<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 22, 1997
STAR GAS PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
33-98490
--------
(Commission File Number)
06-1437793
----------
(I.R.S. Employer Identification No.)
2187 Atlantic Street
Stamford, Connecticut, 06902
(Address of principal executive office)
(203) 328-7300
(Registrant's telephone number, including area code)
<PAGE>
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None.
ITEM 4. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 5. OTHER EVENTS
None.
ITEM 6. REGISTRATION OF REGISTRANT'S DIRECTORS
None.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Item 7 is amended from the prior filing of October 23, 1997 to
include:
1) Stock purchase agreement dated October 20, 1997 among
Star Gas and selling shareholders.
2) Conveyance and Contribution Agreement among the
Partnership, the OLP and Star Gas.
3) Second amendment dated as of October 21, 1997 to the
Credit Agreement as of December 13, 1995 among the OLP,
BankBoston, N.A. and NationsBank, N.A.
Financial statement are to filed on or about November 21, 1997.
ITEM 8. CHANGES IN FISCAL YEAR
None.
<PAGE>
ITEM 1. CHANGE IN CONTROL OF EQUIPMENT
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Star Gas Partners, L.P. ("the Partnership") is a Master Limited
Partnership and through its subsidiary, Star Gas Propane ("the OLP"), markets
and distributes propane in the Midwest and Northeast sections of the United
States. Star Gas Corporation, a Delaware Corporation, ("Star Gas") is the
general partner of both the Partnership and the OLP.
On October 22, 1997, pursuant to a purchase agreement ("Stock Purchase
Agreement") dated as of October 20, 1997, Star Gas purchased 240 shares of
Common Stock ($100 par value) of Pearl Gas Co. ("Pearl"), an Ohio Corporation,
representing all of the issued and outstanding capital stock of Pearl. Pearl
markets and distributes propane in Ohio and Michigan through a storage and
distribution system consisting of five offices, fifteen bulk storage plants,
fifty employees and over forty-five vehicles. For the twelve months ended August
31, 1997, Pearl sold 14.3 million gallons of propane, primarily to higher margin
residential customers. Pearl currently serves over 12,000 active customers.
The purchase price for said stock was $22,571,790 and was paid in
cash. The purchase price included estimated working capital of $1,891,790. This
amount will be adjusted upward or downward based on actual working capital as of
October 22, 1997. The amount of consideration for the Pearl Common Stock was
determined by arms length bargaining between Star Gas and the Sellers. Funding
for the stock purchase was provided by a $23,000,000 bank acquisition facility.
Subsequent to the acquisition of the common stock of Pearl, Pearl was merged
into Star Gas in a tax-free liquidation.
On October 22, 1997, a Conveyance and Contribution Agreement was
entered into by, and among, the Partnership, the OLP and Star Gas. Star Gas
contributed to the OLP all of the Pearl assets it obtained in the stock purchase
of Pearl Gas and the subsequent merger of Pearl into Star Gas. In exchange, Star
Gas received a 2.7 percent limited partnership interest in the OLP and a 0.00028
percent general partnership interest in the OLP. In addition, the OLP assumed
all of the liabilities associated with the Pearl stock purchase prior and
subsequent to the merger, including the $23.0 million of bank debt. The
aggregate value of the interests transferred to Star Gas from the OLP is
$3,467,000. The issuance of the additional partnership interests to Star Gas is
intended to compensate Star Gas for additional significant income tax
liabilities which would be reflected in the consolidated federal income tax
return of Star Gas' parent corporation, Petroleum Heat and Power Co., Inc.
("Petro"). The issuance of such partnership interests was approved by the Audit
Committee of Star Gas and the Executive Committee of Petro.
Star Gas then exchanged the above described interest in the OLP for a
0.00027 percent general partnership interest in the Partnership and 147,727
common units in the Partnership, at a per unit price based upon the average
closing price of the Partnership's common units ten days prior to the execution
of the Stock Purchase Agreement. The OLP then repaid the $23.0 million
acquisition facility with $2.0 million of available cash and $21.0 million
borrowed under the OLP's own acquisition facility.
The OLP intends to utilize the conveyed assets in the conduct of its
propane business.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf of the undersigned
thereunto duly authorized:
Star Gas Partners, L.P.
By: Star Gas Corporation (General Partner)
William G. Powers, Jr.
-------------------------------------------
By:/s/ William G. Powers, Jr.
William G. Powers, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated:
Signature Title Date
- --------- ----- ----
/s/ William G. Powers, Jr. President October 30, 1997
- ---------------------------- Star Gas Corporation
William G. Powers, Jr. (Principal Executive Officer)
/s/ Richard F. Ambury Vice President - Finance October 30, 1997
- ---------------------------- Star Gas Corporation
Richard F. Ambury (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 99.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of October 20, 1997, among STAR GAS
CORPORATION ("Buyer"), a Delaware corporation and those persons who have
executed this Agreement at the end as selling shareholders ("Sellers").
This Agreement sets forth the terms and conditions upon which the
Sellers will sell to Buyer, and Buyer will purchase from Sellers 240 shares of
Common Stock ($100 par value), of Pearl Gas Co. (the "Company") representing all
of the issued and outstanding capital stock of the Company ("Company Shares").
As used in this Agreement, capitalized terms have the meanings ascribed to them
in Section 2 of this Agreement or as otherwise set forth herein.
In consideration of the mutual agreements contained herein, intending
to be legally bound hereby, the parties hereto agree as follows:
1. Sale of Stock.
-------------
1.1. Stock To Be Sold. Subject to the terms and conditions of this
----------------
Agreement, at the Closing referred to in Section 10 hereof (the "Closing") the
Sellers will sell, assign, transfer and deliver the Company Shares to Buyer free
and clear of all liens, charges or encumbrances of whatsoever nature.
1.2. Consideration. Subject to the terms and conditions of this
-------------
Agreement, in reliance on the representations, warranties and agreements of the
Sellers contained herein, Buyer shall pay to Sellers the sum of $22,551,790, or
$93,965.79 per Company Share, ("Purchase Price") subject to adjustment as
provided herein .
<PAGE>
1.3. The Purchase Price will be paid by Buyer to Sellers, or at the
direction of Sellers, by wire transfer of immediately available funds at the
Closing; provided, however, that the sum of Two Million Dollars ($2,000,000)
shall be paid to Huntington National Bank ("Escrow Agent") to be held by the
Escrow Agent pursuant to an escrow agreement in the form of Exhibit 1.3 to be
executed at the Closing (the "Escrow Agreement").
1.4. (a) The Purchase Price of $22,551,790 for the Company Shares has
been agreed upon based upon the assumptions (i) that Net Working Capital of the
Company as of the Closing Date will be $1,891,790 which has been calculated as
set forth on Exhibit 1.4(a), (ii) that the Property and Equipment set forth on
Exhibit 1.5 will be owned by the Company on the Closing Date and will be in
substantially the same condition as inspected by Buyer, (iii) that the Notes-
Receivable-Shareholder will be repaid in full on the closing Date and (iv) that
the Company will have no liability on the Closing Date which would be required
to be included on a balance sheet in accordance with generally accepted
accounting principles which was not included in the calculation of Net Working
Capital ("Other Liabilities"), except that built-in-gains, the equipment
discrepancy, and deferred taxes as described on Exhibit 3.6 shall not be
included in the calculation of Net Working Capital or in the definition of Other
Liabilities. For the foregoing calculations Net Working Capital means the
excess of current assets over current liabilities as determined in accordance
with the procedures set forth on Exhibit 1.4(b).
2
<PAGE>
(b) Buyer and Seller shall jointly engage Peat Marwick LLP
("KPMG") to prepare a calculation of Net Working Capital as of the Closing Date
("Closing Working Capital Calculation"), in accordance with the procedures set
forth on Exhibit 1.4(b) hereto. The cost of the accountants shall be shared
equally by Sellers and Buyer and Buyer and Sellers and their respective
representatives shall be permitted to communicate with KPMG personnel and
observe all aspects of their work with respect to the conduct of their
engagement. The Purchase Price shall be adjusted ("Post Closing Adjustment") by
increasing the Purchase Price by $1 for each $1 that Net Working Capital as
reflected in the Closing Working Capital Calculation is greater than $1,891,790
or decreasing the Purchase Price by $1 for each $1 the Net Working Capital as
reflected in the Closing Working Capital Calculation is less than $1,891,790.
The engagement letter with KPMG shall provide that such firm
shall deliver to Buyer and Sellers (i) the Closing Working Capital Calculation,
which shall state that it has been prepared in accordance with the procedures
set forth on Exhibit 1.4(b) and (ii) a closing certificate ("Closing
Certificate") showing the calculation of the adjustments to the purchase price
("Post Closing Adjustments") made in accordance with Section 1.4(b) above. A
copy of the Closing Working Capital Calculation and the Closing Certificate
(collectively, "Closing Documents") shall be delivered to both Buyer and Sellers
not later than 45 days after the Closing Date. Unless either Buyer or Sellers
within 10 days
3
<PAGE>
after receipt of the copy of the Closing Documents notifies the other party of
any disagreement with the Post Closing Adjustments, the Closing Documents shall
be final and shall be accepted by and be binding upon both Buyer and Sellers.
If either party so notifies the other party of any such disagreement within such
10 day period and such disagreement cannot be amicably resolved within an
additional period of 30 days, the disagreement as to the Post Closing
Adjustments shall be submitted for final determination to a big six accounting
firm selected by the parties ("Appeal Accountants"). Both parties shall be bound
by the determination of the Appeal Accountants and the cost of such expenses
shall be shared equally between Sellers and Buyer. The Appeal Accountants shall
render their final determination with respect to the resolution of such
disputes which shall be binding on the parties and deliver copies thereof to
Buyer and Sellers.
If the Post Closing Adjustments as finally determined
increase the Purchase Price the Buyer shall pay the amount of such increase to
Sellers in proportion to their Allocable Share within three business days after
the Post Closing Adjustments have been finally determined and delivered to the
Buyer. If the Post Closing Adjustment decreases the Purchase Price, Buyer shall
make a claim for such amount as set forth in the Escrow Agreement.
1.5 No adjustment shall be made to the Purchase Price with respect to
the Property and Equipment as listed on Exhibit 1.5, to the extent that the same
were actually owned by the Company as of the Closing and were in substantially
the same condition as
4
<PAGE>
when inspected by Buyer. The Purchase Price shall be decreased by the amount
of Other Liabilities (as defined above) as of the Closing Date. Sellers shall
withdraw from the Company prior to Closing the assets listed in Section 1.4(a)
of the Disclosure Schedule and may in their discretion assume or transfer all or
part of the liabilities listed in Section 1.4(a) of the Disclosure Schedule.
Inventory usable in the ordinary course of the Company's business shall be
valued at the Company's cost.
1.6 Tank Verification. Between the date hereof and the Closing Date,
-----------------
Buyer, with assistance from Sellers and employees of the Company, shall, as and
to the extent practicable and commercially reasonably, commence and proceed to
"verify" the Company's title to the number of each size of propane tanks listed
on Exhibit 1.6 attached hereto, and so long as 98 percent of the number of a
size of propane tanks is verified, Buyer shall have no claim against Seller with
respect to the number of tanks delivered for such size. To the extent 98
percent of the number of each size of tanks listed in Exhibit 1.6 cannot be
"verified" prior to the Closing Date, Buyer shall attempt to "verify" such tanks
after the Closing Date pursuant to the process set forth in Section 1.7. A tank
shall be "verified" if:
(a) Buyer acknowledges in writing the existence and
ownership of a tank located at any Customer or at the Company's
offices and bulk plants; or
(b) As to the approximately 350 tanks on a non-rental basis
("Non-Rental Tanks"), Buyer actively
5
<PAGE>
seeks and receives a statement signed by the Customer acknowledging
that as of and after Closing, the Customer is not the owner of the
tank; or
(c) A tank is actually located at one of the Company's
offices or bulk plants at the time of Closing; or
(d) The Company's books and records reflect a rental
payment within the 18 months prior to the Closing or the 12 month
period following the Closing; or
(e) A Customer surrenders or offers to surrender a tank
within 12 months after the Closing, without requiring any payment by
the Company except for refunds of prepaid rentals or propane.
Between the date this Agreement is signed and the Closing, the Sellers
shall cause the Company to take an inventory of tanks located at the Company's
bulk plants and offices, which shall include the serial number of such tanks and
their propane content. Sellers shall cause the Company to afford to Buyer and
its representatives an opportunity to observe every aspect of such inventory.
The Buyer and Sellers shall endeavor to agree upon the quantity of such
inventory prior to Closing.
1.7 Post-Closing Tank Verification. Section 1.6 sets forth the
------------------------------
criteria and procedures by which the propane tanks represented as owned by the
Company on Exhibit 1.5 on the Closing Date will be verified by Buyer and its
agents before and after the Closing Date. All such propane tanks shall be
verified no later
6
<PAGE>
than 12 months following the Closing Date. Sellers shall have no liability to
Buyer with respect to a Non-Rental Tank unless Buyer has complied with Section
1.6(b) as to such tank. If a Customer or other third party disputes the
Company's ownership of a tank or claims ownership of a tank, the Buyer shall
furnish to such Customer or other third party copies of the original tank
purchase invoice, tank delivery records and tank rental payment records, to the
extent available, and take all other reasonable and customary steps to verify
ownership of such tank. As soon as practicable after completing the
verification procedures, but prior to 14 months following the Closing Date,
Buyer shall deliver to Sellers a written statement that shows in detail the
tanks that could not be verified (the "Tank Verification Notice"), including the
size and location of each such tank. If Buyer fails to deliver the Tank
Verification Notice within the period of 14 months following the Closing, then
all tanks shall be deemed to be verified. Sellers shall have the right to audit
and take other reasonable steps to verify Buyer's determination for a period of
60 days following receipt of the Tank Verification Notice. Sellers agree to pay
to Buyer within 90 days following delivery of the Tank Verification Notice, an
amount equal to the aggregate value (determined on the basis of the cost per
tank set forth on Exhibit 1.6 hereto) of all tanks that cannot be verified and
with respect to the Non-Rental Tanks, upon such payment Buyer shall transfer its
right, title and interest, if any, in the Non-Rental Tanks with respect to which
it received payment; provided, however, (i) that so long as 98 percent
7
<PAGE>
of the number of a size of propane tanks is verified, Buyer shall have no claim
against Seller with respect to the number of such tanks delivered (for example,
if 98 percent of the number of a size has been verified, Sellers shall have no
liability to Buyer here under for such tank size, even if only 90 percent of all
tanks have been verified) and (ii) if Sellers dispute Buyer's calculation of any
amount due under this subsection, no payment shall be due until a final judicial
determination and (iii) under no circumstances shall the tanks verified for a
particular size of tank plus the number of non-verified tanks for such size of
tank for which Sellers have paid (and, if a Non-Rental Tank, received a bill of
sale), exceed 98% of the amount of such size of tank set forth in Exhibit 1.6
hereof. The aggregate amount paid by Sellers to Buyer under Section 1.6 and
1.7 shall constitute a reduction of the Purchase Price.
1.8 All amounts payable by Buyer or Sellers pursuant to this
Agreement which are not paid within thirty business days after written demand
shall bear interest at the rate of 10% per annum from the date the party
entitled to receive a payment incurs a loss until the date paid, but not to
exceed the highest legal rate of interest.
