-----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, HhvihFaQ8s6dcm74+wjtICU7lZMpq6yALg1M4ZpOaKTRhORuB9iwt8KFI2pfiMsR YkLfCtOnBaZ+K45Dtc9X4w== 0000859636-98-000006.txt : 19980821 0000859636-98-000006.hdr.sgml : 19980821 ACCESSION NUMBER: 0000859636-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 DATE AS OF CHANGE: 19980820 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE COMPANIES LP CENTRAL INDEX KEY: 0000859636 STANDARD INDUSTRIAL CLASSIFICATION: 4610 IRS NUMBER: 752313597 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10473 FILM NUMBER: 98691848 BUSINESS ADDRESS: STREET 1: 1209 N FOURTH ST CITY: ABILENE STATE: TX ZIP: 79601 BUSINESS PHONE: 9156748000 MAIL ADDRESS: STREET 1: PO BOX 3237 CITY: ABILENE STATE: TX ZIP: 79604 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 Commission file number 1-10473 PRIDE COMPANIES, L.P. (Name of registrant) Delaware 75-2313597 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1209 North Fourth Street, Abilene, Texas 79601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (915) 674-8000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of units outstanding of each of the issuer's classes of units, as of the latest practicable date. Class Outstanding at August 1, 1998 - - ------------ ----------------------------- Common Units 4,950,000 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997 Statements of Operations (unaudited) - for the three months ended June 30, 1998 and for the three months ended June 30, 1997 Statements of Operations (unaudited) - for the six months ended June 30, 1998 and for the six months ended June 30, 1997 Statements of Cash Flows (unaudited) - for the six months ended June 30, 1998 and for the six months ended June 30, 1997 Notes to Financial Statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults in Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Exhibits Reports on Form 8-K Signatures PART I. FINANCIAL INFORMATION Item 1. Financial Statements PRIDE COMPANIES, L.P. BALANCE SHEETS (Amounts in thousands, except unit amounts)
June 30, 1998 December 31, (unaudited) 1997 ___________ ____________ ASSETS: Current assets: Cash and cash equivalents $ 934 $ 5,008 Accounts receivable, less allowance for doubtful accounts 11,509 14,543 Inventories 9,984 13,036 Prepaid expenses 1,757 2,096 ----------- ----------- Total current assets 24,184 34,683 Property, plant and equipment 68,361 67,253 Accumulated depreciation 21,214 19,665 ----------- ----------- Property, plant and equipment - net 47,147 47,588 Assets no longer used in the business 7,401 7,353 Deferred financing cost 4,637 5,254 Other assets 398 403 ----------- ----------- $ 83,767 $ 95,281 =========== =========== LIABILITIES AND PARTNERS' CAPITAL: Current liabilities: Accounts payable $ 19,629 $ 26,670 Accrued payroll and related benefits 1,257 1,870 Accrued taxes 2,765 3,323 Other accrued liabilities 1,680 2,811 Current portion of long-term debt 2,765 2,084 ----------- ----------- Total current liabilities 28,096 36,758 Long-term debt, excluding current portion 41,987 41,087 Deferred income taxes 2,345 2,405 Other long-term liabilities 11,325 10,935 Redeemable preferred equity 20,063 19,529 Partners' capital: Common units (5,275,000 units authorized, 4,950,000 units outstanding) (19,180) (14,656) General partners' interest (869) (777) ----------- ----------- $ 83,767 $ 95,281 =========== =========== See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per unit amounts)
Three Months Ended June 30, 1998 1997 -------------- ----------- Revenues $ 102,986 $ 127,624 Cost of sales and operating expenses, before depreciation 101,104 122,891 Marketing, general and administrative expenses, before depreciation 2,088 2,460 Depreciation 863 1,716 ------------ ----------- Operating income (loss) (1,069) 557 Other income (expense): Interest income 16 7 Interest expense (including interest paid in kind of $332 and $0, respectively) (1,271) (1,351) Credit and loan fees (including amortization of $331 and $0, respectively, and credit and loan fees paid in kind of $150 and $0, respectively) (912) (299) Other - net 27 477 ------------ ----------- Loss before income taxes (3,209) (609) Income tax expense (benefit) 8 (7) ------------ ----------- Net loss $ (3,217) $ (602) ============ =========== Basic and diluted net loss per Common Unit $ (.72) $ (.12) ============ =========== Numerator: Net loss $ (3,217) $ (602) Preferred dividends accrued and paid in kind (438) - ------------ ----------- Subtotal (3,655) (602) 2% general partner interest (73) (12) ------------ ----------- Numerator for basic and diluted net loss per Common Unit $ (3,582) $ (590) ============ =========== Denominator: Denominator for basic and diluted net loss per Common Unit 4,950 4,950 ============ =========== See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF OPERATIONS (Unaudited) (Amounts in thousands, except per unit amounts)
Six Months Ended June 30, 1998 1997 ------------ ----------- Revenues $ 209,205 $ 270,079 Cost of sales and operating expenses, before depreciation 203,003 262,262 Marketing, general and administrative expenses, before depreciation 4,274 4,851 Depreciation 1,713 3,434 ------------ ----------- Operating income (loss) 215 (468) Other income (expense): Interest income 57 16 Interest expense (including interest paid in kind of $644 and $0, respectively) (2,496) (2,685) Credit and loan fees (including amortization of $660 and $0, respectively, and credit and loan fees paid in kind of $150 and $0, respectively) (1,584) (888) Other - net 60 456 ------------ ----------- Loss before income taxes (3,748) (3,569) Income tax expense (benefit) 2 (54) ------------ ----------- Net loss $ (3,750) $ (3,515) ============ =========== Basic and diluted net loss per Common Unit $ (.91) $ (.70) ============ =========== Numerator: Net loss $ (3,750) $ (3,515) Preferred dividends accrued and paid in kind (866) - ------------ ----------- Subtotal (4,616) (3,515) 2% general partner interest (92) (70) ------------ ----------- Numerator for basic and diluted net loss per Common Unit $ (4,524) $ (3,445) ============ =========== Denominator: Denominator for basic and diluted net loss per Common Unit 4,950 4,950 ============ =========== See accompanying notes. /TABLE PRIDE COMPANIES, L.P. STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Six Months Ended June 30, 1998 1997 ____________ ___________ Cash flows from operating activities: Net income (loss) $ (3,750) $ (3,515) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Noncash charges (credits) to earnings: Depreciation 1,712 3,434 Amortization of loan costs 660 - (Gain) loss on sale of property, plant and equipment (37) (259) Deferred tax benefit (60) (110) Paid in kind interest and credit and loan fees 794 - Retirement of property, plant and equipment - 122 Net effect of changes in: Accounts receivable 3,034 5,562 Inventories 3,052 1,689 Prepaid expenses 339 664 Accounts payable and other long-term liabilities (6,983) (7,399) Accrued liabilities (2,302) (977) ------------ ----------- Total adjustments 209 2,726 ------------ ----------- Net cash provided by (used in) operating activities (3,541) (789) Cash flows from investing activities: Purchases of property, plant and equipment (1,356) (500) Proceeds from disposal of property, plant and equipment 90 343 Other (54) 7 ------------ ----------- Net cash provided by (used in) investing activities (1,320) (150) Cash flows from financing activities: Proceeds from debt and credit facilities 35,447 75,436 Payments on debt and credit facilities (34,660) (74,691) ------------ ----------- Net cash provided by (used in) financing activities 787 745 Net increase (decrease) in cash and cash equivalents (4,074) (194) Cash and cash equivalents at the beginning of the period 5,008 472 ------------ ----------- Cash and cash equivalents at the end of the period $ 934 $ 278 ============ =========== See accompanying notes. /TABLE PRIDE COMPANIES, L.P. NOTES TO FINANCIAL STATEMENTS 1. Organization Pride Companies, L.P. (the "Partnership") was formed as a limited partnership under the laws of the State of Delaware in January 1990. The Partnership owns and operates (i) a crude oil gathering business that gathers, transports, resells and redelivers crude oil in the Texas and New Mexico markets (the "Crude Gathering System") and (ii) a products marketing business which includes certain integrated products pipelines and terminal operations in Abilene, Texas; San Angelo, Texas; and Aledo, Texas (the "Products Marketing Business"). The Partnership also owns a modern simplex petroleum refinery facility (the "Refinery") which was mothballed on March 22, 1998. In April 1998, the Partnership began purchasing refined products from Equilon, Inc., a refining and marketing joint venture between Royal Dutch/Shell Group and Texaco, Inc. (formerly, Texaco Trading and Transportation, Inc.) (the "Equilon Agreement") to market through its products pipelines and terminal operations. Prior to mothballing the Refinery, the Partnership's operations were considered a single industry segment, the refining of crude oil and the sale of the resulting petroleum products. The primary purpose of the Crude Gathering System was to purchase and sell crude oil in order to provide a supply of the appropriate grade of crude oil at strategic locations to be used as feedstock for the Refinery. As a result of the Equilon Agreement and the mothballing of the Refinery, the Crude Gathering System now markets crude oil primarily to other refineries and the Partnership now operates two separate and distinct industry segments, the Crude Gathering System segment and the Products Marketing Business segment. The Crude Gathering System consists of pipeline gathering systems and a fleet of trucks which transport crude oil into third party pipelines and into the system's primary asset, a common carrier pipeline. The Products Marketing Business has two products pipelines that originate at the Refinery and terminate at the Partnership's marketing terminals. In connection with the mothballing of the Refinery, the products pipeline that extends from the Refinery to the Aledo terminal was idled, since Equilon's pipeline is connected to the Partnership's Aledo terminal. Pride Refining, Inc., a Texas corporation, owns a 1.9% general partner interest in and serves as the managing general partner of the Partnership (the "Managing General Partner"). The Partnership succeeded in January 1990 to the businesses of Pride SGP, Inc. ("Special General Partner" or "Pride SGP") which owns a 0.1% general partner interest in and serves as the special general partner of the Partnership. The Managing General Partner and the Special General Partner (collectively the "General Partners") collectively own a 2% general partner interest. In addition to its general partner interest, the Special General Partner owns a 4.9% interest in the Partnership through ownership of common limited partner units (the "Common Units"). Public ownership, represented by the remaining Common Units, is 93.1%. 2. Accounting Policies The financial statements of the Partnership include all of its majority-owned subsidiaries including limited partnership interests where the Partnership has significant control through related parties. All intercompany transactions have been eliminated and minority interest has been provided where applicable. The financial statements included in this quarterly report on Form 10-Q are unaudited and condensed and do not contain all information required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements contain all material adjustments necessary to present fairly the financial position, results of operations, and cash flows for such periods. Interim period results are not necessarily indicative of the results to be achieved for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements of the Partnership presented in its Annual Report on Form 10-K for the year ended December 31, 1997 include a summary of significant accounting policies that should be read in conjunction with this quarterly report on Form 10-Q. The Partnership has two subsidiaries that are corporations which are separate taxable entities whose operations are subject to federal income taxes. 3. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share (FAS 128). FAS 128 supersedes APB Opinion No. 15, Earnings Per Share (APB 15) and requires the calculation and dual presentation of basic and diluted earnings per share, replacing the measures of primary and fully-diluted earnings per share as reported under APB 15. FAS 128 is effective for general statements issued for periods ending after December 15, 1997; earlier application is not permitted. Basic net income (loss) per common unit is computed using the weighted average number of common units outstanding. Diluted net income (loss) per common unit is computed by adjusting the primary units outstanding and net income (loss) for the potential effect of the conversion of the Subordinate Note A, Series B Preferred Units, Series C Preferred Units and Series E Preferred Units outstanding during the period and the elimination of the related interest and dividends and the potential effect of the exercise of officers' and employees' unit appreciation rights. When the effect of including the conversion of the convertible preferred equity and the exercise of unit appreciation rights on basic or diluted net income (loss) per unit is antidilutive, as is the case for the periods ended June 30, 1998 and June 30, 1997, they are not included in the calculation of diluted net income (loss) per unit. 4. Related Party Transactions In accordance with the Second Amended and Restated Agreement of Limited Partnership of Pride Companies, L.P. ("Partnership Agreement"), the Managing General Partner conducts, directs and exercises control over substantially all of the activities of the Partnership. The Managing General Partner has a 1.9% interest in the income and cash distributions of the Partnership, subject to certain adjustments. Certain members of the management of the Managing General Partner are also members of the management of Pride SGP, which has a 0.1% general partner interest and a 4.9% limited partner interest in the Partnership. The Partnership has no directors or officers; however, directors and officers of the Managing General Partner are employed by the Partnership to function in this capacity. Compensation of these persons and any other expenses incurred on behalf of the Partnership by the Managing General Partner and Pride SGP are paid by the Partnership. Certain conflicts of interest, including potential non-arm's length transactions, could arise as a result of the relationships described above. The Board of Directors and management of the Managing General Partner have a duty to manage the Partnership in the best interests of the unitholders and consequently must exercise good faith and integrity in handling the assets and affairs of the Partnership. 5. Inventories
Inventories are valued at the At At lower of cost or market and June 30, December 31, consist of: 1998 1997 (in thousands) ----------------------------- ----------- ----------- Crude oil $ 5,483 $ 8,388 Refined products and blending materials 4,080 6,473 ----------- ----------- 9,563 14,861 LIFO reserve 525 (2,837) Market valuation (1,002) - ----------- ----------- Petroleum inventories 9,086 12,024 Spare parts and supplies 898 1,012 ----------- ----------- $ 9,984 $ 13,036 =========== ===========
