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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number: 1-14569


PLAINS ALL AMERICAN PIPELINE, L.P.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  76-0582150
(I.R.S. Employer
Identification No.)

333 Clay Street, Suite 1600
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)

(713) 646-4100
(Registrant's telephone number, including area code)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ý     No  o

        At May 5, 2004, there were outstanding 57,724,722 Common Units, 1,307,190 Class B Common Units and 3,245,700 Class C Common Units.





PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS

 
PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets:
  March 31, 2004, and December 31, 2003
Consolidated Statements of Operations:
  For the three months ended March 31, 2004 and 2003
Consolidated Statements of Cash Flows:
  For the three months ended March 31, 2004 and 2003
Consolidated Statement of Partners' Capital:
  For the three months ended March 31, 2004
Consolidated Statements of Comprehensive Income:
  For the three months ended March 31, 2004 and 2003
Consolidated Statement of Changes in Accumulated Other Comprehensive Income:
  For the three months ended March 31, 2004
Notes to the Consolidated Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Item 4. CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon 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
Signatures

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PART I. FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS


PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

 
  March 31,
2004

  December 31,
2003

 
 
  (unaudited)

 
ASSETS              
CURRENT ASSETS              
Cash and cash equivalents   $ 2,037   $ 4,137  
Trade accounts receivable, net     554,405     590,645  
Inventory     73,843     105,967  
Other current assets     23,471     32,225  
   
 
 
  Total current assets     653,756     732,974  
   
 
 
PROPERTY AND EQUIPMENT     1,442,241     1,272,634  
Accumulated depreciation     (133,529 )   (121,595 )
   
 
 
      1,308,712     1,151,039  
   
 
 
OTHER ASSETS              
Pipeline linefill     123,266     122,653  
Other, net     79,339     88,965  
   
 
 
  Total assets   $ 2,165,073   $ 2,095,631  
   
 
 
LIABILITIES AND PARTNERS' CAPITAL              
CURRENT LIABILITIES              
Accounts payable   $ 645,322   $ 603,460  
Due to related parties     26,539     26,981  
Short-term debt     14,689     127,259  
Other current liabilities     39,726     44,219  
   
 
 
  Total current liabilities     726,276     801,919  
   
 
 
LONG-TERM LIABILITIES              
Long-term debt under credit facilities     238,737     70,000  
Senior notes, net of unamortized discount of $983 and $1,009, respectively     449,017     448,991  
Other long-term liabilities and deferred credits     14,865     27,994  
   
 
 
  Total liabilities     1,428,895     1,348,904  
   
 
 
COMMITMENTS AND CONTINGENCIES (NOTE 9)              

PARTNERS' CAPITAL

 

 

 

 

 

 

 
Common unitholders (57,162,638 and 49,502,556 units outstanding at March 31, 2004, and December 31, 2003, respectively)     694,677     744,073  
Class B common unitholder (1,307,190 units outstanding at each date)     17,740     18,046  
Subordinated unitholders (no units and 7,522,214 units outstanding at March 31, 2004, and December 31, 2003, respectively)         (39,913 )
General partner     23,761     24,521  
   
 
 
  Total partners' capital     736,178     746,727  
   
 
 
  Total liabilities and partners' capital   $ 2,165,073   $ 2,095,631  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
 
  (unaudited)

 
REVENUES              
Crude oil and LPG sales   $ 3,615,984   $ 3,115,287  
Other gathering, marketing, terminalling and storage revenues     15,119     7,349  
Pipeline margin activities revenues     142,335     135,171  
Pipeline tariff activities revenues     31,206     24,101  
   
 
 
  Total revenues     3,804,644     3,281,908  

COSTS AND EXPENSES

 

 

 

 

 

 

 
Crude oil and LPG purchases and related costs     3,557,087     3,060,711  
Pipeline margin activities purchases     136,434     130,530  
Field operating expenses (excluding LTIP charge)     37,816     33,115  
LTIP charge—field operating expenses     567      
General and administrative expenses (excluding LTIP charge)     15,478     13,072  
LTIP charge—general and administrative     3,661      
Depreciation and amortization     13,120     10,871  
   
 
 
  Total costs and expenses     3,764,163     3,248,299  
   
 
 
OPERATING INCOME     40,481     33,609  
   
 
 
OTHER INCOME/(EXPENSE)              
Interest expense (net of $178 and $52 capitalized, respectively)     (9,532 )   (9,154 )
Interest and other income (expense), net     41     (104 )
   
 
 
NET INCOME   $ 30,990   $ 24,351  
   
 
 
NET INCOME-LIMITED PARTNERS   $ 28,759   $ 22,876  
   
 
 
NET INCOME-GENERAL PARTNER   $ 2,231   $ 1,475  
   
 
 
BASIC AND DILUTED NET INCOME PER LIMITED PARTNER UNIT   $ 0.49   $ 0.46  
   
 
 
BASIC WEIGHTED AVERAGE UNITS OUTSTANDING     58,414     50,166  
   
 
 
DILUTED WEIGHTED AVERAGE UNITS OUTSTANDING     59,017     50,166  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

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PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
 
  (unaudited)

 
CASH FLOWS FROM OPERATING ACTIVITIES              
Net income   $ 30,990   $ 24,351  
Adjustments to reconcile to cash flows from operating activities:              
  Depreciation and amortization     13,120     10,871  
  Change in derivative fair value     (7,498 )   (930 )
  Noncash portion of LTIP charge     4,228      
  Noncash amortization of terminated interest rate swap     357      
Changes in assets and liabilities, net of acquisitions:              
  Accounts receivable and other     35,030     9,539  
  Inventory     32,489     40,114  
  Pipeline linefill         (13,712 )
  Accounts payable and other current liabilities     24,711     16,882  
  Due to related parties     (446 )   4,278  
   
 
 
    Net cash provided by operating activities     132,981     91,393  
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES              
Cash paid in connection with acquisitions (Note 2)     (143,228 )   (44,373 )
Additions to property and equipment     (13,325 )   (15,077 )
Proceeds from sales of assets     650     543  
   
 
 
    Net cash used in investing activities     (155,903 )   (58,907 )
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES              
Net long-term borrowings on revolving credit facility     168,720     18,788  
Net repayments on short-term letter of credit and hedged inventory facility     (101,370 )   (85,326 )
Net short-term repayments on revolving credit facility     (11,200 )    
Cash paid in connection with financing arrangements         (54 )
Net proceeds from the issuance of common units     88     63,895  
Distributions paid to unitholders and general partner     (35,174 )   (28,199 )
   
 
 
    Net cash provided by (used in) financing activities     21,064     (30,896 )
   
 
 
Effect of translation adjustment on cash     (242 )   186  

Net increase (decrease) in cash and cash equivalents

 

 

(2,100

)

 

1,776

 
Cash and cash equivalents, beginning of period     4,137     3,501  
   
 
 
Cash and cash equivalents, end of period   $ 2,037   $ 5,277  
   
 
 
Cash paid for interest, net of amounts capitalized   $ 2,150   $ 5,846  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

5



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL

(in thousands)

 
   
   
  Class B
Common
Unitholder

  Subordinated
Unitholders

   
   
 
 
  Common Unitholders
   
  Total
Partners'
Capital
Amount

 
 
  General
Partner
Amount

 
 
  Units
  Amounts
  Units
  Amounts
  Units
  Amounts
 
 
  (unaudited)

 
Balance at December 31, 2003   49,502   $ 744,073   1,307   $ 18,046   7,523   $ (39,913 ) $ 24,521   $ 746,727  
Issuance of common units   138     4,361                 88     4,449  
Distributions       (27,893 )     (735 )     (4,231 )   (2,315 )   (35,174 )
Other comprehensive income       (8,992 )     (217 )     (841 )   (764 )   (10,814 )
Net income       26,669       646       1,444     2,231     30,990  
Conversion of subordinated units   7,523     (43,541 )       (7,523 )   43,541          
   
 
 
 
 
 
 
 
 
Balance at March 31, 2004   57,163   $ 694,677   1,307   $ 17,740     $   $ 23,761   $ 736,178  
   
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

6



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME

(in thousands)


Statements of Comprehensive Income

 
  Three Months Ended
March 31,

 
  2004
  2003
 
  (unaudited)

Net income   $ 30,990   $ 24,351
Other comprehensive income     (10,814 )   19,923
   
 
Comprehensive income   $ 20,176   $ 44,274
   
 


Statement of Changes in Accumulated Other Comprehensive Income

 
  Net Deferred
Gain (Loss) on
Derivative
Instruments

  Currency
Translation
Adjustments

  Total
 
 
  (unaudited)

 
Balance at December 31, 2003   $ (7,692 ) $ 39,861   $ 32,169  
   
 
 
 
  Current period activity                    
  Reclassification adjustments for settled contracts     (2,124 )       (2,124 )
  Changes in fair value of outstanding hedge positions     (5,231 )       (5,231 )
  Currency translation adjustment         (3,459 )   (3,459 )
   
 
 
 
  Total period activity     (7,355 )   (3,459 )   (10,814 )
   
 
 
 
Balance at March 31, 2004   $ (15,047 ) $ 36,402   $ 21,355  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

7



PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Organization and Accounting Policies

        Plains All American Pipeline, L.P. is a publicly traded Delaware limited partnership (the "Partnership") engaged in interstate and intrastate crude oil transportation, and crude oil gathering, marketing, terminalling and storage, as well as the marketing and storage of liquefied petroleum gas and other petroleum products. We refer to liquefied petroleum gas and other petroleum products collectively as "LPG." Our operations are conducted directly and indirectly through our operating subsidiaries, Plains Marketing, L.P., Plains Pipeline, L.P. (formerly known as All American Pipeline, L.P.) and Plains Marketing Canada, L.P., and are concentrated in Texas, Oklahoma, California, Louisiana and the Canadian provinces of Alberta and Saskatchewan.

        The accompanying consolidated financial statements and related notes present (i) our consolidated financial position as of March 31, 2004, and December 31, 2003, (ii) the results of our consolidated operations for the three months ended March 31, 2004 and 2003, (iii) our consolidated cash flows for the three months ended March 31, 2004 and 2003, (iv) our consolidated changes in partners' capital for the three months ended March 31, 2004, (v) our consolidated comprehensive income for the three months ended March 31, 2004 and 2003, and (vi) our changes in consolidated accumulated other comprehensive income for the three months ended March 31, 2004. The financial statements have been prepared in accordance with the instructions for interim reporting as prescribed by the Securities and Exchange Commission. All adjustments (consisting only of normal recurring adjustments) that in the opinion of management were necessary for a fair statement of the results for the interim periods, have been reflected. All significant intercompany transactions have been eliminated. Certain reclassifications are made to prior period amounts to conform to current period presentation. The results of operations for the three months ended March 31, 2004 should not be taken as indicative of the results to be expected for the full year. The consolidated interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto presented in our 2003 Annual Report on Form 10-K.

Note 2—Acquisitions

    Capline and Capwood Pipeline Systems

        In March 2004, we completed the acquisition of all of Shell Pipeline Company LP's interests in two entities for approximately $158.0 million in cash (including a $15.8 million deposit paid in December 2003) and approximately $0.5 million of transaction and other costs. The acquisition was accounted for under Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations." In December 2003, subsequent to the announcement of the acquisition and in anticipation of closing, we issued approximately 2.8 million common units for net proceeds of approximately $88.4 million. The proceeds from this issuance were used to pay down our revolving credit facility. At closing, the cash portion of this acquisition was funded from cash on hand and borrowings under our revolving credit facility.

        The principal assets of these entities are: (i) an approximate 22% undivided joint interest in the Capline Pipeline System, and (ii) an approximate 76% undivided joint interest in the Capwood Pipeline System. The Capline Pipeline System is a 667-mile, 40-inch mainline crude oil pipeline originating in St. James, Louisiana, and terminating in Patoka, Illinois. The Capwood Pipeline System is a 57-mile, 20-inch mainline crude oil pipeline originating in Patoka, Illinois, and terminating in Wood River, Illinois. The results of operations and assets from this acquisition (the "Capline acquisition") have been included in our consolidated financial statements and in our pipeline operations segment since March 1, 2004. These pipelines provide one of the primary transportation routes for crude oil shipped into the Midwestern U.S., and delivered to several refineries and other pipelines.

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        The purchase price was allocated as follows (in millions):

Crude oil pipelines and facilities   $ 151.4
Crude oil storage and terminal facilities     5.7
Land     1.3
Office equipment and other     0.1
   
Total   $ 158.5
   

        The following unaudited pro forma data is presented to show pro forma revenues, net income and basic and diluted net income per limited partner unit for the Partnership as if the Capline acquisition had occurred as of the beginning of the periods reported (in millions, except per unit amounts):

 
  Three Months Ended
March 31,

 
  2004
  2003
Revenue   $ 3,812.3   $ 3,291.3
   
 
Net Income   $ 35.1   $ 28.7
   
 
Basic and diluted net income per limited partner unit   $ 0.56   $ 0.54
   
 

Note 3—Trade Accounts Receivable

        The majority of our trade accounts receivable relate to our gathering and marketing activities and can generally be described as high volume and low margin activities. We routinely review our trade accounts receivable balances to identify past due amounts and analyze the reasons such amounts have not been collected. In many instances, such uncollected amounts involve billing delays and discrepancies or disputes as to the appropriate price, volumes or quality of crude oil delivered, received or exchanged. We also attempt to monitor changes in the creditworthiness of our customers as a result of developments related to each customer, the industry as a whole and the general economy. Based on these analyses as well as our historical experience and the facts and circumstances surrounding certain aged balances, we have established an allowance for doubtful trade accounts receivable. At March 31, 2004, approximately 99% of our net trade accounts receivable were less than 60 days past the scheduled invoice date. Our allowance for doubtful accounts receivable totaled $0.2 million. We consider this reserve adequate; however, there is no assurance that actual amounts will not vary significantly from estimated amounts. The discovery of previously unknown facts or adverse developments affecting one of our counterparties or the industry as a whole could adversely impact our results of operations.

Note 4—Earnings Per Common Unit

        The following table sets forth the computation of basic and diluted earnings per limited partner unit. The net income available to limited partners and the weighted average limited partner units outstanding

9



have been adjusted for the dilutive effect of the contingent equity issuance related to the CANPET acquisition (see Note 5).

 
  Three months ended March 31,
 
 
  2004
  2003
 
 
  (in thousands, except per unit data)

 
Net income   $ 30,990   $ 24,351  
Less:              
  General partner incentive distributions     (1,644 )   (1,008 )
  General partner 2% ownership     (587 )   (467 )
   
 
 
Numerator for basic earnings per limited partner unit:              
  Net income available for common unitholders     28,759     22,876  
  Effect of dilutive securities:              
    Increase in general partner's incentive distribution—Contingent equity issuance     (16 )    
   
 
 
Numerator for diluted earnings per limited partner unit   $ 28,743   $ 22,876  
   
 
 
Denominator:              
  Denominator for basic earnings per limited partner unit—weighted average number of limited partner units     58,414     50,166  
  Effect of dilutive securities:              
    Contingent equity issuance (1)     603      
   
 
 
Denominator for diluted earnings per limited partner unit—weighted average number of limited partner units     59,017     50,166  
   
 
 
Basic net income per limited partner unit   $ 0.49   $ 0.46  
   
 
 
Diluted net income per limited partner unit   $ 0.49   $ 0.46  
   
 
 

(1)
For purposes of calculating diluted earnings per limited partner unit we have assumed that the April 2004 contingent equity issuance related to the CANPET acquisition would be settled entirely in units, in accordance with SFAS No. 128 "Earnings Per Share." See Note 5 for the actual number of units issued to settle the obligation.

Note 5—Partners' Capital and Distributions

    Subordinated Unit Conversion

        Pursuant to the terms of our Partnership Agreement, in November 2003, 25% of the Subordinated Units converted to Common Units on a one-for-one basis. In February 2004, all of the remaining Subordinated Units converted to Common Units on a one-for-one basis.

        As of December 31, 2003, the subordinated units have a debit balance in Partners' Capital of approximately $39.9 million. The debit balance is the result of several different factors including: (i) a low initial capital balance in connection with the formation of the partnership as a result of a low carry-over book basis in the assets contributed to the Partnership at the date of formation, (ii) a significant net loss in 1999 and (iii) distributions to unitholders that have exceeded net income allocated to unitholders each period. Additionally, the capital balances of the common unitholders and the General Partner have increased periodically as additional units have been sold and as the General Partner has made additional capital contributions associated with those offerings. The subordinated unitholders are not required to make any additional contributions associated with those offerings of common units. No additional Subordinated Units were issued after the initial issuance.

10



    Issuance of Common Units

        We issued approximately 138,000 common units during the first quarter of 2004 in conjunction with the vesting of awards under our Long-Term Incentive Plan ("LTIP"). See Note 6 for additional discussion. In addition, the General Partner made a proportional two percent contribution.

    Distributions

        On April 23, 2004, we declared a cash distribution of $0.5625 per unit on our outstanding common units, Class B common units and Class C common units. The distribution is payable on May 14, 2004, to unitholders of record on May 4, 2004, for the period January 1, 2004, through March 31, 2004. The total distribution to be paid is approximately $37.5 million, with approximately $35.0 million to be paid to our common unitholders and $0.7 million and $1.8 million to be paid to our general partner for its general partner and incentive distribution interests, respectively.

        On January 22, 2004, we declared a cash distribution of $0.5625 per unit on our outstanding common units, Class B common units and subordinated units. The distribution was paid on February 13, 2004, to unitholders of record on February 3, 2004, for the period October 1, 2003, through December 31, 2003. The total distribution paid was approximately $35.2 million, with approximately $28.7 million paid to our common unitholders, $4.2 million paid to our subordinated unitholders and $0.7 million and $1.6 million paid to our general partner for its general partner and incentive distribution interests, respectively.

    Contingent Equity Issuance

        In connection with the CANPET acquisition in July 2001, $26.5 million Canadian of the purchase price, payable in common units or cash at our option, was deferred subject to various performance objectives being met. These objectives were met as of December 31, 2003 and an increase to goodwill for this liability was recorded as of this date. The liability was satisfied on April 30, 2004. We issued approximately 385,000 common units and paid $6.5 million in cash to satisfy the obligation. The number of common units issued in satisfaction of the deferred payment was based upon $34.02 per share, the average trading price of our common units for the ten-day trading period prior to the payment date, and a Canadian dollar to U.S. dollar exchange rate of 1.35 to 1, the average noon-day exchange rate for the ten-day trading period prior to the payment date. In addition, $3.7 million in cash was paid for the distributions that would have been paid on the common units had they been outstanding since the effective date of the acquisition.

Private Placement of Series C Common Units

        In connection with the acquisition discussed in Note 11, the partnership issued 3,245,700 Class C Common Units for $30.81 per unit in a private placement completed on April 15, 2004. Total proceeds from the transaction, after deducting transaction costs and including the general partner's proportionate contribution, were approximately $101 million. The Class C Common Units are unlisted securities that are pari passu in voting and distribution rights with the Partnership's publicly traded Common Units. The Class C Common Units are similar in many respects to the Partnership's Class B Common Units. The Class C Units are convertible into Common Units upon approval by the holders of a majority of the Common Units. Beginning six months from the closing of the private placement, the Class C Unitholders may request that the Partnership call a meeting of its Common Unitholders to consider approval of the conversion of the Class C Units into Common Units. If the approval of the conversion is not obtained within 120 days of the request, the Class C Unitholders will be entitled to receive distributions, on a per unit basis, equal to 110% of the amount of distributions paid on a Common Unit. If the approval of the conversion is not secured within 90 days after the end of the 120-day period, the distribution right increases to 115%.

11



Note 6—Vesting of Unit Grants Under Long-Term Incentive Plan

        As of March 31, 2004, grants of approximately 681,000 restricted phantom units were outstanding under our LTIP. During the first quarter of 2004, approximately 326,000 phantom units vested. We paid cash in lieu of delivery of common units for approximately 104,000 of the phantom units and issued approximately 138,000 new common units (after netting for taxes) in connection with the remainder of the vesting.

        In addition, approximately 470,000 additional phantom units vested in May 2004. We paid cash rather than common units for approximately 202,000 of these phantom units and issued approximately 177,500 new common units (after netting for taxes) in connection with the remainder of that vesting.

        Under generally accepted accounting principles, we are required to recognize an expense when it is considered probable that the phantom unit grants will vest. During the first quarter of 2004, we recognized $4.2 million of compensation expense related to the LTIP units. This was comprised of approximately $1.1 million related to units that vested in May and for which partial satisfaction of service period requirements has been met and approximately $3.1 million related to the vesting of approximately 101,000 additional phantom units. Some of these units will vest at a distribution level of $2.30, subject to applicable continuing employment requirements, and some will vest with the passage of time. We have concluded this vesting is probable and have thus accrued for this obligation. At a distribution level of $2.50 to $2.69, approximately 95,000 additional units would vest. At the time it is considered probable that this distribution level will be met, the costs associated with the vesting of these additional units will be accrued. We anticipate that, after giving effect to the May vesting and related tax withholding and cash settlement, approximately 845,000 phantom units will be available under the plan for future grant and approximately 216,000 phantom units will remain outstanding. In accordance with the provisions of the LTIP and applicable NYSE standards, no more than approximately 611,000 phantom unit grants can be satisfied by delivery of common units.

Note 7—Derivative Instruments and Hedging Activities

        We utilize various derivative instruments to (i) manage our exposure to commodity price risk, (ii) engage in a controlled trading program, (iii) manage our exposure to interest rate risk and (iv) manage our exposure to currency exchange rate risk. Our risk management policies and procedures are designed to monitor interest rates, currency exchange rates, NYMEX and over-the-counter positions, and physical volumes, grades, locations and delivery schedules to ensure that our hedging activities address our market risks. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. We calculate hedge effectiveness on a quarterly basis. This process includes specific identification of the hedging instrument and the hedged transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness will be assessed. Both at the inception of the hedge and on an ongoing basis, we assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

    Summary of Financial Impact

        The following is a summary of the financial impact of the derivative instruments and hedging activities discussed below. The March 31, 2004, balance sheet includes assets of $24.2 million ($13.6 million current), liabilities of $24.7 million ($20.4 million current) and unrealized net losses deferred to Other Comprehensive Income ("OCI") of $15.0 million. Earnings for the three months ended March 31, 2004, include a gain of $10.0 million (including, $2.1 million, which was reclassified into earnings from OCI during the period).

        As of March 31, 2004, the total amount of deferred net losses recorded in OCI are expected to be reclassified to future earnings, contemporaneously with the related physical purchase or delivery of the

12



underlying commodity or payments of interest. During the three months ended March 31, 2004, no amounts were reclassified to earnings from OCI in connection with forecasted transactions that were no longer considered probable of occurring. Of the $15.0 million net loss deferred in OCI at March 31, 2004, a net loss of $9.2 million will be reclassified into earnings in the next twelve months and the remainder by 2013. Since a portion of these amounts are based on market prices at the current period end, actual amounts to be reclassified will differ and could vary materially as a result of changes in market conditions.

        The following sections discuss our risk management activities in the indicated categories.

    Commodity Price Risk Hedging

        We hedge our exposure to price fluctuations with respect to crude oil and LPG in storage, and expected purchases, sales and transportation of these commodities. The derivative instruments utilized consist primarily of futures and option contracts traded on the NYMEX and over-the-counter transactions, including crude oil swap and option contracts entered into with financial institutions and other energy companies. In accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," these derivative instruments are recognized in the balance sheet or earnings at their fair values. The majority of our commodity price risk derivative instruments qualify for hedge accounting as cash flow hedges. Therefore, the corresponding changes in fair value for the effective portion of the hedges are deferred into OCI and recognized in revenues or cost of sales and operations in the periods during which the underlying physical transactions occur. At March 31, 2004, there was an unrealized loss of $9.1 million, deferred in OCI related to our commodity price risk activities. Approximately $8.5 million of the loss on these deferred positions will be reclassified into earnings in the next twelve months and the remainder by July 2006. Earnings for the three months ended March 31, 2004 include a net gain of $10.8 million (including $2.8 million, which was reclassified into earnings from OCI during the period). We have determined that our physical purchase and sale agreements qualify for the normal purchase and sale exclusion and thus are not subject to SFAS 133.

    Controlled Trading Program

        Although we seek to maintain a position that is substantially balanced within our crude oil lease purchase activities, we may experience net unbalanced positions for short periods of time as a result of production, transportation and delivery variances as well as logistical issues associated with inclement weather conditions. In connection with managing these positions and maintaining a constant presence in the marketplace, both necessary for our core business, we engage in a controlled trading program for up to an aggregate of 500,000 barrels of crude oil. These activities are monitored independently by our risk management function and must take place within predefined limits and authorizations. In accordance with SFAS 133, these derivative instruments are recorded in the balance sheet as assets or liabilities at their fair value, with the changes in fair value recorded net in revenues. There were no open positions under this program at March 31, 2004 and 2003. The realized earnings impact related to these activities for the three months ended March 31, 2004, was a loss of approximately $0.1 million.

    Interest Rate Risk Hedging

        At March 31, 2004, we have no open interest rate hedging instruments. However, there is approximately $5.8 million deferred in OCI that relates to instruments terminated and cash settled in 2003. The net deferred loss related to these instruments is being amortized into interest expense over the original terms of the terminated instruments (approximately fifty percent over three years and the remaining fifty percent over ten years). Approximately $0.4 million related to the terminated instruments has been reclassified into interest expense during the first quarter of 2004, and approximately $1.4 million will be reclassified for the entire year of 2004. In addition, earnings includes a loss of approximately $0.4 million that was reclassified out of OCI related to an instrument that matured in March 2004.

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    Currency Exchange Rate Risk Hedging

        Because a significant portion of our Canadian business is conducted in Canadian dollars (CAD), we use certain financial instruments to minimize the risks of unfavorable changes in exchange rates. These instruments include forward exchange contracts, forward extra option contracts and cross currency swaps. Additionally, at times, a portion of our debt is denominated in Canadian dollars. At March 31, 2004, $3.7 million of our long-term debt was denominated in Canadian dollars ($4.9 million Canadian based on a Canadian dollar to U.S. dollar exchange rate of 1.31 to 1). All of these financial instruments are placed with what we believe to be large creditworthy financial institutions.

        At March 31, 2004, we had forward exchange contracts that allow us to exchange $2.0 million Canadian for approximately $1.5 million U.S. quarterly during 2004 and approximately $1.0 million Canadian for approximately $0.7 million U.S. quarterly during 2005 (based on a Canadian dollar to U.S. dollar exchange rate of 1.33 to 1 and 1.34 to 1, respectively). In addition, at March 31, 2004, we also had cross currency swap contracts for an aggregate notional principal amount of $23.0 million, effectively converting this amount of our U.S. dollar denominated debt to $35.6 million of Canadian dollar debt (based on a Canadian dollar to U.S. dollar exchange rate of 1.55 to 1). The notional principal amount reduces by $2.0 million U.S. in May 2004 and May 2005 and has a final maturity in May 2006 of $19.0 million U.S.

        The forward exchange contracts and forward extra option contracts qualify for hedge accounting as cash flow hedges and the cross currency swaps qualify for hedge accounting as fair value hedges, both in accordance with SFAS 133. Such derivative activity resulted in an unrealized loss of $0.2 million deferred in OCI related to our currency exchange rate cash flow hedges at March 31, 2004. The earnings impact related to our currency exchange rate fair value hedges was nominal for the three months ended March 31, 2004.

Note 8—Revenue Recognition Policy

        Following is a description of our revenue recognition policy:

        Gathering, Marketing, Terminalling and Storage Segment Revenues.     Revenues from crude oil and LPG sales are recognized at the time title to the product sold transfers to the purchaser, which occurs upon receipt of the product by the purchaser. All sales of crude oil and LPG are booked gross except in the case of barrel exchanges that are net settled. Terminalling and storage revenues, which are classified as Other revenues on the income statement, consist of (i) storage fees from actual storage used on a month-to-month basis; (ii) storage fees resulting from short-term and long-term contracts for committed space that may or may not be utilized by the customer on a given month; and (iii) terminal throughput charges to pump crude oil to connecting carriers. Revenues on storage are recognized ratably over the term of the contract. Terminal throughput charges are recognized as the crude oil exits the terminal and is delivered to the connecting crude oil carrier. Any throughput volumes in transit at the end of a given month are treated as third-party inventory and do not incur storage fees. All terminalling and storage revenues are based on actual volumes and rates.

        Pipeline Segment Revenues.     Pipeline margin activities primarily consist of the purchase and sale of crude oil shipped on our San Joaquin Valley system from barrel exchanges and buy/sell arrangements. Revenues associated with these activities are recognized at the time title to the product sold transfers to the purchaser, which occurs upon receipt of the product by the purchaser. Revenues for these transactions are recorded gross except in the case of barrel exchanges that are net settled. All of our pipeline margin activities revenues are based on actual volumes and prices. Revenues from pipeline tariffs and fees are associated with the transportation of crude oil at a published tariff as well as fees associated with line leases for committed space on a particular system that may or may not be utilized. Tariff revenues are recognized either at the point of delivery or at the point of receipt pursuant to specifications outlined in the regulated and non-regulated tariffs. Revenues associated with line lease fees are recognized in the

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month to which the lease applies, whether or not the space is actually utilized. All pipeline tariff and fee revenues are based on actual volumes and rates.

Note 9—Commitments and Contingencies

Litigation

        Export License Matter.     In our gathering and marketing activities, we import and export crude oil from and to Canada. Exports of crude oil are subject to the short supply controls of the Export Administration Regulations ("EAR") and must be licensed by the Bureau of Industry and Security (the "BIS") of the U.S. Department of Commerce. In 2002, we determined that we may have exceeded the quantity of crude oil exports authorized by previous licenses. Export of crude oil in excess of the authorized amounts is a violation of the EAR. On October 18, 2002, we submitted to the BIS an initial notification of voluntary disclosure. The BIS subsequently informed us that we could continue to export while previous exports were under review. We applied for and have received a new license allowing for exports of volumes more than adequately reflecting our anticipated needs. We also conducted reviews of new and existing contracts and implemented new procedures and practices in order to monitor compliance with applicable laws regarding the export of crude oil to Canada. As a result, we subsequently submitted additional information to the BIS in October 2003 and May 2004 and intend to supplement that data to the extent applicable. At this time, we have received no indication whether the BIS intends to charge us with a violation of the EAR or, if so, what penalties would be assessed. As a result, we cannot estimate the ultimate impact of this matter.

        General.     We, in the ordinary course of business, are a claimant and/or a defendant in various legal proceedings. We do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows.

Environmental

        We may experience future releases of crude oil into the environment from our pipeline and storage operations, or discover past releases that were previously unidentified. Although we maintain an inspection program designed to prevent and, as applicable, to detect and address such releases promptly, damages and liabilities incurred due to any such environmental releases from our assets may substantially affect our business. At March 31, 2004, our reserve for environmental liabilities totaled approximately $6.8 million. Although we believe our reserve is adequate, no assurance can be given that any costs incurred in excess of this reserve would not have a material adverse effect on our financial condition, results of operations or cash flows.

Other

        The occurrence of a significant event not fully insured or indemnified against, or the failure of a party to meet its indemnification obligations, could materially and adversely affect our operations and financial condition. We believe we are adequately insured for public liability and property damage to others with respect to our operations. We believe that our levels of coverage and retention are generally consistent with those of similarly situated companies in our industry. With respect to all of our coverage, no assurance can be given that we will be able to maintain adequate insurance in the future at rates we consider reasonable, or that we have established adequate reserves to the extent that such risks are not insured.

Note 10—Operating Segments

        Our operations consist of two operating segments: (1) Pipeline Operations—engages in interstate and intrastate crude oil pipeline transportation and certain related merchant activities; and (2) Gathering, Marketing, Terminalling and Storage Operations—engages in purchases and resales of crude oil and LPG at various points along the distribution chain and the operation of certain terminalling and storage assets.

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In a contango market (oil prices for future deliveries are higher than for current deliveries), we use our tankage to improve our gathering margins by storing crude oil we have purchased at lower prices in the current month for delivery at higher prices in future months. In a backwardated market (oil prices for future deliveries are lower than for current deliveries), we use and lease less storage capacity, but increased marketing margins (premiums for prompt delivery) provide an offset to this reduced cash flow. We believe that the combination of our terminalling and storage activities and gathering and marketing activities provides a counter-cyclical balance that has a stabilizing effect on our operations and cash flow.

        We evaluate segment performance based on (i) segment profit, (ii) segment profit before segment general and administrative ("G&A") expenses and (iii) maintenance capital. We define segment profit as revenues less (i) purchases, (ii) field operating expenses, and (iii) segment G&A expenses. Maintenance capital consists of capital expenditures required either to maintain the existing operating capacity of partially or fully depreciated assets or to extend their useful lives. Capital expenditures made to expand our existing capacity, whether through construction or acquisition, are not considered maintenance capital expenditures. Repair and maintenance expenditures associated with existing assets that do not extend the useful life or expand the operating capacity are charged to expense as incurred.

 
  Pipeline
  Gathering
Marketing,
Terminalling
& Storage

  Total
 
  (in millions)

Three Months Ended March 31, 2004                  
Revenues:                  
  External Customers   $ 173.5   $ 3,631.1   $ 3,804.6
  Intersegment (1)     15.8     0.2     16.0
   
 
 
    Total revenues of reportable segments   $ 189.3   $ 3,631.3   $ 3,820.6
   
 
 
Segment profit before segment G&A   $ 33.2   $ 39.5   $ 72.7
Segment G&A expenses (2)     7.7     11.4     19.1
   
 
 
Segment profit   $ 25.5   $ 28.1   $ 53.6
   
 
 
Noncash SFAS 133 impact (3)   $   $ 7.5   $ 7.5
   
 
 
Maintenance capital   $ 1.4   $ 0.3   $ 1.7
   
 
 

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Three Months Ended March 31, 2003                  
Revenues:                  
  External Customers   $ 159.0   $ 3,122.9   $ 3,281.9
  Intersegment (1)     10.0     0.2     10.2
   
 
 
    Total revenues of reportable segments   $ 169.0   $ 3,123.1   $ 3,292.1
   
 
 
Segment profit before segment G&A   $ 24.8   $ 32.8   $ 57.6
Segment G&A expenses (2)     4.6     8.5     13.1
   
 
 
Segment profit   $ 20.2   $ 24.3   $ 44.5
   
 
 
Noncash SFAS 133 impact (3)   $   $ 0.9   $ 0.9
   
 
 
Maintenance capital   $ 1.4   $ 0.2   $ 1.6
   
 
 

(1)
Intersegment sales are conducted at arms length.

(2)
Segment general and administrative expenses (G&A) reflect direct costs attributable to each segment and an allocation of other expenses to the segments based on the business activities that exist at that time. The proportional allocations by segment require judgment by management and will continue to be based on business activities that exist during each period.

(3)
Amounts related to SFAS 133 are included in revenues and impact segment profit and segment profit before segment G&A expenses.

(4)
The following table reconciles segment profit to consolidated net income (in millions):

 
  For the three months
ended March 31,

 
 
  2004
  2003
 
Segment profit   $ 53.6   $ 44.5  
Depreciation and amortization     (13.1 )   (10.9 )
Interest expense     (9.5 )   (9.1 )
Interest income and other, net         (0.1 )
   
 
 
Net Income   $ 31.0   $ 24.4  
   
 
 

Note 11—Subsequent Events

    Link Acquisition

        On April 1, 2004, we completed the acquisition of substantially all of the North American crude oil and pipeline operations of Link Energy LLC ("Link") for approximately $330 million, including $273 million of cash, the assumption of $49 million of liabilities and $8 million of transaction, closing and integration costs and other items. The Link crude oil business consists of approximately 7,000 miles of active crude oil pipeline and gathering systems, over 10 million barrels of crude oil storage capacity, a fleet of approximately 200 owned or leased trucks and approximately 2 million barrels of crude oil linefill and working inventory. The Link assets complement our assets in West Texas and along the Gulf Coast and allow us to expand our presence in the Rocky Mountain and Oklahoma/Kansas regions.

        The acquisition was funded with cash on hand, borrowings under a new $200 million 364-day credit facility and borrowings under our existing revolving credit facilities. The new credit facility contains a twelve-month term out option, exercisable at our election, at the end of the primary term, bears interest at a rate of LIBOR plus a margin ranging from .625% to 1.25%, depending upon our credit rating, and

17


includes essentially the same covenants as our existing credit facilities. On April 15, we completed the private placement of 3,245,700 units of Class C Common Units for $30.81 per unit to a group of institutional investors. Total proceeds from the transaction, after deducting transaction costs and including the general partner's proportionate contribution, were approximately $101 million and was used to reduce the balance outstanding under our existing revolving credit facilities. The partnership has committed to use net proceeds from future debt and equity offerings to retire or reduce the amount outstanding under the new $200 million 364-day credit facility.

        On April 2, 2004, the Office of the Attorney General of Texas delivered written notice to us that it was investigating the possibility that the acquisition of Link's assets might reduce competition in one or more markets within the petroleum products industry in the State of Texas. In connection with the Link purchase, both PAA and Link completed all necessary filings required under the Hart-Scott-Rodino Act, and the required 30-day waiting period expired on March 24, 2004 without any inquiry or request for additional information from the U.S. Department of Justice or the Federal Trade Commission. Representatives from the Antitrust and Civil Medicaid Fraud Division of the Office of the Attorney General of Texas indicated their investigation was prompted by complaints received from allegedly interested industry parties regarding the potential impact on competition in the Permian Basin area of West Texas. We understand that similar complaints have been received by the Federal Trade Commission, and that, consistent with federal-state protocols for conducting joint merger investigations, appropriate federal and state antitrust authorities will be coordinating their activities. We are cooperating fully with the antitrust enforcement authorities.

Cal Ven Acquisition

        On May 7, 2004 we completed the acquisition of the Cal Ven Pipeline System from Cal Ven Limited, a subsidiary of Unocal Canada Limited. The total purchase price was approximately $19 million, including transaction costs. The transaction was funded through a combination of cash on hand and borrowings under our revolving credit facilities. The Cal Ven Pipeline System is comprised of approximately 195 miles of 8-inch and 10-inch gathering and mainline crude oil pipelines. The system is located in northern Alberta and delivers crude oil into the Rainbow Pipeline System at Utikuma. The Rainbow Pipeline System then transports the crude south to the Edmonton market, where it can be used in local refineries or shipped on connecting pipelines to the U.S. market.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        Plains All American Pipeline, L.P. is a Delaware limited partnership (the "Partnership") formed in September of 1998. Our operations are conducted directly and indirectly through our operating subsidiaries, Plains Marketing, L.P., Plains Pipeline, L.P. (formerly known as All American Pipeline, L.P.) and Plains Marketing Canada, L.P. We are engaged in interstate and intrastate crude oil transportation, and crude oil gathering, marketing, terminalling and storage, as well as the marketing and storage of liquefied petroleum gas and other petroleum products. We refer to liquified petroleum gas and other petroleum products collectively as "LPG." We own an extensive network in the United States and Canada of pipeline transportation, terminalling, storage and gathering assets in key oil producing basins and at major market hubs.

        In order to better understand the financial statements discussed herein, it is important to understand the basic nature of our two operating segments as well as the magnitude of the impact of our acquisition program. Our operations are conducted primarily in Texas, Oklahoma, California, Louisiana and the Canadian provinces of Alberta and Saskatchewan and consist of two operating segments: (i) Pipeline Operations and (ii) Gathering, Marketing, Terminalling and Storage Operations ("GMT&S"). Our revenues from pipeline operations are generally derived from the transportation of crude oil for a fee and leases of pipeline capacity to third parties, as well as from certain barrel exchanges and buy/sell arrangements. Our revenues from gathering and marketing activities reflect the sale of gathered and bulk-purchased crude oil and LPG plus the sale of additional barrels through buy/sell arrangements entered into to enhance the margins of the gathered and bulk-purchased volumes. Our revenues from terminalling and storage operations are a combination of storage and throughput charges to third parties and serve to provide a countercyclical balance to our gathering and marketing activities. In addition, a significant portion of our tankage is used to support our arbitrage activities and enables us to enhance our margins in a contango market (when the oil prices for future deliveries are higher than the current prices) or when the market switches from contango to backwardation (when the oil prices for future deliveries are lower than the current prices). We discuss the fundamental drivers of each of these operating segments in greater detail below in our "Analysis of Operating Segments." The significant impact of our acquisition program on our reported financial results is also discussed under "Acquisitions" immediately below.

Acquisitions

        We completed several acquisitions during 2004 and 2003 that have impacted the results of operations and liquidity discussed herein. The following acquisitions were accounted for, and the purchase prices were allocated, in accordance with SFAS 141 "Business Combinations." Our ongoing acquisition activity is discussed further in "Outlook" below.

    Capline and Capwood Pipeline Systems

        In March 2004, we completed the acquisition of all of Shell Pipeline Company LP's interests in two entities for approximately $158.0 million in cash (including a $15.8 million deposit paid in December 2003) and approximately $0.5 million of transaction and other costs. The principal assets of the entities are: (i) an approximate 22% undivided joint interest in the Capline Pipeline System, and (ii) an approximate 76% undivided joint interest in the Capwood Pipeline System. The Capline Pipeline System is a 667-mile, 40-inch mainline crude oil pipeline originating in St. James, Louisiana, and terminating in Patoka, Illinois. The Capwood Pipeline System is a 57-mile, 20-inch mainline crude oil pipeline originating in Patoka, Illinois, and terminating in Wood River, Illinois. The results of operations and assets from this acquisition (the "Capline acquisition") have been included in our consolidated financial statements and in our pipeline operations segment since March 1, 2004. These pipelines provide one of the primary

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transportation routes for crude oil shipped into the Midwestern U.S. and delivered to several refineries and other pipelines.

        The purchase price was allocated as follows (in millions):

Crude oil pipelines and facilities   $ 151.4
Crude oil storage and terminal facilities     5.7
Land     1.3
Office equipment and other     0.1
   
Total   $ 158.5
   

    2003 Acquisitions

        During 2003, we completed ten acquisitions for aggregate consideration of approximately $159.5 million. The aggregate consideration includes cash paid, estimated transaction costs, assumed liabilities and estimated near-term capital costs. The acquisitions were initially financed with borrowings under our credit facilities, which were subsequently repaid with a portion of the proceeds from our equity issuances and the issuance of senior notes. The businesses acquired during 2003 impacted our results of operations subsequent to the effective date of each acquisition as indicated below. These acquisitions included mainline crude oil pipelines, crude oil gathering lines, terminal and storage facilities, and an underground LPG storage facility. With the exception of $0.5 million that was allocated to goodwill and other intangible assets and $4.7 million associated with crude oil linefill and working inventory, the remaining aggregate purchase price was allocated to property and equipment. The following table details our 2003 acquisitions (in millions):

Acquisition

  Effective Date
  Acquisition Price
  Operating Segment
Red River Pipeline System   02/01/03   $ 19.4   Pipeline
Iatan Gathering System   03/01/03     24.3   Pipeline
Mesa Pipeline Facility (1)   05/05/03     2.9   Pipeline
South Louisiana Assets (2)   06/01/03     13.4   Pipeline/GMT&S
Alto Storage Facility   06/01/03     8.5   GMT&S
Iraan to Midland Pipeline System   06/30/03     17.6   Pipeline
ArkLaTex Pipeline System   10/01/03     21.3   Pipeline/GMT&S
South Saskatchewan Pipeline System   11/01/03     47.7   Pipeline
Atchafalaya Pipeline System (3)   12/01/03     4.4   Pipeline
       
   
Total 2003 Acquisitions       $ 159.5    

(1)
Consists of an 8.8% undivided interest.

(2)
Includes a 33.3% interest in Atchafalaya Pipeline L.L.C.

(3)
Includes two acquisitions each for 33.3% interests in Atchafalaya Pipeline L.L.C.

Critical Accounting Policies and Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Although we believe these estimates are reasonable, actual results could differ from these estimates. The critical accounting policies that we have identified are discussed below.

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Depreciation, Amortization and Impairment of Long-Lived Assets

        We calculate our depreciation and amortization based on estimated useful lives and salvage values of our assets. These estimates are based on various factors including age (in the case of acquired assets), manufacturing specifications, technological advances and historical data concerning useful lives of similar assets. Uncertainties that impact these estimates include changes in laws and regulations relating to restoration and abandonment requirements, economic conditions and supply and demand in the area. When assets are put into service, we make estimates with respect to useful lives and salvage values that we believe are reasonable. However, subsequent events could cause us to change our estimates, thus impacting the future calculation of depreciation and amortization. Historically, adjustments to useful lives have not had a material impact on our aggregate depreciation levels from year to year.

        Additionally, we assess our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Such indicators include changes in our business plans, a change in the extent or manner in which a long-lived asset is being used or in its physical condition, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. If the carrying value of an asset exceeds the future undiscounted cash flows expected from the asset, an impairment charge would be recorded for the excess of the carrying value of the asset over its fair value. Determination as to whether and how much an asset is impaired would necessarily involve numerous management estimates. Any impairment reviews and calculations would be based on assumptions that are consistent with our business plans and long-term investment decisions. Historically, these assessments have not resulted in an impairment to the carrying value of our long-lived assets. An impairment in the future could have a negative effect on our liquidity and capital resources because such impairment is likely to reflect a reduction in the asset's ability to generate cash flow.

Allowance for Doubtful Trade Accounts Receivable

        The majority of our trade accounts receivable relate to our gathering and marketing activities and can generally be described as high volume and low margin activities. We routinely review our trade accounts receivable balances to identify past due amounts and analyze the reasons such amounts have not been collected. In many instances, such uncollected amounts involve billing delays and discrepancies or disputes as to the appropriate price, volumes or quality of crude oil delivered, received or exchanged. We also attempt to monitor changes in the creditworthiness of our customers as a result of developments related to each customer, the industry as a whole and the general economy. Based on these analyses as well as our historical experience and the facts and circumstances surrounding certain aged balances, we have established an allowance for doubtful trade accounts receivable and consider the reserve adequate; however, there is no assurance that actual amounts will not vary significantly from estimated amounts. The discovery of previously unknown facts or adverse developments affecting one of our counterparties or the industry as a whole could adversely impact our results of operations.

Purchase and Sales Accruals

        We routinely make accruals based on estimates for certain components of our revenues and cost of sales due to the timing of compiling billing information, receiving third-party information and reconciling our records with those of third parties. Where applicable, these accruals are based on nominated volumes expected to be purchased, transported and subsequently sold. Uncertainties involved in these estimates include levels of production at the wellhead, access to certain qualities of crude oil, pipeline capacities and delivery times, utilization of truck fleets to transport volumes to their destinations, weather, market conditions and other forces beyond our control. Historically, less than 2% of total revenues have been recorded using estimates. Accordingly, a variance from this estimate of 10% would impact total revenues by less than 1%. We do not believe the resolution of these uncertainties will have a material impact on our reported results of operations or financial condition.

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        In situations where we are required to make mark-to-market estimates pursuant to SFAS 133, the estimates of gains or losses at a particular period end do not reflect the end results of particular transactions, and will most likely not reflect the actual gain or loss at the conclusion of a transaction. We reflect estimates for these items based on our internal records and information from third parties. A portion of the estimates we use are based on internal models or models of third parties because they are not quoted on a national market. Additionally, values may vary among different models due to a difference in assumptions applied such as the estimate of prevailing market prices, volatility, correlations and other factors and may not be reflective of the price at which they can be settled due to the lack of a liquid market. Less than 1% of total revenues are based on estimates derived from these models. We believe our estimates for these items are reasonable, but there is no assurance that actual amounts will not vary significantly from estimated amounts.

Liability and Contingency Accruals

        We accrue reserves for contingent liabilities including, but not limited to, environmental remediation, insurance claims and potential legal claims. Accruals are made when our assessment indicates that it is probable that a liability has occurred and the amount of liability can be reasonably estimated. Our estimates are based on all known facts at the time and our assessment of the ultimate outcome. Among the many uncertainties that impact our estimates are the necessary regulatory approvals for, and potential modification of, our remediation plans, the limited amount of data available upon initial assessment of the impact of soil or water contamination, changes in costs associated with environmental remediation services and equipment, costs of medical care associated with worker's compensation insurance claims, and the possibility of existing legal claims giving rise to additional claims. Our estimates for liability and contingency accruals are increased or decreased as additional information is obtained or resolution is achieved. We also make accruals for potential payments under our Long-Term Incentive Plan ("LTIP") when we determine that vesting of the units is probable. The aggregate amount of the actual charge to expense will be determined by the unit price on the date vesting occurs (or, in some cases, the average unit price for a range of dates) multiplied by the number of units, plus our share of associated employment taxes. Uncertainties involved in this accrual include whether or not we actually achieve the specified performance requirements, the actual unit price at time of settlement and the continued employment of personnel subject to the vestings. We believe our estimates for these items are reasonable, but there is no assurance that actual amounts will not vary significantly from estimated amounts.

Determination of Fair Value of Assets and Liabilities Acquired and Identification of Associated Goodwill and Intangible Assets

        In conjunction with each acquisition, we must allocate the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition. We also estimate the amount of transaction costs that will be incurred in connection with each acquisition. As additional information becomes available, we may adjust the original estimates within a short time period subsequent to the acquisition. In addition, in conjunction with the adoption of SFAS 141, we are required to recognize intangible assets separately from goodwill. Goodwill and intangible assets with indefinite lives are not amortized but instead are periodically assessed for impairment. The impairment testing entails estimating future net cash flows relating to the asset, based on management's estimate of market conditions including pricing, demand, competition, operating costs and other factors. Intangible assets with finite lives are amortized over the estimated useful life determined by management. Determining the fair value of assets and liabilities acquired, as well as intangible assets that relate to such items as customer relationships, contracts, and industry expertise involves professional judgment and is ultimately based on acquisition models and management's assessment of the value of the assets acquired and, to the extent available, third party assessments. Uncertainties associated with these estimates include changes in production decline rates, production interruptions, fluctuations in refinery capacity or product slates, economic obsolescence factors in the area and potential future sources of cash flow. We believe our estimates for these items are

22



reasonable, but there is no assurance that actual amounts will not vary significantly from estimated amounts.

        In June 2001, the FASB issued SFAS No. 143 "Asset Retirement Obligations." SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (1) the time of the liability recognition, (2) initial measurement of the liability, (3) allocation of asset retirement cost to expense, (4) subsequent measurement of the liability and (5) financial statement disclosures. SFAS 143 requires that the cost for asset retirement should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. Effective January 1, 2003, we adopted SFAS 143, as required. Determination of the amounts to be recognized upon adoption is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates and the credit- adjusted risk-free interest rate. The majority of our assets, primarily related to our pipeline operations segment, have obligations to perform remediation and, in some instances, removal activities when the asset is abandoned. However, the fair value of the asset retirement obligations cannot be reasonably estimated, as the settlement dates are indeterminate. We will record such asset retirement obligations in the period in which we can reasonably determine the settlement dates.

Results of Operations

        Our operations consist of two operating segments: (1) our Pipeline Operations, through which we engage in interstate and intrastate crude oil pipeline transportation and certain barrel exchanges and buy/sell arrangements utilizing our proprietary pipelines; and (2) our Gathering, Marketing, Terminalling and Storage Operations, through which we engage in purchases and resales of crude oil and LPG at various points along the distribution chain and the operation of certain terminalling and storage assets.

        For the three months ended March 31, 2004, we reported consolidated net income of $31.0 million on total revenues of $3.8 billion compared to net income for the same period in 2003 of $24.4 million on total revenues of $3.3 billion. Included in the results of operations for the three months ended March 31, 2004 and 2003, are selected items that impact the comparability between periods, which are discussed further below.

        In evaluating our operating results, management considers the effects of selected items that they believe impact the comparability of our financial results between periods. Because management considers an understanding of these selected items to be material to its evaluation of our operating results and prospects, we have presented the table below as additional information that may be helpful to your understanding of our financial results. You should also be aware that the items presented below do not represent all items that affect comparability between the periods presented. Variations in our operating results are also caused by changes in volumes, prices, exchange rates, mechanical interruptions, acquisitions and numerous other factors. Because management believes these types of variations to be directly related to the actual operating activities for the periods presented, they are not separately identified below. Instead, appropriate discussions of these types of operating variances and their impact on reported results between comparative periods are included in the discussion and analysis of the segment's

23



performance for such period. In considering the information included in the table below, you should also refer to the more complete discussion of each of these items immediately following the table.

 
  Three Months Ended March 31,
 
  2004
  2003
 
  (in millions)

Selected Items Impacting Comparability            
  Noncash SFAS 133 adjustment   $ 7.5   $ 0.9
  LTIP charge     (4.2 )  
   
 
  Total of selected items impacting comparability   $ 3.3   $ 0.9
   
 

        The following is a discussion of each of the selected items that impacted our results of operations. Further discussion of each of these items is included in the applicable portion of the results of operations discussion.

