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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-2499
CORNERSTONE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 77-0439862
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
432 Westridge Drive\Watsonville, California 95076
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(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (831) 724-1921
NONE
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 12, 1999: 16,779,690 - Common Units
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CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
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PAGES
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Part I. Financial Information
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Item 1. Financial Statements
Cornerstone Propane Partners, L.P.
Consolidated Balance Sheets as of December 31, 1998 and 1997, 1
and June 30, 1998
Consolidated Statements of Operations for the Three Months and Six Months 2
Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations of Cornerstone Propane Partners, L.P.
for the Three Months Ended December 31, 1998 compared to the three months
ended December 31, 1997 and for the Six Months ended December
31, 1998 compared to the Six Months Ended
December 31, 1997. 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
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ASSETS
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December 31, June 30,
---------------------- ---------
1998 1997 1998
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(Unaudited)
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Current assets:
Cash and cash equivalents $ 17,003 $ 9,774 $ 9,366
Trade receivables, net 44,432 57,819 18,467
Inventories 13,687 11,454 18,238
Prepaid expenses and other current assets 20,722 6,328 7,150
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Total current assets 95,844 85,375 53,221
Property, plant and equipment, net 324,920 259,296 275,288
Goodwill and other intangible assets, net 334,638 236,832 242,199
Other assets 3,830 2,260 1,803
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Total assets $ 759,232 $ 583,763 $ 572,511
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LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Current portion of long-term debt $ 15,060 $ 2,244 $ 3,800
Trade accounts payable 48,378 51,937 18,460
Accrued expenses 31,530 18,769 29,335
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Total current liabilities 94,968 72,950 51,595
Long-term debt, less current portion 329,502 264,281 237,138
Due to related party 502 402 1,684
Other noncurrent liabilities 9,189 4,555 2,500
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Total liabilities 434,161 342,188 292,917
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Commitments and contingencies
Partners' capital:
Common unitholders 232,145 151,054 185,803
Subordinated unitholders 86,267 85,604 88,117
General partners 6,659 4,917 5,674
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Total partners' capital 325,071 241,575 279,594
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Total liabilities and partners' capital $ 759,232 $ 583,763 $ 572,511
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</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
1
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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars and units in thousands, except per unit data)
(Unaudited)
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Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1998 1997 1998 1997
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Revenues $ 224,053 $ 241,778 $ 394,044 $ 393,935
Cost of sales 177,792 198,085 321,084 325,940
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Gross profit 46,261 43,693 72,960 67,995
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Expenses:
Operating, general and administrative 30,285 24,817 55,966 47,417
Depreciation and amortization 5,687 4,307 10,809 8,901
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35,972 29,124 66,775 56,318
--------- --------- --------- ---------
Operating income 10,289 14,569 6,185 11,677
Interest expense 5,793 5,036 10,926 9,817
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Income (loss) before provision for
income taxes 4,496 9,533 (4,741) 1,860
Provision for income taxes 39 31 68 52
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Net income (loss) $ 4,457 $ 9,502 $ (4,809) $ 1,808
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General partner's interest in net
income (loss) $ 89 $ 190 $ (96) $ 36
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Limited partners' interest in net
income (loss) $ 4,368 $ 9,312 $ (4,713) $ 1,772
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Net income (loss) per unit $ .21 $ .54 $ (.23) $ .10
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Weighted average number of units outstanding 20,650 17,397 20,254 17,254
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</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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<CAPTION>
Six Months Ended
December 31,
----------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,809) $ 1,808
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 10,809 8,901
Loss on sale of assets 251 --
Changes in assets and liabilities, net of effect of acquisitions:
Trade receivables-net (17,714) (15,313)
Inventories 20,019 4,245
Prepaid expenses and other current assets (7,072) (2,549)
Trade accounts payable and accrued expenses (1,194) 13,269
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Net cash provided by operating activities 290 10,361
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment, net (7,722) (6,849)
Acquisitions, net of cash received (101,897) (6,411)
Other investments 221 --
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Net cash used in investing activities (109,398) (13,260)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on Working Capital Facility (7,020) 31,400
Payments on purchase obligations (337) (6,143)
Proceeds from Senior Note Offering 85,000 --
Payments for debt financing (662) (2,420)
Proceeds from additional unit offering 58,900 --
Payments for additional unit offering (4,689) --
General Partners' contribution and payments, net 193 288
Partnership distributions (14,640) (18,858)
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Net cash provided by financing activities 116,745 4,267
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INCREASE IN CASH AND CASH EQUIVALENTS 7,637 1,368
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,366 8,406
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,003 $ 9,774
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 18,764 $ 8,959
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NON INVESTING & FINANCING ACTIVITIES
Assets acquired in exchange for Common Units $ 8,805 $ 14,408
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Assets acquired in exchange for debt $ 29,542 $ 2,876
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Dollars in thousands, except unit data)
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cornerstone
Propane Partners, L.P. ("Cornerstone Partners") and its subsidiary,
Cornerstone Propane L.P. (the "Operating Partnership") and the Operating
Partnership's corporate subsidiaries, Cornerstone Sales and Service
Corporation ("Sales and Service"), Cornerstone Holding Corporation, Flame,
Inc., and Coast Energy Global Services, Inc. after elimination of all
material intercompany balances and transactions. Cornerstone Partners, the
Operating Partnership, Sales and Service, Cornerstone Holding Corporation,
Flame, Inc., and Coast Energy Global Services, Inc. are collectively referred
to as the "Partnership."
The accompanying interim consolidated financial statements of the
Partnership are unaudited; however, in the opinion of management, all
adjustments necessary for a fair presentation of such consolidated financial
statements have been reflected in the interim periods presented. Such
adjustments consisted only of normal recurring items. The Partnership's
business is seasonal and, accordingly, interim results are not indicative of
results for a full year. The significant accounting policies and certain
financial information which are normally included in financial statements
prepared in accordance with generally accepted accounting principles, but
which are not required for interim reporting purposes, have been condensed or
omitted. The accompanying consolidated financial statements of the
Partnership should be read in conjunction with the consolidated financial
statements and related notes included in the Partnership's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998.
2. DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to
each fiscal quarter of the Partnership within 45 days after the end of each
fiscal quarter in an aggregate amount equal to its Available Cash for such
quarter. The Partnership will distribute 100% of its Available Cash (98% to
Unitholders and 2% to the General Partners) until the Minimum Quarterly
Distribution ("MQD") ($.54 per unit) for such quarter has been met. The MQD
will be subject to the payment of incentive distributions in the event
Available Cash exceeds the MQD of $.54 on all units. During the Subordination
Period, to the extent there is sufficient Available Cash, the holders of
Common Units have the right to receive the MQD, plus any arrearages, prior to
the distribution of Available Cash to holders of Subordinated Units.
Subordinated Units do not accrue arrearages with respect to distributions for
any quarter.
The MQD for the three-month period from April 1, 1998 to June 30, 1998,
of $.54 per common unit totaling $7,303 was paid on August 14, 1998. The MQD
for the three-month period from July 1, 1998 to September 30, 1998, of $.54
per common unit totaling $7,337 was paid on November 13, 1998. On January 25,
1999, the MQD for the period October 1, 1998 to December 31, 1998 was
4
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declared in the amount of $9,247 representing in the aggregate distributions
to the Common Unit Holders and General Partner at $.54 per common unit. This
distribution was paid on February 12, 1999. No distributions have been
declared and subsequently paid on the Subordinated Units for the period from
October 1, 1997 to December 31, 1998.
3. ACQUISITIONS
The Partnership acquired Propane Continental, Inc ("PCI") on December 11,
1998. In addition, the Partnership consummated three other acquisitions
during the three months ended December 31, 1998. The total consideration for
these acquisitions was approximately $129.5 million, of which approximately
$7.8 million was in the form of Cornerstone Common Units, $94.2 million was
paid in cash and $27.5 million was for liabilities assumed, with all such
amounts principally related to the acquisition of PCI. Additional Common
Units and Senior Notes were issued to fund the PCI acquisition including
related expenses. All acquisitions have been accounted for using the purchase
method of accounting with excess of the purchase price over the preliminary
estimates of fair value of net tangible and intangible assets acquired
recorded as goodwill. The amount of goodwill is subject to adjustments based
on more refined estimates of fair value. The results of operations of the
acquired assets have been included in the financial statements from the date
of acquisition. Due to the significance of the PCI acquisition, the following
information is provided to present proforma results as if PCI had been
acquired on July 1, 1997.
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Proforma
Six Months Ended
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December 1998 December 1997
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<S> <C> <C>
Revenue $ 457,426 506,779
Net (loss) income (9,004) 2,457
Net (loss) income per unit (.37) .12
</TABLE>
4. NET INCOME (LOSS) PER UNIT
Basic net income (loss) per unit is computed by dividing net income, after
considering the General Partners 2% interest, by the weighted average number of
Common and Subordinated Units outstanding during the period.
5
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical financial condition and results of
operations for the Partnership should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Quarterly Report on Form 10-Q.
GENERAL
The Partnership is a Delaware limited partnership initially formed to own and
operate the propane business and assets of SYN Inc., Empire Energy
Corporation and CGI Holdings, Inc. The Partnership's management believes that
it is the fourth largest retail marketer of propane in the United States,
serving more than 440,000 residential, commercial, industrial and
agricultural customers from 310 customer service centers in 34 states.
Because a substantial portion of the Partnership's propane is used in the
weather-sensitive residential markets, the temperatures in the Partnership's
area of operations, particularly during the six-month peak heating season,
have a significant effect on the financial performance of the Partnership. In
any given area, warmer-than-normal temperatures will tend to result in
reduced propane use, while sustained colder-than-normal temperatures will
tend to result in greater propane use. Therefore, information on normal
temperatures is used by the Partnership in understanding how historical
results of operations are affected by temperatures that are colder or warmer
than normal and in preparing forecasts of future operations, which are based
on the assumption that normal weather will prevail in each of the
Partnership's regions.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. For example, sales to residential customers
ordinarily generate higher margins than sales to other customer groups, such
as commercial or agricultural customers. In addition, gross profit margins
vary by geographic region. Accordingly, profit margins could vary
significantly from year to year in a period of identical sales volumes.
6
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF HISTORICAL RESULTS OF OPERATIONS--THREE MONTH PERIOD ENDED
DECEMBER 31
The following discussion compares the results of operations and other data of
the Partnership for the three-month period ended December 31, 1998, to the
three-month period ended December 31, 1997.
VOLUME. During the three months ended December 31, 1998, the Partnership sold
73.6 million retail propane gallons, a decrease of 1.3 million gallons or
1.8% from the 74.9 million retail propane gallons sold during the three
months ended December 31, 1997. Retail sales volumes have been adversely
impacted for the quarter ending December 31, 1998 by weather patterns that
have resulted in temperatures which were significantly warmer than normal and
prior year conditions. Wholesale volumes were 165.0 million gallons and 95.8
million gallons, respectively, for the quarters ended December 31, 1998 and
1997, which represents an increase of 69.2 million gallons or 72.2%.
Wholesale volume increases were due principally to PCI. Acquisitions of
propane businesses since December 31, 1997 accounted for 6.2 million retail
gallons sold during the three months ended December 31, 1998.
Based on the average number of heating degree days in the markets served by
the Partnership, for the October to December 1998 period, temperatures were
approximately 11% and 16% warmer than normal and last year, respectively.
While this indicator generally measures the impact of temperatures on the
Partnership's business, other factors such as geographic mix, magnitude and
duration of temperature and weather conditions can also impact sales volumes.
The overall impact of weather had an adverse impact on the Partnership's
retail sales volume (excluding acquisitions) and earnings compared to normal
levels for the three months ended December 31, 1998. The three months ended
December 31, historically accounts for approximately 43% of the Partnership's
annual earnings before interest, taxes, depreciation and amortization
("EBITDA").
REVENUES. Revenues decreased by $17.7 million or 7.3% to $224.1 million for
the three months ended December 31, 1998, as compared to $241.8 million for
the three months ended December 31, 1997. This decrease was primarily
attributable to a decrease in wholesale revenues of $11.7 million or 7.1% to
$151.3 million for the three months ended December 31, 1998, as compared to
$163.0 million for the three months ended December 31, 1997. This decrease
was due primarily to a combination of warmer weather conditions and low
Natural Gas Liquids ("NGL") product values that adversely impacted natural
gas, crude oil sales and processing. The revenues for the retail business
decreased by $6.1 million or 7.8% to $72.7 million for the three months ended
December 31, 1998, as compared to $78.8 million for the three months ended
December 31, 1997. This decrease was a result of the decrease in volume
described above coupled with a decrease in the average sales price per gallon
of propane.
7
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST OF PRODUCT SOLD. Cost of product sold decreased by $20.3 million or
10.2% to $177.8 million for the three months ended December 31, 1998, as
compared to $198.1 million for the three months ended December 31, 1997. The
decrease in cost of product sold was primarily due to the decreased wholesale
sales described above, combined with lower propane cost per gallon. As a
percentage of revenues, cost of product sold decreased to 79.4% for the three
months ended December 31, 1998, as compared to 81.9% for the three months
ended December 31, 1997.
GROSS PROFIT. Gross profit increased $2.6 million or 5.9% to $46.3 million
for the three months ended December 31, 1998, compared to $43.7 million for
the three months ended December 31, 1997. Retail gross margin per gallon for
the three months ended December 31, 1998 were 8% better than last year. This
was attributable to improved margin management which benefited from lower
product cost per gallon while maintaining competitive prices. As a percentage
of revenues, gross profit increased to 20.6% for the three months ended
December 31, 1998, as compared to 18.1% for the three months ended December
31, 1997. Gross profit from propane businesses acquired since December 31,
1997 was $4.0 million for the three months ended December 31, 1998.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses increased by $5.5 million or 22.0% to $30.3 million
for the three months ended December 31, 1998, as compared to $24.8 million
for three months ended December 31, 1997. Approximately $2.2 million, or 40%,
of this increase was attributable to increases in salaries and other
operating expenses related to the acquisition of new businesses. As a
percentage of revenues, operating, general and administrative expenses
increased to 13.5% for the three months ended December 31, 1998, as compared
to 10.3% for the three months ended December 31, 1997.
8
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF HISTORICAL RESULTS OF OPERATIONS--SIX MONTH PERIOD ENDED
DECEMBER 31
The following discussion compares the results of operations and other data of
the Partnership for the six-month period ended December 31, 1998, to the
six-month period ended December 31, 1997.
VOLUME. During the six months ended December 31, 1998, the Partnership sold
113.0 million retail propane gallons, a decrease of 3.2 million gallons or
2.8% from the 116.2 million retail propane gallons sold during the six months
ended December 31, 1997. Wholesale volumes were 224.8 million gallons and
185.7 million gallons, respectively, for the six months ended December 31,
1998 and 1997, which represents an increase of 39.1 million gallons or 21.0%.
Retail sales volumes have been adversely impacted for the six months ending
December 31, 1998 by an unseasonably mild fall and early winter heating
season. Acquisitions of new propane businesses since December 31, 1997
accounted for 8.5 million retail gallons sold during the six months ended
December 31, 1998.
Based on the average number of heating degree days in the markets served by
the Partnership, for December 1998, year to date temperatures were
approximately 12% and 16% warmer than normal and last year, respectively.
While this indicator generally measures the impact of temperatures on the
Partnership's business, other factors such as geographic mix, magnitude and
duration of temperature and weather conditions can also impact sales volumes.
The overall impact of weather had an adverse impact on the Partnership's
retail sales volume (excluding acquisitions) and earnings compared to normal
levels.
REVENUES. Revenues of $394.0 million for the six months ended December 31,
1998 were flat, compared to the six months ended December 31, 1997. Wholesale
revenues increased $8.7 million or 3.2% to $282.1 million for the six months
ended December 31, 1998, as compared to $273.4 million for the six months
ended December 31, 1997. This increase was due primarily to the PCI
acquisition. The revenues for the retail business decreased by $8.6 million
or 7.1% to $111.9 million for the six months ended December 31, 1998, as
compared to $120.5 million for the six months ended December 31, 1997. This
decrease was a result of mild weather conditions which adversely impacted
retail sales volumes as described above coupled with a decrease in the
average sales price per gallon of propane, offset to some extent by increased
sales from acquisitions.
9
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST OF PRODUCT SOLD. Cost of product sold decreased by $4.9 million or 1.5%
to $321.1 million for the six months ended December 31, 1998, as compared to
$325.9 million for the six months ended December 31, 1997. The decrease in
cost of product sold was primarily related to the decrease in propane cost
per gallon. This was partially offset by higher wholesale sales volumes and
associated cost of product sold. As a percentage of revenues, cost of product
sold decreased to 81.5% for the six months ended December 31, 1997, as
compared to 82.7% for the six months ended December 31, 1996.
GROSS PROFIT. Gross profit increased $5.0 million or 7.3% to $73.0 million
for the six months ended December 31, 1998, compared to $68.0 million for the
six months ended December 31, 1997. Retail gross margins per gallon for the
six months ended December 31, 1998 were 11% better than last year. This was
attributable to improved margin management aided by decreases in the cost of
NGLs on a per gallon basis. As a percentage of revenues, gross profit
increased to 18.5% for the six months ended December 31, 1998, as compared to
17.3% for the six months ended December 31, 1997. Gross profit from propane
businesses acquired since January 1, 1998 was $5.6 million for the six months
ended December 31, 1998.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES. Operating, general and
administrative expenses increased by $8.5 million or 18% to $56.0 million for
the six months ended December 31, 1998, as compared to $47.4 million for the
six months ended December 31, 1997. Approximately $3.5 million, or 41%, of
this increase was attributable to increases in salaries and other operating
expenses relating to the acquisition of new businesses. As a percentage of
revenues, operating, general and administrative expenses increased to 14.2%
for the six months ended December 31, 1998, as compared to 12.0% for the six
months ended December 31, 1997.
10
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Cash provided from operating activities during the
six-month period ended December 31, 1998 was $0.3 million. Cash flow from
operations included a net loss of $4.8 million and non-cash charges of $11.1
million for the period, comprised of depreciation and amortization expense,
and loss on sale of assets. The impact of working capital changes decreased
cash flow by approximately $6.0 million.
INVESTING ACTIVITIES. Cash used in investment activities for the six-month
period ended December 31, 1998 totaled $109.4 million, which was principally
related to Partnership acquisitions and for purchases of plant and equipment.
FINANCING ACTIVITIES. Cash provided by financing activities was $116.7
million for the six months ended December 31, 1998, which reflects the $7.2
million payments on the partnership's working capital facility and purchase
obligations offset by net proceeds from placement of senior notes of $84.3
million and a common unit offering of $54.2 million. Cash distributions paid
to Unitholders for the period totaled $14.6 million.
FINANCING AND SOURCES OF LIQUIDITY
The Operating Partnership's obligations under its Senior Note Agreements
and Bank Credit Agreement are secured by a security interest in the Operating
Partnership's inventory, accounts receivable and certain customer storage
tanks. The Senior Note and Bank Credit Agreements contain various terms and
covenants including financial ratio covenants with respect to debt and
interest coverage and limitations, among others, on the ability of the
Operating Partnership and its subsidiaries to incur additional indebtedness,
create liens, make investments and loans, enter into mergers, consolidations
or sales of all or substantially all assets. Generally, so long as no default
exists or would result, the Partnership is permitted to make distributions
during each fiscal quarter in an amount not in excess of Available Cash with
respect to the immediately preceding quarter. The Operating Partnership was
in compliance with all terms and covenants at December 31, 1998.
11
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is the result of computer programs using only the
last two digits to indicate the year. If uncorrected, such computer programs
will not be able to interpret dates correctly beyond the year 1999 and, in
some cases prior to that time (as some computer experts believe), which could
cause computer system failures or other computer errors disrupting business
operations. Recognizing the potentially severe consequences of the failure to
be Year 2000 compliant, the Partnership's management has developed and
implemented a company-wide program to identify and remedy the Year 2000
issues. A project team, consisting of the Partnership's Director of
Information Systems and the Partnership's key IS managers who supervise
operations at each of the Partnership's three main regional facilities in
California, Missouri and Texas, together with the Chief Information Officer
of Northwestern Corporation, the Managing General Partner's parent
corporation, was created to manage the company's Year 2000 problems, enabling
a smooth transition into the Year 2000. The project team reports directly to
executive management who have assigned a high priority to such efforts within
the Partnership.
The scope of the Partnership's Year 2000 readiness program includes the
review and evaluation of (i) the Partnership's information technology (IT)
such as hardware and software utilized in the operation of the Partnership's
business; (ii) the Partnership's non-IT systems or embedded technology such
as micro-controllers contained in various equipment and facilities; and (iii)
the readiness of third parties, including customers, suppliers and other key
vendors to the company, and the electronic data interchange (EDI) with those
key third parties. If needed modifications and conversions are not made on a
timely basis, the Year 2000 issue could have a material adverse effect on the
Partnership's operations.
The Partnership is currently using internal and external resources to
identify, correct and test large quantities of lines of application software
code for systems that were developed internally. Remediation of these systems
is expected to be completed by June 1999 except for the Partnership's Retail
Information System, consisting principally of its billing and accounts
receivable systems, which is already Year 2000 compliant. Since January 1997,
the Partnership has been converting its old billing system installed at each
customer service center to the new Retail Information System. Currently,
approximately two-thirds of the Partnership's customer service centers are
running the new system, with the roll-out to the balance of the centers
scheduled to be completed in the fall of 1999.