1.9 (a) (i) For a period of 150 days following the closing
("Collection Period"), Buyer agrees to cause the Company to mail to Customers a
monthly statement which will include the accounts receivable balance as of the
closing date, less any payments made thereafter. The Company shall also attempt
to
8
<PAGE>
collect the accounts receivable using its usual and customary procedures such as
mailing credit letters, restricting deliveries, assigning accounts to collection
agencies and filing small claims actions. The Company shall be under no
obligation to institute litigation to collect such accounts receivable. If any
Customer debit balance includes interest charges and the Customers disputes that
it owes such interest, the Company may forgive such interest charges. All
amounts received from a Customer shall be applied first to satisfy amounts owed
by said Customers to the Company for deliveries made and service performed prior
to the Closing Date ("Pre-Closing Items"). After the Company has collected full
amount owed to the Company by said Customer with respect to all Pre-Closing
Items, the Company shall apply any payments made by any such Customers to
amounts billed on and after the Closing Date("Post-Closing Items). If a Customer
disputes the Company's application to Pre-Closing Items of any monies paid to
the Company by such Customer, then Buyer will notify Sellers and Sellers will
hold the Company harmless from any loss to the extent of the amount so applied
to Pre-Closing Items with respect to such Customers. If at the end of the
Collection period such Customer is disputing the application to Pre-Closing
Items of any amount paid by said Customer to the Company, then, at the election
of Buyer the Company shall reallocate to Post-Closing Items the amount in
dispute.
(ii) During the time the Company is collecting Pre-Closing
Items, Sellers or their representative may inspect the
9
<PAGE>
records of the Company with respect to such Pre-Closing Items during normal
business hours on reasonable notice.
(b) At the end of the Collection Period, Buyer shall pay to Sellers
in proportion to their Allocable Share as an increase in the Purchase Price the
amount, if any,by which the total collections by Buyer with respect to Pre-
Closing Items exceeds the value of the accounts receivable included in the
Closing Net Working Capital Calculation (which shall be the amount of accounts
receivable listed as 150 day old or less on the aged trial balances as of the
Closing), or Sellers in proportion to their Allocable Share shall pay to Buyer
as a decrease in the Purchase Price the amount, if any, by which the total
collections by Buyer with respect to Pre-closing Items is less than the value of
the accounts receivable included in the Closing Net Working Capital Calculation.
Total collections of Pre-Closing Items shall be calculated by subtracting the
total of active and inactive accounts receivables listed as "over 150 days" on
the Company's accounts receivable details as of March 20, 1998 (the last day of
the Collection Period) from the total of all accounts receivable as of the
closing date, less credits issued for interest charges and in the normal course
of business with respect to Pre-Closing Items. Buyer shall have no obligation
to compensate Sellers for collections of Pre-Closing Items made after the
Collection Period. Buyer shall first claim any amount owed to it from the
Escrow Fund.
10
<PAGE>
All references to accounts receivable in this Section 1.9 refer to
debit balances.
2. Definitions.
-----------
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Adverse Consequences" means any and all liabilities, claims, actions
and causes of action, including reasonable attorneys fees.
"Affiliate" has the meaning prescribed by Rule 12b-2 of the
regulations promulgated pursuant to the Securities Exchange Act.
"Allocable Share" means any Seller's portion of an amount herein equal
to the number of the Company Shares owned by such Seller as set forth in Section
3.2 of the Disclosure Schedule divided by 240.
"Balance Sheet" means the balance sheet of the Company at August 31,
1997 referred to in Section 3.6 of this Agreement.
"Closing" means the closing referred to in Section 10 of this
Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Pearl Gas Co., a corporation formed under the laws of
the State of Ohio.
"Company Affiliate" means each Affiliate of the Company.
11
<PAGE>
"Company Subsidiary" means any corporation of which the Company (a)
directly or indirectly owns or controls at the time outstanding shares of stock
which have in ordinary circumstances (not dependent upon the happening of a
contingency) voting power to elect a majority of the board of directors of said
corporation, or (b) of which shares of stock of the character described in the
foregoing clause (a) shall at the time be owned or controlled directly or
indirectly by the Company and one or more Company Subsidiaries as defined in the
foregoing clause (a) or by one or more such Company Subsidiaries.
"Disclosure Schedule" means the document delivered by the Sellers to
the Buyer simultaneously with the execution hereof containing the information
required to be included therein pursuant to this Agreement.
"Active Customer" means a Customer who has not terminated, nor has the
Company or Sellers any knowledge of the Customer's intention to terminate or
modify its normal business relationship with the Company and the Company has not
canceled or modified, and based upon facts known to the Company or Sellers, the
Company does not intend to cancel or modify, such relationship. A Customer is
not an Active Customer if such Customer has not taken a propane delivery since
September 1, 1996.
"Customer" shall mean any person, firm or corporation which has
purchased at retail on a non-Bid basis for consumption and not for resale any
propane from the Company during the period
12
<PAGE>
beginning on September 1, 1996 and ending on the date of the Closing.
"Customer Information" shall mean the names and addresses of all
Customers as of the Closing, together with all related credit, service and
delivery information in the Company's possession or control.
"Customer List" shall mean all documentation in the Company's
possession or control containing Customer Information.
"Bid" means a sale of propane to any consumer which has purchased
pursuant to an agreement which provides a specific price or pricing formula for
a contractually required specific period of time.
"C.O.D." means the Customer is required to pay for deliveries of
propane, at or prior to the time of delivery, but does not include budget plan
customers.
"Good Will" means the relationship between the Company and its
Customers including the Customer List, trade names, trade marks, service marks
and telephone numbers (as set forth in Section 2.1 of the Disclosure Schedule)
used by the Company.
"knowledge" or "known" means actual knowledge, not constructive or
implied. "knowledge" includes matters which were at one time known to a person
although not presently in his active memory and the contents of all writing
actually received by a person. The Company and Sellers are deemed to know the
contents of their respective files. Sellers are deemed to have the actual
knowledge of the Company. The Company is deemed to have the actual
13
<PAGE>
knowledge of Jeffrey Tonjes, Roger Rice, Craig Premo, Norman Tonjes, Patricia
Sheldrick, and Richard Bame.
"Net Dollar Sale" means gross sales less all discounts, rebates,
allowances, taxes and credits.
"Territory" means the area within a radius of 50 miles of any current
office or bulk plant of the Company.
The plural of any defined term shall have a meaning correlative to
such defined term.
3. Representations and Warranties of the Company.
---------------------------------------------
The Sellers hereby represent, covenant and warrant to Buyer, severally
and not jointly, in proportion to their Allocable Share, as follows:
3.1. Corporate Organization; Etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Ohio and has full corporate power and authority to carry on its business as it
is now being conducted and to own the properties and assets it now owns; the
Company is qualified to do business as a foreign corporation in each
jurisdiction in which the conduct of its business or ownership of property
requires such qualification. The copies of the Articles of Incorporation and
Code of Regulations of the Company heretofore delivered to Buyer are complete
and correct copies of such instruments as presently in effect.
3.2. Capitalization of the Company; the Company Shares. As of the
-------------------------------------------------
date of this Agreement, the authorized capital stock of the Company consists of
750 shares of Common Stock, $100 par value
14
<PAGE>
per share, of which 240 shares are issued and outstanding to the Sellers in the
amounts set forth in Section 3.2 of the Disclosure Schedule and 1,000 shares of
Preferred Stock, $100 par value, of which no shares are issued and outstanding.
All issued and out standing shares of capital stock of the Company are validly
issued and outstanding. As of the date of this Agreement, there are no
outstanding options to purchase shares of capital stock of the Company. There
are no outstanding (a) securities convertible into or exchangeable for capital
stock of the Company; (b) options, warrants or other rights to purchase or
subscribe to capital stock of the Company or securities convertible into or
exchangeable for capital stock of the Company; or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any capital stock of the Company, any such convertible or exchangeable
securities or any such options, warrants or rights. At the Closing the Buyer
shall acquire the Company Shares free of all liens, encumbrances, charges,
defects and adverse claims.
3.3. Subsidiaries. There is no Company Subsidiary.
------------
3.4. No Violation. Except as set forth in Section 3.4 of the
------------
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate any
provision of the Articles of Incorporation or Code of Regulations of, the
Company or, violate, or be in conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
15
<PAGE>
required by, or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any security interest,
lien or other encumbrance upon any property or assets of the Sellers or the
Company under, any agreement or commitment to which the Sellers or the Company
is a party or by which the Sellers or the Company is bound, or to which the
property of the Sellers or the Company is subject, or violate any statute or law
or any judgment, decree, order, regulation or rule of any court or governmental
authority.
3.5. Financial Statements. The Sellers have heretofore delivered to
--------------------
Buyer a balance sheet of the Company as at December 31 in each of the years
1994 through 1996 and a balance sheet of the Company as at August 31, 1997; and
consolidated statements of income, changes in stockholders' equity and cash
flows for each of such years ended December 31 and such 8 month period ended
August 31. Except as set forth in Section 3.5 of the Disclosure Schedule, such
balance sheets and the notes thereto fairly present the consolidated assets,
liabilities and financial condition of the Company as at the respective dates
thereof, and such statements of income, changes in stockholders' equity and cash
flows and the notes thereto fairly present the results of operations for the
periods therein referred to.
3.6. No Undisclosed Liabilities; Etc. The Company has no liabilities
-------------------------------
or obligations of any nature (absolute, accrued, contingent or otherwise) which
were not fully reflected or reserved against in the Balance Sheet, except as
disclosed in Section 3.6 of
16
<PAGE>
the Disclosure Schedule and except for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice since the date
thereof; and the reserves reflected in the Balance Sheet are adequate,
appropriate and reasonable.
3.7. Accounts Receivable. Except as set forth in Section 3.7 of the
-------------------
Disclosure Schedule, all accounts receivable of the Company, whether reflected
in the Balance Sheet or otherwise, represent sales of propane gas and services
and goods related thereto and tank rentals actually made in the ordinary course
of business, and are payable no more than 30 days from the date billed, and are
collectible without any valid offset or defense.
3.8. Inventory. All inventory of the Company, whether reflected in
---------
the Balance Sheet or otherwise, consists of a quality and quantity usable and
salable in the ordinary course of business, except for items of obsolete
materials and materials of below-standard quality, all of which have been
written down in the Balance Sheet to realizable market value or for which
adequate reserves have been provided therein. The quantities of all inventory of
the Company are reasonable and warranted in the present circumstances of its
businesses. Certain of such inventory is stored at an underground facility
through Domex pursuant to a contract annexed as part of Section 3.15 of the
Disclosure Schedule.
3.9. Interim Operations. Since the date of the Balance Sheet (a) the
------------------
business of the Company has been conducted only in the ordinary and usual course
consistent with past practice, except
17
<PAGE>
for the transfers of assets and liabilities provided for in paragraph 1.4(a) and
in the Disclosure Statement; (b) the Company has not delivered ahead of its
normal degree day or routing schedules; (c) there have not been any material
adverse changes in the financial condition, assets or results of operations of
the Company; (d) the Property and Equipment has not been affected in any way as
a result of flood, fire, explosion or other casualty (whether or not covered by
insurance); and (e) other than such matters as may impact propane businesses in
general in the Territory, the Sellers do not know of any circumstances which may
cause the Company to suffer any material adverse change in its business,
operations or prospects.
3.10. Title to Properties; Encumbrances. (a) The Company has
---------------------------------
good, valid and marketable title to all personal property which it purports to
own (tangible and intangible), including, without limitation, all of such
properties and assets reflected in the Balance Sheet (except for inventory and
other current assets sold since the date of the Balance Sheet in the ordinary
course of business and consistent with past practice). Except as set forth in
Section 3.10 of the Disclosure Schedule, all of such properties reflected in the
Balance Sheet or acquired after the date of the Balance Sheet are owned free and
clear of all title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever including, without
limitation leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest reten-
18
<PAGE>
tion arrangements, except, with respect to all such properties, liens shown on
the Balance Sheet as securing specified liabilities or obligations and liens
relating solely to and incurred in connection with the purchase of property
and/or assets, if such purchase was effected after the date of the Balance
Sheet, with respect to which no default exists. The rights, properties and other
assets presently owned, leased or licensed by the Company and described
elsewhere in this Agreement include all rights, properties and other assets
necessary to permit the Company to conduct its businesses in all material
respects in the same manner as its business has been conducted prior to the date
hereof.
(b) To the knowledge of Sellers, all public utilities required
for the operation of the real property owned or leased by the Company (the "Real
Property") are installed and operating and all installations and connection
charges have been paid in full. Except as described in Section 3.10 of the
Disclosure Schedule, the Company has not received any written report from any
employee, independent contractor, lender or insurer (excluding any unsolicited
information received from non-governmental persons or unsolicited information
mailed by an insurance carrier to its customers or the public generally)
regarding hazardous materials or environmental conditions, or otherwise
recommending any repairs or work, at the Real Property. Except as listed in
Section 3.10 of the Disclosure Schedule, there are no tenants, licensees or
other third parties with claims or rights to possession, use or occupancy of all
or any portion of the
19
<PAGE>
Real Property. To the knowledge of Sellers, (i) all permits and licenses
necessary to operate, occupy and use the Real Property as used by the Company
have been issued (collectively "Permits and Approvals"); (ii) all such Permits
and Approvals are in full force and effect; and (iii) the Company is in full
compliance therewith. To the knowledge of Sellers, the Company has not taken any
action or made any improvements or alterations which would require amending,
modifying or supplementing the foregoing. There are no outstanding requirements
or recommendations by a holder of a mortgage affecting the Real Property or by
any insurance company which issued a policy with respect to the Real Property or
by any board of fire underwriters or other body exercising similar functions,
requiring or recommending any repairs or work to be done on the Real Property
(excluding unsolicited items mailed to customers or the public generally by any
such person). The Company has not received notice from the holder of any lien on
the Real Property asserting that a default or breach exists or event has
occurred which, with the giving of notice or passage of time or both, would
constitute a default or breach thereunder. There are no outstanding contracts
made by the Company, or payment obligations incurred by the Company, for the
construction or repair of any improvements to the Real Property and no
mechanics' or materialmen's liens arising from any labor or materials furnished
to the Real Property prior to the Closing Date. The Company has not received any
notice that any default, breach or violation exists under any covenant,
condition, restriction, permit, right of
20
<PAGE>
way, easement or other encumbrance affecting any part of the Real Property and
to Sellers knowledge no fact or condition exists which would constitute such
default or breach. The Company has not received any notice of any violation of
any federal, state or municipal laws, ordinances, orders, regulations or
requirements affecting any portion of the Real Property or any operations based
at the Real Property and to Sellers knowledge no facts or conditions exist which
would constitute such violation. Except as disclosed in Section 3.10 of the
Disclosure Schedule, there are no written service contracts or other agreements
relating to the maintenance or operation of the Real Property and no oral
arrangements which are not terminable at will and without cost to the Company.
3.11. Insurance. Section 3.11 of the Disclosure Schedule contains
---------
a fair summary of all material policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by the Company. All such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid when
due, and no notice of cancellation or termination has been received with respect
to any such policy. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which the Company is a party; are
valid, outstanding and enforceable policies subject to limitations imposed by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally; provide
21
<PAGE>
adequate insurance coverage for the assets and operations of the Company; will
remain in full force and effect through the respective dates set forth in
Section 3.11 of the Disclosure Schedule; and will not in any way be affected by,
or terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance during the last five years.
3.12. Leases. Section 3.12 of the Disclosure Schedule contains an
------
accurate and complete description of the terms of all leases pursuant to which
the Company leases real or personal property. Except as set forth in Section
3.12 of the Disclosure Schedule, all such leases are valid, binding and
enforceable in accordance with their terms, and are in full force and effect;
there are no existing defaults by the Company thereunder; no event of default
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder; and all lessors under such leases have consented (where such consent
is necessary) to the sale of the Company Shares without requiring modification
in the rights or obligations of the lessee under such leases. Executed
counterpart copies of all consents referred to in the preceding sentence are
being delivered to Buyer simultaneously with the execution hereof. Section 3.12
of the Disclosure Schedule describes no more
22
<PAGE>
than 10 written tank leases and aside from these, Seller has not entered into
written tank and cylinder leases with its Customers. However, the Sellers
represent that the Company is entitled to possession of the Minimum Number of
tanks and all of the cylinders represented as owned by the Company and located
at Customers upon reasonable notice without any payment requirement or offset,
defense or counterclaim existing as of, or arising out of any occurrence prior
to, the date of the Closing, but subject to the Customers right to retain
possession of the tank or cylinder for the unearned period of any prepaid
rental. The Minimum Number of tanks means an amount equal to 98% of the total
number of tanks represented by Sellers in Exhibit 1.6 of this Agreement as owned
by the Company less the number of tanks not verified as owned by the Company
pursuant to Sections 1.6 and 1.7 for which the Buyer is entitled to payment from
the Sellers pursuant to Sections 1.6 and 1.7, and if payment has been received,
with respect to Non-Rental Tanks, Buyer has transferred the Non-Rental Tank to
Sellers as required in Section 1.7.
