<PAGE>
________________________________________________________________________________
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO
SECTION 14(c) OF THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[x] Definitive Information Statement
NATIONAL PROPANE PARTNERS, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No Fee Required
[x] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Units representing limited partner interests
(2) Aggregate number of securities to which transaction applies:
6,701,550 National Common Units
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $12.00
(4) Proposed maximum aggregate value of transaction: $80,418,600
(5) Total fee paid: $16,084
[ ] Fee paid previously with preliminary materials.
[x] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $16,084
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1
(3) Filing Parties: Columbia Propane, L.P., CP Holdings, Inc., Columbia
Propane Corporation and Columbia Energy Group
(4) Date Filed: April 9, 1999
________________________________________________________________________________
________________________________________________________________________________
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[Logo]
NATIONAL PROPANE CORPORATION
SUITE 1700, IES TOWER
200 FIRST STREET SE
CEDAR RAPIDS, IOWA 52401
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON MONDAY, JULY 19, 1999
June 24, 1999
Dear Unitholder:
You are cordially invited to attend a special meeting of common unitholders
of National Propane Partners, L.P. to be held on Monday, July 19, 1999, at 10:00
a.m., local time, at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125
West 55th Street, 16th Floor, New York, New York 10019. This meeting will be
open to all National Propane Partners L.P. common unitholders of record as of
the close of business on June 23, 1999.
As described in the enclosed information statement, we have called this
meeting to ask you:
1. To consider and vote upon a proposal to approve and adopt a
purchase agreement dated as of April 5, 1999 among Columbia Propane, L.P.
and certain of its affiliates, on the one hand, and National Propane
Partners, L.P. and certain of its affiliates, on the other. The purchase
agreement provides for, among other things, the merger of National Propane
Partners, L.P. with and into Columbia Propane, L.P., with Columbia Propane,
L.P. continuing as the surviving limited partnership.
2. To transact any other business that may properly come before the
meeting or any adjournment or postponement of the meeting. National Propane
Corporation, the managing general partner of National Propane Partners,
L.P., and National Propane Partners, L.P. do not intend to bring any other
matters before the meeting, and are not aware of any other matters that are
expected to be brought properly before the meeting.
The merger is the second step in a two-part transaction, the purpose of
which is the acquisition by Columbia Propane, L.P. and Columbia Propane
Corporation of (i) all of the National Propane Partners, L.P. common units
representing limited partner interests and all of the subordinated units
representing subordinated general partner interests in National Propane
Partners, L.P., and (ii) substantially all of the limited partner interests in
National Propane, L.P., a subsidiary operating partnership of National Propane
Partners, L.P. The first step was a tender offer commenced by Columbia Propane,
L.P. on April 9, 1999 for all of the outstanding National Propane Partners, L.P.
common units, at a purchase price of $12.00 per common unit, net to the seller
in cash without interest. Columbia Propane, L.P. has advised us that under the
terms of the tender offer, which expired on May 6, 1999, Columbia Propane, L.P.
purchased 5,922,454 National Propane Partners, L.P. common units (representing
approximately 88.4% of the common units outstanding).
Upon the completion of the merger, all National Propane Partners, L.P.
common units (other than common units owned by Columbia Propane, L.P. or any of
its affiliates) will be converted into the right to receive $12.00 in cash,
without interest.
The approval of the holders of a majority of all outstanding National
Propane Partners, L.P. common units and the majority of all outstanding National
Propane Partners, L.P. subordinated units is needed to approve and adopt the
purchase agreement. National Propane Corporation owns all outstanding National
Propane Partners, L.P. subordinated units and has agreed, pursuant to the
purchase agreement, to vote all National Propane Partners, L.P. subordinated
units in favor of approval and adoption of the purchase agreement and the
merger. In addition, Columbia Propane, L.P. has
<PAGE>
agreed, in the purchase agreement, to vote all National Propane Partners, L.P.
common units it beneficially owns in favor of approval and adoption of the
purchase agreement and the merger. THEREFORE, BECAUSE THE APPROVAL OF THE
HOLDERS OF A MAJORITY OF ALL OUTSTANDING NATIONAL PROPANE PARTNERS, L.P. COMMON
UNITS IS SUFFICIENT TO APPROVE AND ADOPT THE PURCHASE AGREEMENT AND THE MERGER,
COLUMBIA PROPANE, L.P., WHICH OWNS 88.4% OF THE COMMON UNITS OUTSTANDING, CAN
CAUSE THE MERGER TO OCCUR WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER NATIONAL
PROPANE PARTNERS, L.P. COMMON UNITHOLDER.
Whether or not you plan to attend the special meeting, please read the
attached information statement carefully. NATIONAL PROPANE PARTNERS, L.P. IS NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A PROXY.
Please do not send in your National Propane Partners, L.P. common unit
certificates at this time. Immediately following the merger, you will be sent a
letter of transmittal for that purpose.
Sincerely,
/s/ Ronald R. Rominiecki
RONALD R. ROMINIECKI
President and Chief Operating Officer
2
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NATIONAL PROPANE CORPORATION
SUITE 1700, IES TOWER
200 FIRST STREET SE
CEDAR RAPIDS, IOWA 52401
-------------------
INFORMATION STATEMENT
-------------------
SPECIAL MEETING OF HOLDERS OF
NATIONAL COMMON UNITS TO BE HELD
MONDAY, JULY 19, 1999
-------------------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
-------------------
This Information Statement is being furnished to the holders of common
units representing limited partner interests (the 'National Common Units') of
National Propane Partners, L.P., a Delaware limited partnership (the 'National
MLP'), in connection with the special meeting of holders of National Common
Units (the 'Special Meeting') to be held on Monday, July 19, 1999 at 10:00 a.m.,
local time, at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West
55th Street, 16th Floor, New York, New York, 10019, including any adjournments
or postponements thereof. This Information Statement is first being mailed to
holders of National Common Units on or about June 25, 1999. The Special Meeting
is being held in connection with the proposed merger (the 'Merger') of the
National MLP with and into Columbia Propane, L.P., a Delaware limited
partnership (the 'Purchaser') and an indirect, wholly-owned subsidiary of
Columbia Propane Corporation ('Purchaser Holdings'), pursuant to a Purchase
Agreement dated as of April 5, 1999 (the 'Purchase Agreement') by and among the
Purchaser, Purchaser Holdings, CP Holdings, Inc., a Delaware corporation and the
managing general partner of the Purchaser (the 'Purchaser General Partner'), the
National MLP, National Propane Corporation, a Delaware corporation and the
managing general partner of the National MLP (the 'National MGP'), National
Propane SGP, Inc., a Delaware corporation and the special general partner of the
National MLP (the 'National SGP' and, together with the National MGP, the
'General Partners') and Triarc Companies, Inc. ('Triarc'). A copy of the
Purchase Agreement is attached to this Information Statement as Annex A. Under
the terms of the Purchase Agreement, upon consummation of the Merger, (i) the
National MLP will be merged with and into the Purchaser, with the Purchaser
continuing as the surviving limited partnership (the 'Surviving Entity') and
(ii) each outstanding National Common Unit (other than National Common Units
owned by the Purchaser or any of its affiliates) will be converted into the
right to receive $12.00 in cash, without interest thereon (the 'Merger
Consideration'). The Board of Directors (the 'National Board') of the National
MGP has fixed the close of business on June 23, 1999 as the record date (the
'Record Date') for the Special Meeting.
At the Special Meeting, the holders of National Common Units (the
'Unitholders') will vote on (i) a proposal to approve and adopt the Purchase
Agreement and all of the transactions contemplated thereby, including the
Merger, and (ii) such other business as may properly come before the meeting. As
discussed below, the Purchaser can approve such proposal without the vote of any
other Unitholder.
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition by the Purchaser of (i) all of the National Common
Units and all of the subordinated units representing subordinated general
partner interests in the National MLP (the 'National Subordinated Units'), (ii)
all of the unsubordinated general partner interests in the National MLP (the
'National MLP GP Interests') and all of the Incentive Distribution Rights
representing general partner interests in the National MLP (the 'Incentive
Distribution Rights'), and (iii) all of the unsubordinated general partner
interests in the National MLP's operating partnership, National Propane, L.P., a
Delaware limited partnership (the 'National OLP') and substantially all of the
limited partner interests in the National OLP. The first step was a tender offer
(the 'Offer') commenced by the Purchaser on April 9, 1999 for all outstanding
National Common Units, at a purchase price of $12.00 per National Common Unit,
net to the seller in cash without interest thereon (the 'Offer Consideration').
The Purchaser has advised the National MGP that pursuant to the Offer, which
expired at 12:00 midnight, New York City time on May 6, 1999,
<PAGE>
the Purchaser purchased 5,922,454 National Common Units (representing
approximately 88.4% of the National Common Units then outstanding).
The approval of the holders of a majority of all outstanding National
Common Units and the majority of all outstanding National Subordinated Units is
needed to approve and adopt the Purchase Agreement and all of the transactions
contemplated thereby, including the Merger. The National MGP, which owns all
outstanding National Subordinated Units, has agreed, pursuant to the Purchase
Agreement, to vote all National Subordinated Units in favor of approval and
adoption of the Purchase Agreement and all of the transactions contemplated
thereby, including the Merger. In addition, the Purchaser has agreed, pursuant
to the Purchase Agreement, to vote all National Common Units it owns in favor of
approval and adoption of the Purchase Agreement and all of the transactions
contemplated thereby, including the Merger. Therefore, because the approval of
the holders of a majority of all outstanding National Common Units is sufficient
to approve and adopt the Purchase Agreement and all of the transactions
contemplated thereby, including the Merger, the Purchaser, which owns on the
Record Date approximately 88.4% of the National Common Units outstanding, can
cause the approval and adoption of the Purchase Agreement and all of the
transactions contemplated thereby, including the Merger, to occur without the
affirmative vote of any other holder of National Common Units. The vote will
also constitute a consent to or waiver of any applicable provisions of the
National MLP Partnership Agreement (as defined below) or the National OLP
Partnership Agreement (as defined below) requiring any consent to or waiver of
the transactions contemplated by the Purchase Agreement. For a description of
the transactions contemplated by the Purchase Agreement, see 'The Purchase
Agreement -- Agreements to Purchase Acquired Interests; The Merger.'
Whether or not you plan to attend the Special Meeting, please read this
Information Statement carefully. Although no action is required by the
Unitholders in connection with the proposed Merger, the rules under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), require the
mailing to the Unitholders of the information set forth in this Information
Statement prior to June 29, 1999, which is 20 days prior to the date of the
Special Meeting. This Information Statement is first being mailed to Unitholders
on or about June 24, 1999.
Please do not send in your certificates representing National Common Units
at this time. If the Merger is consummated, you will be sent a letter of
transmittal for that purpose as soon as reasonably practicable thereafter.
THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT HAS NOT BEEN PASSED
UPON BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------------
The date of this Information Statement is June 24, 1999.
ii
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TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
FORWARD-LOOKING STATEMENTS................................................................................. 1
SUMMARY.................................................................................................... 3
INFORMATION CONCERNING THE SPECIAL MEETING................................................................. 8
BACKGROUND OF THE OFFER AND THE MERGER..................................................................... 9
Ownership of the National MLP and the Decision to Sell................................................ 9
The Bid Process....................................................................................... 10
RECOMMENDATION OF THE NATIONAL BOARD, CONFLICTS OF INTEREST AND FIDUCIARY DUTY............................. 19
REASONS FOR THE RECOMMENDATION............................................................................. 20
General............................................................................................... 20
The National Board's Special Committee................................................................ 20
The Lehman Brothers Opinion........................................................................... 21
Uncertainties Associated with Projections............................................................. 28
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER.......................................................... 29
CONDITIONS TO THE PURCHASE OF THE ACQUIRED INTERESTS AND THE MERGER........................................ 29
THE PURCHASE AGREEMENT..................................................................................... 30
FINANCING THE TRANSACTION.................................................................................. 41
PAYMENT FOR THE NATIONAL COMMON UNITS...................................................................... 41
ACCOUNTING TREATMENT OF THE MERGER......................................................................... 42
DELISTING OF NATIONAL COMMON UNITS......................................................................... 42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................... 42
PRICE RANGE OF THE NATIONAL COMMON UNITS; DISTRIBUTIONS ON THE NATIONAL COMMON UNITS....................... 44
CERTAIN INFORMATION CONCERNING THE PURCHASER, PURCHASER GENERAL PARTNER, PURCHASER HOLDINGS AND COLUMBIA
ENERGY GROUP............................................................................................. 46
CERTAIN INFORMATION CONCERNING THE NATIONAL MLP............................................................ 48
Business.............................................................................................. 48
Properties............................................................................................ 53
Legal Proceedings..................................................................................... 55
Selected Historical Consolidated Financial and Operating Data......................................... 55
Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................................... 58
Quantitative and Qualitative Disclosures about Market Risk............................................ 69
Financial Statements and Supplementary Data........................................................... 69
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. 69
OWNERSHIP OF NATIONAL COMMON UNITS BY DIRECTORS AND EXECUTIVE OFFICERS OF THE NATIONAL MGP AND CERTAIN
UNITHOLDERS.............................................................................................. 70
CERTAIN LEGAL MATTERS...................................................................................... 70
OTHER MATTERS.............................................................................................. 70
ANNEX A -- Purchase Agreement.............................................................................. A-1
ANNEX B -- Opinion of Lehman Brothers...................................................................... B-1
ANNEX C -- Financial Statements and Supplementary Data for the Years Ended December 31, 1996, 1997 and
1998............................................................................................ C-1
ANNEX D -- Financial Information derived from National MLP's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1999............................................................................ D-1
</TABLE>
iii
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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AVAILABLE INFORMATION
The National MLP is subject to the information and filing requirements of
the Exchange Act and is required to file periodic reports and other information
with the Securities and Exchange Commission (the 'SEC') relating to its
business, financial condition and other matters. The Tender Offer Statement on
Schedule 14D-1, dated April 9, 1999 (the 'Schedule 14D-1'), filed by the
Purchaser, Purchaser Holdings, Purchaser General Partner and Columbia Energy
Group, and the Solicitation/Recommendation Statement on Schedule 14D-9 dated
April 15, 1999 (the 'Schedule 14D-9'), filed by the National MLP, each in
connection with the Offer, and the respective exhibits thereto, as well as such
reports and other information filed by the National MLP, are available for
inspection and copying at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the SEC located at Seven World Trade Center, 13th Floor, New York, New York
10007 and at the Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained by
mail, upon payment of the SEC's customary fees, from the SEC's principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports
and other information filed electronically by the National MLP with the SEC.
Statements contained in this Information Statement as to the contents of
any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an annex to this Information Statement, each such
statement being qualified in all respects by such reference. All information
with respect to the Purchaser has been supplied by the Purchaser, Purchaser
Holdings, Purchaser General Partner or Columbia Energy Group or has been derived
from the Schedule 14D-1.
FORWARD-LOOKING STATEMENTS
Certain statements in this Information Statement, including statements
under 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' and elsewhere in this Information Statement that are not
historical facts, including most importantly, statements relating to the
proposed transaction between the National MLP and the Purchaser (and affiliates
thereof), information concerning possible or assumed future results of
operations of the National MLP and statements preceded by, followed by, or that
include the words 'may,' 'believes,' 'expects,' 'anticipates' or the negation
thereof, or similar expressions constitute 'forward-looking statements' within
the meaning of the Private Securities Litigation Reform Act of 1995 (the 'Reform
Act'). Such forward-looking statements involve risks, uncertainties and other
factors which may cause actual results, performance or achievements of the
National MLP to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. For those
statements, the National MLP claims the protection of the safe harbor for
forward-looking statements contained in the Reform Act. Many important factors
could affect the future results of the National MLP and could cause those
results to differ materially from those expressed in the forward-looking
statements contained herein. Such factors include, but are not limited to, the
following: changes in wholesale propane prices; regional weather conditions; the
ability to attract and retain customers; general economic conditions where the
National MLP operates; competition from other energy sources and within the
propane industry; success of operating initiatives; development and operating
costs; advertising and promotional efforts; the existence or absence of adverse
publicity; change in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business ability and
judgment of personnel; availability of qualified personnel; labor and employee
benefit costs; the success of the National MLP in identifying systems and
programs that are not yet Year 2000 compliant; unexpected costs associated with
Year 2000 compliance or the business risk associated with Year 2000
non-compliance by customers and/or suppliers; changes in, or failure to comply
with, government regulations (including accounting standards, environmental laws
and taxation requirements); the costs, uncertainties and other effects of legal
and administrative proceedings and other risks and uncertainties referred to in
this Information Statement and other current and periodic filings by the
National MLP. The National MLP will not undertake and specifically declines any
obligation to publicly release the result of any revisions to any
forward-looking statements to reflect events or circumstances
1
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after anticipated or unanticipated events. In addition, it is the National MLP's
policy generally not to make any specific projections as to future earnings, and
the National MLP does not endorse any projections regarding future performance
that may be made by third parties.
Cash distributions on the National Common Units were suspended in January
1999 with respect to the fourth quarter of 1998 and are currently prohibited
under the terms of the National MLP's debt agreements until all bank
indebtedness is repaid in full. Under the terms of the Purchase Agreement, the
National MLP is prohibited from paying any further distributions to holders of
National Common Units without the prior written consent of the Purchaser General
Partner, which consent the Purchaser General Partner has advised it intends not
to give. None of the arrearages with respect to any previous quarter will be
paid in connection with the Merger and pursuant to the terms of the Purchase
Agreement.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. This summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained elsewhere
in this Information Statement and the Annexes hereto. Holders of National Common
Units are urged to read this Information Statement and the Annexes hereto in
their entirety. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
THE PARTIES
The National MLP and Related Parties. The National MLP is a Delaware
limited partnership which, through a subsidiary partnership, the National OLP,
is engaged primarily in (i) the retail marketing of propane to residential,
commercial and industrial, and agricultural customers and to dealers that resell
propane to residential and commercial customers and (ii) the retail marketing of
propane-related supplies and equipment, including home and commercial
appliances. The address of the principal executive offices of the National MLP
is Suite 1700, Alliant Tower, 200 First Street SE, Cedar Rapids, Iowa 52401. The
telephone number of the National MLP is (319) 365-1550. For more information
regarding the National MLP, see 'Certain Information Concerning the National
MLP.' The National MGP is a Delaware corporation and an indirect wholly-owned
subsidiary of Triarc.
The Purchaser. The Purchaser is a Delaware limited partnership. The
Purchaser was organized to acquire the National MLP and has not conducted any
unrelated activities since its organization. The Purchaser General Partner is a
Delaware corporation and an indirect wholly-owned subsidiary of Columbia Energy
Group, which was organized to be a managing general partner to the Purchaser and
has not conducted any unrelated activities since its organization. All of the
issued and outstanding shares of the Purchaser General Partner are beneficially
owned by Purchaser Holdings. Purchaser Holdings is a Delaware corporation.
Purchaser Holdings sells propane at wholesale and retail in parts of ten states
and the District of Columbia. Columbia Energy Group is a Delaware corporation,
and a registered holding company under the Public Utility Holding Company Act of
1935, as amended. Columbia Energy Group and its subsidiaries comprise one of the
nation's largest integrated natural gas systems engaged in natural gas
transmission, natural gas distribution, and exploration for and production of
natural gas and oil. Columbia Energy Group is also engaged in related energy
businesses including the marketing of natural gas and electricity, the
generation of electricity and the distribution of propane. For more information
concerning the Purchaser and its affiliates, see 'Certain Information Concerning
the Purchaser, the Purchaser General Partner, Purchaser Holdings and Columbia
Energy Group.'
THE MERGER
The Merger is the second step in a two-part transaction, the purpose of
which is the acquisition by the Purchaser of (i) all of the National Common
Units and National Subordinated Units, (ii) all of the National MLP GP Interests
and all of the Incentive Distribution Rights, and (iii) all of the
unsubordinated general partner interests and substantially all of the limited
partner interests in the National OLP. The first step was the Offer, commenced
by the Purchaser, Purchaser Holdings, the Purchaser General Partner and Columbia
Energy Group on April 9, 1999 for all outstanding National Common Units, at a
purchase price of $12.00 per National Common Unit. The Purchaser has advised the
National MGP that pursuant to the Offer, which expired at 12:00 midnight New
York City time on May 6, 1999, the Purchaser purchased 5,922,454 National Common
Units (representing approximately 88.4% of the National Common Units then
outstanding).
Upon the consummation of the Merger, all National Common Units (other than
National Common Units owned by the Purchaser or any of its affiliates) will be
converted into the right to receive $12.00 in cash, without interest thereon.
3
<PAGE>
THE SPECIAL MEETING
Date, Time and Place. Monday, July 19, 1999 at 10:00 a.m., local time, at
the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street,
16th Floor, New York, New York, 10019.
Purpose. To consider and vote upon a proposal to approve and adopt the
Purchase Agreement and the Merger. See 'Information Concerning the Special
Meeting.'
Record Date. The close of business on June 23, 1999.
Vote Required. The approval of the holders of a majority of all outstanding
National Common Units and the majority of all outstanding National Subordinated
Units is needed to approve and adopt the Purchase Agreement and all of the
transactions contemplated thereby, including the Merger. The National MGP, which
owns all outstanding National Subordinated Units, has agreed, pursuant to the
Purchase Agreement, to vote all National Subordinated Units in favor of approval
and adoption of the Purchase Agreement and all of the transactions contemplated
thereby, including the Merger. In addition, the Purchaser has agreed, pursuant
to the Purchase Agreement, to vote all National Common Units it owns in favor of
approval and adoption of the Purchase Agreement and all of the transactions
contemplated thereby, including the Merger. Because the approval of the holders
of a majority of all outstanding National Common Units is sufficient to approve
and adopt the Purchase Agreement and all of the transactions contemplated
thereby, including the Merger, the Purchaser, which owns on the Record Date
approximately 88.4% of the National Common Units outstanding, can cause the
approval and adoption of the Purchase Agreement and all of the transactions
contemplated thereby, including the Merger, to occur without the affirmative
vote of any other holder of National Common Units. THEREFORE, YOU ARE NOT BEING
ASKED FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND ONE. The vote will also
constitute a consent to or waiver of any applicable provisions of the National
MLP Partnership Agreement (as defined below) or the National OLP Partnership
Agreement (as defined below) requiring any consent to or waiver of the
transactions contemplated by the Purchase Agreement. For a description of the
transactions contemplated by the Purchase Agreement, see 'The Purchase
Agreement -- Agreements to Purchase Acquired Interests; The Merger.' Holders of
record may vote the National Common Units, if they so wish, by attending the
Special Meeting in person. See 'Information Concerning the Special Meeting.'
BENEFICIAL OWNERSHIP BY THE PURCHASER
The Purchaser has advised the National MLP that following the expiration of
the Offer at 12:00 midnight, New York City time on May 6, 1999, the Purchaser
accepted for payment 5,922,454 National Common Units, which gave the Purchaser
beneficial ownership of approximately 88.4% of the outstanding National Common
Units, which number of National Common Units it owns as of the Record Date.
PAYMENT FOR THE NATIONAL COMMON UNITS
The Surviving Entity will make available to the paying agent, ChaseMellon
Shareholder Services, L.L.C. (the 'Paying Agent'), as agent for the Unitholders
of record, as needed, the aggregate amount of cash to be paid in respect of the
National Common Units pursuant to the Merger. Unitholders of record should use
the letter of transmittal referred to below to effect the surrender of
certificates in exchange for $12.00 per National Common Unit in cash, without
interest. All certificates so surrendered will be cancelled.
Please do not send in your certificates representing National Common Units
at this time. If the Merger is consummated, a letter of transmittal will be sent
to Unitholders of record as soon as reasonably practicable thereafter.
Unitholders may also obtain copies of the letter of transmittal through
ChaseMellon Shareholder Services, L.L.C., the Paying Agent.
Upon surrender of a certificate representing National Common Units,
together with a properly completed and duly executed letter of transmittal, the
holder thereof will receive in exchange for each
4
<PAGE>
National Common Unit $12.00 in cash, without interest. At any time following the
first anniversary after the effective time of the Merger, the Surviving Entity
shall be entitled to require the Paying Agent to deliver to it any funds which
have been made available to the Paying Agent and not disbursed to former holders
of National Common Units (including, without limitation, all interest and other
income received by the Paying Agent in respect of all funds made available to
it), and, thereafter, such former holders shall be entitled to look to the
Surviving Entity (subject to abandoned property, escheat and other similar laws)
only as general creditors thereof with respect to the $12.00 per former National
Common Unit payable upon due surrender of the certificates held by them.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE NATIONAL BOARD
A special committee was established by the National Board to review and
evaluate any agreement reached regarding a potential transaction and to make a
recommendation on behalf of the holders of the National Common Units with
respect to any such agreement (the 'Special Committee'). The National Board,
acting on the recommendation of the Special Committee, has unanimously approved
and adopted the Purchase Agreement, the Offer and the Merger, and has determined
that the Offer and the Merger are fair to and in the best interests of the
Unitholders.
Any determination of fairness involves many different issues and
considerations, and is inherently subjective. Further, conflicts of interest
were present in negotiating and structuring the transaction and in determining
the allocation of the consideration to be received by the holders of National
Common Units, on the one hand, and the General Partners, on the other hand.
Triarc, the parent of the National MGP, has differing interests in the National
MLP from you. Each member of the National Board is or was either an officer or
director of Triarc or a subsidiary of Triarc, or has had business relationships
with Triarc, a subsidiary of Triarc, or members of Triarc's Board of Directors.
In addition, the process by which the Special Committee considered the
fairness of the transactions was not the equivalent of an arms' length
negotiation with the National MGP and Triarc. In this regard, (i) the director
who served on the Special Committee was also a director of the National MGP,
with social and professional ties to the other directors of the National MGP,
and with statutory fiduciary duties to the shareholders of the National MGP and
(ii) the Special Committee did not have available to it, as a practical matter,
the management resources that would have been available to an independent
company negotiating with Triarc. The Special Committee and its financial and
legal advisors, however, had access to all available information that was
provided to potential purchasers of the National MLP. It should also be noted
that the Special Committee did not have any direct discussions or contacts with
any potential purchaser of the National MLP (although it did have a number of
meetings with the National MGP and with Triarc).
Mr. Willis G. Ryckman III, the sole member of the Special Committee,
currently serves as a member of the National Board and serves as chairman and/or
director of a number of other companies. From 1986-1988, Mr. Ryckman served on
the Board of Directors of Triangle Industries, Inc., a public company then
controlled by Mr. Nelson Peltz and Mr. Peter May. Messrs. Peltz and May are
directors of the National MGP and serve, respectively, as Chairman and Chief
Executive Officer and President and Chief Operating Officer, as well as
directors of Triarc. Messrs. Peltz and May have each invested in private
investment funds managed by Mr. Ryckman and each currently owns investments with
a cost basis of approximately $100,000 in such funds. For his service on the
Special Committee, Mr. Ryckman has been paid a fee of $50,000 plus $750 per
meeting of the Special Committee and has been reimbursed for his out-of-pocket
expenses related to his service on the Special Committee. He is also entitled
to, as are all members of the National Board, certain rights of indemnification
by the National MGP that have been guaranteed by Triarc.
See 'Recommendation of the National Board, Conflicts of Interest and
Fiduciary Duty' for more information.
5
<PAGE>
OPINION OF THE FINANCIAL ADVISORS
On April 1, 1999, Lehman Brothers Inc. ('Lehman Brothers') delivered its
opinion to the Special Committee of the National Board to the effect that as of
such date, and based upon and subject to certain matters stated therein, from a
financial point of view, the cash consideration of $12.00 per National Common
Unit to be received by the Unitholders in the Offer and the Merger was fair to
the holders of the National Common Units. A copy of Lehman Brothers' written
opinion, setting forth the assumptions made, factors considered and limitations
upon the review undertaken by Lehman Brothers, is attached to this Information
Statement as Annex B. Holders of National Common Units are urged to read this
opinion in its entirety. For a summary of Lehman Brothers' opinion and the
methodology Lehman Brothers used to render its fairness opinion, see 'Reasons
for the Recommendation.'
BACKGROUND OF THE OFFER AND THE MERGER
For a description of the events leading to the approval of the Purchase
Agreement, the Offer and the Merger by the Special Committee and the National
Board and of other events since such approval, see 'Background of the Offer and
the Merger.'
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for the Purchaser and its
affiliates to acquire all of the National Common Units. The Purchaser and
Purchaser General Partner intend to acquire, directly or indirectly, (i) any
remaining outstanding National Common Units not acquired in the Offer by
consummating the Merger and all of the National Subordinated Units, (ii) all of
the unsubordinated general partner interests in the National MLP and all of the
Incentive Distribution Rights, and (iii) all of the general partner interests
and substantially all of the limited partner interests (except for the 1%
Special OLP Interest, as defined below) in the National MLP's operating
partnership, the National OLP. The Offer, the Merger and the other transactions
effecting the acquisition of such interests in the National MLP and in the
National OLP are being made pursuant to the Purchase Agreement.
CONDITIONS TO THE MERGER
For a discussion of certain conditions to the Merger and related
transactions, see 'Conditions to the Purchase of the Acquired Interests and the
Merger.'
FINANCING THE TRANSACTION
The total amount of funds required by the Purchaser to purchase the
National Common Units pursuant to the Offer and to pay for National Common Units
converted into the right to receive cash pursuant to the Merger is estimated to
be approximately $80.4 million. The Purchaser has advised the National MGP that
it paid approximately $71.1 million for the 5,922,454 National Common Units it
purchased at the expiration of the Offer on May 6, 1999. The Purchaser funded
the purchase of the National Common Units made in connection with the Offer with
a capital contribution from the Purchaser General Partner, who in turn received
a capital contribution from Purchaser Holdings and, indirectly, from Columbia
Energy Group. The consideration to be paid to remaining Unitholders in the
Merger, as well as transaction fees and expenses, will be funded in a similar
manner. See 'Financing the Transaction' for more information.
ACCOUNTING TREATMENT OF THE MERGER
It is expected that the purchase method of accounting will be used to
account for the Merger, upon consummation, in accordance with generally accepted
accounting principles. See 'Accounting Treatment of the Merger.'
6
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An exchange of National Common Units for the Merger Consideration will be a
taxable transaction for federal income tax purposes. Unitholders are urged to
consult their own tax advisors as to the particular tax consequences of the
Merger to them, including the applicability of federal, local, foreign and other
tax laws. For a discussion of certain federal income tax consequences of the
Merger, see 'Certain Federal Income Tax Consequences.'
PRICE OF THE NATIONAL COMMON UNITS
The National Common Units are traded on the New York Stock Exchange (the
'NYSE') under the symbol 'NPL.' On April 5, 1999, the last full day of trading
before the public announcement of the execution of the Purchase Agreement, the
reported closing sale price of the National Common Units on the NYSE was
$6 13/16 per National Common Unit. On April 8, 1999, the last full day of
trading before the commencement of the Offer, the reported last sale price of
the National Common Units on the NYSE was $11 1/2 per National Common Unit. On
June 23, 1999, the last full day of trading before the mailing of this
Information Statement, the reported closing sale price of the National Common
Units on the NYSE was $11 3/4 per National Common Unit. See 'Price Range of the
National Common Units; Distributions on the National Common Units' for market
price information and a description of the quarterly distributions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
See 'Ownership of National Common Units By Directors and Executive Officers
of the National MGP and Certain Unitholders' for a beneficial ownership chart
and a description of beneficial ownership.
ABSENCE OF APPRAISAL RIGHTS
Unitholders are not entitled to dissenters' rights of appraisal under
Delaware law as a consequence of the Merger.
7
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place, Date. This Information Statement is being furnished to the
Unitholders in connection with the Special Meeting to be held on Monday, July
19, 1999 at 10:00 a.m. local time, at the offices of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., 125 West 55th Street, 16th Floor, New York, New York, 10019,
including any adjournments or postponements thereof.
Purpose of the Special Meeting. At the Special Meeting, Unitholders will
vote on a proposal to approve and adopt the Purchase Agreement and all of the
transactions contemplated thereby, including the Merger, pursuant to which the
National MLP will be merged with and into the Purchaser, with the Purchaser as
the Surviving Entity at and after the effective time of the Merger (the
'Effective Time'). As discussed below, the Purchaser can approve such proposal
without the vote of any other Unitholder. Unitholders will also consider such
other business as may properly come before the meeting. Additional information
concerning the Special Meeting and the Purchase Agreement is set forth below.
Record Date; Quorum; Outstanding National Common Units Entitled to Vote.
The Record Date for the Special Meeting has been fixed as the close of business
on June 23, 1999. Only Unitholders of record on the Record Date are entitled to
notice of and to vote at the Special Meeting. Unitholders on the Record Date are
entitled to one vote on matters properly presented at the Special Meeting for
each National Common Unit held. A list of Unitholders will be available for
examination by holders of National Common Units, for any purpose related to the
Special Meeting, during the 20-day period preceding the Special Meeting, at the
offices of the National MLP.
On the Record Date, there were 6,701,550 National Common Units outstanding,
held of record by approximately 65 registered holders. The presence in person of
holders of a majority of the National Common Units entitled to vote will
constitute a quorum for the transaction of business at the Special Meeting.
Because the National Common Units owned by the Purchaser and its affiliates will
be represented at the Special Meeting, a quorum will be present, even if no
other Unitholders are present.
Vote Required. Pursuant to the Amended and Restated Agreement of Limited
Partnership of the National MLP dated as of July 2, 1996, as amended (the
'National MLP Partnership Agreement'), the approval of the holders of a majority
of all outstanding National Common Units and the majority of all outstanding
National Subordinated Units is needed to approve and adopt the Purchase
Agreement and all of the transactions contemplated thereby, including the
Merger. The National MGP, which owns all outstanding National Subordinated
Units, has agreed, pursuant to the Purchase Agreement, to vote all National
Subordinated Units in favor of approval and adoption of the Purchase Agreement
and all of the transactions contemplated thereby, including the Merger. In
addition, the Purchaser has agreed, pursuant to the Purchase Agreement, to vote
all National Common Units it owns in favor of approval and adoption of the
Purchase Agreement and all of the transactions contemplated thereby, including
the Merger. Therefore, because the approval of the holders of a majority of all
outstanding National Common Units is sufficient to approve and adopt the
Purchase Agreement and all of the transactions contemplated thereby, including
the Merger, the Purchaser, which owns on the Record Date approximately 88.4% of
the National Common Units outstanding, can cause the approval and adoption of
the Purchase Agreement and all of the transactions contemplated thereby,
including the Merger, to occur without the affirmative vote of any other holder
of National Common Units. The vote will also constitute a consent to or waiver
of any applicable provisions of the National MLP Partnership Agreement or the
National OLP Partnership Agreement requiring any consent to or waiver of the
transactions contemplated by the Purchase Agreement. For a description of the
transactions contemplated by the Purchase Agreement, see 'The Purchase
Agreement -- Agreements to Purchase Acquired Interests; The Merger.' WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND ONE. You may vote your
National Common Units, if you so wish, by attending the Special Meeting in
person.
Exchange and Payment Procedures. As soon as practicable after the Effective
Time, the Paying Agent will mail to each record holder of National Common Units
as of the Effective Time a letter of transmittal and instructions for use in
effecting the surrender of such certificate in exchange for the Merger
Consideration. Upon surrender to the Paying Agent of a certificate representing
a National Common Unit, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying Agent, the
holder of such certificate shall be entitled to receive
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<PAGE>
$12.00 per National Common Unit in cash, without interest thereon. Until
surrendered in accordance with the foregoing instructions, each certificate
representing a National Common Unit will represent for all purposes only the
right to receive the Merger Consideration.
Unitholders should not send their National Common Unit certificates to the
Paying Agent at the present time. National Common Unit certificates should be
sent to the Paying Agent only pursuant to instructions set forth in the letter
of transmittal. Following the Merger, Unitholders of record will receive copies
of the letter of transmittal from the Purchaser, and copies may also be obtained
through the Paying Agent. In all cases, the Merger Consideration will be
provided only in accordance with the procedures set forth in this Information
Statement, the Purchase Agreement and the letter of transmittal.
Any Merger Consideration made available to the Paying Agent that remains
unclaimed by former holders of National Common Units for one year after the
Effective Time will be delivered to the Surviving Entity, and any such former
holders who have not theretofore made an exchange must thereafter look to the
Surviving Entity for payment of their claim for Merger Consideration.
BACKGROUND OF THE OFFER AND THE MERGER
OWNERSHIP OF THE NATIONAL MLP AND THE DECISION TO SELL
Beginning in April 1993 (the date that a change of control of Triarc
occurred), Triarc's business strategy included focusing its business resources
on its then four core businesses: beverages, restaurants, textiles and specialty
chemicals and liquefied petroleum gas. Beginning in 1995, Triarc began the
process of expanding its beverage business by acquiring Mistic Brands, Inc. At
approximately the same time, Triarc retained investment banking firms to review
strategic alternatives to maximize the value of its textiles and specialty
chemicals and liquefied petroleum gas businesses. In April 1996, Triarc
completed the sale of its textile business and in July 1996 Triarc completed the
National MLP's initial public offering of National Common Units (the 'IPO')
which resulted in the sale to the public by Triarc of approximately 57% of the
National MLP. Following the National MLP's IPO, Triarc continued to expand its
beverage business, acquiring Snapple Beverage Corp. and Cable Car Beverage
Corporation. In December 1997, Triarc completed the sale of its specialty
chemical business and effective as of the close of business on December 28,
1997, Triarc began to account for its interest in the National MLP utilizing the
equity method of accounting. Thus, by the end of 1997, Triarc had become a
consumer products company, focusing on its beverage and restaurant franchising
business.
In the spring of 1996 and following the National MLP's IPO, Triarc had
discussions with numerous potential purchasers (including publicly traded
propane retailers, other entities in the propane distribution business and
financial buyers), regarding a potential transaction involving the National MLP.
Through 1998, more than ten parties executed confidentiality agreements with
Triarc and received confidential information regarding the National MLP. In
several instances beginning in late 1997 and through 1998, discussions with
third parties advanced to a stage where outside advisors of Triarc and of
potential purchasers discussed, over a course of months, possible transactions.
None of these discussions, however, led to an agreement.
Because the National MLP's operating results were below budget during the
1997-1998 winter season, the National OLP was unable to comply with certain
covenants under the credit agreement dated June 26, 1996, as amended (the
'Credit Agreement'), by and among the National OLP, BankBoston, N.A., and the
bank lenders (the 'Banks') thereunder. As a result, in March 1998, the National
MLP was required to negotiate certain amendments to the Credit Agreement.
Effective as of December 31, 1997, these amendments modified certain covenants,
reduced the amount of the National OLP's acquisition facility from $40.0 million
to $20.0 million, and extended the conversion date of the National OLP's
acquisition facility from June 30, 1998 to June 30, 1999 (at which time the
acquisition facility begins scheduled amortization). At the time of such
amendments, the National MGP agreed to forego any additional distributions on
its National Subordinated Units in order to facilitate compliance with covenant
restrictions in the Credit Agreement. Accordingly, no distributions were
declared or paid on the National Subordinated Units with respect to the National
MLP's 1998 fiscal year. By June 30, 1998, however, the National MLP was again
not in compliance with certain covenants of the Credit
9
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Agreement and further amendments to the debt agreements were negotiated. As a
result of these amendments, which were effective as of June 30, 1998, (i) the
National OLP's working capital facility was reduced from $15.0 million to $10.0
million; (ii) the Banks' commitment under the acquisition facility was
permanently reduced from $20.0 million to the outstanding borrowings at June 30,
1998 of approximately $13.0 million; (iii) Triarc was permitted (but not
obligated) to prepay through February 14, 1999 up to $10.0 million principal
amount of indebtedness owed the National OLP under the $40.7 million note issued
by Triarc to the National OLP (the 'Triarc Note'); and (iv) to the extent
amounts received from such prepayments were not used to make distributions to
common unitholders, such amounts could be included in the National MLP's
determination of consolidated cash flow for purposes of compliance with certain
leverage and interest coverage ratios requirements. During August and September
1998, Triarc prepaid an aggregate of $10.0 million of principal (plus accrued
interest), the maximum amount permitted to be prepaid under the amendments. A
portion of the Triarc Note prepayments were used to pay distributions to Common
Unitholders for the quarter ended June 30, 1998. The National MLP paid
approximately $1.2 million in fees and expenses relating to the various
amendments to its debt agreements in 1998. In addition, subsequent to such
amendments, Fitch IBCA ('Fitch'), a nationally recognized rating agency,
conducted its first credit analysis review of the National MLP since the
issuance of the National OLP's $125 million 8.54% First Mortgage Notes due June
30, 2010 (the 'First Mortgage Notes') in July 1996. Following this review, the
National MLP was notified by Fitch that it had downgraded its rating on the
First Mortgage Notes from 'BBB' to 'BB.' As a result of the downgrade, the First
Mortgage Notes were no longer considered investment grade securities and the
interest rate payable under the Credit Agreement increased.
As financial results continued to be negatively impacted by
warmer-than-usual weather conditions, as well as a loss of customers, the
National MLP announced on October 21, 1998 that it had reduced by half the
quarterly distribution payable on the National Common Units for the third
quarter of 1998.
THE BID PROCESS
By December 1998, three parties had indicated to Triarc significant
interest in purchasing the National MLP. Two of the parties ('Bidder A' and
'Bidder B,' respectively) are publicly traded limited partnerships engaged in
the retail marketing of propane, each of which had previously received material
non-public information when each entered into a confidentiality agreement with
Triarc. The third party, the Purchaser (together with Purchaser Holdings and the
Purchaser General Partner, referred to herein as 'Columbia Propane'), is a
subsidiary of Purchaser Holdings, a wholly-owned subsidiary of Columbia Energy
Group. On November 30, 1998, Columbia Propane had its first meeting with Triarc
regarding a potential acquisition of the National MLP. Following this meeting,
the parties executed a confidentiality agreement and Columbia Propane was
provided with certain non-public financial operating information concerning the
National MLP.
Between December 17, 1998 and December 23, 1998, Andrews & Kurth L.L.P.
('A&K'), counsel to Triarc, forwarded to each of the three potential purchasers
a bid package containing an invitation for each purchaser to submit a firm
written offer and guidelines for the offer, and a form of purchase agreement
which each purchaser was invited to mark with proposed alterations. Offers were
required to be received by Triarc and A&K by 12:00 noon on Wednesday, January 6,
1999 and kept open until the close of business Friday, February 26, 1999. In
addition, each bidder was encouraged to consult with A&K regarding the form of
purchase agreement and was made aware that a final purchase agreement would have
to be approved by a Special Committee of the National Board, and by the holders
of First Mortgage Notes. The form of purchase agreement originally sent to each
of Bidder A and Bidder B contemplated a unit-for-unit merger. The form of
purchase agreement sent to Columbia Propane (which does not have publicly traded
limited partnership interests) contemplated a cash tender offer for National
Common Units followed by a purchase, in a merger, of the remaining National
Common Units, and a purchase of the National Subordinated Units, the general
partner interests in the National MLP, the unsubordinated general partner
interests in the National OLP and the limited partner interests in the National
OLP held by the National MLP's general partners (the 'General Partner
Interests'). Eventually, all three potential purchasers received and reviewed a
form of the purchase agreement contemplating the cash tender offer.
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While the transaction structure under the unit-for-unit purchase agreement
and the cash tender offer purchase agreement differed, both were similar in many
respects, including the following key goals:
(i) Consideration to the public holders for their National Common
Units had to be cash or a marketable security;
(ii) Consideration to Triarc and the General Partners of the National
MLP for the transfer of general and subordinated limited partnership
interests would consist of effective forgiveness of the remaining $30.7
million principal balance of the Triarc Note, together with some additional
cash consideration; and
(iii) Deferral of recognition of a tax gain which would otherwise be
recognized upon a sale of all of the National MGP's interest in the
National OLP.
Between January 6, 1999 and January 12, 1999, Triarc and A&K received an
offer letter and a marked copy of the form of purchase agreement from each of
Bidder A, Bidder B and Columbia Propane.
Triarc and A&K analyzed the bids and the contracts proposed by the three
bidders following receipt of these materials. The following is a summary of the
salient points of the three bids:
<TABLE>
<S> <C>
Bidder A: (i) A unit-for-unit merger based on a fixed exchange ratio effectively offering
(as of January 6, 1999, the date of receipt of the offer) $8.39 in market value in
Bidder A's common units per National Common Unit, (ii) forgiveness of the Triarc
Note and a cash payment of $7.5 million for substantially all of the General
Partner Interests, (iii) limited protection for Triarc's anticipated tax deferral,
(iv) a $10.0 million working capital requirement at closing; (v) significant
additional representations and warranties and post-closing indemnification
liabilities for breach, and (vi) an array of transactional costs (including those
relating to the advisors to the Special Committee, discussed below) to be borne by
Triarc. In addition, Bidder A's offer required the consent of its lenders, as well
as those of the National OLP. Bidder A's offer expired at 5:00 p.m. on January 20,
1999 unless Bidder A was to be invited to negotiate on an exclusive basis.
Bidder B: (i) A unit-for-unit merger based on a fixed dollar amount of $8.00 in market value
of Bidder B's common units per National Common Unit, (ii) forgiveness of the
Triarc Note and a cash payment of $5.0 million for substantially all of the
General Partner Interests, (iii) a condition to the merger that the unit price of
Bidder B and of the National MLP not fluctuate outside of a 15% band, and (iv) an
employee retention program granting Bidder B broad discretion over the number of
employees to be retained, and the number to be terminated, following an
acquisition. In addition, Bidder B's offer required the consent of its lenders, as
well as those of the National OLP.
Columbia Propane: (i) A cash tender offer based on $8.00 per National Common Unit, (ii) forgiveness
of the Triarc Note and a cash payment of $5.0 million for substantially all of the
General Partner Interests, (iii) limited protection for Triarc's anticipated tax
deferral, (iv) significant additional representations and warranties and
post-closing indemnification liabilities for breach, and (v) an array of
transactional costs (including those relating to the advisors to the Special
Committee) to be borne by Triarc.
</TABLE>
On January 8, the National Board met and was updated on the status of the
efforts to sell the National MLP. At the meeting, the Chairman of the National
Board stated that he deemed it advisable and in the best interest of the
National MLP's Common Unitholders to designate a special committee of the Board
of Directors to review and evaluate any agreement that may be reached regarding
a potential transaction and to make a recommendation on behalf of the holders of
the National Common Units
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with respect to any such agreement. Thereafter, the National Board appointed Mr.
Ryckman as the sole member of the Special Committee, to review and evaluate a
proposed transaction and to make a recommendation to the National Board with
respect to such transaction on behalf of holders of the National Common Units.
Mr. Ryckman was authorized to employ legal and financial advisors to assist him.
By establishing the Special Committee and providing for the employment of legal
and financial advisors for the Special Committee, Triarc and the National MGP
did not directly or indirectly agree to assume any additional duties or
responsibility to you with respect to a possible transaction.
Mr. Ryckman, the sole member of the Special Committee, currently serves as
a member of the National Board and serves as chairman and/or director of a
number of other companies. From 1986-1988, Mr. Ryckman served on the Board of
Directors of Triangle Industries, Inc., a public company then controlled by Mr.
Nelson Peltz and Mr. Peter May. Messrs. Peltz and May are directors of the
National MGP and serve, respectively, as Chairman and Chief Executive Officer
and President and Chief Operating Officer, as well as directors of Triarc.
Messrs. Peltz and May have each invested in private investment funds managed by
Mr. Ryckman and each currently owns investments with a cost basis of
approximately $100,000 in such a fund. For his service on the Special Committee,
Mr. Ryckman has been paid a fee of $50,000 plus $750 per meeting of the Special
Committee and has been reimbursed for his out-of-pocket expenses related to his
service on the Special Committee. He is also entitled to, as are all members of
the National Board, certain rights of indemnification by the National MGP that
have been guaranteed by Triarc.
Between January 8, 1999 and January 19, 1999, the Special Committee
interviewed five law firms and on January 19 engaged Dewey Ballantine LLP
('Dewey Ballantine') as its legal advisor. In addition, after interviewing four
investment banks, the Special Committee selected Lehman Brothers on January 20
as its financial advisor. Shortly after their engagement, Lehman Brothers and
Dewey Ballantine participated in a presentation prepared by senior management of
the National MGP, and Lehman Brothers and Dewey Ballantine reviewed documents
set up in a data room (discussed below) and began their due diligence review.
The Special Committee had its first meeting with its financial and legal
advisors on February 5. Dewey Ballantine advised the Special Committee at that
time of the role of the Special Committee and its duties in evaluating any
transaction involving a sale of the National Common Units. Following this
meeting, the Special Committee held 13 additional meetings with representatives
from Dewey Ballantine and/or Lehman Brothers through April 1, 1999. At these
meetings, discussions were held on numerous issues, including the progress of
the due diligence activities undertaken by Dewey Ballantine and Lehman Brothers,
respectively, the progress of Lehman Brothers' financial analysis of the
proposed transaction, and the progress of the negotiations with each of the
bidders regarding the terms of the proposed transaction and the Purchase
Agreement.
During the week of January 11, Triarc and A&K worked with the National
MLP's senior management to assemble a data room containing publicly available
and non-publicly available information on the National MLP. In addition, during
that week, Eric D. Kogan, Executive Vice President -- Corporate Development of
Triarc, was in contact with representatives of each of the three bidders
regarding the terms of their respective offers and scheduled for each bidder a
management presentation and an opportunity to review the information in the data
room and ask questions of the senior management of the National MGP.
Between Wednesday, January 20, 1999 and Tuesday, January 26, 1999, each of
Bidder A, Bidder B and Columbia Propane was invited, together with legal and
financial advisors, to spend two days in the data room, and receive a management
presentation. Subsequent to its visit, each bidder received additional
information in response to its inquiries.
On Thursday, January 28, having provided each bidder with access to the
data room and with a management presentation, Mr. Kogan invited each of the
bidders in writing to resubmit a firm written offer, together with a revised
mark-up of the form of purchase agreement, by Wednesday, February 3, and
requested that such offers remain open through Friday, March 5.
On Friday, January 29, the National MLP publicly announced that, based on
preliminary indications, it expected to report EBITDA for the 12 months ended
December 31, 1998, to be
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significantly lower than the $22.1 million of EBITDA in 1997, and a net loss was
expected for 1998 compared to net income of $3.8 million in 1997. In addition,
the National MLP also announced that the National Board had eliminated the
National MLP's quarterly distribution to Unitholders with respect to the quarter
ended December 31, 1998. The National Board noted that eliminating the
distribution was necessary to maintain financial flexibility in future quarters,
and that, based on preliminary operating results for the 1998 fourth quarter, it
was likely that the National MLP would not meet certain financial covenant tests
contained in its debt agreements for the period ended December 31, 1998.
Finally, the National MLP also announced that the National MGP was continuing to
consider various strategic alternatives to maximize the value of the National
MLP, and that the National MGP was involved in active discussions with several
third parties concerning a sale or merger of the National MLP.
On February 3 and 4, Triarc and A&K received a revised offer and a marked
form of purchase agreement from each of Bidder A, Bidder B and Columbia. The
following is a summary of the salient changes from their prior bids:
<TABLE>
<S> <C>
Bidder A: (i) an increase, to $10.00 in market value of Bidder A's common units, in the
unit-for-unit consideration payable for each National Common Unit, (ii) a
decrease, to $5.0 million, in the cash payment for the General Partner Interests,
(iii) increased assurance that Triarc would achieve its anticipated tax deferral,
and (iv) assumption by the purchaser of many of the transaction expenses of the
General Partners. In addition, Bidder A advised Triarc that its offer would remain
open through 12:00 noon on Monday, February 15 unless Bidder A was invited to
negotiate on an exclusive basis. As earlier, this bid remained dependent on
receipt of consents of lenders to both the National OLP and lenders to the bidder.
Bidder B: (i) a decrease, to $7.25, in the consideration for each National Common Unit, to
be offered in a cash tender offer, (ii) an increase, to $7.0 million, in the cash
payment for the General Partner Interests, (iii) new provisions regarding cash and
working capital requirements at closing, and (iv) a sharing of many of the
transaction expenses of the General Partners. As earlier, this bid remained
dependent on receipt of consents of lenders to the National OLP and lenders to the
bidder.
Columbia Propane: (i) an increase, to $9.00, in the consideration payable for each National Common
Unit, (ii) significant additional conditions to purchase of National Common Units
in a tender offer, (iii) increased assurance that Triarc would achieve its
anticipated tax deferral, and (iv) assumption by the purchaser of many of the
transaction expenses of the General Partners and certain severance costs.
</TABLE>
On Thursday, February 4, in response to an inquiry from (and following
execution of a confidentiality letter by) a propane distribution subsidiary of a
large, publicly-traded energy concern, representatives of Triarc met with a new
potential bidder and its counsel, and presented an overview of the National
MLP's business and the sale process. This bidder and its counsel spent two days
reviewing materials in the data room before notifying Triarc that it would not
pursue a transaction involving the National MLP.
Also on Thursday, February 4, Mr. Kogan received an inquiry from another
publicly traded limited partnership engaged in the retail distribution of
propane, regarding an interest in acquiring the National MLP. Following the
execution of a confirmation letter regarding an existing confidentiality
agreement, a form of purchase agreement and procedures letter were sent to this
party, who met with representatives of Triarc on Sunday, February 7, to receive
an overview of the National MLP's business and the sale process. This party
spent one day reviewing materials in the data room, declined Triarc's invitation
to return for a second day of review and subsequently notified Triarc that it
had decided not to pursue a purchase of the National MLP.
On Monday, February 8, Triarc and its representatives had an extended
conference call with the Special Committee's advisors, regarding a preliminary
analysis by the Special Committee of the bids,
13
<PAGE>
and Triarc's responses to the bidders. The group focused on, among other things,
the need for each of the bidders to increase its bid price and demonstrate
certainty of financing. Later that afternoon, Mr. Kogan spoke with
representatives of each of the bidders about the concerns of Triarc and the
Special Committee with their respective bids.
On Tuesday, February 9, Mr. Kogan continued his discussions with
representatives of each of the bidders. That afternoon, Mr. Kogan heard from a
representative of Bidder B that Bidder B was willing to (i) consider raising its
offer price for the National Common Units from $7.25 to $8.50 per unit in a cash
tender offer, and (ii) assume up to $1.0 million of expenses of the Special
Committee, but that it was unwilling to take further action beyond its previous
filing of a shelf registration statement, whether through a bridge financing or
otherwise, to alleviate the uncertainties associated with financing of its bid.
On Wednesday, February 10, Triarc and its representatives had a meeting
with the Special Committee and its advisors, to update the Special Committee as
to the status of Triarc's negotiations with the three bidders, and to hear the
Special Committee's views on the negotiation process to date.
On Friday, February 12, representatives of Triarc engaged in an extended
conference call with Bidder A and its advisors regarding open issues. Near the
end of the meeting, Triarc believed that it had made significant progress on a
number of substantive issues. At this point, Bidder A requested that Triarc
agree to negotiate exclusively with it. Triarc responded by requesting that the
parties meet to review and agree on language in the purchase agreement embodying
the resolution of the issues discussed that day, and that Bidder A file a shelf
registration statement to enhance its ability to finance an offer. As the
meeting ended, Triarc invited Bidder A and its representatives to meet
face-to-face at any time over the next three days, but the offer was declined.
Also on February 12, Columbia Propane sent a letter to Triarc clarifying
some of the positions stated in its February 3 submission. Among other things,
Columbia Propane noted that its additional due diligence would be confirmatory
in nature, and requested a meeting with the Special Committee and with holders
of the First Mortgage Notes. Due to the status of the sale process, Triarc
indicated that a meeting with the Special Committee would be premature.
By Saturday morning, February 13, A&K distributed revised purchase
agreements to the three bidders, which incorporated a number of the comments
received from the bidders. Over the course of the weekend, Mr. Kogan spoke with
each of the bidders regarding the status of their offer. In addition, in light
of the expiration of Bidder A's offer on Monday, February 15 (as noted in
Bidder A's revised offer received on February 3), Mr. Kogan informed Bidder B
and Columbia Propane that Triarc requested that responses to the most recently
distributed contract be submitted by Monday, February 15.
On Monday, February 15, the financial advisor for Bidder B submitted a
letter summarizing proposed changes to Bidder B's offer. Separately that day,
during a conference call between A&K and representatives of Columbia Propane,
Columbia Propane agreed to increase its offer for each National Common Unit in a
tender offer to $9.50. In addition, Bidder A agreed verbally to extend the time
through which Triarc could accept its offer to noon on February 18.
On Tuesday, February 16, Triarc received from Columbia Propane a revised
draft of the Purchase Agreement and discussed the proposed changes with A&K and
representatives of Columbia Propane. Over the next 48 hours, Triarc and A&K
analyzed the revised offers and continued to have discussions with all bidders.
The following summarizes the salient changes from their prior bids, and certain
of the perceptions of Triarc to the bids as changed:
<TABLE>
<S> <C>
Bidder A: (i) an increase, to $10.25 in market value of Bidder A's common units, in the
unit-for-unit consideration payable for each National Common Unit; (ii) a
decrease, to $1.0 million in the cash payment for the General Partner Interests;
and (iii) a written confirmation that its deadline had been extended to February
18 at 12:00 noon. While Triarc considered the $10.25 offer for each National
Common Unit to be attractive, it considered Bidder A's proposal generally to be
less likely to be consummated than Columbia Propane's, in view of, among other
things, Bidder A's size
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
relative to the other bidders, its need for financing (particularly without a
shelf registration statement on file with the SEC) and the need for consent of
its lenders.
Bidder B: An increase, to $9.00, in the cash consideration payable for each National Common
Unit. Triarc considered Bidder B's offer to be less likely to be consummated than
Columbia Propane's, in view of, among other things, market uncertainties
associated with Bidder B's financing, and the need for consent of Bidder B's
lenders.
Columbia Propane: An increase, to $9.50, in the consideration payable for each National Common Unit.
Triarc believed that, in view of the lack of a financing contingency, and no need
for consent of its lenders, Columbia Propane's bid had a considerably higher
likelihood of consummation than did that of Bidder A or Bidder B.
</TABLE>
On Wednesday, February 17, representatives of Triarc had meetings with the
Special Committee to discuss the status of negotiations with the three bidders
and to analyze the financeability of each proposal.
On Thursday, February 18, A&K distributed the revised Columbia Propane
purchase agreement. Meanwhile, Bidder A's offer expired. A&K had a conference
call with Columbia Propane for the purpose of setting up a meeting to review the
latest version of the Purchase Agreement.
On Friday, February 19, representatives of A&K asked counsel for Bidder A
whether Bidder A was prepared to continue negotiations with Triarc in view of
the expiration of Bidder A's offer. Counsel for Bidder A informed A&K that
Bidder A was not prepared to continue negotiations.
Also on February 19, Triarc and A&K had an extended meeting with
representatives of Columbia Propane to further discuss the purchase agreement as
distributed on February 18, to discuss a number of open issues, including
certain tax issues and conditions to an offer. Following that meeting, A&K
distributed to Columbia Propane and to LeBoeuf, Lamb, Greene & MacRae, L.L.P.
('LeBoeuf Lamb'), its outside counsel, and PaineWebber Incorporated
('PaineWebber'), its financial advisor, a revised form of purchase agreement
embodying the changes discussed the prior evening. On Monday, February 22,
representatives of Triarc, A&K and LeBoeuf Lamb met to discuss the draft
purchase agreement.
In January 1999 the Banks waived any default under the Credit Agreement
with respect to the National OLP's failure to deliver an Officer's Certificate
with respect to the twelve months ended December 31, 1998 on or prior to
January 20, 1999 and permitted such certificate to be delivered on or before
February 20, 1999. On February 20, 1999, pursuant to the January waiver, the
National OLP furnished the Officer's Certificates to BankBoston, N.A. (the
'Administrative Agent') and the Banks with respect to the year ended December
31, 1998 as well as the certificate for the twelve months ended January 31,
1999. Pursuant to such Officer's Certificates, the National OLP notified the
Administrative Agent and the Banks that the National OLP's ratio of total funded
debt to consolidated cash flow as of December 31, 1998, was in excess of the
maximum permitted ratio pursuant to the Credit Agreement (the 'Leverage Ratio
Default'). The Leverage Ratio Default under the Credit Agreement was waived
pursuant to a letter agreement (the 'February Waiver Letter') that, in addition
to waiving the year-end non-compliance, also waived subsequent defaults relating
to the leverage ratio for any period ending on or prior to August 31, 1999,
subject to satisfaction of certain conditions. The conditions to such future
waivers included, among others, that the National OLP deliver a purchase and
sale agreement from a creditworthy buyer on or before April 30, 1999 providing
for full repayment of loan obligations under, and termination of, the Credit
Agreement, that the National OLP deliver monthly certificates to the Banks'
satisfaction regarding the status of the sale process, indicating that such sale
would be consummated on or before September 30, 1999 and that the National MLP
not make distributions to Unitholders until all bank indebtedness was repaid in
full. In addition, the February Waiver Letter prohibited any additional
borrowings under the Credit Agreement without the consent of each Bank.