12
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CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Software developed externally is being evaluated for Year 2000 compliance
and will be upgraded or replaced. In the case of the Partnership's existing
NT-platform-based financial systems and oil and gas applications, it is
anticipated that solutions will be acquired from third party vendors. In
addition, these systems are being evaluated for meeting current and future
business needs (which is an on-going process), and the Partnership is using
this process as an opportunity to upgrade and enhance its information
systems. The Partnership has recently installed a new financial system that
is Year 2000 compliant that encompasses general ledger, accounts payable and
fixed assets. Other systems integrated with the financial systems are
anticipated to be upgraded or replaced by June 1999.
In addition to internal Year 2000 remediation activities, the Partnership
is in contact with key suppliers, vendors and customers to assure no
interruption from activities with important third parties. While none of the
Partnership's products are directly date sensitive, the supply and
transportation of propane gas products are dependent upon companies whose own
systems may need to be Year 2000 compliant. If third parties do not convert
their systems in a timely manner and in a way compatible with the
Partnership's systems, the arrival of the Year 2000 could have an adverse
effect on Partnership operations. The Partnership believes that its actions
with key suppliers, vendors and customers will minimize these risks.
Furthermore, no single customer accounts for more than 10% of the
Partnership's consolidated gross profits, thus mitigating the adverse risk to
the Partnership's business if some but not all customers are not Year 2000
compliant. Also, only a minimal number of transactions are conducted through
EDI, which reduces the risk.
The Partnership's primary focus has been directed at resolving the Year
2000 problem. While the Partnership expects its internal IT and non-IT
systems to be Year 2000 compliant by the dates specified, the Partnership
will be developing a contingency plan specifying what the Partnership will do
if it or important third parties are not Year 2000 compliant by the required
dates. The Partnership anticipates that a majority of such contingency plan
will be based on manual back-up systems, procedures and practices. The
contingency plan is estimated to be completed by March 1999.
Through December 1998, the Partnership estimates that incremental costs
of approximately $1.3 million have been incurred and expensed related to Year
2000 issues. Since many systems are being modified to provide significant
enhanced capabilities, the Year 2000 expenses have not been nor are planned
to be specifically tracked. The current estimated additional cost to complete
remediation is expected to be less than $1.0 million. The Partnership expects
that a portion of these costs will be capitalized, as they are principally
related to adding new software applications and functionality. Other costs
will continue to be expensed as incurred.
13
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Partnership's current estimates of the amount of time and costs
necessary to remediate and test its computer systems are based on the facts
and circumstances existing at this time. The estimates were made using
assumptions of future events including the continued availability of existing
resources, Year 2000 modification plans, implementation success by
third-parties, and other factors. New developments may occur that could
affect the Partnership's estimates of the amount of time and costs necessary
to modify and test its IT and non-IT systems for Year 2000 compliance. These
developments include, but are not limited to: (i) the availability and cost
of personnel trained in this area, (ii) the ability to locate and correct all
relevant computer codes and equipment and (iii) the planning and Year 2000
compliance success that key suppliers, vendors and customers attain.
In October, 1998, President Clinton signed into law the Year 2000
Readiness Disclosure Act. The Partnership intends to obtain the benefits of
the Act's protections by implementing certain procedures described in that
Act.
FORWARD-LOOKING STATEMENTS
The information presented herein may contain certain "forward-looking
statements" within the meaning of the federal securities laws. The
Partnership's actual future performance will be affected by a number of
factors, risks and uncertainties, including without limitation, weather
conditions, regulatory changes, competitive factors, the Partnership's
success in dealing with the Year 2000 issues and the operations of vendors,
suppliers and customers, many of which are beyond the Partnership's control.
Future events and results may vary substantially from what the Partnership
currently foresees, and there can be no assurance that the Partnership's
actual results will not differ materially from its expectations. The
Partnership undertakes no obligation to publicly release any revision to
these forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
14
<PAGE>
CORNERSTONE PROPANE PARTNERS,L.P.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits:
(10.8) Cornerstone Propane Deferred Compensation Plan
(10.9) Note Agreement, dated as of December 11, 1998, by and among
Cornerstone Propane GP, Inc., SYN Inc., Cornerstone Propane,
L.P., and the purchasers set forth therein.
(27) Financial Data Schedule
b) Reports on Form 8-K:
On December 2, 1998, the Partnership filed a report on Form 8-K
noting its impending acquisition of Propane Continental, Inc.
("PCI"). The report included details about the transaction as well
as PCI financial statements and pro forma financial statements which
gave effect to the transaction.
On December 9, 1998, the Partnership filed Amendment No. 1 to Form
8-K, amending certain information contained in the Form 8-K filed on
December 2, 1998. The Amendment contained revised information
concerning the Partnership's acquisition of PCI and revised pro
forma financial statements.
On December 23, 1998, the Partnership filed a report on Form 8-K
noting its completion of its acquisition of PCI. This Form 8-K also
noted the Underwriting Agreement for the December 1998 public
offering of 3,100,000 Common Units of the Partnership.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cornerstone Propane Partners, L.P.
----------------------------------
(Registrant)
By: Cornerstone Propane GP, Inc.
as Managing General Partner
By: /s/ Ronald J. Goedde
------------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
Date: February 15, 1999
16
<PAGE>
Exhibit 10.8
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- -------------------------------------------------------------------------------
CORNERSTONE PROPANE
DEFERRED COMPENSATION PLAN
EFFECTIVE: JULY 1, 1998
Prepared by:
William M. Mercer, Incorporated
Three Embarcadero Center, Suite 1500
San Francisco, CA 94111
THIS DOCUMENT HAS LEGAL AND TAX IMPLICATION AND
SHOULD BE REVIEWED BY THE EMPLOYER'S LEGAL COUNSEL
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CORNERSTONE PROPANE
DEFERRED COMPENSATION PLAN
ARTICLE I.
PURPOSE
The purposes of this Plan are to allow a select group of Cornerstone Propane
Partners, L.P. (the "Company") executives to defer receipt of compensation to
which the executives would otherwise be entitled and to supplement qualified
plan benefits. This Plan is intended to be an unfunded plan of deferred
compensation for a select group of management or highly compensated employees
within the meaning of Title I of ERISA. This Plan is effective July 1, 1998.
ARTICLE II.
DEFINITIONS
Whenever referred to in this Plan, the following capitalized terms shall have
the meanings set forth below except where otherwise provided. As used in the
Plan, the masculine, feminine and neuter genders and the singular and plural
numbers shall each be deemed to include the other or others.
2.1 "Account" means a Participant's Deferred Compensation Account(s) and SERP
Account established pursuant to Article V.
2.2 "Annual Bonus" means an amount payable (but for deferral hereunder) to a
Participant pursuant to the Company's Annual Incentive Plan.
2.3 "Base Salary" means a Participant's base salary.
2.4 "Beneficiary" means the person(s) designated in writing by the
Participant to receive his benefits under the Plan if the Participant
dies before receiving all of his benefits. A Beneficiary designation
must be signed and dated by the Participant and delivered to the
Committee to become effective. In the absence of a valid or effective
Beneficiary designation, the Participant's surviving spouse shall be the
Beneficiary or if there is none, the Beneficiary shall be the
Participant's surviving descendants by right of representation, surviving
parents or estate (in that order).
2.5 "Board" means the Board of Directors of Cornerstone Propane Partners,
L.P.
2.6 "Committee" means the Company's Compensation Committee. The Committee
shall be the "plan administrator" under ERISA.
2.7 "Company" means Cornerstone Propane Partners, L.P.
2.8 "Deferral Election Form" means the agreement between a Participant and
the Company whereby the Participant elects to reduce his Base Salary
and/or Incentive Pay and the Company promises to pay him benefits under
the Plan in the future.
2.9 "Employee" means a common law employee of the Company.
2.10 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.11 "Incentive Pay" means a Participant's Annual Bonus or Other Incentive, as
defined herein.
2.12 "Other Incentive" means an amount payable under Company incentive plans
specified by the Board as eligible for deferral hereunder.
2
<PAGE>
2.13 "Participant" means (a) an Employee who is eligible to participate under
Article III or (b) an individual who has an Account balance greater than
zero.
2.14 "Payment Date" means the date on which a Participant's Account is to be
paid or on which payment is to commence. Except as otherwise provided in
the Plan, the Payment Date for a Participant's Deferred Compensation
Account(s) shall be as specified in Article IV, and the Payment Date for
a Participant's SERP Account shall be the January 31 following the
calendar year in which the Participant's Termination of Employment
occurs.
2.15 "Plan" means the Cornerstone Propane Deferred Compensation Plan as set
forth herein and as amended from time to time.
2.16 "Plan Year" means the period beginning July 1, 1998 and ending December
31, 1998, and thereafter, the calendar year.
2.17 "SERP" means the supplemental executive retirement plan feature of the
Plan.
2.18 "Termination of Employment" means any voluntary or involuntary
termination of the Employee's employment with the Company.
2.19 "Valuation Date" means the last business day of each month.
2.20 "Valuation Period" means the period of time between Valuation Dates.
ARTICLE III.
ELIGIBILITY
3.1 The Committee shall determine which Employees are eligible to participate
in the Plan each Plan Year, provided that only Employees who are members
of a select group of management or highly compensated employees (within
the meaning of ERISA Section 201(2)) shall be eligible.
3.2 The Committee shall notify each Employee of his eligibility and provide
him with a copy of the Plan.
3.3 The Committee shall maintain a record of Plan Participants.
ARTICLE IV.
PARTICIPATION IN DEFERRED COMPENSATION FEATURE
4.1 Prior to the beginning of each Plan Year, or if later, within 30 days of
notification of first becoming eligible to participate in the Plan, a
Participant may elect to defer receipt of future Base Salary by
completing a Deferral Election Form prescribed by the Committee and
specifying a percentage (in 1% increments up to a maximum of 75%) to be
deferred. Up to two times during a calendar year, a Participant may
complete a Deferral Election Change Form to increase the percentage (in
1% increments up to a maximum of 75%) of future Base Salary he wants to
defer under the Plan. These elections shall be effective as of the first
payroll period beginning after the date the Deferral Election Form or
Deferral Election Change Form is received by the Committee or such later
date as the Committee specifies. No election to defer Base Salary shall
be effective prior to January 1, 1999.
4.2 A Deferral Election Form for Base Salary shall remain in effect until the
earliest of:
(a) the end of the calendar year in which it became effective, or
(b) the first day of the payroll period beginning on or after the
date the Committee receives a completed and signed Deferral
Election Change Form by which the Participant indicates he
wants to increase the percentage of Base Salary deferred to
the Plan, on a prospective basis only, or
3
<PAGE>
(c) the first day of the payroll period beginning on or after the
date the Committee receives a signed and dated written
revocation from the Participant.
An election to defer Base Salary may be revoked prospectively (under
paragraph (c)), or modified to increase the elected percentage (under
Section 4.1 and paragraph (b)), but may not be amended to otherwise
increase or decrease the elected percentage. A Participant who revokes
an election pursuant to this Section shall not be eligible to resume
deferral of Base Salary until the first day of the first Plan Year
beginning after the revocation.
4.3 Prior to the end of the second quarter of the fiscal year for which an
Annual Bonus is earned, a Participant may elect to defer receipt of such
Incentive Pay by completing a Deferral Election Form prescribed by the
Committee and specifying a percentage (in 1% increments up to a maximum
of 100%) to be deferred. The election shall be effective the date the
Deferral Election Form is received by the Committee.
4.4 The timing of elections for the deferral of Other Incentives shall be
determined by the Board in conjunction with approving deferral of such
awards under the Plan.
4.5 An election to defer Incentive Pay shall be irrevocable.
4.6 The Participant shall also specify on the Deferral Election Form that all
amounts credited to the Participant's Deferred Compensation Account
pursuant to the Deferral Election Form (together with any gains or
losses) shall be paid on one of the following Payment Dates:
(a) January 31 of a specified future year, or
(b) January 31 following the calendar year in which the Participant's
Termination of Employment occurs, or
(c) the earlier of (a) or (b);
provided, however, that the Participant shall have no more than three
(3) Payment Dates in effect at any time. Except as provided in
Section 4.8, this election shall be irrevocable.
4.7 The Participant's Deferral Election Form shall specify that the
Participant's Deferred Compensation Account which is attributable to
deferrals made pursuant to the Deferral Election Form shall be paid
either:
(a) in a single lump sum on the Payment Date, or
(b) in substantially equal installments over a period of five or ten
years as specified by the Participant on the Deferral Election
Form, commencing on the Payment Date.
Except as provided in Section 4.9, the election of a payment form shall
be irrevocable.
4.8 Notwithstanding the Participant's election of a Payment Date, a
Participant has a one-time opportunity to defer a Payment Date, provided
the new Payment Date is at least two years after the original Payment
Date. This one-time designation of a later Payment Date is irrevocable,
but is rendered ineffective if the Participant terminates employment
before the original Payment Date. To postpone a Payment Date, a
Participant must provide the Committee with a signed and dated written
notice, using a form prescribed by the Committee, no later than the
December 31 prior to the beginning of the calendar year preceding the
calendar year which includes the original Payment Date. For example, if
the Participant's original Payment Date is January 31, 2001, an election
to further defer payment must be made no later than December 31, 1999,
and must specify a new payment which is no earlier than January 31, 2003.
4.9 Notwithstanding the Participant's election of a payment form for
benefits attributable to his Deferred Compensation Account, a
Participant has a one-time opportunity to change his payment form
election. This election of a different payment form is irrevocable,
but is rendered ineffective if the Participant terminates employment
before the original Payment Date. To change a payment form election, a
Participant must provide the Committee with a signed and dated written
notice, using a form prescribed by the Committee, no later than
4
<PAGE>
the December 31 prior to the beginning of the calendar year preceding the
calendar year which includes the Payment Date of the affected benefit.
ARTICLE V.
PARTICIPATION IN THE SERP FEATURE
5.1 Within 30 days of notification of first becoming eligible to participate
in the SERP feature of the Plan, a Participant shall indicate on a form
prescribed by the Committee that his SERP Account shall be paid either
(a) in a lump sum payment on the Payment Date, or (b) in substantially
equal installments over a period of five or ten years as specified by the
Participant commencing on the Payment Date. Except as specified in
Section 5.2, the election of a payment form is irrevocable.
5.2 A Participant has a one-time opportunity to change his payment form
election. This election of a different payment form is irrevocable, but
is rendered ineffective if the Participant terminates employment within
one year of making the change. To change a payment form election, a
Participant must provide the Committee with a signed and dated written
notice no later than the December 31 prior to the beginning of the
calendar year preceding the calendar year which includes the Payment
Date.
ARTICLE VI.
ACCOUNTS
6.1 The Company shall establish one or more Accounts in the name of each
Participant on the Company's books and records for purposes of tracking
the Participant's benefits under the Plan: a Deferred Compensation
Account if the Participant has elected to participate under Article IV
and a SERP Account, if applicable.
(a) In lieu of paying Base Salary or Incentive Pay deferred pursuant
to a Deferral Election Form, the Company shall credit the
Participant's Deferred Compensation Account with amounts deferred
under Article IV as of the last day of the payroll period in
which deferred Base Salary would have otherwise been paid or as
of the date the deferred Incentive Pay would otherwise have been
paid to the Participant. If the Participant has elected more
than one Payment Date or different payment forms, separate
sub-Accounts shall be maintained for each such Payment Date and
payment form.
(b) Effective July 1, 1998, at the end of each month, the Company
shall credit each Participant's SERP Account with an amount equal
to 15% of the Participant's Base Salary for that month.
6.2 Each Account shall be credited on each Valuation Date with interest at a
rate set by the Committee from time to time. Unless changed by the
Committee, the rate shall be the average of the Company's working capital
Eurodollar borrowing rate on the first and last business days of the
month for the month ending on the Valuation Date. The Account shall
continue to be credited with interest through the end of the month
preceding the last payment. The interest shall be applied to the Account
balance as of the beginning of the Valuation Period increased by one-half
of the amounts credited during the Valuation Period and decreased by
one-half of the amount of any payments made during the Valuation Period.
At the Committee's discretion, the method of crediting interest or
determining the interest rate may be prospectively changed.
ARTICLE VII.
PAYMENT OF ACCOUNTS
7.1 A Participant's Deferred Compensation Accounts shall be paid (or payment
shall commence) on the Payment Date(s) and in the form(s) specified in
the Deferral Election Form(s). A Participant's SERP Account shall be
paid (or payment shall commence) on the Payment Date in the form elected
by the Participant.
5
<PAGE>
7.2 If the Participant dies before receiving the entire balance in his
Account(s), the remaining balance shall be paid to his Beneficiary in a
single lump sum on January 31 following the year of death,
notwithstanding the Participant's election of a later Payment Date.
7.3 All payments shall be in cash and shall be made subject to applicable
federal and state income and employment taxes. If benefits are subject
to withholding of taxes before becoming payable, the Company will
withhold from the Participant's current cash compensation.
7.4 Amounts credited to a Participant's SERP Account shall not be payable
prior to the Participant's Termination of Employment.
7.5 Notwithstanding any other provision of this Plan to the contrary, in the
event of a Participant's Termination of Employment, the Committee
reserves the right in its sole and absolute discretion to disregard a
Participant's election of a Payment Date or installment payments and to
accelerate the payment of benefits hereunder to the Participant or
Beneficiary.
ARTICLE VIII.
PLAN ADMINISTRATION
8.1 This Plan shall be adopted by the Company and shall be administered by
the Committee.
8.2 This Plan may be amended in any way or may be terminated, in whole or in
part, at any time, at the discretion of the Board by a duly adopted Board
resolution. No amendment or termination of the Plan shall reduce the
value of any Participant's Account determined as of the effective date of
such amendment or termination. This shall not be construed to prevent
the Board from terminating the Plan and paying all benefits prior to the
Payment Dates otherwise provided.
8.3 The Committee shall have the sole authority, in its full and absolute
discretion, to adopt, amend and rescind such rules and regulations as it
deems advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and Plan forms, and to
make all other determinations and interpretations of the Plan. All
decisions, determinations, and interpretations of the Committee shall be
binding on all persons, except as otherwise provided by law. Committee
members who are Participants shall abstain from voting on any Plan
matters that would cause them to be in constructive receipt of benefits
under the Plan. The Committee may delegate its responsibilities as it
sees fit.
ARTICLE IX.
MISCELLANEOUS
9.1 The amounts credited to a Participant's Account are not held in escrow
and are not secured by any specific assets of the Company or in which the
Company has an interest. The Company may make such arrangements as it
desires to provide for the payment of benefits. Neither the Participant,
any Beneficiary nor the Participant's estate shall have any rights
against the Company with respect to any portion of the Participant's
Account except as a general unsecured creditor of the Company. No
Participant has an interest in his Account until the Participant actually
receives payment.
9.2 No benefit under this Plan may be sold, assigned, transferred, conveyed,
hypothecated, encumbered, anticipated, or otherwise disposed of, and any
attempt to do so shall be void. No such benefit shall, prior to receipt
thereof by a Participant, be in any manner subject to the debts,
contracts, liabilities, engagements, or torts of such Participant.
9.3 Nothing in this Plan shall be construed to limit in any way the right of
the Company to terminate an Employee's employment at any time for any
reason whatsoever with or without cause; nor shall it be evidence of any
agreement or understanding, express or implied, that the Company (a) will
employ an Employee in any
6
<PAGE>
particular position, (b) will ensure participation in any incentive
programs, or (c) will grant any awards from such programs.
9.4 Claims Procedures.
(a) Whenever a Participant incurs a Termination of Employment, the
Committee shall determine the value of the Participant's Account.
If the Participant (or Beneficiary) believes he is entitled to a
greater benefit, he may file a written request for review of the
benefit computation by the Committee. The Committee may require
additional information if necessary to process the request. The
Committee (or its delegate) shall review the request and within
90 days of the Participant's request, the Committee shall provide
written notice to any claimant whose claim for benefits under the
Plan is being denied, in whole or in part. Such notice shall be
written in a manner calculated to be understood by the claimant
and shall include:
(i) The specific reason or reasons for such denial;
(ii) Specific references to pertinent Plan provisions upon
which the denial is based;
(iii) A description of any additional material or information
which may be needed to clarify the request, including an
explanation of why such information is required; and
(iv) An explanation of the Plan's claim review procedures.
(b) If an extension of time is required by special circumstances,
written notice may be furnished to the claimant within the 90-day
period referred to above which states the special circumstances
requiring the extension and the date by which a decision can be
expected, which shall be no more than 180 days from the date the
claim was filed. If no notice is received within 90 days of the
date the claim is submitted, the claimant may assume his claim
has been denied and may submit an appeal for review of the claim.
(c) Any claimant whose claim for benefits has been denied by the
Committee may appeal to the Committee for a review of the denial
by making a written request therefore within 60 days of receipt
of a notification of denial. The claimant may upon request to
the Committee examine any pertinent documents. The claimant may,
if he chooses, submit to the Committee written issues, comments
or other information upon which the claimant relies in support of
his claim, or may request a representative to make such written
submissions on his behalf.
(i) Within 60 days after receipt of a request for review, the
Committee shall notify the claimant in writing of its
decision, and, if the Committee confirms the denial in
whole or in part, the notice shall set forth the reasons
for the decision and specific reference to those Plan
provisions upon which the decision is based.
(ii) Notwithstanding the foregoing, if the Committee determines
that special circumstances require additional time for
processing, the Committee may extend such 60-day period,
but not by more than an additional 60 days, and shall
notify the claimant of such extension.
9.5 All Plan administrative expenses shall be paid by the Company.
9.6 The Company shall indemnify the Committee and each Committee member
against any and all claims, losses, damages, expenses (including
reasonable counsel fees), and liability arising from any action, failure
to act, or other conduct in the member's official capacity, except when
due to the individual's own gross negligence or willful misconduct.
9.7 The captions and headings in this Plan are for convenience only and shall
not in any way affect the meaning or interpretation of the Plan.
