the case may be. IN WITNESS WHEREOF, this Amendment is executed as of the date first above written. PLAINS RESOURCES INC. By:___________________________________________ Name: Title: 6 FIRST UNION NATIONAL BANK, as Agent, LC Issuer and a Lender By: /s/ Robert R. Wetteroff ____________________________________________ Robert R. Wetteroff, Senior Vice President FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), Lender By: /s/ Terrence Ronan ____________________________________________ Terrence Ronan, Managing Director BANK OF AMERICA, N.A., Lender By:____________________________________________ Name: Title: WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, Lender By:____________________________________________ Name: Title: THE CHASE MANHATTAN BANK (successor to Chase Bank of Texas, N.A.), Lender By:____________________________________________ Name: Title: COMERICA BANK-TEXAS, Lender By:____________________________________________ Name: Title: 7 FORTIS CAPITAL CORP. (f/k/a MeesPierson Capital Corp.), Lender By:____________________________________________ Name: Title: By:____________________________________________ Name: Title: BANK OF SCOTLAND, Lender By:____________________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION, Lender By:____________________________________________ Name: Title: HIBERNIA NATIONAL BANK, Lender By:____________________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, Lender By:____________________________________________ Name: Title: BANK ONE, NA (MAIN OFFICE CHICAGO), Lender By:____________________________________________ Name: Title: 8 CONSENT AND AGREEMENT --------------------- Each of the undersigned Subsidiary Guarantors hereby consents to the provisions of this Amendment and the transactions contemplated herein and hereby (i) acknowledges and agrees that any and all indebtedness, liabilities or obligations arising under or in connection with the Notes are Obligations and are secured indebtedness under, and are secured by, each and every Security Document to which it is a party, (ii) re-pledges, re-grants and re-assigns a security interest in and lien on all of its assets described as collateral in any Security Document, (iii) ratifies and confirms its Amended and Restated Guaranty dated May 22, 1998 made by it for the benefit of Agent and Lenders, and (iv) expressly acknowledges and agrees that such Subsidiary Guarantor guarantees all indebtedness, liabilities and obligations arising under or in connection with the Notes pursuant to the terms of such Amended and Restated Guaranty, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. PLAINS RESOURCES INTERNATIONAL INC. STOCKER RESOURCES, INC. PLAINS ILLINOIS INC. By: /s/ Phil Kramer ____________________________________________ Phil Kramer, Executive Vice President STOCKER RESOURCES, L.P. By: Stocker Resources, Inc., its General Partner By: /s/ Phil Kramer _______________________________________ Phil Kramer, Executive Vice President 9 The undersigned Subsidiary Guarantor hereby consents to the provisions of this Amendment and the transactions contemplated herein and hereby (i) acknowledges and agrees that any and all indebtedness, liabilities or obligations arising under or in connection with the Notes are Obligations and are secured indebtedness under, and are secured by, each and every Security Document to which it is a party, (ii) re-pledges, re-grants and re-assigns a security interest in and lien on all of its assets described as collateral in any Security Document, (iii) ratifies and confirms its Guaranty dated July 1, 1999 made by it for the benefit of Agent and Lenders, and (iv) expressly acknowledges and agrees that such Subsidiary Guarantor guarantees all indebtedness, liabilities and obligations arising under or in connection with the Notes pursuant to the terms of such Guaranty, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. ARGUELLO INC. By:____________________________________________ Name: Title: 10 EX-10.15 17 dex1015.txt PLAINS RESOURCES INC. 2001 STOCK INCENTIVE PLAN EXHIBIT 10.15 PLAINS RESOURCES INC. 2001 STOCK INCENTIVE PLAN (As Adopted May 7, 2001) 1. Purpose. The purpose of this Plan is to strengthen Plains Resources Inc., a Delaware corporation (the "Company"), by providing an incentive to its employees, officers, consultants and directors and thereby encouraging them to devote their abilities and industry to the success of the Company's business enterprise. It is intended that this purpose be achieved by extending to employees (including future employees who have received a formal written offer of employment), officers, consultants and directors of the Company and its Subsidiaries and Affiliates an added long-term incentive for high levels of performance and unusual efforts through the grant of Incentive Stock Options, Nonqualified Stock Options, Performance Units and Performance Shares, Share Awards and Restricted Stock (as each term is herein defined). 2. Definitions. For purposes of the Plan: 2.1 "Adjusted Fair Market Value" means, in the event of a Change in Control, the greater of (a) the highest price per Share paid to holders of the Shares in any transaction (or series of transactions) constituting or resulting in a Change in Control or (b) the highest Fair Market Value of a Share during the ninety (90) day period ending on the date of a Change in Control. 2.2 "Affiliate" means any entity, directly or indirectly, controlled by, controlling or under common control with the Company or any corporation or other entity acquiring, directly or indirectly, all or substantially all the assets and business of the Company, whether by operation of law or otherwise. 2.3 "Agreement" means the written agreement between the Company and an Optionee or Grantee evidencing the grant of an Option or Award and setting forth the terms and conditions thereof. 2.4 "Award" means a grant of Restricted Stock, a Performance Award, a Share Award or any or all of them. 2.5 "Board" means the Board of Directors of the Company. 2.6 "Cause" means: (a) for purposes of Section 6.4, the commission of an act of fraud or intentional misrepresentation or an act of embezzlement, misappropriation or conversion of assets or opportunities of the Company or any of its Subsidiaries; and (b) in the case of an Optionee or Grantee whose employment with the Company, Subsidiary or Affiliate is subject to the terms of an employment agreement between such Optionee or Grantee and the Company, Subsidiary or Affiliate, which employment agreement includes a definition of "Cause", the term "Cause" as used in this Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and (c) in all other cases, (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) involvement in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries or Affiliates which transaction is adverse to the interests of the Company or any of its Subsidiaries or Affiliates and which is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar minor offenses) provided, however, that following a Change in Control clause (i) of this Section 2.6(c) shall not constitute "Cause." 1 2.7 "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, in the case of a spin-off, dividend or other distribution in respect of Shares, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company or another corporation, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, change in corporate structure or otherwise. 