On Tuesday, February 23, representatives of Triarc, A&K, Columbia Propane,
LeBoeuf Lamb and PaineWebber met regarding open issues in the draft purchase
agreement, and regarding an exclusivity
15
<PAGE>
agreement and a payment guaranty agreement for the tax indemnification. At this
time, Columbia Propane and Triarc agreed to enter into an exclusivity agreement.
The exclusivity agreement provided for (among other things) an exclusivity
period ending March 23, during which time (i) Triarc would not solicit any other
bids, (ii) Columbia Propane would have the ability to conduct confirmatory due
diligence, and (iii) efforts would be made to obtain consents of the holders of
the First Mortgage Notes to the proposed transaction.
Following the execution of the exclusivity agreement with Columbia Propane,
(i) Mr. Kogan informed representatives of Bidder A and Bidder B that during the
exclusivity period, Triarc was no longer able to discuss with them their
respective bids, and (ii) Triarc and Columbia Propane outlined arrangements for
Columbia Propane's confirmatory due diligence. Starting on Thursday, February
25, representatives of Columbia Propane, LeBoeuf Lamb and Columbia Propane's
third-party consultants visited the data room to continue its confirmatory due
diligence review of the National MLP.
On Sunday, February 28, Mr. Kogan and the National MLP's senior management
met with representatives of Columbia Propane at the National MLP's headquarters
in Cedar Rapids, Iowa, to continue the diligence effort. Later that week,
Columbia Propane representatives, including personnel from its third-party
consultants, began a series of on-site visits to National MLP facilities. A
representative of the National MLP accompanied the Columbia Propane team at each
site. In all, the Columbia Propane team visited over 80 sites during the
exclusivity period.
On Friday, March 5, representatives of Triarc and A&K conferred by
telephone with the Special Committee's legal and financial advisors, Dewey
Ballantine and Lehman Brothers. During the call, Mr. Kogan updated the Special
Committee's advisors about two additional, informal, expressions of interest
from third parties regarding a purchase of the National MLP, and about the
status of the Columbia Propane bid. After an extended discussion of a number of
aspects of the Columbia Propane bid and the exclusivity letter, counsel for the
Special Committee indicated that:
(i) The Special Committee requested an exception to the exclusivity
letter to enable it to conduct independent discussions with other potential
bidders (Triarc declined this request);
(ii) The Columbia Propane offer of $9.50 per National Common Unit
should be increased and did not otherwise provide a sufficient basis from
which to conduct negotiations; and
(iii) Triarc should consider reallocating Columbia Propane's proposed
consideration as between Triarc and the General Partners, on the one hand,
and the Unitholders, on the other, to provide greater consideration to
Unitholders.
On Thursday, March 18, the National Board met and discussed, among other
things, recent operating results and the status of the potential transaction.
Mr. Kogan updated the National Board of events since the last meeting, and
outlined a preliminary view as to each Bidder's proposal, from the point of view
of (i) pricing, (ii) certainty of consummation, and (iii) strength of contract.
Mr. Brian L. Schorr, Executive Vice President and General Counsel of Triarc,
discussed the terms of the proposed transaction with Columbia Propane as set
forth in the Purchase Agreement. In addition, Mr. John L. Barnes, Jr., Executive
Vice President and Chief Financial Officer of Triarc, notified the National
Board of negotiations with lenders under the Credit Agreement and the February
Waiver Letter.
Also on March 18, the National MLP engaged Donaldson, Lufkin & Jenrette
Securities Corporation ('DLJ') as its financial advisor in connection with
soliciting consents from holders of the First Mortgage Notes. Promptly
thereafter, DLJ began discussions with holders of the First Mortgage Notes
regarding noteholder consent to the transactions contemplated by the Purchase
Agreement.
On Friday, March 19, the Special Committee received a letter from Columbia
Propane confirming its offer of $9.50 per National Common Unit, and further
discussing its bid. Later that day, representatives of Triarc and A&K conferred
by telephone with the Special Committee's legal and financial advisors. During
the call, Mr. Kogan updated the Special Committee's advisors about the status of
Columbia Propane's confirmatory due diligence and about DLJ's negotiations with
holders of the First Mortgage Notes.
On Monday, March 22, Mr. Kogan spoke with Michael J. Cannon, Senior Vice
President of Lehman Brothers, in an effort to obtain guidance from the Special
Committee's financial advisor as to what price
16
<PAGE>
per National Common Unit the Special Committee would deem to be fair to
Unitholders. Mr. Cannon declined to specify what price would be acceptable to
the Special Committee, but stated the $9.50 offer price per National Common Unit
should be increased, and that Triarc should consider reallocating Columbia
Propane's proposed consideration as between Triarc and the General Partners, on
the one hand, and the Unitholders, on the other, to provide greater
consideration to Unitholders.
On Tuesday, March 23, in separate calls, Mr. Kogan and Mr. May, a director
of the National MGP, spoke with Mr. Ryckman, again seeking guidance from the
Special Committee as to what price per National Common Unit the Special
Committee would deem to be fair to Unitholders. Mr. Ryckman declined to cite a
particular price or range of prices that would be acceptable to the Special
Committee, and instead urged Triarc to obtain for the Unitholders the best price
available, and then report back to the Special Committee.
On Friday, March 26, representatives of Triarc and Columbia met at Triarc's
offices to receive from Mr. Kogan an update of Triarc's discussions with the
Special Committee and with holders of the First Mortgage Notes. In addition, the
parties discussed a number of unresolved issues, including those relating to a
proposed limitation by Triarc on its indemnification for environmental
liabilities. During those discussions, Columbia indicated a willingness to raise
its offer by $0.10 to $9.60 per National Common Unit.
Later in the afternoon of March 26, representatives of Triarc, including
Mr. May, Mr. Kogan and Mr. Schorr, and A&K met with the Special Committee and
its financial and legal advisors. Mr. Kogan told the Special Committee that,
earlier in the day, he had told Columbia Propane that its bid price needed to be
increased, and he reported Columbia Propane's willingness, as described above,
to increase its bid price. The Special Committee met with its advisors, then
returned to report to Triarc that Columbia Propane's offer price for each
National Common Unit still needed to be increased. Triarc then met with counsel
and returned to report to the Special Committee that it was willing to receive
less consideration for its interest so that the aggregate consideration being
received by the Unitholders would be $10.00 per National Common Unit. In
agreeing to the foregoing, Mr. May emphasized to the Special Committee that
Triarc and the National General Partner were bearing a disproportionate burden
of expenses, closing costs, and post-closing responsibilities, as compared to
the Unitholders; in this light, Mr. May said, Triarc was not prepared to forego
forgiveness of any part of the Triarc Note.
On March 26, after the meeting described above, the Special Committee
conferred with its financial and legal advisors regarding the proposal from
Triarc. Thereafter, the financial and legal advisors to the Special Committee
met with Mr. Kogan and with Mr. Schorr to advise them of the Special Committee's
view that while the total enterprise value being offered by Columbia Propane was
adequate, the allocation of Columbia Propane's proposed consideration as between
Triarc and the General Partners, on the one hand, and the Unitholders, on the
other, was not sufficiently in favor of the Unitholders. The Special Committee's
advisors indicated the Special Committee would be in a position to recommend a
proposal that would supplement the proposed price of $10.00 per National Common
Unit with the payment by Triarc of $25 million under the Triarc Note, with all
such payment being distributed pro rata to the holders of the National Common
Units (i.e., increasing the total consideration to be received by Unitholders by
approximately an additional $3.73 per National Common Unit).
On Tuesday, March 30, the National Board met. In addition to National Board
members, the Special Committee's legal and financial advisors were in
attendance, along with Mr. Schorr of Triarc and a representative of A&K.
Following a long discussion, in response to the Special Committee's proposal on
March 26, 1999, Triarc offered to reallocate Columbia's proposed consideration
as between Triarc and the General Partners, on the one hand, and the holders of
the National Common Units, on the other hand. Accordingly, Triarc proposed that,
in consideration for the National MGP's general and subordinated partner
interests, it would (i) forego all cash previously offered by Columbia Propane,
and (ii) pay to the National OLP an amount under the Triarc Note aggregating the
equivalent of $1.90 per National Common Unit, provided that Columbia Propane
increased its bid from $9.60 per National Common Unit to $11.50 per National
Common Unit. The Special Committee and its advisors conferred separately, and
advised Triarc that additional consideration to the Unitholders would be
required, so that the Unitholders would receive, at a minimum, aggregate
consideration of $12.60 per National Common Unit. After meeting again with its
advisors, Triarc offered to further reallocate the proposed
17
<PAGE>
consideration being offered. Accordingly, Triarc proposed that, in consideration
for the National MGP's general and subordinated partner interests, it would
agree to pay to the National OLP an amount under the Triarc Note aggregating the
equivalent of $2.40 per National Common Unit, provided that Columbia Propane
increase its bid from $9.60 per National Common Unit to $12.00 per National
Common Unit. In response, the Special Committee indicated that, subject to
receipt of a satisfactory fairness opinion from Lehman Brothers, it would
recommend approval of the proposal to the National Board if Triarc agreed to
share on a 50%/50% basis any additional consideration for the interests in the
National MLP it was able to obtain from Columbia Propane in excess of Columbia
Propane's current proposal of $9.60 per National Common Unit. The parties
finally agreed to a proposal by which the Unitholders would receive $12.00 cash
per National Common Unit plus 50% of any additional consideration for interests
in the National MLP that Triarc succeeded in obtaining from Columbia Propane in
excess of $9.60 per National Common Unit, to the extent such consideration
exceeded an amount equal to $0.50 per National Common Unit (the first $0.50 of
such additional consideration would be credited against Triarc's obligation to
repay the Triarc Note), subject to receipt of a satisfactory fairness opinion
from Lehman Brothers.
On Thursday, April 1, the National Board met. In addition to the National
Board members, the Special Committee's legal advisors were in attendance, as
were Mr. Kogan and Mr. Schorr. At this meeting, the Special Committee presented
a history of the transaction and the negotiations with the various bidders, and
the status of discussions regarding price.
Later in the day on April 1, the National Board met again with the Special
Committee, with its legal and financial advisors also present. During the
meeting, Mr. Kogan presented an update on the status of discussions with holders
of the First Mortgage Notes, and pointed out that, based on his discussions with
Columbia Propane, Columbia Propane had agreed to pay a premium of 2 5/8% to the
holders of the First Mortgage Notes in connection with the early pre-payment of
such First Mortgage Notes, but that Columbia Propane would not pay any
additional consideration (per Common Unit). Lehman Brothers then discussed its
financial analysis with the National Board, and opined orally (which opinion was
subsequently confirmed in writing) that the offered price of $12.00 for each
National Common Unit was fair, from a financial point of view, to the
Unitholders. Thereafter, the Special Committee recommended to the National Board
that it approve the transactions pursuant to which, among other things, Columbia
Propane would commence a tender offer for all National Common Units, offering
$12.00 in cash for each National Common Unit, and pursuant to which Triarc would
pay to the National OLP immediately prior to the closing of the Merger a net of
approximately $12.8 million under the Triarc Note, with the remainder of the
Triarc Note to be forgiven. The recommendation was unanimously approved by the
National Board.
On Saturday and Sunday, April 3 and April 4, the parties held a series of
telephone conference calls regarding open issues relating to the terms of the
Purchase Agreement.
On Monday April 5, following the receipt of the consents of holders of the
First Mortgage Notes, the parties finalized and executed the Purchase Agreement.
On Friday, April 9, the Purchaser commenced the Offer for all outstanding
National Common Units. The Purchaser has advised the National MGP that pursuant
to the Offer, which expired at 12:00 midnight, New York City time on May 6,
1999, the Purchaser purchased 5,922,454 National Common Units, representing
approximately 88.4% of the National Common Units then outstanding.
18
<PAGE>
RECOMMENDATION OF THE NATIONAL BOARD, CONFLICTS OF
INTEREST AND FIDUCIARY DUTY
The National Board believes that the Offer and the Merger are fair to and
in the best interests of the Unitholders. However, conflicts of interest were
present in negotiating and structuring the transaction and in determining the
allocation of the consideration to be received by the Unitholders, on the one
hand, and the General Partners, on the other hand. Triarc, the parent of the
National MGP, has differing interests in the National MLP from you. Triarc's
interests in the National MLP consist of unsubordinated general partner
interests and subordinated units representing subordinated general partner
interests, which are different interests than those owned by the Unitholders. It
is in Triarc's interest to maximize the consideration it receives for its
interests. In general, since the amount to be paid by the Purchaser in the
transactions will not change, any consideration to be received by Triarc reduces
the consideration to be received by the Unitholders. Each member of the National
Board is or was either an officer or director of Triarc or a subsidiary of
Triarc, or has had business relationships with Triarc, a subsidiary of Triarc,
or members of Triarc's Board of Directors.
The National Board utilized the Special Committee and its legal and
financial advisors on behalf of the Unitholders primarily (i) to mitigate the
conflict of interest between the National MGP and the Unitholders in determining
the appropriate amount of consideration each would receive in the transactions
contemplated by the Purchase Agreement, and (ii) to assist the National Board in
determining whether to recommend approval of the Offer and the Merger to the
Unitholders. Mr. Ryckman, the sole member of the Special Committee, currently
serves as a member of the National Board and serves as chairman and/or director
of a number of other companies. From 1986-1988, Mr. Ryckman served on the Board
of Directors of Triangle Industries, Inc., a public company then controlled by
Mr. Nelson Peltz and Mr. Peter May. Messrs. Peltz and May are directors of the
National MGP and serve, respectively, as Chairman and Chief Executive Officer
and President and Chief Operating Officer, as well as directors of Triarc.
Messrs. Peltz and May have each invested in private investment funds managed by
Mr. Ryckman and each currently owns investments with a cost basis of
approximately $100,000 in such a fund. For his service on the Special Committee,
Mr. Ryckman has been paid a fee of $50,000 plus $750 per meeting of the Special
Committee and has been reimbursed for his out-of-pocket expenses related to his
service on the Special Committee. He is also entitled to, as are all members of
the National Board, certain rights of indemnification by the National MGP that
have been guaranteed by Triarc.
In appointing the Special Committee and its advisors in connection with the
transactions contemplated by the Purchase Agreement, the National MGP did not
intend to undertake, and the disclosures in this Information Statement should
not be read to create, a duty to ensure on behalf of the Unitholders that the
terms of the Offer and the Merger are fair to the Unitholders. The Delaware
Chancery Court, in dismissing a recent action against Plum Creek Timber Company,
L.P., another publicly traded Delaware limited partnership, and its general
partner, held that a partnership agreement can limit the nature, scope and
applicability of fiduciary duties that would otherwise apply. The Delaware
Chancery Court held that the partnership agreement in the Plum Creek case did
have such an effect. In particular, that agreement, like the National MLP
Partnership Agreement, gave the general partner the unilateral right to submit
the proposed transaction to holders of common units in its sole discretion. In
this case, however, the Offer was conditioned on the valid tender of at least a
majority of the outstanding National Common Units.
Federal securities rules require full and accurate disclosure of the Offer,
the Merger, and the other transactions contemplated by the Purchase Agreement,
including disclosure regarding the basis for a belief as to the fairness of the
Offer and the Merger. The National MLP, the National MGP and their respective
officers and directors do not disclaim any duties imposed upon them under the
Federal securities laws.
19
<PAGE>
REASONS FOR THE RECOMMENDATION
GENERAL
In making its recommendation, the National Board considered the
recommendations of the Special Committee and the opinion of Lehman Brothers, as
well as each of the factors described below. In view of the wide variety of
factors that they considered, the Special Committee and the National Board did
not consider it practical to, nor did they attempt to, quantify or otherwise
assign relative weights to the specific factors they considered in reaching
their decisions.
THE NATIONAL BOARD'S SPECIAL COMMITTEE
On April 1, 1999, the Special Committee determined that the Offer was in
the best interests of the Unitholders (other than the National MGP) and
recommended the approval of the Offer and the Merger by the National Board. In
reaching this conclusion, the Special Committee considered the benefits offered
by the Offer and the Merger and weighed them against the risks associated with
the Offer and the Merger. While the Special Committee did not consider the risks
associated with the Offer and the Merger to be insubstantial, it ultimately
concluded that these risks were outweighed by the potential benefits of the
Offer and the Merger to the Unitholders. In reaching this determination, the
Special Committee relied, among other things, on the accuracy of the
representations and warranties of Columbia Propane, the National MLP, the
National MGP and Triarc to be made in the Purchase Agreement, the opinions and
views of officers of the National MGP and the advice of the Special Committee's
financial and legal advisors.
The factors considered by the Special Committee in reaching its decision
included, among others, the following: (a) the historical financial performance
of the National MLP, (b) the financial prospects of continuing to operate the
National MLP as an independent company, (c) projections of cash available for
distribution to the holders of the National Common Units, (d) the historical
trading prices on the New York Stock Exchange of the National Common Units and
the amount of the premium being offered to the holders of the National Common
Units in the Offer and the Merger, (e) possible alternative acquirors for the
National MLP, (f) the terms of the National MLP Partnership Agreement, and (g)
the valuation analyses performed by Lehman Brothers.
As a result of the foregoing considerations, the Special Committee's
discussions with the management of the National MGP, the Special Committee's
other inquiries and the advice of its legal and financial advisors, the Special
Committee identified the following factors, among others, in support of its
recommendation to approve the Offer and the Merger: (a) the National MLP is not
a core part of Triarc's business, (b) the National MLP has been known for some
time within its industry to be available for acquisition and no proposal has
been made to acquire the National MLP on terms that are more favorable to the
holders of the National Common Units than those contained in the Offer and the
Merger, (c) the consideration being paid to the General Partners for the General
Partner Interests is reasonable considering the rights and privileges associated
with the General Partner Interests under the terms of the National MLP
Partnership Agreement, (d) Lehman Brothers, financial advisor to the Special
Committee, has opined that, as of April 1, 1999, the consideration being offered
to the Unitholders is fair to them from a financial point of view, (e) the
National MLP's recent operating results, (f) the National MLP's forecasted
non-compliance with covenants under the Credit Agreement, and (g) the Purchase
Agreement allows the National MGP to entertain other unsolicited acquisition
proposals received prior to the date of acceptance of the tender offer and to
terminate the Purchase Agreement upon payment of a termination fee of $3.0
million if the Special Committee determines that a possible alternative
transaction is more beneficial to the holders of the National Common Units than
the Offer and the Merger and the payment of a topping fee equal to $6.0 million
(inclusive of the termination fee) if within 12 months following termination of
the Purchase Agreement an alternative transaction is consummated which is more
beneficial to the holders of the National Common Units than the Offer and the
Merger.
In making its recommendation, the National Board considered the
recommendations of the Special Committee and the opinion of Lehman Brothers, as
well as each of the factors described above. In view of the wide variety of
factors that they considered, the Special Committee and the National Board did
20
<PAGE>
not consider it practical to, nor did they attempt to, quantify or otherwise
assign relative weights to the specific factors they considered in reaching
their decisions.
THE LEHMAN BROTHERS OPINION
The Special Committee engaged Lehman Brothers to act as its financial
advisor in connection with the Offer and the Merger and instructed Lehman
Brothers to evaluate, from a financial perspective, the fairness of the
consideration to be received by the Unitholders in the Offer and the Merger. On
April 1, 1999, Lehman Brothers delivered its opinion to the Special Committee,
to the effect that as of such date and based upon and subject to certain matters
stated therein, from a financial point of view, the cash consideration of $12.00
per unit to be received by the Unitholders in the Offer and the Merger was fair
to the Unitholders.
The full text of the written opinion of Lehman Brothers is included as
Annex B to this document, and is incorporated herein by reference. Holders of
National Common Units may read such opinion for a discussion of the assumptions
made, factors considered and limitations upon the review undertaken by Lehman
Brothers in rendering its opinion. The following is a summary of Lehman
Brothers' opinion and the methodology Lehman Brothers used to render its
fairness opinion.
No limitations were imposed by the Special Committee on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion. In arriving at its opinion, Lehman Brothers did not
ascribe a specific range of values to the National Common Units but made its
determination as to the fairness of the consideration to be received by the
Unitholders in the Offer and the Merger on the basis of the financial and
comparative analyses described below. Lehman Brothers' advisory services and
opinion were provided for the information and assistance of the Special
Committee, in connection with its consideration of the Offer and Merger. Lehman
Brothers was not requested to opine as to, and its opinion does not address, the
National MGP's underlying business decision to proceed with or effect the Offer
and Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
(1) a draft of the Purchase Agreement dated March 26, 1999 and the
specific terms of the Offer and Merger;
(2) publicly available information concerning Columbia Energy Group
and the National MLP that Lehman Brothers believed to be relevant to its
analysis, including, without limitation, each of the periodic reports filed
by the National MLP since the IPO on June 26, 1996, including the audited
and unaudited financial statements included in such reports and statements;
(3) financial and operating information with respect to the corporate
structure, businesses, operations and prospects of the National MLP as
furnished to Lehman Brothers by the National MGP, including financial
projections based on the business plan of the National MLP and, in
particular:
(a) certain estimates of propane sales volumes;
(b) the budget for the fiscal year 1999;
(c) projected operating cash flow ('EBITDA') for 1999-2003;
(d) the sensitivity of retail gallons sold to changes in weather;
(4) a trading history of National Common Units from June 26, 1996 to
March 30, 1999, and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant;
(5) a comparison of the historical operating and financial results and
present financial condition of the National MLP with those of other
companies that Lehman Brothers deemed relevant; and
(6) a comparison of the financial terms of the Offer and Merger with
the financial terms of certain other transactions that Lehman Brothers
deemed relevant.
In addition, Lehman Brothers:
21
<PAGE>
(a) had numerous discussions with the management of both the
National MGP and Triarc concerning the National MLP's corporate
structure, business, operations, financial condition, assets and growth
opportunities; and
(b) undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information that was used
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of the management of the
National MLP that it was not aware of any facts or circumstances that would lead
them to believe that such information, taken as a whole, was inaccurate or
misleading in any material respect. With respect to the National MLP's budget
for 1999 that was prepared in November 1998, Lehman Brothers was advised by the
National MGP that such budget, at the time it was prepared, was prepared in good
faith based on assumptions that, taken as a whole, were within the range of
reasonableness. However, for purposes of its analysis, Lehman Brothers also
considered certain assumptions and estimates with respect to the future
financial performance of the National MLP from 1999 through 2003 and developed
certain adjustments to the projections of the National MLP for 1999 and
projections for the future financial performance of the National MLP over such
period. Lehman Brothers discussed these adjusted projections with management of
the National MLP and management agreed that the adjustments, taken as a whole,
and adjusted projections were within a range of reasonableness. In arriving at
its opinion, Lehman Brothers did not conduct a physical inspection of the
properties and facilities of the National MLP and did not make or obtain any
evaluations or appraisals of the assets or liabilities of the National MLP. In
addition, Lehman Brothers was not authorized to solicit, and it did not solicit,
any indications of interest from any third party with respect to the purchase of
all or a part of the National MLP's business. Lehman Brothers' opinion
necessarily is based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of its opinion letter.
In rendering its opinion, Lehman Brothers considered the process and
negotiations as more fully described above. Lehman Brothers also considered the
current distribution policy of the National MLP and the National Common Unit
arrearages that had been accrued to the date of its opinion.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. Furthermore, in
arriving at its fairness opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the opinion. In
its analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the National MLP or the National MGP. Any
estimates contained in the analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Valuation Analysis of the National MLP
In conjunction with rendering its opinion, Lehman Brothers prepared a
valuation of the National MLP. In determining the valuation of the propane
business of the National MLP, Lehman Brothers used the following methodologies:
discounted cash flow analysis, comparable company trading analysis and a
comparable acquisition analysis. Lehman Brothers also determined the fair market
value of the Triarc Note using comparable yields of fixed income instruments
with similar credit characteristics. The aforementioned methodologies used to
determine the value of the propane business were combined
22
<PAGE>
with the determination of the fair market value of the Triarc Note to generate a
reference enterprise value range for the National MLP. The enterprise value
range was adjusted for appropriate on and off balance sheet assets and
liabilities to arrive at an equity value range (in aggregate dollars).
The various valuation methodologies noted above and the implied equity
values derived therefrom are included in the following table. This table should
be read together with the more detailed descriptions set forth below. The table
alone does not constitute a complete description of the financial and
comparative analyses. In particular, in applying the various valuation
methodologies to the particular businesses, operations and growth opportunities
of the National MLP, and the particular circumstances of the Offer and Merger,
Lehman Brothers made qualitative judgments as to the significance and relevance
of each analysis. In addition, Lehman Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the National MLP or the
National MGP. Accordingly, the methodologies and the equity values derived
therefrom as set forth in the table must be considered as a whole and in the
context of the narrative description of the financial analyses, including the
assumptions underlying these analyses. Considering the implied equity values
without considering the narrative description of the financial analyses,
including the assumptions underlying these analyses, could create a misleading
or incomplete view of the process underlying, and conclusions represented by,
Lehman Brothers' opinion.
<TABLE>
<CAPTION>
SUMMARY DESCRIPTION IMPLIED EQUITY
VALUATION METHODOLOGY OF VALUATION METHODOLOGY VALUE ($MM)
--------------------- ------------------------ -----------
<S> <C> <C>
Discounted Cash Flow Analysis................... Net present value of projected free cash flows
as accepted by management of the National MGP as
within the range of reasonableness using various
growth rates, discount rates and terminal values $63 -- $138
Comparable Company
Trading Analysis.............................. Market valuation benchmark based on the
partnership equity trading multiples and
enterprise value trading multiples of selected
comparable propane companies for selected
financial and asset-based measures $38 -- $113
Comparable Acquisitions Analysis................ Market valuation benchmark based on the
consideration paid in selected comparable
propane transactions $23 -- $63
Total Consideration for National MLP Equity....................................................... $94 -- $99
</TABLE>
The range of the total consideration for National MLP Equity as indicated
in the table above reflects the difference in the estimated fair market value of
the Triarc Note of $25.5 million, as determined by Lehman Brothers, and the face
amount of the Triarc Note of $30.7 million.
Discounted Cash Flow Analysis
Lehman Brothers estimated the net present value of the future cash flows
expected to be generated by the National MLP as of January 1, 1999 based on an
EBITDA growth rate of 1.5% per annum and a range of discount rates. These
projections were prepared by Lehman Brothers based on information provided by
the National MGP's management and on various industry benchmarks and assumptions
provided by and discussed with the National MGP's management and agreed to by
the National MGP as being within the range of reasonableness. The two cases of
projections are referred to as Case A and Case B.
Case A is based on the 1999 fiscal year budget prepared by the National MGP
which has budgeted EBITDA of $25.4 million. This budget is based on the National
MGP's view of 'normalized' weather, volumes and margins. Lehman Brothers used an
EBITDA growth rate of 1.5% per annum for the 2000-2003 period. Interest income
and expense and other income were based on the National MGP Five-Year Plan dated
September 9, 1998 (the 'Plan'). Capital expenditures were based on the Plan and
adjusted for incremental lease expense that was not included in EBITDA.
23
<PAGE>
Case B projections are based on Lehman Brothers' subjective assessment of
'normalized' EBITDA for the National MLP. In deriving these projections, Lehman
Brothers reviewed the following: the National MLP's historical and projected
financial performance; Wall Street research for comparable propane partnerships;
and the correlation between degree days and retail volume. This review resulted
in Lehman Brothers' subjective assessment of 'normalized' 1999 EBITDA for the
National MLP in the range of $22.0 to $23.0 million. Lehman Brothers used the
same 1.5% per annum annual EBITDA growth rate for Case B for the 2000-2003
period as was used in Case A. Interest income and expense and other income were
based on the Plan. Capital expenditures were based on the Plan and adjusted for
incremental lease expense that was not included in EBITDA.
Lehman Brothers used discount rates ranging from 8% to 12% and terminal
value EBITDA multiples of 9.0x to 11.0x. The discount rates were based on Lehman
Brothers' view of the weighted average cost of capital for similar companies in
the propane industry. The terminal value multiples were selected based on the
current trading multiples of similar publicly traded companies and from the
multiples in selected acquisitions of similar companies. The discounted cash
flow analysis resulted in implied equity values ranging from $63 million to $138
million.
Comparable Company Trading Analysis
Lehman Brothers reviewed the public stock market trading multiples for
selected propane master limited partnerships including AmeriGas Partners, L.P.;
Cornerstone Propane Partners, L.P.; Ferrellgas Partners, L.P.; Heritage Propane
Partners, L.P.; Star Gas Partners, L.P. and Suburban Propane Partners, L.P.
Using publicly available information, Lehman Brothers calculated and analyzed
the market capitalization multiples and 'adjusted' market capitalization
multiples of certain historical and projected financial and operating criteria
such as EBITDA, distributable cash flow, cash flow from operations and retail
gallons sold. The market capitalization of each company was obtained by adding
its long-term debt to the market value of all the partnership units, assuming
all classes of equity are valued on a per unit equivalent to the publicly traded
common units, and subtracting the cash balance. The 'adjusted' market
capitalization is similar with the only exception being that the subordinated
units were valued at 75% of the per unit equivalent value of the publicly traded
common units ('adjusted equity value'). The appropriate market capitalization to
latest twelve months ('LTM') EBITDA, projected 1999 EBITDA and LTM retail
gallons sold multiple ranges were determined to be 10.0x to 11.0x, 9.5x to 10.0x
and $1.15 to $1.75, respectively. The appropriate equity value to LTM
distributable cash flow and LTM cash flow from operations multiples were
determined to be 10.0x to 12.0x and 8.5x to 10.0x, respectively. The appropriate
adjusted market capitalization to LTM EBITDA, projected EBITDA and LTM retail
gallons sold multiples were determined to be 9.0x to 10.0x, 8.5x to 9.5x and
$1.11 to $1.65, respectively. The appropriate adjusted equity value to LTM
distributable cash flow and LTM cash flow from operations multiples were
determined to be 8.5x to 10.5x and 7.5x to 9.0x, respectively.
The comparable company trading analysis methodology yielded valuations for
the National MLP that imply an equity value range of $63 million to $113 million
based on market capitalization multiples and $38 million to $88 million based on
'adjusted' market capitalization multiples. However, because of the inherent
differences between the businesses, operations and prospects of the National MLP
and the businesses, operations and prospects of the companies included in the
comparable company group, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the analysis
and, accordingly, also made qualitative judgments concerning differences between
the characteristics of these companies and the National MLP that would affect
the public trading values of the National MLP and such comparable companies.
Comparable Acquisitions Analysis. Lehman Brothers reviewed certain publicly
available information on selected propane transactions which were announced or
consummated from August 1989 to March 1999 including, but not limited to,
Cornerstone/Propane Continental, Star Gas/Pearl Gas, Ferrellgas/Skelgas,
Northwestern Growth (Empire Energy)/Synergy (Retail Outlets), Northwestern
Growth/Synergy, Petroleum Heat & Power/Star Gas, Ferrellgas/Star Gas
(Southeast), Ferrellgas/Vision Energy, Thermogas (MAPCO)/Emro Propane, Empire
Gas/PSNC Propane, Empire Energy Management/Empire Energy, UGI (AmeriGas)/AP
Propane, and QFB Partners (Quantum)/Petrolane. For
24
<PAGE>
each transaction, relevant transaction multiples were analyzed including the
total purchase price (equity purchase price plus assumed obligations) divided
by:
(1) LTM EBITDA; and
(2) retail gallons on a dollar per gallon basis, where available.
The appropriate LTM EBITDA multiple ranges were determined to be 6.0x to
8.5x. The appropriate retail gallon multiple ranges were determined to be $1.25
to $1.50 per gallon, respectively.
The comparable acquisitions analysis methodology yielded valuations for the
National MLP that imply equity values ranging from $23 million to $63 million.
However, because the market conditions, rationale and circumstances surrounding
each of the transactions analyzed were specific to each transaction and because
of the inherent differences between the businesses, operations and prospects of
the National MLP and the acquired businesses analyzed, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis and, accordingly, also made qualitative
judgments concerning differences between the characteristics of these
transactions and the Offer and Merger that would affect the acquisition values
of the National MLP and such acquired companies.
Common Unit Valuation Analysis
As a result of the National MLP's multiple classes of equity, Lehman
Brothers' analysis of the fairness from a financial point of view, of the
consideration to be received by the Unitholders in the Offer included
considering the allocation of the total equity value of the National MLP among
the unsubordinated general partner interest, the subordinated general partner
interest and the limited partner interest (i.e., the interest attributable to
the Unitholders). Regarding the allocation of the equity value to the National
Common Units, Lehman Brothers considered the following: (i) discounted cash
flows to the National Common Units under two cases of projections ('Discounted
Equity Cash Flow Analysis'); (ii) two recent comparable transactions involving
the purchase of non-public subordinated units from the general partner
('Comparable Subordinated Unit Transactions') as applied to the total equity
consideration offered by Columbia; and (iii) the value that would be
attributable to the National Common Units in a liquidation scenario (pursuant to
Article 6.1(c)(ii) of the National MLP's Amended and Restated Partnership
Agreement) ('Liquidation Analysis') based on the total equity consideration
offered by Columbia Propane. Lehman Brothers also performed a historical trading
analysis and a merger premium analysis to determine the fairness of the
consideration to be received by the Unitholders. Except for the Liquidation
Analysis, the implied per unit equity values derived using the various valuation
methodologies described above all supported the conclusion that the
consideration to be received by the Unitholders in the Offer and Merger is fair
to the Unitholders from a financial point of view.
The various allocation methodologies noted above and the implied per unit
equity values derived therefrom are included in the following table. This table
should be read together with the more detailed descriptions set forth below. The
table alone does not constitute a complete description of the financial and
comparative analyses. In particular, in applying the various valuation
methodologies to the particular businesses, operations and growth opportunities
of the National MLP, and the particular circumstances of the Offer and Merger,
Lehman Brothers made qualitative judgments as to the significance and relevance
of each analysis. In addition, Lehman Brothers made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the National MLP or the
National MGP. Accordingly, the methodologies and the per unit equity values
derived therefrom as set forth in the table below must be considered as a whole
and in the context of the narrative description of the financial analyses,
including the assumptions underlying these analyses. Considering the implied per
unit equity values without considering the narrative description of the
financial analyses, including the assumptions underlying
25
<PAGE>
these analyses, could create a misleading or incomplete view of the process
underlying, and conclusions represented by, Lehman Brothers' opinion.
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE
ALLOCATION METHODOLOGY PER UNIT
---------------------- --------------------
<S> <C>
Discounted Equity Cash Flows
Case A................................................................................. $10.69 -- $12.54
Case B................................................................................. $ 8.03 -- $ 9.43
Comparable Subordinated Unit Transactions.............................................. $ 9.93 -- $11.72
Liquidation Analysis................................................................... $13.40 -- $14.14
Consideration to be received by the Unitholders in the Offer and Merger................ $12.00
</TABLE>
Discounted Equity Cash Flow Analysis. Lehman Brothers used the
aforementioned Case A and Case B projections to determine the cash flows that
would inure under each case to the various equity classes. Lehman Brothers used
equity discount rates ranging from 14% to 16% and similar capitalization rates
based on equity cash flows in year five. The discount rates were based on Lehman
Brothers' assessment of the cost of equity capital for the National MLP and
similar companies in the propane industry.
The Lehman Brothers equity cash flow analysis indicated a range of $10.69
to $12.54 per National Common Unit and $8.03 to $9.43 per National Common Unit
for the Case A and Case B projections, respectively.
Comparable Subordinated Unit Transactions. Lehman Brothers reviewed two
recently announced/completed transactions whereby subordinated units were
purchased in a transaction from the partnerships' respective general partners.
These two transactions were the July 17, 1998 indirect acquisition of
subordinated units by the Ferrellgas Companies, Inc. Employee Stock Ownership
Trust from trusts affiliated with James E. Ferrell and the November 30, 1998
announced restructuring of Suburban Propane Partners, L.P. whereby subordinated
units owned by Suburban's general partner will be purchased by the partnership
as part of a recapitalization. In these two transactions, the value received for
the subordinated/general partner interests was calculated as between 37% and 53%
of the per unit equivalent of the common unit value on the day prior to the
announcement of the transaction. However, because the market conditions,
rationale and circumstances surrounding both of these transactions were specific
to each transaction and because of the inherent differences between the
businesses, operations and prospects of the Partnership and the partnerships
involved in the transactions analyzed, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the analysis and, accordingly, also made qualitative judgments concerning
differences between the characteristics of these transactions and the Offer and
Merger that would affect the acquisition values of the Partnership's equity and
such acquired equity.
In allocating the total consideration offered by Columbia Propane for the
equity value of the National MLP between the various classes, Lehman Brothers
used a range of 35% to 55% of the equivalent per common unit value for purposes
of determining the value of the subordinated/general partner interests. Using
the comparable subordinated unit transaction allocation methodology and the
total equity consideration offered by Columbia Propane of $99 million, the
implied per National Common Unit equity values ranged from $10.48 to $11.72.
Using the comparable subordinated unit transaction allocation methodology and
the total equity consideration offered by Columbia Propane of $94 million (this
reduced amount reflecting the estimated fair market value of the Triarc Note of
$25.5 million rather than the face amount of $30.7 million), the implied per
National Common Unit equity values ranged from $9.93 to $11.10.
Liquidation Analysis. Lehman Brothers reviewed Article 6.1(c)(ii) of the
National MLP's Amended and Restated Agreement of Limited Partnership dated as of
July 2, 1996, as amended (the 'National MLP Partnership Agreement') which
relates to the distribution of proceeds in the event of a liquidation. While the
Offer and Merger is not a liquidation as defined in the National MLP Partnership
Agreement and the Unitholders do not have the right to initiate a liquidation,
the liquidation provisions of the National MLP Partnership Agreement are the
only provisions that directly address the allocation of consideration between
the various equity classes.
26
<PAGE>
Using the liquidation analysis allocation methodology and the total equity
consideration offered by Columbia Propane of $99 million, the implied per
National Common Unit equity value is $14.14. Using the liquidation analysis
allocation methodology and the total equity consideration offered by Columbia
Propane of $94 million (this reduced amount reflecting the estimated fair market
value of the Triarc Note of $25.5 million rather than the face amount of $30.7
million), the implied per National Common Unit equity value is $13.40.
Historical Trading Analysis. Lehman Brothers reviewed the daily historical
closing prices of the National Common Units for the period from June 26, 1996 to
March 30, 1999. Lehman Brothers calculated the closing National Common Unit
prices based on 5, 10, 20, 30, 60, 120 and 260 trading day averages,
respectively, as of March 30, 1999. The following table summarizes the
historical trading analysis for such period.
<TABLE>
<CAPTION>
AS OF MARCH 30, 1999
-----------------------------------------
PREMIUM BASED ON $12.00
PER UNIT PRICE IN THE OFFER
UNIT PRICE AND MERGER
---------- ---------------------------
<S> <C> <C>
Closing Price............................................................. $ 7.00 71.4%
10-Day Average............................................................ $ 5.92 102.7%
20-Day Average............................................................ $ 5.60 114.3%
30-Day Average............................................................ $ 5.47 119.4%
60-Day Average............................................................ $ 5.84 105.5%
120-Day Average........................................................... $ 6.63 81.1%
260-Day Average........................................................... $11.61 3.4%
Since 10/21/98(a)......................................................... $ 6.45 86.1%
Since 1/29/99(b).......................................................... $ 5.49 118.6%
</TABLE>
- ------------
(a) Represents the average closing price per National Common Unit since the
announcement that the National Common Unit distribution would be reduced
from $0.525 per unit to $0.2625 per unit with respect to the third quarter
of 1998.
(b) Represents the average closing price per National Common Unit since the
announcement that all National Common Unit distributions would be
eliminated with respect to the fourth quarter of 1998 and that the National
MGP was continuing to examine strategic alternatives with respect to the
National MLP.
Premiums Analysis. Lehman Brothers reviewed certain publicly available
information on selected cash transactions between $7 and $15 per share, selected
natural resources transactions and selected MLP transactions. The following
table summarizes the premiums paid in those selected transactions.
<TABLE>
<CAPTION>
PREMIUM PAID
VERSUS PRIOR PRICE
----------------------------
1 DAY 1 WEEK 1 MONTH
----- ------ -------
<S> <C> <C> <C>
SELECTED CASH TRANSACTIONS(a)
Mean......................................................................... 28.9% 34.5% 40.1%
Median....................................................................... 21.6% 29.0% 30.4%
NATURAL RESOURCE TRANSACTIONS
Mean......................................................................... 36.2% 41.5% 37.8%
Median....................................................................... 29.4% 31.8% 26.1%
MLP TRANSACTIONS
Mean......................................................................... 32.2% 34.5% 38.4%
Median....................................................................... 32.1% 34.4% 38.0%
NATIONAL COMMON UNIT CONSIDERATION ($12.00 PER UNIT).............................. 71.4% 125.9% 143.0%
Partnership Data.................................................................. $7.00 $5.31 $4.94
</TABLE>
- ------------
(a) Selected cash transactions between $7 and $15 per share from January 1,
1997 to February 15, 1999.
27
<PAGE>
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. The Special
Committee selected Lehman Brothers because of its expertise, reputation and
familiarity with the National MLP, the propane industry and master limited
partnerships and because its investment banking professionals have substantial
experience in transactions comparable to the Offer and Merger.
Pursuant to the terms of an engagement letter agreement, dated January 20,
1999, between Lehman Brothers and the Special Committee, the National OLP will
pay Lehman Brothers a fee of $1,000,000. In addition, the Special Committee, on
behalf of the National MGP (in its capacity as managing general partner of the
National MLP), has agreed to reimburse Lehman Brothers for its reasonable
expenses (including, without limitation, professional and legal fees and
disbursements) incurred in connection with its engagement, and to indemnify
Lehman Brothers and certain related persons against certain liabilities in
connection with its engagement, including certain liabilities which may arise
under federal securities laws.
In the ordinary course of its business, Lehman Brothers actively trades in
the equity securities of the National MLP and Triarc for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
UNCERTAINTIES ASSOCIATED WITH PROJECTIONS
Lehman Brothers was provided with a forward looking budget and certain
other forward looking information by the management of the National MLP.
Management of the National MLP advised Lehman Brothers that the National MLP has
consistently experienced difficulties in attaining projected financial results.
In addition, management advised Lehman Brothers that any projected results may
differ substantially from actual results because of a number of risks and
uncertainties including, but not limited to, the following: changes in wholesale
propane prices; regional weather conditions; the ability to attract and retain
customers; general economic conditions; competition from other energy sources
and within the propane industry; success of operating initiatives; development
and operating costs; advertising and promotional efforts; the existence or
absence of adverse publicity; change in business strategy or development plans;
quality of management; availability, terms and deployment of capital; business
ability and judgment of personnel; availability of qualified personnel; labor
and employee benefit costs; the success of the National MLP in identifying
systems and programs that are not yet Year 2000 compliant; unexpected costs
associated with Year 2000 compliance or the business risk associated with Year
2000 non-compliance by customers and/or suppliers; changes in, or failure to
comply with, governmental regulations (including accounting standards,
environmental laws and taxation requirements); and the costs, uncertainties and
other effects of legal and administrative proceedings and other risks and
uncertainties.
28
<PAGE>
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER
Purpose. The purpose of the Offer and the Merger is for the Purchaser to
acquire all of the National Common Units. The Purchaser and Purchaser General
Partner intend to acquire, directly or indirectly, (i) any remaining outstanding
National Common Units not acquired in the Offer by consummating the Merger and
all of the National Subordinated Units, (ii) all of the unsubordinated general
partner interests in the National MLP and all of the Incentive Distrbution
Rights, and (iii) all of the general partner interests and substantially all of
the limited partner interests (except for the 1% Special OLP Interest, as
defined below) in the National MLP's operating partnership, the National OLP.
The Offer, the Merger and the other transactions effecting the acquisition of
such interests in the National MLP and in the National OLP are being made
pursuant to the Purchase Agreement.
Effect of the Merger on the Unitholders. Consummation of the Merger is
contingent upon, among other things, the approval by a majority of all
outstanding National Common Units and a majority of all outstanding National
Subordinated Units. In the Merger, each National Common Unit outstanding at the
Effective Time (other than National Common Units owned by the Purchaser and its
affiliates) will be canceled and converted automatically into the right to
receive the Merger Consideration. Therefore, as a result of the Merger,
Unitholders will no longer have any limited partner interest in the National MLP
and will no longer share in any future earnings and growth of the National MLP.
Instead, each Unitholder as of the Record Date will have only the right to
receive the Merger Consideration. In addition, following the consummation of the
Merger, the National Common Units will be delisted from the NYSE and the
registration of the National Common Units under the Securities Exchange Act of
1934, as amended, will be terminated.
CONDITIONS TO THE PURCHASE OF THE ACQUIRED INTERESTS
AND THE MERGER
The Purchase Agreement provides that the obligations of the Purchaser and
the Purchaser General Partner to purchase, prior to the Merger, (a) 100% of the
National Subordinated Units, (b) 100% of the unsubordinated general partner
interests in the National MLP, (c) 100% of the unsubordinated general partner
interests in the National OLP, and (d) substantially all of the limited partner
interests in the National OLP (the 'National OLP Interests') (collectively, the
items in clauses (a) through (d) and the National Common Units are referred to
as the 'Acquired Interests') owned by the National Parties (as defined herein)
are subject to the satisfaction or waiver of certain conditions, including the
following: (i) the reorganization of the National MLP as described in
'Agreements to Purchase Acquired Interests; The Merger' in the section 'The
Purchase Agreement' having been completed; (ii) the Purchase Agreement, the
Merger and the other transactions contemplated under the Purchase Agreement
having been approved and adopted by the affirmative vote of at least a majority
of the outstanding National Common Units voting as a class and at least a
majority of the outstanding National Subordinated Units voting as a class, to
the extent required; (iii) no statute, rule, decision, regulation, executive
order, decree, temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
governmental entity preventing the transaction being in effect and no action or
proceeding being pending which could reasonably be expected to result in such an
order or injunction; (iv) the representations and warranties of the National
MLP, the National General Partners and Triarc (collectively, with National Sales
and Service Inc. ('NSSI'), the 'National Parties') in the Purchase Agreement
regarding corporate and partnership authority, enforceability of the Purchase
Agreement and good and valid title to the Acquired Interests being true and
correct as of the date of closing of the Merger as though made as of such date;
(v) the Purchaser having previously accepted for payment and paid for all
validly tendered National Common Units pursuant to the Offer; and (vi) the
National OLP having prepaid all of its $125 million 8.54% First Mortgage Notes
due June 30, 2010 and approximately $13 million under its acquisition line under
the credit agreement dated as of June 26, 1996 with the bank lenders named
therein.
The Purchase Agreement provides that the obligations of the parties to
effect the Merger are subject to the satisfaction or waiver of certain
conditions, including the following: (i) good and valid title to the Acquired
Interests owned by the National Parties having been conveyed to the Purchaser
and the Purchaser General Partner pursuant to the Purchase Agreement, free and
clear of any liens, claims or
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encumbrances; (ii) the representations and warranties of the National Parties in
the Purchase Agreement regarding corporate and partnership authority and
enforceability of the Purchase Agreement being true and correct as of the date
of closing of the Merger as though made as of such date; provided, that this
clause (ii) is only a condition to the obligations of the Purchaser Parties (as
defined herein); (iii) the Purchaser having previously accepted for payment and
paid for all validly tendered National Common Units pursuant to the Offer; and
(iv) the satisfaction of items (ii) and (iii) listed in the paragraph above.
THE PURCHASE AGREEMENT
The Purchase Agreement. The following is a summary of the Purchase
Agreement, which summary is qualified in its entirety by reference to the
Purchase Agreement, a copy of which is attached as Annex A hereto and
incorporated herein by reference.
Agreements to Purchase Acquired Interests; The Merger. On the terms and
subject to the conditions of the Purchase Agreement, the Purchaser, in addition
to making the Offer, has agreed to acquire, directly or indirectly as more fully
described below as the Acquired Interests. The Purchase Agreement further
provides that following the satisfaction or waiver of the conditions described
below under 'Conditions to the Merger,' the National MLP will be merged with and
into the Purchaser, and each then outstanding National Common Unit (other than
National Common Units owned by the Purchaser or any affiliate of the Purchaser),
will be converted into the right to receive an amount in cash equal to the Offer
Consideration ($12.00, without interest thereon).
The Purchase Agreement provides that, if the Offer is consummated, Triarc
will unconditionally and irrevocably pay $14,883,720 to the National OLP under
the promissory note in the original principal amount of $40.7 million with a
remaining outstanding balance (immediately prior to the payment referred to in
this sentence) of $30.7 million of the Triarc Note, together with interest,
calculated based on a rate per annum of 9.44%, for the period from the date of
acceptance of National Common Units in the Offer to the closing of the Merger,
on a principal amount equal to (x) $2.40 multiplied by (y) the number of
National Common Units accepted and paid for in the Offer. Triarc will make such
payment immediately prior to the direct or indirect acquisition of the Acquired
Interests and closing of the Merger as described below. Thereafter, the National
MGP will cause (i) the National MLP to redeem (A) all 1% of the unsubordinated
general partner interests in the National MLP owned by the National SGP in
exchange for the simultaneous distribution to the National SGP of a 0.9798%
limited partner interest in the National OLP, (B) all 4,533,638 National
Subordinated Units and all incentive distribution rights owned by the National
MGP in exchange for the simultaneous distribution to the National MGP of a
22.6351% limited partner interest in the National OLP, and (C) all 1% of the
unsubordinated general partner interest in the National MLP owned by the
National MGP (other than a general partner interest valued at $1,000) in
exchange for the simultaneous distribution to the National MGP of a 0.9798%
limited partner interest in the National OLP, and immediately thereafter, (ii)
the National OLP to redeem all of the National OLP Interests owned by the
National MGP, other than a 1.0% National OLP Interest (inclusive of the interest
in (C) above) (which, for purposes of determining the aggregate consideration to
be paid to the National General Partners under the Purchase Agreement, shall be
initially valued at $700,000), in exchange for the simultaneous assignment and
distribution to the National MGP of the Triarc Note, the principal amount of
which (at the time of the assignment and distribution referred to in this clause
(ii)) will be $15,816,280.
In addition, the Purchase Agreement provides that, following the foregoing
reorganization, at the closing of the Merger, (x) the Purchaser will purchase
all of the National OLP Interests owned by the National SGP for an aggregate
consideration of $686,000, and (y) Purchaser General Partner will purchase (i)
all of the National OLP general partner interests owned by the National SGP for
an aggregate consideration of $707,000, and (ii) all of the National OLP general
partner interests owned by the National MGP (other than a National OLP general
partner interest valued at $1,000) for an aggregate consideration of $706,000.
The Purchase Agreement further provides that, at the Effective Time, by
virtue of the Merger and without any action on the part of the Purchaser, the
National MLP or any Unitholder, (i) each of the National Common Units not owned
by the Purchaser or an affiliate thereof will be converted into the
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right to receive an amount in cash equal to the highest amount per National
Common Unit paid to Unitholders in the Offer, (ii) the general partner interest
in the National MLP owned by the National MGP will be converted into the right
to receive $1,000 in cash, and (iii) each partnership interest of the Purchaser
outstanding immediately prior to the Effective Time will be converted into one
partnership interest of the Purchaser as the surviving entity in the Merger,
with the same rights, powers and privileges as the interest so converted and
will constitute the only outstanding partnership interests of the Purchaser as
the surviving entity.
Purchaser General Partner has agreed that, immediately following the
closing of the Merger, it will purchase the general partner interest valued at
$1,000 in the National OLP held by the National MGP for $1,000 and, as successor
general partner of the National OLP, it will cause the National OLP to convert
the 1.0% limited partner interest held by the National MGP in the National OLP
into a 1.0% special limited partner interest in the National OLP (the 'Special
OLP Interest'). The Special OLP Interest to be held by the National MGP will
have limited voting rights and will be nontransferable (except to an affiliate
of the National MGP) other than as described in the next paragraph.
The Purchase Agreement provides that the National MGP may require, at any
time upon prior written notice and subject among other things to the condition
that good title be transferred, that the Purchaser OLP (which, as used herein,
refers to the National OLP following the Merger) purchase all (but not less than
all) of the Special OLP Interest for cash in an amount equal to the fair market
value of the Special OLP Interest as of the date of such notice, as determined
by a nationally recognized independent appraiser or investment banking firm
selected by Purchaser General Partner. The Purchase Agreement further provides
that Purchaser General Partner may require, at any time upon written notice to
the National MGP, that the National MGP sell to the Purchaser OLP all (but not
less than all) of the Special OLP Interest and deliver good title thereto in
consideration of (i) the payment of the cash price as provided in the
immediately preceding sentence, and (ii) an additional amount in cash, if such
sale is consummated within ten years after the Effective Time, equal to (A) any
incremental gain realized by the National MGP resulting from a decrease in its
share of Indemnified Debt (as hereinafter defined), multiplied by (B) a
fraction, the numerator of which is the Effective Tax Rate (as defined in the
Purchase Agreement) and the denominator of which is one minus the Effective Tax
Rate.
Vote Required to Approve Merger. The Merger will require the approval of
the holders of a majority of the outstanding National Common Units, including
the National Common Units owned by the Purchaser, and a majority of the
outstanding National Subordinated Units, all of which National Subordinated
Units are held by the National MGP. The Purchaser will be able to approve the
Merger and all the other transactions contemplated by the Purchase Agreement
without the vote of any other Unitholder.
Under the Purchase Agreement, the Purchaser has agreed to execute a
consent, as the holder of greater than a majority of the National Common Units
following consummation of the Offer, and the National MGP has agreed to execute
a consent, as holder of all the National Subordinated Units, to approve the
Merger and all other transactions contemplated by the Purchase Agreement.
If the Merger is consummated, Unitholders who elected not to tender their
National Common Units in the Offer will have their interests in the National
Common Units converted into the right to receive the same amount of cash
consideration in exchange for each National Common Unit as they would have
received in the Offer.
Conditions to the Offer. The Purchase Agreement provides that,
notwithstanding any other provision of the Offer, the Purchaser is not required
to accept for payment or pay for any National Common Units tendered pursuant to
the Offer, and could terminate, extend or amend the Offer and could postpone the
acceptance for payment of and payment for National Common Units tendered, if
certain conditions existed prior to the expiration of the Offer. Such conditions
are described in full in the section 'Conditions to the Offer,' Annex A to the
Purchase Agreement, which is attached to this Information Statement as Annex A.
Conditions to the Purchase of Acquired Interests. The Purchase Agreement
provides that the obligations of the Purchaser and Purchaser General Partner to
purchase the Acquired Interests owned by the National Parties are subject to the
satisfaction or waiver of certain conditions, including the
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following: (i) the reorganization of the National MLP as described above in the
second paragraph under 'Agreements to Purchase Acquired Interests; The Merger'
having been completed; (ii) the Purchase Agreement, the Merger and the other
transactions contemplated by the Purchase Agreement having been approved and
adopted by the affirmative vote of at least a majority of the outstanding
National Common Units voting as a class and at least a majority of the
outstanding National Subordinated Units voting as a class, to the extent
required; (iii) no statute, rule, decision, regulation, executive order, decree,
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other governmental entity
preventing the acquisition of the Acquired Interests being in effect and no
action or proceeding being pending which could reasonably be expected to result
in such an order or injunction; (iv) the representations and warranties of the
National Parties in the Purchase Agreement regarding corporate and partnership
authority, enforceability of the Purchase Agreement and good and valid title to
the Acquired Interests being true and correct as of the date of closing of the
Merger as though made as of such date; (v) the Purchaser having previously
accepted for payment and paid for all validly tendered National Common Units
pursuant to the Offer; and (vi) the National OLP having prepaid its First
Mortgage Notes and approximately $13 million under its acquisition line under
the Credit Agreement.
Conditions to the Merger. The Purchase Agreement provides that the
obligations of the parties to effect the Merger are subject to the satisfaction
or waiver of certain conditions, including the following: (i) good and valid
title to the Acquired Interests owned by the National Parties having been
conveyed to the Purchaser and Purchaser General Partner pursuant to the Purchase
Agreement, free and clear of any liens, claims or encumbrances; (ii) the
Purchase Agreement, the Merger and the other transactions contemplated under the
Purchase Agreement having been approved and adopted by the affirmative vote of
at least a majority of the outstanding National Common Units voting as a class
and at least a majority of the outstanding National Subordinated Units voting as
a class, to the extent required; (iii) no statute, rule, decision, regulation,
executive order, decree, temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
governmental entity preventing the consummation of the Merger being in effect
and no action or proceeding being pending which could reasonably be expected to
result in such an order or injunction; (iv) the representations and warranties
of the National Parties in the Purchase Agreement regarding corporate and
partnership authority and enforceability of the Purchase Agreement being true
and correct as of the date of closing of the Merger as though made as of such
date; provided, that this clause (iv) is only a condition to the obligations of
the Purchaser, Purchaser General Partner and Purchaser Holdings (the 'Purchaser
Parties'); and (v) the Purchaser having previously accepted for payment and paid
for all validly tendered National Common Units pursuant to the Offer.
No Solicitation. The Purchase Agreement provides that each of the National
Parties (on behalf of itself and its affiliates, including the National MLP and
the National OLP) will terminate all discussions and negotiations with others
regarding a sale or other transaction involving (a) the Acquired Interests, (b)
all or substantially all of the assets, business or securities of the National
MLP or the National OLP, or (c) any other transaction similar to the
transactions contemplated by the Purchase Agreement (collectively, the 'National
Possible Alternatives'), and will not, directly or indirectly, nor shall they
authorize or permit any of their officers, directors or employees to, or any
investment banker, financial advisor, attorney, accountant or other
representative retained by them to, so long as the Purchase Agreement remains in
effect, (i) solicit, initiate, encourage (including by way of furnishing
information or assistance), conduct discussions with or engage in negotiations
with any person or entity regarding or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to a National Possible Alternative, (ii) enter into an
agreement with any person or entity, other than the Purchaser or its affiliates,
providing for a National Possible Alternative, (iii) make or authorize any
statement, recommendation or solicitation in support of or approve any National
Possible Alternative by any person or entity, other than by the Purchaser or its
affiliates, or (iv) withdraw, modify, qualify or change the recommendation of
the transactions contemplated by the Purchase Agreement by the Special Committee
or the National Board.
Notwithstanding the foregoing provisions, prior to the consummation of the
Offer, Triarc, the National MLP, the National SGP, the National MGP and the
National OLP will be entitled to take any action otherwise prohibited by the
provisions of the Purchase Agreement described in the previous
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paragraph in response to any third party inquiry, contact or proposal received
by any or all of them (including furnishing information to any such third party,
but only pursuant to a written confidentiality agreement) if (a) the initial
inquiry, contact or proposal from any third party was not received in violation
of the provisions described in the previous paragraph, (b) the Special Committee
shall have determined, in its good faith judgment, that any such otherwise
prohibited action could reasonably be expected to lead to the negotiation and
consummation of a National Possible Alternative that in the opinion of the
Special Committee could reasonably be expected to be more beneficial than the
transactions contemplated by the Purchase Agreement, taken as a whole, to the
Unitholders other than the National MGP and its affiliates (a 'National Superior
Transaction') and (c) the Special Committee shall have determined, after
consultation with and based on the advice of its outside legal counsel, that the
failure to take such action would be inconsistent with the National MGP's or the
National Board's fiduciary duties to Unitholders under applicable law; provided,
that none of the National MGP, the National SGP, the National MLP or the
National OLP may execute a binding agreement to effect a National Superior
Transaction unless the Purchase Agreement has first been terminated in
accordance with the applicable terms thereof. The Purchase Agreement further
provides that Triarc, the National MGP (on behalf of itself, the National MLP,
the National OLP and the National SGP) and the National MLP agree that each of
them will notify Purchaser General Partner immediately if any inquiry, contact
or proposal is received by, any such information is requested from, or any such
discussions or negotiations are sought to be initiated or continued with, it or
any of its representatives, indicating, in connection with such notice, the name
of such person or entity and the material terms and conditions of any inquiry,
contact or proposal and thereafter will keep Purchaser General Partner informed,
on a current basis, of the status and terms of any such inquiry, contact or
proposal and the status of any such negotiations or discussions.