7
<PAGE>
9.8 This Plan shall be construed and its provisions enforced and administered
in accordance with the laws of the State of California except as
otherwise provided in ERISA.
Date: CORNERSTONE PROPANE PARTNERS, L.P.
By
Title:
8
<PAGE>
Exhibit 10.9
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- -------------------------------------------------------------------------------
CORNERSTONE PROPANE GP, INC.,
SYN INC.
AND
CORNERSTONE PROPANE, L.P.
$85,000,000
7.33% Senior Secured Notes due January 31, 2013
(Private Placement Number: 21923# AB 2)
_________________________
NOTE AGREEMENT
_________________________
Dated as of December 11, 1998
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. AUTHORIZATION OF NOTES. . . . . . . . . . . . . . . . . . . . .1
SECTION 2. SALE AND PURCHASE OF NOTES. . . . . . . . . . . . . . . . . . .1
SECTION 3. CLOSING.. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 4. CONDITIONS TO CLOSING.. . . . . . . . . . . . . . . . . . . . .2
4.1. Representations and Warranties. . . . . . . . . . . . . . . . .2
4.2. Performance; No Default.. . . . . . . . . . . . . . . . . . . .3
4.3. Compliance Certificates.. . . . . . . . . . . . . . . . . . . .3
4.4. Opinions of Counsel.. . . . . . . . . . . . . . . . . . . . . .3
4.5. Legal Investment. . . . . . . . . . . . . . . . . . . . . . . .3
4.6. Trust Agreement.. . . . . . . . . . . . . . . . . . . . . . . .4
4.7. Security Documents. . . . . . . . . . . . . . . . . . . . . . .4
4.8. Operative Agreements. . . . . . . . . . . . . . . . . . . . . .4
4.9. Sale and Issuance of Other Notes. . . . . . . . . . . . . . . .4
4.10. Sale of Units.. . . . . . . . . . . . . . . . . . . . . . . . .4
4.11. Proceedings and Documents.. . . . . . . . . . . . . . . . . . .5
4.12. Rating. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.13. Insurance.. . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.14. Payment of Closing Fees.. . . . . . . . . . . . . . . . . . . .5
4.15. Private Placement Number. . . . . . . . . . . . . . . . . . . .5
4.16. Other Agreements. . . . . . . . . . . . . . . . . . . . . . . .5
4.17. Subsidiary Security Documents.. . . . . . . . . . . . . . . . .5
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNERS AND THE
COMPANY.. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.1. Organization, Standing, etc.. . . . . . . . . . . . . . . . . .6
5.2. Partnership and Stock Interests.. . . . . . . . . . . . . . . .6
5.3. Qualification.. . . . . . . . . . . . . . . . . . . . . . . . .7
5.4. Financial Statements. . . . . . . . . . . . . . . . . . . . . .7
5.5. Changes, etc. . . . . . . . . . . . . . . . . . . . . . . . . .9
<PAGE>
5.6. Tax Returns and Payments. . . . . . . . . . . . . . . . . . . .9
5.7. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . .9
5.8. Ownership of Assets.. . . . . . . . . . . . . . . . . . . . . .9
5.9. Litigation, etc.. . . . . . . . . . . . . . . . . . . . . . . 10
5.10. Compliance with Other Instruments, etc. . . . . . . . . . . . 11
5.11. Governmental Consent. . . . . . . . . . . . . . . . . . . . . 11
5.12. Offer of Notes. . . . . . . . . . . . . . . . . . . . . . . . 11
5.13. Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . 12
5.14. Federal Reserve Regulations.. . . . . . . . . . . . . . . . . 12
5.15. Investment Company Act. . . . . . . . . . . . . . . . . . . . 12
5.16. Public Utility Holding Company Act; Federal Power Act.. . . . 12
5.17. ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.18. Environmental Matters.. . . . . . . . . . . . . . . . . . . . 14
5.19. Foreign Assets Control Regulations, etc.. . . . . . . . . . . 15
5.20. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21. Chief Executive Office. . . . . . . . . . . . . . . . . . . . 16
5.22. Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.23. Year 2000.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6. PURCHASER'S REPRESENTATIONS; SOURCE OF FUNDS. . . . . . . . . 17
SECTION 7. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION. . . . 19
SECTION 8. INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9. PREPAYMENT OF NOTES.. . . . . . . . . . . . . . . . . . . . . 25
9.1. Required Prepayments of the Notes.. . . . . . . . . . . . . . 25
9.2. Optional Prepayments of the Notes with Make Whole Amount. . . 26
9.3. Prepayment on Change of Control.. . . . . . . . . . . . . . . 26
9.4. Contingent Prepayments on Disposition of Property, Taking or
Destruction.. . . . . . . . . . . . . . . . . . . . . . . . . 27
9.5. Notice of Prepayments; Officers' Certificate. . . . . . . . . 28
ii
<PAGE>
9.6. Allocation of Partial Prepayments.. . . . . . . . . . . . . . 29
9.7. Maturity; Surrender, etc. . . . . . . . . . . . . . . . . . . 29
9.8. Acquisition of Notes. . . . . . . . . . . . . . . . . . . . . 29
SECTION 10. BUSINESS AND FINANCIAL COVENANTS OF THE COMPANY.. . . . . . . 29
10.1. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2. Liens, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3. Investments, Guaranties, etc. . . . . . . . . . . . . . . . . 39
10.4. Restricted Payments.. . . . . . . . . . . . . . . . . . . . . 42
10.5. Transactions with Affiliates. . . . . . . . . . . . . . . . . 42
10.6. Subsidiary Stock and Indebtedness.. . . . . . . . . . . . . . 43
10.7. Consolidation, Merger, Sale of Assets, etc. . . . . . . . . . 43
10.8. Partnership or Corporate Existence, etc.; Business. . . . . . 48
10.9. Payment of Taxes and Claims.. . . . . . . . . . . . . . . . . 48
10.10. Compliance with ERISA.. . . . . . . . . . . . . . . . . . . . 49
10.11. Maintenance of Properties; Insurance. . . . . . . . . . . . . 50
10.12. Operative Agreements; Security Documents. . . . . . . . . . . 50
10.13. Chief Executive Office. . . . . . . . . . . . . . . . . . . . 51
10.14. Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.15. Information Required by Rule 144A.. . . . . . . . . . . . . . 51
10.16. Covenant to Secure Notes Equally. . . . . . . . . . . . . . . 52
10.17. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 52
10.18. Further Assurances. . . . . . . . . . . . . . . . . . . . . . 52
10.19. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 53
10.20. Damage, Destruction, Taking, etc. . . . . . . . . . . . . . . 54
10.21, Accounting Changes. . . . . . . . . . . . . . . . . . . . . . 55
10.22. Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . 55
10.23. Impairment of Security Interests. . . . . . . . . . . . . . . 55
10.24. Limitation on Restrictions on Subsidiary Dividends, etc.. . . 55
iii
<PAGE>
10.25. No Other Negative Pledges.. . . . . . . . . . . . . . . . . . 55
10.26. Sales of Receivables. . . . . . . . . . . . . . . . . . . . . 56
10.27. Fixed Price Supply Contracts; Certain Policies. . . . . . . . 56
10.28. Independent Corporate Existence.. . . . . . . . . . . . . . . 56
10.29. Other Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.30. Restriction on General Partner. . . . . . . . . . . . . . . . 58
SECTION 11. EVENTS OF DEFAULT; ACCELERATION.. . . . . . . . . . . . . . . 58
SECTION 12. REMEDIES ON DEFAULT; RECOURSE, ETC. . . . . . . . . . . . . . 62
SECTION 13. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 14. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES. . . . . . . 83
14.1. Note Register; Ownership of Notes.. . . . . . . . . . . . . . 83
14.2. Transfer and Exchange of Notes. . . . . . . . . . . . . . . . 83
14.3. Replacement of Notes. . . . . . . . . . . . . . . . . . . . . 83
14.4. Notes Held by Company, etc. Deemed Not Outstanding. . . . . . 83
SECTION 15. PAYMENTS ON NOTES.. . . . . . . . . . . . . . . . . . . . . . 84
15.1. Place of Payment. . . . . . . . . . . . . . . . . . . . . . . 84
15.2. Home Office Payment.. . . . . . . . . . . . . . . . . . . . . 84
iv
<PAGE>
SECTION 16. EXPENSES, INDEMNIFICATION, ETC. . . . . . . . . . . . . . . . 84
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 87
SECTION 18. AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . 88
SECTION 19. NOTICES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 20. REPRODUCTION OF DOCUMENTS.. . . . . . . . . . . . . . . . . . 89
SECTION 21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 22. SUBMISSION TO JURISDICTION. . . . . . . . . . . . . . . . . . 89
SECTION 23. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . 90
SECTION 24. GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 25. CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . 90
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule A -- Schedule of Purchasers
Schedule 5.3 -- Jurisdiction of Qualification
Schedule 5.4(b) -- Certain Changes
Schedule 5.7 -- Indebtedness
Schedule 5.8(b) -- List of Title Exceptions
Schedule 5.9 -- Litigation
Schedule 5.18 -- Environmental Notices
Schedule 10.2 -- Liens
Schedule 10.5 -- Transactions With Affiliates
Exhibit A -- Form of Note
Exhibit B1 -- Form of Opinion of Company Counsel
Exhibit B2 -- Form of Opinion of Debevoise & Plimpton
Exhibit C -- Form of Trust Agreement
Exhibit D -- Form of Subordination Provisions
Exhibit E -- Form of Company Security Agreement
Exhibit F -- Form of Intercompany Note
Exhibit G -- Form of Partnership Agreement
Exhibit H -- Form of Perfection Certificate
Exhibit I -- Form of Subsidiary Guarantee Agreement
Exhibit J -- Form of Supplemental Agreement
vi
</TABLE>
<PAGE>
CORNERSTONE PROPANE GP, INC.
CORNERSTONE PROPANE, L.P.
SYN INC.
432 Westridge Drive,
Watsonville, California 95076
7.33% Senior Secured Notes due January 31, 2013
Dated as of December 11, 1998
TO EACH OF THE PURCHASERS LISTED
IN THE ATTACHED SCHEDULE A
Dear Purchaser:
Cornerstone Propane GP, Inc., a California corporation (the
"Managing General Partner"), SYN Inc., a Delaware corporation (the
"Special General Partner"), and together with the Managing General Partner,
each a "General Partner" and together, the "General Partners," and
Cornerstone Propane, L.P., a Delaware limited partnership (the "Company"),
hereby agree with you as follows:
SECTION 1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $85,000,000
aggregate principal amount of its 7.33% Senior Secured Notes due January 31,
2013 (the "Notes", such term to include any Notes issued in substitution
therefor or replacement thereof pursuant to Section 14). The Notes shall be
substantially in the form of Exhibit A, with such changes therefrom, if any,
as may be approved by you and the Company. Certain capitalized terms used in
this Note Agreement (the "Agreement") are defined in Section 13; references
to a "Section" or a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Section of this Agreement or to a Schedule or an Exhibit
attached to this Agreement.
SECTION 2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and you will purchase from the Company, at the
Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A for purchase by you at the Closing, at the
purchase price of 100% of the principal amount thereof. At the Closing
provided for in Section 3, subject to the conditions stated in the PCI
Agreements, the Public Partnership and CHC will acquire all the outstanding
stock and warrants of Propane Continental, Inc., a Delaware corporation
("PCI"), pursuant to the terms of the PCI Agreements, and the Public
Partnership will transfer, directly or
<PAGE>
indirectly, to CHC all the capital stock and warrants of PCI acquired by it
pursuant to the PCI Agreements.
Contemporaneously with entering into this Agreement, the General
Partners and the Company are entering into identical Note Agreements (the
"Other Agreements") with each of the other purchasers named in Schedule A
(the "Other Purchasers"), providing for the sale to each of the Other
Purchasers, at the Closing, of Notes in the principal amount specified
opposite its name in Schedule A. The sale of Notes to you and the Other
Purchasers are to be separate sales, and this Agreement and the Other
Agreements constitute separate agreements.
SECTION 3. CLOSING.
The sales of the Notes to you and the Other Purchasers shall take place at
the offices of Debevoise & Plimpton, 875 Third Avenue, New York, New York, at
9:00 a.m., New York time, at a closing (the "Closing") on December 11,
1998, or such later date as may be agreed upon by Managing General Partner,
the Company, you and the Other Purchasers. At the Closing, the Company will
deliver to you Notes in the principal amount to be purchased by you, in the
form of a single Note (or such greater number of Notes as you may request,
provided that each such Note shall be in a denomination of at least
$500,000), each dated the date of the Closing and registered in your name (or
in the name of your nominee as indicated in Schedule A), against payment of
the purchase price therefor on the date of Closing by transfer of immediately
available funds to the Company, or as otherwise directed by the Company in
writing (at least two days prior to the date of the Closing). If at the
Closing the Company shall fail to tender such Notes to you as provided above
in this Section 3 or if any of the conditions specified in Section 4 shall
not have been fulfilled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without thereby
waiving any other rights you may have by reason of such failure or such
nonfulfillment. At the Closing, the Company will designate (to the extent
not theretofore so designated) Cornerstone Sales & Service Corporation,
Flame, Inc., CHC and PCI as Restricted Subsidiaries under this Agreement, the
Other Agreements and the 1996 Agreements. At the Closing, you will become a
party to the Trust Agreement with respect to the Notes.
SECTION 4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you
at the Closing is subject to the fulfillment to your satisfaction, prior to
or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and its Affiliates contained in this Agreement, the
other Operative Agreements, and those otherwise made in writing by or on
behalf of the Company or any Affiliate of the Company in connection with the
transactions contemplated by this Agreement, shall
2
<PAGE>
be true and correct when made and at the time of the Closing, except as
affected by the consummation of such transactions and except for any
representation and warranty that is expressly stated to relate to a specific
date, in which case such representation and warranty shall be true and
correct as of such earlier date.
4.2. PERFORMANCE; NO DEFAULT. Each of the Company and its Affiliates
shall have performed and complied with all agreements and conditions
contained in this Agreement or any other Operative Agreement required to be
performed or complied with by it prior to or at the Closing, and at the time
of the Closing no Event of Default or Potential Event of Default under this
Agreement or default by any party under any other Operative Agreement shall
have occurred and be continuing.
4.3. COMPLIANCE CERTIFICATES. You shall have received Officer's
Certificates of the Company and each General Partner, dated the date of the
Closing and satisfactory in substance and form to you, certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled in all
material respects insofar as the relevant representation or warranty is made
by, or the relevant agreement or condition is required to be performed or
complied with by, or the relevant Event of Default, Potential Event of
Default or default has been caused by or relates to, each of such entities
and, with respect to the Officer's Certificate of the Company, its
Subsidiaries, and in the case of the Officer's Certificate of the Managing
General Partner and the Company, certifying that no material adverse change
has occurred in the financial condition of the Business subsequent to the
date of the financial statements delivered pursuant to Section 5.4(a).
4.4. OPINIONS OF COUNSEL. You shall have received favorable opinions
from (a) McCutchen, Doyle, Brown & Enersen, L.L.P., counsel for the Company
and its Affiliates, substantially in the form of Exhibit B1 and (b) Debevoise
& Plimpton, your special counsel in connection with the transactions
contemplated by this Agreement, substantially in the form of Exhibit B2, and
in each case covering such other matters incident to such transactions as you
may reasonably request, each addressed to you, dated the date of the Closing
and otherwise reasonably satisfactory in substance and form to you. You
shall have received copies of each of the opinions delivered pursuant to the
Underwriting Agreement (other than the opinion of counsel to the
underwriters), accompanied by letters, dated the date of the Closing and
addressed to you, from the counsel rendering such opinions, stating that you
are entitled to rely on such opinions as if they were addressed to you. The
Company and the General Partners hereby direct their counsel referred to in
clause (a) of this Section 4.4, and each of its counsel who deliver opinions
pursuant to the Underwriting Agreement, to deliver to you such opinions and
letters to be delivered by it and authorize you to rely thereon.
4.5. LEGAL INVESTMENT. On the date of the Closing your purchase of
Notes shall be permitted by the laws and regulations of each jurisdiction to
which your investments are subject, but without recourse to provisions (such
as section 1404(b) or 1405(a)(8) of the New York Insurance Law) permitting
limited investments by insurance companies in
3
<PAGE>
securities not otherwise legally eligible for investment. If requested by
you by prior written request to the Company or the General Partners, you
shall have received, at least five Business Days prior to the Closing, an
Officers' Certificate of the Company or the General Partners, as the case may
be, certifying as to such matters of fact as you may reasonably specify to
enable you to determine whether such purchase is so permitted.
4.6. TRUST AGREEMENT. The Trust Agreement shall be in full force and
effect and shall constitute the valid, binding and enforceable obligation of
the Company, the Qualifying Restricted Subsidiaries, if any, and the Trustee,
except that such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting the rights and remedies of creditors,
and no default on the part of the Company or the Qualifying Restricted
Subsidiaries shall exist thereunder.
4.7. SECURITY DOCUMENTS. Each of the Security Documents shall be in
full force and effect and shall constitute the valid, binding and enforceable
obligation of each such party, except that such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws of general application relating to or affecting the rights and remedies
of creditors and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
4.8. OPERATIVE AGREEMENTS. Each of the Operative Agreements shall be
in full force and effect, and shall constitute the legal, valid and binding
and enforceable obligations of the respective parties thereto, except that
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating
to or affecting the rights and remedies of creditors and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or law, and no default or accrued right of termination
on the part of any of the parties thereto shall exist thereunder as of the
date of the Closing, and you and the Trustee shall have received a fully
executed original, or a true and complete copy, of each such document.
4.9. SALE AND ISSUANCE OF OTHER NOTES. Contemporaneously with the
Closing, the Company shall sell to the Other Purchasers the Notes to be
purchased by them at the Closing under the Other Agreements as specified in
Schedule A.
4.10. SALE OF UNITS. At the time of the Closing, (a) the
Underwriting Agreement shall be in full force and effect, (b) all conditions
to closing contained in the Underwriting Agreement shall have been fulfilled
or, in a manner acceptable to you, waived, (c) your special counsel shall
have received a copy of each agreement, document, opinion (as specified in
Section 4.4) and certificate delivered in connection with the closing under
the Underwriting Agreement, and (d) substantially simultaneously with the
receipt of the proceeds of the sale of the Notes to you and the Other
Purchasers at the Closing, (i) the
4
<PAGE>
Public Partnership shall sell to the Underwriters the Units provided to be
sold under the Underwriting Agreement for an aggregate gross purchase price
of not less than $53,850,000, (ii) the Public Partnership shall have
contributed the net proceeds of such sale to the Company as an additional
contribution to partnership capital and (iii) all transactions contemplated
by the Registration Statement, the Memorandum and the PCI Agreements to be
completed by the General Partners, the Company and their Affiliates prior to
or substantially simultaneously with the issuance of the Notes shall have
been completed substantially as contemplated therein and in a manner
acceptable to you.
4.11. PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Agreement and the PCI Agreements
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as you or they may reasonably request.
4.12. RATING. Prior to the Closing, the Notes shall have
received a rating of at least BBB from Fitch Investors Service, Inc., which
rating remains in effect as of the Closing.
4.13. INSURANCE. Insurance complying with the provisions of
Section 10.11 hereof shall be in full force and effect.
4.14. PAYMENT OF CLOSING FEES. The Company shall have paid the
fees and disbursements required by Section 16 to be paid by the Company on
the date of the Closing.
4.15. PRIVATE PLACEMENT NUMBER. The Company shall have obtained
for the Notes a Private Placement Number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners).
4.16. OTHER AGREEMENTS. The Company shall have delivered to you
a true and complete copy of the Registration Statement.
4.17. SUBSIDIARY SECURITY DOCUMENTS. CHC and PCI shall each have
(i) become a party to the Subsidiary Guarantee Agreement, the Company
Security Agreement and the Trust Agreement and (ii) duly executed and
delivered to your special counsel for filing the financing statements
contemplated thereby.
4.18. YEAR 2000 QUESTIONNAIRE. The Company will have delivered
to you a copy of the Company's response to the Year 2000 Due Diligence
Questionnaire supplied by the Securities Valuation Office of the National
Association of Insurance Commissioners..
5
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GENERAL PARTNERS AND THE
COMPANY.
Each of the General Partners and the Company represents and warrants
that:
5.1. ORGANIZATION, STANDING, ETC. (a) The Company is a limited
partnership duly organized, validly existing and in good standing under the
Delaware Revised Uniform Limited Partnership Act and has all requisite
partnership power and authority to own and operate its properties and assets,
to conduct its business as described in the Registration Statement, to enter
into this Agreement and the other Operative Agreements to which it is a
party, to issue and deliver the Notes and to carry out the terms of this
Agreement, such other Operative Agreements and the Notes.
(b) Each General Partner is a corporation duly organized, validly
existing and in good standing (in the case of the Managing General Partner)
under the laws of the State of California or (in the case of the Special
General Partner) under the laws of the State of Delaware and has all
requisite corporate power and authority to own and operate its properties, to
conduct its business, to enter into and carry out the terms of this Agreement
and the other Operative Agreements to which it is a party, and, in the case
of the Managing General Partner, to execute and deliver as Managing General
Partner of the Company this Agreement, the Notes and the other Operative
Agreements to which the Company is a party.
(c) Each Restricted Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties
and to conduct its business as may be described in the Registration Statement.
(d) The Public Partnership is a limited partnership duly organized,
validly existing and in good standing under the Delaware Revised Uniform
Limited Partnership Act and has all requisite partnership power and authority
to own and operate its properties, to conduct its business, and to execute,
deliver and carry out the terms of the Operative Agreements to which it is a
party.