2.8 A "Change in Control" shall mean the occurrence of any of the following: (a) The "acquisition" by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of any securities of the Company which generally entitles the holder thereof to vote for the election of directors of the Company (the "Voting Securities") which, when added to the Voting Securities then "Beneficially Owned" by such Person, would result in such Person either "Beneficially Owning" fifty percent (50%) or more of the combined voting power of the Company's then outstanding Voting Securities or having the ability to elect fifty percent (50%) or more of the Company's directors; provided, however, that for purposes of this paragraph (a) of Section 2.8, a Person shall not be deemed to have made an acquisition of Voting Securities if such Person; (i) becomes the Beneficial Owner of more than the permitted percentage of Voting Securities solely as a result of open market acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person; (ii) is the Company or any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned directly or indirectly by the Company (a "Controlled Entity"); (iii) acquires Voting Securities in connection with a "Non-Control Transaction" (as defined in paragraph (c) of this Section 2.8); or (iv) becomes the Beneficial Owner of more than the permitted percentage of Voting Securities as a result of a transaction approved by a majority of the Incumbent Board (as defined in paragraph (b) below); or (b) The individuals who, as of the Effective Date, are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that if either the election of any new director or the nomination for election of any new director by the Company's stockholders was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of a merger, consolidation or reorganization involving the Company (a "Business Combination"), unless (i) the stockholders of the Company, immediately before the Business Combination, own, directly or indirectly immediately following the Business Combination, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (the "Surviving Corporation") in substantially the same proportion as their ownership of the Voting Securities immediately before the Business Combination, and (ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for the Business Combination constitute at least a majority of the members of the Board of Directors of the Surviving Corporation, and (iii) no Person (other than (x) the Company or any Controlled Entity, (y) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company, the Surviving Corporation or any Controlled Entity, or (z) any Person who, immediately prior to the Business Combination, had Beneficial Ownership of fifty percent (50%) or more of the 2 then outstanding Voting Securities) has Beneficial Ownership of fifty percent (50%) or more of the combined voting power of the Surviving Corporation's then outstanding voting securities (a Business Combination described in clauses (i), (ii) and (iii) of this paragraph shall be referred to as a "Non-Control Transaction"); (d) A complete liquidation or dissolution of the Company; or (e) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Controlled Entity). Notwithstanding the foregoing, if Optionee's or Grantee's employment is terminated and Optionee or Grantee reasonably demonstrates that such termination (x) was at the request of a third party who has indicated an intention or has taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (y) otherwise occurred in connection with, or in anticipation of, a Change in Control which actually occurs, then for all purposes hereof, the date of a Change in Control with respect to Optionee or Grantee shall mean the date immediately prior to the date of such termination of employment. A Change in Control shall not be deemed to occur solely because fifty percent (50%) or more of the then outstanding Voting Securities is Beneficially Owned by (x) a trustee or other fiduciary holding securities under one or more employee benefit plans or arrangements (or any trust forming a part thereof) maintained by the Company or any Controlled Entity or (y) any corporation which, immediately prior to its acquisition of such interest, is owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock in the Company immediately prior to such acquisition. 2.9 "Code" means the Internal Revenue Code of 1986, as amended. 2.10 "Committee" means a committee, as described in Section 3.1, appointed by the Board from time to time to administer the Plan and to perform the functions set forth herein. 2.11 "Company" means Plains Resources Inc. 2.12 "Director" means a director of the Company. 2.13 "Disability" means: (a) in the case of an Optionee or Grantee whose employment with the Company or a Subsidiary is subject to the terms of an employment agreement between such Optionee or Grantee and the Company or Subsidiary, which employment agreement includes a definition of "Disability", the term "Disability" as used in this Plan or any Agreement shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; or (b) the term "Disability" as used in the Company's long-term disability plan, if any; or (c) in all other cases, the term "Disability" as used in this Plan or any Agreement shall mean a physical or mental infirmity which impairs the Optionee's or Grantee's ability to perform substantially his or her duties for a period of one hundred eighty (180) consecutive days. 2.14 "Division" means any of the operating units or divisions of the Company designated as a Division by the Committee. 2.15 "Eligible Director" means a director of the Company who is not an employee of the Company or any Subsidiary or Affiliate. 2.16 "Eligible Individual" means any of the following individuals who is designated by the Committee as eligible to receive Options or Awards subject to the conditions set forth herein: (a) any director (other than an Eligible Director), officer or employee of the Company, Subsidiary or Affiliate, (b) any individual to whom the Company or a Subsidiary has extended a formal, written offer of employment, or (c) any consultant or advisor of the Company, Subsidiary or Affiliate. 2.17 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 3 2.18 "Fair Market Value" on any date means the closing sales prices of the Shares (i) on the day before such date, or (ii) on such date if an Agreement so provides, on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if such Shares are not so listed or admitted to trading, the average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and, in the case of an Incentive Stock Option, in accordance with Section 422 of the Code. 2.19 "Formula Option" means an Option granted pursuant to Section 6. 2.20 "Grantee" means a person to whom an Award has been granted under the Plan. 2.21 "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. 2.22 "Nonemployee Director" means a director of the Company who is a "nonemployee director" within the meaning of Rule 16b-3 promulgated under the Exchange Act. 2.23 "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 2.24 "Option" means a Nonqualified Stock Option, an Incentive Stock Option, a Formula Option, or any or all of them. 2.25 "Optionee" means a person to whom an Option has been granted under the Plan. 2.26 "Outside Director" means a director of the Company who is an "outside director" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. 2.27 "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.28 "Performance Awards" means Performance Units, Performance Shares or either or both of them. 2.29 "Performance-Based Compensation" means any Option or Award that is intended to constitute "performance based compensation" within the meaning of Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder. 2.30 "Performance Cycle" means the time period specified by the Committee at the time Performance Awards are granted during which the performance of the Company, or a Subsidiary Affiliate or Division will be measured. 2.31 "Performance Objectives" has the meaning set forth in Section 9. 2.32 "Performance Shares" means Shares issued or transferred to an Eligible Individual under Section 9. 2.33 "Performance Units" means Performance Units granted to an Eligible Individual under Section 9. 2.34 "Plan" means the Plains Resources Inc. 2001 Stock Incentive Plan, as amended and restated from time to time. 2.35 "Retained Distribution" means any securities or other property (other than regular cash dividends) distributed by the Company in respect of Restricted Stock during any Restricted Period. 