-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ATW6L+Eqph+74FCEjuVO/aQCQP7a5HPLpHqxQCv8i1T4nGDNbAgXPYyBE0O+CPW7 YwWGJOBtYem23KGW/en9Ow== 0000909518-04-000613.txt : 20040715 0000909518-04-000613.hdr.sgml : 20040715 20040715142749 ACCESSION NUMBER: 0000909518-04-000613 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20040715 GROUP MEMBERS: PERSHING SQUARE GP, LLC GROUP MEMBERS: PERSHING SQUARE, L.P. GROUP MEMBERS: WILLIAM ACKMAN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PLAINS RESOURCES INC CENTRAL INDEX KEY: 0000350426 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 132898764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-33092 FILM NUMBER: 04915545 BUSINESS ADDRESS: STREET 1: 700 MILAM STREET 2: SUITE 3100 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 8322396000 MAIL ADDRESS: STREET 1: 700 MILAM STREET 2: SUITE 3100 CITY: HOUSTON STATE: TX ZIP: 77002 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LEUCADIA NATIONAL CORP CENTRAL INDEX KEY: 0000096223 STANDARD INDUSTRIAL CLASSIFICATION: TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822] IRS NUMBER: 132615557 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 315 PARK AVE S CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2124601900 MAIL ADDRESS: STREET 1: 315 PARK AVENUE SOUTH CITY: NEW YORK STATE: NY ZIP: 10010 FORMER COMPANY: FORMER CONFORMED NAME: TALCOTT NATIONAL CORP DATE OF NAME CHANGE: 19800603 SC 13D/A 1 jd7-15_13da8.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- SCHEDULE 13D INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (AMENDMENT NO. 8) -------------- PLAINS RESOURCES INC. (Name of Issuer) COMMON STOCK, PAR VALUE $.10 PER SHARE 726540503 - -------------------------------------- -------------------------------------- (Title of class of securities) (CUSIP number) JOSEPH A. ORLANDO WILLIAM ACKMAN - -------------------------------------------------------------------------------- LEUCADIA NATIONAL CORPORATION PERSHING SQUARE CAPITAL MANAGEMENT, LLC 315 PARK AVENUE SOUTH 110 EAST 42ND STREET NEW YORK, NEW YORK 10010 NEW YORK, NEW YORK 10017 (212) 460-1900 (212) 813-3700 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) JULY 14, 2004 - -------------------------------------------------------------------------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [_]. ================================================================================
- ------------------------------------------------------- ------------------------------------------------------------- CUSIP NO. 726540503 Page 2 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ---------------------------------------- -------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Leucadia National Corporation I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ----------------------------------------------------------------------------------------------------- ------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X] (B) [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ----------------------- ------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: NA - -------------- ----------------------------------------------------------------------------------------------------- ------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ----------------------------------------------------- ------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: New York - ----------------------- ----- -------------------------------------- ------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: 0 SHARES ----- -------------------------------------- ------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 0 OWNED BY ----- -------------------------------------- ------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: 0 REPORTING ----- -------------------------------------- ------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 0 - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 0 - -------------- ----------------------------------------------------------------------------------------------------- ------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 0% - -------------- ---------------------------------------- -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: CO - -------------- ---------------------------------------- -------------------------------------------------------------------------- 2 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP NO. 726540503 Page 3 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ---------------------------------------- -------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Pershing Square, L.P. I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): 38-3694138 - -------------- ----------------------------------------------------------------------------------------------------- ------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X] (B) [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ----------------------- ------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: NA - -------------- ----------------------------------------------------------------------------------------------------- ------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ----------------------------------------------------- ------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - ----------------------- ----- -------------------------------------- ------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: 0 SHARES ----- -------------------------------------- ------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 1,258,500 OWNED BY ----- -------------------------------------- ------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: 0 REPORTING ----- -------------------------------------- ------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 1,258,500 - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 1,258,500 - -------------- ----------------------------------------------------------------------------------------------------- ------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 5.16% (See Item 5) - -------------- ---------------------------------------- -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: PN - -------------- ---------------------------------------- -------------------------------------------------------------------------- 3 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP NO. 726540503 Page 4 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ---------------------------------------- -------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: Pershing Square GP, LLC I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): 38-3694141 - -------------- ----------------------------------------------------------------------------------------------------- ------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X] (B) [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ----------------------- ------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: N/A - -------------- ----------------------------------------------------------------------------------------------------- ------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ----------------------------------------------------- ------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware - ----------------------- ----- -------------------------------------- ------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: 0 SHARES ----- -------------------------------------- ------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 1,258,500 OWNED BY ----- -------------------------------------- ------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: 0 REPORTING ----- -------------------------------------- ------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 1,258,500 - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 1,258,500 - -------------- ----------------------------------------------------------------------------------------------------- ------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 5.16% (See Item 5) - -------------- ---------------------------------------- -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: OO - -------------- ---------------------------------------- -------------------------------------------------------------------------- 4 - ------------------------------------------------------- ------------------------------------------------------------- CUSIP NO. 726540503 Page 5 - ------------------------------------------------------- ------------------------------------------------------------- - -------------- ---------------------------------------- -------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON: William Ackman I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY): - -------------- ----------------------------------------------------------------------------------------------------- ------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (A) [X] (B) [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------- ----------------------- ------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS: N/A - -------------- ----------------------------------------------------------------------------------------------------- ------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e): [_] - -------------- ----------------------------------------------------- ------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION: United States - ----------------------- ----- -------------------------------------- ------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER: 0 SHARES ----- -------------------------------------- ------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER: 1,264,300 (See Item 5) OWNED BY ----- -------------------------------------- ------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER: 0 REPORTING ----- -------------------------------------- ------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER: 1,264,300 (See Item 5) - -------------- ------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY REPORTING PERSON: 1,264,300 (See Item 5) - -------------- ----------------------------------------------------------------------------------------------------- ------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: [_] - -------------- ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 5.18% (See Item 5) - -------------- ---------------------------------------- -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON: IN - -------------- ---------------------------------------- --------------------------------------------------------------------------
5 This Amendment No. 8, amends the Schedule 13D filed on February 23, 2004, and is filed by Leucadia National Corporation ("Leucadia"), Pershing Square, L.P., Pershing Square GP, LLC and William Ackman (collectively, the "Reporting Persons") with respect to the common stock, par value $0.10 per share ("Common Stock"), of Plains Resources Inc. (the "Company"). Item 4. Purpose of Transaction. ---------------------- Item 4 is hereby supplemented as follows: On July 14, 2004, Leucadia submitted a new written recommendation (the "New Recommendation") to the Company's Board of Directors. The New Recommendation revises Leucadia's previous recommendation to the Company and responds to the Company's July 12 press release. Specifically, the New Recommendation proposes that the Company borrow approximately $175 million and use the proceeds to commence a tender offer to purchase Common Stock at a price of $18.00 per share. A copy of the New Recommendation is attached hereto as Exhibit 2 and incorporated herein by reference. A copy of the press releases issued by Leucadia on July 15, 2004 is attached hereto as Exhibit 3 and incorporated herein by reference. The Reporting Persons believe that the New Recommendation provides a better alternative to PLX shareholders than the pending $17.25 transaction with Vulcan Energy Corporation. The New Recommendation has been communicated to the Company's Board of Directors and the Reporting Persons intend to communicate to other shareholders of the Company and other interested parties in an effort to determine shareholder interest in the New Recommendation. Pershing Square intends to vote its 1,258,500 shares of Common Stock against the merger. The Reporting Persons may acquire additional securities of the Company or dispose of securities of the Company at any time and from time to time in the open market, in privately negotiated transactions or otherwise. Although the foregoing represents the range of activities presently contemplated by the Reporting Persons and, to their knowledge, their respective general partners, directors and officers, as applicable, with respect to the Company, it should be noted that the possible activities of the Reporting Persons and their respective general partners, directors and officers are subject to change at any time. Except as set forth above, neither the Reporting Persons, nor, to their knowledge, any of their respective general partners, directors or officers, have any present plans or proposals which relate to or would result in any of the actions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer. ------------------------------------ As of July 15, 2004, the Reporting Persons beneficially own the following shares of Common Stock: (i) The responses of Pershing Square to Rows (11) through (13) of the cover pages of this Amendment 8 are incorporated herein by reference. As of July 15, 2004, Pershing Square beneficially owned 1,258,500 shares of Common Stock, representing approximately 5.16% of the outstanding shares of Common Stock (the outstanding shares of Common Stock, 24,400,000, being based on the number of shares outstanding as of April 30, 2004, as reported in the Company's Form 10-Q for the quarterly period ended March 31, 2004). 6 (ii) The responses of GP LLC to Rows (11) through (13) of the cover pages of this Amendment 8 are incorporated by reference. By virtue of being the general partner of Pershing Square, for purposes of this Amendment 8, GP LLC may be deemed to share voting and dispositive powers with respect to the shares of Common Stock beneficially owned by Pershing Square and therefore may be deemed to be beneficial owners of all of the shares of Common Stock beneficially owned by Pershing Square. GP LLC disclaims beneficial ownership of any shares of Common Stock beneficially owned by Pershing Square. (iii) The responses of William Ackman to Rows (11) through (13) of the cover pages of this Amendment 8 are incorporated herein by reference. By virtue of being the sole manager of GP LLC, for purposes of this Amendment 8, Mr. Ackman may be deemed to share voting and dispositive powers with respect to the shares of Common Stock beneficially owned by Pershing Square and therefore may be deemed to be a beneficial owner of all of the shares of Common Stock beneficially owned by Pershing Square. Mr. Ackman disclaims beneficial ownership of any shares of Common Stock beneficially owned by GP LLC or Pershing Square. The shares beneficially owned by Mr. Ackman include 5,800 shares owned by Ackman Family L.P. By virtue of being the managing member of Ackman Family LLC, the general partner of Ackman Family L.P. Mr. Ackman may be deemed to share voting and dispositive powers with respect to the shares of Common Stock beneficially owned by Ackman Family L.P. and therefore may be deemed to be a beneficial owner of all of the shares of Common Stock beneficially owned by Ackman Family L.P. Ackman Family L.P. is a Delaware partnership formed for the benefit of Mr. Ackman's family. Mr. Ackman disclaims beneficial ownership as to such shares of Common Stock except to the extent of his pecuniary interest therein. (iv) The responses of Leucadia to Rows (11) through (13) of the cover pages of this Amendment 8 are incorporated herein by reference. (b) The responses of the Reporting Persons to (i) Rows (7) through (10) of the cover pages of this statement of this Amendment 8 and (ii) Item 5(a) hereof are incorporated herein by reference. (c) On July 8, 2004, Ackman Family L.P. purchased 5,800 shares of Common Stock at a price of $17.2386 per share on the New York Stock Exchange. Except as set forth in this Item 5(c), to the Reporting Persons' knowledge, none of their respective general partners, directors or officers have had any transactions in the Common Stock that were effected in the past sixty days. (d) Not applicable. (e) Not applicable. 