The last-in/first-out (LIFO) inventory cost method is used for crude oil and refined products and blending materials. The weighted average inventory cost method is used for spare parts and supplies. 6. Long-term Debt On December 31, 1997, Varde Partners, Inc. ("Varde") purchased and assumed the then existing lenders' rights and obligations under the Partnership's outstanding bank debt. In conjunction with Varde's purchase and assumption of the lenders' rights and obligations under such bank debt, BankBoston, N.A. ("BankBoston") refinanced the Partnership's letter of credit and revolver facilities (the "Revolver") on December 31, 1997 for a 5-year term. Varde and BankBoston each amended their respective credit agreements effective April 15, 1998. The credit agreement with Varde was amended to provide a $2.0 million loan for working capital purposes (the "Varde Revolver") through deferral of principal amortization on the A Term Loan and additional cash advances (see below). In addition, both credit agreements were amended to ease certain financial covenants through December 31, 1998. The Revolver from BankBoston provides for the issuance of letters of credit to third parties to support the Partnership's purchase or exchange of crude oil and petroleum products in an aggregate amount not to exceed $65.0 million, with a sublimit of $10.0 million for direct cash borrowings for general working capital purposes. Amounts available under the Revolver are subject to a borrowing base calculated as the sum of the Partnership's cash and cash equivalents, certain receivables, deposits, inventory and other amounts, reduced by a portion of crude oil royalties payable and certain other amounts payable. The amount available under the borrowing base net of outstanding letters of credit and advances under the Revolver was $1.4 million as of June 30, 1998. Though no advances had been drawn under the letter of credit facility as of June 30, 1998, the Partnership did have approximately $28.3 million in outstanding letters of credit. The Partnership had no advances under the Revolver for direct cash borrowings as of June 30, 1998. The fee on outstanding letters of credit was 2.5% per annum as of June 30, 1998. There is also an issuance fee of 0.125% per annum on the face amount of each letter of credit. The fee for the unused portion of the Revolver is 0.5% per annum. At the Partnership's discretion, cash borrowings under the Revolver at June 30, 1998 bore interest at either LIBOR plus 3% or prime plus 1.75%. LIBOR and the prime rate were 5.66% and 8.5%, respectively, at June 30, 1998. The credit agreement evidencing the Revolver also requires the Partnership to pay an agency fee of up to $70,000 per annum depending on the number of participants in the credit facility and restricts the payment of distributions to unitholders throughout the term of the credit agreement. BankBoston also charged a $75,000 amendment fee related to the amendment that became effective April 15, 1998. As a result of Varde's assumption of the outstanding bank debt, additional loans to the Partnership and subsequent interest being paid in kind, Varde now holds a term loan of $20.2 million ("A Term Loan"), a term loan of $9.9 million ("B Term Loan"), a term loan of $4.8 million ("C Term Loan") and an unsecured note of $2.6 million ("Subordinate Note A") as of June 30, 1998. The A Term Loan bears interest rates of 11% in the first two years, 13% in the third year, 15% in the fourth year and 17% in the fifth year. The Partnership has included $1.3 million of the A Term Loan in the current portion of long-term debt as of June 30, 1998. The B Term Loan and C Term Loan bear interest rates of 11% in the first three years, 13% in the fourth year and 15% in the fifth year except for $3.4 million of the B Term Loan which is subject to interest rates of 12% through maturity. If the A Term Loan is not refinanced, the interest rates applicable to the A Term Loan, B Term Loan and C Term Loan would be 11%, 13%, 15%, 17% and 19% for the first, second, third, fourth and fifth years, respectively, during all or any portion of the period after February 1998 that the A Term Loan is held by Varde, except for $3.4 million of the B Term Loan which is subject to interest rates of 18% through maturity. The Subordinate Note A is convertible into 416,000 Common Units and bears interest at prime plus one percent. The cash interest and dividend payments on the B Term Loan, C Term Loan, Subordinate Note A and the redeemable preferred equity held by Varde are limited to $90,833 per month or $1.1 million annually. To the extent the interest and dividends on the various Varde securities exceed the cap on cash payments, such excess will be paid in kind. The A Term Loan is due December 31, 2002. The B Term Loan, C Term Loan and Subordinate Note A are due December 31, 2002. The Partnership is required to make quarterly principal payments on the A Term Loan as set forth in the Varde credit agreement as well as make payments of excess cash flow for the preceding year. Such principal payments have been deferred for 1998 by agreement of Varde. The Partnership will not have to make principal payments prior to the scheduled maturity on the B Term Loan, C Term Loan and Subordinate Note A, except in the case the Partnership receives proceeds related to the DFSC Claim and certain other transactions (see Note 9). Any payments of principal on the securities held by Varde shall be applied in the following order: A Term Loan (if then outstanding), B Term Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C Preferred Units, and Series D Preferred Units (see Note 7 for information on the preferred units). The Partnership or its management has a three-year call on Varde's position for an amount equal to a 40% annual rate of return to Varde, subject to a minimum payment of $7.5 million over Varde's cost. The securities held by Varde have certain antidilution provisions and registration rights. Any litigation proceeds received by the Partnership related to the DFSC Claim will be used to retire up to $6.0 million of either the A Term Loan if then outstanding, and up to $5.0 million of either the B Term Loan or New Series A Preferred, whichever is then outstanding, with any excess divided one-third to Varde to be used to retire Varde's most senior securities and two-thirds to the Partnership. On December 31, 1997, certain members of management agreed to invest an aggregate of $2.0 million in the form of a note payable to Varde and will receive a one-third economic non-directive interest in $6.0 million of the B Term Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C Preferred Units and Series D Preferred Units. The note payable to Varde will be secured by management's interest in such securities. Any cash yield on management's share of such securities will be paid to Varde as interest, net of applicable federal income tax. Advances under the Varde Revolver bear interest at 11% per annum, payable monthly. Under the credit agreement, the Varde Revolver was subject to an administration fee equal to 5.0% of any incremental advance and any principal deferral on the A Term Loan and was limited to $100,000. The fee was payable in the form of an additional Series B Term Loan. Since the Partnership deferred $750,000 in principal amortization on the A Term Loan and drew an additional $1,250,000 under the Varde Revolver, the entire $100,000 fee was payable in the second quarter of 1998. Also, the Partnership paid a commitment fee in the amount of $50,000 in the form of an additional Series B Term Loan. Cash advances under the Varde Revolver are due January 1, 1999. Accordingly, the $1,250,000 outstanding at June 30, 1998 has been included in the current portion of long-term debt. Other installment loans include a $6.0 million nonrecourse note, due 2014, payable monthly with interest at 8% and a balance of $5.6 million at June 30, 1998. The note is supported by a minimum throughput agreement. The assets of Pride Borger, Inc., a wholly-owned subsidiary of the Partnership, are pledged as collateral. Monthly principal payments are based on the number of throughput barrels. The Partnership has classified $164,000 as current at June 30, 1998. 7. Preferred Equity In conjunction with Varde's assumption of the outstanding bank debt, Varde received preferred equity securities. As a result of the assumption and subsequent distributions being paid in kind, Varde now holds preferred equity securities including $9.6 million of Series B Cumulative Convertible Preferred Units ("Series B Preferred Units"), $5.1 million of Series C Cumulative Convertible Preferred Units ("Series C Preferred Units") and $2.9 million of Series D Cumulative Preferred Units ("Series D Preferred Units") which mature December 31, 2002. The Series B Preferred Units and Series C Preferred Units are convertible into 1,522,000 and 816,000 Common Units, respectively, at June 30, 1998. The preferential quarterly payments on the Series B Preferred Units and Series C Preferred Units will be 6% per annum in the first three years after issuance, 12% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind at 8% per annum in the first three years, 12% per annum in the fourth and fifth years and 15% per annum thereafter. The preferential quarterly payments on the Series D Preferred Units will be 11% per annum in the first three years after issuance, 13% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind through maturity at 13% per annum in the first five years and 15% per annum thereafter. Distributions are payable on the 5th day of the second month in each quarter. Accordingly, the Partnership had paid, in kind, distributions of $534,000 and accrued an additional distribution of $241,000 at June 30, 1998 on these preferred equity securities. On December 31, 1997, Pride SGP agreed to convert (i) a $2.0 million note from the Partnership into Series E Cumulative Convertible Preferred Units ("Series E Preferred Units") which is convertible into 317,000 Common Units at June 30, 1998 and (ii) a $450,000 note from the Partnership into Series F Cumulative Preferred Units ("Series F Preferred Units"). The Series E Preferred Units and Series F Preferred Units mature December 31, 2002. The Series E Preferred Units and Series F Preferred Units will be subordinated to the Series B Preferred Units, Series C Preferred Units and Series D Preferred Units. The preferential quarterly payments on the Series E Preferred Units and Series F Preferred Units will be 6% per annum in the first three years after issuance, 12% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind at 8% per annum in the first three years, 12% per annum in the fourth and fifth years and 15% per annum thereafter until mandatory redemption at December 31, 2002. Distributions are payable on the 5th day of the second month in each quarter; however, the Partnership may not make any cash distributions or paid in kind distributions on the Series E Preferred Units or Series F Preferred Units if the distributions with respect to the Series B Preferred Units, Series C Preferred Units or Series D Preferred Units are paid in kind. Accordingly, at June 30, 1998, the Partnership accrued distributions of $91,000 but had not paid such distributions in cash or in kind. 8. Common Units At June 30, 1998, 4,950,000 Common Units were outstanding, representing a 98% limited partner interest in the Partnership. The general partners are entitled to 2% of all distributions. Under the terms of the Partnership's credit agreement, the bank restricted the payment of distributions to unitholders throughout the term of the credit agreement. Future distributions will be dependent on, among other things, payment in full of the bank debt, expiration of all liabilities related to letters of credit, and the termination of the credit agreement. 9. Contingencies The Partnership has filed a substantial claim against the Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over a period of several years from the Partnership and its predecessors. The ultimate outcome of this matter cannot presently be determined. The Partnership is involved in various claims and routine litigation incidental to its business for which damages are sought. Management believes that the outcome of all claims and litigation is either adequately insured or will not have a material adverse effect on the Partnership's financial position or results of operations. 10. Securities Exchange The Partnership has been notified by the New York Stock Exchange that the Partnership will be delisted from trading on the New York Stock Exchange effective August 17, 1998. The Partnership, however, is in the process of applying for listing on the NASDAQ OTC bulletin board. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Overview Pride Companies, L.P. is a Delaware limited partnership which owns and operates a products marketing business ("Products Marketing Business") and crude oil gathering business ("Crude Gathering System"). Prior to the mothballing of the refinery on March 22, 1998, the Partnership also operated a refining business ("Refinery") and products pipeline business ("Products System"). The following is a discussion of the results of operations of the Partnership. This discussion should be read in conjunction with the financial statements included in this report. Forward Looking Statements This Form 10-Q contains certain forward looking statements. Such statements are typically punctuated by words or phrases such as "anticipate," "estimate," "projects," "should," "may," "management believes," and words or phrases of similar import. Such statements are subject to certain risks, uncertainties or assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the key factors that may have a direct bearing on the Partnership's results of operations and financial conditions are: (i) the margins between the prices of the Partnership's refined petroleum products and the cost of such products and the availability of such products, (ii) the volume throughput on and margins from the transportation and resale of crude oil from the Partnership's Crude Gathering System, (iii) the impact of current and future laws and governmental regulations affecting the petroleum industry in general and the Partnership's operations in particular, (iv) the ability of the Partnership to sustain cash flow from operations sufficient to realize its investment in operating assets of the Partnership, (v) fluctuations in crude oil and refined product prices and their impact on working capital and the borrowing base under the Partnership's credit agreements, and (vi) the receipt of certain consents and approvals to modify the Partnership's capital structure. General As a result of mothballing the Refinery at the end of the first quarter of 1998 and redirecting its business to focus on crude and product marketing and distribution, the Partnership's operating results now depend principally on (i) the margins between the cost at which petroleum products are purchased from Equilon, Inc. ("Equilon" is a refining and marketing joint venture between Royal Dutch/Shell Group and Texaco, Inc.) and the revenue realized by the Partnership on the sale of such products, (ii) the volume throughput from the products terminals, and (iii) the volume throughput on and margins from the transportation and resale of crude oil from its Crude Gathering System. The price the Partnership is able to realize on the resale of its petroleum products is influenced by the level of competition in the Partnership's markets. Due to the change in its core business, a comparison of the Products Marketing Business to the Refinery and Products System would not be meaningful and, therefore, will not be included with this Form 10-Q. Prior to mothballing the Refinery and entering into the Equilon agreement ("Equilon Agreement"), the Partnership's operating results depended principally on (i) the rate of utilization of the Refinery, (ii) the margins between the prices of its refined petroleum products and the cost of crude oil, (iii) the volume throughput on the Products System, and (iv) the volume throughput on and margins from the transportation and resale of crude oil from its Crude Gathering System. Margins from the Crude Gathering System are influenced by the level of competition and the price of crude oil. When prices are higher, crude oil can generally be resold at higher margins. Additionally, transportation charges increase when higher crude oil prices stimulate increased exploration and development. Conversely, when crude oil prices decrease, margins on the resale of crude oil as well as transportation charges tend to decrease. In evaluating the financial performance of the Partnership, management believes it is important to look at operating income, excluding depreciation, in addition to operating income which is after depreciation. Operating income, excluding depreciation, measures the Partnership's ability to generate and sustain working capital and cash flows from operations. However, such measure is before debt service, so it does not indicate the amount available for distribution, reinvestment or other discretionary uses. Gross revenues primarily reflect the level of crude oil prices and are not necessarily an accurate reflection of the Partnership's profitability. Also important to the evaluation of the Refinery's performance were barrels of crude oil refined, gross margin (revenue less cost of crude) per barrel, and operating expense per barrel, excluding depreciation. Second Quarter 1998 Compared to Second Quarter 1997 GENERAL -- Net loss for the second quarter of 1998 was $3.2 million compared to net loss of $602,000 for the second quarter of 1997. The decline was a result of (i) weaker results for the Products Marketing Business as compared to the Refinery and Products System (see below), (ii) a reserve of $1.0 million for the market valuation of inventory in the second quarter of 1998, (iii) higher credit and loan fees of $613,000 and (iv) a decrease in "Other - net" of $450,000 in the second quarter of 1998 compared to the second quarter of 1997. Credit and loan fees increased principally as a result of the amortization of the deferred loan costs. "Other - net" for the second quarter of 1997 included income related to the sale of the Refinery's product trucks. Operating loss was $1.1 million for the second quarter of 1998 compared to operating income of $557,000 for the second quarter of 1997. As previously mentioned, the decrease in operating income was due to the weaker results for the Products Marketing Business as compared to the Refinery and Products System and a reserve of $1.0 million for the market valuation of inventory in the second quarter of 1998. Operating loss, before depreciation, for the second quarter of 1998 was $206,000 compared to operating income, before depreciation, of $2.3 million for the second quarter of 1997. The following table details the operating income (loss); depreciation; and the operating income (loss), before depreciation (in thousands), for the second quarter of 1998 and 1997.