2.36 "Restricted Period" means the period designated by the Committee during which Restricted Stock may not be sold, assigned, pledged or otherwise encumbered. 2.37 "Restricted Stock" means Shares issued or transferred to an Eligible Individual pursuant to Section 8. 4 2.38 "Share Award" means an Award of Shares granted pursuant to Section 10. 2.39 "Shares" means the common stock, par value $.10 per share, of the Company and any other securities into which such shares are changed or for which such shares are exchanged. 2.40 "Subsidiary" means (i) except as provided in subsection (ii) below, any corporation which is a subsidiary corporation within the meaning of Section 424(f) of the Code with respect to the Company, and (ii) in relation to the eligibility to receive Options or Awards other than Incentive Stock Options and continued employment for purposes of Options and Awards (unless the Committee determines otherwise), any entity, whether or not incorporated, in which the Company directly or indirectly owns 50% or more of the outstanding equity or other ownership interests. 2.41 "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies or a spun-off entity resulting from a transaction described in Section 355 of the Code. 2.42 "Ten-Percent Stockholder" means an Eligible Individual, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent, Subsidiary or Affiliate. 3. Administration. 3.1 The Plan shall be administered by the Committee, which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not fewer than two (2) members of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. The Committee shall consist of one (1) or more Directors and may consist of the entire Board. If the Committee consists of less than the entire Board, then with respect to any Option or Award to an individual who is subject to Section 16 of the Exchange Act, the Committee shall consist of at least two (2) Directors each of whom shall be a Nonemployee Director and to the extent necessary for any award under the Plan to qualify as performance- based compensation for the purposes of Section 162(m) of the Code, the Committee shall consist of at least two (2) Directors each of whom shall be an Outside Director. For purposes of the preceding sentence, if one or more members of the Committee is not a Nonemployee Director and an Outside Director but recuses himself or herself or abstains from voting with respect to a particular action taken by the Committee, then the Committee, with respect to that action, shall be deemed to consist only of the members of the Committee who have not recused themselves or abstained from voting. Subject to applicable law, the Committee may delegate its authority under the Plan to any other person or persons. 3.2 No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiating for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any actions in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 3.3 Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to: (a) determine those Eligible Individuals to whom Options shall be granted under the Plan and the number of such Options to be granted and to prescribe the terms and conditions (which need not be identical) of each such Option, including the exercise price per Share, the vesting schedule and the 5 duration of each Option, and make any amendment or modification to any Option Agreement consistent with the terms of the Plan; (b) select those Eligible Individuals to whom Awards shall be granted under the Plan and to determine the number of Shares in respect of which each Award is granted, the terms and conditions (which need not be identical) of each such Award, and make any amendment or modification to any Award Agreement consistent with the terms of the Plan; (c) to construe and interpret the Plan and the Options and Awards granted hereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable, including so that the Plan and the operation of the Plan complies with Rule 16b-3 under the Exchange Act, the Code to the extent applicable and other applicable law, and otherwise to make the Plan fully effective. All decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and Grantees, and all other persons having any interest therein; (d) to determine the duration and purposes for leaves of absence which may be granted to an Optionee or Grantee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (e) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; and (f) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to the Plan; Grant Limitations. 4.1 The maximum number of Shares that may be made the subject of Options and Awards granted under the Plan is 4,000,000; provided, however, that in the aggregate, not more than 1,000,000 of the allotted Shares may be made the subject of Restricted Stock Awards under Section 8 of the Plan (other than shares of Restricted Stock made in settlement of Performance Units pursuant to Section 9.1(b)). The maximum number of Shares that may be the subject of Options and Awards granted to an Eligible Individual in any one calendar year period may not exceed 1,000,000 Shares. The maximum dollar amount of cash or the Fair Market Value of Shares that any Eligible Individual may receive in any calendar year in respect of Performance Units denominated in dollars may not exceed $1,000,000. The Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Board. 4.2 Upon the granting of an Option or an Award, the number of Shares available under Section 4.1 for the granting of further Options and Awards shall be reduced as follows: (a) In connection with the granting of an Option or an Award (other than the granting of a Performance Unit denominated in dollars), the number of Shares shall be reduced by the number of Shares in respect of which the Option or Award is granted or denominated; provided, however, that if any Option is exercised by tendering Shares, either actually or by attestation, to the Company as full or partial payment of the exercise price, the maximum number of Shares available under Section 4.1 shall be increased by the number of Shares so tendered. (b) In connection with the granting of a Performance Unit denominated in dollars, the number of Shares shall be reduced by an amount equal to the quotient of (i) the dollar amount in which the Performance Unit is denominated, divided by (ii) the Fair Market Value of a Share on the date the Performance Unit is granted. 6 4.3 Whenever any outstanding Option or Award or portion thereof expires, is canceled, is settled in cash (including the settlement of tax withholding obligations using Shares) or is otherwise terminated for any reason without having been exercised or payment having been made in respect of the entire Option or Award, the Shares allocable to the expired, canceled, settled or otherwise terminated portion of the Option or Award may again be the subject of Options or Awards granted hereunder. 4.4 In no event may more than 3,000,000 Shares be issued upon the exercise of Incentive Stock Options granted under the Plan. 5. Option Grants for Eligible Individuals. 5.1 Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Individuals who will receive Options, and the terms and conditions of the grant to such Eligible Individuals shall be set forth in an Agreement. Incentive Stock Options may be granted only to Eligible Individuals who are employees of the Company or any Subsidiary or Affiliate. 5.2 Exercise Price. The purchase price or the manner in which the exercise price is to be determined for Shares under each Option shall be determined by the Committee and set forth in the Agreement; provided, however, that the exercise price per Share under each Option shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (110% in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). 