7 Item 6. Contracts, Arrangements, Understandings or Relationships With ------------------------------------------------------------- Respect to Securities of the Issuer. ----------------------------------- The information set forth in Item 5 is incorporated herein by reference. Item 7. Materials to be Filed as Exhibits. --------------------------------- 1. Agreement among the Reporting Persons with respect to the filing of this Schedule 13D. 2. New Recommendation, dated July 14, 2004, from Leucadia. 3. Press release of Leucadia National Corporation, dated July 15, 2004. 8 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. LEUCADIA NATIONAL CORPORATION By: /s/ Barbara Lowenthal ---------------------------------------- Name: Barbara Lowenthal Title: Vice President and Comptroller PERSHING SQUARE, L.P. By: PERSHING SQUARE GP, LLC By: /s/ William Ackman ---------------------------------------- Name: William Ackman Title: Managing Member PERSHING SQUARE GP, LLC By: /s/ William Ackman ---------------------------------------- Name: William Ackman Title: Managing Member By: /s/ William Ackman ---------------------------------------- Name: William Ackman Date: July 15, 2004 9 EXHIBIT INDEX ------------- Exhibit No. - ----------- Exhibit 1 - Agreement among the Reporting Persons with respect to the filing of this Schedule 13D Exhibit 2 - New Recommendation, dated July 14, 2004, from Leucadia Exhibit 3 - Press release of Leucadia National Corporation, dated July 15, 2004 10 EX-1 2 jd7-15ex_1.txt EXHIBIT 1 AGREEMENT This will confirm the agreement by and among all the undersigned that the Schedule 13D filed on or about this date with respect to the beneficial ownership of the undersigned of shares of the common stock of Plains Resources Inc. is being filed on behalf of each of the entities named below. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Dated: July 15, 2004 LEUCADIA NATIONAL CORPORATION By: /s/ Barbara Lowenthal ---------------------------------------- Name: Barbara Lowenthal Title: Vice President and Comptroller PERSHING SQUARE, L.P. By: PERSHING SQUARE GP, LLC By: /s/ William Ackman ---------------------------------------- Name: William Ackman Title: Managing Member PERSHING SQUARE GP, LLC By: /s/ William Ackman ---------------------------------------- Name: William Ackman Title: Managing Member By: /s/ William Ackman ---------------------------------------- Name: William Ackman EX-2 3 jd7-15ex_2.txt EXHIBIT 2 Via Facsimile (832) 239-6210 Original to follow via FedEx July 14, 2004 Plains Resources Inc. 700 Milam Street, Suite 3100 Houston, TX 77002 Attn: The Board of Directors Gentlemen: We have read your July 12, 2004 press release and proxy materials in which you dismiss our suggestion that the company should complete a recapitalization rather than be sold to Vulcan for a price of $17.25 per share. We continue to believe that a recapitalization will be in the best interests of stockholders and reiterate our July 7, 2004 proposal as modified and explained below. In order to assist in your analysis of the value that will be created in a recapitalization, we have attached our financial model and comparables analysis. Assuming an $18 cash tender in the recapitalization and the other assumptions which we describe in greater detail below and on the attached model, we believe post-recapitalization PLX will trade for $25.06 per share with a prorated value to shareholders of approximately $22.16. As a result, Pershing Square, L.P. has indicated to us that it will vote against the Vulcan Energy transaction, With respect to your specific objections, we respond as follows: Objection #1: Ignored the fact that a leveraged recapitalization would not resolve Plains Resources significant tax issues. We have assumed no special tax benefits at PLX. All free cash flow numbers that we have projected assume taxes are payable at a 40% tax rate other than with respect to income that can be sheltered using PLX's remaining net operating loss carryforwards. PLX will likely never sell its MLP units in Plains All American Pipeline, L.P. We believe this should be viewed favorably by PAA, for it will provide PAA with a stable owner and will not create a supply overhang in the market. Plains Resources Inc. The Board of Directors July 14, 2004 Page 2 of 3 Objection #2: Failed to take into account the required repayment of Plains Resources' existing indebtedness. You will note that our financial projections assume the required repayment of Plains Resources net indebtedness as of the date of the recapitalization. Objection #3: Assumed that Plains Resources would have the ability to borrow $175 million. We have enclosed a highly confident letter from Jefferies indicating a number of financing alternatives for the recapitalization, each for $175 million. Jefferies has advised us that it is available to discuss in detail terms, rates, and other elements of the financings. We note that Vulcan Energy obtained $175 million of financing for PLX without any additional credit support other than the assets of PLX. Therefore, we believe it should not be surprising that such financing continues to be available in the marketplace. For modeling purposes, we have assumed that PLX borrows $175 million in a 10-year bond financing at 7.5% interest. Objection #4; Incorrectly asserted that the $15 million termination fee would not be payable to Vulcan Energy upon consummation of the suggested leveraged recapitalization, unless such recapitalization took place more than 15 months after termination of the merger agreement. Assuming that the Board does not change its recommendation and stockholders vote down the Vulcan deal, we believe that our plan will not trigger the break up fee. Our counsel is available to discuss this issue with you if you require further information. If the break up fee were payable, it would reduce the post-recapitalization value of PLX to $23.71 and the prorated value to $21.55. Objection #5: Failed to take into account the other expenses that Plains Resources has incurred and would incur in connection with the Vulcan Energy transaction, including the reimbursement of Vulcan Energy's expenses (estimated to be approximately $6 million) Our financial model takes into account the Vulcan Energy transaction expenses. Objection #6: Failed to take into account the $5 million of severance payments that Plains Resources would be required to make in connection with the suggested leveraged recapitalization. Our financial model assumes the $5 million severance payments are paid. 2 Plains Resources Inc. The Board of Directors July 14, 2004 Page 3 of 3 In addition, we have assumed that PLX sells Calumet Energy for $35 million of proceeds, a 55% discount to its SEC PV-l0 value. We understand that there may be additional value to Calumet with respect to the natural gas storage opportunity that PLX has been exploring, although we assign no value for this opportunity. We assume that the sale proceeds from Calumet are used to retire PLX's net debt with excess proceeds used in the recapitalization. We include no cash flow from Calumet in PLX's free cash flow projections. Our other more detailed assumptions are included in the attached spreadsheets. We have attached a PLX valuation matrix that values PLX at a range of multiples. At the proposed $17.25 price, Vulcan is paying approximately 10.3 times 2005 free cash flow of recapitalized PLX and 8.6 times 2006 free cash flow. We believe this significantly understates the value of post-recapitalization PLX that we value at $25.06, a multiple of 15 times 2005 free cash flaw per share. Please note that PLX's most direct comparables - Kinder Morgan Inc. and Crosstex Energy Inc. - trade at 15.2 times and 24.7 times 2005 free cash flow respectively. We are available to answer any questions you may have about the enclosed. Cordially, /s/ Ian M. Cumming ------------------------------ Ian M. Cumming Chairman Attachments 3 PLX MODEL: ASSUMPTIONS ---------------------- 1) PLX REMAINS PUBLIC 2) PLX SELLS