3.13. Bank Accounts. Section 3.13 of the Disclosure Schedule sets
-------------
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names of all persons
authorized to draw thereon, make withdrawals therefrom or have access thereto.
At the Closing, the Company will deliver to Buyer copies of all
23
<PAGE>
records, including all signature or authorization cards, pertaining to such bank
accounts.
3.14. Taxes. Except as set forth in Section 3.14 of the
-----
Disclosure Schedules, the Company has duly filed all tax reports and returns
required to be filed by it and has duly paid all taxes and other charges shown
to be due on said returns or claimed to be due from it by federal, state, local
or foreign taxing authorities (including, without limitation, those due in
respect of the properties, income, franchises, licenses, sales or payrolls); the
reserves for taxes reflected in the Balance Sheet are adequate; and there are no
tax liens upon any property or assets of the Company except liens for current
taxes not yet due. The federal income tax returns of the Company have been
examined by the Internal Revenue Service through June 1991 and all deficiencies
asserted as a result of such examinations have been paid or finally settled.
Except to the extent set forth in Section 3.14 of the Disclosure Schedule, there
are no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal income tax return for any period. Copies of
all federal income tax returns for the Company in respect of all years not
barred by the statute of limitations have heretofore been delivered by the
Sellers to Buyer and all such returns are listed in Section 3.14 of the
Disclosure Schedule. The Company has not with regard to any assets or property
held, acquired or to be acquired by it, filed a consent to the application of
Section 341(f)(2) of the Code. The Company has entered into no tax sharing
agreement.
24
<PAGE>
3.15. Contracts and Commitments. Except as set forth in Section
-------------------------
3.15 of the Disclosure Schedule:
(a) The Company has no agreements, contracts, commitments or
restrictions which require the payment of more than $10,000;
(b) No purchase contracts or commitments of the Company continue
for a period of more than one year or are in excess of the normal, ordinary and
usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than one year or to
Sellers' knowledge will result in any loss to the Company upon completion or
performance thereof, nor are there any outstanding contracts, bids or sales or
service proposals quoting prices which Sellers believes will not result in a
normal profit;
(d) The Company has no outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives, or
others that are not cancelable by it on notice of not longer than 30 days and
without liability, penalty or premium or any agreement or arrangement providing
for the payment of any bonus or commission based on sales or earnings;
(e) The Company has no employment agreement, or any other
agreement that contains any severance or any severance or termination pay
liabilities or obligations;
25
<PAGE>
(f) The Company has no collective bargaining or union contracts
or agreements;
(g) The Company is not in default, nor to the knowledge of
Sellers is there any basis for any valid claim of default, under any contract
made or obligation owed by it;
(h) The Company is not restricted by agreement to which the
Company is a party or by which it is bound from carrying on its business
anywhere in the world;
(i) The Company has no debt obligation for borrowed money,
including guarantees of or agreements to acquire any such debt obligation of
others;
(j) Except with respect to loans to the Sellers, the Company has
no outstanding loan to any person; and
(k) The Company has no power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
3.16 Customer Information. With respect to the business of the
--------------------
Company:
(a) (i) On August 31, 1997, the Company had no fewer than 12,230
Active Customers at least 98% of which were located in the Territory. As of the
Closing, the Company will have at least 98% of the above number of Active
Customers.
26
<PAGE>
(ii) During the 12 months ended August 31, 1997, the Company
earned rental income of $409,388 for tank and meter rentals as evidenced by the
Company's sales records. The Customer Information includes the location of each
rented tank and serial number and the Customers payment history regarding each
such tank, it being understood that no Customer names will be revealed prior to
Closing.
(iii) During the 12 months ended August 31, 1997, the
Company sold at least 14,312,113 gallons of propane to Customers. The following
table accurately sets forth for each month listed below the number of gallons of
propane sold by the Company to Customers and Net Dollar Sales:
PROPANE SALES TO CUSTOMERS
<TABLE>
<CAPTION>
Gallons $
---------- --------------
<S> <C> <C>
September, 1996 930,499 728,161.25
October 1,088,714 953,648.27
November 1,689,796 1,713,847.65
December 2,060,843 2,483,020.40
January, 1997 2,505,379 2,806,557.88
February 1,718,426 1,686,840.77
March 1,347,502 1,217,062.92
April 977,330 794,378.53
May 539,952 422,828.38
June 320,352 245,322.01
July 372,696 275,862.12
August 760,624 548,817
---------- --------------
TOTAL 14,312,113 $13,876,356.93
</TABLE>
(iv) Section 3.16 (a)(iv) of the Disclosure Schedule
identifies each Customer which purchased more than 5,000
27
<PAGE>
gallons of propane during the 12 months ended August 31, 1997 and the current
price of each such Customer.
(b) For the 12 months ended August 31, 1997, Seller's Net Dollar
Sales billed for service, labor and parts was $166,289.
(c) Section 3.16 (c) of the Disclosure Schedule is a true,
complete and accurate aging of the accounts receivable of the Customers as of
each calendar month end from July 1995 through August 1997.
(d) Except as set forth in Section 3.16(d) of the Disclosure
Schedule, the Company made no acquisitions of other propane distributors within
the past five years.
(e) Except as set forth in Section 3.16(e) of the Disclosure
Schedule, neither Sellers nor the Company has disclosed a material portion of
the Customer Information to any person or entity other than its present computer
company, except that certain of the Company's employees have access to a copy of
a list of the Customers on the Real Property and in Company vehicles on a daily
basis to perform their required duties. Except as set forth in Section 3.16(e)
of the Disclosure Schedule, to the knowledge of Sellers, no person other than
Sellers or the Company has possession of a list of the names and addresses of a
material number of the Customers and all such lists shall be delivered to Buyer
at the Closing.
(f) Except as set forth in Section 3.16(f) of the Disclosure
Schedule, the Company does not subcontract the delivery
28
<PAGE>
of propane, the provision of installation or maintenance services or the
performance of any service normally furnished by employees, to any independent
contractor, nor has the Company terminated any such relationship during the
period of 24 months prior to the date of this Agreement. Except as set forth in
Section 3.16(f) of the Disclosure Schedule, to the knowledge of Sellers all
propane equipment maintenance and installation services are provided to
Customers directly by the Company.
(g) Except as set forth in Section 3.16(g) of the Disclosure
Schedule, the Company has no program or policy pursuant to which it provides
discounts, interest, free gallonage, free service, extensions of credit or any
other accommodation to Customers based upon volume purchased, age, prompt
payments, their participation in the Company's budget program, or otherwise.
(h) Except as set forth in Section 3.16(h) of the Disclosure
Schedule, the Company does not deliver any propane to Customers through a
central tank or delivery system.
(i) To the knowledge of Sellers no former owner, employee or
independent contractor of the Company or any propane distributor acquired by the
Company has solicited the patronage of any of the Customers in any business
which is competitive with the Company's business.
(j) The Company does not sell any propane to or through
cooperatives or buying groups or their members.
29
<PAGE>
(k) The Company did not derive any revenues from any of the
customers other than through sales of propane, tank and meter rentals and
service and installation of propane equipment.
(l) Section 3.16(l) of the Disclosure Schedule sets forth
gallons sold and Net Dollar Sales of propane per month for each operating branch
for the 12 months ended August 31, 1997.
3.17 Plant and Equipment.
-------------------
(a) To the knowledge of Sellers, the plants, structures and
equipment of the Company are in good operating condition and repair and are
adequate for the uses to which they are being put. The Company has received no
notification that it is in violation of any applicable building, zoning, anti-
pollution, safety or other law, ordinance or regulation in respect of its plants
or structures or their operations and, to the knowledge of the Sellers, no such
violation exists. Except as set forth on Section 3.17(a) of the Disclosure
Schedule, the Company has received no recommendation from any insurance carrier
or any consultant hired by the Company proposing changes in its methods of
operation or relating to changes with respect to any of Company's properties,
including the Real Property (excluding information received from any insurance
carrier mailed to its customers or the public generally).
(b) (i) Motor Vehicles. All motor vehicles of the Company are:
--------------
(i) properly licensed and registered in accordance with applicable law or as
required in the normal operation of the business; (ii) except as to compliance
with 49 CFR (S)171.5, in
30
<PAGE>
substantial compliance with applicable state and federal Department of
Transportation standards and regulatory requirements for their designated use
and there are no material items of non-compliance thereunder; and (iii) the sole
property of the Company and no person, corporation or firm has any ownership
interest in such vehicles other than those contained in the leases for the
leased vehicles.
(ii) With respect to the propane tanks, bulk tanks and
propane related equipment, contained in the assets, (A) substantially all
propane tanks at customer locations were installed in compliance with the then
effective edition of NFPA Pamphlet No. 58, (B) substantially all propane tanks
are in safe and working order and are in substantial compliance with NFPA
Pamphlet No. 58, 1995 Edition; (C) substantially all customer bulk storage tanks
and bulk plant storage tanks included in the assets shall include proper data
plates or tank identification (marked in accordance NFPA 58) and shall be rated
for a working pressure of at least 200 pounds per square inch, determined in
accordance with the standards of the American Society of Mechanical Engineers,
and (D) substantially all of the cylinders shall be qualified for use in
accordance with applicable state and federal department of transportation
standards and regulatory requirements. Notwithstanding the foregoing, the
representations set forth in this subparagraph 3.17(b)(ii) shall be deemed to be
accurate with respect to (b)(ii)(A), (B) and (C) if at Closing at least 98% of
the tanks described therein comply with such representations and with respect
31
<PAGE>
to (b)(ii)(D) if at least 90% of the cylinders described therein comply with
such representations.
(c) The only tradename used by the Company since January 31,
1989 in connection with its business is "Pearl Gas Co." ("Name"). There are no
adverse claims, liens or encumbrances upon or affecting the Name; the Company
has not agreed to discontinue using the Name after a specified period; to the
knowledge of Sellers, no other person is using any name similar to the Name in
connection with the sale of propane in the Territory; the Company is not using
any tradename other than the Name in connection with the business of the
Company; the Company has the unrestricted right to use the Name in connection
with its business in the States of Ohio, Indiana and Michigan, and the Company
has given no other party the right to use the Name in connection with the sale
of propane.
(d) All propane inventory is (i) of a quality sufficient to
meet industry specifications (ii) of a quality usable by the Company and
saleable at normal selling prices in the normal course of business and (iii)
located in vehicle cargo tanks, tanks at bulk plants and metered tanks at
Customer locations and leased propane storage, and agreements with respect to
all of such leased propane storage have been disclosed as part of Section 3.15
of the Disclosure Schedule.
3.18. Agreements in Full Force and Effect. All contracts,
-----------------------------------
agreements, plans, leases, policies and licenses referred to in the Disclosure
Schedule are valid and in full force
32
<PAGE>
and effect, and except for agreements identified in Section 1.4(a) of the
Disclosure Schedule as being transferred and assigned to others, true copies
thereof have been heretofore made available to Buyer.
3.19. Labor Difficulties. Except to the extent set forth in
------------------
Section 3.19 of the Disclosure Schedule, (a) to the knowledge of Sellers, the
Company is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and are not engaged in any unfair labor practice; (b) there is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board; (c) there is no labor strike, dispute, slowdown or stoppage
actually pending or to the knowledge of Sellers threatened against or affecting
the Company; (d) to the knowledge of Sellers no representation question exists
respecting the employees of the Company; (e) no grievance which might have a
material adverse effect on the Company or the conduct of its business nor any
arbitration proceeding arising out of or under collective bargaining agreements
is pending or to the knowledge of Sellers is threatened; (f) no collective
bargaining agreement which is binding on the Company restricts it from
relocating or closing any of their operations; and (g) during the past 36 months
the Company has not experienced any work stoppage or other labor difficulty.
3.20. Fringe Benefit Plans. Except as set forth in Section 3.20
--------------------
of the Disclosure Schedule, the Company has no bonus,
33
<PAGE>
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option or any other fringe benefit plan, arrangement or practice, whether
formal or informal. Section 3.20 of the Disclosure Schedule contains an
accurate and complete description of, and sets forth the annual amount payable
pursuant to, each bonus, deferred compensation, pension, profit-sharing or
retirement plan or arrangement, and each other fringe benefit plan, of the
Company whether formal or informal. The Company has no commitment, whether
formal or informal and whether legally binding or not, to create any additional
such plan or arrangement.
3.21. Litigation. Except as set forth in Section 3.21 of the
----------
Disclosure Schedule, there is no action, suit, inquiry, proceeding or
investigation by or before any court or governmental or other regulatory or
administrative agency or commission pending or, to the knowledge of the Sellers,
threatened (i) against or involving the Company not fully covered by insurance
(ii) which questions or challenges the validity of this Agreement or (iii) any
action taken or to be taken by the Company pursuant to this Agreement or in
connection with the transactions contemplated hereby; nor to the knowledge of
Sellers is there any valid basis for any such action, proceeding or
investigation. Except as set forth in Section 3.21 of the Disclosure Schedule,
the Company is not in default under or in violation of, nor to the knowledge of
Sellers is there any valid basis for any claim of default under or violation of,
any contract, commitment or restriction to which the Company is a party or by
which it is bound. The Company is not
34
<PAGE>
subject to any judgment, order or decree entered in any lawsuit or proceeding
which may have an adverse effect on its business practices or on its ability to
acquire any property or conduct its business in any area.
3.22. No Condemnation or Expropriation. Except as set forth in
--------------------------------
Section 3.22 of the Disclosure Schedule, neither the whole nor any portion of
the leaseholds or any other assets of the Company, including the Real Property,
is subject to any governmental decree or order to be sold or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the knowledge of the Sellers,
has any such condemnation, expropriation or taking been proposed.
3.23. Consents and Approvals of Governmental Authorities. Except
--------------------------------------------------
as set forth in Section 3.23 of the Disclosure Schedule, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby; however, Sellers make no warranty and representation as to
any necessary consents, approvals, authorization, declarations, registrations or
otherwise required from such entities or persons for the continued operation of
the Company at and after Closing.
3.24. Consents of Private Persons. Except as set forth in Section
---------------------------
3.24 of the Disclosure Schedule, no consent of any person is necessary to the
consummation of the transactions
35
<PAGE>
contemplated hereby, including, without limitation, consents from parties to
loans, contracts, leases or other agreements.
3.25. Compliance with Law. To the knowledge of Sellers, the
-------------------
operations of the Company have been conducted in accordance with all applicable
laws, regulations and other requirements of all federal governmental
authorities, and of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company, including, without
limitation, all such laws, regulations and requirements relating to antitrust,
consumer protection, currency exchange, equal opportunity, health, occupational
safety, pension and securities. Except as set forth in Section 3.25 of the
Disclosure Schedule, during the past 5 years, the Company has not received any
notification of any asserted present or past failure by the Company to comply
with such laws, rules or regulations and to the knowledge of the Sellers no such
violation exists.
3.26. Environmental Protection. To the knowledge of Sellers,
------------------------
except as set forth in Section 3.26 of the Disclosure Schedule, the Company has
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, trans-
36
<PAGE>
port, or handling of pollutants, contaminants or hazardous or toxic materials or
wastes and true copies of all such permits, licenses and authorizations have
been delivered to Buyer. To the knowledge of Sellers, except as set forth in
Section 3.26 of the Disclosure Schedule, the Company is in material compliance
with all terms and conditions of the required permits, licenses and
authorizations, and is also in material compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. Except as set forth in Section 3.26 of the
Disclosure Schedule, the Company has not received notice of any past, present or
future events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance, or
which may give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste.