5.2. PARTNERSHIP AND STOCK INTERESTS. The only general partners of
the Company are the General Partners, which own an aggregate 1.0101% general
partner interest in the Company. The only limited partner of the Company is
the Public Partnership, which owns a 98.9899% limited partner interest in the
Company. The Company does not have any other partners. Except for
Cornerstone Sales & Service Corporation, a Delaware corporation, Flame, Inc.,
an Arizona corporation, CHC and PCI the Company does not have, and
immediately after giving effect to the transactions contemplated by the PCI
Agreements will not have, any Subsidiaries or any Investments in any Person
(other than Investments of the types described in Section 10.3(a)). CHC is
6
<PAGE>
a direct Wholly Owned Subsidiary of the Company and upon the consummation of
the Closing PCI will be a direct Wholly Owned Subsidiary of CHC.
5.3. QUALIFICATION. The Company is duly qualified or registered and
is in good standing as a foreign limited partnership for the transaction of
business, and each General Partner and Restricted Subsidiary is qualified or
registered and is in good standing as a foreign corporation for the
transaction of business, in the jurisdictions set forth in Schedule 5.3 which
are the only jurisdictions in which, the nature of their respective
activities or the character of the properties they own, lease or use makes
such qualification or registration necessary and in which the failure so to
qualify or to be so registered would have a Material Adverse Effect. Each of
the General Partners, the Restricted Subsidiaries and the Company has taken
all necessary partnership or corporate action to authorize the execution,
delivery and performance by it of this Agreement, the Notes, as the case may
be, and each other Operative Agreement to which it is a party. Each of the
General Partners, the Restricted Subsidiaries and the Company has duly
executed and delivered each of this Agreement, the Notes and the other
Operative Agreements to which it is a party, and each of them constitutes its
legal, valid, binding and enforceable obligation in accordance with its
terms, except that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general application relating to or affecting the rights and remedies of
creditors and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
5.4. FINANCIAL STATEMENTS.
(a) The Company has delivered to you complete and correct copies of (i)
the Registration Statement, (ii) the memorandum prepared by the Company for
use in connection with the Company's private placement of the Notes (together
with any supplements or amendments, the "Memorandum") and (iii) the Public
Partnership's Securities Exchange Act of 1934, as amended, filings delivered
in connection with the offering of the Notes. The historical and pro forma
consolidated financial statements of the Public Partnership set forth in or
incorporated by reference into the Registration Statement comply in all
material respects with the applicable accounting requirements of the
Securities Act of 1933, as amended, and the published rules and regulations
thereunder and, in the opinion of the Managing General Partner, the
assumptions on which the pro forma adjustments set forth in or incorporated
by reference into the Registration Statement to such historical consolidated
financial statements of the Public Partnership are based, provide a
reasonable basis for presenting the significant effects of the transactions
contemplated by the pro forma consolidated financial statements set forth in
or incorporated by reference into the Registration Statement and such pro
forma adjustments give appropriate effect to such assumptions and are
properly applied in all material respects to the historical amounts in the
compilation of such pro forma consolidated financial statements. The
financial statements and schedules included in the
7
<PAGE>
Registration Statement (other than with respect to pro forma matters)
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods specified, except to the extent disclosed therein,
and present fairly the consolidated financial position of the Public
Partnership as of the respective dates specified and the results of its
consolidated operations and cash flows for the respective periods
specified (subject, as to interim statements, to the omission of
footnotes and year-end audit adjustments). Since June 30, 1998, there
has been no material adverse change in the business, financial condition,
or results of operations of the Public Partnership and its consolidated
subsidiaries taken as a whole. The financial data included under the
caption "Selected Historical and Pro Forma Financial and Operating
Data" in the Registration Statement present fairly, on the basis stated
in the Registration Statement, the information set forth therein and have
been compiled on a basis consistent with the audited and unaudited
historical financial statements included in the Registration Statement.
The historical aspects of the financial data included under the caption
"Capitalization" in the Registration Statement present fairly, on the
basis stated in the Registration Statement, the information set forth
therein and have been compiled on a basis consistent with that of the
audited and unaudited historical financial statements included in the
Registration Statement; the pro forma aspects of such financial data
included under the caption "Capitalization" have been prepared in all
material respects in accordance with all applicable rules and guidelines
of the Securities and Exchange Commission with respect to pro forma
financial information; and the assumptions on which the pro forma
adjustments to the pro forma aspects of the financial data included under
the caption "Capitalization" are based provide a reasonable basis for
presenting the significant effects of the transactions contemplated by
such pro forma financial data and such pro forma adjustments give
appropriate effect to such assumptions and are properly applied in all
material respects to the historical amounts in the compilation of such
pro forma financial data.
(b) Except as may be disclosed on Schedule 5.4(b), since June 30,
1998, there has been no change or event which could reasonably be
expected to have a Material Adverse Effect. The financial data for the
Public Partnership in the Memorandum present fairly in all material
respects, on the basis stated in the Memorandum, the information set
forth therein and have been compiled based on the audited financial
statements included in the Registration Statement. Schedule 5.4(b)
specifies information in the Registration Statement that modifies and
updates information previously contained in the Memorandum. Modifications
of a non-material nature are not reflected in Schedule 5.4(b). Except as
otherwise provided on Schedule 5.4(b), the financial data identified as
historical included in the Memorandum present fairly, on the basis stated
in the Memorandum, the information set forth therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement; the pro forma
financial data included in the Memorandum represent, in all material
respects and on the basis stated in the Memorandum, the Managing General
Partner's best estimate with respect to pro forma financial information;
and the
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assumptions on which the pro forma adjustments to the pro forma aspects of
the financial data included in the Memorandum are based provide a reasonable
basis for presenting all of the significant effects of the transactions
contemplated by such pro forma financial data and such pro forma adjustments
give appropriate effect to such assumptions and are properly applied in all
material respects to the historical amounts in the compilation of such pro
forma financial data.
5.5. CHANGES, ETC. Except as contemplated by this Agreement, the
other Operative Agreements, the Registration Statement or the Memorandum,
subsequent to June 30, 1998, the Company and its Affiliates have not incurred
any material liabilities or obligations, direct or contingent, or entered
into any material transaction not in the ordinary course of business, no
events have occurred, which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, and there has not
been any Restricted Payment of any kind declared, paid or made by the Company
or either General Partner (other than the distribution of $0.54 per
Subordinated Unit paid on November 13, 1998 by the Company and the
distribution of all of the retained earnings of PCI as of December 11, 1998
to PCI's preferred shareholders).
5.6. TAX RETURNS AND PAYMENTS. On the Closing Date and after giving
effect to the transactions then to be consummated under the Operative
Agreements, each of the Company and its Affiliates has filed all federal,
state and other tax returns required by law to be filed by it or has properly
filed for an extension of time for the filing thereof and has paid all,
taxes, assessments and other governmental charges levied upon it or any of
its properties, assets, income or franchises which are due and payable,
except those (a) which are not past due or are presently being contested in
good faith by appropriate proceedings diligently conducted for which such
reserves or other appropriate provisions, if any, as shall be required by
GAAP have been made, or (b) for which the failure to file or extend would not
reasonably be expected to have a Material Adverse Effect. The Company is a
limited partnership that is treated as a pass-through entity for federal
income tax purposes.
5.7. INDEBTEDNESS. At the time of the Closing, other than the
Indebtedness represented by the Notes and the Indebtedness listed in Schedule
5.7, none of Company, either General Partner or any Restricted Subsidiary
will have any secured or unsecured Indebtedness outstanding. At the time of
the Closing, no instrument or agreement to which the Company or, other than
Section 7.6(a) of the MLP Agreement either General Partner is a party or by
which the Company or either General Partner is bound or which is applicable
to the Company or either General Partner (other than this Agreement, the 1996
Note Agreements and the Bank Credit Facilities) contains any restrictions on
the incurrence by the Company or either General Partner of additional
Indebtedness.
5.8. OWNERSHIP OF ASSETS. (a) The Company and each Restricted
Subsidiary are in possession of and operating in compliance in all respects
with all franchises, grants, authorizations, approvals, licenses, permits,
easements, rights-of-way, consents,
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certificates and orders required to own, lease or use its properties and
assets and (considering all such Permits (as below defined) in the possession
of, and being complied with by, the Company and such Restricted Subsidiary
taken together) to permit the conduct of the Business as now conducted and
proposed to be conducted ("Permits"), except for those Permits
(collectively, "Permitted Exceptions") (i) which are not required at such
time and are routine or administrative in nature and are expected in the
reasonable judgment of Managing General Partner to be obtained or given in
the ordinary course of business after the date of the Closing, or (ii) which,
if not obtained or given, would not, individually or in the aggregate, have a
Material Adverse Effect.
(b) Except as set forth in Schedule 5.8(b), the Company has (i)
title to the portion of its properties and assets constituting real property
owned in fee simple, (ii) good and valid leasehold interests in the portion
of its properties and assets constituting real property and leased, pursuant
to which the Company shall enjoy undisturbed possession thereof, except for
defects in, or lack of recorded title and exceptions to, leasehold interests
as would not, in the aggregate, be reasonably expected to have a Material
Adverse Effect, and (iii) sufficient title to the portion of its properties
and assets constituting personal property reasonably necessary for the use
and operation of such personal property as it has been used in the past and
as it is proposed to be used in the Business, in each case subject to no
Liens except Permitted Encumbrances and Liens that will be discharged prior
to the Closing. Such properties and assets are all of the assets and
properties reasonably necessary to enable the Company to conduct the
Business. Subject to exceptions as would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect, (A) the
Company enjoys peaceful and undisturbed possession under all leases necessary
for the operation of the Business, other than certain immaterial leased
property of which the Company shall enjoy undisturbed possession, and (B) all
such leases are valid and subsisting and are in full force and effect.
Except to perfect and to protect security interests permitted by Section
10.2, (x) at the time of the Closing, no effective financing statement under
the Uniform Commercial Code which names the Company, any Restricted
Subsidiary or either General Partner as debtor, which individually or in the
aggregate relates to any part of the assets pledged pursuant to any Security
Document, will be on file in any jurisdiction and (y) at the time of the
Closing, none of the Company, any Restricted Subsidiary or either General
Partner will have signed any effective financing statement or any effective
security agreement, which relates to any part of the assets pledged pursuant
to any Security Document, authorizing any secured party thereunder to file
any such financing statement, except for financing statements to be executed
and filed in connection with the Closing.
5.9. LITIGATION, ETC. Except as set forth on Schedule 5.9, there is
no action, proceeding or investigation pending or, to the knowledge of the
Company and the General Partners upon reasonable inquiry, threatened (or any
basis therefor known to the Company or either General Partner) which
questions the validity of this Agreement,
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any other Operative Agreement or the Notes or any action taken or to be taken
pursuant to this Agreement, any other Operative Agreement or the Notes, or
which could reasonably be expected to have, either in any case or in the
aggregate, a Material Adverse Effect.
5.10. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the
Company, any Restricted Subsidiary nor either General Partner (i) is in
violation of any term of the Partnership Agreement or, in the case of such
Restricted Subsidiary and the General Partners, of their respective articles
or certificates of incorporation or by-laws, or (ii) is in violation of any
term of any other agreement or instrument to which the Company, such
Restricted Subsidiary or either General Partner is a party or by which any of
them or any of their properties is bound or any term of any applicable law,
ordinance, rule or regulation of any governmental authority or any term of
any applicable order, judgment or decree of any court, arbitrator or
governmental authority, in the case of clause (ii), the consequences of which
would have a Material Adverse Effect; the execution, delivery and performance
by each of the General Partners and the Company of this Agreement and the
other Operative Agreements to which it is a party and the Notes, as the case
may be, will not result in any violation of or be in conflict with or
constitute a default under any such term or result in the creation of (or
impose any obligation on the Company, any Restricted Subsidiary or either
General Partner to create) any Lien upon any of the properties or assets of
the Company or either General Partner prohibited by any such term, except for
Permitted Encumbrances and for any such term relating to Indebtedness to be
repaid in full at the time of the Closing; and there is no such term the
compliance with which would have, or in the future may in the reasonable
judgment of either General Partner or the Company be likely to have, a
Material Adverse Effect.
5.11. GOVERNMENTAL CONSENT. No consent, approval or
authorization of, or declaration or filing with, any governmental authority
(which has not been obtained) is required for the valid execution, delivery
and performance of this Agreement or the other Operative Agreements (other
than Permitted Exceptions), and no such consent, approval, authorization,
declaration or filing is required for the valid offer, issue, sale and
delivery of the Notes pursuant to this Agreement and the Other Agreements.
5.12. OFFER OF NOTES. Neither the Company nor any of its
Affiliates nor anyone acting on its or their behalf has directly or
indirectly offered the Notes or any part thereof or any similar securities
for sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, anyone other than you, the
Other Purchasers and not more than 25 other institutional investors. Neither
the General Partners nor the Company nor anyone authorized to act on their
behalf has taken or will take any action which would subject the issuance and
sale of the Notes to the registration and prospectus delivery provisions of
the Securities Act of 1933, as amended, or to the registration or
qualification provisions of any securities or Blue Sky law of any applicable
jurisdiction or require qualification of any Security Document under the
Trust Indenture Act of 1939, as amended; PROVIDED, HOWEVER, that it is
understood that any action taken
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by you or any Other Purchaser shall not have been taken on behalf of the
Company or the General Partners.
5.13. USE OF PROCEEDS. The proceeds of the sale of the Units by
the Public Partnership will be used by the Public Partnership and the Company
as contemplated by the Registration Statement. The proceeds of the sale of
the Notes to you and the Other Purchasers will be used to pay a portion of
the consideration payable under the PCI Agreements (including without
limitation the refunding of PCI obligations contemplated by the PCI
Agreements), for general partnership purposes and to pay fees and expenses
associated with the offering.
5.14. FEDERAL RESERVE REGULATIONS. Neither the General Partners
nor the Company will, directly or indirectly, use any of the proceeds of the
sale of the Notes for the purpose, whether immediate, incidental or ultimate,
of buying a "margin stock" or of maintaining, reducing or retiring any
indebtedness originally incurred to purchase a stock that is currently a
"margin stock", or for any other purpose which might constitute this
transaction a "purpose credit", in each case within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System (12
C.F.R. 221, as amended), or otherwise take or permit to be taken any action
which would involve a violation of such Regulation U or of Regulations T or X
(12 C.F.R. 220, as amended, and 12 C.F.R. 224, as amended, respectively) or
any other applicable regulation of such Board. No indebtedness being reduced
or retired, directly or indirectly, out of the proceeds of the sale of the
Notes was incurred for the purpose of buying or carrying any stock which is
currently a "margin stock", and neither General Partner nor the Company
owns or has any present intention of acquiring with the proceeds thereof any
amount of such "margin stock".
5.15. INVESTMENT COMPANY ACT. None of the General Partners or
the Company is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended.
5.16. PUBLIC UTILITY HOLDING COMPANY ACT; FEDERAL POWER ACT.
None of the General Partners or the Company is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company",
as such terms are defined in the Public Utility Holding Company Act of 1935,
as amended; none of the General Partners or the Company, or the issue and
sale of the Notes by the Company is subject to regulation under such Act; and
none of the General Partners or the Company is a "public utility" as such
term is defined in the Federal Power Act, as amended.
5.17. ERISA. (a) None of the General Partners, the Company, any
Subsidiary of the Company or any Related Person of the General Partners or
the Company (other than Northwestern Growth Corporation, a Delaware
corporation, and any Subsidiaries of Northwestern Growth Corporation (except
for the General Partners and any Subsidiary of
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the General Partners that is a Related Person of the Company)) is obligated
to contribute to, and none of the General Partners, the Company or any
Related Person of the Company has any liability or obligation with respect
to, any Plan that is subject to Section 302 or Title IV of ERISA or Section
412 of the Code (other than a Multiemployer Plan). None of the Company, any
Subsidiary of the Company or any Related Person of the Company has any
liability or obligation to provide any amount or type of compensation or
benefit in respect of any employee or former employee of the Business which
relates to periods, services performed or benefits or amounts accrued prior
to December 17, 1996 (other than pursuant to a Multiemployer Plan,
continuation coverage provided pursuant to Section 4980B of the Code or
Section 601, et seq., of ERISA, or any liability or obligation for
contributions pursuant to a Plan not yet required to be paid). None of the
General Partners, the Company, any Subsidiary of the Company or any Related
Person of the Company has incurred any material liability under Title IV of
ERISA with respect to any such Plan and no event or condition exists or has
occurred as a result of which such a liability would reasonably be expected
to be incurred. None of the General Partners, the Company, any Subsidiary of
the Company or any Related Person of the Company has engaged in any
transaction, including the transactions contemplated hereunder which could
subject the Company or any Related Person of the Company to a material
liability pursuant to Section 4069(a) or 4212(c) of ERISA. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA other than
one for which the applicable notice requirements have been waived by PBGC
regulation) or any other event or condition with respect to any Plan which
presents a risk of the termination of, or the appointment of a trustee to
administer, any such Plan (other than a Multiemployer Plan) by the PBGC. No
prohibited transaction (within the meaning of Section 406(a) of ERISA or
Section 4975 of the Code) exists or has occurred with respect to any Plan
which has subjected or could reasonably be expected to subject either General
Partner, the Company or any Subsidiary of the Company to a material liability
under Section 502(i) or 502(l) of ERISA or Section 4975 of the Code. No
material liability to the PBGC (other than liability for premiums not yet
due) has been or is expected to be incurred with regard to any Plan by the
General Partners, the Company, any Subsidiary of the Company or any Related
Person of the Company. None of the General Partners, the Company, any
Subsidiary of the Company or any Related Person of the Company contributes or
is obligated to contribute or has ever contributed or been obligated to
contribute to any single employer plan tht has at least two contributing
sponsors not under common control. Timely payment has been made of all
amounts which the General Partners, the Company, any Subsidiary of the
Company or any Related Person of the Company is required under applicable
law, the terms of each Plan or any collective bargaining agreement to have
paid as contributions to each such Plan except to the extent that failure to
do so would not have a Material Adverse Effect. To the knowledge of the
General Partners and the Company, no Multiemployer Plan has been terminated
or presents a material risk of termination, is insolvent or is in
reorganization within the meaning of Section 4241 or 4245 of ERISA and the
transactions contemplated hereby will not result in a withdrawal from any
Multiemployer Plan that would have a Material Adverse Effect.
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None of the General Partners, the Company or any Subsidiary of the Company
has any obligation to provide any material amount of post-employment welfare
benefits or coverage (other than continuation coverage provided pursuant to
Section 4980B of the Code or Section 601, et seq., of ERISA).
(b) The execution and delivery of this Agreement and the Other
Agreements and the issue and sale of the Notes, and delivery of the Notes
hereunder and thereunder will not involve any non-exempt "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of
the Code. The representations by the Company and the General Partners in the
immediately preceding sentence are made in reliance upon and subject to the
accuracy of your representation in Section 6.2 of this Agreement and the
representations of the Other Purchasers in Section 6.2 of the Other
Agreements as to the source of the funds to be used to pay the purchase price
of the Notes to be purchased by you and the Other Purchasers, respectively.
With respect to each employee benefit plan identified to the Company in
accordance with clause (c) of Section 6.2 of this Agreement or of any of the
Other Agreements, none of the General Partners, the Company or any
"affiliate" (as defined in Section V(c) of the QPAM Exemption) of either
General Partner or the Company has at this time, and has not exercised at any
time within the one year period preceding the date of the Closing, the
authority to appoint or terminate you or any Other Purchaser as manager of
any of the assets of any such plan or to negotiate the terms of any
management agreement with you or any Other Purchaser on behalf of any such
plan.
5.18. ENVIRONMENTAL MATTERS. (a) Except as disclosed in
Schedule 5.18 each of the Company, each Restricted Subsidiary and either
General Partner is, and after giving effect to the consummation of the PCI
Agreements will be, in compliance with all Environmental Laws applicable to
it or to the Business or its properties or assets except where such
noncompliance would not have a Material Adverse Effect. Each of the Company
and each Restricted Subsidiary has timely and properly applied for renewal of
all environmental permits or licenses that have expired or are about to
expire and are necessary for the conduct of the Business as now conducted and
as proposed to be conducted, except where the failure to timely and properly
reapply would not have a Material Adverse Effect. Schedule 5.18 lists (i) all
notices from Federal, state or local environmental agencies to the Company,
any Restricted Subsidiary or the General Partners citing environmental
violations that have not been finally resolved and disposed of, and no such
violation, whether or not notice regarding such violation is listed on
Schedule 5.18, if ultimately resolved against the Company, such Restricted
Subsidiary or either General Partner, as the case may be, individually or in
the aggregate, would have a Material Adverse Effect, and (ii) all current
reports filed by the Company, each Restricted Subsidiary or either General
Partner with any Federal, state or local environmental agency having
jurisdiction over the properties and assets of each, true and complete copies
of which reports have been made available to you and your special counsel.
Notwithstanding any such notice, the Company, each Restricted Subsidiary and
each
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General Partner are currently operating in all material respects within the
limits set forth in such environmental permits or licenses and any current
noncompliance with such permits or licenses will not result in any material
liability or penalty to the Company, any Restricted Subsidiary or either
General Partner or in the revocation, loss or termination of any such
environmental permits or licenses, the revocation, loss or termination of
which would have a Material Adverse Effect.
(b) Except as disclosed in Schedule 5.18, all facilities located on
the real property of the Company or any Restricted Subsidiary which are
subject to regulation by RCRA are and have been operated in compliance with
RCRA, except where such noncompliance would not have a Material Adverse
Effect and none of the Company, such Restricted Subsidiary or either General
Partner has received, or, to the knowledge of the Company and either General
Partner been threatened with, a notice of violation of RCRA regarding such
facilities.