5.3 Maximum Duration. Options granted hereunder shall be for such term as the Committee shall determine, provided that an Incentive Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be exercisable after the expiration of ten (10) years from the date it is granted; provided, however, that unless the Committee provides otherwise an Option (other than an Incentive Stock Option) may, upon the death of the Optionee prior to the expiration of the Option, be exercised for up to one (1) year following the date of the Optionee's death even if such period extends beyond ten (10) years from the date the Option is granted. The Committee may, subsequent to the granting of any Option, extend the term thereof, but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 5.4 Vesting. Subject to Section 7.4, each Option shall become exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee and set forth in the Agreement. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 5.5 Deferred Delivery of Option Shares. The Committee may, in its discretion, permit Optionees to elect to defer the issuance of Shares upon the exercise of one or more Nonqualified Stock Options granted pursuant to the Plan. The terms and conditions of such deferral shall be determined at the time of the grant of the Option or thereafter and shall be set forth in the Agreement evidencing the Option. 5.6 Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of the grant) of Shares with respect to which Incentive Stock Options granted under the Plan and "incentive stock options" (within the meaning of Section 422 of the Code) granted under all other plans of the Company or its Subsidiaries (in either case determined without regard to this Section 5.6) are exercisable by an Optionee for the first time during any calendar year exceeds $100,000, such Incentive Stock Options shall be treated as Nonqualified Stock Options. In applying the limitation in the preceding sentence in the case of multiple Option grants, Options which were intended to be Incentive Stock Options shall be treated as Nonqualified Stock Options according to the order in which they were granted such that the most recently granted Options are first treated as Nonqualified Stock Options. 7 6. Option Grants for Nonemployee Directors. 6.1 Grant. Formula Options shall be granted (i) to Eligible Directors who become members of the Board after the Effective Date upon election or appointment and (ii) to all Eligible Directors who are members of the Board as follows: (a) Initial Grant. Each Eligible Director who becomes a Director after the Effective Date, shall, upon becoming a Director, be granted a Formula Option in respect of 10,000 Shares multiplied by a fraction, the numerator of which is twelve (12) less the number of months that have elapsed since the last day of the month in which the annual meeting of the stockholders of the Company occurred and the denominator of which is twelve (12). (b) Annual Grant. Each Eligible Director shall be granted a Formula Option in respect of 10,000 Shares on the first business day after the annual meeting of the stockholders of the Company in each year that the Plan is in effect provided that the Eligible Director is a Director on such date. All Formula Options shall be evidenced by an Agreement containing such other terms and conditions not inconsistent with the provisions of this Plan as determined by the Board; provided, however, that such terms shall not vary the price, amount or timing of Formula Options provided under this Section 6, including provisions dealing with vesting, forfeiture and termination of such Formula Options. 6.2 Purchase Price. The purchase price for Shares under each Formula Option shall be equal to 100% of the Fair Market Value of such Shares on the date the Formula Option is granted. 6.3 Vesting. Each Formula Option shall be fully vested and exercisable as of the date of grant; provided, however, that the Optionee continues to serve as a Director as of such date; provided, further, however, that if a Director dies prior to such date and while a Director, the Formula Option shall become fully vested and exercisable with respect to 100% of the Shares that otherwise would have vested on that date. 6.4 Duration. Subject to Section 7.4, each Formula Option shall terminate on the date which is the fifth anniversary of the date of grant (or if later, the first anniversary of the date of the Director's death if such death occurs prior to such tenth anniversary), unless terminated earlier as follows: (a) If an Optionee's service as a Director terminates for any reason other than Disability, death or Cause, the Optionee may for a period of three (3) months after such termination exercise his or her Option to the extent, and only to the extent, that such Option or portion thereof was vested and exercisable as of the date the Optionee's service as a Director terminated, after which time the Option shall automatically terminate in full. (b) If an Optionee's service as a Director terminates by reason of the Optionee's resignation or removal from the Board due to Disability, the Optionee may, for a period of one (1) year after such termination, exercise his or her Option to the extent, and only to the extent, that such Option or portion thereof was vested and exercisable, as of the date the Optionee's service as Director terminated, after which time the Option shall automatically terminate in full. (c) If an Optionee's service as a Director terminates for Cause, the Option granted to the Optionee hereunder shall immediately terminate in full and no rights thereunder may be exercised. (d) If an Optionee dies while a Director or within three (3) months after termination of service as a Director as described in clause (a) of this Section 6.4 or within twelve (12) months after termination of service as a Director as described in clause (b) of this Section 6.4, the Option granted to the Optionee may be exercised at any time within twelve (12) months after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will, or by the laws of descent or distribution, after which time the Option shall terminate in full; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination of the Optionee's services as a Director. 8 7. Terms and Conditions Applicable to All Options. 7.1 Non-Transferability. No Option shall be transferable by the Optionee otherwise than by will or by the laws of descent and distribution or, in the case of an Option other than an Incentive Stock Option, pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Exchange Act), and an Option shall be exercisable during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. Notwithstanding the foregoing, the Committee may set forth in the Agreement evidencing an Option (other than an Incentive Stock Option) at the time of grant or thereafter, that the Option may be transferred to members of the Optionee's immediate family, to trusts solely for the benefit of such immediate family members and to partnerships in which such family members and/or trusts are the only partners, and for purposes of this Plan, a transferee of an Option shall be deemed to be the Optionee. For this purpose, immediate family means the Optionee's spouse, parents, children, stepchildren and grandchildren and the spouses of such parents, children, stepchildren and grandchildren. The terms of an Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee. 7.2 Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail or telecopy to the Secretary of the Company at the Company's principal executive office, specifying the number of Shares to be exercised and, to the extent applicable, accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The exercise price for any Shares purchased pursuant to the exercise of an Option shall be paid, in either of the following forms (or any combination thereof): (a) cash or (b) the transfer, either actually or by attestation, to the Company of Shares that have been held by the Optionee for at least six (6) months (or such lesser period as may be permitted by the Committee) prior to the exercise of the Option, such transfer to be upon such terms and conditions as determined by the Committee or (c) a combination of cash and the transfer of Shares; provided, however, that the Committee may determine that the exercise price shall be paid only in cash. In addition, Options may be exercised through a registered broker-dealer pursuant to such cashless exercise procedures which are, from time to time, deemed acceptable by the Committee. Any Shares transferred to the Company as payment of the exercise price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Secretary of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 7.3 Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (a) the Option shall have been exercised pursuant to the terms thereof, (b) the Company shall have issued and delivered Shares to the Optionee, and (c) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares, subject to such terms and conditions as may be set forth in the applicable Agreement. 