3.27. Compliance with ERISA.
---------------------
(a) Prohibited Transactions. To the knowledge of Sellers, the
-----------------------
Company has not engaged in a transaction in connection with which the Company
could be subject to either a civil penalty
37
<PAGE>
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code.
(b) Defined Benefit Plan. The Company does not and has never
--------------------
maintained, and was never obligated to make any contribution with respect to, a
defined benefit or any other type of pension plan.
(c) Compliance with Applicable Laws. To the knowledge of
-------------------------------
Sellers, each employee benefit plan is in material compliance with applicable
Federal laws, including but not limited to ERISA. The Company contributes to no
Multiemployer Plan.
3.28. Employees. Except for those employees listed in Section
---------
3.28 of the Disclosure Schedule; to Sellers' knowledge, no employee has advised
the Company of an intent to terminate or modify his employment relationship with
the Company as of the date hereof or that any such employee will refuse to
continue his present employment after the Closing. Section 3.28 of the
Disclosure Schedule contains a correct and complete list of (i) all employees of
the Company (including the current basis and rate of compensation, bonuses paid
in the last 12 months, salary review date and date of hire) and all individuals
(excluding tank painters) whose employment was terminated since January 1, 1995
and (ii) all commission salesmen setting forth each of their bases and rates of
compensation and setting forth the gross salary and/or the commission paid or
payable to each of them in respect of the 12 months ended August 31, 1997 and
all commission salesmen terminated since January 1, 1995. The Company is not
indebted to any
38
<PAGE>
employee, in any amount whatsoever, other than for current salaries, vacation
pay or bonuses for services rendered, current expense allowances, or other
benefits (due or accrued) or current unpaid commissions to retail salesmen.
3.29. Insider Interests. Except as set forth in Section 3.29 of
-----------------
the Disclosure Schedule, neither the Sellers nor any Affiliate have any material
interest in any (i) Customer or (ii) property, real or personal, tangible or
intangible, including without limitation, inventions, patents, trademarks or
trade names, used in or pertaining to the business of the Company.
3.30. Sellers To Comply with Obligations. Sellers will use their
----------------------------------
best efforts to comply with all of their obligations under this Agreement and to
fulfill all of the conditions precedent to Buyer's obligations.
3.31. Disclosure. Except as set forth in Section 3.31 of the
----------
Disclosure Schedule, to the knowledge of Sellers, no representations or
warranties by them in this Agreement and no statement contained in any document
(including, without limitation, financial statements and the Disclosure
Schedule), certificate, or other writing furnished or to be furnished by the
Company to Buyer or any of its representatives pursuant to the provisions hereof
or in connection with the transactions contemplated hereby, knowingly contains
or will knowingly contain any untrue statement of material fact or knowingly
omits or will knowingly omit to state any material fact necessary, in light of
the circumstances under which
39
<PAGE>
it was made, in order to make the statements herein or therein not misleading.
4. Representations and Warranties of Buyer. Buyer hereby represents and
---------------------------------------
warrants to the Sellers as follows:
4.1. Organization, Qualification, Etc. Buyer is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted.
4.2. Liens, Compliance with Laws, Etc.
--------------------------------
(a) The execution, delivery and performance of this Agreement by
Buyer and the consummation of the transactions contemplated hereby, have been
duly authorized by all requisite action, as required under applicable law and no
further authorization will be necessary on the part of the Buyer for the
execution, delivery, performance, or consummation of this Agreement. The Buyer
has the power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
Buyer will not, with or without the giving of notice and/or the passage of time,
conflict with, result in the breach or termination of any provision, or
constitute a default under, or result in the creation of any lien, charge or
encumbrance upon any of the properties or assets of Buyer pursuant to any
corporate charter, by-law, indenture, mortgage, deed of trust or other agreement
or instrument to which Buyer is a
40
<PAGE>
party or by which Buyer or its assets or properties is bound, or to the
knowledge of Buyer, violate any provision of law applicable to Buyer. No
approval of any Federal, state or local governmental authority or administrative
agency is necessary to authorize the execution of this Agreement by Buyer or the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of the Buyer in accordance with its terms.
(b) Buyer has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
4.3. Other Matters.
-------------
(a) Buyer has no liability to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
agreement for which any Seller could become liable or obligated.
(b) Buyer has been given full access to all records of the
Company and has had a sufficient opportunity to familiarize itself therewith.
(c) Buyer has consulted with its tax and financial counsel
concerning the tax effect of the stock purchase contemplated in this Agreement.
(d) Buyer understands that an investment in the Company involves
certain risks, and that Buyer could suffer a total loss of its investment and
that Buyer, either acting alone or with representatives or advisors, has enough
sophistication in business matters to ascertain the degree of risk.
41
<PAGE>
(e) Buyer has been given the opportunity to ask questions of,
and receive answers from, Sellers concerning the Company and its business, and
all of its questions have been satisfactorily answered, and it has no additional
questions at this time or at the Closing.
(f) In making its decision to purchase the stock of the Company,
Buyer has relied upon the Disclosure Schedule and the Agreement.
(g) Buyer has inspected the assets of the Company, including the
Real Property, and except as set forth in Section 3, is accepting the assets of
the Company "as is" and "where is"; and has had the opportunity to obtain
environmental assessments, surveys, title reports and zoning certifications to
any and all assets of the Company.
(h) Buyer acknowledges that Sellers have made no representation
to Buyer as to the future business of the Company.
Notwithstanding the foregoing, it is understood that nothing contained
in this Section 4.3 shall lessen the representation and warranties of Sellers
contained in this Agreement or Buyers absolute right to rely on them. Except as
expressly set forth in Section 12.7, Sellers waive any claim that Buyer knew or
should have known any matters as a result of any investigation or inquiry.
4.4. Buyer to Comply With Its Obligations. Buyer shall use its best
------------------------------------
efforts to comply with all of its obligations under
42
<PAGE>
this Agreement and to fulfill all of the conditions precedent to the Sellers'
obligations.
5. Operations Pending Closing.
--------------------------
On and after the date hereof and until the Closing, Sellers shall
cause the Company to conduct its business in accordance with the following
procedures:
5.1. (a) Sellers shall cause the Company to conduct its business in
the regular and ordinary course and shall use its best efforts to preserve the
existing relationships of customers, employees and others having business
relations with the Company and to maintain its competitive position; provided,
that the Company will make the transfers referred to in Section 1.4(a) of the
Disclosure Schedule. In particular, but not in limitation of the foregoing, the
Company shall continue its normal degree day delivery or routing schedule and
shall not deliver ahead of such normal schedule.
(b) In addition to and not in limitation of the restrictions
imposed by subsection (a) unless approved by Buyer in writing, the Sellers shall
not, nor shall the Sellers cause the company to:
(i) Change or amend the Articles of Incorporation or Code
of Regulations of the Company.
(ii) Issue or sell or agree to issue or sell any shares of
the Company's capital stock or other securities.
43
<PAGE>
(iii) Organize any Subsidiary, acquire any capital stock or
other equity securities of any corporation or acquire any equity or ownership
interest in any business.
(iv) Borrow or agree to borrow any funds or incur, or
assume or become subject to, whether directly or by way of guarantee or
otherwise, any obligation or liability (absolute or contingent), except
obligations and liabilities incurred in the ordinary course of business and
consistent with past practice.
(v) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice.
(vi) Permit or allow any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any mortgage,
pledge, lien or encumbrance.
(vii) Cancel any debts or waive any claims or rights of
material value or sell, transfer, or otherwise dispose of any of its properties
or assets, except in the ordinary course of business and consistent with past
practice.
(viii) Dispose of or permit to lapse any rights to the use
of any patent, trademark, trade name or copyright, or dispose of or disclose to
any person any trade secret, formula, process or know-how not theretofore a
matter of public knowledge.
(ix) Grant any general increase in the compensation of
officers or employees (including any such increase pursuant to any bonus,
pension, profit sharing or other plan or
44
<PAGE>
commitment) or any increase in the compensation payable or to become payable to
any officer or employee.
(x) Make any single capital expenditure or commitment in
excess of $5,000 for additions to property, plant or equipment or make aggregate
capital expenditures and commitments in excess of $25,000 for additions to
property, plant or equipment.
(xi) Except as set forth in Section 1.4(a) of the
Disclosure Schedule, pay, loan or advance any amount to, or sell transfer or
lease any properties or assets to, or enter into any agreement or arrangement
with, any of its officers or directors or any Affiliate of any of its officers
or directors, except for compensation to officers at rates not exceeding the
rates of compensation disclosed in Section 3.28(a) of the Disclosure Schedule.
(xii) Change any of the banking or safe deposit
arrangements described in Section 3.13 of the Disclosure Schedule.
(xiii) Grant or extend any power of attorney or act as
guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
(xiv) Enter into any contract for the purchase of propane
or supplies or for the sale of assets except normal contracts or commitments
with suppliers for the purchase of propane and items held for sale to Customers
and contracts and commitments with Customers for the sale of, and normal sales
of, inventory, in
45
<PAGE>
any case, in the ordinary course of business and consistent with past practice.
(xv) Agree, whether in writing or otherwise, to do any of the
foregoing.
5.2. The Sellers shall use their best efforts to cause the Company to
conduct its business so that the representations and warranties applicable to it
as set forth in Section 3 continue to be true in all material respects at all
times between the date of this Agreement and the Closing as if made at all such
times and as of the Closing.
5.3. (a) Between the date hereof and the Closing, Buyer and its
representatives may continue to make such reasonable investigations of the
Company and such reasonable investigations of its financial condition as Buyer
deems necessary or advisable to familiarize itself with such properties and
other matters relating thereto. The Sellers shall cause the Company to permit
authorized representatives of Buyer to have, after the date hereof, reasonable
access to the premises of the Company and its books and records and will furnish
to Buyer such data and information with respect to the Company as the Buyer may
from time to time reasonably request. The Buyer shall have the right to request
copies thereof and excerpts therefrom. The Company shall not be obliged to
reveal the names of, or otherwise identify, specific Customers. All of Buyer's
investigations hereunder shall be conducted so as not to interfere with the
Company's normal business activities. The Buyer agrees that should the Closing
not occur, for whatever reason, it will act
46
<PAGE>
in accordance with the Confidentiality Agreement dated May 5, 1997 between Buyer
and the Company, a copy of which is set forth in as Exhibit 5.3(a).
(b) Except to the extent set forth in Section 12.7, Sellers agree
that any inquiry or investigation made by Buyer pursuant to this Agreement shall
not in any way affect or lessen the representations and warranties made by them
in this Agreement or their survival of the Closing. Except to the extent set
forth in Section 12.7 and as to matters disclosed in this Agreement or the
Disclosure Schedule, in any action or proceeding based upon the breach of any
representation or warranty, Sellers hereby waive the defense that Buyer knew or
should have known the true facts or circumstances. Notwithstanding the
foregoing, if Sellers discover any facts which disclose the inaccuracy or breach
of any representations and warranties made by Sellers pursuant to this
Agreement which facts were unknown to Sellers at the time of execution of this
Agreement and Sellers advise Buyer of such facts prior to the Closing in the
manner provided herein for the giving of notices, then such facts shall be
deemed part of the Disclosure Schedule and Buyer may elect to terminate this
Agreement based upon the disclosure of such facts or to close; however, in
neither event will buyer have a claim against Sellers based upon the existence
of such facts.
5.4 (a) Sellers shall give prompt notice to the Buyer of (i) any
notice of, or other communication received by Sellers subsequent to the date of
this Agreement and prior to the Closing
47
<PAGE>
Date relating to, a default or event which with notice or lapse of time or both
would become a default, or which would cause any warranty or representation of
Sellers to be untrue or misleading in any material respect, under this
Agreement, (ii) any notice or other communication received by the Company or
Sellers from any third party alleging that the consent of such third party is or
may be required in connection with the transactions contemplated by this
Agreement, (iii) any concerted union activity pending or threatened and (iv) any
material adverse change in the business of the Company its operations,
prospects, earnings, assets or condition (financial or otherwise).
6. Conditions Precedent to Obligations of the Buyer.
------------------------------------------------
The obligation of the Buyer hereunder to consummate this Agreement is
expressly subject to the satisfaction on or before the Closing, of all of the
following conditions (compliance with which or the occurrence of which may be
waived in whole or in part by the Buyer):
6.1. Sellers shall have materially complied with and duly performed
all agreements and conditions on their part to be complied with and performed
pursuant to this Agreement on or before the Closing.
6.2. The representations and warranties of Sellers contained in this
Agreement including the Disclosure Schedule and the exhibits hereto shall be
true and correct in all material respects as of the Closing with the same force
and effect as though
48
<PAGE>
such representations and warranties had been made on and as of the Closing Date.
6.3. Between August 31, 1997 and the Closing there shall have been no
material and adverse change in the business or employee profile of the Company,
except for matters affecting propane businesses in general in the Territory, the
transfers being made as part of this transaction as set forth in Section 1.4(a)
of the Disclosure Schedule and assets sold in the normal course of business and
consistent with past practices.
6.4. From and after the date of this Agreement and through and
including the Closing there shall have been no concerted union activity or legal
action pending or threatened.
6.5. The Buyer shall have received all of the documents required
pursuant to Section 8 hereof and such additional documents as the Company may
have agreed in writing to deliver.
6.6. The Buyer shall not have validly terminated this Agreement
pursuant to Section 11 hereof.
7. Conditions Precedent to Obligations of Sellers.
----------------------------------------------
The obligation of the Sellers to consummate this Agreement is
expressly subject to the satisfaction as of the Closing of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by the Sellers):
7.1. The Buyer shall have materially complied with and duly performed
all of the agreements and conditions on its part to
49
<PAGE>
be complied with or performed pursuant to this Agreement on or before the
Closing.
7.2. The representations and warranties of the Buyer contained in this
Agreement or otherwise made in writing in connection with the transactions
contemplated hereby shall be true and correct in all material respects on and as
of the Closing with the same force and effect as though such representations and
warranties had been made on and as of the Closing.
7.3. The Sellers shall have received all of the documents and payments
required pursuant to Section 9 hereof.
7.4. The Sellers shall not have validly terminated this Agreement
pursuant to Section 11 hereof.
7.5 The Sellers shall have received written acknowledgement from
NationsBank, N.A. and Bank Boston N.A. or their counsel that all conditions
precedent to the disbursement of funds escrowed under the Escrow Agreement dated
as of October 21, 1997 have been satisfied except those set forth in Section
3(b) of the Escrow Agreement.
8. Deliveries of the Sellers at the Closing.
----------------------------------------
At the Closing the Sellers shall deliver or have previously delivered
or cause or have already caused to be delivered to the Buyer the following:
8.1. Certificate dated a current date from the appropriate authorities
in the State of Ohio attesting to the existence and good standing of the
Company.
50
<PAGE>
8.2. An opinion, dated as of the Closing, of Messrs. Eastman & Smith
Ltd. in substantially the form of Exhibit 8.2.
8.3. Corporate minute books of the Company.
8.4. Restrictive Covenant of Jeffrey L. Tonjes in the form of Exhibit
8.4.
8.5. Restrictive Covenant of Jack Miller in the form of Exhibit 8.5.
8.6. Restrictive Covenant of Sandra Miller in the form of Exhibit
8.6.
8.7. Restrictive Covenant of Norman C. Tonjes in the form of Exhibit
8.7.
8.8. Restrictive Covenant of Mary C. Tonjes in the form of Exhibit
8.8.
8.9. If requested by Buyer, resignations of all of the officers and
directors of the Company.
8.10. Schedule of insurance for the Company showing all insurance in
effect for the past five years including the identity of the carrier, the
coverages, the policy number and the effective dates of each policy.
8.11. Certificates representing the Company Shares duly endorsed.
8.12. Certificates of title for all certificated motor vehicles owned
by the Company.
8.13. UCC-3 releases or copies of UCC-3 releases from the Company's
former bank lender.