Operating Income Operating (Loss) Income Before (Loss) Depreciation Depreciation --------- ------------ ------------ Second Quarter 1998 Products Marketing Business $ (344) $ 346 $ 2 Crude Gathering System (725) 517 (208) ------- ------- -------- Total $(1,069) $ 863 $ (206) ======= ======= ======== Second Quarter 1997 Refinery and Products System $ 463 $ 1,237 $ 1,700 Crude Gathering System 94 479 573 ------- ------- -------- Total $ 557 $ 1,716 $ 2,273 ======= ======= ========
PRODUCTS MARKETING BUSINESS -- Operating loss for the Products Marketing Business was $344,000 for the second quarter of 1998. Depreciation expense for the Products Marketing Business was $346,000 for the second quarter of 1998. Operating income, before depreciation, for the Products Marketing Business was $2,000 for the second quarter of 1998. The weak results were due to product outages and higher operating expense during the transition from the Refinery and Products System to the Products Marketing Business during the second quarter of 1998. See "-Financial Condition - Financial Resources and Liquidity." During the second quarter of 1998, the Partnership marketed 12,824 barrels per day ("BPD") of refined products. The net margin per barrel for this period was negative $0.29. REFINERY AND PRODUCTS SYSTEM -- Operating income of the Refinery and Products System was $463,000 for the second quarter of 1997. Depreciation expense for the Refinery and Products System was $1.2 million for the second quarter of 1997. Operating income, before depreciation, for the Refinery and Products System was $1.7 million for the second quarter of 1997. Operating income of the Refinery was $163,000 for the second quarter of 1997. Depreciation expense for the Refinery was $1.0 million for the second quarter of 1997. Operating income, before depreciation, for the Refinery was $1.2 million for the second quarter of 1997. Refinery gross margin per barrel was $1.85 for the second quarter of 1997. Refinery throughput averaged 32,054 BPD for the second quarter of 1997. Operating expenses per barrel, before depreciation, were $0.98 for the second quarter of 1997. Operating income for the Products System was $300,000 for the second quarter of 1997. Depreciation expense for the Products System was $217,000 for the second quarter of 1997. Operating income, before depreciation, for the Products System was $517,000 for the second quarter of 1997. Total transportation volumes were 13,094 BPD for the second quarter of 1997. CRUDE GATHERING SYSTEM -- Operating loss for the Crude Gathering System was $725,000 for the second quarter of 1998 compared to operating income of $94,000 for the same period in 1997 due to a reserve of $1.0 million for the market valuation of inventory in the second quarter of 1998. Depreciation expense for the Crude Gathering System increased to $517,000 for the second quarter of 1998 from $479,000 for the second quarter of 1997. Operating loss, before depreciation, for the Crude Gathering System was $208,000 for the second quarter of 1998 compared to operating income, before depreciation, of $573,000 for the second quarter of 1997. The net margin was negative $0.17 per barrel for the second quarter of 1998 versus positive $0.02 per barrel for the same period in 1997. The volume of crude oil gathered by the Crude Gathering System decreased to 46,605 BPD for the second quarter of 1998 from 49,729 BPD for the second quarter of 1997. First Six Months 1998 Compared to First Six Months 1997 GENERAL -- Net loss for the first six months of 1998 was $3.8 million compared to $3.5 million for the first six months of 1997. The increase was primarily due to a reserve of $1.0 million for the market valuation of inventory for the first six months of 1998 and an increase in credit and loan fees of $696,000 during the first six months of 1998. Credit and loan fees increased due to the amortization of restructuring cost during the first six months of 1998. This was partially offset by lower depreciation during the first six months of 1998 due to devaluing certain assets on December 31, 1997. Operating income was $215,000 for the first six months of 1998 compared to operating loss of $468,000 for the first six months of 1997. Operating income improved primarily as a result of lower depreciation expense during the first six months of 1998 due to the devaluation of certain assets at December 31, 1997. Operating income, before depreciation, decreased for the first six months of 1998 to $1.9 million from $3.0 million for the first six months of 1997. The table below details the operating income (loss); depreciation; and the operating income (loss), before depreciation by division (in thousands) for the first six months of 1998 and 1997.
Operating Income Operating (Loss) Income Before (Loss) Depreciation Depreciation --------- ------------ ------------ First Six Months 1998 Products Marketing Business (1) $ 662 $ 714 $ 1,376 Crude Gathering System (447) 999 552 ------- ------- -------- Total $ 215 $ 1,713 $ 1,928 ======= ======= ======== First Six Months 1997 Refinery and Products System $(1,725) $ 2,474 $ 749 Crude Gathering System 1,257 960 2,217 ------- ------- -------- Total $ (468) $ 3,434 $ 2,966 ======= ======= ======== (1) The Partnership began operating the Products Marketing Business in the second quarter of 1998. Prior to this the Partnership operated the Refinery and Products System.
PRODUCTS MARKETING BUSINESS -- Operating income of the Products Marketing Business was $662,000 for the first six months of 1998 which includes operating income of $1.0 million from the Refinery and Products System for the first three months of 1998. Depreciation expense for the Products Marketing Business was approximately $714,000 for the first six months of 1998 which includes depreciation expense of $368,000 from the Refinery and Products System for the first three months of 1998. Operating income, before depreciation, of the Products Marketing Business was $1.4 million for the first six months of 1998 which includes operating income, before depreciation, of $1.4 million from the Refinery and Products System for the first three months of 1998. REFINERY AND PRODUCTS SYSTEM -- Operating loss of the Refinery and Products System was $1.7 million for the first six months of 1997. Depreciation expense of the Refinery and Products System was approximately $2.5 million for the first six months of 1997. Operating income, before depreciation, of the Refinery and Products System was $749,000 for the first six months of 1997. Operating loss of the Refinery was $2.1 million for the first six months of 1997. Depreciation expense for the Refinery was $2.0 million for the first six months of 1997. Operating loss, before depreciation, of the Refinery was $41,000 for the first six months of 1997. Refinery gross margin per barrel was $1.47 for the first six months of 1997. Refinery throughput averaged 31,654 BPD for the first six months of 1997. Operating expenses per barrel, before depreciation, were $1.05 for the first six months of 1997. Operating income for the Products System was $355,000 for the first six months of 1997. Depreciation expense for the Products System was $435,000 for the first six months of 1997. Operating income, before depreciation, for the Products System was $790,000 for the first six months of 1997. Total transportation volumes were 12,791 for the first six months of 1997. CRUDE GATHERING SYSTEM -- Operating loss for the Crude Gathering System was $447,000 for the first six months of 1998 compared to operating income of $1.3 million for the same period in 1997 due to lower margins for the first six months of 1998 and a reserve of $1.0 million for the market valuation of inventory for the first six months of 1998. Depreciation expense for the Crude Gathering System was $999,000 for the first six months of 1998 and $960,000 for the first six months of 1997. Operating income, before depreciation, for the Crude Gathering System was $552,000 for the first six months of 1998 and $2.2 million for the first six months of 1997. The net margin was negative $0.05 per barrel for the first six months of 1998 compared to positive $0.14 per barrel for the first six months of 1997. The volume of crude oil gathered by the Crude Gathering System was 49,376 BPD for the first six months of 1998 compared to 49,162 BPD for the first six months of 1997. Factors and Trends Affecting Operating Results A number of factors have affected the Partnership's operating results, both indirectly and directly, such as environmental compliance, other regulatory matters, industry trends and price of crude oil, inventory prices, and seasonality and weather. The Managing General Partner expects that such conditions will continue to affect the Partnership's business to varying degrees in the future. The order in which these factors are discussed is not intended to represent their relative significance. Environmental Compliance. Increasing public and governmental concern about air quality is expected to result in continued regulation of air emissions. Regulations relating to carbon monoxide and regulations on oxygen content in gasoline and sulfur content in diesel fuel are expected to be increasingly important as a means of improving air quality in urban areas. The Partnership plans to spend approximately $1.0 million in 1998 and 1999 on several projects to maintain compliance with various environmental requirements including approximately $600,000 related to mothballing the Refinery. Effective January 1, 1995, the Clean Air Act Amendment of 1990 required that certain areas of the country use reformulated gasoline ("RFG"). The Abilene and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and Tarrant Counties, which comprise the Dallas-Fort Worth ("DFW") metroplex area, do require RFG; however, the Partnership's Aledo terminal lies outside this area and is allowed to supply conventional gasoline that is not destined for sale in these four counties. In addition to the requirement for RFG in certain areas, new but much less restrictive regulations took effect that impose new quality standards for conventional gasoline in the rest of the country. Management does not anticipate that these have had or will have a material adverse effect on the Partnership's operations. Other Regulatory Requirements. The Partnership is also subject to the rules and regulations of, among others, the Occupational Safety and Health Administration, Texas Air Control Board, Texas Railroad Commission, and Texas Water Commission. Industry Trends and Price of Crude Oil. Industry trends and the price of crude oil will continue to affect the Partnership's business. As a result of purchasing product from Equilon, the Partnership will be impacted by fluctuations in the cost of those products versus fluctuations in the price realized by the Partnership on the sale of such products and the amount of competition in its markets. The general level of crude oil prices can also have a significant effect on the margins in the crude gathering business. Margins in the Crude Gathering System generally tend to be influenced by competition and the general price level of crude oil. When prices are higher, crude oil can generally be resold at higher margins. Additionally, transportation charges are slightly less competitive when higher crude oil prices result in increased exploration and development. Conversely, when crude oil prices decrease, margins on the resale of crude oil and transportation charges generally tend to decrease. Inventory Prices. The Partnership utilizes the last-in/first- out (LIFO) method of determining inventory values. LIFO minimizes the effect of fluctuations in inventory prices on earnings by matching current costs with current revenue. The LIFO method is the predominant method used in the refining industry. Seasonality and Weather. Gasoline consumption is typically highest in the United States in the summer months and lowest in the winter months. Diesel consumption in the southern United States is generally higher just prior to and during the winter months when commercial trucking is routed on southern highways to avoid severe weather conditions further north. Financial Condition Inflation The Partnership's operations would be adversely impacted by significant, sustained increases in crude oil and other energy prices. Although the Partnership's operating costs are generally impacted by inflation, the Managing General Partner does not expect general inflationary trends to have a material adverse impact on the Partnership's operations. Financial Resources and Liquidity The Partnership receives payments from the United States Government, major oil companies, and other customers within approximately 7 to 15 days from shipment in the case of product sales and by the 20th of the following month in the case of third- party crude oil sales and exchanges. The Partnership maintains refined products inventory in the amount of approximately 5 to 10 days of sales and crude inventory of approximately 10 to 15 days of sales. Equilon has agreed to maintain the refined products inventory previously held by the Partnership from August 1, 1998 through December 31, 1998. The Partnership pays for refined products 10 days after receipt from Equilon and crude oil on the 20th of the month following the month in which it is received. As a result, the Partnership's operating cycle is such that there is a lag on when it receives payment for the refined products versus when it pays for such products. Letters of credit are an integral part of the operations of the Crude Gathering System since the Partnership takes title to both first purchased barrels and custom gathered barrels. On December 31, 1997, Varde Partners, Inc. ("Varde") purchased and assumed the then existing lenders' rights and obligations under the Partnership's outstanding bank debt. In conjunction with Varde's purchase and assumption of the lenders' rights and obligations under such bank debt, BankBoston, N.A. ("BankBoston") refinanced the Partnership's letter of credit and revolver facilities (the "Revolver") on December 31, 1997 for a 5-year term. Varde and BankBoston each amended their respective credit agreements effective April 15, 1998. The credit agreement with Varde was amended to provide a $2.0 million loan for working capital purposes (the "Varde Revolver") through deferral of principal amortization on the A Term Loan and additional cash advances (see below). In addition, both credit agreements were amended to ease certain financial covenants through December 31, 1998. The Revolver from BankBoston provides for the issuance of letters of credit to third parties to support the Partnership's purchase or exchange of crude oil and petroleum products in an aggregate amount not to exceed $65.0 million, with a sublimit of $10.0 million for direct cash borrowings for general working capital purposes. Amounts available under the Revolver are subject to a borrowing base calculated as the sum of the Partnership's cash and cash equivalents, certain receivables, deposits, inventory and other amounts, reduced by a portion of crude oil royalties payable and certain other amounts payable. The amount available under the borrowing base net of outstanding letters of credit and advances under the Revolver was $1.4 million as of June 30, 1998. Though no advances had been drawn under the letter of credit facility at June 30, 1998, the Partnership did have approximately $28.3 million in outstanding letters of credit. The Partnership had no advances under the Revolver for direct cash borrowings as of June 30, 1998. The fee on outstanding letters of credit was 2.5% per annum as of June 30, 1998. There is also an issuance fee of 0.125% per annum on the face amount of each letter of credit. The fee for the unused portion of the Revolver is 0.5% per annum. At the Partnership's discretion, cash borrowings under the Revolver at June 30, 1998 bore interest at either LIBOR plus 3% or prime plus 1.75%. LIBOR and the prime rate were 5.66% and 8.5%, respectively, at June 30, 1998. The credit agreement evidencing the Revolver also requires the Partnership to pay an agency fee of up to $70,000 per annum depending on the number of participants in the credit facility and restricts the payment of distributions to unitholders throughout the term of the credit agreement. BankBoston also charged a $75,000 amendment fee related to the amendment that became effective April 15, 1998. As a result of Varde's assumption of the outstanding bank debt, additional loans to the Partnership and subsequent interest being paid in kind, Varde now holds a term loan of $20.2 million ("A Term Loan"), a term loan of $9.9 million ("B Term Loan"), a term loan of $4.8 million ("C Term Loan") and an unsecured note of $2.6 million ("Subordinate Note A") as of June 30, 1998. The A Term Loan bears interest rates of 11% in the first two years, 13% in the third year, 15% in the fourth and 17% in the fifth year. The Partnership has included $1.3 million of the A Term Loan in the current portion of long-term debt as of June 30, 1998. The B Term Loan and C Term Loan bear interest rates of 