(c) Except as disclosed in Schedule 5.18, no hazardous substance (as
defined in CERCLA) or hazardous waste (as defined in RCRA) is located or
present at any of the real property of the Company or any Restricted
Subsidiary in violation of any Environmental Law, which violation will have a
Material Adverse Effect, and with respect to such real property there has not
occurred (i) any release or threatened release of any such hazardous
substance, (ii) any discharge or threatened discharge of any substance into
ground, surface, or navigable waters which violates any Federal, state, local
or foreign laws, rules or regulations concerning water pollution, or (iii)
any assertion of any Lien pursuant to Environmental Laws resulting from any
use, spill, discharge or clean-up of any hazardous or toxic substance or
waste, which occurrence will have a Material Adverse Effect.
5.19. FOREIGN ASSETS CONTROL REGULATIONS, ETC. The issue and
sale of the Notes by the Company and its use of the proceeds thereof as
contemplated by this Agreement, will not violate any of the regulations
(other than those regulations, if any, that are implicated solely as a result
of the actions of the purchasers of the Notes) administered by the Office of
Foreign Assets Control, the United States Department of the Treasury,
including, without limitation, the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations,
the Iranian Transactions Regulations, the Iraqi Sanctions Regulations, the
Libyan Sanctions Regulations, the Federal Republic of Yugoslavia (Serbia and
Montenegro) and Bosnian Serb-Controlled Areas of the Republic of Bosnia and
Herzegovina Sanctions Regulations, the Unita (Angola) Sanctions Regulations,
the Terrorism Sanctions Regulations, and the Soviet Gold Coin Regulations of
the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as
amended) or the restrictions set forth in Executive Orders No. 8389, 9193,
12543 (Libya), 12544 (Libya), 12801 (Libya), 12722 (Iraq), 12724 (Iraq),
12775 (Haiti), 12779 (Haiti), 12808 (Yugoslavia), 12810 (Yugoslavia) or 12831
(Yugoslavia), as
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amended, of the President of the United States of America or of any rules or
regulations issued thereunder.
5.20. DISCLOSURE. This Agreement, the other Operative
Agreements, the Memorandum (as such may be updated by Schedule 5.4(b)
hereto), and each other historical financial statement, document, certificate
or instrument delivered to you by or on behalf of the Company, any Restricted
Subsidiary, or either General Partner or any of their Affiliates (as amended,
updated or revised by any subsequent delivery) in connection with the
transactions contemplated by this Agreement, taken together do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading (other than the
statements made regarding general economic conditions relating to national or
local economies (provided that this reference shall not affect the
representation made in Section 5.4(b)) and except for projections made and
delivered in good faith and on the basis of reasonable assumptions). There is
no fact actually known to the Company or either General Partner which has or
in the future would (so far as the Company or either General Partner can now
reasonably foresee) have a Material Adverse Effect which has not been set
forth or referred to in this Agreement, the Memorandum (as such may be
updated by Schedule 5.4(b) hereto) or another document, certificate or
instrument delivered to you (other than the Registration Statement). You and
the Other Purchasers shall be entitled to rely on the statements and
disclosures set forth in the Registration Statement.
5.21. CHIEF EXECUTIVE OFFICE. The chief executive office of the
Company and the Managing General Partner and the office where each maintains
its records relating to the transactions contemplated by the Operative
Agreements is located at 432 Westridge Drive, Watsonville, California 95076.
5.22. SOLVENCY. Upon the sale of the Notes and the concurrent or
prior consummation of the transactions contemplated hereby, the Company and
each Restricted Subsidiary will be Solvent. "SOLVENT" means, with respect
to any Person, that (a) the sum of the assets of such Person, both at a fair
valuation and at present fair saleable value, will exceed the liabilities of
such Person, (b) such Person will have sufficient capital with which to
conduct its business as presently conducted and as proposed to be conducted
and (c) such Person has not incurred debts, and does not intend to incur
debts, beyond its ability to pay such debts as they mature. For purposes of
the foregoing definition, "DEBTS" means any liabilities or claims, and
"CLAIM" means (i) a right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (ii) a right
to an equitable remedy for breach of performance if such breach gives rise to
a payment, whether or not such right to an equitable remedy is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured. With respect
to any contingent liabilities, such liabilities
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shall be computed at the amount which, in light of all the facts and
circumstances existing at the time, represents the amount which can
reasonably be expected to become an actual or matured liability.
5.23. YEAR 2000. The Company and its Subsidiaries have reviewed
the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem. Based on such review and program, the
Company represents and warrants that (a) the Company's and its Subsidiaries'
computer based systems are Year 2000 Compliant or will be Year 2000 Compliant
not later than December 30, 1999 and (b) the Year 2000 Problem will not
result in a Default or have a material adverse effect on the condition
(financial or otherwise), business, operations, assets or properties of the
Company and the Restricted Subsidiaries (taken as a whole). The Company and
its Subsidiaries, to the best of the Company's and its Subsidiaries'
knowledge, have worked or will work with their relevant customers, suppliers
and other service providers to seek to prevent any Year 2000 Problem in such
customers', suppliers' and other service providers' systems from having a
material adverse effect on the Company and its Subsidiaries (taken as a
whole).
SECTION 6. PURCHASER'S REPRESENTATIONS; SOURCE OF FUNDS.
6.1. You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds, in each case not with a view
to or for sale in connection with any distribution thereof within the meaning
of the Securities Act of 1933, as amended, or with any present intention of
selling any of the Notes in connection with any distribution, PROVIDED that
the disposition of your property shall at all times be within your control.
If you are purchasing for the account of one or more pension or trust funds
(other than pension or trust funds included in the general account of an
insurance company), you represent that (except to the extent that you have
otherwise advised Debevoise & Plimpton and the Company in writing) you have
sole investment discretion with respect to the acquisition of the Notes to be
issued to you pursuant to this Agreement and the authority to make the
representations herein contained on behalf of such pension or trust funds and
on your own behalf and that the determination and decision on your behalf to
purchase such Notes for such pension or trust funds is being made by the same
individual or group of individuals who customarily pass on such investments.
6.2 You represent that at least one of the following statements is
an accurate representation as to the source of funds to be used by you to pay
the purchase price of the Notes purchased by you hereunder:
(a) if you are an insurance company, no part of such funds
constitutes assets allocated to any separate account maintained by you in
which an employee benefit
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plan (or its related trust) has any interest and, if the source of funds
includes assets of an insurance company general account, then the
statements in Section 6.2(e) are accurate as to such source; or
(b) if you are an insurance company, to the extent that any of such
funds constitutes assets allocated to any separate account maintained by
you, (i) such separate account is a "pooled separate account" within
the meaning of Prohibited Transaction Class Exemption 90-1, in which case
you have disclosed to the Company the names of each employee benefit plan
whose assets in such separate account exceed 10% of the total assets or
are expected to exceed 10% of the total assets of such account as of the
date of such purchase (and for the purposes of this subdivision (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan), or (ii) such separate
account contains only the assets of a specific employee benefit plan, the
identity of which you have delivered to the Company in writing; or
(c) if you are a "qualified professional asset manager" or
"QPAM" (as defined in Part V of Prohibited Transaction Class Exemption
84-14, issued March 13, 1984 (the "QPAM Exemption")), all of such funds
constitute assets of an "investment fund" (as defined in Part V of the
QPAM Exemption) managed by you, no employee benefit plan assets which are
included in such investment fund, when combined with the assets of all
other employee benefit plans (i) established or maintained by the same
employer or an affiliate (as defined in Part V of the QPAM Exemption) of
such employer or by the same employee organization and (ii) managed by
you, exceed 20% of the total client assets managed by you, the conditions
of the QPAM Exemption (other than Section I(a) thereof) are satisfied
and you have disclosed to the Company the names of all employee benefit
plans whose assets are included in such investment fund; or
(d) if you are other than an insurance company, all or a portion of
such funds consists of funds which do not constitute assets of any
employee benefit plan (other than a governmental plan exempt from the
coverage of ERISA) and the remaining portion, if any, of such funds
consists of funds which may be deemed to constitute assets of one or more
specific employee benefit plans, accurate information as to the identity
of which you have delivered to the Company in writing; or
(e) if you are an insurance company, the source of the funds is an
insurance company general account in respect of which the reserves and
liabilities for the general account contract(s) held by or on behalf of
any benefit plan (as defined by the annual statement for life insurance
companies approved by the National Association of Insurance Commissioners
(the "NAIC Annual Statement"), determined before reduction for credits
on account of any reinsurance ceded on a coinsurance basis) together with
the amount of the reserves and liabilities for the general account
contract(s) held by or on behalf of any other benefit plans (as defined
by the NAIC
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Annual Statement) maintained by the same employer (or affiliate thereof
as defined in Prohibited Transaction Class Exemption 95-60) or by the
same employee organization (as defined by the NAIC Annual Statement)
in the general account do not exceed 10% of the total reserves and
liabilities of the general account (exclusive of separate account
liabilities) plus surplus as set forth in the NAIC Annual Statement
filed with the state of domicile of the insurance company.
As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
SECTION 7. ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company will maintain, and will cause each Restricted Subsidiary
to maintain, a system of accounting established and administered in
accordance with GAAP, and will accrue, and will cause each Restricted
Subsidiary to accrue, all such liabilities as shall be required by GAAP. The
Company will deliver (in duplicate, unless you have advised us otherwise) to
you (and, in the case of subsection (f) hereof, to the Trustee), so long as
you shall be entitled to purchase Notes under this Agreement or you or your
nominee shall be the holder of any Notes, and to each other Institutional
Investor holding any Notes (other than a Competitor of the Company):
(a) as soon as practicable, but in any event within 60 days after
the end of each of the first three quarterly fiscal periods in each
fiscal year of the Company beginning with the fiscal period ending
December 31, 1998, consolidated (and to the extent that such are being
prepared, consolidating) balance sheets of the Company and the Restricted
Subsidiaries as at the end of such period and the related consolidated
(and, as to statements of income and cash flows, if applicable and, to
the extent that such are being prepared, consolidating) statements of
income, surplus or partners' capital, cash flows and stockholders' equity
of the Company and the Restricted Subsidiaries (i) for such period and
(ii) (in the case of the second and third quarterly periods) for the
period from the beginning of the current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
consolidated and, where applicable and as appropriate, consolidating
figures for the corresponding periods of the previous fiscal year, all in
reasonable detail and certified by an authorized financial officer of the
Managing General Partner as presenting fairly, in all material respects,
the information contained therein (subject to changes resulting from
normal year-end adjustments), in accordance with GAAP applied on a basis
consistent with prior fiscal periods, PROVIDED that delivery within the
time period specified above of copies of the Public Partnership's
Quarterly Report on Form 10-Q prepared in compliance with the
requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements hereof to the
extent such reports otherwise satisfy the requirements of this Section
7(a);
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<PAGE>
(b) as soon as practicable, but in any event within 120 days after
the end of each fiscal year of the Company beginning with the fiscal year
ending June 30, 1999, consolidated (and to the extent that such are being
prepared, consolidating) balance sheets of the Company and the Restricted
Subsidiaries as at the end of such year and the related consolidated
(and, as to statements of income and cash flows, if applicable and to the
extent that such are being prepared, consolidating) statements of income,
partners' capital, cash flows and stockholders' equity of the Company and
the Restricted Subsidiaries for such fiscal year, setting forth in each
case in comparative form the consolidated and, where applicable and, to
the extent that such are being prepared, consolidating figures for the
previous fiscal year, all in reasonable detail, PROVIDED that delivery
within the time periods specified above of copies of the Public
Partnership's Annual Report on Form 10-K prepared in compliance with the
requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements hereof to the
extent such reports otherwise satisfy such requirements, and accompanied
by a report thereon of Arthur Andersen LLP or other independent public
accountants of recognized national standing selected by the Company,
which report shall state that such consolidated financial statements
present fairly in all material respects the financial position of the
Company and the Restricted Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and
that the audit by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards in effect in the United States from time to time, and
(ii) in the case of such consolidating financial statements of the
Company, if any, certified by an authorized financial officer of the
Managing General Partner of the Company, as presenting fairly in all
material respects the information contained therein, in accordance with
GAAP applied on a basis consistent with prior fiscal periods;
(c) together with each delivery of financial statements pursuant to
subdivisions (a) and (b) of this Section 7, a certificate by an
authorized financial officer of the Managing General Partner of the
Company (i) stating that the signer has reviewed the terms of this
Agreement and the other Operative Agreements and has made, or caused to
be made under his or her supervision, a review in reasonable detail of
the transactions and condition of the Company and the Restricted
Subsidiaries during the accounting period covered by such financial
statements and that the signer does not have knowledge of the existence
and continuance as at the date of such certificate of any condition or
event which constitutes an Event of Default or Potential Event of
Default, or, if any such condition or event exists, specifying the nature
and period of existence thereof and what action the Company has taken or
is taking or proposes to take with respect thereto, (ii) specifying the
amount available at the end of such accounting period for Restricted
Payments in compliance with Section 10.4 and showing in reasonable detail
all calculations required in arriving at such amount, (iii) demonstrating
in reasonable detail, if applicable, compliance during and at the
20
<PAGE>
end of such accounting period with the restrictions contained in Sections
10.1(b), (d), (e), (f), (g), (h), (i), (j), (p), (q) and (r), 10.3(c),
10.7(a)(ii), 10.7(a)(iii), and 10.7(c)(ii), and (iv) if not specified in
the related financial statements being delivered pursuant to subdivisions
(a) and (b) above, specifying the aggregate amount of interest paid or
accrued by the Company and the Restricted Subsidiaries, and the aggregate
amount of depreciation, depletion and amortization charged on the books
of the Company and the Restricted Subsidiaries, during the fiscal period
covered by such financial statements;
(d) together with each delivery of consolidated financial statements
pursuant to subdivision (b) of this Section 7, a written statement by the
independent public accountants giving the report thereon (i) stating that
in connection with their audit examination, the terms of this Agreement
and the other Operative Agreements were reviewed to the extent considered
necessary for the purpose of expressing an opinion on the consolidated
financial statements and for making the statement contained in clause
(ii) hereof (it being understood that no special audit procedures in
addition to those required by generally accepted auditing standards then
in effect in the United States shall be required) and (ii) stating
whether, in the course of their audit examination, they obtained
knowledge (and whether, as of the date of such written statement, they
have knowledge) of the existence and continuance of any condition or
event which constitutes an Event of Default or Potential Event of Default
insofar as such Event of Default or Potential Event of Default relates to
accounting or financial matters, and, if so, specifying the nature and
period of existence thereof;
(e) promptly upon their becoming publicly available, copies of (i)
all financial statements, reports, notices and proxy statements sent or
made available by the Company, the Managing General Partner or the Public
Partnership to all of its security holders in compliance with the
Securities Exchange Act of 1934, as amended from time to time, or any
comparable Federal or state laws relating to the disclosure by any Person
of information to its security holders, (ii) all regular and periodic
reports and all registration statements and prospectuses filed by the
Company, the Managing General Partner or the Public Partnership with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions (other than
Registration Statements on Form S-8), and (iii) all press releases and
other statements made available by the Company, the Managing General
Partner or the Public Partnership to the public concerning material
developments in the business of the Company, either General Partner of
the Company or the Public Partnership, as the case may be;
(f) promptly, but in any event within five days after any
Responsible Officer of the Company knows, that (x) any condition or event
which constitutes an Event of Default or Potential Event of Default has
occurred or exists, or is expected to occur or exist, (y) the holder of
any Note has given any notice or taken any other action with
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<PAGE>
respect to a claimed Event of Default or Potential Event of Default under
this Agreement or default under any other Operative Agreement or (z) any
Person has given any notice to the Company, either General Partner or any
Restricted Subsidiary or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 11(f),
an Officers' Certificate of the Company describing the same and the
period of existence thereof and what action the Company has taken, is
taking and proposes to take with respect thereto;
(g) promptly, and in any event within five Business Days after a
Responsible Officer of the Company obtains knowledge of (i) the
occurrence of an adverse development with respect to any litigation or
proceeding involving the Company, any of its Subsidiaries or either
General Partner which in the reasonable judgment of the Company presents
a reasonable likelihood of having a Material Adverse Effect or (ii) the
commencement of any litigation or proceeding involving the Company, any
of the Subsidiaries or either General Partner which in the reasonable
judgment of the Company presents a reasonable likelihood of having a
Material Adverse Effect, a written notice of a Responsible Officer
describing in reasonable detail such commencement of, or adverse
development with respect to, such litigation or proceeding;
(h) promptly, but in any event within five days after any
Responsible Officer of the Company knows, that any of the events or
conditions specified below with respect to any Plan has occurred or
exists, or is expected to occur or exist, a statement setting forth
details respecting such event or condition and the action, if any, that
the Company or any Related Person of the Company has taken, is taking and
proposes to take or cause to be taken with respect thereto (and a copy of
any notice or report filed with or given to or communication received
from the PBGC, the Internal Revenue Service or the Department of Labor
with respect to such event or condition):
(A) any reportable event, as defined in Section 4043(b) of
ERISA and the regulations issued thereunder (other than one for which
the applicable notice requirements have been waived by PBGC
regulation);
(B) the filing under Section 4041 of ERISA of a notice of
intent to terminate any Plan or the termination of any Plan;
(C) a substantial cessation of operations within the meaning
of Section 4062(e) of ERISA under circumstances which could result in
the treatment of the Company or any Related Person of the Company as
a substantial employer under a "multiple employer plan" or the
application of the provisions of Section 4062, 4063 or 4064 of ERISA
to the Company or any Related Person of the Company;
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<PAGE>
(D) the taking of any steps by the PBGC or the institution
by the PBGC of proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by the Company or any Related Person of the
Company of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan;
(E) the complete or partial withdrawal by the Company or any
Related Person of the Company under Section 4063, 4203 or 4205 of
ERISA from a Plan which is a "multiple employer plan" or a
Multiemployer Plan, or the receipt by the Company or any Related
Person of the Company of notice from a Multiemployer Plan regarding
any alleged withdrawal or that it intends to impose withdrawal
liability on the Company or any Related Person of the Company or that
it is in reorganization or is insolvent within the meaning of Section
4241 or 4245 of ERISA or that it intends to terminate under Section
4041A of ERISA or from a "multiple employer plan" that it intends
to terminate;
(F) the taking of any steps concerning the threat or the
institution of a proceeding against the Company or any Related Person
of the Company to enforce Section 515 of ERISA;
(G) the occurrence or existence of any event or series of
events which could result in a material liability to the Company or
any Related Person of the Company pursuant to Section 4069(a) or
4212(c) of ERISA;
(H) the failure to make a contribution to any Plan, which
failure, either alone or when taken together with any other such
failure, is sufficient to result in the imposition of a lien on any
property of the Company or any Related Person of the Company pursuant
to Section 302(f) of ERISA or Section 412(n) of the Code or could
result in the imposition of a material tax or material penalty
pursuant to Section 4971 of the Code on the Company or any Related
Person of the Company;
(I) the amendment of any Plan in a manner which would be
treated as a termination of such Plan under Section 4041(e) of ERISA
or require the Company or any Related Person of the Company to
provide security to such Plan pursuant to Section 307 of ERISA or
Section 401(a)(29) of the Code; or
(J) the incurrence of liability in connection with the
occurrence of a "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975 of the Code);
(i) promptly, but in any event within five days, after an officer of
any of the Company, any Subsidiary or either General Partner receives any
notice or request from any Person (other than any Affiliate or any agent,
attorney or similar party
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<PAGE>
employed by the Company or either General Partner) for information, or if
the Company, any Subsidiary or either General Partner provides any notice
or information to any such Person (other than any Affiliate or any agent,
attorney or similar party employed by the Company or either General
Partner), concerning the presence or release of any hazardous substance
(as defined in CERCLA) or hazardous waste (as defined in RCRA) or other
contaminants (as defined by any applicable federal, state, local or
foreign laws) within, on, from, relating to or affecting any property
owned, leased, or subleased by the Company, any Subsidiary or either
General Partner (each such notice, request or information, an
"Environmental Notice"), copies of such Environmental Notice, except
(i) any Environmental Notice which the Company reasonably determines will
not result in any claim or liability in excess of $250,000 (it being
understood that to the extent that all such Environmental Notices could
reasonably be expected to result in aggregate claims or liabilities in
excess of $250,000, the Company shall provide a summary of such
Environmental Notices) and (ii) any Environmental Notice made in the
normal course of business which does not pertain to the violation by the
Company, any Subsidiary or either General Partner of an Environmental Law;
(j) with reasonable promptness, such other financial reports and
information and data (including, without limitation, any management
letter issued or provided by independent public accountants of the
Company or any Restricted Subsidiary) with respect to the Company, any
Restricted Subsidiary, any other Subsidiary (to the extent such reports,
information and data relate to environmental matters or any material
litigation or proceeding) or either General Partner as from time to time
may be requested by you (so long as you hold a Note), or by any
Institutional Investor holder of any Note other than a Competitor of the
Company;
(k) promptly after a Responsible Officer of the Company or any
Restricted Subsidiary becomes aware of (i) any material violation of or
notice of potential liability under any Environmental Law or (ii) any
release or threatened release of any Hazardous Material at, on, into,
under or from any real property of any facility or equipment thereat in
excess of reportable or allowable standards or levels under any
Environmental Law, or in a manner and/or amount which could reasonably be
expected to result in liability under any Environmental Law, which
liability would result in a Material Adverse Effect, a statement setting
forth details respecting such event or condition and the action, if any,
that the Company or any Restricted Subsidiary of the Company has taken,
is taking and proposes to take or cause to be taken with respect thereto;
and
(l) promptly, and, in any event, within 30 days after such material
is provided to the governmental authority or third party, copies of any
notice, submission or documentation provided by the Company or any
Restricted Subsidiary to any governmental authority or third party under
any Environmental Law if the matter
24
<PAGE>
which is the subject of the notice, submission or other documentation
could reasonably be expected to have a Material Adverse Effect.