OIL & GAS PROPERTY FOR $35M ON 12/31/04 PLX SIMULTANEOUSLY REFINANCES ~$10M OF ESTIMATED NET DEBT WITH A $175 NEW DEBT ISSUANCE @ 7.5% 3) PLX USES PROCEEDS FROM SALE OF OIL & GAS BUSINESS & NEW DEBT (AFTER FEES/SEVERANCE/VULCAN EXPENSES) TO BUY BACK STOCK @ $18.00 4) PLX CASH G&A ASSUMED @ $2M ON A GO FORWARD BASIS 5) ASSUMES 40% TAX RATE @ PLX, AND $30M OF NOLS AVAILABLE AT 12/31/2004 NOLS SHIELD TAXABLE INCOME DOWN TO AN ASSUMED ALTERNATIVE MINIMUM TAX RATE OF 20% ASSUMES PLX PAYS FULL TAXES ON ALL PAA DISTRIBUTIONS (OTHER THAN AMOUNT SHIELDED BY EXISTING NOLS) 6) NO VULCAN BREAKUP FEE PAYABLE DUE TO SHAREHOLDER REJECTION OF OFFER 7) ASSUMES PLX USES EXCESS CASHFLOW TO BUY BACK STOCK AT 15X EARNINGS PAA MODEL: ASSUMPTIONS ---------------------- 1) 2004 FORECAST BASED ON MANAGEMENT GUIDANCE GIVEN 6/15/2004, ANNUALIZING 2H 2004 (DUE TO LINK ACQUISITION), ALSO ADDS BACK $7.5M OF ANNUALIZED 1 TIME PIPELINE INTEGRITY EXPENSES 2) ASSUMES $15M OF INCREMENTAL LINK EBITDA IN 2005 DUE TO VOLUME RECOVERY/SYNERGY REALIZATION (IMPLIES~$65M OF LINK EBITDA CONTRIBUTION IN 2005 VS. PAA GUIDANCE OF $52-$57 POST SYNERGY WITH NO VOLUME PICKUP) (IMPLIED ANNUALIZED LINK EBITDA CONTRIBUTION OF ~$50M EMBEDDED IN PAA 6/15 SECOND HALF GUIDANCE) 3) ASSUMES PAA ACQUIRES $33.3 MILLION IN EBITDA CONTRIBUTION JANUARY 1 EACH YEAR FROM 2005-2015 AT THE COST OF $250 M (7.5X EBITDA) (INCLUDES BOTH ACQUISITIONS AND ORGANIC EXPANSION CAPEX) 4) ASSUMES PAA FINANCES EXPANSION WITH 50% EQUITY, 50% DEBT (DEBT @8%, EQUITY RAISED @ 8.5% CURRENT YIELD) 5) ASSUMES ORGANIC REVENUE/COST/ EBITDA GROWTH OF 2% 6) ASSUMES PAA DISTRIBUTES ALL DISTRIBUTABLE CASH (DEFINED AS EBITDA-INTEREST EXPENSE-MAINTENANCE CAPEX) TO LP/GP OTHER THAN A 4% HOLDBACK (VS. HISTORICAL LEVELS OF 1 TO 3%) PAA- FORECAST DISTRIBUTABLE CASH FLOW - -------------------------------------
(6/15 GUIDANCE) 2004 LAST 6MOS. YEARS ENDED DEC 31 (DOLLARS IN MILLIONS) ANNUALIZED 2005 2006 2007 2008 2009 2010 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Assumptions: - ------------ Acqured EBITDA (Beginning of Year) 33.3 33.3 33.3 33.3 33.3 33.3 Multiple of EBITDA Paid for Acquisitions/Expansion Cap 7.5X 7.5X 7.5X 7.5X 7.5X 7.5X Implied $Value of Acquisitions/Expansion Capex $250 $250 $250 $250 $250 $250 % of acquisitions/capital expenditures Debt Financed 50% 50% 50% 50% 50% 50% Assumed Equity Yield for Acquisition Equity 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% Interest Rate on Acquisition Debt 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Organic Revenue/EBITDA growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% - ------------------------------------------------------------------------------------------------------------------------------------ Gross Margin Calculation - ------------------------ INCREMENTAL 2005 LINK EBITDA CONTRIBUTION 15.0 Total Gross Margin $329.5 384.4 425.4 467.2 509.8 553.3 597.7 Less: Selling, General & Admin.* 74.0 75.5 77.0 78.5 80.1 81.7 83.3 (Note: G&A only applies to core 2004 business) EBITDA (OPERATING CASH FLOW) 255.5 308.9 348.4 388.7 429.7 471.6 514.4 TOTAL FULLY DILUTED UNITS OUTSTANDING (YEAR END) 66.5 70.3 73.9 77.5 80.9 84.3 87.5 Growth Rate of Units 12.5% 5.7% 5.2% 4.8% 4.4% 4.1% 3.8% - ------------------------------------------------------------------------------------------------------------------------------------ CALCULATION OF PAA DISTRIBUTABLE CASH - ------------------------------------- EBITDA 255.5 308.9 348.4 388.7 429.7 471.6 514.4 Less: Interest Expense 51.0 61.1 71.1 81.1 91.1 101.1 111.0 Less: Maintenance Capital Expenditures 20.6 21.5 24.3 27.1 30.0 32.9 35.9 Less: 4% Holdback 7.4 9.1 10.1 11.2 12.3 13.5 14.7 - ----------------- --- --- ---- ---- ---- ---- ---- DISTRIBUTABLE CASH FLOW FOR GP/LP 176.5 217.2 242.9 269.3 296.4 324.2 352.8 Growth Rate distributable CF 23% 12% 11% 10% 9% 9% GP 2% Share 3.5 4.3 4.9 5.4 5.9 6.5 7.1 GP Incentive Fee 13% of .45 to .495 per quarter cash dist. 1.8 1.9 2.0 2.1 2.2 2.3 2.4 23% of .495 to .675 per quarter cash dist. 9.3 15.5 16.3 17.1 17.9 18.6 19.3 48% of .675 and above per quarter cash dist. 0.0 2.8 9.8 17.3 25.4 33.9 43.0 TOTAL GP INCENTIVE 11.1 20.2 28.2 36.6 45.5 54.8 64.7 Distributable Cash Flow (LP Units) 161.9 192.7 209.9 227.3 245.0 262.9 281.0 CALCULATED DISTRIBUTABLE CASH FLOW PER LP UNIT $2.44 $2.74 $2.84 $2.93 $3.03 $3.12 $3.21 Calculated Average Available per Quarter $0.61 $0.69 $0.71 $0.73 $0.76 $0.78 $0.80 - ------------------------------------------------------------------------------------------------------------------------------------ NOTE: 2004 BASE PAA EBITDA EXCLUDES $7.5m ANNUALIZED OF NON-RECURRING PIPELINE INTEGRITY COSTS (PER 6/15 GUIDANCE) *Applies only to currently owned assets-- (Acquired EBITDA contribution flows directly into total gross margin)
** TABLE CONTINUED ** PAA- FORECAST DISTRIBUTABLE CASH FLOW - -------------------------------------
YEARS ENDED DEC 31 (DOLLARS IN MILLIONS) 2011 2012 2013 2014 2015 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Assumptions: - ------------ Acqured EBITDA (Beginning of Year) 33.3 33.3 33.3 33.3 33.3 Multiple of EBITDA Paid for Acquisitions/Expansion Cap7.5X 7.5X 7.5X 7.5X 7.5X 7.5X Implied $Value of Acquisitions/Expansion Capex $250 $250 $250 $250 $250 % of acquisitions/capital expenditures Debt Financed 50% 50% 50% 50% 50% Assumed Equity Yield for Acquisition Equity 8.5% 8.5% 8.5% 8.5% 8.5% Interest Rate on Acquisition Debt 8.0% 8.0% 8.0% 8.0% 8.0% Organic Revenue/EBITDA growth 2.0% 2.0% 2.0% 2.0% 2.0% - ----------------------------------------------------------------------------------------------------------- Gross Margin Calculation - ------------------------ INCREMENTAL 2005 LINK EBITDA CONTRIBUTION Total Gross Margin 642.9 689.1 736.2 784.2 833.2 Less: Selling, General & Admin.* 85.0 86.7 88.4 90.2 92.0 (Note: G&A only applies to core 2004 business) EBITDA (OPERATING CASH FLOW) 557.9 602.4 647.8 694.0 741.2 TOTAL FULLY DILUTED UNITS OUTSTANDING (YEAR END) 90.7 93.7 96.7 99.6 102.4 Growth Rate of Units 3.6% 3.4% 3.2% 3.0% 2.8% - ----------------------------------------------------------------------------------------------------------- CALCULATION OF PAA DISTRIBUTABLE CASH - ------------------------------------- EBITDA 557.9 602.4 647.8 694.0 741.2 Less: Interest Expense 121.0 131.0 141.0 151.0 161.0 Less: Maintenance Capital Expenditures 38.9 42.0 45.2 48.4 51.7 Less: 4% Holdback 15.9 17.2 18.5 19.8 21.1 - ----------------- ---- ---- ---- ---- ---- DISTRIBUTABLE CASH FLOW FOR GP/LP 382.1 412.2 443.1 474.8 507.4 Growth Rate distributable CF 8% 8% 7% 7% 7% GP 2% Share 7.6 8.2 8.9 9.5 10.1 GP Incentive Fee 13% of .45 to .495 per quarter cash dist. 2.5 2.6 2.7 2.7 2.8 23% of .495 to .675 per quarter cash dist. 20.0 20.7 21.4 22.0 22.6 48% of .675 and above per quarter cash dist. 52.5 62.5 73.0 84.1 95.6 TOTAL GP INCENTIVE 75.0 85.8 97.1 108.8 121.0 Distributable Cash Flow (LP Units) 299.4 318.2 337.2 356.5 376.2 CALCULATED DISTRIBUTABLE CASH FLOW PER LP UNIT $3.30 $3.39 $3.49 $3.58 $3.67 Calculated Average Available per Quarter $0.83 $0.85 $0.87 $0.89 $0.92 - ----------------------------------------------------------------------------------------------------------- NOTE: 2004 BASE PAA EBITDA EXCLUDES $7.5m ANNUALIZED OF NON-RECURRING PIPELINE INTEGRITY COSTS (PER 6/15 GUIDANCE) *Applies only to currently owned assets-- (Acquired EBITDA contribution flows directly into total gross margin)
** TABLE COMPLETE ** PLX RECAP MODEL--PF FOR TENDER OFFER - ------------------------------------
- ----------------------------------------- --------------------------- ----------------------------------------- RECAP SOURCES CURRENT PLX SHARE DETAILS PROFORMA PLX SHARECOUNT (BUYBACK) - ------------- ------------------------- --------------------------------- New Debt 175.0 Estimated Funds for Repurchase 84.0 Proceeds From Sale of Oil & Gas 35.0 Basic Shares Out. 23.905 $/Share Assumed Tender $18.00 Total Sources 210.0 Options 3.811 Assumed Shares Repurchased 10.2 Avg. Ex. Price 13.63 Basic Shares Out. 23.9 RECAP USES FD shares @ 18.00 24.8 Adjusted Shares PF for Buyback 13.7 Repayment of Estimated Net Debt 10.0 (Treasury Method) Treasury Method Options @ 18.00 0.9 (12/31) --------------------------- Transaction/ Financing Fees 5.0 (Source: 3/2/2004 13E-3) Pro Forma FD TM Shares 14.6 --------------------------------- Management Severance 5.0 ---------------------------------- Vulcan Expenses 6.0 TAX ASSUMPTIONS: Funds for Repurchase of Stock 184.0 Cash tax rate 40% ----------- Alternative minimum tax rate 20% Total 210.0 Estimated NOL @ 12/31/200 $30.0 - ----------------------------------------- Percent of PAA distributions Note: Excludes $15m Breakup Fee subject to tax 100% ----------------------------------