11% in the first three years, 13% in the fourth year and 15% in the fifth year except for $3.4 million of the B Term Loan which is subject to interest rates of 12% through maturity. If the A Term Loan is not refinanced, the interest rates applicable to the A Term Loan, B Term Loan and C Term Loan would be 11%, 13%, 15%, 17% and 19% for the first, second, third, fourth and fifth years, respectively, during all or any portion of the period after February 1998 that the A Term Loan is held by Varde, except for $3.4 million of the B Term Loan which is subject to interest rates of 18% through maturity. The Subordinate Note A is convertible into 416,000 Common Units and bears interest at prime plus one percent. The cash interest and dividend payments on the B Term Loan, C Term Loan, Subordinate Note A and the redeemable preferred equity held by Varde are limited to $90,833 per month or $1.1 million annually. To the extent the interest and dividends on the various Varde securities exceed the cap on cash payments, such excess will be paid in kind. The A Term Loan is due December 31, 2002. The B Term Loan, C Term Loan and Subordinate Note A are due December 31, 2002. The Partnership is required to make quarterly principal payments on the A Term Loan as set forth in the Varde credit agreement as well as make payments of excess cash flow for the preceding year. Such principal payments have been deferred for 1998 by agreement of Varde. The Partnership will not have to make principal payments prior to the scheduled maturity on the B Term Loan, C Term Loan and Subordinate Note A except in the case the Partnership receives proceeds related to the DFSC Claim and certain other transactions (See "Legal Proceedings"). Any payments of principal on the securities held by Varde shall be applied in the following order: A Term Loan (if then outstanding), B Term Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C Preferred Units, and Series D Preferred Units (See "-Cash Distributions and Paid In Kind Distributions" for information on the preferred units). The Partnership or management has a three-year call on Varde's position for an amount equal to a 40% annual rate of return to Varde, subject to a minimum payment of $7.5 million over Varde's cost. The securities held by Varde will have certain antidilution provisions and registration rights. Any litigation proceeds received by the Partnership related to the DFSC Claim will be used to retire up to $6.0 million of either the A Term Loan if then outstanding, and up to $5.0 million of either the B Term Loan or New Series A Preferred, whichever is then outstanding, with any excess divided one-third to Varde to be used to retire Varde's most senior securities and two-thirds to the Partnership. On December 31, 1997, certain members of management agreed to invest an aggregate of $2.0 million in the form of a note payable to Varde and will receive a one-third economic non-directive interest in $6.0 million of the B Term Loan, C Term Loan, Subordinate Note A, Series B Preferred Units, Series C Preferred Units and Series D Preferred Units. The note payable to Varde will be secured by management's interest in such securities. Any cash yield on management's share of such securities will be paid to Varde as interest, net of applicable federal income tax. Advances under the Varde Revolver bear interest at 11% per annum, payable monthly. Under the credit agreement, the Varde Revolver was subject to an administration fee equal to 5.0% of any incremental advance and any principal deferral on the A Term Loan and was limited to $100,000. The fee was payable in the form of an additional Series B Term Loan. Since the Partnership deferred $750,000 in principal amortization on the A Term Loan and drew an additional $1,250,000 under the Varde Revolver, the entire $100,000 fee was payable in the second quarter of 1998. Also, the Partnership paid a commitment fee in the amount of $50,000 in the form of an additional Series B Term Loan. Cash advances under the Varde Revolver are due January 1, 1999. Accordingly, the $1,250,000 outstanding at June 30, 1998 has been included in the current portion of long-term debt. Other installment loans include a $6.0 million nonrecourse note, due 2014, payable monthly with interest at 8% and a balance of $5.6 million at June 30, 1998. The note is supported by a minimum throughput agreement. The assets of Pride Borger, Inc., a wholly-owned subsidiary of the Partnership, are pledged as collateral. Monthly principal payments are based on the number of throughput barrels. The Partnership has classified $164,000 as current at June 30, 1998. Varde has proposed an additional restructuring of its investment ("Restructuring") that could further reduce the Partnership's bank debt in connection with the authorization and issuance of new preferred equity, which would in turn be convertible into Common Units, if approved by the unitholders pursuant to a consent solicitation on or before October 1, 1999 (the "Restructuring Consent Solicitation"). Subject to unitholder authorization of additional preferred equity in connection with the Restructuring Consent Solicitation, Varde has agreed to exchange a total of $34.9 million of debt and preferred equity securities as of June 30, 1998 composed of $9.9 million of B Term Loan, $4.8 million of C Term Loan, $2.6 million of Subordinate Note A, $9.6 million of Series B Preferred Units, $5.1 million of Series C Preferred Units and $2.9 million of Series D Preferred Units (including any additional paid in kind distributions on these instruments after June 30, 1998) for the following series of newly authorized preferred equity: (i) Nonconvertible redeemable preferred equity in the amount of $9.5 million ("New Series A Preferred Units") which includes $500,000 that was Varde's transaction fee for bridging the A Term Loan, (ii) Convertible redeemable preferred equity in the amount of $2.5 million ("New Series B Preferred Units"), which would be convertible into 10% of the Common Units outstanding, (iii) Convertible redeemable preferred equity in the amount of $2.5 million ("New Series C Preferred Units") which would be convertible into an additional 42% of the Common Units outstanding, plus an additional 8% of the Common Units for Varde's account if the A Term Loan continues to be held by Varde, and (iv) Nonconvertible nonredeemable preferred equity in the amount of $6.0 million ("New Series D Preferred Units"). As part of the proposed Restructuring, Pride SGP will be asked, subject to unitholder approval, to approve the Partnership recapitalization and convert $2.4 million of claims and the Series E Preferred Units and Series F Preferred Units into a total of 7.5% of the outstanding Common Units. If all requisite unitholder consents are received and all proposed transactions are consummated, including the restructuring of certain claims of Pride SGP and the authorization and issuance of additional preferred equity, Varde will convert the $34.9 million of debt and equity securities that it holds of the Partnership into $20.5 million of newly authorized equity securities. Cash flows have been and will continue to be significantly affected by fluctuations in the cost and volume of crude oil and refined products held in inventory and the timing of accounts receivable collections. Cash flows are also affected by refined product margins and crude oil gathering margins. Recent declines in crude oil and refined product prices have had a negative impact on the borrowing base under the Partnership's credit agreement as well as working capital. Further declines could have a material adverse effect on the Partnership. The Partnership has incurred recurring operating losses and has working capital and partners' deficiencies. In addition, the Partnership has not historically complied with certain of the financial and performance covenants included in its credit facilities with lenders and management is not certain whether the Partnership will be able to comply with various financial covenants contained in these credit facilities throughout 1998. Currently, the Partnership is not in compliance with certain financial covenants contained in the credit agreement. These covenant violations or any other covenant violation could enable the lenders to accelerate the Partnership's loans. The ability of the Partnership to operate in future periods may be adversely affected by these conditions. The losses and capital expenditures incurred in the second quarter of 1998 were funded by additional borrowing which became available under the Partnership's Varde Revolver. Product sales for April 1998 through June 1998 were below management's budgeted sales due to startup problems experienced by Equilon with its new products pipeline. As a result, delivery and corresponding sales of gasoline, diesel and jet fuel were substantially below expectations. Throughout the second quarter of 1998, the Partnership was unable to deliver contractual volumes, particularly to the government. The failure by the Partnership to deliver such contractual volumes to the government could result in a termination of the contract and the Partnership being liable for any additional costs associated with the government procuring such product from an alternative source. The Partnership is currently delivering to the government contractual volumes and gasoline and diesel sales have also increased from the second quarter of 1998. Equilon recently performed an extensive pipeline cleaning operation and the situation has significantly improved. However, there can be no assurance that further problems will not be encountered. As a result of the problems associated with the startup of the pipeline, Equilon has agreed to certain contract concessions. The Partnership's ability to generate profits is principally dependent upon increased volumes and/or improved profit margins, as well as continued cost control initiatives. The ability to generate profits could be affected if other Gulf Coast refiners bring refined products into West Texas from the Gulf Coast via pipeline. Though management has and will continue to pursue options regarding increasing volumes and margins and reducing costs, including limiting any significant capital expenditures, these improvements, if achieved, will be gradual and, in many cases, will take sustained periods of time to implement in order to achieve profitability. As a result, management is also reviewing other strategic alternatives including redeployment of its operating assets, possible asset sales and alliances with other companies. The Partnership has been notified by the New York Stock Exchange that the Partnership will be delisted from trading on the New York Stock Exchange effective August 17, 1998. The Partnership, however, is in the process of applying for listing on the NASDAQ OTC bulletin board. Capital Expenditures The Partnership incurred capital expenditures of $517,000 for the second quarter of 1998 which includes $200,000 related to the reactivation of a crude pipeline and $83,000 related to the conversion of its computer system. Cash Distributions and Paid in Kind Distributions In conjunction with Varde's assumption of the outstanding bank debt, Varde received preferred equity securities. As a result of the assumption and subsequent distributions being paid in kind, Varde now holds preferred equity securities including $9.6 million of Series B Cumulative Convertible Preferred Units ("Series B Preferred Units"), $5.1 million of Series C Cumulative Convertible Preferred Units ("Series C Preferred Units") and $2.9 million of Series D Cumulative Preferred Units ("Series D Preferred Units") which mature December 31, 2002. The Series B Preferred Units and Series C Preferred Units are convertible into 1,522,000 and 816,000 Common Units, respectively, at June 30, 1998. The preferential quarterly payments on the Series B Preferred Units and Series C Preferred Units will be 6% per annum in the first three years after issuance, 12% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind at 8% per annum in the first three years, 12% per annum in the fourth and fifth years and 15% per annum thereafter. The preferential quarterly payments on the Series D Preferred Units will be 11% per annum in the first three years after issuance, 13% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind through maturity at 13% per annum in the first five years and 15% per annum thereafter. Distributions are payable on the 5th day of the second month in each quarter. Accordingly, the Partnership had paid, in kind, distributions of $534,000 and accrued an additional distribution of $241,000 at June 30, 1998 on these preferred equity securities. On December 31, 1997, Pride SGP agreed to convert (i) a $2.0 million note from the Partnership into Series E Cumulative Convertible Preferred Units ("Series E Preferred Units") which is convertible into 317,000 Common Units at June 30, 1998 and (ii) a $450,000 note from the Partnership into Series F Cumulative Preferred Units ("Series F Preferred Units"). The Series E Preferred Units and Series F Preferred Units mature December 31, 2002. The Series E Preferred Units and Series F Preferred Units will be subordinated to the Series B Preferred Units, Series C Preferred Units and Series D Preferred Units. The preferential quarterly payments on the Series E Preferred Units and Series F Preferred Units will be 6% per annum in the first three years after issuance, 12% per annum in the fourth and fifth years and 15% per annum thereafter or may be paid in kind at 8% per annum in the first three years, 12% per annum in the fourth and fifth years and 15% per annum thereafter until mandatory redemption at December 31, 2002. Distributions are payable on the 5th day of the second month in each quarter; however, the Partnership may not make any cash distributions or paid in kind distributions on the Series E Preferred Units or Series F Preferred Units if the distributions with respect to the Series B Preferred Units, Series C Preferred Units or Series D Preferred Units are paid in kind. Accordingly, at June 30, 1998, the Partnership accrued distributions of $91,000 but had not paid such distributions in cash or in kind. At June 30, 1998, 4,950,000 Common Units were outstanding, representing a 98% limited partner interest in the Partnership. The general partners are entitled to 2% of all distributions. Under the terms of the Partnership's credit agreement, the bank restricted the payment of distributions to unitholders throughout the term of the credit agreement. Future distributions will be dependent on, among other things, payment in full of the bank debt, expiration of all liabilities for letters of credit, and the termination of the credit agreement. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership has filed a substantial claim against the Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over a period of several years from the Partnership and its predecessors. The ultimate outcome of this matter cannot presently be determined. The Partnership was contractually committed to supply Diamond Shamrock with vacuum gas oil through December 31, 1998. The commitment was cancelled by mutual agreement and in conjunction with such cancellation, the Partnership executed a two-year contract with Diamond Shamrock to supply them crude oil. The Partnership is involved in various claims and routine litigation incidental to its business for which damages are sought. Management believes that the outcome of all claims and litigation is either adequately insured or will not have a material adverse effect on the Partnership's financial position or results of operations. Item 2. Changes in Securities None Item 3. Defaults in Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits: 4.1 Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1- 10473)). 4.2 Second Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 4.3 Deposit Agreement among the Partnership and the Depository (incorporated by reference to Exhibit 4.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.4 Transfer Application (included as Exhibit A to the Deposit Agreement, which is incorporated by reference to Exhibit 4.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.5 Form of Depositary Receipt for Common Units of Pride Companies, L.P. (incorporated by reference to Exhibit 4.5 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 27 Financial Data Schedule for the Second Quarter of 1998. 28.1 First Amendment to the Sixth Restated and Amended Credit Agreement dated as of April 15, 1998, by and among Pride Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and Varde Partners, Inc. as Lender. 28.2 Amendment No. 1 to the Revolving Credit and Term Loan Agreement, dated as of April 15, 1998, among Pride Companies, L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur Partnership, Pride Borger, Inc., Pride Marketing of Texas (Cedar Wind), Inc., and BankBoston, N.A., as an Agent and as a Lender, Lehman Commercial Paper, Inc. as a Lender and as a Documentation Agent. b. Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRIDE COMPANIES, L.P. (Registrant) By: Pride Refining, Inc. as its Managing General Partner Date: August 14, 1998 /s/ Brad Stephens Chief Executive Officer (Signing on behalf of Registrant) Date: August 14, 1998 /s/ George Percival Principal Financial Officer (Signing as Principal Financial Officer) PRIDE COMPANIES, L.P. Exhibits to Report to Form 10-Q INDEX TO EXHIBITS Exhibit Number (Reference to Item 601 of Regulation S-K) _________________ 4.1 Certificate of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1- 10473)). 4.2 Second Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 4.3 Deposit Agreement among the Partnership and the Depository (incorporated by reference to Exhibit 4.1 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.4 Transfer Application (included as Exhibit A to the Deposit Agreement, which is incorporated by reference to Exhibit 4.2 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 1-10473)). 4.5 Form of Depositary Receipt for Common Units of Pride Companies, L.P. (incorporated by reference to Exhibit 4.5 of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10473)). 27 Financial Data Schedule for the Second Quarter of 1998. 28.1 First Amendment to the Sixth Restated and Amended Credit Agreement dated as of April 15, 1998, by and among Pride Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc. (collectively Guarantors) and Varde Partners, Inc. as Lender. 28.2 Amendment No. 1 to the Revolving Credit and Term Loan Agreement, dated as of April 15, 1998, among Pride Companies, L.P., Pride SGP, Inc., Pride Refining, Inc., Desulfur Partnership, Pride Borger, Inc., Pride Marketing of Texas (Cedar Wind), Inc., and BankBoston, N.A., as an Agent and as a Lender, Lehman Commercial Paper, Inc. as a Lender and as a Documentation Agent. EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 934 0 11,509 0 9,984 24,184 68,361 21,214 83,767 28,096 41,987 20,063 0 (19,180) (869) 83,767 209,205 209,205 203,003 203,003 1,713 0 2,496 (3,748) 2 (3,750) 0 0 0 (3,750) (.91) (.91) FIRST AMENDMENT TO SIXTH RESTATED AND AMENDED CREDIT AGREEMENT THIS FIRST AMENDMENT TO SIXTH RESTATED AND AMENDED CREDIT AGREEMENT, dated as of April 15, 1998 (this "First Amendment"), amends the Sixth Restated and Amended Credit Agreement dated as of December 30, 1997 (the "Credit Agreement") by and among PRIDE COMPANIES, L.P. (the "Borrower"), PRIDE REFINING, INC., PRIDE SGP, INC., DESULFUR PARTNERSHIP, PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. and PRIDE BORGER, INC. (collectively, the "Guarantors") and VARDE PARTNERS, INC., as Lender (the "Lender"). Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. WHEREAS, the Borrower, the Guarantors and the Lender have entered into the Credit Agreement; and WHEREAS, the parties desire to amend the Credit Agreement as hereinafter set forth; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendments. Effective on (and subject to the occurrence of) the First Amendment Effective Date (as defined in Section 4 below), the Credit Agreement shall be amended as set forth below: 1.1 Section 1.1 of the Credit Agreement is hereby amended by amending and restating the following definitions in their entirety to read as follows: "Consolidated EBITDA" shall mean, for any period, the gross revenues of the Borrower and its Subsidiaries from operations, determined in accordance with GAAP on a Consolidated basis, minus (a) the sum of (i) the cost of operations of the Borrower and its Subsidiaries for such period, determined in accordance with GAAP on a Consolidated basis, and (ii) the selling, general and administrative expenses of the Borrower and its Subsidiaries for such period, determined in accordance with GAAP on a Consolidated basis plus (b) all amounts included in clause (a) as deductions in respect of depreciation and amortization; provided, that, for the purposes of calculating compliance with the provisions of Sections 6.2(a), (b) and (c) hereof (and for no other purpose of this Agreement) (1) the Consolidated EBITDA for each of the four consecutive fiscal quarters of the Borrower commencing January 1, 1997 and ending December 31, 1997 shall be assumed to be one-quarter of (x) the actual Consolidated EBITDA of the Borrower and its Subsidiaries for the fiscal year ended December 31, 1997 excluding (y) the lesser of the accrual taken in such fiscal year with respect to the Refinery conversion expenses or $1,800,000, (2) that any writedown on or prior to December 31, 1998 of the Refinery assets associated with the Refinery conversion referred to in the proviso to clause (c) of the definition of "Consolidated Net Income" herein, to the extent that the same would reflect both a non-cash item and a reduction of Consolidated EBITDA, shall not be deducted in calculating Consolidated EBITDA, (3) that non- cash losses or gains realized on the sale of inventory layers (consisting of 625,367 barrels at a cost of $13.49/barrel or 118,012 barrels at a cost of $28.69/barrel) between March 1, 1998 and December 31, 1998 shall be added in the case of a loss, and subtracted in the case of a gain, in calculating Consolidated EBITDA, and (4) that to the extent that capitalized processing costs associated with Refinery operations increase or decrease after December 31, 1997 such increase or decrease will be, respectively, subtracted or added in calculating Consolidated EBITDA. "Consolidated Excess Cash Flow" shall mean, for any period, the total of: (a) Consolidated Operating Cash Flow, minus (b) Consolidated Debt Service (but in no event including contingent prepayments required by Section 2.7), minus (c) Discretionary Capital Expenditures (to the extent not financed by debt for borrowed money), plus or minus (d) other cash income or cash expense, respectively, to the extent not included in Section 2.7(c), 2.7(d) or 2.7(e) or in (a), (b) or (c) above but included in determining net income determined in accordance with GAAP. "Consolidated Operating Cash Flow" shall mean, for any period, the remainder of Consolidated EBITDA for such period, minus the Non-Discretionary Capital Expenditures of the Borrower and its Subsidiaries for such period, minus the amounts of all taxes based upon or measured by net income paid or payable by the Borrower and its Subsidiaries for such period. For the purpose of determining Consolidated Operating Cash Flow, Non-Discretionary Capital Expenditures will be deemed to be $187,500 for each of the fiscal quarters ended March 31, June 30, September 30 and December 31, 1997. "Interest Rate" shall mean (a) with respect to each Term Loan (i) from the Effective Date until but not including the Refinancing Date, a rate per annum equal to the lesser of (x) the rate per annum set forth on Schedule 1.1 hereto set forth opposite each Term Loan for the applicable year and (y) the Maximum Rate, (ii) from and including the Refinancing Date until the Maturity Date, a rate per annum equal to the lesser of (x) the rate per annum set forth on Schedule 1.2 hereto set forth opposite each Term Loan for the applicable year and (y) the Maximum Rate, and (iii) if the Refinancing Date shall not occur prior to the Stage 3 Closing Date, from the Stage 3 Closing Date until the Maturity Date, a rate per annum equal to the lesser of (x) a rate per annum equal to the rate per annum set forth on Schedule 1.3 hereto set forth opposite each Term Loan for the applicable year and (y) the Maximum Rate and (b) with respect to each Revolving Credit Loan, eleven percent (11%) per annum. "Loans" shall mean, collectively, the Term Loans and the Revolving Credit Loans. "Notes" shall mean, collectively, the Revolving Credit Note, the Series A Term Notes, the Series B-1 Term Note, the Series B-2 Term Note, the Series B-3 Term Note and the Series C Term Note, each in substantially the form set forth as Exhibit "A" hereto. "Pride SGP Securities" shall mean the Indebtedness of the Borrower to Pride SGP and the Series E and F Preferred Units of the Borrower more fully described in Exhibit 5.1.9 to the BankBoston Credit Agreement. 1.2 Section 1.1 of the Credit Agreement is hereby further amended by amending the definition of "Consolidated Net Income" by deleting from paragraph (c) of such definition the figure "$30,000,000" and substituting in lieu thereof the figure "$40,000,000". 1.3 Section 1.1 of the Credit Agreement is hereby further amended by adding the following new definitions in the appropriate alphabetical position: "Administration Fee" has the meaning specified in Section 2.5(a). "Available Commitment" shall mean, at any time, an amount equal to the excess, if any, of (a) the amount of the Revolving Credit Commitment over (b) the aggregate principal amount of all Revolving Credit Loans then outstanding plus Deferred Amortization. "BankBoston Borrowing Base Certificate" shall mean the borrowing base report required to be delivered to BankBoston pursuant to Section 6.4.4 of the BankBoston Credit Agreement. "Borrowing" shall mean the incurrence of a Revolving Credit Loan on a single date. "Borrowing Base" shall mean on any day an amount, based upon the most recent BankBoston Borrowing Base Certificate (or if such certificate is not available, then upon the Borrower's good faith estimate of financial performance for such period), equal to the excess, if any, of (a) the sum of (i) the aggregate amount of Revolving Loans (as defined in the BankBoston Credit Agreement) outstanding plus (ii) the Letter of Credit Exposure (as defined in the BankBoston Credit Agreement) over (b) the Borrowing Base (as defined in the BankBoston Credit Agreement); provided, however, that the Borrowing Base shall be reduced by an amount equal to the sum of (i) Non-Discretionary Capital Expenditures which exceed $750,000 for the last nine months of 1998, plus (ii) Discretionary Capital Expenditures which exceed $370,000 for the last nine months of 1998, plus (iii) closure costs relating to the Refinery which exceed $1,200,000 for the last nine months of 1998, plus (iv) severance costs which exceed $530,000 for the last nine months of 1998. "Borrowing Base Certificate" shall mean a certificate in form and detail satisfactory to the Lender, executed and certified by a Financial Officer of the Borrower, which shall include appropriate exhibits thereto. "Borrowing Date" shall mean any Business Day specified in a notice pursuant to Section 2.4 as a date on which the Borrower requests the Lender to make a Revolving Credit Loan. "Commitment Period" shall mean the period from and including the First Amendment Effective Date to but not including the Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitment shall terminate as provided herein. "Deferred Amortization" has the meaning specified in Section 2.6(ii). "First Amendment Effective Date" shall mean April 15, 1998. "Notice of Borrowing" has the meaning specified in Section 2.4. "Repayment Amount" shall mean an amount equal to the sum of (i) 100% of the Revolving Commitments available to be drawn under the BankBoston Credit Agreement, plus (ii) 100% of the proceeds resulting from asset sales, new securities issues and litigation described in Sections 2.7(c), (d) or (e) of this Agreement. "Revolving Credit Commitment" shall mean the obligation of the Lender to make Revolving Credit Loans to the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed Two Million Dollars ($2,000,000) as such amount may be reduced from time to time in accordance with the terms of this Agreement. "Revolving Credit Loan" has the meaning specified in Section 2.2. "Revolving Credit Note" has the meaning specified in Section 2.3. "Revolving Credit Termination Date" shall mean January 1, 1999. "Term Loans" shall mean, collectively, the Series A Term Loans, the Series B Term Loans and the Series C Term Loans. 1.4 Section 1.3 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 1.3 Series and Types of Term Loans. Term Loans hereunder are distinguished by "Series". The "Series" of a Term Loan refers to whether such Term Loan is a Series A Term Loan, a Series B-1 Term Loan, a Series B-2 Term Loan, a Series B-3 Term Loan, or a Series C Term Loan, each of which constitutes a Series. 1.5 Section 2.1 of the Credit Agreement is hereby amended by inserting the word "Term" immediately preceding the defined term "Loans" appearing in the last sentence of such section. 1.6 Section 2.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.2 Revolving Credit Commitment. (a) Subject to the terms and conditions of this Agreement, the Lender agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to time during the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the lesser of the Available Commitment and the Borrowing Base. During the Commitment Period the Borrower may use the Revolving Credit Commitment by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Borrower shall have the right, upon not less than five Business Days' notice to the Lender, to terminate the Revolving Credit Commitment or, from time to time, to reduce the amount of the Revolving Credit Commitment. Any such reduction shall be in an amount equal to $100,000 or a whole multiple thereof and shall reduce permanently the Revolving Credit Commitment then in effect. 1.7 Section 2.3 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.3 Revolving Credit Notes. The Revolving Credit Loans made by the Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit A-6, with appropriate insertions as to payee, date and principal amount (a "Revolving Credit Note"), payable to the order of the Lender and in a principal amount equal to the lesser of (a) the amount of the Revolving Credit Commitment and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender. The Revolving Credit Note shall (x) be dated the First Amendment Effective Date, (y) be stated to mature on the Revolving Credit Termination Date and (z) provide for the payment of interest in accordance with Section 2.6. 1.8 Section 2.4 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.4 Procedure For Revolving Credit Borrowing. (a) The Borrower may borrow under the Revolving Credit Commitment during the Commitment Period on any Business Day. The Borrower shall give the Lender irrevocable notice of each Borrowing hereunder by delivering a notice of borrowing in substantially the form of Exhibit K hereto (a "Notice of Borrowing") (which Notice of Borrowing must be received by the Lender prior to 12:00 P.M., New York City time, two Business Days prior to the requested Borrowing Date), specifying (A) the amount to be borrowed and (B) the requested Borrowing Date. Each Borrowing under the Revolving Credit Commitment shall be in an amount equal to $50,000 or a whole multiple thereof (or, if the then Available Commitment is less than $50,000, such lesser amount). (b) Upon receipt of any such notice from the Borrower, the Lender shall promptly make the amount of each Borrowing available to the Borrower on the Borrowing Date requested by the Borrower by wire transfer to an account designated by the Borrower with the aggregate of the amount made available to the Borrower by the Lender. 1.9 Section 2.5 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.5 Administration Fee. (a) The Borrower agrees to pay to the Lender an administration fee (the "Administration Fee") equal to 5% of the amount of each Revolving Credit Loan made by the Lender to the Borrower on any Borrowing Date which, when added to the aggregate amount of Revolving Credit Loans then outstanding, exceeds the highest aggregate amount of Revolving Credit Loans outstanding at any time prior to such Borrowing Date during the Commitment Period; provided, that, for purposes of this Section 2.5 the Deferred Amortization shall be considered a Revolving Credit Loan made hereunder; provided, further, that the aggregate amount of all Administration Fees paid by the Borrower shall not exceed $100,000. (b) Each Administration Fee shall be payable in the form of an additional Series B-3 Term Loan. The Borrower agrees that each such Series B-3 Term Loan shall be deemed made on each Borrowing Date upon which a Revolving Credit Loan is made if the making of such Revolving Credit Loan results in an Administration Fee becoming payable pursuant to subsection (a) above. 