Termination of Purchase Agreement. The Purchase Agreement may be terminated
at any time prior to the date on which the Purchaser accepts for payment, and
pays for, the National Common Units under the Offer (the 'Acceptance Date') (a)
by Purchaser General Partner and the National MGP upon their mutual written
agreement; (b) by (i) the Purchaser, if the Offer expires or is terminated or
withdrawn in accordance with its terms without any National Common Units being
purchased thereunder or as a result of the occurrence or existence of any
condition set forth in Annex A of the Purchase Agreement (see 'Conditions to the
Offer' above) but subject to the terms of the Offer; or (ii) the National MGP,
if the Offer is terminated, or has not been commenced in accordance with the
terms of the Purchase Agreement within five business days of the date of the
Purchase Agreement, or if the Purchaser has not purchased National Common Units
validly tendered and not withdrawn pursuant to the Offer in accordance with the
terms of the Purchase Agreement within 90 days after commencement of the Offer;
or (iii) the Purchaser if, as a result of the occurrence or existence of any
condition set forth in Annex A to the Purchase Agreement (see 'Conditions to the
Offer' above), the Offer has not been commenced in accordance with the terms of
the Purchase Agreement within 60 days of the date of the Purchase Agreement;
provided, however, that the party seeking to terminate the Purchase Agreement
pursuant to this clause (b) and its affiliated parties are not in material
breach of any of its representations, warranties or covenants contained in the
Purchase Agreement; (c) by the National MGP acting through the Special Committee
or by Purchaser General Partner, if the Special Committee determines that a
National Possible Alternative would constitute a National Superior Transaction
and the National Board or the Special Committee, consistent with the provisions
of the Purchase Agreement described in the second paragraph of 'No Solicitation'
above, withdraws, modifies, qualifies or changes in a manner adverse to the
Purchaser its recommendation that the Unitholders tender their National Common
Units in the Offer; and (d) by the National MGP, if the Purchaser has provided a
notice to the National MGP that a change in applicable tax laws has occurred and
the National MGP notifies the Purchaser in writing that the relevant tax law
change would adversely affect the tax deferral for the benefit of the National
MGP sought to be achieved by the provisions described below under 'Agreements
with Respect to Tax Matters.'
The Purchase Agreement may also be terminated at any time prior to the
closing of the Merger by either Purchaser Holdings or the National MGP if the
closing of the Merger has not occurred by the date that is 210 days after
purchase of the National Common Units pursuant to the Offer; provided,
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however, that no party whose breach of the Purchase Agreement has caused the
failure to so close will have the right to so terminate the Purchase Agreement.
Termination and Outside Date Breakage Fees; Fees and Expenses. If the
Purchase Agreement is terminated in accordance with the provisions described
under clause (c) of the first paragraph of 'Termination of Purchase Agreement'
above, the National MLP will have the obligation to pay or cause to be paid
promptly (but in no event more than three days after the Purchase Agreement is
so terminated) to the Purchaser a fee of $3.0 million in cash.
In the event that (i) the Purchase Agreement is terminated in accordance
with the provisions described under clause (c) of the first paragraph of
'Termination of Purchase Agreement' above, and (ii) within the twelve months
following such termination a National Possible Alternative is consummated which
is more beneficial than the transactions contemplated by the Purchase Agreement,
taken as a whole, to the Unitholders other than the National MGP and its
affiliates, then the National MLP shall pay to the Purchaser, within three days
of such consummation, a topping fee equal to $6.0 million (inclusive of any
amounts previously paid by the National MLP pursuant to the immediately
preceding paragraph). If any such transaction does not involve the acquisition
of substantially all of the interests in or assets of the National MLP or the
National OLP, then the calculation of the amount to be paid in excess of amounts
paid pursuant to the immediately preceding paragraph will be adjusted on a pro
rata basis.
In the event that the Purchase Agreement is terminated pursuant to the
provision discussed in the last paragraph under 'Termination of Purchase
Agreement' above or is terminated upon mutual agreement of the parties, on the
date of such termination Triarc has agreed to unconditionally and irrevocably
pay to the Purchaser, as an inducement for the Purchaser Parties to enter into
the Purchase Agreement and as a breakage payment for such termination, the sum
of (i) $2.40 multiplied by the number of National Common Units accepted and paid
for in the Offer, and (ii) interest on such amount, calculated based on a rate
per annum of 9.44%, for the period from the date the National Common Units are
accepted and paid for in the Offer to such date of termination.
The Purchase Agreement further provides that the National MLP and the
National OLP will pay all fees and expenses relating to (i) the National MLP's
filings with the Commission, (ii) obtaining the consent of the holders of
National OLP's First Mortgage Notes (except as provided in Amendment No. 2 dated
as of April 5, 1999 ('Amendment No. 2') to each of the separate Note Agreements
dated as of June 26, 1996 (as amended, the 'Note Agreements')) and (iii) up to
an aggregate of $1.5 million of the fees and expenses of the Special Committee
and its advisors and of certain appraisal and asset valuation services with
respect to the assets of the National OLP.
Conduct of Business by the National MLP and the National MGP Pending the
Merger. The National MLP has agreed that during the period from the date of the
Purchase Agreement to the Effective Time, it will (and the National MGP has
agreed to cause the National MLP, the National OLP and NSSI to), among other
things: (i) maintain its assets and properties in good working order and
condition and operate its business in the ordinary course as was being conducted
prior to the execution of the Purchase Agreement; (ii) use its commercially
reasonable efforts to maintain and preserve in all material respects its
business organization intact and maintain in all material respects its
relationships with suppliers, customers, lessors and others having business
relations with it; (iii) file on a timely basis all notices, reports or other
filings required to be filed with or reported to any governmental agency; (iv)
file on a timely basis all applications or other documents necessary to
maintain, renew or extend any material permit, license, variance or any other
approval required by any governmental authority necessary or required for the
continuing operation of its business, whether or not such approval would expire
before or after the Effective Time; and (v) (A) file or cause to be filed,
within the times and in the manner prescribed by law, all tax returns and tax
reports that are required to be filed by such person determined consistent with
prior practices; (B) pay or cause to be paid, within the time and in the manner
prescribed by law, all material taxes (including any estimated taxes) imposed on
such party that are currently due and payable; and (C) establish and maintain
reserves adequate to pay all material taxes not yet due or payable as of the
closing of the Merger.
The Purchase Agreement further provides that, from the date of the Purchase
Agreement until the Effective Time, the National MLP will not (except as
otherwise contemplated by the Purchase
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Agreement) (and the National MGP will cause the National MLP, the National OLP
and NSSI not to), without first obtaining the written consent of Purchaser
General Partner, which consent will not be unreasonably withheld or delayed: (i)
make any material change in the conduct of its business and operations or its
financial reporting and accounting methods; (ii) other than in the ordinary
course of business consistent with past practice, enter into any material
contract or agreement or terminate or amend in any material respect any material
contract or agreement to which it is a party, waive any material rights under
any material contract or agreement to which it is a party, or be in default in
any material respect thereunder; (iii) declare, set aside or pay any
distributions to its partners or split, combine or reclassify any of its equity
securities or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any of its equity securities, or purchase,
redeem or otherwise acquire, directly or indirectly, any such securities; (iv)
merge into or with or consolidate with any other corporation, partnership,
person or other entity or acquire all or substantially all of the business or
assets of any corporation, partnership, person or other entity or form, acquire
any interest in or contribute any assets to any partnership or joint venture or
enter into any similar arrangement; (v) make any change in its agreement of
limited partnership; (vi) (A) make any purchase of any securities of any
corporation, partnership, person or entity, or (B) make any investment in any
corporation, partnership, joint venture or other business enterprise (other than
ordinary-course overnight investments consistent with cash management practices
of the National MLP and the National OLP); (vii) incur any indebtedness for
borrowed money (except for borrowings under existing working capital facilities
up to an aggregate of $1.0 million) or guarantee any such indebtedness or issue,
sell or guarantee any debt securities or any rights or warrants to acquire any
debt securities; (viii) sell, lease, pledge, encumber or otherwise dispose of
any portion of its assets other than in the ordinary course of business
consistent with past practice; (ix) issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, any of its equity securities or
securities convertible into its equity securities, or subscriptions, rights,
warrants or options to acquire or other agreements or commitments of any
character obligating it to issue any such securities; (x) settle in excess of
$1.0 million (individually or in the aggregate) any claim, demand, lawsuit or
state or federal regulatory proceeding not covered by insurance; (xi) except as
required on an emergency basis, purchase, lease or otherwise acquire any
property of any kind whatsoever other than in the ordinary course of business or
make any capital expenditures in excess of $1.0 million in the aggregate; (xii)
allow or permit the expiration, termination or cancellation at any time of any
material insurance policy applicable to its business or operations, unless such
policy is replaced, with no loss of coverage, by a comparable insurance policy
(to the extent available on commercially reasonable terms); (xiii) (A) make or
rescind any material express or deemed election relating to taxes, (B) make a
request for a tax ruling or enter into a tax closing agreement, (C) settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit, or controversy relating to taxes other than
as otherwise set forth in the Purchase Agreement, or (D) change any of its
methods of reporting material income or deductions for federal income tax
purposes from those employed in the preparation of its federal income tax return
for the taxable year ending December 31, 1997, except as may be required by a
change in applicable law; or (xiv) commit to do any of the foregoing.
In the Purchase Agreement, the National MGP covenants that from the date of
the Purchase Agreement until the Effective Time, (i) it will use its
commercially reasonable efforts to retain its employees related to the operation
of the National MLP and the National OLP, (ii) it will not hire any employee
except in the ordinary course of business consistent with past practice, (iii)
it will not hire any management personnel with an annual salary in excess of
$65,000 without first giving Purchaser General Partner a reasonable opportunity
to consult with the National MGP regarding such prospective hire, (iv) it will
not adopt any material new employee benefit plan, arrangement, practice or
policy, or material employment, severance, consulting or other compensation
arrangement, with or for the benefit of new or existing employees, or, except as
otherwise set forth in the Purchase Agreement, amend any existing employee
benefit plan, arrangement, practice or policy, or existing employment,
severance, consulting or other compensation arrangement in any material respect,
without prior written consent of the Purchaser, which consent shall not be
unreasonably withheld, (v) it will not materially increase the compensation or
level of benefits applicable to its employees, except for normal increases
consistent with past practice, (vi) it will not materially change the nature of
the National MLP's at cost
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reimbursement obligation for employee services, and (vii) it will not permit
NSSI to do any of the foregoing.
The National Parties further agreed in the Purchase Agreement that they
will, and will cause the National OLP to: (a) keep Amendment No. 2 to the Note
Agreements in effect, and not amend or modify Amendment No. 2, the Note
Agreements or the First Mortgage Notes without the prior written consent of the
Purchaser which shall not be unreasonably withheld; (b) comply with their
respective obligations under Amendment No. 2; and (c) not give the preliminary
or the final notice of optional prepayment under the Note Agreements without the
prior written consent of the Purchaser which shall not be unreasonably withheld.
In Amendment No. 2 to the Note Agreements, the noteholders agreed to a
prepayment option wherein the National OLP may prepay the First Mortgage Notes
on the date of the Merger. Prepayment of the First Mortgage Notes and the
amounts under the acquisition line is a condition to the obligations of the
Purchaser and Purchaser General Partner to purchase the Acquired Interests.
Employees and Employee Benefits. Under the Purchase Agreement, the parties
agreed that all employees of the National MGP in connection with the business of
the National MLP and the National OLP will be offered employment by the
Purchaser Parties. The parties further agreed that the Purchaser will assume all
costs of severance relating to such employees under the National MGP employee
retention program, under certain employment and severance agreements and will
assume any amounts related to payments under certain stock, phantom stock, unit
or phantom unit plans maintained by the National MGP. The Purchaser agreed to
assume all liabilities of the National Parties to, or with respect to, such
employees (or their dependents or beneficiaries) related to or based upon their
employment with the National Parties. The Purchaser also agreed to assume any
and all of the National MGP's and the National Parties' obligations under
certain collective bargaining agreements existing at the Effective Time with
respect to such employees.
In connection with any withdrawal liability under Section 4201(a) of the
Employee Retirement Income Security Act of 1974, as amended ('ERISA') by reason
of the consummation of the transactions under the Purchase Agreement, the
parties have agreed that the Purchaser has the option in its sole discretion to
either (i) enter into an agreement with the National Parties under Section 4204
of ERISA pursuant to which it will contribute to the multiemployer plans to
which the National Parties had an obligation to contribute with respect to such
employees of the National MGP immediately prior to the Effective Time, for
substantially the same number of contribution base units for which the National
Parties had an obligation to contribute for each of such multiemployer plans or
(ii) pay directly the amount of any withdrawal liability incurred in connection
with such multiemployer plans by reason of the consummation of the transactions
under the Purchase Agreement where no agreement referred to in clause (i) above
was effected, except if such liability is caused by the failure of any one of
the National Parties to satisfy the requirements of Section 4204 of ERISA.
If the Purchaser completely or partially withdraws from any such
multiemployer plan during the first five plan years beginning after the
Effective Time, the National Parties agreed in the Purchase Agreement to be
secondarily liable for any withdrawal liability that the National Parties would
have incurred at the Effective Time were it not for the application of Section
4204 of ERISA. The National MGP also agreed in the Purchase Agreement to take no
action that would reasonably be expected to result in increased severance cost
obligations to the Purchaser or its affiliates without the prior written consent
of Purchaser General Partner, which shall not be unreasonably withheld, except
as permitted as described under 'Conduct of Business by the National MLP and the
National MGP Pending the Merger' above.
Under the Purchase Agreement, the Purchaser and the Purchaser OLP agreed to
fully indemnify, defend, and hold harmless the National Parties from and against
any liability, loss, damage or expense the National Parties may incur as a
result of any claim made with respect to any obligation of, or liability assumed
by, the Purchaser and Purchaser OLP pursuant to the foregoing employee-related
provisions of the Purchase Agreement.
Agreements with Respect to Indemnification of National General Partners,
Triarc and Directors and Officers. Pursuant to the Purchase Agreement, the
Purchaser, Purchaser Holdings and Purchaser General Partner have agreed that,
from and after the closing of the Merger, they will (and will cause the
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Purchaser OLP to) jointly and severally indemnify and hold harmless the National
General Partners, Triarc and their respective stockholders, officers, directors,
affiliates, successors and assigns (including any person who has acted in any
such capacity at any time prior to the Effective Time), in the manner set forth
in Section 7.7 of the National MLP Partnership Agreement and Section 7.7 of the
National OLP's Amended and Restated Agreement of Limited Partnership dated as of
July 2, 1996, as amended (the 'National OLP Partnership Agreement'), from and
against all losses, costs, damages, expenses (including reasonable attorneys
fees), liabilities and claims (collectively, 'Losses') arising or resulting from
or relating to the National MLP, the National OLP, the National General Partners
or NSSI, from which such persons, or any of them, would have been entitled to be
indemnified pursuant to such sections in such partnership agreements, except in
each case for Losses for which the National MGP is indemnifying the Purchaser
and its affiliates under the Purchase Agreement; provided, that such
indemnification will not be limited to payments out of the assets of the
National MLP or the Purchaser OLP.
The Purchaser, Purchaser Holdings and Purchaser General Partner have also
agreed that, from and after the closing of the Merger, they will (and will cause
the Purchaser OLP to) jointly and severally indemnify and hold harmless, to the
fullest extent permitted by law, the National General Partners, Triarc and their
respective stockholders, officers, directors, affiliates, successors and assigns
from and against any and all Losses arising or resulting from, or relating to
(a) certain expenses of or relating to the National MLP's and the National OLP's
operations incurred by the National MGP for which the National MLP has a
reimbursement obligation to the National MGP under the National MLP Agreement;
(b) any material breach of the representations or warranties of the Purchaser
Parties in the Purchase Agreement; (c) the conduct of the business or operations
of the Purchaser, the Purchaser OLP, the National MLP, the National OLP or NSSI
following the Effective Time; (d) certain litigation matters described in the
Purchase Agreement; and (e) certain real property located in Marshfield,
Wisconsin, except in each case of clauses (a) through (c) for Losses for which
the National MGP is indemnifying the Purchaser and its affiliates as described
below.
Agreements with Respect to Indemnification of the Purchaser Parties and
Directors and Officers. Under the Purchase Agreement, the National MGP has
agreed that, from and after the closing of the Merger, it will indemnify and
hold harmless Purchaser Holdings and its affiliates, any successors thereto, or
any of the preceding persons who subsequent to the date of the closing of the
Merger guarantees or otherwise incurs any liability with respect to the
Indemnified Debt (as defined below), from and against any and all Losses arising
or resulting from, or relating to any payments that Purchaser Holdings and its
affiliates or any successors thereto are required to make (and make) from their
own funds (after prior recourse is had to the assets of the Purchaser OLP) with
respect to the National OLP debt at the closing of the Merger (consisting of
approximately $140 million principal amount of indebtedness) and any
refinancing, refunding or replacement thereof ('Indemnified Debt'), due to the
inability of the Purchaser OLP to pay or refinance any such Indemnified Debt
from the assets of the Purchaser OLP (such indemnity, the 'Debt Indemnity'). The
National MGP and Triarc have further agreed in the Purchase Agreement that, from
and after the consummation of the Offer, they will jointly and severally
indemnify and hold harmless Purchaser Holdings, the Purchaser, Purchaser General
Partner and their respective stockholders, officers, directors, affiliates,
successors and assigns from and against any and all Losses arising or resulting
from, or relating to (i) any material breach of the representations or
warranties of the National Parties in the Purchase Agreement relating to
organization, existence, powers and qualification, partnership or corporate
authority to enter into the Purchase Agreement and ownership of the Acquired
Interests, or (ii) any claim made by any holder of indebtedness of the National
OLP, to the extent relating to any act or omission of the National MGP, Triarc
or their affiliates prior to closing of the Merger, if such claim has been
asserted in writing prior to the consummation of the Offer and does not arise
from or relate to the transactions contemplated by the Purchase Agreement or any
action or omission otherwise requested by the Purchaser.
Agreements with Respect to Tax Matters. Under the Purchase Agreement, from
the date of closing of the Merger until the expiration of the Debt Indemnity,
the Purchaser agreed that it will not, and Purchaser Holdings agreed that it
will cause the Purchaser, Purchaser General Partner and Purchaser OLP not to,
without the prior written consent of the National MGP, (i) except as required by
applicable law (as defined therein), implement or adopt any material change in
the Purchaser OLP's current
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federal income tax methods, principles or elections to be specifically
identified by the National Parties, (ii) sell or otherwise dispose of any assets
of the Purchaser OLP (except as otherwise agreed) if such sale or disposition
would result in greater than $5,000,000 of gain per year on a cumulative basis
permitting carry-forwards, to be allocable to the National MGP pursuant to
Section 704(c) of the Code; or (iii) increase as of any date following the date
of closing of the Merger the Section 704 carrying value of the assets
contributed to the National OLP by the National MGP and the National SGP, as
provided therein. In the event that either the Purchaser or the Purchaser OLP
breaches covenant (i), (ii) or (iii) of this paragraph, subject to certain
limits contained in the Purchase Agreement, Purchaser Holdings, Purchaser
General Partner and the Purchaser OLP agreed to indemnify the National MGP, in
an amount equal to the sum of (x) (A) the incremental gain recognized as a
result of such breach, as calculated therein, multiplied by (B) a fraction, the
numerator of which is the maximum net marginal statutory federal and state
income tax rates (expressed as a decimal) in the jurisdictions applicable to the
National MGP for the year in which such gain is recognized (taking into account
the deductibility of state income tax in determining the liability for federal
income tax) (the 'Effective Tax Rate') and the denominator of which is one minus
the Effective Tax Rate and (y) any other losses, costs, damages, expenses (other
than taxes but including attorneys fees and interest, penalties and additions to
tax imposed on the National Parties by any taxing authority) as a result of such
breach but only to the extent such damages result in a cash expenditure by one
of the National Parties.
Purchaser Holdings and Purchaser General Partner further agreed, following
the Effective Time and until the termination of the Debt Indemnity, to cause the
Purchaser OLP not to (a) prepay, defease, purchase or otherwise retire any of
the Indemnified Debt, except as provided therein, (b) modify any of the
Indemnified Debt so as to eliminate or limit the recourse liability of the
National MGP with respect thereto, (c) merge or consolidate with or otherwise
become a corporation for federal income tax purposes, (d) cause or permit any
other corporation, partnership, person or entity (other than Purchaser Holdings
and its affiliates, or any successor thereto, or any successor to the Purchaser
OLP) to assume, guarantee, indemnify against or otherwise incur any liability
with respect to any Indemnified Debt, or (e) except as required by applicable
law (as defined therein), take or fail to take any other action that would
result in the share of the Indemnified Debt which is allocated to the National
MGP for purposes of Section 752 of the Internal Revenue Code of 1986, as
amended, (the 'Code') and Treasury Regulations promulgated thereunder pursuant
to the Debt Indemnity to be reduced by an amount in excess of the National MGP's
adjusted tax basis in its interest in the Purchaser OLP, as adjusted following
the Effective Time and as so identified by the National MGP (the 'MGP's Basis');
provided, however, that such covenants will only apply to the extent any actions
described in (a), (b), (c), (d) or (e) above would result in the share of the
Indemnified Debt which is allocated to the National MGP for purposes of Section
752 of the Code to be reduced by an amount in excess of the MGP's Basis at all
times until termination of the Debt Indemnity. In addition, Purchaser Holdings
and Purchaser General Partner have agreed to cause the Purchaser OLP to
refinance scheduled principal payments on the Indemnified Debt with sufficient
recourse debt so that at all times until the termination of the Debt Indemnity,
the amount of Indemnified Debt which is allocable to the National MGP for
purposes of Section 752 of the Code will not be reduced by an amount exceeding
the National MGP's Basis. The Purchase Agreement provides that following the
Effective Time and until the termination of the Debt Indemnity, (i) Purchaser
Holdings and Purchaser General Partner will cause the Purchaser OLP to use all
commercially reasonable efforts to not take or omit to take any action, if such
action or omission would constitute a breach of, or give rise to a default or
event of default under, any Indemnified Debt, and (ii) the National MGP will
have the right, but not the obligation, to arrange for the refinancing described
above if and only if the Purchaser OLP is unable to do so in accordance with
this paragraph. The Purchase Agreement further provides that, in the event that
before termination of the Debt Indemnity, the National MGP's share of the
Indemnified Debt for purposes of Section 752 of the Code is reduced by an amount
in excess of the National MGP's Basis as a result of a breach by Purchaser
Holdings or Purchaser General Partner or any affiliate or any successor thereto
of any provision in the Purchase Agreement, subject to certain limits contained
in the Purchase Agreement, Purchaser Holdings, Purchaser General Partner and the
Purchaser OLP agreed to indemnify the National MGP in an amount equal to the sum
of (x) (A) the gain recognized by the National MGP resulting from a decrease in
the National MGP's share of the Indemnified Debt (plus any penalties or
additions to tax
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imposed on the National Parties by any taxing authority as a result of such
breach), multiplied by (B) a fraction, the numerator of which is the Effective
Tax Rate and the denominator of which is one minus the Effective Tax Rate and
(y) any other losses, costs, damages, expenses (other than taxes but including
attorneys fees and interest, penalties and additions to tax imposed on the
National Parties by any taxing authority) as a result of such breach but only to
the extent such damages result in a cash expenditure by one of the National
Parties.
Notwithstanding the foregoing, the Purchase Agreement provides that no
indemnity will be provided by any Purchaser Party to the National MGP with
respect to any Losses arising under the foregoing tax indemnity provisions to
the extent that any such Losses or any portion thereof are attributable to (i)
the Internal Revenue Service determining the National MGP is not a partner with
respect to the Purchaser OLP or the Debt Indemnity is not recognized as an
obligation by the National MGP to make payments with respect to the Indemnified
Debt or reimburse a third party with respect to the Indemnified Debt resulting
in the Indemnified Debt not being allocated to the National MGP under Code
Section 752 or (ii) any merger of the National MGP with or into Triarc or an
affiliate of Triarc, or any transfer of the Acquired Interests prior to the
closing of the Merger permitted by the Purchase Agreement, results in the
recognition by the National MGP, National SGP or any transferee thereof or any
successor thereto of any income or gain for federal income tax purposes, except
in each case to the extent such determination results from the breach by
Purchaser or Purchaser Holdings of any provision of the Purchase Agreement.
Upon the terms and subject to the limits of a guaranty agreement, Columbia
Energy Group has agreed to guarantee the Purchaser Parties' indemnification
obligations for any breaches of the tax-related provisions described in the
first and second paragraphs under 'Agreements with Respect to Tax Matters' above
for a specified maximum amount, which maximum amount declines according to a
schedule over the 15 year term of such guaranty.
The National MGP and the Purchaser agreed in the Purchase Agreement that,
at any time until the expiration of the Debt Indemnity, the fair market value of
the assets of National OLP will be determined in accordance with an appraisal
conducted by a valuation firm (the 'Original Appraiser') prior to closing of the
Merger, performed in a manner consistent with the assumptions and methodologies
used by such firm in its appraisal of the assets upon formation of National OLP;
provided that, if such appraisal places the value of the depreciable and
amortizable assets at less than $117 million, the Purchaser may cause an
appraisal of such assets to be performed by an independent, nationally
recognized appraiser selected by it. If the second appraisal places the value of
such assets at $130 million or less, the National MGP and the Purchaser will,
for all tax and Code Section 704 book purposes, utilize such value. If the
second appraisal places the value of such assets at more than $130 million, the
value placed on such assets by the first appraisal shall be utilized for all tax
and Code Section 704 book purposes. The preliminary appraisal conducted by the
Original Appraiser resulted in a value for such assets at the low end of the
$117-$130 million range, which if confirmed in the final report, would eliminate
the need for a second appraisal.
Consents, Approvals and Filings. The Purchase Agreement provides that each
of the parties thereto will use its commercially reasonable efforts to take, or
cause to be taken, all appropriate action, and to do or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by the Purchase
Agreement, including but not limited to making all required regulatory filings
and applications and obtaining all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental entities or
authorities and parties to contracts as are necessary for the consummation of
the Merger and other transactions contemplated by the Purchase Agreement and to
otherwise fulfill the conditions to the consummation of the Purchase Agreement.
The Purchase Agreement further provides that, during the period from the
date of the Purchase Agreement to the Effective Time, the parties will use
commercially reasonable efforts to obtain any consents necessary to transfer
title to, and shall use their respective commercially reasonable efforts to
transfer title to, any assets used primarily in the business of the National MLP
or the National OLP (whether owned by the National MLP or the National MGP, but
excluding the capital stock of any subsidiaries of the National MGP) including,
but not limited to, any tradenames, intellectual property
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rights, real property rights or personal property rights, from the National MGP,
the National SGP and the National MLP to the National OLP. If any such consents
are not obtained, the National MGP will use its commercially reasonable efforts
to take such other action as may be necessary to provide the Purchaser OLP (as
defined in the Purchase Agreement) with rights to such assets substantially
equivalent to those held by the National MGP, the National SGP and the National
MLP.
The National MGP and Purchaser General Partner also agreed to cooperate in
(a) causing the National MGP, the National MLP and the National OLP to take all
actions necessary to comply with applicable requirements of environmental and
health and safety laws concerning the transfer of property, assets, stock or a
business, (b) effectuating the issuance, assignment or transfer, as promptly as
is reasonably possible on or after the Effective Time, of all licenses or
permits required as of the Effective Time, and (c) identifying, preparing and
filing any notices or reports required from Purchaser General Partner in
connection with the transfer or issuance of the required permits.
Representations and Warranties. The Purchase Agreement contains various
customary representations and warranties of the parties thereto. These include
representations and warranties of the National MLP, the National General
Partners and Triarc with respect to, among other things, the following matters:
(i) organization, existence, powers and qualification, (ii) partnership or
corporate authority to enter into the Purchase Agreement, (iii) the filings of
the National MLP made with the Commission, (iv) the financial statements of the
National MLP, (v) the documents relating to the Offer, (vi) the absence of
certain material adverse changes, (vii) ownership of the Acquired Interests,
(viii) non-contravention of the Purchase Agreement with certain laws, agreements
or orders, (ix) absence of defaults under certain agreements or orders, (x)
completeness of documents provided, (xi) brokerage arrangements, (xii)
undisclosed liabilities, (xiii) absence of certain litigation, (xiv) compliance
with laws, and (xv) certain environmental, labor, insurance, intellectual
property, employee benefits and tax matters.
The Purchaser, Purchaser General Partner and Purchaser Holdings have also
made certain representations and warranties with respect to, among other things,
the following matters: (i) organization, existence, powers and qualification,
(ii) partnership or corporate authority to enter into the Purchase Agreement,
(iii) non-contravention of the Purchase Agreement with certain laws, agreements
or orders, (iv) absence of defaults under certain agreements, (v) the documents
relating to the Offer, (vi) the sufficiency of funds to acquire the Acquired
Interests, and (vii) brokerage arrangements.
Termination of Indemnities and Survival Periods. All obligations of the
National MGP (other than obligations with respect to payments that may become
due as a result of any claims made by any holder of Indemnified Debt prior to
the date of termination) with respect to the Debt Indemnity shall terminate upon
the sale of the Special OLP Interest pursuant to the Put Notice or Call Notice
(both as defined in the Purchase Agreement). None of the representations and
warranties in the Purchase Agreement survive the Acceptance Date, other than
certain representations and warranties concerning (i) organization, existence,
powers, qualification and partnership or corporate authority to enter into the
Purchase Agreement (Sections 3.1 and 3.2 of the Purchase Agreement), which will
survive until April 5, 2000, and (ii) ownership of and title to the Acquired
Interests (Section 3.7 of the Purchase Agreement), which do not terminate. All
covenants, agreements and indemnities contained in the Purchase Agreement which
by their terms are to be performed after the closing of the Merger and the other
transactions shall survive the closing of the Merger.
Access to Information. Under the Purchase Agreement, from the date of the
Purchase Agreement to the Effective Time or until the Purchase Agreement is
terminated as provided therein, each of the National MGP and the National MLP
will provide, and the National MGP will cause the National OLP to provide, to
each of the Purchaser Parties reasonable and prompt access to all of its books,
records (including making copies as reasonably requested), assets, properties,
employees, agents and representatives, and will furnish or cause to be
furnished, as applicable, to each of the Purchaser Parties such information as
any such party may reasonably request, upon prior notice and during normal
business hours, unless that access and disclosure would violate the terms of any
Agreement to which any of the National Parties or the National OLP is bound or
any applicable law or regulation. Each of the Purchaser Parties has agreed,
until the closing of the Merger, to maintain the confidentiality of any
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data or information so acquired in accordance with the terms of an existing
confidentiality agreement between Purchaser Holdings and Triarc.
Information Statement; Agreement to Execute Written Consents. The Purchase
Agreement provides that as soon as practicable following the purchase of all
National Common Units validly tendered and not withdrawn pursuant to the Offer,
if required by applicable law, the National MGP will file an information
statement (i.e., this Information Statement) with the SEC under the Exchange
Act, and will use its commercially reasonable efforts to have the Information
Statement cleared by the SEC. Purchaser General Partner and the National MGP
further agreed to cooperate with each other in the preparation of any
Information Statement, and the National MGP agreed to notify Purchaser General
Partner of the receipt of any comments of the SEC with respect to any
Information Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information and agreed to provide to
Purchaser General Partner promptly copies of all correspondence between the
National MGP or any representative of the National MGP and the SEC.
Under the Purchase Agreement, the Purchaser has agreed to execute a
consent, on the first business day following expiration of twenty calendar days
from the date of mailing of the Information Statement, as the holder of the
majority of the National Common Units, and the National MGP has agreed to so
execute a consent, as the holder of all of the National Subordinated Units, to
approve all of the transactions contemplated by the Purchase Agreement.
Amendment; Binding Effect and Assignment. The Purchase Agreement provides
that no supplement, modification or waiver of the Purchase Agreement will be
binding unless executed in writing by the party to be bound thereby. The parties
agreed that the Purchase Agreement will be binding upon and inure to the benefit
of the parties thereto and their respective successors and permitted assigns;
but neither the Purchase Agreement nor any of the rights, benefits or
obligations thereunder may be assigned, by operation of law or otherwise, by any
party thereto without the prior written consent of either Purchaser General
Partner or the National MGP, as applicable, other than as set forth therein.
Nothing in the Purchase Agreement, express or implied, is intended to confer
upon any person or entity other than the parties thereto and their respective
successors and permitted assigns any rights, benefits or obligations thereunder.
The Payment Guaranty Agreement. Upon the terms and subject to the limits of
a guaranty agreement, Columbia Energy Group has agreed to guarantee the
Purchaser Parties' indemnification obligations for any breaches of the
tax-related provisions described in the first and second paragraphs under
'Agreements with Respect to Tax Matters' above, for a specified maximum amount,
which maximum amount declines according to a schedule over the 15 year term of
such guaranty.
FINANCING THE TRANSACTION
The total amount of funds required by the Purchaser to purchase National
Common Units pursuant to the Offer and to pay for National Common Units
converted into the right to receive cash pursuant to the Merger is estimated to
be approximately $80.4 million. The Purchaser has advised the National MGP that
it paid approximately $71.1 million for the 5,922,454 National Common Units it
purchased at the expiration of the Offer on May 6, 1999. The Purchaser funded
the purchase of the National Common Units made in connection with the Offer with
a capital contribution from the Purchaser General Partner, who in turn received
a capital contribution from Purchaser Holdings and, indirectly, from Columbia
Energy Group. The consideration to be paid to remaining Unitholders in the
Merger, as well as transaction fees and expenses, will be funded in a similar
manner.
PAYMENT FOR THE NATIONAL COMMON UNITS
The Surviving Entity will make available to the Paying Agent, as agent for
the Unitholders of record, as needed, the aggregate amount of cash to be paid in
respect of the National Common Units pursuant to the Merger. Unitholders of
record should use a letter of transmittal to effect the surrender of
certificates in exchange for $12.00 per National Common Unit in cash, without
interest. All certificates so surrendered will be cancelled. Following the
Merger, Unitholders of record will receive
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copies of the letter of transmittal from the Purchaser, and may also obtain
copies of the letter of transmittal through ChaseMellon Shareholder Services,
L.L.C., the Paying Agent.
Upon surrender of a certificate formerly representing National Common
Units, together with a duly executed letter of transmittal, the holder thereof
will receive in exchange for each National Common Unit $12.00 in cash, without
interest. At any time following the first anniversary after the effective time
of the Merger, the Surviving Entity shall be entitled to require the Paying
Agent to deliver to it any funds which have been made available to the Paying
Agent and not disbursed to former holders of National Common Units (including,
without limitation, all interest and other income received by the Paying Agent
in respect of all funds made available to it) and, thereafter, such former
holders shall be entitled to look to the Purchaser (subject to abandoned
property, escheat and other similar laws) only as general creditors thereof with
respect to the $12.00 per former National Common Unit payable upon due surrender
of the certificates held by them.
ACCOUNTING TREATMENT OF THE MERGER
It is expected that the purchase method of accounting will be used to
account for the Merger, upon consummation, in accordance with generally accepted
accounting principles. Under purchase accounting, the assets and liabilities of
the acquired company are recorded at their respective fair market values upon
consummation and added to those of the acquiring company.
DELISTING OF NATIONAL COMMON UNITS
If the Merger is completed, the National Common Units will cease to be
listed on the NYSE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The U.S. Federal income tax discussion set forth below is for general
information only and does not purport to address all aspects of taxation that
may be relevant to a particular Unitholder. This discussion is based upon
existing provisions of the Code, existing regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect as of the
date hereof and all of which are subject to change (possibly with retroactive
effect). This summary does not discuss all aspects of U.S. Federal income
taxation that may be relevant to a particular Unitholder in light of such
Unitholder's specific circumstances or to certain types of Unitholders subject
to special treatment under the U.S. Federal income tax laws including, without
limitation, financial institutions, insurance companies, tax-exempt
organizations and broker dealers. This discussion applies only to Unitholders
for whom the Common Units are held as capital assets within the meaning of Code
section 1221 and does not discuss the U.S. Federal income tax consequences to a
Unitholder who, for U.S. Federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a foreign estate or
trust, nor does it consider the effect of any foreign, state, local or other tax
laws. Each Unitholder should consult such Unitholder's own tax advisor as to the
particular tax consequences to such Unitholder from the sale of its National
Common Units pursuant to the Merger, including the application of the
alternative minimum and U.S. Federal, foreign, state, local and other tax laws.
The following discussion is based on the assumption that the Partnership is
treated as a partnership for U.S. Federal income tax purposes and is not a
'publicly traded partnership' that is taxable as a corporation pursuant to Code
section 7704.
Gain or Loss. A taxable Unitholder will recognize a gain or loss on the
sale of such Unitholder's Common Units pursuant to the Merger in an amount equal
to the difference between (i) the amount realized by such Unitholder on the sale
and (ii) such Unitholder's adjusted tax basis in the National Common Units sold.
The adjusted tax basis in the National Common Units of a Unitholder will depend
upon individual circumstances. (See also 'Partnership Allocations in Year of
Sale' below.) Unitholders should consult with their own tax advisor as to their
adjusted tax basis in their National Common Units and the particular tax
consequences of the sale of the National Common Units pursuant to the Merger to
them.
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Character of Gain or Loss. Except to the extent any gain or loss is
attributable to 'unrealized receivables' or 'inventory items' held by the
National MLP or the National OLP as discussed below, gain or loss recognized by
a Unitholder on a sale of a National Common Unit pursuant to the Merger
generally will be treated as a capital gain or loss. Capital losses are
deductible only to the extent of capital gains, except that noncorporate
taxpayers may deduct up to $3,000 of capital losses in excess of the amount of
their capital gains against ordinary income. Excess capital losses generally can
be carried forward to succeeding years (a corporation's carryforward period is
five years and a non-corporate taxpayer can carry forward such losses
indefinitely); and a corporation is permitted to carry back excess capital
losses to the three preceding taxable years, provided the carryback does not
increase or produce a net operating loss for any of those years.
Character of Gain or Loss Attributable to Unrealized Receivables or
Inventory Items. A portion of the gain or loss upon the sale of National Common
Units pursuant to the Merger may be attributable to 'unrealized receivables' or
'inventory items' held by the National MLP or the National OLP. If any portion
of the amount of gain or loss realized by a Unitholder is attributable to
'unrealized receivables' (which includes certain depreciation recapture) or
'inventory items' as defined in Code section 751, then a portion of the
Unitholder's gain or loss may be ordinary rather than capital. A Unitholder
whose National Common Units are purchased pursuant to the Merger must file an
information statement with such Unitholder's U.S. Federal income tax return for
the year of the sale which provides the information specified in Treasury
Regulation Section 1.751-1(a)(3). That information will be provided by the
National MLP.
Ordinary Income and Capital Gain Tax Rates. The maximum U.S. Federal income
tax rate applicable to capital gains realized by individuals or other
non-corporate taxpayers is 20% for sales of capital assets held for more than
one year. Corporate taxpayers are taxed at a maximum effective U.S. Federal
income tax rate of 35% for both capital gains and ordinary income. The maximum
effective U.S. Federal income tax rate for ordinary income of individuals and
other noncorporate taxpayers is 39.6%. Although it is unclear in the absence of
Treasury Regulations promulgated under Code section 1(h)(11) whether gain from
the sale of a National Common Unit pursuant to the Merger would be subject to
tax at a maximum rate of 25% or 39.6% to the extent such gain would be
attributable to the recapture of depreciation with respect to real property held
by the National MLP (or the National OLP) if the National MLP (or the National
OLP) sold such property at its fair market value, the Joint Committee on
Taxation has stated that the 25% tax rate would be applicable with respect to
such gain. Unitholders are urged to consult with their advisors to determine the
tax rate applicable with respect to gain resulting from the sale of a National
Common Unit pursuant to the Merger.
Passive Activity Loss Limitation. Under Code section 469, a non-corporate
taxpayer or personal service corporation generally can deduct 'passive losses'
attributable to a 'publicly traded partnership' (such as the National MLP) in
any year only to the extent of the person's passive income attributable to such
'publicly traded partnership' for that year. A closely held corporation (other
than personal service corporations) may offset such losses against active income
as well as passive activity income for that year, but not 'portfolio income' as
defined in the Treasury Regulations promulgated under Code section 469. A
portion of any post-1986 losses of Unitholders from the National MLP may have
been passive losses. Thus, Unitholders may have 'suspended' passive losses from
the National MLP. Substantially all gain or loss from a sale of National Common
Units pursuant to the Merger will be passive income or loss.
Any 'suspended' losses and any losses recognized upon the sale of the
National Common Units will be offset first against any other net passive gain to
the Unitholder from the sale of the National Common Units pursuant to the Merger
and any other net passive activity income from other passive activity
investments, and the balance of any 'suspended' net losses from the National
Common Units will no longer be subject to the passive activity loss limitation
and, therefore, will be deductible by such Unitholder from its other income
(subject to any other applicable limitations), including ordinary income.
Partnership Allocations in Year of Sale. A Unitholder will be allocated the
Unitholder's pro rata share of the annual taxable income and losses from the
National MLP, in accordance with the terms and conditions of the National MLP's
partnership agreement, with respect to the National Common Units
43
<PAGE>
sold for the period ending the month that includes the date of sale, even though
such Unitholder will not receive any cash distributions from the National MLP
after the date of sale. Such allocations would affect a Unitholder's adjusted
tax basis in the National Common Units and, therefore, the amount of gain or
loss recognized by the Unitholder on the sale of the National Common Units
pursuant to the Merger.
Backup Withholding. Amounts payable to Unitholders pursuant to the Merger
may be subject to 31% backup withholding unless a Unitholder provides (1) a
correct TIN (which, for an individual holder, is the holder's social security
number) and any other required information to the Paying Agent, or (2) is a
corporation or comes within certain exempt categories and, when required,
demonstrates this fact and otherwise complies with applicable requirements of
the backup withholding rules. A Unitholder may avoid backup withholding by
properly completing and signing the Substitute Form W-9 included as part of the
letter of transmittal. A Unitholder who does not provide a correct TIN may be
subject to penalties imposed by the Internal Revenue Service. If a Unitholder
who is subject to backup withholding does not properly complete and sign the
Substitute Form W-9, the Purchaser will withhold 31% from payments to such
Unitholder. Any amount paid as backup withholding does not constitute an
additional tax and will be creditable against the holder's U.S. Federal income
tax liability. To the extent that amounts are so withheld, such amounts shall be
treated for purposes of the Purchase Agreement as having been paid to such
Unitholder. Each Unitholder should consult with its own tax advisor as to such
Unitholder's qualification for exemption from backup withholding and the
procedure for obtaining such exemption.
PRICE RANGE OF THE NATIONAL COMMON UNITS;
DISTRIBUTIONS ON THE NATIONAL COMMON UNITS
The National Common Units are traded on the NYSE under the symbol 'NPL.'
The following table sets forth, for each of the periods indicated, the high and
low reported sales prices per National Common Unit on the NYSE as reported in
published financial sources.
<TABLE>
<CAPTION>
SALES PRICES
--------------
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter.................................................................... $21 $19 1/4
Second Quarter................................................................... 20 1/2 18 7/8
Third Quarter.................................................................... 22 20 1/8
Fourth Quarter................................................................... 22 7/16 21
1998
First Quarter.................................................................... $23 1/8 $18 1/2
Second Quarter................................................................... 20 7/16 14 3/4
Third Quarter.................................................................... 16 5/16 9 3/16
Fourth Quarter................................................................... 13 1/2 4 1/2
1999
First Quarter.................................................................... $ 7 5/8 $ 4 1/2
Second Quarter (through June 23, 1999)........................................... 12 6 1/4
</TABLE>
On April 5, 1999, the last full day of trading before the public
announcement of the execution of the Purchase Agreement, the reported closing
sale price of the National Common Units on the NYSE was $6 13/16 per National
Common Unit. On April 8, 1999, the last full day of trading before the
commencement of the Offer, the reported last sale price of the National Common
Units on the NYSE was $11 1/2 per National Common Unit. On June 23, 1999, the
last full day of trading before the mailing of this Information Statement, the
reported closing sale price of the National Common Units on the NYSE was $11 3/4
per National Common Unit. UNITHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE NATIONAL COMMON UNITS.
From its inception until the third quarter of 1998, the National MLP
declared quarterly distributions of $0.525 per National Common Unit. On October
21, 1998, the National MLP declared a quarterly distribution for the quarter
ended September 30, 1998, of $0.2625 per National Common Unit
44
<PAGE>
rather than $0.525 per National Common Unit, resulting in an arrearage of
$0.2625 per National Common Unit with respect to such quarter. On January 29,
1999, the National MLP announced that it eliminated its quarterly distribution
for the quarter ended December 31, 1998. This elimination resulted in an
arrearage of an additional $0.525 per National Common Unit with respect to the
quarter ended December 31, 1998. Pursuant to the February Waiver Letter (as
defined above) the National MLP has effectively agreed not to make any
distributions on National Common Units until all amounts outstanding under the
Bank Facility (as defined below) are repaid in full. Under the terms of the
Purchase Agreement, the National MLP is prohibited from declaring, setting aside
or paying any further distributions to Unitholders. Accordingly, no distribution
was declared with respect to the first quarter of 1999 and resulted in an
additional arrearage of $0.525 per National Common Unit.
Neither of the arrearages set forth above nor any quarterly distribution in
respect of any quarter after December 31, 1998, will be paid pursuant to the
terms of the Offer or the Merger.
45
<PAGE>
CERTAIN INFORMATION CONCERNING THE PURCHASER,
PURCHASER GENERAL PARTNER, PURCHASER HOLDINGS AND
COLUMBIA ENERGY GROUP
The Purchaser is a Delaware limited partnership. The Purchaser was
organized to acquire the National MLP and has not conducted any unrelated
activities since its organization. The Purchaser General Partner is a Delaware
corporation, which was organized to be a managing general partner to the
Purchaser and has not conducted any unrelated activities since its organization.
All of the issued and outstanding shares of the Purchaser General Partner are
beneficially owned by Purchaser Holdings. Purchaser Holdings is a Delaware
corporation. Purchaser Holdings sells propane at wholesale and retail in parts
of ten states and the District of Columbia. The principal offices of the
Purchaser, the Purchaser General Partner and Purchaser Holdings are located at
9200 Arboretum Parkway, Suite 140, Richmond, VA 23235. The telephone number of
the Purchaser, the Purchaser General Partner and Purchaser Holdings is (804)
327-1338.
Columbia Energy Group is a Delaware corporation and a registered holding
company under the Public Utility Holding Company Act of 1935, as amended.
Columbia Energy Group and its subsidiaries comprise one of the nation's largest
integrated natural gas systems engaged in natural gas transmission, natural gas
distribution, and exploration for and production of natural gas and oil.
Columbia Energy Group is also engaged in related energy businesses including the
marketing of natural gas and electricity, the generation of electricity and the
distribution of propane. Its principal office is located at 13880 Dulles Corner
Lane, Herndon, Virginia 20171. The telephone number of Columbia Energy Group is
(703) 561-6000.
Set forth below is certain selected consolidated financial information with
respect to Columbia Energy Group, which has been excerpted or derived from
Columbia Energy Group's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 or from Columbia Energy Group's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999. More comprehensive financial information
is included in such reports and other documents filed by Columbia Energy Group
with the SEC, and the following summary is qualified in its entirety by
reference to such reports and other documents and all the financial information
(including any related notes) contained therein. Such reports and other
documents should be available for inspection and copies thereof should be
obtainable in the manner set forth below under 'Available Information on
Columbia Energy Group.'
46
<PAGE>
SELECTED FINANCIAL DATA
COLUMBIA ENERGY GROUP AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------
1999 1998 1997 1996
----------- -------- -------- --------
(UNAUDITED)
(MILLIONS, EXCEPT PER SHARE AMOUNTS OR AS
OTHERWISE NOTED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total net revenues................................................ $ 651.3 $1,897.1 $1,915.5 $1,872.9
Earnings before extraordinary item and accounting changes......... 150.4 269.2 273.3 221.6
Earnings on common stock.......................................... 150.4 269.2 273.3 221.6
PER SHARE DATA*'D'
Earnings per share of common stock:
Before extraordinary item and accounting changes............. $ 1.81 $ 3.23 $ 3.29 $ 2.75
Earnings per share of common stock........................... $ 1.81 $ 3.23 $ 3.29 $ 2.75
Average common shares outstanding (000)...................... 83,244 83,382 83,100 80,681
Diluted earnings per share of common stock:
Before extraordinary item and accounting changes............. $ 1.80 $ 3.21 $ 3.27 $ 2.74
Diluted earnings (loss per share of common stock)............ $ 1.80 $ 3.21 $ 3.27 $ 2.74
Diluted average common shares (000)............................... 83,522 83,748 83,594 80,919
Dividends:
Per share.................................................... $ 0.20 $ 0.77 $ 0.60 $ 0.40
Payout ratio (%)............................................. 11.0 23.8 18.2 14.5
BALANCE SHEET DATA
Capitalization
Common stock equity.......................................... 2,099.3 2,005.3 1,790.7 1,553.6
Long-term debt............................................... 2,003.1 2,003.1 2,003.5 2,003.8
Short-term debt.............................................. -- N/A N/A N/A
Current maturities of long-term debt......................... 0.4 0.4 0.5 0.8
Total................................................... 4,102.8 4,008.8 3,794.7 3,558.2
Total assets............................................ $ 7,232.3 $6,968.7 $6,612.3 $6,004.6
</TABLE>
- ------------
* All per share amounts, average common shares outstanding and diluted average
common shares have been restated to reflect a three-for-two common stock
split, in the form of a stock dividend, effective June 15, 1998.
'D' Three months ended data, except for balance sheet information, which is
reflected as of the end of the quarter.
Available Information on Columbia Energy Group. Columbia Energy Group is
subject to the informational filing requirements of the Exchange Act and, in
accordance therewith, is obligated to file reports and other information with
the SEC relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Columbia Energy Group's
directors and officers, their remuneration, options granted to them, the
principal holders of Columbia Energy Group's securities and any material
interest of such persons in transactions with Columbia Energy Group is disclosed
in proxy statements distributed to Columbia Energy Group's stockholders and
filed with the SEC. Information concerning other events relating to Columbia
Energy Group may be found in its current reports on Form 8-K filed with the SEC.
Such reports, proxy statements and other information should be available for
inspection at the SEC, and copies thereof should be obtainable from the SEC, in
the same manner as set forth with respect to information concerning the National
MLP. Such material should also be available for inspection at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Plans for the Partnership. Upon consummation of the Merger, Purchaser
Holdings and the Purchaser General Partner intend to further review the
Purchaser's (as successor to the Merger with the National MLP) and the Purchaser
OLP's (i.e., the National OLP following the Merger) business, assets,
capitalization and management with a view to optimizing the Purchaser's
potential growth and profitability and will take such actions as they deem
appropriate under the circumstances then existing.
47
<PAGE>
CERTAIN INFORMATION CONCERNING THE NATIONAL MLP
BUSINESS
Introduction
The National MLP is a Delaware limited partnership formed in March 1996 to
acquire, own and operate the business and assets of the National MGP, an
indirect wholly-owned subsidiary of Triarc, through the National OLP, and is
engaged primarily in (i) the retail marketing of propane to residential,
commercial and industrial, and agricultural customers and to dealers that resell
propane to residential and commercial customers and (ii) the retail marketing of
propane-related supplies and equipment, including home and commercial
appliances. The National MLP believes it is the seventh largest retail marketer
of propane in terms of volume in the United States, supplying over 210,000
active retail and wholesale customers in 24 states through its 155 full service
centers located in 23 states. The National MLP's operations are concentrated in
the Midwest, Northeast, Southeast and West regions of the United States. The
retail propane sales volume of the National MLP was approximately 144.3 million
gallons in 1998. In 1998, approximately 41.9% of the National MLP's retail sales
volume was to residential customers, 42.3% was to commercial and industrial
customers, 6.9% was to agricultural customers, and 8.9% was to dealers. Sales to
residential customers in 1998 accounted for approximately 61% of the National
MLP's gross profit on propane sales, reflecting the higher-margin nature of this
segment of the market.
Initial Public Offering
In July 1996 the National MLP completed its IPO. Both the National MLP and
the National SGP contributed substantially all of their assets to the National
OLP (the 'Partnership Conveyance') as a capital contribution and the National
OLP assumed substantially all of their liabilities. The National MLP and the
National SGP then conveyed their limited partner interests in the National OLP
to the National MLP. As a result of such contributions, each of the National MLP
and the National SGP has a 1.0% general partner interest in the National MLP and
a 1.0101% general partner interest in the National OLP. In addition, the
National MLP received in exchange for its contribution to the National MLP
4,533,638 National Subordinated Units and the right to receive certain incentive
distributions. Also immediately prior to the closing of the IPO, the National
MLP issued $125 million aggregate principal amount of First Mortgage Notes to
certain institutional investors in a private placement (the 'Private
Placement'). Concurrently with the closing of the IPO, the National OLP also
entered into the Bank Facility which includes a revolving credit facility to be
used for working capital and other general partnership purposes and an
acquisition facility. On November 7, 1996, the National MLP issued and sold an
additional 400,000 Common Units in a private placement.
Industry Background
Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease of
use relative to alternative stand-alone energy sources. Propane is extracted
from natural gas or oil wellhead gas at processing plants or separated from
crude oil during the refining process. Propane is normally transported and
stored in a liquid state under moderate pressure or refrigeration for economy
and ease of handling in shipping and distribution. When the pressure is released
or the temperature is increased, it is useable as a flammable gas. Propane is
colorless and odorless; an odorant is added to allow its detection. Propane is
clean-burning, producing negligible amounts of pollutants when consumed.
The National MLP's retail customers fall into four broad categories:
residential customers, commercial and industrial customers, agricultural
customers and dealers that resell propane to residential and commercial
customers. Residential customers use propane primarily for space heating, water
heating, cooking and clothes drying. Commercial and industrial customers use
propane for commercial applications such as cooking and clothes drying and
industrial uses such as fueling over-the-road vehicles, forklifts and stationary
engines, firing furnaces, as a cutting gas and in other process
48
<PAGE>
applications. Agricultural customers use propane for tobacco curing, crop
drying, poultry brooding and weed control.
Based upon information provided by the National Propane Gas Association
(the 'NPGA'), a propane trade association, propane accounts for approximately 3%
to 4% of total energy consumption in the United States, an average level that
has remained relatively constant for the past ten years. In addition, propane is
now the world's most widely used alternative fuel for automobiles with
approximately 350,000 and 3.5 million vehicles running on propane in the United
States and worldwide, respectively (according to the NPGA). The National MLP
believes, based on industry publications, that the domestic retail market for
propane is approximately 9.4 billion gallons annually.
Products, Services and Marketing
The National MLP distributes its propane through a nationwide distribution
network integrating 155 full service centers in 23 states. The National MLP's
operations are located primarily in the Midwest, Northeast, Southeast and West
regions of the United States. Typically, service centers are found in suburban
and rural areas where natural gas is not readily available. Generally, such
locations consist of an office and a warehouse and service facility, with one or
more 18,000 to 30,000 gallon storage tanks on the premises. Each service center
is managed by a district or branch manager and also typically employs a customer
service representative, a service technician and one or two bulk truck drivers.
In 1998 the National MLP served over 210,000 active customers. No single
customer accounted for 10% or more of the National MLP's revenues in 1997 or
1998. Generally, the number of customers increases during the fall and winter
and decreases during the spring and summer. Historically, approximately 64% of
the National MLP's retail propane volume has been sold during the six-month
season from October through March, as many customers use propane for heating
purposes. Consequently, sales, gross profits and cash flows from operations are
concentrated in the National MLP's first and fourth fiscal quarters.
Year-to-year demand for propane is affected by the relative severity of the
winter and other climatic conditions. The National MLP believes, however, that
the geographic diversity of its areas of operations can help to reduce its
exposure to regional weather patterns. In addition, retail sales to the
commercial and industrial markets, while affected by economic patterns, are not
as sensitive to variations in weather conditions as sales to residential and
agricultural markets. For information on the impact of annual variations in
weather on the operations of the National MLP, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General.'
Retail deliveries of propane are usually made to customers by means of bulk
and cylinder trucks. Propane is pumped from the bulk truck, which generally
holds 2,800 gallons of propane, into a stationary storage tank on the customer's
premises. The capacity of these tanks usually ranges from approximately 50 to
approximately 1,000 gallons, with a typical tank having a capacity of 250 to 500
gallons. Typically, service centers deliver propane to most of their residential
customers at regular intervals, based on estimates of such customers' usage,
thereby eliminating the customers' need to make affirmative purchase decisions.
The National MLP also delivers propane to retail customers in portable
cylinders, which typically have a capacity of 23.5 gallons. When these cylinders
are delivered to customers, empty cylinders are picked up for replenishment at
the National MLP's distribution locations or are refilled in place. The National
MLP also delivers propane to certain other retail customers, primarily dealers
and large commercial accounts, in larger trucks known as transports, which have
an average capacity of approximately 9,000 gallons. Propane is generally
transported from refineries, pipeline terminals and storage facilities
(including the National MLP's underground storage facilities in Hutchinson,
Kansas and Loco Hills, New Mexico) to the National MLP's bulk plants by a
combination of common carriers, owner-operators, railroad tank cars and, in
certain circumstances, the National MLP's own highway transport fleet.
The National MLP also sells, leases and services equipment related to its
propane distribution business. In the residential market, the National MLP sells
household appliances such as cooking ranges, water heaters, space heaters,
central furnaces and clothes dryers, as well as barbecue equipment
49
<PAGE>
and gas logs. In the industrial market, the National MLP sells propane for use
as forklift truck fuel, in metal cutting and atmospheric furnaces and for
portable heating for construction. In the agricultural market, propane is sold
for use as engine fuel and for chicken brooding and crop drying. The sale of
specialized equipment, service income and rental income represented less than
10% of the National MLP's gross income during fiscal 1998. Parts and appliance
sales, installation and service activities are conducted through NSSI, a
wholly-owned corporate subsidiary of the National OLP.
Propane Supply and Storage
The profitability of the National MLP is dependent upon the price and
availability of propane as well as seasonal and climatic factors. Contracts for
propane are typically made on a year-to-year basis, but the price of the propane
to be delivered depends upon market conditions at the time of delivery.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets, and from time to time the ability to obtain propane at
attractive prices may be limited as a result of market conditions, thus
affecting price levels to all distributors of propane. The National MLP utilizes
a hedging program which is designed to protect margins on fixed price retail
sales and to mitigate the potential impact of sudden wholesale propane price
increases. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- General.'
The National MLP purchased propane from over 50 domestic and Canadian
suppliers during 1998, primarily major oil companies and independent producers
of both gas liquids and oil. The National MLP purchases propane under both term
and spot contracts. In 1998, the National MLP purchased approximately 77% and
23% of its propane supplies from domestic and Canadian suppliers, respectively.
Approximately 95% of propane purchases by the National MLP in 1998 were on a
contractual basis (generally, under one year agreements subject to annual
renewal), but the percentage of contract purchases may vary from year to year as
determined by the National MLP. Supply contracts generally do not lock in prices
but rather provide for pricing in accordance with posted prices at the time of
delivery or the current prices established at major storage points, such as Mont
Belvieu, Texas and Conway, Kansas. The National MLP is not currently a party to
any supply contracts containing 'take or pay' provisions.
Dynegy Liquids Marketing and Trade ('Dynegy') and Conoco Inc. ('Conoco')
each supplied approximately 11% of the National MLP's propane in 1998 and Amoco
Oil Company ('Amoco') supplied approximately 10%. The National MLP believes that
if supplies from Dynegy, Conoco or Amoco were interrupted, it would be able to
secure adequate propane supplies from other sources without a material
disruption of its operations; however, the National MLP believes that the cost
of procuring replacement supplies might be significantly higher, at least on a
short-term basis, which could negatively affect the National MLP's margins. No
other single supplier provided 10% or more of the National MLP's total propane
supply during 1998. Although the National MLP has long-standing relations with a
number of its important suppliers and has generally been able to secure
sufficient propane to meet its customers' needs, no assurance can be given that
supplies of propane will be readily available in the future. The National MLP
expects a sufficient supply to continue to be available during 1999. However,
increased demand for propane in periods of severe cold weather, or otherwise,
could cause future propane supply interruptions or significant volatility in the
price of propane. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General.'
The National MLP owns underground storage facilities in Hutchinson, Kansas
and Loco Hills, New Mexico (the National MLP owns the underground storage space
and leases the real property on which it is located from the state of New
Mexico), leases above ground storage facilities in Crandon, Wisconsin and
Orlando, Florida, and owns or leases smaller storage facilities in other
locations throughout the United States. As of December 31, 1998, the National
MLP's total storage capacity was approximately 33.1 million gallons (including
approximately one million gallons of storage capacity currently leased to third
parties).