--------------------------------------------- IMPLIED PER SHARE VALUE OF PLX BASED ON 2005 PF CASH EARNINGS ------------------------------ MULTIPLE VALUE -------- ----- 10.0x $ 16.71 10.3X $ 17.25 VALUE IMPLIED BY VULCAN BID 11.0x $ 18.38 12.0x $ 20.05 13.0x $ 21.72 14.0x $ 23.39 15.0X $ 25.06 VALUE @ 15X 16.0x $ 26.73 17.0x $ 28.40 18.0x $ 30.08 19.0X $ 31.75 VALUE IMPLIED BY COMPS 20.0x $ 33.42 -------------------------------------------- SUMMARY INCOME STATEMENT - ------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 --------------------------------------------------------------------------- Average LP Distributions/Share $2.74 $2.84 $2.93 $3.03 $3.12 $3.21 $3.30 $3.39 $3.49 $3.58 $3.67 % Growth 3.54% 3.35% 3.19% 3.06% 2.95% 2.86% 2.78% 2.71% 2.65% 2.60% Units Owned 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 PLX MLP Unit Distributions 34.0 35.2 36.4 37.5 38.7 39.8 41.0 42.1 43.2 44.4 45.5 PLX Share of GP 2% 1.9 2.1 2.3 2.6 2.8 3.1 3.3 3.6 3.9 4.1 4.4 PLX Share of GP Incentive 8.8 12.3 15.9 19.8 23.9 28.2 32.7 37.4 42.3 47.4 52.7 ------------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total PLX Share of Distributions 44.7 49.6 54.7 59.9 65.4 71.1 77.0 83.1 89.4 95.9 102.7 Estimated PLX SG&A (2.0) (2.0) (2.1) (2.1) (2.2) (2.2) (2.3) (2.3) (2.3) (2.4) (2.4) --------------------------------------------------------------------------- Recurring EBIT (Assumes No D&A) 42.7 47.5 52.6 57.8 63.2 68.9 74.7 80.8 87.0 93.5 100.2 Interest on Debt 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 EBT 29.6 34.4 39.4 44.7 50.1 55.7 61.6 67.6 73.9 80.4 87.1 Cash taxes (5.9) (7.7) (15.8) (17.9)(20.0) (22.3) (24.6) (27.1)(29.6) (32.2) (34.8) --------------------------------------------------------------------------- Implied Rate 20.0% 22.3% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Net Income 23.7 26.7 23.7 26.8 30.1 33.4 36.9 40.6 44.3 48.2 52.3 TM FD Shares Out. (Pro Forma) (Ending) 14.6 13.7 12.9 12.1 11.3 10.6 9.9 9.3 8.7 8.2 7.7 7.2 Average Shares Out (Mid Year) 14.2 13.3 12.5 11.7 11.0 10.3 9.6 9.0 8.5 7.9 7.4 Recurring Cash Earinings/Share $1.67 $2.01 $1.90 $2.29 $2.74 $3.25 $3.83 $4.49 $5.24 $ 6.08 $ 7.04 Growth 20.5% -5.6% 20.7% 19.6% 18.6% 17.9% 17.2% 16.6% 16.1% 15.7% - ---------------------------------------------------------------------------------------------------------------------------------- VULCAN OFFER PRICE $ 17.25 IMPLIED MULTIPLE OF RECURRING CASH EARNINGS 10.3X 8.6X 9.1X 7.5X 6.3X 5.3X 4.5X 3.8X 3.3X 2.8X 2.5X - ---------------------------------------------------------------------------------------------------------------------------------- VALUE @ 15X PF 2005 EARNINGS $ 25.06 CASHFLOW ADJUSTMENTS - -------------------- Net Income 23.7 26.7 23.7 26.8 30.1 33.4 36.9 40.6 44.3 48.2 52.3 Less: PLX Contributions to PAA for Acquisitions (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) Net Cash Flow Availible for Share Repurchases/ Debt Reduction 22.6 25.6 22.6 25.7 29.0 32.4 35.9 39.5 43.3 47.2 51.2 Debt Paid Down (Additional Borrowing) - - - - - - - - - - - Excess Cash Generated Avaiable for Repurchases 22.6 25.6 22.6 25.7 29.0 32.4 35.9 39.5 43.3 47.2 51.2 Assumed Cash Earnings Yield For Share Buybacks 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% Implied Price For Buybacks $25.0 $30.18 $28.48 $34.38 $41.1 $48.78 $57.49 $67.37 $78.5 $91.22 $105.51 Shares Bought Back 0.9 0.8 0.8 0.7 0.7 0.7 0.6 0.6 0.6 0.5 0.5 Pro Forma Ending Share Count 13.7 12.9 12.1 11.3 10.6 9.9 9.3 8.7 8.2 7.7 7.2 KEY BALANCE SHEET ITEMS RECAP - ----------------------- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ---------------------------------------------------------------------------------- New Debt Balance (@ Year End) 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 Weighted Average Rate on New Debt 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% ENDING DEBT/EBITDA 4.1X 3.7X 3.3X 3.0X 2.8X 2.5X 2.3X 2.2X 2.0X 1.9X 1.7X
NET DEBT ESTIMATE @ 12/31/2004: EXCLUDING OIL & GAS FCF - ------------------------------------------------------- ($ Million) ESTIMATED NET DEBT @ 3/31/2004 NOTES - ------------------------------ ----- BS Debt @ 3/31 45.0 BS Cash @ 3/31 15.8 Cash from Options -7.3 Excludes Cash From Option Proceeds Adjusted Cash 8.5 Less: April GP Cont. -1.0 PLX's April GP Contribution for PAA Equity Raise Plus: Cash Debt Reserve 5.1 Cash Included in "Other Long Term Assets" Plus: PXP Receivable 3.0 Receivable From PXP Included in "Other Long Term Assets" ADJUSTED NET DEBT @ 3/31 27.5 SIMPLE QUARTERLY PLX FCF: EX OIL & GAS - -------------------------------------- Q1 Q2-4E -- ----- Distr. From PAA 8.2 24.5 All Figures Multiplied by 3 to Annualize Q1 Results Est. Cash G&A 0.7 2.2 Cash Taxes 1.2 3.6 Interest 0.4 1.1 --- --- Free Cash Flow Ex. Oil & Gas 5.8 17.5 PLUS: INCREMENTAL FCF FROM OIL & GAS ESTIMATED NET DEBT @ 3/31 27.5 ESTIMATED NON O&G FCF 17.5 ESTIMATED NET DEBT @ 12/31 10.0 NOTE: EXCLUDES ANY CASHFLOW BENEFIT FROM OIL & GAS OPERATIONS FOR NEXT 3 QUARTERS
PLX: COMPARABLE COMPANY TRADING ANALYSIS
MARKET VALUE TO: MARKET VALUE TO: CURRENT SHARES MARKET NET INCOME CASH FLOW COMPANY Ticker Price Out Cap. 2004E 2005E 2004E 2005E ==================================================================================================================================== CROSSTEX ENERGY XTXI $40.56 11.7 473.3 20.2x 24.7x 20.2x 24.7x KINDER MORGAN INC. KMI $59.63 124.1 7398.3 15.9x 14.4x 17.6x 15.1x - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGES 18.0X 19.6X 18.9X 19.9X ====================================================================================================================================
Source: XTXI from AG Edwards (XTXI FCF Assumed to = Net Income), KMI from Goldman Sachs Note: XTXI 2005 Earnings/Cashflow decline due in part to depletion of NOLS July 14, 2004 LEUCADIA NATIONAL CORPORATION 315 Park Avenue South, 20th Floor New York, NY 10010 Attention:Ian M. Cumming Dear Ian: We understand that Leucadia National Corporation ("Leucadia") has suggested that Plains Resources Inc. ("PLX") consummate a recapitalization substantially as described in the Schedule 13D with respect to PLX filed by Leucadia on July 7, 2004 (the "Recapitalization"). You have advised us that the Recapitalization will require $175 million of debt financing in the form of (i) fixed rate senior secured notes, (ii) floating rate senior secured notes or (iii) secured term bank financing (the "Financing"). We are pleased to confirm that Jefferies & Company, Inc. ("Jefferies") is highly confident in our ability to arrange the Financing and would welcome the opportunity to pursue the Transaction. Our ability to successfully arrange the Financing is subject to numerous factors, including, without limitation; (i) satisfactory determination of final financial structure of the Recapitalization; (ii) satisfactory market conditions existing at the time of the Financing: (iii) receipt of ratings from Moody's and Standard and Poor's that are satisfactory to Jefferies, in its sole discretion. (iv) the preparation, execution, and delivery of documentation satisfactory to Jefferies, the investors/lenders and their respective counsel, which documentation will contain representations, warranties, conditions, covenants and other terms and provisions as are customary in transactions of this type; (v) our receipt of an executed engagement agreement with a counter-party and customary terms, including indemnification, acceptable to Jefferies, (vi) satisfactory completion of business, tax, financial, legal, accounting and other customary due diligence matters