         Noncash Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" Adjustment —SFAS 133 requires that changes in derivative instruments' fair value be recognized currently in earnings unless specific cash flow hedge accounting criteria are met, in which case, changes in fair value are deferred to Other Comprehensive Income, or "OCI," and reclassified into earnings when the underlying transaction affects earnings. Accordingly, changes in fair value are included in earnings in the current period for (i) derivatives characterized as fair value hedges, (ii) derivatives that do not qualify for hedge accounting and (iii) the portion of cash flow hedges that is not highly effective in offsetting changes in cash flows of hedged items. We believe that the majority of instruments we are required to mark-to-market at the end of each quarterly period pursuant to SFAS 133 nonetheless serve as economic hedges (even though they do not meet SFAS 133 hedge definition requirements) in that they offset future physical positions or anticipated cash flow related to our assets attributable to a future period. All of our derivative transactions except our controlled trading program fall under our Enterprise Level Program, which has the objective of hedging exposures arising from our core businesses. Therefore, we believe mark-to-market adjustments to net income required under SFAS 133 do not provide a complete depiction of the economic substance of the transaction, because these adjustments represent only the derivative side of these transactions and do not take into account the offsetting physical position or cash flow exposure associated with our assets. In addition, the impact will vary from quarter to quarter based on market prices at the end of the quarter, which are impossible for us to control or forecast, and the SFAS 133 adjustments will be negated by offsetting gains or losses on the underlying physical transaction or cash flow of the asset in future periods. The extent of the offset will depend on multiple factors, including the price indices of the underlying contracts and hedges, utilization of our assets, and various other factors. Accordingly, when we evaluate our results internally for performance against expectations, public guidance and trend analysis, we exclude the noncash, mark-to-market impact of SFAS 133. We present the impact of the SFAS 133 adjustments because we believe such amounts affect the comparison of the fundamental operating results for the periods presented. We reported SFAS 133 gains of $7.5 million and $0.9 million in revenues, for the three months ending March 31, 2004 and 2003, respectively.

        Our first quarter 2004 SFAS 133 gain includes three primary components, two positive amounts totaling $9.1 million and one negative amount for $1.6 million. The details of these three components are as follows:

    A gain of approximately $2.0 million relates to our Canadian operations, primarily due to physical hedges that do not consistently meet the 80% correlation to be considered a hedge for accounting purposes. Approximately $1.7 million of this gain is related to a reversal of a noncash mark-to-market loss recognized in prior periods.

24


    A gain of approximately $7.1 million is attributable primarily to hedges of cash flows associated with tankage assets that are accomplished through futures contracts and options contracts. Because these arrangements will not necessarily result in physical delivery, they are not eligible for hedge accounting treatment under SFAS 133. The bulk of the current period impact is largely due to increased strength in the backwardation in the futures market and the balance is generally attributable to a reversal of a noncash mark-to-market loss recognized in prior periods.

    A loss of $1.6 million is related to a contractual arrangement where the counterparty requires that we cancel the physical contracts and net settle the balance due. Since this arrangement can be cash settled, transactions under this arrangement are not eligible for hedge accounting treatment under SFAS 133.

        Long-Term Incentive Plan charge —Under generally accepted accounting principles, we are required to recognize an expense when vesting of LTIP units becomes probable as determined by management. Our results of operations include a charge of $4.2 million in the three months ended March 31, 2004. This charge is comprised of two components as follows:

    Approximately $1.1 million related to approximately 470,000 phantom units that vested in May 2004. We had previously concluded at December 31, 2003, that these units were probable of vesting and had accrued a portion of the related obligation at that time. The additional first quarter charge relates to the amortization of service period requirements and adjustments to the assumptions used in our estimate.

    Approximately $3.1 million of the charge related to an additional approximately 100,000 phantom units. Some of these units will vest at a distribution level of $2.30, subject to applicable continuing employment requirements, and some will vest with the passage of time. We have concluded this vesting is probable and have thus accrued for this obligation.

    Analysis of Operating Segments

        We evaluate segment performance based on (i) segment profit (ii) segment profit before segment general and administrative ("G&A") expenses and (iii) maintenance capital. We define segment profit as revenues less (i) purchases, (ii) field operating expenses, and (iii) segment G&A expenses. Maintenance capital consists of capital expenditures required either to maintain the existing operating capacity of partially or fully depreciated assets or to extend their useful lives. Capital expenditures made to expand our existing capacity, whether through construction or acquisition, are not considered maintenance capital expenditures. Repair and maintenance expenditures associated with existing assets that do not extend the useful life or expand the operating capacity are charged to expense as incurred. Our current estimate of maintenance capital expenditures for the year 2004 is approximately $16.8 million. We monitor maintenance capital expenditures on an annual basis, since these capital projects can overlap quarters and may be impacted by weather, permitting and other uncontrollable delays. Accordingly, no period-by-period

25


analysis is provided, except on an annual basis. The following table reflects our results of operations for each segment:

 
  Pipeline
  Gathering,
Marketing,
Terminalling &
Storage

 
  (in millions)

Three Months Ended March 31, 2004 (1)            
Revenues   $ 189.3   $ 3,631.3
Purchases and related costs     136.7     3,572.9
Field operating expenses (excluding LTIP charge)     19.3     18.5
LTIP charge—field operating expenses     0.1     0.4
   
 
Segment proft before segment G&A expenses   $ 33.2   $ 39.5
Segment G&A expenses (excluding LTIP charge) (2)     6.0     9.4
LTIP charge—G&A     1.7     2.0
   
 
Segment profit   $ 25.5   $ 28.1
   
 
Noncash SFAS 133 impact (3)   $   $ 7.5
   
 
Maintenance capital   $ 1.4   $ 0.3
   
 

Three Months Ended March 31, 2003 (1)

 

 

 

 

 

 
Revenues   $ 169.0   $ 3,123.1
Purchases and related costs     130.7     3,070.7
Field operating expenses     13.5     19.6
   
 
Segment proft before segment G&A expenses   $ 24.8   $ 32.8
Segment G&A expenses (2)     4.6     8.5
   
 
Segment profit   $ 20.2   $ 24.3
   
 
Noncash SFAS 133 impact (3)   $   $ 0.9
   
 
Maintenance capital   $ 1.4   $ 0.2
   
 

(1)
Revenues and purchases include intersegment amounts.

(2)
Segment general and administrative expenses (G&A) reflect direct costs attributable to each segment and an allocation of other expenses to the segments based on the business activities that existed at that time. The proportional allocations by segment require judgment by management and will continue to be based on the business activities that exist during each period.

(3)
Amounts related to SFAS 133 are included in revenues and impact segment profit and segment profit before segment G&A expenses.

Pipeline Operations

        As of March 31, 2004, we owned and operated approximately 7,200 miles of gathering and mainline crude oil pipelines located throughout the United States and Canada. Our activities from pipeline operations generally consist of transporting volumes of crude oil for a fee and third-party leases of pipeline capacity on our proprietary pipelines (collectively referred to as "tariff activities"), as well as barrel exchanges and buy/sell arrangements (collectively referred to as "pipeline margin activities"). In connection with certain of our merchant activities conducted under our gathering and marketing business, we are also shippers on certain of our own pipelines. These transactions are conducted at published tariff rates and eliminated in consolidation. Tariffs and other fees on our pipeline systems vary by receipt point and delivery point. The segment profit before segment G&A generated by our tariff and other fee-related activities depends on the volumes transported on the pipeline and the level of the tariff and other fees

26



charged as well as the fixed and variable field costs of operating the pipeline. Segment profit before segment G&A from our pipeline capacity leases, barrel exchanges and buy/sell arrangements generally reflect a negotiated amount.

        The following table sets forth our operating results from our Pipeline Operations segment for the periods indicated:

 
  Three months ended
March 31,

 
  2004
  2003
Operating Results (1) (in millions)            
  Revenues            
    Tariff activities   $ 47.0   $ 33.8
    Pipeline margin activities     142.3     135.2
   
 
Total pipeline operations revenues     189.3     169.0

Costs and Expenses

 

 

 

 

 

 
  Pipeline margin activities purchases     136.7     130.7
  Field operating expenses (excluding LTIP charge)     19.3     13.5
  LTIP charge—field operating expenses     0.1    
   
 
Segment profit before segment G&A expenses     33.2     24.8
Segment G&A expenses (excluding LTIP charge) (2)     6.0     4.6
LTIP charge—G&A     1.7    
   
 
Segment profit   $ 25.5   $ 20.2
   
 
Maintenance capital   $ 1.4   $ 1.4
   
 

Average Daily Volumes (thousands of barrels per day) (3)

 

 

 

 

 

 
  Tariff activities            
    All American     55     59
    Basin     275     210
    Capline (4)     54    
    Other domestic     352     269
    Canada     240     194
   
 
  Total tariff activities     976     732
  Pipeline margin activities     72     86
   
 
    Total     1,048     818
   
 

(1)
Revenues and purchases include intersegment amounts.

(2)
Segment G&A expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments based on the business activities that existed at that time. The proportional allocations by segment require judgment by management and will continue to be based on the business activities that exist during each period.

(3)
Volumes associated with acquisitions represent weighted average daily amounts for the number of days we actually owned the assets over the total days in the period. Volumes are presented in this manner to allow for relevant comparisons to revenues generated and segment profit, and is necessary to accurately calculate statistics on a per barrel basis.

(4)
Capline volumes averaged approximately 160,000 barrels per day for March 2004, which is the period we owned the system. This calculates to approximately 54,000 barrels per day over the first quarter of 2004.

        Total average daily volumes transported were approximately 1,048,000 barrels per day and 818,000 barrels per day for the three months ended March 31, 2004 and 2003, respectively. The increase primarily relates to our tariff activities. As discussed above, we have completed a number of acquisitions during 2004

27



and 2003 that have impacted the results of operations herein.The following table reflects our total average daily volumes from our tariff activities by year of acquisition for comparison purposes:

 
  Three months ended
March 31,

 
  2004
  2003
 
  (thousands of barrels per day)

Tariff activities (1)        
  2004 acquisitions   90  
  2003 acquisitions   162   14
  All other pipeline systems   724   718
   
 
  Total tariff activities average daily volumes   976   732
   
 

(1)
Volumes associated with acquisitions represent weighted average daily amounts for the number of days we actually owned the assets over the total days in the period. Volumes are presented in this manner to allow for relevant comparisons to revenues generated and segment profit, and is necessary to accurately calculate statistics on a per barrel basis.

        Average daily volumes from our tariff activities increased 244,000 barrels per day to approximately 976,000 barrels per day, compared to approximately 732,000 barrels per day for the prior year quarter. Approximately 238,000 barrels per day of the increase in the current year quarter is due to volumes transported on the pipelines acquired in 2004 and 2003. Volumes on all other pipeline systems increased by approximately 6,000 barrels per day to approximately 724,000 barrels per day.

        Total revenues from our pipeline operations were approximately $189.3 million and $169.0 million for the three months ended March 31, 2004 and 2003, respectively. Strong tariff activities results, specifically the inclusion of revenues from pipelines acquired after the first quarter of 2003, accounted for $13.2 million of the increase. Additionally, our margin activities increased by approximately $7.1 million in the first quarter of 2004. This increase was related to higher average prices on activity on our San Joaquin Valley ("SJV") gathering system in the 2004 period as compared to the 2003 period. However, this business is a margin business and although revenues and cost of sales are impacted by the absolute level of crude oil prices, there is a limited impact on segment profit. Volumes transported on the SJV system have decreased from the 2003 period. This is primarily related to a normalizing of volumes transported in the first quarter of 2004 as the first quarter of 2003 included additional shipments that typically move on other pipelines. These volumes shifted to the SJV system because of maintenance on a refinery.

        Revenues from our tariff activities increased approximately 39% or $13.2 million. The following table reflects our revenues from our tariff activities by year of acquisition for comparison purposes:

 
  Three months
ended
March 31,

 
  2004
  2003
 
  (in millions)

Tariff activities revenues (1)            
  2004 acquisitions   $ 3.3   $
  2003 acquisitions     7.7     1.2
  All other pipeline systems     36.0     32.6
   
 
  Total tariff activities   $ 47.0   $ 33.8
   
 

(1)
Revenues include intersegment amounts.

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        The increase in the first quarter of 2004 is predominately related to the inclusion of $11.0 million of revenues from the businesses acquired in 2004 and 2003. Revenues from pipeline systems acquired in 2003 have increased to $7.7 million from $1.2 million. The increase is primarily the result of the inclusion in the first quarter of 2004 of several pipeline systems that were acquired after or during the first quarter of 2003. See "Acquisitions." Revenues from all other pipeline systems increased approximately $3.4 million to $36.0 million. This increase resulted principally from (i) a net increase of $1.7 million resulting from increased volumes on our Basin and Permian Basin Pipeline Systems partially offset by the loss of revenue from our Rancho Pipeline System, which ceased operations in March 2003 and (ii) increased revenues from our Canadian operations of $1.5 million resulting primarily from a decrease in the Canadian dollar to U.S. dollar exchange rate to an average rate of 1.32 to 1 for the three months ended March 31, 2004, from an average rate of 1.51 to 1 for the three months ended March 31, 2003. This increase excludes the impact of the recent acquisition of the South Sask Pipeline System, which is included in the 2004 acquisitions amount discussed above.

        As a result of these factors, our pipeline operations segment profit before segment G&A expenses increased $8.4 million or 34%, to approximately $33.2 million for the quarter ended March 31, 2004, from $24.8 million for the prior year period. This includes an increase in field operating expenses to $19.4 million in the 2004 period from $13.5 million in the 2003. This increase is predominately related to our continued growth, primarily from acquisitions, coupled with higher utility costs as well as $0.1 million related to the accrual made for the probable vesting of unit grants under our LTIP. In addition, segment profit before segment G&A includes a $0.7 million favorable impact resulting from the decrease in the average Canadian dollar to U.S. dollar exchange rate for the 2004 period as compared to the 2003 period.

        Segment general and administrative expenses increased approximately $3.1 million between comparable periods, primarily as a result of a $1.7 million accrual related to the probable vesting of unit grants under our LTIP. Additionally, the percentage of indirect costs allocated to the pipeline operations segment has continued to increase in the 2004 period as our pipeline operations have grown. Including the impact of the items discussed above, segment profit was approximately $25.5 million in the first quarter of 2004, an increase of 26% as compared to the $20.2 million reported for the quarter ended March 31, 2003. Segment profit includes a $0.6 million favorable impact resulting from the decrease in the average Canadian dollar to U.S. dollar exchange rate for the 2004 period as compared to the 2003 period.

Gathering, Marketing, Terminalling and Storage Operations

        Our revenues from gathering and marketing activities primarily reflect the sale of gathered and bulk-purchased crude oil and LPG volumes plus the sale of additional barrels exchanged through buy/sell arrangements entered into to supplement the margins of the gathered and bulk-purchased volumes. Because our profitability is a function of the difference between the revenues we receive for selling crude and LPG volumes and the cost of purchasing these volumes, increases or decreases in our revenues are not necessarily indicative of increases or decreases in our profitability. Prices we receive for selling our volumes and costs we incur in buying our volumes are affected by overall levels of supply and demand for crude oil and LPG and fluctuations in the market-related pricing indices. In order to evaluate the performance of this segment, management focuses on the following metrics: (i) segment profit before segment G&A, (ii) segment profit, (iii) crude oil lease gathered volumes and LPG sales volumes and (iv) segment profit per barrel calculated on these volumes.

        As of March 31, 2004, we owned and operated approximately 26.3 million barrels of above-ground crude oil terminalling and storage facilities, including a crude oil terminalling and storage facility at Cushing, Oklahoma. Cushing, which we refer to as the Cushing Interchange, is one of the largest crude oil market hubs in the United States and the designated delivery point for New York Mercantile Exchange, or NYMEX, crude oil futures contracts. Terminals are facilities where crude oil is transferred to or from storage or a transportation system, such as a pipeline, to another transportation system, such as trucks or another pipeline. The operation of these facilities is called "terminalling." Approximately 11.0 million

29



barrels of our 26.3 million barrels of tankage is used primarily in our Gathering, Marketing, Terminalling and Storage Operations and the balance is used in our Pipeline Operations segment. On a stand alone basis, segment profit before segment G&A from terminalling and storage activities is dependent on the throughput of volumes, the volume of crude oil stored and the level of fees generated from our terminalling and storage services. Our terminalling and storage activities are integrated with our gathering and marketing activities and the level of tankage that we allocate for our arbitrage activities (and therefore not available for lease to third parties) varies throughout crude oil price cycles. This integration enables us to use our storage tanks in an effort to counter-cyclically balance and hedge our gathering and marketing activities. In a contango market (oil prices for future deliveries are higher than for current deliveries), we use our tankage to improve our gathering margins by storing crude oil we have purchased at lower prices in the current month for delivery at higher prices in future months. In a backwardated market (when oil prices for future deliveries are lower than for current deliveries), we use and lease less storage capacity, but increased marketing margins (premiums for prompt delivery) provide an offset to this reduced cash flow. We believe that this combination of our terminalling and storage activities and gathering and marketing activities provides a counter-cyclical balance that has a stabilizing effect on our operations and cash flows.

        During the first quarter of 2004, market conditions were favorable as the market was in relatively strong backwardation and experienced periods of volatility. The NYMEX benchmark price of crude ranged from $38.50 to $32.20 during the quarter. In comparison, the market conditions in the first quarter of 2003 were exceedingly favorable as there was extreme volatility and steep backwardation throughout the quarter. During the first quarter of 2003, the NYMEX benchmark price of crude ranged from $39.99 to $26.30. The following table sets forth our operating results from our Gathering, Marketing, Terminalling and Storage Operations segment for the comparative periods indicated:

 
  Three months ended
March 31,

 
  2004
  2003
 
  (in millions, except for per barrel amounts)

Operating Results (1)            
  Revenues   $ 3,631.3   $ 3,123.1
  Purchases and related costs     3,572.9     3,070.7
  Field operating expenses (excluding LTIP charge)     18.5     19.6
  LTIP charge—field operating expenses     0.4    
   
 
  Segment profit before segment G&A expenses     39.5     32.8
  Segment G&A expenses (excluding LTIP charge) (2)     9.4     8.5
  LTIP charge—G&A     2.0    
   
 
  Segment profit   $ 28.1   $ 24.3
   
 
  Segment profit per barrel   $ 0.59   $ 0.55
   
 
  Noncash SFAS 133 impact (3)   $ 7.5   $ 0.9
   
 
  Maintenance capital   $ 0.3   $ 0.2
   
 

30


Average Daily Volumes (thousands of barrels per day except as otherwise noted) (4)            
Crude oil lease gathered     460     434
Crude oil bulk purchases     122     69
   
 
  Total     582     503
   
 
LPG sales (5)     59     54
   
 
Cushing Terminal throughput     223     175
   
 
Cushing terminal storage leased to third parties, monthly average volumes     1,477     1,154
   
 

(1)
Revenues and purchases and related costs include intersegment amounts.

(2)
General and administrative ("G&A") expenses reflect direct costs attributable to each segment and an allocation of other expenses to the segments based on the business activities that existed at that time. The proportional allocations by segment require judgment by management and will continue to be based on the business activities that exist during each period.

(3)
Amounts related to SFAS 133 are included in revenues and impact segment profit and segment profit before segment G&A expenses.

(4)
Volumes associated with acquisitions represent weighted averaged daily amounts for the number of days we actually owned the assets over the total days in the period. Volumes are presented in this manner to allow for relevant comparisons to revenues generated and segment profit, and is necessary to accurately calculate statistics on a per barrel basis.

(5)
Prior period volumes have been adjusted for consistency of comparison between years. Sales reflect only third party volumes.

        In addition to market conditions and our hedging activities, the primary drivers of the performance of our gathering, marketing, terminalling and storage operations segment are crude oil lease gathered volumes and LPG sales volumes. Crude oil bulk purchase volumes are not considered a driver as they are primarily used to enhance margins of lease gathered barrels. For the quarter ended March 31, 2004, we gathered from producers, using our assets or third-party assets, approximately 460,000 barrels of crude oil per day, an increase of 6% over similar activities in the first quarter of 2003. Also during the quarter, we marketed approximately 59,000 barrels per day of LPG, an increase of approximately 9% over the approximately 54,000 barrels per day marketed in the first quarter of 2003. Segment profit per barrel calculated on these volumes and including the items impacting comparability for the quarters ended March 31, 2004 and 2003, was $0.59 per barrel and $0.55 per barrel, respectively.

        Revenues from our gathering, marketing, terminalling and storage operations were approximately $3.6 billion and $3.1 billion for the quarters ended March 31, 2004 and 2003, respectively. Revenues and purchases for 2004 were impacted by higher average prices and higher crude oil lease gathering volumes in the 2004 period as compared to the 2003 period. The average NYMEX price for crude oil was $35.21 per barrel and $33.87 per barrel for the first quarter of 2004 and 2003, respectively.

        In both periods, we benefited from the backwardated market structure and volatility. In addition, our increased crude oil lease gathered volumes and LPG sales volumes in the 2004 period contributed to an increase in segment profit before segment G&A expenses. Also included in our results for both periods are

31



selected items that we believe impact the comparability between periods, resulting in an overall increase in segment profit before G&A expenses, and are as follows:

 
  Three months ended
March 31,

 
  2004
  2003
 
  (in millions)

Selected Items Impacting Comparability            
  LTIP charge—field operating expenses   $ (0.4 ) $
  Noncash SFAS 133 adjustment     7.5     0.9
   
 
  Total of selected items impacting segment profit before G&A expenses   $ 7.1   $ 0.9
LTIP charge—G&A     (2.0 )  
   
 
Total of selected items impacting segment profit   $ 5.1   $ 0.9
   
 

        Segment profit before segment G&A expenses increased approximately $6.7 million to $39.5 million in the first quarter of 2004. This increase was primarily related to the impact of the selected items impacting comparability included in the table above. Also, field operating expenses decreased to approximately $18.9 million in the current period from $19.6 million in the prior year period. This decrease is primarily related to lower expenses associated with maintenance projects in 2004 as compared to 2003, coupled with a shift in overhead costs to our pipeline operations segment as that part of our business grows. This decrease is partially offset by the inclusion of the $0.4 million LTIP charge in the 2004 period as shown above. In addition, segment profit before G&A for the first quarter of 2004 includes a net approximately $2.4 million favorable impact from the decrease in the Canadian dollar to U.S. dollar exchange rate in the 2004 period as compared to the 2003 period.

        Segment G&A expenses increased to $11.4 million in the current period from $8.5 million in the 2003 period. The increase is primarily related to the inclusion of the $2.0 million LTIP charge in the 2004 period, as shown above, but also includes approximately $0.4 million of an unfavorable impact from the decrease in the Canadian dollar to U.S. dollar exchange rate and increased costs resulting from our continued growth. The current quarter segment profit of $28.1 million includes $5.1 million related to the selected items impacting comparability listed above.

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Other Expenses

    Depreciation and Amortization

        Depreciation and amortization expense was $13.1 million for the three months ended March 31, 2004, compared to $10.9 million for the three months ended March 31, 2003. The increase relates primarily to the assets from our first quarter 2004 acquisition and our various 2003 acquisitions being included for the full quarter in 2004 versus only a part or none of the quarter in 2003. Additionally, several capital projects were completed during mid-to-late 2003 that were not included in first quarter 2003 depreciation expense. Amortization of debt issue costs was $0.5 million and $1.0 million in the first quarter of 2004 and 2003, respectively.

    Interest Expense

        The amount of interest expense we recognize is primarily impacted by our average debt balances, the level and maturity of fixed rate debt and interest rates associated therewith, market interest rates and our interest rate hedging activities on floating rate debt. During the first quarter of 2004, our average debt balance was approximately $599 million. This balance consisted of fixed rate senior notes with a face amount totaling $450 million and borrowings under our revolving credit facilities averaging $149 million. During the comparable 2003 period, our average debt balance was approximately $527 million and consisted of fixed rate senior notes with a face amount of $200 million and borrowings under our revolving credit facilities of $327 million. The higher average debt balance in the 2004 period was primarily related to the portion of our acquisitions, that were not refinanced with equity. Our financial growth strategy is to fund our acquisitions using a balance of debt and equity.

        During the fourth quarter of 2003, we refinanced our senior secured credit facilities with new senior unsecured credit facilities, issued $250 million of ten year senior unsecured notes and terminated interest rate hedging instruments with notional amounts totaling $150 million. The termination of these instruments was made in connection with the issuance of the ten year notes. The net result of the changes to our debt structure and our interest rate hedging instruments was an increase in the average amount of fixed rate debt outstanding in the first quarter of 2004 to approximately 75% as compared to approximately 57% in the first quarter of 2003. The new senior unsecured credit facilities reduced the interest rate on our credit facilities by approximately 100 basis points compared to the senior secured facility. In addition, during these two periods the average three-month LIBOR rate declined to 1.1% in 2004 from 1.3% in 2003.

        The net impact of the items discussed above was an increase in interest expense in the first quarter of 2004 of approximately $0.3 million to $9.5 million. The higher average debt in the 2004 period resulted in additional interest expense of approximately $1.1 million, while at the same time our commitment and other fees decreased by approximately $0.8 million. Our weighted average interest rate, excluding commitment and other fees, was approximately 6.1% during both periods.

Outlook

        This "Outlook" section and the section captioned "Forward Looking Statements and Associated Risks" identify certain matters of risk and uncertainty that may affect our financial performance and results of operations in the future.

        Ongoing Acquisition Activities.     Consistent with our business strategy, we are continuously engaged in discussions with potential sellers regarding the possible purchase by us of midstream crude oil assets. These acquisition efforts often involve assets which, if acquired, would have a material effect on our financial condition and results of operations. We can give no assurance that our current or future acquisition efforts will be successful or that any such acquisition will be completed on terms considered favorable to us.

33



        Link Energy LLC Acquisition.     On April 1, 2004, we completed the acquisition of the North American crude oil and pipeline operations of Link Energy LLC (the "Link acquisition") for approximately $330 million, including $273 million of cash, the assumption of $49 million of liabilities and $8 million of transaction, closing and integration costs and other items. The completion and integration of this acquisition will impact our operating results beginning in the second quarter of 2004. We anticipate that the assets acquired in the acquisition will generate a baseline cash flow from operations of approximately $6.25 million per quarter or approximately $25.0 million annually. In addition, we believe that we will realize annual cost savings and synergies of approximately $20.0 million to $30.0 million that are expected to be phased in over an 18 month period as the business is fully integrated. However, we also anticipate certain one-time expense items in the initial six to nine month period as a result of integration costs, as well as, costs associated with regulatory requirements as we perform activities to bring the assets up to our operating standards and to comply with regulatory requirements. These costs will have a negative impact in the short-term on our baseline projection for the acquisition.

Liquidity and Capital Resources

    Liquidity

        Cash generated from operations and our credit facilities are our primary sources of liquidity. At March 31, 2004, we had a working capital deficit of approximately $72.5 million, approximately $433.5 million of availability under our committed revolving credit facilities and $200.0 million of unused capacity under our uncommitted hedged inventory facility. Usage of the credit facilities is subject to compliance with covenants. We believe we are currently in compliance with all covenants.

        As discussed above, we closed the Link acquisition on April 1, 2004. The acquisition was funded with cash on hand, borrowings under a new $200 million, 364-day credit facility and borrowings under our existing revolving credit facilities. The new credit facility contains a twelve-month term out option, exercisable at our election, at the end of the primary term and bears interest at a rate of LIBOR plus a margin ranging from .625% to 1.25%, depending on our credit rating. On April 15, we completed the private placement of 3,245,700 units of Class C Common Units for $30.81 per unit to a group of institutional investors. Total proceeds from the transaction, after deducting transaction costs and including the general partner's proportionate contribution, was approximately $101 million, and was used to reduce the balance outstanding under our existing revolving credit facilities. The Partnership has committed to use net proceeds from future debt and equity offerings to retire or reduce the amount outstanding under the new $200 million 364-day credit facility. Subsequent to these activities, on April 30, 2004, we had outstanding long-term debt of approximately $876.1 million, approximately $441.7 million of availability under our committed revolving credit facilities and $149.9 million of unused capacity under our uncommitted hedged inventory facility.

    Capital Requirements

        We have made and will continue to make capital expenditures for acquisitions, expansion capital and maintenance capital. Historically, we have financed these expenditures primarily with cash generated by operations, credit facility borrowings, the issuance of senior unsecured notes and the sale of additional common units.

        We expect to spend approximately $103.2 million on expansion capital projects during 2004. This includes our original estimate of expansion capital, newly announced projects and expansion capital

34



associated with the Link acquisition. Our 2004 expansion capital projects include the following notable projects with the estimated cost for the entire year.

Project

  $(000's)
Cushing to Caney Pipeline Project   $ 33.4
Cushing Phase IV Expansion     10.0
Capital projects and upgrades associated with the Link acquisition     17.3
Upgrade and expansion related to acquisitions made in 2003     22.5
Iatan System Expansion     6.0
Other     14.0
   
    $ 103.2
   

        In addition, we expect to spend approximately $16.8 million on maintenance capital projects during 2004. As of March 31, 2004, we have incurred approximately $13.5 million related to expansion capital projects and approximately $1.7 million on maintenance capital projects.

        We will also have additional cash funding requirements related to the Link acquisition. The aggregate estimated purchase price for the Link acquisition is approximately $330.0 million, of which approximately $273 million was funded at closing. The $57 million balance is comprised of transaction costs and liabilities assumed, including an approximate $20.0 million working capital deficit. Because of the nature of the business and the lag time over a normal monthly cycle between the incurrence of costs, the payment of payables and the collection of receivables, we anticipate that we will continue to operate these assets at a working capital deficit. We expect that approximately $31.0 million of the total remaining balance will be funded within one year of closing.

        We believe that we have sufficient liquid assets, cash flow from operations and borrowing capacity under our credit agreements to meet our financial commitments, debt service obligations, contingencies and anticipated capital expenditures. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce a corollary adverse effect on our borrowing capacity.

Cash Flows

 
  Three Months Ended
March 31,

 
 
  2004
  2003
 
 
  (in millions)

 
Cash provided by (used in):              
  Operating activities   $ 133.0   $ 91.4  
  Investing activities     (155.9 )   (58.9 )
  Financing activities     21.1     (30.9 )

        Operating Activities.     Cash provided by operating activities is generally impacted by net income, as adjusted for noncash items, purchases or sales of linefill and changes in components of working capital. Net cash provided by operating activity in the first quarter of 2004 was approximately $133.0 million, which is an increase of $41.6 million from the comparable 2003 period. The increase was related to (i) an increase in net income of approximately $6.6 million in the first quarter of 2004, (ii) a decrease in the amount of cash paid for pipeline linefill in the first quarter of 2004 compared to the $13.7 million cash outflow for pipeline linefill in the first quarter of 2003 and (iii) a net $21.0 million increase resulting from changes in the components of working capital. The changes in components of working capital were positively

35



impacted in the first quarter of 2004 as prior year sales of inventory that was stored because of contango market conditions were collected in the period.

        Investing Activities.     Net cash used in investing activities in 2004 and 2003 consisted predominantly of cash paid for acquisitions. Net cash used in 2004 was $155.9 million and was primarily comprised of (i) $142.3 million paid for the Capline and Capwood Pipeline Systems acquisition (a deposit had been paid in December 2003) and (ii) $13.3 million paid for additions to property and equipment, including approximately $3.4 million related to the Cushing Phase IV expansion. Net cash used in 2003 of approximately $58.9 million was primarily comprised of (i) $43.4 for the Red River and Iatan acquisitions and (ii) $15.1 million for construction of crude oil gathering and transmission lines in West Texas, the completion of the Cushing phase III expansion and other capital projects.

        Financing Activities.     Cash provided by financing activities in 2004 was approximately $21.1 million and was comprised of (i) net short and long-term borrowings under our revolving credit facility of approximately $157.5 million used primarily to fund the purchase price of the Capline acquisition, (ii) net repayments under our short-term letter of credit and hedged inventory facility of approximately $101.4 million resulting from the collection of receivables related to prior year sales of inventory that was stored because of contango market conditions and (iii) $35.2 million of distributions paid to common unitholders and the general partner. Cash used in financing activities in 2003 consisted primarily of $63.9 million of proceeds from the issuance of common units used to pay down outstanding balances on the revolving credit facility. In addition, $28.2 million of distributions were paid to unitholders and the general partner.

    Universal Shelf

        We have filed with the Securities and Exchange Commission a universal shelf registration statement that, subject to effectiveness at the time of use, allows us to issue from time to time up to an aggregate of $700 million of debt or equity securities. At March 31, 2004, we have approximately $165 million remaining under this registration statement.

    Contingencies

        Export License Matter.     In our gathering and marketing activities, we import and export crude oil from and to Canada. Exports of crude oil are subject to the short supply controls of the Export Administration Regulations ("EAR") and must be licensed by the Bureau of Industry and Security (the "BIS") of the U.S. Department of Commerce. In 2002, we determined that we may have exceeded the quantity of crude oil exports authorized by previous licenses. Export of crude oil in excess of the authorized amounts is a violation of the EAR. On October 18, 2002, we submitted to the BIS an initial notification of voluntary disclosure. The BIS subsequently informed us that we could continue to export while previous exports were under review. We applied for and received a new license allowing for exports of volumes more than adequately reflecting our anticipated needs. We also conducted reviews of new and existing contracts and implemented new procedures and practices in order to monitor compliance with applicable laws regarding the export of crude oil to Canada. As a result, we subsequently submitted additional information to the BIS in October 2003 and May 2004 and intend to supplement that data to the extent applicable. At this time, we have received no indication whether the BIS intends to charge us with a violation of the EAR or, if so, what penalties would be assessed. As a result, we cannot estimate the ultimate impact of this matter.

        Litigation.     We, in the ordinary course of business, are a claimant and/or a defendant in various legal proceedings. We do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows.

36



        Other.     A pipeline, terminal or other facility may experience damage as a result of an accident or natural disaster. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations. We maintain insurance of various types that we consider adequate to cover our operations and properties. The insurance covers our assets in amounts considered reasonable. The insurance policies are subject to deductibles that we consider reasonable and not excessive. Our insurance does not cover every potential risk associated with operating pipelines, terminals and other facilities, including the potential loss of significant revenues. The trend appears to be a contraction in the breadth and depth of available coverage, while costs, deductibles and retention levels have increased. Absent a material favorable change in the insurance markets, this trend is expected to continue as we continue to grow and expand. As a result, we anticipate that we will elect to self-insure more of our activities.

        The occurrence of a significant event not fully insured or indemnified against, or the failure of a party to meet its indemnification obligations, could materially and adversely affect our operations and financial condition. We believe that we are adequately insured for public liability and property damage to others with respect to our operations. With respect to all of our coverage, no assurance can be given that we will be able to maintain adequate insurance in the future at rates we consider reasonable.

        We may experience future releases of crude oil into the environment from our pipeline and storage operations, or discover past releases that were previously unidentified. Although we maintain an inspection program designed to prevent and, as applicable, to detect and address such releases promptly, damages and liabilities incurred due to any such environmental releases from our assets may substantially affect our business.

Forward-Looking Statements and Associated Risks

        All statements, other than statements of historical fact, included in this report are forward-looking statements, including, but not limited to, statements identified by the words "anticipate," "believe," "estimate," "expect," "plan," "intend" and "forecast," and similar expressions and statements regarding our business strategy, plans and objectives for future operations. These statements reflect our current views with respect to future events, based on what we believe are reasonable assumptions. Certain factors could cause actual results to differ materially from results anticipated in the forward-looking statements. These factors include, but are not limited to:

    abrupt or severe production declines or production interruptions in outer continental shelf production located offshore California and transported on the All American Pipeline;

    declines in volumes shipped on the Basin Pipeline and our other pipelines by third party shippers;

    the availability of adequate third party production volumes in the areas in which we operate;

    demand for various grades of crude oil and resulting changes in pricing conditions or transmission throughput requirements;

    fluctuations in refinery capacity in areas supplied by our transmission lines;

    the effects of competition;

    the success of our risk management activities;

    the impact of crude oil price fluctuations;

    the availability (or lack thereof) of acquisition or combination opportunities;

    successful integration and future performance of acquired assets;

    continued creditworthiness of, and performance by, our counterparties;

37


    conversion (or non-conversion) of our subordinated units into common units;

    completion of the refinancing of our credit facilities;

    our levels of indebtedness and our ability to receive credit on satisfactory terms;

    maintenance of our credit rating and ability to receive open credit from our suppliers;

    successful third-party drilling efforts in areas in which we operate pipelines or gather crude oil;

    shortages or cost increases of power supplies, materials or labor;

    weather interference with business operations or project construction;

    the impact of current and future laws and governmental regulations;

    the currency exchange rate of the Canadian dollar;

    environmental liabilities that are not covered by an indemnity or insurance;

    fluctuations in the debt and equity markets, including the price of our units at the time of vesting under our LTIP; and

    general economic, market or business conditions.

        Other factors, such as the "Risk Factors Related to our Business" and the Recent Disruption in Industry Credit Markets discussed in Item 7 of our most recent annual report on Form 10-K or factors that are unknown or unpredictable, could also have a material adverse effect on future results. Except as required by applicable securities laws, we do not intend to update these forward-looking statements and information.


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

        The following should be read in conjunction with Quantitative and Qualitative Disclosures About Market Risks included in Item 7A. in our 2003 Form 10-K. There have not been any material changes in that information other than those discussed below.

        As of March 31, 2004 and December 31, 2003 the fair value of our crude oil futures contracts was approximately $1.9 million and $7.5 million respectively. A 10% price decrease would result in a decrease in fair value of $16.4 million and $6.4 million at March 31, 2004 and December 31, 2003, respectively.


Item 4. CONTROLS AND PROCEDURES

        We maintain written "disclosure controls and procedures," which we refer to as our "DCP." The purpose of our DCP is to provide reasonable assurance that (i) information is recorded, processed, summarized and reported in time to allow for timely disclosure of such information in accordance with the securities laws and SEC regulations and (ii) information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.

        Applicable SEC rules require our management to evaluate, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our DCP as of March 31, 2004. Management (including our Chief Executive Officer and Chief Financial Officer) has evaluated the effectiveness of the design and operation of our DCP as of March 31, 2004, and has found our DCP to be effective in providing reasonable assurance of the timely recording, processing, summarization and reporting of information, and in accumulation and communication of information to management to allow for timely decisions with regard to required disclosure.

38



        In addition to the information concerning our DCP, we are required to disclose certain changes in our internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the first quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

        The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act rules 13a-14(a) and 15d-14(a) are filed with this report as exhibits 31.1 and 31.2. The certifications of our Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350 are furnished with this report as exhibits 32.1 and 32.2.


PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

        Export License Matter.     In our gathering and marketing activities, we import and export crude oil from and to Canada. Exports of crude oil are subject to the short supply controls of the Export Administration Regulations ("EAR") and must be licensed by the Bureau of Industry and Security (the "BIS") of the U.S. Department of Commerce. In 2002, we determined that we may have exceeded the quantity of crude oil exports authorized by previous licenses. Export of crude oil in excess of the authorized amounts is a violation of the EAR. On October 18, 2002, we submitted to the BIS an initial notification of voluntary disclosure. The BIS subsequently informed us that we could continue to export while previous exports were under review. We applied for and received a new license allowing for exports of volumes more than adequately reflecting our anticipated needs. We also conducted reviews of new and existing contracts and implemented new procedures and practices in order to monitor compliance with applicable laws regarding the export of crude oil to Canada. As a result, we subsequently submitted additional information to the BIS in October 2003 and May 2004 and intend to supplement that data to the extent applicable. At this time, we have received no indication whether the BIS intends to charge us with a violation of the EAR or, if so, what penalties would be assessed. As a result, we cannot estimate the ultimate impact of this matter.

        Alfons Sperber v. Plains Resources Inc., et. al.     On December 18, 2003, a putative class action lawsuit was filed in the Delaware Chancery Court, New Castle County, entitled Alfons Sperber v. Plains Resources Inc., et al. This suit, brought on behalf of a putative class of Plains All American Pipeline, L.P. common unit holders, asserts breach of fiduciary duty and breach of contract claims against the Partnership, Plains AAP, L.P., and Plains All American GP LLC and its directors, as well as breach of fiduciary duty claims against Plains Resources Inc. and its directors. The complaint seeks to enjoin or rescind a proposed acquisition of all of the outstanding stock of Plains Resources Inc., as well as declaratory relief, an accounting, disgorgement and the imposition of a constructive trust, and an award of damages, fees, expenses and costs, among other things. The Partnership intends to vigorously defend this lawsuit.

        We, in the ordinary course of business, are a claimant and/or a defendant in various legal proceedings. We do not believe that the outcome of these legal proceedings, individually or in the aggregate, will have a materially adverse effect on our financial condition, results of operations or cash flows.


Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        None


Item 3. DEFAULTS UPON SENIOR SECURITIES

        None


Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None

39




Item 5. OTHER INFORMATION

        None


Item 6. EXHIBITS AND REPORTS ON FORM 8-K

        A. Exhibits

  *3.1   Amendment No. 1, dated as of April 15, 2004 to Third Amended and Restated Agreement of Limited Partnership of Plains All American Pipeline, L.P., dated as of June 27, 2001

 

*3.2

 

Third Amended and Restated Agreement of Limited Partnership of Plains Marketing, L.P. dated as of April 1, 2004

 

*3.3

 

Third Amended and Restated Agreement of Limited Partnership of Plains Pipeline, L.P. dated as of April 1, 2004

 

*4.1

 

Registration Rights Agreement by and among Plains All American Pipeline, L.P., Kayne Anderson Energy Fund II, L.P., KAFU Holdings, L.P., Kayne Anderson Capital Income partners (QP), L.P., Kayne Anderson MLP Fund, L.P., Tortoise Energy Infrastructure Corporation, and Vulcan Energy II Inc., dated April 15, 2004

 

*4.2

 

Class C Common Unit Purchase Agreement by and among Plains All American Pipeline, L.P., Kayne Anderson Energy Fund II, L.P., KAFU Holdings, L.P., Kayne Anderson Capital Income partners (QP), L.P., Kayne Anderson MLP Fund, L.P., Tortoise Energy Infrastructure Corporation, and Vulcan Energy II Inc., dated March 31, 2004

 

*10.1

 

Interim 364-Day Credit Facility dated April 1, 2004 among Plains All American Pipeline, L.P. and Bank One, N.A. and certain other lenders

 

31.1

 

Certification of Principal Executive Officer pursuant to Exchange Act rules 13a-14(a) and 15d-14(a)

 

31.2

 

Certification of Principal Financial Officer pursuant to Exchange Act rules 13a-14(a) and 15d-14(a)

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350

*
Filed herewith

        B. Reports on Form 8-K.

        A Current Report on Form 8-K was furnished on April 28, 2004, in connection with disclosure of second quarter and second half of 2004 estimates and earnings guidance.

        A Current Report on Form 8-K was filed on April 27, 2004, with an audited balance sheet of Plains AAP, L.P., as of December 31, 2003, attached as an exhibit.

        A Current Report on Form 8-K was furnished on April 16, 2004, in connection with disclosure of our presentation to the IPAA Oil & Gas Investment Symposium.

        A Current Report on Form 8-K was filed on April 15, 2004, in connection with disclosure of our acquisition of substantially all of the operations of Link Energy LLC. The related Purchase and Sale Agreement and Plan of Merger were attached as exhibits.

40



        A Current Report on Form 8-K was filed on April 7, 2004, in connection with disclosure of the investigation of our acquisition of Link Energy by the Texas Attorney General's office.

        A Current Report on Form 8-K was filed on March 17, 2004, in connection with the acquisition of interests in entities from Shell Pipeline Company LP.

        A Current Report on Form 8-K was furnished on March 1, 2004, in connection with disclosure of our presentation to the Master Limited Partnership Investor Conference.

        A Current Report on Form 8-K was furnished on February 24, 2004, in connection with disclosure of first quarter estimates and earnings guidance.

        A Current Report on Form 8-K was filed on January 15, 2004 with an unaudited balance sheet of Plains AAP, L.P., as of September 30, 2003, attached as an exhibit.

41




SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and thereunto duly authorized.

    PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

 

PLAINS AAP, L.P., its general partner

 

 

By:

 

PLAINS ALL AMERICAN GP LLC,
its general partner

Date: May 7, 2004

 

By:

 

/s/  
GREG L. ARMSTRONG       
Greg L. Armstrong, Chairman of the Board, Chief Executive Officer and Director of Plains All American GP LLC
(Principal Executive Officer)

Date: May 7, 2004

 

By:

 

/s/  
PHIL KRAMER       
Phil Kramer, Executive Vice President and Chief Financial Officer of Plains All American GP LLC
(Principal Financial and Officer)

42




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EXHIBIT 3.1


AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
PLAINS ALL AMERICAN PIPELINE, L.P.

        THIS AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS ALL AMERICAN PIPELINE, L.P. (this "Amendment"), dated as of April 15, 2004, is entered into and effectuated by Plains AAP, L.P., a Delaware limited partnership, as the General Partner, pursuant to authority granted to it in Section 5.6 of the Third Amended and Restated Agreement of Limited Partnership of Plains All American Pipeline, L.P., dated as of June 27, 2001, as amended (the "Partnership Agreement"). Capitalized terms used but not defined herein are used as defined in the Partnership Agreement.

        WHEREAS, Section 5.6 of the Partnership Agreement provides that the General Partner, without the approval of any Limited Partners, may issue additional Partnership Securities, or classes or series thereof, for any Partnership purpose at any time and from time to time, and may issue such Partnership Securities to such Persons, for such consideration and on such terms and conditions as shall be established by the General Partner in its sole discretion; and

        WHEREAS, Section 13.1 of the Partnership Agreement provides that the General Partner, without the approval of any Partner (subject to the provisions of Section 5.7 of the Partnership Agreement), may amend any provision of the Partnership Agreement necessary or advisable in connection with the authorization of issuance of any class or series of Partnership Securities pursuant to Section 5.6 of the Partnership Agreement; and

        WHEREAS, the General Partner deems it in the best interest of the Partnership to effect this Amendment in order to provide for the issuance of the Class C Common Units to each of Kayne Anderson Energy Fund II, L.P., KAFU Holdings, L.P., Kayne Anderson Capital Income Partners (QP), L.P., Kayne Anderson MLP Fund, L.P., Tortoise Energy Infrastructure Corporation and Vulcan Energy II Inc. (the "Purchasers") pursuant to that certain Class C Common Unit Purchase Agreement, dated March 31, 2004, among the Partnership and each of the Purchasers;

        NOW, THEREFORE, the Partnership Agreement is hereby amended as follows:

1.
Section 4.4(a) is hereby amended and replaced in its entirety as follows:

        (a)   The term " transfer ," when used in this Agreement with respect to a Partnership Interest, shall be deemed to refer to a transaction (i) by which the General Partner assigns its General Partner Interest to another Person who becomes the General Partner, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise or (ii) by which the holder of a Limited Partner Interest assigns such Limited Partner Interest to another Person who is or becomes a Limited Partner or an Assignee, and includes a sale, assignment, gift, exchange or any other disposition by law or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.

2.
Article V is hereby amended to add a new Section 5.13 creating a new series of Units as follows:

        (a)   There is hereby created a series of Units to be designated as "Class C Common Units," consisting of Class C Common Units and having the following terms and conditions:


        (b)   [Intentionally Omitted]

        (c)   At any time after six months from the date on which any Class C Common Units are issued, upon written notice to the General Partner, any holder of Class C Common Units will have the right to require the Partnership to use its reasonable best efforts to submit to a vote or consent of the holders of Partnership Securities the approval of a change in the terms of the Class C Common Units to provide that each Class C Common Unit is convertible into one Common Unit at the option of the holder of such Class C Common Unit, such conversion option to be exercisable by any holder of Class C Common Units in whole or in part at any time and from time to time; provided , however , that at any time after six months from the date on which any Class C Common Units are issued, written notice given pursuant to Section 5.12(c) shall also constitute written notice under this Section 5.13(c). The vote or consent required for such change will be the requisite vote required, under New York Stock Exchange rules or New York Stock Exchange staff interpretations of such rules, for listing of the Common Units that would be issued upon any such conversion. Upon receipt of the required vote or consent, the terms of the Class C Common Units will be changed so that they become convertible as described above.

        (d)   Before any holder of Class C Common Units shall be entitled to convert such holder's Class C Common Units into Common Units, he shall surrender the Class C Common Unit Certificates therefor, duly endorsed, at the office of the General Partner or of any transfer agent for the Class C

2



Common units. In the case of any such conversion, the Partnership shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Class C Common Units one or more Common Unit Certificates, registered in the name of such holder, for the number of Common Units to which he shall be entitled as aforesaid. Such conversion shall be deemed to have been made as of the date of the surrender of the Class C Common Units to be converted, and the person entitled to receive the Common Units issuable upon such conversion shall be treated for all purposes as the record holder of such Common Units on said date.

        (e)   If at any time the rules of the New York Stock Exchange or the New York Stock Exchange staff interpretations of such rules are changed so that no vote or consent of holders of Partnership Securities is required as a condition to the listing of the Common Units that would be issued upon such conversion, the terms of the Class C Common Units will be changed so that each Class C Common Unit is convertible (without any vote of any securityholders of the Partnership) into one Common Unit at the option of the holder thereof, such conversion option to be exercisable by any holder of Class C Common Units in whole or in part at any time and from time to time.

        (f)    In the event that (i) any holder of Class C Common Units requires the Partnership to submit to a vote or consent of its holders of Partnership Securities the approval of a change in the terms of the Class C Common Units to provide that they are convertible as provided in Section 5.13(c) above, and (ii) the holders of Partnership Securities do not approve such change by the requisite vote within 120 days after the notice given pursuant to Section 5.13(c), then the terms of the Class C Common Units will be changed so that each Class C Common Unit will become entitled to receive quarterly cash distributions in an amount equal to 110% of the quarterly cash distribution amount payable with respect to each Common Unit; provided, further, that if the holders of Partnership Securities do not approve such change by the requisite vote within 210 days after the notice given pursuant to Section 5.13(c), each Class C Common Unit will become entitled to receive quarterly cash distributions equal to 115% of the quarterly cash distribution payable with respect to each Common Unit. Notwithstanding the foregoing, in no such case shall any holder of Class C Common Units have the right to convert its Class C Common Units unless such holder and its affiliates voted their Partnership Securities for approval of the change requested in Section 5.13(c) (if and to the extent that such Partnership Securities were entitled to be voted).

3


        IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.

    PLAINS AAP, L.P.

 

 

By:

PLAINS ALL AMERICAN GP LLC,
its General Partner

 

 

By:

/s/ Tim Moore
       
      Name: Tim Moore
      Title: Vice President

4




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AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS ALL AMERICAN PIPELINE, L.P.

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Exhibit 3.2


THIRD AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

PLAINS MARKETING, L.P.



TABLE OF CONTENTS


ARTICLE I
DEFINITIONS

Section 1.1 Definitions   1
Section 1.2 Construction   9

ARTICLE II
ORGANIZATION

Section 2.1

Formation

 

10
Section 2.2 Name   10
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices   10
Section 2.4 Purpose and Business   10
Section 2.5 Powers   11
Section 2.6 Power of Attorney   11
Section 2.7 Term   12
Section 2.8 Title to Partnership Assets   12

ARTICLE III
RIGHTS OF LIMITED PARTNERS

Section 3.1

Limitation of Liability

 

12
Section 3.2 Management of Business   13
Section 3.3 Outside Activities of the Limited Partners   13
Section 3.4 Rights of Limited Partners   13

ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS

Section 4.1

Transfer Generally

 

14
Section 4.2 Transfer of General Partner's Partnership Interest   14
Section 4.3 Transfer of a Limited Partner's Partnership Interest   14
Section 4.4 Restrictions on Transfers   15

ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

Section 5.1

Initial Contributions

 

15
Section 5.2 Contributions Pursuant to the Contribution and Conveyance Agreement   15
Section 5.3 Additional Capital Contributions   16
Section 5.4 Interest and Withdrawal   16
Section 5.5 Capital Accounts   16
Section 5.6 Loans from Partners   18
Section 5.7 Limited Preemptive Rights   18
Section 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests   18
       

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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

Section 6.1

Allocations for Capital Account Purposes

 

19
Section 6.2 Allocations for Tax Purposes   22
Section 6.3 Distributions   23

ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1

Management

 

24
Section 7.2 Certificate of Limited Partnership   25
Section 7.3 Restrictions on General Partner's Authority   25
Section 7.4 Reimbursement of the General Partner   26
Section 7.5 Outside Activities   26
Section 7.6 Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner   27
Section 7.7 Indemnification   29
Section 7.8 Liability of Indemnitees   30
Section 7.9 Resolution of Conflicts of Interest   30
Section 7.10 Other Matters Concerning the General Partner   32
Section 7.11 Reliance by Third Parties   32

ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1

Records and Accounting

 

33
Section 8.2 Fiscal Year   33

ARTICLE IX
TAX MATTERS

Section 9.1

Tax Returns and Information

 

33
Section 9.2 Tax Elections   33
Section 9.3 Tax Controversies   33
Section 9.4 Withholding   34

ARTICLE X
ADMISSION OF PARTNERS

Section 10.1

Admission of Partners

 

34
Section 10.2 Admission of Substituted Limited Partner   34
Section 10.3 Admission of Additional Limited Partners   34
Section 10.4 Admission of Successor or Transferee General Partner   35
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership   35
       

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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS

Section 11.1

Withdrawal of the General Partner

 

35
Section 11.2 Removal of the General Partner   36
Section 11.3 Interest of Departing Partner   36
Section 11.4 Withdrawal of a Limited Partner   37

ARTICLE XII
DISSOLUTION AND LIQUIDATION

Section 12.1

Dissolution

 

37
Section 12.2 Continuation of the Business of the Partnership After Dissolution   37
Section 12.3 Liquidator   38
Section 12.4 Liquidation   39
Section 12.5 Cancellation of Certificate of Limited Partnership   39
Section 12.6 Return of Contributions   39
Section 12.7 Waiver of Partition   39
Section 12.8 Capital Account Restoration   39

ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT

Section 13.1

Amendment to be Adopted Solely by the General Partner

 

40
Section 13.2 Amendment Procedures   41

ARTICLE XIV
MERGER

Section 14.1

Authority

 

41
Section 14.2 Procedure for Merger or Consolidation   41
Section 14.3 Approval by Limited Partners of Merger or Consolidation   42
Section 14.4 Certificate of Merger   42
Section 14.5 Effect of Merger   42
Section 14.6 Link Energy Transaction   43

ARTICLE XV
GENERAL PROVISIONS

Section 15.1

Addresses and Notices

 

43
Section 15.2 Further Action   43
Section 15.3 Binding Effect   43
Section 15.4 Integration   43
Section 15.5 Creditors   43
Section 15.6 Waiver   44
Section 15.7 Counterparts   44
Section 15.8 Applicable Law   44
Section 15.9 Invalidity of Provisions   44
Section 15.10 Consent of Partners   44
Section 15.11 Amendments to Reflect GP Restructuring Agreement   44

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THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS MARKETING, L.P.

        THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of PLAINS MARKETING, L.P., dated as of April 1, 2004 is entered into by and between Plains Marketing GP Inc., a Delaware corporation, as the General Partner, and Plains All American Pipeline, L.P., a Delaware limited partnership, as the Limited Partner, together with any other Persons who hereafter become Partners in the Partnership or parties hereto as provided herein. In consideration of the covenants, conditions and agreements contained herein, the parties hereto hereby agree as follows:

         WHEREAS , Plains All American Inc. and the other parties thereto entered into that certain Amended and Restated Agreement of Limited Partnership of Plains Marketing, L.P. dated as of November 23, 1998 (the "1998 Agreement"); and

         WHEREAS , Plains All American Inc. effected Amendment No. 1 to the 1998 Agreement on April 27, 2001 to include certain tax provisions appropriate to reflect acquisition of operations in Canada; and

         WHEREAS , Plains All American Inc. and the other parties thereto entered into that certain Contribution, Assignment and Amendment Agreement (the "GP Transfer Agreement"), dated as of June 8, 2001, pursuant to which Plains All American Inc. transferred its General Partner Interest to Plains AAP, L.P. (consistent with the definition contained herein, each of Plains All American Inc. and Plains AAP, L.P. may be referred to in this Agreement as the "Predecessor General Partner"); and

         WHEREAS , the Partnership, the Predecessor General Partner and the other parties thereto entered into that certain Contribution Assignment and Amendment Agreement (the "GP Restructuring Agreement"), dated as of June 27, 2001, pursuant to which the Predecessor General Partner transferred its General Partner Interest to the General Partner; and

         WHEREAS , the General Partner, consistent with the authority granted to it in the GP Restructuring Agreement, effected Amendment No. 2 to the 1998 Agreement as of June 27, 2001 to more fully reflect the transactions contemplated by the GP Restructuring Agreement; and

         WHEREAS , the General Partner and the Limited Partner amended and restated the 1998 Agreement as of June 27, 2001 (the "2001 Agreement") in its entirety to reflect the prior amendments adopted by each of the Predecessor General Partners and the General Partner, and to reflect the transactions contemplated by the GP Restructuring Agreement; and

         WHEREAS, the General Partner and the Limited Partner amended the 2001 Agreement as of March 31, 2004 to reflect (i) the conversion of the Partnership from a Delaware limited partnership to a Texas limited partnership and (ii) the approval of the General Partner and the Limited Partner with regard to the Partnership engaging in the Plan of Merger (as defined herein) and executing and performing its obligations under the Plan or Merger; and

         WHEREAS , the General Partner deems it in the best interest of the Partnership to amend and restate the 2001 Agreement in its entirety to reflect the amendments adopted by the General Partner since the execution of the 2001 Agreement.


ARTICLE I
DEFINITIONS

        Section 1.1     Definitions.     

        The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. Capitalized terms used herein but not otherwise defined shall have the meaning assigned to such term in the MLP Agreement.

1



2


3


4


5


6


7


8


        Section 1.2     Construction.     

        Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; and (c) the term "include" or "includes" means includes, without limitation, and "including" means including, without limitation.

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ARTICLE II
ORGANIZATION

        Section 2.1     Formation.     

        The Partnership was previously formed on November 10, 1998 as a limited partnership pursuant to the provisions of the Delaware Act. On April 1, 2004, the Partnership was converted to a Texas limited partnership pursuant to the provisions of the Delaware Act and the Texas Act. The Certificate of Limited Partnership of the Partnership was filed on March 31, 2004 with the Secretary of State of the State of Texas in accordance with the Texas Act and became effective on April 1, 2004. This amendment and restatement shall become effective on the date of this Agreement. Except as expressly provided to the contrary in this Agreement, the rights, duties (including fiduciary duties), liabilities and obligations of the Partners and the administration, dissolution and termination of the Partnership shall be governed by the Texas Act. All Partnership Interests shall constitute personal property of the owner thereof for all purposes and a Partner has no interest in specific Partnership property.

        Section 2.2     Name.     

        The name of the Partnership shall be " Plains Marketing, L.P ." The Partnership's business may be conducted under any other name or names deemed necessary or appropriate by the General Partner in its sole discretion, including the name of the General Partner. The words "Limited Partnership," "L.P." or "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purpose of complying with the laws of any jurisdiction that so requires. The General Partner in its discretion may change the name of the Partnership at any time and from time to time and shall notify the other Partner(s) of such change in the next regular communication to the Partners.

        Section 2.3     Registered Office; Registered Agent; Principal Office; Other Offices.     

        Unless and until changed by the General Partner, the registered office of the Partnership in the State of Texas shall be located at 1021 Main Street, Suite 1150, Houston, Texas 77002, and the registered agent for service of process on the Partnership in the State of Texas at such registered office shall be the CT Corporation System. The principal office of the Partnership shall be located at 333 Clay Street, Suite 1600, Houston, Texas 77002 or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Texas as the General Partner deems necessary or appropriate. The address of the General Partner shall be 333 Clay Street, Suite 1600, Houston, Texas 77002 or such other place as the General Partner may from time to time designate by notice to the Limited Partners.

        Section 2.4     Purpose and Business.     

        The purpose and nature of the business to be conducted by the Partnership shall be to (a) acquire, manage, operate and sell the Assets and any similar assets or properties now or hereafter acquired by the Partnership, (b) to serve as a limited partner of Plains Pipeline and, in connection therewith, to exercise all the rights and powers conferred upon the Partnership as a partner of Plains Pipeline pursuant to the Plains Pipeline Partnership Agreement, (c) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that the Partnership is permitted to engage in, or any type of business or activity engaged in by the Predecessor General Partner prior to the Closing Date and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity, (d) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that is approved by the General Partner and which lawfully may be conducted by a limited partnership organized pursuant to the Texas Act and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity; provided, however, that the General Partner reasonably determines, as

10



of the date of the acquisition or commencement of such activity, that such activity (i) generates " qualifying income " (as such term is defined pursuant to Section 7704 of the Code) or (ii) enhances the operations of an activity of the Partnership that generates qualifying income, and (e) do anything necessary or appropriate to the foregoing, including the making of capital contributions or loans to a Group Member, the MLP or any Subsidiary of the MLP. The General Partner has no obligation or duty to the Partnership, the Limited Partners, or the Assignees to propose or approve, and in its discretion may decline to propose or approve, the conduct by the Partnership of any business.

        Section 2.5     Powers.     

        The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described in Section 2.4 and for the protection and benefit of the Partnership.

        Section 2.6     Power of Attorney.     

        (a)   Each Partner and each Assignee hereby constitutes and appoints the General Partner and, if a Liquidator shall have been selected pursuant to Section 12.3, the Liquidator (and any successor to the Liquidator by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to:

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        Nothing contained in this Section 2.6(a) shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article XIII or as may be otherwise expressly provided for in this Agreement.

        (b)   The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the maximum extent permitted by law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner's or Assignee's Partnership Interest and shall extend to such Limited Partner's or Assignee's successors and assigns. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee, to the maximum extent permitted by law, hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator deems necessary to effectuate this Agreement and the purposes of the Partnership.

        Section 2.7     Term.     

        The term of the Partnership commenced upon the filing of the Certificate of Limited Partnership in accordance with the Texas Act and shall continue in existence until the close of Partnership business on December 31, 2088 or until the earlier dissolution of the Partnership in accordance with the provisions of Article XII. The existence of the Partnership as a separate legal entity shall continue until the cancellation of the Certificate of Limited Partnership as provided in the Texas Act.

        Section 2.8     Title to Partnership Assets.     

        Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner or Assignee, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner, one or more of its Affiliates or one or more nominees, as the General Partner may determine. The General Partner hereby declares and warrants that any Partnership assets for which record title is held in the name of the General Partner or one or more of its Affiliates or one or more nominees shall be held by the General Partner or such Affiliate or nominee for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use reasonable efforts to cause record title to such assets (other than those assets in respect of which the General Partner determines that the expense and difficulty of conveyancing makes transfer of record title to the Partnership impracticable) to be vested in the Partnership as soon as reasonably practicable; provided, further, that, prior to the withdrawal or removal of the General Partner or as soon thereafter as practicable, the General Partner shall use reasonable efforts to effect the transfer of record title to the Partnership and, prior to any such transfer, will provide for the use of such assets in a manner satisfactory to the General Partner. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which record title to such Partnership assets is held.


ARTICLE III
RIGHTS OF LIMITED PARTNERS

        Section 3.1     Limitation of Liability.     

        The Limited Partners and the Assignees shall have no liability under this Agreement except as expressly provided in this Agreement or in the Texas Act.

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        Section 3.2     Management of Business.     

        No Limited Partner or Assignee, in its capacity as such, shall participate in the operation, management or control (within the meaning of the Texas Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. Any action taken by any Affiliate of the General Partner or any officer, director, employee, member, general partner, agent or trustee of the General Partner or any of its Affiliates, or any officer, director, employee, member, general partner, agent or trustee of a Group Member, in its capacity as such, shall not be deemed to be participation in the control of the business of the Partnership by a limited partner of the Partnership (within the meaning of Section 3.03 of the Texas Act) and shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.

        Section 3.3     Outside Activities of the Limited Partners.     

        Subject to the provisions of Section 7.5 and the Omnibus Agreement, which shall continue to be applicable to the Persons referred to therein, regardless of whether such Persons shall also be Limited Partners or Assignees, any Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership Group. Neither the Partnership nor any of the other Partners or Assignees shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee.

        Section 3.4     Rights of Limited Partners.     

        (a)   In addition to other rights provided by this Agreement or by applicable law, and except as limited by Section 3.4(b), each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon reasonable written demand and at such Limited Partner's own expense:

        (b)   The General Partner may keep confidential from the Limited Partners and Assignees, for such period of time as the General Partner deems reasonable, (i) any information that the General Partner reasonably believes to be in the nature of trade secrets or (ii) other information the disclosure of which the General Partner in good faith believes (A) is not in the best interests of the MLP or the Partnership Group, (B) could damage the MLP or the Partnership Group or (C) that any Group Member is required by law or by agreement with any third party to keep confidential (other than

13


agreements with Affiliates of the Partnership the primary purpose of which is to circumvent the obligations set forth in this Section 3.4).


ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS

        Section 4.1     Transfer Generally.     

        (a)   The term "transfer," when used in this Agreement with respect to a Partnership Interest, shall be deemed to refer to a transaction by which the General Partner assigns its General Partner Interest to another Person who becomes the General Partner (or an Assignee) or by which the holder of a Limited Partner Interest assigns such Limited Partner Interest to another Person who becomes a Limited Partner (or an Assignee), and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise.

        (b)   No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article IV. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article IV shall be null and void.

        (c)   Nothing contained in this Agreement shall be construed to prevent a disposition by any shareholder of the General Partner of any or all of the issued and outstanding capital stock of the General Partner.

        Section 4.2     Transfer of General Partner's Partnership Interest.     

        No provision of this Agreement shall be construed to prevent (and the Limited Partners do hereby expressly consent to) (i) the transfer by the General Partner of all or a portion of its General Partner Interest to one or more Affiliates, which transferred General Partner Interest, to the extent not transferred to a successor General Partner, shall constitute a Limited Partner Interest or (ii) the transfer by the General Partner, in whole and not in part, of its General Partner Interest upon its merger, consolidation or other combination into any other Person or the transfer by it of all or substantially all of its assets to another Person if, in the case of a transfer described in either clause (i) or (ii) of this sentence, the rights and duties of the General Partner with respect to the General Partner Interest so transferred (or the rights and duties of a Limited Partner with respect to the Limited Partner Interest so transferred) are assumed by the transferee and the transferee agrees to be bound by the provisions of this Agreement; provided, however , that in either such case, the transferee is primarily controlled, directly or indirectly, by the MLP General Partner or any Person primarily controlling, directly or indirectly, the MLP General Partner; provided, further , that in either such case, such transferee furnishes to the Partnership an Opinion of Counsel that such merger, consolidation, combination, transfer or assumption will not result in a loss of limited liability of the Limited Partners or cause the Partnership to be taxable as a corporation or otherwise taxed as an entity for federal income tax purposes. In the case of a transfer pursuant to this Section 4.2 to a Person proposed as a successor general partner of the Partnership, the transferee or successor (as the case may be) shall be admitted to the Partnership as the General Partner immediately prior to the transfer of the Partnership Interest, and the business of the Partnership shall continue without dissolution.

        Section 4.3     Transfer of a Limited Partner's Partnership Interest.     

        A Limited Partner may transfer all, but not less than all, of its Partnership Interest as a Limited Partner in connection with the merger, consolidation or other combination of such Limited Partner with or into any other Person or the transfer by such Limited Partner of all or substantially all of its assets to another Person, and following any such transfer such Person may become a Substituted Limited Partner pursuant to Article X. Except as set forth in the immediately preceding sentence and in Section 5.2, or in connection with any pledge of (or any related foreclosure on) a Partnership Interest as a Limited Partner solely for the purpose of securing, directly or indirectly, indebtedness of the Partnership or the MLP, and except for the transfers contemplated by Sections 5.2 and 10.1, a

14



Limited Partner may not transfer all or any part of its Partnership Interest or withdraw from the Partnership.

        Section 4.4     Restrictions on Transfers.     

        (a)   Notwithstanding the other provisions of this Article IV, no transfer of any Partnership Interest shall be made if such transfer would (i) violate the then applicable federal or state securities laws or rules and regulations of the Commission, any state securities commission or any other governmental authority with jurisdiction over such transfer, (ii) terminate the existence or qualification of the Partnership or the MLP under the laws of the jurisdiction of its formation or (iii) cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not already so treated or taxed).

        (b)   The General Partner may impose restrictions on the transfer of Partnership Interests if a subsequent Opinion of Counsel determines that such restrictions are necessary to avoid a significant risk of the Partnership or the MLP becoming taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes. The restrictions may be imposed by making such amendments to this Agreement as the General Partner may determine to be necessary or appropriate to impose such restrictions.


ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

        Section 5.1     Initial Contributions.     

        In connection with the formation of the Partnership under the Delaware Act, the Predecessor General Partner made an initial Capital Contribution to the Partnership in the amount of $500.00 in exchange for an interest in the Partnership and was admitted as Predecessor General Partner and as a Limited Partner, and the MLP made an initial Capital Contribution to the Partnership in the amount of $500.00 in exchange for an interest in the Partnership and was admitted as a Limited Partner.

        Section 5.2     Contributions Pursuant to the Contribution and Conveyance Agreement.     

        (a)   Pursuant to the Contribution and Conveyance Agreement, the Predecessor General Partner contributed to the Partnership, as a Capital Contribution, all of its interest in Gathering LLC and certain assets acquired by it from CT&T in exchange for a continuation of its General Partner Interest and a Limited Partner Interest. Immediately following such contribution, the Predecessor General Partner transferred all of its Partnership Interests except a 1.0101% General Partner Interest to the MLP in exchange for certain interests therein as more particularly described in the Registration Statement.

        (b)   Pursuant to the Contribution and Conveyance Agreement, the MLP contributed to the Partnership, as a Capital Contribution (i) cash in the amount of $96,700,000, (ii) all of the syndication costs incurred by the Partnership in connection with the Initial Offering and (iii) all of its limited partner interest in Plains Pipeline, in exchange for its Limited Partner Interest.

        (c)   Pursuant to the Contribution and Conveyance Agreement, the Partnership has assumed certain indebtedness relating to the Assets as described in the Contribution and Conveyance Agreement.

        (d)   Notwithstanding anything else herein contained, if the aggregate excess net working capital reflected on the balance sheets of the Partnership and Plains Pipeline that are prepared in accordance with Section 7.3 of the Contribution and Conveyance Agreement is in excess of $8,000,000 then the Partnership shall distribute to the General Partner an amount of cash equal to the difference between (i) such excess and (ii) the amount of any similar distribution made to the General Partner by Plains Pipeline. In the event that such aggregate excess net working capital is less than $8,000,000, the General Partner shall contribute to the Partnership, as a Capital Contribution, cash in an amount equal to the amount that, when added to the amount of the similar contribution made to Plains Pipeline by

15



the General Partner, would cause the aggregate excess net working capital of the Partnership and Plains Pipeline to be equal to $8,000,000.

        Section 5.3     Additional Capital Contributions.     

        With the consent of the General Partner, any Limited Partner may, but shall not be obligated to, make additional Capital Contributions to the Partnership. Contemporaneously with the making of any Capital Contributions by a Limited Partner, in addition to those provided in Sections 5.1 and 5.2, the General Partner shall be obligated to make an additional Capital Contribution to the Partnership in an amount equal to 0.001 divided by 99.999 times the amount of the additional Capital Contribution then made by such Limited Partner. Except as set forth in the immediately preceding sentence and in Article XII, the General Partner shall not be obligated to make any additional Capital Contributions to the Partnership.

        Section 5.4     Interest and Withdrawal.     

        No interest shall be paid by the Partnership on Capital Contributions. No Partner or Assignee shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon termination of the Partnership may be considered as such by law and then only to the extent provided for in this Agreement. Except to the extent expressly provided in this Agreement, no Partner or Assignee shall have priority over any other Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.

        Section 5.5     Capital Accounts.     

        (a)   The Partnership shall maintain for each Partner (or a beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion) owning a Partnership Interest a separate Capital Account with respect to such Partnership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Partnership with respect to such Partnership Interest pursuant to this Agreement and (ii) all items of Partnership income and gain (including, without limitation, income and gain exempt from tax) computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or property made with respect to such Partnership Interest pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to Section 6.1.

        (b)   For purposes of computing the amount of any item of income, gain, loss or deduction which is to be allocated pursuant to Article VI and is to be reflected in the Partners' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes (including, without limitation, any method of depreciation, cost recovery or amortization used for that purpose), provided, that:

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        (c)   A transferee of a Partnership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Partnership Interest so transferred.

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        Section 5.6     Loans from Partners.     

        Loans by a Partner to the Partnership shall not constitute Capital Contributions. If any Partner shall advance funds to the Partnership in excess of the amounts required hereunder to be contributed by it to the capital of the Partnership, the making of such excess advances shall not result in any increase in the amount of the Capital Account of such Partner. The amount of any such excess advances shall be a debt obligation of the Partnership to such Partner and shall be payable or collectible only out of the Partnership assets in accordance with the terms and conditions upon which such advances are made.

        Section 5.7     Limited Preemptive Rights.     

        Except as provided in Section 5.3, no Person shall have preemptive, preferential or other similar rights with respect to (a) additional Capital Contributions; (b) issuance or sale of any class or series of Partnership Interests, whether unissued, held in the treasury or hereafter created; (c) issuance of any obligations, evidences of indebtedness or other securities of the Partnership convertible into or exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to, any such Partnership Interests; (d) issuance of any right of subscription to or right to receive, or any warrant or option for the purchase of, any such Partnership Interests; or (e) issuance or sale of any other securities that may be issued or sold by the Partnership.

        Section 5.8     Fully Paid and Non-Assessable Nature of Partnership Interests.     

        All Partnership Interests issued to Limited Partners pursuant to, and in accordance with the requirements of, this Article V shall be fully paid and non-assessable Partnership Interests, except as such non-assessability may be affected by Section 6.07 of the Texas Act.

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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

        Section 6.1     Allocations for Capital Account Purposes.     

        For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership's items of income, gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be allocated among the Partners in each taxable year (or portion thereof) as provided herein below.

        (a)    Net Income . After giving effect to the special allocations set forth in Section 6.1(d), Net Income for each taxable year and all items of income, gain, loss and deduction taken into account in computing Net Income for such taxable year shall be allocated among the Partners as follows:

        (b)    Net Losses . After giving effect to the special allocations set forth in Section 6.1(d), Net Losses for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Losses for such taxable period shall be allocated among the Partners as follows:

        (c)    Net Termination Gains and Losses . After giving effect to the special allocations set forth in Section 6.1(d), all items of income, gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss for such taxable period shall be allocated in the same manner as such Net Termination Gain or Net Termination Loss is allocated hereunder. All allocations under this Section 6.1(c) shall be made after Capital Account balances have been adjusted by all other allocations provided under this Section 6.1 and after all distributions of Available Cash provided under Section 6.4 have been made with respect to the taxable period ending on or before the Liquidation Date; provided, however, that solely for purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant to Section 12.4.

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        (d)    Special Allocations . Notwithstanding any other provision of this Section 6.1, the following special allocations shall be made for such taxable period:

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        Section 6.2     Allocations for Tax Purposes.     

        (a)   Except as otherwise provided herein, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 6.1.

        (b)   In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, depreciation, amortization and cost recovery deductions shall be allocated for federal income tax purposes among the Partners as follows:

        (c)   For the proper administration of the Partnership and for the preservation of uniformity of the Units or other limited partner interests of the MLP (or any class or classes thereof), the General Partner shall have sole discretion to (i) adopt such conventions as it deems appropriate in determining the amount of depreciation, amortization and cost recovery deductions; (ii) make special allocations for federal income tax purposes of income (including, without limitation, gross income) or deductions; and (iii) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the Units or other limited partner interests of the MLP (or any class or classes thereof). The General Partner may adopt such conventions, make such allocations and make such amendments to this Agreement as provided in this Section 6.2(c) only if such conventions, allocations or amendments would not have a material adverse effect on the Partners, the holders of any class or classes of Units or other limited partner interests of the MLP issued and outstanding or the Partnership and if such allocations are consistent with the principles of Section 704 of the Code.

        (d)   The General Partner in its discretion may determine to depreciate or amortize the portion of an adjustment under Section 743(b) of the Code attributable to unrealized appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a predetermined rate derived from the depreciation or amortization method and useful life applied to the Partnership's common basis of such property, despite any inconsistency of such approach with Treasury Regulation Section 1.167(c)-l(a)(6). If the General Partner determines that such reporting position cannot reasonably be taken, the General Partner may adopt depreciation and amortization conventions under which all purchasers acquiring limited partner interests of the MLP in the same month would receive depreciation and amortization deductions, based upon the same applicable rate as if they had

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purchased a direct interest in the Partnership's property. If the General Partner chooses not to utilize such aggregate method, the General Partner may use any other reasonable depreciation and amortization conventions to preserve the uniformity of the intrinsic tax characteristics of any limited partner interests of the MLP that would not have a material adverse effect on the Partners or the holders of any class or classes of limited partner interests of the MLP.

        (e)   Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible, after taking into account other required allocations of gain pursuant to this Section 6.2, be characterized as Recapture Income in the same proportions and to the same extent as such Partners (or their predecessors in interest) have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income.

        (f)    All items of income, gain, loss, deduction and credit recognized by the Partnership for federal income tax purposes and allocated to the Partners in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code which may be made by the Partnership; provided, however, that such allocations, once made, shall be adjusted as necessary or appropriate to take into account those adjustments permitted or required by Sections 734 and 743 of the Code.

        (g)   The General Partner may adopt such methods of allocation of income, gain, loss or deduction between a transferor and a transferee of a Partnership Interest as it determines necessary, to the extent permitted or required by Section 706 of the Code and the regulations or rulings promulgated thereunder.

        (h)   Allocations that would otherwise be made to a Partner under the provisions of this Article VI shall instead be made to the beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion.

        Section 6.3     Distributions.     

        (a)   Within 45 days following the end of each Quarter commencing with the Quarter ending on December 31, 1998, an amount equal to 100% of Available Cash with respect to such Quarter shall, subject to Section 6.07 of the Texas Act, be distributed in accordance with this Article VI by the Partnership to the Partners in accordance with their respective Percentage Interests. The immediately preceding sentence shall not require any distribution of cash if and to the extent such distribution would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership is a party or by which it is bound or its assets are subject. All distributions required to be made under this Agreement shall be made subject to Section 6.07 of the Texas Act.

        (b)   In the event of the dissolution and liquidation of the Partnership, all receipts received during or after the Quarter in which the Liquidation Date occurs, other than from borrowings described in (a)(ii) of the definition of Available Cash, shall be applied and distributed solely in accordance with, and subject to the terms and conditions of, Section 12.4.

        (c)   The General Partner shall have the discretion to treat as a distribution of Available Cash to all or less than all of the Partners or Assignees (i) taxes paid by any member of the Partnership Group on behalf of such Partners or Assignees, (ii) amounts withheld by any member of the Partnership Group for taxes with respect to such Partners or Assignees and (iii) amounts seized by any taxing authority from any member of the Partnership Group with respect to taxes owed by such Partners or Assignees.

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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

        Section 7.1     Management.     

        (a)   The General Partner shall conduct, direct and manage all activities of the Partnership. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership shall be exclusively vested in the General Partner, and no Limited Partner or Assignee shall have any management power over the business and affairs of the Partnership. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 7.3, shall have full power and authority to do all things and on such terms as it, in its sole discretion, may deem necessary or appropriate to conduct the business of the Partnership, to exercise all powers set forth in Section 2.5 and to effectuate the purposes set forth in Section 2.4, including the following:

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        (b)   Notwithstanding any other provision of this Agreement, the MLP Agreement, the Texas Act or any applicable law, rule or regulation, each of the Partners and Assignees and each other Person who may acquire an interest in the Partnership hereby (i) approves, ratifies and confirms the execution, delivery and performance by the parties thereto of the Partnership Agreement, the MLP Agreement, the Underwriting Agreement, the Omnibus Agreement, the Contribution and Conveyance Agreement and the other agreements and documents described in or filed as exhibits to the Registration Statement that are related to the transactions contemplated by the Registration Statement; (ii) agrees that the General Partner (on its own or through any officer of the Partnership) is authorized to execute, deliver and perform the agreements referred to in clause (i) of this sentence and the other agreements, acts, transactions and matters described in or contemplated by the Registration Statement on behalf of the Partnership without any further act, approval or vote of the Partners or the Assignees or the other Persons who may acquire an interest in the Partnership; and (iii) agrees that the execution, delivery or performance by the General Partner, the MLP, any Group Member or any Affiliate of any of them, of this Agreement or any agreement authorized or permitted under this Agreement (including the exercise by the General Partner or any Affiliate of the General Partner of the rights accorded pursuant to Article XV), shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement (or any other agreements) or of any duty stated or implied by law or equity.

        Section 7.2     Certificate of Limited Partnership.     

        The General Partner caused the Certificate of Limited Partnership to be filed with the Secretary of State of the State of Texas as required by the Texas Act and the General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Texas or any other state in which the Partnership may elect to do business or own property. To the extent that such action is determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate of Limited Partnership and do all things to maintain the Partnership as a limited partnership (or a partnership or other entity in which the limited partners have limited liability) under the laws of the State of Texas or of any other state in which the Partnership may elect to do business or own property. Subject to the terms of Section 3.4(a), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Limited Partnership, any qualification document or any amendment thereto to any Limited Partner or Assignee.

        Section 7.3     Restrictions on General Partner's Authority.     

        (a)   The General Partner may not, without written approval of the specific act by the Limited Partners or by other written instrument executed and delivered by the Limited Partners subsequent to the date of this Agreement, take any action in contravention of this Agreement, including, except as otherwise provided in this Agreement, (i) committing any act that would make it impossible to carry on the ordinary business of the Partnership; (ii) possessing Partnership property, or assigning any rights in specific Partnership property, for other than a Partnership purpose; (iii) admitting a Person as a Partner; (iv) amending this Agreement in any manner or (v) transferring its General Partner Interest.

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        (b)   Except as provided in Articles XII and XIV, the General Partner may not sell, exchange or otherwise dispose of all or substantially all of the Partnership's assets in a single transaction or a series of related transactions (including by way of merger, consolidation or other combination) or approve on behalf of the Partnership the sale, exchange or other disposition of all or substantially all of the assets of the Partnership, without the approval of the Limited Partners; provided however that this provision shall not preclude or limit the General Partner's ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Partnership and shall not apply to any forced sale of any or all of the assets of the Partnership pursuant to the foreclosure of, or other realization upon, any such encumbrance. Without the approval of at least a Unit Majority, the General Partner shall not (i) consent to any amendment to this Agreement or, except as expressly permitted by Section 7.9(d) of the MLP Agreement, take any action permitted to be taken by a Partner, in either case, that would have a material adverse effect on the MLP as a Partner or (ii) except as permitted under Sections 4.2, 11.1 and 11.2 of this Agreement, elect a successor general partner of the Partnership.

        Section 7.4     Reimbursement of the General Partner.     

        (a)   Except as provided in this Section 7.4 and elsewhere in this Agreement or in the MLP Agreement, the General Partner shall not be compensated for its services as General Partner or as general partner of any Group Member.

        (b)   The General Partner, and the MLP General Partner on behalf of the General Partner, shall be reimbursed on a monthly basis, or such other reasonable basis as the General Partner may determine in its sole discretion, for (i) all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including salary, bonus, incentive compensation and other amounts paid to any Person including employees of the MLP General Partner and other Affiliates of the General Partner to perform services for the Partnership or for the General Partner or the MLP General Partner on behalf of the General Partner in the discharge of its duties to the Partnership), and (ii) all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with operating the Partnership's business (including expenses allocated to the General Partner by its Affiliates). The General Partner shall determine the expenses that are allocable to the Partnership in any reasonable manner determined by the General Partner in its sole discretion. Reimbursements pursuant to this Section 7.4 shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 7.7.

        (c)   Subject to Section 5.7, the General Partner, in its sole discretion and without the approval of the Limited Partners (who shall have no right to vote in respect thereof), may propose and adopt on behalf of the Partnership employee benefit plans, employee programs and employee practices, or cause the Partnership to issue Partnership Interests, in connection with, pursuant to any employee benefit plan, employee program or employee practice maintained or sponsored by the General Partner or any of its Affiliates, in each case for the benefit of employees of the General Partner any Group Member or any Affiliate, or any of them, in respect of services performed, directly or indirectly, for the benefit of the Partnership Group. Expenses incurred by the General Partner or the MLP General Partner on behalf of the General Partner in connection with any such plans, programs and practices shall be reimbursed in accordance with Section 7.4(b). Any and all obligations of the General Partner or the MLP General Partner on behalf of the General Partner under any employee benefit plans, employee programs or employee practices adopted by the General Partner as permitted by this Section 7.4(c) shall constitute obligations of the General Partner hereunder and shall be assumed by any successor General Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the General Partner's General Partner Interest pursuant to Section 4.2.

        Section 7.5     Outside Activities.     

        (a)   After the Closing Date, the General Partner, for so long as it is the General Partner of the Partnership (i) agrees that its sole business will be to act as the General Partner of the Partnership and

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a general partner of any other partnership of which the Partnership or the MLP is, directly or indirectly, a partner and to undertake activities that are ancillary or related thereto, (ii) shall not engage in any business or activity or incur any debts or liabilities except in connection with or incidental to (A) its performance as general partner of the Partnership or one or more Group Members or as described in or contemplated by the Registration Statement or (B) the acquiring, owning or disposing of debt or equity securities in any Group Member and (iii) except to the extent permitted in the Omnibus Agreement, shall not, and shall cause its Affiliates not to, engage in any Restricted Business.

        (b)   The Omnibus Agreement, to which the Partnership is a party, sets forth certain restrictions on the ability of Plains Resources Inc. to engage in Restricted Businesses.

        (c)   Except as specifically restricted by Section 7.5(a) and the Omnibus Agreement, each Indemnitee (other than the General Partner) shall have the right to engage in businesses of every type and description and other activities for profit and to engage in and possess an interest in other business ventures of any and every type or description, whether in businesses engaged in or anticipated to be engaged in by the MLP or any Group Member, independently or with others, including business interests and activities in direct competition with the business and activities of the MLP or any Group Member, and none of the same shall constitute a breach of this Agreement or any duty express or implied by law to the MLP or any Group Member or any Partner or Assignee. Neither the MLP nor any Group Member, any Limited Partner, nor any other Person shall have any rights by virtue of this Agreement, the MLP Agreement or the partnership relationship established hereby or thereby in any business ventures of any Indemnitee.

        (d)   Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c) and the Omnibus Agreement, but otherwise notwithstanding anything to the contrary in this Agreement, (i) the engaging in competitive activities by any Indemnitees (other than the General Partner) in accordance with the provisions of this Section 7.5 is hereby approved by the Partnership and all Partners, (ii) it shall be deemed not to be a breach of the General Partner's fiduciary duty or any other obligation of any type whatsoever of the General Partner for the Indemnitees (other than the General Partner) to engage in such business interests and activities in preference to or to the exclusion of the Partnership and (iii) except as set forth in the Omnibus Agreement, the General Partner and the Indemnities shall have no obligation to present business opportunities to the Partnership.

        (e)   The General Partner and any of its Affiliates may acquire Units or other MLP Securities in addition to those acquired on the Closing Date and, except as otherwise provided in this Agreement, shall be entitled to exercise all rights relating to such Units or MLP Securities.

        (f)    The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e) with respect to the General Partner shall not include any Group Member or any Subsidiary of the MLP or any Group Member.

        (g)   Anything in this Agreement to the contrary notwithstanding, to the extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this Agreement purport or are interpreted to have the effect of restricting the fiduciary duties that might otherwise, as a result of Texas or other applicable law, be owed by the General Partner to the Partnership and its Limited Partners, or to constitute a waiver or consent by the Limited Partners to any such restriction, such provisions shall be inapplicable and have no effect in determining whether the General Partner has complied with its fiduciary duties in connection with determinations made by it under this Section 7.5.

        Section 7.6     Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner.     

        (a)   The General Partner or its Affiliates may lend to the MLP or any Group Member, and the MLP or any Group Member may borrow from the General Partner or any of its Affiliates, funds needed or desired by the MLP or the Group Member for such periods of time and in such amounts as

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the General Partner may determine; provided, however, that in any such case the lending party may not charge the borrowing party interest at a rate greater than the rate that would be charged the borrowing party or impose terms less favorable to the borrowing party than would be charged or imposed on the borrowing party by unrelated lenders on comparable loans made on an arm's-length basis (without reference to the lending party's financial abilities or guarantees). The borrowing party shall reimburse the lending party for any costs (other than any additional interest costs) incurred by the lending party in connection with the borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member" shall include any Affiliate of a Group Member that is controlled by the Group Member. No Group Member may lend funds to the General Partner or any of its Affiliates (other than the MLP, a Subsidiary of the MLP or a Subsidiary of another Group Member).

        (b)   The Partnership may lend or contribute to any Group Member, and any Group Member may borrow from the Partnership, funds on terms and conditions established in the sole discretion of the General Partner; provided, however, that the Partnership may not charge the Group Member interest at a rate less than the rate that would be charged to the Group Member (without reference to the General Partner's financial abilities or guarantees) by unrelated lenders on comparable loans. The foregoing authority shall be exercised by the General Partner in its sole discretion and shall not create any right or benefit in favor of any Group Member or any other Person.

        (c)   The General Partner may itself, or may enter into an agreement with the MLP General Partner or any of its Affiliates to, render services to a Group Member or to the General Partner in the discharge of its duties as general partner of the Partnership. Any services rendered to a Group Member by the General Partner, the MLP General Partner or any of their Affiliates shall be on terms that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 7.6(c) shall be deemed satisfied as to (i) any transaction approved by Special Approval, (ii) any transaction, the terms of which are no less favorable to the Partnership Group than those generally being provided to or available from unrelated third parties or (iii) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership Group), is equitable to the Partnership Group. The provisions of Section 7.4 shall apply to the rendering of services described in this Section 7.6(c).

        (d)   The Partnership Group may transfer assets to joint ventures, other partnerships, corporations, limited liability companies or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as are consistent with this Agreement and applicable law.

        (e)   Neither the General Partner, the MLP General Partner nor any of their Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i) the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution and Conveyance Agreement and any other transactions described in or contemplated by the Registration Statement, (ii) any transaction approved by Special Approval, (iii) any transaction, the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties, or (iv) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership), is equitable to the Partnership.

        (f)    The General Partner and its Affiliates will have no obligation to permit any Group Member to use any facilities or assets of the General Partner and its Affiliates, except as may be provided in contracts entered into from time to time specifically dealing with such use, nor shall there be any obligation on the part of the General Partner or its Affiliates to enter into such contracts.

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        (g)   Without limitation of Sections 7.6(a) through 7.6(f), and notwithstanding anything to the contrary in this Agreement, the existence of the conflicts of interest described in the Registration Statement are hereby approved by all Partners.

        Section 7.7     Indemnification.     

        (a)   To the fullest extent permitted by law but subject to the limitations expressly provided in this Agreement, all Indemnitees shall be indemnified and held harmless by the Partnership from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee; provided, that in each case the Indemnitee acted in good faith and in a manner that such Indemnitee reasonably believed to be in, or (in the case of a Person other than the General Partner) not opposed to, the best interests of the Partnership and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful; provided, further, no indemnification pursuant to this Section 7.7 shall be available to the General Partner with respect to its obligations incurred pursuant to the Underwriting Agreement or the Contribution and Conveyance Agreement (other than obligations incurred by the General Partner on behalf of the Partnership). The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Indemnitee acted in a manner contrary to that specified above. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, it being agreed that the General Partner shall not be personally liable for such indemnification and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate such indemnification.

        (b)   To the fullest extent permitted by law, expenses (including legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of any undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 7.7.

        (c)   The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and as to actions in any other capacity (including any capacity under the Underwriting Agreement), and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.

        (d)   The Partnership may purchase and maintain (or reimburse the General Partner, the MLP General Partner or its Affiliates for the cost of) insurance, on behalf of the General Partner, the MLP General Partner or their Affiliates and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expense that may be incurred by such Person in connection with the Partnership's activities or such Person's activities on behalf of the Partnership, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

        (e)   For purposes of this Section 7.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute "fines" within the meaning of Section 7.7(a); and action taken or omitted by it with respect to any employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the

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participants and beneficiaries of the plan shall be deemed to be for a purpose which is in, or not opposed to, the best interests of the Partnership.

        (f)    In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.

        (g)   An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

        (h)   The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons.

        (i)    No amendment, modification or repeal of this Section 7.7 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Partnership, nor the obligations of the Partnership to indemnify any such Indemnitee under and in accordance with the provisions of this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.8     Liability of Indemnitees.     

        (a)   Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Partnership, the Limited Partners, the Assignees or any other Persons who have acquired interests in the Units or other Partnership Securities of the MLP, for losses sustained or liabilities incurred as a result of any act or omission if such Indemnitee acted in good faith.

        (b)   Subject to its obligations and duties as General Partner set forth in Section 7.1(a), the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith.

        (c)   To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to the Limited Partners, the General Partner and any other Indemnitee acting in connection with the Partnership's business or affairs shall not be liable to the Partnership or to any Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or otherwise modify the duties and liabilities of an Indemnitee otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such Indemnitee.

        (d)   Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability to the Partnership, the Limited Partners, the General Partner, the MLP General Partner and the Partnership's and General Partner's directors, officers and employees under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.9     Resolution of Conflicts of Interest.     

        (a)   Unless otherwise expressly provided in this Agreement or the MLP Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership, the MLP, any Partner or any Assignee, on the other, any resolution or course of action by the General Partner or its Affiliates in respect of such conflict of interest shall be

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permitted and deemed approved by all Partners, and shall not constitute a breach of this Agreement or the MLP Agreement, of any agreement contemplated herein or therein, or of any duty stated or implied by law or equity, if the resolution or course of action is, or by operation of this Agreement is deemed to be, fair and reasonable to the Partnership. The General Partner shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval of such resolution. Any conflict of interest and any resolution of such conflict of interest shall be conclusively deemed fair and reasonable to the Partnership if such conflict of interest or resolution is (i) approved by Special Approval (as long as the material facts known to the General Partner or any of its Affiliates regarding any proposed transaction were disclosed to the Conflicts Committee at the time it gave its approval), (ii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) fair to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership). The General Partner may also adopt a resolution or course of action that has not received Special Approval. The General Partner (including the Conflicts Committee in connection with Special Approval) shall be authorized in connection with its determination of what is "fair and reasonable" to the Partnership and in connection with its resolution of any conflict of interest to consider (A) the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest; (B) any customary or accepted industry practices and any customary or historical dealings with a particular Person; (C) any applicable generally accepted accounting practices or principles; and (D) such additional factors as the General Partner (including the Conflicts Committee) determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances. Nothing contained in this Agreement, however, is intended to nor shall it be construed to require the General Partner (including the Conflicts Committee) to consider the interests of any Person other than the Partnership. In the absence of bad faith by the General Partner, the resolution, action or terms so made, taken or provided by the General Partner with respect to such matter shall not constitute a breach of this Agreement or any other agreement contemplated herein or a breach of any standard of care or duty imposed herein or therein or, to the extent permitted by law, under the Texas Act or any other law, rule or regulation.

        (b)   Whenever this Agreement or any other agreement contemplated hereby provides that the General Partner or any of its Affiliates is permitted or required to make a decision (i) in its "sole discretion" or "discretion," that it deems "necessary or appropriate" or "necessary or advisable" or under a grant of similar authority or latitude, except as otherwise provided herein, the General Partner or such Affiliate shall be entitled to consider only such interests and factors as it desires and shall have no duty or obligation to give any consideration to any interest of, or factors affecting, the Partnership, the MLP, any Limited Partner or any Assignee, (ii) it may make such decision in its sole discretion (regardless of whether there is a reference to "sole discretion" or "discretion") unless another express standard is provided for, or (iii) in "good faith" or under another express standard, the General Partner or such Affiliate shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement, the MLP Agreement, any other agreement contemplated hereby or under the Texas Act or any other law, rule or regulation. In addition, any actions taken by the General Partner or such Affiliate consistent with the standards of "reasonable discretion" set forth in the definition of Available Cash shall not constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners. The General Partner shall have no duty, express or implied, to sell or otherwise dispose of any asset of the Partnership Group other than in the ordinary course of business. No borrowing by any Group Member or the approval thereof by the General Partner shall be deemed to constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners by reason of the fact that the purpose or effect of such borrowing is directly or indirectly to (A) enable distributions to the General Partner or its Affiliates to exceed 0.001% of the total amount distributed to all Partners or (B) hasten the expiration of the Subordination Period or the conversion of any Subordinated Units into Common Units.

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        (c)   Whenever a particular transaction, arrangement or resolution of a conflict of interest is required under this Agreement to be "fair and reasonable" to any Person, the fair and reasonable nature of such transaction, arrangement or resolution shall be considered in the context of all similar or related transactions.

        (d)   The Limited Partner hereby authorizes the General Partner, on behalf of the Partnership as a partner or member of a Group Member, to approve of actions by the general partner of such Group Member similar to those actions permitted to be taken by the General Partner pursuant to this Section 7.9.

        Section 7.10     Other Matters Concerning the General Partner.     

        (a)   The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

        (b)   The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion (including an Opinion of Counsel) of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

        (c)   The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers, a duly appointed attorney or attorneys-in-fact or the duly authorized officers of the Partnership.

        (d)   Any standard of care and duty imposed by this Agreement or under the Texas Act or any applicable law, rule or regulation shall be modified, waived or limited, to the extent permitted by law, as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the authority prescribed in this Agreement, so long as such action is reasonably believed by the General Partner to be in, or not inconsistent with, the best interests of the Partnership.

        Section 7.11     Reliance by Third Parties.     

        Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner and any officer of the General Partner authorized by the General Partner to act on behalf of and in the name of the Partnership has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any authorized contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner or any such officer as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner or any such officer in connection with any such dealing. In no event shall any Person dealing with the General Partner or any such officer or its representatives be obligated to ascertain that the terms of the Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or any such officer or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.

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ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

        Section 8.1     Records and Accounting.     

        The General Partner shall keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership's business, including all books and records necessary to provide to the Limited Partners any information required to be provided pursuant to Section 3.4(a). Any books and records maintained by or on behalf of the Partnership in the regular course of its business, including books of account and records of Partnership proceedings, may be kept on, or be in the form of, computer disks, hard drives, punch cards, magnetic tape, photographs, micrographics or any other information storage device; provided, that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial reporting purposes, on an accrual basis in accordance with U.S. GAAP.

        Section 8.2     Fiscal Year.     

        The fiscal year of the Partnership shall be a fiscal year ending December 31.


ARTICLE IX
TAX MATTERS

        Section 9.1     Tax Returns and Information.     

        The Partnership shall timely file all returns of the Partnership that are required for federal, state and local income tax purposes on the basis of the accrual method and a taxable year ending on December 31. The tax information reasonably required by the Partners for federal and state income tax reporting purposes with respect to a taxable year shall be furnished to them within 90 days of the close of the calendar year in which the Partnership's taxable year ends. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for federal income tax purposes.

        Section 9.2     Tax Elections.     

        (a)   The Partnership shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder, subject to the reservation of the right to seek to revoke any such election upon the General Partner's determination that such revocation is in the best interests of the Limited Partners.

        (b)   The Partnership shall elect to deduct expenses incurred in organizing the Partnership ratably over a sixty-month period as provided in Section 709 of the Code.

        (c)   Except as otherwise provided herein, the General Partner shall determine whether the Partnership should make any other elections permitted by the Code.

        Section 9.3     Tax Controversies.     

        Subject to the provisions hereof, the General Partner is designated as the Tax Matters Partner (as defined in the Code) and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Partner agrees to cooperate with the General Partner and to do or refrain from doing any or all things reasonably required by the General Partner to conduct such proceedings.

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        Section 9.4     Withholding.     

        Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines in its discretion to be necessary or appropriate to cause the Partnership to comply with any withholding requirements established under the Code or any other federal, state, local or foreign law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required or elects to withhold or pay over to any taxing authority, or any taxing authority seizes, any amount resulting from the allocation or distribution of income to any member of the Partnership Group, Partner or Assignee, the amount withheld, paid over or seized may at the discretion of the General Partner be treated by the Partnership as a distribution of cash pursuant to Section 6.3 to the Partner or Assignee to whom such withholding, payment or seizure is attributed.


ARTICLE X
ADMISSION OF PARTNERS

        Section 10.1     Admission of Partners.     

        Upon the consummation of the transfers and conveyances described in Section 5.2, the Predecessor General Partner was the sole general partner of the Partnership and the MLP was the sole limited partner of the Partnership.

        Section 10.2     Admission of Substituted Limited Partner.     

        By transfer of a Limited Partner Interest in accordance with Article IV, the transferor shall be deemed to have given the transferee the right to seek admission as a Substituted Limited Partner subject to the conditions of, and in the manner permitted under, this Agreement. A transferor of a Limited Partner Interest shall, however, only have the authority to convey to a purchaser or other transferee (a) the right to negotiate such Limited Partner Interest to a purchaser or other transferee and (b) the right to request admission as a Substituted Limited Partner to such purchaser or other transferee in respect of the transferred Limited Partner Interests. Each transferee of a Limited Partner Interest shall be an Assignee and be deemed to have applied to become a Substituted Limited Partner with respect to the Limited Partner Interests so transferred to such Person. Such Assignee shall become a Substituted Limited Partner (x) at such time as the General Partner consents thereto, which consent may be given or withheld in the General Partner's discretion, and (y) when any such admission is shown on the books and records of the Partnership. If such consent is withheld, such transferee shall remain an Assignee. An Assignee shall have an interest in the Partnership equivalent to that of a Limited Partner with respect to allocations and distributions, including liquidating distributions, of the Partnership. With respect to voting rights attributable to Limited Partner Interests that are held by Assignees, the General Partner shall be deemed to be the Limited Partner with respect thereto and shall, in exercising the voting rights in respect of such Limited Partner Interests on any matter, vote such Limited Partner Interests at the written direction of the Assignee. If no such written direction is received, such Partnership Interests will not be voted. An Assignee shall have no other rights of a Limited Partner.

        Section 10.3     Admission of Additional Limited Partners.     

        (a)   A Person (other than the General Partner, the MLP or a Substituted Limited Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including the power of attorney granted in Section 2.6, and (ii) such other documents or instruments as may be required in the discretion of the General Partner to effect such Person's admission as an Additional Limited Partner.

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        (b)   Notwithstanding anything to the contrary in this Section 10.3, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded as such in the books and records of the Partnership, following the consent of the General Partner to such admission.

        Section 10.4     Admission of Successor or Transferee General Partner.     

        A successor General Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the General Partner's Partnership Interest pursuant to Section 4.2 who is proposed to be admitted as a successor General Partner shall, subject to compliance with the terms of Section 11.3, if applicable, be admitted to the Partnership as the General Partner, effective immediately prior to the withdrawal or removal of the predecessor or transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of the General Partner Interest pursuant to Section 4.2, provided, however, that no such successor shall be admitted to the Partnership until compliance with the terms of Section 4.2 has occurred and such successor has executed and delivered such other documents or instruments as may be required to effect such admission. Any such successor shall, subject to the terms hereof, carry on the business of the members of the Partnership Group without dissolution.

        Section 10.5     Amendment of Agreement and Certificate of Limited Partnership.     

        To effect the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Texas Act to amend the records of the Partnership to reflect such admission and, if necessary, to prepare as soon as practicable an amendment to this Agreement and, if required by law, the General Partner shall prepare and file an amendment to the Certificate of Limited Partnership, and the General Partner may for this purpose, among others, exercise the power of attorney granted pursuant to Section 2.6.


ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS

        Section 11.1     Withdrawal of the General Partner.     

        (a)   The General Partner shall be deemed to have withdrawn from the Partnership upon the occurrence of any one of the following events (each such event herein referred to as an "Event of Withdrawal");

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        If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B), (C) or (E) occurs, the withdrawing General Partner shall give notice to the Limited Partners within 30 days after such occurrence. The Partners hereby agree that only the Events of Withdrawal described in this Section 11.1 shall result in the withdrawal of the General Partner from the Partnership.

        (b)   Withdrawal of the General Partner from the Partnership upon the occurrence of an Event of Withdrawal shall not constitute a breach of this Agreement under the following circumstances: (i) at any time during the period beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard Time, on December 31, 2008, the General Partner voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Limited Partners; provided that prior to the effective date of such withdrawal, the withdrawal is approved by the Limited Partners and the General Partner delivers to the Partnership an Opinion of Counsel (" Withdrawal Opinion of Counsel ") that such withdrawal (following the selection of the successor General Partner) would not result in the loss of the limited liability of any Limited Partner or of the limited partners of the MLP or cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such); (ii) at any time after 12:00 midnight, Eastern Standard Time, on December 31, 2008, the General Partner voluntarily withdraws by giving at least 90 days' advance notice to the Limited Partners, such withdrawal to take effect on the date specified in such notice; (iii) at any time that the General Partner ceases to be the General Partner pursuant to Section 11.1(a)(ii) or (iii). If the General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i) hereof, the Limited Partners may, prior to the effective date of such withdrawal, elect a successor General Partner. If, prior to the effective date of the General Partner's withdrawal, a successor is not selected by the Limited Partners as provided herein or the Partnership does not receive a Withdrawal Opinion of Counsel, the Partnership shall be dissolved in accordance with Section 12.1. Any successor General Partner elected in accordance with the terms of this Section 11.1 shall be subject to the provisions of Section 10.4.

        Section 11.2     Removal of the General Partner.     

        The General Partner may be removed by the holders of a majority of the Limited Partner Interests. If the General Partner is removed pursuant to this Section 11.2, the Limited Partners may, prior to the effective date of such removal, elect a successor General Partner. The admission of any such successor General Partner to the Partnership shall be subject to the provisions of Section 10.4.

        Section 11.3     Interest of Departing Partner.     

        (a)   The Partnership Interest of the Departing Partner departing as a result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall be purchased by the successor to the Departing Partner for cash in the manner specified in the MLP Agreement. Such purchase (or conversion into Common Units, as applicable) shall be a condition to the admission to the Partnership of the successor as the

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General Partner. Notwithstanding the foregoing, an assignment of all or any portion of a General Partner's (or Departing General Partner's) Partnership Interest to the MLP as Limited Partner, or to any other Person (other than an individual) the ownership interest of which is then transferred to the MLP, can be made in exchange for an increased interest in the MLP and in lieu of a cash purchase. Any successor General Partner shall indemnify the Departing Partner as to all debts and liabilities of the Partnership arising on or after the effective date of the withdrawal or removal of the Departing Partner.

        (b)   The Departing Partner shall be entitled to receive all reimbursements due such Departing Partner pursuant to Section 7.4, including any employee-related liabilities (including severance liabilities), incurred in connection with the termination of any employees employed by such Departing Partner for the benefit of the Partnership.

        Section 11.4     Withdrawal of a Limited Partner.     

        Without the prior written consent of the General Partner, which may be granted or withheld in its sole discretion, and except as provided in Section 10.1, no Limited Partner shall have the right to withdraw from the Partnership.


ARTICLE XII
DISSOLUTION AND LIQUIDATION

        Section 12.1     Dissolution.     

        The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the removal or withdrawal of the General Partner, if a successor General Partner is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be dissolved and such successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its affairs shall be wound up, upon:

        (a)   the expiration of its term as provided in Section 2.7;

        (b)   an Event of Withdrawal of the General Partner as provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant to Section 10.3;

        (c)   an election to dissolve the Partnership by the General Partner that is approved by all of the Limited Partners;

        (d)   the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Texas Act;

        (e)   the sale of all or substantially all of the assets and properties of the Partnership Group; or

        (f)    the dissolution of the MLP.

        Section 12.2     Continuation of the Business of the Partnership After Dissolution.     