50
<PAGE>
Trademarks and Tradenames
The National MLP utilizes several trademarks and tradenames which it owns
in the marketing of its products.
Competition
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruptions in
natural gas service. The expansion of natural gas into traditional propane
markets has historically been inhibited by the capital costs required to expand
distribution and pipeline systems. Although the extension of natural gas
pipelines tends to displace propane distribution in the areas affected, the
National MLP believes that new opportunities for propane sales arise as more
geographically remote neighborhoods are developed.
Propane is generally less expensive to use than electricity for space
heating, water heating, clothes drying and cooking. Although propane is similar
to fuel oil in certain applications, as well as in market demand and price,
propane and fuel oil have generally developed their own distinct geographic
markets, reducing competition between such fuels. Because furnaces and
appliances that burn propane will not operate on fuel oil and vice versa, a
conversion from one fuel to the other requires the installation of new
equipment.
In addition to competing with alternative energy sources, the National MLP
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and generally
occurs on a local basis with other large full-service multi-state propane
marketers, thousands of smaller local independent marketers and farm
cooperatives. Based on industry publications, the National MLP believes that the
domestic retail market for propane is approximately 9.4 billion gallons
annually, that the 10 largest retailers, including the National MLP, account for
approximately 34% of the total retail sales of propane in the United States, and
that no single marketer has a greater than 10% share of the total retail market
in the United States. Most of the National MLP's service centers compete with
several marketers or distributors and certain service centers compete with a
large number of marketers or distributors. Each service center operates in its
own competitive environment because retail marketers tend to locate in close
proximity to customers in order to lower the cost of providing service. The
National MLP's typical service center has an effective marketing radius of
approximately 50 miles. The ability to compete effectively further depends on
the reliability of service, responsiveness to customers and the ability to
maintain competitive prices.
Working Capital
Working capital requirements for the National OLP fluctuate due to the
seasonal nature of its business. Typically, in late summer and fall, inventories
are built up in anticipation of the heating season and are depleted over the
winter months. During the spring and early summer, inventories are at low levels
due to lower demand. Accounts receivable reach their highest levels in the
middle of the winter and are gradually reduced as the volume of propane sold
declines during the spring and summer. Accounts receivable are generally due
within 30 days of delivery. Working capital requirements have generally been met
through cash flow from operations supplemented by advances under a revolving
working capital facility. Pursuant to the February Waiver, the National OLP is
precluded from borrowing additional amounts under the Bank Facility without the
consent of each bank lender. (See also ' -- Recent Developments.')
Government Regulation
The National MLP is subject to various federal, state and local
environmental, health and safety laws and regulations. Generally, these laws
impose limitations on the discharge of pollutants and establish standards for
the handling of solid and hazardous wastes. These laws include the Resource
51
<PAGE>
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act ('CERCLA'), the Clean Air Act, the Occupational
Safety and Health Act, the Emergency Planning and Community Right to Know Act,
the Clean Water Act and comparable state statutes. CERCLA, also known as the
'Superfund' law, imposes joint and several liability without regard to fault or
the legality of the original conduct on certain classes of persons that are
considered to have contributed to the release or threatened release of a
'hazardous substance' into the environment. Propane is not a hazardous substance
within the meaning of CERCLA. However, automotive waste products, such as waste
oil, generated by the National MLP's truck fleet, as well as 'hazardous
substances' disposed of during past operations by third parties on the National
MLP's properties, could subject the National MLP to CERCLA. Such laws and
regulations could result in civil or criminal penalties in cases of
non-compliance or impose liability for remediation costs. Also, third parties
may make claims against owners or operators of properties for personal injuries
and property damage associated with releases of hazardous or toxic substances.
National Fire Protection Association Pamphlets No. 54 and No. 58, which
establish rules and procedures governing the safe handling of propane, or
comparable regulations, have been adopted as the industry standard in all of the
states in which the National MLP operates. In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level. With respect to the transportation of propane by truck, the
National MLP is subject to regulations promulgated under the Federal Motor
Carrier Safety Act. These regulations cover the transportation of hazardous
materials and are administered by the United States Department of
Transportation. The National MLP conducts ongoing training programs to help
ensure that its operations are in compliance with applicable regulations. The
National MLP maintains various permits that are necessary to operate some of its
facilities, some of which may be material to its operations. The National MLP
believes that the procedures currently in effect at all of its facilities for
the handling, storage and distribution of propane are consistent with industry
standards and are in compliance in all material respects with applicable laws
and regulations.
The National MLP and the National OLP are subject to various federal, state
and local laws and regulations governing the transportation, storage and
distribution of propane, and the health and safety of workers, the latter of
which are primarily governed by the Occupational Safety and Health Act and the
regulations promulgated thereunder. On August 18, 1997 the U.S. Department of
Transportation (the 'DOT') published its Final Rule for Continued Operation of
the Present Propane Trucks (the 'Final Rule'). The Final Rule is intended to
address perceived risks during the transfer of propane. As initially proposed,
the Final Rule required certain immediate changes in the National MLP's
operating procedures including retrofitting the National OLP's cargo tanks. The
National MLP believes that, as a result of the substantially completed
negotiated rulemaking involving the DOT, the propane industry and other
interested parties, that it will not incur material increases to its cost of
operations in complying with the Final Rule.
In May 1994, the National MLP was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. The National MLP purchased
the property from a company (the 'Successor') which had purchased the assets of
a utility that had previously owned the property. The National MLP believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, the National MLP
engaged environmental consultants in 1994. Based upon the information compiled
to date, which is not yet complete, it appears the likely remedy will involve
treatment of groundwater and the soil, including installation of a soil cap and,
if necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $0.5 million to $1.7 million. The National MLP will have to agree upon the
final remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. The National MLP has
engaged in discussions of a general nature with the Successor who has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims.
52
<PAGE>
However, the National MLP, if found liable for any of such costs, would still
attempt to recover such costs from the Successor. The National MLP has notified
its insurance carriers of the contamination and the likely incurrence of costs
to undertake remediation and the possibility of related claims. Pursuant to a
lease related to the Wisconsin facility, the ownership of which was not
transferred by the National MGP to the National OLP at the time of the closing
of the Offering, the National MLP has agreed to be liable for any costs of
remediation in excess of amounts received from the Successor and from insurance.
Because the remediation method to be used is unknown, no amount within the cost
ranges provided by the environmental consultants can be determined to be a
better estimate. Thus the National MLP has a remaining accrual of approximately
$0.7 million as of December 31, 1998, all of which was provided in prior years,
for the minimum costs estimated for the anticipated remediation method. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Contingencies.' The ultimate outcome of this matter cannot
presently be determined and the costs of remediation and third-party claims, if
any, may have a material adverse effect on the National MLP's financial
position, results of operations or ability to make the distributions to the
holders of its Common Units and Subordinated Units.
Employees
As of June 22, 1999, the National MGP had approximately 930 full time
employees, of whom 65 were general and administrative (including fleet
maintenance personnel), 21 were sales, 352 were transportation and product
supply and the balance were district employees. In addition, at June 22, 1999,
the National MGP had 41 temporary and part-time employees. Approximately 145 of
such full-time employees are covered by collective bargaining agreements that
expire on various dates in 1999, 2000 and 2001. The National MGP believes that
its relations with both its union and non-union employees are satisfactory.
The National MLP has no employees; however, for certain purposes, such as
workers' compensation claims, employees of the National MGP who are providing
services for the benefit of the National MLP may also be considered to be
employees of the National MLP under applicable state law. The National MGP is
reimbursed by the National MLP entities at cost for all direct and indirect
expenses incurred on behalf of the National MLP entities, including the costs of
compensation and employee benefit plans. See Note 19 of the National MLP's
Consolidated Financial Statements.
PROPERTIES
The National MLP maintains a large number of diverse properties, including
appliance showrooms, maintenance facilities, bulk plants, warehousing space,
garages, storage depots and related distribution equipment and underground space
for gas storage. The National MLP believes that these properties, taken as a
whole, are adequate for its current and foreseeable business needs. The majority
of these properties are owned by the National MLP.
Certain information about the properties of the National MLP as of May 31,
1999 is set forth in the following table.
53
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF STORAGE
DESCRIPTION OF FACILITIES FACILITIES CAPACITY
------------------------- ----------- --------
(IN THOUSANDS
OF GALLONS)
<S> <C> <C>
Service Centers located throughout the United States....... 124 owned
31 leased
----
155 7,723
Remote Storage Facilities.................................. 69 owned
31 leased
----
100 2,201
Above Ground Facilities:
Crandon, Wisconsin(1)................................. 1 leased 241
Orlando, Florida(2)................................... 1 leased 1,020
---- ------
2 1,261
Underground Storage Facilities:
Hutchison, Kansas(3).................................. 1 owned 12,000
Loco Hills, New Mexico(4)............................. 1 leased 10,000
---- ------
2 22,000
-------------
Total............................................ 33,185
-------------
-------------
</TABLE>
- ------------
(1) The National MLP leases the real property from a third party on a
year-to-year basis, and the lease is terminable by either party upon 30
days' notice.
(2) The National MLP leases the real property from a third party pursuant to a
ground lease that terminates on October 31, 2006. The National MLP owns the
storage facility located at such property and leases it to Dynegy Liquids
Marketing and Trade pursuant to an agreement that terminates October 31,
1999 and may be canceled by the National MLP upon 60 days' notice under
certain circumstances.
(3) The National MLP owns the underground storage facility, which, pursuant to
an operating agreement, is operated by a third party that owns the equipment
necessary to use the facility for propane storage. Such operating agreement
may be terminated by either party at the end of any calendar year upon
thirty days' notice.
(4) The National MLP leases the real property from the State of New Mexico
pursuant to a ground lease with a termination date of November 10, 2000,
subject to the National MLP's option to extend the lease for an additional
5-year term.
------------------------
The transportation of propane requires specialized equipment. The trucks
utilized for this purpose carry specialized steel tanks that maintain the
propane in a liquefied state. As of May 31, 1999, the National MLP had a fleet
of 6 transport truck tractors, all of which are owned by the National MLP,
approximately 350 bulk delivery trucks and 369 service and light duty trucks
which are owned by the National MLP and 35 bulk delivery trucks and 37 service
and light duty trucks under operating leases. In addition, as of May 31, 1999,
the National MLP owned approximately 126 cylinder delivery vehicles and 34
automobiles and leased approximately 10 cylinder delivery vehicles and 13
automobiles under operating leases. As of May 31, 1999, the National MLP owned
approximately 210,000 customer storage tanks with typical capacities of 250 to
500 gallons.
The National MLP believes that it has satisfactory title to or valid rights
to use all of its material properties. Substantially all of the National MLP's
assets (other than the assets of NSSI) are pledged to secure the First Mortgage
Notes and indebtedness under the Credit Agreement. In addition, some of the
National MLP's properties are subject to liabilities and leases and immaterial
encumbrances, easements and restrictions, although the National MLP does not
believe that any such burdens will materially interfere with the continued use
by the National MLP of its properties, taken as a whole.
54
<PAGE>
LEGAL PROCEEDINGS
There are a number of lawsuits pending or threatened against National (as
defined below). In general, these lawsuits have arisen in the ordinary course of
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National or as a result of
product defects, business disputes with competitors or similar matters. Of the
pending or threatened matters, a number involve property damage, and several
involve serious personal injuries or deaths and the claims made are for
relatively large amounts. Although any litigation is inherently uncertain, based
on past experience, the information currently available to it and the
availability of insurance coverage in certain matters, the National MGP does not
believe that the pending or threatened litigation of which it is aware will have
a material adverse effect on its results of operations or its financial
condition. Notwithstanding the foregoing, any one of the matters discussed above
or all of these matters taken together may adversely affect the National MLP's
quarterly or annual results of operations and may limit the National MLP's
ability to make distributions to its Unitholders.
In addition, certain contingent liabilities related to the National MLP's
operations were assumed by the National MLP in connection with the Partnership
Conveyance. These contingent liabilities include potential environmental
remediation costs and related claims (primarily costs and claims related to the
coal tar contamination at the National MLP's Marshfield, Wisconsin facility).
The ultimate outcome of the Marshfield matter cannot presently be determined and
the costs of remediation and third party claims, if any, may have a material
adverse effect on the National MLP's financial position, results of operations
or ability to make the distributions to the holders of its Common Units and
Subordinated Units. See 'Business -- Government Regulation.'
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
In connection with the Partnership Conveyance, the National MLP became the
successor to the businesses of the National MGP. Because the Partnership
Conveyance was a transfer (as described in Note 1 to the consolidated financial
statements of the National MLP attached hereto as Annex C) of assets and
liabilities in exchange for partnership interests among a controlled group of
companies, it has been accounted for in a manner similar to a pooling of
interests, resulting in the presentation of the National MLP as the successor to
the continuing businesses of the National MGP. The entity representative of both
the operations of (1) the National MGP prior to the Partnership Conveyance and
(2) the National MLP and the National OLP and its subsidiary subsequent to the
Partnership Conveyance, is referred to as 'National.' Further, the selected
financial data reflect the effects of the June 1995 merger of Public Gas with
and into National.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- ------------------------
1994(a) 1995(a)(b) 1996(a) 1997 1998 1998 1999
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $151,651 $148,983 $ 173,260 $ 165,169 $ 133,982 $ 46,130 $ 45,217
Operating income................ 18,750 14,501 16,188 9,843 6,179 6,921 6,344
Income (loss) before
extraordinary charges......... 12,021 (605) 5,747 3,848 (1,578) 5,534 4,382
Extraordinary charges(c)........ (2,116) -- (2,631) -- -- -- --
Net income (loss)............... 9,905 (605) 3,116 3,848 (1,578) 5,534 4,382
Income (loss) before
extraordinary charge per unit
basic and diluted(d).......... .27 .33 (.13) .47 .37
Total assets.................... 137,581 139,112 196,408 182,509 161,037 170,860 162,283
Long-term debt.................. 98,711 124,266 128,044 138,131 177 137,404 129
Partners' capital
(deficit)/Stockholders'
(deficit)(e).................. (19,502) (48,600) 34,063 13,454 (3,018) 12,947 1,424
Operating Data:
EBITDA(f)................... 28,774 25,146 27,321 22,121 18,293 10,161 9,224
Capital expenditures(g)..... 12,593 11,013 7,868 11,546 8,543 1,906 1,666
Retail propane gallons
sold...................... 152,335 150,141 160,484 155,287 144,341 48,354 52,606
Weighted average number of
units outstanding......... 10,954,753 11,235,188 11,235,188 11,235,188 11,235,188
</TABLE>
(footnotes on next page)
55
<PAGE>
(footnotes from previous page)
(a) Reflects the results of National Propane Corporation and subsidiaries
through June 30, 1996 and of the National MLP, the National OLP and
subsidiary, as successor to the continuing business of the National MGP,
thereafter. On July 2, 1996 (effective July 1, 1996), the National MGP and
a subsidiary conveyed substantially all of their assets and liabilities in
exchange for partnership interests among a controlled group of companies,
which has been accounted for in a manner similar to a pooling of interests.
In July 1996 the National MLP consummated an IPO of 6,301,550 National
Common Units and in November 1996 the National MLP sold an additional
400,000 National Common Units through a private placement (the 'Equity
Private Placement'). See Note 1 to the consolidated financial statements
included elsewhere herein for a further discussion of the basis of
presentation of the consolidated financial statements, the Partnership
Conveyance, the IPO and the Equity Private Placement. See Note 4 to the
consolidated financial statements included elsewhere herein for the
unaudited pro forma operating results for the year ended December 31, 1996
adjusted as if the National MLP had been formed and the Partnership
Conveyance, the IPO and the Equity Private Placement had been completed as
of January 1, 1996.
(b) All of the periods presented above prior to June 29, 1995 have been
restated to reflect the effects of the June 29, 1995 merger (the 'Public
Gas Merger') of Public Gas Company with and into National. Because the
Public Gas Merger was a transfer of assets and liabilities in exchange for
shares among a controlled group of companies, it has been accounted for in
a manner similar to a pooling of interests.
(c) The extraordinary charges primarily represent the write-off of unamortized
deferred financing costs and original issue discount (in the 1994 period),
net of income taxes, associated with the early extinguishment of debt.
(d) Net income per Unit was computed by dividing net income (before an
extraordinary charge for the period July 1, 1996 (see Note (c) above) to
December 31, 1996), after deducting the general partners' interest (100%
through June 30, 1996 and 4% thereafter), by the weighted average number of
units outstanding. Basic and diluted income per unit are the same in 1996
since there were no dilutive securities outstanding and in 1997 and 1998
since potentially dilutive unit options had no effect.
(e) In November 1994, National reclassified its receivable from Triarc as a
component of stockholders' equity which was not conveyed to the National
MLP as part of the July 2, 1996 Partnership Conveyance. Receivables from
SEPSCO were classified as a component of stockholders' equity though June
1995 at which time the aggregate receivables were dividended to SEPSCO.
(f) EBITDA is defined as operating income plus depreciation and amortization
(excluding amortization of deferred financing costs). EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity
or ability to service debt obligations) and is not a measure of performance
or financial condition under generally accepted accounting principles, but
provides additional information for evaluating the National MLP's ability
to distribute the Minimum Quarterly Distribution. Cash flows in accordance
with generally accepted accounting principles consist of cash flows from
(i) operating, (ii) investing and (iii) financing activities. Cash flows
from operating activities reflect net income (loss) (including charges for
interest and income taxes not reflected in EBITDA), adjusted for (i) all
non-cash charges or income (including, but not limited to, depreciation and
amortization) and (ii) changes in operating assets and liabilities (not
reflected in EBITDA). Further, cash flows from investing and financing
activities are not included in EBITDA. For a discussion of National's
operating performance and cash flows provided by (used in) operating,
investing and financing activities, see 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
(g) National's capital expenditures fall generally into three categories: (i)
maintenance capital expenditures, which include expenditures for
replacement of property, plant and equipment, (ii) growth capital
expenditures for the expansion of existing operations and (iii) acquisition
capital
(footnotes continued on next page)
56
<PAGE>
(footnotes continued from previous page)
expenditures, which include expenditures related to the acquisition of
retail propane operations. An analysis by category for the years ended
December 31, 1995, 1996, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997 1998
------- ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Maintenance........................................................... $ 4,030(1) $3,108 $ 2,806 $3,176
Growth................................................................ 4,936 3,922 4,987 5,243
Acquisition........................................................... 2,047(2) 838 3,753 115
------- ------ ------- ------
Total............................................................ $11,013 $7,868 $11,546 $8,534
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
- ------------
(1) Includes the purchase of an airplane for $590,000.
(2) Includes $1,864,000 of assets purchased and contributed by Triarc.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CERTAIN STATEMENTS SET FORTH BELOW UNDER THIS CAPTION CONSTITUTE
'FORWARD-LOOKING STATEMENTS' WITHIN THE MEANING OF THE REFORM ACT. SEE PAGE ONE
FOR ADDITIONAL FACTORS RELATING TO SUCH STATEMENTS.
This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' reflects the results of the National MGP and subsidiaries
through June 30, 1996 and of the National MLP, its subsidiary partnership (the
National OLP) and NSSI (which, together with the National MLP and the National
OLP, the 'National Entities'), as successor to the continuing business of the
National MGP, thereafter. The National MLP was formed on March 13, 1996 to
acquire, own and operate the National MGP's propane business and substantially
all of the related assets of the National MGP. The National MLP's activities are
conducted through the National OLP and NSSI. The entity representative of both
the operations of (i) the National MGP prior to the Partnership Conveyance and
(ii) the National Entities subsequent to the Partnership Conveyance is referred
to herein as 'National.' On July 2, 1996 (effective July 1, 1996), the National
MGP and a subsidiary conveyed substantially all of their propane related assets
and liabilities (other than amounts due from a parent, deferred financing costs
and income tax liabilities) to the National OLP. Because such conveyance was a
transfer of assets and liabilities in exchange for partnership interests among a
controlled group of companies, it has been accounted for in a manner similar to
a pooling of interests. Further, results of operations of the National MGP prior
to June 29, 1995 have been restated to reflect the effects of the June 29, 1995
merger of Public Gas Company ('Public Gas') with and into the National MGP (the
'Public Gas Merger'). Because the Public Gas Merger was a transfer of assets and
liabilities in exchange for shares among a controlled group of companies, it has
been accounted for in a manner similar to a pooling of interests. See Note 1 to
the consolidated financial statements included in Annex C attached hereto for a
further discussion of the basis of presentation of the consolidated financial
statements and the Partnership Conveyance. See also 'Business -- Recent
Developments' and ' -- Liquidity and Capital Resources' for information
regarding the Offer and the National OLP's recent non-compliance with a covenant
under its Bank Facility.
General
National is primarily engaged in (i) the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and to dealers that resell propane to residential and commercial
customers, and (ii) the retail marketing of propane-related supplies and
equipment, including home and commercial appliances. National believes it is the
seventh largest retail marketer of propane in terms of retail volume in the
United States, supplying over 210,000 active retail and wholesale customers in
24 states through its 155 full service centers. National's operations are
concentrated in the Midwest, Northeast, Southeast and West regions of the United
States.
National's residential and commercial customers use propane primarily for
space heating, water heating, clothes drying and cooking. In the industrial
market, propane is used as a motor fuel for over-the-road vehicles, forklifts
and stationary engines, to fire furnaces, as a cutting gas and in other process
applications. Agricultural customers use propane for tobacco curing, crop
drying, poultry brooding and weed control. Dealers re-market propane in small
quantities, primarily in cylinders, for residential and commercial uses.
The retail propane sales volumes are dependent on weather conditions.
National sells approximately 64% of its retail volume during the first and
fourth quarters, which represent the winter heating season. As a result, cash
flow is greatest during the first and fourth quarters as customers pay for their
purchases. Propane sales are also dependent on climatic conditions which may
affect agricultural regions. National believes that its exposure to regional
weather patterns can be lessened because of the geographic diversity of its
areas of operations and through sales to commercial and industrial markets,
which are not as sensitive to variations in weather conditions.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. In addition, gross profit margins vary by geographical
region. Accordingly, profit margins could vary significantly from year to year
in a period of similar sales volumes.
58
<PAGE>
National reports on a calendar year basis; accordingly its results are
affected by two different winter heating seasons: the end of the first year's
heating season, National's first fiscal quarter, and the beginning of the second
heating season, National's fourth fiscal quarter.
Profitability is also affected by the price and availability of propane.
Worldwide availability of both gas liquids and oil affects the supply of propane
in domestic markets. National does not believe it is overly dependent on any one
supplier. National primarily buys propane on both one-year contracts and the
spot market and generally does not enter into any fixed price take-or-pay
contracts. Furthermore, National purchases propane from a wide variety of
sources. In 1998, no provider supplied over 11% of National's propane needs.
Based on demand and weather conditions the price of propane can change
quickly over a short period of time; in most cases the increased cost of propane
is passed on to the customer. However, in cases where increases cannot be passed
on or when the price of propane escalates faster than National's ability to
raise customer prices, margins will be negatively affected. In 1998, however,
propane costs declined and these decreases were passed on to customers to
maintain National's market share and attract new customers.
The propane industry is very competitive. National competes against other
major propane companies as well as local marketers in most of its markets, with
the highest concentration of competitors in the Midwest United States. Propane
also competes against other energy sources, primarily natural gas, oil and
electricity.
The following discussion compares the results of operations for the three
months ended March 31, 1999 with the three months ended March 31, 1998, the year
ended December 31, 1998 with the year ended December 31, 1997, and the year
ended December 31, 1997 with the year ended December 31, 1996.
Recent Developments
In connection with the Offer, the National OLP, the National MGP, the
National SGP and the holders of the First Mortgage Notes (the 'Noteholders')
amended the First Mortgage Notes to provide for, among other things,
modifications to the premium payable to such noteholders in connection with the
prepayment of the First Mortgage Notes pursuant to the Offer.
At December 31, 1998 and March 31, 1999, the National OLP was not in
compliance with a covenant under its bank credit facility (the 'Bank Facility').
Pursuant to the February Waiver Letter (as defined above), the National OLP
received an unconditional waiver from the lenders under its Bank Facility (the
'Lenders') with respect to the non-compliance as of December 31, 1998, and a
conditional waiver with respect to any future non-compliance with such covenant
through August 31, 1999. There are certain conditions to the waiver of future
non-compliance under the February Waiver Letter including, among others,
consummation of the sale of the partnership and the repayment of all amounts
outstanding under the Bank Facility, both by September 30, 1999. In addition,
the February Waiver Letter prohibits the National MLP from making any future
distributions to Unitholders until all outstanding indebtedness under its Bank
Facility is repaid in full. Should the conditions not be met or the February
Waiver Letter expire, and the National OLP be in default of its Bank Facility,
the National OLP would also be in default on its First Mortgage Notes by virtue
of cross-default provisions. In accordance with the February Waiver Letter, the
Lenders have unconditionally waived non-compliance with the covenant at March
31, 1999. As a result of the projected covenant non-compliance, the conditions
of the February Waiver Letter, and the cross-default provisions of the First
Mortgage Notes, the National MLP has classified all of the debt under the Bank
Facility and the First Mortgage Notes having a principal balance of $16.0
million and $125.0 million, respectively, at March 31, 1999, as a current
liability. Further, in accordance with the terms of the February Waiver Letter,
no additional borrowings are available to the National OLP under the Bank
Facility.
The National MLP's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its debt agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. To successfully achieve these objectives, the National
MLP believes its sale
59
<PAGE>
is the most viable alternative. If the sale is not consummated and the Lenders
are unwilling to extend or modify the February Waiver Letter, (i) the National
MLP could seek to otherwise refinance its indebtedness, (ii) the National MGP
might consider buying the bank's loans to the National MLP ($16.0 million
principal amount outstanding at March 31, 1999), (iii) the National MLP could
pursue other potential purchasers of the National MLP, or (iv) the National MLP
could be forced to seek protection under Federal bankruptcy laws. In such latter
event, the National MGP may be required to honor its guarantee of the National
MLP's debt under the Bank Facility and the First Mortgage Notes.
Results of Operations for the Three Months Ended March 31, 1999 Compared with
Three Months Ended March 31, 1998
Revenues decreased $0.9 million, or 2.0%, to $45.2 million in the three
months ended March 31, 1999 as compared to $46.1 million for the three months
ended March 31, 1998 with propane revenues decreasing $1.4 million, or 3.2% to
$42.6 million for the three months ended March 31, 1999 compared with $44.0
million in 1998 and revenues from appliance and other product lines increasing
$0.5 million. The $1.4 million decrease in propane revenues is a result of
decreased average selling prices ($5.3 million) due to lower product costs
partially offset by increased volumes ($3.9 million). Propane retail gallons
sold increased 4.2 million gallons, or 8.7%, to 52.6 million gallons in the
first quarter of 1999, compared to 48.4 million gallons in the first quarter of
1998. This increase in gallons sold is primarily attributable to an increase in
residential customers sales due to the fact that the three months ended March
31, 1999 were 6.0% colder than the same period in 1998 according to Degree Day
data published by the National Climatic Data Center as applied to the geographic
regions of the National MLP's operations.
Gross profit increased $1.5 million, or 11.2%, to $14.9 million in the
three months ended March 31, 1999 as compared to $13.4 million in the comparable
three months of 1998. The gross profit increase is attributable to the effect of
higher propane sales volumes in the 1999 period ($2.0 million) and an increase
in other gross profit from other product lines ($0.3 million) partially offset
by a 3.5% decrease in the average margin per gallon (the spread between the
sales price and the direct product cost) ($0.8 million). The increase in gross
profit as a percentage of sales, from 29.1%, to 32.9%, is primarily the result
of the average dollar margin per gallon decreasing 3.5% from period to period
while the average sales price per gallon decreased $.10 per gallon or 11.1%, due
to lower propane costs.
Selling, general and administrative expenses increased $2.0 million, or
30.8%, to $8.5 million in the three months ended March 31, 1999 from $6.5
million in 1998. The increase is attributable to legal and professional fees
associated with the sale of the National MLP.
Interest expense decreased $0.1 million, or 3.0%, to $3.2 million in the
three months ended March 31, 1999 as compared to $3.3 million in the comparable
three months of 1998 due to lower average borrowings and lower average interest
rates in the 1999 period.
Interest income from Triarc decreased $0.4 million, or 28.6%, to $1.0
million in the three months ended March 31, 1999 as compared to $1.4 million in
the comparable three months of 1998 due to $10.0 million principal repayments on
the Triarc Note received in the third quarter of 1998.
Other income, net decreased $0.4 million to $0.2 million in the three
months ended March 31, 1999 as compared to $0.6 million during the same period
in 1998 due primarily to lower gains on the sales of properties in the 1999
first quarter.
The provision for income taxes, which relates primarily to the pre-tax
income of NSSI, was relatively unchanged.
Results of Operations for Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997
Revenues. Revenues declined $31.2 million, or 18.9% to $134.0 million for
the year ended December 31, 1998 as compared with $165.2 million for the year
ended December 31, 1997. This decrease consists of a $31.5 million, or 20.4%,
decrease in propane revenues partially offset by a $0.3 million, or 3.4%,
increase in revenues from other product lines. The $31.5 million decrease in
propane
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revenues was due to decreased selling prices ($20.6 million) and volume
decreases ($10.9 million). National's propane sales volume decreased 11.0
million gallons, or 7.1% in 1998 to 144.3 million gallons compared with 155.3
million gallons in 1997 reflecting a decrease of 13.4 million gallons sold to
existing customers. This decrease in sales to existing customers was partially
offset by an increase of 2.4 million gallons due to the acquisition of a propane
distributor in 1998 and the full year effect of six acquisitions in 1997. This
decrease in gallons sold is primarily attributable to a decrease in sales to
residential customers for heating purposes in 1998 due to the fact that the year
ended December 31, 1998 was 14.4% warmer than the year ended December 31, 1997
according to Degree Day data, published by the National Climatic Data Center, as
applied to the geographic regions of National's operations and to a lesser
extent, the loss of customers.
Gross Profit. Gross profit declined $2.1 million, or 6.1%, to $32.4 million
in 1998 compared with $34.5 million in 1997. The gross profit decrease is
attributable to lower propane sales volume in 1998 compared with 1997 ($5.2
million), partially offset by an increase in average margin per gallon (the
spread between the sales price and the direct product cost) ($0.2 million) and a
decrease in operating expenses attributable to revenues ($2.9 million). The
increase in the average margin per gallon is primarily the result of more
favorable supply costs during 1998. Operating expenses attributable to revenues
decreased $2.9 million, or 6.1%, to $44.4 million in 1998 compared to $47.3
million in 1997 due to a non-recurring charge of $1.1 million for severance
benefits in the fourth quarter of 1997, and decreased (i) insurance costs in
1998 due to better experience ($0.8 million), (ii) depreciation expense in 1998
due to sales of properties and assets becoming fully depreciated ($0.7 million),
(iii) expenditures for equipment repairs in 1998 ($0.5 million), (iv) vehicle
fuel costs in 1998 due to lower fuel prices ($0.5 million), and (v) vehicle
repairs and maintenance costs in 1998 due to a newer fleet ($0.5 million)
partially offset by higher 1998 payroll and employee benefit expenses ($1.2
million).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million, or 6.5%, to $26.2 million in
1998 compared with $24.6 million in 1997. The increase is primarily attributable
to the 1998 full period effect of 1997 acquisitions of propane distributorships,
increased legal fees, and vehicle operating lease expense for 1998 fleet
additions.
Interest Expense. Interest expense increased $1.2 million, or 9.5%, to
$13.8 million in 1998 compared with $12.6 million in 1997. This increase was due
to the amortization of fees incurred in connection with the execution of
amendments to the National MLP's Bank Facility and First Mortgage Notes in 1998
($0.9 million) in addition to higher average borrowings in 1998, partially
offset by lower average interest rates.
Interest Income from Triarc. Interest income from Triarc decreased $0.5
million, or 9.0%, to $5.0 million in 1998 compared with $5.5 million in 1997 due
to the receipt of $10.0 million of principal prepayments on the Triarc Note
received in the third quarter of 1998 (see 'Liquidity and Capital Resources').
Other Income, Net. Other income, net increased $0.1 million due to an
increase in gains on the sale of properties in 1998 partially offset by lower
rent and investment income and increased non-operating expenses.
Provision for Income Taxes. The provision for income taxes, which relates
primarily to the pre-tax income of NSSI, increased $0.2 million due to higher
NSSI taxable income.
Results of Operations for Year Ended December 31, 1997 Compared to Year Ended
December 31, 1996
Revenues. Revenues declined $8.1 million, or 4.7%, to $165.2 million for
the year ended December 31, 1997 as compared with $173.3 million for the year
ended December 31, 1996. This decrease consists of a $7.0 million, or 4.3%,
decrease in propane revenues and a $1.1 million, or 9.1%, decrease in revenues
from other product lines. The $7.0 million decrease in propane revenues was due
to volume decreases ($5.2 million) and decreased selling prices ($1.8 million).
National's propane sales volume decreased 5.2 million gallons, or 3.2% in 1997
to 155.3 million gallons compared with 160.5 million gallons in 1996 reflecting
a decrease of 10.4 million gallons sold to existing customers, primarily
residential. This decrease in sales to existing customers was partially offset
by an increase of 5.2 million
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gallons sold due to the acquisition of six propane distributorships in 1997 and
the full-year effect of two acquisitions in the second half of 1996 (3.8 million
gallons) and the opening of five new service centers in 1997 (1.4 million
gallons). This propane sales volume decrease to residential customers is a
result of the winter season in the first half of 1997 being 6.8% warmer than the
winter season in the first half of 1996 according to Degree Day data, published
by the National Climatic Data Center, as applied to the geographic regions of
National's operations. In addition, record high product cost caused customers to
conserve in their use of propane and to shop for lower prices, resulting in some
residential customer turnover and losses. The decrease in selling prices is due
to a shift in the customer mix toward lower-priced non-residential accounts and
lower product cost. Revenues from other product lines decreased $1.1 million due
to (i) decreased terminal sublease income due to the warm winter season, (ii)
decreased equipment rental charges in certain market areas due to competitive
conditions and (iii) decreased appliance sales.
Gross Profit. Gross profit declined $6.1 million, or 15.0%, to $34.5
million in 1997 compared with $40.6 million in 1996. The gross profit decrease
is attributable to (i) lower propane sales volume in 1997 compared with 1996
($2.5 million), (ii) a decrease in average margin per gallon (the spread between
the sales price and the direct product cost) ($0.2 million), (iii) an increase
in operating expenses attributable to revenues ($2.6 million) and (iv) a
decrease in other gross profit from other product lines ($0.8 million). The
decrease in the average margin per gallon is due to a shift in the customer mix
toward lower-margin non-residential customers ($1.9 million) partially offset by
increased average margin per gallon as the cost of propane declined during 1997
($1.7 million). Operating expenses attributable to revenues increased $2.6
million, or 5.8%, to $47.3 million in 1997 compared to $44.7 million in 1996 due
to a non-recurring charge of $1.1 million for severance benefits in the fourth
quarter of 1997 and increases in payroll, vehicle and depreciation expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 7.4%, to $24.6 million in
1997 compared with $22.9 million in 1996. The increase is primarily a result of
increased professional fees, amortization of intangibles due to the six propane
distributorships acquired during 1997 and the 1997 full year effect of the
stand-alone operating costs incurred by the National MLP partially offset by
decreases in advertising and provision for doubtful accounts.
Management Fees. Management fees formerly paid to Triarc were eliminated
upon the commencement of the operations of the National MLP and the Partnership
Conveyance on July 2, 1996.
Interest Expense. Interest expense increased $0.5 million, or 4.2%, to
$12.6 million in 1997 compared with $12.1 million in 1996. This increase was due
to higher average borrowings, primarily for acquisitions, partially offset by
lower average interest rates.
Interest Income from Triarc. Interest income from Triarc increased $2.7
million, or 99.5%, to $5.5 million in 1997 compared with $2.8 million in 1996
due to the full year effect of interest on the National OLP Loan.
Other Income, Net. Other income, net increased $0.4 million due to an
increase in gains on asset sales.
Provision for Income Taxes. The National Entities are not tax paying
entities except for NSSI. As such, the 1996 provision for income taxes relates
primarily to National's operations prior to the Partnership Conveyance. The
provision for income taxes for the second half of 1996 and the year ended
December 31, 1997 does not reflect a tax provision relating to the earnings of
the National MLP and the National OLP.
Extraordinary Charge. The extraordinary charge of $2.6 million in 1996 is
the result of the early extinguishment of $128.5 million of existing
indebtedness and consists of the write-off of deferred financing costs of $4.1
million and prepayment penalties of $0.2 million, net of income tax benefit of
$1.7 million.
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Liquidity and Capital Resources as of March 31, 1999
National's cash and cash equivalents (collectively 'Cash') increased $5.1
million during the three-month period ended March 31, 1999. This increase
reflected cash provided by operating activities of $7.3 million partially offset
by cash used in investing activities of $1.5 million and cash used in financing
activities of $0.7 million.
Cash flows provided by operating activities of $7.3 million in the 1999
period consisted of net income of $4.4 million and net non-cash charges of $3.3
million, principally depreciation and amortization, partially offset by $0.4
million of cash used for an increase in working capital. The change in working
capital is primarily made up of seasonal increases in receivables of $2.4
million and decreases in inventories of $1.6 million.
Cash used in investing activities of $1.5 million during the three month
period ended March 31, 1999 included capital expenditures of $1.7 million
partially offset by proceeds from the sales of properties of $0.2 million. Of
the capital expenditure amount for 1999, $0.3 million was for recurring
maintenance and $1.4 million was to support growth of operations. National has
forecasted maintenance capital expenditures and growth capital expenditures for
the remainder of 1999 of approximately $1.5 million and $1.6 million,
respectively, subject to the availability of cash and other financing sources.
National has outstanding commitments amounting to $0.7 million for such capital
expenditures as of March 31, 1999 which consists of $0.2 million for maintenance
capital expenditures and $0.5 for growth capital expenditures. National made one
insignificant propane distributor acquisition during the first quarter of 1999
and since it no longer has an acquisition credit facility does not anticipate
making any significant business acquisitions during the remainder of 1999.
Cash used in financing activities during the three-month period ending
March 31, 1999 reflects debt repayments of $0.7 million.
The Bank Facility provided for an acquisition facility (the 'Acquisition
Facility') and a working capital facility (the 'Working Capital Facility'). As
of March 31, 1999 National had $13.0 million and $3.0 million of outstanding
borrowings under the Acquisition Facility and Working Capital Facility. As
disclosed above, all amounts outstanding under the Bank Facility are classified
as current liabilities in accordance with terms of the February Waiver Letter
and no additional borrowings under the Bank Facility are available to National
without the consent of each Lender. The Working Capital Facility, as amended, is
due in full in July 1999. The original repayment terms of the Acquisition
Facility, as amended, were approximately $1.1 million per quarter beginning in
the third quarter of 1999. The original repayment terms of the First Mortgage
Notes required equal annual installments of approximately $15.6 million
commencing 2003 and ending 2010.
The National MLP did not declare a distribution with respect to the fourth
quarter of 1998 (which would have been paid in the first quarter of 1999) since
it was in violation of certain of its debt covenants under the Bank Facility as
previously discussed and as a result was prohibited from making any such
distribution. The February Waiver Letter prohibits any further distributions to
all Unitholders until all outstanding indebtedness under the Bank Facility is
repaid in full. Additionally, under the terms of the Purchase Agreement, the
National MLP is prohibited from paying any further distributions to Unitholders
without the prior written consent of the Purchaser General Partner, which
consent the Purchaser General Partner has advised it intends not to give. None
of the arrearages with respect to any previous quarter will be paid in
connection with the Merger and pursuant to the terms of the Purchase Agreement.
Accordingly, no distribution was declared with respect to the first quarter of
1999. Under the terms of the Partnership Agreement, each National Common Unit
has an arrearage of $0.2625, $0.525 and $0.525 per National Common Unit related
to the third and fourth quarters of 1998 and the first quarter of 1999,
respectively, for an aggregate of $8,796,000. Cash distributions on the National
Common and Subordinated Units and the General Partners' Interest are not
guaranteed, will depend on future National MLP operating performance and will be
affected by among other things, the funding of reserves, operating and capital
expenditures and requirements under the National OLP's debt agreements and the
Purchase Agreement. Accordingly, there can be no assurance that the National MLP
will be able to pay any such future distributions.
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Liquidity and Capital Resources as of December 31, 1998
Cash flows from operating activities of $17.1 million in 1998 consisted of
(i) non-cash charges of $12.3 million, principally depreciation and amortization
and (ii) a net $6.4 million decrease in cash flows from changes in operating
assets and liabilities, partially offset by a net loss of $1.6 million. The
decrease in net operating assets and liabilities is primarily due to lower
propane sales volumes and lower prices which caused decreased levels of accounts
receivable and inventories.
Cash provided by investing activities for 1998 of $3.5 million included
$10.0 million of principal prepayments received on the Triarc Note discussed
below and $2.3 million in proceeds from the sale of properties partially offset
by capital expenditures of $8.4 million and business acquisitions of $0.4
million. Of the capital expenditures amount, $5.2 million was to support the
growth of operations, and $3.2 million was for recurring maintenance capital to
support current business levels. National expects to have total capital
expenditures in 1999 of approximately $4.8 million consisting of $1.8 million
for maintenance and $3.0 million for growth. Such capital expenditures will be
funded by cash flow from operations and interest income on the Triarc Note. At
December 31, 1998 National had outstanding commitments of $0.4 million for such
capital expenditures. During 1998 National acquired the assets of a propane
distributor for an aggregate of $0.4 million of cash.
Cash used in financing activities of $20.7 million in 1998 consisted of
distributions paid to unitholders of $15.3 million and net repayments of
long-term debt of $5.4 million.
Total partners' deficit at December 31, 1998 was $3.0 million as compared
with total partners' capital of $13.5 million at December 31, 1997. The decrease
of $16.5 million principally reflects distributions paid of $15.3 million and
net loss of the National MLP of $1.6 million partially offset by $0.4 million of
amortization of unearned compensation on below market unit options.
In connection with the Offer, the National OLP, the National MGP, the
National SGP and the Noteholders amended the Note Agreements governing the First
Mortgage Notes to provide for, among other things, modifications to the premium
payable to such noteholders in connection with the prepayment of the First
Mortgage Notes pursuant to the Offer. Also in connection with the Offer, the
National MLP incurred certain financial advisory, legal and other fees and
expenses of up to $2.0 million in the first half of 1999.
At December 31, 1998 the National OLP was not in compliance with a covenant
under its Bank Facility and was forecasting non-compliance with the same
covenant as of March 31, 1999. Pursuant to the February Waiver Letter, the
National OLP received an unconditional waiver of such non-compliance from the
Lenders with respect to the non-compliance as of December 31, 1998, and a
conditional waiver with respect to any future non-compliance with such covenant
through August 31, 1999. A number of the conditions to the February Waiver
Letter of future noncompliance are directly related to the sale of the National
MLP. Should the conditions not be met or the February Waiver Letter expire, and
the National OLP be in default of its Bank Facility, the National OLP would also
be in default of its First Mortgage Notes by virtue of cross-default provisions.
As a result of the forecasted non-compliance, the conditions of the February
Waiver Letter, and the cross-default provisions of the First Mortgage Notes, the
National MLP has classified all of the debt under the Bank Facility ($16.0
million) and the First Mortgage Notes ($125.0 million) as a current liability as
of December 31, 1998. In addition, as a result of the forecasted non-compliance,
the conditional nature of the February Waiver Letter of future non-compliance,
and the fact that the sale of the National MLP may not be consummated, the
National MLP's independent auditors' report on the National MLP's financial
statements for the year ended December 31, 1998 contains an explanatory
paragraph concerning substantial doubt as to the National MLP's ability to
continue as a going concern. If the sale of the National MLP is not consummated
and the Lenders are unwilling to extend or modify the February Waiver, (i) the
National OLP could seek to otherwise refinance its indebtedness, (ii) the
National MGP might consider buying the banks' loans to the National OLP ($16.0
million principal amount outstanding at December 31, 1998), (iii) the National
MLP could pursue other potential purchasers of the National MLP, or (iv) the
National MLP could be forced to seek protection under Federal bankruptcy laws.
In such latter event, the National MGP may be required to honor its guarantee of
the National MLP's debt under the Bank Facility and the First Mortgage Notes.
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Effective with amendments executed effective June 30, 1998, the National
MLP's Bank Facility provided for the $10.0 million (reduced from $15.0 million)
Working Capital Facility to be used for working capital and other general
partnership purposes. At December 31, 1998, $3.0 million was outstanding under
the Working Capital Facility. Further, in accordance with the amendments, the
$20.0 million Acquisition Facility under the Bank Facility, the use of which was
restricted to business acquisitions and capital expenditures for growth, was
permanently reduced to the approximately $13.0 million outstanding as of June
30, 1998. As described above, all amounts outstanding under the Bank Facility
are classified as current liabilities in accordance with terms of the February
Waiver Letter and no additional borrowings under the Bank Facility are available
to the National OLP without the consent of each bank lender. The original
repayment terms of the Acquisition Facility, as amended, were approximately $1.1
million per quarter beginning in the third quarter of 1999. Original repayment
terms of the First Mortgage Notes required equal annual installments of
approximately $15.6 million commencing 2003 through 2010.
As of June 30, 1998, the National OLP was not in compliance with certain
covenants of its Bank Facility agreement (the 'Agreement'). The Agreement was
amended (the 'Agreement Amendment') as of such date to, among other things,
permit principal prepayment (the 'Triarc Note Prepayments') of up to $10.0
million by Triarc through February 14, 1999 on the Triarc Note and, to the
extent not utilized for distributions (see below), to permit any such
prepayments to be included in the determination of consolidated cash flow, as
defined under the Agreement ('Consolidated Cash Flow') for purposes of
compliance with certain leverage and interest coverage ratio requirements for a
period of twelve consecutive months commencing June 30, 1998 for the initial
$7.0 million Triarc Note Prepayments and from the date of payment on the $3.0
million Triarc Note Prepayment (see below). Further, the National OLP must have
sufficient interest coverage through consolidated cash flow, as defined under
the indenture (the 'Indenture') pursuant to which the First Mortgage Notes were
issued, in order to pay distributions. Effective June 30, 1998 the Indenture was
amended (the 'Indenture Amendment' and collectively with the Agreement
Amendment, the 'Amendments') to, among other things, (i) permit the Triarc Note
Prepayments, (ii) effectively permit up to $6.0 million of any such prepayments
to be utilized to pay distributions to Unitholders with a proportionate amount
for the General Partners' Interest with respect to distributions for the second,
third and fourth quarters of 1998 only and (iii) amend the definition of
consolidated cash flow to include interest income received by the National OLP
on the Triarc Note through December 31, 1998 for interest coverage purposes
thereby facilitating the National MLP's ability to pay distributions. (See
further discussion below regarding future Partnership distributions, including
the National MLP's ability to reduce available cash by making appropriate
reserves having the effect of reducing the amount of distributions to
Unitholders and contractual restrictions under the Purchase Agreement.) The
Triarc Note was amended to, among other things, permit Triarc, at its option, to
make Triarc Note Prepayments up to $10.0 million of the principal thereof
through February 14, 1999. On August 7, 1998, Triarc made a principal prepayment
of $7.0 million on the Triarc Note of which approximately $3.3 million was
included as Consolidated Cash Flow under the Agreement in order to retroactively
cure the noncompliance with the Agreement at June 30, 1998, and approximately
$3.7 million was used to permit the National MLP to declare its distribution for
the quarter ended June 30, 1998 (see further discussion below). On September 30,
1998, Triarc prepaid the remaining permitted principal of $3.0 million. The
remaining principal balance of the Triarc Note of $30.7 million is due
approximately $0.2 million in 2004 and six equal annual installments of
approximately $5.1 million commencing in 2005 through 2010. A portion of the
Triarc Note (approximately $14.9 million) is to be repaid and the balance
(approximately $15.8 million) forgiven in connection with the National MLP Sale.
(See 'Business -- Recent Developments.') The original terms of the Bank
Facility, the First Mortgage Notes and the Triarc Note are further described in
Notes 10 and 13 to the consolidated financial statements contained in Annex C to
this Information Statement.
The National OLP incurred fees of approximately $0.9 million in connection
with the execution of the Amendments. Such fees were amortized to interest
expense ratably over the third and fourth quarters of 1998.
The National OLP's obligations under both the First Mortgage Notes and the
Bank Facility are secured on an equal and ratable basis by substantially all of
the assets of the National OLP and are guaranteed by the National MGP.
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Other than any possible payments that may be required on the First Mortgage
Notes and the Bank Facility as discussed above, the National OLP's principal
cash requirements for 1999 are maintenance capital expenditures (currently
budgeted at $1.8 million for the year ending December 31, 1999), funds for
growth capital expenditures (currently budgeted at $3.0 million for the year
ending December 31, 1999), and payments required under the Bank Facility. The
National OLP expects to meet such requirements through a combination of cash
flows from operations and the $4.1 million of interest income on the National
MLP Loan.
Prior to the execution of the February Waiver Letter discussed above which
prohibits the payment of any distributions to the Unitholders until all
outstanding indebtedness under the Bank Facility is repaid in full, partnership
distributions were made from available cash ('Available Cash') as defined in the
National MLP Partnership Agreement, the Agreement and the Indenture and as
amended by the Agreement Amendment and the Indenture Amendment. Under the terms
of the National MLP Partnership Agreement, the National MLP must distribute 100%
of its Available Cash within 45 days of the end of each fiscal quarter.
Available Cash under the National MLP Partnership Agreement generally means with
respect to any quarter of the National MLP, all cash on hand at the end of such
quarter less the amount of cash reserves that is necessary or appropriate in the
discretion of the National MGP to (i) provide for the proper conduct of the
National MLP's business, (ii) comply with applicable law or any National MLP
debt instrument or other agreement, or (iii) provide funds for distributions to
Unitholders and the General Partners in respect of any one or more of the next
four quarters (see Note 11 to the consolidated financial statements contained in
Annex C to this Information Statement for a more detailed discussion of
Available Cash). Under the Agreement Amendment executed effective June 30, 1998,
Available Cash is supplemented by any Triarc Note Prepayments and may be
utilized to pay distributions to the extent such Triarc Note Prepayments are not
required to be included in Consolidated Cash Flow for the National MLP to be in
compliance with the Agreement. However, under the Indenture Amendment, which is
more restrictive as to the determination of Available Cash, Available Cash is
supplemented by up to only $6.0 million of Triarc Note Prepayments. The National
MLP declared and paid quarterly distributions of $0.525 per common unit with a
proportionate amount for the 4% General Partners' Interest during each of the
first three quarters of 1998, aggregating approximately $3.7 million for each
distribution. The distribution during the third quarter paid with respect to the
second quarter utilized the aforementioned $3.7 million of the August 7, 1998
Triarc Note Prepayment. On October 21, 1998 the National MLP declared a
quarterly distribution for the quarter ended September 30, 1998 of $0.2625 per
Common Unit to Unitholders of record on November 6, 1998 paid on November 13,
1998, with a proportionate amount for the General Partners' Interest, or an
aggregate of approximately $1.8 million including approximately $0.1 million to
the General Partners related to the General Partners' Interest. This
distribution represented a 50% reduction from previous quarters. After a careful
evaluation of the National MLP's recent financial results, the National Board
concluded that a reduced distribution was necessary to maintain financial
flexibility in future quarters. With respect to the fourth quarter of 1998, the
National MLP was in violation of certain of its debt covenants under the Bank
Facility as previously discussed and as such, was prohibited under its debt
agreement from making any distribution in respect of the fourth quarter of 1998.
Furthermore, the February Waiver Letter prohibits any further distributions to
Unitholders until all outstanding indebtedness under the Bank Facility has been
repaid in full. In addition, under the terms of the Purchase Agreement, prior to
the closing of the Merger, the National MLP must obtain the prior written
consent of the Purchaser General Partner before taking certain specified
actions, including the following: (a) the payment of distributions to any
Unitholders, (b) incurring indebtedness, except for working capital borrowings
of up to $1.0 million or (c) making capital expenditures in excess of $1.0
million in the aggregate. Accordingly, no distributions were declared with
respect to the first quarter of 1999. Under the terms of the National MLP
Partnership Agreement, the Common Units have arrearages of $0.2625, $0.525 and
$0.525 per Common Unit related to the third and fourth quarter distributions of
1998 and the first quarter distribution of 1999, respectively, for an aggregate
of approximately $8.8 million. The last distribution for Subordinated Units was
a quarterly distribution of $0.525 per Subordinated Unit with a proportionate
amount for the 4% General Partners' Interest, or an aggregate of approximately
$2.5 million, declared and paid during the first quarter of 1998 with respect to
the fourth quarter of 1997. No distributions were declared on the Subordinated
Units with respect to
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any quarter of 1998 or 1999 since subsequent to the distribution with respect to
the quarter ended December 31, 1997, the National MGP agreed to forego any
distributions on the Subordinated Units in order to facilitate compliance with
the debt covenant restrictions in the Agreement and, effective June 30, 1998
pursuant to the Amendments, the National MLP agreed not to pay distributions on
the Subordinated Units with respect to the second, third and fourth quarters of
1998. None of the arrearages with respect to any previous quarter will be paid
in connection with the Merger and pursuant to the terms of the Purchase
Agreement.
Contingencies
In May 1994, National was informed of coal tar contamination which was
discovered at one of its properties in Wisconsin. National purchased the
property from a company (the 'Successor') which had purchased the assets of a
utility that had previously owned the property. National believes that the
contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, National engaged
environmental consultants in 1994. Based upon the information compiled to date,
which is not yet complete, it appears the likely remedy will involve treatment
of groundwater and the soil, including installation of a soil cap and, if
necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $0.5 million to $1.7 million. National will have to agree upon the final
remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National has engaged in
discussions of a general nature with the Successor who has denied any liability
for the costs of remediation of the Wisconsin property or of satisfying any
related claims. However, National, if found liable for any of such costs, would
still attempt to recover such costs from the Successor. National has notified
its insurance carriers of the contamination and the likely incurrence of costs
to undertake remediation and the possibility of related claims. Pursuant to a
lease related to the Wisconsin facility, the ownership of which was not
transferred by the National MGP to the National OLP at the time of the closing
of the Offering, the National MLP has agreed to be liable for any costs of
remediation in excess of amounts received from the Successor and from insurance.
Because the remediation method to be used is unknown, no amount within the cost
ranges provided by the environmental consultants can be determined to be a
better estimate. Thus the National MLP has a remaining accrual of approximately
$0.7 million as of March 31, 1999, all of which was provided in prior years, for
the minimum costs estimated for the anticipated remediation method. The ultimate
outcome of this matter cannot presently be determined and the costs of
remediation and third-party claims, if any, may have a material adverse effect
on the National MLP's financial position, results of operations or ability to
make the distributions to the holders of its Common Units and Subordinated
Units.
There are a number of lawsuits pending or threatened against National. In
general, these lawsuits have arisen in the ordinary course of National's
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National or as a result of
product defects, business disputes with competitors or similar matters. Of the
pending or threatened matters, a number involve property damage, and several
involve serious personal injuries or deaths, and the claims made are for
relatively large amounts. Although any litigation is inherently uncertain, based
on past experience, the information currently available to it and the
availability of insurance coverage in certain matters, National does not believe
that the pending or threatened litigation of which National is aware will have a
material adverse effect on its results of operations or its financial condition.
Notwithstanding the foregoing, any one of the matters discussed above or all of
them taken together may adversely affect National's financial position, results
of operations or its ability to make distributions to its Unitholders.
Inflation and Changing Prices
In general, inflation has not had any significant impact on National in
recent years since inflation rates generally remained at relatively low levels
and changes in propane prices, in particular, have been
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dependent on factors generally more significant than inflation, such as weather
and availability of supply. However, to the extent inflation affects the amounts
National pays for propane as well as operating and administrative expenses,
National attempts to limit the effects of inflation through passing on propane
cost increases to customers in the form of higher selling prices to the extent
it can do so as well as cost controls and productivity improvements. As such,
inflation has not had a material adverse effect on National's profitability and
National does not believe normal inflationary pressures will have a material
adverse effect on future results of operations of National.
Year 2000
The National MLP has undertaken a study of its internal functional
application systems to determine their compliance with Year 2000 issues and, to
the extent of noncompliance, the required remediation. The National MLP's study
consisted of an eight-step methodology to: (1) obtain an awareness of the
issues; (2) perform an inventory of its software and hardware systems; (3)
identify its systems and computer programs with year 2000 exposure; (4) assess
the impact on its operations by each mission critical application; (5) consider
solution alternatives; (6) initiate remediation; (7) perform validation and
confirmation testing; and (8) implement. The National MLP has completed steps
one through six and expects to complete steps seven and eight by August, 1999.
Such study addressed both information technology ('IT') and non-IT systems,
including embedded technology such as micro controllers in telephones and the
National MLP's application programs and communication devices associated with
its financial reporting systems in place at each of its retail locations and its
corporate headquarters. As a result of such study and subsequent remediation,
the National MLP has no reason to believe that any of its mission critical
systems are not presently year 2000 compliant. Accordingly, the National MLP
does not currently anticipate that internal systems failures will result in any
material adverse effect to its operations. However, should the final testing and
implementation steps reveal any year 2000 compliance problems which cannot be
corrected prior to January 1, 2000 the most reasonably likely worst case
scenario is that the National MLP may experience delays in its posting of sales
and cash receipts in its general ledger although the National MLP does not
believe these delays would be material. In such case, the National MLP's
contingency plan would be to revert to a manual system in order to perform the
required functions without any significant disruption of business. As of March
31, 1999, expenses incurred by the National MLP in order to become year 2000
compliant, including software and hardware costs, have been approximately $0.1
million and the current estimated costs to complete such remediation in 1999 is
expected to be approximately $0.1 million. Such costs incurred through December
31, 1998 are being expensed as incurred except for the direct purchase costs of
software and hardware, which are being capitalized. The software-related costs
incurred on or after January 1, 1999 are being capitalized in accordance with
the provisions of Statement of Position ('SOP') 98-1.
An assessment of the readiness of Year 2000 compliance of third-party
entities with which the National MLP has relationships, such as its suppliers,
banking institutions, customers, payroll processors and others ('Third Party
Entities') is ongoing. The National MLP has inquired, or is in the process of
inquiring of the significant aforementioned Third Party Entities as to their
readiness with respect to year 2000 compliance and to date has received
indications that many of them are either compliant or in the process of
remediation. The National MLP is, however, subject to certain risks with respect
to these Third Party Entities' potential year 2000 non-compliance. The National
MLP believes that these risks are primarily associated with its banks and
propane suppliers. At present, the National MLP cannot determine the impact on
its results of operations in the event of year 2000 non-compliance by these
Third Party Entities. In the most reasonably likely worst-case scenario, such
year 2000 non-compliance might result in a disruption of business and loss of
revenues, including the effects of any lost customers. The National MLP will
continue to monitor these Third Party Entities to determine the impact on the
business of the National MLP and the actions the National MLP must take, if any,
in the event of non-compliance by any of these Third Party Entities. The
National MLP is in the process of collecting additional information from Third
Party Entities that disclosed that remediation is required and has begun
detailed evaluations of these Third Party Entities, as well as those that could
not satisfactorily respond, in order to develop its contingency plans in
conjunction therewith. The National MLP believes there are multiple vendors of
the goods and services it receives from its suppliers and thus the risk of
68
<PAGE>
non-compliance with year 2000 by any of its suppliers is mitigated by this
factor. In 1998, no single supplier provided over 11% of the National MLP's
propane needs with the National MLP purchasing approximately 64% of its propane
from 10 suppliers with the balance purchased from over 40 other suppliers. With
respect to its customer base, the National MLP believes the majority of its
residential customers do not rely upon any systems that are at risk of year 2000
non-compliance and, in addition, no single customer accounts for more than 10%
of the National MLP's revenues, thus mitigating the adverse risk to the National
MLP's business if some customers are not year 2000 compliant.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (the 'FASB') issued
SFAS No. 133 ('SFAS 133') 'Accounting for Derivative Instruments and Hedging
Activities.' SFAS 133 provides a comprehensive standard for the recognition and
measurement of derivatives and hedging activities. The standard requires all
derivatives to be recorded on the balance sheet at fair value and establishes
special accounting for three types of hedges. The accounting treatment for each
of these three types of hedges is unique but results in including the offsetting
changes in fair values or cash flows of both the hedge and the hedged item in
results of operations in the same period. Changes in fair value of derivatives
that do not meet the criteria of one of the aforementioned categories of hedges
are included in results of operations. SFAS 133 is effective for the National
MLP's fiscal year beginning January 1, 2000. The provisions of SFAS 133 are
complex and the National MLP is only beginning its evaluation of the
implementation requirements of SFAS 133 and, accordingly, is unable to determine
at this time the impact it will have on the National MLP's financial position
and results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
During the first quarter of 1999, the National MLP was party to
simultaneous put and call contracts for propane ('Propane Contracts') with three
third parties which expired prior to March 31, 1999. Such contracts required
monthly settlements with counterparties through cash exchange of a net amount
equal to the difference between the monthly index average price and the fixed
contract price. The contracts were entered into for purposes other than trading
and were in anticipation of market movements in order to protect the National
MLP's gross profit on its fixed price sales commitments.