with respect to PLX; and (vii) the approval of our Underwriting Assistance Committee and of any necessary governmental or self-regulatory bodies or agencies. Jefferies is an institutional brokerage and investment bank. Jefferies offers capital raising, advisory, merger, acquisition, and restructuring services for middle market companies and is focused on trading in equity, high yield, convertible and international securities, as well as relevant, high-quality research for its customers, Jefferies, as part of its investment banking practice, has had extensive experience in raising debt financings. Since 1993, Jefferies has raised over $50 billion in public and private debt offerings. For the avoidance of doubt this letter is not a guarantee of the availability of the Financing, Jefferies has not committed to arrange the Financing and shall not be obligated to purchase any securities of PLX by virtue of this letter or otherwise. LEUCADIA NATIONAL CORPORATION July 14, 2004 Page 2 We are delighted to have this opportunity to work with you and look forward to assisting you with the consummation of this Financing. Sincerely, JEFFERIES & COMPANY, INC. EX-3 4 jd7-15ex_3.txt EXHIBIT 3 FOR IMMEDIATE RELEASE Leucadia National Corporation Contact: Laura Ulbrandt (212) 460-1900 LEUCADIA SUBMITS REVISED RECOMMENDATION TO PLAINS RESOURCES INC. NEW YORK, NEW YORK, JULY 15, 2004 - Leucadia National Corporation (LUK - NYSE and PCX) submitted the following letter to Plains Resources Inc. (PLX - NYSE) on July 14, 2004: "Via Facsimile (832) 239-6210 Original to follow via FedEx July 14, 2004 Plains Resources Inc. 700 Milam Street, Suite 3100 Houston, TX 77002 Attn: The Board of Directors Gentlemen: We have read your July 12, 2004 press release and proxy materials in which you dismiss our suggestion that the company should complete a recapitalization rather than be sold to Vulcan for a price of $17.25 per share. We continue to believe that a recapitalization will be in the best interests of stockholders and reiterate our July 7, 2004 proposal as modified and explained below. In order to assist in your analysis of the value that will be created in a recapitalization, we have attached our financial model and comparables analysis. Assuming an $18 cash tender in the recapitalization and the other assumptions which we describe in greater detail below and on the attached model, we believe post-recapitalization PLX will trade for $25.06 per share with a prorated value to shareholders of approximately $22.16. As a result, Pershing Square, L.P. has indicated to us that it will vote against the Vulcan Energy transaction, With respect to your specific objections, we respond as follows: Objection #1: Ignored the fact that a leveraged recapitalization would not resolve Plains Resources significant tax issues. We have assumed no special tax benefits at PLX. All free cash flow numbers that we have projected assume taxes are payable at a 40% tax rate other than with respect to income that can be sheltered using PLX's remaining net operating loss carryforwards. PLX will likely never sell its MLP units in Plains All American Pipeline, L.P. We believe this should be viewed favorably by PAA, for it will provide PAA with a stable owner and will not create a supply overhang in the market. Objection #2: Failed to take into account the required repayment of Plains Resources' existing indebtedness. You will note that our financial projections assume the required repayment of Plains Resources net indebtedness as of the date of the recapitalization. Objection #3: Assumed that Plains Resources would have the ability to borrow $175 million. We have enclosed a highly confident letter from Jefferies indicating a number of financing alternatives for the recapitalization, each for $175 million. Jefferies has advised us that it is available to discuss in detail terms, rates, and other elements of the financings. We note that Vulcan Energy obtained $175 million of financing for PLX without any additional credit support other than the assets of PLX. Therefore, we believe it should not be surprising that such financing continues to be available in the marketplace. For modeling purposes, we have assumed that PLX borrows $175 million in a 10-year bond financing at 7.5% interest. Objection #4; Incorrectly asserted that the $15 million termination fee would not be payable to Vulcan Energy upon consummation of the suggested leveraged recapitalization, unless such recapitalization took place more than 15 months after termination of the merger agreement. Assuming that the Board does not change its recommendation and stockholders vote down the Vulcan deal, we believe that our plan will not trigger the break up fee. Our counsel is available to discuss this issue with you if you require further information. If the break up fee were payable, it would reduce the post-recapitalization value of PLX to $23.71 and the prorated value to $21.55. Objection #5: Failed to take into account the other expenses that Plains Resources has incurred and would incur in connection with the Vulcan Energy transaction, including the reimbursement of Vulcan Energy's expenses (estimated to be approximately $6 million) Our financial model takes into account the Vulcan Energy transaction expenses. Objection #6: Failed to take into account the $5 million of severance payments that Plains Resources would be required to make in connection with the suggested leveraged recapitalization. Our financial model assumes the $5 million severance payments are paid. In addition, we have assumed that PLX sells Calumet Energy for $35 million of proceeds, a 55% discount to its SEC PV-l0 value. We understand that there may be additional value to Calumet with respect to the natural gas storage opportunity that PLX has been exploring, although we assign no value for this opportunity. We assume that the sale proceeds from Calumet are used to retire PLX's net debt with excess proceeds used in the recapitalization. We include no cash flow from Calumet in PLX's free cash flow projections. Our other more detailed assumptions are included in the attached spreadsheets. We have attached a PLX valuation matrix that values PLX at a range of multiples. At the proposed $17.25 price, Vulcan is paying approximately 10.3 times 2005 free cash flow of recapitalized PLX and 8.6 times 2006 free cash flow. We believe this significantly understates the value of post-recapitalization PLX that we value at $25.06, a multiple of 15 times 2005 free cash flaw per share. Please note that PLX's most direct comparables - Kinder Morgan Inc. and Crosstex Energy Inc. - trade at 15.2 times and 24.7 times 2005 free cash flow respectively. We are available to answer any questions you may have about the enclosed. Cordially, /s/ Ian M. Cumming - ------------------------ Ian M. Cumming Chairman Attachments 2 PLX MODEL: ASSUMPTIONS ---------------------- 1) PLX REMAINS PUBLIC 2) PLX SELLS OIL & GAS PROPERTY FOR $35M ON 12/31/04 PLX SIMULTANEOUSLY REFINANCES ~$10M OF ESTIMATED NET DEBT WITH A $175 NEW DEBT ISSUANCE @ 7.5% 3) PLX USES PROCEEDS FROM SALE OF OIL & GAS BUSINESS & NEW DEBT (AFTER FEES/SEVERANCE/VULCAN EXPENSES) TO BUY BACK STOCK @ $18.00 4) PLX CASH G&A ASSUMED @ $2M ON A GO FORWARD BASIS 5) ASSUMES 40% TAX RATE @ PLX, AND $30M OF NOLS AVAILABLE AT 12/31/2004 NOLS SHIELD TAXABLE INCOME DOWN TO AN ASSUMED ALTERNATIVE MINIMUM TAX RATE OF 20% ASSUMES PLX PAYS FULL TAXES ON ALL PAA DISTRIBUTIONS (OTHER THAN AMOUNT SHIELDED BY EXISTING NOLS) 6) NO VULCAN BREAKUP FEE PAYABLE DUE TO SHAREHOLDER REJECTION OF OFFER 7) ASSUMES PLX USES EXCESS CASHFLOW TO BUY BACK STOCK AT 15X EARNINGS PAA MODEL: ASSUMPTIONS ---------------------- 1) 2004 FORECAST BASED ON MANAGEMENT GUIDANCE GIVEN 6/15/2004, ANNUALIZING 2H 2004 (DUE TO LINK ACQUISITION), ALSO ADDS BACK $7.5M OF ANNUALIZED 1 TIME PIPELINE INTEGRITY EXPENSES 2) ASSUMES $15M OF INCREMENTAL LINK EBITDA IN 2005 DUE TO VOLUME RECOVERY/SYNERGY REALIZATION (IMPLIES~$65M OF LINK EBITDA CONTRIBUTION IN 2005 VS. PAA GUIDANCE OF $52-$57 POST SYNERGY WITH NO VOLUME PICKUP) (IMPLIED ANNUALIZED LINK EBITDA CONTRIBUTION OF ~$50M EMBEDDED IN PAA 6/15 SECOND HALF GUIDANCE) 3) ASSUMES PAA ACQUIRES $33.3 MILLION IN EBITDA CONTRIBUTION JANUARY 1 EACH YEAR FROM 2005-2015 AT THE COST OF $250 M (7.5X EBITDA) (INCLUDES BOTH ACQUISITIONS AND ORGANIC EXPANSION CAPEX) 4) ASSUMES PAA FINANCES EXPANSION WITH 50% EQUITY, 50% DEBT (DEBT @8%, EQUITY RAISED @ 8.5% CURRENT YIELD) 5) ASSUMES ORGANIC REVENUE/COST/ EBITDA GROWTH OF 2% 6) ASSUMES PAA DISTRIBUTES ALL DISTRIBUTABLE CASH (DEFINED AS EBITDA-INTEREST EXPENSE-MAINTENANCE CAPEX) TO LP/GP OTHER THAN A 4% HOLDBACK (VS. HISTORICAL LEVELS OF 1 TO 3%) PAA- FORECAST DISTRIBUTABLE CASH FLOW - -------------------------------------