        Upon (a) dissolution of the Partnership following an Event of Withdrawal caused by the withdrawal or removal of the General Partner as provided in Section 11.1(a)(i) or (iii) and the failure of the Partners to select a successor to such Departing Partner pursuant to Section 11.1 or 11.2, then within 90 days thereafter, or (b) dissolution of the Partnership upon an event constituting an Event of Withdrawal as defined in Section 11.1(a)(iii), (iv) or (v) of the MLP Agreement, then, to the maximum extent permitted by law, within 180 days thereafter, all of the Limited Partners may elect to reconstitute the Partnership and continue its business on the same terms and conditions set forth in this Agreement by forming a new limited partnership on terms identical to those set forth in this

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Agreement and having as a general partner a Person approved by a majority in interest of the Limited Partners. In addition, upon dissolution of the Partnership pursuant to Section 12.1(f), if the MLP is reconstituted pursuant to Section 12.2 of the MLP Agreement, the reconstituted MLP may, within 180 days after such event of dissolution, acting alone, regardless of whether there are any other Limited Partners, elect to reconstitute the Partnership in accordance with the immediately preceding sentence. Upon any such election by the Limited Partners or the MLP, as the case may be, all Partners shall be bound thereby and shall be deemed to have approved same. Unless such an election is made within the applicable time period as set forth above, the Partnership shall conduct only activities necessary to wind up its affairs. If such an election is so made, then:

        (a)   the reconstituted Partnership shall continue until the end of the term set forth in Section 2.7 unless earlier dissolved in accordance with this Article XII;

        (b)   if the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be purchased by the successor General Partner; and

        (c)   all necessary steps shall be taken to cancel this Agreement and the Certificate of Limited Partnership and to enter into and, as necessary, to file, a new partnership agreement and certificate of limited partnership, and the successor General Partner may for this purpose exercise the power of attorney granted the General Partner pursuant to Section 2.6; provided, that the right to approve a successor General Partner and to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that (x) the exercise of the right would not result in the loss of limited liability of the Limited Partners or any limited partner of the MLP and (y) neither the Partnership, the reconstituted limited partnership, the MLP nor any Group Member would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of such right to continue.

        Section 12.3     Liquidator.     

        Upon dissolution of the Partnership, unless the Partnership is continued under an election to reconstitute and continue the Partnership pursuant to Section 12.2, the General Partner shall select one or more Persons to act as Liquidator. The Liquidator (if other than the General Partner) shall be entitled to receive such compensation for its services as may be approved by a majority of the Limited Partners. The Liquidator (if other than the General Partner) shall agree not to resign at any time without 15 days' prior notice and may be removed at any time, with or without cause, by notice of removal approved by a majority in interest of the Limited Partners. Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by at least a majority in interest of the Limited Partners. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article XII, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the General Partner under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, other than the limitation on sale set forth in Section 7.3(b)) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Partnership as provided for herein.

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        Section 12.4     Liquidation.     

        The Liquidator shall proceed to dispose of the assets of the Partnership, discharge its liabilities, and otherwise wind up its affairs in such manner and over such period as the Liquidator determines to be in the best interest of the Partners, subject to Section 8.05 of the Texas Act and the following:

        (a)     Disposition of Assets.     The assets may be disposed of by public or private sale or by distribution in kind to one or more Partners on such terms as the Liquidator and such Partner or Partners may agree. If any property is distributed in kind, the Partner receiving the property shall be deemed for purposes of Section 12.4(c) to have received cash equal to its fair market value; and contemporaneously therewith, appropriate cash distributions must be made to the other Partners. The Liquidator may, in its absolute discretion, defer liquidation or distribution of the Partnership's assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Partnership's assets would be impractical or would cause undue loss to the Partners. The Liquidator may, in its absolute discretion, distribute the Partnership's assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Partners.

        (b)     Discharge of Liabilities .    Liabilities of the Partnership include amounts owed to Partners otherwise than in respect of their distribution rights under Article VI. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be distributed as additional liquidation proceeds.

        (c)     Liquidation Distributions .    All property and all cash in excess of that required to discharge liabilities as provided in Section 12.4(b) shall be distributed to the Partners in accordance with, and to the extent of, the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments (other than those made by reason of distributions pursuant to this Section 12.4(c)) for the taxable year of the Partnership during which the liquidation of the Partnership occurs (with such date of occurrence being determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such taxable year (or, if later, within 90 days after said date of such occurrence).

        Section 12.5     Cancellation of Certificate of Limited Partnership.     

        Upon the completion of the distribution of Partnership cash and property as provided in Section 12.4 in connection with the liquidation of the Partnership, the Partnership shall be terminated and the Certificate of Limited Partnership, and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Texas, shall be canceled and such other actions as may be necessary to terminate the Partnership shall be taken.

        Section 12.6     Return of Contributions.     

        The General Partner shall not be personally liable for, and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate, the return of the Capital Contributions of the Limited Partners, or any portion thereof, it being expressly understood that any such return shall be made solely from Partnership assets.

        Section 12.7     Waiver of Partition.     

        To the maximum extent permitted by law, each Partner hereby waives any right to partition of the Partnership property.

        Section 12.8     Capital Account Restoration.     

        No Limited Partner shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Partnership. The General Partner shall be obligated to restore any negative

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balance in its Capital Account upon liquidation of its interest in the Partnership by the end of the taxable year of the Partnership during which such liquidation occurs, or, if later, within 90 days after the date of such liquidation.


ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT

        Section 13.1     Amendment to be Adopted Solely by the General Partner.     

        Each Partner agrees that the General Partner, without the approval of any Partner or Assignee, may amend any provision of this Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect:

        (a)   a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership;

        (b)   admission, substitution, withdrawal or removal of Partners in accordance with this Agreement;

        (c)   a change that, in the sole discretion of the General Partner, is necessary or advisable to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the Limited Partners have limited liability under the laws of any state or to ensure that no Group Member will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

        (d)   a change that, in the discretion of the General Partner, (i) does not adversely affect the Limited Partners in any material respect, (ii) is necessary or advisable to (A) satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute (including the Texas Act) or (B) facilitate the trading of limited partner interests of the MLP (including the division of any class or classes of outstanding limited partner interests of the MLP into different classes to facilitate uniformity of tax consequences within such classes of limited partner interests of the MLP) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which such limited partner interests are or will be listed for trading, compliance with any of which the General Partner determines in its discretion to be in the best interests of the MLP and the limited partners of the MLP, (iii) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement or (iv) is required to conform the provisions of this Agreement with the provisions of the MLP Agreement as the provisions of the MLP Agreement may be amended, supplemented or restated from time to time;

        (e)   a change in the fiscal year or taxable year of the Partnership and any changes that, in the discretion of the General Partner, are necessary or advisable as a result of a change in the fiscal year or taxable year of the Partnership including, if the General Partner shall so determine, a change in the definition of "Quarter" and the dates on which distributions are to be made by the Partnership;

        (f)    an amendment that is necessary, in the Opinion of Counsel, to prevent the Partnership, or the General Partner or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;

        (g)   any amendment expressly permitted in this Agreement to be made by the General Partner acting alone;

        (h)   an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 14.3;

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        (i)    an amendment that, in the discretion of the General Partner, is necessary or advisable to reflect, account for and deal with appropriately the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Partnership of activities permitted by the terms of Section 2.4;

        (j)    a merger or conveyance pursuant to Section 14.3(d); or

        Section 13.2     Amendment Procedures.     

        Except with respect to amendments of the type described in Section 13.1, all amendments to this Agreement shall be made in accordance with the following requirements: Amendments to this Agreement may be proposed only by or with the consent of the General Partner which consent may be given or withheld in its sole discretion. A proposed amendment shall be effective upon its approval by the Limited Partner.


ARTICLE XIV
MERGER

        Section 14.1     Authority.     

        The Partnership may merge or consolidate with one or more corporations, limited liability companies, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including a general partnership or limited partnership, formed under the laws of the State of Texas or any other state of the United States of America, pursuant to a written agreement of merger or consolidation ("Merger Agreement") in accordance with this Article XIV.

        Section 14.2     Procedure for Merger or Consolidation.     

        Merger or consolidation of the Partnership pursuant to this Article XIV requires the prior approval of the General Partner. If the General Partner shall determine, in the exercise of its discretion, to consent to the merger or consolidation, the General Partner shall approve the Merger Agreement, which shall set forth:

        (a)   The names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate;

        (b)   The name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger or consolidation (the "Surviving Business Entity");

        (c)   The terms and conditions of the proposed merger or consolidation;

        (d)   The manner and basis of exchanging or converting the equity securities of each constituent business entity for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any general or limited partner interests, securities or rights of any constituent business entity are not to be exchanged or converted solely for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity, the cash, property or general or limited partner interests, rights, securities or obligations of any limited partnership, corporation, trust or other entity (other than the Surviving Business Entity) which the holders of such general or limited partner interests, securities or rights are to receive in exchange for, or upon conversion of their general or limited partner interests, securities or rights, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered;

41



        (e)   A statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation;

        (f)    The effective time of the merger, which may be the date of the filing of the certificate of merger pursuant to Section 14.4 or a later date specified in or determinable in accordance with the Merger Agreement (provided, that if the effective time of the merger is to be later than the date of the filing of the certificate of merger, the effective time shall be fixed no later than the time of the filing of the certificate of merger and stated therein); and

        (g)   Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or appropriate by the General Partner.

        Section 14.3     Approval by Limited Partners of Merger or Consolidation.     

        (a)   Except as provided in Section 14.3(d), the General Partner, upon its approval of the Merger Agreement, shall direct that the Merger Agreement be submitted to a vote of the Limited Partners, whether at a special meeting or by written consent, in either case in accordance with the requirements of Article XIII. A copy or a summary of the Merger Agreement shall be included in or enclosed with the notice of a special meeting or the written consent.

        (b)   Except as provided in Section 14.3(d), the Merger Agreement shall be approved upon receiving the affirmative vote or consent of the Limited Partners.

        (c)   Except as provided in Section 14.3(d), after such approval by vote or consent of the Limited Partners, and at any time prior to the filing of the certificate of merger pursuant to Section 14.4, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement.

        (d)   Notwithstanding anything else contained in this Article XIV or in this Agreement, the General Partner is permitted, in its discretion, without Limited Partner approval, to merge the Partnership or any Group Member into, or convey all of the Partnership's assets to, another limited liability entity which shall be newly formed and shall have no assets, liabilities or operations at the time of such Merger other than those it receives from the Partnership or other Group Member if (i) the General Partner has received an Opinion of Counsel that the merger or conveyance, as the case may be, would not result in the loss of the limited liability of any Limited Partner or any limited partner in the MLP or cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such), (ii) the sole purpose of such merger or conveyance is to effect a mere change in the legal form of the Partnership into another limited liability entity and (iii) the governing instruments of the new entity provide the Limited Partners and the General Partner with the same rights and obligations as are herein contained.

        Section 14.4     Certificate of Merger.     

        Upon the required approval by the General Partner and the Limited Partners of a Merger Agreement, a certificate of merger shall be executed and filed with the Secretary of State of the State of Texas in conformity with the requirements of the Texas Act.

        Section 14.5     Effect of Merger.     

        (a)   At the effective time of the certificate of merger:

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        (b)   A merger or consolidation effected pursuant to this Article shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.

        Section 14.6     Link Energy Transaction.     

        The General Partner and the Limited Partner hereby acknowledge their approval of the Partnership (i) engaging in a merger transaction with the parties named in the Plan of Merger on the terms and conditions contained in the Plan of Merger and (ii) executing and performing its obligations under the Plan of Merger and any other related articles of merger and other documents approved by the General Partner and executed or to be executed in connection with the consummation of such merger.


ARTICLE XV
GENERAL PROVISIONS

        Section 15.1     Addresses and Notices.     

        Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner at the address described below. Any notice to the Partnership shall be deemed given if received by the General Partner at the principal office of the Partnership designated pursuant to Section 2.3. The General Partner may rely and shall be protected in relying on any notice or other document from a Partner, Assignee or other Person if believed by it to be genuine.

        Section 15.2     Further Action.     

        The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

        Section 15.3     Binding Effect.     

        This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

        Section 15.4     Integration.     

        This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

        Section 15.5     Creditors.     

        None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.

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        Section 15.6     Waiver.     

        No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.

        Section 15.7     Counterparts.     

        This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto, independently of the signature of any other party.

        Section 15.8     Applicable Law.     

        This Agreement shall be construed in accordance with and governed by the laws of the State of Texas, without regard to the principles of conflicts of law.

        Section 15.9     Invalidity of Provisions.     

        If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

        Section 15.10     Consent of Partners.     

        Each Partner hereby expressly consents and agrees that, whenever in this Agreement it is specified that an action may be taken upon the affirmative vote or consent of less than all of the Partners, such action may be so taken upon the concurrence of less than all of the Partners and each Partner shall be bound by the results of such action.

        Section 15.11     Amendments to Reflect GP Restructuring Agreement.     

        In addition to the amendments to this Agreement contained in the GP Restructuring Agreement and notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be deemed to be further amended and modified to the extent necessary, but only to the extent necessary, to carry out the purposes and intent of the GP Restructuring Agreement.

[Rest of Page Intentionally Left Blank]

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

    GENERAL PARTNER:

 

 

Plains Marketing GP Inc.

 

 

By:

 


      Name: Tim Moore
Title: Vice President

 

 

LIMITED PARTNER:

 

 

Plains All American Pipeline, L.P.

 

 

By:

 

Plains AAP, L.P.,
its General Partner

 

 

 

 

By:  Plains All American GP, LLC,
its General Partner

 

 

 

 

By:
         
          Name: Tim Moore
        Title: Vice President

45




QuickLinks

THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS MARKETING, L.P.
TABLE OF CONTENTS ARTICLE I DEFINITIONS
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS MARKETING, L.P.
ARTICLE I DEFINITIONS
ARTICLE II ORGANIZATION
ARTICLE III RIGHTS OF LIMITED PARTNERS
ARTICLE IV TRANSFERS OF PARTNERSHIP INTERESTS
ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS
ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS
ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS
ARTICLE IX TAX MATTERS
ARTICLE X ADMISSION OF PARTNERS
ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS
ARTICLE XII DISSOLUTION AND LIQUIDATION
ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT
ARTICLE XIV MERGER
ARTICLE XV GENERAL PROVISIONS

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Exhibit 3.3


THIRD AMENDED AND RESTATED


AGREEMENT OF LIMITED PARTNERSHIP


OF


PLAINS PIPELINE, L.P.



TABLE OF CONTENTS

ARTICLE I
DEFINITIONS

Section 1.1 Definitions   2
Section 1.2 Construction   10

ARTICLE II
ORGANIZATION

Section 2.1

Formation

 

10
Section 2.2 Name   10
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices   10
Section 2.4 Purpose and Business   10
Section 2.5 Powers   11
Section 2.6 Power of Attorney   11
Section 2.7 Term   12
Section 2.8 Title to Partnership Assets   12

ARTICLE III
RIGHTS OF LIMITED PARTNERS

Section 3.1

Limitation of Liability

 

13
Section 3.2 Management of Business   13
Section 3.3 Outside Activities of the Limited Partners   13
Section 3.4 Rights of Limited Partners   13

ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS

Section 4.1

Transfer Generally

 

14
Section 4.2 Transfer of General Partner's Partnership Interest   14
Section 4.3 Transfer of a Limited Partner's Partnership Interest   15
Section 4.4 Restrictions on Transfers   15

ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

Section 5.1

Initial Contributions

 

15
Section 5.2 Contributions Pursuant to the Contribution and Conveyance Agreement   15
Section 5.3 Additional Capital Contributions   16
Section 5.4 Interest and Withdrawal   16
Section 5.5 Capital Accounts   16
Section 5.6 Loans from Partners   18
Section 5.7 Limited Preemptive Rights   18
Section 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests   18
       

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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

Section 6.1

Allocations for Capital Account Purposes

 

19
Section 6.2 Allocations for Tax Purposes   22
Section 6.3 Distributions   23

ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

Section 7.1

Management

 

24
Section 7.2 Certificate of Limited Partnership   25
Section 7.3 Restrictions on General Partner's Authority   25
Section 7.4 Reimbursement of the General Partner   26
Section 7.5 Outside Activities   26
Section 7.6 Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner   27
Section 7.7 Indemnification   29
Section 7.8 Liability of Indemnitees   30
Section 7.9 Resolution of Conflicts of Interest   30
Section 7.10 Other Matters Concerning the General Partner   32
Section 7.11 Reliance by Third Parties   32

ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

Section 8.1

Records and Accounting

 

33
Section 8.2 Fiscal Year   33

ARTICLE IX
TAX MATTERS

Section 9.1

Tax Returns and Information

 

33
Section 9.2 Tax Elections   33
Section 9.3 Tax Controversies   33
Section 9.4 Withholding   33

ARTICLE X
ADMISSION OF PARTNERS

Section 10.1

Admission of Partners

 

34
Section 10.2 Admission of Substituted Limited Partner   34
Section 10.3 Admission of Additional Limited Partners   34
Section 10.4 Admission of Successor or Transferee General Partner   35
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership   35
       

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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS

Section 11.1

Withdrawal of the General Partner

 

35
Section 11.2 Removal of the General Partner   36
Section 11.3 Interest of Departing Partner   36
Section 11.4 Withdrawal of a Limited Partner   37

ARTICLE XII
DISSOLUTION AND LIQUIDATION

Section 12.1

Dissolution

 

37
Section 12.2 Continuation of the Business of the Partnership After Dissolution   37
Section 12.3 Liquidator   38
Section 12.4 Liquidation   38
Section 12.5 Cancellation of Certificate of Limited Partnership   39
Section 12.6 Return of Contributions   39
Section 12.7 Waiver of Partition   39
Section 12.8 Capital Account Restoration   39

ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT

Section 13.1

Amendment to be Adopted Solely by the General Partner

 

39
Section 13.2 Amendment Procedures   40

ARTICLE XIV
MERGER

Section 14.1

Authority

 

41
Section 14.2 Procedure for Merger or Consolidation   41
Section 14.3 Approval by Limited Partners of Merger or Consolidation   41
Section 14.4 Certificate of Merger   42
Section 14.5 Effect of Merger   42

ARTICLE XV
GENERAL PROVISIONS

Section 15.1

Addresses and Notices

 

43
Section 15.2 Further Action   43
Section 15.3 Binding Effect   43
Section 15.4 Integration   43
Section 15.5 Creditors   43
Section 15.6 Waiver   43
Section 15.7 Counterparts   43
Section 15.8 Applicable Law   43
Section 15.9 Invalidity of Provisions   43
Section 15.10 Consent of Partners   44
Section 15.11 Amendments to Reflect GP Restructuring Agreement   44

iii



THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS PIPELINE, L.P.

        THIS THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of PLAINS PIPELINE, L.P., dated as of April 1, 2004, is entered into by and between Plains Marketing GP Inc., a Delaware corporation, as the General Partner, and Plains Marketing, L.P., a Texas limited partnership, as the Limited Partner, together with any other Persons who hereafter become Partners in the Partnership or parties hereto as provided herein. In consideration of the covenants, conditions and agreements contained herein, the parties hereto hereby agree as follows:

         WHEREAS , Plains All American Inc. and the other parties thereto entered into that certain Amended and Restated Agreement of Limited Partnership of Plains Pipeline, L.P. dated as of November 23, 1998 (the "1998 Agreement"); and

         WHEREAS , Plains All American Inc. effected Amendment No. 1 to the 1998 Agreement on April 27, 2001 to include certain tax provisions appropriate to reflect acquisition of operations in Canada; and

         WHEREAS , Plains All American Inc. and the other parties thereto entered into that certain Contribution, Assignment and Amendment Agreement (the "GP Transfer Agreement"), dated as of June 8, 2001, pursuant to which Plains All American Inc. transferred its General Partner Interest to Plains AAP, L.P. (consistent with the definition contained herein, each of Plains All American Inc. and Plains AAP, L.P. may be referred to in this Agreement as the "Predecessor General Partner"); and

         WHEREAS , the Partnership, the Predecessor General Partner and the other parties thereto entered into that certain Contribution Assignment and Amendment Agreement (the "GP Restructuring Agreement"), dated as of June 27, 2001, pursuant to which the Predecessor General Partner transferred its General Partner Interest to the General Partner; and

         WHEREAS , the General Partner, consistent with the authority granted to it in the GP Restructuring Agreement, effected Amendment No. 2 to the 1998 Agreement as of June 27, 2001 to more fully reflect the transactions contemplated by the GP Restructuring Agreement; and

         WHEREAS , the General Partner and the Limited Partner amended and restated the 1998 Agreement as of June 27, 2001 (the "2001 Agreement") in its entirety to reflect the prior amendments adopted by each of the Predecessor General Partners and the General Partner, and to reflect the transactions contemplated by the GP Restructuring Agreement; and

         WHEREAS , the General Partner and the Limited Partner amended the 2001 Agreement as of March 31, 2004 to reflect the approval of the General Partner and the Limited Partner with regard to the Partnership engaging in the Plan of Merger (as defined herein) and executing and performing its obligations under the Plan of Merger; and

         WHEREAS , the General Partner deems it in the best interest of the Partnership to amend and restate the 2001 Agreement in its entirety to reflect the amendments adopted by the General Partner since the execution of the 2001 Agreement.

1




ARTICLE I
DEFINITIONS

        Section 1.1     Definitions.     

        The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. Capitalized terms used herein but not otherwise defined shall have the meaning assigned to such term in the MLP Agreement.

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3


4


5


6


7


8


9


        Section 1.2     Construction.     

        Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; and (c) the term "include" or "includes" means includes, without limitation, and "including" means including, without limitation.


ARTICLE II
ORGANIZATION

        Section 2.1     Formation     

        The Partnership was previously formed as a limited partnership pursuant to the provisions of the Texas Act. This amendment and restatement shall become effective on the date of this Agreement. Except as expressly provided to the contrary in this Agreement, the rights, duties (including fiduciary duties), liabilities and obligations of the Partners and the administration, dissolution and termination of the Partnership shall be governed by the Texas Act. All Partnership Interests shall constitute personal property of the owner thereof for all purposes and a Partner has no interest in specific Partnership property.

        Section 2.2     Name.     

        The name of the Partnership shall be "Plains Pipeline, L.P." The Partnership's business may be conducted under any other name or names deemed necessary or appropriate by the General Partner in its sole discretion, including the name of the General Partner. The words "Limited Partnership," "L.P." or "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purpose of complying with the laws of any jurisdiction that so requires. The General Partner in its discretion may change the name of the Partnership at any time and from time to time and shall notify the other Partner(s) of such change in the next regular communication to the Partners.

        Section 2.3     Registered Office; Registered Agent; Principal Office; Other Offices.     

        Unless and until changed by the General Partner, the registered office of the Partnership in the State of Texas shall be located at 1021 Main Street, Suite 1150, Houston, Texas 77002, and the registered agent for service of process on the Partnership in the State of Texas at such registered office shall be CT Corporation System. The principal office of the Partnership shall be located at 333 Clay Street, Suite 1600, Houston, Texas 77002 or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Texas as the General Partner deems necessary or appropriate. The address of the General Partner shall be 333 Clay Street, Suite 1600, Houston, Texas 77002 or such other place as the General Partner may from time to time designate by notice to the Limited Partners.

        Section 2.4     Purpose and Business.     

        The purpose and nature of the business to be conducted by the Partnership shall be to (a) acquire, manage, operate and sell the Assets and any similar assets or properties now or hereafter acquired by the Partnership, (b) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that the Partnership is permitted to engage in, or any type of business or activity engaged in by the Predecessor General Partner prior to the Closing Date and, in connection therewith, to exercise all of

10



the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity, (c) engage directly in, or enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage indirectly in, any business activity that is approved by the General Partner and which lawfully may be conducted by a limited partnership organized pursuant to the Texas Act and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity; provided, however, that the General Partner reasonably determines, as of the date of the acquisition or commencement of such activity, that such activity (i) generates "qualifying income" (as such term is defined pursuant to Section 7704 of the Code) or (ii) enhances the operations of an activity of the Partnership that generates qualifying income, and (d) do anything necessary or appropriate to the foregoing, including the making of capital contributions or loans to a Group Member, the MLP or any Subsidiary of the MLP. The General Partner has no obligation or duty to the Partnership, the Limited Partners, or the Assignees to propose or approve, and in its discretion may decline to propose or approve, the conduct by the Partnership of any business.

        Section 2.5     Powers.     

        The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described in Section 2.4 and for the protection and benefit of the Partnership.

        Section 2.6     Power of Attorney.     

        (a)   Each Partner and each Assignee hereby constitutes and appoints the General Partner and, if a Liquidator shall have been selected pursuant to Section 12.3, the Liquidator (and any successor to the Liquidator by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to:

11


        Nothing contained in this Section 2.6(a) shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article XIII or as may be otherwise expressly provided for in this Agreement.

        (b)   The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the maximum extent permitted by law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner's or Assignee's Partnership Interest and shall extend to such Limited Partner's or Assignee's successors and assigns. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee, to the maximum extent permitted by law, hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator deems necessary to effectuate this Agreement and the purposes of the Partnership.

        Section 2.7     Term.     

        The term of the Partnership commenced upon the filing of the Certificate of Limited Partnership in accordance with the Texas Act and shall continue in existence until the close of Partnership business on December 31, 2088 or until the earlier dissolution of the Partnership in accordance with the provisions of Article XII. The existence of the Partnership as a separate legal entity shall continue until the cancellation of the Certificate of Limited Partnership as provided in the Texas Act.

        Section 2.8     Title to Partnership Assets.     

        Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner or Assignee, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner, one or more of its Affiliates or one or more nominees, as the General Partner may determine. The General Partner hereby declares and warrants that any Partnership assets for which record title is held in the name of the General Partner or one or more of its Affiliates or one or more nominees shall be held by the General Partner or such Affiliate or nominee for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use reasonable efforts to cause record title to such assets (other than those assets in respect of which the General Partner determines that the expense and difficulty of conveyancing makes transfer of record title to the Partnership impracticable) to be vested in the Partnership as soon as reasonably practicable; provided, further, that, prior to the withdrawal or removal of the General Partner or as soon thereafter as practicable, the General Partner shall use reasonable efforts to effect the transfer of record title to the Partnership and, prior to any such transfer, will provide for the use of such assets in a manner satisfactory to the General Partner. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which record title to such Partnership assets is held.

12



ARTICLE III
RIGHTS OF LIMITED PARTNERS

        Section 3.1     Limitation of Liability.     

        The Limited Partners and the Assignees shall have no liability under this Agreement except as expressly provided in this Agreement or in the Texas Act.

        Section 3.2     Management of Business.     

        No Limited Partner or Assignee, in its capacity as such, shall participate in the operation, management or control (within the meaning of the Texas Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. Any action taken by any Affiliate of the General Partner or any officer, director, employee, member, general partner, agent or trustee of the General Partner or any of its Affiliates, or any officer, director, employee, member, general partner, agent or trustee of a Group Member, in its capacity as such, shall not be deemed to be participation in the control of the business of the Partnership by a limited partner of the Partnership (within the meaning of Section 3.03(a) of the Texas Act) and shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement.

        Section 3.3     Outside Activities of the Limited Partners.     

        Subject to the provisions of Section 7.5 and the Omnibus Agreement, which shall continue to be applicable to the Persons referred to therein, regardless of whether such Persons shall also be Limited Partners or Assignees, any Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities in direct competition with the Partnership Group. Neither the Partnership nor any of the other Partners or Assignees shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee.

        Section 3.4     Rights of Limited Partners.     

        (a)   In addition to other rights provided by this Agreement or by applicable law, and except as limited by Section 3.4(b), each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon reasonable written demand and at such Limited Partner's own expense:

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        (b)   The General Partner may keep confidential from the Limited Partners and Assignees, for such period of time as the General Partner deems reasonable, (i) any information that the General Partner reasonably believes to be in the nature of trade secrets or (ii) other information the disclosure of which the General Partner in good faith believes (A) is not in the best interests of the MLP or the Partnership Group, (B) could damage the MLP or the Partnership Group or (C) that any Group Member is required by law or by agreement with any third party to keep confidential (other than agreements with Affiliates of the Partnership the primary purpose of which is to circumvent the obligations set forth in this Section 3.4).


ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS

        Section 4.1     Transfer Generally.     

        (a)   The term "transfer," when used in this Agreement with respect to a Partnership Interest, shall be deemed to refer to a transaction by which the General Partner assigns its General Partner Interest to another Person who becomes the General Partner (or an Assignee) or by which the holder of a Limited Partner Interest assigns such Limited Partner Interest to another Person who becomes a Limited Partner (or an Assignee), and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise.

        (b)   No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article IV. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article IV shall be null and void.

        (c)   Nothing contained in this Agreement shall be construed to prevent a disposition by any shareholder of the General Partner of any or all of the issued and outstanding capital stock of the General Partner.

        Section 4.2     Transfer of General Partner's Partnership Interest.     

        No provision of this Agreement shall be construed to prevent (and the Limited Partners do hereby expressly consent to) (i) the transfer by the General Partner of all or a portion of its General Partner Interest to one or more Affiliates, which transferred General Partner Interest, to the extent not transferred to a successor General Partner, shall constitute a Limited Partner Interest or (ii) the transfer by the General Partner, in whole and not in part, of its General Partner Interest upon its merger, consolidation or other combination into any other Person or the transfer by it of all or substantially all of its assets to another Person if, in the case of a transfer described in either clause (i) or (ii) of this sentence, the rights and duties of the General Partner with respect to the General Partner Interest so transferred (or the rights and duties of a Limited Partner with respect to the Limited Partner Interest so transferred) are assumed by the transferee and the transferee agrees to be bound by the provisions of this Agreement; provided, however , that in either such case the transferee is primarily controlled, directly or indirectly, by the MLP General Partner or any Person primarily controlling, directly or indirectly, the MLP General Partner; provided , further , that in either such case, such transferee furnishes to the Partnership an Opinion of Counsel that such merger, consolidation, combination, transfer or assumption will not result in a loss of limited liability of the Limited Partners or cause the Partnership to be taxable as a corporation or otherwise taxed as an entity for federal income tax purposes. In the case of a transfer pursuant to this Section 4.2 to a Person proposed as a successor general partner of the Partnership, the transferee or successor (as the case may be) shall be admitted to the Partnership as the General Partner immediately prior to the transfer of the Partnership Interest, and the business of the Partnership shall continue without dissolution.

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        Section 4.3     Transfer of a Limited Partner's Partnership Interest.     

        A Limited Partner may transfer all, but not less than all, of its Partnership Interest as a Limited Partner in connection with the merger, consolidation or other combination of such Limited Partner with or into any other Person or the transfer by such Limited Partner of all or substantially all of its assets to another Person, and following any such transfer such Person may become a Substituted Limited Partner pursuant to Article X. Except as set forth in the immediately preceding sentence and in Section 5.2, or in connection with any pledge of (or any related foreclosure on) a Partnership Interest as a Limited Partner solely for the purpose of securing, directly or indirectly, indebtedness of the Partnership or the MLP, and except for the transfers contemplated by Sections 5.2 and 10.1, a Limited Partner may not transfer all or any part of its Partnership Interest or withdraw from the Partnership.

        Section 4.4     Restrictions on Transfers.     

        (a)   Notwithstanding the other provisions of this Article IV, no transfer of any Partnership Interest shall be made if such transfer would (i) violate the then applicable federal or state securities laws or rules and regulations of the Commission, any state securities commission or any other governmental authority with jurisdiction over such transfer, (ii) terminate the existence or qualification of the Partnership or the MLP under the laws of the jurisdiction of its formation or (iii) cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not already so treated or taxed).

        (b)   The General Partner may impose restrictions on the transfer of Partnership Interests if a subsequent Opinion of Counsel determines that such restrictions are necessary to avoid a significant risk of the Partnership or the MLP becoming taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes. The restrictions may be imposed by making such amendments to this Agreement as the General Partner may determine to be necessary or appropriate to impose such restrictions.


ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS

        Section 5.1     Initial Contributions.     

        In connection with the conversion of All American Pipeline Company to the Partnership, the investment of the Predecessor General Partner and PAAI LLC in the stock of All American Pipeline Company prior to its conversion became its respective capital contribution to the Partnership.

        Section 5.2     Contributions Pursuant to the Contribution and Conveyance Agreement.     

        (a)   Pursuant to the Contribution and Conveyance Agreement, the Partnership assumed certain indebtedness relating to the Assets as described in the Contribution and Conveyance Agreement.

        (b)   Pursuant to the Contribution and Conveyance Agreement, the Partnership distributed to the General Partner all of its interest in Gathering LLC.

        (c)   Notwithstanding anything else herein contained, if the aggregate excess net working capital reflected on the balance sheets of the Partnership and Marketing that are prepared in accordance with Section 7.3 of the Contribution and Conveyance Agreement is in excess of $8,000,000, then the Partnership shall distribute to the General Partner all of its excess net working capital up to the total amount of such excess. In the event that such aggregate excess net working capital is less than $8,000,000, the General Partner shall contribute to the Partnership, as a Capital Contribution, cash in an amount equal to the amount that, when added to the amount of the similar contribution made to Marketing by the General Partner, would cause the aggregate excess net working capital of the Partnership and Marketing to be equal to $8,000,000.

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        Section 5.3     Additional Capital Contributions.     

        With the consent of the General Partner, any Limited Partner may, but shall not be obligated to, make additional Capital Contributions to the Partnership. Contemporaneously with the making of any Capital Contributions by a Limited Partner, in addition to those provided in Sections 5.1 and 5.2, the General Partner shall be obligated to make an additional Capital Contribution to the Partnership in an amount equal to 0.001 divided by 99.999 times the amount of the additional Capital Contribution then made by such Limited Partner. Except as set forth in the immediately preceding sentence and in Article XII, the General Partner shall not be obligated to make any additional Capital Contributions to the Partnership.

        Section 5.4     Interest and Withdrawal.     

        No interest shall be paid by the Partnership on Capital Contributions. No Partner or Assignee shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon termination of the Partnership may be considered as such by law and then only to the extent provided for in this Agreement. Except to the extent expressly provided in this Agreement, no Partner or Assignee shall have priority over any other Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions.

        Section 5.5     Capital Accounts.     

        (a)   The Partnership shall maintain for each Partner (or a beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion) owning a Partnership Interest a separate Capital Account with respect to such Partnership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Partnership with respect to such Partnership Interest pursuant to this Agreement and (ii) all items of Partnership income and gain (including, without limitation, income and gain exempt from tax) computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or property made with respect to such Partnership Interest pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 5.5(b) and allocated with respect to such Partnership Interest pursuant to Section 6.1.

        (b)   For purposes of computing the amount of any item of income, gain, loss or deduction which is to be allocated pursuant to Article VI and is to be reflected in the Partners' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes (including, without limitation, any method of depreciation, cost recovery or amortization used for that purpose), provided, that:

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        (c)   A transferee of a Partnership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Partnership Interest so transferred.

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        Section 5.6     Loans from Partners.     

        Loans by a Partner to the Partnership shall not constitute Capital Contributions. If any Partner shall advance funds to the Partnership in excess of the amounts required hereunder to be contributed by it to the capital of the Partnership, the making of such excess advances shall not result in any increase in the amount of the Capital Account of such Partner. The amount of any such excess advances shall be a debt obligation of the Partnership to such Partner and shall be payable or collectible only out of the Partnership assets in accordance with the terms and conditions upon which such advances are made.

        Section 5.7     Limited Preemptive Rights.     

        Except as provided in Section 5.3, no Person shall have preemptive, preferential or other similar rights with respect to (a) additional Capital Contributions; (b) issuance or sale of any class or series of Partnership Interests, whether unissued, held in the treasury or hereafter created; (c) issuance of any obligations, evidences of indebtedness or other securities of the Partnership convertible into or exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to, any such Partnership Interests; (d) issuance of any right of subscription to or right to receive, or any warrant or option for the purchase of, any such Partnership Interests; or (e) issuance or sale of any other securities that may be issued or sold by the Partnership.

        Section 5.8     Fully Paid and Non-Assessable Nature of Partnership Interests.     

        All Partnership Interests issued to Limited Partners pursuant to, and in accordance with the requirements of, this Article V shall be fully paid and non-assessable Partnership Interests, except as such non-assessability may be affected by Section 6.07 of the Texas Act.

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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS

        Section 6.1     Allocations for Capital Account Purposes.     

        For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership's items of income, gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be allocated among the Partners in each taxable year (or portion thereof) as provided herein below.

        (a)    Net Income . After giving effect to the special allocations set forth in Section 6.1(d), Net Income for each taxable year and all items of income, gain, loss and deduction taken into account in computing Net Income for such taxable year shall be allocated among the Partners as follows:

        (b)    Net Losses . After giving effect to the special allocations set forth in Section 6.1(d), Net Losses for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Losses for such taxable period shall be allocated among the Partners as follows:

        (c)    Net Termination Gains and Losses . After giving effect to the special allocations set forth in Section 6.1(d), all items of income, gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss for such taxable period shall be allocated in the same manner as such Net Termination Gain or Net Termination Loss is allocated hereunder. All allocations under this Section 6.1(c) shall be made after Capital Account balances have been adjusted by all other allocations provided under this Section 6.1 and after all distributions of Available Cash provided under Section 6.4 have been made with respect to the taxable period ending on or before the Liquidation Date; provided, however, that solely for purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant to Section 12.4.

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        (d)    Special Allocations . Notwithstanding any other provision of this Section 6.1, the following special allocations shall be made for such taxable period:

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        Section 6.2     Allocations for Tax Purposes.     

        (a)   Except as otherwise provided herein, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 6.1.

        (b)   In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, depreciation, amortization and cost recovery deductions shall be allocated for federal income tax purposes among the Partners as follows:

        (c)   For the proper administration of the Partnership and for the preservation of uniformity of the Units or other limited partner interests of the MLP (or any class or classes thereof), the General Partner shall have sole discretion to (i) adopt such conventions as it deems appropriate in determining the amount of depreciation, amortization and cost recovery deductions; (ii) make special allocations for federal income tax purposes of income (including, without limitation, gross income) or deductions; and (iii) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the Units or other limited partner interests of the MLP (or any class or classes thereof). The General Partner may adopt such conventions, make such allocations and make such amendments to this Agreement as provided in this Section 6.2(c) only if such conventions, allocations or amendments would not have a material adverse effect on the Partners, the holders of any class or classes of Units or other limited partner interests of the MLP issued and outstanding or the Partnership and if such allocations are consistent with the principles of Section 704 of the Code.

        (d)   The General Partner in its discretion may determine to depreciate or amortize the portion of an adjustment under Section 743(b) of the Code attributable to unrealized appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a predetermined rate derived from the depreciation or amortization method and useful life applied to the Partnership's common basis of such property, despite any inconsistency of such approach with Treasury Regulation Section 1.167(c)-l(a)(6). If the General Partner determines that such reporting position cannot

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reasonably be taken, the General Partner may adopt depreciation and amortization conventions under which all purchasers acquiring limited partner interests of the MLP in the same month would receive depreciation and amortization deductions, based upon the same applicable rate as if they had purchased a direct interest in the Partnership's property. If the General Partner chooses not to utilize such aggregate method, the General Partner may use any other reasonable depreciation and amortization conventions to preserve the uniformity of the intrinsic tax characteristics of any limited partner interests of the MLP that would not have a material adverse effect on the Partners or the holders of any class or classes of limited partner interests of the MLP.

        (e)   Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible, after taking into account other required allocations of gain pursuant to this Section 6.2, be characterized as Recapture Income in the same proportions and to the same extent as such Partners (or their predecessors in interest) have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income.

        (f)    All items of income, gain, loss, deduction and credit recognized by the Partnership for federal income tax purposes and allocated to the Partners in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code which may be made by the Partnership; provided, however, that such allocations, once made, shall be adjusted as necessary or appropriate to take into account those adjustments permitted or required by Sections 734 and 743 of the Code.

        (g)   The General Partner may adopt such methods of allocation of income, gain, loss or deduction between a transferor and a transferee of a Partnership Interest as it determines necessary, to the extent permitted or required by Section 706 of the Code and the regulations or rulings promulgated thereunder.

        (h)   Allocations that would otherwise be made to a Partner under the provisions of this Article VI shall instead be made to the beneficial owner of Partnership Interests held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion.

        Section 6.3     Distributions.     

        (a)   Within 45 days following the end of each Quarter commencing with the Quarter ending on December 31, 1998, an amount equal to 100% of Available Cash with respect to such Quarter shall, subject to Section 6.07 of the Texas Act, be distributed in accordance with this Article VI by the Partnership to the Partners in accordance with their respective Percentage Interests. The immediately preceding sentence shall not require any distribution of cash if and to the extent such distribution would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership is a party or by which it is bound or its assets are subject. All distributions required to be made under this Agreement shall be made subject to Section 6.07 of the Texas Act.

        (b)   In the event of the dissolution and liquidation of the Partnership, all receipts received during or after the Quarter in which the Liquidation Date occurs, other than from borrowings described in (a)(ii) of the definition of Available Cash, shall be applied and distributed solely in accordance with, and subject to the terms and conditions of, Section 12.4.

        (c)   The General Partner shall have the discretion to treat as a distribution of Available Cash to all or less than all of the Partners or Assignees (i) taxes paid by any member of the Partnership Group on behalf of such Partners or Assignees, (ii) amounts withheld by any member of the Partnership Group for taxes with respect to such Partners or Assignees and (iii) amounts seized by any taxing authority from any member of the Partnership Group with respect to taxes owed by such Partners or Assignees.

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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS

        Section 7.1     Management.     

        (a)   The General Partner shall conduct, direct and manage all activities of the Partnership. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership shall be exclusively vested in the General Partner, and no Limited Partner or Assignee shall have any management power over the business and affairs of the Partnership. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 7.3, shall have full power and authority to do all things and on such terms as it, in its sole discretion, may deem necessary or appropriate to conduct the business of the Partnership, to exercise all powers set forth in Section 2.5 and to effectuate the purposes set forth in Section 2.4, including the following:

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        (b)   Notwithstanding any other provision of this Agreement, the MLP Agreement, the Texas Act or any applicable law, rule or regulation, each of the Partners and Assignees and each other Person who may acquire an interest in the Partnership hereby (i) approves, ratifies and confirms the execution, delivery and performance by the parties thereto of the Partnership Agreement, the MLP Agreement, the Underwriting Agreement, the Omnibus Agreement, the Contribution and Conveyance Agreement and the other agreements and documents described in or filed as exhibits to the Registration Statement that are related to the transactions contemplated by the Registration Statement; (ii) agrees that the General Partner (on its own or through any officer of the Partnership) is authorized to execute, deliver and perform the agreements referred to in clause (i) of this sentence and the other agreements, acts, transactions and matters described in or contemplated by the Registration Statement on behalf of the Partnership without any further act, approval or vote of the Partners or the Assignees or the other Persons who may acquire an interest in the Partnership; and (iii) agrees that the execution, delivery or performance by the General Partner, the MLP, any Group Member or any Affiliate of any of them, of this Agreement or any agreement authorized or permitted under this Agreement (including the exercise by the General Partner or any Affiliate of the General Partner of the rights accorded pursuant to Article XV), shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement (or any other agreements) or of any duty stated or implied by law or equity.

        Section 7.2     Certificate of Limited Partnership.     

        The Certificate of Limited Partnership has been filed with the Secretary of State of the State of Texas as required by the Texas Act and the General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Texas or any other state in which the Partnership may elect to do business or own property. To the extent that such action is determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate of Limited Partnership and do all things to maintain the Partnership as a limited partnership (or a partnership or other entity in which the limited partners have limited liability) under the laws of the State of Texas or of any other state in which the Partnership may elect to do business or own property. Subject to the terms of Section 3.4(a), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Limited Partnership, any qualification document or any amendment thereto to any Limited Partner or Assignee.

        Section 7.3     Restrictions on General Partner's Authority.     

        (a)   The General Partner may not, without written approval of the specific act by the Limited Partners or by other written instrument executed and delivered by the Limited Partners subsequent to the date of this Agreement, take any action in contravention of this Agreement, including, except as otherwise provided in this Agreement, (i) committing any act that would make it impossible to carry on the ordinary business of the Partnership; (ii) possessing Partnership property, or assigning any rights in specific Partnership property, for other than a Partnership purpose; (iii) admitting a Person as a Partner; (iv) amending this Agreement in any manner or (v) transferring its General Partner Interest.

        (b)   Except as provided in Articles XII and XIV, the General Partner may not sell, exchange or otherwise dispose of all or substantially all of the Partnership's assets in a single transaction or a series

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of related transactions (including by way of merger, consolidation or other combination) or approve on behalf of the Partnership the sale, exchange or other disposition of all or substantially all of the assets of the Partnership, without the approval of the Limited Partners; provided however that this provision shall not preclude or limit the General Partner's ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Partnership and shall not apply to any forced sale of any or all of the assets of the Partnership pursuant to the foreclosure of, or other realization upon, any such encumbrance. Without the approval of at least a Unit Majority, the General Partner shall not (i) consent to any amendment to this Agreement or, except as expressly permitted by Section 7.9(d) of the MLP Agreement, take any action permitted to be taken by a Partner, in either case, that would have a material adverse effect on the MLP as a Partner or (ii) except as permitted under Sections 4.2, 11.1 and 11.2 of this Agreement, elect a successor general partner of the Partnership.

        Section 7.4     Reimbursement of the General Partner.     

        (a)   Except as provided in this Section 7.4 and elsewhere in this Agreement or in the MLP Agreement, the General Partner shall not be compensated for its services as General Partner or as general partner of any Group Member.

        (b)   The General Partner, and the MLP General Partner on behalf of the General Partner, shall be reimbursed on a monthly basis, or such other reasonable basis as the General Partner may determine in its sole discretion, for (i) all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including salary, bonus, incentive compensation and other amounts paid to any Person including employees of the MLP General Partner and other Affiliates of the General Partner to perform services for the Partnership or for the General Partner or the MLP General Partner on behalf of the General Partner in the discharge of its duties to the Partnership), and (ii) all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with operating the Partnership's business (including expenses allocated to the General Partner by its Affiliates). The General Partner shall determine the expenses that are allocable to the Partnership in any reasonable manner determined by the General Partner in its sole discretion. Reimbursements pursuant to this Section 7.4 shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 7.7.

        (c)   Subject to Section 5.7, the General Partner, in its sole discretion and without the approval of the Limited Partners (who shall have no right to vote in respect thereof), may propose and adopt on behalf of the Partnership employee benefit plans, employee programs and employee practices, or cause the Partnership to issue Partnership Interests, in connection with, pursuant to any employee benefit plan, employee program or employee practice maintained or sponsored by the General Partner or any of its Affiliates, in each case for the benefit of employees of the General Partner any Group Member or any Affiliate, or any of them, in respect of services performed, directly or indirectly, for the benefit of the Partnership Group. Expenses incurred by the General Partner or the MLP General Partner on behalf of the General Partner in connection with any such plans, programs and practices shall be reimbursed in accordance with Section 7.4(b). Any and all obligations of the General Partner or the MLP General Partner on behalf of the General Partner under any employee benefit plans, employee programs or employee practices adopted by the General Partner as permitted by this Section 7.4(c) shall constitute obligations of the General Partner hereunder and shall be assumed by any successor General Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the General Partner's General Partner Interest pursuant to Section 4.2.

        Section 7.5     Outside Activities.     

        (a)   After the Closing Date, the General Partner, for so long as it is the General Partner of the Partnership (i) agrees that its sole business will be to act as the General Partner of the Partnership and a general partner of any other partnership of which the Partnership or the MLP is, directly or indirectly, a partner and to undertake activities that are ancillary or related thereto, (ii) shall not

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engage in any business or activity or incur any debts or liabilities except in connection with or incidental to (A) its performance as general partner of the Partnership, or one or more Group Members or as described in or contemplated by the Registration Statement or (B) the acquiring, owning or disposing of debt or equity securities in any Group Member and (iii) except to the extent permitted in the Omnibus Agreement, shall not, and shall cause its Affiliates not to, engage in any Restricted Business.

        (b)   The Omnibus Agreement, to which the Partnership is a party, sets forth certain restrictions on the ability of Plains Resources Inc. to engage in Restricted Businesses.

        (c)   Except as specifically restricted by Section 7.5(a) and the Omnibus Agreement, each Indemnitee (other than the General Partner) shall have the right to engage in businesses of every type and description and other activities for profit and to engage in and possess an interest in other business ventures of any and every type or description, whether in businesses engaged in or anticipated to be engaged in by the MLP or any Group Member, independently or with others, including business interests and activities in direct competition with the business and activities of the MLP or any Group Member, and none of the same shall constitute a breach of this Agreement or any duty express or implied by law to the MLP or any Group Member or any Partner or Assignee. Neither the MLP nor any Group Member, any Limited Partner, nor any other Person shall have any rights by virtue of this Agreement, the MLP Agreement or the partnership relationship established hereby or thereby in any business ventures of any Indemnitee.

        (d)   Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c) and the Omnibus Agreement, but otherwise notwithstanding anything to the contrary in this Agreement, (i) the engaging in competitive activities by any Indemnitees (other than the General Partner) in accordance with the provisions of this Section 7.5 is hereby approved by the Partnership and all Partners, (ii) it shall be deemed not to be a breach of the General Partner's fiduciary duty or any other obligation of any type whatsoever of the General Partner for the Indemnitees (other than the General Partner) to engage in such business interests and activities in preference to or to the exclusion of the Partnership and (iii) except as set forth in the Omnibus Agreement, the General Partner and the Indemnities shall have no obligation to present business opportunities to the Partnership.

        (e)   The General Partner and any of its Affiliates may acquire Units or other MLP Securities in addition to those acquired on the Closing Date and, except as otherwise provided in this Agreement, shall be entitled to exercise all rights relating to such Units or MLP Securities.

        (f)    The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e) with respect to the General Partner shall not include any Group Member or any Subsidiary of the MLP or any Group Member.

        (g)   Anything in this Agreement to the contrary notwithstanding, to the extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this Agreement purport or are interpreted to have the effect of restricting the fiduciary duties that might otherwise, as a result of Texas or other applicable law, be owed by the General Partner to the Partnership and its Limited Partners, or to constitute a waiver or consent by the Limited Partners to any such restriction, such provisions shall be inapplicable and have no effect in determining whether the General Partner has complied with its fiduciary duties in connection with determinations made by it under this Section 7.5.

        Section 7.6     Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with Affiliates; Certain Restrictions on the General Partner.     

        (a)   The General Partner or its Affiliates may lend to the MLP or any Group Member, and the MLP or any Group Member may borrow from the General Partner or any of its Affiliates, funds needed or desired by the MLP or the Group Member for such periods of time and in such amounts as the General Partner may determine; provided, however, that in any such case the lending party may not charge the borrowing party interest at a rate greater than the rate that would be charged the borrowing

27



party or impose terms less favorable to the borrowing party than would be charged or imposed on the borrowing party by unrelated lenders on comparable loans made on an arm's-length basis (without reference to the lending party's financial abilities or guarantees). The borrowing party shall reimburse the lending party for any costs (other than any additional interest costs) incurred by the lending party in connection with the borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member" shall include any Affiliate of a Group Member that is controlled by the Group Member. No Group Member may lend funds to the General Partner or any of its Affiliates (other than the MLP, a Subsidiary of the MLP or a Subsidiary of another Group Member).

        (b)   The Partnership may lend or contribute to any Group Member, and any Group Member may borrow from the Partnership, funds on terms and conditions established in the sole discretion of the General Partner; provided, however, that the Partnership may not charge the Group Member interest at a rate less than the rate that would be charged to the Group Member (without reference to the General Partner's financial abilities or guarantees) by unrelated lenders on comparable loans. The foregoing authority shall be exercised by the General Partner in its sole discretion and shall not create any right or benefit in favor of any Group Member or any other Person.

        (c)   The General Partner may itself, or may enter into an agreement with the MLP General Partner or any of its Affiliates to, render services to a Group Member or to the General Partner in the discharge of its duties as general partner of the Partnership. Any services rendered to a Group Member by the General Partner, the MLP General Partner or any of their Affiliates shall be on terms that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 7.6(c) shall be deemed satisfied as to (i) any transaction approved by Special Approval, (ii) any transaction, the terms of which are no less favorable to the Partnership Group than those generally being provided to or available from unrelated third parties or (iii) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership Group), is equitable to the Partnership Group. The provisions of Section 7.4 shall apply to the rendering of services described in this Section 7.6(c).

        (d)   The Partnership Group may transfer assets to joint ventures, other partnerships, corporations, limited liability companies or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as are consistent with this Agreement and applicable law.

        (e)   Neither the General Partner, the MLP General Partner nor any of their Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i) the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution and Conveyance Agreement and any other transactions described in or contemplated by the Registration Statement, (ii) any transaction approved by Special Approval, (iii) any transaction, the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties, or (iv) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership), is equitable to the Partnership.

        (f)    The General Partner and its Affiliates will have no obligation to permit any Group Member to use any facilities or assets of the General Partner and its Affiliates, except as may be provided in contracts entered into from time to time specifically dealing with such use, nor shall there be any obligation on the part of the General Partner or its Affiliates to enter into such contracts.

        (g)   Without limitation of Sections 7.6(a) through 7.6(f), and notwithstanding anything to the contrary in this Agreement, the existence of the conflicts of interest described in the Registration Statement are hereby approved by all Partners.

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        Section 7.7     Indemnification.     

        (a)   To the fullest extent permitted by law but subject to the limitations expressly provided in this Agreement, all Indemnitees shall be indemnified and held harmless by the Partnership from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee; provided, that in each case the Indemnitee acted in good faith and in a manner that such Indemnitee reasonably believed to be in, or (in the case of a Person other than the General Partner) not opposed to, the best interests of the Partnership and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful; provided, further, no indemnification pursuant to this Section 7.7 shall be available to the General Partner with respect to its obligations incurred pursuant to the Underwriting Agreement or the Contribution and Conveyance Agreement (other than obligations incurred by the General Partner on behalf of the Partnership). The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Indemnitee acted in a manner contrary to that specified above. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, it being agreed that the General Partner shall not be personally liable for such indemnification and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate such indemnification.