8.14. Lease in the form of Exhibit 8.14.
51
<PAGE>
8.15. Lease in the form of Exhibit 8.15.
8.16 Lease in the form of Exhibit 8.16.
9. Deliveries of the Buyer at the Closing.
--------------------------------------
At the Closing, the Buyer shall deliver or cause to be delivered to
Sellers the following:
9.1. Certified resolutions of the Board of Directors of the Buyer
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein.
9.2. An opinion, dated as of the Closing, of Phillips Nizer Benjamin
Krim & Ballon LLP in substantially the form of Exhibit 9.2.
9.3. Wire transfer of immediately available funds in payment of the
balance of the purchase price.
10. The Closing.
-----------
10.1. The closing ("Closing") shall take place at the offices of
Eastman & Smith Ltd., One Seagate, Toledo, Ohio 43699-0032, 9:00 A.M. local time
on October 22, 1997 or at such other time and place as the parties may agree
("Closing Date").
11. Termination of Agreement.
------------------------
This Agreement may be terminated and the obligations to consummate
this transaction canceled at any time prior to the Closing:
11.1. By mutual consent of Buyer and the Sellers.
52
<PAGE>
11.2. By either Buyer or the Sellers if there has been a material
misstatement or material omission in a representation or a material breach in
any warranty or covenant on the part of the other party the effect of which has
not been cured within ten (10) business days after notice thereof has been
given, or in the case of a breach or default the effect of which can be cured
but cannot be cured within 10 days, if said party diligently commences to cure
the same within said 10 day period and thereafter fails to cure the effect of
same, within 20 days after such notice.
11.3. By either Buyer or the Sellers if the material conditions
precedent to its obligations have not been fulfilled or complied with as
provided in Sections 6 and 7 hereof, respectively.
11.4. By either Buyer or the Sellers, if the Closing does not occur
prior to November 1, 1997.
11.5. Except as set forth in 1.3(a), termination by either party
under this paragraph shall be without prejudice to the rights of such party in
the event of a breach or default of the other party.
12. Assumption and Indemnification.
------------------------------
12.1 (a) Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of Seller and Buyer included in this Agreement
shall survive for a period of eighteen (18) months after the Closing Date and
shall thereafter expire, except with respect to breaches and violations
theretofore specified in reasonable written detail to Sellers by Buyer or to
Buyer by Sellers, as the case may be prior to the eighteenth month after the
53
<PAGE>
closing Date and except for the representations and warranties contained (i) in
Section 3.14 which shall survive for the applicable statute of limitations (and
any extension or waiver thereof) for any tax return covering any tax year ending
on or before the Closing Date; (ii) Section 3.26 which shall survive for a
period of five years following the Closing; and (iii) in Sections 3.1, 3.2, 4.1,
4.2 and 4.3 which shall survive indefinitely from the Closing. With respect to
Unrecorded Claims asserted against the Buyer or the Company by a third party
which were not known to the Sellers at the time of the Closing, Buyer may not
assert a claim for indemnification as set forth in Section 12.2 unless such
Unrecorded Claim is asserted within a period of three years following the
Closing.
(b) Notwithstanding anything to the contrary contained herein,
except as provided in Section 12.7, all claims for damages based on known or
fraudulent actions, or known misrepresentations (i) to the extent actually
known by one or more of the Sellers (without the application of the last two
sentences of the definition of knowledge provided in Section 2) ("Actual
Knowledge") shall never expire and (ii) to the extent not actually known to the
Sellers within the definition of the foregoing subsection (b)(i), but known to
them by application of the last two sentences of the definition of knowledge
provided in Section 2 ("Constructive Knowledge") shall expire 10 years after the
Closing.
(c) Notwithstanding the foregoing, if any
54
<PAGE>
Unrecorded Claim arises solely out of the breach of any one or more of the
representations and warranties contained in sections 3.7, 3.8, 3.9, 3.10, 3.12,
3.13, 3.16, 3.17, 3.20, 3.22, 3.25, 3.27, 3.28 or 3.29 and neither such
Unrecorded Claim nor such breach was known to Sellers prior to the Closing, then
such Unrecorded Claim must be asserted within the period of 18 months following
the Closing. If Buyer seeks indemnification under Section 12.2(a)(i), if a
representation and warranty in Section 3 of this Agreement is made to the
knowledge of Sellers, such representation and warranty shall not be deemed
breached except to the extent of the knowledge of Sellers prior to Closing. If
Buyer seeks indemnification under Section 12.2(a)(ii) with respect to an
Unrecorded Claim, Sellers knowledge or lack of knowledge shall be relevant only
in determining whether a three year or unlimited period to assert a claim
applies; provided, however, if a representation and warranty in Section 3 of
this Agreement, other than a representation and warranty in Section 3.25, 3.26
or 3.27, is made to the knowledge of Sellers, such representation and warranty
shall not in any circumstances form the basis of an Unrecorded Claim by Buyer,
except to the extent known by Sellers prior to Closing.
12.2. (a) The Sellers shall, severally and not jointly, in
proportion to their Allocable Share defend, indemnify and hold Buyer harmless
from Adverse Consequences arising out of or relating to (i) any material breach
of the representations, warranties, covenants or agreements of the Sellers
contained in this Agreement or in any instruments delivered at Closing, or (ii)
55
<PAGE>
any liability, obligation or commitment of any nature of the Company (known or
unknown) not reflected as a liability of the Company on the Closing Balance
Sheet (whether or not required to be reflected according to generally accepted
accounting principles) or set forth in Section 3.6 of the Disclosure Schedule
and arising out of an act or omission which occurred, or a condition or state of
facts which existed, prior to the Closing (collectively "Unrecorded Claims")
(collectively Section 12.2(a)(i) and Section 12.2(a)(ii) above are referred to
as "Indemnifiable Events"). Unrecorded Claims shall include, by way of
illustration and not limitation all claims arising out of or relating to (x) any
and all of the Company's activities and those of any predecessor prior to the
Closing, (y) any liabilities, obligations and commitments of the Company and
those of any predecessor, including but not limited to those owed to taxing
authorities, trade creditors, customers, tort or contract claimants, employees
and independent contractors or (z) any environmental contamination or
environmental compliance liability at or relating to any environmental
contamination and any leak, spill or other environmental occurrence affecting,
emanating from or relating to real property owned, leased or operated by the
Company (including off-site dumping); any damage or injury to human health,
safety (including wrongful death) or the environment by reason of the condition
of or activities, past or present, relating to the operation of the Company's
business; any lawsuit brought or threatened, any settlement reached or
governmental order relating to environmental contamination or environmental
compliance liabil-
56
<PAGE>
ity; or the violation of any environmental law, rule, regulation or ordinance
permit or approval which occurred or commenced prior to the Closing.
(b) Notwithstanding Section 12.2(a), Sellers shall not provide
indemnification as set forth therein for any Adverse Consequences to the extent
such Adverse Consequences are caused by any alteration, modification,
development or testing of the Real Property following the Closing or any testing
of the Real Property by Buyer prior to the Closing, it being understood that
activities which lead to the discovery of a condition or facts giving rise to
any Adverse Consequences shall not, solely by reason of such discovery or
reporting to a third party, based upon a legal duty to report, be deemed to have
caused such Adverse Consequences. As to arising out of Section 3.26 of the
Agreement, Sellers shall only indemnify Buyer for those Adverse Consequences
which arise from a claim asserted by a third party based upon the law as in
effect as of the Closing Date except to the extent such Adverse Consequences
were initiated, or caused by Buyer, its agents, affiliates, assigns, successors
or representatives, it being understood that Adverse Consequences following a
report of a condition or state of facts by Buyer to a third party, based upon a
legal duty to report such condition or state of facts, shall not be deemed
initiated or caused by Buyer.
12.3. Buyer shall defend, indemnify and hold harmless the Sellers
from Adverse Consequences arising out of or relating to (i) any breach of the
representations, warranties, covenants and
57
<PAGE>
agreements of Buyer contained in this Agreement and (ii) any claim asserted
against Sellers arising out of acts or omissions of Buyer following the Closing.
12.4. The indemnification contained herein shall include the
reasonable legal costs incurred by a party to enforce its rights under this
Section.
12.5 Limitations on Indemnity Obligations of Sellers.
------------------------------------------------
(a) Threshold. Sellers shall provide no indemnification as
---------
set forth in Section 12.2 hereof for any one Indemnifiable Event less than
$100,000 ("Small Claim"), except and only to the extent that the total of all
Small Claims exceeds $100,000 but only for such amounts over $100,000. Buyer
shall send Sellers written notice when the total of all Small Claims exceeds
$100,000 setting forth in reasonable detail a summary of all Small Claims which
comprise such amount. Sellers liability for individual Indemnifiable Events in
excess of $100,000 shall begin with the first dollar thereof.
(b) Third Party Amounts. The obligation of Sellers to
-------------------
indemnify Buyer for Indemnifiable Events shall be reduced dollar for dollar by
the amount of (i) any monies received by Buyer from any third parties including
insurance companies and (ii) any tax benefit to Buyer net of any reimbursement
or other payment obligation of Buyer with respect to the claim to any third
party. Buyer shall be deemed to realize a tax benefit only to the extent of any
actual reduction in income taxes otherwise payable by Buyer
58
<PAGE>
in the year the claim is paid. To the extent that Sellers obligation to
indemnify Buyers is reduced by this Section 12.5(b), the Adverse Consequences of
the applicable Indemnifiable Event shall not include the amount of such
reduction and such amount shall not apply to calculating either the maximum
liability set forth in Section 12.5(c) or the threshold set forth in Section
12.5(a).
(c) Maximum Liability. The maximum liability of each Seller
-----------------
for all Indemnifiable Events asserted by Buyer pursuant to this Section 12 shall
not exceed such Seller's Allocable Share of $5 million; provided, however,
except as set forth in Section 12.7, with respect to Indemnifiable Events for
Adverse Consequences based on known or fraudulent misrepresentations or
Unrecorded Claims known to Sellers at the time of the Closing, but not reflected
in this Agreement, in the Disclosure Schedules or on the Closing Balance Sheet,
the maximum liability of each Seller (i) if made or known to the Actual
Knowledge of one or more of the Sellers shall not exceed each Seller's Allocable
Share of the Purchase Price or (ii) if made or known to the Constructive
Knowledge of one or more of the Sellers shall not exceed each Seller's Allocable
Share of $7.5 Million.
(d) Requirement to Enforce Rights under Certain Claims. If
---------------------------------------------------
Buyer has a claim for indemnification under Section 12.2(a)(i), it may not
enforce such claim, and such claim will be deemed waived, unless it is asserted
in a legal action commenced
59
<PAGE>
against one or more of the Sellers within the period of 20 months following the
Closing.
12.6 Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify Buyer or Sellers (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the Buyer or Sellers, as
the case may be (the "Indemnifying Party") under this Section 12, then the
Indemnified Party shall promptly (and in any event within ten (10) business days
after receiving notice of the Third Party Claim) notify each Indemnifying Party
thereof in writing. The failure of an Indemnified Party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except to the
extent that the indemnifying Party demonstrates the actual damages caused by
such failure.
(ii) After such notice, if the Indemnifying Party shall
acknowledge in writing to the Indemnified Party that the Indemnifying Party
shall be obligated under the terms of its indemnity hereunder in connection with
such matter, then the Indemnifying Party will have the right to assume and
thereafter conduct at its risk and expense the defense of the Third Party Claim
with counsel reasonably satisfactory to the Indemnified Party; provided,
however, that the Indemnifying Party will not consent to he entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably)
60
<PAGE>
unless the proposed settlement involves only the payment of money damages and
does not impose an injunction or other equitable relief upon the Indemnified
Party. The Indemnifying Party shall be liable for any such settlement or
judgment and shall indemnify and hold harmless the Indemnified Party from and
against any liability by reason of such settlement or judgment.
(iii) Unless and until an Indemnifying Party assumes the
defense of the Third Party Claim as provided in this section, however, the
Indemnified Party may defend against and settle the Third Party Claim in any
manner he or it reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of each of the Indemnifying
Parties (not to be withheld unreasonably).
12.7 Notwithstanding the foregoing, Buyer shall not be entitled
to indemnification with respect to any breach of representation or warranty or
any Unrecorded Claim to the extent actually known to Buyer prior to Closing.
Buyer shall be deemed to know only such facts as are actually known (as opposed
to implied or imputed knowledge) by William Powers, Richard Ambury, David Eastin
and Joseph Cavanaugh. Buyer shall not be deemed to have knowledge of any facts
known by any other person or contained in its files, the Company's files or any
other document, unless actually known to one of such individuals, except that
Buyer shall
61
<PAGE>
be deemed to have actual knowledge of those facts set forth in the Disclosure
Schedule, the written results of environmental investigations undertaken by the
Buyer or its agents and received by Buyer prior to the Closing, the Phase I
environmental reports conducted by ATC Associates, Inc. for all of the real
property owned and leased by the Company, or as otherwise set forth in this
Agreement.
12.8 Any provision herein to the contrary notwithstanding, any claims by
Buyer based upon the Company's failure to have written tank and cylinder leases
shall expire eighteen months after the Closing.
13. Notices. All notices, requests and other communications shall be in
-------
writing and shall be deemed to have been duly delivered if delivered personally
or mailed by certified mail, return receipt requested to the parties at their
respective addresses set forth on the signature page or such other address as a
party may designate in the manner provided herein for giving of notices. Copies
of all communications shall be sent to:
Phillips Nizer Benjamin Krim & Ballon LLP
666 Fifth Avenue
New York, New York 10103-0084
Attn: Alan Shapiro, Esq.
Eastman & Smith Ltd.
One Seagate
P.O. Box 10032
Toledo, Ohio 43699-0032
Attn: John H. Boggs, Esq.
62
<PAGE>
14. Offers of Employment.
--------------------
14.1. Buyer agrees to offer employment to those employees of the
Company, other than Jeff Tonjes, who meet standards for applicants generally,
such as, for example, passing a drug test.
14.2. Such offers of employment shall be at the same salaries or
hourly rates as presently paid by the Company and with the benefits set forth on
Exhibit 14.2. Upon their hire by Buyer, each employee's length of service by the
Company shall be deemed service with Buyer for purposes of their participation
and vesting service for periods of employment by the Company.
14.3. While such employment shall be on an at will basis each such
employee will be evaluated by standards no different than those applied by the
Buyer to its other employees performing the same job description.
14.4. Each employee of the Company shall be eligible for paid
holidays, personal days and participation in any incentive bonus plans on the
same basis as Buyer's other employees performing similar job functions. Each
such employee will also be eligible for sick days. Full time employees shall be
eligible for paid vacation after working 1000 hours beginning July 1. Vacation
eligibility is as follows: Five (8 hour) days after the first 1,000 hours for
first year employees; ten days the following year; fifteen days after ten full
years (using date of hire); and twenty days after twenty full years (using date
of hire). Employees will
63
<PAGE>
receive credit for years of service with the Company in determining vacation
days.
14.5 Buyer shall offer to the following people, employment as
follows:
Craig Premo Regional Manager
Norman Tonjes Director of Fleet Services Pearl Gas
Reg.
Patricia Sheldrick Controller-Pearl Gas Region
Richard Bame Bowling Green Manager
15. Additional Agreements.
---------------------
15.1. Following the Closing, the Buyer shall retain and shall cause
the Company to afford to Sellers and their professional representatives access
during normal business hours to the books and records of the Company as may be
necessary to permit Sellers to prepare the final income tax returns of the
Company, to investigate and defend against any claims asserted by Buyer against
Sellers arising out of or relating to this Agreement and for any other
reasonable purpose relating to the winding up of the Company and its profit
sharing plan or other obligations of Sellers arising under this Agreement.
15.2. It shall be the responsibility of the Sellers to prepare at
their expense all final Federal, state and local income tax returns of the
Company and pay all taxes shown to be due for periods up to and including the
close of business on the day preceding the Closing Date and to terminate at
their expense the existing profit sharing plan of the Company and to make
distributions to all employees of the Company within a reasonable
64
<PAGE>
time. It shall be the responsibility of Buyer to prepare at its expense all
final tax returns of the Company and pay all taxes shown to be due which are not
the responsibility of Sellers pursuant to this Agreement.