(6/15 GUIDANCE) 2004 LAST 6MOS. YEARS ENDED DEC 31 (DOLLARS IN MILLIONS) ANNUALIZED 2005 2006 2007 2008 2009 2010 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Assumptions: - ------------ Acqured EBITDA (Beginning of Year) 33.3 33.3 33.3 33.3 33.3 33.3 Multiple of EBITDA Paid for Acquisitions/Expansion Cap 7.5X 7.5X 7.5X 7.5X 7.5X 7.5X Implied $Value of Acquisitions/Expansion Capex $250 $250 $250 $250 $250 $250 % of acquisitions/capital expenditures Debt Financed 50% 50% 50% 50% 50% 50% Assumed Equity Yield for Acquisition Equity 8.5% 8.5% 8.5% 8.5% 8.5% 8.5% Interest Rate on Acquisition Debt 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Organic Revenue/EBITDA growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% - ------------------------------------------------------------------------------------------------------------------------------------ Gross Margin Calculation - ------------------------ INCREMENTAL 2005 LINK EBITDA CONTRIBUTION 15.0 Total Gross Margin $329.5 384.4 425.4 467.2 509.8 553.3 597.7 Less: Selling, General & Admin.* 74.0 75.5 77.0 78.5 80.1 81.7 83.3 (Note: G&A only applies to core 2004 business) EBITDA (OPERATING CASH FLOW) 255.5 308.9 348.4 388.7 429.7 471.6 514.4 TOTAL FULLY DILUTED UNITS OUTSTANDING (YEAR END) 66.5 70.3 73.9 77.5 80.9 84.3 87.5 Growth Rate of Units 12.5% 5.7% 5.2% 4.8% 4.4% 4.1% 3.8% - ------------------------------------------------------------------------------------------------------------------------------------ CALCULATION OF PAA DISTRIBUTABLE CASH - ------------------------------------- EBITDA 255.5 308.9 348.4 388.7 429.7 471.6 514.4 Less: Interest Expense 51.0 61.1 71.1 81.1 91.1 101.1 111.0 Less: Maintenance Capital Expenditures 20.6 21.5 24.3 27.1 30.0 32.9 35.9 Less: 4% Holdback 7.4 9.1 10.1 11.2 12.3 13.5 14.7 - ----------------- --- --- ---- ---- ---- ---- ---- DISTRIBUTABLE CASH FLOW FOR GP/LP 176.5 217.2 242.9 269.3 296.4 324.2 352.8 Growth Rate distributable CF 23% 12% 11% 10% 9% 9% GP 2% Share 3.5 4.3 4.9 5.4 5.9 6.5 7.1 GP Incentive Fee 13% of .45 to .495 per quarter cash dist. 1.8 1.9 2.0 2.1 2.2 2.3 2.4 23% of .495 to .675 per quarter cash dist. 9.3 15.5 16.3 17.1 17.9 18.6 19.3 48% of .675 and above per quarter cash dist. 0.0 2.8 9.8 17.3 25.4 33.9 43.0 TOTAL GP INCENTIVE 11.1 20.2 28.2 36.6 45.5 54.8 64.7 Distributable Cash Flow (LP Units) 161.9 192.7 209.9 227.3 245.0 262.9 281.0 CALCULATED DISTRIBUTABLE CASH FLOW PER LP UNIT $2.44 $2.74 $2.84 $2.93 $3.03 $3.12 $3.21 Calculated Average Available per Quarter $0.61 $0.69 $0.71 $0.73 $0.76 $0.78 $0.80 - ------------------------------------------------------------------------------------------------------------------------------------ NOTE: 2004 BASE PAA EBITDA EXCLUDES $7.5m ANNUALIZED OF NON-RECURRING PIPELINE INTEGRITY COSTS (PER 6/15 GUIDANCE) *Applies only to currently owned assets-- (Acquired EBITDA contribution flows directly into total gross margin)
** TABLE CONTINUED ** PAA- FORECAST DISTRIBUTABLE CASH FLOW - -------------------------------------
YEARS ENDED DEC 31 (DOLLARS IN MILLIONS) 2011 2012 2013 2014 2015 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Assumptions: - ------------ Acqured EBITDA (Beginning of Year) 33.3 33.3 33.3 33.3 33.3 Multiple of EBITDA Paid for Acquisitions/Expansion Cap7.5X 7.5X 7.5X 7.5X 7.5X 7.5X Implied $Value of Acquisitions/Expansion Capex $250 $250 $250 $250 $250 % of acquisitions/capital expenditures Debt Financed 50% 50% 50% 50% 50% Assumed Equity Yield for Acquisition Equity 8.5% 8.5% 8.5% 8.5% 8.5% Interest Rate on Acquisition Debt 8.0% 8.0% 8.0% 8.0% 8.0% Organic Revenue/EBITDA growth 2.0% 2.0% 2.0% 2.0% 2.0% - ----------------------------------------------------------------------------------------------------------- Gross Margin Calculation - ------------------------ INCREMENTAL 2005 LINK EBITDA CONTRIBUTION Total Gross Margin 642.9 689.1 736.2 784.2 833.2 Less: Selling, General & Admin.* 85.0 86.7 88.4 90.2 92.0 (Note: G&A only applies to core 2004 business) EBITDA (OPERATING CASH FLOW) 557.9 602.4 647.8 694.0 741.2 TOTAL FULLY DILUTED UNITS OUTSTANDING (YEAR END) 90.7 93.7 96.7 99.6 102.4 Growth Rate of Units 3.6% 3.4% 3.2% 3.0% 2.8% - ----------------------------------------------------------------------------------------------------------- CALCULATION OF PAA DISTRIBUTABLE CASH - ------------------------------------- EBITDA 557.9 602.4 647.8 694.0 741.2 Less: Interest Expense 121.0 131.0 141.0 151.0 161.0 Less: Maintenance Capital Expenditures 38.9 42.0 45.2 48.4 51.7 Less: 4% Holdback 15.9 17.2 18.5 19.8 21.1 - ----------------- ---- ---- ---- ---- ---- DISTRIBUTABLE CASH FLOW FOR GP/LP 382.1 412.2 443.1 474.8 507.4 Growth Rate distributable CF 8% 8% 7% 7% 7% GP 2% Share 7.6 8.2 8.9 9.5 10.1 GP Incentive Fee 13% of .45 to .495 per quarter cash dist. 2.5 2.6 2.7 2.7 2.8 23% of .495 to .675 per quarter cash dist. 20.0 20.7 21.4 22.0 22.6 48% of .675 and above per quarter cash dist. 52.5 62.5 73.0 84.1 95.6 TOTAL GP INCENTIVE 75.0 85.8 97.1 108.8 121.0 Distributable Cash Flow (LP Units) 299.4 318.2 337.2 356.5 376.2 CALCULATED DISTRIBUTABLE CASH FLOW PER LP UNIT $3.30 $3.39 $3.49 $3.58 $3.67 Calculated Average Available per Quarter $0.83 $0.85 $0.87 $0.89 $0.92 - ----------------------------------------------------------------------------------------------------------- NOTE: 2004 BASE PAA EBITDA EXCLUDES $7.5m ANNUALIZED OF NON-RECURRING PIPELINE INTEGRITY COSTS (PER 6/15 GUIDANCE) *Applies only to currently owned assets-- (Acquired EBITDA contribution flows directly into total gross margin)
** TABLE COMPLETE ** PLX RECAP MODEL--PF FOR TENDER OFFER - ------------------------------------
- ----------------------------------------- --------------------------- ----------------------------------------- RECAP SOURCES CURRENT PLX SHARE DETAILS PROFORMA PLX SHARECOUNT (BUYBACK) - ------------- ------------------------- --------------------------------- New Debt 175.0 Estimated Funds for Repurchase 84.0 Proceeds From Sale of Oil & Gas 35.0 Basic Shares Out. 23.905 $/Share Assumed Tender $18.00 Total Sources 210.0 Options 3.811 Assumed Shares Repurchased 10.2 Avg. Ex. Price 13.63 Basic Shares Out. 23.9 RECAP USES FD shares @ 18.00 24.8 Adjusted Shares PF for Buyback 13.7 Repayment of Estimated Net Debt 10.0 (Treasury Method) Treasury Method Options @ 18.00 0.9 (12/31) --------------------------- Transaction/ Financing Fees 5.0 (Source: 3/2/2004 13E-3) Pro Forma FD TM Shares 14.6 --------------------------------- Management Severance 5.0 ---------------------------------- Vulcan Expenses 6.0 TAX ASSUMPTIONS: Funds for Repurchase of Stock 184.0 Cash tax rate 40% ----------- Alternative minimum tax rate 20% Total 210.0 Estimated NOL @ 12/31/200 $30.0 - ----------------------------------------- Percent of PAA distributions Note: Excludes $15m Breakup Fee subject to tax 100% ----------------------------------
--------------------------------------------- IMPLIED PER SHARE VALUE OF PLX BASED ON 2005 PF CASH EARNINGS ------------------------------ MULTIPLE VALUE -------- ----- 10.0x $ 16.71 10.3X $ 17.25 VALUE IMPLIED BY VULCAN BID 11.0x $ 18.38 12.0x $ 20.05 13.0x $ 21.72 14.0x $ 23.39 15.0X $ 25.06 VALUE @ 15X 16.0x $ 26.73 17.0x $ 28.40 18.0x $ 30.08 19.0X $ 31.75 VALUE IMPLIED BY COMPS 20.0x $ 33.42 -------------------------------------------- SUMMARY INCOME STATEMENT - ------------------------