        (b)   To the fullest extent permitted by law, expenses (including legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of any undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 7.7.

        (c)   The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and as to actions in any other capacity (including any capacity under the Underwriting Agreement), and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.

        (d)   The Partnership may purchase and maintain (or reimburse the General Partner, the MLP General Partner or its Affiliates for the cost of) insurance, on behalf of the General Partner, the MLP General Partner or their Affiliates and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expense that may be incurred by such Person in connection with the Partnership's activities or such Person's activities on behalf of the Partnership, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement.

        (e)   For purposes of this Section 7.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute "fines" within the meaning of Section 7.7(a); and action taken or omitted by it with respect to any employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is in, or not opposed to, the best interests of the Partnership.

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        (f)    In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement.

        (g)   An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

        (h)   The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons.

        (i)    No amendment, modification or repeal of this Section 7.7 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Partnership, nor the obligations of the Partnership to indemnify any such Indemnitee under and in accordance with the provisions of this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.8     Liability of Indemnitees.     

        (a)   Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Partnership, the Limited Partners, the Assignees or any other Persons who have acquired interests in the Units or other Partnership Securities of the MLP, for losses sustained or liabilities incurred as a result of any act or omission if such Indemnitee acted in good faith.

        (b)   Subject to its obligations and duties as General Partner set forth in Section 7.1(a), the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith.

        (c)   To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or to the Limited Partners, the General Partner and any other Indemnitee acting in connection with the Partnership's business or affairs shall not be liable to the Partnership or to any Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict or otherwise modify the duties and liabilities of an Indemnitee otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such Indemnitee.

        (d)   Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability to the Partnership, the Limited Partners, the General Partner, the MLP General Partner and the Partnership's and General Partner's directors, officers and employees under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.

        Section 7.9     Resolution of Conflicts of Interest.     

        (a)   Unless otherwise expressly provided in this Agreement or the MLP Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership, the MLP, any Partner or any Assignee, on the other, any resolution or course of action by the General Partner or its Affiliates in respect of such conflict of interest shall be permitted and deemed approved by all Partners, and shall not constitute a breach of this Agreement or the MLP Agreement, of any agreement contemplated herein or therein, or of any duty stated or implied by law or equity, if the resolution or course of action is, or by operation of this Agreement is

30



deemed to be, fair and reasonable to the Partnership. The General Partner shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval of such resolution. Any conflict of interest and any resolution of such conflict of interest shall be conclusively deemed fair and reasonable to the Partnership if such conflict of interest or resolution is (i) approved by Special Approval (as long as the material facts known to the General Partner or any of its Affiliates regarding any proposed transaction were disclosed to the Conflicts Committee at the time it gave its approval), (ii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) fair to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership). The General Partner may also adopt a resolution or course of action that has not received Special Approval. The General Partner (including the Conflicts Committee in connection with Special Approval) shall be authorized in connection with its determination of what is "fair and reasonable" to the Partnership and in connection with its resolution of any conflict of interest to consider (A) the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest; (B) any customary or accepted industry practices and any customary or historical dealings with a particular Person; (C) any applicable generally accepted accounting practices or principles; and (D) such additional factors as the General Partner (including the Conflicts Committee) determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances. Nothing contained in this Agreement, however, is intended to nor shall it be construed to require the General Partner (including the Conflicts Committee) to consider the interests of any Person other than the Partnership. In the absence of bad faith by the General Partner, the resolution, action or terms so made, taken or provided by the General Partner with respect to such matter shall not constitute a breach of this Agreement or any other agreement contemplated herein or a breach of any standard of care or duty imposed herein or therein or, to the extent permitted by law, under the Texas Act or any other law, rule or regulation.

        (b)   Whenever this Agreement or any other agreement contemplated hereby provides that the General Partner or any of its Affiliates is permitted or required to make a decision (i) in its "sole discretion" or "discretion," that it deems "necessary or appropriate" or "necessary or advisable" or under a grant of similar authority or latitude, except as otherwise provided herein, the General Partner or such Affiliate shall be entitled to consider only such interests and factors as it desires and shall have no duty or obligation to give any consideration to any interest of, or factors affecting, the Partnership, the MLP, any Limited Partner or any Assignee, (ii) it may make such decision in its sole discretion (regardless of whether there is a reference to "sole discretion" or "discretion") unless another express standard is provided for, or (iii) in "good faith" or under another express standard, the General Partner or such Affiliate shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement, the MLP Agreement, any other agreement contemplated hereby or under the Texas Act or any other law, rule or regulation. In addition, any actions taken by the General Partner or such Affiliate consistent with the standards of "reasonable discretion" set forth in the definition of Available Cash shall not constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners. The General Partner shall have no duty, express or implied, to sell or otherwise dispose of any asset of the Partnership Group other than in the ordinary course of business. No borrowing by any Group Member or the approval thereof by the General Partner shall be deemed to constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners by reason of the fact that the purpose or effect of such borrowing is directly or indirectly to (A) enable distributions to the General Partner or its Affiliates to exceed 0.001% of the total amount distributed to all Partners or (B) hasten the expiration of the Subordination Period or the conversion of any Subordinated Units into Common Units.

        (c)   Whenever a particular transaction, arrangement or resolution of a conflict of interest is required under this Agreement to be "fair and reasonable" to any Person, the fair and reasonable

31



nature of such transaction, arrangement or resolution shall be considered in the context of all similar or related transactions.

        (d)   The Limited Partner hereby authorizes the General Partner, on behalf of the Partnership as a partner or member of a Group Member, to approve of actions by the general partner of such Group Member similar to those actions permitted to be taken by the General Partner pursuant to this Section 7.9.

        Section 7.10     Other Matters Concerning the General Partner.     

        (a)   The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties.

        (b)   The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion (including an Opinion of Counsel) of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion.

        (c)   The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers, a duly appointed attorney or attorneys-in-fact or the duly authorized officers of the Partnership.

        (d)   Any standard of care and duty imposed by this Agreement or under the Texas Act or any applicable law, rule or regulation shall be modified, waived or limited, to the extent permitted by law, as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the authority prescribed in this Agreement, so long as such action is reasonably believed by the General Partner to be in, or not inconsistent with, the best interests of the Partnership.

        Section 7.11     Reliance by Third Parties.     

        Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner and any officer of the General Partner authorized by the General Partner to act on behalf of and in the name of the Partnership has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any authorized contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner or any such officer as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner or any such officer in connection with any such dealing. In no event shall any Person dealing with the General Partner or any such officer or its representatives be obligated to ascertain that the terms of the Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or any such officer or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership.

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ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS

        Section 8.1     Records and Accounting.     

        The General Partner shall keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership's business, including all books and records necessary to provide to the Limited Partners any information required to be provided pursuant to Section 3.4(a). Any books and records maintained by or on behalf of the Partnership in the regular course of its business, including books of account and records of Partnership proceedings, may be kept on, or be in the form of, computer disks, hard drives, punch cards, magnetic tape, photographs, micrographics or any other information storage device; provided, that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for financial reporting purposes, on an accrual basis in accordance with U.S. GAAP.

        Section 8.2     Fiscal Year.     

        The fiscal year of the Partnership shall be a fiscal year ending December 31.


ARTICLE IX
TAX MATTERS

        Section 9.1     Tax Returns and Information.     

        The Partnership shall timely file all returns of the Partnership that are required for federal, state and local income tax purposes on the basis of the accrual method and a taxable year ending on December 31. The tax information reasonably required by the Partners for federal and state income tax reporting purposes with respect to a taxable year shall be furnished to them within 90 days of the close of the calendar year in which the Partnership's taxable year ends. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for federal income tax purposes.

        Section 9.2     Tax Elections.     

        (a)   The Partnership shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder, subject to the reservation of the right to seek to revoke any such election upon the General Partner's determination that such revocation is in the best interests of the Limited Partners.

        (b)   The Partnership shall elect to deduct expenses incurred in organizing the Partnership ratably over a sixty-month period as provided in Section 709 of the Code.

        (c)   Except as otherwise provided herein, the General Partner shall determine whether the Partnership should make any other elections permitted by the Code.

        Section 9.3     Tax Controversies.     

        Subject to the provisions hereof, the General Partner is designated as the Tax Matters Partner (as defined in the Code) and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Partner agrees to cooperate with the General Partner and to do or refrain from doing any or all things reasonably required by the General Partner to conduct such proceedings.

        Section 9.4     Withholding.     

        Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines in its discretion to be necessary or appropriate to cause the Partnership to

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comply with any withholding requirements established under the Code or any other federal, state, local or foreign law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required or elects to withhold or pay over to any taxing authority, or any taxing authority seizes, any amount resulting from the allocation or distribution of income to any member of the Partnership Group, Partner or Assignee, the amount withheld, paid over or seized may at the discretion of the General Partner be treated by the Partnership as a distribution of cash pursuant to Section 6.3 to the Partner or Assignee to whom such withholding, payment or seizure is attributed.


ARTICLE X
ADMISSION OF PARTNERS

        Section 10.1     Admission of Partners.     

        Upon the consummation of the transfers and conveyances described in Section 5.2, the Predecessor General Partner was the sole general partner of the Partnership and Marketing was the sole limited partner of the Partnership.

        Section 10.2     Admission of Substituted Limited Partner.     

        By transfer of a Limited Partner Interest in accordance with Article IV, the transferor shall be deemed to have given the transferee the right to seek admission as a Substituted Limited Partner subject to the conditions of, and in the manner permitted under, this Agreement. A transferor of a Limited Partner Interest shall, however, only have the authority to convey to a purchaser or other transferee (a) the right to negotiate such Limited Partner Interest to a purchaser or other transferee and (b) the right to request admission as a Substituted Limited Partner to such purchaser or other transferee in respect of the transferred Limited Partner Interests. Each transferee of a Limited Partner Interest shall be an Assignee and be deemed to have applied to become a Substituted Limited Partner with respect to the Limited Partner Interests so transferred to such Person. Such Assignee shall become a Substituted Limited Partner (x) at such time as the General Partner consents thereto, which consent may be given or withheld in the General Partner's discretion, and (y) when any such admission is shown on the books and records of the Partnership. If such consent is withheld, such transferee shall remain an Assignee. An Assignee shall have an interest in the Partnership equivalent to that of a Limited Partner with respect to allocations and distributions, including liquidating distributions, of the Partnership. With respect to voting rights attributable to Limited Partner Interests that are held by Assignees, the General Partner shall be deemed to be the Limited Partner with respect thereto and shall, in exercising the voting rights in respect of such Limited Partner Interests on any matter, vote such Limited Partner Interests at the written direction of the Assignee. If no such written direction is received, such Partnership Interests will not be voted. An Assignee shall have no other rights of a Limited Partner.

        Section 10.3     Admission of Additional Limited Partners.     

        (a)   A Person (other than the General Partner, the MLP or a Substituted Limited Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including the power of attorney granted in Section 2.6, and (ii) such other documents or instruments as may be required in the discretion of the General Partner to effect such Person's admission as an Additional Limited Partner.

        (b)   Notwithstanding anything to the contrary in this Section 10.3, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded as such in

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the books and records of the Partnership, following the consent of the General Partner to such admission.

        Section 10.4     Admission of Successor or Transferee General Partner.     

        A successor General Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the General Partner's Partnership Interest pursuant to Section 4.2 who is proposed to be admitted as a successor General Partner shall, subject to compliance with the terms of Section 11.3, if applicable, be admitted to the Partnership as the General Partner, effective immediately prior to the withdrawal or removal of the predecessor or transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of the General Partner Interest pursuant to Section 4.2, provided, however, that no such successor shall be admitted to the Partnership until compliance with the terms of Section 4.2 has occurred and such successor has executed and delivered such other documents or instruments as may be required to effect such admission. Any such successor shall, subject to the terms hereof, carry on the business of the members of the Partnership Group without dissolution.

        Section 10.5     Amendment of Agreement and Certificate of Limited Partnership.     

        To effect the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Texas Act to amend the records of the Partnership to reflect such admission and, if necessary, to prepare as soon as practicable an amendment to this Agreement and, if required by law, the General Partner shall prepare and file an amendment to the Certificate of Limited Partnership, and the General Partner may for this purpose, among others, exercise the power of attorney granted pursuant to Section 2.6.


ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS

        Section 11.1     Withdrawal of the General Partner.     

        (a)   The General Partner shall be deemed to have withdrawn from the Partnership upon the occurrence of any one of the following events (each such event herein referred to as an "Event of Withdrawal");

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        If an Event of Withdrawal specified in Section 11.1(a)(iv), (v), or (vi)(A), (B), (C) or (E) occurs, the withdrawing General Partner shall give notice to the Limited Partners within 30 days after such occurrence. The Partners hereby agree that only the Events of Withdrawal described in this Section 11.1 shall result in the withdrawal of the General Partner from the Partnership.

        (b)   Withdrawal of the General Partner from the Partnership upon the occurrence of an Event of Withdrawal shall not constitute a breach of this Agreement under the following circumstances: (i) at any time during the period beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard Time, on December 31, 2008, the General Partner voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Limited Partners; provided that prior to the effective date of such withdrawal, the withdrawal is approved by the Limited Partners and the General Partner delivers to the Partnership an Opinion of Counsel (" Withdrawal Opinion of Counsel ") that such withdrawal (following the selection of the successor General Partner) would not result in the loss of the limited liability of any Limited Partner or of the limited partners of the MLP or cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such); (ii) at any time after 12:00 midnight, Eastern Standard Time, on December 31, 2008, the General Partner voluntarily withdraws by giving at least 90 days' advance notice to the Limited Partners, such withdrawal to take effect on the date specified in such notice; (iii) at any time that the General Partner ceases to be the General Partner pursuant to Section 11.1(a)(ii) or (iii). If the General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i) hereof, the Limited Partners may, prior to the effective date of such withdrawal, elect a successor General Partner. If, prior to the effective date of the General Partner's withdrawal, a successor is not selected by the Limited Partners as provided herein or the Partnership does not receive a Withdrawal Opinion of Counsel, the Partnership shall be dissolved in accordance with Section 12.1. Any successor General Partner elected in accordance with the terms of this Section 11.1 shall be subject to the provisions of Section 10.4.

        Section 11.2     Removal of the General Partner.     

        The General Partner may be removed by the holders of a majority of the Limited Partner Interests. If the General Partner is removed pursuant to this Section 11.2, the Limited Partners may, prior to the effective date of such removal, elect a successor General Partner. The admission of any such successor General Partner to the Partnership shall be subject to the provisions of Section 10.4.

        Section 11.3     Interest of Departing Partner.     

        (a)   The Partnership Interest of the Departing Partner departing as a result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall be purchased by the successor to the Departing Partner for cash in the manner specified in the MLP Agreement. Such purchase (or conversion into Common Units, as applicable) shall be a condition to the admission to the Partnership of the successor as the General Partner. Notwithstanding the foregoing, an assignment of all or any portion of a General Partner's (or Departing General Partner's) Partnership Interest to the MLP as Limited Partner, or to any other Person (other than an individual) the ownership interest of which is then transferred to the MLP, can be made in exchange for an increased interest in the MLP and in lieu of a cash purchase. Any successor General Partner shall indemnify the Departing Partner as to all debts and liabilities of the Partnership arising on or after the effective date of the withdrawal or removal of the Departing Partner.

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        (b)   The Departing Partner shall be entitled to receive all reimbursements due such Departing Partner pursuant to Section 7.4, including any employee-related liabilities (including severance liabilities), incurred in connection with the termination of any employees employed by such Departing Partner for the benefit of the Partnership.

        Section 11.4     Withdrawal of a Limited Partner.     

        Without the prior written consent of the General Partner, which may be granted or withheld in its sole discretion, and except as provided in Section 10.1, no Limited Partner shall have the right to withdraw from the Partnership.


ARTICLE XII
DISSOLUTION AND LIQUIDATION

        Section 12.1     Dissolution.     

        The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the removal or withdrawal of the General Partner, if a successor General Partner is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be dissolved and such successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its affairs shall be wound up, upon:

        (a)   the expiration of its term as provided in Section 2.7;

        (b)   an Event of Withdrawal of the General Partner as provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant to Section 10.3;

        (c)   an election to dissolve the Partnership by the General Partner that is approved by all of the Limited Partners;

        (d)   the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Texas Act;

        (e)   the sale of all or substantially all of the assets and properties of the Partnership Group; or

        (f)    the dissolution of the MLP.

        Section 12.2     Continuation of the Business of the Partnership After Dissolution.     

        Upon (a) dissolution of the Partnership following an Event of Withdrawal caused by the withdrawal or removal of the General Partner as provided in Section 11.1(a)(i) or (iii) and the failure of the Partners to select a successor to such Departing Partner pursuant to Section 11.1 or 11.2, then within 90 days thereafter, or (b) dissolution of the Partnership upon an event constituting an Event of Withdrawal as defined in Section 11.1(a)(iii), (iv) or (v) of the MLP Agreement, then, to the maximum extent permitted by law, within 180 days thereafter, all of the Limited Partners may elect to reconstitute the Partnership and continue its business on the same terms and conditions set forth in this Agreement by forming a new limited partnership on terms identical to those set forth in this Agreement and having as a general partner a Person approved by a majority in interest of the Limited Partners. In addition, upon dissolution of the Partnership pursuant to Section 12.1(f), if the MLP is reconstituted pursuant to Section 12.2 of the MLP Agreement, the reconstituted MLP may, within 180 days after such event of dissolution, acting alone, regardless of whether there are any other Limited Partners, elect to reconstitute the Partnership in accordance with the immediately preceding sentence. Upon any such election by the Limited Partners or the MLP, as the case may be, all Partners shall be bound thereby and shall be deemed to have approved same. Unless such an election is made within the

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applicable time period as set forth above, the Partnership shall conduct only activities necessary to wind up its affairs. If such an election is so made, then:

        (a)   the reconstituted Partnership shall continue until the end of the term set forth in Section 2.7 unless earlier dissolved in accordance with this Article XII;

        (b)   if the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be purchased by the successor General Partner; and

        (c)   all necessary steps shall be taken to cancel this Agreement and the Certificate of Limited Partnership and to enter into and, as necessary, to file, a new partnership agreement and certificate of limited partnership, and the successor General Partner may for this purpose exercise the power of attorney granted the General Partner pursuant to Section 2.6; provided, that the right to approve a successor General Partner and to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that (x) the exercise of the right would not result in the loss of limited liability of the Limited Partners or any limited partner of the MLP and (y) neither the Partnership, the reconstituted limited partnership, the MLP nor any Group Member would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of such right to continue.

        Section 12.3     Liquidator.     

        Upon dissolution of the Partnership, unless the Partnership is continued under an election to reconstitute and continue the Partnership pursuant to Section 12.2, the General Partner shall select one or more Persons to act as Liquidator. The Liquidator (if other than the General Partner) shall be entitled to receive such compensation for its services as may be approved by a majority of the Limited Partners. The Liquidator (if other than the General Partner) shall agree not to resign at any time without 15 days' prior notice and may be removed at any time, with or without cause, by notice of removal approved by a majority in interest of the Limited Partners. Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by at least a majority in interest of the Limited Partners. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article XII, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the General Partner under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, other than the limitation on sale set forth in Section 7.3(b)) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Partnership as provided for herein.

        Section 12.4     Liquidation.     

        The Liquidator shall proceed to dispose of the assets of the Partnership, discharge its liabilities, and otherwise wind up its affairs in such manner and over such period as the Liquidator determines to be in the best interest of the Partners, subject to Section 8.05 of the Texas Act and the following:

        (a)    Disposition of Assets . The assets may be disposed of by public or private sale or by distribution in kind to one or more Partners on such terms as the Liquidator and such Partner or Partners may agree. If any property is distributed in kind, the Partner receiving the property shall be deemed for purposes of Section 12.4(c) to have received cash equal to its fair market value; and contemporaneously therewith, appropriate cash distributions must be made to the other Partners. The Liquidator may, in its absolute discretion, defer liquidation or distribution of the Partnership's assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Partnership's assets would

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be impractical or would cause undue loss to the Partners. The Liquidator may, in its absolute discretion, distribute the Partnership's assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Partners.

        (b)    Discharge of Liabilities . Liabilities of the Partnership include amounts owed to Partners otherwise than in respect of their distribution rights under Article VI. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be distributed as additional liquidation proceeds.

        (c)    Liquidation Distributions . All property and all cash in excess of that required to discharge liabilities as provided in Section 12.4(b) shall be distributed to the Partners in accordance with, and to the extent of, the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments (other than those made by reason of distributions pursuant to this Section 12.4(c)) for the taxable year of the Partnership during which the liquidation of the Partnership occurs (with such date of occurrence being determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such taxable year (or, if later, within 90 days after said date of such occurrence).

        Section 12.5     Cancellation of Certificate of Limited Partnership.     

        Upon the completion of the distribution of Partnership cash and property as provided in Section 12.4 in connection with the liquidation of the Partnership, the Partnership shall be terminated and the Certificate of Limited Partnership, and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Texas, shall be canceled and such other actions as may be necessary to terminate the Partnership shall be taken.

        Section 12.6     Return of Contributions.     

        The General Partner shall not be personally liable for, and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate, the return of the Capital Contributions of the Limited Partners, or any portion thereof, it being expressly understood that any such return shall be made solely from Partnership assets.

        Section 12.7     Waiver of Partition.     

        To the maximum extent permitted by law, each Partner hereby waives any right to partition of the Partnership property.

        Section 12.8     Capital Account Restoration.     

        No Limited Partner shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Partnership. The General Partner shall be obligated to restore any negative balance in its Capital Account upon liquidation of its interest in the Partnership by the end of the taxable year of the Partnership during which such liquidation occurs, or, if later, within 90 days after the date of such liquidation.


ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT

        Section 13.1     Amendment to be Adopted Solely by the General Partner.     

        Each Partner agrees that the General Partner, without the approval of any Partner or Assignee, may amend any provision of this Agreement and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect:

        (a)   a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership;

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        (b)   admission, substitution, withdrawal or removal of Partners in accordance with this Agreement;

        (c)   a change that, in the sole discretion of the General Partner, is necessary or advisable to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the Limited Partners have limited liability under the laws of any state or to ensure that no Group Member will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

        (d)   a change that, in the discretion of the General Partner, (i) does not adversely affect the Limited Partners in any material respect, (ii) is necessary or advisable to (A) satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute (including the Texas Act) or (B) facilitate the trading of limited partner interests of the MLP (including the division of any class or classes of outstanding limited partner interests of the MLP into different classes to facilitate uniformity of tax consequences within such classes of limited partner interests of the MLP) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which such limited partner interests are or will be listed for trading, compliance with any of which the General Partner determines in its discretion to be in the best interests of the MLP and the limited partners of the MLP, (iii) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement or (iv) is required to conform the provisions of this Agreement with the provisions of the MLP Agreement as the provisions of the MLP Agreement may be amended, supplemented or restated from time to time;

        (e)   a change in the fiscal year or taxable year of the Partnership and any changes that, in the discretion of the General Partner, are necessary or advisable as a result of a change in the fiscal year or taxable year of the Partnership including, if the General Partner shall so determine, a change in the definition of "Quarter" and the dates on which distributions are to be made by the Partnership;

        (f)    an amendment that is necessary, in the Opinion of Counsel, to prevent the Partnership, or the General Partner or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;

        (g)   any amendment expressly permitted in this Agreement to be made by the General Partner acting alone;

        (h)   an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 14.3;

        (i)    an amendment that, in the discretion of the General Partner, is necessary or advisable to reflect, account for and deal with appropriately the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Partnership of activities permitted by the terms of Section 2.4;

        (j)    a merger or conveyance pursuant to Section 14.3(d); or

        (k)   any other amendments substantially similar to the foregoing.

        Section 13.2     Amendment Procedures.     

        Except with respect to amendments of the type described in Section 13.1, all amendments to this Agreement shall be made in accordance with the following requirements: Amendments to this Agreement may be proposed only by or with the consent of the General Partner which consent may be given or withheld in its sole discretion. A proposed amendment shall be effective upon its approval by the Limited Partner.

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ARTICLE XIV
MERGER

        Section 14.1     Authority.     

        The Partnership may merge or consolidate with one or more corporations, limited liability companies, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including a general partnership or limited partnership, formed under the laws of the State of Texas or any other state of the United States of America, pursuant to a written agreement of merger or consolidation ("Merger Agreement") in accordance with this Article XIV.

        Section 14.2     Procedure for Merger or Consolidation.     

        Merger or consolidation of the Partnership pursuant to this Article XIV requires the prior approval of the General Partner. If the General Partner shall determine, in the exercise of its discretion, to consent to the merger or consolidation, the General Partner shall approve the Merger Agreement, which shall set forth:

        (a)   The names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate;

        (b)   The name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger or consolidation (the "Surviving Business Entity");

        (c)   The terms and conditions of the proposed merger or consolidation;

        (d)   The manner and basis of exchanging or converting the equity securities of each constituent business entity for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any general or limited partner interests, securities or rights of any constituent business entity are not to be exchanged or converted solely for, or into, cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity, the cash, property or general or limited partner interests, rights, securities or obligations of any limited partnership, corporation, trust or other entity (other than the Surviving Business Entity) which the holders of such general or limited partner interests, securities or rights are to receive in exchange for, or upon conversion of their general or limited partner interests, securities or rights, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property or general or limited partner interests, rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered;

        (e)   A statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation;

        (f)    The effective time of the merger, which may be the date of the filing of the certificate of merger pursuant to Section 14.4 or a later date specified in or determinable in accordance with the Merger Agreement (provided, that if the effective time of the merger is to be later than the date of the filing of the certificate of merger, the effective time shall be fixed no later than the time of the filing of the certificate of merger and stated therein); and

        (g)   Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or appropriate by the General Partner.

        Section 14.3     Approval by Limited Partners of Merger or Consolidation.     

        (a)   Except as provided in Section 14.3(d), the General Partner, upon its approval of the Merger Agreement, shall direct that the Merger Agreement be submitted to a vote of the Limited Partners, whether at a special meeting or by written consent, in either case in accordance with the requirements

41


of Article XIII. A copy or a summary of the Merger Agreement shall be included in or enclosed with the notice of a special meeting or the written consent.

        (b)   Except as provided in Section 14.3(d), the Merger Agreement shall be approved upon receiving the affirmative vote or consent of the Limited Partners.

        (c)   Except as provided in Section 14.3(d), after such approval by vote or consent of the Limited Partners, and at any time prior to the filing of the certificate of merger pursuant to Section 14.4, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement.

        (d)   Notwithstanding anything else contained in this Article XIV or in this Agreement, the General Partner is permitted, in its discretion, without Limited Partner approval, to merge the Partnership or any Group Member into, or convey all of the Partnership's assets to, another limited liability entity which shall be newly formed and shall have no assets, liabilities or operations at the time of such Merger other than those it receives from the Partnership or other Group Member if (i) the General Partner has received an Opinion of Counsel that the merger or conveyance, as the case may be, would not result in the loss of the limited liability of any Limited Partner or any limited partner in the MLP or cause the Partnership or the MLP to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes (to the extent not previously treated as such), (ii) the sole purpose of such merger or conveyance is to effect a mere change in the legal form of the Partnership into another limited liability entity and (iii) the governing instruments of the new entity provide the Limited Partners and the General Partner with the same rights and obligations as are herein contained.

        Section 14.4     Certificate of Merger.     

        Upon the required approval by the General Partner and the Limited Partners of a Merger Agreement, a certificate of merger shall be executed and filed with the Secretary of State of the State of Texas in conformity with the requirements of the Texas Act.

        Section 14.5     Effect of Merger.     

        (a)   At the effective time of the certificate of merger:

        (b)   A merger or consolidation effected pursuant to this Article shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another.

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        Section 14.6     Link Energy Transaction.     

        The General Partner and the Limited Partner hereby acknowledge their approval of the Partnership (i) engaging in a merger transaction with the parties named in the Plan of Merger on the terms and conditions contained in the Plan of Merger and (ii) executing and performing its obligations under the Plan of Merger and any other related articles of merger and other documents approved by the General Partner and executed or to be executed in connection with the consummation of such merger.


ARTICLE XV
GENERAL PROVISIONS

        Section 15.1     Addresses and Notices.     

        Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner at the address described below. Any notice to the Partnership shall be deemed given if received by the General Partner at the principal office of the Partnership designated pursuant to Section 2.3. The General Partner may rely and shall be protected in relying on any notice or other document from a Partner, Assignee or other Person if believed by it to be genuine.

        Section 15.2     Further Action.     

        The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.

        Section 15.3     Binding Effect.     

        This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns.

        Section 15.4     Integration.     

        This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.

        Section 15.5     Creditors.     

        None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership.

        Section 15.6     Waiver.     

        No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.

        Section 15.7     Counterparts.     

        This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto, independently of the signature of any other party.

        Section 15.8     Applicable Law.     

        This Agreement shall be construed in accordance with and governed by the laws of the State of Texas, without regard to the principles of conflicts of law.

        Section 15.9     Invalidity of Provisions.     

        If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.

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        Section 15.10     Consent of Partners.     

        Each Partner hereby expressly consents and agrees that, whenever in this Agreement it is specified that an action may be taken upon the affirmative vote or consent of less than all of the Partners, such action may be so taken upon the concurrence of less than all of the Partners and each Partner shall be bound by the results of such action.

        Section 15.11     Amendments to Reflect GP Restructuring Agreement.     

        In addition to the amendments to this Agreement contained in the GP Restructuring Agreement and notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be deemed to be further amended and modified to the extent necessary, but only to the extent necessary, to carry out the purposes and intent of the GP Restructuring Agreement.

[Rest of Page Intentionally Left Blank]

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        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

    GENERAL PARTNER:

 

 

PLAINS MARKETING GP INC.

 

 

By:

 
     
    Name: Tim Moore
    Title: Vice President

 

 

LIMITED PARTNER:

 

 

PLAINS MARKETING L.P.

 

 

By:

Plains Marketing GP Inc.,
its General Partner

 

 

 

By:
     
      Name: Tim Moore
      Title: Vice President

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QuickLinks

THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS PIPELINE, L.P.
TABLE OF CONTENTS ARTICLE I DEFINITIONS
THIRD AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS PIPELINE, L.P.
ARTICLE I DEFINITIONS
ARTICLE II ORGANIZATION
ARTICLE III RIGHTS OF LIMITED PARTNERS
ARTICLE IV TRANSFERS OF PARTNERSHIP INTERESTS
ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS
ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS
ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS
ARTICLE IX TAX MATTERS
ARTICLE X ADMISSION OF PARTNERS
ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS
ARTICLE XII DISSOLUTION AND LIQUIDATION
ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT
ARTICLE XIV MERGER
ARTICLE XV GENERAL PROVISIONS

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Exhibit 4.1


REGISTRATION RIGHTS AGREEMENT

by and among

PLAINS ALL AMERICAN PIPELINE, L.P.,

KAYNE ANDERSON ENERGY FUND II, L.P.,

KAFU HOLDINGS, L.P.,

KAYNE ANDERSON CAPITAL INCOME PARTNERS (QP), L.P.,

KAYNE ANDERSON MLP FUND, L.P.,

TORTOISE ENERGY INFRASTRUCTURE CORPORATION,

and

VULCAN ENERGY II INC.



REGISTRATION RIGHTS AGREEMENT

        THIS REGISTRATION RIGHTS AGREEMENT (this " Agreement ") is made and entered into as of April 15, 2004, by and among PLAINS ALL AMERICAN PIPELINE, L.P., a Delaware limited partnership (" PAA ") and each of KAYNE ANDERSON ENERGY FUND II, L.P., KAFU HOLDINGS, L.P., KAYNE ANDERSON CAPITAL INCOME PARTNERS (QP), L.P., and KAYNE ANDERSON MLP FUND, L.P. (for this Agreement only, collectively, " Kayne Anderson "), TORTOISE ENERGY INFRASTRUCTURE CORPORATION, a Maryland corporation (" Tortoise "), and VULCAN ENERGY II INC., a Delaware corporation (" Vulcan ") (each of Kayne Anderson, Tortoise and Vulcan a " Purchaser " and collectively, the " Purchasers ").

        This Agreement is made in connection with the Closing of the issuance and sale of the Class C Units pursuant to the Class C Common Unit Purchase Agreement, dated as of March 31, 2004, by and among PAA and the Purchasers (the " Purchase Agreement "). PAA has agreed to provide the registration and other rights set forth in this Agreement for the benefit of the Purchasers of the Class C Units pursuant to Section 2.05(d) of the Purchase Agreement. In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, the parties hereby agree as follows:


ARTICLE I.
DEFINITIONS

        Section 1.01     Definitions.     Capitalized terms used herein without definition shall have the meanings given to them in the Purchase Agreement. The terms set forth below are used herein as so defined:

        " Affiliate " means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, "controlling", "controlled by", and "under common control with") means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

        " Business Day " means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in Wilmington, Delaware.

        " Class C Units " shall have the meaning set forth in the Purchase Agreement.

        " Closing " shall have the meaning set forth in the Purchase Agreement.

        " Commission " means the United States Securities and Exchange Commission.

        " Common Units " means the common units of PAA that are publicly traded on the New York Stock Exchange.

        " Conversion Units " means the Common Units issuable upon conversion of the Class C Units.

        " Effectiveness Period " has the meaning specified therefore in Section 2.01(a) of this Agreement.

        " Exchange Act " shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

        " Holder " means the record holder of any Registrable Securities.

        " Included Registrable Securities " has the meaning specified therefor in Section 2.02(a) of this Agreement.

        " Losses " has the meaning specified therefor in Section 2.08(a) of this Agreement.

2



        " Managing Underwriter " means, with respect to any Underwritten Offering, the book running lead manager of such Underwritten Offering.

        " Person " means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

        " Piggyback Registration " has the meaning specified therefor in Section 2.02(a) of this Agreement.

        " Purchase Agreement " has the meaning specified therefor in the Recital of this Agreement.

        " Purchased Units " shall have the meaning set forth in the Purchase Agreement.

        " Purchasers " has the meaning specified therefor in the introductory paragraph of this Agreement.

        " Registrable Securities " means the Conversion Units until such time as such securities cease to be Registrable Securities pursuant to Section 1.02 hereof.

        " Registration Expenses " has the meaning specified therefor in Section 2.07(a) of this Agreement.

        " Securities Act " means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

        " Selling Expenses " has the meaning specified therefor in Section 2.07(a) of this Agreement.

        " Selling Holder " means a Holder who is selling Registrable Securities pursuant to a registration statement.

        " Shelf Registration " has the meaning specified therefor in Section 2.01(a) of this Agreement.

        " Shelf Registration Statement " has the meaning specified therefor in Section 2.01(a) of this Agreement.

        " Underwritten Offering " means an offering (including an offering pursuant to a Shelf Registration Statement) in which Common Units are sold to an underwriter on a firm commitment basis for reoffering to the public or an offering that is a "bought deal" with one or more investment banks.

        Section 1.02     Registrable Securities.     Any Registrable Security will cease to be a Registrable Security when (a) a registration statement covering such Registrable Security has been declared effective by the Commission and such Registrable Security has been sold or disposed of pursuant to such effective registration statement; (b) such Registrable Security has been disposed of pursuant to any section of Rule 144 (or any similar provision then in force under the Securities Act); or (c) such Registrable Security is held by PAA or one of its subsidiaries.


ARTICLE II.
REGISTRATION RIGHTS

        Section 2.01     Shelf Registration.     

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        Section 2.02     Piggyback Registration.     

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        Section 2.03     Underwritten Offering.     

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        Section 2.04     Registration Procedures.     In connection with its obligations contained in Sections 2.01 and 2.02, PAA will, as expeditiously as possible:

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        Each Selling Holder, upon receipt of notice from PAA of the happening of any event of the kind described in subsection (e) of this Section 2.04, shall forthwith discontinue disposition of the Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended prospectus contemplated by subsection (e) of this Section 2.04 or until it is advised in writing by PAA that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings incorporated by reference in the prospectus, and, if so directed by PAA, such Selling Holder will, or will request the managing underwriter or underwriters, if any, to deliver to PAA (at PAA's expense) all copies in their possession or control, other than permanent file copies then in such Selling Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.

        Section 2.05     Cooperation by Holders.     PAA shall have no obligation to include in the Shelf Registration Statement units of a Holder or in a Piggyback Registration units of a Selling Holder who has failed to timely furnish such information which, in the opinion of counsel to PAA, is reasonably required in order for the registration statement or prospectus supplement, as applicable, to comply with the Securities Act.

        Section 2.06     Restrictions on Public Sale by Holders of Registrable Securities.     Each Holder of Registrable Securities who is included in the Shelf Registration Statement agrees not to effect any public sale or distribution of the Registrable Securities during the 90 calendar day period beginning on the date of a prospectus supplement filed with the Commission with respect to the pricing of an Underwritten Offering, provided that the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction generally imposed by the underwriters on the officers or directors or any other unitholder of PAA on whom a restriction is imposed.

        Section 2.07     Expenses.     

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        Section 2.08     Indemnification.     

9


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        Section 2.09     Rule 144 Reporting.     With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Registrable Securities to the public without registration, PAA agrees to use its commercially reasonable efforts to:

        Section 2.10     Transfer or Assignment of Registration Rights.     The rights to cause PAA to register Registrable Securities granted to the Purchasers by PAA under this Article II may be transferred or assigned by the Purchasers to one or more transferee(s) or assignee(s) of such Registrable Securities, provided that (a) unless such transferee is an Affiliate of the transferring Purchaser, each such transferee or assignee holds Registrable Securities representing at least 15% of the number of Class C Units sold pursuant to the terms of the Purchase Agreement, (b) PAA is given written notice prior to any said transfer or assignment, stating the name and address of each such transferee and identifying the securities with respect to which such registration rights are being transferred or assigned, and (c) each such transferee assumes in writing responsibility for its portion of the obligations of the Purchasers under this Agreement.


ARTICLE III.
MISCELLANEOUS

        Section 3.01     Communications.     All notices and other communications provided for or permitted hereunder shall be made in writing by facsimile, courier service or personal delivery:

        All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if sent via facsimile or sent via Internet electronic mail; and when actually received, if sent by any other means.

        Section 3.02     Successor and Assigns.     This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.

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        Section 3.03     Assignment of Rights.     All or any portion of the rights and obligations of the Purchasers under this Agreement may be transferred or assigned by the Purchasers in accordance with Section 2.10 hereof.

        Section 3.04     Recapitalization, Exchanges, etc. Affecting the Common Units.     The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all units of PAA or any successor or assign of PAA (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations, recapitalizations and the like occurring after the date of this Agreement.

        Section 3.05     Specific Performance.     Damages in the event of breach of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have.

        Section 3.06     Counterparts.     This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

        Section 3.07     Headings.     The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

        Section 3.08     Governing Law.     The laws of the State of Delaware shall govern this Agreement without regard to principles of conflict of laws.

        Section 3.09     Severability of Provisions.     Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.

        Section 3.10     Entire Agreement.     This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the rights granted by PAA set forth herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

        Section 3.11     Amendment.     This Agreement may be amended only by means of a written amendment signed by PAA and the Holders of a majority of the then outstanding Registrable Securities; provided, however, that no such amendment shall materially and adversely affect the rights of any Holder hereunder without the consent of such Holder.

        Section 3.12     No Presumption.     In the event any claim is made by a party relating to any conflict, omission, or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.

[The remainder of this page is intentionally left blank.]

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        IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

    PLAINS ALL AMERICAN PIPELINE, LP.

 

 

By:

Plains AAP, L.P.,
Its General Partner
    By: Plains All American GP LLC,
Its General Partner

 

 

By:

/s/ Tim Moore

    Name: Tim Moore
    Title: Vice President

 

 

KAYNE ANDERSON ENERGY FUND II, L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P., its general partner

 

 

By:

Kayne Anderson Investment Management, Inc., its general partner

 

 

By:

/s/ David Shladovsky

    Name: David Shladovsky
    Title: General Counsel

 

 

KAFU HOLDINGS, L.P.

 

 

By:

KAFU Holdings LLC, its general partner

 

 

By:

/s/ David Shladovsky

    Name: David Shladovsky
    Title: General Counsel

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KAYNE ANDERSON CAPITAL INCOME PARTNERS (QP), L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P., its general partner

 

 

By:

Kayne Anderson Investment Management, Inc., its general partner

 

 

By:

/s/ David Shladovsky

    Name: David Shladovsky
    Title: General Counsel

 

 

KAYNE ANDERSON MLP FUND, L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P., its general partner

 

 

By:

Kayne Anderson Investment Management, Inc., its general partner

 

 

By:

/s/ David Shladovsky

    Name: David Shladovsky
    Title: General Counsel

 

 

TORTOISE ENERGY INFRASTRUCTURE CORPORATION

 

 

By:

/s/ David J. Schulte

    Name: David J. Schulte
    Title: President

 

 

VULCAN ENERGY II INC.

 

 

By:

/s/ David N. Capobianco

    Name: David N. Capobianco
    Title: Vice President

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REGISTRATION RIGHTS AGREEMENT by and among PLAINS ALL AMERICAN PIPELINE, L.P., KAYNE ANDERSON ENERGY FUND II, L.P., KAFU HOLDINGS, L.P., KAYNE ANDERSON CAPITAL INCOME PARTNERS (QP), L.P., KAYNE ANDERSON MLP FUND, L.P., TORTOISE ENERGY INFRASTRUCTURE CORPORATION, and VULCAN ENERGY II INC.
REGISTRATION RIGHTS AGREEMENT
ARTICLE I. DEFINITIONS
ARTICLE II. REGISTRATION RIGHTS
ARTICLE III. MISCELLANEOUS

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Exhibit 4.2

Execution Copy

CLASS C COMMON UNIT
PURCHASE AGREEMENT

by and among

PLAINS ALL AMERICAN PIPELINE, L.P.,

KAYNE ANDERSON ENERGY FUND II, L.P.,

KAFU HOLDINGS, L.P.,

KAYNE ANDERSON CAPITAL INCOME PARTNERS, L.P.,

KAYNE ANDERSON MLP FUND, L.L.P.,

TORTOISE ENERGY INFRASTRUCTURE CORPORATION,

AND

VULCAN ENERGY II INC.


CLASS C COMMON UNIT PURCHASE AGREEMENT

        CLASS C COMMON UNIT PURCHASE AGREEMENT, dated as of March    , 2004 (this "Agreement"), by and among PLAINS ALL AMERICAN PIPELINE, L.P ("PAA") and each of KAYNE ANDERSON ENERGY FUND II, L.P. ("KAEF"), KAFU HOLDINGS, L.P. ("KAFU"), KAYNE ANDERSON CAPITAL INCOME PARTNERS, L.P. ("KACIP"), KAYNE ANDERSON MLP FUND, L.L.P. ("KAMLP") (collectively, "Kayne Anderson"), TORTOISE ENERGY INFRASTRUCTURE CORPORATION ("Tortoise"), and VULCAN ENERGY II INC. ("Vulcan") (each of KAEF, KAFU, KACIP, KAMLP, Tortoise and Vulcan a "Purchaser" and collectively, the "Purchasers").

        In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows:


ARTICLE I.
DEFINITIONS

        Section 1.01 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:

        "Action"     against a Person means any lawsuit, action, proceeding, investigation or complaint before any Governmental Authority, mediator or arbitrator.

        "Amendment"     means the amendment to the Partnership Agreement providing for the Class C Amendment as well as the other matters as are reflected on Exhibit B hereto.

        "Basic Documents"     means, collectively, this Agreement, the Registration Rights Agreement, the Amendment and any and all other agreements or instruments executed and delivered to the Purchasers by PAA or any Subsidiary of PAA hereunder or thereunder.

        "Business Day"     means any day other than a Saturday, Sunday, or a legal holiday for commercial banks in Wilmington, Delaware.

        "Class B Units"     means the Class B Common Units of PAA, as established by Section 5.12 of the Partnership Agreement.

        "Class C Amendment"     shall have the meaning specified in Section 2.01.

        "Class C Units"     means the Class C Common Units of PAA, as established by the Class C Amendment.

        "Class C Unit Price"     shall have the meaning specified in Section 2.06(b).

        "Closing"     shall have the meaning specified in Section 2.03.

        "Closing Date"     shall have the meaning specified in Section 2.03.

        "Commission"     means the United States Securities and Exchange Commission.

        "Commitment"     means, with respect to a particular Purchaser, the commitment of such Purchaser for a period of thirty (30) days from the Commitment Date to purchase such Purchaser's Purchased Units on the terms and subject to the conditions set forth in this Agreement.

        "Commitment Date"     means the date of this Agreement.

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        "Common Units"     means the common units of PAA that are publicly traded on the New York Stock Exchange.

        "Confidential Information"     means all oral or written information, documents, records and data relating to the Mesa Acquisition (including as referenced herein) that PAA or its Representatives furnishes or otherwise discloses to a Purchaser or any of its Representatives, together with all copies, extracts, analyses, compilations, studies, memoranda, notes or other documents, records or data (in whatever form maintained, whether documentary, computer or other electronic storage or otherwise) prepared by any Person that contain or otherwise reflect or are generated from such information, documents, records, or data. The term "Confidential Information" does not include any information that (a) at the time of disclosure or thereafter is generally available to the public (other than as a result of a disclosure by such Purchaser or its Representatives), (b) is developed by such Purchaser or any of its Representatives, independent of, and without reliance in whole or in part on, any Confidential Information or any knowledge of Confidential Information, (c) becomes available to such Purchaser or its Representatives on a non-confidential basis from a source other than PAA or its Representatives who, insofar as is known to the recipient after reasonable inquiry, is not prohibited from transmitting the information to the recipient by a contractual, legal, fiduciary or other obligation to PAA or (d) was available to such Purchaser or its Representatives on a non-confidential basis prior to its disclosure to such Purchaser or its Representatives by PAA or its Representatives.

        "Exchange Act"     means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

        "Form 8-A"     shall have the meaning set forth in Section 3.02(a).

        "GAAP"     means generally accepted accounting principles in the United States of America in effect from time to time.

        "Governmental Authority"     means, with respect to a particular Person, the country, state, county, city and political subdivisions in which such Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them and any monetary authority which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein with respect to PAA means a Governmental Authority having jurisdiction over PAA, its Subsidiaries or any of their respective Properties.

        "Indemnified Party"     shall have the meaning specified in Section 5.02(c).

        "Indemnifying Party"     shall have the meaning specified in Section 5.02(c).

        "Law"     means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, statute, law, rule or regulation.

        "Lien"     means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purpose of this Agreement, a Person shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing.

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        "Mesa Acquisition"     means the proposed acquisition of substantially all of the assets of Link Energy Limited Partnership, a Texas limited partnership, Link Energy Pipeline Limited Partnership, a Texas limited partnership, and Link Energy Canada Limited Partnership, a Texas limited partnership.

        "Mesa Closing Date"     means the date on which the Mesa Acquisition is consummated.

        "PAA"     means Plains All American Pipeline, L.P., a Delaware limited partnership.

        "PAA Financial Statements"     means the financial statement or statements described or referred to in Section 3.02.

        "PAA Material Adverse Effect"     means any material and adverse effect on (a) the assets, liabilities, financial condition, business, operations or affairs of PAA and its Subsidiaries taken as a whole measured against those assets, liabilities, financial condition, business, operations or affairs reflected in the PAA SEC Documents or from the facts represented or warranted in any Basic Document, (b) the ability of PAA and its Subsidiaries taken as a whole to carry out their business as of the date hereof or to meet their obligations under the Basic Documents on a timely basis, or (c) the ability of PAA to consummate the transactions under any Basic Document.

        "PAA Related Parties"     shall have the meaning specified in Section 5.02(b).

        "PAA SEC Documents"     shall have the meaning specified in Section 3.03.

        "Partnership Agreement"     means the Third Amended and Restated Agreement of Limited Partnership of PAA, dated as of June 27, 2001 (the "Partnership Agreement"), as amended as contemplated hereby.

        "Partnership Securities"     means any class or series of equity interest in PAA (but excluding any options, rights, warrants and appreciation rights relating to an equity interest in PAA), including without limitation Common Units, Class B Units, Class C Units and Incentive Distribution Rights (as defined in the Partnership Agreement).

        "Permits"     means, with respect to PAA or any of its Subsidiaries, any licenses, permits, variances, consents, authorizations, waivers, grants, franchises, concessions, exemptions, orders, registrations and approvals of Governmental Authorities or other Persons necessary for the ownership, leasing, operation, occupancy and use of its Properties and the conduct of its businesses as currently conducted.

        "Person"     means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity.

        "Property"     means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

        "Purchase Price"     means, with respect to a particular Purchaser, the monetary commitment amount set forth opposite such Purchaser's name under the column entitled "Purchase Price" on Schedule 2.01 hereto.

        "Purchased Units"     means, with respect to a particular Purchaser, the number of Class C Units equal to the quotient determined by dividing (a) the Purchase Price of such Purchaser by (b) the Class C Unit Price.

        "Purchaser"     has the meaning set forth in the introductory paragraph.

        "Purchaser Material Adverse Effect"     means, with respect to a particular Purchaser, any material and adverse effect on (a) the assets, liabilities, financial condition, business, operations or affairs of

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such Purchaser, (b) the ability of such Purchaser to carry out its business as of the date hereof or to meet its obligations under the Basic Documents on a timely basis or (c) the ability of such Purchaser to consummate the transactions under any Basic Document.

        "Purchaser Related Parties"     shall have the meaning specified in Section 5.02(a).

        "Registration Rights Agreement"     means the Registration Rights Agreement, to be entered into at the Closing, between PAA and the Purchasers in the form attached hereto as Exhibit A hereto.

        "Representatives"     of any Person means the officers, directors, employees, agents, counsel, investment bankers and other representatives of such Person.

        "Securities Act"     means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Commission promulgated thereunder.

        "Subsidiary"     means, as to any Person, any corporation or other entity of which: (i) such Person or a Subsidiary of such Person is a general partner or manager; or (ii) at least a majority of the outstanding equity interest having by the terms thereof ordinary voting power to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether or not at the time any equity interest of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries.

        Section 1.02 Accounting Procedures and Interpretation. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all Financial Statements and certificates and reports as to financial matters required to be furnished to the Purchasers hereunder shall be prepared, in accordance with GAAP applied on a consistent basis during the periods involved (except, in the case of unaudited statements, as permitted by Form 10-Q promulgated by the Commission) and in compliance as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto.


ARTICLE II.
AGREEMENT TO SELL AND PURCHASE

        Section 2.01 Authorization of Sale of Class C Units. PAA has authorized the issuance and sale to each of the Purchasers of such Purchaser's Purchased Units. The Purchased Units shall have those rights, preferences, privileges and restrictions governing the Class C Units which shall be reflected in an amendment to the Partnership Agreement to be adopted immediately prior to the issuance and sale of Class C Units contemplated hereby (the "Class C Amendment").

        Section 2.02 Sale and Purchase. Following the consummation of the Mesa Acquisition and subject to the terms and conditions hereof, at the Closing (as defined in Section 2.03 below) PAA hereby agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to purchase from PAA, such Purchaser's Purchased Units, and each Purchaser agrees to pay PAA such Purchaser's Purchase Price. The obligation of each Purchaser hereunder is several and not joint and is independent of the obligation of each other Purchaser, and the failure of, or PAA's waiver of, performance by any Purchaser does not excuse performance by any other Purchaser or PAA. In the event the Mesa Acquisition is not consummated PAA shall be relieved of its obligation to issue and sell to each Purchaser such Purchaser's Purchased Units.

        Section 2.03 Closing. Subject to the terms and conditions hereof, the consummation of the purchase and sale of the Purchased Units hereunder (the "Closing") shall take place on any date following the Mesa Closing Date selected by PAA, but on or prior to April 30, 2004, provided that PAA

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shall have given each Purchaser ten (10) Business Days (or such shorter period as shall be agreeable to all parties hereto) prior written notice of such designated closing date (such date, the "Closing Date"), at the offices of Vinson & Elkins, L.L.P., 1001 Fannin, Suite 2300, Houston, Texas 77002.

        Section 2.04 Conditions to the Closing.

                (a)     Mutual Conditions.     The respective obligation of each party to consummate the purchase and issuance and sale of the Purchased Units shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions (any or all of which may be waived by a particular party on behalf of itself in writing, in whole or in part, to the extent permitted by applicable Law):

        (b)     Each Purchaser's Conditions.     The respective obligation of each Purchaser to consummate the purchase of its Purchased Units shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions (any or all of which may be waived by a particular Purchaser on behalf of itself in writing, in whole or in part, to the extent permitted by applicable Law):

        (c)     PAA's Conditions.     The obligation of PAA to consummate the sale of each of the Purchaser's Purchased Units to each of the Purchasers shall be subject to the satisfaction on or prior to the Closing Date of the condition (which may be waived by PAA in writing, in whole or in part, to the extent permitted by applicable Law) that the representations and warranties of each of the Purchasers contained in this Agreement shall be true and correct in all material respects both when made and at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date), and PAA shall have received a certificate from each of the Purchasers signed on behalf of such Purchaser to such effect.

        Section 2.05 Deliveries. At the Closing, subject to the terms and conditions hereof, PAA will deliver, or cause to be delivered, to each Purchaser:

                (a)   The Purchased Units to be purchased by such Purchaser by delivery of certificates evidencing such Purchased Units at the Closing meeting the requirements of the Partnership Agreement, all free and clear of any Liens, encumbrances or interests of any other party, and Purchaser will make payment to PAA of the Purchase Price hereto by wire transfer of immediately available funds to an account designated by PAA in writing at least ten (10) Business Days (or such shorter period as shall be agreeable to all parties hereto) prior to the Closing;

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                (b)   A certificate of the Secretary of State of the State of Delaware, dated a recent date, that PAA is in good standing;

                (c)   An opinion addressed to the Purchasers from legal counsel to PAA, dated as of the Closing, in the form and substance attached hereto as Exhibit C; and

                (d)   The Registration Rights Agreement, which shall have been duly executed by PAA.