15.3. Buyer shall be liable for and shall indemnify and hold harmless
Sellers with respect to, all income taxes which may become due as a result of
the liquidation of the Company or its merger into Buyer, the transfer of the
Company's assets to Buyer or any other entity or any other action (including any
tax elections) initiated by Buyer. Buyer shall defend, indemnify, and hold
harmless the Sellers from any and all Adverse Consequences arising out of or
relating to (i) the liquidation of the Company; (ii) the Company's merger into
Buyer; (iii) the transfer of the Company's assets to Buyer or any other entity;
(iv) the cancellation or termination of any and all permits, licenses,
certificates, or otherwise of the Company not transferred to Buyer or any other
entity; and (v) any other action (including any tax elections) involving Buyer.
15.4. Buyer intends to prepare certified financial statements of the
Company for periods prior to the Closing. Buyer acknowledges that the
preparation of such certified financial statements are solely the responsibility
of Buyer and shall be at its sole cost.
15.5. The Buyer has previously delivered to Sellers a confidentiality
agreement dated May 5, 1997, the provisions of which are incorporated herein by
reference and shall continue to
65
<PAGE>
apply for the benefit of Sellers unless and until the closing occurs.
15.6. After Closing, Buyer shall maintain insurance similar in
coverage amount, quality of carrier, and covered claims to that currently
maintained by the Company for as long as the survival of the Indemnifiable
Events are in effect after Closing. To the extent (and only to the extent) the
failure of Buyer to maintain insurance with respect to any Indemnifiable Event
increases the liability which Sellers would have if such insurance had been
maintained the survival period of such Indemnifiable Event shall terminate after
Closing as of the date that such insurance was changed or terminated.
15.7. Buyer acknowledges that the Company entered into certain
confidentiality agreements as set forth in Section 3.15 of the Disclosure
Schedule in connection with the sale of the Company and that the Company sent to
each entity who was a party to such confidentiality agreement two (2) copies of
the Offering Prospectus set forth in Section 15.7 of the Disclosure Schedule.
Buyer further acknowledges that the Company has attempted to regain possession
of all materials sent by the Company to such entities in compliance with such
confidentiality agreement by sending the letters set forth in Section 15.7 of
the Disclosure Schedule. Buyer acknowledges that the Sellers, for the Company,
have taken all reasonable efforts at this time to regain possession of such
materials and that Sellers have no further obligation to do anything with
respect thereto.
66
<PAGE>
15.8 If for any reason the Closing does not occur, but Buyer has
merged the Company into Buyer, then Buyer, at its sole cost and expense, shall
(i) take such actions as may be necessary to reverse and unwind the merger and
to place the Company and the Sellers in the same position as they were
immediately prior to the merger and (ii) indemnify and hold harmless Sellers and
the Company from any and all claims, loss, damages and expense arising out of or
relating to the merger and the reversing of the merger, including by way of
illustration and not limitation, all professional fees, transfer taxes and
income taxes, including all professional fees incurred by Sellers with respect
to the transaction with Buyer.
15.9 With respect to the real property to be purchased by the
Sellers or an entity controlled by them from the Company prior to Closing and
leased by the Sellers to the Buyer at Closing pursuant to a lease in the form of
Exhibit 8.16 located at Delphos, Ohio, the parties have agreed as follows:
(a) During the period of 120 days following the Closing
("Inspection Period") the Buyer will conduct an environmental assessment of
such real property at Buyers sole cost and expense and if any condition is
discovered which in the opinion of Buyer's engineer reveals an instance of
threatened or actual non-compliance with environmental laws, rules, regulations
or policies, including the presence of any pollutant, contaminant or hazardous
or toxic materials or waste, Buyer shall so advise Sellers in writing within
such period ("Remediation Notice") and shall also
67
<PAGE>
provide to the Sellers the cost estimate of its engineers to remediate such
condition ("Remediation Cost"). Upon receipt of the Remediation Notice, the
Sellers may at their option agree in writing within a period of 30 days to pay
the amount of the Remediation Cost to Buyer, in which event Buyer shall be
required to purchase such real property for $90,000; provided that all of the
terms and conditions of this Agreement relating to such real property are then
satisfied and upon the closing of the purchase of the real property Buyer will
be credited with the amount of the Remediation Cost. Buyer shall pay any
applicable transfer taxes.
(b) If Buyer fails to deliver the Remediation Notice to the
Seller during the Inspection Period, Buyer shall be required to promptly
purchase such real property for $90,000; provided that all of the terms and
conditions of this Agreement relating to such real property are then satisfied.
Buyer shall pay any applicable transfer taxes.
(c) Notwithstanding the provisions of Section 12 or any other
provision of this Agreement, if Buyer purchases such real property pursuant to
Section 15.9(a), then Sellers shall have no liability to Buyer with respect to
any condition or state of facts identified in the Remediation Notice as
requiring remediation.
15.10 The parties acknowledge certain agreements as set forth on
Exhibit 15.10.
16. Miscellaneous.
-------------
16.1. This Agreement constitutes the entire agreement between the
parties hereto pertaining to the subject matter hereof
68
<PAGE>
and supersedes all prior and contemporaneous agreements (except those
contemplated hereunder), understandings, negotiations and discussions, whether
oral or written, of the parties. No supplement, modification or waiver or
termination of this Agreement or any revision hereof shall be binding unless
executed in writing by the parties to be bound thereby. All representations and
warranties made herein shall survive the Closing to the extent set forth in
Section 12 of this Agreement and Buyers right to assert any claim with respect
thereto shall be limited as provided in Section 12.
16.2. This Agreement is intended to be performed in the State of
Ohio and shall be construed and enforced in accordance with the laws of the
State of Ohio. Any action by Buyer or Sellers arising out of or relating to
this Agreement must be brought in a competent court in the State of Ohio, the
courts of which shall have exclusive jurisdiction with respect to any such
action.
16.3. The parties hereto agree that they will, at the expense of
the requesting party, from time to time execute and deliver any and all
additional and supplemental instruments, and do such other acts and things which
may be reasonably necessary to effect the purpose of this Agreement, and the
consummation of the transactions contemplated hereby.
16.4. Waiver by any of the parties hereto of any breach of, or
exercise of any right under this Agreement, shall not be deemed a waiver of
similar or other breaches or rights.
69
<PAGE>
16.5. Captions and section headings used herein are for
convenience only, and are not a part of this Agreement, and shall not be used in
construing it.
16.6. All of the terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective estates, heirs, administrators, executors, personal representatives,
transferees, successors and assigns. Neither party may assign this Agreement or
any interest therein, except that Buyer may assign any interest in this
Agreement to a subsidiary or affiliate providing that Buyer shall remain
primarily liable for all obligations hereunder and shall furnish a guaranty to
such effect reasonably satisfactory to the Sellers.
16.7. Buyer hereby agrees to indemnify and hold the Sellers
harmless against and in respect of any claims from brokerage or other
commissions relating to the Agreement or the transactions contemplated hereby
resulting from its own dealing with any person in connection with this
transaction and the Sellers hereby agrees to indemnify and hold Buyer harmless
against and in respect of any claims from brokerage or other commissions
relating to the Agreement or the transactions contemplated hereby resulting from
its own dealing with any person in connection with this transaction.
16.8. This Agreement is intended to benefit the parties hereto and
there shall be no third party beneficiaries of this Agreement including, but not
limited to, employees, creditors,
70
<PAGE>
customers and suppliers of the Company or any other person the Sellers or Buyer
may have dealt in connection with this trans action. In particular, but not in
limitation of the foregoing, no creditor of the Company and no person seeking to
enforce any agreement between such creditor and the Company shall have any
rights by virtue of this Agreement. Notwithstanding the foregoing,
simultaneously with or following the Closing, Buyer may merge or liquidate the
Company into itself and transfer the assets and liabilities of the Company to a
limited partnership of which Buyer is the general partner ("Limited
Partnership"). Upon such transfer Buyer shall cause such Limited Partnership to
(i) succeed all of the Buyer's rights under this Agreement and to have the
benefit of all representations, warranties, covenants and agreements of Sellers
set forth in this Agreement; (ii) be bound by all of the Buyers representations,
warranties, covenants and agreements under this Agreement; in each case, as if
such Limited Partnership were a direct party to this Agreement in lieu of the
Buyer and (iii) execute with Buyer an assignment and assumption agreement,
including a release of Buyer, of Buyers rights and obligations under this
Agreement and all documents incorporated herein by reference.
16.9. The parties agree that they will keep confidential and not
disclose to any person other than their respective accountants and attorneys and
employees who need to know the details of this Agreement, including, by way of
example and not limitation, the total purchase price, or the implied purchase
price
71
<PAGE>
per gallon or the allocated purchase price for any particular assets; provided,
however, the parties recognize that the Limited Partnership is the operating
partnership of a publicly traded limited partnership and that, as such, may make
such disclosures as are required by applicable rules and regulations of the
Securities and Exchange Commission, or as may be otherwise required upon the
advice of counsel.
16.10. The parties incorporate herein by reference all Exhibits and
the Disclosure Schedule. The parties agree that the information and contents of
the Disclosure Schedule, although set forth in particular Sections of the
Disclosure Schedule are deemed to be made in all applicable sections of the
Disclosure Schedule,
72
<PAGE>
except that no information shall be deemed incorporated by reference into
Section 3.6 of the Disclosure Schedule.
STAR GAS CORPORATION
By:______________________________
William Powers, President
2187 Atlantic Street
Stamford, CT 06912-0011
______________________________
Jeffrey L. Tonjes
Selling Shareholder
819 Parker Street
Bowling Green, OH 43402
______________________________
Norman C. Tonjes
Selling Shareholder
854 Pearl St.
Bowling Green, OH 43402
______________________________
Mary C. Tonjes
Selling Shareholder
854 Pearl St.
Bowling Green, OH 43402
THE TONJES FAMILY TRUST
Selling Shareholder
By:___________________________
Sandra S. Miller, Trustee
10412 Edgewater Rd.
Louisville, KY 40223
73
<PAGE>
Disclosure Schedule
-------------------
Section No. Description
- ----------- -----------
1.4(a) Excluded Assets and Liabilities
2.1 Good Will
3.2 Ownership of Company Shares
3.4 No violation
3.5 Financial statements
3.6 Undisclosed Liabilities
3.7 Accounts Receivable
3.10 Title to property; liens
3.11 Insurance
3.12 Leases
3.13 Bank Accounts
3.14(a) Taxes - Examination of Returns, etc.
3.14(b) Taxes - List of Income Tax Returns
3.15 Contracts and Commitments
3.16(a)(iv) Large Customers
3.16(c) Aging of Accounts Receivable
3.16(d) Acquisitions
3.16(e) Disclosures
3.16(f) Subcontractors
3.16(g) Discount Policies
3.16(h) Central tanks
3.16(l) Operating Data
3.17(a) Recommendations from insurance carriers, etc.
3.19 Labor Difficulties
3.20 Fringe Benefit Plans
3.21 Litigation
3.22 Condemnation
3.23 Consents and Approvals - Governmental
3.24 Consents of Private Persons
3.25 Compliance with law
3.26 Environmental Protection
3.28 Employees
3.29 Insider Interest
3.31 Disclosures
<PAGE>
Exhibits
--------
Section No. Description
- ----------- -----------
1.3 Escrow Agreement
1.4(a)
Calculation of Networking Capital
1.4(b) Net Working Capital Calculation Procedure
1.5 Property and Equipment
1.6 Propane Tanks
5.3(a) Confidentiality agreement
8.2 Opinion Letter of the other law firm
8.4 Restrictive Covenant of Jeffrey L. Tonjes
8.5 Restrictive Covenant of Jack A. Miller
8.6 Restrictive Covenant of Sandra Miller
8.7 Restrictive Covenant of Norman C. Tonjes
8.8 Restrictive Covenant of Mary C. Tonjes
9.4 Legal Opinion of Phillips Nizer Benjamin Krim & Ballon
LLP
14.2 Benefits
8.14 Lease for South Dixie Hwy., Bowling Green, Ohio
8.15 Lease for Sandridge Rd., Bowling Green, Ohio
8.16 Lease for Delphos, Ohio
15.10 Certain Agreements
<PAGE>
EXHIBIT 99.2
CONVEYANCE AND CONTRIBUTION AGREEMENT
This Conveyance and Contribution Agreement dated October 22, 1997
(this "Agreement"), is entered into by and among STAR GAS PARTNERS, L.P., a
Delaware Limited Partnership ("MLP"), STAR GAS PROPANE, L.P., a Delaware Limited
Partnership (the "Operating Partnership"), and STAR GAS CORPORATION, a Delaware
corporation ("Star Gas").
RECITALS
WHEREAS, Star Gas, has entered into a Stock Purchase Agreement dated
October 20, 1997 ("Stock Purchase Agreement") with the shareholders of Pearl Gas
Company ("Pearl Gas") and has closed under the Stock Purchase Agreement on the
date hereof and purchased all of the issued and outstanding capital stock of
Pearl Gas ("Pearl Gas Shares"); and
WHEREAS, Star Gas has borrowed the sum of $23 Million from Bank
Boston, N.A. and NationsBank (collectively the "Banks") pursuant to a note of
even date ("Star Gas Note") and has applied $22,551,790 thereof to purchase the
Pearl Gas Shares; and
WHEREAS, immediately following the purchase of the Pearl Gas Shares,
Star Gas merged Pearl Gas into itself under the laws of the States of Ohio and
Delaware (the "Merger"); and
WHEREAS, the Operating Partnership is a Delaware limited Partnership
of which Star Gas is the general partner and the MLP is the limited partner.
WHEREAS, Star Gas has agreed to contribute to the Operating
Partnership all of the assets transferred to Star Gas upon and as a result of
the Merger as a capital contribution thereto, in exchange for a 2.7% limited
partnership interest in the Operating Partnership ("OLP Interest"), a 0.00028%
general partnership interest in the Operating Partnership and the assumption of
all of the Assumed Liabilities (as defined below) by the Operating Partnership
and other good and valuable consideration; and
WHEREAS, the MLP has agreed to exchange 147,727 Common Units and a
0.00027% general partnership interest in the MLP with Star Gas for the OLP
Interest.
NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, Star Gas and the Operating Partnership undertake and agree
as follows:
<PAGE>
ARTICLE I
Definitions
-----------
The following capitalized terms shall have the meanings given below.