Interest Rate Risk
The National MLP has interest rate risk exposure due to the variable
interest rate terms of its Bank Facility. The Bank Facility terms are such that
the interest rate fluctuates with changes in the prime rate of interest and/or
LIBOR. Assuming an instantaneous increase in interest rates of one percentage
point from their levels at March 31, 1999, the National MLP would incur
additional annual interest expense of approximately $0.2 million due to the
variable interest rate feature of the Bank Facility.
Credit Risk
The National MLP is subject to credit risk with the Propane Contracts to
the extent the counterparties do not perform. The National MLP evaluates the
financial condition of each counterparty with which it conducts business to
reduce exposure to credit risk of non-performance and only executes Propane
Contracts with third parties it believes to be well-capitalized. There were no
outstanding Propane Contracts at March 31, 1999.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
A copy of National's Consolidated Financial Statements for the years ended
December 31, 1996, 1997 and 1998, complete with the Independent Auditors'
Report, is attached to this Information Statement as Annex C. A copy of
Financial Information derived from the National MLP's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 is attached to this Information
Statement as Annex D.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
69
<PAGE>
OWNERSHIP OF NATIONAL COMMON UNITS BY DIRECTORS
AND EXECUTIVE OFFICERS OF THE NATIONAL MGP AND CERTAIN UNITHOLDERS
The table below sets forth the beneficial ownership as of June 23, 1999, by
each person known by the National MGP to be the beneficial owner of more than 5%
of any class of units of the National MLP, each director and each named officer
of the National MGP and the executive officers and directors of the National MGP
as a group. The National Common Units are traded on the NYSE under the symbol
'NPL.' Information regarding Columbia Propane, L.P. is based on information
provided by the Purchaser to the National MGP.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER OF CLASS CLASS OF UNITS OWNERSHIP(1) PERCENT
------------------------- -------------- ------------ -------
<S> <C> <C> <C>
National Propane Corporation ........................................... Subordinated 4,533,638 100%
Suite 1700
200 First Street, SE
Cedar Rapids, IA 52401
Columbia Propane, L.P. ................................................. Common 5,922,454 88.4%
9200 Arboretum Parkway
Suite 140
Richmond, VA 23235
Nelson Peltz............................................................ -- -- --
Peter W. May............................................................ -- -- --
Frederick W. McCarthy................................................... -- -- --
Willis G. Ryckman III................................................... -- -- --
Ronald D. Paliughi...................................................... -- -- --
Ronald R. Rominiecki.................................................... -- -- --
C. David Watson......................................................... -- -- --
R. Brooks Sherman, Jr. ................................................. -- -- --
Martin A. Woods......................................................... -- -- --
All executive officers and directors as a group (9 persons)............. -- -- --
</TABLE>
- ------------
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such Units.
CERTAIN LEGAL MATTERS
Should any governmental or regulatory approval or other action be required
to consummate the Merger or the other transactions contemplated under the
Purchase Agreement, the National MLP and the Purchaser currently contemplate
that such approval or other action will be sought. However, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the National MLP's business or that certain parts of the National MLP's business
might not have to be disposed of if such approvals were not obtained or such
other actions were not taken or in order to obtain any such approval or other
action.
Antitrust. Although the Purchase Agreement provides that the Merger and
related transactions contemplated therein may not be consummated until any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, has expired or been terminated, the Purchaser has been
advised by counsel, based on non-binding advice from the Premerger Notification
Office of the Federal Trade Commission, that no filing is required since the
Merger and related transactions do not involve the acquisition or transfer of
100% of the interests in a partnership due to National MGP's retention of the 1%
Special OLP Interest in National OLP. A filing is anticipated upon the exercise
of National MGP's right to sell such interest or the Purchaser's right to buy
such interest under the terms of the Purchase Agreement, as described in 'The
Purchase Agreement -- Agreements to Purchase Acquired Interests; The Merger.'
OTHER MATTERS
As permitted by the National MLP Partnership Agreement, the National MLP
does not ordinarily hold annual meetings.
The National MLP does not intend to bring any other matters before the
Special Meeting, and is not aware of any other matters that are expected to be
brought properly before the Special Meeting.
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ANNEX A
________________________________________________________________________________
________________________________________________________________________________
PURCHASE AGREEMENT
------------------------
BY AND AMONG
COLUMBIA PROPANE L.P.,
CP HOLDINGS, INC.,
COLUMBIA PROPANE CORPORATION,
NATIONAL PROPANE PARTNERS, L.P.,
NATIONAL PROPANE CORPORATION,
NATIONAL PROPANE SGP, INC.
AND
TRIARC COMPANIES, INC.
------------------------
APRIL 5, 1999
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE OFFER
<TABLE>
<S> <C> <C>
SECTION 1.1 The Offer.............................................................................. A-2
(a) Commencement....................................................................... A-2
(b) Offer Documents.................................................................... A-2
SECTION 1.2 National MLP Action.................................................................... A-3
(a) Special Committee.................................................................. A-3
(b) Schedule 14D-9..................................................................... A-3
(c) Security Position Listings......................................................... A-4
(d) Admission as Limited Partner....................................................... A-4
ARTICLE II
THE TRANSACTIONS
SECTION 2.1 The Reorganization of the National MLP GP Interests.................................... A-4
(a) Reorganization of National MLP..................................................... A-4
(b) Purchase of National OLP Interests................................................. A-5
SECTION 2.2 Merger and Conversion of Interests in the National OLP................................. A-5
(a) Merger of National MLP With and Into the Purchaser................................. A-5
(b) Effect of the Merger............................................................... A-5
(c) Acquisition of Interests of the National OLP....................................... A-5
SECTION 2.3 Closing................................................................................ A-6
SECTION 2.4 Surrender of Units; Transfer Books..................................................... A-6
(a) Paying Agent....................................................................... A-6
(b) Surrender of Certificates.......................................................... A-6
(c) Delivery of Funds to the Surviving Entity.......................................... A-7
(d) No Further Rights.................................................................. A-7
(e) No Liability....................................................................... A-7
(f) Withholding Rights................................................................. A-7
SECTION 2.5 Transactions Involving Special Limited Partner Interests............................... A-8
(a) Put Right.......................................................................... A-8
(b) Call Right......................................................................... A-8
SECTION 2.6 Merger of the National MGP............................................................. A-8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE NATIONAL PARTIES
SECTION 3.1 Organization and Existence............................................................. A-8
SECTION 3.2 Authority; Binding Effect.............................................................. A-9
SECTION 3.3 SEC Filings............................................................................ A-9
SECTION 3.4 Financial Statements................................................................... A-9
SECTION 3.5 Offer Documents; Schedule 14D-9........................................................ A-10
SECTION 3.6 No Material Adverse Change............................................................. A-10
SECTION 3.7 Ownership.............................................................................. A-10
SECTION 3.8 No Conflict............................................................................ A-11
SECTION 3.9 No Default............................................................................. A-12
SECTION 3.10 Copies Complete........................................................................ A-12
SECTION 3.11 Brokerage Arrangements................................................................. A-12
SECTION 3.12 Undisclosed Liabilities................................................................ A-12
SECTION 3.13 No Litigation.......................................................................... A-12
SECTION 3.14 Environmental Matters.................................................................. A-12
SECTION 3.15 [Intentionally Left Blank]............................................................. A-13
</TABLE>
i
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<TABLE>
<S> <C> <C>
SECTION 3.16 Vote Required.......................................................................... A-13
SECTION 3.17 Labor Matters.......................................................................... A-14
SECTION 3.18 Compliance with Laws................................................................... A-14
SECTION 3.19 Insurance.............................................................................. A-14
SECTION 3.20 Intellectual Property.................................................................. A-14
SECTION 3.21 Employee Benefit Matters............................................................... A-14
SECTION 3.22 Certain Agreements..................................................................... A-15
SECTION 3.23 Taxes.................................................................................. A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER PARTIES
SECTION 4.1 Organization and Existence............................................................. A-16
SECTION 4.2 Authority; Binding Effect.............................................................. A-17
SECTION 4.3 No Conflict............................................................................ A-17
SECTION 4.4 No Default............................................................................. A-17
SECTION 4.5 Offer Documents; Information Statement................................................. A-17
SECTION 4.6 Financing.............................................................................. A-18
SECTION 4.7 Brokerage Arrangements................................................................. A-18
ARTICLE V
ADDITIONAL AGREEMENTS, COVENANTS, RIGHTS AND OBLIGATIONS
SECTION 5.1 Access to Information.................................................................. A-18
SECTION 5.2 Conduct of Business.................................................................... A-18
(a) Ordinary Course.................................................................... A-18
(b) Restrictions on National MLP and National OLP...................................... A-18
(c) General Business................................................................... A-19
(d) Employees of the National MGP...................................................... A-20
(e) Restrictions on the Purchaser, Purchaser Holdings and Purchaser General Partner.... A-20
SECTION 5.3 Certain Filings........................................................................ A-23
SECTION 5.4 Information Statement.................................................................. A-23
SECTION 5.5 Certain Instruments.................................................................... A-24
SECTION 5.6 Other Consents......................................................................... A-24
SECTION 5.7 No Solicitation........................................................................ A-25
SECTION 5.8 Permitted Actions...................................................................... A-25
SECTION 5.9 Indemnified Debt....................................................................... A-25
SECTION 5.10 Environmental Permits.................................................................. A-27
SECTION 5.11 Further Action; Commercially Reasonable Efforts........................................ A-27
SECTION 5.12 Notification of Certain Matters........................................................ A-27
SECTION 5.13 Certain Indebtedness................................................................... A-28
SECTION 5.14 Consistent Tax Reporting............................................................... A-28
SECTION 5.15 No Public Announcement................................................................. A-29
SECTION 5.16 Expenses............................................................................... A-29
SECTION 5.17 Tax Matters............................................................................ A-30
(a) Purchase Price Allocations......................................................... A-30
(b) Code Section 704(c) Election....................................................... A-30
(c) Tax Cooperation.................................................................... A-30
(d) Certain Tax Contests............................................................... A-31
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to the Merger............................................................... A-31
(a) Conveyance of Acquired Interests................................................... A-31
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(b) Approval of a Unit Majority........................................................ A-31
(c) No Injunctions or Restraints....................................................... A-31
(d) Corporate and Partnership Authority................................................ A-31
(e) Acceptance......................................................................... A-32
SECTION 6.2 Conditions to the Purchase of National OLP Interests................................... A-32
(a) Reorganization..................................................................... A-32
(b) Approval of a Unit Majority........................................................ A-32
(c) No Injunctions or Restraints....................................................... A-32
(d) Corporate and Partnership Authority................................................ A-32
(e) Acceptance......................................................................... A-32
(f) Prepayment......................................................................... A-32
ARTICLE VII
EMPLOYEES AND EMPLOYEE BENEFITS
SECTION 7.1 Offers of Employment; Severance Obligations............................................ A-32
SECTION 7.2 Increased Severance Costs.............................................................. A-33
SECTION 7.3 401(k) Plan; Direct Roll-Over.......................................................... A-33
SECTION 7.4 Assumed Employee Liabilities........................................................... A-33
SECTION 7.5 Collective Bargaining Matters.......................................................... A-33
SECTION 7.6 Multiemployer Plan Arrangements........................................................ A-33
SECTION 7.7 Losses Relating to Employees and Employee Benefits..................................... A-34
ARTICLE VIII
TERMINATION
SECTION 8.1 Events of Termination.................................................................. A-34
(a) Consent............................................................................ A-34
(b) No National Common Units Purchased................................................. A-34
(c) National Recommendation............................................................ A-34
(d) Outside Date....................................................................... A-35
(e) Applicable Law Change.............................................................. A-35
SECTION 8.2 Effect of Termination.................................................................. A-35
(a) No Liability....................................................................... A-35
(b) Termination Fee.................................................................... A-35
(c) Topping Fee........................................................................ A-35
(d) Specific Performance; Attorneys' Fees.............................................. A-35
(e) Other Remedies..................................................................... A-36
(f) Outside Date Breakage Fee.......................................................... A-36
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnification of Certain National Parties............................................ A-36
(a) Indemnification of Certain National Parties........................................ A-36
(b) Limitation of Liability............................................................ A-36
(c) Limitations with Respect to Certain Tax Losses..................................... A-37
(d) Limitation of Indemnification...................................................... A-37
SECTION 9.2 Indemnification of the Purchaser Parties............................................... A-37
(a) Debt Indemnity..................................................................... A-37
(b) Other Indemnity.................................................................... A-37
SECTION 9.3 Termination of Indemnities; Survival Periods........................................... A-38
SECTION 9.4 Demands................................................................................ A-38
SECTION 9.5 Right to Contest and Defend............................................................ A-38
SECTION 9.6 Cooperation............................................................................ A-39
SECTION 9.7 Right to Participate................................................................... A-39
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.8 Payment of Damages..................................................................... A-39
SECTION 9.9 Exclusivity............................................................................ A-39
ARTICLE X
MISCELLANEOUS
SECTION 10.1 [Intentionally Left Blank]............................................................. A-39
SECTION 10.2 Notices................................................................................ A-39
SECTION 10.3 Governing Law.......................................................................... A-40
SECTION 10.4 Entire Agreement; Amendments and Waivers............................................... A-41
SECTION 10.5 Binding Effect and Assignment.......................................................... A-41
SECTION 10.6 Severability........................................................................... A-41
SECTION 10.7 Parties in Interest.................................................................... A-41
SECTION 10.8 Disclosure............................................................................. A-41
SECTION 10.9 Interpretation......................................................................... A-41
SECTION 10.10 References; Construction............................................................... A-42
SECTION 10.11 Context................................................................................ A-42
SECTION 10.12 Execution.............................................................................. A-42
ANNEXES
ANNEX A Conditions to the Offer................................................................ A-43
</TABLE>
iv
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
SCHEDULE 3.1 National Qualifications; National MLP and National OLP Investments or Interests in, or
Control Over, Other Entities
SCHEDULE 3.4 National MLP Consolidated Financial Statements
SCHEDULE 3.6 National MLP Adverse Trends or Conditions
SCHEDULE 3.7 Liens, Claims and Encumbrances on the General Partner Interests and Incentive Distribution
Rights, the Limited Partner Interests, the National SGP Stock, the National Subordinated
Units, the NSSI Stock, or the National Acquired Interests
SCHEDULE 3.7(i) National Outstanding Subscription Rights
SCHEDULE 3.8 National Required Consents; Conflicts, Defaults, Breaches, Accelerations, or Required
Authorizations, Approvals or Consents
SCHEDULE 3.9 National Defaults
SCHEDULE 3.11 National Brokerage Arrangements
SCHEDULE 3.12 National Officers and Employees of National MGP for Purposes of 'Knowledge of the National
MGP'
SCHEDULE 3.13 National Litigation
SCHEDULE 3.14 Environmental Documents; National Predecessors and Retained Environmental Liabilities
SCHEDULE 3.17 National Labor Matters
SCHEDULE 3.19 National Insurance
SCHEDULE 3.21 National Employee Benefit Plans and Multiemployer Pension Plans
SCHEDULE 3.22 National Material Agreements
SCHEDULE 3.23 National Tax Matters
SCHEDULE 4.7 Purchaser Brokerage Arrangements
SCHEDULE 5.2(b) National Unrestricted Transactions
SCHEDULE 5.2(d) Amendments to National Employee Agreements or Arrangements
SCHEDULE 5.2(e) Restricted Changes to Purchaser OLP's Tax Methods; National OLP Adjusted Tax Basis
SCHEDULE 5.5 Consent Matters
SCHEDULE 5.9 National MGP's Basis as of Effective Time
SCHEDULE 5.13(i) Refinancing of Indebtedness
SCHEDULE 5.13(ii) Repayment of Indebtedness
SCHEDULE 5.14 Consistent Tax Reporting
SCHEDULE 7.1(a) National MGP Employee Retention Program
SCHEDULE 7.1(b) National Employment and Severance Agreements
SCHEDULE 7.1(c) National MGP Stock, Phantom Stock, Unit or Phantom Unit Plans
SCHEDULE 7.4 National Incentive Compensation Plans
SCHEDULE 7.5 Collective Bargaining Representatives
SCHEDULE 9.1 National Pending Litigation
SCHEDULE 9.2(a) Indemnified Debt
</TABLE>
v
<PAGE>
DEFINED TERMS
<TABLE>
<S> <C>
Acceptance......................................................................................... A-2
Acceptance Date.................................................................................... A-2
Acquired Interests................................................................................. A-1
Acquiring Person................................................................................... A-23
Acquisition Line................................................................................... A-28
affiliate.......................................................................................... A-6
Agreement.......................................................................................... A-1
Alternate Appraisal................................................................................ A-30
Amendment No. 2.................................................................................... A-28
Annex A............................................................................................ A-2
Applicable Date.................................................................................... A-23
Applicable Law Change.............................................................................. A-22
Appraisal.......................................................................................... A-30
Assets............................................................................................. A-30
Call Notice........................................................................................ A-8
Certificates....................................................................................... A-6
Claim.............................................................................................. A-38
Closing............................................................................................ A-6
Closing Agreement.................................................................................. A-16
Closing Date....................................................................................... A-6
Code............................................................................................... A-7
Confidentiality Agreement.......................................................................... A-18
Damages............................................................................................ A-22
Debt Indemnity..................................................................................... A-37
Delaware Court..................................................................................... A-41
Delaware Law....................................................................................... A-1
Effective Tax Rate................................................................................. A-21
Effective Time..................................................................................... A-5
Employees.......................................................................................... A-32
Environmental and Health and Safety Laws........................................................... A-13
Environmental Documents............................................................................ A-13
Environmental Permits.............................................................................. A-27
ERISA.............................................................................................. A-14
Exchange Act....................................................................................... A-2
Fee................................................................................................ A-36
First Mortgage Notes............................................................................... A-28
Hazardous Materials................................................................................ A-13
Hazardous Waste Laws............................................................................... A-13
HSR Act............................................................................................ A-8
Incentive Distribution Rights...................................................................... A-1
Indemnified Debt................................................................................... A-37
Information Statement.............................................................................. A-3
Knowledge of the National MGP...................................................................... A-12
Lehman Opinion..................................................................................... A-3
Losses............................................................................................. A-36
Material Adverse Effect............................................................................ A-10
Merger............................................................................................. A-5
Merger Consideration............................................................................... A-5
MGP's Basis........................................................................................ A-26
Minimum Condition.................................................................................. A-2
Multiemployer Plan................................................................................. A-33
National Assets.................................................................................... A-21
National Board..................................................................................... A-1
National Common Units.............................................................................. A-1
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
National Financial Statements...................................................................... A-9
National General Partners.......................................................................... A-1
National MGP....................................................................................... A-1
National MLP....................................................................................... A-1
National MLP GP Interests.......................................................................... A-1
National MLP Partnership Agreement................................................................. A-1
National OLP....................................................................................... A-1
National OLP GP Interests.......................................................................... A-1
National OLP Interests............................................................................. A-1
National OLP Partnership Agreement................................................................. A-1
National Parties................................................................................... A-8
National Permits................................................................................... A-14
National Plan...................................................................................... A-14
National Plans..................................................................................... A-14
National Possible Alternatives..................................................................... A-25
National Representing Parties...................................................................... A-15
National SGP....................................................................................... A-1
National Subordinated Units........................................................................ A-1
National Superior Transaction...................................................................... A-25
Note Agreements.................................................................................... A-28
Notice............................................................................................. A-22
NSSI............................................................................................... A-8
NYSE............................................................................................... A-29
Offer.............................................................................................. A-1
Offer Consideration................................................................................ A-1
Offer Documents.................................................................................... A-2
Offer to Purchase.................................................................................. A-2
Other Indemnity.................................................................................... A-38
Other Permits...................................................................................... A-27
Paying Agent....................................................................................... A-6
Predecessors....................................................................................... A-13
Purchaser.......................................................................................... A-1
Purchaser General Partner.......................................................................... A-1
Purchaser Group Member............................................................................. A-22
Purchaser Holdings................................................................................. A-1
Purchaser Material Adverse Effect.................................................................. A-16
Purchaser OLP...................................................................................... A-5
Purchaser Parties.................................................................................. A-8
Put Condition...................................................................................... A-8
Put Notice......................................................................................... A-8
Remedial Allocation Method......................................................................... A-30
Required Consents.................................................................................. A-11
Retention Program.................................................................................. A-32
Schedule 14D-1..................................................................................... A-2
Schedule 14D-9..................................................................................... A-3
SEC................................................................................................ A-2
SGP Board.......................................................................................... A-1
Special Committee.................................................................................. A-1
Special Limited Partner............................................................................ A-5
Special Limited Partner Interest................................................................... A-5
Surviving Entity................................................................................... A-5
Tax Controversy.................................................................................... A-31
Tax Indemnity Provisions........................................................................... A-37
Tax Provisions..................................................................................... A-22
Tax Return......................................................................................... A-16
</TABLE>
vii
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<TABLE>
<S> <C>
Tax Ruling......................................................................................... A-16
Taxes.............................................................................................. A-16
Threshold Amount................................................................................... A-21
Transactions....................................................................................... A-2
Triarc............................................................................................. A-1
Triarc Note........................................................................................ A-4
WARN............................................................................................... A-33
Withdrawal Liability............................................................................... A-33
</TABLE>
viii
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement (this 'Agreement') is made and entered into as of
the 5th day of April, 1999, by and among Columbia Propane L.P., a Delaware
limited partnership (the 'Purchaser'), CP Holdings, Inc., a Delaware corporation
and the general partner of the Purchaser ('Purchaser General Partner'), Columbia
Propane Corporation, a Delaware corporation ('Purchaser Holdings'), National
Propane Partners, L.P., a Delaware limited partnership (the 'National MLP')
governed by the Amended and Restated Agreement of Limited Partnership of the
National MLP dated as of July 2, 1996, as amended through the date hereof (the
'National MLP Partnership Agreement'), National Propane Corporation, a Delaware
corporation and managing general partner of the National MLP (the 'National
MGP'), National Propane SGP, Inc., a Delaware corporation and special general
partner of the National MLP (the 'National SGP,' and together with the National
MGP, the 'National General Partners'), and Triarc Companies, Inc., a Delaware
corporation and the indirect parent corporation of the National General Partners
('Triarc').
WITNESSETH:
WHEREAS, the National MLP is the sole limited partner of National Propane,
L.P., a Delaware limited partnership (the 'National OLP') governed by the
Amended and Restated Agreement of Limited Partnership of the National OLP dated
as of July 2, 1996, as amended through the date hereof (the 'National OLP
Partnership Agreement'), of which the National General Partners are the sole
general partners;
WHEREAS, the Purchaser, directly or indirectly, desires (i) to make a cash
tender offer (the 'Offer') to acquire 100% of the issued and outstanding common
units of the National MLP ('National Common Units') for $12.00 per Unit (such
amount, or any greater amount per National Common Unit paid pursuant to the
Offer, being hereinafter referred to as the 'Offer Consideration'), net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions of this Agreement and the Offer, (ii) to acquire 100% of the
outstanding subordinated units representing subordinated general partner
interests in the National MLP ('National Subordinated Units'), (iii) to acquire
100% of the unsubordinated general partner interests in the National MLP (the
'National MLP GP Interests') and 100% of the Incentive Distribution Rights
representing general partner interests in the National MLP (the 'Incentive
Distribution Rights'), (iv) to acquire 100% of the unsubordinated general
partner interests in the National OLP (the 'National OLP GP Interests'), and
(v) to acquire substantially all of the limited partner interests in the
National OLP (all of such interests, the 'National OLP Interests' (collectively,
the items in clauses (i) through (v) are the 'Acquired Interests')); and the
National MLP and the National General Partners have agreed to sell the Acquired
Interests on the terms and subject to the conditions hereinafter set forth;
WHEREAS, the Board of Directors of Purchaser Holdings and Purchaser General
Partner (for itself and on behalf of the Purchaser) have approved the making of
the Offer and the transactions related thereto;
WHEREAS, the Board of Directors of the National MGP (the 'National Board'),
acting upon the recommendation of the special committee (the 'Special
Committee') of the National Board, has approved the terms of the Offer and the
other transactions contemplated herein and resolved and agreed, subject to the
terms and conditions contained herein, to recommend that holders of National
Common Units tender such National Common Units pursuant to the Offer; and
WHEREAS, the Board of Directors of Purchaser Holdings, the Board of
Directors of Purchaser General Partner, the National Board and the Board of
Directors of National SGP (the 'SGP Board') have each approved the transactions
set forth in this Agreement on behalf of themselves and any entity of which they
are the managing general partner in accordance with the General Corporation Law
of the State of Delaware and the Delaware Revised Uniform Limited Partnership
Act (collectively, the 'Delaware Law') upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
<PAGE>
ARTICLE I
THE OFFER
SECTION 1.1 The Offer.
(a) Commencement.
Provided that this Agreement shall not have been terminated in accordance
with Section 8.1 and none of the conditions set forth in Annex A attached hereto
and incorporated herein by reference ('Annex A') shall have occurred or be
existing (unless such conditions shall have been waived by the Purchaser),
Purchaser General Partner shall cause the Purchaser to commence (within the
meaning of Rule 14d-2(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act')), and the Purchaser shall commence, the Offer at the Offer
Consideration as promptly as reasonably practicable after the date hereof, but
in no event later than five business days after the date hereof. The obligation
of the Purchaser to accept for payment and pay for National Common Units
tendered pursuant to the Offer shall be subject only to (i) the condition (the
'Minimum Condition') that at least the number of National Common Units that,
when combined with the National Common Units already owned by Purchaser Holdings
and its direct or indirect subsidiaries, constitutes a majority of the then
outstanding National Common Units on a fully diluted basis shall have been
validly tendered and not withdrawn prior to the expiration of the Offer and
(ii) the satisfaction or waiver of the other conditions set forth in Annex A
hereto. The Purchaser expressly reserves the right, in its sole discretion and
notwithstanding anything to the contrary in this Agreement including Annex A, to
extend the Offer in accordance with law, to waive any condition (other than the
Minimum Condition), to increase the Offer Consideration, and to make any other
changes in the terms and conditions of the Offer; provided, however, that no
change may be made which (A) decreases or changes the form of the Offer
Consideration, (B) reduces the minimum number of National Common Units to be
purchased in the Offer below the Minimum Condition, (C) imposes conditions to
the Offer in addition to those set forth in Annex A hereto, (D) amends or
changes the terms and conditions of the Offer in any manner adverse to the
holders of National Common Units (other than Purchaser Holdings and its
subsidiaries) or (E) changes or waives the Minimum Condition. The Offer
Consideration shall, subject to applicable withholding of taxes, be net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions of the Offer. The Purchaser shall extend the Offer from time to time
to the extent necessary to permit cure, resolution, elimination or waiver of the
conditions set forth in Annex A; provided, that the Purchaser shall not be
obligated to make any such extension (x) if the Purchaser reasonably determines
that any condition set forth in Annex A is not capable of being cured, resolved
or eliminated, (y) after the termination of this Agreement in accordance with
its terms or (z) in any event, to a date later than 60 days following the
commencement of the Offer. Subject to the terms and conditions of the Offer, the
Purchaser shall accept for payment and pay, as promptly as practicable after
expiration of the Offer, for all National Common Units validly tendered and not
withdrawn (the 'Acceptance'), the date of which shall be the 'Acceptance Date.'
(b) Offer Documents.
As soon as reasonably practicable on the date of commencement of the Offer,
the Purchaser shall file with the Securities and Exchange Commission (the 'SEC')
and disseminate to holders of National Common Units to the extent required by
law a Tender Offer Statement on Schedule 14D-1 (together with all amendments and
supplements thereto, the 'Schedule 14D-1') with respect to the Offer and the
other transactions contemplated by this Agreement (the 'Transactions'). The
Schedule 14D-1 shall contain or shall incorporate by reference an offer to
purchase (the 'Offer to Purchase') and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the 'Offer
Documents'). Purchaser Holdings, the Purchaser and the National MGP agree to
correct promptly any information provided by any of them for use in the Offer
Documents which shall have become false or misleading in any material respect,
and Purchaser Holdings and the Purchaser further agree to take all steps
necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC
and the other Offer Documents as so corrected to be disseminated to holders of
National Common Units, in each case as and to the extent required by applicable
federal
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<PAGE>
securities laws. The National MGP and its counsel shall be given an opportunity
to review and comment on the Offer Documents and any amendments thereto prior to
the filing thereof with the SEC. Purchaser Holdings and the Purchaser shall
provide the National MGP and its counsel with a copy of any written comments or
telephonic notification of any verbal comments Purchaser Holdings or the
Purchaser may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof and shall provide the National MGP
and its counsel with a copy of any written responses and telephonic notification
of any verbal response of Purchaser Holdings, the Purchaser or their counsel. In
the event that the Offer is terminated or withdrawn by the Purchaser, Purchaser
Holdings and the Purchaser shall cause all tendered National Common Units
represented by the certificate or certificates surrendered to the Paying Agent
(as defined herein) to be returned to the registered holders of the National
Common Units.
SECTION 1.2 National MLP Action.
(a) Special Committee.
The National MLP, acting through the National Board, hereby approves of and
consents to the Offer and the Transactions and represents that (i) the National
Board acting on the recommendation of the Special Committee, at a meeting duly
called and held on April 1, 1999, has unanimously (A) approved and adopted this
Agreement, the Offer and the Transactions and (B) determined that the Offer and
the Transactions are fair to and in the best interests of the holders of Common
Units and resolved to recommend, subject to the conditions set forth herein,
that the holders of National Common Units accept the Offer, and (ii) Lehman
Brothers has delivered to the Special Committee a written opinion (the 'Lehman
Opinion') substantially to the effect that the consideration to be received by
the holders of National Common Units pursuant to each of the Offer and the
Merger is fair to such holders from a financial point of view. The National MGP
has been authorized by Lehman Brothers, subject to prior review by such
financial advisor, to include such fairness opinion (or references thereto or
descriptions thereof) in the Offer Documents and in the Schedule 14D-9 (as
defined in paragraph (b) of this Section 1.2) and an information statement (as
required under the Exchange Act or, if not permitted by applicable law, stock
exchange regulation, or the National MLP Partnership Agreement, a proxy
statement) (the 'Information Statement'). Subject to the fiduciary duties of the
National Board under applicable law, the National MLP hereby consents to the
inclusion in the Offer Documents of the recommendation of the National Board
described above; provided, however, that such recommendation may be withdrawn,
modified, qualified or changed as set forth in Section 5.8 below.
(b) Schedule 14D-9.
As soon as reasonably practicable on or after the date of commencement of
the Offer, the National MLP shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the 'Schedule 14D-9') containing, subject to
the fiduciary duties of the National Board under applicable law, the
recommendation of the Special Committee described in Section 1.2(a) and shall
disseminate to holders of National Common Units, the Schedule 14D-9 to the
extent required by Rule 14d-9 promulgated under the Exchange Act and any other
applicable federal securities laws; provided, however, that such recommendation
may be withdrawn, modified, qualified or changed as set forth in Section 5.8
below. Any such withdrawal, modification, qualification or change shall not
constitute a breach of this Agreement, but will nonetheless be subject to the
provisions of Section 8.1. The National MLP, Purchaser Holdings and the
Purchaser agree to correct promptly any information provided by any of them for
use in the Schedule 14D-9 which shall have become false or misleading, and the
National MLP further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and disseminated to holders of
National Common Units, in each case as and to the extent required by applicable
federal securities laws. Purchaser Holdings, the Purchaser and their counsel
shall be given a reasonable opportunity to review and comment on the Schedule
14D-9 and any amendments thereto prior to the filing thereof with the SEC. The
National MLP will provide Purchaser Holdings, the Purchaser and their counsel
with a copy of any written comments or telephonic notification of any oral
comments the National MLP may receive from the SEC or its staff with respect to
the Schedule 14D-9 promptly after
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<PAGE>
the receipt thereof and will provide Purchaser Holdings, the Purchaser and their
counsel with a copy of any written responses to the SEC or its staff of the
National MLP or its counsel.
(c) Security Position Listings.
The National MLP shall promptly furnish the Purchaser with mailing labels
containing the names and addresses of all record holders of National Common
Units and with security position listings of National Common Units held in stock
depositories, each as of the most recent date reasonably practicable, together
with all other available listings and computer files containing names, addresses
and security position listings of record holders and non-objecting beneficial
owners of National Common Units as of the most recent date reasonably
practicable. The National MLP shall furnish the Purchaser with such additional
information, including, without limitation, updated listings and computer files
of unitholders, mailing labels and security position listings, and such other
assistance as Purchaser Holdings, the Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Transactions, Purchaser
Holdings and the Purchaser shall hold in confidence the information contained in
such labels, listings and files, shall use such information only in connection
with the Offer and the Transactions, and, if this Agreement shall be terminated
in accordance with Section 8.1, shall, at the request of the National MLP,
deliver promptly to the National MLP all copies of such information then in
their possession and shall certify in writing to the National MLP its compliance
with this Section 1.2(c).
(d) Admission as Limited Partner.
The National General Partners and the Purchaser shall use commercially
reasonable efforts to take such actions as are required under the National MLP
Partnership Agreement to effect the prompt admission of the Purchaser as a
limited partner of the National MLP with respect to all National Common Units
acquired by the Purchaser pursuant to the Offer in accordance with the terms of
the National MLP Partnership Agreement.
ARTICLE II
THE TRANSACTIONS
SECTION 2.1 The Reorganization of the National MLP GP Interests.
(a) Reorganization of National MLP.
After the Acceptance Date and immediately prior to the Closing, as defined
below, Triarc shall unconditionally and irrevocably pay $14,883,720 to the
National OLP under the promissory note in the original principal amount of $40.7
million with a remaining outstanding balance (immediately prior to the payment
referred to in this sentence) of $30.7 million issued by Triarc to the order of
the National OLP (the 'Triarc Note'), together with interest, calculated based
on a rate per annum of 9.44%, for the period from the Acceptance Date to the
Closing, on a principal amount equal to (x) $2.40 multiplied by (y) the number
of Common Units accepted and paid for in the Offer; it being understood that
Triarc hereby waives any right to set-off, counterclaim or any other defense to
such payment. Thereafter, the National MGP shall cause (i) the National MLP to
redeem (A) all 1.0% of the unsubordinated general partner interests in the
National MLP owned by the National SGP in exchange for the simultaneous
distribution to the National SGP of a 0.9798% limited partner interest in the
National OLP, (B) all 4,533,638 National Subordinated Units and all Incentive
Distribution Rights owned by the National MGP in exchange for the simultaneous
distribution to the National MGP of a 22.6351% limited partner interest in the
National OLP and (C) all 1.0% of the unsubordinated general partner interest in
the National MLP owned by the National MGP (other than a general partner
interest valued at $1,000) in exchange for the simultaneous distribution to the
National MGP of a 0.9798% limited partner interest in the National OLP, and
immediately thereafter, (ii) the National OLP to redeem all of the National OLP
Interests owned by the National MGP other than a 1% limited partner interest in
the National OLP (inclusive of the interest in (c) above), (which 1% limited
partner interest, for purposes of determining the aggregate consideration to be
paid to the National General Partners hereunder, shall be initially valued at
$700,000), in exchange for the simultaneous assignment and distribution to the
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<PAGE>
National MGP of the Triarc Note, the principal amount of which (at the time of
the assignment and distribution referred to in this clause (ii)) will be
$15,816,280. The Purchaser, Purchaser General Partner and Purchaser Holdings
agree that the National MGP and/or the National SGP, as applicable, shall be
permitted to transfer interests to be acquired under this Section 2.1 to an
affiliate of Triarc; provided, however, that such affiliate agrees to be bound
by the provisions hereof.
(b) Purchase of National OLP Interests.
At the Closing, (x) the Purchaser shall purchase all of the National OLP
Interests owned by the National SGP for an aggregate consideration of $686,000,
and (y) Purchaser General Partner shall purchase (i) all of the National OLP GP
Interests owned by the National SGP for an aggregate consideration of $707,000
and (ii) all of the National OLP GP Interests owned by the National MGP (other
than a National OLP GP Interest valued at $1,000) for an aggregate consideration
of $706,000. All payments made pursuant to this Section 2.1(b) shall be made in
cash, payable at the Closing (defined below) by wire transfer of immediately
available funds.
SECTION 2.2 Merger and Conversion of Interests in the National OLP.(a) Merger of
National MLP With and Into the Purchaser.
At the Closing, immediately following the completion of the transactions
described in Section 2.1, Purchaser General Partner and the National MGP shall
cause the National MLP to be merged with and into the Purchaser (the 'Merger')
by filing a certificate of merger with the Secretary of State of the State of
Delaware, in such form as is required by, and executed in accordance with the
relevant provisions of, the Delaware Law (the date and time of such filing being
the 'Effective Time'). As a result of the Merger, the separate existence of the
National MLP shall cease, and the Purchaser shall continue as the surviving
entity of the Merger (the 'Surviving Entity').
(b) Effect of the Merger.
At the Effective Time, by virtue of the Merger and without any action on
the part of the Purchaser, the National MLP or any holder of National Common
Units, (i) each of the 6,701,550 National Common Units not owned by the
Purchaser or an affiliate thereof shall be converted into the right to receive
an amount in cash equal to the highest amount per National Common Unit paid to
holders of National Common Units in the Offer (the 'Merger Consideration'),
(ii) the general partner interest of the National MLP owned by the National MGP
shall be converted into the right to receive $1,000 in cash, and (iii) each
partnership interest of the Purchaser outstanding immediately prior to the
Effective Time shall be converted into one partnership interest of the Surviving
Entity, with the same rights, powers and privileges as the interest so converted
and shall constitute the only outstanding partnership interests of the Surviving
Entity.
(c) Acquisition of Interests of the National OLP.
At the Closing, immediately following the Merger described in Section
2.2(a), Purchaser General Partner shall purchase the general partner interest
valued at $1,000 in the National OLP held by the National MGP, and in
consideration therefor, Purchaser General Partner shall pay to the National MGP
$1,000 and, as successor general partner of the National OLP, Purchaser General
Partner shall cause the National OLP to convert the 1% limited partner interest
held by the National MGP in the National OLP into a 1% special limited partner
interest in the National OLP (the 'Special Limited Partner Interest,' and the
holder thereof (i.e., the National MGP as the former managing general partner of
the National OLP) shall be known as the 'Special Limited Partner'). From and
after such purchase and issuance, the National OLP shall be referred to as the
'Purchaser OLP.' The Special Limited Partner Interest shall be nontransferable
(except to an affiliate (as defined below) of the Special Limited Partner) other
than as described in Section 2.5 and shall have no voting rights.
Notwithstanding any provision of this Agreement (but subject to the last
paragraph of Section 5.2 and to Section 5.9) or the National OLP Partnership
Agreement or of the partnership agreement of the Purchaser OLP to the contrary,
the National MGP consents and agrees that the partnership agreement of the
Purchaser OLP may be amended at any time in any manner whatsoever and the
Purchaser OLP may engage in any merger, consolidation, sale or other disposition
of assets or dissolution and liquidation without the consent of the Special
Limited Partner; provided, however, that the Purchaser Parties (as defined
below)
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<PAGE>
agree that no such amendment shall (x) adversely affect the tax deferral for the
benefit of the National MGP sought to be accomplished by the Debt Indemnity (as
herein defined) or (y) materially adversely affect the non-voting, economic
value of the Special Limited Partner Interest. In addition, upon the issuance of
any additional partnership interests of the Purchaser OLP, the National MGP
shall have the right, but not the obligation, to make additional capital
contributions to the Purchaser OLP to maintain up to a 1% interest in the
Purchaser OLP. As used herein, the term 'affiliate' shall have the meaning
assigned to such term in Rule 12b-2 under the Exchange Act. The National General
Partners and National MLP agree to execute such documents as are reasonably
requested by the Purchaser or Purchaser Holdings in order to effect the
transfers described in this Section 2.2 and in Section 2.1.
SECTION 2.3 Closing.
Upon the terms and subject to the conditions set forth in this Agreement,
the closing of the Merger and the other transactions contemplated by Sections
2.1 and 2.2 (the 'Closing') shall take place at the offices of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., in New York City, at 10:00 a.m. local time on the date
(which shall be a business day) of satisfaction or waiver of the conditions set
forth in Article VI, unless another date is agreed by the parties (the 'Closing
Date').
SECTION 2.4 Surrender of Units; Transfer Books.
(a) Paying Agent.
Prior to the Acceptance Date, the Purchaser shall designate a bank or trust
company reasonably satisfactory to the National MLP to act as Depositary for the
Offer and Paying Agent for the Merger (the 'Paying Agent') in connection with
the Offer and the Merger to receive the funds to which holders of National
Common Units shall become entitled pursuant hereto. Immediately prior to the
Acceptance and immediately prior to the Merger, as applicable, Purchaser
Holdings or Purchaser General Partner shall deposit or shall cause the Surviving
Entity to have sufficient funds to deposit and shall cause the Surviving Entity
to deposit, as applicable, in trust with the Paying Agent, cash in the aggregate
amount equal to the product of (i) the number of National Common Units tendered
and not withdrawn, for purposes of the Offer, or outstanding immediately prior
to the Effective Time (other than National Common Units owned by Purchaser
Holdings or the Purchaser), for purposes of the Merger and (ii) the Offer
Consideration. Such funds shall be invested by the Paying Agent as directed by
Purchaser Holdings, provided that such investments shall be in obligations of or
guaranteed by the United States of America or of any agency thereof and backed
by the full faith and credit of the United States of America, in commercial
paper obligations rated A1 or B1 or better by Moody's Investors Services, Inc.
or Standard & Poor's Corporation, respectively, or in deposit accounts,
certificates of deposit or banker's acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $100 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise); provided,
however, that no loss on any investment made pursuant to this Section 2.4 shall
relieve the Purchaser of its obligation to pay the Offer Consideration for each
applicable National Common Unit.
(b) Surrender of Certificates.
Any letter of transmittal delivered pursuant to this Agreement shall
specify that delivery of a National Common Unit shall be effected, and risk of
loss and title to the certificates evidencing such National Common Units (the
'Certificates') shall pass, only upon proper delivery of the Certificates to the
Paying Agent and shall specify instructions for use in effecting the surrender
of the Certificates pursuant to such letter of transmittal. Upon surrender to
the Paying Agent of a Certificate, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
and such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Offer Consideration for each National Common Unit formerly evidenced by such
Certificate, and such Certificate shall then be cancelled. No interest shall
accrue or be paid on the Offer Consideration payable upon the surrender of any
Certificate for the benefit of the holder of such Certificate. If payment of the
Offer Consideration is to
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<PAGE>
be made to a person other than the person in whose name the surrendered
Certificate is registered on the transfer books of the National MLP, it shall be
a condition of payment that the Certificate so surrendered shall be endorsed
properly or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid all transfer and other taxes required by
reason of the payment of the Offer Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Entity that such taxes either have been paid
or are not applicable. The Surviving Entity shall pay all charges and expenses,
including those of the Paying Agent, in connection with the distribution of the
Offer Consideration. In the event that any Certificate shall have been lost,
stolen or destroyed, the Paying Agent shall issue in exchange therefor, upon
receipt of an affidavit of that fact by the holder thereof and such bond,
security or indemnity as may be reasonably required, the Merger Consideration
that such holder has the right to receive pursuant to the provisions of this
Article II. Until surrendered as contemplated by this Section 2.4, each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the Merger Consideration
applicable to the National Common Units evidenced by such Certificate.
(c) Delivery of Funds to the Surviving Entity.
At any time following the first anniversary after the Effective Time, the
Surviving Entity shall be entitled to require the Paying Agent to deliver to it
any funds which had been made available to the Paying Agent and not disbursed to
holders of National Common Units (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it) and, thereafter, such holders shall be entitled to look to the
Purchaser (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Offer Consideration that may be
payable upon due surrender of the Certificates held by them.
(d) No Further Rights.
At Effective Time, the transfer books of the National MLP shall be closed
and, thereafter, there shall be no further registration of transfers of National
Common Units on the records of the National MLP. From and after the Effective
Time or the Acceptance Date, as applicable, the holders of National Common Units
outstanding immediately prior to the Effective Time or the Acceptance Date, as
applicable, shall cease to have any rights with respect to such National Common
Units except as otherwise provided herein or by applicable law.
(e) No Liability.
None of the Purchaser, the National MLP or the Paying Agent shall be liable
to any person in respect of any Offer Consideration or Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to such date on which any Offer Consideration or Merger Consideration
would escheat to or become the property of any governmental entity or authority,
any such cash shall, to the extent permitted by applicable law, become the
property of the Purchaser free and clear of all claims or interest of any person
or entity previously entitled thereto other than the holder of such Certificate
as specified in Section 2.4(d).
(f) Withholding Rights.
The Surviving Entity or the Purchaser, as the case may be, shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any person such amounts as it is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the 'Code'), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Surviving Entity or the Purchaser, as the case may be, such amounts withheld
shall be treated for purposes of this Agreement as having been paid to such
person in respect of which such deduction and withholding was made by the
Surviving Entity or the Purchaser, as the case may be.
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<PAGE>
SECTION 2.5 Transactions Involving Special Limited Partner Interests. (a) Put
Right.
At any time, the Special Limited Partner may require, upon 30 days prior
written notice to Purchaser General Partner and the Purchaser OLP (the 'Put
Notice'), that the Purchaser OLP purchase all (but not less than all) of the
Special Limited Partner Interest; provided that as a condition (the 'Put
Condition') to the obligation of the Purchaser OLP to purchase such Special
Limited Partner Interest, (i) the Special Limited Partner must deliver good and
valid title to the Special Limited Partner Interest, free and clear of all
liens, claims and other encumbrances and (ii) any waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the 'HSR
Act'), or otherwise, shall have expired. The Purchaser OLP may elect to have an
affiliate make such purchase. The purchase price shall consist of cash in an
amount equal to the fair market value of the Special Limited Partner Interest as
of the date of the Put Notice, determined by a nationally recognized independent
appraiser or investment banking firm selected by Purchaser General Partner. Any
payment pursuant to this paragraph shall be made by wire transfer of immediately
available funds. Purchaser OLP shall not be obligated to purchase the Special
Limited Partner Interest unless the Put Condition is satisfied.
(b) Call Right.
At any time, Purchaser General Partner may require, upon 30 days prior
written notice to the Special Limited Partner (the 'Call Notice'), that the
Special Limited Partner sell to the Purchaser OLP all (but not less than all) of
the Special Limited Partner Interest in consideration of (i) the payment of the
cash price as provided in Section 2.5(a), and (ii) an additional amount in cash,
if such sale is consummated within ten years after the Effective Time, equal to
(A) any incremental gain realized by the Special Limited Partner resulting from
a decrease in its share of Indemnified Debt, as defined in Section 9.2(a) of
this Agreement, multiplied by (B) a fraction, the numerator of which is the
Effective Tax Rate (as defined in Section 5.2 of this Agreement) and the
denominator of which is one minus the Effective Tax Rate. Such purchase shall be
effected no later than 30 days after the date of the Call Notice, subject to any
waiting periods under the HSR Act, or otherwise, having expired. Any payment
pursuant to this paragraph shall be made by wire transfer of immediately
available funds. The Special Limited Partner shall deliver good and valid title
to the Special Limited Partner Interest free and clear of all liens, claims and
other encumbrances in the event this call right is exercised.
SECTION 2.6 Merger of the National MGP.
The parties hereto agree that prior to or following the Closing, the
National MGP shall be permitted to merge with or into Triarc or an affiliate of
Triarc so long as the successor entity of such merger (if not the National MGP)
expressly assumes, or assumes by operation of law, the obligations of the
National MGP hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE NATIONAL PARTIES
The National MLP, the National MGP, the National SGP and Triarc
(collectively with National Sales and Service Inc. ('NSSI'), the 'National
Parties') hereby represent and warrant, jointly and severally, to the Purchaser,
Purchaser General Partner and Purchaser Holdings (the 'Purchaser Parties') that:
SECTION 3.1 Organization and Existence.
Each of the National MLP and the National OLP has been duly organized and
is validly existing and in good standing as a limited partnership under the laws
of the State of Delaware, and each of the National MGP, the National SGP, NSSI
and Triarc is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of the National MLP and
the National OLP has full partnership power and authority, and each of the
National MGP, the National SGP, NSSI and Triarc has full corporate power and
authority to own and lease the properties and assets it now owns and leases and
to carry on its businesses as and where such properties are now owned or
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leased and such business is now conducted. Each of the National Parties and the
National OLP are duly licensed or qualified to do business as a foreign
corporation or foreign limited partnership, as applicable, and are in good
standing in each jurisdiction in which the character of the properties and
assets now owned or leased by them or the nature of the business now conducted
by them requires them to be so licensed or qualified and where the failure so to
qualify or be licensed could reasonably be expected to have a Material Adverse
Effect (as defined below). Schedule 3.1 contains a list of each jurisdiction in
which the National MLP, the National OLP, the National MGP, the National SGP and
NSSI are duly licensed or qualified to do business as a foreign limited
partnership or foreign corporation. Except as set forth on Schedule 3.1, the
National MLP and the National OLP have no direct or indirect investment or
interest in or control over any other corporation, partnership, joint venture or
other business entity.
SECTION 3.2 Authority; Binding Effect.
Each of the National Parties has all corporate or partnership authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement and the Transactions have been duly authorized, executed
and delivered by each of the National Parties, subject with respect to the
Merger to the approval and adoption of this Agreement, and with respect to the
other Transactions contemplated by Sections 2.1 and 2.2, to any necessary
approval thereof under the National MLP Partnership Agreement, by the
unitholders (which, as contemplated by this Agreement, may be obtained without a
meeting or solicitation of consents of unitholders), and is the legal, valid and
binding obligation of each of the National Parties, enforceable against each of
the National Parties in accordance with its terms. The National MGP, through the
National Board, has approved this Agreement and the transactions contemplated
hereby and determined that it will, subject to Section 5.8, recommend to the
holders of National Common Units acceptance of the Offer.
SECTION 3.3 SEC Filings.
Since July 2, 1996 (a) the National MLP has timely made all filings
required to be made by the Securities Act and the Exchange Act, (b) all filings
by the National MLP with the SEC, at the time filed (in the case of documents
filed pursuant to the Exchange Act) or when declared effective by the SEC (in
the case of registration statements filed under the Securities Act) complied in
all material respects with the applicable requirements of the Securities Act and
the Exchange Act and the rules and regulations of the SEC thereunder, (c) no
such filing, at the time described above, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein in order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading, and (d) all financial
statements contained or incorporated by reference therein complied as to form
when filed in all material respects with the rules and regulations of the SEC
with respect thereto, were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto), and fairly present
in all material respects the financial condition and results of operations of
the National MLP at and as of the respective dates thereof and the consolidated
results of its operations and changes in cash flows for the periods indicated
(subject in the case of unaudited statements, to normal year-end audit
adjustments).
SECTION 3.4 Financial Statements.
Attached as Schedule 3.4 are copies of the National MLP's draft
consolidated balance sheet as at December 31, 1998, and the related draft
consolidated statement of income, cash flows and unit holders' equity for the
fiscal year then ended (including in all cases the notes thereto) (collectively,
the 'National Financial Statements'). The National Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied except as noted therein and fairly present in all material
respects the consolidated financial position of the National MLP and its
subsidiaries as of the respective dates set forth therein and the results of
operations and cash flows for the National MLP and its subsidiaries for the
respective fiscal periods set forth therein. Notwithstanding the foregoing, the
footnotes to the National Financial Statements will be revised following the
execution of this
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Agreement to reflect the transactions contemplated by this Agreement; provided,
further, that Purchaser will be provided with an opportunity to review the
revisions to the National Financial Statements prior to filing. Triarc has paid
to the National OLP on March 31, 1999 a quarterly interest payment of $1,036,125
on the Triarc Note.
SECTION 3.5 Offer Documents; Schedule 14D-9.
None of the information supplied or to be supplied by any of the National
Parties for inclusion or incorporation by reference in the Schedule 14D-9, Offer
Documents and, if applicable, the Information Statement, will, at the respective
times the Schedule 14D-9, the Offer Documents, the Information Statement, or any
amendments or supplements thereto are filed with the SEC or are first published,
sent or given to holders of National Common Units, as the case may be, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading, except that no
representation is made by the National Parties with respect to statements made
or incorporated by reference therein based on information supplied by any of the
Purchaser Parties for inclusion in the Schedule 14D-9. The Schedule 14D-9 will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder.
SECTION 3.6 No Material Adverse Change.
Since September 30, 1998, and except as publicly disclosed prior to the
date hereof by the National MLP, there has not occurred any material adverse
change in, or any event or circumstance that (singly or together with any other
such events or circumstances) could reasonably be expected to have a material
adverse effect on, the assets, liabilities, properties, business, operations,
earnings, results of operations, business or financial condition of the National
MLP, the National OLP and NSSI, taken as a whole or on the ability of the
National Parties to effect the Transactions (any such change or effect (taking
into account the proviso to this sentence), a 'Material Adverse Effect');
provided, however that a Material Adverse Effect shall exclude any change or
effect due to (i) general business, economic or financial conditions that are
not unique to the National MLP but also affect other corporations, partnerships,
persons or entities who participate or are engaged in the lines of business in
which the National MLP also participates or is engaged and (ii) any continuation
but not a material worsening of an adverse trend or condition publicly disclosed
prior to the date hereof by National MLP or as described in Schedule 3.6.
SECTION 3.7 Ownership.
(a) The National MGP and the National SGP are the sole general partners of
the National MLP, each with a 1.0% unsubordinated general partner interest in
the National MLP and, in the case of the National MGP, the related Incentive
Distribution Rights in respect thereof pursuant to the National MLP Partnership
Agreement.
(b) The National MGP and the National SGP are the sole general partners of
the National OLP, each with a 1.0101% unsubordinated general partner interest in
the National OLP pursuant to the National OLP Partnership Agreement.
(c) All of the general partner interests in the National MLP and the
National OLP have been duly authorized and have been validly issued to the
National MGP and the National SGP in accordance with the National MLP
Partnership Agreement and the National OLP Partnership Agreement, and are owned
by the National MGP and the National SGP free and clear of all liens, claims and
encumbrances, except as set forth on Schedule 3.7; and the Incentive
Distribution Rights have been duly authorized and have been validly issued to
the National MGP in accordance with the National MLP Partnership Agreement, and
are owned by the National MGP free and clear of all liens, claims and
encumbrances, except as set forth on Schedule 3.7.
(d) The National MLP is the sole limited partner of the National OLP with a
97.9798% limited partner interest in the National OLP; such limited partner
interest has been duly authorized and validly issued in accordance with the
National OLP Partnership Agreement, is fully paid (to the extent
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required by the National OLP Partnership Agreement) and nonassessable (except as
such nonassessability may be affected by matters described in the National MLP's
Prospectus dated June 26, 1996 under the caption 'The Partnership
Agreement -- Limited Liability') and is owned by the National MLP free and clear
of all liens, claims and encumbrances, except as set forth on Schedule 3.7.
(e) All of the shares of issued and outstanding capital stock of the
National SGP have been duly authorized and validly issued and are fully paid and
nonassessable, and are owned by the National MGP free and clear of all liens,
claims and encumbrances, except as set forth on Schedule 3.7.
(f) The only outstanding limited partner interests of the National MLP are
6,701,550 National Common Units, which have been duly authorized by the National
MLP Partnership Agreement and are validly issued and fully paid (to the extent
required under the National MLP Partnership Agreement) and nonassessable (except
as such nonassessability may be affected by matters described in the National
MLP's Prospectus dated June 26, 1996 under the caption 'The Partnership
Agreement -- Limited Liability').
(g) The 4,533,638 National Subordinated Units representing subordinated
general partner interests in the National MLP held by the National MGP have been
duly authorized and validly issued in accordance with the National MLP
Partnership Agreement, constitute the only subordinated general partner
interests issued and outstanding and are owned by the National MGP free and
clear of all liens, claims and encumbrances, except as set forth on Schedule
3.7.
(h) All the outstanding shares of capital stock of NSSI have been duly
authorized and validly issued and are fully paid and nonassessable and are owned
of record and beneficially by the National OLP free and clear of all liens,
claims and encumbrances, except as set forth on Schedule 3.7.
(i) Except as set forth on Schedule 3.7(i), there are no outstanding
subscriptions, options, convertible securities, warrants, calls or rights of any
kind (issued or granted by, or binding upon, the National MLP or the National
OLP) to purchase or otherwise acquire any security of or equity interest in the
National MLP or the National OLP.
(j) The National Parties (i) have good and valid title to the outstanding
Acquired Interests owned by them free and clear of any liens, claims or
encumbrances, except as set forth in Schedule 3.7 and (ii) will convey to the
National MLP, the National OLP, the Purchaser or Purchaser General Partner, as
applicable, at the Closing, good and valid title to such Acquired Interests to
be transferred to them pursuant to Sections 2.1 and 2.2, free and clear of any
liens, claims or encumbrances.
SECTION 3.8 No Conflict.
Except for any required filings under the HSR Act, any required filings
with the SEC and under Delaware Law and assuming receipt of the approvals and
consents described in Schedule 3.8 (the 'Required Consents') and receipt of the
requisite votes of the holders of outstanding National Common Units as
contemplated by Section 3.16, the execution and delivery of this Agreement do
not, and the fulfillment and compliance with the terms and conditions hereof and
the consummation of the transactions contemplated hereby will not (a) conflict
with any of, or require the consent of any person or entity under, the terms,
conditions or provisions of the charter documents or bylaws or equivalent
governing instruments of any of the National Parties or the National OLP, as
applicable, (b) violate any provision of, or require any consent, authorization
or approval under, any law or administrative regulation or any judicial,
administrative or arbitration order, award, judgment, writ, injunction or decree
applicable to any of the National Parties or the National OLP, (c) except as
described in Schedule 3.8, conflict with, result in a breach of, constitute a
default under (whether with notice or the lapse of time or both) or accelerate
or permit the acceleration of the performance required by, or require any
consent, authorization or approval under, any indenture, mortgage, lien or any
material agreement, contract, commitment or instrument to which any of the
National Parties or the National OLP, as applicable, is a party or by which any
of the National Parties or the National OLP is bound or to which any asset of
any of the National Parties or the National OLP is subject, or (d) result in the
creation of any lien, charge or encumbrance on the assets or properties of any
of the National Parties or the National OLP under any such indenture, mortgage,
lien, agreement, contract or instrument.
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SECTION 3.9 No Default.
Assuming receipt of the Required Consents and except as set forth on
Schedule 3.9, none of the National Parties or the National OLP is in default
under, and no condition exists that with notice or lapse of time or both could
reasonably be expected to constitute a default under, (a) any mortgage, loan
agreement, indenture, evidence of indebtedness or other instrument evidencing
borrowed money or other agreement to which it or any of its properties are
subject to or bound, or (b) any judgment, order or injunction of any court,
arbitrator or governmental agency except for such defaults and conditions that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
SECTION 3.10 Copies Complete.
The National Parties have delivered or made available to the Purchaser
Parties for their review copies of the charter documents, bylaws and other
governing documents, each as amended to date, and the copies of all material
leases, contracts, instruments, agreements, licenses, permits, certificates and
any such documents delivered or made available by any of the National Parties to
any of the Purchaser Parties in connection with the transactions contemplated by
this Agreement are complete and accurate in all material respects and are true
and correct copies of the originals thereof.
SECTION 3.11 Brokerage Arrangements.
Except as set forth in Schedule 3.11, none of the National Parties or the
National OLP has entered (directly or indirectly) into any agreement with any
person, firm or corporation that would obligate any of the Purchaser Parties,
the National MLP, the National OLP or the Purchaser OLP to pay any commission,
brokerage or 'finder's fee' in connection with the transactions contemplated
herein.
SECTION 3.12 Undisclosed Liabilities.