        Section 2.06 Consideration.

                (a)   In exchange for each Purchaser's Commitment to purchase its Purchased Units, PAA shall on the Commitment Date pay to each Purchaser a commitment fee in cash of one percent (1%) of such Purchaser's Purchase Price (the "Commitment Fee") and as set forth on Schedule 2.01 hereto opposite such Purchaser's name under the column entitled "Commitment Fee". The Commitment Fee shall be paid on the Commitment Date and represents consideration for each Purchaser's Commitment, irrespective of whether the Closing actually occurs.

                (b)   The amount per Class C Unit each Purchaser will pay to PAA to purchase the Purchased Units (the "Class C Unit Price") shall be $30.81 per Class C Unit, an amount which represents ninety-four percent (94%) of the average closing price of the Common Units as reported by the Bloomberg Professional Financial Reporting Service for the twenty (20) trading days immediately ending and including March 26, 2004.

        Section 2.07 [Intentionally Omitted]

        Section 2.08 Covenant to Vote. If at any time PAA submits to a vote or consent of the holders of Partnership Securities the approval of a change in the terms of the Class C Units to provide that each Class C Unit is convertible into one Common Unit, each Purchaser hereby agrees to vote or express consent, with respect to all Partnership Securities that such Purchaser has the power to vote, in favor of such approval.


ARTICLE III.
REPRESENTATIONS AND WARRANTIES RELATED TO PAA

        PAA represents and warrants to each Purchaser as follows:

        Section 3.01 Corporate Existence. PAA: (a) is a limited partnership duly organized, legally existing and in good standing under the laws of the State of Delaware; and (b) has all requisite power and authority, and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use and operate its Properties and carry on its business as its business is now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not be reasonably likely to have a PAA Material Adverse Effect. Each of PAA's Subsidiaries that is a corporation is a corporation duly organized, validly existing and in good standing under the laws of the State or other jurisdiction of its incorporation and has all requisite power and authority, and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use or operate its respective Properties and carry on its business as now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not be reasonably likely to have a PAA Material Adverse Effect. Each Subsidiary of PAA that is not a corporation has been duly formed, validly existing and in good standing under the laws of the State or other jurisdiction of its organization and has all requisite power and authority, and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use or operate its respective Properties and carry on its business as now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not be reasonably likely to have a PAA Material Adverse Effect. None of PAA or any of its Subsidiaries are in default in the performance, observance or fulfillment of any provision of, in the case of PAA, the Partnership Agreement or its Certificate of Limited Partnership or, in the case of

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any Subsidiary of PAA, its respective certificate of incorporation, bylaws or other similar organizational documents. Each of PAA and its Subsidiaries is duly qualified or licensed and in good standing as a foreign corporation, and is authorized to do business, in each jurisdiction in which the ownership or leasing of its respective Properties or the character of its respective operations makes such qualification necessary, except where the failure to obtain such qualification, license, authorization or good standing would not be reasonably likely to have a PAA Material Adverse Effect.

        Section 3.02 Capitalization and Valid Issuance of Purchased Units.

                (a)   As of the date of this Agreement, the issued and outstanding limited partner interests of PAA consist of 57,162,638 Common Units and 1,307,190 Class B Units. The only issued and outstanding general partner interests of PAA are the interest of the General Partner described in the Partnership Agreement. All outstanding Common Units and Class B Units and the limited partner interests represented thereby have been duly authorized and validly issued in accordance with the Partnership Agreement and are fully paid (to the extent required under the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described under the caption "The Partnership Agreement—Limited Liability" in the PAA's registration statement on Form S-1 (No. 333-64107) which is incorporated by reference into the Partnership's Registration Statement on Form 8-A/A (File No. 001-14569) (the "Form 8-A")).

                (b)   Other than PAA's Long-Term Investment Plan and PAA's other equity compensation plans, as described in PAA's Annual Report on Form 10-K for the period ended December 31, 2003, PAA has no equity compensation plans that contemplate the issuance of Common Units (or securities convertible into or exchangeable for Common Units). No indebtedness having the right to vote (or convertible into or exchangeable for securities having the right to vote) on any matters on which PAA unitholders may vote are issued or outstanding. Except as set forth in the first sentence of this Section 3.02(b) or as are contained in the Partnership Agreement, there are no outstanding or authorized (i) options, warrants, preemptive rights, subscriptions, calls, or other rights, convertible securities, agreements, claims or commitments of any character obligating PAA or any of its Subsidiaries to issue, transfer or sell any partnership interests or other equity interest in, PAA or any of its Subsidiaries or securities convertible into or exchangeable for such partnership interests or equity interests, (ii) obligations of PAA or any of its Subsidiaries to repurchase, redeem or otherwise acquire any partnership interests or equity interests of PAA or any of its Subsidiaries or any such securities or agreements listed in clause (i) of this sentence or (iii) voting trusts or similar agreements to which PAA or any of its Subsidiaries is a party with respect to the voting of the equity interests of PAA or any of its Subsidiaries. At the Closing, except as described in this Section 3.02(b), there will not be any outstanding subscriptions, options, warrants, calls, preemptive rights, subscriptions, or other rights, convertible or exchangeable securities, agreements, claims or commitments of any character by which PAA or any of its Subsidiaries will be bound calling for the purchase or issuance of any partnership interests of PAA or any equity interest of any of its Subsidiaries or securities convertible into or exchangeable for such partnership or equity interests or any other such securities or agreements

                (c)   (i) All of the issued and outstanding equity interests of each of PAA's Subsidiaries are owned, directly or indirectly, by PAA free and clear of any Liens (except for such restrictions as may exist under applicable Law and except for such Liens as may be imposed under PAA's or PAA's Subsidiaries' credit facilities), and all such ownership interests have been duly authorized, validly issued and are fully paid (to the extent required in the organizational documents of PAA's Subsidiaries, as applicable) and non-assessable (except as nonassessability may be affected by Section 6.07 of the Texas Revised Uniform Limited Partnership Act, Section 18-607 of the Delaware Limited Liability Company Act, Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, the laws of Nova Scotia or the organizational documents of PAA's Subsidiaries, as applicable) and free of preemptive rights, with no personal liability attaching to the ownership thereof, and (ii) except as disclosed in the PAA SEC Documents, neither PAA nor any of its Subsidiaries owns any shares of capital stock or other

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securities of, or interest in, any other Person, or is obligated to make any capital contribution to or other investment in any other Person.

                (d)   The Class C Units being purchased by the Purchasers hereunder and the limited partner interests represented thereby, will be duly authorized by the Partnership Agreement (as amended as contemplated by this Agreement) prior to the Closing and, when issued and delivered to the Purchasers against payment therefor in accordance with the terms of this Agreement, will be validly issued, fully paid (to the extent required by the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described in PAA's registration statement on the Form 8-A and will be free of any and all Liens and restrictions on transfer, other than restrictions on transfer under the Partnership Agreement and under applicable state and federal securities laws and other than such Liens as are created by the Purchaser. At the Closing the Common Units issuable upon conversion of the Class C Units, and the limited partnership interests represented thereby, upon issuance in accordance with the terms of the Class C Units and the Partnership Agreement (as amended as contemplated by this Agreement) will be validly issued, fully paid (to the extent required by the Partnership Agreement) and nonassessable (except as such nonassessability may be affected by matters described in PAA's registration statement on the Form 8-A) and will be free of any and all Liens and restrictions on transfer, other than restrictions on transfer under the Partnership Agreement and under applicable state and federal securities laws and other than such Liens as are created by the Purchaser.

                (e)   The Common Units are listed on the New York Stock Exchange. The Common Units issuable upon conversion of such Purchased Units have, subject to issuance, been approved for listing on the New York Stock Exchange.

        Section 3.03 PAA SEC Documents. PAA has timely filed with the Commission all forms, registration statements, reports, schedules and statements required to be filed by it under the Exchange Act or the Securities Act (all such documents, collectively "PAA SEC Documents"). The PAA SEC Documents, including, without limitation, any audited or unaudited financial statements and any notes thereto or schedules included therein (the "PAA Financial Statements"), at the time filed (in the case of registration statements, solely on the dates of effectiveness) (except to the extent corrected by a subsequently filed PAA SEC Document filed prior to the date hereof) (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, (c) complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the Commission with respect thereto, (d) were prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and (e) fairly present (subject in the case of unaudited statements to normal, recurring and year-end audit adjustments) in all material respects the consolidated financial position and status of the business of PAA as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended. PricewaterhouseCoopers LLP is an independent public accounting firm with respect to PAA and has not resigned or been dismissed as independent public accountants of PAA as a result of or in connection with any disagreement with PAA on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

        Section 3.04 No Material Adverse Change. Except as set forth in or contemplated by the PAA SEC Documents filed with the Commission on or prior to the date hereof and except for the proposed Mesa Acquisition which has been discussed with each of the Purchasers, since the date of PAA's most recent Form 10-K filing with the Commission, PAA and its Subsidiaries have conducted their respective businesses in the ordinary course, consistent with past practice, and there has been no (a) change,

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event, occurrence, effect, fact, circumstance or condition that has had or would be reasonably likely to have a PAA Material Adverse Effect, other than those occurring as a result of general economic or financial conditions or other developments that are not unique to PAA and its Subsidiaries but also affect other Persons who participate or are engaged in the lines of business of which PAA and its Subsidiaries participate or are engaged, except, in each case, to the extent such condition or development affects PAA to a significantly greater extent than other similarly situated companies generally, (b) acquisition or disposition of any material asset by PAA or any of its Subsidiaries or any contract or arrangement therefor, otherwise than for fair value in the ordinary course of business or as disclosed in the PAA SEC Documents, or (c) material change in PAA's accounting principles, practices or methods.

        Section 3.05 Litigation. Except as set forth in the PAA SEC Documents, there is no Action pending or, to the knowledge of PAA, contemplated or threatened against or affecting PAA, any of its Subsidiaries or any of their respective officers, directors, properties or assets, which (individually or in the aggregate) (a) questions the validity of this Agreement or the Registration Rights Agreement or the right of PAA to enter into this Agreement or the Registration Rights Agreement or to consummate the transactions contemplated hereby and thereby or (b) would be reasonably likely to result in a PAA Material Adverse Effect.

        Section 3.06 No Breach. The execution, delivery and performance by PAA of this Agreement, the Registration Rights Agreement and all other agreements and instruments to be executed and delivered by PAA pursuant hereto or thereto or in connection with the transactions contemplated by this Agreement, the Registration Rights Agreement or any such other agreements and instruments, and compliance by PAA with the terms and provisions hereof and thereof, the issuance and sale by PAA of the Purchaser Units and the adoption and execution of the Amendment, do not and will not (a) violate any provision of any Law or Permit having applicability to PAA or any of its Subsidiaries or any of their respective Properties, (b) conflict with or result in a violation of any provision of the Certificate of Limited Partnership or other organizational documents of PAA, or the Partnership Agreement, or any organizational documents of any of PAA's Subsidiaries, (c) require any consent, approval or notice under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any contract, agreement, instrument, obligation, note, bond, mortgage, license, loan or credit agreement to which PAA or any of its Subsidiaries is a party or by which PAA or any of its Subsidiaries or any of their respective Properties may be bound, or (d) result in or require the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by PAA or any of its Subsidiaries; with the exception of the conflicts stated in clause (b) of this Section 3.06, except where such conflict, violation, default, breach, termination, cancellation, failure to receive consent or approval, or acceleration with respect to the foregoing provisions of this Section 3.06 would not be, individually or in the aggregate, reasonably likely to have a PAA Material Adverse Effect.

        Section 3.07 Authority. PAA has all necessary power and authority to execute, deliver and perform its obligations under the Basic Documents; and the execution, delivery and performance by PAA of the Basic Documents have been duly authorized by all necessary action on its part; and the Basic Documents constitute the legal, valid and binding obligations of PAA, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer and similar laws affecting creditors' rights generally or by general principles of equity. No approval from the holders of the Common Units is required in connection with (a) the approval, adoption or effectiveness of the Amendment or (b) PAA's issuance and sale of the Purchased Units to Purchaser.

        Section 3.08 Approvals. Except for the approvals required by the Commission in connection with PAA's obligations under the Registration Rights Agreement, no authorization, consent, approval, waiver, license, qualification or written exemption from, nor any filing, declaration, qualification or registration with, any Governmental Authority or any other Person is required in connection with

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(a) the approval, adoption or effectiveness of the Amendment or (b) the execution, delivery or performance by PAA of any of the Basic Documents, except where the failure to receive such authorization, consent, approval, waiver, license, qualification or written exemption from, or to make such filing, declaration, qualification or registration would not, individually or in the aggregate, be reasonably likely to have a PAA Material Adverse Effect.

        Section 3.09 MLP Status. PAA has, for each taxable year beginning after December 31, 1987, during which PAA was in existence, met the gross income requirements of Section 7704(c)(2) of the Internal Revenue Code of 1986, as amended.

        Section 3.10 Offering. Assuming the accuracy of the representations and warranties of the Purchasers contained in this Agreement, the sale and issuance of the Purchased Units to each of the Purchasers pursuant to this Agreement is exempt from the registration requirements of the Securities Act, and neither PAA nor any authorized agent acting on its behalf has taken or will take any action hereafter that would cause the loss of such exemptions.

        Section 3.11 Investment Company Status. PAA is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

        Section 3.12 Certain Fees. Except for the Commitment Fees to be payable to each of the Purchasers pursuant to Section 2.06(a) and for the participation fee to be paid by Tortoise to PAA as reflected on Schedule 2.01 hereto under the column "Participation Fee" and the fee to be paid by PAA to Lehman Brothers Inc. related to the Tortoise investment, no fees or commissions will be payable by PAA to brokers, finders, or investment bankers with respect to the sale of any of the Purchased Units or the consummation of the transaction contemplated by this Agreement. PAA agrees that it will indemnify and hold harmless each of the Purchasers from and against any and all claims, demands, or liabilities for broker's, finder's, placement, or other similar fees or commissions incurred by PAA or alleged to have been incurred by PAA in connection with the sale of each Purchaser's Purchased Units or the consummation of the transactions contemplated by this Agreement.

        Section 3.13 No Side Agreements. Except for the participation fee to be paid by Tortoise to PAA as reflected on Schedule 2.01 hereto under the column entitled "Participation Fee" and the fee to be paid by PAA to Lehman Brothers Inc. related to the Tortoise investment, there are no other agreements by, among or between PAA or its Affiliates, on the one hand, and any of the Purchasers or their Affiliates, on the other hand, with respect to the transactions contemplated hereby nor promises or inducements for future transactions between or among any of such parties.


ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER

        Each Purchaser, severally and not jointly, represents and warrants to PAA with respect to itself:

        Section 4.01 Investment. The Purchased Units are being acquired for its own account, not as a nominee or agent, and with no intention of distributing the Purchased Units or any part thereof, and that such Purchaser has no present intention of selling or granting any participation in or otherwise distributing the same in any transaction in violation of the securities laws of the United States of America or any State, without prejudice, however, to such Purchaser's right at all times to sell or otherwise dispose of all or any part of the Purchased Units under a registration statement under the Securities Act and applicable state securities laws or under an exemption from such registration available thereunder (including, without limitation, if available, Rule 144 promulgated thereunder). If such Purchaser should in the future decide to dispose of any of the Purchased Units, such Purchaser understands and agrees (a) that it may do so only (i) in compliance with the Securities Act and applicable state securities law, as then in effect, or (ii) in the manner contemplated by any registration

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statement pursuant to which such securities are being offered, and (b) that stop-transfer instructions to that effect will be in effect with respect to such securities.

        Section 4.02 Nature of Purchaser. Such Purchaser represents and warrants to, and covenants and agrees with, PAA that, (a) it is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated by the Securities and Exchange Commission pursuant to the Securities Act and (b) by reason of its business and financial experience it has such knowledge, sophistication and experience in making similar investments and in business and financial matters generally so as to be capable of evaluating the merits and risks of the prospective investment in the Class C Units, is able to bear the economic risk of such investment and, at the present time, would be able to afford a complete loss of such investment.

        Section 4.03 Receipt of Information; Authorization. Such Purchaser acknowledges that it has (a) had access to PAA's periodic filings with the Commission, including PAA's Annual Report on Form 10-K for the year ended December 31, 2003 and the current reports of PAA filed on Forms 8-K on January 15, February 17, March 1 and March 17, 2004, (b) had access to information regarding the proposed Mesa Acquisition and its potential effect on PAA's operations and financial results and (c) been provided a reasonable opportunity to ask questions of and receive answers from Representatives of PAA regarding such matters.

        Section 4.04 Corporate Existence. Such Purchaser, if an entity: (a) is duly organized, legally existing and in good standing under the laws of its respective jurisdiction of organization; and (b) has all requisite power and authority, and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use and operate its Properties and carry on its business as its business is now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not have or would not reasonably be expected to have a Purchaser Material Adverse Effect. Each such Purchaser is not in default in the performance, observance or fulfillment of any provision of its organizational documents, except where such default would not have or would not be reasonably likely to have a Purchaser Material Adverse Effect.

        Section 4.05 No Breach. The execution, delivery and performance by such Purchaser of this Agreement, the Registration Rights Agreement and all other agreements and instruments to be executed and delivered by such Purchaser pursuant hereto or thereto or in connection with the transactions contemplated by this Agreement, the Registration Rights Agreement or any such other agreements and instruments, and compliance by such Purchaser with the terms and provisions hereof and thereof, and the purchase of such Purchaser's Purchased Units by such Purchaser do not and will not (a) violate any provision of any Law or permit having applicability to such Purchaser or any of its Properties, (b) conflict with or result in a violation of any provision of the organizational documents of such Purchaser, (c) require any consent, approval or notice under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any contract, agreement, instrument, obligation, note, bond, mortgage, license, loan or credit agreement to which such Purchaser is a party or by which such Purchaser or any of its Properties may be bound, or (d) result in or require the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by such Purchaser; with the exception of the conflicts stated in clause (b) of this Section 4.05, except where such conflict, violation, default, breach, termination, cancellation, failure to receive consent or approval, or acceleration with respect to the foregoing provisions of this Section 4.05 would not, individually or in the aggregate, be reasonably likely to have a Purchaser Material Adverse Effect.

        Section 4.06 Restricted Securities. Such Purchaser understands that the Purchased Units it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from PAA in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities

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Act only in certain limited circumstances. In this connection, Purchaser represents that it is knowledgeable with respect to Rule 144 of the Commission promulgated under the Securities Act.

        Section 4.07 Certain Fees. Except for the participation fee to be paid by Tortoise to PAA as reflected on Schedule 2.01 hereto under the column "Participation Fee" and the fee to be paid by PAA to Lehman Brothers Inc. related to the Tortoise investment, no fees or commissions will be payable by such Purchaser to brokers, finders, or investment bankers with respect to the purchase of any of the Purchased Units or the consummation of the transaction contemplated by this Agreement. Such Purchaser agrees that it will indemnify and hold harmless PAA from and against any and all claims, demands, or liabilities for broker's, finder's, placement, or other similar fees or commissions incurred by such Purchaser or alleged to have been incurred by such Purchaser in connection with the purchase of such Purchaser's Purchased Units or the consummation of the transactions contemplated by this Agreement.

        Section 4.08 Legend. It is understood that the certificates evidencing the Securities may bear the following legend: "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act."

        Section 4.09 No Side Agreements. There are no other agreements by, among or between such Purchaser and any of its Affiliates, on the one hand, and any of the other Purchasers or their Affiliates, on the other hand, with respect to the transactions contemplated hereby nor promises or inducements for future transactions between or among any of such parties.


ARTICLE V.
MISCELLANEOUS

        Section 5.01 Interpretation and Survival of Provisions. Article, Section, Schedule, and Exhibit references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The word "including" shall mean "including but not limited to." Whenever PAA has an obligation under the Basic Documents, the expense of complying with that obligation shall be an expense of PAA unless otherwise specified. Whenever any determination, consent, or approval is to be made or given by a Purchaser, such action shall be in such Purchaser's sole discretion unless otherwise specified in this Agreement. If any provision in the Basic Documents or the Amendment is held to be illegal, invalid, not binding, or unenforceable, such provision shall be fully severable and the Basic Documents shall be construed and enforced as if such illegal, invalid, not binding, or unenforceable provision had never comprised a part of the Basic Documents, and the remaining provisions shall remain in full force and effect. The Basic Documents have been reviewed and negotiated by sophisticated parties with access to legal counsel and shall not be construed against the drafter. The representations and warranties set forth in Sections 3.01, 3.02, 3.06, 3.07, 3.08, 3.12, 3.13, 4.01, 4.02, 4.03, 4.04, 4.05, 4.06, 4.07 and 4.09 hereunder shall survive the execution and delivery of this Agreement indefinitely, and the other representations and warranties set forth herein shall survive for a period of twelve (12) months following the Closing Date regardless of any investigation made by or on behalf of PAA or each of the Purchasers. The covenants made in this Agreement or any other Basic Document shall survive the closing of the transactions described herein and remain operative and in full force and effect regardless of acceptance of any of the Purchased Units and payment therefor and repayment, conversion, exercise or repurchase thereof. All indemnification obligations of PAA and the provisions of Section 5.02 shall remain operative and in full force and effect unless such obligations are

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expressly terminated in a writing referencing that individual Section, regardless of any purported general termination of this Agreement.

        Section 5.02 Indemnification, Costs and Expenses.

                (a)     Indemnification by PAA.     PAA agrees to indemnify each Purchaser and its officers, directors, employees and agents (collectively, "Purchaser Related Parties") from, and hold each of them harmless against any and all actions, suits, proceedings (including any investigations, litigation or inquiries), demands, and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages, or expenses of any kind or nature whatsoever, including, without limitation, the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them as a result of, arising out of, or in any way related to (i) any actual or proposed use by PAA of the proceeds of any sale of the Purchased Units or (ii) the breach of any of the representations, warranties or covenants of PAA contained herein, provided such claim for indemnification relating to a breach of a representation or warranty is made prior to the expiration of such representation or warranty.

                (b)     Indemnification by Purchasers.     Each Purchaser agrees, severally and not jointly, to indemnify PAA, Plains AAP, L.P. and Plains All American GP LLC and their officers, directors, employees and agents (collectively, "PAA Related Parties") from, and hold each of them harmless against any and all actions, suits, proceedings (including any investigations, litigation, or inquiries), demands, and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages, or expenses of any kind or nature whatsoever, including, without limitation, the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them as a result of, arising out of, or in any way related to the breach of any of the representations, warranties or covenants of such Purchaser contained herein, provided such claim for indemnification relating to a breach of the representations and warranties is made prior to the expiration of such representations and warranties.

                (c)     Indemnification Procedure.     Promptly after any PAA Related Party or Purchaser Related Party (hereinafter, the "Indemnified Party") has received notice of any indemnifiable claim hereunder, or the commencement of any action or proceeding by a third person, which the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement, the Indemnified Party shall give the indemnitor hereunder (the "Indemnifying Party") written notice of such claim or the commencement of such action or proceeding, but failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability it may have to such Indemnified Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure. Such notice shall state the nature and the basis of such claim to the extent then known. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel, any such matter as long as the Indemnifying Party pursues the same diligently and in good faith. If the Indemnifying Party undertakes to defend or settle, it shall promptly notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof and the settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records and other information reasonably requested by the Indemnifying Party and in the Indemnified Party's possession or control. Such cooperation of the Indemnified Party shall be at the cost of the Indemnifying Party. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal

14



expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled (i) at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof and (ii) if (A) the Indemnifying Party has failed to assume the defense and employ counsel or (B) if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have concluded that there may be reasonable defenses available to the Indemnified Party that are different from or in addition to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not settle any indemnified claim without the consent of the Indemnified Party, unless the settlement thereof imposes no liability or obligation on, and includes a complete release from liability of, the Indemnified Party.

                (d)     Survival.     The parties' obligations under this Section 5.02 shall survive any termination of this Agreement.

        Section 5.03 No Waiver; Modifications in Writing.

                (a)     Delay.     No failure or delay on the part of any party in exercising any right, power, or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any right, power, or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a party at law or in equity or otherwise.

                (b)     Specific Waiver.     Except as otherwise provided herein, no amendment, waiver, consent, modification, or termination of any provision of this Agreement or any other Basic Document shall be effective unless signed by each of the parties hereto or thereto affected by such amendment, waiver, consent, modification, or termination. Any amendment, supplement or modification of or to any provision of this Agreement or any other Basic Document, any waiver of any provision of this Agreement or any other Basic Document, and any consent to any departure by PAA from the terms of any provision of this Agreement or any other Basic Document shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on PAA in any case shall entitle PAA to any other or further notice or demand in similar or other circumstances.

        Section 5.04 Binding Effect; Assignment.

                (a)     Binding Effect.     This Agreement shall be binding upon PAA, each Purchaser, and their respective successors and permitted assigns. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement, and their respective successors and permitted assigns.

                (b)     Assignment of Purchased Units.     All or any portion a Purchaser's Purchased Units purchased pursuant to this Agreement may be sold, assigned or pledged by such Purchaser, subject to compliance with applicable securities laws.

                (c)     Assignment of Rights.     All or any portion of the rights and obligations of each Purchaser under this Agreement may not be transferred by such Purchaser without the written consent of PAA.

        Section 5.05 Confidentiality. Notwithstanding anything herein to the contrary, each Purchaser that has executed or is otherwise bound by a confidentiality agreement in favor of PAA shall continue to be bound by such confidentiality agreement. Each Purchaser that has not executed or is not otherwise not

15



bound by a confidentiality agreement in favor of PAA will refrain, and will cause its Representatives to refrain, from disclosing to any other Person any Confidential Information. Disclosure of Confidential Information will not be deemed to be a breach of this Section 5.05 if such disclosure is made with the consent of PAA or pursuant to a subpoena or order issued by a court of competent jurisdiction or by a judicial or administrative or legislative body or committee; provided, however, that upon receipt by a Purchaser of any subpoena or order covering Confidential Information of PAA, such Purchaser will promptly notify PAA of such subpoena or order.

        Section 5.06 Communications. All notices and demands provided for hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, telecopy, air courier guaranteeing overnight delivery or personal delivery to the following addresses:

16


or to such other address as PAA or such Purchaser may designate in writing. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified mail, return receipt requested, or regular mail, if mailed; when receipt acknowledged, if sent via facsimile; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

        Section 5.07 Removal of Legend. Any Purchaser may request PAA to remove the legend described in Section 4.08 from the certificates evidencing the Class C Units by submitting to PAA such certificates, together with an opinion of counsel to the effect that such legend is no longer required under the Securities Act or applicable state laws, as the case may be.

        Section 5.08 Entire Agreement. This Agreement, the other Basic Documents and the other agreements and documents referred to herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein with respect to the rights granted by PAA or any of its Affiliates or each of the Purchasers or any of their Affiliates set forth herein or therein. This Agreement, the other Basic Documents and the other agreements and documents referred to herein supersede all prior agreements and understandings between the parties with respect to such subject matter.

        Section 5.09 Governing Law. This Agreement will be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of laws.

        Section 5.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement.

        Section 5.11 Termination.

                (a)   Notwithstanding anything herein to the contrary, this Agreement shall automatically terminate if the Closing shall not have occurred on or before April 30, 2004, unless the term hereof is extended by agreement of the parties hereto.

17



                (b)   In the event of the termination of this Agreement as provided in Section 5.11(a), this Agreement shall forthwith become null and void. In the event of such termination, there shall be no liability on the part of any party hereto, except as set forth in Section 5.02 of this Agreement and except with respect to the requirement to comply with any confidentiality agreement in favor of PAA; provided that nothing herein shall relieve any party from any liability or obligation with respect to any willful breach of this Agreement.

        Section 5.12 Expenses. PAA hereby covenants and agrees to reimburse Vulcan, Tortoise and Kayne Anderson for reasonable and documented costs and expenses incurred in connection with the negotiation, execution, delivery and performance of the Basic Documents and the transactions contemplated hereby and thereby (including, without limitation, reasonable legal, consulting and due diligence fees and expenses), provided that such expenses do not exceed $20,000 with respect to Vulcan and $8,000 each with respect to Tortoise and Kayne Anderson and that any request for such expense reimbursement by Vulcan, Tortoise or Kayne Anderson be accompanied by a detailed invoice for such amount. If any action at law or equity is necessary to enforce or interpret the terms of the Basic Documents, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

[The remainder of this page is intentionally left blank.]

18


        IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.

    PLAINS ALL AMERICAN PIPELINE, LP.

 

 

By:

PAA, AAP, L.P., its general partner

 

 

By:

Plains All American GP LLC,
its general partner

 

 

By:

/s/  
TIM MOORE       
    Name: Tim Moore
    Title: Vice President
    KAYNE ANDERSON ENERGY FUND II, L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P., its
general partner

 

 

By:

Kayne Anderson Investment Management, Inc.,
its general partner

 

 

By:

/s/  
DAVID SHLADOVSKY       
    Name: David Shladovsky
    Title: General Counsel
    KAFU HOLDINGS, L.P.

 

 

By:

KAFU Holdings LLC, its general partner

 

 

By:

/s/  
DAVID SHLADOVSKY       
    Name: David Shladovsky
    Title: General Counsel
    KAYNE ANDERSON CAPITAL INCOME
PARTNERS, L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P.,
its general partner
       

19



 

 

By:

Kayne Anderson Investment Management, Inc.,
its general partner

 

 

By:

/s/  
DAVID SHLADOVSKY       
    Name: David Shladovsky
    Title: General Counsel

20


    KAYNE ANDERSON MLP FUND, L.L.P.

 

 

By:

Kayne Anderson Capital Advisors, L.P.,
its general partner

 

 

By:

Kayne Anderson Investment Management, Inc.,
its general partner

 

 

By:

/s/  
DAVID SHLADOVSKY       
    Name: David Shladovsky
    Title: General Counsel
    TORTOISE ENERGY INFRASTRUCTURE CORPORATION

 

 

By:

/s/  
DAVID J. SCHULTE       
    Name: David J. Schulte
    Title: President
    VULCAN ENERGY II INC.

 

 

By:

/s/  
DAVID CAPOBIANCO       
    Name: David Capobianco
    Title: Vice President

21



Exhibit B—Partnership Amendment

See Attached

22



Exhibit C—Form of Opinion of PAA Counsel

See Attached

23



Schedule 2.01

Purchaser

  Purchase Price
  Commitment Fee
  Participation Fee
Kayne Anderson Energy Fund II, L.P.   $ 30,000,000   $ 300,000   $ 0
KAFU Holdings, L.P.   $ 11,000,000   $ 110,000   $ 0
Kayne Anderson Capital Income Partners, L.P.   $ 2,000,000   $ 20,000   $ 0
Kayne Anderson MLP Fund, L.L.P.   $ 2,000,000   $ 20,000   $ 0
Vulcan Energy II Inc.   $ 40,000,000   $ 400,000   $ 0
Tortoise Energy Infrastructure Corporation   $ 15,000,000   $ 150,000   $ 450,000

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QuickLinks

ARTICLE I. DEFINITIONS
ARTICLE II. AGREEMENT TO SELL AND PURCHASE
ARTICLE III. REPRESENTATIONS AND WARRANTIES RELATED TO PAA
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
ARTICLE V. MISCELLANEOUS
Exhibit B—Partnership Amendment
Exhibit C—Form of Opinion of PAA Counsel
Schedule 2.01

QuickLinks -- Click here to rapidly navigate through this document


Exhibit 10.1



INTERIM 364-DAY CREDIT AGREEMENT


PLAINS ALL AMERICAN PIPELINE, L.P., as Borrower,

BANK ONE, NA, as Administrative Agent,

FLEET NATIONAL BANK,
as Syndication Agent,

WACHOVIA BANK, NATIONAL ASSOCIATION,
as Documentation Agent,

BANC ONE CAPITAL MARKETS, INC. and FLEET SECURITIES, INC.,
as Co-Lead Arrangers

and

BANC ONE CAPITAL MARKETS, INC., as Sole Book Manager,

and CERTAIN FINANCIAL INSTITUTIONS, as Lenders


$200,000,000 364-Day Revolving Credit Facility

April 1, 2004




TABLE OF CONTENTS

 
  Page
ARTICLE I— Definitions and References   1
  Section 1.1. Defined Terms   1
  Section 1.2. Exhibits and Schedules; Additional Definitions   12
  Section 1.3. Amendment of Defined Instruments   12
  Section 1.4. References and Titles   12
  Section 1.5. Calculations and Determinations   12

ARTICLE II—
The Loans

 

13
  Section 2.1. Commitments to Lend; Notes   13
  Section 2.2. Requests for Loans   13
  Section 2.3. Continuations and Conversions of Existing Loans   14
  Section 2.4. Use of Proceeds   15
  Section 2.5. Interest Rates and Fees   15
  Section 2.6. Intentionally Omitted   16
  Section 2.7. Conversion to Term Loan   16
  Section 2.8. Optional Prepayments   16
  Section 2.9. Mandatory Commitment Reductions and Prepayments   16

ARTICLE III—
Payments to Lenders

 

17
  Section 3.1. General Procedures   17
  Section 3.2. Capital Reimbursement   17
  Section 3.3. Increased Cost of LIBOR Loans   18
  Section 3.4. Notice; Change of Applicable Lending Office   18
  Section 3.5. Availability   18
  Section 3.6. Funding Losses   19
  Section 3.7. Reimbursable Taxes   19
  Section 3.8. Replacement of Lenders   20

ARTICLE IV—
Conditions Precedent to Lending

 

20
  Section 4.1. Documents to be Delivered   20
  Section 4.2. Additional Conditions Precedent   22

ARTICLE V—
Representations and Warranties

 

23
  Section 5.1. No Default   23
  Section 5.2. Organization and Good Standing   23
  Section 5.3. Authorization   23
  Section 5.4. No Conflicts or Consents   23
  Section 5.5. Enforceable Obligations   23
  Section 5.6. Initial Financial Statements   23
  Section 5.7. Other Obligations and Restrictions   23
  Section 5.8. Full Disclosure   24
  Section 5.9. Litigation   24
  Section 5.10. ERISA Plans and Liabilities   24
  Section 5.11. Compliance with Permits, Consents and Law   24
  Section 5.12. Environmental Laws   25
  Section 5.13. Borrower's Subsidiaries   25
  Section 5.14. Title to Properties   25
  Section 5.15. Government Regulation   25
  Section 5.16. Insider   25
  Section 5.17. Solvency   25
  Section 5.18. Not a "Reportable Transaction"   26
     


ARTICLE VI—
Affirmative Covenants

 

26
  Section 6.1. Payment and Performance   26
  Section 6.2. Books, Financial Statements and Reports   26
  Section 6.3. Other Information and Inspections   27
  Section 6.4. Notice of Material Events   28
  Section 6.5. Maintenance of Existence, Qualifications and Assets   28
  Section 6.6. Payment of Taxes, etc.   28
  Section 6.7. Insurance   28
  Section 6.8. Compliance with Agreements and Law   29
  Section 6.9. Guaranties of Subsidiaries   29

ARTICLE VII—
Negative Covenants

 

29
  Section 7.1. Subsidiary Indebtedness   29
  Section 7.2. Limitation on Liens   30
  Section 7.3. Limitation on Mergers   31
  Section 7.4. Limitation on New Businesses   32
  Section 7.5. Transactions with Affiliates   32
  Section 7.6. Limitation on Distributions   32
  Section 7.7. Restricted Contracts   32
  Section 7.8. Debt Coverage Ratio   33
  Section 7.9. Interest Coverage Ratio   33
  Section 7.10. Unrestricted Subsidiaries   33
  Section 7.11. No Negative Pledges   34

ARTICLE VIII—
Events of Default and Remedies

 

34
  Section 8.1. Events of Default   34
  Section 8.2. Remedies   36

ARTICLE IX—
Administrative Agent

 

36
  Section 9.1. Appointment and Authority   36
  Section 9.2. Exculpation, Administrative Agent's Reliance, Etc.   36
  Section 9.3. Credit Decisions   37
  Section 9.4. Indemnification   37
  Section 9.5. Rights as Lender   38
  Section 9.6. Sharing of Set-Offs and Other Payments   38
  Section 9.7. Investments   38
  Section 9.8. Benefit of Article IX   38
  Section 9.9. Resignation   39
  Section 9.10. Other Agents   39

ARTICLE X—
Miscellaneous

 

39
  Section 10.1. Waivers and Amendments; Acknowledgments   39
  Section 10.2. Survival of Agreements; Cumulative Nature   40
  Section 10.3. Notices   40
  Section 10.4. Payment of Expenses; Indemnity   41
  Section 10.5. Joint and Several Liability; Parties in Interest; Assignments; Replacement Notes   42
  Section 10.6. Confidentiality   44
  Section 10.7. Governing Law; Submission to Process   44
  Section 10.8. Limitation on Interest   45
  Section 10.9. Right of Offset   46
  Section 10.10. Termination; Limited Survival   46
  Section 10.11. Severability   46
  Section 10.12. Counterparts   46
  Section 10.13. Waiver of Jury Trial, Punitive Damages, etc.   46

Schedules and Exhibits:

Schedule 1—Lender Schedule
Schedule 2—Disclosure Schedule
Schedule 3—Pricing Grid

Exhibit A—Note
Exhibit B—Borrowing Notice
Exhibit C—Continuation/Conversion Notice
Exhibit D—Certificate Accompanying Financial Statements
Exhibit E-1—Opinion of In-House Counsel for Restricted Persons
Exhibit E-2—Opinion of Fulbright & Jaworski L.L.P., Counsel for Restricted Persons
Exhibit E-3—Opinion of Bennett Jones, Canadian Counsel for Restricted Persons
Exhibit F—Assignment and Acceptance Agreement



INTERIM 364-DAY CREDIT AGREEMENT

        THIS INTERIM 364-DAY CREDIT AGREEMENT is made as of April 1, 2004, by and among PLAINS ALL AMERICAN PIPELINE, L.P., a Delaware limited partnership (" Borrower "), BANK ONE, NA, as administrative agent (in such capacity, " Administrative Agent "), FLEET NATIONAL BANK, as syndication agent (in such capacity, " Syndication Agent "), WACHOVIA BANK, NATIONAL ASSOCIATION, as documentation agent (in such capacity, " Documentation Agent "), BANC ONE CAPITAL MARKETS, INC. and FLEET SECURITIES INC., as co-lead arrangers, BANC ONE CAPITAL MARKETS, INC. as sole book manager, and the Lenders referred to below. In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows:

W I T N E S S E T H

        In consideration of the mutual covenants and agreements contained herein and in consideration of the loans which may hereafter by made by Lenders to Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I— Definitions and References

        Section 1.1.     Defined Terms.     As used in this Agreement, each of the following terms has the meaning given to such term in this Section 1.1 or in the sections and subsections referred to below:

        " Acquisition Period " means the period beginning, at the election of Borrower, with the funding date of the purchase price for a Specified Acquisition and ending on the earliest of (a) the third following Fiscal Quarter end, (b) Borrower's receipt of proceeds of a Specified Equity Offering; and (c) Borrower's election in writing to terminate such Acquisition Period ( provided , at the time of such election, the Debt Coverage Ratio shall not, on a pro forma basis, exceed 4.50 to 1.00); provided , however , if the Debt Coverage Ratio exceeds 4.50 to 1.00 at the end of the Fiscal Quarter ending next following such funding date, then the Acquisition Period shall be deemed to have commenced as of such funding date; provided , further , during any Acquisition Period, no additional Acquisition Period shall commence, nor shall such Acquisition Period be extended, by any subsequent Specified Acquisition until the current Acquisition Period shall have expired and Borrower shall be in compliance with Section 7.8(ii).

        " Administrative Agent " means Bank One, NA, as Administrative Agent hereunder, and its successors in such capacity.

        " Affiliate " means, as to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with, such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

        " Agreement " means this Credit Agreement.

        " Applicable Lending Office " means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan on the Lender Schedule or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to Administrative Agent and Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained.

        " Applicable Margin " means, as to any Type of Loan, the percent per annum set forth on the Pricing Grid as the "Applicable Margin" for such Type of Loan, based on the Applicable Rating Level in effect on such date. Changes in the Applicable Margin will occur automatically without prior notice as changes in the Applicable Rating Level occur. Administrative Agent will give notice promptly to Borrower and Lenders of changes in the Applicable Margin.



        " Applicable Rating Level " means for any day, the level set forth below that corresponds to the PAA Debt Rating by the Ratings Agencies applicable on such day; provided , in the event the PAA Debt Rating by the Ratings Agencies differs by one level, the higher PAA Debt Rating shall apply; provided further , in the event the PAA Debt Rating by the Ratings Agencies differs by more than one level, the PAA Debt Rating one level above the lower PAA Debt Rating shall apply. As used in this definition, " > "means a rating equal to or more favorable than and "<" means a rating less favorable than.

Rating Level

  S&P
  Moody's
Level I   > BBB+   > Baa1
Level II   BBB   Baa2
Level III   BBB-   Baa3
Level IV   < BBB-   < Baa3

If either of the Rating Agencies shall not have in effect a PAA Debt Rating or if the rating system of either of the Rating Agencies shall change, or if either of the Rating Agencies shall cease to be in the business of rating corporate debt obligations, Borrower and Majority Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such Rating Agency, but until such an agreement shall be reached, the Applicable Rating Level shall be based only upon the PAA Debt Rating by the remaining Rating Agency.

        " Base Rate " means the higher of (i) the variable per annum rate of interest so designated from time to time by Administrative Agent as its "prime rate", or (ii) the Federal Funds Rate plus one-half percent (0.5%) per annum. The "prime rate" is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Changes in the Base Rate resulting from changes in the "prime rate" shall take place immediately without notice or demand of any kind.

        " Base Rate Loan " means a Loan to Borrower which does not bear interest at a rate based upon the LIBOR Rate.

        " Borrower " means Plains All American Pipeline, L.P., a Delaware limited partnership.

        " Borrowing " means a borrowing of new Loans of a single Type pursuant to Section 2.2 or a Continuation or Conversion of existing Loans into a single Type (and, in the case of LIBOR Loans, with the same Interest Period) pursuant to Section 2.3.

        " Borrowing Notice " means a written or telephonic request, or a written confirmation, made by a Borrower which meets the requirements of Section 2.2.

        " Business Day " means any day, other than a Saturday, Sunday or day which shall be in Chicago, Illinois a legal holiday or day on which banking institutions are required or authorized to close. Any Business Day in any way relating to LIBOR Loans (such as the day on which an Interest Period begins or ends) must also be a day on which commercial banks settle payments in London.

        " Capital Lease " means a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

        " Capital Lease Obligation " means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person.

        " Cash and Carry Purchases " means purchases of Petroleum Products for physical storage or in storage or in transit in pipelines which has been hedged by either a NYMEX contract, an OTC contract or a contract for physical delivery.

2



        " Cash Equivalents " means Investments in:

        (a)   marketable obligations, maturing within 12 months after acquisition thereof, issued or unconditionally guaranteed by the United States of America or the federal government of Canada or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America or the federal government of Canada, as the case may be;

        (b)   demand deposits and time deposits (including certificates of deposit) maturing within 12 months from the date of deposit thereof, (i) with any office of any Lender or (ii) with a domestic office of any national, state or provincial bank or trust company which is organized under the Laws of the United States of America or any state therein, or the federal government of Canada or any province therein, which has capital, surplus and undivided profits of at least $500,000,000, and whose long term certificates of deposit are rated at least Aa3 by Moody's or AA- by S&P;

        (c)   repurchase obligations with a term of not more than seven days for underlying securities of the types described in subsection (a) above entered into with (i) any Lender or (ii) any other commercial bank meeting the specifications of subsection (b) above;

        (d)   open market commercial paper, maturing within 270 days after acquisition thereof, which are rated at least P-1 by Moody's or A-1 by S&P; and

        (e)   money market or other mutual funds substantially all of whose assets comprise securities of the types described in subsections (a) through (d) above.

        " Change of Control " means the occurrence of any of the following events:

          (i)  Qualifying Directors cease for any reason to constitute collectively a majority of the members of the board of directors of GP LLC (the "Board") then in office;

         (ii)  GP LLC shall cease to be, directly or indirectly, the sole legal and beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of all of the general partner interests (including all securities which are convertible into general partner interests) of General Partner.

        (iii)  General Partner shall cease to be, directly or indirectly, the sole legal and beneficial owner (as defined above) of all of the general partner interests (including all securities which are convertible into general partner interests) of Borrower; or

        (iv)  Neither General Partner nor Borrower shall continue to be, directly or indirectly, the sole legal and beneficial owner of the general partner interest in Plains Marketing and Plains Pipeline.

As used herein, " Qualifying Director " means (i) any Person designated by any Qualifying Owner as its representative on the Board, (ii) so long as Qualifying Owners own a majority of the ownership interests of GP LLC entitling the holders thereof to vote in elections for directors of GP LLC, any Person elected by a majority of such owners of GP LLC entitled to vote thereon, and (iii) the chief executive officer of GP LLC, and " Qualifying Owner " means Plains Resources Inc., Kayne Anderson Investment Management, EnCap Investments LLC, Sable Minerals, or any Affiliate of any of the foregoing.

        " Co-Agent " shall have the meaning given that term in Section 9.10.

        " Code " means the Internal Revenue Code of 1986, as amended from time to time, together with all rules and regulations promulgated with respect thereto.

        " Commitment " means $200,000,000, as may be reduced from time to time pursuant to Section 2.5 or Section 2.9. Each Lender's Commitment shall be the amount set forth on the Lender Schedule.

3



        " Commitment Fee Rate " means, on any day, the rate per annum set forth on the Pricing Grid as the "Commitment Fee Rate" based on the Applicable Rating Level on such date. Changes in the applicable Commitment Fee Rate will occur automatically without prior notice as changes in the Applicable Rating Level occur. Administrative Agent will give notice promptly to Borrower and Lenders of changes in the Commitment Fee Rate.

        " Commitment Period " means the period from and including the date hereof until the Conversion Date (or, if earlier, the day on which the obligation of Lenders to make Loans to Borrower hereunder has been terminated or the day on which any of the Notes first becomes due and payable in full).

        " Consolidated " refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries.

        " Consolidated EBITDA " means, for any period, the sum of (1) the Consolidated Net Income during such period, plus (2) all interest expense that was deducted in determining such Consolidated Net Income for such period, plus (3) all income taxes (including any franchise taxes to the extent based upon net income) that were deducted in determining such Consolidated Net Income, plus (4) all depreciation, amortization (including amortization of good will and debt issue costs) and other non-cash charges (including any provision for the reduction in the carrying value of assets recorded in accordance with GAAP) which were deducted in determining such Consolidated Net Income, plus (5) up to $20,000,000 of any cash payments and related payroll taxes made by Borrower prior to June 30, 2004 pursuant to the Plains All American GP LLC 1998 Long-Term Incentive Plan as in effect on the date hereof in lieu of delivery of units due certain holders of such Long-Term Incentive Plan, minus (6) all non-cash items of income which were included in determining such Consolidated Net Income.

        " Consolidated Funded Indebtedness " means as of any date, the sum of the following (without duplication): (i) the outstanding principal amount of all Indebtedness which is classified as "long-term indebtedness" on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries (excluding Unrestricted Subsidiaries) prepared as of such date in accordance with GAAP (subject to year-end audit adjustments with respect to non-year end periods) and any current maturities and other principal amount in respect of such Indebtedness due within one year but which was classified as "long-term indebtedness" at the creation thereof; (ii) the outstanding principal amount of Indebtedness for borrowed money of Borrower and its Consolidated Subsidiaries (excluding Unrestricted Subsidiaries) outstanding under a revolving credit, term or similar agreement (and renewals and extensions thereof); and (iii) the outstanding principal amount of Indebtedness in respect of Capital Leases of Borrower and its Consolidated Subsidiaries (excluding Unrestricted Subsidiaries); provided , however , Consolidated Funded Indebtedness shall not, if otherwise applicable, include (x) Indebtedness in respect of letters of credit, (y) Indebtedness incurred to finance Cash and Carry Purchases or (z) margin deposits.

        " Consolidated Net Income " means, for any period, Borrower's and its Subsidiaries' (excluding Unrestricted Subsidiaries) gross revenues for such period, including any cash dividends or distributions actually received from any other Person during such period, minus Borrower's and its Subsidiaries' (excluding Unrestricted Subsidiaries) expenses and other proper charges against income (including taxes on income, to the extent imposed), determined on a Consolidated basis after eliminating earnings or losses attributable to outstanding minority interests and excluding the net earnings of any Person other than a Subsidiary in which Borrower or any of its Subsidiaries (excluding Unrestricted Subsidiaries) has an ownership interest. Consolidated Net Income shall not include (i) any gain or loss from the sale of assets, (ii) any extraordinary gains or losses, or (iii) any non-cash gains or losses resulting from mark to market activity as a result of the implementation of SFAS 133 or EITF 98-10. In addition, Consolidated

4



Net Income shall not include the cost or proceeds of purchasing or selling options which are used to hedge future activity, until the period in which such hedged future activity occurs.

        " Consolidated Tangible Net Worth " means the remainder of (i) all Consolidated assets, as determined in accordance with GAAP, of Borrower and its Subsidiaries (excluding Unrestricted Subsidiaries) minus (ii) the sum of (a) Borrower's Consolidated liabilities, as determined in accordance with GAAP, (b) the book value of any equity interests in any of Borrower's Subsidiaries (excluding Unrestricted Subsidiaries) which equity interests are owned by a Person other than Borrower or a Wholly Owned Subsidiary of Borrower; and (c) the net book value of all assets that would be treated as intangible under GAAP, including goodwill, trademarks, trade names and service marks. The effect of any increase or decrease of net worth in any period as a result of items of income or loss not reflected in the determination of net income but reflected in the determination of comprehensive income (to the extent provided under GAAP as in effect on the date hereof) shall be excluded in determining Consolidated Tangible Net Worth.

        " Contango Credit Agreement " means that certain Uncommitted Senior Secured Discretionary Contango Facility Credit Agreement dated November 21, 2003 among Plains Marketing, Fleet National Bank, as administrative agent, and the lenders named therein.

        " Continue ", " Continuation " and " Continued " shall refer to the continuation pursuant to Section 2.3 of a LIBOR Loan as a LIBOR Loan from one Interest Period to the next Interest Period.

        " Continuation/Conversion Notice " means a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 2.3.

        " Convert , " Conversion " and " Convert " refers to a conversion pursuant to Section 2.3 of one Type of Loan into another Type of Loan.

        " Conversion Date " means March 31, 2005.

        " Debt Coverage Ratio " shall have the meaning given that term in Section 7.8.

        " Default " means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time, constitute an Event of Default.

        " Default Rate " means, at the time in question, two percent (2%) per annum plus:

provided, however, the Default Rate shall never exceed the Highest Lawful Rate.

        " Default Rate Period " means (i) any period during which an Event of Default, other than pursuant to Section 8.1 (a) or (b), is continuing, provided that such period shall not begin until notice of the commencement of the Default Rate has been given to Borrower by Administrative Agent upon the instruction by Majority Lenders and (ii) any period during which any Event of Default pursuant to Section 8.1 (a) or (b) is continuing unless Borrower has been notified otherwise by Administrative Agent upon the instruction by Majority Lenders.

        " Disclosure Schedule " means Schedule 2 hereto.

        " Distribution " means (a) any dividend or other distribution (whether in cash or other property, but excluding dividends or other distributions payable in equity interests in Borrower) with respect to any equity interest of Borrower, (b) any payment (whether in cash or other property, but excluding dividends or other distributions payable in equity interests in Borrower), including any sinking fund or

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similar deposit, on account of the retirement, redemption, purchase, cancellation, termination or other acquisition for value of any equity interest of Borrower or (c) any other payment by Borrower to any holder of equity interests of Borrower with respect to such equity interests held thereby other than payments made with equity interests in Borrower.

        " Dollars " and " $ " means the lawful currency of the United States of America, except where otherwise specified.

        " Eligible Transferee " means a Person which either (a) is a Lender, or (b) is consented to as an Eligible Transferee by Administrative Agent and, so long as no Default or Event of Default is continuing, by Borrower, which consents in each case will not be unreasonably withheld; provided no Person organized outside the United States may be an Eligible Transferee if Borrower (or, prior to the effectiveness of any such transfer, Borrower notifies the Administrative Agent that any other Restricted Person) would be required to pay withholding taxes on interest or principal owed to such Person.

        " Environmental Laws " means any and all Laws relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.

        " ERISA " means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto.

        " ERISA Affiliate " means each Restricted Person and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with such Restricted Person, are treated as a single employer under Section 414 of the Code.

        " ERISA Plan " means any employee pension benefit plan subject to Title IV of ERISA maintained by any ERISA Affiliate with respect to which any Restricted Person has a fixed or contingent liability.

        " Event of Default" has the meaning given to such term in Section 8.1.

        " Federal Funds Rate " means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/1000th of one percent) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate quoted to Administrative Agent on such day on such transactions as determined by Administrative Agent.

        " Fiscal Quarter " means a three-month period ending on March 31, June 30, September 30 or December 31 of any year.

        " Fiscal Year " means a twelve-month period ending on December 31 of any year.

        " GAAP " means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of Borrower and its Consolidated Subsidiaries, are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the Initial Financial Statements. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor) in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial

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statements required hereunder with respect to Borrower or with respect to Borrower and its Consolidated Subsidiaries may be prepared in accordance with such change, but all calculations and determinations to be made hereunder may be made in accordance with such change only after notice of such change is given to each Lender and Majority Lenders agree to such change insofar as it affects the accounting of Borrower or of Borrower and its Consolidated Subsidiaries.