"Assets" means:
------
(a) all of the assets owned, leased or held by Star Gas, as of the
Effective Time of every kind, character and description, whether tangible or
intangible, whether real, personal or mixed, whether accrued or contingent, and
wherever located, as and to the extent acquired by Star Gas upon and as a result
of the Merger, including, without limitation, all right, title and interest of
Star Gas in and to the following assets received upon the Merger:
(i) copies of all of the books, records, papers and instruments of
Pearl Gas, of whatever nature and wherever located, including,
without limitation, accounting and financial records,
documentation related to the Assets, customer correspondence/
sales records, credit reports, and other data relating to the
business of Pearl Gas;
(ii) propane inventory and other inventories and supplies of any kind;
(iii) storage tanks and containers, storage facilities, propane
cylinders, office furniture, furnishings, computers and equipment
of any kind;
(iv) all real property wherever located, together with all buildings,
structures, improvements, equipment, appurtenances and fixtures
of every kind or nature located thereon;
(v) all rights in real property or personal property arising under
leases, easements or other contracts or arrangements including,
without limitation, leasehold properties, all rights-of-way,
servitudes, surface rights, interests in land, licenses and
grants, and all amendments to each thereof, together with all
prescriptive rights and all franchises, privileges, grants and
consents in favor of Pearl Gas, or its predecessors-in-title, in,
on, over, under or adjacent to lands, roads, highways, railroads,
rivers, canals, ditches, drains, bridges, state and national
parks, forests, reservations and wilderness areas, public grounds
or structures, or elsewhere, and all rights incident thereto,
rights under condemnation
2
<PAGE>
judgments, judgments on declaration of taking, and permits and
grants for the installation, maintenance, repair, removal and
operation of above and below ground tanks, storage containers and
pipelines;
(vi) all motor vehicles, trailers, tanks, railroad tank cars,
distribution centers and related equipment, whether owned or
leased;
(vii) every contract, agreement, arrangement, grant, gift, trust or
other arrangement or understanding of any kind;
(viii) every right to sell or distribute any product or service;
(ix) any and all monies, rents, revenues, accounts receivable or other
proceeds receivable or owing to Pearl Gas;
(x) all deposits, prepayments and prepaid expenses;
(xi) all unbilled receivables;
(xii) all rights under all covenants and warranties pertaining to the
Assets, express or implied, to the extent transferable, that have
heretofore been made by any predecessors in title of Pearl Gas or
by any third party manufacturers, suppliers and contractors;
(xiii) any and all rights, claims and causes of action that Pearl Gas
may have under insurance policies or otherwise against any person
or property, whether known or unknown, accrued or contingent, and
whether or not reflected on the books and records of Pearl Gas as
of the Effective Time, and such rights, claims or causes of
action representing reimbursement or recovery of amounts actually
paid by the Operating Partnership after the Effective Time;
(xiv) all trade names, trademarks, service marks, logos, marks and
symbols of any kind, together with all goodwill associated
therewith;
(xv) all know-how, every trade secret, every customer list and all
other confidential information of every kind;
3
<PAGE>
(xvi) every customer relationship, employee relationship, supplier
relationship and other relationship of any kind;
(xvii) every business conducted prior to the Effective Time by Pearl
Gas;
(xviii) every other proprietary right of any kind;
(xix) all governmental licenses, permits and authorizations of every
kind; and
(xx) the capital stock of any other corporation; and
(b) All rights of Star Gas under arising out of or relating to the
Stock Purchase Agreement.
The term "Assets" excludes those assets of Star Gas which were owned
by Star Gas immediately prior to the Merger and not acquired by Star Gas upon
the Merger.
"Assumed Liabilities" means (a) all liabilities of Star Gas arising
-------------------
from or relating to the Merger, as of the Effective Time, of every kind,
character and description, whether known or unknown, accrued or contingent, and
whether or not reflected on the books and records of Star Gas as of the
Effective Time; (b) all liabilities and obligations of Star Gas of every kind,
character and description whether known or unknown accrued or contingent arising
out of or relating to the Stock Purchase Agreement and (c) the Star Gas Note.
"Assumed Liabilities" does not include any Federal, state or local income taxes
which arise, directly or indirectly, as a result of the Merger or the conveyance
of the Assets by Star Gas to the Operating Partnership.
"Common Units" has the meaning assigned to such term in the
------------
Partnership Agreement of the MLP.
"Deeds" means all deeds and acts of sale, from Star Gas to the
-----
Operating Partnership conveying Star Gas' fee owned tracts or parcels of land
listed on Exhibit B hereto.
---------
"Effective Time" means immediately after the Merger.
--------------
"Excluded Assets" means those assets of Star Gas described on Schedule
--------------- --------
1 hereto.
- -
"Excluded Liabilities" means those liabilities of Star Gas described
--------------------
on Schedule 2 hereto.
----------
"Laws" means any and all laws, statutes, ordinances, rules or
----
regulations promulgated by a governmental authority,
4
<PAGE>
orders of a governmental authority, judicial decisions, decisions of arbitrators
or determinations of any governmental authority or court.
ARTICLE II
Contribution to the Operating Partnership;
------------------------------------------
Exchange of the OLP Interest for Common Units
---------------------------------------------
2.1 Contribution. Star Gas hereby grants, contributes, bargains,
------------
sells, conveys, assigns, transfers, sets over and delivers to the Operating
Partnership, as its successors and assigns, for its own use forever, all of
their right, title and interest in and to the Assets in exchange for (a) the
consideration stated in Section 2.2, (b) the assumption of the Assumed
Liabilities by the Operating Partnership as provided in Article IV, and (c)
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and the Operating Partnership hereby accepts the Assets as
a contribution to the capital of the Operating Partnership.
TO HAVE AND TO HOLD the Assets unto the Operating Partnership, its
successors and assigns, together with all and singular the rights and
appurtenances thereto in any way belonging, subject, however, to the terms and
conditions stated in this Agreement, forever.
2.2 Consideration for Contribution. In consideration for the
------------------------------
contribution of the Assets to the Operating Partnership, the Operating
Partnership hereby issues, grants, bargains, sells, conveys, transfers, sets
over and delivers to Star Gas the OLP Interest and a 1.0101% general partnership
interest in the Operating Partnership.
2.3 Exchange of OLP Interest for Common Units. In consideration for
-----------------------------------------
the contribution of the OLP Interest by Star Gas to the MLP, the MLP hereby (a)
issues, grants, bargains, sells, conveys, transfers, sets over and delivers to
Star Gas _____ Common Units (the "Exchange Units") and a 1.0% general
partnership interest in the MLP.
2.4 Investment Representations. Star Gas represents that its
--------------------------
acquiring and will hold the Exchange Units for its own account for investment
purposes and not with a view to a public sale or distribution thereof Star Gas
acknowledges and agrees that the Exchange Units will be restricted securities
and may not be publicly resold absent registration under the Securities Act of
1933, as amended or pursuant to an available exemption.
2.5 Form of Conveyance. To further evidence the conveyance of the
------------------
Assets that constitute the real property listed
5
<PAGE>
on Exhibit B, Star Gas has executed and delivered to the Operating Partnership
---------
Deeds and certain other assignments of leases and conveyances, all of which are
subject to this Agreement. To further evidence the conveyance of certain of the
Assets that constitute the personal property, such as contracts and other
agreements, Star Gas has executed and delivered to the Operating Partnership
certain other assignments and instruments of transfer, all of which are subject
to this Agreement.
ARTICLE III
Assumption of Liabilities
by the Operating Partnership
----------------------------
In connection with the contribution and transfer of the Assets to the
Operating Partnership, the Operating Partnership hereby assumes and agrees to
duly and timely pay, perform and discharge the Assumed Liabilities to the full
extent that Star Gas has been heretofore or would have been in the future, were
it not for the execution and delivery of this Agreement, obligated to pay,
perform and discharge the Assumed Liabilities; provided, however, that said
assumption and agreement to duly and timely pay, perform and discharge the
Assumed Liabilities shall not increase the obligation of the Operating
Partnership with respect to the Assumed Liabilities beyond that of Star Gas,
waive any valid defense that was available to Star Gas with respect to the
Assumed Liabilities or enlarge any rights or remedies of any third party under
any of the Assumed Liabilities.
ARTICLE IV
Indemnification
---------------
The Operating Partnership shall indemnify, defend and hold harmless
Star Gas, its respective officers and directors and their successors and assigns
from and against any and all claims, demands, costs, liabilities (including,
without limitation, liabilities arising by way of active or passive negligence)
and expenses (including, without limitation, court costs and reasonable
attorneys' fees) of every kind, character and description, whether known or
unknown, accrued or contingent, and whether or not reflected on the books and
records of Star Gas as of the Effective Time, arising from or relating to the
Assumed Liabilities.
6
<PAGE>
ARTICLE V
Title Matters
-------------
5.1 Encumbrances. The contribution of Assets made under Section 2.1
------------
is made expressly subject to (a) all recorded and unrecorded liens,
encumbrances, agreements, defects, restrictions, adverse claims and all Laws, in
each case to the extent the same are valid, enforceable and affect the Assets,
including, without limitation, all matters that a current survey or visual
inspection of the Assets would reflect, (b) the Assumed Liabilities, and (c) all
matters contained in the Deeds and the other assignment of leases, conveyances,
assignments and instruments of transfer referenced in Section 2.3.
5.2 Disclaimer of Warranties: Subrogation.
-------------------------------------
(a) STAR GAS IS CONVEYING THE ASSETS "AS IS " WITHOUT REPRESENTATION
OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY (ALL OF WHICH STAR GAS HEREBY
DISCLAIMS), AS TO (i) TITLE, (ii) FITNESS FOR ANY PARTICULAR PURPOSE OR
MERCHANTABILITY OR DESIGN OR QUALITY OR (iii) ANY OTHER MATTER WHATSOEVER. THE
PROVISIONS OF THIS SECTION 5.2 HAVE BEEN NEGOTIATED BY THE OPERATING
PARTNERSHIP, AND STAR GAS AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A
COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRAN TIES OF STAR
GAS, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS, AND THE
BUSINESS THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT OR
OTHERWISE, EXCEPT AS EXPRESSLY SET FORTH HEREIN.
(b) The contribution of Assets made under Section 2.1 is made with
full rights of substitution and subrogation of the Operating Partnership and all
persons claiming by, through and under the Operating Partnership, to the extent
assignable, in and to all covenants and warranties by the predecessors-in-title
of Star Gas, and with full subrogation of all rights accruing under applicable
statutes of limitation and all rights of action of warranty against all former
owners of the Assets other than predecessors in title. THE OPERATING PARTNERSHIP
SHALL SUCCEED TO ALL OF THE RIGHTS OF STAR GAS UNDER THE STOCK PURCHASE
AGREEMENT AND SHALL HAVE THE BENEFIT OF ALL REPRESENTATIONS, WARRANTIES,
INDEMNIFICATIONS, COVENANTS AND AGREEMENTS CONTAINED THEREIN FOR THE BENEFIT OF
STAR GAS AS IF THE OPERATING PARTNERSHIP WERE A PARTY THERETO IN THE PLACE OF
STAR GAS.
(c) Star Gas and the Operating Partnership agree that the disclaimers
contained in this Section 5.2 are "conspicuous" disclaimers. To the extent
permitted by applicable law, any covenants implied by statute or law by the use
of the words "grant," "convey," "bargain," "sell," "assign," "transfer,"
"deliver,"or "set over" or any of them or any other words used in this Agreement
are hereby expressly disclaimed, waived and negated.
7
<PAGE>
ARTICLE VI
Further Assurances
------------------
6.1 Star Gas Assurances. From time to time after the date hereof,
-------------------
and without any further consideration, Star Gas shall execute, acknowledge and
deliver all such additional deeds, assignments, bills of sale conveyances,
instruments, notices, releases, acquittances and other documents, and will do
all such other acts and things, all in accordance with applicable law, as may be
necessary or appropriate more fully to assure the Operating Partnership, and
assigns all (i) of the properties, rights, titles, interests, estates, remedies,
powers and privileges by this Agreement granted to the Operating Partnership or
intended so to be granted and (ii) more fully and effectively to carry out the
purposes and intent of this Agreement.
6.2 Operating Partnership. From time to time after the date hereof,
------------------------
and without any further consideration, the Operating Partnership shall execute,
acknowledge and deliver all such additional instruments, notices and other
documents, and will do all such other acts and things, all in accordance with
applicable law, as may be necessary or appropriate more fully and effectively to
carry out the purposes and intent of this Agreement.
ARTICLE VII
Power of Attorney
-----------------
Star Gas hereby constitutes and appoints the Operating Partnership,
and its successors and assigns the true and lawful attorney-in-fact of Star Gas
with full power of substitution for it and in its name, place and stead or
otherwise on behalf of Star Gas and its successors and assigns, and for the
benefit of the Operating Partnership, its successors and assigns, to demand and
receive from time to time the Assets and to execute in the name of Star Gas and
its successors and assigns instruments of conveyance, instruments of further
assurance and to give receipts and releases in respect of the same, and from
time to time to institute and prosecute in the name of the Operating Partnership
or Star Gas for the benefit of the Operating Partnership any and all proceedings
at law, in equity or otherwise which the Operating Partnership and its
successors and assigns may deem proper in order to collect, assert or enforce
any claims, rights or titles of any kind in and to the Assets, and to defend and
compromise any and all actions, suits or proceedings in respect of any of the
Assets and to do any and all such acts and things in furtherance of this
Agreement as the Operating Partnership and its successors or assigns shall deem
advis able. Star Gas hereby declares that the appointment hereby made and the
powers hereby granted are coupled with an interest and are
8
<PAGE>
and shall be irrevocable and perpetual and shall not be terminated by any act of
Star Gas or its successors or assigns or by operation of law.
ARTICLE VIII
Miscellaneous
-------------
8.1 Order of Completion of Transactions; Effective Time.
---------------------------------------------------
(a) Star Gas shall purchase the Pearl Gas Shares with the proceeds of
the Star Gas Note received by Star Gas from the Banks. Then the Merger shall be
completed. Then the transactions described in Article II of this Agreement shall
be completed.
(b) The contribution of the Assets to the Operating Partnership,
respectively, shall be effective for all purposes as of the Effective Time.
8.2 Consents; Restriction on Assignment. If there are prohibitions
-----------------------------------
against or conditions to the conveyance of one or more portions of the Assets
without the prior written consent of third parties, including, without
limitation, governmental agencies (other than consents of a ministerial nature
which are normally granted in the ordinary course of business), which if not
satisfied would result in a breach of such prohibitions or conditions or would
give an outside party the right to terminate the rights of the Operating
Partnership with respect to such portion of the Assets (herein called the
"Restriction"), then any provision contained in this Agreement to the contrary
notwithstanding, the transfer of title to or interest in each such portion of
the Assets (herein called the "Restriction-Asset") pursuant to this Agreement
shall not become effective unless and until such Restriction is satisfied,
waived or no longer applies. When and if such a Restriction is so satisfied,
waived or no longer applies, to the extent permitted by applicable law and any
applicable contractual provisions, the assignment of the Restriction-Asset
subject thereto shall become effective automatically as of the Effective Time,
without further action on the part of the Operating Partnership, or Star Gas.
Star Gas, and the Operating Partnership agree to use their best efforts to
obtain satisfaction of any Restriction on a timely basis. The description of any
portion of the Assets or as a "Restriction-Asset" shall not be construed as an
admission that any Restriction exists with respect to the transfer of such
portion of the Assets. In the event that any Restriction-Asset exists, Star Gas
agrees to hold such Restriction Asset in trust for the exclusive benefit of the
Operating Partnership, and to otherwise use its best efforts to provide the
Operating Partnership with the benefits thereof, and Star Gas will enter into
other agreements, or take such other action as it deems necessary, in order to
help ensure that the Operating Partnership has the assets and concomi-
9
<PAGE>
tant rights necessary to enable it to operate the Assets contri buted to the
Operating Partnership in the normal course of the business previously conducted
by Pearl Gas.
8.3 Costs. The Operating Partnership shall pay all sales, use and
-----
similar taxes arising out of the contributions, conveyances and deliveries to be
made to it hereunder and shall pay all documentary, filing, recording, transfer,
deed and conveyance taxes and fees required in connection therewith. In
addition, the Operating Partnership shall be responsible for all costs, liabili
ties and expenses (including, without limitation, court costs and attorneys'
fees) incurred in connection with the satisfaction or waiver of any Restriction
applicable to it pursuant to Section 9.2. The Operating Partnership shall also
be responsible for all costs and expenses of Star Gas arising out of or relating
to the Stock Purchase Agreement, the Star Gas Note, the Merger and this Contri
bution and Conveyance Agreement, but only to the extent that such costs and
expenses exceed the excess, if any, of the proceeds of the Star Gas Note
received by Star Gas over the Purchase Price for the Star Gas Shares.
8.4 Headings; References; Interpretation. All Article and Section
------------------------------------
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
8.5 Successors and Assigns. The Agreement shall be binding upon and
----------------------
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.
8.6 No Third Party Rights. The provisions of this Agreement are
---------------------
intended to bind the parties signatory hereto as to each other. Such provisions
shall also be for the benefit of lenders to the Operating Partnership at and
after giving effect to all transactions occurring at, the Effective Time
(including bank lenders with outstanding commitments at such time) and are not
intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to
be a third party beneficiary of any of the provisions of this Agreement.