7.4 Effect of Change in Control. In the event of a Change in Control, all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable. In addition, to the extent set forth in an Agreement evidencing the grant of an Option, an Optionee will be permitted to surrender to the Company for cancellation within ninety (90) days after such Change in Control any Option or portion of an Option to the extent not yet exercised and the Optionee will be entitled to receive a cash payment in an amount equal to the excess, if any, of (a) (i) in the case of a Nonqualified Stock Option, the greater of (A) the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered or (B) the Adjusted Fair Market Value of the Shares subject to the Option or portion thereof surrendered or (ii) in the case of an Incentive Stock Option, the Fair Market Value, on the date preceding the date of surrender, of the Shares subject to the Option or portion thereof surrendered, over (b) the aggregate exercise price for such Shares under the Option or portion thereof surrendered. In the event an Optionee's employment with, or service as a Director of, the Company and its Subsidiaries terminates following a Change in Control, each Option held by the Optionee that was exercisable as of the date of termination of the Optionee's employment or service shall, 9 notwithstanding any shorter period set forth in the Agreement evidencing the Option, remain exercisable for a period ending not before the earlier of (x) the first anniversary of the termination of the Optionee's employment or service or (y) the expiration of the stated term of the Option. 8. Restricted Stock. 8.1 Grant. The Committee may grant Awards to Eligible Individuals of Restricted Stock, which shall be evidenced by an Agreement between the Company and the Grantee. Each Agreement shall contain such restrictions, terms and conditions as the Committee may, in its discretion, determine and (without limiting the generality of the foregoing) such Agreements may require that an appropriate legend be placed on Share certificates. Awards of Restricted Stock shall be subject to the terms and provisions set forth below in this Section 8. 8.2 Rights of Grantee. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted provided that the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted Stock Award, or any documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with a Restricted Stock Award shall be deposited together with the stock powers with an escrow agent (which may be the Company) designated by the Committee. Unless the Committee determines otherwise and as set forth in the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares (other than Retained Distributions). The Company shall retain custody of all Retained Distributions made or declared with respect to the Restricted Stock and such Retained Distributions shall be subject to the same restrictions on terms and conditions as are applicable to the Restricted Stock 8.3 Non-transferability. Until all restrictions upon the Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth in Section 8.4, such Shares and Retained Distribution shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. 8.4 Lapse of Restrictions. (a) Generally. Restrictions upon Shares of Restricted Stock awarded hereunder shall lapse at such time or times and on such terms and conditions as the Committee may determine (the "Restricted Period"). The Agreement evidencing the Award shall set forth any such restrictions. (b) Effect of Change in Control. Unless the Committee shall determine otherwise at the time of the grant of an Award of Restricted Stock, the restrictions upon Shares of Restricted Stock shall lapse upon a Change in Control. The Agreement evidencing the Award shall set forth any such provisions. 8.5 Treatment of Dividends. At the time an Award of Shares of Restricted Stock is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on such Shares by the Company shall be (a) deferred until the lapsing of the restrictions imposed upon such Shares and (b) held by the Company for the account of the Grantee until such time. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in Shares (which shall be held as additional Shares of Restricted Stock) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends in respect of Shares of Restricted Stock (whether held in cash or as additional Shares of Restricted Stock), together with interest accrued thereon, if any, shall be made upon the 10 lapsing of restrictions imposed on the Shares in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited upon the forfeiture of such Shares. 8.6 Delivery of Shares. Upon the lapse of the restrictions on Shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Shares, free of all restrictions hereunder. 9. Performance Awards. 9.1 Performance Units. The Committee, in its discretion, may grant Awards of Performance Units to Eligible Individuals, the terms and conditions of which shall be set forth in an Agreement between the Company and the Grantee. Performance Units may be denominated in Shares or a specified dollar amount and, contingent upon the attainment of specified Performance Objectives within the Performance Cycle, represent the right to receive payment as provided in Section 9.3(c) of (i) in the case of Share-denominated Performance Units, the Fair Market Value of a Share on the date the Performance Unit was granted, the date the Performance Unit became vested or any other date specified by the Committee, (ii) in the case of dollar-denominated Performance Units, the specified dollar amount or (iii) a percentage (which may be more than 100%) of the amount described in clause (i) or (ii) depending on the level of Performance Objective attainment; provided, however, that, the Committee may at the time a Performance Unit is granted specify a maximum amount payable in respect of a vested Performance Unit. Each Agreement shall specify the number of Performance Units to which it relates, the Performance Objectives which must be satisfied in order for the Performance Units to vest and the Performance Cycle within which such Performance Objectives must be satisfied. (a) Vesting and Forfeiture. Subject to Sections 9.3(c) and 9.4, a Grantee shall become vested with respect to the Performance Units to the extent that the Performance Objectives set forth in the Agreement are satisfied for the Performance Cycle. (b) Payment of Awards. Subject to Section 9.3(c), payment to Grantees in respect of vested Performance Units shall be made as soon as practicable after the last day of the Performance Cycle to which such Award relates unless the Agreement evidencing the Award provides for the deferral of payment, in which event the terms and conditions of the deferral shall be set forth in the Agreement. Subject to Section 9.4, such payments may be made entirely in Shares valued at their Fair Market Value, entirely in cash, or in such combination of Shares and cash as the Committee in its discretion shall determine at any time prior to such payment; provided, however, that if the Committee in its discretion determines to make such payment entirely or partially in Shares of Restricted Stock, the Committee must determine the extent to which such payment will be in Shares of Restricted Stock and the terms of such Restricted Stock at the time the Award is granted. 