SECTION 8. INSPECTION.
The Company will permit or cause the Managing General Partner to
permit (a) at any time when an Event of Default or Potential Event of Default
shall have occurred and be continuing, any authorized representatives
designated by you, so long as you shall be entitled to purchase the Notes
under this Agreement or you or your nominee shall be the holder of any Notes,
or by any other Institutional Investor that is a holder of any Notes (other
than a Competitor of the Company), and (b) at any other time, any authorized
representative designated by any Purchaser or Purchasers holding at least
4.5% of the aggregate principal amount of the Notes, or by any other holder
or holders of at least 4.5% of the aggregate principal amount of the Notes
(other than a Competitor of the Company) then outstanding and an authorized
representative of all of the holders of the Notes, in each case, upon prior
written notice and as may be reasonably requested, to visit during normal
business hours and inspect any of the properties of the Company, any
Restricted Subsidiary and any other Subsidiary (to the extent relating to
environmental or litigation matters) and, to the extent relating to the
Business, any properties of either General Partner or of either General
Partner's Subsidiaries, including the books of account of the Company, the
Restricted Subsidiaries, such other Subsidiaries, either General Partner and
either General Partner's Subsidiaries, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and accounts with
its and their senior officers and (with reasonable prior written notice)
independent public accountants (and by this provision each of the Company and
either General Partner authorizes such accountants to discuss with such
representatives the affairs, finances and accounts of the Company, any
Restricted Subsidiary, such other Subsidiaries), and, to the extent relating
to the Business, either General Partner or any of either General Partner's
Subsidiaries, as the case may be) all at such times and as often as may be
requested, PROVIDED that you shall bear the expenses of your authorized
representative, except the Company will bear the expenses of such authorized
representatives if an Event of Default or Potential Event of Default has
occurred and is continuing; and the Company shall at all times bear the
expenses of its and its Affiliates' officers and independent public
accountants.
SECTION 9. PREPAYMENT OF NOTES.
9.1. REQUIRED PREPAYMENTS OF THE NOTES. On each of the dates set
forth in the following table, the Company will prepay the principal amount of
the Notes set forth opposite such date in such table (or such lesser
principal amount of the Notes as shall at the time be outstanding), at the
principal amount of the Notes so prepaid, without premium, together with
interest accrued thereon:
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<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Date of Prepayment of Prepayment
---------------------- -----------------
<S> <C>
January 31, 2005 $9,444,444.44
January 31, 2006 $9,444,444.44
January 31, 2007 $9,444,444.44
January 31, 2008 $9,444,444.44
January 31, 2009 $9,444,444.44
January 31, 2010 $9,444,444.44
January 31, 2011 $9,444,444.44
January 31, 2012 $9,444,444.44
</TABLE>
Any partial prepayment of the Notes pursuant to Section 9.2, 9.3 or
(to the extent not applied to satisfy a prepayment required under this
Section 9.1) 9.4 shall be applied to reduce each prepayment thereafter
required to be made pro rata, but otherwise no acquisition of the Notes by
the Company or any of its Affiliates, shall relieve the Company from its
obligation to make the required prepayments provided for in this Section 9.1.
The Company shall notify the holders of the Notes of any application
provided for in the immediately preceding sentence five days prior to such
application. On the maturity date, the Company will pay the then outstanding
principal amount of the Notes together with interest accrued thereon.
9.2. OPTIONAL PREPAYMENTS OF THE NOTES WITH MAKE WHOLE AMOUNT. The
Notes shall be subject to prepayment, in whole at any time or from time to
time in part (in an amount of not less than $5,000,000), at the option of the
Company, upon notice as provided in Section 9.5 at 100% of the principal
amount of the Notes so prepaid plus interest accrued thereon to the
prepayment date and the Make Whole Amount.
9.3. PREPAYMENT ON CHANGE OF CONTROL. (a) The Company will, within
90 days after any Change of Control give written notice of such Change of
Control to each holder of Notes. Such notice shall contain and constitute an
offer to prepay the Notes as described in subdivision (b) of this Section 9.3
and shall be accompanied by the certificate described in subdivision (e) of
this Section 9.3.
(b) The offer to prepay Notes contemplated by subdivision (a) of
this Section 9.3 shall be an offer to prepay, in accordance with and subject
to this Section 9.3, all, but not less than all, the Notes held by each
holder (in this case only, "holder" in respect of any Note registered in
the name of a nominee for a disclosed beneficial owner shall mean such
beneficial owner) on the Business Day specified in such offer (the "Proposed
Prepayment Date") that is not less than 20 days and not more than 30 days
after the date of such offer (if the Proposed Prepayment Date shall not be
specified in
26
<PAGE>
such offer, the Proposed Prepayment Date shall be the 20th day after the date
of such offer).
(c) A holder of Notes may accept the offer to prepay made pursuant
to this Section 9.3 by causing a notice of such acceptance to be delivered to
the Company at least 5 days prior to the Proposed Prepayment Date. A failure
by a holder of Notes to respond to an offer to prepay made pursuant to this
Section 9.3 shall be deemed to constitute a rejection of such offer by such
holder.
(d) Prepayment of the Notes to be prepaid pursuant to this Section
9.3 shall be at 100% of the principal amount of such Notes, plus a premium
equal to 1% of such principal amount (the "Premium Amount"), together with
interest on such Notes accrued to the date of prepayment. The principal
amount and accrued interest and the Premium Amount shall, with respect to all
Notes the holders of which accepted the offer to prepay pursuant to
subdivision (c), become due and payable on the Proposed Prepayment Date.
(e) Each offer to prepay the Notes pursuant to this Section 9.3
shall be accompanied by a certificate, executed by a senior financial officer
of the Managing General Partner and dated the date of such offer, specifying:
(i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to
this Section 9.3; (iii) the principal amount of each Note offered to be
prepaid; (iv) the Premium Amount due on each Note in connection with such
prepayment; (v) the interest that would be due on each Note offered to be
prepaid, accrued to the Proposed Prepayment Date; (vi) that the conditions of
this Section 9.3 have been fulfilled; (vii) in reasonable detail, the nature
and date of the Change of Control; and (viii) that a failure to respond to
such notice shall be deemed a rejection of such offer to prepay the Notes.
9.4. CONTINGENT PREPAYMENTS ON DISPOSITION OF PROPERTY, TAKING OR
DESTRUCTION. (a) If at any time the Company or any of the Restricted
Subsidiaries disposes of property or such property shall be damaged,
destroyed or taken in eminent domain or there shall be insurance proceeds
with respect to such property, in any such case, with the result that there
are Excess Proceeds, and the Company does not apply such Excess Proceeds in
the manner described in Section 10.7(c)(ii)(B)(x), and if the next scheduled
date of prepayment of the Notes pursuant to Section 9.1 occurs within 365
days after receipt of such Excess Proceeds, such Excess Proceeds may be
applied to such prepayment required under Section 9.1 (unless such scheduled
prepayment has been paid by the Company). To the extent that there are such
Excess Proceeds remaining after application in accordance with the first
sentence of this Section 9.4(a), the Company shall prepay, upon notice as
provided in Section 9.5 (which notice shall be given not later than 365 days
after the date of such sale of property), a principal amount of the
outstanding Notes equal to the amount of such remaining Excess Proceeds
allocable to the Notes, determined by allocating such remaining Excess
Proceeds pro rata among the holders of all Notes and Parity Debt, if any,
outstanding on the date such prepayment is to be made, according to the
aggregate then unpaid principal amounts of the Notes (and the Make
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<PAGE>
Whole Amount on the principal amount of the Notes to be prepaid) and Parity
Debt, respectively. Each prepayment of Notes pursuant to this Section 9.4(a)
shall be made at 100% of the principal amount of the Notes to be prepaid,
plus interest thereon to the prepayment date plus, to the extent the
prepayment is not made in satisfaction of a required prepayment in accordance
with Section 9.1, the Make Whole Amount thereon.
(b) In the event that damage, destruction or a taking shall occur in
respect of all or a portion of the properties subject to any of the Security
Documents, all net insurance proceeds, self-insurance amounts or net awards
which, as of any date, shall not theretofore have been applied to the cost of
repairing or replacing any damaged or destroyed assets shall be deemed to be
proceeds of property disposed of voluntarily, shall be subject to the
provisions of Section 10.7(c) and, if subdivision (ii)(B)(y) of Section
10.7(c) is applicable thereto, shall be subject to the prepayment provisions
of Section 9.4(a). Any amounts prepaid pursuant to this Section 9.4(b) on
the date on which a prepayment is required under Section 9.1 may be applied
to satisfy such prepayment required under Section 9.1.
9.5. NOTICE OF PREPAYMENTS; OFFICERS' CERTIFICATE. The Company will
give each holder of any Notes and the Trustee irrevocable written notice of
each prepayment under Section 9.2 or 9.4 not less than 10 days and not more
than 30 days prior to the Business Day, fixed for such prepayment, in each
case specifying such prepayment date, the aggregate principal amount of the
Notes and the principal amount of each Note held by such holder to be prepaid
and the Section under which such prepayment is to be made. Notice of
prepayment having been given as aforesaid, the principal amount of the Notes
specified in such notice, together with interest thereon to the prepayment
date and together with the Make Whole Amount, if any, with respect thereto,
shall become due and payable on such prepayment date. The Company shall, on
or before the Business Day next succeeding the date which the Company sends
such written notice, give telephonic notice (immediately followed by written
notice sent by facsimile transmission) of the principal amount of the Notes
to be prepaid and the prepayment date to each holder of any Notes which shall
have designated a recipient of such notices in the Schedule of Purchasers
attached hereto or by notice in writing to the Company. Each holder of a
Note and the Trustee shall receive, on the Business Day immediately preceding
the date scheduled for any such prepayment, an Officers' Certificate
certifying that the conditions of the Section under which such prepayment is
to be made have been fulfilled and specifying the particulars of such
fulfillment. In the event that there shall have been a partial prepayment of
the Notes under Section 9.2, 9.3 or 9.4, the Company shall promptly give
notice to the holders of the Notes, accompanied by an Officers' Certificate
setting forth the principal amount of each of the Notes that was prepaid and
specifying how each such amount was determined, setting forth the reduced
amount of each required prepayment thereafter becoming due with respect to
the Notes under Section 9.1, and certifying that such reduction has been
computed in accordance with such Section.
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<PAGE>
9.6. ALLOCATION OF PARTIAL PREPAYMENTS. Upon any partial prepayment
of the Notes pursuant to Section 9.1, 9.2 or 9.4 the principal amount so
prepaid shall be allocated (in integral multiples of $1,000 as nearly as
practicable) to all Notes at the time outstanding in proportion to the
respective outstanding principal amounts thereof not theretofore called for
prepayment, with adjustments, to the extent practicable, to compensate for
any prior prepayments not made exactly in such proportion.
9.7. MATURITY; SURRENDER, ETC. In the case of each prepayment, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make Whole Amount or
Premium Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make Whole Amount or Premium Amount, if any, as aforesaid,
interest on such principal amount shall cease to accrue. Any Note paid or
prepaid in full shall, after such payment or prepayment in full, be
surrendered to the Company and canceled and shall not be reissued, and no
Note shall be issued in lieu of any such paid or prepaid principal amount of
any Note.
9.8. ACQUISITION OF NOTES. None of the General Partners or the
Company shall, nor shall any permit any of their respective Subsidiaries or
any Restricted Affiliate to, prepay or otherwise retire in whole or in part
prior to their stated final maturity (other than by prepayment pursuant to
Section 9.1, 9.2, 9.3 or 9.4 or upon acceleration of such final maturity
pursuant to Section 11), or purchase or otherwise acquire, directly or
indirectly, Notes held by any holder, except, in the case of such purchase or
acquisition, pursuant to an offer to purchase made pro rata to the holders of
all of the Notes on the same terms and conditions. Any Notes prepaid or
otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or either General Partner shall not be deemed to be
outstanding for any purpose under this Agreement or any other Operative
Agreement. Any Notes prepaid or otherwise purchased or otherwise acquired by
any Affiliate of the Company (other than any of its Subsidiaries or either
General Partner) shall not be deemed outstanding for the purpose of any vote
of the holders of the Notes (including, without limitation, the calculation
of any percentage of principal amount of the Notes outstanding with respect
to any such vote) pursuant to this Agreement or any other Operative Agreement
but shall be deemed outstanding with respect to the calculation of any future
payment of principal, premium and interest on the Notes.
SECTION 10. BUSINESS AND FINANCIAL COVENANTS OF THE COMPANY.
The Company covenants that from the date of this Agreement through
the Closing and thereafter so long as any of the Notes are outstanding:
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<PAGE>
10.1. INDEBTEDNESS. The Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume
or suffer to exist (such condition to be satisfied only on the date of such
incurrence) with respect to, any Indebtedness, except that:
(a) the Company may become and remain liable with respect to the
Indebtedness evidenced by the Notes;
(b) the Company and the Restricted Subsidiaries may become and
remain liable with respect to Indebtedness, which may be secured equally
and ratably with the Notes, incurred by the Company and the Restricted
Subsidiaries to finance the making of expenditures for the improvement or
repair of or additions to their respective properties or assets, PROVIDED
that (i) the aggregate principal amount of Indebtedness incurred under
this Section 10.1(b) and outstanding at any time shall not exceed an
amount equal to the sum of (x) the net cash proceeds received by the
Company from the Managing General Partner or from the Public Partnership
as a capital contribution or as consideration for the issuance by the
Company of additional partnership interests, in each case for the sole
purpose of financing such expenditures, and (y) the fair market value of
the Units contributed to the Company by the Public Partnership or issued
directly to the Person selling such asset or making such repair or
improvement by the Public Partnership for the sole purpose of financing
such expenditures, only to the extent, however, that such Units are used
to pay, substantially concurrently with the date of contribution, at
least 50% of the purchase price or cost of such improvements, repairs or
additions, and (ii) if such Indebtedness is to be secured under the
Security Documents as provided in Section 10.2(i), the agreement or
instrument pursuant to which such Indebtedness is incurred (A) contains
no financial or business covenants that are more restrictive on the
Company or its Subsidiaries than or that are in addition to those
contained in this Section 10 (unless prior to or simultaneously with the
incurrence of such Indebtedness this Agreement and the Other Agreements
are amended to provide the benefits of such more restrictive covenants to
the holders of the Notes) and (B) specifies no events of default (other
than with respect to the payment of principal and interest on such
Indebtedness or the accuracy of representations and warranties made in
connection with such agreement or instrument) which are capable of
occurring prior to the occurrence of the Events of Default specified in
Section 11 (unless prior to or simultaneously with the incurrence of such
Indebtedness this Agreement and the Other Agreements are amended to
provide the benefit of such events of default to the holders of the
Notes);
(c) any Restricted Subsidiary may become and remain liable with
respect to Indebtedness of such Restricted Subsidiary owing to the
Company or to another Restricted Subsidiary, PROVIDED that such
Indebtedness is created and is outstanding under an agreement or
instrument pursuant to which such Indebtedness is
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subordinated to the Notes and to Indebtedness secured under the Security
Documents at least to the extent provided in the subordination provisions
set forth in Exhibit D and PROVIDED FURTHER that such Indebtedness is
evidenced by an Intercompany Note pledged to the Trustee;
(d) the Company and the Restricted Subsidiaries may become and
remain liable with respect to unsecured Indebtedness owing to either
General Partner or an Affiliate of either General Partner, PROVIDED that
(i) the aggregate principal amount of such Indebtedness of the Company
and the Restricted Subsidiaries outstanding at any time shall not be in
excess of $20,000,000 and (ii) such Indebtedness is created and is
outstanding under an agreement or instrument pursuant to which such
Indebtedness is subordinated to the Notes and to Indebtedness secured
under the Security Documents at least to the extent provided in the
subordination provisions set forth in Exhibit D;
(e) the Company may become and remain liable with respect to
Indebtedness incurred under the Bank Credit Facilities, PROVIDED that
(i) the aggregate principal amount outstanding under the
Initial Acquisition Facility, together with amounts outstanding
pursuant to Indebtedness permitted by subdivisions (h)(3)(i) and
(j)(x)(i) of this Section 10.1, will be in an aggregate principal
amount not in excess of the greater of (i) $35,000,000, and (ii) 40%
of the Consolidated Net Worth of the Company as of the date of
incurrence of the Indebtedness outstanding at any time, and
(ii) in respect of the Working Capital Facility:
(1) there shall be a period of at least 30
consecutive days during each fiscal year of the Company on
each day of which there shall be no such Indebtedness
outstanding under the Working Capital Facility (the
"Requisite Period"), PROVIDED that, in the event that there
shall not have been any Requisite Period in any fiscal year,
the lowest average balance for a period of 30 consecutive
days outstanding during such fiscal year shall be treated as
outstanding funded Indebtedness for purposes of future
incurrences of Indebtedness pursuant to Section 10.1(f)(iii),
and
(2) the aggregate principal amount of loans,
exposure under letters of credit in respect of the Working
Capital Facility and the unfunded commitments thereunder at
any time outstanding thereunder shall not be in excess of
$75,000,000 plus the excess, if any, of (x) Consolidated Cash
Flow over (y) $53,000,000;
(f) the Company and the Restricted Subsidiaries may become and
remain liable with respect to Indebtedness, in addition to that otherwise
permitted by the other subdivisions of this Section 10.1, which may be
secured equally and ratably
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with the Notes, if on the date the Company or any Restricted Subsidiary
becomes liable with respect to any such additional Indebtedness and
immediately after giving effect thereto and to the substantially
concurrent repayment of any other Indebtedness (i) the ratio of
Consolidated Cash Flow to Consolidated Pro Forma Debt Service is greater
than (x) 2.25 to 1.0 for Incurrence Dates on or prior to June 30, 2000
and (y) 2.50 for Incurrence Dates after June 30, 2000, (ii) the ratio of
Consolidated Cash Flow to Maximum Consolidated Pro Forma Debt Service is
greater than 1.25 to 1.0, and (iii) the ratio of total funded
Indebtedness (including the Indebtedness to be incurred) to Consolidated
Cash Flow is less than (x) 5.25 to 1.0 for Incurrence Dates on or prior
to June 30, 2000 and (y) 5.0 to 1.0 for Incurrence Dates after June 30,
2000, PROVIDED that, in addition to the foregoing, if such Indebtedness
is to be secured under the Security Documents as provided in Section
10.2(i), such Indebtedness shall be incurred pursuant to an agreement or
instrument which complies with the requirements set forth in clause (ii)
of the proviso to Section 10.1(b);
(g) the Company and the Restricted Subsidiaries may become and
remain liable with respect to the Indebtedness referred to in Schedule
5.7 to the 1996 Note Agreements, PROVIDED that the aggregate principal
amount of all such Indebtedness at any time outstanding shall not exceed
$15,000,000;
(h) the Company and any Restricted Subsidiary may become and remain
liable with respect to pre-existing Indebtedness relating to any Person,
business or assets acquired by the Company or such Restricted Subsidiary,
or both, as the case may be, PROVIDED that (1) no condition or event
shall exist which constitutes an Event of Default or Potential Event of
Default, (2) such Indebtedness was not incurred in anticipation of the
acquisition of such Person, business or assets and (3) after giving
effect to such Person becoming a Restricted Subsidiary, or the
acquisition of such business or assets, either (i) the sum of (A) such
Indebtedness, and (B) the then outstanding aggregate principal amount of
Indebtedness under the Initial Acquisition Facility, and under
subdivision (j)(i) of this Section 10.1, does not exceed the greater of
(A) $35,000,000 and (B) 40% of the Consolidated Net Worth of the Company
as of the date of the incurrence of the Indebtedness, or (ii) the Company
or such Restricted Subsidiary could incur at least $1 of additional
Indebtedness in compliance with the requirements set forth in clauses
(i), (ii) and (iii) of Section 10.1(f) (it being understood for purposes
of this Section 10(h) and Section 10.1(e)(i) that any Indebtedness which
on the date of acquisition of any Person, business or assets could be
incurred under the foregoing clause (i) or (ii) of this Section 10.1(h)
shall be deemed to have been incurred under clause (ii) of this Section
10.1(h));
(i) so long as no Event of Default or Potential Event of Default has
occurred and is continuing, the Company and the Restricted Subsidiaries
may become and remain liable with respect to Indebtedness, which may be
secured equally and ratably with the Notes, incurred for any extension,
renewal, refunding or refinancing of
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Indebtedness permitted pursuant to subdivisions (a), (b), (f) and (s) of
this Section 10.1, PROVIDED that (i) the principal amount (including any
exposure under letters of credit and any unfunded commitments) of such
Indebtedness shall not exceed the principal amount (including any
exposure under letters of credit and any unfunded commitments) of such
Indebtedness being extended, renewed, refunded or refinanced together
with any accrued interest and Make Whole Amount, Premium Amount or other
premium with respect thereto and any costs and expenses related to such
extension, renewal, refunding or refinancing, (ii) the maturity date of
such Indebtedness shall not be sooner than the maturity date of such
Indebtedness being extended, renewed, refunded or refinanced, (iii) the
average life to maturity of such Indebtedness shall be equal to or
greater than the remaining average life to maturity of such Indebtedness
being extended, renewed, refunded or refinanced and (iv) if such
Indebtedness is incurred for any extension, renewal, refunding or
refinancing of Indebtedness permitted pursuant to subdivision (b), (f) or
(s) and it is secured, such Indebtedness satisfies the conditions
specified in clause (ii) of the proviso to subdivision (b) and such
Indebtedness specifies no events of default (other than with respect to
the payment of principal and interest on such Indebtedness or the
accuracy of representations and warranties made in connection with such
agreement or instrument) which are capable of occurring prior to the
occurrence of the events of default specified in the Bank Credit
Facilities as of the date of this Agreement (unless prior to or
simultaneously with the incurrence of such Indebtedness this Agreement
and the Other Agreements are amended to provide the benefit of such more
restrictive covenants and events of default to the holders of the Notes);
(j) so long as no Event of Default or Potential Event of Default has
occurred and is continuing, the Company and the Restricted Subsidiaries
may become and remain liable with respect to Indebtedness which may be
secured equally and ratably with the Notes, incurred for any extension,
renewal, refunding or refinancing of Indebtedness permitted pursuant to