        " General Partner " means Plains AAP, L.P., a Delaware limited partnership, in its capacity as the sole general partner of Borrower.

        " GP LLC " means Plains All American GP LLC, a Delaware limited liability company.

        " Guarantors " means, as of the date hereof, all of Borrower's Subsidiaries, other than 3794865 Canada Ltd., Plains LPG Services GP LLC, Plains LPG Services, L.P. and Atchafalaya Pipeline, L.L.C. and any other Person who has guaranteed some or all of the Obligations and who has been accepted by Administrative Agent as a Guarantor or any Subsidiary of Borrower which now or hereafter executes and delivers a guaranty to Administrative Agent pursuant to Section 6.9.

        " Hazardous Materials " means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise.

        " Highest Lawful Rate " means, with respect to each Lender Party to whom Obligations are owed, the maximum nonusurious rate of interest that such Lender Party is permitted under applicable Law to contract for, take, charge, or receive with respect to such Obligations. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for each Lender Party as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to any Lender Party at a rate in excess of the Highest Lawful Rate applicable to such Lender Party.

        " Indebtedness " of any Person means each of the following:

        (a)   its obligations for the repayment of borrowed money,

        (b)   its obligations to pay the deferred purchase price of property or services (excluding trade account payables arising in the ordinary course of business), other than contingent purchase price or similar obligations incurred in connection with an acquisition and not yet earned or determinable,

        (c)   its obligations evidenced by a bond, debenture, note or similar instrument,

        (d)   its obligations, as lessee, constituting principal under Capital Leases,

        (e)   its direct or contingent reimbursement obligations with respect to the face amount of letters of credit pursuant to the applications or reimbursement agreements therefor,

        (f)    its obligations for the repayment of outstanding banker's acceptances, whether matured or unmatured,

        (g)   its obligations under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing if the obligation under such synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP (excluding, to the extent included herein, operating leases entered into in the ordinary course of business), or

        (h)   its obligations under guaranties of any obligations of any other Person described in the foregoing clauses (a) through (g).

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        " Initial Financial Statements " means the audited Consolidated financial statements of Borrower as of December 31, 2003.

        " Interest Expense " means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between Borrower and its Subsidiaries (excluding Unrestricted Subsidiaries) and all other items required to be eliminated in the course of the preparation of Consolidated financial statements of Borrower and its Subsidiaries (excluding Unrestricted Subsidiaries) in accordance with GAAP): (a) all interest and commitment fees in respect of Indebtedness of Borrower or any of its Subsidiaries (excluding Unrestricted Subsidiaries) (including imputed interest on Capital Lease Obligations) which are accrued during such period and whether expensed in such period or capitalized; plus (b) all fees in respect of letters of credit issued for the account of Borrower or any of its Subsidiaries, which are accrued during such period and whether expensed in such period or capitalized.

        " Interest Payment Date " means (a) with respect to each Base Rate Loan, the last day of each March, June, September and December beginning June 30, 2004, and (b) with respect to each LIBOR Loan, the last day of the Interest Period that is applicable thereto and, if such Interest Period is six or nine months in length, the dates specified by Administrative Agent which are approximately three and six months (as appropriate) after such Interest Period begins; provided that the last Business Day of each calendar month shall also be an Interest Payment Date for each such Loan so long as any Event of Default exists under Section 8.1(a) or (b).

        " Interest Period " means, with respect to each particular LIBOR Loan in a Borrowing, the period specified in the Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning on and including the date specified in such Borrowing Notice or Continuation/Conversion Notice (which must be a Business Day), and ending one, two, three, six or nine months (if nine months is available for each Lender) thereafter (and, as to Loans, ending on a date less than 30 days thereafter as may be specified by Borrower, if such lesser period is available for each Lender), as Borrower may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day in a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day in a calendar month; and (c) notwithstanding the foregoing, no Interest Period may be selected for a Loan to Borrower that would end after the Maturity Date.

        " Investment " means any investment made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise, and whether made in cash, by the transfer of property or by any other means.

        " Law " means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or Canada or any state, province, or political subdivision thereof or of any foreign country or any department, state, province or other political subdivision thereof.

        " Lender Parties " means Administrative Agent and all Lenders.

        " Lenders " means each signatory hereto designated as a Lender, and the successors and permitted assigns of each such party as holder of a Note.

        " Lender Schedule " means Schedule 1 hereto.

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        " Liabilities " means, as to any Person, all indebtedness, liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent, and whether or not required to be considered pursuant to GAAP.

        " LIBOR Loan " means a Loan that bears interest at a rate based upon the LIBOR Rate.

        " LIBOR Rate " means, as applicable to any LIBOR Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) as determined on the basis of offered rates for deposits in Dollars, for a period of time comparable to such Interest Period which appears on Telerate Page 3750 (or any successor page) as of 11:00 a.m. London time on the day that is two Business Days preceding the first day of such LIBOR Loan; provided, however, if the rate described above does not appear on the Telerate system on any applicable interest determination date, the LIBOR Rate shall be the rate (rounded upwards as described above, if necessary) for deposits in dollars for a period substantially equal to such Interest Period on the Reuters Page "LIBOR" (or such other page as may replace the LIBOR Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London time), on the date that is two Business Days prior to the beginning of such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBOR Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/1000 of 1%). If both the Telerate and Reuters system are unavailable, then the LIBOR Rate for that date will be determined on the basis of the offered rates for deposits in Dollars for a period of time comparable to such Interest Period which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) Business Days preceding the first day of such LIBOR Loan as selected by Administrative Agent. The principal London office of each of the four major London banks will be requested to provide a quotation of its Dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in Dollars to leading European banks for a period of time comparable to such Interest Period offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that is two Business Days preceding the first day of such LIBOR Loan. In the event that Administrative Agent is unable to obtain any such quotation as provided above, it will be deemed that the LIBOR Rate pursuant to such LIBOR Loan cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of any Lender, then for any period during which such Reserve Percentage shall apply, the LIBOR Rate shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. "Reserve Percentage" means the maximum aggregate reserve requirement (including all basic, supplemental, marginal, special, emergency and other reserves) which is imposed on member banks of the Federal Reserve System against "Euro-currency Liabilities" as defined in Regulation D. Without limiting the effect of the foregoing, the Reserve Percentage shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined, or (b) any category of extensions of credit or other assets which include LIBOR Loans. The LIBOR Rate for any LIBOR Loan shall change whenever the Reserve Percentage changes.

        " Lien " means, with respect to any property or assets, any right or interest therein of a creditor to secure Liabilities owed to it or any other arrangement with such creditor which provides for the payment of such Liabilities out of such property or assets or which allows such creditor to have such Liabilities satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset which arises

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without agreement in the ordinary course of business. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists.

        " Link Acquisition " means the acquisition by any of Borrower and certain of its Subsidiaries of all or substantially all of the assets of the subsidiaries of Link Energy LLC, pursuant to the Link Acquisition Documents.

        " Link Acquisition Documents " means that certain Purchase and Sale Agreement dated March 31, 2004 by and among Link Energy LLC and certain of its subsidiaries, and Borrower and certain of its subsidiaries, the Plan of Merger of even date herewith among Plains Pipeline, Plains Marketing, and certain subsidiaries of Link Energy LLC, and all other agreements or instruments executed and delivered by Borrower or any of its Affiliates in connection therewith to consummate the Link Acquisition.

        " Loan Documents " means this Agreement, the Notes, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters).

        " Loans " means loans by Lenders to Borrower pursuant to Section 2.1.

        " Majority Lenders " means Lenders whose Percentage Shares exceed fifty percent (50%).

        " Material Adverse Change " means a material and adverse change, from the state of affairs presented in the Initial Financial Statements or as represented or warranted in any Loan Document, to (a) Borrower's Consolidated financial condition, (b) Borrower's Consolidated operations, properties or prospects, considered as a whole, (c) Borrower's ability to timely pay its Obligations, or (d) the enforceability of the material terms of any Loan Document.

        " Maturity Date " means March 31, 2006.

        " Moody's " means Moody's Investor Service, Inc., or its successor.

        " Notes " has the meaning given such term in Section 2.1 hereof.

        " Obligations " means all Liabilities from time to time owing by any Restricted Person to any Lender Party under or pursuant to any of the Notes or under or pursuant to any guaranty of the obligations of Borrower or under the Loan Documents. " Obligation " means any part of the Obligations.

        " PAA Debt Rating " means the rating then in effect by a Rating Agency with respect to the long term senior unsecured non-credit enhanced debt of Borrower.

        " Percentage Share " means the percentage shown as each Lender's "Percentage Share" on the Lender Schedule,

        " Permitted Lien " has the meaning given to such term in Section 7.2.

        " Person " means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, Tribunal, or any other legally recognizable entity.

        " Petroleum Products " means crude oil, condensate, natural gas, natural gas liquids (NGL's), liquefied petroleum gases (LPG's), refined petroleum products or any blend thereof.

        " Plains Marketing " means Plains Marketing, L.P., a Texas limited partnership.

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        " Plains Pipeline " means Plains Pipeline, L.P. (f/k/a All American Pipeline, L.P.), a Texas limited partnership.

        " Pricing Grid " means Schedule 3 attached hereto.

        " Rating Agency" means either S&P or Moody's.

        " Regulation D " means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect.

        " Restricted Person " means any of Borrower and each Subsidiary of Borrower, including but not limited to Plains Marketing, Plains Pipeline, PMC (Nova Scotia) Company, Plains Marketing Canada, L.P., and each Subsidiary of Plains Marketing, Plains Pipeline, PMC (Nova Scotia) Company and Plains Marketing Canada, L.P., but excluding, for the avoidance of doubt, Unrestricted Subsidiaries.

        " Restriction Exception " means (i) any applicable Law or any instrument governing Indebtedness or equity interests, or any applicable Law or any other agreement relating to any property, assets or operations of a Person whose capital stock or other equity interests are acquired, in whole or part, by a Restricted Person pursuant to an acquisition (whether by merger, consolidation, amalgamation or otherwise), as such instrument or agreement is in effect at the time of such acquisition (except with respect to Indebtedness incurred in connection with, or in contemplation of, such acquisition), or such applicable Law is then or thereafter in effect (as applicable), which is not applicable to the acquiring Restricted Person, or the property, assets or operations of the acquiring Restricted Person, other than the acquired Person, or the property, assets or operations of such acquired Person or such acquired Person's Subsidiaries; provided that in the case of Indebtedness, the incurrence of such Indebtedness is not prohibited hereunder, or (ii) provisions with respect to the disposition or distribution of assets in joint venture agreements or other similar agreements entered into in the ordinary course of business.

        " S&P " means Standard & Poor's Ratings Group (a division of McGraw Hill, Inc.) or its successor.

        " Significant Restricted Persons " means Borrower, PMC (Nova Scotia) Company, Plains Marketing Canada, L.P., Plains Marketing, Plains Pipeline and Subsidiaries of Borrower that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Exchange Act of 1934 and the Securities Act of 1933, each as amended.

        " Specified Acquisition " means one or more acquisitions of assets or entities or operating lines or divisions in any rolling 12-month period for an aggregate purchase price of not less than $50,000,000.

        " Specified Equity Offering " means one or more issuances of equity by Borrower for aggregate net cash proceeds of not less than fifty percent (50%) of the aggregate purchase price of the Specified Acquisition.

        " Subsidiary " means, with respect to any Person, any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled or owned more than fifty percent by such Person; provided , however , that no Unrestricted Subsidiary shall be deemed a "Subsidiary" of any Restricted Person for purposes of any Loan Document except as provided in Section 7.10.

        " Termination Event " means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(c)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(c) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan

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amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan.

        " 364-Day Credit Agreement " means that certain 364-Day Credit Agreement dated November 21, 2003 among Borrower, Fleet National Bank, as administrative agent, and the lenders named therein.

        " Tribunal " means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of the United States of America, the Dominion of Canada, or any state, province, commonwealth, nation, territory, possession, county, parish, town, township, village or municipality, whether now or hereafter constituted or existing.

        " Type " means, with respect to any Loans, the characterization of such Loans as Base Rate Loans or LIBOR Loans.

        " Unrestricted Subsidiary " shall have the meaning given it in Section 7.10.

        " US/Canada Credit Agreement " means that certain Credit Agreement [US/Canada] dated November 21, 2003 among Borrower, PMC (Nova Scotia) Company, Plains Marketing Canada, L.P., Fleet National Bank, as administrative agent, The Bank of Nova Scotia, as Canadian administrative agent, and the lenders named therein.

        " Wholly Owned Subsidiary " means any Subsidiary of a Person, all of the issued and outstanding stock, limited liability company membership interests, or partnership interests of which (including all rights or options to acquire such stock or interests) are directly or indirectly (through one or more Subsidiaries) owned by such Person.

        Section 1.2.     Exhibits and Schedules; Additional Definitions.     All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes.

        Section 1.3.     Amendment of Defined Instruments.     Unless the context otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement.

        Section 1.4.     References and Titles.     All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. References to an "officer" or "officers" of the General Partner or any Restricted Person shall mean and include officers of such Person or the controlling management entity of such Person as provided in such Person's organizational documents, as applicable.

        Section 1.5.     Calculations and Determinations.     All calculations under the Loan Documents of interest chargeable with respect to LIBOR Loans and of fees shall be made on the basis of actual days

12



elapsed (including the first day but excluding the last) and a year of 360 days. All other calculations of interest made under the Loan Documents shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as appropriate. Each determination by a Lender Party of amounts to be paid under Article III or any other matters which are to be determined hereunder by a Lender Party (such as any LIBOR Rate, Business Day, Interest Period, or Reserve Percentage) shall, in the absence of manifest error, be conclusive and binding. Unless otherwise expressly provided herein or unless Majority Lenders otherwise consent all financial statements and reports furnished to any Lender Party hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP.

ARTICLE II— The Loans

        Section 2.1.     Commitments to Lend; Notes.     Subject to the terms and conditions hereof, each Lender agrees to make Loans to Borrower upon Borrower's request from time to time during the Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all Lenders are requested to make Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (b) after giving effect to such Loans, the aggregate outstanding principal amount of the Loans does not exceed the Commitment determined as of the date on which the requested Loans are to be made, and (c) after giving effect to such Loans, the Loans by each Lender does not exceed such Lender's Commitment. The aggregate amount of all Loans in any Borrowing must be equal to $2,000,000 or any higher integral multiple of $250,000. The obligation of Borrower to repay to each Lender the aggregate amount of all Loans made by such Lender to Borrower, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called such Lender's " Note ") made by Borrower payable to the order of such Lender in the form of Exhibit A with appropriate insertions. The amount of principal owing on any Lender's Note at any given time shall be the aggregate amount of all Loans theretofore made by such Lender to Borrower minus all payments of principal theretofore received by such Lender on such Note. Interest on each Note shall accrue and be due and payable as provided herein and therein. Each Note shall be due and payable as provided herein and therein, and shall be due and payable in full on the Maturity Date. Subject to the terms and conditions of this Agreement, Borrower may borrow, repay, and reborrow under this Section 2.1. Borrower may have no more than seven Borrowings of LIBOR Loans outstanding at any time. All payments of principal and interest on the Loans shall be made in Dollars.

        Section 2.2.     Requests for Loans.     Borrower must give to Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of any requested Borrowing. Each such notice constitutes a "Borrowing Notice" hereunder and must:

Each such written request or confirmation must be made in the form and substance of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Borrowing Notice, Administrative Agent shall give each Lender prompt notice of the terms thereof. If all conditions precedent to such new Loans have been met, each Lender will on the date requested promptly remit to

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Administrative Agent at its office in Chicago, Illinois the amount of such Lender's new Loan in immediately available funds, and upon receipt of such funds, unless to its actual knowledge any conditions precedent to such Loans have been neither met nor waived as provided herein, Administrative Agent shall promptly make such Loans available to Borrower. Unless Administrative Agent shall have received prompt notice from a Lender that such Lender will not make available to Borrower such Lender's new Loan, Administrative Agent may in its discretion assume that such Lender has made such Loan available to Administrative Agent in accordance with this section, and Administrative Agent may if it chooses, in reliance upon such assumption, make such Loan available to Borrower. If and to the extent such Lender shall not so make its new Loan available to Administrative Agent, such Lender and Borrower severally agree to pay or repay to Administrative Agent within three days after demand the amount of such Loan together with interest thereon, for each day from the date such amount was made available to Borrower until the date such amount is paid or repaid to Administrative Agent, with interest at (i) the Federal Funds Rate, if such Lender is making such payment, and (ii) the interest rate applicable at the time to the other new Loans made on such date, if Borrower is making such repayment. If neither such Lender nor Borrower pays or repays to Administrative Agent such amount within such three-day period, Administrative Agent shall be entitled to recover from Borrower, on demand in lieu of the interest provided for in the preceding sentence, interest thereon at the Default Rate, calculated from the date such amount was made available to Borrower. The failure of any Lender to make any new Loan to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new Loan, but no Lender shall be responsible for the failure of any other Lender to make any new Loan to be made by such other Lender. All Borrowings of Loans shall be advanced in Dollars.

        Section 2.3.     Continuations and Conversions of Existing Loans.     Borrower may make the following elections with respect to Loans already outstanding: (i) to Convert, in whole or in part, Base Rate Loans to LIBOR Loans, (ii) to Convert, in whole or in part, LIBOR Loans to Base Rate Loans on the last day of the Interest Period applicable thereto, and (iii) to Continue, in whole or in part, LIBOR Loans beyond the expiration of such Interest Period by designating a new Interest Period to take effect at the time of such expiration. In making such elections, Borrower may combine existing Loans to Borrower made pursuant to separate Borrowings into one new Borrowing or divide existing Loans to Borrower made pursuant to one Borrowing into separate new Borrowings, provided that Borrower may have no more than seven Borrowings of LIBOR Loans outstanding at any time. To make any such election, Borrower must give to Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of any such Conversion or Continuation of existing Loans, with a separate notice given for each new Borrowing. Each such notice constitutes a "Continuation/Conversion Notice" hereunder and must:

Each such written request or confirmation must be made in the form and substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly completed. Each such telephonic

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request shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Continuation/Conversion Notice, Administrative Agent shall give each Lender prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and binding on Borrower. During the continuance of any Default, Borrower may not make any election to Convert existing Loans into LIBOR Loans or Continue existing Loans as LIBOR Loans beyond the expiration of their respective and corresponding Interest Period then in effect. If (due to the existence of a Default or for any other reason) Borrower fails to timely and properly give any Continuation/Conversion Notice with respect to a Borrowing of existing LIBOR Loans at least three days prior to the end of the Interest Period applicable to such LIBOR Loans, any such LIBOR Loans, to the extent not prepaid at the end of such Interest Period, shall automatically be Converted into Base Rate Loans at the end of such Interest Period. No new funds shall be repaid by Borrower or advanced by any Lender in connection with any Continuation or Conversion of existing Loans pursuant to this section, and no such Continuation or Conversion shall be deemed to be a new advance of funds for any purpose; such Continuations and Conversions merely constitute a change in the interest rate applicable to such already outstanding Loans.

        Section 2.4.     Use of Proceeds.     Borrower shall use all Loans to finance capital expenditures of any Restricted Person, provide working capital for operations and for other general business purposes, including acquisitions. In no event shall the funds from any Loans be used directly or indirectly by any Person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. Borrower represents and warrants that it is not engaged principally, or as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock.

        Section 2.5.     Interest Rates and Fees.     

        (a)    Interest Rates.

        (b)    Commitment Fee; Reduction of Commitment.     In consideration of each Lender's commitment to make Loans to Borrower, Borrower will pay to Administrative Agent for the account of each Lender a commitment fee determined on a daily basis equal to the Commitment Fee Rate in effect on such day times such Lender's Percentage Share of the unused portion of the Commitment on each day during the Commitment Period, determined for each such day by deducting from the amount of the Commitment at the end of such day the aggregate outstanding principal amount of Loans. Such

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commitment fee shall be due and payable in arrears on the last day of each Fiscal Quarter and at the end of the Commitment Period. Borrower shall have the right from time to time to permanently reduce the Commitment, provided that (A) notice of such reduction is given not less than 2 Business Days prior to such reduction, (B) the resulting Commitment is not less than the aggregate outstanding principal amount of the Loans, and (C) each partial reduction shall be in an amount at least equal to $500,000 and in multiples of $100,000 in excess thereof.

        (c)    Continuation Fees.     In consideration of each Lender's commitment to make Loans to Borrower, Borrower will pay to Administrative Agent for the account of each Lender a continuation fee in an amount equal to (i) 0.175% of each Lender's Commitment outstanding as of July 1, 2004, due and payable on such date, (ii) 0.125% of each Lender's Commitment outstanding as of October 1, 2004, due and payable on such date, and (iii) 0.125% of each Lender's Commitment outstanding as of January 1, 2005, due and payable on such date.

        (d)    Administrative Agent's Fees.     In addition to all other amounts due to Administrative Agent under the Loan Documents, Borrower will pay fees to Administrative Agent as described in the fee letter dated March 25, 2004 between Administrative Agent and Borrower.

        Section 2.6.     Intentionally Omitted.     

        Section 2.7.     Conversion to Term Loan.     Effective at 11:59 p.m. Chicago, Illinois time on the day immediately preceding the Conversion Date, and provided that no Event of Default shall have occurred and be continuing, (i) each Lender's obligation to make new Loans to Borrower shall be canceled automatically, and (ii) each Lender's Loans shall become term loans maturing on the Maturity Date.

        Section 2.8.     Optional Prepayments.     Borrower may, upon three Business Days' notice, as to LIBOR Loans, or same Business Day's notice, as to Base Rate Loans, to Administrative Agent (and Administrative Agent will promptly give notice to the other Lenders) from time to time and without premium or penalty prepay the Loans, in whole or in part, so long as the aggregate amounts of all partial prepayments of principal on the Loans equals $2,500,000 or any higher integral multiple of $250,000. Upon receipt of any such notice, Administrative Agent shall give each Lender prompt notice of the terms thereof. Each prepayment of principal of a Loan under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment. Following notice by Borrower pursuant to the foregoing, Borrower shall make such prepayment, and the prepayment amount specified in such notice shall be due and payable, on the date specified in such notice.

        Section 2.9.     Mandatory Commitment Reductions and Prepayments.     (a) Upon the consummation of any public or private debt or equity offering or assets securitization by Borrower or any of its Subsidiaries, the Commitment shall be permanently reduced by an amount equal to the net proceeds of such offering (excluding net proceeds of up to $100,000,000 from the equity offering referred to in Section 4.1(g)), and Borrower shall contemporaneously therewith make a mandatory prepayment pursuant to subsection (c) below.

        (b)   Upon the consummation of a sale, lease or other disposition of property (other than in exchange for property of like kind or otherwise useful in Borrower's business) by Borrower or any of its Subsidiaries that, together with all other previous sales, leases or other dispositions of property by Borrower or any of its Subsidiaries after the date hereof, result in net cash proceeds in excess of $25,000,000, the Commitment shall be permanently reduced by an amount equal to such excess, and Borrower shall contemporaneously therewith make any mandatory prepayment as may be required pursuant to subsection (c) below.

        (c)   If at any time the aggregate outstanding principal amount of the Loans exceeds the Commitment (whether due to a reduction in the Commitment in accordance with Section 2.5(b), subsections (a) or (b) above, or otherwise), Borrower shall immediately upon demand prepay the principal of the Loans in an amount at least equal to such excess.

        (d)   Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment.

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ARTICLE III— Payments to Lenders

        Section 3.1.     General Procedures.     Each Restricted Person shall pay all amounts owing by such Restricted Person with respect to any Obligations (whether for principal, interest, fees, or otherwise) to Administrative Agent for the account of the Lender Party to whom such payment is owed in Dollars, without set-off, deduction or counterclaim, and in immediately available funds. Each payment under the Loan Documents must be received by Administrative Agent not later than noon, New York City time, on the date such payment becomes due and payable. Any payment received by Administrative Agent after such time will be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the Loan Document under which such payment is due. Each payment under a Loan Document to a Lender Party shall be due and payable at the place provided therein and, if no specific place of payment is provided, shall be due and payable at the place of payment of Administrative Agent's Note.

        (a)   When Administrative Agent collects or receives money on account of the Obligations, Administrative Agent shall distribute all money so collected or received, and each Lender Party shall apply all such money so distributed, as follows:

All payments applied to principal or interest on any Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and accrued interest thereon in compliance with Sections 2.8 and 2.9, as applicable. All distributions of amounts described in any of subsections (ii), (iii), or (iv) above shall be made by Administrative Agent pro rata to each Lender Party then owed Obligations described in such subsection in proportion to all amounts owed to all Lender Parties which are described in such subsection; provided that if any Lender then owes payments to Administrative Agent under Section 9.4, any amounts otherwise distributable under this section to such Lender shall be deemed to belong to Administrative Agent, to the extent of such unpaid payments, and Administrative Agent shall apply such amounts to make such unpaid payments rather than distribute such amounts to such Lender.

        Section 3.2.     Capital Reimbursement.     If either (a) the introduction or implementation of or the compliance with or any change in or in the interpretation of any Law, or (b) the introduction or implementation of or the compliance with any request, directive or guideline from any central bank or other governmental authority (whether or not having the force of Law) affects or would affect the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling any Lender Party, then, within five Business Days after demand by such Lender Party, Borrower will pay to Administrative Agent for the benefit of such Lender Party, from time to time as specified by such Lender Party, such additional amount or amounts which such Lender Party shall determine to be appropriate to compensate such Lender Party or any corporation controlling such Lender Party in light of such circumstances, to the extent that such Lender Party reasonably determines

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that the amount of any such capital would be increased or the rate of return on any such capital would be reduced by or in whole or in part based on the existence of the face amount of such Lender Party's Loans or commitments under this Agreement.

        Section 3.3.     Increased Cost of LIBOR Loans.     If any applicable Law (whether now in effect or hereinafter enacted or promulgated, including Regulation D) or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of Law):

        (a)   shall change the basis of taxation of payments to any Lender Party of any principal, interest, or other amounts attributable to any LIBOR Loan or otherwise due under this Agreement in respect of any LIBOR Loan (other than taxes imposed on, or measured by, the overall net income of such Lender Party or any Applicable Lending Office of such Lender Party by any jurisdiction in which such Lender Party or any such Applicable Lending Office is located); or

        (b)   shall change, impose, modify, apply or deem applicable any reserve, special deposit or similar requirements in respect of any LIBOR Loan (excluding those for which such Lender Party is fully compensated pursuant to adjustments made in the definition of LIBOR Rate) or against assets of, deposits with or for the account of, or credit extended by, such Lender Party; or

        (c)   shall impose on any Lender Party or the interbank Eurocurrency deposit market any other condition affecting any LIBOR Loan, the result of which is to increase the cost to any Lender Party of funding or maintaining any LIBOR Loan or to reduce the amount of any sum receivable by any Lender Party in respect of any LIBOR Loan by an amount deemed by such Lender Party to be material, then such Lender Party shall promptly notify Administrative Agent and Borrower in writing of the happening of such event and of the amount required to compensate such Lender Party for such event (on an after-tax basis, taking into account any taxes on such compensation), whereupon (i) Borrower shall, within five Business Days after demand therefor by such Lender Party, pay such amount to Administrative Agent for the account of such Lender Party and (ii) Borrower may elect, by giving to Administrative Agent and such Lender Party not less than three Business Days' notice, to Convert all (but not less than all) of any such LIBOR Loans into Base Rate Loans.

        Section 3.4.     Notice; Change of Applicable Lending Office.     A Lender Party shall notify Borrower of any event occurring after the date of this Agreement that will entitle such Lender Party to compensation under Section 3.2, 3.3, or 3.5 hereof as promptly as practicable, but in any event within 180 days, after such Lender Party obtains actual knowledge thereof; provided , that (i) if such Lender Party fails to give such notice within 180 days after it obtains actual knowledge of such an event, such Lender Party shall, with respect to compensation payable pursuant to Section 3.2, 3.3, or 3.5 in respect of any costs resulting from such event, only be entitled to payment under Section 3.2, 3.3, or 3.5 hereof for costs incurred from and after the date 180 days prior to the date that such Lender Party does give such notice and (ii) such Lender Party will designate a different Applicable Lending Office for the Loans affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender Party, be disadvantageous to such Lender Party, except that such Lender Party shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Lender Party will furnish to Borrower a certificate setting forth the basis and amount of each request by such Lender Party for compensation under Section 3.2, 3.3, or 3.5 hereof.

        Section 3.5.     Availability.     If (a) any change in applicable Laws, or in the interpretation or administration thereof of or in any jurisdiction whatsoever, domestic or foreign, shall make it unlawful or impracticable for any Lender Party to fund or maintain LIBOR Loans, or shall materially restrict the authority of any Lender Party to purchase or take offshore deposits of dollars (i.e., "Eurodollars"), or (b) any Lender Party determines that matching deposits appropriate to fund or maintain any LIBOR Loan are not available to it, or (c) any Lender Party determines that the formula for calculating the

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LIBOR Rate does not fairly reflect the cost to such Lender Party of making or maintaining loans based on such rate, with respect to the Commitment hereunder, then, upon notice by such Lender Party to Borrower and Administrative Agent, Borrower's right to elect LIBOR Loans from such Lender Party shall be suspended to the extent and for the duration of such illegality, impracticability or restriction and all LIBOR Loans of such Lender Party which are then outstanding or are then the subject of any Borrowing Notice and which cannot lawfully or practicably be maintained or funded shall immediately become or remain, or shall be funded as, Base Rate Loans of such Lender Party. With respect to the Commitment, Borrower agrees to indemnify each Lender Party extending credit pursuant thereto, and hold each such Lender Party harmless against all costs, expenses, claims, penalties, liabilities and damages which may result from any such change in Law, interpretation or administration. Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity.

        Section 3.6.     Funding Losses.     In addition to its other obligations hereunder, with respect to the Commitment, Borrower will indemnify each Lender Party extending credit pursuant thereto against, and reimburse each Lender Party on demand for, any loss or expense incurred or sustained by such Lender Party (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender Party to fund or maintain LIBOR Loans), as a result of (a) any payment or prepayment (whether or not authorized or required hereunder) of all or a portion of a LIBOR Loan on a day other than the day on which the applicable Interest Period ends, (b) any payment or prepayment, whether or not required hereunder, of a Loan made after the delivery, but before the effective date, of a Continuation/Conversion Notice, if such payment or prepayment prevents such Continuation/Conversion Notice from becoming fully effective, (c) the failure of any Loan to be made or of any Continuation/Conversion Notice to become effective due to any condition precedent not being satisfied or due to any other action or inaction of any Restricted Person, or (d) any Conversion (whether or not authorized or required hereunder) of all or any portion of any LIBOR Loan into a Base Rate Loan or into a different LIBOR Loan on a day other than the day on which the applicable Interest Period ends. Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity.

        Section 3.7.     Reimbursable Taxes.     With respect to the Commitment, Borrower covenants and agrees with each Lender Party extending credit pursuant thereto that:

        (a)   Borrower will indemnify each such Lender Party against and reimburse each such Lender Party for all present and future stamp and other taxes, duties, levies, imposts, deductions, charges, costs, and withholdings whatsoever imposed, assessed, levied or collected on or in respect of this Agreement, any LIBOR Loans (whether or not legally or correctly imposed, assessed, levied or collected), excluding, however, any taxes imposed on or measured by the overall net income of Administrative Agent or such Lender Party or any Applicable Lending Office of such Lender Party by any jurisdiction in which such Lender Party or any such Applicable Lending Office is located (all such non-excluded taxes, levies, costs and charges being collectively called "Reimbursable Taxes" in this section). Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity.

        (b)   All payments on account of the principal of, and interest on, each such Lender Party's Loans and Note, and all other amounts payable by Borrower to any such Lender Party hereunder, shall be made in full without set-off or counterclaim and shall be made free and clear of and without deductions or withholdings of any nature by reason of any Reimbursable Taxes, all of which will be for the account of Borrower. In the event of Borrower being compelled by Law to make any such deduction or withholding from any payment to any such Lender Party, Borrower shall pay on the due date of such payment, by way of additional interest, such additional amounts as are needed to cause the amount receivable by such Lender Party after such deduction or withholding to equal the amount which would have been receivable in the absence of such deduction or withholding. If Borrower should

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make any deduction or withholding as aforesaid, Borrower shall within 60 days thereafter forward to such Lender Party an official receipt or other official document evidencing payment of such deduction or withholding.

        (c)   If Borrower is ever required to pay any Reimbursable Tax with respect to any LIBOR Loan, Borrower may elect, by giving to Administrative Agent and such Lender Party not less than three Business Days' notice, to Convert all (but not less than all) of any such LIBOR Loan into a Base Rate Loan, but such election shall not diminish Borrower's obligation to pay all Reimbursable Taxes.

        (d)   Notwithstanding the foregoing provisions of this section, Borrower shall be entitled, to the extent it is required to do so by Law, to deduct or withhold (and not to make any indemnification or reimbursement for) income or other similar taxes imposed by the United States of America (other than any portion thereof attributable to a change in federal income tax Laws effected after the date hereof) from interest, fees or other amounts payable hereunder for the account of such Lender Party, other than such a Lender Party (i) who is a US person for Federal income tax purposes or (ii) who has the Prescribed Forms on file with Administrative Agent (with copies provided to the relevant Borrower) for the applicable year to the extent deduction or withholding of such taxes is not required as a result of the filing of such Prescribed Forms, provided that if Borrower shall so deduct or withhold any such taxes, it shall provide a statement to Administrative Agent and such Lender Party, setting forth the amount of such taxes so deducted or withheld, the applicable rate and any other information or documentation which such Lender Party may reasonably request for assisting such Lender Party to obtain any allowable credits or deductions for the taxes so deducted or withheld in the jurisdiction or jurisdictions in which such Lender Party is subject to tax. As used in this section, "Prescribed Forms" means such duly executed forms or statements, and in such number of copies, which may, from time to time, be prescribed by Law and which, pursuant to applicable provisions of (x) an income tax treaty between the United States and the country of residence of such Lender Party providing the forms or statements, (y) the Code, or (z) any applicable rules or regulations thereunder, permit Borrower to make payments hereunder for the account of such Lender Party free of such deduction or withholding of income or similar taxes.

        Section 3.8.     Replacement of Lenders.     If any Lender Party seeks reimbursement for increased costs under Sections 3.2 through 3.7, then within ninety days thereafter—provided no Event of Default then exists—Borrower shall have the right (unless such Lender Party withdraws its request for additional compensation) to replace such Lender Party by requiring such Lender Party to assign its Loans and Note and its commitments hereunder to an Eligible Transferee reasonably acceptable to Administrative Agent and to Borrower, provided that: (i) all Obligations of Borrower owing to such Lender Party being replaced (including such increased costs and any breakage costs with respect to any outstanding LIBOR Loans, but excluding principal and accrued interest on the Note being assigned) shall be paid in full to such Lender Party concurrently with such assignment, and (ii) the replacement Eligible Transferee shall purchase the Notes being assigned by paying to such Lender Party a price equal to the principal amount thereof plus accrued and unpaid interest and accrued and unpaid commitment fees thereon. In connection with any such assignment Borrower, Administrative Agent, such Lender Party and the replacement Eligible Transferee shall otherwise comply with Section 10.5. Notwithstanding the foregoing rights of Borrower under this section, however, Borrower may not replace any Lender Party which seeks reimbursement for increased costs under Section 3.2 through 3.7 unless Borrower is at the same time replacing all Lender Parties which are then seeking such compensation.

ARTICLE IV— Conditions Precedent to Lending

        Section 4.1.     Documents to be Delivered.     No Lender has any obligation to make its first Loan unless Administrative Agent shall have received all of the following, at Administrative Agent's office in

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Houston, Texas, duly executed and delivered and in form, substance and date satisfactory to Administrative Agent, each of which was so executed and delivered:

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        Section 4.2.     Additional Conditions Precedent.     No Lender has any obligation to make any Loan (including its first), unless the following conditions precedent have been satisfied:

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ARTICLE V— Representations and Warranties

        To confirm each Lender's understanding concerning Restricted Persons and Restricted Persons' businesses, properties and obligations and to induce each Lender to enter into this Agreement and to extend credit hereunder, Borrower represents and warrants to each Lender that:

        Section 5.1.     No Default.     No event has occurred and is continuing which constitutes a Default, except as has been waived in accordance with this Agreement.

        Section 5.2.     Organization and Good Standing.     Each Significant Restricted Person is duly organized or formed, validly existing and in good standing under the Laws of its jurisdiction of organization or formation, having all requisite corporate or similar powers required to carry on its business and enter into and carry out the transactions contemplated hereby. Each Significant Restricted Person is duly qualified, in good standing, and authorized to do business in all other jurisdictions wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary except where the failure to so qualify would not reasonably be expected to cause a Material Adverse Change.

        Section 5.3.     Authorization.     Each Restricted Person has duly taken all action necessary to authorize the execution and delivery by it of the Loan Documents to which it is a party and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. Borrower is duly authorized to borrow funds hereunder.

        Section 5.4.     No Conflicts or Consents.     The execution and delivery by each Restricted Person of the Loan Documents to which it is a party, the performance by it of its obligations, and the consummation of the transactions contemplated thereby, do not and will not (i) violate any provision of (1) Law applicable to it, (2) its organizational documents or (3) any judgment, order or material license or permit applicable to or binding upon it, (ii) result in the acceleration of any Indebtedness owed by it or (iii) result in or require the creation of any consensual Lien upon any of its material assets or properties except as expressly contemplated in, or permitted by, the Loan Documents. Except as expressly contemplated in or permitted by the Loan Documents, disclosed in the Disclosure Schedule or disclosed pursuant to Section 6.4, no permit, consent, approval, authorization or order of, and no notice to or filing, registration or qualification with, any Tribunal is required on the part of any Restricted Person a party thereto pursuant to the provisions of any material Law applicable to it as a condition to its execution, delivery or performance of any Loan Document or (ii) to consummate any transactions contemplated by the Loan Documents.

        Section 5.5.     Enforceable Obligations.     This Agreement is, and the other Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of each Restricted Person which is a party hereto or thereto, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to the enforcement of creditors' rights and general principles of equity.

        Section 5.6.     Initial Financial Statements.     Borrower has heretofore delivered to each Lender true, correct and complete copies of the Initial Financial Statements. The Initial Financial Statements fairly present Borrower's Consolidated financial position at the date thereof and the Consolidated results of Borrower's operations for the periods thereof, and in the case of the annual Initial Financial Statements, Consolidated cash flows for the period thereof. Since the date of the annual Initial Financial Statements, no Material Adverse Change has occurred. All Initial Financial Statements described in clause (i) of that defined term were prepared in accordance with GAAP.

        Section 5.7.     Other Obligations and Restrictions.     As of the closing date hereof, no Restricted Person has any outstanding payment obligations of any kind (including contingent obligations, tax assessments and unusual forward or long-term commitments) which are, in the aggregate, material to Borrower or material with respect to Borrower's Consolidated financial condition and not reflected in

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the Initial Financial Statements, disclosed in the Disclosure Schedule or otherwise permitted under Section 7.1. Except as reflected disclosed in the Disclosure Schedule, no Restricted Person is subject to or restricted by any franchise, contract, deed, charter restriction, or other instrument or restriction which would reasonably be expected to cause a Material Adverse Change.

        Section 5.8.     Full Disclosure.     No certificate, statement or other information delivered herewith or heretofore by any Restricted Person to any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading as of the date made or deemed made (or if such information expressly relates or refers to an earlier date, as of such earlier date). All written information furnished after the date hereof by or on behalf of any Restricted Person to Administrative Agent or any Lender Party in connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect in light of the circumstances in which made or based on reasonable estimates, in each case as of the date on which such information is stated or certified (or if such information expressly relates or refers to an earlier date, as of such earlier date). There is no fact known to any Restricted Person that has not been disclosed to each Lender in writing which would reasonably be expected to cause a Material Adverse Change.

        Section 5.9.     Litigation.     Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule: (i) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of any Restricted Person overtly threatened, against any Restricted Person before any Tribunal which would reasonably be expected to cause a Material Adverse Change, and (ii) there are no outstanding judgments, injunctions, writs, rulings or orders by any such Tribunal against any Restricted Person or, to the knowledge of Borrower, any Restricted Person's stockholders, partners, directors or officers which would reasonably be expected to cause a Material Adverse Change.

        Section 5.10.     ERISA Plans and Liabilities.     All currently existing ERISA Plans are listed in the Disclosure Schedule or pursuant to Section 6.4. Except as disclosed in the Initial Financial Statements, in the Disclosure Schedule or pursuant to Section 6.4, no Termination Event has occurred with respect to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all material respects, to the extent that the non-compliance therewith would not be reasonably expected to cause a Material Adverse Change. No ERISA Affiliate is required to contribute to, or has any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule: (i) no "accumulated funding deficiency" (as defined in Section 412(a) of the Code) exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, and (ii) the current value of each ERISA Plan's benefits does not exceed the current value of such ERISA Plan's assets available for the payment of such benefits by more than $5,000,000.

        Section 5.11.     Compliance with Permits, Consents and Law.     Except as set forth in the Disclosure Schedule or pursuant to Section 6.4, each Restricted Person has all permits, licenses and authorizations required in connection with the conduct of its businesses, except to the extent failure to have any such permit, license or authorization would not reasonably be expected to cause a Material Adverse Change. Each Restricted Person is in compliance with the terms and conditions of all such permits, licenses and authorizations, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any Law, including applicable Environmental Law, or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent that non-compliance therewith would not reasonably be expected to cause a Material Adverse Change or

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such term, restriction or otherwise is being contested in good faith or a bona fide dispute exists with respect thereto.

        Section 5.12.     Environmental Laws.     Except as set forth in the Disclosure Schedule or disclosed pursuant to Section 6.4, (i) Borrower and its Subsidiaries are conducting their businesses in material compliance with all applicable Laws, including Environmental Laws, and have and are in compliance with all licenses and permits required under any such Laws, unless failure to so comply or have such licenses and permits would not reasonably be expected to cause a Material Adverse Change; (ii) none of the operations or properties of Borrower or any of its Subsidiaries is the subject of federal, provincial or local investigation evaluating whether any material remedial action is needed to respond to a release of any Hazardous Materials into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Materials, unless such remedial action would not reasonably be expected to cause a Material Adverse Change; and (iii) neither Borrower nor any of its Subsidiaries (and to the actual knowledge of Borrower, no other Person) has filed any notice under any Law indicating that any Restricted Person is responsible for the improper release into the environment, or the improper storage or disposal, of any material amount of any Hazardous Materials or that any Hazardous Materials have been improperly released, or are improperly stored or disposed of, upon any property of any such Person, other than of an alleged improper release, storage or disposal that would not reasonably be expected to cause a Material Adverse Change.

        Section 5.13.     Borrower's Subsidiaries.     Borrower has no Subsidiary and owns no stock in any other corporation or association except as listed in the Disclosure Schedule or disclosed after the closing date hereof to Administrative Agent in writing. No Restricted Person is a member of any general or limited partnership, limited liability company, joint venture or association of any type whatsoever except those listed in the Disclosure Schedule or disclosed after the closing date hereof to Administrative Agent in writing. Borrower owns, directly or indirectly, the equity interest in each of its Subsidiaries which is indicated in the Disclosure Schedule.

        Section 5.14.     Title to Properties.     Each Restricted Person has good and defensible title to all of its material properties and assets, free and clear of all Liens (other than Permitted Liens) and of all impediments to the use of such properties and assets in such Restricted Person's business, other than such impediments that would not reasonably be expected to cause a Material Adverse Change.

        Section 5.15.     Government Regulation.     Neither Borrower nor any other Restricted Person owing Obligations is subject to regulation under the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940 (as any of the preceding acts have been amended) or any other Law which regulates the incurring by such Person of Indebtedness, including Laws relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services. Neither Borrower nor any other Restricted Person is subject to regulation under the Federal Power Act which would violate, result in a default of, or prohibit the effectiveness or the performance of any of the provisions of the Loan Documents.

        Section 5.16.     Insider.     No Restricted Person, nor any Person having "control" (as that term is defined in 12 U.S.C. § 375b(9) or in regulations promulgated pursuant thereto) of any Restricted Person, is a "director" or an "executive officer" or "principal shareholder" (as those terms are defined in 12 U.S.C. § 375b(8) or (9) or in regulations promulgated pursuant thereto) of any Lender, of a bank holding company of which any Lender is a Subsidiary or of any Subsidiary of a bank holding company of which any Lender is a Subsidiary.

        Section 5.17.     Solvency.     Upon giving effect to the issuance of the Notes, the execution of the Loan Documents by Borrower and each Guarantor and the consummation of the transactions contemplated hereby, (i) Borrower and each Guarantor will be solvent (as such term is used in applicable bankruptcy, liquidation, receivership, insolvency or similar Laws), and the sum of Borrower's

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and each Guarantor's absolute and contingent liabilities, including the Obligations or guarantees thereof, shall not exceed the fair market value of such Restricted Person's assets, and (ii) Borrower's and each Guarantor's capital should be adequate for the businesses in which such Restricted Person is engaged and intends to be engaged. Neither Borrower nor any other Restricted Person has incurred (whether under the Loan Documents or otherwise), nor does any Restricted Person intend to incur or reasonably foreseeably believes that it will incur, debts which will be beyond its ability to pay as such debts mature.

        Section 5.18.     Not a "Reportable Transaction".     Borrower does not intend to treat the Borrowings and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof. If Borrower takes any action inconsistent with such intention, or if Borrower so notifies the Administrative Agent, then Borrower acknowledges that, as a result of such action or notice, one or more of the Lenders may treat its Loans as part of a transaction that is subject to Treasury Regulation Section 301.6112-1, and such Lender or Lenders will maintain the lists and other records required by such Treasury Regulation.

ARTICLE VI— Affirmative Covenants

        To conform with the terms and conditions under which each Lender is willing to have credit outstanding to Borrower, and to induce each Lender to enter into this Agreement and extend credit hereunder, Borrower covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders, or all Lenders as required under Section 10.1, have previously agreed otherwise:

        Section 6.1.     Payment and Performance.     Each Restricted Person will pay all amounts due from it pursuant to the provisions of the Loan Documents to which it is a party in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition imposed on it pursuant to the provisions of such Loan Documents.

        Section 6.2.     Books, Financial Statements and Reports.     Each Restricted Person will at all times maintain full and accurate books of account and records. Borrower will maintain and will cause its Subsidiaries to maintain a standard system of accounting, will maintain its Fiscal Year, and will furnish the following statements and reports to each Lender at Borrower's expense:

        (a)   Promptly upon the filing thereof, and in any event within ninety (90) days after the end of each Fiscal Year, a copy of Borrower's Form 10-K, which report shall include Borrower's complete Consolidated financial statements together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with an opinion, without material qualification, based on an audit using generally accepted auditing standards, by PricewaterhouseCoopers LLP, or other independent certified public accountants selected by General Partner, stating that such Consolidated financial statements have been so prepared. These financial statements shall contain a Consolidated balance sheet as of the end of such Fiscal Year and Consolidated statements of earnings for such Fiscal Year. Such Consolidated financial statements shall set forth in comparative form the corresponding figures for the preceding Fiscal Year.

        (b)   Promptly upon the filing thereof, and in any event within sixty (60) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a copy of Borrower's Form 10-Q, which report shall include Borrower's unaudited Consolidated balance sheet as of the end of such Fiscal Quarter and Consolidated statements of Borrower's earnings and cash flows for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter. In addition Borrower will, together with each such set of financial statements and each set of financial statements furnished under subsection (a) of this section, furnish a certificate in the form of Exhibit D signed by the chief financial officer, principal accounting officer or treasurer of General Partner stating

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that such financial statements are accurate and complete in all material respects (subject to normal year-end adjustments), stating that he has reviewed the Loan Documents, containing calculations showing compliance (or non-compliance) at the end of such Fiscal Quarter with the requirements of Sections 7.8 and 7.9 and stating that, to the best of his knowledge, no Default exists at the end of such Fiscal Quarter or at the time of such certificate or specifying the nature and period of existence of any such Default.

        (c)   Promptly upon their becoming available, copies of all Form 8-K's filed by Borrower with any securities exchange, the Securities and Exchange Commission or any similar governmental authority.

        (d)   Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by Borrower to its unit holders and all registration statements filed by Borrower with any securities exchange, the Securities and Exchange Commission or any similar governmental authority.

        (e)   Prompt notice of any publicly announced change in PAA's Debt Rating by either Standard & Poor's or Moody's.

Documents required to be delivered pursuant to Section 6.2(a), (b), (c) or (d), (to the extent any such documents are included in materials otherwise filed with the Securities and Exchange Commission) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which the Borrower posts such documents, or provides a link thereto, on the Borrower's website on the Internet at the website address listed in Section 10.3, and notifies Administrative Agent of such posting or link.

        Section 6.3.     Other Information and Inspections.     In each case subject to the last sentence of this Section 6.3, each Restricted Person will furnish to Administrative Agent any information which Administrative Agent or any Lender may from time to time reasonably request concerning any covenant, provision or condition of the Loan Documents or any matter in connection with any Restricted Person's businesses and operations. In each case subject to the last sentence of this Section 6.3, each Restricted Person will permit representatives appointed by Administrative Agent (including independent accountants, auditors, agents, attorneys, appraisers and any other Persons), upon reasonable prior notice, to visit and inspect during normal business hours any of such Restricted Person's property, including its books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs thereof, and to write down and record any information such representatives obtain, and each Restricted Person shall permit Administrative Agent or its representatives to investigate and verify the accuracy of the information furnished to Administrative Agent or any Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and, upon reasonable prior notice to Borrower, its representatives. Each of the foregoing inspections and examinations shall be made subject to compliance with applicable safety standards and the same conditions applicable to any Restricted Person in respect of property of that Restricted Person on the premises of Persons other than a Restricted Person or an Affiliate of a Restricted Person, and all information, books and records furnished or requested to be made, all information to be investigated or verified and all discussion conducted with any officer, employee or representative of any Restricted Person shall be subject to any applicable attorney-client privilege exceptions which the Restricted Person determines is reasonably necessary and compliance with conditions to disclosures under non-disclosure agreements between any Restricted Person and Persons other than a Restricted Person or an Affiliate of a Restricted Person and the express undertaking of each Person acting at the direction of or on behalf of any Lender Party to be bound by the confidentiality provisions of Section 10.6 of this Agreement.

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        Section 6.4.     Notice of Material Events.     Borrower will notify each Lender Party, not later than five (5) Business Days after any executive officer of Borrower has knowledge thereof, stating that such notice is being given pursuant to this Agreement, of:

Upon the occurrence of any of the foregoing the applicable Restricted Person will take all necessary or appropriate steps to remedy promptly, if applicable, any such Material Adverse Change, Default, acceleration, default or Termination Event, to protect against any such adverse claim, to defend any such claim, suit or proceeding, and to resolve all controversies on account of any of the foregoing.

        Section 6.5.     Maintenance of Existence, Qualifications and Assets.     Each Significant Restricted Person (i) will maintain and preserve its existence and its rights (including permits, licenses and other authorizations required under Environmental Laws) and franchises in full force and effect, (ii) will qualify to do business in all states or jurisdictions where required by applicable Law, and (iii) keep all of its material assets that are useful in and necessary to its business in good working order and condition (ordinary wear and tear and obsoleteness excepted) except, in each case (a) where the failure so to maintain, preserve, qualify or keep would not be reasonably expected to cause a Material Adverse Change, (b) as permitted in Section 7.3 or as a result of statutory conversions or (c) as a result of a release permitted pursuant to Section 6.9. Borrower will notify Administrative Agent in writing of any changes in its or any other Significant Restricted Person's name or the location of its or any other Significant Restricted Person's chief executive office or principal place of business.

        Section 6.6.     Payment of Taxes, etc.     Each Significant Restricted Person will (a) timely file all required tax returns (including any extensions), (b) timely pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or property, and (c) maintain appropriate accruals and reserves for all of the foregoing as required by GAAP, except to the extent that (y) it is in good faith contesting the validity thereof by appropriate proceedings, if necessary, and has set aside on its books adequate reserves therefor which are required by GAAP or (z) such non-filing, non-payment or non-maintenance would not reasonably be expected to cause a Material Adverse Change.

        Section 6.7.     Insurance.     In accordance with industry standards, each Significant Restricted Person will keep insured (by responsible and reputable insurance companies or associations) or self-insured, at the option of Borrower or such Significant Restricted Person, in such amounts and against such risks as are usually insured by Persons engaged in the same or similar businesses and owning similar properties. The insurance coverages and amounts will be reasonably determined by Borrower, based on coverages

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carried by prudent owners of similar property, and with respect to each Restricted Person, may be maintained by the Borrower.

        Section 6.8.     Compliance with Agreements and Law.     Each Significant Restricted Person will perform all material obligations it is required to perform under the terms of each indenture, mortgage, deed of trust, security agreement, lease, franchise and other material agreement, contract or other instrument (including all contractual obligations and agreements with respect to environmental remediation or other environmental matters) to which it is a party or by which it or any of its properties is bound to the extent that non-performance therewith would not reasonably be expected to cause a Material Adverse Change. Each Restricted Person will conduct its business and affairs in compliance, in all material respects, with all Laws (including Environmental Laws) applicable thereto to the extent non-compliance therewith would not reasonably be expected to cause a Material Adverse Change or such requirement of Law is being contested in good faith or a bona fide dispute exists with respect thereto.