9.2 Performance Shares. The Committee, in its discretion, may grant Awards of Performance Shares to Eligible Individuals, the terms and conditions of which shall be set forth in an Agreement between the Company and the Grantee. Each Agreement may require that an appropriate legend be placed on Share certificates. Awards of Performance Shares shall be subject to the following terms and provisions: (a) Rights of Grantee. The Committee shall provide at the time an Award of Performance Shares is made the time or times at which the actual Shares represented by such Award shall be issued in the name of the Grantee; provided, however, that no Performance Shares shall be issued until the Grantee has executed an Agreement evidencing the Award, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such Performance Shares. If a Grantee shall fail to execute the Agreement evidencing an Award of Performance Shares, the appropriate blank stock powers and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require within the time period prescribed by the Committee at the time the Award is granted, the Award shall be null and void. At the discretion of the Committee, Shares issued in connection with an Award of Performance Shares shall be deposited together with the stock powers 11 with an escrow agent (which may be the Company) designated by the Committee. Except as restricted by the terms of the Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall have, in the discretion of the Committee, all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect to the Shares. (b) Non-transferability. Until any restrictions upon the Performance Shares awarded to a Grantee shall have lapsed in the manner set forth in Sections 9.2(c) or 9.4, such Performance Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated, nor shall they be delivered to the Grantee. The Committee may also impose such other restrictions and conditions on the Performance Shares, if any, as it deems appropriate. (c) Lapse of Restrictions. Subject to Sections 9.3(c) and 9.4, restrictions upon Performance Shares awarded hereunder shall lapse and such Performance Shares shall become vested at such time or times and on such terms, conditions and satisfaction of Performance Objectives as the Committee may, in its discretion, determine at the time an Award is granted. (d) Treatment of Dividends. At the time the Award of Performance Shares is granted, the Committee may, in its discretion, determine that the payment to the Grantee of dividends, or a specified portion thereof, declared or paid on Shares represented by such Award which have been issued by the Company to the Grantee shall be (i) deferred until the lapsing of the restrictions imposed upon such Performance Shares and (ii) held by the Company for the account of the Grantee until such time. In the event that dividends are to be deferred, the Committee shall determine whether such dividends are to be reinvested in shares of Stock (which shall be held as additional Performance Shares) or held in cash. If deferred dividends are to be held in cash, there may be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum as the Committee, in its discretion, may determine. Payment of deferred dividends in respect of Performance Shares (whether held in cash or in additional Performance Shares), together with interest accrued thereon, if any, shall be made upon the lapsing of restrictions imposed on the Performance Shares in respect of which the deferred dividends were paid, and any dividends deferred (together with any interest accrued thereon) in respect of any Performance Shares shall be forfeited upon the forfeiture of such Performance Shares. (e) Delivery of Shares. Upon the lapse of the restrictions on Performance Shares awarded hereunder, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such Shares, free of all restrictions hereunder. 9.3 Performance Objectives (a) Establishment. Performance Objectives for Performance Awards may be expressed in terms of (i) revenue, (ii) net income, (iii) operating income; (iv) earnings per Share, (v) Share price, (vi) pre-tax profits, (vii) net earnings, (viii) return on equity or assets, (ix) sales, (x) market share, (xi) total Shareholder return, (xii) total Shareholder return relative to peers or (xiii) any combination of the foregoing. Performance Objectives may be in respect of the performance of the Company, any of its Subsidiaries or Affiliates, any of its Divisions or segments or any combination thereof. Performance Objectives may be absolute or relative (to prior performance of the Company or to the performance of one or more other entities or external indices) and may be expressed in terms of a progression within a specified range. The Performance Objectives with respect to a Performance Cycle shall be established in writing by the Committee by the earlier of (x) the date on which a quarter of the Performance Cycle has elapsed or (y) the date which is ninety (90) days after the commencement of the Performance Cycle, and in any event while the performance relating to the Performance Objectives remain substantially uncertain. (b) Effect of Certain Events. At the time of the granting of a Performance Award, or at any time thereafter, in either case to the extent permitted under Section 162(m) of the Code and the regulations thereunder without adversely affecting the treatment of the Performance Award as Performance-Based Compensation, the 12 Committee may provide for the manner in which performance will be measured against the Performance Objectives (or may adjust the Performance Objectives), include or exclude items to measure specific objectives, such as losses from discontinued operations, extraordinary, unusual or nonrecurring gains and losses, the cumulative effect of accounting changes, acquisitions or divestitures or other corporate transactions, core process redesigns, structural changes/outsourcing, and foreign exchange impacts. (c) Determination of Performance. Prior to the vesting, payment, settlement or lapsing of any restrictions with respect to any Performance Award that is intended to constitute Performance-Based Compensation made to a Grantee who is subject to Section 162(m) of the Code, the Committee shall certify in writing that the applicable Performance Objectives have been satisfied to the extent necessary for such Award to qualify as Performance Based Compensation. 9.4 Effect of Change in Control. In the event of a Change in Control, unless otherwise determined by the Committee and set forth in the Agreement evidencing the Award: (a) With respect to Performance Units, the Grantee shall (i) become vested in all outstanding of the Performance Units as if all Performance Objectives had been satisfied at the maximum level and (ii) be entitled to receive in respect of all Performance Units which become vested as a result of a Change in Control a cash payment within ten (10) days after such Change in Control. (b) With respect to Performance Shares, all restrictions shall lapse immediately on all outstanding Performance Shares as if all Performance Objectives had been satisfied at the maximum level. (c) The Agreements evidencing Performance Shares and Performance Units shall provide for the treatment of such Awards (or portions thereof), if any, which do not become vested as the result of a Change in Control, including, but not limited to, provisions for the adjustment of applicable Performance Objectives. 