Except (i) as disclosed to the Purchaser Parties prior to the date hereof,
or reserved against or reflected on or provided for on the National Financial
Statements (including the footnotes thereto) or otherwise disclosed in any
filing by the National MLP with the SEC prior to the date hereof; or (ii) as
incurred after December 31, 1998 in the ordinary course of business consistent
with prior practice and not prohibited by this Agreement, neither the National
MLP nor the National OLP has any liabilities or obligations which are known, or
should reasonably have been known in the customary exercise of their respective
business duties, by any of the officers and employees of the National MGP listed
on Schedule 3.12 (the 'Knowledge of the National MGP') and that would be
required by generally accepted accounting principles to be reflected or reserved
against on a balance sheet of the National MLP or the National OLP or in the
notes thereto and that, individually or in the aggregate, have or could
reasonably be expected to have a Material Adverse Effect. Neither Carib Gas
Corporation of St. Croix, Carib Gas Corporation of St. Thomas nor All Seasons
Propane Holdings Co. have, to the Knowledge of the National MGP, any material
liabilities.
SECTION 3.13 No Litigation.
Other than as set forth Schedule 3.13, there is no (a) suit, action,
proceeding or governmental investigation pending or, to the Knowledge of the
National MGP, threatened in writing against or affecting the National Parties or
the National OLP or any of their properties, or (b) judgment, decree,
injunction, rule or order of any governmental body or arbitrator outstanding
against the National Parties or the National OLP that (in any case) could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect or prevent the National Parties or the National OLP from
consummating the transactions contemplated by this Agreement.
SECTION 3.14 Environmental Matters.
(a) Except as would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or as set forth on Schedule 3.14, to
the Knowledge of the National MGP:
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(i) each of the National MGP, the National MLP, the National OLP and
NSSI has obtained all licenses, permits and other authorizations, has
prepared and filed all required plans and reports, and has maintained all
data and files required under all environmental, health and safety and
hazardous waste laws, ordinances, rules and regulations and any binding
judicial or administrative interpretations thereof and all orders, decrees,
judgments and injunctions issued by a governmental agency in each case
relating to pollution or the protection, cleanup or restoration of the
environment or natural resources or to human health and safety
('Environmental and Health and Safety Laws') or Hazardous Materials (as
defined below) ('Hazardous Waste Laws') required for the conduct of its
businesses and operations and is in compliance with all applicable
Environmental and Health and Safety Laws and Hazardous Waste Laws;
(ii) there are not any past or present conditions or circumstances at,
or arising out of, any current or former businesses, operations, assets or
properties of the National MGP, the National MLP, the National OLP or NSSI
including but not limited to on-site or off-site disposal or release of any
chemical substance, product, waste, or contaminants, including but not
limited to petroleum, petroleum products, propane and any fraction thereof,
propane byproducts, lead, mercury, asbestos and asbestos containing
materials, polychlorinated biphenyls, and all other materials and
substances regulated pursuant to Environmental and Health and Safety Laws
or the presence of which could result in liability under any Environmental
and Health and Safety Laws or Hazardous Waste Laws ('Hazardous Materials')
which conditions or circumstances could reasonably be expected to give rise
to (1) liabilities or obligations for any cleanup, remediation, disposal or
corrective action under any Environmental and Health and Safety Laws or
Hazardous Waste Laws or (2) claims arising for personal injury, property
damage, or damage to natural resources;
(iii) none of the National MGP, the National MLP, the National OLP or
NSSI has (1) received any notice of noncompliance with, violation of, or
liability or potential liability under any Environmental and Health and
Safety Laws or Hazardous Waste Laws or (2) entered into any consent decree
or order or is subject to any order of any court or governmental authority
or tribunal under any Environmental and Health and Safety Laws or Hazardous
Waste Laws;
(iv) none of the National MGP, the National MLP, the National OLP or
NSSI has or may have retained or assumed, either contractually or by
operation of law, from any person or entity (collectively, 'Predecessors')
any liability arising from, related to or otherwise connected with (1)
Environmental and Health and Safety Laws or (2) Hazardous Waste Laws. A
true, accurate and complete list of the identities of such Predecessors and
the nature of the retained environmental liabilities is attached to
Schedule 3.14;
(v) the National MGP has provided or made available to the Purchaser
and their representatives: (1) copies of all material environmental, health
or safety reports, records, studies, audits, analyses, data, site
assessments and other documentation conducted or prepared by or on behalf
of the National MGP, the National MLP, the National OLP or NSSI and
relating to the businesses, operations and properties owned, leased or
operated by the National MGP, the National MLP, the National OLP or NSSI,
and (2) the identity and location of all off-site treatment, storage and
disposal facilities used as well as the nature and quantity of Hazardous
Materials sent by the National MGP, the National MLP, the National OLP or
NSSI or, to Knowledge of the National MGP, any Predecessor (collectively
'Environmental Documents'). A true, accurate and complete list of
Environmental Documents is set forth on Schedule 3.14.
(b) For purposes of this Section 3.14 only, the Knowledge of the National
MGP shall have the meaning set forth in Section 3.12 and shall include the
actual knowledge of the persons set forth in Schedule 3.14.
SECTION 3.15 [Intentionally Left Blank].
SECTION 3.16 Vote Required.
The affirmative vote of the holders of at least a majority of the
outstanding National Common Units and the affirmative vote of the holders of at
least a majority of the outstanding National
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Subordinated Units are the only votes of the holders of any partnership
interests in the National MLP necessary to approve this Agreement on behalf of
the National Parties.
SECTION 3.17 Labor Matters.
Except as set forth on Schedule 3.17, to the Knowledge of the National MGP,
none of the National General Partners, the National MLP or the National OLP (a)
is a party to, or bound by, any collective bargaining agreement or other
contract with a labor union or labor organization or is the subject of any
claims initiated by any labor organization to represent any of its employees not
currently represented by a labor organization or (b) is the subject of any
proceeding asserting that it has committed an unfair labor practice or any
threatened claims alleging that it has committed an unfair labor practice or
(c) is the subject of any strike, work stoppage or material labor dispute.
SECTION 3.18 Compliance with Laws.
The National MLP, the National OLP and NSSI hold all required, necessary or
applicable permits, licenses, variances, exemptions, orders, franchises and
approvals of all governmental entities to conduct the business as currently
conducted, except where the failure to so hold would not reasonably be expected
to have a Material Adverse Effect (the 'National Permits'). The National MLP and
the National OLP are in compliance with the terms of the National Permits except
where the failure to so comply would not reasonably be expected to have a
Material Adverse Effect. Neither the National MLP nor the National OLP has
violated or failed to comply with any statute, law, ordinance, regulation, rule,
permit or order of any Federal, state or local government, domestic or foreign,
or any governmental entity, any arbitration award or any judgment, decree or
order of any court or other governmental entity, applicable to either the
National MLP or the National OLP or their respective businesses, assets or
operations, except for violations and failures to comply that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 3.19 Insurance.
Set forth on Schedule 3.19 is a list of all primary and excess casualty and
liability insurance policies providing coverage for bodily injury and property
damage maintained by or on behalf of the National MLP. The National MLP has made
available true and correct copies of all such policies to the Purchaser. Such
insurance coverage is reasonably adequate for the operation of the business
conducted by the National MLP taking into account the cost and availability of
such insurance and customs in the propane industry.
SECTION 3.20 Intellectual Property.
To the Knowledge of the National MGP, the National MLP owns or possesses
adequate licenses and other valid rights to use all patents, patent rights,
trademarks, trademark rights and proprietary information used or held for use in
connection with its business as currently being conducted, and there are no
assertions or claims challenging the validity of any of the foregoing which
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.21 Employee Benefit Matters.
(a) Schedule 3.21 contains a true and complete list of each written
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ('ERISA')), all written employment and
severance agreements (or written consulting agreements with natural persons) and
any written employee compensation plan, including without limitation, any
pension, retirement, severance, retention, profit sharing, stock option, stock
purchase, bonus, health, life, disability or fringe benefit plan sponsored or
maintained by any of the National Parties or NSSI with respect to employees of
the National MGP or NSSI (each such plan and agreement a 'National Plan' and
collectively, the 'National Plans'). Except as set forth in Schedule 3.21 to
this Agreement, the transactions contemplated by this Agreement will not
accelerate the time of payment or vesting,
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increase the amount of compensation due or result in a severance payment for any
director, officer or employee or former director, officer or employee (including
any beneficiary) of any of the National Parties.
(b) Except as set forth on Schedule 3.21 none of the National Plans is a
multiemployer pension plan as defined in Section 3(37) of ERISA.
(c) Each National Plan is and has been maintained in substantial compliance
with all applicable laws and has been administered and operated in all material
respects in accordance with its terms. Neither the National MGP nor any entity
required to be aggregated with the National MGP pursuant to Section 414(b) or
(c) of the Code has incurred any material liability that has not been fully paid
or satisfied or could reasonably be expected to incur any material liability, in
either case under Title IV of ERISA or Section 412 of the Code.
SECTION 3.22 Certain Agreements.
Except as set forth on Schedule 3.22, or filed with the SEC by the National
MLP prior to the date hereof, to the Knowledge of the National MGP none of the
National MLP, the National OLP or NSSI is a party to:
(i) any material agreement, license or instrument that prohibits the
National MLP or the National OLP from competing in the retail propane
distribution business in any geographical area in the United States;
(ii) any material supply contract containing 'take or pay' provisions;
(iii) any material agreement under which the National MLP, the
National OLP or NSSI has agreed to indemnify or hold harmless any past or
present affiliate thereof or any past or present officer, director,
employee or stockholder of any such affiliate; or
(iv) any material written agreement, arrangement or understanding,
with any other of the National Parties or any other affiliate. Since
September 30, 1998, there has not occurred any transaction between any of
the National MLP, the National OLP or NSSI on the one hand and any
affiliate thereof on the other, other than in the ordinary course of
business under the foregoing agreements, arrangements and understandings.
SECTION 3.23 Taxes.
(a) Except as provided in Schedule 3.23:
(i) From the date of formation until the Acceptance Date, the National
MLP and the National OLP have been, and are, entities properly taxable as
partnerships and not as corporations pursuant to Code sections 7701(a) and
7704 and the regulations thereunder;
(ii) The National MLP, the National OLP and NSSI (together the
'National Representing Parties') have filed or caused to be filed, within
the times and in the manner prescribed by law, all material Federal, state,
local and foreign Tax Returns and Tax reports that are required to be filed
by the National Representing Parties or with respect to the assets of any
of the National Representing Parties and such returns and reports reflect
accurately all material items required to be reported therein for the
periods covered thereby and are true, complete and correct in all material
respects;
(iii) The National Representing Parties have, within the time and in
the manner prescribed by law, paid (and until the Acceptance will pay
within the time and in the manner prescribed by law) all material Taxes
imposed on or incurred by such party that are currently due and payable;
(iv) None of the National Representing Parties has requested any
extension of time within which to file any material Tax Return, which Tax
Return has not since been filed or has executed any outstanding waivers or
comparable consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns of any National Representing Party
for any period prior to the Acceptance Date, and none of the National
Representing Parties has been requested to enter into any such agreement or
waiver;
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(v) There is no action, suit, proceeding, investigation, audit, or
claim now pending or threatened by any authority regarding any material
Taxes relating to the National Representing Parties, the National MGP, the
National SGP, or the assets of the National Representing Parties, for any
period prior to the Acceptance;
(vi) No material deficiency for any Taxes has been proposed, asserted
or assessed against any of the National Representing Parties that has not
been resolved and paid in full; and
(vii) The National Representing Parties have made available complete
and accurate copies, covering all years ending on or after December 31,
1996, of (A) all material Tax Returns, and any amendments thereto, filed by
any National Representing Party, (B) all material audit reports or similar
materials received from any taxing authority relating to any Tax Return
filed by any National Representing Party and (C) any material Closing
Agreements or Tax rulings (or any pending requests for such rulings)
applicable with respect to any National Representing Party.
(b) 'Taxes' as used in this Agreement, shall mean any federal, state,
county, local or foreign taxes, charges, fees, levies, or other assessments,
including all income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipts, business and
occupation, employment, disability, payroll, license, estimated, severance or
withholding taxes, other taxes or similar charges of any kind whatsoever imposed
by any governmental entity, whether imposed directly on a Person or resulting
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract or otherwise
and includes any interest and penalties (civil or criminal) on or additions to
any such taxes or in respect of a failure to comply with any requirement
relating to any Tax Return and any expenses incurred in connection with the
determination, settlement or litigation of any tax liability. 'Tax Return' as
used in this Agreement, shall mean a report, return or other information
required to be supplied to a governmental entity with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities. 'Tax Ruling,' as used in this Agreement, shall mean a written
ruling of a taxing authority relating to Taxes. 'Closing Agreement,' as used in
this Agreement, shall mean a written and legally binding agreement with a taxing
authority relating to Taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER PARTIES
The Purchaser Parties hereby represent and warrant, jointly and severally,
to the National Parties that:
SECTION 4.1 Organization and Existence.
The Purchaser has been duly organized and is validly existing and in good
standing as a limited partnership under the laws of the State of Delaware, and
Purchaser Holdings and Purchaser General Partner are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Purchaser has full partnership power and authority, and Purchaser
Holdings and Purchaser General Partner have full corporate power and authority
to own and lease the properties and assets they now own and lease and to carry
on their businesses as and where such properties are now owned or leased and
such businesses are now conducted. Each of the Purchaser Parties are duly
licensed or qualified to do business as a foreign corporation or foreign limited
partnership, as applicable, and are in good standing in each jurisdiction in
which the character of the properties and assets now owned or held by them or
the nature of the business now conducted by them requires them to be so licensed
or qualified and where the failure so to qualify or be licensed could reasonably
be expected to have a material adverse effect on the assets, liabilities,
properties, business, operations, earnings, results of operations, business or
financial condition of the Purchaser, Purchaser Holdings and Purchaser General
Partner, taken as a whole, or on the ability of the Purchaser Parties to effect
the Transactions (a 'Purchaser Material Adverse Effect').
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SECTION 4.2 Authority; Binding Effect.
Each of the Purchaser Parties has all corporate or partnership authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by each
of the Purchaser Parties, and is the legal, valid and binding obligation of each
of the Purchaser Parties, enforceable against each of the Purchaser Parties in
accordance with its terms.
SECTION 4.3 No Conflict.
Except for any required filings under the HSR Act, any required filings
with the SEC and under Delaware Law and any applicable state takeover laws, the
execution and delivery of this Agreement do not, and the fulfillment and
compliance with the terms and conditions hereof and the consummation of the
Transactions will not (a) conflict with any of, or require the consent or
approval of any person or entity under, the terms, conditions or provisions of
the relevant partnership agreements, charter documents or bylaws or equivalent
governing instruments of any of the Purchaser Parties, (b) violate any provision
of, or require any consent, authorization or approval under, any law or
administrative regulation or any judicial, administrative or arbitration order,
award, judgment, writ, injunction or decree applicable to any of the Purchaser
Parties, (c) conflict with, result in a breach of, constitute a default under
(whether with notice or the lapse of time or both) or accelerate or permit the
acceleration of the performance required by, or require any consent,
authorization or approval under, any indenture, note, or other evidence of
indebtedness, mortgage, lien or any material agreement, contract, commitment or
instrument to which either of the Purchaser Parties is a party or by which
either of the Purchaser Parties is bound or to which any asset of either of the
Purchaser Parties is subject, or (d) result in the creation of any lien, charge
or encumbrance on the assets or properties of either of the Purchaser Parties
under any such indenture, mortgage, lien, agreement, contract or instrument.
SECTION 4.4 No Default.
None of the Purchaser Parties is in default under, and no condition exists
that with notice or lapse of time or both could reasonably be expected to
constitute a default under, (a) any mortgage, loan agreement, indenture,
evidence of indebtedness or other instrument evidencing borrowed money or other
agreement to which it or any of its properties are bound, or (b) any judgment,
order or injunction of any court, arbitrator or governmental agency, except for
such defaults and conditions that, individually or in the aggregate, could not
reasonably be expected to have a Purchaser Material Adverse Effect.
SECTION 4.5 Offer Documents; Information Statement.
The Offer Documents will not, at the time the Offer Documents are filed
with the SEC or are first published, sent or given to holders of National Common
Units, as the case may be, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The information supplied by the
Purchaser Parties for inclusion in the Information Statement and Schedule 14D-9
will not, on the date the Information Statement or Schedule 14D-9 (or any
amendment or supplement thereto) is first mailed to holders of National Common
Units contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Notwithstanding the foregoing, the Purchaser Parties make no
representation or warranty with respect to any information supplied by any of
the National Parties or any of their representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.
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SECTION 4.6 Financing.
Purchaser Holdings has, or will have available to it at the time the
Purchaser is required to pay for the Acquired Interests as contemplated by this
Agreement, and will make available to the Purchaser, sufficient funds to permit
the Purchaser to acquire the Acquired Interests pursuant to this Agreement.
SECTION 4.7 Brokerage Arrangements.
Except as set forth on Schedule 4.7, none of the Purchaser Parties has
entered (directly or indirectly) into any agreement with any person, firm or
corporation that would obligate any of the National Parties to pay any
commission, brokerage or 'finder's fee' in connection with the transactions
contemplated herein.
ARTICLE V
ADDITIONAL AGREEMENTS, COVENANTS, RIGHTS AND OBLIGATIONS
SECTION 5.1 Access to Information.
From the date of this Agreement to the Effective Time or until this
Agreement is terminated as provided in Article VIII, each of the National MGP
and the National MLP shall provide, and the National MGP shall cause the
National OLP to provide, to each of the Purchaser Parties reasonable and prompt
access to all of its books, records (including making copies as reasonably
requested), assets, properties, employees, agents and representatives, and shall
furnish or cause to be furnished, as applicable, to each of the Purchaser
Parties such information as any such party may reasonably request, upon prior
notice and during normal business hours, unless any such access and disclosure
would violate the terms of any agreement to which any National Party or the
National OLP is bound or any applicable law or regulation. Each of the National
Parties will, and the National MGP will cause the National OLP to, allow the
Purchaser Parties access to and consultation with the lawyers, accountants, and
other professionals employed or used by the National Parties and the National
OLP for all purposes under this Agreement. Any such consultation shall occur
under circumstances appropriate to maintain intact the attorney-client privilege
as to privileged communications and attorney work product and any other
applicable privilege. Until the Closing, the confidentiality of any data or
information so acquired shall be maintained by each of the Purchaser Parties and
their representatives pursuant to the terms of the Confidentiality Agreement
between the parties hereto dated November 30, 1998 (the 'Confidentiality
Agreement'), which each of the above-named parties hereby acknowledges is
binding on it.
SECTION 5.2 Conduct of Business.
(a) Ordinary Course.
From the date of this Agreement to the Effective Time, each of the National
MGP, the National SGP and the National MLP shall continue, and the National MGP
shall cause the National OLP and NSSI to continue, to maintain its respective
assets and properties and operate its respective business in the ordinary course
as was being conducted prior to the execution of this Agreement.
(b) Restrictions on National MLP and National OLP.
Without first obtaining the written consent of Purchaser General Partner,
which consent shall not be unreasonably withheld or delayed, from the date
hereof until the Effective Time, except as otherwise contemplated by this
Agreement or as set forth on Schedule 5.2(b), the National MLP will not (and the
National MGP covenants that it will cause the National MLP and the National OLP
and NSSI not to):
(i) make any material change in the conduct of its business and
operations or its financial reporting and accounting methods;
(ii) other than in the ordinary course of business consistent with
past practice, enter into any material contract or agreement or terminate
or amend in any material respect any material contract or agreement to
which it is a party, waive any material rights under any material contract
or agreement to which it is a party, or be in default in any material
respect thereunder;
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(iii) declare, set aside or pay any distributions to its partners or
split, combine or reclassify any of its equity securities or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any of its equity securities, or purchase, redeem or
otherwise acquire, directly or indirectly, any such securities;
(iv) merge into or with or consolidate with any other corporation,
partnership, person or other entity or acquire all or substantially all of
the business or assets of any corporation, partnership, person or other
entity or form, acquire any interest in or contribute any assets to any
partnership or joint venture or enter into any similar arrangement;
(v) make any change in its agreement of limited partnership;
(vi) (A) make any purchase of any securities of any corporation,
partnership, person or entity, or (B) make any investment in any
corporation, partnership, joint venture or other business enterprise (other
than ordinary-course overnight investments consistent with cash management
practices of the National MLP and the National OLP);
(vii) incur any indebtedness for borrowed money (except for borrowings
under existing working capital facilities up to an aggregate of $1.0
million) or guarantee any such indebtedness or issue, sell or guarantee any
debt securities or any rights or warrants to acquire any debt securities;
(viii) sell, lease, pledge, encumber or otherwise dispose of any
portion of its assets other than in the ordinary course of business
consistent with past practice;
(ix) issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, any of its equity securities or securities convertible
into its equity securities, or subscriptions, rights, warrants or options
to acquire or other agreements or commitments of any character obligating
it to issue any such securities;
(x) settle in excess of $1.0 million (individually or in the
aggregate) any claim, demand, lawsuit or state or federal regulatory
proceeding not covered by insurance;
(xi) except as required on an emergency basis, purchase, lease or
otherwise acquire any property of any kind whatsoever other than in the
ordinary course of business or make any capital expenditures in excess of
$1.0 million in the aggregate;
(xii) allow or permit the expiration, termination or cancellation at
any time of any material insurance policy applicable to its business or
operations, unless such policy is replaced, with no loss of coverage, by a
comparable insurance policy (to the extent available on commercially
reasonable terms);
(xiii) (A) make or rescind any material express or deemed election
relating to Taxes, (B) make a request for a Tax Ruling or enter into a
Closing Agreement, (C) settle or compromise any material claim, action,
suit, litigation, proceeding, arbitration, investigation, audit, or
controversy relating to Taxes other than those matters set forth in
Schedule 5.2(b) hereto or (D) change any of its methods of reporting
material income or deductions for federal income tax purposes from those
employed in the preparation of its federal income Tax Return for the
taxable year ending December 31, 1997, except as may be required by a
change in applicable law; or
(xiv) commit to do any of the foregoing.
(c) General Business.
From the date hereof until the Effective Time, the National MLP covenants
that it will (and the National MGP covenants that it will cause the National
MLP, the National OLP and NSSI to):
(i) maintain its assets and properties in good working order and
condition as of the date hereof, ordinary wear and tear and casualty
excepted;
(ii) use its commercially reasonable efforts to maintain and preserve
in all material respects its business organization intact and maintain in
all material respects its relationships with suppliers, customers, lessors
and others having business relations with it;
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(iii) file on a timely basis all notices, reports or other filings
required to be filed with or reported to any federal, state, municipal or
other governmental department, commission, board, bureau, agency or any
instrumentality of any of the foregoing wherever located;
(iv) file on a timely basis all applications or other documents
necessary to maintain, renew or extend any material permit, license,
variance or any other approval required by any governmental authority
necessary or required for the continuing operation of its business, whether
or not such approval would expire before or after the Effective Time; and
(v) (A) file or caused to be filed, within the times and in the manner
prescribed by law, all Tax Returns and Tax reports that are required to be
filed by such person determined consistent with prior practices; (B) pay or
cause to be paid, within the time and in the manner prescribed by law, all
material Taxes (including any estimated Taxes) imposed on such party that
are currently due and payable; and (C) establish and maintain reserves
adequate to pay all material Taxes not yet due or payable as of the date of
Closing and for any deferred taxes in accordance with GAAP, determined in
each case assuming the National MLP and the National OLP are partnerships
for tax purposes.
(d) Employees of the National MGP.
From the date hereof until the Effective Time, the National MGP covenants
that (i) it will use its commercially reasonable efforts to retain its employees
related to the operation of the National MLP and the National OLP, (ii) it will
not hire any employee except in the ordinary course of business consistent with
past practice, (iii) it will not hire any management personnel with an annual
salary in excess of $65,000 without first giving Purchaser General Partner a
reasonable opportunity to consult with the National MGP regarding such
prospective hire, (iv) except as set forth in Schedule 5.2(d)(A), it will not
adopt any material new employee benefit plan, arrangement, practice or policy,
or material employment, severance, consulting or other compensation arrangement,
with or for the benefit of new or existing employees, or, except as set forth in
Schedule 5.2(d), amend any existing employee benefit plan, arrangement, practice
or policy, or existing employment, severance, consulting or other compensation
arrangement in any material respect, without prior written consent of the
Purchaser, which consent shall not be unreasonably withheld, provided that any
new severance arrangement or any amendment to an existing severance arrangement
that results in additional costs equal to or less than $25,000 in the aggregate
for all such new arrangements and amendments shall be deemed not to be material
for purposes of this clause (iv), (v) it will not materially increase the
compensation or level of benefits applicable to its employees, except for normal
increases consistent with past practice, (vi) it will not materially change the
nature of National MLP's at cost reimbursement obligation for employee services
and (vii) it will not permit NSSI to do any of the foregoing.
(e) Restrictions on the Purchaser, Purchaser Holdings and Purchaser General
Partner.
Without first obtaining the written consent of the National MGP, which
consent shall not be unreasonably withheld or delayed, from the date hereof
until the Effective Time, except as otherwise contemplated by this Agreement, if
the effect of any of the following could reasonably be expected to lead to the
failure of the Purchaser Parties to consummate the transactions contemplated by
this Agreement, the Purchaser will not (and Purchaser Holdings covenants that it
will cause the Purchaser and Purchaser General Partner not to):
(i) make any material change in the conduct of its business and
operations or its financial reporting and accounting methods;
(ii) other than in the ordinary course of business, enter into any
material contract or agreement or terminate or amend in any material
respect any material contract or agreement to which it is a party, waive
any material rights under any material contract or agreement to which it is
a party, or be in default in any material respect thereunder;
(iii) declare, set aside or pay any dividends or make any
distributions to its partners, or split, combine or reclassify any of its
equity securities or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any of its
equity securities, or purchase, redeem or otherwise acquire, directly or
indirectly, any such securities;
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(iv) merge into or with or consolidate with any other corporation,
partnership, person or other entity, acquire all or substantially all of
the business or assets of any corporation, partnership, person or other
entity or form, acquire any interest in or contribute any assets to any
partnership or joint venture or enter into any similar arrangement;
(v) make any change in its agreement of limited partnership;
(vi) (A) make any purchase of any securities of any corporation,
partnership, person or entity, or (B) make any investment in any
corporation, partnership, joint venture or other business enterprise other
than ordinary-course overnight investments consistent with cash management
practices of Purchaser Holdings;
(vii) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue, sell or guarantee any debt securities or any rights
or warrants to acquire any debt securities;
(viii) sell, lease or otherwise dispose of any material portion of its
assets other than in the ordinary course of business consistent with past
practice;
(ix) settle in excess of $1.0 million (individually or in the
aggregate) any claim, demand, lawsuit or state or federal regulatory
proceeding unless prior to such settlement the National MGP shall have been
given a reasonable opportunity to consult with Purchaser General Partner,
including but not limited to the ability to make a presentation to the
Board of Directors of Purchaser General Partner, if requested, regarding
such settlement;
(x) allow or permit the expiration, termination or cancellation at any
time of any material insurance policy applicable to its business or
operations, unless such policy is replaced, with no loss of coverage, by a
comparable insurance policy (to the extent available on commercially
reasonable terms) provided that Purchaser General Partner shall notify the
National MGP if any such insurance coverage will not be replaced;
(xi) commit to do any of the foregoing.
In addition, from the Closing Date until the expiration of the Debt
Indemnity (as defined below), the Purchaser shall not, and Purchaser Holdings
covenants that it shall cause the Purchaser, Purchaser General Partner and
Purchaser OLP not to, without the prior written consent of the Special Limited
Partner, (i) except as required by Applicable Law (as defined below), implement
or adopt any material change in the Purchaser OLP's federal income tax methods,
principles or elections listed on Schedule 5.2(e) including the application of
the remedial method under Section 704(c) of the Code to the assets contributed
to the National OLP by the National MGP and the National SGP and the non-
amortization of Section 197 intangibles contributed to the National OLP by the
National MGP and the National SGP (the 'National Assets') (except to the extent
that a Section 743(b) adjustment exceeds the carrying value of such intangibles
immediately preceding the Closing Date) if such change relates to any of the
National Assets; (ii) sell or otherwise dispose of any assets of the Purchaser
OLP (other than the Marshfield, Wisconsin property, should it be or become an
asset of the Purchaser OLP) if such sale or disposition would result in greater
than $5,000,000 of gain per year (the 'Threshold Amount'), on a cumulative basis
permitting carry-forwards, to be allocable to the National MGP pursuant to
Section 704(c) of the Code; or (iii) increase as of any date following the date
of Closing the Section 704 carrying value of the National Assets; provided,
however that in the event that either the Purchaser or the Purchaser OLP
breaches covenant (i), (ii) or (iii) of this paragraph, subject to Section
9.1(d), Purchaser Holdings, Purchaser General Partner and the Purchaser OLP
agree to indemnify the National MGP, in an amount equal to the sum of (x) (A)
the incremental gain recognized as a result of such breach (and in the case of
clause (ii), such gain exceeding the Threshold Amount, and in the case of clause
(iii), the income allocated to the National MGP with respect to the revalued
property reduced by the deductions or losses allocated to the National MGP with
respect to the revalued property applying the principles of Code Section 704(c))
(plus any penalties or additions to tax imposed on the National Parties by any
taxing authority as a result of such breach) multiplied by (B) a fraction, the
numerator of which is the maximum net marginal statutory federal and state
income tax rates (expressed as a decimal) in the jurisdictions applicable to the
National MGP for the year in which such gain is recognized (taking into account
the deductibility of state income tax in determining the liability for federal
income tax) (the 'Effective Tax Rate') and the denominator of which is one minus
the Effective Tax Rate and (y) any
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other losses, costs, damages, expenses (other than taxes but including attorneys
fees and interest, penalties and additions to tax imposed on the National
Parties by any taxing authority) as a result of such breach but only to the
extent such damages result in a cash expenditure by one of the National Parties.
Schedule 5.2(e) will be provided to the Purchaser on or prior to the date of
this Agreement in substantially final form; provided, however, the National MGP
may at any time prior to the date that is two weeks after the date of this
Agreement revise, supplement or amend Schedule 5.2(e), subject to the written
consent of the Purchaser and such consent shall not be unreasonably withheld by
the Purchaser. The adjusted tax basis as of December 31, 1998 of the assets in
total by class of National OLP is set forth on Schedule 5.2(e), and, on or
before the date that is 60 days after the Closing Date, such schedule shall be
amended by Purchaser to reflect the adjusted tax basis of such assets as of the
Effective Time. Except to the extent provided in the next sentence, Applicable
Law for purposes of the last paragraph of Section 5.2, Section 5.9, Section 5.14
or Section 5.17 (the 'Tax Provisions') shall mean (i) with respect to U.S.
federal income taxes, any amendments or new enactments (whether prospective or
retroactive) to the Code or the Treasury Department Regulations promulgated
thereunder, and any final determination of a Federal circuit court with
applicable jurisdiction with respect to the Purchaser OLP, in each case
occurring after the Applicable Date (as hereinafter defined) and (ii) with
respect to state income taxes, any amendments or new enactments (whether
prospective or retroactive) to the Code, the Treasury Department Regulations
promulgated thereunder (and any amendments or new enactments to any similar
state statutes or applicable regulations) and any final determination of a
Federal circuit court with applicable jurisdiction with respect to such state
(or a state court with similar appellate authority), in each case occurring
after the Applicable Date. Purchaser or Purchaser Holdings shall notify (the
'Notice') National MGP if any amendment, new enactment or final determination
requires that Purchaser Holdings or any affiliate thereof or successor thereto
(a 'Purchaser Group Member') take any action prohibited by this Agreement or
refrain from any action required by this Agreement (an 'Applicable Law Change');
provided, however, such amendment, new enactment or final determination shall
not be considered to result in an Applicable Law Change if: (i) a nationally
recognized law firm, selected by the National MGP delivers within 90 days
following delivery of the Notice an opinion addressed to Purchaser, Purchaser
Holdings and National MGP, that there is a reasonable basis to conclude that a
court with appropriate jurisdiction would conclude that such amendment,
enactment or final determination does not result in an Applicable Law Change;
(ii) National MGP agrees in writing to assume, at its sole expense, the defense
of any audits, examinations, investigations, claims, suits or other
administrative or judicial proceedings with respect to the acts or failures to
act identified in the Notice; (iii) National MGP agrees in writing to indemnify
and hold harmless, to the fullest extent permitted by law, subject to Section
9.1(d), each Purchaser Group Member from and against any and all losses, costs,
damages, expenses (including any attorneys fees) or Taxes ('Damages') resulting
from such amendment, new enactment or final determination being treated for
purposes of this Agreement as not resulting in an Applicable Law Change (except
to the extent of any Tax benefit not claimed as a result of this proviso) but
only to the extent (x) such Damages result in a cash expenditure by a Purchaser
Group Member or (y) such Damages are otherwise offset by any credit,
carryforward, carryback, available deduction or other offset available to a
Purchaser Group Member; and (iv) to the extent that the net worth of the
National MGP or any successor thereto is less than $30 million (a 'Net Worth
Deficiency') at either the time the indemnification agreement provided for in
clause (iii) is entered into or at the time of payment of any indemnity
thereunder, Triarc shall execute a guaranty of the National MGP's indemnity
obligations under clause (iii) above to the extent of such Net Worth Deficiency
(not previously guaranteed by Triarc under this clause (iv)) for the benefit of
the Purchaser Group Members in form and substance reasonably acceptable to the
Purchaser; provided that, the maximum aggregate amount of such Triarc guaranty
shall in no event be more than $30 million and shall be reduced by (x) $750,000
per annum on each anniversary of the date of this Agreement (beginning on the
first anniversary of the date of this Agreement), and (y) any amounts paid by
the National MGP pursuant to (x) the indemnity referred to in clause (iii) above
or (y) the Debt Indemnity. Net worth for purposes of this clause shall mean (a)
the sum of the capital stock, additional paid in capital and retained earnings
(less accumulated deficits) of the National MGP, all as shown on its
consolidated balance sheet at such time; in accordance with U.S. generally
accepted accounting principles; provided, however, that deferred taxes and
liabilities to Triarc or its affiliates shall be disregarded until paid and
amounts due from Triarc or its affiliates shall be
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reflected as an asset at face value. Any indemnity required under this section
shall be paid to Purchaser Holdings (i) with respect to any Taxes, within 30
days after the entry of a final determination of a U.S. federal circuit court in
which the Purchaser OLP is a party (or any state court with similar appellate
authority in which the Purchaser OLP is a party) or any other final
determination as that term is defined in Code Section 1313 or any similar state
determination) solely with respect to any Tax controversy not appealed to a
federal circuit court or any state court with similar appellate authority or
(ii) in the case of any indemnity not involving Taxes, within 60 days of the
receipt by National MGP of written notice that such expense has been incurred by
a Purchaser Group Member. Any indemnity paid by National MGP to any Purchaser
Group Member with respect to Taxes shall be determined in a manner consistent
with the first sentence of this last paragraph of this Section 5.2. For purposes
of this Agreement, the 'Applicable Date' shall be the Acceptance Date; provided,
however, that if the Purchaser provides the National MGP (with a copy to
Triarc), at least three business days prior to the Acceptance Date, (A) a
written opinion of a nationally recognized law firm, addressed to the National
MGP, that states (i) an Applicable Law Change has occurred since the date of
this Agreement and (ii) the action prohibited or required under this Agreement
affected by such Applicable Law Change, and (B) a written notice accompanying
such legal opinion, in which the Purchaser in good faith represents that such
Applicable Law Change would materially adversely affect it, then the Applicable
Date with respect to the matter(s) contained in such opinion pursuant to clause
(ii) of this proviso (but with respect to no other matters) shall be the date of
this Agreement.
SECTION 5.3 Certain Filings.
As promptly as practicable following the execution of this Agreement (or at
the time such filings are required in the case of filings contemplated by
Section 2.5) the parties shall (a) prepare and file with the Federal Trade
Commission and the Department of Justice any appropriate filings and any
supplemental information which may be reasonably requested in connection
therewith under the HSR Act, it being agreed that the Purchaser is the primary
'Acquiring Person' for purposes of the HSR Act and shall pay the required filing
fee (including filings as contemplated by Section 2.5), (b) use their
commercially reasonable efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the Transactions, (c) except as contemplated by this Agreement, use its
commercially reasonable efforts not to take any action or enter into any
transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement and (d) the parties hereto shall make all required
filings under applicable state securities laws. Each party hereto shall use its
commercially reasonable efforts (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) to cause each filing made by
it with any governmental body to become effective as promptly as possible.
SECTION 5.4 Information Statement.
As soon as practicable following the purchase of all National Common Units
validly tendered and not withdrawn pursuant to the Offer, if required by
applicable law, the National MGP shall file the Information Statement with the
SEC under the Exchange Act, and shall use its commercially reasonable efforts to
have the Information Statement cleared by the SEC. Purchaser General Partner and
the National MGP shall cooperate with each other in the preparation of the
Information Statement, and the National MGP shall notify Purchaser General
Partner of the receipt of any comments of the SEC with respect to the
Information Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information and shall provide to Purchaser
General Partner promptly copies of all correspondence between the National MGP
or any representative of the National MGP and the SEC. The National MGP shall
give Purchaser General Partner and its counsel the opportunity to review the
Information Statement prior to its being filed with the SEC and shall give
Purchaser General Partner and its counsel the opportunity to review all
amendments and supplements to the Information Statement and all responses to
requests for additional information and replies to comments prior to their being
filed with, or sent to, the SEC. Each of the National MGP and Purchaser Holdings
agrees to use its commercially reasonable efforts, after consultation with the
other parties
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hereto, to respond promptly to all such comments of and requests by the SEC and
to cause the Information Statement and all required amendments and supplements
thereto to be mailed to the holders of National Common Units at the earliest
practicable time. On the first business day following expiration of the period
required by Rule 14c-2(b) under the Exchange Act, the Purchaser shall execute a
consent, as the holder of the majority of the National Common Units, and the
National MGP shall execute a consent, as the holder of all of the National
Subordinated Units, to approve all of the transactions contemplated hereby,
including the Merger.
SECTION 5.5 Certain Instruments.
Commencing upon the execution of this Agreement, Purchaser Holdings and
Purchaser General Partner and the National MGP shall use their commercially
reasonable efforts to obtain any required consents to the transactions
contemplated by this Agreement of, and any actions required by, the matters set
forth in Schedule 5.5. The other parties hereto shall cooperate with Purchaser
General Partner and the National MGP as Purchaser General Partner and the
National MGP may reasonably request; provided, that all fees, costs and expenses
of obtaining such consents shall be allocated as described in Section 5.16.
SECTION 5.6 Other Consents.
(a) The Purchaser Parties and the National Parties shall use commercially
reasonable efforts to obtain any consents necessary to transfer title to, and
thereafter shall use their respective commercially reasonable efforts to
transfer title to, any assets used primarily in the business of the National MLP
or the National OLP (whether owned by the National MLP, the National OLP or the
National MGP, but excluding the capital stock of any subsidiaries of the
National MGP) including, but not limited to, any tradenames, intellectual
property rights, real property rights (including the interest of the National
MGP in the Marshfield, Wisconsin property) or personal property rights, from the
National MGP, the National SGP and the National MLP to the National OLP;
(b) if such consents are not obtained, the National MGP shall use its
commercially reasonable efforts to take such other action as may be necessary to
provide the Purchaser OLP with rights to such assets substantially equivalent to
those held by the National MGP, and the National SGP and the National MLP; and
(c) Purchaser Holdings and Purchaser General Partner shall assume effective
as of the Closing, and Purchaser Holdings, Purchaser General Partner and the
National General Partners shall use commercially reasonable efforts to obtain
the discharge effective as of the Closing of the National General Partners from,
any liabilities or obligations arising out of or related to the National General
Partners' role as general partners under and pursuant to the National MLP
Partnership Agreement and the National OLP Partnership Agreement, except to the
extent that the National General Partners would not have been entitled to be
reimbursed or indemnified therefor under the National MLP Partnership Agreement
or the National OLP Partnership Agreement; provided, that all costs and expenses
of obtaining such consents and transfers shall be borne solely by the Purchaser
if the transactions contemplated by this Agreement are consummated.
Simultaneously with the Effective Time, the National MGP shall transfer, or
cause to be transferred, title to the assets in clause (a) above to the National
OLP, by the execution of such documents or instruments deemed necessary and
appropriate by Purchaser General Partner in form and substance reasonably
satisfactory to Purchaser General Partner and the National MGP. As part of the
foregoing asset transfers, the National Parties shall assign or cause their
affiliates to assign to the Purchaser OLP or its designee any rights which any
of them may have under any insurance policy (in effect as of or prior to the
date hereof) or against any third party with respect to any Losses (as herein
defined) arising or resulting from, or relating to, the Marshfield, Wisconsin
property. If any such rights are not assignable, the National Parties shall, and
shall use commercially reasonable efforts to cause their affiliates to, at the
sole expense and under the reasonable control and direction of the Purchaser
OLP, pursue any such rights for the benefit of the Purchaser and its affiliates.
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SECTION 5.7 No Solicitation.
Subject to Section 5.8 below, each of the National Parties (on behalf of
itself and its affiliates, including the National MLP and the National OLP)
agree that upon execution of this Agreement, they shall terminate all
discussions and negotiations with others regarding a sale or other transaction
involving (a) the Acquired Interests, (b) all or substantially all of the
assets, business or securities of the National MLP or the National OLP, or (c)
any other transaction similar to the transactions contemplated by this Agreement
(collectively, the 'National Possible Alternatives'), and thereafter will not,
directly or indirectly, nor shall they authorize or permit any of their
officers, directors or employees to, or any investment banker, financial
advisor, attorney, accountant or other representative retained by them to, so
long as this Agreement remains in effect, (i) solicit, initiate, encourage
(including by way of furnishing information or assistance), conduct discussions
with or engage in negotiations with any person or entity regarding or take any
other action to facilitate any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to a National Possible
Alternative, (ii) enter into an agreement with any person or entity, other than
the Purchaser or its affiliates, providing for a National Possible Alternative,
(iii) make or authorize any statement, recommendation or solicitation in support
of or approve any National Possible Alternative by any person or entity, other
than by the Purchaser or its affiliates, or (iv) withdraw, modify, qualify or
change the recommendation of the transactions contemplated by this Agreement by
the Special Committee or the National Board.
SECTION 5.8 Permitted Actions.
Notwithstanding the provisions of Section 5.7 above, prior to the
Acceptance, Triarc, the National MGP, the National SGP, the National MLP and the
National OLP shall be entitled to take any action otherwise prohibited by
Section 5.7 in response to any third party inquiry, contact or proposal received
by any or all of them (including furnishing information to any such third party,
but only pursuant to a written confidentiality agreement) if (a) the initial
inquiry, contact or proposal from any third party was not received in violation
of Section 5.7 above, (b) the Special Committee shall have determined, in its
good faith judgment, that any such otherwise prohibited action could reasonably
be expected to lead to the negotiation and consummation of a National Possible
Alternative that in the opinion of the Special Committee could reasonably be
expected to be more beneficial than the transactions contemplated by this
Agreement, taken as a whole, to the holders of National Common Units other than
the National MGP and its affiliates (a 'National Superior Transaction') and (c)
the Special Committee shall have determined, after consultation with and based
on the advice of its outside legal counsel, that the failure to take such action
would be inconsistent with the National MGP's or the National Board's fiduciary
duties to holders of National Common Units under applicable law; provided, that
none of the National MGP, the National SGP, the National MLP or the National OLP
may execute a binding agreement to effect a National Superior Transaction unless
this Agreement has first been terminated as provided in Section 8.1. Triarc, the
National MGP (on behalf of itself, the National MLP and the National OLP and the
National SGP) and the National MLP agree that each of them will notify Purchaser
General Partner immediately if any inquiry, contact or proposal is received by,
any such information is requested from, or any such discussions or negotiations
are sought to be initiated or continued with, it or any of its representatives,
indicating, in connection with such notice, the name of such person or entity
and the material terms and conditions of any inquiry, contact or proposal and
thereafter shall keep Purchaser General Partner informed, on a current basis, on
the status and terms of any such inquiry, contact or proposal and the status of
any such negotiations or discussions.
SECTION 5.9 Indemnified Debt.
Following the Effective Time and until the termination of the Debt
Indemnity pursuant to Section 9.3, Purchaser Holdings and Purchaser General
Partner shall cause the Purchaser OLP not to (a) prepay, defease, purchase or
otherwise retire any of the Indemnified Debt (unless such Indemnified Debt is
simultaneously replaced by the Purchaser OLP with at least an equivalent amount
of new Indemnified Debt providing for no greater amortization), (b) modify any
of the Indemnified Debt so as to eliminate or limit the recourse liability of
the National MGP with respect thereto, (c) merge or consolidate with or
otherwise become a corporation for federal income tax purposes, (d) cause or
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permit any other corporation, partnership, person or entity (other than
Purchaser Holdings and its affiliates, or any successor thereto, or any
successor to the Purchaser OLP) to assume, guarantee, indemnify against or
otherwise incur any liability with respect to any Indemnified Debt, or (e)
except as required by Applicable Law, take or fail to take any other action that
would result in the share of the Indemnified Debt which is allocated to the
National MGP for purposes of Section 752 of the Code and Treasury Regulations
promulgated thereunder pursuant to the Debt Indemnity to be reduced by an amount
in excess of the National MGP's adjusted tax basis in its interest in the
Purchaser OLP, as adjusted following the Effective Time (the 'MGP's Basis');
provided, however, that such covenants shall only apply to the extent any
actions described in (a), (b), (c), (d) or (e) above would result in the share
of the Indemnified Debt which is allocated to the National MGP for purposes of
Section 752 of the Code to be reduced by an amount in excess of the MGP's Basis
at all times until termination of the Debt Indemnity pursuant to Section 9.3
hereof. The MGP's Basis as of December 31, 1998, is set forth on Schedule 5.9,
and, on or before the date that is 60 days after Closing Date, such schedule
shall be amended by Purchaser to reflect the MGP's Basis as of the Effective
Time. In addition, Purchaser Holdings and Purchaser General Partner shall cause
the Purchaser OLP to refinance scheduled principal payments on the Indemnified
Debt with sufficient recourse debt so that at all times until the termination of
the Debt Indemnity pursuant to Section 9.3 hereof, the amount of Indemnified
Debt which is allocable to the National MGP for purposes of Section 752 of the
Code shall not be reduced by an amount exceeding the National MGP's Basis.
Following the Effective Time and until the termination of the Debt Indemnity
pursuant to Section 9.3, (i) Purchaser Holdings and Purchaser General Partner
shall cause the Purchaser OLP to use all commercially reasonable efforts to not
take or omit to take any action, if such action or omission (with the giving of
notice or the passing of time, or both) would constitute a breach of, or give
rise to a default or event of default under, any Indemnified Debt, and (ii) the
National MGP shall have the right, but not the obligation, to arrange for the
refinancing described above if and only if the Purchaser OLP is unable to do so
in accordance with this paragraph. From and after the Effective Time and until
the termination of the Debt Indemnity pursuant to Section 9.3, Purchaser
Holdings and Purchaser General Partner shall cause the Purchaser OLP to furnish
to the National MGP, (A) within 30 days after the end of each calendar year, a
certificate of the chief financial officer of Purchaser General Partner, stating
that (1) the Indemnified Debt has not been reduced by an amount exceeding the
MGP's Basis, as of the end of such calendar year and (2) no event that
constitutes, or with the passing of time or the giving of notice, or both, would
reasonably be expected to constitute, an event of default under any Indemnified
Debt has occurred, or if any such event has occurred, describing such event and
the action Purchaser General Partner intends to take with respect thereto, (B)
concurrently with providing them to the lenders, agents or trustees in respect
of the Indemnified Debt, copies of any compliance certificates, together with
any attachments thereto, required pursuant to any Indemnified Debt, (C) promptly
upon obtaining knowledge thereof, a description, in reasonable detail, of any
event that constitutes, or with the passing of time or the giving of notice, or
both, would reasonably be expected to constitute, an event of default under the
Indemnified Debt and (D) such other documents or information as the National MGP
may reasonably request relating specifically and primarily to the Indemnified
Debt or the Debt Indemnity. Except as required by Applicable Law, the Purchaser
OLP shall prepare and file applicable tax returns consistent with the allocation
of the Indemnified Debt, and shall for all purposes treat the Indemnified Debt
as being allocated for tax purposes to the National MGP. In the event that
before termination of the Debt Indemnity pursuant to Section 9.3, the National
MGP's share of the Indemnified Debt for purposes of Section 752 of the Code is
reduced by an amount in excess of the National MGP's Basis as a result of a
breach by Purchaser Holdings or Purchaser General Partner or any affiliate or
any successor thereto of any provision in this Agreement, subject to Section
9.1(d), Purchaser Holdings, Purchaser General Partner and the Purchaser OLP
agree to indemnify the National MGP in an amount equal to the sum of (x) (A) the
gain recognized by the National MGP resulting from a decrease in the National
MGP's share of the Indemnified Debt (plus any penalties or additions to tax
imposed on the National Parties by any taxing authority as a result of such
breach), multiplied by (B) a fraction, the numerator of which is the Effective
Tax Rate and the denominator of which is one minus the Effective Tax Rate and
(y) any other losses, costs, damages, expenses (other than taxes but including
attorneys fees and interest, penalties and additions to tax imposed on the
National Parties by any taxing authority) as a result of
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such breach but only to the extent such damages result in a cash expenditure by
one of the National Parties.
SECTION 5.10 Environmental Permits.
The National MGP and Purchaser General Partner shall cooperate in (a)
causing the National MGP, the National MLP and the National OLP to take all
actions necessary to comply with applicable requirements of Environmental and
Health and Safety Laws concerning the transfer of property, assets, stock or a
business, including without limitation the filing with appropriate permitting
agencies of all notices required in reference to the change in ownership for the
purpose of effecting the transfer or issuance of the permits, licenses and other
authorizations required under Environmental and Health and Safety Laws for the
transfer, operation and the conduct of the business of the National MLP and the
National OLP, respectively ('Environmental Permits'), (b) effectuating the
issuance, assignment or transfer, as promptly as is reasonably possible on or
after the Effective Time, of all Environmental Permits and any other licenses or
permits ('Other Permits') required as of the Effective Time, and (c)
identifying, preparing and filing any notices or reports required from Purchaser
General Partner in connection with the transfer or issuance of the required
Environmental Permits and Other Permits. For the interim period from the
Effective Time until such time as the required Environmental Permits and the
Other Permits in form and substance reasonably satisfactory to Purchaser General
Partner shall be transferred or issued, and to the extent permitted by law, the
National MGP, on behalf of itself, the National MLP and the National OLP,
authorizes the Purchaser OLP after the Merger to operate under and utilize
existing Environmental Permits and Other Permits. All fees, costs and expenses
in connection with the transfer or issuance of Environmental Permits or Other
Permits shall be borne by the Purchaser if the Closing occurs.
SECTION 5.11 Further Action; Commercially Reasonable Efforts.
From the date hereof through the Effective Time, upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its commercially
reasonable efforts to take, or cause to be taken, all appropriate action, and to
do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to (i) if
necessary, cooperating in the preparation and filing of the Information
Statement, and any amendments thereto, (ii) using its commercially reasonable
efforts to obtain all Required Consents and (iii) using its commercially
reasonable efforts to make all required regulatory filings and applications and
to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities or authorities and parties to
contracts as are necessary for the consummation of the Transactions and to
fulfill the conditions to the consummation of this Agreement; provided that
Purchaser General Partner shall be primarily responsible for obtaining or
transferring all required licenses, permits and authorizations, and the National
MGP shall cooperate in such process as reasonably requested by Purchaser General
Partner. To the extent practicable in the circumstances and subject to
applicable laws, each party shall provide the other with the opportunity to
review all information relating to the other party, or any of its subsidiaries,
which appears in any filing made with, or written materials submitted to, any
governmental entity or authority in connection with obtaining the necessary
regulatory approvals for the consummation of the Transactions. In case that at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall use their commercially reasonable efforts
to take all such necessary action.
SECTION 5.12 Notification of Certain Matters.
The National MGP shall give prompt notice to Purchaser General Partner, and
Purchaser General Partner shall give prompt notice to the National MGP, as
applicable, of (i) the occurrence or non-occurrence of any event which would
likely cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect, with respect to such party, (ii)
any failure of the National Parties, to comply with or satisfy in any material
respect any covenant, condition or
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agreement to be complied with or satisfied by it hereunder, (iii) any failure of
the Purchaser Parties to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
hereunder and (iv) the occurrence of any event described in paragraphs (a)(iv),
(a)(v) or (a)(vi) of Section 3.23; provided, however, that the failure for any
reason to give the notice required by clause (iv) hereof shall not be a breach
of this Agreement for any purpose. The delivery of any notice pursuant to this
Section 5.12 shall not limit or otherwise affect the remedies available
hereunder to the parties.
SECTION 5.13 Certain Indebtedness.
Except as otherwise contemplated herein (including, without limitation,
Section 2.1(a)(ii) or 5.16), at or prior to the Effective Time, the National MGP
shall cause the National MLP and the National OLP to fully repay any
indebtedness owed by the National MLP and the National OLP to any of the other
National Parties or their affiliates, and all other intercompany accounts
between the National OLP and the National MLP on the one hand and the other
National Parties on the other hand, shall be eliminated by contribution to
capital, dividend or payment. Prior to the Closing, the National MGP and the
National SGP and their affiliates shall not enter into any new transactions,
agreements, arrangements or understandings with the National MLP, the National
OLP or NSSI and shall not charge any amounts under their existing agreements,
arrangements and understandings with the foregoing (including under Section 7.4
of the National MLP Partnership Agreement and the National OLP Partnership
Agreement) other than amounts charged in the ordinary course of business
consistent in nature, amount and method of determination with past practices. At
the Closing, (i) the Purchaser shall refinance the outstanding indebtedness of
the National OLP as indicated on Schedule 5.13(i) (the 'Acquisition Line,' and
the $125,000,000 of 8.54% First Mortgage Notes due June 30, 2010 (the 'First
Mortgage Notes')) and (ii) the Purchaser shall repay the outstanding
indebtedness of the National OLP as indicated on Schedule 5.13(ii) (the working
capital line). As of the date hereof, the National MGP, the National SGP, the
National OLP and the holders of all of the First Mortgage Notes have executed
and delivered Amendment No. 2 ('Amendment No. 2') to each of the separate Note
Agreements dated as of June 26, 1996 (as amended, the 'Note Agreements'), under
which the First Mortgage Notes were issued. A complete and correct copy of
Amendment No. 2 as executed has been delivered to the Purchaser. The National
Parties agree that they will, and will cause the National OLP to: (a) keep
Amendment No. 2 in effect, and not amend or modify Amendment No. 2, the Note
Agreements or the First Mortgage Notes without the prior written consent of the
Purchaser which shall not be unreasonably withheld; (b) comply with their
respective obligations under Amendment No. 2; and (c) not give the preliminary
or the final notice of optional prepayment under Section 9.2 of the Note
Agreements without the prior written consent of the Purchaser which shall not be
unreasonably withheld. The Purchaser agrees that it will pay the fee described
in Section 9 of Amendment No. 2.
SECTION 5.14 Consistent Tax Reporting.
For federal income tax purposes, the Purchaser shall report the
transactions contemplated by this Agreement in a manner consistent with the
Purchaser OLP being, after the Merger Date, a partnership for federal income tax
purposes, and the Purchaser not being treated as an 'electing 1987 partnership'
within the meaning of Section 7704(g) of the Code. Except as otherwise required
by Applicable Law or agreed to in writing by the National MGP, the Purchaser
shall not take any position inconsistent with the positions taken on or
reflected in prior partnership federal income tax returns of the National MLP
and National OLP for 1996 and 1997, copies of which (other than Forms K-1 for
common unitholders) have been given to Purchaser, and the Form K-1 of the
National MGP for 1998, a copy of which will be given to Purchaser prior to
Closing, and which also are listed on Schedule 5.14 to be delivered to Purchaser
within 120 days after Closing, that could have an adverse federal income tax
effect on the Special Limited Partner or could have an adverse effect on the tax
deferral for the benefit of the National MGP sought to be achieved by Sections
5.2 and 5.9 hereof. The Purchaser shall have the right to request in good faith
within 30 days of the receipt of such final schedule that the National MGP
provide further detail or greater specificity with respect to any item provided
on Schedule 5.14 to the extent reasonably necessary for the Purchaser to satisfy
its obligations under this Section 5.14. National
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MGP shall within fourteen days of the receipt of such request make a good faith
effort to amend Schedule 5.14 to reflect the Purchaser's reasonable requests for
greater specificity and detail. The National Parties agree to cooperate with the
Purchaser Parties and provide reasonable access to their books, records,
employees, and facilities, as well as permit reasonable access to, and permit
the cooperation of, the auditors of the National General Partners, at the
Purchaser's expense, to the extent necessary for the Purchaser Parties to
prepare audited consolidated financial statements including information relating
to National MLP and National OLP as of, and for the period ended on, the date of
the Closing. The Purchaser Parties agree to cooperate with the National Parties
and provide reasonable access to their books, records, employees and facilities,
as well as permit reasonable access to the books and records of the Purchaser
and the Purchaser OLP, at the National Parties expense, to the extent necessary
for the National Parties to prepare the schedule referred to above.
SECTION 5.15 No Public Announcement.
Immediately upon the execution of this Agreement, the parties hereto shall
issue a press release with respect to the execution hereof and the transactions
contemplated hereby, which press release shall be reasonably satisfactory to
Purchaser General Partner and the National MGP. No party hereto shall issue any
other press release or make any other public announcement concerning this
Agreement or the transactions contemplated hereby without the prior approval of
the National MGP or Purchaser General Partner, as applicable (other than as may
be required by law or by obligations pursuant to any listing agreement with the
New York Stock Exchange (the 'NYSE'), in which event the party making the public
announcement or press release shall notify the National MGP or Purchaser General
Partner, as applicable, in advance of such public announcement or press
release), which approval shall not be unreasonably withheld or delayed except
that Purchaser General Partner and the National MGP may respond to telephone
inquiries, conduct conversations and otherwise communicate with securities
analysts and may respond to inquiries from the news media.
SECTION 5.16 Expenses.
(a) (i) The National MLP and the National OLP shall pay any filing
fees with respect to the Information Statement, the costs of preparation,
filing, printing and mailing the Schedule 14D-9 and the Information
Statement, the fees and expenses of the solicitation agent for Schedule
14D-9 and the Information Statement and the fees and expenses related to
obtaining the consent of the holders of the National OLP's First Mortgage
Notes (other than the fee referred to in the last sentence of Section 5.13)
and shall reimburse the National MGP or Triarc, as the case may be,
promptly after submission of an invoice with supporting documentation, for
all such fees and expenses paid by the National MGP or Triarc prior to
Closing and not previously reimbursed;
(ii) the National MLP and the National OLP shall pay up to an
aggregate of $1.5 million of fees and expenses of the Special Committee of
the National MLP, including meeting fees and retainers, the financial
advisory fees and expenses paid to Lehman Brothers Inc. in connection with
the Lehman Opinion, the fees and expenses of Valuation Research Corporation
and the fees and expenses of counsel to the Special Committee and shall
reimburse the National MGP or Triarc, as the case may be, promptly after
submission of an invoice with supporting documentation, for all such fees
and expenses paid by the National MGP or Triarc prior to Closing and not
previously reimbursed;
(iii) Triarc and the National MGP shall pay all fees and expenses of
their counsel, Andrews & Kurth L.L.P. in connection with the negotiation,
drafting, execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and all fees and expenses of the
National MLP's independent accountants, Deloitte & Touche LLP and of any
other professional advisors to the National Parties and the National OLP;
(iv) From time to time after the Closing Date (except as set forth in
clause (y) below, which payment shall be made on the Closing Date),
promptly upon request from the National MGP or Triarc with supporting
documentation, the Purchaser shall reimburse (x) the National MGP for all
amounts for which the National MLP has a reimbursement obligation (accrued,
contingent or
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otherwise) under Section 7.4(b) of the National MLP Partnership Agreement
(including, without limitation, any post-retirement life insurance and
medical insurance employment benefits for former employees), except where
such reimbursement would be inconsistent with clauses (i), (ii) or (iii)
above; provided, however, that, without limiting the terms of the
reimbursement provisions set forth in such Section 7.4(b) of the National
MLP Partnership Agreement, the Purchaser agrees that such reimbursement
shall be made consistent in nature, amount and method of determination with
past practices in the ordinary course of business; and (y) Triarc to the
extent that any payments of interest are made under the Triarc Note to the
National OLP on or after June 30, 1999; and
(v) Other than as set forth in Sections 5.6 and 9.1(b), none of the
Purchaser Parties, the National MLP, the National OLP or their respective
successors or assigns shall seek or otherwise be entitled to any recovery,
indemnification or other benefit under any insurance policy owned or
maintained by Triarc or the National MGP.