subdivision (e) of this Section 10.1, PROVIDED that (x) after giving
effect thereto (i) the aggregate principal amount of (A) such
Indebtedness incurred to extend, refund, renew or refinance Indebtedness
incurred pursuant to subdivision (e)(i) in connection with the Initial
Acquisition Facility, (B) any such Indebtedness incurred pursuant to
subdivision (e)(i) and remaining outstanding, and (C) any outstanding
Indebtedness incurred pursuant to subdivision (h)(3)(i), shall not exceed
the greater of $35,000,000 and 40% of Consolidated Net Worth of the
Company determined as of the last day of the month immediately preceding
the date of such extension, renewal, refunding or refinancing, and (ii)
the aggregate principal amount of (A) such Indebtedness incurred to
extend, refund, renew or refinance Indebtedness incurred pursuant to
subdivision (e)(ii) in connection with the Working Capital Facility, (B)
any such Indebtedness incurred pursuant to subdivision (e)(ii) and
remaining outstanding (including any exposure in respect of issued but
undrawn letters of credit), and (C) any remaining unfunded commitment
under the Working Capital Facility, shall not exceed $75,000,000 plus
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the excess, if any, of (X) Consolidated Cash Flow over (Y) $53,000,000,
and (y) such Indebtedness, any such letters of credit and commitments
shall be incurred pursuant to the Initial Acquisition Facility or a
working capital facility (A) which complies with the requirements set
forth in clause (ii)(1) of Section 10.1(e) and (B) the financial and
business covenants of such Indebtedness are no more restrictive on the
Company and its Subsidiaries and there are no additional covenants than
those contained in the Bank Credit Facilities as of the date of this
Agreement and such Indebtedness specifies no events of default (other
than with respect to the payment of principal and interest on such
Indebtedness or the accuracy of representations and warranties made in
connection with such agreement or instrument) which are capable of
occurring prior to the occurrence of the events of default specified in
the Bank Credit Facilities as of the date of this Agreement (unless prior
to or simultaneously with the incurrence of such Indebtedness this
Agreement and the Other Agreements are amended to provide the benefit of
such more restrictive covenants and events of default to the holders of
the Notes);
(k) so long as no Event of Default or Potential Event of Default has
occurred and is continuing, the Company and the Restricted Subsidiaries
may become and remain liable with respect to unsecured Indebtedness
incurred for any extension, renewal, refunding or refinancing of
Indebtedness otherwise permitted by this Section 10.1, PROVIDED that (i)
the principal amount of such unsecured Indebtedness to be incurred shall
not exceed the principal amount of such Indebtedness being extended,
renewed, refunded or refinanced together with any accrued interest and
Make Whole Amount, Premium Amount or other premium with respect thereto
and any costs and expenses related to such extension, renewal, refunding
or refinancing, (ii) the maturity date of such unsecured Indebtedness
shall not be sooner than the maturity date of such Indebtedness being
extended, renewed, refunded or refinanced and (iii) the average life to
maturity of such unsecured Indebtedness shall be equal to or greater than
the remaining average life to maturity of such Indebtedness being
extended, renewed, refunded or refinanced;
(l) so long as no Event of Default or Potential Event of Default has
occurred and is continuing, the Company and the Restricted Subsidiaries
may become and remain liable with respect to secured Indebtedness
incurred for any extension, renewal, refunding or refinancing of secured
Indebtedness (other than Indebtedness permitted by subdivisions (a), (b),
(e) or (f)) otherwise permitted pursuant to this Section 10.1, PROVIDED
that (i) the principal amount of such Indebtedness to be incurred shall
not exceed the principal amount of such Indebtedness being extended,
renewed, refunded or refinanced together with any accrued interest and
premium with respect thereto and any and all costs and expenses related
to such extension, renewal, refunding or refinancing, (ii) the maturity
date of such Indebtedness shall not be sooner than the maturity date of
such Indebtedness being extended, renewed, refunded or refinanced, and
(iii) the average life to maturity of such Indebtedness to be incurred
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shall be equal to or greater than the remaining average life to maturity
of such Indebtedness being extended, renewed, refunded or refinanced;
(m) the Company and any Restricted Subsidiaries may become and
remain liable with respect to any Interest Rate Agreement;
(n) the Company and any Restricted Subsidiaries may become and
remain liable with respect to any Commodity Hedging Agreements;
(o) any Qualifying Restricted Subsidiary may become and remain
liable with respect to Indebtedness evidenced by the Subsidiary Guarantee
Agreements or Guarantees of Parity Debt;
(p) the Company may become and remain liable with respect to secured
Indebtedness incurred in connection with Capital Lease obligations,
PROVIDED that (1) the security for such Indebtedness shall extend only to
such property or asset, (2) the obligation incurred does not exceed the
fair market value of such property or asset (as determined in good faith
by the board of directors of the Managing General Partner) and (3) after
incurring such Indebtedness, and giving effect to the substantially
concurrent retirement of any other Indebtedness, the Company could incur
at least $1 of additional Indebtedness in compliance with the
requirements set forth in clauses (i), (ii) and (iii) of Section 10.1(f);
(q) the Company may become and remain liable with respect to secured
Indebtedness incurred in connection with purchase money obligations in
respect of any property or asset, PROVIDED that (1) the security for such
Indebtedness shall extend only to such property or asset, (2) the
obligation incurred does not exceed 85% of the fair market value of such
property or asset (as determined in good faith by the Board of Directors
of the Managing General Partner) and (3) after incurring such
Indebtedness and giving effect to the substantially concurrent retirement
of any other Indebtedness the Company could incur at least $1 of
additional Indebtedness in compliance with the requirements set forth in
clauses (i), (ii) and (iii) of Section 10.1(f);
(r) the Company may become and remain liable with respect to secured
Indebtedness incurred to pay all or a portion of the purchase price of
property acquired by the Company or to secure obligations incurred in
consideration of non-compete agreements, PROVIDED that (1) the security
for such Indebtedness shall extend only to the property or assets so
acquired, (2) such obligation does not exceed 85% of the fair market
value of such property or asset or 35% in the case of non-compete
obligations (each as determined in good faith by the board of directors
of the Managing General Partner of the Company) and (3) either (A) after
incurring such Indebtedness, and giving effect to the substantially
concurrent retirement of any other Indebtedness, the Company could incur
at least $1 of additional Indebtedness in
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compliance with the requirements set forth in clauses (i), (ii) and (iii)
of Section 10.1(f) or (B) the amount of Indebtedness permitted under
subdivision (e)(i) of this Section 10.1 is permanently reduced by the
amount of such Indebtedness; and
(s) the Company may remain liable with respect to the Indebtedness
evidenced by the 1996 Notes.
Notwithstanding the foregoing, the aggregate principal amount of all
Indebtedness of all Restricted Subsidiaries at any time outstanding (other
than (i) Indebtedness permitted by Section 10.1(o) (but only to the extent
such Guarantees are in favor of the holders of Parity Debt) and (ii)
intercompany Indebtedness of all Restricted Subsidiaries which is created in
accordance with the provisions of Section 10.1(c)) shall not exceed $10
million. For the purpose of this Section 10.1, any Person becoming a
Restricted Subsidiary after the date of this Agreement shall be deemed to
have become liable with respect to all of its then outstanding Indebtedness
at the time it becomes a Restricted Subsidiary, and any Person extending,
renewing or refunding any Indebtedness shall be deemed to have become liable
with respect to such Indebtedness at the time of such extension, renewal or
refunding. The Company or any Restricted Subsidiary shall be deemed to have
become liable with respect to any Indebtedness secured by any real property
acquired by the Company or such Restricted Subsidiary, as the case may be, at
the time of such acquisition. Any amendment of the terms of this Agreement
required by clause (ii) of the proviso to Section 10.1(b) shall provide that
such amendment shall only be effective until the date the Indebtedness (the
incurrence of which required the amendment of this Agreement) is paid in full
and all commitments to lend and letters of credit outstanding under such
facility are canceled or terminated. The Company shall provide written
notice to each holder of the repayment in full in cash of such Indebtedness
and the cancellation of all commitments and letters of credit pursuant to any
such facility, which notice shall provide that the amendments to this
Agreement required by clause (ii) of the proviso to Section 10.1(b) with
respect to such facility, are no longer effective.
10.2. LIENS, ETC. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly create, incur, assume or
permit to exist any Lien on or with respect to any property or asset
(including any document or instrument in respect of goods or accounts
receivable) of the Company or any Restricted Subsidiary, whether now owned or
held or hereafter acquired, or any income or profits therefrom (whether or
not provision is made for the equal and ratable securing of the Notes in
accordance with the provisions of Section 10.16), except:
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 10.9;
(b) Liens of landlords and carriers, vendors, warehousemen,
mechanics, materialmen, repairmen and other like Liens incurred in the
ordinary course of
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business for sums not yet due or the payment of which is not at the time
required by Section 10.9, in each case not incurred or made in connection
with the borrowing of money, the obtaining of advances or credit or the
payment of the deferred purchase price of property;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (i) in connection with
workers' compensation, unemployment insurance, old age pension, retiree
health benefits and other types of social security, or (ii) to secure (or
to obtain letters of credit that secure) the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, performance
bonds, purchase, construction or sales contracts and other similar
obligations, in each case not incurred or made in connection with the
borrowing of money, the obtaining of advances or credit or the payment of
the deferred purchase price of property;
(d) any attachment or judgment Lien, unless the judgment it secures
shall not, within 60 days after the entry thereof, have been discharged
or execution thereof stayed pending appeal, or shall not have been
discharged within 60 days after expiration of any such stay;
(e) leases or subleases granted to others, zoning restrictions,
easements, licenses, reservations, rights-of-way, restrictions on the use
of property or irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property with or without the consent of
the lessee) and other similar charges or encumbrances, which do not
materially interfere with the ordinary conduct of the business of the
Company or any Restricted Subsidiary;
(f) Liens on property or assets of any Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary owing to the Company
or any other Restricted Subsidiary;
(g) Liens described in Schedule 10.2 of the 1996 Note Agreements;
(h) Liens created by any of the Security Documents securing
Indebtedness incurred in accordance with Section 10.1(a), Section 10.1(e)
or Section 10.1(s);
(i) Liens created by any of the Security Documents securing
Indebtedness incurred in accordance with Section 10.1(b), 10.1(f) or
10.1(m), PROVIDED that (1) such Liens are effected through an amendment
to the Security Documents to the extent necessary to provide the holders
of such Indebtedness equal and ratable security in the property and
assets subject to the Security Documents with the holders of the Notes
and of other Indebtedness secured under the Security Documents as
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provided in Section 10.1(b), 10.1(f) or 10.1(m), (2) the Security
Documents are amended to the extent necessary to extend the Lien thereof
to any property or assets acquired or otherwise financed with the
proceeds of such Indebtedness, (3) the Company has delivered to the
Trustee an Officers' Certificate demonstrating that the principal amount
of such Indebtedness does not exceed the lesser of the cost to the
Company of such property or assets and the fair market value of such
property or assets (as determined in good faith by the Managing General
Partner of the Company), that such incurrence of Indebtedness pursuant to
Section 10.1(b), 10.1(f) or 10.1(m), as the case may be, complies in all
respects with the requirements of such Section and that the amendments to
the Security Documents required by this Section 10.2(i) and the filing
and recordation of such amendments and related supplements will not have
a Material Adverse Effect, and (4) the Company has delivered to the
Trustee an opinion of counsel reasonably satisfactory to the Trustee to
the effect that the Lien of the Security Documents has attached and is
perfected with respect to such additional property and assets;
(j) Liens existing on any property of any Person at the time it
becomes a Restricted Subsidiary, or existing prior to the time of
acquisition (and not created in anticipation of such acquisition) upon
any property acquired by the Company or any Restricted Subsidiary through
purchase, merger or consolidation or otherwise, whether or not assumed by
the Company or such Restricted Subsidiary, or created to secure
Indebtedness incurred under Section 10.1(f) to pay all or any part of the
purchase price ("Purchase Money Lien") of property acquired by the
Company or a Restricted Subsidiary or to pay the cost of an improvement
(other than improvements to property subject to the Lien of the Security
Documents), PROVIDED that (i) any such Lien shall be confined solely to
the item or items of property so acquired and, if required by the terms
of the instrument originally creating such Lien, other property which is
an improvement to or is acquired for specific use in connection with such
acquired property, (ii) such item or items of property so acquired (other
than property (which may include stock or other equity interests) subject
to Liens existing prior to the time of acquisition and not created in
anticipation of such acquisition) are not required to become part of the
Collateral under the terms of the Security Documents, (iii) the principal
amount of the Indebtedness secured by any such Lien shall at no time
exceed an amount equal to the lesser of (A) the cost of such property to
the Company or such Restricted Subsidiary, as the case may be, and (B)
the fair market value of such property (as determined in good faith by
the Managing General Partner) at the time such Person owning such
property becomes a Restricted Subsidiary or at the time of such
acquisition by the Company or such Restricted Subsidiary, as the case may
be, (iv) any such Purchase Money Lien shall be created not later than 90
days after, in the case of property, its acquisition, or, in the case of
improvements, their completion and (v) any such Lien (other than a
Purchase Money Lien) shall not have been created or assumed in
contemplation of such Person's becoming a
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Restricted Subsidiary or such acquisition of property by the Company or
any Subsidiary;
(k) Liens in amounts not exceeding $500,000 incurred, required or
provided for under state law in connection with self-insurance
arrangements;
(l) Liens arising from or constituting Permitted Encumbrances;
(m) any Lien securing Indebtedness referred to in Section 10.1(i),
(j) or (l) renewing or extending any Lien permitted by the foregoing
subdivisions of this Section 10.2, PROVIDED that (i) the Indebtedness
secured by any such Lien shall not exceed the principal amount of such
Indebtedness outstanding (including any exposure under letters of credit
and any unfunded commitments) immediately prior to the renewal or
extension of such Lien, (ii) no assets encumbered by any such Lien other
than the assets encumbered immediately prior to such renewal or extension
shall be encumbered thereby or with respect to any Indebtedness
extending, renewing, refunding or refinancing any Indebtedness secured
pursuant to the Security Documents, the assets specified therein and
(iii) the maturity date of the Indebtedness secured by any such Lien
shall not be sooner than the maturity date of such Indebtedness
outstanding immediately prior to the renewal or extension of such Lien;
(n) any Lien securing Indebtedness incurred in accordance with
Section 10.1(n), Section 10.1 (p), Section 10.1(q) or Section 10.1(r);
(o) any Lien arising from the action of collecting banks; and
(p) those Liens described on Schedule 10.2.
10.3. INVESTMENTS, GUARANTIES, ETC. The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly (i) make
or own any Investment in any Person, or (ii) create or become liable with
respect to any Guaranty, except:
(a) the Company or any Restricted Subsidiary may make and own
Investments in
(1) marketable obligations issued or unconditionally
guaranteed by the United States of America, or issued by any agency
thereof and backed by the full faith and credit of the United States
of America in each case maturing within one year from the date of
acquisition thereof,
(2) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and having as at any date of
determination the
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highest rating obtainable from either Standard & Poor's Ratings Group
or Moody's Investors Service, Inc.,
(3) commercial paper maturing no more than 270 days from the
date of creation thereof and having as at any date of determination
one of the two highest ratings obtainable from either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc.,
(4) certificates of deposit maturing one year or less from
the date of acquisition thereof issued by commercial banks
incorporated under the laws of the United States of America or any
state thereof or the District of Columbia or Canada, (A) the
commercial paper or other short-term unsecured debt obligations of
which are rated either A-1 or better (or comparably if the rating
system is changed) by Standard & Poor's Ratings Group or Prime-1 or
better (or comparably if the rating system is changed) by Moody's
Investors Service, Inc. or (B) the long-term debt obligations of
which are rated either AA- or better (or comparably if the rating
system is changed) by Standard & Poor's Ratings Group or Aa3 or
better (or comparably if the rating system is changed) by Moody's
Investors Service, Inc. ("Permitted Banks"), or by any bank party
to the Bank Credit Facilities the long-term debt obligations of which
are rated either A or better (or comparably if the rating system is
changed) by Standard and Poor's Rating Group or A or better (or
comparably if the rating system is changed) by Moody's Investor
Service, Inc.,
(5) Eurodollar time deposits having a maturity of less than
270 days from the date of acquisition thereof purchased directly from
any Permitted Bank,
(6) bankers' acceptances eligible for rediscount under
requirements of The Board of Governors of the Federal Reserve System
and accepted by Permitted Banks, and
(7) obligations of the type described in clause (1), (2),
(3) or (4) above purchased from a securities dealer designated as a
"primary dealer" by the Federal Reserve Bank of New York or from a
Permitted Bank as counterparty to a written repurchase agreement
obligating such counterparty to repurchase such obligations not later
than 14 days after the purchase thereof and which provides that the
obligations which are the subject thereof are held for the benefit of
the Company or a Restricted Subsidiary by a custodian which is a
Permitted Bank;
(b) the Company and any Restricted Subsidiary may make and own
Investments in any Restricted Subsidiary or Investments in capital stock
of, or other
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equity interests in, any Person which as a result of such Investment
becomes a Restricted Subsidiary, and any Qualifying Restricted Subsidiary
may make and permit to be outstanding Investments in the Company and may
create or become liable with respect to the Subsidiary Guarantee
Agreement in respect of the Company's obligations under the Notes or
under Parity Debt;
(c) the Company or any Restricted Subsidiary may make and own
Investments (other than those included in subdivision (b) above) in the
capital stock of, or joint venture, partnership or other equity interests
in, or the contributions to capital in the ordinary course of business
of, any Unrestricted Subsidiary if immediately after giving effect to the
making of any such Investment, (A) the aggregate amount of all such
Investments made and outstanding pursuant to this subdivision (c) shall
not at any time exceed 20% of the Consolidated Net Worth of the Company
and (B) the aggregate amount of all Investments made and outstanding
pursuant to this subdivision (c) as at the end of any fiscal quarter of
the Company shall not exceed by more than $15,000,000 the amount of such
Investments outstanding as at the end of the corresponding fiscal quarter
of the immediately preceding fiscal year of the Company, and in the case
of both clauses (A) and (B) of this subdivision (c), (i) the amounts
specified therein may be increased by an amount equal to the net cash
proceeds received by the Company from the Managing General Partner or
from the Public Partnership as a capital contribution or as consideration
for the issuance by the Company of additional partnership interests for
the sole purpose of making an Investment in an Unrestricted Subsidiary,
and (ii) net of cash distributions received from all Unrestricted
Subsidiaries for such period;
(d) the Company or any Restricted Subsidiary may make and own
Investments (x) constituting trade credits or advances to any Person
incurred in the ordinary course of business, (y) arising out of loans and
advances to officers, directors and employees for travel, entertainment
and relocation expenses, in each case incurred in the ordinary course of
business or (z) acquired by reason of the exercise of customary
creditors' rights upon default or pursuant to the bankruptcy, insolvency
or reorganization of a debtor;
(e) the Company or any Restricted Subsidiary may create or become
liable with respect to any Guaranty constituting an obligation, warranty
or indemnity, not guaranteeing Indebtedness of any Person, which is
undertaken or made in the ordinary course of business;
(f) the Company or any Restricted Subsidiary may create and become
liable with respect to any Interest Rate Agreements; and
(g) the Company may create and become liable with respect to
Commodity Hedging Agreements.
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10.4. RESTRICTED PAYMENTS. The Company will not, directly or
indirectly, nor will it permit any Subsidiary to declare, order, pay, make or
set apart any sum for any Restricted Payment, except that (a) the Company may
declare, order, pay, make or set apart once during each calendar quarter a
Restricted Payment in cash if (i) such Restricted Payment is in an amount not
exceeding Available Cash for the immediately preceding calendar quarter, (ii)
prior to any such proposed action no condition or event shall exist which
constitutes a Potential Event of Default under Section 11(b) or an Event of
Default and immediately after giving effect to any such proposed Restricted
Payment no condition or event shall exist which constitutes a Potential Event
of Default or an Event of Default, (iii) the ratio of Consolidated Cash Flow
to Consolidated Interest Expense, as of the date of such action, is greater
than 1.75 to 1.00 (the "Coverage Test") and (iv) the Company shall have
given to each holder of a Note written notice thereof on the date such
Restricted Payment is declared, which date shall be within 50 days of the
date on which the Coverage Test was satisfied and at least 10 days prior to
the date such Restricted Payment is made, (b) the Company may declare, order,
pay, make or set apart a Restricted Payment needed to pay pass-through taxes
so long as (1) prior to any such proposed action no condition or event shall
exist which constitutes an Event of Default and (2) immediately after giving
effect to any such proposed action no condition or event shall exist which
constitutes a Potential Event of Default or an Event of Default, and (c) any
Subsidiary may make, pay or set apart dividends and distributions so long as
such dividends or distributions are made, paid or set apart for each holder
of such Person's capital stock or other equity on a pro-rata basis. Upon
satisfaction of the Coverage Test by the Company, such Restricted Payment
shall be made within 60 days thereafter, and, notwithstanding any other
provision of this Section 10.4, if the payment would have been permitted as
of the date of such declaration, such payment shall be permitted if made
during such 60 day period. The Company will not, in any event, directly or
indirectly declare, order, pay or make any Restricted Payment except in cash.