9.5 Non-transferability. Until the vesting of Performance Units or the lapsing of any restrictions on Performance Shares, as the case may be, such Performance Units or Performance Shares shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated. 10. Other Share Based Awards. The Committee may grant a Share Award to any Eligible Individual on such terms and conditions as the Committee may determine in its sole discretion. Share Awards may be made as additional compensation for services rendered by the Eligible Individual or may be in lieu of cash or other compensation to which the Eligible Individual is entitled from the Company. 11. Effect of a Termination of Employment. The Agreement evidencing the grant of each Option and each Award shall set forth the terms and conditions applicable to such Option or Award upon a termination or change in the status of the employment of the Optionee or Grantee by the Company, or a Subsidiary, Affiliate or Division (including a termination or change by reason of the sale of a Subsidiary, Affiliate or Division), which, except for Formula Options, shall be as the Committee may, in its discretion, determine at the time the Option or Award is granted or thereafter. 12. Adjustment Upon Changes in Capitalization. (a) In the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to (i) the maximum number, exercise price and class of Shares or other stock or securities with respect to which Options or Awards may be granted under the Plan, (ii) the maximum number, exercise price and class of Shares or other stock or securities that may be issued upon exercise of Incentive Stock Options, (iii) the maximum number, exercise price and class of Shares or other stock or securities with respect to which 13 Options or Awards may be granted to any Eligible Individual in any one calendar year period, (iv) the number, exercise price and class of Shares or other stock or securities which are subject to outstanding Options or Awards granted under the Plan, (v) the number, exercise price and class of Shares or other securities in respect of which Formula Options are to be granted under Section 6 and (vi) the Performance Objectives. (b) Any such adjustment in the Shares or other stock or securities (i) subject to outstanding Incentive Stock Options (including any adjustments in the exercise price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code or (ii) subject to outstanding Options or Awards that are intended to qualify as Performance- Based Compensation shall be made in such a manner as not to adversely affect the treatment of the Options or Awards as Performance-Based Compensation. (c) If, by reason of a Change in Capitalization, a Grantee of an Award shall be entitled to, or an Optionee shall be entitled to exercise an Option with respect to, new, additional or different shares of stock or securities of the Company or any other corporation, such new, additional or different shares shall thereupon be subject to all of the conditions, restrictions and performance criteria which were applicable to the Shares subject to the Award or Option, as the case may be, prior to such Change in Capitalization. 13. Effect of Certain Transactions. Subject to Sections 7.4, 8.4(b) and 9.4 or as otherwise provided in an Agreement, in the event of (a) the liquidation or dissolution of the Company or (b) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options and Awards issued hereunder shall continue in effect in accordance with their respective terms, except that following a Transaction either (i) each outstanding Option or Award shall be treated as provided for in the agreement entered into in connection with the Transaction or (ii) if not so provided in such agreement, each Optionee and Grantee shall be entitled to receive in respect of each Share subject to any outstanding Options or Awards, as the case may be, upon exercise of any Option or payment or transfer in respect of any Award, the same number and kind of stock, securities, cash, property or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share; provided, however, that such stock, securities, cash, property, or other consideration shall remain subject to all of the conditions, restrictions and performance criteria which were applicable to the Options and Awards prior to such Transaction. The treatment of any Option or Award as provided in this Section 13 shall be conclusively presumed to be appropriate for purposes of Section 9. 14. Interpretation. Following the required registration of any equity security of the Company pursuant to Section 12 of the Exchange Act: (a) The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. (b) Unless otherwise expressly stated in the relevant Agreement, each Option, and Performance Award granted under the Plan is intended to be Performance-Based Compensation. The Committee shall be entitled to exercise any discretion otherwise authorized hereunder with respect to such Options or Awards even if the ability to exercise such discretion or the exercise of such discretion itself would cause the compensation attributable to such Options or Awards to fail to qualify as Performance-Based Compensation. 15. Termination and Amendment of the Plan or Modification of Options and Awards. 15.1 Plan Amendment or Termination. The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option or Award may be granted thereafter. The 14 Board may sooner terminate the Plan and the Board may at any time and from time to time amend, modify or suspend the Plan; provided, however, that: (a) no such amendment, modification, suspension or termination shall impair or adversely alter any Options or Awards theretofore granted under the Plan, except with the consent of the Optionee or Grantee, nor shall any amendment, modification, suspension or termination deprive any Optionee or Grantee of any Shares which he or she may have acquired through or as a result of the Plan; and (b) to the extent necessary under any applicable law, regulation or exchange requirement, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law, regulation or exchange requirement. 15.2 Modification of Options and Awards. No modification of an Option or Award shall adversely alter or impair any rights or obligations under the Option or Award without the consent of the Optionee or Grantee, as the case may be. 16. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 17. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (a) give any person any right to be granted an Option or Award other than at the sole discretion of the Committee; (b) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (c) limit in any way the right of the Company or any Subsidiary or Affiliate to terminate the employment of any person at any time; or (d) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 18. Regulations and Other Approvals; Governing Law. 18.1 Except as to matters of federal law, the Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware without giving effect to conflicts of laws principles thereof. 18.2 The obligation of the Company to sell or deliver Shares with respect to Options and Awards granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 18.3 The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Individuals granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 15 18.4 Each Option and Award is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or Award or the issuance of Shares, no Options or Awards shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions as acceptable to the Committee. 18.5 Notwithstanding anything contained in the Plan or any Agreement to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to an Option or Award granted under the Plan, as a condition precedent to receipt of such Shares, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said Act or pursuant to an exemption applicable under the Securities Act or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended or have an appropriate legend placed thereon to reflect their status as restricted securities as aforesaid. 