(b) If the Acceptance does not occur, the Purchaser Parties and the
National Parties, respectively, shall bear their own fees and expenses except as
otherwise contemplated by this Section 5.16 and Section 8.2.
SECTION 5.17 Tax Matters.
(a) Purchase Price Allocations.
The National MGP and the Purchaser agree that, at any time until the
expiration of the Debt Indemnity, the fair market value of the assets of
National OLP shall be determined in accordance with an appraisal conducted by
Valuation Research Corporation prior to Closing (the 'Appraisal'), performed in
a manner consistent with the assumptions and methodologies used by Valuation
Research Corporation in its appraisal of the assets upon formation of National
OLP; provided that, if the Appraisal places the value of the depreciable and
amortizable assets (the 'Assets') at less than $117 million, the Purchaser may
cause an appraisal of the Assets to be performed by an independent, nationally
recognized appraiser selected by it (the 'Alternate Appraisal'). If the
Alternate Appraisal places the value of the Assets at $130 million or less, the
National MGP and the Purchaser shall, for all tax and Code Section 704 book
purposes, utilize such value. If the Alternate Appraisal places the value of the
Assets at more than $130 million, the value placed on the Assets by the
Appraisal shall be utilized for all tax and Code Section 704 book purposes. The
National MGP and the Purchaser agree that (i) the Code Section 704 book value of
the National OLP assets shall be adjusted as of the Closing Date to be equal to
the fair market value of such assets as determined above, and (ii) the straight
line method of depreciation and the MACRS life shall be used in calculating
depreciation on the Assets for all tax and Code Section 704 book purposes for
all periods following closing of the Transactions. The Purchaser and the
National MGP agree to use the value of the Assets used for all tax and Code
Section 704 book purposes for all other purposes including for financial
accounting purposes. The Purchaser shall cause the Purchaser OLP to use the
value of the Assets so determined for tax, Code Section 704 book and all other
purposes. The Purchaser and the National MGP further agree to file any
information or schedules required by the Code in accordance with the agreed upon
allocations, and agree to be bound by, and file tax returns consistent with, any
such agreed upon allocations.
(b) Code Section 704(c) Election.
The Purchaser and the National MGP agree that the Purchaser OLP may elect
to use the 'remedial allocation method' described in Treasury Regulation Section
1.704-3 (the 'Remedial Allocation Method') with respect to any National Assets.
(c) Tax Cooperation.
After the date of the Closing, National General Partners and Purchaser
Holdings shall, and shall cause their respective subsidiaries and affiliates to,
cooperate in the preparation of all Tax Returns and shall provide, or cause to
be provided to the requesting party any records and other information requested
by such party (limited, however, to information pertaining to National OLP,
National MLP and NSSI) in connection therewith as well as permit access to, and
permit the cooperation of, the auditors of the National General Partners and
Purchaser Holdings. Purchaser Holdings and the
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National MGP each further agree that they will cooperate fully, and cause their
affiliates to cooperate fully, with each other and their counsel in the defense
against or compromise of any claim asserted in any proceeding regarding Taxes
imposed upon any of the National Parties, the National OLP or NSSI.
(d) Certain Tax Contests.
In connection with any audit, examination or other administrative or
judicial proceeding with respect to any controversy involving the elections,
methods or principles provided on Schedule 5.2(e) or a matter listed on
Schedule 5.14 (a 'Tax Controversy'), unless such elections, methods, principles
or positions are contrary to Applicable Law (as that term is defined in the last
paragraph of Section 5.2), the Purchaser and Purchaser Holdings agree that they
shall cause the Purchaser OLP to contest in good faith and using commercially
reasonable efforts with respect to such Tax Controversy and will not settle or
otherwise compromise such Tax Controversy without the written consent of the
National MGP prior to a final determination of such controversy by a Federal
circuit court with applicable jurisdiction with respect to the Purchaser OLP (or
any state court with similar appellate authority). The Purchaser and Purchaser
Holdings shall consult with the National MGP as reasonably required during the
pendency of such Tax Controversy. The Purchaser and Purchaser Holdings shall pay
all costs incurred in connection with such Tax Controversy other than costs
incurred in connection with any proceeding in the Federal circuit court with
applicable jurisdiction (or any state court with similar appellate authority)
with respect to the Purchaser OLP, which costs shall be shared equally by the
National MGP and Purchaser Holdings. The Purchaser and the National MGP shall
jointly control the Tax Controversy after a decision of any court with respect
to such Tax Controversy. This Section 5.17(d) shall not apply to any Tax
Controversy that National MGP has assumed control of pursuant to the last
paragraph of Section 5.2.
ARTICLE VI
CONDITIONS
SECTION 6.1 Conditions to the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions and only the following conditions:
(a) Conveyance of Acquired Interests.
Good and valid title to the Acquired Interests owned by the National
Parties shall have been conveyed to the Purchaser and Purchaser General Partner
pursuant to Sections 2.1 and 2.2, free and clear of any liens, claims or
encumbrances.
(b) Approval of a Unit Majority.
This Agreement and the Merger and the other transactions contemplated
hereby shall have been approved and adopted by the affirmative vote of at least
a majority of the outstanding National Common Units voting as a class and at
least a majority of the outstanding National Subordinated Units voting as a
class to the extent required by the Delaware Law and the National MLP
Partnership Agreement.
(c) No Injunctions or Restraints.
No statute, rule, decision, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other governmental entity preventing the
consummation of the Merger shall be in effect and no action or proceeding shall
be pending which could reasonably be expected to result in such order or
injunction.
(d) Corporate and Partnership Authority.
The representations and warranties of the National Parties set forth in
Section 3.2 shall be true and correct as of the Closing Date as though made as
of such date, provided that this clause (d) shall only be a condition to the
obligation of the Purchaser Parties.
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(e) Acceptance.
The Acceptance shall have occurred.
SECTION 6.2 Conditions to the Purchase of National OLP Interests.
The obligations of the Purchaser and the Purchaser General Partner to
purchase the Acquired Interests owned by the National Parties pursuant to
Section 2.1(b) shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions and only the following conditions:
(a) Reorganization.
The transactions contemplated by Section 2.1(a) shall have been
consummated.
(b) Approval of a Unit Majority.
This Agreement and the Merger and the other transactions contemplated
hereby shall have been approved and adopted by the affirmative vote of at least
a majority of the outstanding National Common Units voting as a class and at
least a majority of the outstanding National Subordinated Units voting as a
class to the extent required by the Delaware Law and the National MLP
Partnership Agreement.
(c) No Injunctions or Restraints.
No statute, rule, decision, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other governmental entity preventing the
acquisition of the Acquired Interests owned by the National Parties by the
Purchaser or Purchaser General Partner shall be in effect and no action or
proceeding shall be pending which could reasonably be expected to result in such
order or injunction.
(d) Corporate and Partnership Authority.
The representations and warranties of the National Parties set forth in
Section 3.2 and 3.7(j) shall be true and correct as of the Closing Date as
though made as of such date.
(e) Acceptance.
The Acceptance shall have occurred.
(f) Prepayment.
The National OLP shall concurrently prepay all the First Mortgage Notes
under Section 9.2 of the Note Agreements and its outstanding indebtedness under
the Acquisition Line.
ARTICLE VII
EMPLOYEES AND EMPLOYEE BENEFITS
SECTION 7.1 Offers of Employment; Severance Obligations.
The Purchaser has previously been delivered a list of employees of the
National MGP and its affiliates who are employed by the National MGP in
connection with the business of the National MLP and the National OLP setting
forth the title and base compensation and 1998 bonus of those employees who are
active employees on the date of this Agreement, including those on temporary
leave for jury duty, family and short-term medical leave, vacation or military
duty (the 'Employees'). The parties agree that all Employees will be offered
employment by the Purchaser Parties. All costs of severance relating to
Employees (a) under the National MGP Employee Retention Program ('Retention
Program'), a true and correct copy of which is attached hereto as Schedule
7.1(a) (including related litigation costs), (b) under those certain employment
and severance agreements listed on Schedule 7.1(b), (c) amounts related to
payments under the stock, phantom stock, unit or phantom unit plans maintained
by the National MGP and identified on Schedule 7.1(c) which would be payable as
a result of the transactions contemplated hereby, or (d) arising by operation of
law, shall be for the Purchaser's account.
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SECTION 7.2 Increased Severance Costs.
Except as otherwise contemplated or permitted by this Agreement (including,
without limitation, Sections 5.2(a) and (d) hereof), the National MGP shall take
no action that would reasonably be expected to result in increased severance
cost obligations to the Purchaser or its affiliates as set forth in Section 7.1
hereof without the prior written consent of Purchaser General Partner, which
shall not be unreasonably withheld.
SECTION 7.3 401(k) Plan; Direct Roll-Over.
For Employees who so elect, the Purchaser Parties' 401(k) Plan shall accept
direct roll-overs from the National MGP 401(k) Plan.
SECTION 7.4 Assumed Employee Liabilities.
(a) At the Effective Time, the Purchaser shall assume all liabilities of
the National Parties to, or with respect to, the Employees (or their dependents
or beneficiaries), including, without limitation, pursuant to the Retention
Program, accrued vacation, compensation payable under the incentive compensation
plans listed on Schedule 7.4, liability under any workers compensation law or
plan (regardless of when the incident occurred), liability under COBRA or the
Worker Adjustment and Retaining Notification Act of 1988 ('WARN') or any similar
state law, and any other liability related to or based upon employment with the
National Parties.
(b) In addition to, and not in limitation of, the foregoing, the Purchaser
shall assume at the Effective Time all liabilities of the National MGP which the
National MGP is or would become entitled to reimbursement pursuant to Section
7.4 of the National MLP Partnership Agreement assuming for this purpose such
reimbursement right continued after the Effective Time except where such
provision would be inconsistent with clauses (i), (ii) or (iii) of Section 5.16;
provided, however, that, without limiting the terms of the reimbursement
provisions set forth in such Section 7.4(b) of the National MLP Partnership
Agreement, the Purchaser agrees that such reimbursement shall be made consistent
in nature, amount and method of determination with past practices in the
ordinary course of business.
SECTION 7.5 Collective Bargaining Matters.
The Purchaser shall expressly recognize any collective bargaining
representative recognized by the National MGP or any of the National Parties as
of the Effective Time for units consisting of Employees and identified on
Schedule 7.5 and shall expressly assume any and all of the National MGP's and
the National Parties' obligations under any collective bargaining agreements
(all as listed on Schedule 7.5) existing at the Effective Time with respect to
the Employees.
SECTION 7.6 Multiemployer Plan Arrangements.
In connection with the possible imposition of withdrawal liability under
Section 4201(a) of ERISA ('Withdrawal Liability') by reason of the consummation
of the Transactions, the Purchaser will have the option, determined by it in its
sole discretion, to elect to utilize, on a plan-by-plan basis, either paragraph
(a) or (b) of this Section 7.6 with respect to each of the multiemployer pension
plans to which the National Parties had an obligation to contribute in
connection with Employees immediately prior to the Effective Time (each, a
'Multiemployer Plan'):
(a) The Purchaser and the National Parties will effect an agreement under
Section 4204 of ERISA, as follows:
(i) The Purchaser will contribute to the Multiemployer Plans for
substantially the same number of contribution base units (as defined in
Section 4001(a)(11) of ERISA) for which the National Parties had an
obligation to contribute for each of such Multiemployer Plans as may be
required under Section 4204(a)(1)(A) of ERISA.
(ii) The Purchaser and the National Parties shall each take such
appropriate actions as may be required of them respectively by Section 4204
of ERISA in order for the National Parties not to
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incur primary withdrawal liability under ERISA at the Effective Time,
including their providing such bonds or escrow arrangements as may be
required by the Multiemployer Plans under Section 4204 ERISA.
(iii) If the Purchaser completely or partially withdraws from any
Multiemployer Plan during the first five (5) plan years beginning after the
Effective Time, the National Parties will be secondarily liable for any
withdrawal liability that the National Parties would have incurred at the
Effective Time were it not for the application of Section 4204 of ERISA.
(b) To the extent that any of the National Parties shall incur Withdrawal
Liability in connection with any of the Multiemployer Plans by reason of the
consummation of the Transactions under circumstances in which no agreement has
been effected under Section 7.6(a) with respect to such Multiemployer Plan, the
Purchaser shall directly pay in a single sum any and all such Withdrawal
Liability so incurred to the applicable Multiemployer Plan; provided, however,
that notwithstanding the foregoing, to the extent that the Purchaser elects to
utilize Section 7.6(a) with respect to a Multiemployer Plan and any of the
National Parties nonetheless incurs Withdrawal Liability in connection with such
Multiemployer Plan on account of the failure of any of the National Parties to
satisfy any of the requirements of Section 4204 of ERISA applicable with respect
thereto, the Purchaser shall not be required to pay such Withdrawal Liability.
SECTION 7.7 Losses Relating to Employees and Employee Benefits.
The Purchaser and the Purchaser OLP shall fully indemnify, defend, and hold
harmless the National Parties from and against any liability, loss, damage or
expense the National Parties may incur as a result of any claim made with
respect to any obligation of, or liability assumed by, the Purchaser and
Purchaser OLP pursuant to this Article VII.
ARTICLE VIII
TERMINATION
SECTION 8.1 Events of Termination.
Notwithstanding any other provision hereof, this Agreement may be
terminated prior to the Acceptance Date or, with respect to clause (d) below,
the Closing Date, as set forth below.
(a) Consent.
By Purchaser General Partner and the National MGP upon their mutual written
agreement.
(b) No National Common Units Purchased.
By (i) the Purchaser, if the Offer expires or is terminated or withdrawn in
accordance with the terms thereof or Section 1.1(a) hereof without any National
Common Units being purchased thereunder or as a result of the occurrence or
existence of any condition set forth in Annex A hereto but subject to Section
1.1(a) hereof or (ii) by the National MGP, if the Offer is terminated, or has
not been commenced in accordance with the terms hereof within five business days
of the date hereof, or if the Purchaser has not purchased National Common Units
validly tendered and not withdrawn pursuant to the Offer in accordance with the
terms hereof within 90 days after commencement of the Offer or (iii) by the
Purchaser if, as a result of the occurrence or existence of any condition set
forth in Annex A hereto, the Offer has not been commenced in accordance with the
terms hereof within 60 days of the date hereof; provided, however that the party
seeking to terminate this Agreement pursuant to this Section 8.1(b) and its
affiliated parties are not in material breach of any of its representations,
warranties or covenants contained herein.
(c) National Recommendation.
By the National MGP prior to the Acceptance Date acting through the Special
Committee or by Purchaser General Partner, if the Special Committee determines
that a National Possible Alternative would constitute a National Superior
Transaction and the National Board or the Special Committee, consistent with
Section 5.8, withdraws, modifies, qualifies or changes in a manner adverse to
the
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Purchaser its recommendation that the holders of National Common Units tender
their National Common Units in the Offer.
(d) Outside Date.
By either Purchaser Holdings or the National MGP in writing if the Closing
has not occurred by the date that is 210 days after purchase of the National
Common Units pursuant to the Offer; provided, however, that no party whose
breach hereof has been the cause of the failure to close shall have the right to
terminate this Agreement under this Section 8.1(d).
(e) Applicable Law Change.
By National MGP prior to the Acceptance Date if (A) the Applicable Date
with respect to any matter is the date of this Agreement and (B) the National
MGP notifies the Purchaser in writing that the relevant Applicable Law Change
would adversely affect the tax deferral for the benefit of the National MGP
sought to be achieved by the last paragraph of Section 5.2 and Section 5.9
hereof.
SECTION 8.2 Effect of Termination.
The following provisions shall apply in the event of a termination of this
Agreement:
(a) No Liability.
If this Agreement is terminated as permitted under Section 8.1, no party
hereto (or its officers or directors) will have any liability or further
obligation to any other party to this Agreement, except for obligations pursuant
to the last sentence of Section 5.1 hereof and any liability resulting from the
breach hereof or as set forth in this Section 8.2.
(b) Termination Fee.
In view of the expenses and foregone opportunities associated with the
negotiation and execution of this Agreement, if this Agreement is terminated as
permitted under Section 8.1(c), the National MLP shall have the obligation to
pay or cause to be paid promptly (but in no event more than three (3) days after
this Agreement is so terminated) to the Purchaser a fee of $3.0 million in cash.
No obligations of the National MGP, the National MLP or the National OLP under
this Agreement shall be terminated until such payment has been made.
(c) Topping Fee.
In the event that (i) this Agreement is terminated pursuant to Section
8.1(c) and (ii) within the 12 months following such termination a National
Possible Alternative is consummated which is more beneficial than the
transactions contemplated by this Agreement, taken as a whole, to the holders of
National Common Units other than the National MGP and its affiliates, then the
National MLP shall pay to the Purchaser, within three days of such consummation,
a topping fee equal to $6.0 million (inclusive of any amounts previously paid by
the National MLP pursuant to Section 8.2(b) hereof). If the transaction does not
involve the acquisition of substantially all of the interests in or assets of
the National MLP or the National OLP, then the calculation of the amount to be
paid in excess of amounts paid pursuant to Section 8.2(b) shall be adjusted on a
pro rata basis.
(d) Specific Performance; Attorneys' Fees.
The parties hereto acknowledge that the transactions contemplated hereby
are unique and specifically identifiable. Accordingly, the parties hereto
further agree and stipulate that if the Acceptance or the Closing does not occur
because of the willful failure of the National Parties, on the one hand, or the
Purchaser Parties, on the other hand, to perform their respective obligations
hereunder, (i) monetary damages and any other remedy at law will not be
adequate, (ii) the non-defaulting party shall be entitled to specific
performance as the remedy for such breach, (iii) each party hereto agrees to
waive any objection to the remedy of specific performance, (iv) each party
agrees that the granting of specific performance by any court will not be deemed
to be harsh or oppressive to the party who is ordered specifically to perform
its obligations under this Agreement, and (v) in connection
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with any action for specific performance, the prevailing party shall be entitled
to reasonable attorneys' fees and other costs of prosecuting or defending such
action.
(e) Other Remedies.
The right to seek specific performance hereunder shall not preclude any
party to seek any other remedy at law or in equity.
(f) Outside Date Breakage Fee.
In the event that this Agreement is terminated pursuant to Section 8.1(d)
or is terminated upon mutual agreement of the parties, on the date of such
termination Triarc shall unconditionally and irrevocably pay to the Purchaser,
as an inducement for the Purchaser Parties to enter into this Agreement and as a
breakage payment for such termination, the sum of (i) $2.40 multiplied by the
number of Common Units accepted and paid for in the Offer (such amount, the
'Fee'), and (ii) interest on the Fee, calculated based on a rate per annum of
9.44%, for the period from the Acceptance Date to such date of termination; it
being understood that Triarc hereby waives any right to set-off, counterclaim or
any other defense to such payment. It is agreed by the parties that payment of
such sum by Triarc shall not in any way limit any parties' right to seek
recovery of any damages as contemplated under this Agreement or any parties'
liability with respect to such damages.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnification of Certain National Parties.
(a) Indemnification of Certain National Parties.
The Purchaser, Purchaser Holdings and Purchaser General Partner, from and
after the Closing, shall (and shall cause the Purchaser OLP to) jointly and
severally indemnify and hold harmless, to the fullest extent permitted by law,
the National General Partners, Triarc and their respective stockholders,
officers, directors, affiliates, successors and assigns from and against any and
all losses, costs, damages, expenses (including reasonable attorneys' fees),
liabilities and claims (collectively, 'Losses') arising or resulting from, or
relating to (a) the amounts referred to in Section 5.16(a)(iv); (b) any material
breach of the representations or warranties in Article IV; (c) the conduct of
the business or operations of the Purchaser, the Purchaser OLP, the National
MLP, the National OLP or NSSI following the Effective Time; (d) any litigation
pending on the date hereof specified on Schedule 9.1; and (e) the Marshfield,
Wisconsin property, except in each case of clauses (a) through (c) for Losses
for which the National MGP is indemnifying the Purchaser and its affiliates
pursuant to Section 9.2 below. In addition, the Purchaser, Purchaser Holdings
and Purchaser General Partner, from and after the Closing, shall (and shall
cause the Purchaser OLP to) jointly and severally indemnify and hold harmless
the National General Partners, Triarc and their respective stockholders,
officers, directors, affiliates, successors and assigns (including any person
who has acted in any such capacity at any time prior to the Effective Time), in
the manner set forth in Section 7.7 of the National MLP Partnership Agreement
and Section 7.7 of the National OLP Partnership Agreement, from and against all
Losses arising or resulting from or relating to the National MLP, the National
OLP, the National General Partners or NSSI, from which such persons, or any of
them, would have been entitled to be indemnified pursuant to such Section except
in each case for Losses for which the National MGP is indemnifying the Purchaser
and its affiliates pursuant to Section 9.2 below; provided, that this
indemnification shall not be limited as provided in the last sentence of Section
7.7(a) of the National MLP Partnership Agreement or the last sentence of Section
7.7(a) of the National OLP Partnership Agreement. For purposes only of giving
effect to the indemnification set forth in the immediately preceding sentence,
all of the terms and provisions of the National MLP Partnership Agreement and
the National OLP Partnership Agreement are incorporated herein mutatis mutandis.
(b) Limitation of Liability.
For purposes of this Article IX, all Losses shall be computed net of (a)
any insurance proceeds actually received from third-party insurance (without
consideration of deductibles) for the event or
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occurrence giving rise to the Losses, and (b) any amounts actually received from
any third parties based on claims related to the event or occurrence giving rise
to the Losses that the indemnified party has against such third parties, which
reduce the Losses that would otherwise be sustained. If any indemnifying party
pays to the indemnified party any Losses under this Article IX and the
indemnified party subsequently recovers from some other person any sum in
respect of any matter giving rise to the relevant claim, the indemnified party
shall repay to the indemnifying party the lesser of (a) the amount paid by the
indemnifying party to the indemnified party and (b) the sum recovered from such
other person.
(c) Limitations with Respect to Certain Tax Losses.
Any amounts indemnified under the last paragraph of Section 5.2 or Section
5.9 shall be computed as therein provided, but shall otherwise be subject to
Article IX. No indemnity shall be provided to the National MGP with respect to
any Losses arising under the last paragraph of Section 5.2, Section 5.9 or
Section 5.14 (the 'Tax Indemnity Provisions') to the extent that any such Losses
or any portion thereof are attributable to (i) the Internal Revenue Service
determining the National MGP is not a partner with respect to the Purchaser OLP
or the Debt Indemnity is not recognized as an obligation by the National MGP to
make payments with respect to the Indemnified Debt or reimburse a third party
with respect to the Indemnified Debt resulting in the Indemnified Debt not being
allocated to National MGP under Code Section 752 or (ii) any merger of the
National MGP with or into Triarc or an affiliate of Triarc, or the transfer
permitted by the last sentence of Section 2.1(a), results in the recognition by
the National MGP, National SGP or any transferee thereof pursuant to the last
sentence of Section 2.1(a) or any successor thereto of any income or gain for
federal income tax purposes, except in each case to the extent such
determination results from the breach by Purchaser or Purchaser Holdings of any
provision of this Agreement. Any Losses arising under more than one of the Tax
Indemnity Provisions shall be subject to indemnification under only one of such
provisions and shall not be subject to further indemnification hereunder. Losses
relating to Taxes shall only be subject to indemnification hereunder pursuant to
the Tax Indemnity Provisions.
(d) Limitation of Indemnification.
Notwithstanding any other provision of this Agreement to the contrary, in
no event shall any indemnification be provided under this Article 9 or under the
Tax Indemnity Provisions in respect of any consequential, exemplary, indirect,
incidental, special or punitive damages or lost profits.
SECTION 9.2 Indemnification of the Purchaser Parties.
(a) Debt Indemnity.
The National MGP, from and after the Closing Date, shall indemnify and hold
harmless Purchaser Holdings and its affiliates, any successors thereto, or any
of the preceding persons who subsequent to the Closing Date guarantees or
otherwise incurs any liability with respect to the Indemnified Debt (as defined
below), from and against any and all Losses arising or resulting from, or
relating to any payments that Purchaser Holdings and its affiliates or any
successors thereto are required to make (and make) from their own funds (after
prior recourse is had to the assets of the Purchaser OLP); with respect to the
National OLP debt at the Closing Date (as set forth on Schedule 9.2(a)) and any
refinancing, refunding or replacement thereof ('Indemnified Debt'), due to the
inability of the Purchaser OLP to pay or refinance any such Indemnified Debt
from the assets of the Purchaser OLP. The National MGP shall be subrogated to
such rights of Purchaser Holdings to the extent that the National MGP has made
any payment in respect of the indemnity referred to in this Section 9.2(a) (the
'Debt Indemnity'). Purchaser Holdings acknowledges that the National MGP will
make no representations, warranties or covenants (including without limitation
regarding net worth of the National MGP) in connection with the Debt Indemnity.
(b) Other Indemnity.
Any amounts indemnified under the last paragraph of Section 5.2 shall be
computed as therein provided, but shall otherwise be subject to Article IX. The
National MGP and Triarc, from and after the Acceptance Date, shall jointly and
severally indemnify and hold harmless Purchaser Holdings, the
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Purchaser, Purchaser General Partner and their respective stockholders,
officers, directors, affiliates, successors and assigns from and against any and
all Losses arising or resulting from, or relating to ('Other Indemnity') (i) any
material breach of the representations or warranties in Sections 3.1, 3.2 and
3.7 hereof, or (ii) any claim made by any holder of indebtedness of the National
OLP, to the extent relating to any act or omission of the National MGP, Triarc
or their affiliates prior to Closing, if such claim has been asserted in writing
prior to the Acceptance Date and does not arise from or relate to the
transactions contemplated by this Agreement or any action or omission otherwise
requested by the Purchaser.
SECTION 9.3 Termination of Indemnities; Survival Periods.
All obligations of the National MGP (other than obligations with respect to
payments that may become due as a result of any claims made by any holder of
Indemnified Debt prior to date of termination) with respect to the Debt
Indemnity shall terminate upon the sale of the Special Limited Partner Interests
pursuant to a Put Notice or a Call Notice. Except as provided in this Section
9.3, none of the representations and warranties in this Agreement shall survive
the Acceptance Date. In addition, all obligations of the National MGP and Triarc
with respect to the Other Indemnity shall terminate on the first anniversary of
the date of this Agreement (other than obligations with respect to payments that
may become due as a result of any good faith claims made to Triarc prior to the
first anniversary of the date of this Agreement) except that obligations in
respect of Losses arising or resulting from breaches of representations and
warranties in Section 3.7 shall not terminate. All covenants, agreements and
indemnities contained herein which by their terms are to be performed after the
Closing Date shall survive the Closing Date.
SECTION 9.4 Demands.
Each indemnified party hereunder agrees that promptly upon its discovery of
facts giving rise to a claim for indemnity under the provisions of this
Agreement, including receipt by it of notice of any demand, assertion, claim,
action or proceeding, judicial or otherwise, by any third party (such third
party actions being collectively referred to herein as the 'Claim'), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
demand for indemnification under this Agreement. The indemnifying party shall
not be obligated to indemnify the indemnified party with respect to any Claim if
the indemnified party failed to notify the indemnifying party thereof in
accordance with the provisions of this Agreement in sufficient time to permit
the indemnifying party or its counsel to defend against such matter and to make
a timely response thereto including, without limitation, any responsive motion
or answer to a complaint, petition, notice or other legal, equitable or
administrative process relating to the Claim, only insofar as such failure to
notify the indemnifying party has actually resulted in prejudice or damage to
the indemnifying party.
SECTION 9.5 Right to Contest and Defend.
The indemnifying party shall be entitled at its cost and expense to contest
and defend by all appropriate legal proceedings any Claim with respect to which
it is called upon to indemnify the indemnified party under the provisions of
this Agreement; provided, that notice of the intention so to contest shall be
delivered by the indemnifying party to the indemnified party within 20 business
days from the date of receipt by the indemnifying party of notice by the
indemnified party of the assertion of the Claim. Any such contest may be
conducted in the name and on behalf of the indemnifying party or the indemnified
party as may be appropriate. Such contest shall be conducted by counsel selected
and employed by the indemnifying party and reasonably acceptable to the
indemnified party, but the indemnified party shall have the right but not the
obligation to participate in such proceedings and to be represented by counsel
of its own choosing at its sole cost and expense. Provided that the indemnifying
party acknowledges in writing that it is unconditionally obligated to provide
such indemnification, the indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
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party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnifying party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 20 business
days of such request from the indemnifying party. If such abandonment or
compromise contemplates (i) the unconditional release of the indemnified party
from all further Claims arising out of the subject matter thereof, (ii) no
admission of culpability by the indemnified party and (iii) no restrictions on
the future operations of the indemnified party, and the indemnified party
nevertheless determines that the contest should be continued, the indemnifying
party shall be liable hereunder only to the extent of the amount that the other
party to the contested Claim had agreed unconditionally to accept in payment or
compromise as of the time the indemnifying party made its request therefor to
the indemnified party.
SECTION 9.6 Cooperation.
If requested by the indemnifying party, the indemnified party agrees to
cooperate with the indemnifying party and its counsel at the cost of the
indemnifying party in contesting any Claim that the indemnifying party elects to
contest or, if appropriate, in making any counterclaim against the person
asserting the Claim, or any cross-complaint against any person, and the
indemnifying party will reimburse the indemnified party for any expenses
incurred by it in so cooperating. At no cost or expense to the indemnified
party, the indemnifying party shall cooperate with the indemnified party and its
counsel in contesting any Claim.
SECTION 9.7 Right to Participate.
The indemnified party and the indemnifying party each agree to afford the
other party and its counsel the opportunity to be present at, and to participate
in, conferences with all persons, including governmental authorities, asserting
any Claim against the indemnified party or conferences with representatives of
or counsel for such persons.
SECTION 9.8 Payment of Damages.
The indemnifying party shall pay to the indemnified party in immediately
available funds any amounts to which the indemnified party may become entitled
by reason of the provisions of this Agreement, such payment to be made within
five days after any such amounts are finally determined either by mutual
agreement of the parties hereto or pursuant to the final unappealable judgment
of a court of competent jurisdiction.
SECTION 9.9 Exclusivity.
The parties acknowledge and agree that following the Acceptance, the
indemnification provisions contained in this Article IX with respect to a claim
for a breach of a representation or warranty constitute the sole remedy with
respect to such matters.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 [Intentionally Left Blank].
SECTION 10.2 Notices.
Any notice, request, instruction, correspondence or other document to be
given hereunder by either party to the other (herein collectively called
'Notice') shall be in writing and delivered in person or by courier service
requiring acknowledgment of receipt of delivery or mailed by certified mail,
postage prepaid and return receipt requested, or by telecopier, as follows:
A-39
<PAGE>
If to any of the National Parties, addressed to:
National Propane Corporation
200 1st Street SE
Suite 1700
Cedar Rapids, Iowa 52401
Attention: President
Telecopy: (800) 354-9213
with a copy to:
Triarc Companies, Inc.
280 Park Avenue
New York, NY 10017
Attention: Brian L. Schorr, Esq.
Telecopy: (212) 451-32167
with a copy to:
Andrews & Kurth L.L.P.
805 Third Avenue
New York, NY 10022
Attention: Mike Rosenwasser, Esq.
Telecopy: (212) 850-2929
If to any of the Purchaser Parties, addressed to:
Columbia Propane Corporation
c/o Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171
Attention: Mark A. Cleaves
Telecopy: (703) 561-7311
with a copy to:
Columbia Propane Corporation
c/o Columbia Energy Group
13880 Dulles Corner Lane
Herndon, VA 20171
Attention: Legal Department
Telecopy: (703) 561-7303
and
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Robert S. Rachofsky
Telecopy: (212) 424-8500
Notice given by personal delivery, courier service or mail shall be effective
upon actual receipt. Notice given by telecopier shall be confirmed by
appropriate answer back and shall be effective upon actual receipt if received
during the recipient's normal business hours, or at the beginning of the
recipient's next business day after receipt if not received during the
recipient's normal business hours. All Notices by telecopier shall be confirmed
promptly after transmission in writing by certified mail or personal delivery.
Any party may change any address to which Notice is to be given to it by giving
Notice as provided above of such change of address.
SECTION 10.3 Governing Law.
The provisions of this Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware and the federal
laws of the United States. Each party hereto hereby irrevocably and
unconditionally (a) consents and submits to the exclusive jurisdiction of the
courts of the State of Delaware and of the United States of America located in
the State of Delaware
A-40
<PAGE>
(each a 'Delaware Court') for any actions, suits or proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby, (b)
agrees that any such action, suit or proceedings may be brought or maintained
only in a Delaware Court and in no other forum, (c) agrees that service of any
process, summons, notice or document by U.S. Registered or certified mail to
such party at the address specified in Section 10.2 shall be effective service
of process in any such action, suit or proceeding in any Delaware Court, and (d)
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of or related to this Agreement or
the transactions contemplated hereby in any Delaware Court located in
Wilmington, Delaware, and further irrevocably and unconditionally waives and
agrees not to plead a claim in any such court that any such action, suit or
proceeding has been brought in an inconvenient forum.
SECTION 10.4 Entire Agreement; Amendments and Waivers.
This Agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as set
forth specifically herein or contemplated hereby. No supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. The failure of a party to exercise any right or
remedy shall not be deemed or constitute a waiver of such right or remedy in the
future. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (regardless of whether
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
SECTION 10.5 Binding Effect and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns; but
neither this Agreement nor any of the rights, benefits or obligations hereunder
shall be assigned, by operation of law or otherwise, by any party hereto without
the prior written consent of either Purchaser General Partner or the National
MGP, as applicable, other than as set forth herein. Nothing in this Agreement,
express or implied, is intended to confer upon any person or entity other than
the parties hereto and their respective successors and permitted assigns, any
rights, benefits or obligations hereunder.
SECTION 10.6 Severability.
If any provision of the Agreement is rendered or declared illegal or
unenforceable by reason of any existing or subsequently enacted legislation or
by decree of a court of last resort, the parties hereto shall promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable, but all of the remaining provisions of this Agreement shall
remain in full force and effect.
SECTION 10.7 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 10.8 Disclosure.
Disclosure of a matter in any schedule to this Agreement shall be deemed
disclosure with respect to any other schedule so long as the relevance of the
matter to such other schedule is reasonably apparent. The mere inclusion of an
item in any schedule shall not be deemed an admission that such item represents
a material exception of fact, event or circumstance or that such item would
result in a Material Adverse Effect.
SECTION 10.9 Interpretation.
The Article and Section headings contained in this Agreement are solely for
the purpose of reference, are not part of the agreement of the parties hereto
and shall not in any way affect the meaning or interpretation of this Agreement.
A-41
<PAGE>
SECTION 10.10 References; Construction.
References to any 'Article,' 'Exhibit,' 'Schedule' or 'Section,' without
more, are to Articles, Exhibits, Schedules and Sections to or of this Agreement.
Unless otherwise expressly stated, clauses beginning with the term 'including'
set forth examples only and in no way limit the generality of the matters thus
exemplified.
SECTION 10.11 Context.
Whenever the context so requires, the singular number includes the plural
and vice versa, and a reference to one gender includes the other gender and the
neuter.
SECTION 10.12 Execution.
This Agreement may be executed in multiple counterparts each of which shall
be deemed an original and all of which shall constitute one instrument.
EXECUTED as of the date first set forth above.
NATIONAL PROPANE PARTNERS, L.P.,
By: National Propane Corporation,
Its Managing General Partner
By: /S/ RONALD R. ROMINIECKI
...................................
NAME: RONALD R. ROMINIECKI
TITLE: PRESIDENT AND CHIEF OPERATING OFFICER
NATIONAL PROPANE CORPORATION
By: /S/ RONALD R. ROMINIECKI
...................................
NAME: RONALD R. ROMINIECKI
TITLE: PRESIDENT AND CHIEF OPERATING OFFICER
NATIONAL PROPANE SGP, INC.
By: /S/ RONALD R. ROMINIECKI
...................................
NAME: RONALD R. ROMINIECKI
TITLE: PRESIDENT AND CHIEF OPERATING OFFICER
TRIARC COMPANIES, INC.
By: /S/ ERIC D. KOGAN
...................................
NAME: ERIC D. KOGAN
TITLE: EXECUTIVE VICE PRESIDENT -- CORPORATE
DEVELOPMENT
COLUMBIA PROPANE CORPORATION
By: /S/ A. MASON BRENT
...................................
NAME: A. MASON BRENT
TITLE: PRESIDENT AND CEO
COLUMBIA PROPANE L.P.
By: CP Holdings, Inc.
Its General Partner
By: /S/ A. MASON BRENT
...................................
NAME: A. MASON BRENT
TITLE: PRESIDENT AND CEO
CP HOLDINGS, INC.
By: /S/ A. MASON BRENT
...................................
NAME: A. MASON BRENT
TITLE: PRESIDENT AND CEO
A-42
<PAGE>
ANNEX A TO THE PURCHASE AGREEMENT
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or pay for any National Common Units tendered
pursuant to the Offer, and may terminate, extend or amend the Offer and may
postpone the acceptance for payment of and payment for National Common Units
tendered, if (i) the Minimum Condition shall not have been satisfied, (ii) any
applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the expiration of the Offer or (iii) at any time on or after
the date of this Agreement, and prior to the acceptance for payment of National
Common Units, any of the following conditions shall exist:
(a) there shall be instituted or pending any action or proceeding, or there
shall have been issued and remain in effect any temporary restraining order,
preliminary or final injunction, order or decree by any court or governmental,
administrative or regulatory authority or agency, domestic or foreign, resulting
from any action or proceeding brought by any person which does or could
reasonably be expected to (i) restrain or prohibit the making of the Offer or
the consummation of any other Transaction, (ii) prohibit or limit ownership or
operation by the National MLP, Purchaser General Partner or the Purchaser of all
or any material portion of the business or assets of the National MLP and its
subsidiaries, taken as a whole, or Purchaser General Partner or any of its
subsidiaries, or compel the National MLP, Purchaser General Partner or any of
their subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of the National MLP, Purchaser General Partner, the
Purchaser or any of their subsidiaries or impose any material limitation on the
ability of Purchaser General Partner or the Purchaser to conduct such business
or own such assets, in each case as a result of the Transactions; (iii) impose
material limitations on the ability of Purchaser Holdings, Purchaser General
Partner or the Purchaser (A) to exercise effectively full rights of ownership of
any National Common Units or any of the other Acquired Interests, including,
without limitation, the right to vote any National Common Units acquired by the
Purchaser pursuant to the Offer, or otherwise on all matters properly presented
to the National MLP's unitholders, including, without limitation, the approval
and adoption of this Agreement and the Transactions or (B) to effectively
control through the general partner interests included in the Acquired Interests
the business and operations of the National MLP, National OLP or NSSI; or (iv)
require divestiture by Purchaser General Partner, the Purchaser or any of their
affiliates of any significant (in terms of value or control rights) partnership
interest in the National MLP or the National OLP;
(b) there shall have been any action taken, or any statute, rule,
regulation, order or injunction enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Purchaser General Partner, the
National MLP or any subsidiary or affiliate of Purchaser General Partner or the
National MLP or (ii) any Transaction, by any legislative body, court, government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, in the case of both (i) and (ii) other than the routine application of
the waiting period provisions of the HSR Act to the Offer, or the Merger, in
each case which results or could reasonably be expected to result in any of the
consequences referred to in clauses (i) through (iv) of paragraph (a) above;
(c) prior to the expiration of the Offer, all material filings or
notifications required to be made prior to the acceptance for payment of any
National Common Units with any governmental entity shall not have been made, and
all material consents, approvals, authorizations or permits required to be
obtained prior to the acceptance for payment of any National Common Units from
all governmental entities in connection with the consummation of the
transactions contemplated by this Agreement shall not have been obtained or
shall not be in form and substance reasonably satisfactory to the Purchaser;
(d) there shall have occurred (i) any general suspension of, or limitation
on prices for, trading in securities on the New York Stock Exchange or in the
over-the-counter market, (ii) a declaration of a banking moratorium or any
substantial limitation or suspension of, payments in respect of banks in the
United States, (iii) any material limitation (whether or not mandatory) by any
United States federal or state government or governmental, administrative or
regulatory authority or agency on the extension of credit by banks or other
lending institutions, (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the United
States having a significant
A-43
<PAGE>
adverse effect on the functioning of the financial markets in the United States,
or (v) in the case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof;
(e) (i) the National Board or the Special Committee shall have withdrawn,
modified, qualified or changed in a manner adverse to Purchaser General Partner
or the Purchaser the approval or recommendation of the Offer, the Transactions,
the Merger or this Agreement or approved or recommended any National Possible
Alternative or any other acquisition of National Common Units other than the
Offer, the Transactions and the Merger or (ii) the National Board or the Special
Committee shall have resolved to do any of the foregoing;
(f) any representation and warranty of the National Parties in this
Agreement shall not be true and correct as of the date of this Agreement and as
of the scheduled or extended expiration of the Offer as though such
representation and warranty were made at and as of such time, except for any
representation and warranty which is expressly made as of a specified date, in
which case such representation and warranty shall be true and correct as of such
specified date, except in all cases where the failure or failures of such
representations and warranties to be so true and correct (without giving effect
to any materiality or Material Adverse Effect qualification set forth herein)
would not have or would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(g) the National Parties shall have failed to perform in any material
respect any material obligation or to comply in any material respect with any
material agreement or covenant of the National Parties to be performed or
complied with by them under this Agreement;
(h) this Agreement shall have been terminated in accordance with its terms;
(i) any person, entity or 'group' other than Purchaser Holdings or any of
its affiliates shall have become the beneficial owner (as that term is used in
Rule 13d-3 under the Exchange Act) of 33% or more of the outstanding National
Common Units;
(j) the Purchaser and the National MGP shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or payment
for National Common Units thereunder;
(k) Since September 30, 1998, and except as publicly disclosed prior to the
date of this Agreement by the National MLP, there shall have occurred any
Material Adverse Effect or any event or circumstance that (singly or together
with any other such events or circumstances) could reasonably be expected to
have a Material Adverse Effect;
(l) The Note Agreements (including Amendment No. 2 thereto) shall not be in
full force and effect or there shall exist and be continuing any Event of
Default (as defined therein) thereunder or any condition or event that, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default thereunder; or
(m) There shall exist and be continuing under the Credit Agreement dated
June 26, 1996, as amended, by and among the National OLP, BankBoston, N.A., and
the bank lenders thereto, any Event of Default (as defined therein) or any
condition or event that, with the giving of notice or passage of time or both,
would constitute an Event of Default thereunder (other than any such Event of
Default that shall have been waived pursuant to a waiver which is in full force
and effect).
The foregoing conditions are for the sole benefit of the Purchaser and
Purchaser General Partner and may be asserted by the Purchaser or Purchaser
General Partner regardless of the circumstances giving rise to any such
condition and may be waived by the Purchaser or Purchaser General Partner in
whole or in part at any time and from time to time in their sole discretion. The
failure by Purchaser General Partner or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right; the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
A-44
<PAGE>
ANNEX B
LEHMAN BROTHERS
April 1, 1999
Special Committee of the Board of Directors
National Propane Corporation
Suite 1700, 200 1st Street, S.E.
Cedar Rapids, IA 52401-1409
Dear Sirs:
We understand that National Propane Corporation (the "Company" or the
"Managing General Partner"), acting in its capacity as Managing General Partner
of National Propane Partners, L.P. ("National" or the "Partnership"), is
considering entering into a transaction (the "Proposed Transaction") pursuant to
which (i) the Partnership will be acquired by Columbia Propane, L.P. and certain
affiliates ("Columbia") and (ii) each of the units representing limited
partnership interests in the Partnership (the "Common Units") that are held by
common unitholders (the "Common Unitholders") will be converted into the right
to receive $12.00 per unit in cash. The terms and conditions of the Proposed
Transaction are set forth in more detail in the draft Purchase Agreement dated
March 26, 1999 between National and Columbia and certain of their affiliates
(the "Agreement").
We have been requested by the Special Committee of the Board of Directors
of the Company, acting in its capacity as Managing General Partner of National,
to render our opinion with respect to the fairness, from a financial point of
view, to the Common Unitholders of the consideration to be received by the
Common Unitholders in the Proposed Transaction. We have not been requested to
opine as to, and our opinion does not in any manner address, the Company's
underlying business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction; (2) such publicly available
information concerning Columbia and National that we believed to be relevant to
our analysis, including, without limitation, each of the periodic reports filed
by National since its initial public offering on June 26, 1996, including the
audited and unaudited financial statements included in such reports and
statements; (3) financial and operating information with respect to the
corporate structure, businesses, operations and prospects of National as
furnished to us by the Company, including financial projections based on the
business plan of the Partnership and, in particular; (a) certain estimates of
propane sales volumes; (b) the budget for the fiscal year 1999; (c) projected
operating cash flow for 1999-2003; and (d) the sensitivity of retail gallons
sold to changes in weather; (4) a trading history of National's Common Units
from June 26, 1996 to March 30, 1999 and a comparison of that trading history
with those of other companies that we deemed relevant; (5) a
B-1
<PAGE>
comparison of the historical operating and financial results and present
financial condition of National with those of other companies that we deemed
relevant; and (6) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant.
In addition, we (a) had numerous discussions with the management of both
the Company and Triarc concerning National's corporate structure, business,
operations, financial condition, assets and growth opportunities; and (b) have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information that was used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of the management of the
Partnership that it was not aware of any facts or circumstances that would lead
them to believe that such information, taken as a whole, was inaccurate or
misleading in any material respect. With respect to National's budget for 1999
that was prepared in November 1998, we have been advised by the Partnership that
such budget, at the time it was prepared, was prepared in good faith based on
assumptions that, taken as a whole, were within the range of reasonableness.
However, for purposes of our analysis, we also have considered certain
assumptions and estimates with respect to the future financial performance of
the Partnership from 1999 through 2003 and developed certain adjustments to the
projections of the Partnership for 1999 and to the projections for the future
financial performance of the Partnership over such period. We have discussed
these adjusted projections with the management of the Partnership and they have
agreed that the adjustments, taken as a whole, and adjusted projections are
within a range of reasonableness. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of the
Partnership and have not made or obtained any evaluations or appraisals of the
assets or liabilities of the Partnership. In addition, you have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of all or a part of the Partnership's
business. Our opinion necessarily is based upon market, economic and other
conditions as they existed on, and can be evaluated as of, the date of this
letter.
In arriving at our opinion, we also considered the process and negotiations
undertaken by the Managing General Partner in connection with the potential sale
of National and the process and negotiations undertaken by the Managing General
Partner, Triarc Companies, Inc. and the Special Committee of the Board of
Directors in connection with the Proposed Transaction. We also considered the
current distribution policy of the Partnership and the Common Unit arrearages
that had been accrued to the date hereof.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the Common Unitholders in the Proposed Transaction is fair to the
Common Unitholders.
We have acted as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Proposed Transaction and will
receive a fee for our services. In addition, the Company has agreed to indemnify
us for certain liabilities that may arise out of the rendering of this opinion.
In the ordinary course of our business, we actively trade in the equity
securities of the Partnership for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
B-2
<PAGE>
This opinion is solely for the use and benefit of the Special Committee of
the Board of Directors of the Company, acting in its capacity as Managing
General Partner of National, and is rendered to the Special Committee in
connection with its consideration of the Proposed Transaction. This opinion is
not intended to be and does not constitute a recommendation to any Common
Unitholder as to whether or not such Unitholder should tender his units in any
tender offer with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
B-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX C
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................................................ C-2
Consolidated Balance Sheets -- December 31, 1997 and 1998................................................... C-3
Consolidated Statements of Operations -- Years Ended December 31, 1996, 1997, and 1998...................... C-4
Consolidated Statements of Partners' Capital (Deficit)/Stockholders' (Deficit) -- Years Ended December 31,
1996, 1997, and 1998...................................................................................... C-5
Consolidated Statements of Cash Flows Years Ended December 31, 1996, 1997, and 1998......................... C-6
Notes to Consolidated Financial Statements.................................................................. C-7
</TABLE>
C-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners of
NATIONAL PROPANE PARTNERS, L.P.:
We have audited the accompanying consolidated balance sheets of National
Propane Partners, L.P. and subsidiaries (successor to National Propane
Corporation and subsidiaries) ('National') as of December 31, 1997 and 1998, and
the related consolidated statements of operations, partners' capital
(deficit)/stockholders' (deficit) and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of National Propane Partners, L.P.
and subsidiaries (successor to National Propane Corporation and subsidiaries) at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
National will continue as a going concern. As discussed in Note 3 to the
financial statements, at December 31, 1998, National was not in compliance with
a certain covenant of its loan agreements and received from its lenders an
unconditional waiver of compliance with the covenant as of December 31, 1998 and
a conditional waiver with respect to future covenant non-compliance through
August 31, 1999. National's difficulties in meeting its loan agreement
covenants, the lack of adequate financing to fund its operations beyond the
waiver period and its negative working capital discussed in Note 3 raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
February 20, 1999
(April 9, 1999 as to Note 3)
C-2
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets (Note 10):
Cash and cash equivalents............................................................ $ 4,616 $ 4,448
Receivables, net of allowance for doubtful accounts (Note 5)......................... 19,227 14,455
Finished goods inventories........................................................... 9,599 7,879
Other current assets................................................................. 1,990 2,110
-------- --------
Total current assets............................................................ 35,432 28,892
Note receivable from Triarc Companies, Inc. (Notes 10 and 13)............................. 40,700 30,700
Properties, net (Notes 6 and 10).......................................................... 80,346 77,653
Unamortized costs in excess of net assets of acquired companies
(Notes 7, 18, and 19)................................................................... 17,616 16,862
Other assets (Notes 8 and 10)............................................................. 8,415 6,930
-------- --------
$182,509 $161,037
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt (Notes 3 and 10)................................... $ 9,235 $141,687
Accounts payable..................................................................... 5,877 7,492
Accrued expenses (Note 9)............................................................ 7,866 6,347
Customer credit balances............................................................. 5,272 6,008
-------- --------
Total current liabilities....................................................... 28,250 161,534
Long-term debt (Notes 3 and 10)........................................................... 138,131 177
Customer deposits and other long-term liabilities......................................... 2,674 2,344
Commitments and contingencies (Notes 2, 11, 16, and 17)...................................
Partners' capital (deficit) (Notes 10, 11, and 20):
Common partners' capital (6,701,550 units outstanding in 1997 and 1998).............. 10,362 --
General partners' capital (deficit) (including 4,533,638 subordinated units
outstanding in 1997 and 1998)....................................................... 3,092 (3,018)
-------- --------
Total partners' capital (deficit)............................................... 13,454 (3,018)
-------- --------
$182,509 $161,037
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
C-3
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Revenues............................................................ $ 173,260 $ 165,169 $ 133,982
----------- ----------- -----------
Cost of sales:
Cost of product -- propane and appliances...................... 87,973 83,429 57,228
Other operating expenses applicable to revenues................ 44,705 47,251 44,353
----------- ----------- -----------
132,678 130,680 101,581
----------- ----------- -----------
Gross profit.............................................. 40,582 34,489 32,401
Selling, general and administrative expenses........................ 22,894 24,646 26,222
Management fees (Note 19)........................................... 1,500 -- --
----------- ----------- -----------
Operating income.......................................... 16,188 9,843 6,179
----------- ----------- -----------
Other income (expense):
Interest expense............................................... (12,076) (12,579) (13,771)
Interest income from Triarc Companies, Inc.
(Note 13).................................................... 2,755 5,495 5,011
Other income, net.............................................. 817 1,216 1,301
----------- ----------- -----------
(8,504) (5,868) (7,459)
----------- ----------- -----------
Income (loss) before income taxes and extraordinary
charge.................................................. 7,684 3,975 (1,280)
Provision for income taxes (Note 12)................................ 1,937 127 298
----------- ----------- -----------
Income (loss) before extraordinary charge................. 5,747 3,848 (1,578)
Extraordinary charge (Note 14)...................................... (2,631) -- --
----------- ----------- -----------
Net income (loss).............................................. $ 3,116 $ 3,848 $ (1,578)
----------- ----------- -----------
----------- ----------- -----------
General partners' interest in:
Income (loss) before extraordinary charge...................... $ 2,751 $ 154 $ (63)
Extraordinary charge........................................... (2,631) -- --
----------- ----------- -----------
Net income (loss)......................................... $ 120 $ 154 $ (63)
----------- ----------- -----------
----------- ----------- -----------
Unitholders' interest (common and subordinated) in net income
(loss)............................................................ $ 2,996 $ 3,694 $ (1,515)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per unit -- basic and diluted (Note 1)............ $ .27 $ .33 $ (.13)
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of units outstanding........................ 10,954,753 11,235,188 11,235,188
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(DEFICIT)/STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
(ACCUMULATED TOTAL
DEFICIT) PARTNERS'
GENERAL CAPITAL
ADDITIONAL PARTNERS' COMMON (DEFICIT)/
COMMON PAID-IN DUE FROM CAPITAL PARTNERS' STOCKHOLDERS'
STOCK CAPITAL PARENTS (DEFICIT) CAPITAL (DEFICIT)
------ ---------- -------- ------------ --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995................. $ 1 $ 36,270 $(81,392) $ (3,479) $ -- $ (48,600)
Net income:.............................
January 1, 1996 to June 30, 1996... -- -- -- 2,625 -- 2,625
July 1, 1996 to December 31,
1996:............................
Income before extraordinary
charge...................... -- -- -- 1,293 1,829 3,122
Extraordinary charge.......... -- -- -- (2,631) -- (2,631)
Assets/(liabilities) retained by the
Managing General Partner (Notes 1 and
13)................................... (1) (36,270) 81,392 (25,413) -- 19,708
Dividends paid (including $59,300 in
cash) (Note 1)........................ -- -- -- (59,324) -- (59,324)
Capital contribution from General
Partners.............................. -- -- -- 338 -- 338
Net proceeds of initial public offering
(Note 1).............................. -- -- -- 101,105 16,277 117,382
Net proceeds of private equity placement
(Note 1).............................. -- -- -- -- 7,367 7,367
Cash distributions paid................. -- -- -- (2,616) (3,308) (5,924)
------ ---------- -------- ------------ --------- -------------
Balance at December 31, 1996................. -- -- -- 11,898 22,165 34,063
Net income.............................. -- -- -- 1,644 2,204 3,848
Cash distributions paid (Note 11)....... -- -- -- (10,499) (14,073) (24,572)
Amortization of unearned compensation on
below market unit options (Note 20)... -- -- -- 49 66 115
------ ---------- -------- ------------ --------- -------------
Balance at December 31, 1997................. -- -- -- 3,092 10,362 13,454
Net loss................................ -- -- -- (674) (904) (1,578)
Reallocation of Partnership loss (Note
1).................................... -- -- -- (2,622) 2,622 --
Cash distributions paid (Note 11)....... -- -- -- (2,989) (12,314) (15,303)
Amortization of unearned compensation on
below market unit options (Note 20)... -- -- -- 175 234 409
------ ---------- -------- ------------ --------- -------------
Balance at December 31, 1998................. $-- $ -- $ -- $ (3,018) $ -- $ (3,018)
------ ---------- -------- ------------ --------- -------------
------ ---------- -------- ------------ --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
C-5
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................... $ 3,116 $ 3,848 $ (1,578)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of properties............................ 10,016 10,594 9,913
Amortization of deferred financing costs............................... 841 854 727
Amortization of costs in excess of net assets of acquired companies.... 722 874 959
Other amortization..................................................... 395 811 1,241
Write-off of deferred financing costs.................................. 4,126 -- --
Provision for (benefit from) deferred income taxes..................... (870) (52) (46)
Gain on sale of properties, net........................................ (28) (351) (1,016)
Provision for doubtful accounts........................................ 1,347 1,147 849
Other, net............................................................. 97 592 (300)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and customer credit
balances........................................................ (9,028) 9,378 4,693
Decrease (increase) in inventories................................ (3,475) 4,665 1,722
Decrease (increase) in other current assets....................... (2,283) 281 (179)
Increase (decrease) in accounts payable and accrued expenses...... 9,294 (12,229) 96
--------- -------- --------
Net cash provided by operating activities.................... 14,270 20,412 17,081
--------- -------- --------
Cash flows from investing activities:
Payments received on note receivable from Triarc Companies, Inc............. -- -- 10,000
Capital expenditures........................................................ (6,740) (7,793) (8,419)
Business acquisitions....................................................... (2,046) (8,480) (420)
Proceeds from sales of properties........................................... 317 1,591 2,330
--------- -------- --------
Net cash provided by (used in) investing activities.......... (8,469) (14,682) 3,491
--------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt................................................ 12,685 12,612 1,000
Repayments of long-term debt................................................ (139,114) (341) (6,437)
Payments of distributions................................................... (5,924) (24,572) (15,303)
Payments of dividends to Triarc Companies, Inc.............................. (59,300) -- --
Proceeds of First Mortgage Notes............................................ 125,000 -- --
Net proceeds of initial public offering..................................... 117,382 -- --
Net proceeds of private placement of equity................................. 7,367 -- --
Capital contribution from General Partners.................................. 338 -- --
Advances to and repayments of obligations to Triarc Companies, Inc.......... (49,246) -- --
Payment of deferred financing costs......................................... (6,600) -- --
Other....................................................................... (27) -- --
--------- -------- --------
Net cash provided by (used in) financing activities.......... 2,561 (12,301) (20,740)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........................ 8,362 (6,571) (168)
Cash and cash equivalents at beginning of year.............................. 2,825 11,187 4,616
--------- -------- --------
Cash and cash equivalents at end of year.................................... $ 11,187 $ 4,616 $ 4,448
--------- -------- --------
--------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................... $ 13,337 $ 11,647 $ 13,639
--------- -------- --------
--------- -------- --------
Income taxes (net of refunds).......................................... $ (258) $ 189 $ 51
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
C-6
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
National Propane Partners, L.P. (the 'Partnership') was formed on March 13,
1996 as a Delaware limited partnership. The Partnership and its subsidiary
partnership National Propane, L.P. (the 'Operating Partnership') were formed to
acquire, own and operate the propane business and substantially all the assets
and liabilities (principally all assets and liabilities other than amounts due
from a parent, deferred financing costs and income tax liabilities) of National
Propane Corporation and subsidiaries ('National Propane,' and referred to
subsequent to the initial public offering (described below) as the 'Managing
General Partner'), a wholly-owned subsidiary of Triarc Companies, Inc.
('Triarc'). In addition, National Sales & Service, Inc. ('NSSI'), a subsidiary
of the Operating Partnership, was formed to acquire and operate the service work
and appliance and parts sales business of National Propane. The Partnership, the
Operating Partnership and NSSI are collectively referred to hereinafter as the
'Partnership Entities.' The Partnership Entities consummated in July, 1996, an
initial public offering (the 'Offering') of 6,301,550 common units representing
limited partner interests in the Partnership (the 'Common Units') for an
offering price of $21.00 per Common Unit aggregating $132,333,000 before
$14,951,000 of underwriting discounts and commissions and other expenses related
to the Offering. On November 6, 1996 the Partnership sold an additional 400,000
Common Units through a private placement (the 'Equity Private Placement') at a
price of $21.00 per Common Unit aggregating $8,400,000 before $1,033,000 of fees
and expenses. On July 2, 1996 the Managing General Partner issued in a private
placement $125,000,000 of 8.54% First Mortgage Notes due June 30, 2010 (the
'First Mortgage Notes'). The Operating Partnership assumed the Managing General
Partner's obligation under the First Mortgage Notes in connection with the
conveyance on July 2, 1996 (the 'Partnership Conveyance') by the Managing
General Partner and National Propane SGP Inc., a subsidiary of the Managing
General Partner (the 'Special General Partner' and, together with the Managing
General Partner, the 'General Partners'), of substantially all of their assets
and liabilities (excluding an existing $81,392,000 intercompany note from
Triarc, $59,300,000 of the net proceeds from the issuance of the First Mortgage
Notes which was used to pay a dividend to Triarc and certain net liabilities of
the General Partners).
The General Partners own general partner interests representing an
aggregate 4% unsubordinated general partner interest (the 'General Partners'
Interest') in the Partnership and the Operating Partnership on a combined basis.
In addition, the Managing General Partner owns 4,533,638 subordinated units (the
'Subordinated Units') representing a 38.7% subordinated general partner interest
in the Partnership Entities.