NOTWITHSTANDING THE FOREGOING, THE OPERATING PARTNERSHIP HEREBY ASSUMES AND
AGREES TO BE BOUND BY ALL OF THE REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION
PROVI SIONS, COVENANTS AND AGREEMENTS OF STAR GAS AS SET FORTH IN THE STOCK
PURCHASE AGREEMENT, ALL FOR THE BENEFIT OF THE SELLERS (AS DEFINED IN THE STOCK
PURCHASE AGREEMENT) AS IF THE OPERATING PARTNERSHIP WERE A PARTY TO THE STOCK
PURCHASE AGREEMENT IN THE PLACE OF STAR GAS.
8.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
10
<PAGE>
8.8 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be performed wholly within such state without giving
effect to conflict of law principles thereof, except to the extent that it is
mandatory that the law of some other jurisdiction. wherein the Assets are
located, shall apply.
8.9 Severability. If any of the provisions of this Agreement are
------------
held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over the subject
matter hereof, such contraven tion or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.
8.10 Deed; Bill of Sale; Assignment. To the extent required by or
------------------------------
permitted under applicable law, this Agreement shall also constitute a "deed,"
"bill of sale" or "assignment" of the Assets.
8.11 Amendment or Modification. This Agreement may be amended or
-------------------------
modified from time to time only by the written agreement of all the parties
hereto and such other parties whose consent may be required pursuant to other
agreements.
8.12 Integration. This Agreement supersedes all previous
-----------
understandings or agreements between the parties. whether oral or written, with
respect to its subject matter. This document is an integrated agreement which
contains the entire understanding of the parties. No understanding,
representation, promise or agreement, whether oral or written, is intended to be
or shall be included in or form part of this Agreement unless it is contained in
a written amendment hereto executed by the parties hereto after the date of this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
STAR GAS PARTNERS, LP STAR GAS CORPORATION
by STAR GAS CORPORATION,
its General Partner
By:_______________________ By:__________________________
Name: William Powers Name: William Powers
Title: President Title: President
STAR GAS PARTNERS, LP
by STAR GAS CORPORATION,
its General Partner
By:_______________________
Name: William Powers
Title: President
12
<PAGE>
Schedule 1
----------
EXCLUDED ASSETS
1. All proceeds of the Star Gas Note retained by Star Gas not to exceed
$260,000, it being understood that all cash received from Pearl Gas Co.
including loans and other amounts repaid at Closing, are included in the
conveyance to the Operating Partnership.
2. All assets of Star Gas owned immediately prior to the Merger and not
acquired by Star Gas as a result of the Merger.
13
<PAGE>
Schedule 2
----------
EXCLUDED LIABILITIES
1. All liabilities of Star Gas existing immediately prior to the Merger
and not incurred by Star Gas as a result of the Merger.
14
<PAGE>
EXHIBIT 99.3
EXECUTION COPY
--------------
SECOND AMENDMENT dated as of October 21, 1997
(this "Second Amendment"), to the Credit Agreement
----------------
dated as of December 13, 1995 (as amended to the
date hereof, the "Credit Agreement"), among Star
----------------
Gas Propane, L.P., a Delaware limited partnership
(the "Borrower"), the lenders party thereto, The
--------
First National Bank of Boston (now known as
BankBoston, N.A.), as Administrative Agent (the
"Administrative Agent"), and NationsBank, N.A., as
---------------------
Documentation Agent (the "Documentation Agent",
-------------------
and together with the Administrative Agent, the
"Agents").
------
The Borrower has requested the Agents and the Lenders to amend the Credit
Agreement to, among other things, permit the Borrower to use the proceeds of a
Tranche B Revolving Loan to effect an Eligible Propane Acquisition by the
Borrower by means of satisfying certain acquisition indebtedness incurred by the
General Partner (in its individual capacity and not in its capacity as a general
partner of the Borrower). The parties hereto have agreed, subject to the terms
and conditions hereof, to amend the Credit Agreement as provided herein.
Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement (the Credit Agreement,
as amended by, and together with, this Second Amendment, and as hereinafter
amended, modified, extended or restated from time to time, being called the
"Amended Agreement").
-----------------
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendments to Section 1.01. (a) The following definitions
--------------------------
are hereby added to Section 1.01 of the Amended Agreement in alphabetical order:
""Assumption Agreement" shall mean the Assignment and
--------------------
Assumption Agreement dated October 21, 1997, executed by the
Borrower and pursuant to which the Borrower assumes the
obligations of the General Partner under the Pearl Gas
Acquisition Loan.
"Escrow Agreement" shall mean that certain Escrow Agreement
----------------
dated October 21, 1997 by and among the Sellers (as defined in the
GP Credit Documents), the General Partner and BankBoston, N.A., as
escrow agent.
<PAGE>
"GP Credit Documents" shall mean, collectively, (i) that
-------------------
certain Credit Agreement dated as of October 21, 1997 between
the General Partner (in its individual capacity and not in its
capacity as a general partner of the Borrower), as borrower
thereunder, and BankBoston, N.A. and NationsBank, N.A., as
lenders thereunder and (ii) all documents and instruments
executed in connection therewith or pursuant thereto."
"Pearl Gas Acquisition Loan" shall mean certain loans made
--------------------------
to the General Partner (in its individual capacity and not in its
capacity as a general partner of the Borrower) pursuant to the
terms and conditions of the GP Credit Documents in an aggregate
principal amount of $23,000,000 for the purpose of acquiring 100%
of the issued and outstanding Capital Stock of Pearl Gas Co.,
an Ohio corporation, and the fees and expenses associated therewith."
(b) The definition of "Tranche A Maturity Date" in Section 1.01 of the
Credit Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
""Tranche A Maturity Date" shall mean December 31, 1999."
-----------------------
SECTION 1.02. Amendment to Section 3.13. Section 3.13(b) of the Credit
-------------------------
Agreement is hereby amended by deleting the word "and" immediately preceding the
"(ii)" and substituting in lieu thereof a comma and adding the following to the
end of such section, immediately preceding the period:
", and (iii) as long as all conditions precedent to the
release of the proceeds of the Pearl Gas Acquisition Loan from
escrow, as set forth in Section 3 of the Escrow Agreement, have
been satisfied in full and as long as the Borrower has executed
and delivered the Assumption Agreement to the Agents, to repay
all principal and interest then due and owing on the Pearl Gas
Acquisition Loan."
SECTION 1.03. Amendment to Section 4.03. Section 4.03(a) of the Credit
-------------------------
Agreement is hereby deleted in its entirety and the following is substituted in
lieu thereof:
"(a) At the time of and immediately after any Tranche B
Revolving Credit Borrowing made or any Tranche B Letter of
Credit issued after December 31, 1996, the Leverage Ratio as
of the date of such Borrowing or issuance (after giving affect
to the acquisition or Growth-Related Capital Expenditure for
which such Borrowing or Letter of Credit is being used) shall
be no greater than 4.50:1.0; provided that at the time of and
--------
immediately after the Borrowing made for the purpose set forth
in Section 3.13(b)(iii), the Leverage Ratio as of
2
<PAGE>
the date of such Borrowing (after giving affect thereto) shall
be no greater than 4.75:1.00; and, in the case of each such
Borrowing or issuance of each such Letter of Credit, the Borrower
shall have prepared and furnished to the Agents prior to such
Borrowing or issuance pro forma financial statements demonstrating
the fulfillment of such condition to the satisfaction of the Agents."
SECTION 1.04. Amendment to Section 6.31. Section 6.31(a) of the Credit
-------------------------
Agreement is hereby deleted in its entirety and the following is hereby
substituted in lieu thereof:
"(a) The Borrower will not permit the ratio on any day
(the "date of determination") of (i) Total Funded Debt as of
the last day of the Reference Period with respect to such date
of determination to (ii) Consolidated Cash Flow for such
Reference Period to be greater than the ratio set forth below
opposite the calendar period during which such date of
determination occurs:
<TABLE>
<CAPTION>
Calendar Period Ratio
--------------- -----
<S> <C>
January 1, 1996 through 5.00 : 1.00
June 30, 1997
July 1, 1997 through 4.75 : 1.00
September 30, 1997
October 1, 1997 through 4.95 to 1.00
December 31, 1997
After December 31, 1997 4.50 to 1.00"
</TABLE>
SECTION 1.05. Addition of Section 6.33. A new Section 6.33 is hereby
-------------------------
added to the Credit Agreement as follows:
"SECTION 6.33. Covenants regarding Pearl Gas Acquisition.
-----------------------------------------
The Borrower agrees that it will not execute and deliver the
Assumption Agreement unless and until all conditions precedent
to the advance of a Tranche B Revolving Loan hereunder in a
principal amount of at least $21,000,000 have been satisfied
in full. In the event the Borrower elects to execute and
deliver the Assumption Agreement, then the Borrower shall
repay the Pearl Gas Acquisition Loan, in part, with proceeds
of a Tranche B Revolving Loan in a principal amount of at
least $21,000,000 hereunder prior to the maturity thereof.
Additionally, the Borrower agrees to take such actions as
are necessary to accomplish the following: (a) all UCC-1
financing statements required to be filed in appropriate
jurisdictions in order to perfect the liens and security
interests of the Trustee (on behalf of the holders of the
Mortgage Notes and the Lenders
3
<PAGE>
hereunder) in and to all personal property of Pearl Gas that
is of the type in which a security interest can be perfected
under Article 8 or Article 9 of the UCC, shall be filed in the
appropriate jurisdictions on or before October 29, 1997; (b)
Lockbox Accounts in favor of the Trustee covering all Deposit
Accounts of Pearl Gas shall be executed and delivered to the
Trustee, and the liens and security interests of the Trustee
perfected in such Deposit Accounts, on or before November 21,
1997; (c) Mortgages covering all real property of Pearl Gas
shall be recorded in the appropriate jurisdiction, the liens
and security interests created pursuant thereto shall be
perfected pursuant to the terms of Section 6.22, and the terms
of Section 6.22 shall be, in all respects, satisfied with
respect to such real properties, on or before December 19,
1997; (d) landlord's lien waivers, bailee agreements and
similar instruments covering Equipment or Inventory of Pearl
Gas shall be obtained, in form and substance acceptable to the
Agent and the Required Lenders, with respect to Equipment or
Inventory of Pearl Gas that is located on properties that are
not owned by Pearl Gas, or that is in the possession of third
parties, on or before December 19, 1997; provided, that,
-------- ----
nothing in this clause (e) shall require the Borrower to
perfect security interests in propane tanks that are commonly
referred to as "customer tanks," and (f) Motor Vehicle titles
covering all Motor Vehicles owned by Pearl Gas, and issued to
indicate the existence of liens and security interests in favor
of the Trustee in accordance with applicable law, shall be
delivered to the Trustee on or before March 22, 1998."
SECTION 1.06. Representations and Warranties. The Borrower hereby
------------------------------
represents and warrants to each of the Agents and the Lenders, as follows:
(a) The representations and warranties set forth in Article
III of the Agreement, and in each other Loan Document, are true
and correct in all material respects on and as of the date hereof
and on and as of the Second Amendment Effective Date with the same
effect as if made on and as of the date hereof or the Second
Amendment Effective Date, as the case may be, except to the extent
such representations and warranties expressly relate solely to an
earlier date.
(b) Each of the Borrower and the Subsidiaries is in compliance
with all the terms and conditions of the Agreement and the other
Loan Documents on its part to be observed or performed and no
Default or Event of Default has occurred or is continuing.
(c) The execution, delivery and performance by the Borrower
of this Second Amendment, the Assumption
4
<PAGE>
Agreement and the transactions contemplated thereby have been
duly authorized by the Borrower.
(d) This Second Amendment constitutes the legal, valid
and binding obligation of the Borrower, enforceable against it
in accordance with its terms.
(e) The execution, delivery and performance by the
Borrower of this Second Amendment (i) will not violate (A)
any provision of law, statute, rule or regulation, or of the
agreement of limited partnership of the Borrower, (B) any order
of any Governmental Authority or (C) any provision of any
indenture, agreement or other instrument to which the Borrower
is a party or by which it or any of its property may be bound
and (ii) do not require any consents under, result in a breach
of or constitute (with notice or lapse of time or both) a default
or give rise to increased, additional, accelerated or guaranteed
rights of any Person under any such indenture, agreement or other
instrument.
(f) The Administrative Agent shall have received duly
executed counterparts of the Security Agreement for Motor Vehicles
and Other Rolling Stock dated as of October 22, 1997 between the
Borrower and the Trustee.
SECTION 1.07. Effectiveness. This Second Amendment shall become effective
-------------
only upon satisfaction of the following conditions precedent (the first date
upon which each such condition has been satisfied being herein called the
"Second Amendment Effective Date"):
-------------------------------
(a) the Administrative Agent shall have received duly executed
counterparts of this Second Amendment which, when taken together,
bear the authorized signatures of the Borrower and the Lenders.
(b) The Agents shall be satisfied that the representations and
warranties set forth in Section 1.06 are true and correct on and as
of the Second Amendment Effective Date.
(c) There shall not be any action pending or any judgment,
order or decree in effect which, in the judgment of the Agents or
the Lenders, is likely to restrain, prevent or impose materially
adverse conditions upon performance by the Borrower of its
obligations under the Amended Agreement.
(d) The Agents shall have received such other documents,
legal opinions, instruments and certificates relating to this
Second Amendment as they shall reasonably request and such other
documents, legal opinions, instruments and certificates shall
be satisfactory in form and substance to the Agents and the
5
<PAGE>
Lenders. All corporate and other proceedings taken or to be
taken in connection with this Second Amendment and all documents
incidental thereto, whether or not referred to herein, shall be
satisfactory in form and substance to the Administrative Agent
and the Lenders.
(e) The Agents shall have received such financial information
and financial projections, prepared on a pro forma basis after giving
effect to the assumption of the Pearl Gas Acquisition Loan by the
Borrower and transactions contemplated by the Contribution Agreement
as it reasonably requires and the Agents and the Lenders shall be
reasonably satisfied with the same.
(f) The Borrower shall have (i) deposited in escrow with
BankBoston, N.A. an amount (the "Escrowed Sum") equal to the
------------
difference between (x) the Purchase Price to be paid by the
General Partner (in its individual capacity and not as the
general partner of the Borrower) to the Sellers pursuant to the
Acquisition Agreement and (y) $21,000,000, and (b) delivered
irrevocable written instructions to BankBoston, N.A., to apply
the Escrowed Sums to satisfy, to the extent of such funds, the
Pearl Gas Acquisition Loan, upon the satisfaction of all
conditions set forth in Section 3 of the Escrow Agreement.
SECTION 1.08. APPLICABLE LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY APPLY.
SECTION 1.09. Expenses. The Borrower shall pay all reasonable out-of-
--------
pocket expenses incurred by the Agents and the Lenders in connection with the
preparation, negotiation, execution, delivery and enforcement of this Second
Amendment, including, but not limited to, the reasonable fees and disbursements
of counsel.
SECTION 1.10. Counterparts. This Second Amendment may be executed in any
------------
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one agreement.
SECTION 1.11. Loan Documents. Except as expressly set forth herein, the
--------------
amendments provided herein shall not by implication or otherwise limit,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Agents, the Trustee or the other Secured Parties under the Amended
Agreement or any other Loan Document, nor shall they constitute a waiver of any
Default or Event of Default, nor shall they alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Amended Agreement or any other Loan Document. Each of the
amendments provided herein shall apply and be effective only with respect to the
provisions of the Amended
6
<PAGE>
Agreement specifically referred to by such amendments. Except as expressly
amended herein, the Amended Agreement and the other Loan Documents shall
continue in full force and effect in accordance with the provisions thereof. As
used in the Amended Agreement, the terms "Agreement", "herein", "hereinafter",
"hereunder", "hereto" and words of similar import shall mean, from and after the
date hereof, the Amended Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed by their duly authorized officers, all as of the date first
above written.
STAR GAS PROPANE, L.P., as Borrower
By: Star Gas Corporation, its General Partner
by _______________________________________
Name:
Title:
BANKBOSTON, N.A.,
as Administrative Agent and as a Lender
by _________________________________________________
Name:
Title:
NATIONSBANK, N.A., as Documentation Agent
and as a Lender
by _________________________________________________
Name:
Title:
7