19. Miscellaneous. 19.1 Multiple Agreements. The terms of each Option or Award may differ from other Options or Awards granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option or Award to a given Eligible Individual during the term of the Plan, either in addition to, or in substitution for, one or more Options or Awards previously granted to that Eligible Individual. 19.2 Withholding of Taxes. (a) At such times as an Optionee or Grantee recognizes taxable income in connection with the receipt of Shares or cash hereunder (a "Taxable Event"), the Optionee or Grantee shall pay to the Company an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company in connection with the Taxable Event (the "Withholding Taxes") prior to the issuance, or release from escrow, of such Shares or the payment of such cash. The Company shall have the right to deduct from any payment of cash to an Optionee or Grantee an amount equal to the Withholding Taxes in satisfaction of the obligation to pay Withholding Taxes. The Committee may provide in the Agreement at the time of grant, or at any time thereafter, that the Optionee or Grantee, in satisfaction of the obligation to pay Withholding Taxes to the Company, may elect to have withheld a portion of the Shares then issuable to him or her having an aggregate Fair Market Value equal to the Withholding Taxes. (b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of the grant or within the one-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office. 19.3 Effective Date. The effective date of this Plan shall be as determined by the Board, subject only to the approval by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of the adoption of the Plan by the Board. 16 EX-10.16 18 dex1016.txt AMENDMENT AND TRANSFER AGREEMENT EXHIBIT 10.16 AMENDMENT AND TRANSFER AGREEMENT PLAINS RESOURCES INC. 401(k) PLAN AND TRUST AND THE PLAINS ALL AMERICAN 401(k) PLAN AND TRUST THIS AGREEMENT by Plains Resources Inc., a Delaware corporation (the "Sponsor"), Plains All American Inc., a Delaware corporation (the "Employer"), and Plains All American GP LLC, a Delaware limited liability company (the "Company"), W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Sponsor previously established the Plains Resources Inc. 401(k) Plan for the benefit of its eligible employees and their beneficiaries (the "Plan"); WHEREAS, the Plan provides that any business organization may, with the approval of the Sponsor, adopt the Plan for all or any classification of its employees; WHEREAS, the Employer previously adopted the Plan for the benefits of its eligible employees and their beneficiaries; WHEREAS, the Company shall establish the Plains All American 401(k) Plan for the benefit of its eligible former employees and their beneficiaries (the "PAA Plan"); WHEREAS, in connection with the transactions contemplated by multiple Unit Transfer and Contribution Agreements, dated as of May 8, 2001 or thereafter, each as amended from time to time (collectively, the "Contribution Agreement"), prior to the Closing Date of the Contribution Agreement, all of the property used in the trade or business of the Employer as general partner of Plains All American Pipeline, L.P. (the "MLP") will be transferred to the Company; WHEREAS, in connection with the Contribution Agreement, the Company will succeed to the management and business activities formerly performed by the Employer; WHEREAS, in connection with the Contribution Agreement, the Sponsor, the Employer and the Company will enter into a Pension and Employee Benefits Assumption and Transition Agreement, effective as of June 8, 2001 (the "Transition Agreement"); and WHEREAS, the Sponsor, the Employer and the Company have agreed to transfer certain assets and liabilities from the Plan and the Plains Resources Inc. 401(k) Trust (the "Trust") to the PAA Plan and the Plains All American 401(k) Trust (the "PAA Trust") which represent 100 percent of the account balances of Transferred Employees, as defined in the Transition Agreement, who are participants in the Plan on the last day of the Transition Period, as defined in the Transition Agreement (the "Plan Participants"); NOW, THEREFORE, effective as of the last day of the Transition Period, as defined in the Transition Agreement (the "Transfer Date"), the parties agree as follows: (1) As soon as practicable after the date hereof, the Company agrees to establish or designate, and maintain the PAA Plan, a defined contribution plan, to provide benefits to the Plan Participants which are substantially equivalent to the benefits provided to participants under the Plan (provided, however, that all matching contributions will be paid in cash). The PAA Plan shall be qualified under sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code") and shall provide the Plan Participants credit for service with the Sponsor and its affiliates (including the Employer) and their respective predecessors prior to the Transfer Date for all purposes for which service was recognized under the Plan. (2) As soon as practicable after the filing of the determination letter request described in paragraph (3) below, the Sponsor shall cause Wells Fargo Bank (Texas), N.A. ("Wells Fargo"), as trustee of the Trust, to transfer to the PAA Trust cash or assets in which the Plan Participants are currently invested (or with respect to participant loans granted prior to the Transfer Date, if any, such loans and any promissory notes or other documents evidencing such loans) in an amount equal to the account balances of Plan Participants as of a valuation date (the "Valuation Date") not more than 60 days preceding the date of transfer, increased by any contributions due for periods prior to and including the Transfer Date and not made as of the Valuation Date, reduced by any benefits paid during the period following such Valuation Date to the Transfer Date, and adjusted for any investment earnings or losses during the period following such Valuation Date to the Transfer Date (the "Transferred Assets"). All Section 411(d)(6) protected benefits attributable to the Transferred Assets shall continue to be available under the PAA Plan. The Sponsor, the Employer, the Plan, the Company and the PAA Plan hereby agree to comply with all requirements under the Employee Retirement Income Security Act of 1974, as 2 amended, and the Code, including but not limited to section 411 of the Code, that are applicable to such transfers. (3) No later than 60 days after the Transfer Date, the Company shall file a request for a determination letter with the Internal Revenue Service (the "IRS") that the PAA Plan and Trust satisfy the requirements for qualification under sections 401(a) and 401(k) of the Code. The Company agrees that it shall amend the PAA Plan in any respect as may be required by the IRS in order to receive a favorable determination letter from the IRS that the PAA Plan and Trust satisfy the requirements for qualification under sections 401(a) and 401(k) of the Code. No transfer shall be made until the Company files with the IRS the request for determination letter referred to in this paragraph (3). (4) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which will constitute one and the same Agreement and will be binding on the respective successors and assigns of the parties. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed this 8th day of June 2001. PLAINS RESOURCES INC. By /s/ JAMES C. FLORES ---------------------- Title Chairman and Chief Executive Officer -------------------------------------- PLAINS ALL AMERICAN INC. By /s/ GREG L. ARMSTRONG ------------------------ Title Chief Executive Officer ------------------------- PLAINS ALL AMERICAN GP LLC by PLAINS ALL AMERICAN INC., its Sole Member By /s/ GREG L. ARMSTRONG ------------------------ Title Chief Executive Officer ------------------------- 3 -----END PRIVACY-ENHANCED MESSAGE-----