1.10 Section 2.6 of the Credit Agreement is hereby amended by amending and restating subsection (a) thereof in its entirety to read as follows: (a) Repayment. Borrower shall repay the outstanding principal balances of the Loans, together with accrued interest from time to time outstanding on such outstanding principal balances, as follows: (i) all accrued and unpaid interest on the Term Loans shall be due and payable on the Interest Payment Date, commencing on January 31, 1998, and continuing on each Interest Payment Date thereafter until the Maturity Date; provided, however, that on any date upon which interest shall be payable hereunder, the Borrower shall pay the applicable amount of PIK Interest hereunder on (x) the Series A Term Loan by adding the amount of such interest to the principal (such amount when so added, "Capitalized Series A Interest") of the Series A Term Loan (any such interest so added to the principal of such Series A Term Loan shall bear interest hereunder as if it had originally been part of the principal of the Series A Term Loan), and (y) the Series B-3 Term Loan by adding the amount of such interest to the principal of the Series B-3 Term Loan (and any such interest so added to the principal of such Series B-3 Term Loan shall bear interest hereunder as if it had originally been part of the principal of the Series B-3 Term Loan); (ii) on each Principal Payment Date in each Year set forth below, the Borrower will pay to the Lender as a prepayment of the Series A Term Loan the lesser of (x) the amount set forth below for such date or (y) the amount of the Series A Term Loan then outstanding: Principal Payment Date Amount ---------------------- -------- 1998 $375,000 1999 $562,500 2000 $625,000 2001 $750,000 2002 $750,000; provided, that, the Borrower shall defer each 1998 amortization payment as each such payment becomes due (all such amortization payments which are so deferred, collectively, the "Deferred Amortization"); provided, further, that upon such deferral by the Borrower, on each Principal Payment Date in each Year set forth below the Borrower will pay to the Lender as a prepayment of the Series A Term Loan the lesser of (x) the amount set forth below for such date or (y) the amount of the Series A Term Loan then outstanding: Principal Payment Date Amount ---------------------- ----------- 1998 Deferred 1999 $640,988.37 2000 $712,209.30 2001 $854,651.16 2002 $854,651.16 (iii) on December 31, 1998, the Borrower will pay to the Lender as a prepayment of the Series A Term Loan the amount of Capitalized Series A Interest then outstanding; (iv) all amounts outstanding on all Term Loans shall be due and payable on the Maturity Date; (v) all accrued and unpaid interest on the Revolving Credit Loans shall be due and payable in arrears on the last day of each Month during the Commitment Period; and (vi) all amounts outstanding on all Revolving Credit Loans shall be due and payable on the Revolving Credit Termination Date. 1.11 Section 2.7(a) of the Credit Agreement is hereby amended by (i) inserting the phrase "to the Revolving Credit Loans until all outstanding Revolving Credit Loans are prepaid in full, then" immediately following the phrase "shall be applied" in the second sentence of such subsection and (ii) inserting the word "Term" immediately preceding the defined term "Loans" in each instance where such defined term appears in such subsection. 1.12 Section 2.7(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (b) Excess Cash Flow. (i) Within five Business Days after the fifteenth day of each Month, Borrower shall pay to the Lender as a prepayment of Revolving Credit Loans an amount equal to the lesser of the aggregate amount of all Revolving Credit Loans then outstanding and the Repayment Amount; (ii) On each Principal Payment Date in 1998, the Borrower shall pay to the Lender as a prepayment of Revolving Credit Loans an amount equal to the excess, if any, of (a) the amount of the Series A Term Loan due on such Principal Payment Date the payment of which is deferred under Section 2.6(a)(ii) over (b) the Available Commitment; and (iii) Within five Business Days after the date annual financial statements have been (or are required to have been) furnished by the Borrower to the Lender in accordance with Section 6.1, commencing with such financial statements for the fiscal year ended December 31, 1998, the Borrower shall pay to the Lender as a prepayment of the Term Loans, to be applied as provided in Section 2.7(f), (a) an amount equal to 100% of Consolidated Excess Cash Flow from its most recently completed fiscal year, but only until the Deferred Amortization shall have been prepaid under this Section 2.7(b) and Sections 2.7(c), 2.7(d) and 2.7(e) and then only so long as after giving effect to such payment the Maximum Amount of Revolving Credit Outstanding (as defined in the BankBoston Credit Agreement) shall exceed by at least $1,000,000 the sum of the aggregate principal amount of loans made under Section 2.1.1 of the BankBoston Credit Agreement at the time outstanding plus the Letter of Credit Exposure (as defined in the BankBoston Credit Agreement) at the time in effect, and (b) after the Deferred Amortization shall have been prepaid under this Section 2.7(b) and Sections 2.7(c), 2.7(d) and 2.7(e), an amount equal to 75% of Consolidated Excess Cash Flow for its most recently completed fiscal year (or, if applicable, the portion of Consolidated Excess Cash Flow remaining after a payment on account of such year under the preceding clause (a)). 1.13 Article IV of the Credit Agreement is hereby amended by inserting the following new Section 4.2 at the end thereof: 4.2. Conditions to Each Revolving Credit Loan. The agreement of the Lender to make any Revolving Credit Loan requested to be made by it on any date (including, without limitation, its initial Revolving Credit Loan) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Borrower and each Guarantor in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) No Default. No default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Revolving Credit Loans requested to be made on such date. (c) Notice. The Lender shall have received a Notice of Borrowing as required by Section 2.4 which Notice of Borrowing shall be accompanied by a Borrowing Base Certificate demonstrating the Borrower's ability to incur Revolving Credit Loans. (d) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Lender, and the Lender shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each Borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such Revolving Credit Loan that the conditions contained in paragraphs (a) and (b) of this Section 4.2 have been satisfied and that after giving effect to such Borrowing the Borrower shall continue to be in compliance with the Borrowing Base. 1.14 Section 6.2(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (a) Leverage Ratio. The Leverage Ratio shall not on the last day of each fiscal quarter of the Borrower ending on a date during each period specified below exceed the percentage set forth in the table below next to such period. Fiscal Quarter Ending Percentage --------------------------- ---------- On December 31, 1997 350% On or after March 31, 1998 and prior to March 31, 1999 385% On or after March 31, 1999 and prior to December 31, 1999 300% On or after December 31, 1999 250% 1.15 Section 6.2(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (b) Consolidated Interest Coverage. For each period of four consecutive fiscal quarters of the Borrower ending on a date during each period specified below, the Consolidated Interest Coverage shall equal or exceed the percentage set forth in the table below next to such period, measured as of the last day of such period. Fiscal Quarter Ending Percentage ------------------------ ---------- On December 31, 1998 125% On or after March 31, 1999 and prior to December 31, 1999 175% On or after December 31, 1999 and prior to December 31, 2000 200% On or after December 31, 2000 and prior to December 31, 2001 225% On or after December 31, 2001 250% 1.16 Section 6.2(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (c) Consolidated Operating Cash Flow to Consolidated Debt Service. For each period of four consecutive fiscal quarters of the Borrower ending on a date during each period specified below, the Consolidated Operating Cash Flow shall equal or exceed the percentage of Consolidated Debt Service specified in the table below, measured as of the last day of such period. First Quarter Ending Percentage ----------------------- ---------- On or after March 31, 1998 and prior to March 31, 1999 100% On or after March 31, 1999 and prior to December 31, 1999 115% On or after December 31, 1999 120% 1.17 Section 6.2(e) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (e) Consolidated Net Worth. Consolidated Net Worth shall at all times on and after December 31, 1997 equal or exceed the sum of (a) negative $21,531,885, plus (b) the amount by which Consolidated Net Worth has been increased after December 31, 1997 as a result of capital contributions, the issuance of partnership units or other equity interests of the Borrower or any of its Subsidiaries, the issuance of warrants, options, or other rights to acquire such partnership units or other equity interests or the exercise of warrants, options or other rights or the conversion of securities into such partnership units or other equity interests, plus (c) 50% of Consolidated Net Income (if positive) for each fiscal quarter of the Borrower thereafter, plus (d) 100% of the Net Equity Proceeds realized by the Borrower after December 31, 1997, minus (e) the amount of any net deductions to Consolidated EBITDA described in clause (3) or (4) of the provisio to the definition of "Consolidated EBITDA" set forth in Section 1.1, but only to the extent that such items account for negative Consolidated Net Income in any fiscal quarter ending after December 31, 1997 and before January 1, 1999. 1.18 Section 6.2(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (f) Minimum Consolidated EBITDA. (a) For each fiscal quarter of the Borrower, commencing with the fiscal quarter ending December 31, 1997, the Consolidated EBITDA shall equal or exceed zero; and (b) for each period of four consecutive fiscal quarters of the Borrower ending on a date during each period specified below, the Consolidated EBITDA of the Borrower shall equal or exceed the amount set forth below next to such period. Fiscal Quarter Ending Amount --------------------------- ---------- On December 31, 1997 $8,800,000 After December 31, 1997 and prior to March 31, 1999 $6,500,000 On and after March 31, 1999 and prior to December 31, 1999 $9,000,000 On and after December 31, 1999 $10,000,000 1.19 Section 6.2(g) of the Credit Agreement is hereby amended and restated in its entirety to read as follows: (g) Net Working Capital. Consolidated Net Working Capital shall not on any date prior to January 31, 1999 be less than negative $1,000,000 and shall not any date on or after January 31, 1999 be less than $1.00. 1.20 Schedule 2.1 of the Credit Agreement is hereby amended by deleting the amount "$3,000,000" contained therein and inserting in lieu thereof the amount "$3,150,000". 1.21 Exhibit A to the Credit Agreement is hereby amended by inserting a new Exhibit A-6 immediately following Exhibit A-5 in the form of Exhibit A hereto. 1.22 The Credit Agreement is hereby amended by inserting a new Exhibit K immediately following Exhibit J thereto in the form of Exhibit B hereto. SECTION 2 Waiver and Consent. (a) Lender agrees to waive until December 31, 1998, any Default or Event of Default existing or arising under Section 6.2 of the Credit Agreement or the Amended Credit Agreement and any default or event of default arising under Sections 4.3.2, 6.5.1, 6.5.2, 6.5.3, 6.5.5, 6.5.6 and 6.5.7 of the BankBoston Credit Agreement which would otherwise result in a Default or Event of Default under the Amended Credit Agreement. (b) Lender hereby consents to the terms and conditions contained in the letter agreement dated as of April 15, 1998 among the Borrower, BankBoston, Lehman Commercial Paper Inc. and Union Bank of California and to the transaction with Gary-Williams Energy Corporation contemplated thereby. SECTION 3 Representations and Warranties. The Borrower and each of the Guarantors represents and warrants to the Lender that (a) each representation and warranty set forth in Article V of the Credit Agreement is true and correct in all material respects (except for any such representations and warranties which are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true and correct in all respects) as of the date of the execution and delivery of this First Amendment by the Borrower and the Guarantors (and assuming the effectiveness hereof), with the same effect as if made on such date (except for any such representations and warranties which are made with respect to a specified date, which representations and warranties shall only be required to be true and correct as of such date); and (b) the execution and delivery by the Borrower and the Guarantors of this First Amendment and the performance by the Borrower and the Guarantors of their respective obligations under the Credit Agreement, as amended hereby (as so amended, the "Amended Credit Agreement"), (i) are within the corporate powers of the Borrower and Guarantors, (ii) have been duly authorized by all necessary corporate action on the part of the Borrower and the Guarantors, (iii) have received all necessary approvals and consents from any governmental authority and (iv) do not and will not contravene or conflict with, or result in or require the creation or imposition of any Lien under, any provision or requirements of law or of the certificate of incorporation or by-laws (or equivalent organizational or governing document) of the Borrower or any Guarantor or of any agreement, instrument, order or decree which is binding upon the Borrower of any Guarantor. SECTION 4 Effectiveness. The amendments set forth in Section 1 hereof shall become effective on such date (the "First Amendment Effective Date") when the Lender shall have received all of the following: (i) Counterparts of this First Amendment executed by a duly authorized officer of the Borrower and each of the Guarantors. (ii) Payment of a commitment fee in the amount of $50,000 which shall be payable in the form of an additional Series B-3 Term Loan. (iii) An executed Revolving Credit Note in the form of Exhibit A hereto. (iv) An executed Series B-3 Term Note in the form of Exhibit C hereto. (v) An opinion of Andrews & Kurth, LLP counsel of the Borrower, substantially in the form of Attachment I hereto. (vi) Confirmation that the Borrower has paid to the Lender all reasonable expenses, fees and charges payable to the Lender's counsel, Paul, Weiss, Rifkind, Wharton & Garrison. (vii) All documents the Lender may reasonably request relating to the existence of the Borrower and the Guarantors, the corporate authority for and the validity of this First Amendment, and any other matters relevant hereto, all in form and substance satisfactory to the Lender. (viii) Counterparts of the Consent and Agreement, substantially in the form of Attachment II hereto, executed by a duly authorized officer of each of the Guarantors. (ix) A duly executed copy of Amendment No. 1 to the BankBoston Credit Agreement in form and substance satisfactory to the Lender. SECTION 5 Conditions Subsequent. On the Stage 3 Closing Date, the Borrower shall issue additional preferred stock in a face amount of $6,000,000 to Lender, the terms and conditions of which shall be in conformity with the New Unit A Preferred Stock; provided, that, such preferred stock will be non-redeemable and have a dividend rate of 5% per annum; provided, further, that the Borrower agrees to use reasonable efforts, if necessary, to amend the Restructuring Agreement to effectuate the transaction contemplated by this Section 5(a); it being understood, however, that the failure to amend the Restructuring Agreement will not relieve the Borrower of its obligation to issue such additional preferred stock. Breach of this provision shall result in an immediate Event of Default under the Amended Credit Agreement. SECTION 6 Guaranties. Each of Pride SGP and the Guarantors (other than Pride SGP) agrees that any existing guaranties by the Guarantors of the Borrower's obligations with respect to the Pride SGP Securities are hereby terminated and of no further force or effect. SECTION 7 Miscellaneous. 7.1 Continuing Effectiveness, etc. The Credit Agreement as hereby amended and all other Loan Documents are hereby ratified and confirmed in all respects. After the First Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement", "Agreement" or similar terms shall refer to the Amended Credit Agreement. The execution, delivery and effectiveness of this First Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement, the Notes, or any other Loan Document nor constitute a waiver of any Default or Event of Default. 7.2 Counterparts. This First Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same First Amendment. 7.3 Governing Law. This First Amendment shall be governed by and construed in accordance with the internal laws of the State of New York (without reference to the conflicts of laws provisions thereof). 7.4 Successors and Assigns. This First Amendment shall be binding upon the Borrower, the Guarantors, the Lender and their respective permitted successors and assigns, and shall inure to the benefit of the Borrower, the Guarantors, the Lender and their respective permitted successors and assigns. 