Basis of Presentation
The accompanying consolidated financial statements presented herein reflect
the effects of the Partnership Conveyance, in which the Partnership Entities
became the successor to the businesses of National Propane. As such, the
consolidated financial statements represent National Propane prior to the
Partnership Conveyance and the Partnership Entities subsequent to the
Partnership Conveyance. Because the Partnership Conveyance was a transfer of
assets and liabilities in exchange for partnership interests among a controlled
group of companies, it has been accounted for in a manner similar to a pooling
of interests, resulting in the presentation of the Partnership Entities as the
successor to the continuing businesses of National Propane. The entity
representative of both the operations of (i) National Propane prior to the
Partnership Conveyance, and (ii) the Partnership Entities subsequent to the
Partnership Conveyance, is referred to herein as 'National.' Those assets and
liabilities not conveyed to the Partnership were retained by the Managing
General Partner. All significant intercompany balances and transactions have
been eliminated in consolidation.
C-7
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
National records sales of liquefied petroleum gas ('propane') when
inventory is delivered to the customer.
Cash Equivalents
All highly liquid investments with a maturity of three months or less when
acquired are considered cash equivalents.
Inventories
Inventories, all of which are classified as finished goods, are stated at
the lower of cost or market using an average cost basis.
Properties and Depreciation
Properties are carried at cost less accumulated depreciation. Depreciation
of properties is computed on the straight-line method over their estimated
useful lives of 20 to 45 years for buildings and improvements, 4 to 30 years for
equipment and customer installation costs, 3 to 10 years for office furniture
and fixtures and 3 to 8 years for automotive and transportation equipment. Gains
and losses arising from disposals are included in current operations.
Amortization of Intangibles
Costs in excess of net assets of acquired companies ('Goodwill') arising
after November 1, 1970 are being amortized on the straight-line basis
principally over 15 to 30 years; Goodwill of $3,560,000 arising prior to that
date is not being amortized. Non-compete agreements are being amortized on the
straight-line basis over five years. Deferred financing costs are being
amortized as interest expense over the lives of the respective debt using the
interest rate method.
Impairment
Intangible Assets. The amount of impairment, if any, in unamortized
Goodwill is measured based on projected future operating performance of those
acquired companies to which the goodwill relates. To the extent future results
of operations through the period such Goodwill is being amortized are sufficient
to absorb the related amortization, the Company has deemed there to be no
impairment of Goodwill.
Long-Lived Assets. National's policy is to review long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. National determines that
the carrying values of long-lived assets are recoverable over their remaining
estimated lives through undiscounted future cash flow analysis. If such a review
should indicate that the carrying amount of the long-lived assets is not
recoverable, it is National's policy to reduce the carrying amount of such
assets to fair value.
Customer Credit Balances
Customer credit balances represent pre-payments received from customers.
These payments relate primarily to a budget payment plan whereby customers pay
their estimated annual propane gas charges on a fixed monthly basis and the
payments made have exceeded the charges for the deliveries.
C-8
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued Insurance
Accrued insurance includes reserves for incurred but not reported claims.
Such reserves are based on actuarial studies using historical loss experience.
Adjustments to recorded estimates resulting from subsequent actuarial
evaluations or ultimate payments are reflected in the operations of the periods
in which such adjustments become known.
Income Taxes
The earnings of the Partnership and Operating Partnership are included in
the Federal and state income tax returns of the individual partners. As a
result, no income tax expense has been reflected in National's consolidated
financial statements relating to the earnings of the Partnership and Operating
Partnership. Federal and state income taxes are, however, provided on the
earnings of NSSI. The Partnership Entities provide deferred income taxes to
recognize the effect of temporary differences between NSSI's basis of assets and
liabilities for tax and financial statement purposes. Federal and state income
tax expense for periods prior to the Partnership Conveyance relate to National
Propane, which is included in the consolidated Federal income tax return of
Triarc. Under a tax sharing agreement with Triarc, National Propane provided
income taxes on the same basis as if it filed a separate consolidated return.
National Propane provided deferred income taxes to recognize the effect of
temporary differences between the basis of assets and liabilities for tax and
financial statement purposes. In connection with the Partnership Conveyance, all
income tax liabilities of National Propane were retained by the Managing General
Partner.
Unit Options
In 1996 National adopted SFAS No. 123, 'Accounting for Stock-Based
Compensation' ('SFAS 123'). SFAS 123 defines a fair value based method of
accounting for employee unit-based compensation and encourages adoption of that
method of accounting but permits accounting under the intrinsic value method
prescribed by an accounting pronouncement prior to SFAS 123. National has
elected to continue to measure compensation costs for its employee unit-based
compensation under the intrinsic value method. Accordingly, compensation cost
for National's unit options is measured as the excess, if any, of the market
price of National's units at the date of grant over the amount an employee must
pay to exercise the options.
Net Income (Loss) Per Unit
In the fourth quarter of 1997 the Company adopted SFAS No. 128 'Earnings
Per Share' ('SFAS 128'). This standard requires the presentation of 'basic' and
'diluted' earnings per share, which replace the 'primary' and 'fully diluted'
earnings per share measures required under prior accounting pronouncements.
Basic and diluted income per share are the same for 1996, 1997, and 1998 since
the only potentially dilutive securities are the unit options granted in 1997
which had no impact on net income per unit in 1997 or 1998. The income per unit
has been computed by dividing the net income, after deducting the General
Partners' 4% interest, by the weighted average number of outstanding Common
Units and Subordinated Units during the period. Although SFAS 128 requires
restatement of all prior periods, the standard has had no effect on the
Partnership's reported income per unit for 1996 since there were no potentially
dilutive securities. The extraordinary item in 1996 was allocated entirely to
the Managing General Partner.
Propane Contracts
National uses propane contracts to reduce the risk of future price
fluctuations for propane inventories and contracts. Gains and losses on propane
contracts purchased as hedges are deferred and
C-9
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in cost of sales as a component of the product cost for the related
hedged transaction. In the statement of cash flows, cash flows from qualifying
hedges are classified in the same category as the cash flows of the items being
hedged.
Reallocation of Partnership Loss
The reallocation of Partnership loss on the Consolidated Statements of
Partners' Capital (Deficit)/Stockholders' (Deficit) is required under the terms
of the partnership agreement in order that the Common Unitholders' capital
account balances are not reduced below zero. In accordance with the terms of the
partnership agreement, the General Partners' Interest will recover such
$2,622,000 reallocation to the extent the Common Unitholders' interest in future
earnings exceeds distributions to Common Unitholders.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
Nature of Operations
National is engaged primarily in the retail marketing of propane to
residential customers, commercial and industrial customers, agricultural
customers and resellers. National also markets propane-related supplies and
equipment including home and commercial appliances. National's operations are
concentrated in the Midwest, Northeast, Southeast and West regions of the United
States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Estimates
National's significant estimates are for costs related to (i) insurance
loss reserves (see Note 1) and (ii) an environmental contingency (see Note 17).
Certain Risk Concentrations
National's significant risk concentration arises from propane being its
principal product. Both sales levels and costs of propane are sensitive to
weather conditions, particularly in the residential home heating market.
National's profitability depends on the spread between its cost for propane and
the selling price. National generally is able to pass on cost increases to the
customer in the form of higher selling prices. However, where increases cannot
be passed on, margins can be adversely affected. National is also impacted by
the competitive nature of the propane industry, as well as by competition from
alternative energy sources such as natural gas, oil and electricity.
Dynegy Liquids Marketing and Trade ('Dynegy') and Conoco Inc. ('Conoco')
each supplied approximately 11% of National's propane in 1998 and Amoco Oil
Company ('Amoco') supplied approximately 10%. National believes that if supplies
from Dynegy, Conoco or Amoco were
C-10
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interrupted, it would be able to secure adequate propane supplies from other
sources without a material disruption of its operations; however, National
believes that the cost of procuring replacement supplies might be significantly
higher, at least on a short-term basis, which could negatively affect National's
margins. No other single supplier provided 10% or more of National's total
propane purchases during 1998.
(3) PARTNERSHIP SALE AND MANAGEMENT'S PLANS AND INTENTIONS
On April 5, 1999, the Partnership, the Managing General Partner, National
Propane SGP, Inc. ('SGP') and Triarc and Columbia Propane Corporation ('Columbia
Propane'), a subsidiary of Columbia Energy Group, Columbia Propane, L.P. (the
'Purchaser') and CP Holdings Inc., a subsidiary of Columbia Propane and the
general partner of the Purchaser (the 'Purchaser General Partner') signed a
definitive purchase agreement (the 'Purchase Agreement') pursuant to which the
Purchaser would acquire all of the 6,701,550 outstanding common units of the
Partnership for $12.00 in cash per common unit pursuant to a tender offer (the
'Partnership Sale'). On April 9, 1999, the Purchaser commenced the tender offer.
The offer for the common units is subject to certain conditions, including there
being validly tendered by the expiration date, and not withdrawn, at least a
majority of the outstanding common units on a fully diluted basis. The offer
will be made only upon and subject to the terms and conditions of the Offer to
Purchase and the related Letter of Transmittal.
The tender offer is the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the general partner interests and
subordinated unit interests of the Partnership and the Operating Partnership. As
part of the second step, any remaining common unitholders of the Partnership
would receive, in cash, the same per unit price as that paid to common
unitholders who tender their shares pursuant to the tender offer. Triarc would
receive approximately $17,900,000 for its acquired interests in the Partnership
and the Operating Partnership, consisting of $2,100,000 in cash and $15,800,000
in the form of the forgiveness of a portion of a note receivable from Triarc
(the 'Triarc Note') by the Operating Partnership. Simultaneously, and as a
condition of the closing, Triarc will prepay approximately $14,900,000 of such
indebtedness. Following the closing, Triarc, through the Managing General
Partner, would retain a 1.0% limited partner interest in the Purchaser.
Approximately $141,000,000 of the Operating Partnership's outstanding
indebtedness is expected to be refinanced in connection with the Partnership
Sale. There can be no assurance that the Partnership Sale will be consummated.
In connection with the Partnership Sale, the Operating Partnership, the
Managing General Partner, the SGP and the Noteholders amended the note
agreements governing the Operating Partnership's First Mortgage Notes to provide
for, among other things, modifications to the premium payable to such
noteholders in connection with the prepayment of the First Mortgage Notes
pursuant to the Partnership Sale. In addition, under the terms of the Purchase
Agreement, prior to the closing of the Partnership Sale, the Partnership must
obtain the prior written consent of the Purchaser General Partner before taking
certain specified actions, including the following: (a) payment of distributions
to any unitholders, (b) incurring greater than $1.0 million of indebtedness or
(c) making capital expenditures in excess of $1.0 million in the aggregate.
The accompanying Consolidated Financial Statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
Consolidated Financial Statements, during the years ended December 31, 1996,
1997 and 1998, National has reported net income (loss) before extraordinary
charge of $5,747,000, $3,848,000 and ($1,578,000), respectively and paid
distributions of $5,924,000, $24,572,000 and $15,303,000, respectively. Also, as
described in Note 10, the Operating Partnership was not in compliance with the
Total Funded Debt to Consolidated Cash Flow ratio ('Leverage Ratio') provision
C-11
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of its bank facility (the 'Bank Facility') at December 31, 1998 and is
forecasting non-compliance with the same covenant as of March 31, 1999 (the
'Forecasted Non-Compliance'). The Operating Partnership has received an
unconditional waiver dated as of February 20, 1999 of such non-compliance from
the Bank Facility lenders as of December 31, 1998 and a conditional waiver with
respect to future non-compliance with such covenant through August 31, 1999 (the
'February Waiver'). There are certain conditions to this conditional February
Waiver, including, among others, consummation of the Partnership Sale and the
repayment of all amounts outstanding under the Bank Facility, both by September
30, 1999. In addition, the February Waiver prohibits the Partnership from making
any future distributions to all unitholders until all outstanding indebtedness
under the Bank Facility is repaid in full. Should the conditions not be met, or
the February Waiver expire and the Operating Partnership be in default of the
Bank Facility, the Operating Partnership would also be in default of the First
Mortgage Notes by virtue of cross-default provisions. As a result of the
Forecasted Non-Compliance, the conditions of the February Waiver and the
cross-default provisions of the First Mortgage Notes, the Partnership has
classified all of the debt under the Bank Facility and the First Mortgage Notes
as current liabilities as of December 31, 1998. Further, in accordance with the
terms of the February Waiver, no additional borrowings are available to the
Operating Partnership under the Bank Facility. As a result of the Forecasted
Non-Compliance and the conditions surrounding the conditional February Waiver,
the independent auditors' report on the Partnership's financial statements for
the year ended December 31, 1998 contains an explanatory paragraph concerning
substantial doubt as to the Partnership's ability to continue as a going
concern.
The Partnership's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its debt agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. To successfully achieve these objectives, the Partnership
believes the Partnership Sale is the most viable alternative. If the Partnership
Sale is not consummated and the Lenders are unwilling to extend or modify the
February Waiver, (i) the Partnership could seek to otherwise refinance its
indebtedness, (ii) the Managing General Partner might consider buying the banks'
loans to the Operating Partnership ($15,997,000 principal amount outstanding at
December 31, 1998), (iii) the Partnership could pursue other potential
purchasers of the Partnership or (iv) the Partnership could be forced to seek
protection under Federal bankruptcy laws.
(4) UNAUDITED PRO FORMA SUPPLEMENTAL FINANCIAL INFORMATION
The following unaudited pro forma supplemental financial information sets
forth the operating results of National for the year ended December 31, 1996 and
has been adjusted as if the Partnership had been formed and the Partnership
Conveyance, the Offering, the Equity Private Placement and related transactions
had been completed as of January 1, 1996 to give effect to (i) the elimination
of management fees paid to Triarc, (ii) the addition of the estimated
stand-alone general and administrative costs associated with National's
operation as a partnership, (iii) a net decrease to interest expense to reflect
the interest expense associated with the First Mortgage Notes and to eliminate
interest expense on the refinanced debt and (iv) the elimination of the
provision for income taxes, as income taxes will be borne by the partners and
not the Partnership or the Operating Partnership, except for corporate income
taxes relative to NSSI. Such following pro forma supplemental financial
information does not purport to be indicative of the actual results of
operations that would have resulted had the Partnership been formed and the
Partnership Conveyance, the Offering, the Equity Private Placement and related
transactions been consummated as of January 1, 1996 or of the future results of
operations of National.
C-12
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 1996
---------------------
(IN THOUSANDS, EXCEPT
FOR UNIT DATA)
<S> <C>
Revenues.................................................................................... $ 173,260
Operating income............................................................................ 16,938
Income before income taxes and extraordinary charge......................................... 11,731
Income before extraordinary charge.......................................................... 11,616
General partners' interest in income before extraordinary charge............................ 465
Unitholders' interest (common and subordinated) in income before extraordinary charge....... 11,151
Unitholders' income before extraordinary charge per unit -- basic and diluted............... .99
Weighted average number of units outstanding................................................ 11,235,188
</TABLE>
(5) RECEIVABLES
The following is a summary of the components of receivables:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Receivables:
Trade.................................................................................. $20,164 $15,062
Other.................................................................................. 242 155
------- -------
20,406 15,217
Less allowance for doubtful accounts (trade)................................................ 1,179 772
------- -------
$19,227 $14,455
------- -------
------- -------
</TABLE>
The following is an analysis of doubtful account for the years ended
December 31, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997 1998
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year....................................................... $ 980 $ 1,437 $ 1,179
Provision for doubtful accounts.................................................... 1,347 1,147 849
Uncollectible accounts written off................................................. (890) (1,405) (1,256)
------ ------- -------
Balance at end of year............................................................. $1,437 $ 1,179 $ 772
------ ------- -------
------ ------- -------
</TABLE>
(6) PROPERTIES
The following is a summary of the components of properties:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................................................... $ 5,742 $ 5,629
Buildings and improvements................................................................ 12,369 12,161
Equipment and customer installation costs................................................. 120,494 126,169
Office furniture and fixtures............................................................. 6,669 6,994
Automotive and transportation equipment................................................... 23,597 23,217
-------- --------
168,871 174,170
Less accumulated depreciation............................................................. 88,525 96,517
-------- --------
$ 80,346 $ 77,653
-------- --------
-------- --------
</TABLE>
C-13
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
The following is a summary of the components of unamortized costs in excess
of net assets of acquired companies:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Costs in excess of net assets of acquired companies..................... $20,764 $20,969
Less accumulated amortization........................................... 3,148 4,107
------- -------
$17,616 $16,862
------- -------
------- -------
</TABLE>
(8) OTHER ASSETS
The following is a summary of the components of other assets:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred financing costs................................................ $ 6,600 $ 6,600
Non-compete agreements.................................................. 3,558 3,606
Other................................................................... 1,314 1,224
------- -------
11,472 11,430
------- -------
Less accumulated amortization:
Deferred financing costs........................................... 1,089 1,816
Non-compete agreements............................................. 1,630 2,263
Other.............................................................. 338 421
------- -------
3,057 4,500
------- -------
$ 8,415 $ 6,930
------- -------
------- -------
</TABLE>
(9) ACCRUED EXPENSES
The following is a summary of the components of accrued expenses:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation and related benefits.................................. $3,215 $2,784
Accrued insurance.......................................................... 2,682 1,617
Other accrued expenses..................................................... 1,969 1,946
------ ------
$7,866 $6,347
------ ------
------ ------
</TABLE>
C-14
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
8.54% First Mortgage Notes............................................ $125,000 $125,000
Bank Facility:
Working capital facility, weighted average interest rate of 7.25%
at December 31, 1998........................................... 8,500 3,000
Acquisition facility, weighted average interest rate of 6.97% at
December 31, 1998.............................................. 11,997 12,997
Acquisition notes, bearing interest at rates of 6% to 7%, due through
2001................................................................ 1,869 867
-------- --------
Total debt....................................................... 147,366 141,864
Less current portion of long-term debt................................ 9,235 141,687
-------- --------
$138,131 $ 177
-------- --------
-------- --------
</TABLE>
The aggregate annual maturities of long-term debt are as follows as of
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999 .......................................................................... $141,687
2000 .......................................................................... 86
2001 .......................................................................... 91
2002 .......................................................................... --
2003 .......................................................................... --
--------
$141,864
--------
--------
</TABLE>
As discussed in Note 3 to the consolidated financial statements, as of
December 31, 1998, the Operating Partnership was not in compliance with its
Leverage Ratio covenant required under terms of its Bank Facility. In addition,
the Operating Partnership is predicting the Forecasted Non-Compliance as of
March 31, 1999. The Operating Partnership has received an unconditional waiver
from its lenders for such non-compliance as of December 31, 1998 and has
received the February Waiver with respect to future covenant non-compliance
through August 31, 1999. Should the conditions of the February Waiver not be
met, or the February Waiver expire and National be in default of the Bank
Facility, the Operating Partnership would also be in default of the First
Mortgage Notes by virtue of cross-default provisions. In the event of a default
under the First Mortgage Notes, the Operating Partnership may become liable to
pay immediately all unpaid principal and accrued interest plus, under certain
circumstances, a premium. As a result of the Forecasted Non-Compliance, the
conditions of the February Waiver and the cross-default provisions of the First
Mortgage Notes, the Partnership has classified all of the debt under the Bank
Facility ($15,997,000) and the First Mortgage Notes as current liabilities as of
December 31, 1998.
As of June 30, 1998, the Operating Partnership was also not in compliance
with certain covenants of its Bank Facility agreement (the 'Agreement'). The
Agreement was amended (the 'Agreement Amendment') as of such date to, among
other things, permit principal prepayment (the 'Triarc Note Prepayments') of up
to $10,000,000, by Triarc through February 14, 1999 on the Triarc Note with an
original principal amount of $40,700,000 and, to the extent not utilized for
distributions (see below), to permit any such prepayments to be included in the
determination of consolidated cash flow, as defined under the Agreement
('Consolidated Cash Flow'), for purposes of determining compliance with certain
C-15
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
leverage and interest coverage ratio requirements for a period of twelve
consecutive months commencing June 30, 1998 for the initial $7,000,000 Triarc
Note Prepayments and from the date of payment on the $3,000,000 Triarc Note
Prepayment (see below). Further, the Operating Partnership must have sufficient
interest coverage through consolidated cash flow, as defined under the indenture
(the 'Indenture') pursuant to which the First Mortgage Notes were issued, in
order to pay distributions. Effective June 30, 1998 the Indenture was amended
(the 'Indenture Amendment' and collectively with the Agreement Amendment, the
'Amendments') to, among other things, (i) permit the Triarc Note Prepayments,
(ii) effectively permit up to $6,000,000 of any such prepayments to be utilized
to pay distributions to common Unitholders with a proportionate amount for the
General Partners' Interest with respect to distributions for the second, third
and fourth quarters of 1998 only and (iii) amend the definition of consolidated
cash flow to include interest income received by the Operating Partnership on
the Triarc Note through December 31, 1998 for interest coverage purposes thereby
facilitating the Partnership's ability to pay distributions. (See Note 11
regarding future Partnership distributions.) The Triarc Note was amended to,
among other things, permit Triarc to make Triarc Note Prepayments up to
$10,000,000 of the principal thereof through February 14, 1999. On August 7,
1998, Triarc made a principal prepayment of $7,000,000 on the Triarc Note of
which $3,336,000 was included as Consolidated Cash Flow under the Agreement in
order to retroactively cure the noncompliance with the Agreement at June 30,
1998, and $3,664,000 was used to permit the Partnership to declare its
distribution for the quarter ended June 30, 1998 (see further discussion below).
On September 30, 1998, Triarc prepaid the remaining permitted principal of
$3,000,000.
The Operating Partnership incurred fees of $908,000 in connection with the
execution of the Amendments. Such fees were amortized to interest expense
ratably over the third and fourth quarters of 1998.
Effective with amendments executed effective June 30, 1998, the Operating
Partnership's Bank Facility provided for a $10,000,000 (reduced from
$15,000,000) working capital facility (the 'Working Capital Facility') to be
used for working capital and other general partnership purposes. At December 31,
1998, $3,000,000 was outstanding under the Working Capital Facility. Further, in
accordance with the amendments, the $20,000,000 acquisition facility (the
'Acquisition Facility') under the Bank Facility, the use of which was restricted
to business acquisitions and capital expenditures for growth, was permanently
reduced to the $12,997,000 outstanding as of June 30, 1998. As described above,
all amounts outstanding under the Bank Facility are classified as current
liabilities in accordance with terms of the February Waiver and no additional
borrowings under the Bank Facility are available to the Operating Partnership.
The original repayment terms of the Acquisition Facility, as amended, were
approximately $1,100,000 per quarter beginning in the third quarter of 1999.
Original repayment terms of the First Mortgage Notes required equal annual
installments of $15,625,000 commencing 2003 through 2010.
The Operating Partnership's obligations under both the First Mortgage Notes
and the Bank Facility are secured on an equal and ratable basis by substantially
all of the assets of the Operating Partnership and are guaranteed by the
Managing General Partner.
The estimated fair value of the First Mortgage Notes as of December 31,
1997 and December 31, 1998 was $133,050,000 and $113,125,000, respectively. The
fair value at December 31, 1997 was determined using a discounted cash flow
analysis based on an estimate of the Operating Partnership's then current
borrowing rate for similar securities. The fair value at December 31, 1998 was
estimated based on discussion with an investment banking firm considering the
current interest rate environment and the Partnership Entities' current overall
creditworthiness. The fair value of the revolving loans and the acquisition
loans under the Bank Facility approximated their carrying values due to their
floating interest rates. The fair values of all other long-term debt were
assumed to reasonably approximate their carrying amounts since the interest
rates approximate current levels.
C-16
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Prior to the execution of the February Waiver discussed above which
prohibits the payment of any distributions to the Unitholders until all
outstanding indebtedness under the Bank Facility is repaid in full, partnership
distributions were made from available cash ('Available Cash') as defined in the
Partnership Agreement, the Agreement and the Indenture and as amended by the
Agreement Amendment and the Indenture Amendment. Under the terms of the
Partnership Agreement, the Partnership must distribute 100% of its Available
Cash within 45 days of the end of each fiscal quarter. Available Cash under the
Partnership Agreement generally means with respect to any quarter of the
Partnership, all cash on hand at the end of such quarter less the amount of cash
reserves that is necessary or appropriate in the discretion of the Managing
General Partner to (i) provide for the proper conduct of the Partnership's
business, (ii) comply with applicable law or any Partnership debt instrument or
other agreement, or (iii) provide funds for distributions to Unitholders and the
General Partners in respect of any one or more of the next four quarters. Under
the Agreement Amendment executed effective June 30, 1998, Available Cash is
supplemented by any Triarc Note Prepayments and may be utilized to pay
distributions to the extent such Triarc Note Prepayments are not required to be
included in Consolidated Cash Flow for the Operating Partnership to be in
compliance with the Agreement. However, under the Indenture Amendment, which is
more restrictive as to the determination of Available Cash, Available Cash is
supplemented by up to only $6,000,000 of Triarc Note Prepayments. The
Partnership declared and paid quarterly distributions of $0.525 per common unit
with a proportionate amount for the 4% General Partners' Interest during each of
the first three quarters of 1998, aggregating $3,664,000 for each distribution.
The distribution during the third quarter paid with respect to the second
quarter utilized the aforementioned $3,664,000 of the August 7, 1998 Triarc Note
Prepayment. On October 21, 1998 the Partnership declared a quarterly
distribution for the quarter ended September 30, 1998 of $0.2625 per Common Unit
to Common Unitholders of record on November 6, 1998 paid on November 13, 1998,
with a proportionate amount for the General Partner's Interest, or an aggregate
of $1,832,000 including $73,000 to the General Partners related to the General
Partners' Interest. This distribution represented a 50% reduction from previous
quarters. After a careful evaluation of the Partnership's recent financial
results, the Managing General Partner's Board of Directors concluded that a
reduced distribution was necessary to maintain financial flexibility in future
quarters. With respect to the fourth quarter of 1998, the Operating Partnership
was in violation of certain of its debt covenants under the Bank Facility as
previously discussed and as such, was prohibited under its Bank Facility from
making any distribution with respect to the fourth quarter of 1998. Under the
terms of the Partnership Agreement, each Common Unit will have an arrearage of
$0.2625 and $0.525 per Common Unit related to the third and fourth quarter
distributions, respectively, for an aggregate of $5,277,000. The last
distribution for subordinated units was a quarterly distribution of $0.525 per
subordinated unit with a proportionate amount for the 4% General Partners'
Interest, or an aggregate of $2,479,000, declared and paid during the first
quarter of 1998 with respect to the fourth quarter of 1997. No distributions
were declared on the Subordinated Units with respect to any quarter of 1998
since subsequent to the distribution with respect to the quarter ended December
31, 1997, the Managing General Partner agreed to forego any distributions on the
Subordinated Units in order to facilitate compliance with the debt covenant
restrictions in the Agreement and, effective June 30, 1998 pursuant to the
Amendments, the Partnership agreed not to pay distributions on the Subordinated
Units with respect to the second, third and fourth quarters of 1998.
Subsequently, the February Waiver prohibits any future distributions to all
unitholders until all outstanding indebtedness under the Bank Facility is repaid
in full. Cash distributions on the Partnership's Common and Subordinated Units
and the General Partners' Interest are not guaranteed, will depend on future
Partnership operating performance and will be affected by among other things,
the funding of reserves, operating and capital expenditures and requirements
under the Partnership's debt agreements. Accordingly, there can be no assurance
that the Partnership will be able to pay any such future distributions. (See
Note 3 -- Partnership Sale and Management's Plans and Intentions.)
C-17
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Available Cash is generally distributed 96% to the unitholders (including
the Managing General Partner as the holder of Subordinated Units) and 4% to the
General Partners, pro rata, except that if distributions of Available Cash
exceed target distribution levels, as defined, above $0.525 quarterly per unit
(the 'Minimum Quarterly Distribution'), the General Partners will receive an
additional percentage of such excess distributions that will increase to up to
50% of the distributions above the highest target distribution level.
With respect to each quarter to the extent there is sufficient Available
Cash, the holders of Common Units will have the right to receive the Minimum
Quarterly Distribution, plus any common unit arrearages, prior to any
distribution of Available Cash to the holders of Subordinated Units.
Subordinated Units do not have any arrearages with respect to distributions for
any quarter.
On November 14, 1996 the Partnership paid a distribution of $0.525 per
Common and Subordinated Unit with a proportionate amount for the General
Partners' Interest, or an aggregate $5,924,000, including $2,616,000 to the
General Partners. On February 14, 1997, May 15, 1997, August 14, 1997 and
November 14, 1997 the Partnership paid quarterly distributions for the quarters
ended December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 to
all unitholders of record on February 5, 1997, May 8, 1997, August 7, 1997 and
November 6, 1997, respectively, each consisting of $0.525 per Common and
Subordinated unit with a proportionate amount for the General Partners'
Interest, or an aggregate of $6,143,000 each including $2,625,000 to the General
Partners related to the Subordinated Units and the General Partners' Interest.
(12) INCOME TAXES
The provision for income taxes prior to the Partnership Conveyance in 1996
relate to National Propane and subsequent to the Partnership Conveyance relate
only to NSSI since generally no taxes are provided on the earnings of the
Partnership and the Operating Partnership.
The provision for income taxes before extraordinary charge for the years
ended December 31, 1996, 1997 and 1998 consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................................... $2,309 $ 44 $133
State........................................................ 498 135 211
------ ---- ----
2,807 179 344
Deferred
Federal...................................................... (716) (42) (38)
State........................................................ (154) (10) (8)
------ ---- ----
(870) (52) (46)
------ ---- ----
$1,937 $127 $298
------ ---- ----
------ ---- ----
</TABLE>
C-18
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the reported tax provision and a computed tax
provision based on income before income taxes and extraordinary charge at the
statutory Federal income tax rate of 35% is reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at Federal statutory tax rate....................... $ 2,690 $ 1,391 $(448)
Increase (decrease) in taxes resulting from:
Partnership (income) loss taxable directly to the partners........... (1,085) (1,347) 618
State income taxes, net of Federal income tax benefit................ 223 81 132
Amortization of non-deductible Goodwill.............................. 98 -- --
Other, net........................................................... 11 2 (4)
------- ------- -----
$ 1,937 $ 127 $ 298
------- ------- -----
------- ------- -----
</TABLE>
(13) DUE FROM PARENT
Concurrent with the closing of the Offering, the Partnership made a
$40,700,000 loan to Triarc. On August 7, 1998, Triarc made a principal
prepayment of $7,000,000 and on September 30, 1998, Triarc made an additional
principal prepayment of $3,000,000 (see Note 10). The remaining $30,700,000 note
bears interest at 13.5% per annum, is due $175,000 in 2004 and in six equal
annual installments thereafter commencing in 2005 through 2010 and is secured by
a pledge by Triarc of the 75.7% of the shares of capital stock of the Managing
General Partner that are owned by Triarc directly. Interest is payable quarterly
on March 30, June 30, September 30 and December 30. The estimated fair value of
the Triarc Note as of December 31, 1997 and 1998 was $43,321,000 and
$25,500,000, respectively. The fair value as of December 31, 1997 was determined
by discounting the future scheduled payments using an interest rate assuming the
same original issuance spread over a current Treasury bond yield for securities
with similar durations. The fair value as of December 31, 1998 was determined
from an independent valuation by an investment banking firm.
As of January 1, 1996, National Propane had $81,392,000 of interest-bearing
advances to Triarc which were not conveyed to the Partnership as part of the
Partnership Conveyance (see Note 1).
(14) EXTRAORDINARY CHARGE
In connection with the early extinguishment of debt in the year ended
December 31, 1996, National recognized a $2,631,000 extraordinary charge
consisting of the write-off of unamortized deferred financing costs of
$4,126,000 and the payment of prepayment penalties and fees of $225,000 less an
income tax benefit of $1,720,000. In accordance with the Partnership Conveyance,
the extraordinary charge was allocated entirely to the General Partners.
(15) RETIREMENT PLANS
As discussed in Note 19, following the Partnership Conveyance and the
Offering, the management and employees of the Managing General Partner manage
and operate the propane business and assets owned by National. The Managing
General Partner is reimbursed for all such costs incurred on behalf of National
including the cost of retirement plans.
The Managing General Partner maintains a 401(k) defined contribution plan
(the 'Plan') which covers all employees meeting certain eligibility
requirements. The Plan allows eligible employees to contribute up to 15% of
their compensation and the Managing General Partner makes matching contributions
of 25% of employee contributions up to the first 5% of an employee's
contribution. The
C-19
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Managing General Partner also makes an annual contribution equal to 1/4 of 1% of
employee's compensation. In connection with these employer contributions,
National provided $143,000, $135,000 and $157,000 in 1996, 1997 and 1998,
respectively.
Under certain union contracts, the Managing General Partner is required to
make payments to the unions' pension funds based upon hours worked by the
eligible employees. In connection with these union plans, National provided
$669,000, $614,000 and $774,000 in 1996, 1997 and 1998, respectively.
Information from the administrators of the union plans is not available to
permit National to determine its proportionate share of unfunded vested
benefits, if any.
(16) LEASE COMMITMENTS
National has entered into certain operating leases for office space, trucks
and other equipment.
The future minimum rental commitments at December 31, 1998 under operating
leases having an initial or remaining noncancellable term of one year or more
are as follows (in thousands):
<TABLE>
<S> <C>
1999....................................................................... $2,225
2000....................................................................... 1,449
2001....................................................................... 392
2002....................................................................... 222
2003....................................................................... 164
Thereafter................................................................. 330
------
Total minimum lease payments.......................................... $4,782
------
------
</TABLE>
National incurred rent expense under operating leases of $935,000,
$1,008,000 and $1,531,000 in 1996, 1997 and 1998, respectively.
(17) LEGAL MATTERS
In May 1994, National Propane was informed of coal tar contamination which
was discovered at one of its properties in Wisconsin. National Propane purchased
the property from a company (the 'Successor') which had purchased the assets of
a utility that had previously owned the property. National Propane believes that
the contamination occurred during the use of the property as a coal gasification
plant by such utility. To assess the extent of the problem, National Propane
engaged environmental consultants in 1994. Based upon the information compiled
to date, which is not yet complete, it appears the likely remedy will involve
treatment of groundwater and the soil, including installation of a soil cap and,
if necessary, excavation, treatment and disposal of contaminated soil. The
environmental consultants' current range of estimated costs for remediation is
from $520,000 to $1,700,000. National Propane will have to agree upon the final
remediation plan with the State of Wisconsin. Accordingly, the precise
remediation method to be used is unknown. Based on the preliminary results of
the ongoing investigation, there is a potential that the contaminant plume may
extend to locations down gradient from the original site. If it is ultimately
confirmed that the contaminant plume extends under such properties and if such
plume is attributable to the contaminants emanating from the Wisconsin property,
there is the potential for future third-party claims. National Propane has
engaged in discussions of a general nature with the Successor who has denied any
liability for the costs of remediation of the Wisconsin property or of
satisfying any related claims. However, National Propane, if found liable for
any of such costs, would still attempt to recover such costs from the Successor.
National Propane has notified its insurance carriers of the contamination and
the likely incurrence of costs to undertake remediation and the possibility of
related claims. Pursuant to a lease related to the Wisconsin facility, the
ownership of which was not transferred by National Propane to the Operating
Partnership at the time of the closing of the Offering, the Partnership has
agreed to be liable for any costs of remediation in excess of amounts received
from the Successor and from insurance.
C-20
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because the remediation method to be used is unknown, no amount within the cost
ranges provided by the environmental consultants can be determined to be a
better estimate. Thus National has a remaining accrual of approximately $700,000
as of December 31, 1998, all of which was provided in prior years, for the
minimum costs estimated for the anticipated remediation method. The ultimate
outcome of this matter cannot presently be determined and the costs of
remediation and third-party claims, if any, may have a material adverse effect
on National's financial position, results of operations or ability to make the
distributions to the holders of its Common Units and Subordinated Units.
National is subject to various federal, state and local laws and
regulations governing the transportation, storage and distribution of propane,
and the health and safety of workers, the latter of which are primarily governed
by the Occupational Safety and Health Act and the regulations promulgated
thereunder. On August 18, 1997, the U.S. Department of Transportation (the
'DOT') published its Final Rule for Continued Operation of the Present Propane
Trucks (the 'Final Rule'). The Final Rule is intended to address perceived risks
during the transfer of propane. As initially proposed, the Final Rule required
certain immediate changes in National's operating procedures including
retrofitting National's cargo tanks. National believes that, as a result of the
substantially completed negotiated rulemaking involving the DOT, the propane
industry and other interested parties, that it will not incur material increases
to its cost of operations in complying with the Final Rule.
There are a number of lawsuits pending or threatened against National. In
general, these lawsuits have arisen in the ordinary course of National's
business and involve claims for actual damages, and in some cases punitive
damages, arising from the alleged negligence of National or as a result of
product defects, business disputes with competitors or similar matters. Of the
pending or threatened matters, a number involve property damage, and several
involve serious personal injuries or deaths and the claims made are for
relatively large amounts. Although any litigation is inherently uncertain, based
on past experience, the information currently available to it and the
availability of insurance coverage in certain matters, National does not believe
that the pending or threatened litigation of which National is aware will have a
material adverse effect on its results of operations or its financial condition.
Notwithstanding the foregoing, any one of the matters discussed above or all of
them taken together may adversely affect National's financial position, results
of operations or its ability to make distributions to its Unitholders.
(18) ACQUISITIONS
During 1996, 1997 and 1998 National acquired several companies engaged in
the sale of propane and related merchandise. The purchase prices (including debt
issued and assumed) aggregated $2,045,000, $9,237,000 and $420,000 and resulted
in increases in Goodwill of $162,000, $3,889,000 and $205,000 in 1996, 1997 and
1998, respectively.
(19) TRANSACTIONS WITH AFFILIATES
Following the Partnership Conveyance and the Offering, the management and
employees of the Managing General Partner manage and operate the propane
business and assets owned by the Partnership Entities. The Partnership Entities
do not have any officers or employees of their own. The Managing General Partner
is reimbursed by the Partnership Entities at cost for all direct and indirect
expenses incurred on behalf of the Partnership Entities, including the costs of
compensation and employee benefit plans described herein that are properly
allocable to the Partnership Entities, and all other expenses necessary or
appropriate to the conduct of the business of, and allocable to, the Partnership
Entities. The Partnership Agreement provides that the Managing General Partner
will determine the expenses that are allocable to the Partnership Entities in
any reasonable manner determined by the Managing General Partner in its sole
discretion. The Partnership Entities reimbursed the Managing General Partner
$15,429,000, $34,099,000 and $34,627,000 during the period from the Partnership
Conveyance through December 31, 1996 and for the years ended December 31, 1997
and
C-21
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, respectively. Affiliates of the General Partners (including Triarc)
provide administrative services for the General Partners on behalf of the
Partnership Entities and are reimbursed for all expenses incurred in connection
therewith. Such charges aggregated $103,000 and $105,000 from Triarc for 1997
and 1998, respectively. There were no similar charges for the period from the
Partnership Conveyance through December 31, 1996. In addition, the General
Partners and their Affiliates (including Triarc) may provide additional services
to the Partnership Entities, for which National will be charged reasonable fees
as determined by the Managing General Partner.
Prior to the Partnership Conveyance and the Offering, National Propane
received from Triarc certain management services including legal, accounting,
tax, insurance, financial and other management services. Under a management
services agreement such costs were allocated based upon the greater of (i) the
sum of earnings before income taxes, depreciation and amortization and (ii) 10%
of revenues, as a percentage of Triarc's corresponding consolidated amount.
Management of National believes that such allocation method is reasonable. Costs
charged to National under the management services agreement with Triarc were
$1,500,000 for the six months ended June 30, 1996. National understands Triarc
is predominately a holding company and substantially all of the expenses it
incurs are for services or purchases made on behalf of its affiliated companies
and, accordingly, are chargeable to such companies in accordance with management
services and other agreements. However, National believes that the costs
allocated prior to the Partnership Conveyance and the Offering exceed those
which would have been, and are being, incurred by National on a standalone
basis. Such costs for services provided by Triarc would have approximated
amounts not in excess of $750,000 for the six months ended June 30, 1996. See
also Notes 1, 4, 10, 11, 12 and 13 for discussion of other transactions with
related parties.
(20) UNIT OPTION PLAN
Prior to the Offering and effective July 2, 1996, the Managing General
Partner adopted the National Propane Corporation 1996 Unit Option Plan (the
'Option Plan'), which provides for the grant of (i) options ('Unit Options') to
purchase Common Units and Subordinated Units and (ii) Common Unit appreciation
rights ('UARs') to National's directors, officers and employees. The Unit
Options have maximum terms of ten years. Expenses recognized resulting from
grants under the Option Plan are allocated to the Partnership in accordance with
an agreement between the Managing General Partner and the Partnership. As of
December 31, 1998 there were an aggregate of 1,086,031 Common Units and
Subordinated Units available for grant.
During 1997, the Managing General Partner granted 315,000 Unit Options at
an option price of $17.30 which was below the fair market value of the Common
Units of $21.625 at the date of grant. Such difference resulted in aggregate
unearned compensation for the Partnership of $1,362,000; such amount was
recognized as 'Partners' Capital' with an equal amount recognized as an offset
to 'Partners' Capital.' Such unearned compensation is being amortized over the
applicable service period of five years. During 1997 and 1998, $115,000 and
$409,000 was amortized to compensation expense, resulting in a remaining
unamortized balance of $838,000 at December 31, 1998. Of the unit options
granted in 1997, 60% of the options vest one-third per year over the three-year
period commencing two years from date of grant and 40% of the options vest upon,
and in the same proportion as, the conversion of the outstanding Subordinated
Units into Common Units in accordance with the terms of the Partnership
Agreement (for further description of the timing of the conversion of the
Subordinated Units, see Note 11) but, in any event, no later than March 2007.
As of December 31, 1998 there were 298,000 unit options outstanding, none
of which were exercisable, each with (i) an option price of $17.30, (ii) a
remaining contractual life of 8.7 years and (iii) a fair value (see below) of
$2.27. The Partnership accounts for stock-based compensation using the intrinsic
value method. Had compensation cost for Unit Options granted in 1997 been (i)
determined based on the fair value method as provided for in SFAS 123, (ii)
reduced for compensation expense
C-22
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
(SUCCESSOR TO NATIONAL PROPANE CORPORATION AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded in accordance with the intrinsic value method by eliminating the
amortization of unearned compensation and (iii) income tax effected, the
Partnership's 1997 and 1998 net income and earnings per unit would have been
increased by $74,000 and $277,000 or $.01 and $.02 per Common and Subordinated
Unit, respectively. The fair value of the options granted during 1997 was
determined using the Black-Scholes option pricing model with the following
assumptions: (i) distribution amount of $.525 per unit per quarter, (ii) average
Common Unit price volatility of 19.4% (also used as an estimate of Subordinated
Unit volatility), (iii) risk-free interest rate of 6% and (iv) expected option
life of 7 years.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
UNITS PRICE FAIR VALUE
--------- -------- ----------
<S> <C> <C> <C>
Outstanding at January 1, 1997....................................... -- $-- $--
Granted.............................................................. 315,000 17.30 2.27
-------
Outstanding at December 31, 1997..................................... 315,000 17.30 2.27
Forfeited............................................................ (17,000) 17.30 2.27
------- ------ ------
Outstanding at December 31, 1998..................................... 298,000 $17.30 $ 2.27
------- ------ ------
------- ------ ------
Options exercisable at December 31, 1998............................. 0
-------
--------
Option prices at end of year......................................... $17.30
Remaining contractual life........................................... 8.7 years
</TABLE>
(21) PROPANE CONTRACTS
National is party to simultaneous put and call contracts ('Propane
Contracts') with three third parties. All of the Propane Contracts expire on or
before March 31, 1999. Such contracts require monthly settlement with
counterparties through cash exchange of a net amount equal to the difference
between the monthly index average price and the fixed contract price. The
Propane Contracts are entered into for purposes other than trading and are
entered into in order to protect National's gross profit on its fixed price
sales commitments.
In order to hedge the risk of higher prices for the anticipated propane
purchases required to fulfill fixed price sales commitments, National enters
into the Propane Contracts. Firm price commitments associated with these Propane
Contracts do not extend beyond March 31, 1999. Hedging gains and losses are
included in 'Cost of Product -- propane and appliances' in the consolidated
statement of operations concurrently with the recognition of hedged sales.
Unrealized gains and losses related to open Propane Contracts are not reflected
in the consolidated statements of operations and are approximately $200,000 and
$600,000 at December 31, 1997 and 1998. At December 31, 1997 and 1998, National
had open Propane Contracts at fair values of approximately $1,000,000 and
$2,600,000, respectively, and contract values of approximately $1,200,000 and
$3,200,000, respectively, on such contracts. These contracts covered a notional
volume of 3,150,000 and 12,600,000 gallons of propane at December 31, 1997 and
1998, respectively. The fair value of the Propane Contracts was determined using
the posted market prices of propane as of December 31, 1997 and 1998.
The Partnership is subject to credit risk with the Propane Contracts to the
extent the counterparties do not perform. The Partnership evaluates the
financial condition of each counterparty with which it conducts business to
reduce exposure to credit risk of non-performance and only executes Propane
Contracts with third parties it believes to be well-capitalized.
C-23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX D
FINANCIAL INFORMATION DERIVED FROM NATIONAL MLP'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1999
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998(A) 1999
------------ ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 4,448 $ 9,559
Receivables....................................................................... 14,455 13,999
Finished goods inventories........................................................ 7,879 6,282
Other current assets.............................................................. 2,110 1,716
------------ ---------
Total current assets......................................................... 28,892 31,556
Note receivable from Triarc Companies, Inc. (Note 6)................................... 30,700 30,700
Properties............................................................................. 77,653 76,873
Unamortized costs in excess of net assets of acquired companies........................ 16,862 16,738
Other assets........................................................................... 6,930 6,416
------------ ---------
$161,037 $ 162,283
------------ ---------
------------ ---------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt................................................. $141,687 $ 141,111
Accounts payable.................................................................. 7,492 7,476
Accrued expenses.................................................................. 6,347 6,482
Customer credit balances.......................................................... 6,008 3,391
------------ ---------
Total current liabilities.................................................... 161,534 158,460
Long-term debt......................................................................... 177 129
Customer deposits and other long-term liabilities...................................... 2,344 2,270
Partners' capital (deficit):
Common partners' capital.......................................................... -- --
General partners' capital (deficit), including subordinated units................. (3,018) 1,424
------------ ---------
Total partners' capital (deficit)............................................ (3,018) 1,424
------------ ---------
$161,037 $ 162,283
------------ ---------
------------ ---------
</TABLE>
- ------------
(a) Derived from the audited consolidated financial statements as of December
31, 1998.
See accompanying notes to condensed consolidated financial statements.
D-1
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1999
---- ----
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenues..................................... $ 46,130 $ 45,217
---------- ----------
Cost of sales:
Cost of product -- propane and
appliances............................ 21,243 18,786
Other operating expenses applicable to
revenues.............................. 11,479 11,552
---------- ----------
32,722 30,338
---------- ----------
Gross profit....................... 13,408 14,879
Selling, general and administrative
expenses................................... 6,487 8,535
---------- ----------
Operating income................... 6,921 6,344
Interest expense............................. (3,275) (3,169)
Interest income from Triarc Companies, Inc... 1,355 1,022
Other income, net............................ 583 235
---------- ----------
Income before income taxes......... 5,584 4,432
Provision for income taxes................... (50) (50)
---------- ----------
Net income......................... $ 5,534 $ 4,382
---------- ----------
---------- ----------
General partners' interest in net income..... $ 221 $ 175
---------- ----------
---------- ----------
Unitholders' interest (common and
subordinated) in net income................ $ 5,313 $ 4,207
---------- ----------
---------- ----------
Net income per unit.......................... $ .47 $ .37
---------- ----------
---------- ----------
Weighted average number of units
outstanding................................ 11,235 11,235
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
D-2
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1999
-------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................. $ 5,534 $ 4,382
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of properties....................................... 2,679 2,385
Amortization of costs in excess of net assets of acquired companies............... 249 227
Amortization of deferred financing costs.......................................... 182 182
Other amortization................................................................ 276 248
Provision for doubtful accounts................................................... 279 275
Gain on sale of properties, net................................................... (385) (88)
Other, net........................................................................ (69) 45
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and customer credit balances...... 151 (2,426)
Increase in interest receivable from Triarc Companies, Inc................... (1,355) --
Decrease in inventories...................................................... 2,233 1,597
Decrease (increase) in prepaid expenses and other current assets............. (113) 394
Increase (decrease) in accounts payable and accrued expenses................. 587 119
-------- -------
Net cash provided by operating activities............................... 10,248 7,340
-------- -------
Cash flows from investing activities:
Capital expenditures................................................................... (1,906) (1,666)
Business acquisitions.................................................................. (315) (38)
Proceeds from sale of properties....................................................... 687 156
-------- -------
Net cash used in investing activities............................................. (1,534) (1,548)
-------- -------
Cash flows from financing activities:
Repayments of long-term debt........................................................... (6,342) (681)
Distributions.......................................................................... (6,143) --
-------- -------
Net cash used in financing activities............................................. (12,485) (681)
-------- -------
Net increase (decrease) in cash............................................................. (3,771) 5,111
Cash and cash equivalents at beginning of period............................................ 4,616 4,448
-------- -------
Cash and cash equivalents at end of period.................................................. $ 845 $ 9,559
-------- -------
-------- -------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
D-3
<PAGE>
NATIONAL PROPANE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND RECENT DEVELOPMENTS
The consolidated financial statements of National Propane Partners, L.P..
(the 'Partnership') include the accounts of the Partnership and its subsidiaries
National Propane, L.P. (the 'Operating Partnership') and National Sales &
Service, Inc. ('NSSI') which, collectively with the Partnership and Operating
Partnership, are referred to as the 'Partnership Entities'. The Partnership has
limited partner interests consisting of 6,701,550 common units (the 'Common
Units') and subordinated partner interests consisting of 4,533,638 subordinated
units (the 'Subordinated Units' and together with the Common Units, the 'Units')
outstanding. National Propane Corporation (the 'Managing General Partner'), a
wholly-owned subsidiary of Triarc Companies, Inc. ('Triarc'), and its
subsidiary, National Propane SGP Inc.('SGP'), own general partner interests
representing an aggregate 4% unsubordinated general partners' interest (the
'General Partners' Interest') in the Partnership Entities and the Managing
General Partner owns all of the Subordinated Units (the 'Subordinated Unit
Interests') representing a 38.7% subordinated general partner interest in the
Partnership Entities. Certain statements in these notes to the condensed
consolidated financial statements constitute 'forward-looking statements' under
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Partnership to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. See page 1 for additional factors
relating to such statements.
On April 5, 1999, the Partnership, the Managing General Partner, SGP and
Triarc and Columbia Propane Corporation ('Columbia Propane'), a subsidiary of
Columbia Energy Group, Columbia Propane, L.P. (the 'Purchaser') and CP Holdings
Inc., a subsidiary of Columbia Propane and the general partner of the Purchaser
(the 'Purchaser General Partner') signed a definitive purchase agreement (the
'Purchase Agreement') pursuant to which the Purchaser would acquire all of the
6,701,550 outstanding Common Units of the Partnership for $12.00 in cash per
Common Unit pursuant to a tender offer (the 'Partnership Sale'). On April 9,
1999, the Purchaser commenced the tender offer, which expired on May 6, 1999.
The Purchaser has advised the Partnership that pursuant to the tender offer, the
Purchaser purchased 5,922,454 Common Units representing approximately 88.4% of
the outstanding Common Units.
The tender offer was the first step of a two-step cash transaction. In the
second step, subject to the terms and conditions of the Purchase Agreement,
Columbia Propane would indirectly acquire the General Partnership Interests and
Subordinated Unit Interests of the Partnership and the Operating Partnership
from its general partners and the Partnership would merge into the Purchaser. As
part of the second step, any remaining common unitholders of the Partnership
would receive, in cash, the same per unit price as that paid to common
unitholders who tendered their shares pursuant to the tender offer. Triarc would
receive approximately $17,916,000 for its acquired interests in the Partnership
and the Operating Partnership consisting of $2,100,000 in cash and approximately
$15,816,000 in the form of the forgiveness of a portion of a note receivable
from Triarc by the Operating Partnership. Simultaneously, and as a condition of
the closing, Triarc will prepay approximately $14,900,000 of such indebtedness.
Following the closing, Triarc, through the Managing General Partner, would
retain a 1.0% limited partner interest in the Purchaser. Approximately
$141,000,000 of the Operating Partnership's outstanding indebtedness is expected
to be refinanced in connection with the Partnership Sale. There can be no
assurance that the second step of the Partnership Sale will be consummated.
In connection with the Partnership Sale, the Operating Partnership, the
Managing General Partner, the SPG and the holders (the 'Noteholders') of the
Operating Partnership's $125,000,000 8.54% first mortgage notes due 2010 (the
'First Mortgage Notes') amended the Note Agreements governing the First Mortgage
Notes to provide for, among other things, modifications to the premium payable
to such
D-4
<PAGE>
Noteholders in connection with the prepayment of the First Mortgage Notes
pursuant to the Partnership Sale.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Partnership have been prepared in accordance with Rule 10-01 of Regulation
S-X promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Partnership,
however, the accompanying condensed consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Partnership's financial position as of December 31, 1998 and
March 31, 1999, its results of operations and its cash flows for the three-month
periods ended March 31, 1998 and 1999. This information should be read in
conjunction with the consolidated financial statements and notes thereto
included in Annex C.
The Partnership's continuation as a going concern is dependent on its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its debt agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. To successfully achieve these objectives, the Partnership
believes the Partnership Sale is the most viable alternative. See Note 6 for
management's plans and intentions if the Partnership Sale is not consummated.
Accordingly, the accompanying condensed financial statements have been prepared
on a going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
NOTE 3 -- PROPERTIES
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Properties, at cost................................................ $174,170 $ 175,730
Less accumulated depreciation...................................... 96,517 98,857
------------ ---------
$ 77,653 $ 76,873
</TABLE>
NOTE 4 -- INCOME TAXES
Income taxes have been provided primarily on the pre-tax income of NSSI,
which is subject to Federal and state income taxes. Since the earnings
attributed to the Partnership and the Operating Partnership are included in the
tax returns of the individual partners and not those of the Partnership, no
income taxes have been provided thereon.
NOTE 5 -- CONTINGENCIES
The Partnership continues to have an environmental contingency of the same
nature and general magnitude as described in Note 17 to the consolidated
financial statements in the Form 10-K. The costs of remediation and third party
claims, if any, associated with this environmental contingency may have a
material adverse effect on the Partnership's financial position, results of
operations or its ability to make distributions to the holders of the Common
Units and the Subordinated Units.
There are a number of lawsuits pending or threatened against the
Partnership. In general, these lawsuits have arisen in the ordinary course of
the Partnership's business and involve claims for actual damages, and in some
cases punitive damages, arising from the alleged negligence of the Partnership
or as a result of product defects, business disputes with competitors or similar
matters. Of the pending or threatened matters, a number involve property damage,
and several involve serious personal injuries or deaths. In certain cases, the
claims made are for relatively large amounts. Although any litigation is
inherently uncertain, based on past experience, the information currently
available to it and the
D-5
<PAGE>
availability of insurance coverage in certain matters, the Partnership does not
believe that the pending or threatened litigation of which the Partnership is
aware will have a material adverse effect on its financial position or its
results of operations. Notwithstanding the foregoing, any one of the matters
discussed above or all of them taken together may adversely affect the
Partnership's financial position, results of operations or its ability to make
distributions.
NOTE 6 -- LONG-TERM DEBT AND QUARTERLY DISTRIBUTIONS
At December 31, 1998 and March 31, 1999, the Partnership was not in
compliance with a covenant under its bank credit facility (the 'Bank Facility').
Pursuant to a waiver letter dated as of February 20, 1999, the Partnership
received an unconditional waiver from the lenders under its credit facility
('the Lenders') with respect to the non-compliance as of December 31, 1998 and a
conditional waiver with respect to any future non-compliance with such covenant
through August 31, 1999 (the 'February Waiver'). There are certain conditions to
the waiver of future non-compliance under the February Waiver including among
other things, consummation of the Partnership Sale and the repayment of all
amounts outstanding under the Bank Facility, both by September 30, 1999. In
addition, the February Waiver prohibits the Partnership from making any future
distributions to Unitholders until all outstanding indebtedness under the Bank
Facility is paid in full. Should the conditions not be met or the February
Waiver expire, and the Operating Partnership be in default of its Bank Facility,
the Operating Partnership would also be in default of its First Mortgage Notes
by virtue of cross-default provisions. In accordance with the February Waiver
the Lenders have unconditionally waived non-compliance with the covenant at
March 31, 1999. As a result of projected future covenant non-compliance, the
conditions of the February Waiver, and the cross-default provisions of the First
Mortgage Notes, the Partnership has classified all of the debt under the Bank
Facility and the First Mortgage Notes having a principal balance of $15,997,000
and $125,000,000, respectively, at March 31, 1999, as a current liability.
Further, in accordance with the terms of the February Waiver, no additional
borrowings are available to the Operating Partnership under the Bank Facility.
The Partnership's continuation as a going concern is dependent on its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to comply with the terms and covenants of its debt agreements, to obtain
additional financing or refinancing as may be required, and ultimately to attain
successful operations. To successfully achieve these objectives, the Partnership
believes the Partnership Sale is the most viable alternative. If the Partnership
Sale is not consummated and the Lenders are unwilling to extend or modify the
February Waiver, (i) the Partnership could seek to otherwise refinance its
indebtedness, (ii) the Managing General Partner might consider buying the bank's
loans to the Partnership ($15,997,000 principal amount outstanding at March 31,
1999), (iii) the Partnership could pursue other potential purchasers of the
Partnership, or (iv) the Partnership could be forced to seek protection under
Federal bankruptcy laws. In such latter event, the Managing General Partner may
be required to honor its guarantee of the Partnership's debt under the Bank
Facility and the First Mortgage Notes.
The Partnership did not declare any distribution with respect to the fourth
quarter of 1998 (which would have been paid in the first quarter of 1999) since
it was in violation of certain of its debt covenants under the Bank Facility as
previously discussed and as a result, was prohibited from making any such
distribution. The February Waiver prohibits any further distributions to all
Unitholders until all outstanding indebtedness under the Bank Facility is repaid
in full. Additionally, under the terms of the Purchase Agreement, the
Partnership is prohibited from paying any further distributions to Unitholders
without the prior written consent of the Purchaser General Partner. Accordingly,
no distribution was declared with respect to the first quarter of 1999. Under
the terms of the Partnership agreement, each Common Unit has an arrearage of
$0.2625, $0.525 and $0.525 per Common Unit related to the third and fourth
quarters of 1998 and the first quarter of 1999 distributions, respectively, for
an aggregate of $8,796,000. Cash distributions on the Partnership's Common and
Subordinated Units and the General Partners' Interest are not guaranteed, will
depend on future Partnership operating performance and will be affected by among
other things, the funding of reserves, operating and capital expenditures and
requirements under the Partnership's debt agreements and the Purchase Agreement.
D-6
<PAGE>
Accordingly, there can be no assurance that the Partnership will be able to pay
any such future distributions. (See Note 1 regarding the Partnership Sale.)
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Partnership continues to have related party transactions of the same
nature and general magnitude as those described in Note 19 to the consolidated
financial statements contained in the Form 10-K.
NOTE 8 -- STATEMENT OF PARTNERS' CAPITAL
The following is a summary of the changes in partners' capital (deficit):
<TABLE>
<CAPTION>
TOTAL GENERAL TOTAL
COMMON PARTNERS' PARTNERS'
PARTNERS' CAPITAL CAPITAL
CAPITAL (DEFICIT) (DEFICIT)
------- ------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1998.................................... $ -- $(3,018) $(3,018)
Net income...................................................... 2,510 1,872 4,382
Reallocation of Partnership income.............................. (2,545 ) 2,545 --
Amortization of unearned compensation on below market unit
options....................................................... 35 25 60
------- ------------- -----------
Balance at March 31, 1999....................................... $ -- $ 1,424 $ 1,424
------- ------------- -----------
------- ------------- -----------
</TABLE>
The reallocation of Partnership income represents a partial recovery of
previous reallocations of Partnership losses that were required under the terms
of the partnership agreement in order that the Unitholders' capital account
balances are not reduced below zero. In accordance with the terms of the
partnership agreement, the General Partners' Interest will recover the remaining
unrecovered loss reallocations of $77,000 to the extent the Common Unitholders'
interest in future earnings exceed distributions to Common Unitholders.
D-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as................................'D'