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 --------------------------------------------------------------------------- Average LP Distributions/Share $2.74 $2.84 $2.93 $3.03 $3.12 $3.21 $3.30 $3.39 $3.49 $3.58 $3.67 % Growth 3.54% 3.35% 3.19% 3.06% 2.95% 2.86% 2.78% 2.71% 2.65% 2.60% Units Owned 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 PLX MLP Unit Distributions 34.0 35.2 36.4 37.5 38.7 39.8 41.0 42.1 43.2 44.4 45.5 PLX Share of GP 2% 1.9 2.1 2.3 2.6 2.8 3.1 3.3 3.6 3.9 4.1 4.4 PLX Share of GP Incentive 8.8 12.3 15.9 19.8 23.9 28.2 32.7 37.4 42.3 47.4 52.7 ------------------------- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total PLX Share of Distributions 44.7 49.6 54.7 59.9 65.4 71.1 77.0 83.1 89.4 95.9 102.7 Estimated PLX SG&A (2.0) (2.0) (2.1) (2.1) (2.2) (2.2) (2.3) (2.3) (2.3) (2.4) (2.4) --------------------------------------------------------------------------- Recurring EBIT (Assumes No D&A) 42.7 47.5 52.6 57.8 63.2 68.9 74.7 80.8 87.0 93.5 100.2 Interest on Debt 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 13.1 EBT 29.6 34.4 39.4 44.7 50.1 55.7 61.6 67.6 73.9 80.4 87.1 Cash taxes (5.9) (7.7) (15.8) (17.9)(20.0) (22.3) (24.6) (27.1)(29.6) (32.2) (34.8) --------------------------------------------------------------------------- Implied Rate 20.0% 22.3% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Net Income 23.7 26.7 23.7 26.8 30.1 33.4 36.9 40.6 44.3 48.2 52.3 TM FD Shares Out. (Pro Forma) (Ending) 14.6 13.7 12.9 12.1 11.3 10.6 9.9 9.3 8.7 8.2 7.7 7.2 Average Shares Out (Mid Year) 14.2 13.3 12.5 11.7 11.0 10.3 9.6 9.0 8.5 7.9 7.4 Recurring Cash Earinings/Share $1.67 $2.01 $1.90 $2.29 $2.74 $3.25 $3.83 $4.49 $5.24 $ 6.08 $ 7.04 Growth 20.5% -5.6% 20.7% 19.6% 18.6% 17.9% 17.2% 16.6% 16.1% 15.7% - ---------------------------------------------------------------------------------------------------------------------------------- VULCAN OFFER PRICE $ 17.25 IMPLIED MULTIPLE OF RECURRING CASH EARNINGS 10.3X 8.6X 9.1X 7.5X 6.3X 5.3X 4.5X 3.8X 3.3X 2.8X 2.5X - ---------------------------------------------------------------------------------------------------------------------------------- VALUE @ 15X PF 2005 EARNINGS $ 25.06 CASHFLOW ADJUSTMENTS - -------------------- Net Income 23.7 26.7 23.7 26.8 30.1 33.4 36.9 40.6 44.3 48.2 52.3 Less: PLX Contributions to PAA for Acquisitions (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) (1.1) Net Cash Flow Availible for Share Repurchases/ Debt Reduction 22.6 25.6 22.6 25.7 29.0 32.4 35.9 39.5 43.3 47.2 51.2 Debt Paid Down (Additional Borrowing) - - - - - - - - - - - Excess Cash Generated Avaiable for Repurchases 22.6 25.6 22.6 25.7 29.0 32.4 35.9 39.5 43.3 47.2 51.2 Assumed Cash Earnings Yield For Share Buybacks 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% Implied Price For Buybacks $25.0 $30.18 $28.48 $34.38 $41.1 $48.78 $57.49 $67.37 $78.5 $91.22 $105.51 Shares Bought Back 0.9 0.8 0.8 0.7 0.7 0.7 0.6 0.6 0.6 0.5 0.5 Pro Forma Ending Share Count 13.7 12.9 12.1 11.3 10.6 9.9 9.3 8.7 8.2 7.7 7.2 KEY BALANCE SHEET ITEMS RECAP - ----------------------- 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ---------------------------------------------------------------------------------- New Debt Balance (@ Year End) 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 175.0 Weighted Average Rate on New Debt 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% ENDING DEBT/EBITDA 4.1X 3.7X 3.3X 3.0X 2.8X 2.5X 2.3X 2.2X 2.0X 1.9X 1.7X
NET DEBT ESTIMATE @ 12/31/2004: EXCLUDING OIL & GAS FCF - ------------------------------------------------------- ($ Million) ESTIMATED NET DEBT @ 3/31/2004 NOTES - ------------------------------ ----- BS Debt @ 3/31 45.0 BS Cash @ 3/31 15.8 Cash from Options -7.3 Excludes Cash From Option Proceeds Adjusted Cash 8.5 Less: April GP Cont. -1.0 PLX's April GP Contribution for PAA Equity Raise Plus: Cash Debt Reserve 5.1 Cash Included in "Other Long Term Assets" Plus: PXP Receivable 3.0 Receivable From PXP Included in "Other Long Term Assets" ADJUSTED NET DEBT @ 3/31 27.5 SIMPLE QUARTERLY PLX FCF: EX OIL & GAS - -------------------------------------- Q1 Q2-4E -- ----- Distr. From PAA 8.2 24.5 All Figures Multiplied by 3 to Annualize Q1 Results Est. Cash G&A 0.7 2.2 Cash Taxes 1.2 3.6 Interest 0.4 1.1 --- --- Free Cash Flow Ex. Oil & Gas 5.8 17.5 PLUS: INCREMENTAL FCF FROM OIL & GAS ESTIMATED NET DEBT @ 3/31 27.5 ESTIMATED NON O&G FCF 17.5 ESTIMATED NET DEBT @ 12/31 10.0 NOTE: EXCLUDES ANY CASHFLOW BENEFIT FROM OIL & GAS OPERATIONS FOR NEXT 3 QUARTERS
PLX: COMPARABLE COMPANY TRADING ANALYSIS
MARKET VALUE TO: MARKET VALUE TO: CURRENT SHARES MARKET NET INCOME CASH FLOW COMPANY Ticker Price Out Cap. 2004E 2005E 2004E 2005E ==================================================================================================================================== CROSSTEX ENERGY XTXI $40.56 11.7 473.3 20.2x 24.7x 20.2x 24.7x KINDER MORGAN INC. KMI $59.63 124.1 7398.3 15.9x 14.4x 17.6x 15.1x - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGES 18.0X 19.6X 18.9X 19.9X ====================================================================================================================================
Source: XTXI from AG Edwards (XTXI FCF Assumed to = Net Income), KMI from Goldman Sachs Note: XTXI 2005 Earnings/Cashflow decline due in part to depletion of NOLS July 14, 2004 LEUCADIA NATIONAL CORPORATION 315 Park Avenue South, 20th Floor New York, NY 10010 Attention:Ian M. Cumming Dear Ian: We understand that Leucadia National Corporation ("Leucadia") has suggested that Plains Resources Inc. ("PLX") consummate a recapitalization substantially as described in the Schedule 13D with respect to PLX filed by Leucadia on July 7, 2004 (the "Recapitalization"). You have advised us that the Recapitalization will require $175 million of debt financing in the form of (i) fixed rate senior secured notes, (ii) floating rate senior secured notes or (iii) secured term bank financing (the "Financing"). We are pleased to confirm that Jefferies & Company, Inc. ("Jefferies") is highly confident in our ability to arrange the Financing and would welcome the opportunity to pursue the Transaction. Our ability to successfully arrange the Financing is subject to numerous factors, including, without limitation; (i) satisfactory determination of final financial structure of the Recapitalization; (ii) satisfactory market conditions existing at the time of the Financing: (iii) receipt of ratings from Moody's and Standard and Poor's that are satisfactory to Jefferies, in its sole discretion. (iv) the preparation, execution, and delivery of documentation satisfactory to Jefferies, the investors/lenders and their respective counsel, which documentation will contain representations, warranties, conditions, covenants and other terms and provisions as are customary in transactions of this type; (v) our receipt of an executed engagement agreement with a counter-party and customary terms, including indemnification, acceptable to Jefferies, (vi) satisfactory completion of business, tax, financial, legal, accounting and other customary due diligence matters with respect to PLX; and (vii) the approval of our Underwriting Assistance Committee and of any necessary governmental or self-regulatory bodies or agencies. Jefferies is an institutional brokerage and investment bank. Jefferies offers capital raising, advisory, merger, acquisition, and restructuring services for middle market companies and is focused on trading in equity, high yield, convertible and international securities, as well as relevant, high-quality research for its customers, Jefferies, as part of its investment banking practice, has had extensive experience in raising debt financings. Since 1993, Jefferies has raised over $50 billion in public and private debt offerings. For the avoidance of doubt this letter is not a guarantee of the availability of the Financing, Jefferies has not committed to arrange the Financing and shall not be obligated to purchase any securities of PLX by virtue of this letter or otherwise. LEUCADIA NATIONAL CORPORATION July 14, 2004 Page 2 We are delighted to have this opportunity to work with you and look forward to assisting you with the consummation of this Financing. Sincerely, JEFFERIES & COMPANY, INC. -----END PRIVACY-ENHANCED MESSAGE-----