7.5 Further Assurances. Each of the Borrower and the Guarantors will, promptly upon the request of the Lender, from time to time execute, acknowledge and deliver, and file and record, all such agreements, documents, instruments and notices, and take all such action, as the Lender deems necessary or advisable to carry out the intent and purposes of this First Amendment and the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective authorized officers as of the day and year first above written. PRIDE COMPANIES, L.P. By Pride Refining, Inc., its Managing General Partner By:____________________________ Name: Title: PRIDE REFINING, INC. By:____________________________ Name: Title: PRIDE SGP, INC. By:____________________________ Name: Title: PRIDE BORGER, INC. By:____________________________ Name: Title: PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By:____________________________ Name: Title: DESULFUR PARTNERSHIP by Pride Companies, L.P., its General Partner, by Pride Refining, Inc., its Manager General Partner By:____________________________ Name: Title: and by Pride Marketing of Texas (Cedar Wind), Inc., its General Partner By:____________________________ Name: Title: VARDE PARTNERS, INC., as lender By:____________________________ Name: Title: Attachment I Form of Opinion Attachment II CONSENT AND AGREEMENT Each of Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Pride Borger, Inc. hereby consents to the provisions of this First Amendment and the transactions contemplated herein, and hereby ratifies and confirms the respective Third Restated Guaranty Agreements, each dated as of December 30, 1997, made by it for the benefit of Lender, and agrees that its obligations and covenants thereunder are unimpaired hereby and shall remain in full force and effect. Dated: April 15, 1998 PRIDE REFINING, INC. By:______________________________ Name: Title: PRIDE SGP, INC. By:______________________________ Name: Title: DESULFER PARTNERSHIP By:______________________________ Name: Title: PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By:______________________________ Name: Title: PRIDE BORGER, INC. By:______________________________ Name: Title: EXHIBIT A REVOLVING CREDIT NOTE $2,000,000 New York, New York April 15, 1998 FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P., a Delaware limited partnership (the "Borrower"), unconditionally promises to pay on the Revolving Credit Termination Date (as defined in the Credit Agreement defined below) to the order of VARDE PARTNERS, INC. (the "Lender"), on the dates and in the manner set forth in sections 2.6 and 2.8 of the Credit Agreement, the lesser of (a) the principal amount of TWO MILLION DOLLARS ($2,000,000) and (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the Borrower pursuant to section 2.2 of the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount hereof on the dates and at the applicable rates per annum as provided in section 2.6(b) of the Credit Agreement until any such amount shall be due and payable (whether at the stated maturity, by acceleration or otherwise). The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Revolving Credit Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed; provided, however, that the failure of the Lender to make any such endorsement shall not affect the obligations of the Borrower in respect of such Revolving Credit Loans. This Note (a) is the Revolving Credit Note referred to in the Sixth Restated and Amended Credit Agreement, dated as of December 30, 1997 (as the same may from time to time be amended, modified or supplemented, the "Credit Agreement"), among the Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., Pride Borger, Inc. and the Lender, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Collateral Documents. Reference is hereby made to the Collateral Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note may become, or be declared to be, immediately due and payable as provided in the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Borrower hereby waives presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). PRIDE COMPANIES, L.P., a Delaware limited partnership By: PRIDE REFINING, INC., a Texas corporation, Managing General Partner By: Dave Caddell Vice President SCHEDULE A to Revolving Credit Note LOAN REPAYMENTS OF REVOLVING CREDIT LOAN EXHIBIT B EXHIBIT "K" NOTICE OF BORROWING Varde Partners, Inc., as Lender 3600 West 80th Street Suite 225 Minneapolis, Minnesota 55431 Ladies and Gentlemen: This Notice of Borrowing is delivered to you pursuant to Section 2.4 of the Sixth Restated and Amended Credit Agreement, dated as of December 30, 1997, (as amended, amended and restated, supplemented or modified from time to time, the "Credit Agreement") among Pride Companies, L.P. as borrower (the "Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Pride Borger, Inc. as guarantors and Varde Partners, Inc. as lender (the "Lender"); terms defined therein being used herein as therein defined. The Borrower hereby requests that a Revolving Credit Loan be made by the Lender in the aggregate principal amount of $_______ on _________ __, 19__. The Borrower hereby certifies that (i) the Borrower is and will be in compliance with all terms and provisions of the Credit Agreement to be observed and performed, and the Borrower and each Guarantor is and will be in compliance with all terms and provisions to be observed and performed by either or both of them in each of the other Loan Documents, on and as of the date hereof and on and as of the date of the Borrowing of the Revolving Credit Loan herein requested; (ii) on and as of the date hereof and immediately after giving effect to the Revolving Credit Loan herein requested, no Default or Event of Default has occurred and is continuing or will have occurred and be continuing and (iii) the representations and warranties of the Borrower or any of its Subsidiaries contained in the Credit Agreement or any of the other Loan Documents or otherwise made in writing in connection therewith are true and correct in all material respects on and as of the date hereof and will be true and correct in all material respect on and as of the date of the Borrowing of the Revolving Credit Loan herein requested with the same effect as if made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date. Attached hereto as Schedule I is a Borrowing Base Certificate demonstrating the Borrower's ability to incur the Revolving Credit Loan herein requested. IN WITNESS WHEREOF, the Borrower has caused this Notice of Borrowing to be executed and delivered by a Financial Officer this ______ day of _____________, ____. PRIDE COMPANIES, L.P., a Delaware limited partnership By: PRIDE REFINING, INC., a Texas Corporation, its Managing General Partner By:____________________________ Name: Title: Schedule I to Notice of Borrowing BORROWING BASE CERTIFICATE EXHIBIT C SERIES B-3 TERM NOTE $3,150,000 New York, New York April 15, 1998 FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P., a Delaware limited partnership (the "Borrower"), unconditionally promises to pay to the order of VARDE PARTNERS, INC. (the "Lender"), on the dates and in the manner set forth in sections 2.6(a) and 2.8 of the Credit Agreement (as defined below), the lesser of (a) the principal amount of THREE MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($3,150,000) and (b) the aggregate unpaid principal amount of the Series B-3 Term Loan made by the Lender to the Borrower pursuant to section 2.1 of the Credit Agreement. The Borrower further agrees to pay interest on the unpaid principal amount hereof on the dates and at the applicable rates per annum as provided in section 2.6(b) of the Credit Agreement until any such amount shall be due and payable (whether at the stated maturity, by acceleration or otherwise). The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of the Series B-3 Term Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed; provided, however, that the failure of the Lender to make any such endorsement shall not affect the obligations of the Borrower in respect of such Series B-3 Term Loan. This Note (a) is the Series B-3 Term Note referred to in the Sixth Restated and Amended Credit Agreement, dated as of December 30, 1997 (as the same may from time to time be amended, modified or supplemented, the "Credit Agreement"), among the Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc., Pride Borger, Inc. and the Lender, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Collateral Documents. Reference is hereby made to the Collateral Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note may become, or be declared to be, immediately due and payable as provided in the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Borrower hereby waives presentment, demand, protest and all other notices of any kind. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). PRIDE COMPANIES, L.P., a Delaware limited partnership By: PRIDE REFINING, INC., a Texas corporation, Managing General Partner By: Dave Caddell Vice President SCHEDULE A to Series B-3 Term Note LOAN REPAYMENTS OF SERIES B-3 TERM LOAN EXHIBIT 28.2 PRIDE COMPANIES, L.P. REVOLVING CREDIT AND TERM LOAN AGREEMENT Amendment No. 1 This Agreement, dated as of April 15, 1998, is among Pride Companies, L.P., a Delaware limited partnership (the "Company"), Pride SGP, Inc., a Texas corporation, Pride Refining, Inc., a Texas corporation, Desulfur Partnership, a Texas general partnership, Pride Borger, Inc., a Delaware corporation, and Pride Marketing of Texas (Cedar Wind), Inc., a Texas corporation (collectively, the "Pride Entities"), BankBoston, N.A., Lehman Commercial Paper Inc. and Union Bank of California (collectively, the "Lenders"), BankBoston, N.A., as agent (the "Agent") for itself and the other Lenders, and Lehman Brothers Commercial Paper Inc., as Documentation Agent (the "Documentation Agent") for itself and the other Lenders. The parties agree as follows: 1. Reference to Credit Agreement; Background. 1.1. Reference to Credit Agreement; Definitions. Reference is made to the Revolving Credit and Term Loan Agreement dated as of December 30, 1997 (the "Credit Agreement") among the Pride Entities, the Lenders, the Agent and the Documentation Agent. The Credit Agreement, as amended by the amendments set forth in Section 2 hereof (the "Amendment"), is referred to as the "Amended Credit Agreement." Terms defined in the Amended Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. 1.2. Background. The Company has requested that the Credit Agreement be amended to cure certain existing and prospective Defaults and for other purposes. The Lenders have agreed to such amendments on the conditions that BankBoston be released from any obligation to provide the Term Loan and on the other conditions set forth herein. 2. Amendments to Credit Agreement. Subject to all of the terms and conditions hereof and in reliance upon the representations and warranties set forth or incorporated by reference in Section 4 hereof, the Credit Agreement is amended as follows, effective as of December 31, 1997 (the "Amendment Closing Date"). 2.1. The definition of "Consolidated EBITDA" set forth in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "Consolidated EBITDA" means, for any period, the gross revenues of the Company and its Subsidiaries from operations, determined in accordance with GAAP on a Consolidated basis, minus (a) the sum of (i) the cost of operations of the Company and its Subsidiaries for such period, determined in accordance with GAAP on a Consolidated basis, and (ii) the selling, general and administrative expenses of the Company and its Subsidiaries for such period, determined in accordance with GAAP on a Consolidated basis plus (b) all amounts included in clause (a) as deductions in respect of depreciation and amortization; provided, that for the purposes of calculating compliance with the provisions of Sections 6.5.1, 6.5.2 and 6.5.3 hereof (and for no other purpose of this Agreement) (1) the Consolidated EBITDA for each of the four consecutive fiscal quarters of the Company commencing January 1, 1997 and ending December 31, 1997 shall be assumed to be one-quarter of (x) the actual Consolidated EBITDA of the Company and its Subsidiaries for the fiscal year ended December 31, 1997 excluding (y) the lesser of the accrual taken in such fiscal year with respect to the Refinery conversion expenses or $1,800,000, (2) that any writedown on or prior to December 31, 1998 of the Refinery assets associated with the Refinery conversion referred to in the proviso to clause (c) of the definition of "Consolidated Net Income" herein, to the extent that the same would reflect both a non-cash item and a reduction of Consolidated EBITDA, shall not be deducted in calculating Consolidated EBITDA, (3) that non-cash losses or gains realized on the sale of inventory layers (consisting of 625,367 barrels at a cost of $13.49/barrel or 118,012 barrels at a cost of $28.69/barrel) between March 1, 1998 and December 31, 1998 shall be added in the case of a loss, and subtracted in the case of a gain, in calculating Consolidated EBITDA, and (4) that to the extent that capitalized processing costs associated with refinery operations increase or decrease after December 31, 1997 such increase or decrease will be, respectively, subtracted or added in calculating Consolidated EBITDA. 2.2. The definition of "Consolidated Excess Cash Flow" set forth in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "Consolidated Excess Cash Flow" means, for any period, the total of: (a) Consolidated Operating Cash Flow, minus (b) Consolidated Debt Service (but in no event including contingent prepayments required by Section 4.3), minus (c) Discretionary Capital Expenditures (to the extent not financed by debt for borrowed money), plus or minus (d) other cash income or cash expense, respectively, to the extent not included in Section 4.3.3, 4.3.4 or 4.3.5 or in (a), (b) or (c) above but included in determining net income determined in accordance with GAAP. 2.3. The definition of "Consolidated Net Income" set forth in Section 1.1 of the Credit Agreement is amended by deleting from paragraph (c) thereof the figure "$30,000,000" and substituting therefor the figure "$40,000,000". 2.4. The definition of "Consolidated Operating Cash Flow" set forth in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "Consolidated Operating Cash Flow" means, for any period, the remainder of Consolidated EBITDA for such period, minus the Non-Discretionary Capital Expenditures of the Company and its Subsidiaries for such period, minus the amounts of all taxes based upon or measured by net income paid or payable by the Company and its Subsidiaries for such period. For the purpose of determining Consolidated Operating Cash Flow, Non-Discretionary Capital Expenditures will be deemed to be $187,500 for each of the fiscal quarters ended March 31, June 30, September 30 and December 31, 1997. 2.5. The definition of "Distribution" set forth in Section 1.1 of the Credit Agreement is amended by amending clause (iii) of the proviso thereto to read in its entirety as follows: (iii) payments of interest and principal on the Varde Term Loan or the Varde Revolving Loan. 2.6. The definition of "SGP Securities" set forth in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "SGP Securities" means the Indebtedness of the Company to the Special General Partner and the Series E and F Preferred Units of the Company more fully described in Exhibit 5.1.9. 2.7. The definition of "Varde Credit Agreement" set forth in Section 1.1 of the Credit Agreement is amended to read in its entirety as follows: "Varde Credit Agreement" means that certain Sixth Restated and Amended Credit Agreement dated as of December 30, 1997, among the Company, the General Partners, Pride Borger, Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and Varde, as amended by Amendment No. 1 thereto dated as of April 15, 1998. 2.8. Section 1.1 of the Credit Agreement is amended by adding the following definition in the appropriate alphabetical position: "Varde Revolving Loan" means, collectively, the revolving loans extended by Varde to the Company from time to time under the Varde Credit Agreement. 2.9. The definition of "Varde Securities" set forth in Section 1.1 of the Credit Agreement is amended by amending clause (i) thereof to read in its entirety as follows: (i) the Indebtedness of the Company to Varde (excluding the Varde Term Loan, the Varde Revolving Loan and any interest accrued thereon) 2.10. Section 2.2 is deleted in its entirety. The Term Lender shall be under no obligation to advance the Term Loan. 2.11. Section 3.3.2 is deleted in its entirety. 2.12. Section 4.3.2 of the Credit Agreement is amended to read in its entirety as follows: 4.3.2. Excess Cash Flow. Within five Banking Days after the date annual financial statements have been (or are required to have been) furnished by the Company to the Lenders in accordance with Section 6.4.1, commencing with such financial statements for the fiscal year ending December 31, 1998, the Company shall pay to the Agent as a prepayment of the Term Loan, to be applied as provided in Section 4.6.2 (a) an amount equal to 100% of Consolidated Excess Cash Flow from its most recently completed fiscal year, but only until an aggregate of $1,500,000 of principal amount of the Term Loan shall have been prepaid under this Section 4.3.2 and Sections 4.3.3, 4.3.4 and 4.3.5 and then only so long as after giving effect to such payment the Maximum Amount of Revolving Credit Outstanding shall exceed by at least $1,000,000 the sum of the aggregate principal amount of loans made under Section 2.1.1 at the time outstanding plus the Letter of Credit Exposure at the time in effect, and (b) after an aggregate of $1,500,000 of principal amount of the Term Loan shall have been prepaid under this Section 4.3.2 and Sections 4.3.3, 4.3.4 and 4.3.5, an amount equal to 75% of Consolidated Excess Cash Flow for its most recently completed fiscal year (or, if applicable, the portion of Consolidated Excess Cash Flow remaining after a payment on account of such year under the preceding clause (a)). 