        Section 6.9.     Guaranties of Subsidiaries.     Each Significant Restricted Person that has outstanding Indebtedness (other than guarantees hereunder) shall execute and deliver to Administrative Agent an absolute and unconditional guaranty of the timely repayment of the Obligations (in each case for which such Person is not a borrower, account party or similar primary and direct obligor), which guaranty shall be reasonably satisfactory to Administrative Agent in form and substance; provided , with respect to any such Person that is not a Wholly Owned Subsidiary of Borrower, for which consent or approval of third parties is required for the delivery of such guaranty, such Person shall not be required to deliver such guaranty, but shall use its commercially reasonable best efforts, as determined by Administrative Agent, to deliver such guaranty. Notwithstanding any provision contained herein, in no event shall any Unrestricted Subsidiary be required to execute and deliver any guaranty for, or in respect of, the Obligations, or any part thereof. Borrower will cause each of its Subsidiaries required to deliver a guaranty pursuant to this Section 6.9 to deliver to Administrative Agent, simultaneously with its delivery of such a guaranty, written evidence satisfactory to Administrative Agent that such Subsidiary has taken all corporate, limited liability company or partnership action necessary to duly approve and authorize its execution, delivery and performance of such guaranty. Borrower may at any time request the release of one or more Guarantors from their guaranty of the Obligations, and each such Guarantor shall be so released upon such request, provided , no Default then exists and either (a) such Guarantor has no outstanding Indebtedness or guaranties of Indebtedness (other than guaranties hereunder) or (b) the request is in contemplation of the sale or disposition of such Subsidiary (including all or substantially all of its assets). Administrative Agent is authorized to execute and deliver to Borrower evidence of any such release, as reasonably requested by, and at the expense of, Borrower.

ARTICLE VII— Negative Covenants

        To conform with the terms and conditions under which each Lender is willing to have credit outstanding to Borrower and to induce each Lender to enter into this Agreement and make the Loans, Borrower covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders, or all Lenders as required under Section 10.1, have previously agreed otherwise:

        Section 7.1.     Subsidiary Indebtedness.     No Subsidiary of Borrower will incur any Indebtedness other than:

        (a)   the Obligations;

        (b)   Guaranties by Guarantors of Indebtedness of any Restricted Person (i) arising under the US/Canada Credit Agreement and the 364-Day Credit Agreement, or (ii) if arising under any other agreement, the incurrence of which did not result in a Default or an Event of Default;

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        (c)   Indebtedness of (i) PMC (Nova Scotia) Company and Plains Marketing Canada, L.P. pursuant to the US/Canada Credit Agreement in an aggregate principal amount not to exceed at any time outstanding $325,000,000, and (ii) Plains Marketing pursuant to the Contango Credit Agreement in an aggregate principal amount not to exceed at any time outstanding $300,000,000;

        (d)   Indebtedness of any Restricted Person owing to another Restricted Person;

        (e)   Indebtedness of any Subsidiary described in clause (b) of the definition of "Indebtedness" that is determinable but not yet earned; provided , Borrower reasonably contemplates that such Indebtedness will be repaid from the proceeds of one or more advances made by Borrower to such Subsidiary;

        (f)    Indebtedness of a Subsidiary acquired (including acquisition by merger, consolidation or amalgamation) on or after the date hereof by a Restricted Person, which Indebtedness was incurred by such Subsidiary before the time of such acquisition, merger, consolidation or amalgamation, and was not created in contemplation thereof; provided , that contemporaneously with such acquisition, merger, consolidation or amalgamation, and so long as no adverse tax and/or regulatory consequences are caused thereby, such Subsidiary shall be a Guarantor subject to the provisions of Section 6.9; and

        (g)   Indebtedness not otherwise described in the foregoing clauses (a) through (f) owing by any one or more Guarantors in an aggregate principal amount not to exceed at any time outstanding the greater of (A) $100,000,000 and (B) fifteen percent (15%) of Consolidated Tangible Net Worth.

        Section 7.2.     Limitation on Liens.     No Restricted Person will create, assume or permit to exist any Lien upon any of the properties or assets which it now owns or hereafter acquires, except the following (" Permitted Liens "):

        (a)   Liens securing (i) on a pari passu basis, both (x) the Obligations and (y) the Liabilities of any Restricted Person arising under the US/Canada Credit Agreement, and (ii) if required, any related interest hedge rate agreements;

        (b)   Liens securing Indebtedness of Plains Marketing under the Contango Credit Agreement at any one time outstanding not in excess of $300,000,000 on (i) Petroleum Products subject to Cash and Carry Purchases financed pursuant to the Contango Credit Agreement, (ii) hedging contracts covering such Petroleum Products, (iii) contracts for the purchase or sale of such Petroleum Products and accounts receivable arising therefrom, and (iv) all proceeds of the foregoing;

        (c)   Liens imposed by any governmental authority for taxes, assessments or charges not yet due or the validity of which is being contested in good faith and by appropriate proceedings, if necessary, for which adequate reserves are maintained on the books of any Restricted Person in accordance with GAAP;

        (d)   pledges or deposits of cash or securities under worker's compensation, unemployment insurance or other social security legislation;

        (e)   carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's, or other like Liens (including without limitation, Liens on property of any Restricted Person in the possession of storage facilities, pipelines or barges) arising in the ordinary course of business for amounts which are not more than 60 days past due or the validity of which is being contested in good faith and, if necessary, by appropriate proceedings, and for which adequate reserves are maintained on the books of any Restricted Person in accordance with GAAP;

        (f)    Liens on cash and Cash Equivalents under or with respect to accounts with brokers or counterparties with respect to hedging contracts consisting of cash, commodities or futures contracts, options, securities, instruments, and other like assets securing only hedging contracts;

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        (g)   deposits of cash or securities to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

        (h)   easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of real property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any Restricted Person;

        (i)    Liens in respect of operating leases;

        (j)    Liens upon any property or assets directly or indirectly acquired on or after the date hereof by a Restricted Person, each of which either (i) existed on such property or asset before the time of its acquisition and was not created in anticipation thereof, or (ii) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such property or asset; provided that no such Lien shall extend to or cover any property or asset of a Restricted Person other than the property or asset so acquired (or constructed); and any extension, renewal, refinancing, refunding or replacement (or successive extensions, renewals, refinancings, refundings or replacements), in whole or part, of the foregoing, provided, however, that such Liens shall not cover or secure any additional Indebtedness, obligations, property or asset;

        (k)   rights reserved to or vested in any governmental authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to revoke or terminate any such right, power, franchise, grant, license or permit or to condemn or acquire by eminent domain or similar process;

        (l)    rights reserved to or vested by Law in any governmental authority to in any manner, control or regulate in any manner any of the properties of any Restricted Person or the use thereof or the rights and interests of any Restricted Person therein, in any manner under any and all Laws;

        (m)  rights reserved to the grantors of any properties of any Restricted Person, and the restrictions, conditions, restrictive covenants and limitations, in respect thereto, pursuant to the terms, conditions and provisions of any rights-of-way agreements, contracts or other agreements therewith;

        (n)   inchoate Liens in respect of pending litigation or with respect to a judgment which has not resulted in an Event of Default under Section 8.1;

        (o)   Liens securing obligations in an aggregate principal amount not to exceed at any time outstanding 10% of Borrower's Consolidated Tangible Net Worth; and

        (p)   Liens related to the extension, renewal, refinancing, refunding or replacement (or successive extensions, renewals, refinancings, refundings or replacements), in whole or in part, of clauses (a), (b) and (o) of this Section 7.2; provided, however, that such Liens shall not cover or secure any additional Indebtedness.

        Section 7.3.     Limitation on Mergers.     Except as expressly provided in this section, no Significant Restricted Person (other than (i) a Guarantor for whom a release has been requested pursuant to an event described in clause (b) of Section 6.9 and otherwise is so released, or (ii) such other Significant Restricted Person, other than Borrower, that is the subject of any such event described in such clause (b) of Section 6.9) will (a) merge or consolidate or amalgamate with any Person, or liquidate, wind up or dissolve or (b) sell, transfer, lease, exchange or otherwise dispose of, in one transaction or a series of related transactions, all or substantially all of its business or property, whether now owned or hereafter acquired, to any Person; provided , any such Significant Restricted Person, other than

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Borrower, may (A) merge into or consolidate or amalgamate with, and such business and property may be disposed of to:

(B) dissolve, liquidate or wind up if such dissolution, liquidation and winding up results from dispositions not prohibited by this Agreement.

        Section 7.4.     Limitation on New Businesses.     No Restricted Person will materially or substantially engage directly or indirectly in any business or conduct any operations other than (i) marketing, gathering, transporting (by barge, pipeline, ship, truck or other modes of hydrocarbon transportation), terminalling, storing, producing, acquiring, developing, exploring for, exploiting, producing, processing, dehydrating and otherwise handling hydrocarbons, including, without limitation, constructing pipeline, platform, dehydration, processing and other energy-related facilities, (ii) any other business that generates gross income that constitutes "qualifying income" under Section 7704(d) of the Internal Revenue Code of 1986, as amended, or (iii) activities or services reasonably related or ancillary thereto including entering into hedging obligations to support those businesses.

        Section 7.5.     Transactions with Affiliates.     No Restricted Person will engage in any material transaction with any of its Affiliates except as follows: (a) transactions among Borrower and its Subsidiaries or between Subsidiaries of Borrower; (b) if and to the extent any of them constitute transactions with Affiliates, transactions governed by the Crude Oil Marketing Agreement among Plains Resources Inc., Plains Illinois Inc., Stocker Resources, L.P., Arguello Inc., Calumet Florida Inc. (and successors of each) and Plains Marketing dated November 23, 1998 or the Omnibus Agreement between Plains Resources Inc., Borrower, Plains Marketing, Plains Pipeline and Plains All American Inc. (and successors of each) dated November 23, 1998, as amended and in effect; (c) any employment, equity award, equity option or equity appreciation agreement or plan entered into by Borrower or any of its Subsidiaries in the ordinary course of business of Borrower or such Subsidiary; (d) transactions effected in accordance with the terms of agreements as in effect on the closing date hereof; (e) customary compensation, indemnification and other benefits made available to officers, directors or employees of Borrower, any of its Subsidiaries or GP LLC, including reimbursement or advancement of out-of-pocket expenses and provisions of officers' and directors' liability insurance; (f) transactions as contemplated by Borrower's agreement of limited partnership; and (g) transactions on terms which are no less favorable to such Restricted Person than those which would have been obtainable at the time in arm's-length transactions with Persons other than such Affiliates.

        Section 7.6.     Limitation on Distributions.     Borrower shall not declare or pay any Distribution so long as any Default or Event of Default has occurred and is continuing or would result therefrom.

        Section 7.7.     Restricted Contracts.     Except as expressly provided for in the Loan Documents and as described in the Disclosure Schedule or pursuant to a Restriction Exception, the substance of which, in detail satisfactory to Administrative Agent, is promptly reported to Administrative Agent, no Restricted Person will, directly or indirectly, enter into, create, or otherwise allow to exist any contract or other consensual restriction on the ability of any Subsidiary of Borrower to: (a) pay dividends or

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make other distributions to Borrower, (b) redeem equity interests held in it by Borrower, (c) repay loans and other indebtedness owing by it to Borrower, or (d) transfer any of its assets to Borrower.

        Section 7.8.     Debt Coverage Ratio.     At the end of any Fiscal Quarter, the Debt Coverage Ratio will not be greater than the amount set forth below for the applicable time set forth below:

    (i) During an Acquisition Period:   5.25 to 1.0

 

 

(ii) Other than an Acquisition Period:

 

4.50 to 1.0

As used herein, " Debt Coverage Ratio " means the ratio of (a) Consolidated Funded Indebtedness to (b) Consolidated EBITDA, for the four Fiscal Quarter period (or other period specified below) most recently ended prior to the date of determination for which financial statements contemplated by Section 6.2(a) or (b) are available to Borrower; provided , for purposes of this Section 7.8, if, since the beginning of the four Fiscal Quarter period ending on the date for which Consolidated EBITDA is determined, any Restricted Person shall have made any asset disposition or acquisition, shall have consolidated or merged with or into any Person (other than another Restricted Person), or shall have made any disposition or acquisition of a Restricted Person or disposition or acquisition of any partial ownership interest in any other Person, Consolidated EBITDA shall be calculated giving pro forma effect thereto as if the disposition, acquisition, consolidation or merger had occurred on the first day of such period; provided , with respect to any Person not constituting a Subsidiary of Borrower, such pro forma calculation of Consolidated EBITDA, with respect to any such Person, shall be limited to not more than 75% of (i) such Restricted Person's ownership interest in such Person times (ii) the difference of such Person's (A) Consolidated EBITDA minus (B) Interest Expense and capital expenditures. Such pro forma calculations shall be determined (i) in good faith by the chief financial officer of Borrower, and (ii) without giving effect to any anticipated or proposed change in operations, revenues, expenses or other items included in the computation of Consolidated EBITDA, except cost reductions specifically identified at the time of disposition, acquisition, consolidation or merger that are attributable to personnel reductions, non-recurring maintenance and environmental costs and allocated corporate overhead.

        Section 7.9.     Interest Coverage Ratio.     The ratio of (a) Consolidated EBITDA to (b) Interest Expense for each four Fiscal Quarter period ending on or after the date hereof will not be less than 2.75 to 1.0.

        Section 7.10.     Unrestricted Subsidiaries.     So long as no Default or Event of Default has occurred and is continuing, and after giving effect to such designation, no Default or Event of Default would result therefrom, Borrower or any Wholly Owned Subsidiary of Borrower may designate one or more Subsidiaries that are not Guarantors (each such Subsidiary, and each of its Subsidiaries, each an " Unrestricted Subsidiary "), which Unrestricted Subsidiaries shall be subject to the following:

        (a)   No Unrestricted Subsidiary shall be deemed to be a "Restricted Person" or a "Subsidiary" of Borrower for purposes of this Agreement or any other Loan Document, and no Unrestricted Subsidiary shall be subject to or included within the scope of any provision herein or in any other Loan Document, including without limitation any representation, warranty, covenant or Event of Default herein or in any other Loan Document, except as set forth in this Section 7.10.

        (b)   No Restricted Person shall guarantee or otherwise become liable in respect of any Indebtedness of, grant any Lien on any of its property to secure any Indebtedness of or other obligation of, or provide any other form of credit support to, any Unrestricted Subsidiary, and no Restricted Person shall enter into any contract or agreement with any Unrestricted Subsidiary, except on terms no less favorable to such Restricted Person, as applicable, than could be obtained in a comparable arm's length transaction with a non-Affiliate of such Restricted Person.

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        (c)   Borrower shall at all times maintain, as between Restricted Persons and Unrestricted Subsidiaries, the separate existence of each Unrestricted Subsidiary.

        (d)   Restricted Persons shall notify each Lender Party, not later than five (5) Business Days after any executive officer of Restricted Persons has knowledge of, any claim, including any claim under any Environmental Law, or any notice of potential liability under any Environmental Law, asserted against any Unrestricted Subsidiary or with respect to any Unrestricted Subsidiary's properties that would be expected to result in a Material Adverse Change, stating that such notice is being given pursuant to this Section 7.10.

        Borrower may designate any Unrestricted Subsidiary to become a Restricted Person if a Default or Event of Default is not continuing, such designation would not result in a Default or an Event of Default, and immediately thereafter such Subsidiary has no outstanding Indebtedness. Immediately thereafter, Borrower shall promptly notify the Administrative Agent of such designation and provide to it an officer's certificate that such designation was made in compliance with this Section 7.10.

        Section 7.11.     No Negative Pledges.     Except as described in the Disclosure Schedule or pursuant to a Restriction Exception, the substance of which, in detail satisfactory to Administrative Agent, is promptly reported to Administrative Agent, no Restricted Person will, directly or indirectly, enter into, create, or consent to be bound to any contract or other consensual restriction that restricts the ability of any Restricted Person to create or maintain Liens on its assets in favor of Administrative Agent and Lenders to secure, in whole or part, the Obligations.

ARTICLE VIII— Events of Default and Remedies

        Section 8.1.     Events of Default.     Each of the following events constitutes an Event of Default under this Agreement:

        (a)   Borrower fails to pay the principal component of any Loan when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise;

        (b)   Any Restricted Person fails to pay any Obligation for which it is contractually liable (other than the Obligations in subsection (a) above) when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise, within three Business Days after the same becomes due;

        (c)   Any Restricted Person fails to duly observe, perform or comply with any covenant, agreement or provision of Section 6.4 or Article VII;

        (d)   Any Restricted Person fails (other than as referred to in subsections (a), (b) or (c) above) to duly observe, perform or comply with any of its obligations under any covenant, agreement, condition or provision of any Loan Document to which it is a party, and such failure remains unremedied for a period of thirty (30) days after notice of such failure is given by Administrative Agent to Borrower;

        (e)   Any representation or warranty previously, presently or hereafter made in writing by or on behalf of any Restricted Person in connection with any Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made, or any Loan Document at any time ceases to be valid, binding and enforceable as warranted in Section 5.5 for any reason other than its release or subordination by Administrative Agent;

        (f)    Any Restricted Person shall default in the payment when due of any principal of or interest on any of its other Indebtedness, or any net hedging obligations in excess of $15,000,000 in the aggregate (other than such Indebtedness or hedging obligations the validity of which is being contested in good faith, by appropriate proceedings (if necessary) and for which adequate reserves with respect thereto are maintained on the books of such Restricted Person as required by GAAP), or any event

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specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or hedging obligations shall occur for a period beyond the applicable grace, cure extension, forbearance or other similar period, if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness or hedging obligations (or a trustee or agent on behalf of such holder or holders) to cause, as applicable, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity, or an early termination event or similar event to occur and such Restricted Person's related net hedging obligations in excess of $15,000,000 to become due and payable;

        (g)   Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Code) in excess of $5,000,000 exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than $5,000,000 (or in the case of a Termination Event involving the withdrawal of a substantial employer, the withdrawing employer's proportionate share of such excess exceeds such amount);

        (h)   GP LLC, General Partner, or any Significant Restricted Person:

        (i)    Any Significant Restricted Person:

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        (j)    Any Change in Control occurs.

Upon the occurrence of an Event of Default described in subsection (h)(i), (h)(ii) or (h)(iii) of this section: all Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Restricted Person who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender to make any further Loans shall be permanently terminated. During the continuance of any other Event of Default, Administrative Agent at any time and from time to time may (and upon written instructions from Majority Lenders, Administrative Agent shall), without notice to Borrower or any other Restricted Person, do either or both of the following: (1) terminate or suspend any obligation of Lenders to make Loans hereunder, and (2) declare any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Restricted Person who at any time ratifies or approves this Agreement.

        Section 8.2.     Remedies.     If any Default shall occur and be continuing, each Lender Party may protect and enforce its rights under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and each Lender Party may enforce the payment of any Obligations due it or enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Lender Parties under the Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Loan Documents or at Law or in equity.

ARTICLE IX— Administrative Agent

        Section 9.1.     Appointment and Authority.     Each Lender Party hereby irrevocably authorizes Administrative Agent, and Administrative Agent hereby undertakes, to receive payments of principal, interest and other amounts due hereunder as specified herein and to take all other actions and to exercise such powers under the Loan Documents as are specifically delegated to Administrative Agent by the terms hereof or thereof, together with all other powers reasonably incidental thereto. The relationship of Administrative Agent to the other Lender Parties is only that of one commercial lender acting as administrative agent for others, and nothing in the Loan Documents shall be construed to constitute Administrative Agent a trustee or other fiduciary for any Lender Party or any holder of any participation in a Note nor to impose on Administrative Agent duties and obligations other than those expressly provided for in the Loan Documents. With respect to any matters not expressly provided for in the Loan Documents and any matters which the Loan Documents place within the discretion of Administrative Agent, Administrative Agent shall not be required to exercise any discretion or take any action, and it may request instructions from Lenders with respect to any such matter, in which case it shall be required to act or to refrain from acting (and shall be fully protected and free from liability to all Lender Parties in so acting or refraining from acting) upon the instructions of Majority Lenders (including itself), provided, however, that Administrative Agent shall not be required to take any action which exposes it to a risk of personal liability that it considers unreasonable or which is contrary to the Loan Documents or to applicable Law. Upon receipt by Administrative Agent from Borrower of any communication calling for action on the part of Lenders or upon notice from Borrower or any Lender to Administrative Agent of any Default or Event of Default, Administrative Agent shall promptly notify each other Lender thereof.

        Section 9.2.     Exculpation, Administrative Agent's Reliance, Etc.     Neither Administrative Agent nor any of its directors, officers, agents, attorneys, or employees shall be liable for any action taken or

36



omitted to be taken by any of them under or in connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each shall be liable for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Administrative Agent (a) may treat the payee of any Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof in accordance with this Agreement, signed by such payee and in form satisfactory to Administrative Agent; (b) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any other Lender Party and shall not be responsible to any other Lender Party for any statements, warranties or representations made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Loan Documents on the part of any Restricted Person or to inspect the property (including the books and records) of any Restricted Person; (e) shall not be responsible to any other Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any instrument or document furnished in connection therewith; (f) may rely upon the representations and warranties of each Restricted Person or Lender Party in exercising its powers hereunder; and (g) shall incur no liability under or in respect of the Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (including any facsimile, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper Person or Persons.

        Section 9.3.     Credit Decisions.     Each Lender Party acknowledges that it has, independently and without reliance upon any other Lender Party, made its own analysis of Borrower and the transactions contemplated hereby and its own independent decision to enter into this Agreement and the other Loan Documents. Each Lender Party also acknowledges that it will, independently and without reliance upon any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents.

         Section 9.4.      INDEMNIFICATION.      EACH LENDER AGREES TO INDEMNIFY ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER WITHIN TEN (10) DAYS AFTER DEMAND) FROM AND AGAINST SUCH LENDER'S PERCENTAGE SHARE OF ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN AND BORROWER'S USE OF LOAN PROCEEDS (WHETHER ARISING IN CONTRACT OR IN TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY PERSON OR ANY LIABILITIES OR DUTIES OF ANY PERSON WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT).

THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT, provided only that no Lender shall be obligated under this section to indemnify Administrative Agent for that portion, if any, of any liabilities and costs which is proximately caused by

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Administrative Agent's own individual gross negligence or willful misconduct, as determined in a final judgment. Cumulative of the foregoing, each Lender agrees to reimburse Administrative Agent promptly upon demand for such Lender's Percentage Share of any costs and expenses to be paid to Administrative Agent by Borrower under Section 10.4(a) to the extent that Administrative Agent is not timely reimbursed for such expenses by Borrower as provided in such section. As used in this section the term "Administrative Agent" shall refer not only to the Persons designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person.

        Section 9.5.     Rights as Lender.     In its capacity as a Lender, Administrative Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not Administrative Agent. Administrative Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with any Restricted Person or their Affiliates, all as if it were not Administrative Agent hereunder and without any duty to account therefor to any other Lender.

        Section 9.6.     Sharing of Set-Offs and Other Payments.     Each Lender Party agrees that if it shall, whether through the exercise of rights of banker's lien, set off, or counterclaim against Borrower or otherwise, obtain payment of a portion of the aggregate Obligations owed to it which, taking into account all distributions made by Administrative Agent under Section 3.1, causes such Lender Party to have received more than it would have received had such payment been received by Administrative Agent and distributed pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously purchased and shall be obligated to purchase interests in the Obligations as necessary to cause all Lender Parties to share all payments as provided for in Section 3.1, and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that Administrative Agent and all Lender Parties share all payments of Obligations as provided in Section 3.1; provided, however, that nothing herein contained shall in any way affect the right of any Lender Party to obtain payment (whether by exercise of rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness other than the Obligations. Borrower expressly consents to the foregoing arrangements, subject to Section 10.9. If all or any part of any funds transferred pursuant to this section is thereafter recovered from the seller under this section which received the same, the purchase provided for in this section shall be deemed to have been rescinded to the extent of such recovery, together with interest, if any, if interest is required pursuant to the order of a Tribunal to be paid on account of the possession of such funds prior to such recovery.

        Section 9.7.     Investments.     Whenever Administrative Agent in good faith determines that it is uncertain about how to distribute to Lender Parties any funds which it has received, or whenever Administrative Agent in good faith determines that there is any dispute among Lender Parties about how such funds should be distributed, Administrative Agent may choose to defer distribution of the funds which are the subject of such uncertainty or dispute. If Administrative Agent in good faith believes that the uncertainty or dispute will not be promptly resolved, or if Administrative Agent is otherwise required to invest funds pending distribution to Lender Parties, Administrative Agent shall invest such funds pending distribution; all interest on any such Investment shall be distributed upon the distribution of such Investment and in the same proportion and to the same Persons as such Investment. All moneys received by Administrative Agent for distribution to Lender Parties (other than to the Person who is Administrative Agent in its separate capacity as a Lender Party) shall be held by Administrative Agent pending such distribution solely as Administrative Agent for such Lender Parties, and Administrative Agent shall have no equitable title to any portion thereof.

        Section 9.8.     Benefit of Article IX.     The provisions of this Article are intended solely for the benefit of Lender Parties, and no Restricted Person shall be entitled to rely on any such provision or assert any such provision in a claim or defense against any Lender (other than contained in Section 9.6 or the right to reasonably approve a successor Administrative Agent under Section 9.9). Lender Parties

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may waive or amend such provisions as they desire without any notice to or consent of Borrower or any other Restricted Person.

        Section 9.9.     Resignation.     Administrative Agent may resign at any time by giving written notice thereof to Lenders and Borrower. Each such notice shall set forth the date of such resignation. Upon any such resignation Majority Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval of Borrower, unless a Default has occurred and is continuing, which approval will not be unreasonably withheld. A successor must be appointed for any retiring Administrative Agent, and such Administrative Agent's resignation shall become effective when such successor accepts such appointment. If, within thirty days after the date of the retiring Administrative Agent's resignation, no successor Administrative Agent has been appointed and has accepted such appointment, then the retiring Administrative Agent may appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed to conduct a banking or trust business under the Laws of the United States of America or of any state thereof. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent's resignation hereunder the provisions of this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents.

        Section 9.10.     Other Agents.     Neither the Syndication Agent nor the Documentation Agent (" Co-Agents "), in such capacities, shall have any duties or responsibilities or incur any liabilities in such agency capacities (as opposed to its capacity as a Lender) under or in connection with this Agreement or under any of the other Loan Documents. The relationship between Borrower on the one hand, and the Co-Agents and the Agents, on the other hand, shall be solely that of borrower and lender. None of the Co-Agents shall have any fiduciary responsibilities to Borrower or any of their respective Affiliates. None of the Co-Agents undertakes any responsibility to Borrower or any of their respective Affiliates to review or inform any such Person of any matter in connection with any phase of such Person's or such Affiliate's business or operations.

ARTICLE X— Miscellaneous

        Section 10.1.     Waivers and Amendments; Acknowledgments.     

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         THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

        Section 10.2.     Survival of Agreements; Cumulative Nature.     All of Restricted Persons' various representations, warranties, covenants and agreements in the Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the performance hereof and thereof, including the making or granting of the Loans and the delivery of the Notes and the other Loan Documents, and shall further survive until all of the Obligations are paid in full to each Lender Party and all of Lender Parties' obligations to Borrower are terminated. The rights, powers, and privileges granted to Lender Parties in the Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Loan Document shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to any Lender Party of any such right, power or privilege.

        Section 10.3.     Notices.     All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing, unless otherwise specifically provided in such Loan Document (provided that Administrative Agent may give telephonic notices to the other Lender Parties), and shall be deemed sufficiently given or furnished if delivered by personal

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delivery, by facsimile or other electronic transmission, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, to Borrower and Restricted Persons at the address of Borrower specified on the signature pages hereto and to each Lender Party at its address specified on the signature pages hereto (unless changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery during normal business hours at the address provided herein, (b) in the case of facsimile or other electronic transmission, upon receipt, or (c) in the case of registered or certified United States mail, three days after deposit in the mail; provided, however, that no Borrowing Notice or Continuation/Conversion Notice shall become effective until actually received by Administrative Agent.

        Section 10.4.     Payment of Expenses; Indemnity.     

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THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including Borrower or any of its Affiliates) ever alleges such gross negligence or willful misconduct by any Lender Party, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the term "Lender Party" shall refer not only to each Person designated as such in Section 1.1 but also to each director, officer, trustee, agent, attorney, employee, representative and Affiliate of such Persons.

        (c)    Interest.     Borrower hereby promises to each Lender Party interest at the Default Rate on all Obligations to pay fees or to reimburse or indemnify any Lender Party which Borrower has promised to pay to such Lender Party pursuant to this Section 10.4 and which are not paid when due. Such interest shall accrue from the date such Obligations become due until they are paid.

        Section 10.5.     Joint and Several Liability; Parties in Interest; Assignments; Replacement Notes.     

        (a)   All Obligations which are incurred by two or more Restricted Persons shall be their joint and several obligations and liabilities of such Restricted Persons. All grants, covenants and agreements contained in the Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and permitted assigns; provided, however, that no Restricted Person may assign or transfer any of its rights or delegate any of its duties or obligations under any Loan Document without the prior consent of all Lenders. Neither Borrower nor any Affiliates of Borrower shall directly or indirectly purchase or otherwise retire any Obligations owed to any Lender nor will any Lender accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If Borrower or any Affiliate of Borrower at any time purchases some but less than all of the Obligations owed to all Lender Parties, such purchaser shall not be entitled to any rights of any Lender under the Loan Documents unless and until Borrower or its Affiliates have purchased all of the Obligations.

        (b)   No Lender shall sell any participation interest in its commitment hereunder or any of its rights under its Loans or under the Loan Documents to any Person unless the agreement between such Lender and such participant at all times provides: (i) that such participation exists only as a result of the agreement between such participant and such Lender and that such transfer does not give such participant any right to vote as a Lender or any other direct claims or rights against any Person other than such Lender, (ii) that such participant is not entitled to payment from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess of those payable to such Lender under such sections (determined without regard to the sale of such participation), and (iii) unless such participant is an Affiliate of such Lender, that such participant shall not be entitled to require such Lender to take any action under any Loan Document or to obtain the consent of such participant prior to taking any action under any Loan Document, except for actions which would require the consent of all Lenders under subsection (a) of Section 10.1. No Lender selling such a participation shall, as between the other parties hereto and such Lender, be relieved of any of its obligations hereunder as a result of the sale of such participation. Each Lender which sells any such participation to any Person (other than an Affiliate of such Lender) shall give prompt notice thereof to Administrative Agent and Borrower; provided, however, that no liability shall arise if any such Lender fails to give such notice to Borrower.

        (c)   Except for sales of participations under the immediately preceding subsection, no Lender shall make any assignment or transfer of any kind of its commitments or any of its rights under its Loans or

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under the Loan Documents, except for assignments to an Eligible Transferee or, subject to the provisions of subsection (g) below, to an affiliate, and then only if such assignment is made in accordance with the following requirements:

        (d)   Any Lender may at any time pledge all or any portion of its Loan and Note (and related rights under the Loan Documents including any portion of its Note) to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release any such Lender from its obligations under any of the Loan Documents; provided that all related costs, fees and expenses in connection with any such pledge shall be for the sole account of such Lender.

        (e)   By executing and delivering an Assignment and Acceptance, each assignee Lender thereunder will be confirming to and agreeing with Borrower, Administrative Agent and each other Lender Party that such assignee understands and agrees to the terms hereof, including Article IX hereof.

        (f)    Administrative Agent shall maintain a copy of each Assignment and Acceptance and a register for the recordation of the names and addresses of Lenders and the Percentage Shares of, and principal amount of the Loans owing to, each Lender from time to time (in this section called the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and Borrower and each Lender Party may treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes. The Register shall be available for inspection by Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice.

        (g)   Any Lender may assign or transfer its commitment or its rights under its Loans or under the Loan Documents to (i) any Affiliate that is wholly-owned direct or indirect subsidiary of such Lender or of any Person that wholly owns, directly or indirectly, such Lender, or (ii) if such Lender is a fund that makes or invests in bank loans, any other fund that makes or invests in bank loans and is advised

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or managed by (A) the same investment advisor as any Lender or (B) any Affiliate of such investment advisor that is a wholly-owned direct or indirect subsidiary of any Person that wholly owns, directly or indirectly, such investment advisor, subject to the following additional conditions (x), (y) and (z), with respect to assignments pursuant to clause (i) above, and subject to the following additional conditions (y) and (z) with respect to assignments pursuant to clause (ii) above:

        (h)   Upon receipt of an affidavit reasonably satisfactory to Borrower of an officer of any Lender as to the loss, theft, destruction or mutilation of its Note which is not of public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of such Note, Borrower will execute and deliver, in lieu thereof, a replacement Note in the same principal amount thereof and otherwise of like tenor.

        Section 10.6.     Confidentiality.     Each Lender Party agrees (on behalf of itself and each of its Affiliates, and each of its and their directors, officers, agents, attorneys, employees, and representatives) that it (and each of them) will take all reasonable steps to keep confidential any non-public information supplied to it by or at the direction of any Restricted Person so identified when delivered, provided, however, that this restriction shall not apply to (a) information which has at the time in question entered the public domain, other than as a result of a breach of this Section 10.6, (b) information which is required to be disclosed by Law (whether valid or invalid) of any Tribunal, (c) any disclosure to any Lender Party's Affiliates, auditors, attorneys or agents (provided each such Person first agrees to hold such information in confidence on the terms provided in this Section 10.6), (d) any disclosure to any other Lender Party or to any purchaser or prospective purchaser of participations or other interests in any Loan or Loan Document (provided each such Person first agrees to hold such information in confidence on the terms provided in this section), or (e) any disclosure in the course of enforcing its rights and remedies during the existence of an Event of Default.

        Section 10.7.     Governing Law; Submission to Process.      EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS LENDER PARTIES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY DESIGNATES AND APPOINTS

44



CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY, NEW YORK 12207, AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL FURNISH TO LENDER PARTIES A CONSENT OF CORPORATION SERVICE COMPANY AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CORPORATION SERVICE COMPANY SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO ADMINISTRATIVE AGENT TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CORPORATION SERVICE COMPANY FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO ADMINISTRATIVE AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO ADMINISTRATIVE AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.

        Section 10.8.     Limitation on Interest.     Lender Parties, Restricted Persons and any other parties to the Loan Documents intend to contract in strict compliance with applicable usury Law from time to time in effect. In furtherance thereof such Persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be contracted for, charged, or received by applicable Law from time to time in effect. Neither any Restricted Person nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully contracted for, charged, or received under applicable Law from time to time in effect, and the provisions of this section shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. Lender Parties expressly disavow any intention to contract for, charge, or receive excessive unearned interest or finance charges in the event the maturity of any Obligation is accelerated. If (a) the maturity of any Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a result any amounts held to constitute interest are determined to be in excess of the legal maximum, or (c) any Lender or any other holder of any or all of the Obligations shall otherwise collect moneys which are determined to constitute interest which would otherwise increase the interest on any or all of the Obligations to an amount in excess of that permitted to be contracted for, charged or received by applicable Law then in effect, then all sums determined to constitute interest in excess of such legal limit shall, without penalty, be promptly applied to reduce the then outstanding principal of the related Obligations or, at such Lender's or holder's option, promptly returned to Borrower or other payor thereof upon such determination. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable Law, Lender Parties and Restricted Persons (and any other payors thereof) shall to the greatest extent permitted under applicable Law, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the instruments evidencing the Obligations in accordance with the amounts outstanding from time to time thereunder and the maximum legal rate of interest from time to time in effect under applicable Law in order to lawfully charge the maximum amount of interest permitted under applicable Law. In the event applicable Law provides for an interest ceiling under Chapter 303 of the Texas Finance Code (the " Texas Finance Code ") as amended, to the extent that the Texas

45



Finance Code is mandatorily applicable to any Lender, for that day, the ceiling shall be the "weekly ceiling" as defined in the Texas Finance Code, provided that if any applicable Law permits greater interest, the Law permitting the greatest interest shall apply. In no event shall Chapter 346 of the Texas Finance Code apply to this Agreement or any other Loan Document, or any transactions or loan arrangement provided or contemplated hereby or thereby.

        Section 10.9.     Right of Offset.     At any time and from time to time during the continuance of any Event of Default, each Lender is hereby authorized to offset against the Obligations then due and payable (without notice to any Restricted Person), (a) any and all moneys, securities or other property (and the proceeds therefrom) of such Restricted Person now or hereafter held or received by or in transit to any Lender from or for the account of such Restricted Person, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special, time or demand, provisional or final) of such Restricted Person with any Lender, and (c) any other credits and claims of such Restricted Person at any time existing against any Lender, including claims under certificates of deposit.

        Section 10.10.     Termination; Limited Survival.     In its sole and absolute discretion Borrower may at any time that no Obligations are owing or outstanding elect in a written notice delivered to Administrative Agent to terminate this Agreement. Upon receipt by Administrative Agent of such a notice, if no Obligations are then owing or outstanding this Agreement and all other Loan Documents shall thereupon be terminated and the parties thereto released from all prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by any Restricted Person in any Loan Document, any Obligations under Sections 3.2 through 3.6, and any obligations which any Person may have to indemnify or compensate any Lender Party shall survive any termination of this Agreement or any other Loan Document. At the request and expense of Borrower, Administrative Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the Loan Documents. Administrative Agent is hereby authorized to execute all such instruments on behalf of all Lenders, without the joinder of or further action by any Lender.

        Section 10.11.     Severability.     If any term or provision of any Loan Document shall be determined to be illegal or unenforceable all other terms and provisions of the Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable Law.

        Section 10.12.     Counterparts.     This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement.

        Section 10.13.     Waiver of Jury Trial, Punitive Damages, etc.      RESTRICTED PERSONS AND LENDER PARTIES MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR LENDERS TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND MAKE THE LOANS. BORROWER AND EACH LENDER PARTY HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES," AS DEFINED BELOW, (B) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS

46



USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

47


        IN WITNESS WHEREOF, this Agreement is executed as of the date first written above.

Borrower:   PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

PLAINS AAP, L.P.,
its general partner

 

 

By:

PLAINS ALL AMERICAN GP LLC,
its general partner

 

 

By:

/s/  
AL SWANSON       
Al Swanson, Vice President and Treasurer

Address for Borrower and Guarantors:

 

333 Clay Street, Suite 1600
Houston, Texas 77002
Attention: Al Swanson
Telephone: (713) 646-4455
Fax: (713) 646-4564
Website: www.paalp.com

48



 

 

BANK ONE, NA,
Administrative Agent and a Lender

 

 

By:

/s/  
CHARLES KINGSWELL-SMITH       
Charles Kingswell-Smith
Managing Director

 

 

FLEET NATIONAL BANK,
Syndication Agent and a Lender

 

 

By:

/s/  
TERRENCE RONAN       
Terrence Ronan, Managing Director

 

 

WACHOVIA BANK,
NATIONAL ASSOCIATION,
Documentation Agent and a Lender

 

 

By:

/s/  
DAVID HUMPHREYS       
David Humphreys, Director

49


SCHEDULE 1

LENDER SCHEDULE

Lender

  Commitment
  Percentage
Share(1)

 
Bank One, NA   $ 66,666,666.67   33.333333 %
Fleet National Bank   $ 66,666,666.67   33.333333 %
Wachovia Bank, National Association   $ 66,666,666.66   33.333333 %
   
 
 
TOTALS   $ 200,000,000.00   100.000000 %
(1)
Rounded to six decimal places

LENDER INFORMATION

Lender

  Contact
  Domestic Lending Office
  LIBOR Lending Office
Bank One, NA   910 Travis
Houston, Texas 77002
Attn: Charles Kingswell-Smith
Phone: 713-751-7803
Fax: 713-751-3544
  910 Travis
Houston, Texas 77002
  910 Travis
Houston, Texas 77002

Fleet National Bank

 

100 Federal Street
Energy & Utilities
MADE 10009H
Boston, Massachusetts 02110
Attn: Terrence Ronan
Phone: 617-434-5472
Fax: 617-434-3652

 

100 Federal Street
Boston, Massachusetts 02110

 

100 Federal Street
Boston, Massachusetts 02110

Wachovia Bank
National Association

 

1001 Fannin, Suite 2255
Houston, Texas 77002
Attn: David Humphreys
Phone: 713-650-9843
Fax: 713-650-6354

 

1001 Fannin, Suite 2255
Houston, Texas 77002

 

1001 Fannin, Suite 2255
Houston, Texas 77002

SCHEDULE 3

PRICING GRID

Applicable
Rating Level

  Applicable Margin
Base Rate Loans

  Applicable Margin
LIBOR Loans

  Commitment
Fee Rate

 
Level I   0.000 % 0.625 % 0.125 %
Level II   0.000 % 0.750 % 0.175 %
Level III   0.000 % 1.000 % 0.200 %
Level IV   0.000 % 1.250 % 0.225 %

During any Acquisition Period, the Applicable Margin as set forth above shall be increased by (i) 0.125% per annum for Level I, and (ii) 0.25% per annum for Level II, Level III, and Level IV.

In addition to the foregoing, on and after the Conversion Date, the Applicable Margin as set forth above shall be increased by (i) 0.250% per annum if any PAA Debt Rating from any Rating Agency is included in any of Level I, Level II or Level III, and (ii) 0.500% per annum if no PAA Debt Rating from any Rating Agency is included in any of Level I, Level II or Level III.


EXHIBIT A

NOTE

$                     New York, New York               , 200    

        FOR VALUE RECEIVED, the undersigned, Plains All American Pipeline, L.P., a Delaware limited partnership (herein called "Borrower"), hereby promises to pay to the order of                        (herein called "Lender"), the principal sum of                         ($                        ), or, if greater or less, the aggregate unpaid principal amount of the Loans made under this Note by Lender to Borrower pursuant to the terms of the Credit Agreement (as hereinafter defined), together with interest on the unpaid principal balance thereof as hereinafter set forth, both principal and interest payable as herein provided in lawful money of the United States of America at the offices of Administrative Agent under the Credit Agreement, as from time to time may be designated by the holder of this Note.

        This Note (a) is issued and delivered under that certain Interim 364-Day Credit Agreement dated April 1, 2004 among Borrower, Bank One, NA, as Administrative Agent, and the lenders (including Lender) referred to therein (herein, as from time to time supplemented, amended or restated, called the "Credit Agreement"), and is a "Note" as defined therein, (b) is subject to the terms and provisions of the Credit Agreement, which contains provisions for payments and prepayments hereunder and acceleration of the maturity hereof upon the happening of certain stated events, and (c) is guaranteed by and entitled to the benefits of certain guaranties (as identified in the Credit Agreement). Payments on this Note shall be made and applied as provided herein and in the Credit Agreement. Reference is hereby made to the Credit Agreement for a description of certain rights, limitations of rights, obligations and duties of the parties hereto and for the meanings assigned to terms used and not defined herein and to the guaranties for a description of the nature and extent of the guarantee thereby provided and the rights of the parties thereto.

        The principal amount of this Note shall bear interest and shall be due and payable from time to time as provided in the Credit Agreement with the remaining unpaid principal balance of this Note being due and payable in full on or before the Maturity Date. Accrued and unpaid interest hereon shall be due and payable on each Interest Payment Date as provided in the Credit Agreement and on the Maturity Date.

        Notwithstanding the foregoing paragraph and all other provisions of this Note, in no event shall the interest payable hereon, whether before or after maturity, exceed the maximum interest which, under applicable Law, may be charged on this Note, and this Note is expressly made subject to the provisions of the Credit Agreement which more fully set out the limitations on how interest accrues hereon.

        If this Note is placed in the hands of an attorney for collection after default, or if all or any part of the indebtedness represented hereby is proved, established or collected in any court or in any bankruptcy, receivership, debtor relief, probate or other court proceedings, Borrower and all endorsers, sureties and guarantors of this Note jointly and severally agree to pay reasonable attorneys' fees and collection costs to the holder hereof in addition to the principal and interest payable hereunder.

        Borrower and all endorsers, sureties and guarantors of this Note hereby severally waive demand, presentment, notice of demand and of dishonor and nonpayment of this Note, protest, notice of protest, notice of intention to accelerate the maturity of this Note, declaration or notice of acceleration of the maturity of this Note, diligence in collecting, the bringing of any suit against any party and any notice of or defense on account of any extensions, renewals, partial payments or changes in any manner of or in this Note or in any of its terms, provisions and covenants, or any releases or substitutions of any security, or any delay, indulgence or other act of any trustee or any holder hereof, whether before or after maturity.

1



         THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE FEDERAL LAW.

    PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

PLAINS AAP, L.P.,
its general partner

 

 

By:

PLAINS ALL AMERICAN GP LLC,
its general partner

 

 

By:


Name:
Title:

2


EXHIBIT B

BORROWING NOTICE

        Reference is made to that certain Interim 364-Day Credit Agreement dated April 1, 2004 among Plains All American Pipeline, L.P. ("Borrower"), Bank One, NA, as Administrative Agent, and certain financial institutions ("Lenders"). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement. Pursuant to the terms of the Agreement, Borrower hereby requests Lenders to make Loans to Borrower in the aggregate principal amount of $                                           and specifies                        ,             , as the date Borrower desires for Lenders to make such Loans and for Administrative Agent to deliver to Borrower the proceeds thereof.

        To induce Lenders to make such Loans, Borrower hereby represents, warrants, acknowledges, and agrees to and with Administrative Agent and each Lender that:

        The officer or authorized agent of GP LLC signing this instrument hereby certifies that, to the best of his knowledge after due inquiry, the above representations, warranties, acknowledgments, and agreements of General Partner and Borrower are true, correct and complete in all material respects.

1


        IN WITNESS WHEREOF, this instrument is executed as of                        ,             .

    PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

PLAINS AAP, L.P.,
its general partner

 

 

By:

PLAINS ALL AMERICAN GP LLC
its general partner

 

 

By:


Name:
Title:

2


EXHIBIT C

CONTINUATION/CONVERSION NOTICE

        Reference is made to that certain Interim 364-Day Credit Agreement dated April 1, 2004 among Plains All American Pipeline, L.P. ("Borrower"), Bank One, NA, as Administrative Agent, and certain financial institutions ("Lenders"). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement.

        Borrower hereby requests a conversion or continuation of existing Loans into a new Borrowing pursuant to Section 2.3 of the Agreement as follows:

        Existing Borrowing(s) of Loans to be Continued or Converted:

    $                    of LIBOR Loans with Interest Period ending                       
   
$                    of Base Rate Loans

 

 

 

 

 
 
Aggregate amount of new Borrowing:

 

$

                          

 

 
 
Type of Loans in new Borrowing:

 

 

                          

 

 
 
Date of Continuation or Conversion:

 

 

                          

 

 
 
Length of Interest Period for LIBOR Loans
(1, 2, 3, 6, or 9 months):

 

 

             months

 

 

        General Partner hereby represents, warrants, acknowledges, and agrees to and with each Lender that:

        The officer or authorized agent of GP LLC signing this instrument hereby certifies that, to the best of his knowledge after due inquiry, the above representations, warranties, acknowledgments, and agreements of General Partner are true, correct and complete in all material respects.

1


        IN WITNESS WHEREOF, this instrument is executed as of                        ,             .

    PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

PLAINS AAP, L.P.,
its general partner

 

 

By:

PLAINS ALL AMERICAN GP LLC
its general partner

 

 

By:

 

 

 

 


Name:
Title:

2


EXHIBIT D

CERTIFICATE ACCOMPANYING FINANCIAL STATEMENTS

        Reference is made to that certain Interim 364-Day Credit Agreement dated April 1, 2004 among Plains All American Pipeline, L.P. ("Borrower"), Bank One, NA, as Administrative Agent, and certain financial institutions ("Lenders"). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement.

        This Certificate is furnished pursuant to Section 6.2(b) of the Agreement. Pursuant to Section 6.2, Borrower has furnished to Administrative Agent and each Lender Borrower's [audited/unaudited] financial statements (the "Financial Statements") as at                        (the "Reporting Date"). General Partner hereby represents, warrants, and acknowledges to Administrative Agent and each Lender that:

        The officer of GP LLC signing this instrument hereby certifies that he/she has reviewed the Loan Documents and the Financial Statements and has otherwise undertaken such inquiry as is in his/her opinion necessary to enable him/her to express an informed opinion with respect to the above representations, warranties and acknowledgments of General Partner and Borrower and, to the best of his/her knowledge, such representations, warranties, and acknowledgments are true, correct and complete in all material respects.

1


        IN WITNESS WHEREOF, this instrument is executed as of                        , 200    .

    PLAINS ALL AMERICAN PIPELINE, L.P.

 

 

By:

PLAINS AAP, L.P.,
its general partner

 

 

By:

PLAINS ALL AMERICAN GP LLC
its general partner

 

 

By:

 

 

 

 


Name:
Title:

2


EXHIBIT E-1

OPINION OF IN-HOUSE COUNSEL TO RESTRICTED PERSONS

3


EXHIBIT E-2

OPINION OF FULBRIGHT & JAWORSKI, L.L.P., COUNSEL TO RESTRICTED PERSONS

4


EXHIBIT E-3

OPINION OF BENNETT JONES LLP, CANADIAN COUNSEL TO RESTRICTED PERSONS

5



EXHIBIT F

ASSIGNMENT AND ACCEPTANCE

        Reference is made to that certain Interim 364-Day Credit Agreement dated as of April 1, 2004 (as from time to time amended, the "Agreement"), by and among Plains All American Pipeline, L.P. ("Borrower"), Bank One, NA, as Administrative Agent, and certain financial institutions ("Lenders"). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement.

        The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows:

        1.     The Assignor hereby sells and assigns to the Assignee, without recourse and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Agreement and the other Loan Documents with respect to the Commitment and Loans. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Loans owing to the Assignee will be as set forth on Schedule 1.

        2.     The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Restricted Person or the performance or observance by any Restricted Person of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that Administrative Agent exchange such Note for [a new Note payable to the order of the Assignee] [new Notes in an amount equal to the Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Commitment retained by the Assignor, if any], as specified on Schedule 1.

        3.     The Assignee (i) confirms that it has received a copy of the Agreement, together with copies of the financial statements referred to in Section 6.2 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (iii) confirms that it is an Eligible Transferee, (iv) appoints and authorizes Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Agreement as are delegated to Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 10.5.

        4.     Following the execution of this Assignment and Acceptance, it will be delivered to Administrative Agent for acceptance and recording by Administrative Agent. The effective date for this Assignment and Acceptance (the " Effective Date ") shall be the date of acceptance hereof by Administrative Agent, unless otherwise specified on Schedule 1.

1



        5.     Upon such acceptance and recording by Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement.

        6.     Upon such acceptance and recording by Administrative Agent, from and after the Effective Date, Administrative Agent shall make all payments under the Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement and the Notes for periods prior to the Effective Date directly between themselves.

        7.     This Assignment and Acceptance shall be governed by, and construed in accordance with, the Laws of the State of New York.

        8.     This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.

        IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon.

2


SCHEDULE 1 to ASSIGNMENT AND ACCEPTANCE

  Assignee's Commitment:   $                 
  Assignee's Percentage Share:                     %  
  Aggregate outstanding principal amount of Loans assigned:   $                 
  Principal amount of Note payable to Assignee:   $                 
  Principal amount of Note payable to Assignor (if retained):   $              ]  
Effective Date (if other than date of acceptance
by Administrative Agent:
  *                , 200     
    [NAME OF ASSIGNOR], as Assignor

 

 

By:

 

 

 

 


Title:

 

 

Dated:              , 200     

 

 

[NAME OF ASSIGNEE], as Assignee


 


 


By:


 

 

 

 


Title:

 

 

Domestic Lending Office:
LIBOR Lending Office:
*
This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to Administrative Agent.

Accepted this            day of            , 200            

BANK ONE, NA    

By:

 

 

 

 


Title:

 

 

[Approved this              day of              , 200     

 

 

[PLAINS ALL AMERICAN PIPELINE, L.P.

 

 
By: PLAINS AAP, L.P., its general partner    
By: PLAINS ALL AMERICAN GP LLC, its general partner]    

By:

 

 

 

 


Name:
Title:

 

 



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INTERIM 364-DAY CREDIT AGREEMENT

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EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PLAINS ALL AMERICAN PIPELINE, L.P.

I, Greg L. Armstrong, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Plains All American Pipeline, L.P.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
[intentionally omitted pursuant to SEC Release No. 34-47986];

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2004

/s/ GREG L. ARMSTRONG
Greg L. Armstrong
Chief Executive Officer




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EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PLAINS ALL AMERICAN PIPELINE, L.P.

I, Phil Kramer, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Plains All American Pipeline, L.P.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
[intentionally omitted pursuant to SEC Release No. 34-47986];

(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2004

/s/ PHIL KRAMER
Phil Kramer
Chief Financial Officer




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EXHIBIT 32.1

CERTIFICATION OF
CHIEF EXECUTIVE OFFICER
OF PLAINS ALL AMERICAN PIPELINE, L.P.
PURSUANT TO 18 U.S.C. § 1350

I, Greg L. Armstrong, Chief Executive Officer of Plains All American Pipeline, L.P. (the "Company"), hereby certify that:

(i) the accompanying report on Form 10-Q for the period ending March 31, 2004 and filed with the Securities and Exchange Commission on the date hereof (the "Report") by the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 

 

/s/  
GREG L. ARMSTRONG       
Name: Greg L. Armstrong
Date: May 7, 2004



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EXHIBIT 32.2

CERTIFICATION OF
CHIEF FINANCIAL OFFICER
OF PLAINS ALL AMERICAN PIPELINE, L.P.
PURSUANT TO 18 U.S.C. § 1350

I, Phil Kramer, Chief Financial Officer of Plains All American Pipeline, L.P. (the "Company"), hereby certify that:

(i) the accompanying report on Form 10-Q for the period ending March 31, 2004 and filed with the Securities and Exchange Commission on the date hereof (the "Report") by the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 

 

/s/  
PHIL KRAMER       
Name: Phil Kramer
Date: May 7, 2004



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