2.13. Section 6.4.4(g) of the Credit Agreement is amended to read in its entirety as follows: (g) A borrowing base report substantially in the form of Exhibit 6.4.4 submitted to the Agent three times each month detailing the calculation of the Company's Borrowing Base. The first such report shall be dated as of the fifteenth (15th) of the month and delivered to the Agent within three Banking Days thereof; the second such report shall be dated at month end and be delivered to the Agent within three Banking Days thereof; and the third such report shall be dated at month end and be delivered within 30 days thereof (or, if such 30th day is not a Banking Day, the next succeeding Banking Day). Reports may be required more frequently as determined by the Agent. 2.14. Section 6.5.1 of the Credit Agreement is amended to read in its entirety as follows: 6.5.1. Leverage Ratio. The Leverage Ratio shall not on the last day of each fiscal quarter of the Company ending on a date during each period specified below exceed the percentage set forth in the table below next to such period. Fiscal Quarter Ending Percentage -------------------------- ---------- On December 31, 1997 350% On or after March 31, 1998 385% and prior to March 31, 1999 On or after March 31, 1999 300% and prior to December 31, 1999 On or after December 31, 1999 250% 2.15. Section 6.5.2 of the Credit Agreement is amended to read in its entirety as follows: 6.5.2. Consolidated Interest Coverage. For each period of four consecutive fiscal quarters of the Company ending on a date during each period specified below, the Consolidated Interest Coverage shall equal or exceed the percentage set forth in the table below next to such period, measured as of the last day of such period. Fiscal Quarter Ending Percentage -------------------------- ---------- On December 31, 1998 125% On or after March 31, 1999 175% and prior to December 31, 1999 On or after December 31, 1999 200% and prior to December 31, 2000 On or after December 31, 2000 225% and prior to December 31, 2001 On or after December 31, 2001 250% 2.16. Section 6.5.3 of the Credit Agreement is amended to read in its entirety as follows: 6.5.3. Consolidated Operating Cash Flow to Consolidated Debt Service. For each period of four consecutive fiscal quarters of the Company ending on a date during each period specified below, the Consolidated Operating Cash Flow shall equal or exceed the percentage of Consolidated Debt Service specified in the table below, measured as of the last day of such period. First Quarter Ending Percentage --------------------------- ---------- On or after March 31, 1998 100% and prior to March 31, 1999 On or after March 31, 1999 115% and prior to December 31, 1999 On or after December 31, 1999 120% 2.17. Section 6.5.5 of the Credit Agreement is amended to read in its entirety as follows: 6.5.5. Minimum Consolidated EBITDA. (a) For each fiscal quarter of the Company, commencing with the fiscal quarter ending December 31, 1997, the Consolidated EBITDA shall equal or exceed zero; and (b) for each period of four consecutive fiscal quarters of the Company ending on a date during each period specified below, the Consolidated EBITDA of the Company shall equal or exceed the amount set forth below next to such period. Fiscal Quarter Ending Amount --------------------- ---------- On December 31, 1997 $8,800,000 After December 31, 1997 $6,500,000 and prior to March 31, 1999 On and after March 31, 1999 $9,000,000 and prior to December 31, 1999 On and after December 31, 1999 $10,000,000 2.18. Section 6.5.6 of the Credit Agreement is amended to read in its entirety as follows: 6.5.6. Net Working Capital. Consolidated Net Working Capital shall not on any date prior to January 31, 1999 be less than negative $1,000,000 and shall not any date on or after January 31, 1999 be less than $1.00. 2.19. Section 6.5.7 of the Credit Agreement is amended to read in its entirety as follows: 6.5.7. Consolidated Net Worth. Consolidated Net Worth shall at all times on and after December 31, 1997 equal or exceed the sum of (a) negative $21,531,885 plus (b) the amount by which Consolidated Net Worth has been increased after December 31, 1997 as a result of capital contributions, the issuance of partnership units or other equity interests of the Company or any of its Subsidiaries, the issuance of warrants, options, or other rights to acquire such partnership units or other equity interests or the exercise of warrants, options or other rights or the conversion of securities into such partnership units or other equity interests, plus (c) 50% of Consolidated Net Income (if positive) for each fiscal quarter of the Company thereafter, plus (d) 100% of the Net Equity Proceeds realized by the Company after December 31, 1997, minus (e) the amount of any net deductions to Consolidated EBITDA described in clause (3) or (4) of the proviso to the definition of "Consolidated EBITDA" set forth in Section 1.1, but only to the extent that such items account for negative Consolidated Net Income in any fiscal quarter ending after December 31, 1997 and before January 1, 1999. 2.20. Section 6.6.10 of the Credit Agreement is amended to read in its entirety as follows: 6.6.10. Indebtedness of the Obligors in respect of the Varde Term Loan, so long as the interest rate paid in cash on the Varde Term Loan is not in excess of the Eurodollar Rate plus 350 basis points (with the remainder to accrue as PIK Interest) for interest accruing through December 31, 1998 and that interest accruing on the Varde Term Loan shall not exceed the per annum rate of 11% in 1998, 13% in 1999, 15% in 2000, 17% in 2001 and 19% in 2002 (subject to reduction by 2% in each year after 1998 from and after the occurrence of the Stage 3 Closing Date); provided, that any PIK Interest accruing on the Varde Term Loan through December 31, 1998 may be paid in cash on or after such date. 2.21. Section 6.6 of the Credit Agreement is further amended by adding thereto a new Section 6.6.15 reading in its entirety as follows: 6.6.15. Indebtedness of the Obligors to Varde in respect of the Varde Revolving Loan, so long as the principal amount thereof at any time outstanding does not exceed $2,000,000, the per annum rate of interest thereon does not exceed 11% per annum and the stated maturity thereof is not earlier than January 1, 1999. 2.22. Section 6.8.10 of the Credit Agreement is amended to read in its entirety as follows: 6.8.10. Liens securing the Varde Term Loan, the Varde Revolving Loan and the Varde Securities, so long as such Liens are subject to the Intercreditor Agreement. 2.23. Section 6.13 of the Credit Agreement is amended to read in its entirety as follows: 6.13. Voluntary Prepayments of Other Indebtedness. Neither the Company nor any of its Subsidiaries shall make any voluntary prepayment (other than mandatory scheduled payments) of principal of or interest on any Financing Debt (other than the Varde Term Loan, the Varde Revolving Loan and the Credit Obligations) or make any voluntary redemptions or repurchases of Financing Debt (other than the Varde Term Loan, the Varde Revolving Loan and the Credit Obligations), except as permitted by Sections 4.3.5 and 6.10. The Company shall make no payment of principal (including accrued PIK Interest) on the Varde Term Loan except to the extent of payments permitted under Section 4.3.5 and payments that otherwise would have been required to be applied to payment of the Term Loan (if, as is no longer the case, the Term Loan were to be advanced) under Section 4.2 (excluding payments due on or before December 31, 1998) and Sections 4.3.2, 4.3.3 and 4.3.4. 3. Account Debtor Determination. The Company also requests, and subject to the terms and conditions hereof the Required Revolving Lenders hereby agree, that until the Company shall receive written notice to the contrary from the Required Revolving Lenders or the Agent acting on their behalf, each of the following shall be considered a "major oil company" for the purpose of the definition of "Pre-approved Receivables" set forth in Section 1.1 of the Credit Agreement: Amoco Canada Gary-Williams Energy Corporation Holly Corporation (Navajo Refining) Scurlock Permian (subsidiary of Ashland Corporation) NGC Oil Trading and Transportation 4. Representations and Warranties. In order to induce the Lenders to enter into this Agreement, each of the Pride Entities jointly and severally represents and warrants to each of the Lenders that: 4.1. No Legal Obstacle to Agreements. Neither the execution and delivery of this Agreement or any other Credit Document, nor the making of any borrowing under the Amended Credit Agreement, nor the guaranteeing of the Credit Obligations, nor the securing of the Credit Obligations with the Credit Security, nor the consummation of any transaction referred to in or contemplated by this Agreement, the Amended Credit Agreement or any other Credit Document, nor the fulfillment of the terms hereof or thereof or of any other agreement, instrument, deed or lease contemplated by this Agreement, the Amended Credit Agreement or any other Credit Document, has constituted or resulted in or will constitute or result in: (a) any breach or termination of the provisions of any agreement, instrument, deed or lease to which any of the Pride Entities is a party or by which it is bound, or of the Charter or By-laws of any of the Pride Entities; (b) the violation of any law, statute, judgment, decree or governmental order, rule or regulation applicable to any of the Pride Entities; (c) the creation under any agreement, instrument, deed or lease of any Lien (other than Liens on the Credit Security which secure the Credit Obligations and Liens permitted by Section 6.8 of the Amended Credit Agreement) upon any of the assets of any of the Pride Entities; or (d) any redemption, retirement or other repurchase obligation of any of the Pride Entities under any Charter, By-law, agreement, instrument, deed or lease. No approval, authorization or other action by, or declaration to or filing with, any governmental or administrative authority or any other Person is required to be obtained or made by any of the Pride Entities in connection with the execution and delivery of this Agreement, the performance of this Agreement, the Amended Credit Agreement or any other Credit Document, the transactions contemplated hereby or thereby, the making of any borrowing under the Amended Credit Agreement, the guaranteeing of the Credit Obligations or the securing of the Credit Obligations with the Credit Security. 4.2. Defaults. Immediately after giving effect to the Amendment, no Default shall exist. 4.3. Incorporation of Representations and Warranties of Company. Immediately after giving effect to the Amendment, the representations and warranties set forth in Section 7 of the Amended Credit Agreement will be true and correct as if originally made on and as of the Amendment Closing Date (except to the extent of any representation or warranty which refers to a specific earlier date). 5. Conditions. The effectiveness of each of the amendments set forth in Section 2 hereof and the determination set forth in Section 3 hereof shall be subject to the satisfaction of the following conditions: 5.1. Officer's Certificate. The representations and warranties contained in Section 4 hereof shall be true and correct on and as of the Amendment Closing Date with the same force and effect as though originally made on and as of the Amendment Closing Date; immediately after giving effect to such amendments, no Default shall exist; no Material Adverse Change shall have occurred since December 30, 1997 except as previously disclosed by the Company in writing to the Lenders; and the Company shall have furnished to the Lenders on or before the Amendment Closing Date a certificate to these effects signed by a Financial Officer of the Company. 5.2. Proper Proceedings. All proper proceedings shall have been taken by each of the Pride Entities to authorize this Agreement, the Amended Credit Agreement and the transactions contemplated hereby and thereby. On or before the Amendment Closing Date, the Agent shall have received copies of all documents, including legal opinions of counsel and records of corporate proceedings which the Agent may have requested in connection therewith, such documents, where appropriate, to be certified by proper corporate or governmental authorities. 5.3. Varde. Varde shall have consented to the terms and conditions of this Agreement and the Amended Credit Agreement, and the Varde Credit Agreement shall have been amended in a manner satisfactory in form and substance to the Required Revolving Lenders which tracks the provisions of Section 2 hereof and which also provides, in documentation satisfactory in form and substance to the Required Revolving Lenders, for the following: (a) extension of the revolving line of credit contemplated by new Section 6.6.15 of the Credit Agreement; and (b) deferral of the amortization of the Varde term loan consistent with the amendment of Section 6.13 of the Credit Agreement provided for herein. 5.4. Execution and Delivery. Each of the Pride Entities, the Lenders, the Agent and the Documentation Agent shall have executed and delivered this Agreement. 5.5. Amendment Fee. The Company shall have paid to the Agent for distribution to the Revolving Lenders pro rata in proportion to their respective Revolving Commitments an amendment fee in the amount of $75,000. 5.6. Expenses. The Company shall have paid to the Agent all reasonable expenses, fees and charges payable to the Agent's counsel, Ropes & Gray. 6. Further Assurances. The Company will, promptly upon the request of the Agent from time to time, execute, acknowledge and deliver, and file and record, all such instruments and notices, and take all such action, as the Agent deems necessary or advisable to carry out the intent and purposes of this Agreement. In addition, the parties agree to enter into a restatement of the Credit Agreement incorporating the amendments set forth in Section 2 hereof and containing such additional provisions as shall be appropriate to reflect fully the termination of the commitment of the Term Lender to make the Term Loan. Such restatement shall be effected as soon as reasonably possible. 7. General. The Amended Credit Agreement and all of the other Credit Documents are each confirmed as being in full force and effect. This Agreement, the Amended Credit Agreement and the other Credit Documents referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior and current understandings and agreements, whether written or oral, with respect to such subject matter. The invalidity or unenforceability of any provision hereof shall not affect the validity and enforceability of any other term or provision hereof. The headings in this Agreement are for convenience of reference only and shall not alter, limit or otherwise affect the meaning hereof. Each of this Agreement and the Amended Credit Agreement is a Credit Document and may be executed in any number of counterparts, which together shall constitute one instrument, and shall bind and inure to the benefit of the parties and their respective successors and assigns, including as such successors and assigns all holders of any Note. This Agreement shall be governed by and construed in accordance with the laws (other than the conflict of law rules) of The Commonwealth of Massachusetts. Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as an agreement under seal as of the date first above written. PRIDE COMPANIES, L.P. by Pride Refining, Inc., its Managing General Partner By_____________________________ Title: PRIDE REFINING, INC. By ____________________________ Title: PRIDE SGP, INC. By ____________________________ Title: PRIDE BORGER, INC. By ____________________________ Title: PRIDE MARKETING OF TEXAS (CEDAR WIND), INC. By ____________________________ Title: DESULFUR PARTNERSHIP by Pride Companies, L.P., its General Partner, by Pride Refining, Inc., its Managing General Partner By _____________________________ Title: and by Pride Marketing of Texas (Cedar Wind), Inc., its General Partner By _____________________________ Title: BANKBOSTON, N.A., for Itself and as Agent By _____________________________ Authorized Officer LEHMAN COMMERCIAL PAPER INC., for Itself and as Documentation Agent By _____________________________ Authorized Officer UNION BANK OF CALIFORNIA, N.A. By ____________________________ Authorized Officer Consented to: VARDE PARTNERS, INC. By _________________________________ Authorized Officer
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