10.5. TRANSACTIONS WITH AFFILIATES. Except for the transactions
or conduct effected pursuant to the Operative Agreements as in effect on the
date of the Closing or any other transactions or conduct described in or
contemplated by the Registration Statement or listed on Schedule 10.5, the
Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, engage in any transaction with any Affiliate of the Company,
including, without limitation, the purchase, sale or exchange of assets or
the rendering of any service, to the Company's or such Restricted
Subsidiary's business except upon fair and reasonable terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be,
than those which might be obtained in an arm's-length transaction at the time
such transaction is agreed upon from Persons which are not such an Affiliate,
PROVIDED that the foregoing limitations and restrictions shall not apply to
any transaction between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries or to loans and advances to officers, directors and
employees made in the ordinary course of business.
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10.6. SUBSIDIARY STOCK AND INDEBTEDNESS. The Company will not:
(a) directly or indirectly sell, assign, pledge or otherwise dispose
of any Indebtedness of or any shares of stock or similar interests of (or
warrants, rights or options to acquire stock or similar interests of) any
Subsidiary, except to a Restricted Subsidiary;
(b) permit any Restricted Subsidiary directly or indirectly to sell,
assign, pledge or otherwise dispose of any Indebtedness of (i) the
Company or (ii) any other Restricted Subsidiary, or any shares of stock
or similar interests of (or warrants, rights or options to acquire stock
or similar interests of) any other Subsidiary, except to, in the case of
clause (i), the Company or, in all other cases, the Company or a
Restricted Subsidiary;
(c) permit any Restricted Subsidiary to have outstanding any shares
of stock or similar interests which are preferred over any other shares
of stock or similar interests owned by the Company unless such shares of
preferred stock or similar interests are owned by the Company; or
(d) permit any Restricted Subsidiary directly or indirectly to issue
or sell (including, without limitation, in connection with a merger or
consolidation of a Restricted Subsidiary otherwise permitted by Section
10.7(a)) any shares of its stock or similar interests (or warrants,
rights or options to acquire its stock or similar interests) except to
the Company or a Restricted Subsidiary;
PROVIDED that, (i) any Restricted Subsidiary may sell, assign or otherwise
dispose of Indebtedness of the Company or a Restricted Subsidiary if,
assuming such Indebtedness were incurred immediately after such sale,
assignment or disposition, such Indebtedness would be permitted under Section
10.1 (and if such Indebtedness is secured, such Lien would be permitted
pursuant to Section 10.2) or (ii) subject to compliance with Section 10.7(c),
all Indebtedness and shares of stock or partnership interests of any
Restricted Subsidiary owned by the Company or by another Restricted
Subsidiary may be simultaneously sold as an entirety for consideration at
least equal to the fair value thereof (as determined in good faith by the
Managing General Partner) at the time of such sale if such Restricted
Subsidiary does not at the time own (A) any Indebtedness of the Company
(other than Indebtedness which, if incurred immediately after such
transaction, would be permitted under Section 10.1) or (B) any Indebtedness,
stock or other interest in any other Restricted Subsidiary which is not also
being simultaneously sold as an entirety in compliance with this proviso or
Section 10.7(b)(ii).
10.7. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly,
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(a) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into it, except that:
(i) any Restricted Subsidiary may consolidate with or merge
into the Company or a Restricted Subsidiary if, in the case of a
consolidation with or merger into the Company, the Company shall be
the surviving Person and if, immediately after giving effect to such
transaction, no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default; and
(ii) any entity (other than a Restricted Subsidiary) may
consolidate with or merge into the Company or a Restricted Subsidiary
if the Company or a Restricted Subsidiary, as the case may be, shall
be the surviving Person and if, immediately after giving effect to
such transaction, (w) the Company (1) shall not have a Consolidated
Net Worth (but without giving effect to any write-up in assets or
amounts attributable to goodwill pursuant to purchase accounting
methods) of less than the Consolidated Net Worth of the Company
immediately prior to the effectiveness of such transaction, (2) shall
not be liable with respect to any Indebtedness or allow its property
to be subject to any Lien which it could not become liable with
respect to or allow its property to become subject to under this
Agreement on the date of such transaction, and (3) could incur, if
the consolidating or merging entity has outstanding Indebtedness, at
least $1 of additional Indebtedness in compliance with Section
10.1(f) after giving effect to such transaction, (x) substantially
all of the assets of such entity shall be located and substantially
all of its business shall be conducted within the United States of
America, and (y) no condition or event shall exist which constitutes
an Event of Default or Potential Event of Default; and
(iii) the Company may consolidate with or merge into any
other entity if (v) the surviving entity is a corporation, limited
partnership, limited liability company or business trust organized
and existing under the laws of the United States of America or a
state thereof or the District of Columbia, with substantially all of
its properties located and its business conducted within the United
States of America, (w) such corporation, limited partnership, limited
liability company or business trust expressly and unconditionally
assumes the obligations of the Company under this Agreement and each
of the other Operative Agreements and delivers to each holder of a
Note at the time outstanding in connection with such assumption an
opinion of counsel reasonably satisfactory to the Required Holders
with respect to such matters incident to such assumption as may be
reasonably requested by such holders, including, without limitation,
as to the due authorization and execution of the related agreement of
assumption and the enforceability of such agreement against such
corporation, limited partnership, limited liability company or
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business trust, (x) immediately after giving effect to such
transaction, such corporation, limited partnership, limited liability
company or business trust (1) shall not have a Consolidated Net Worth
(but without giving effect to any write-up in assets or amounts
attributable to goodwill pursuant to purchase accounting methods) of
less than the Consolidated Net Worth of the Company immediately prior
to the effectiveness of such transaction, (2) shall not be liable
with respect to any Indebtedness or allow its property to be subject
to any Lien which it could not become liable with respect to or allow
its property to become subject to under this Agreement on the date of
such transaction and (3) could incur, if the consolidating or merging
entity had outstanding Indebtedness, at least $1 of additional
Indebtedness in compliance with Section 10.1(f) after giving effect
to such transaction, and (y) immediately after giving effect to such
transaction no condition or event shall exist which constitutes an
Event of Default or a Potential Event of Default; or
(b) sell, lease, abandon or otherwise dispose of all or
substantially all its assets, except that:
(i) any Restricted Subsidiary may sell, lease or otherwise
dispose of all or substantially all its assets to the Company or to a
Restricted Subsidiary; and
(ii) the Company may sell, lease or otherwise dispose of all
or substantially all its assets to any corporation, limited
partnership, limited liability company or business trust into which
the Company could be consolidated or merged in compliance with clause
(a)(iii) of this Section 10.7, PROVIDED that each of the conditions
set forth in such subdivision (a)(iii) shall have been fulfilled; or
(c) sell, lease, abandon or otherwise dispose of any property to any
Person other than the Company or any Restricted Subsidiary (except for
(x) sales, leases or other dispositions of property in transactions
permitted by the foregoing clauses (a) or (b) of this Section 10.7, and
(y) sales or leasing of inventory in the ordinary course of business)
unless immediately before and after giving effect to such transaction, no
Event of Default or Potential Event of Default shall exist or be
continuing and:
(i) at least 70% or more of the consideration (or 25% or
more in the event such consideration is less than $1,000,000)
therefor shall be in the form of cash consideration or marketable
securities, PROVIDED, that the amount of (A) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Notes) that are assumed by
the transferee of any such assets and (B) any notes or other
obligations received
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by the Company or any such Restricted Subsidiary from such transferee
that are promptly converted into cash (to the extent of the cash
received), shall be deemed to be cash for the purposes of this
Section 10.7(c)(i), and
(ii) either
(A) the aggregate net after-tax proceeds of all
such dispositions by the Company and all Restricted
Subsidiaries during the current fiscal year (including all
proceeds under title insurance policies with respect to real
property and all net insurance proceeds, self-insurance
amounts and net awards with respect to property lost as a
result of damage, destruction or a taking which have not been
applied to the cost of repairing or replacing any damaged or
destroyed assets ), less the amount of all such net after-tax
proceeds previously applied in accordance with subdivision
(ii)(B) of this Section 10.7(c) and the amount of such net
after-tax proceeds equal to the purchase price of any assets
acquired to the extent that (1) such assets were acquired
within 90 days prior to the date of such disposal of
property, (2) the purchase price of such assets was not
previously applied to reduce the amount of net after-tax
proceeds of property disposed of under this Section 10.7(c),
(3) such assets were acquired for subsequent replacement of
the property so disposed of or may be productively used in
the United States of America in the conduct of the Business,
(4) if the assets so disposed were or should have been, then
such newly acquired assets shall be subject to the Lien of
the Security Documents, and (5) to the extent such assets
were acquired (in whole or in part) with borrowed money, such
borrowing has been repaid in full, (x) shall not exceed
$7,500,000 during such fiscal year and (y) when aggregated
with such net after-tax proceeds of all prior transactions
under this Section 10.7(c), shall not exceed $30,000,000; or
(B) in the event that such net after-tax proceeds
(less the amount thereof previously applied in accordance
with this subdivision (ii)(B) and the amount thereof equal to
the purchase price of any assets acquired to the extent that
(1) such assets were acquired within 90 days prior to the
date of such disposal of property, (2) the purchase price of
such assets was not previously applied to reduce the amount
of net after-tax proceeds of property disposed of under this
Section 10.7(c), (3) such assets were acquired for subsequent
replacement of the property so disposed of or may be
productively used in the United States of America in the
conduct of the Business, (4) if the assets so disposed were
or should have been, then such newly acquired assets shall be
subject to the Lien of the Security Documents, and (5) to the
extent such assets were acquired (in whole or in part) with
borrowed money, such borrowing has been repaid in full) during
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the current fiscal year exceed $7,500,000 or, when aggregated
with such net after-tax proceeds of all prior transactions
under this Section 10.7(c), exceed $30,000,000 (the larger
amount of such excess net after-tax proceeds actually
realized being herein called "Excess Proceeds"), the
Company shall promptly pay over to the Trustee under the
Trust Agreement such Excess Proceeds not at the time held by
the Trustee for application by the Trustee (x) within 365
days of the date of the disposal or loss of property to the
acquisition of assets in replacement of the property so
disposed of or lost or of assets which may be used in the
United States of America in the conduct of the Business (and
if the assets so disposed were or should have been, then such
newly acquired assets shall be subjected to the Lien of the
Security Documents) or to the cost of repairing or replacing
any damaged or destroyed assets, or (y) to the extent of
Excess Proceeds not applied pursuant to the immediately
preceding clause (x), to the payment and/or prepayment of the
Notes and Parity Debt, if any, pursuant to Section 9.1 and/or
9.4(a), all as provided in Section 4(d) of the Trust
Agreement and such Section 9.1 and/or 9.4(a), and the Trustee
shall have received an Officers' Certificate from the
Managing General Partner of the Company certifying that the
consideration received for such property is at least equal to
its fair value (as determined in good faith by the Managing
General Partner of the Company) and that such consideration
has been applied in accordance with the terms of this
Agreement.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary may sell or dispose of (i) real property assets sold or disposed
of within 12 months of the acquisition of such assets, and (ii) all other
assets sold or disposed of within 6 months of the acquisition of such assets,
in each case constituting a portion of an acquired business, if (y) such
assets are specifically designated to the holders of the Notes in writing at
the time of such acquisition or within 30 Business Days thereafter as assets
to be disposed of, and (z) the Trustee shall have received an Officers'
Certificate from the Managing General Partner of the Company certifying that
the consideration received for such property is at least equal to its fair
value (as determined in good faith by the Managing General Partner of the
Company). Such sales under this paragraph will not be applied towards the
annual or cumulative limitations in subdivision (c) of this Section 10.7. In
addition, notwithstanding the foregoing, the Company may, at any time,
exchange assets for other like assets which may be used in the conduct of the
Business, PROVIDED (1) the fair value of the assets so acquired is
substantially equivalent to the fair value of the assets so exchanged (as
determined in good faith by the Managing General Partner of the Company), (2)
if the assets exchanged were or should have been, then such newly acquired
assets shall be subject to the Lien of the Security Documents and (3) the
total value of the assets so exchanged in any twelve month period shall not
in the aggregate exceed 15% of the total assets of the Company. The holders
of Notes agree to take all
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actions reasonably requested by the Company (and at the expense of the
Company) to cause dispositions of any Collateral made in compliance with this
Section 10.7 to be made free and clear of the Liens created by the Security
Documents.
10.8. PARTNERSHIP OR CORPORATE EXISTENCE, ETC.; BUSINESS. (a)
(i) The Company will at all times preserve and keep in full force and effect
its partnership existence and (subject to the provisions of subdivision (b)
of this Section 10.8) its status as a partnership not taxable as a
corporation for federal income tax purposes; (ii) the Company will cause each
Restricted Subsidiary to keep in full force and effect its partnership or
corporate existence; and (iii) the Company will, and will cause each
Restricted Subsidiary to, at all times preserve and keep in full force and
effect all of its material rights and franchises (in each case except as
otherwise specifically permitted in Sections 10.6 and 10.7; PROVIDED,
HOWEVER, that notwithstanding the preceding provisions of this Section 10.8
the partnership or corporate existence of any Restricted Subsidiary, and any
right or franchise of the Company or any Restricted Subsidiary, may be
terminated if, in the good faith judgment of the Managing General Partner,
such termination is in the best interest of the Company, is not
disadvantageous to the holders of the Notes in any material respect and would
not have a Material Adverse Effect).
(b) The Company shall not be obligated to preserve its status as a
partnership not taxable as a corporation for federal income tax purposes if
(i) the Company's failure to preserve such status shall be the result of an
amendment to the tax laws enacted by the Congress of the United States and
(ii) after giving effect to the loss of such status the ratio of Consolidated
Cash Flow to Maximum Consolidated Pro Forma Debt Service, determined as of
the date of the loss of such status, would be greater than 1.1 to 1.0,
assuming, for the purposes of the computation of Consolidated Cash Flow, that
Consolidated Cash Flow would be reduced by taxes at the applicable tax rate
of the Company for such period had the Company been taxable as a corporation.
(c) The Company will not, and will not permit any Restricted
Subsidiary to, engage in any material lines of business other than the
Business as described in the Registration Statement and other activities
incidental or related to the Business; PROVIDED that, the Company will not
permit Cornerstone Sales & Service Corporation to exist for any purpose, or
to carry on any business, other than the ownership and operation of the
Service Assets (as defined in the Contribution, Conveyance and Assumption
Agreement dated as of December 17, 1996 among the Company, the Public
Partnership, the General Partners and Empire Energy SC Corporation, a
Delaware corporation) and other assets of that type.
10.9. PAYMENT OF TAXES AND CLAIMS. The Company will, and will
cause each Subsidiary to, pay all taxes, assessments and other governmental
charges or levies imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits when the same
become due and payable, but in any event before any penalty or interest
accrues thereon, and all claims (including, without
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limitation, claims for labor, services, materials and supplies) for sums
which have become due and payable and which by law have or might become a
Lien upon any of its properties or assets, and promptly reimburse the holders
of the Notes for any such taxes, assessments, charges or claims paid by them,
PROVIDED that no such tax, assessment, charge or claim need be paid or
reimbursed if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted and if such reserves or other
appropriate provision, if any, as shall be required by GAAP shall have been
made therefor and be adequate in the good faith judgment of the Managing
General Partner.
10.10. COMPLIANCE WITH ERISA. The Company will not, and will not
permit any Subsidiary or Related Person of the Company to:
(a) (i) engage in any transaction in connection with which the
Company or any Subsidiary could be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, (ii) terminate (within the meaning of Title IV of
ERISA) or withdraw from any Plan in a manner, or take, or fail to take,
any other action with respect to any Plan (including, without limitation,
a substantial cessation of operations within the meaning of Section
4062(e) of ERISA), (iii) establish, maintain, contribute to or become
obligated to contribute to any welfare benefit plan (as defined in
Section 3(1) of ERISA) or other welfare benefit arrangement which
provides post-employment benefits, which cannot be unilaterally
terminated by the Company, (iv) fail to make full payment when due of all
amounts which, under the provisions of any Plan or applicable law, the
Company or any Subsidiary or Related Person of the Company is required to
pay as contributions or permit to exist any material accumulated funding
deficiency, whether or not waived, with respect to any Plan or (v) engage
in any transaction in connection with which the Company, any Subsidiary
or any Related Person of the Company could be subject to liability
pursuant to Section 4069(a) or 4212(c) of ERISA, if any such event,
condition or transaction described in clauses (i) through (v) above,
either individually or together with any other such event, condition or
transaction, could reasonably be expected to result in (x) the imposition
of a Lien in a material amount on any assets or property of the Company
or any Subsidiary of the Company pursuant to Section 302(f) of ERISA or
Section 412(n) of the Code or (y) any liability to the Company, any
Subsidiary of the Company or any Related Person of the Company, which
liability could have a Material Adverse Effect; or
(b) as of any date of determination (i) permit the amount of
unfunded benefit liabilities under any Plan (other than a Multiemployer
Plan) maintained at such time by the Company or any Subsidiary or Related
Persons of the Company to exceed the current value of the assets of any
such Plan by more than $1,000,000 or (ii) permit the aggregate liability
incurred by the Company and any Subsidiary of the Company and Related
Persons of the Company pursuant to Title IV of ERISA with respect to one
or
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more terminations of, or one or more complete or partial withdrawals
from, any Plan to exceed $1,000,000.
As used in this Section 10.10, the term "accumulated funding deficiency"
has the meaning specified in Section 302 of ERISA and Section 412 of the
Code, the term "current value" has the meaning specified in Section 3 of
ERISA and the terms "benefit liabilities" and "amount of unfunded benefit
liabilities" have the meanings specified in Section 4001 of ERISA.
10.11. MAINTENANCE OF PROPERTIES; INSURANCE. (a) The Company
will maintain or cause to be maintained in working order and condition, in
accordance with normal industry standards and as otherwise required by the
Security Documents, all material properties used or useful in the business of
the Company and the Restricted Subsidiaries and from time to time will make
or cause to be made all appropriate repairs, renewals and replacements
thereof.
(b) The Company will, and will cause each of the Restricted
Subsidiaries to, keep its insurable properties adequately insured at all
times by Permitted Insurers; maintain such other insurance, to such extent
and against such risks, including fire and other risks insured against by
extended coverage, as is customary with companies in the same or similar
businesses, including public liability insurance against claims for personal
injury or death or property damage occurring upon, in, about or in connection
with the use of any properties owned, occupied or controlled by it; maintain
such other insurance policy as may be required by law or any Security
Document; and cause each such insurance policy to name the Trustee, as an
additional insured or loss payee thereunder. The Company may maintain a
system of self-insurance in an amount customary for companies with
established reputations engaged in the same or similar business and owning
similar properties as the Company. The Company will permit the holders of
the Notes and an insurance consultant retained by the Required Holders, at
the expense of the Company, to review the insurance policies maintained by
the Company on an annual basis and will implement any changes to such
policies reasonably recommended by such consultant if available on a
commercially reasonable basis.
10.12. OPERATIVE AGREEMENTS; SECURITY DOCUMENTS. The Company
will, and will cause each Restricted Subsidiary to, perform and comply with
all of its obligations under each of the Operative Agreements to which it is
a party, will enforce each such Operative Agreement against each other party
thereto and will not accept the termination of any such Operative Agreement,
unless (but only with respect to Operative Agreements other than this
Agreement or the Other Agreements) the taking of or omitting to take any such
action would not have a Material Adverse Effect and will not amend, modify or
supplement any Operative Agreement without the prior written consent of the
Required Holders (or with respect to this Agreement as specified in Section
18), PROVIDED that (i) the MLP Agreement and the Partnership Agreement (other
than Sections 4.5, 6.3, and 7.5(a) of the Partnership Agreement the amendment
of which requires the consent of the
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Required Holders) may be amended, modified or supplemented without the prior
written consent of the Required Holders if such amendment, modification or
supplement would not have a Material Adverse Effect and the Company shall
have delivered to each holder of any Notes a copy of such proposed amendment,
modification or supplement together with an Officers' Certificate describing
such proposed amendment, modification or supplement and stating that to the
best of the Company's knowledge (after due inquiry) such proposed amendment,
modification or supplement would not have a Material Adverse Effect, (ii) the
Bank Credit Facilities may be amended, modified or supplemented without the
prior written consent of the Required Holders if such amendment, modification
or supplement may be made without the written consent of any holders of the
Notes under the Trust Agreement, and (iii) the conveyances, assignments and
bills of sale referred to in clause (b) of the definition of PCI Agreements
may be amended, modified or supplemented so long as such amendments,
modifications or supplements do not, in the aggregate, have a Material
Adverse Effect.
10.13. CHIEF EXECUTIVE OFFICE. The Company will not move its
chief executive office and the office at which it maintains its records
relating to the transactions contemplated by this Agreement and the Security
Documents unless (a) not less than 45 days' prior written notice of its
intention to do so, clearly describing the new location, shall have been
given to the Trustee and each holder of a Note and (b) such action,
reasonably satisfactory to the Trustee and each holder of a Note, to maintain
any security interest in the property subject to the Security Documents at
all times fully perfected and in full force and effect shall have been taken.
10.14. OPINIONS. The Company, at its expense, will furnish to the
Trustee and each holder of a Note during the period commencing October 1 to
November 1 of the years 2001 and 2006 and at such other times as the Trustee
may reasonably request in connection with the perfection of Liens granted
pursuant to the Security Documents an opinion of counsel satisfactory to the
Trustee stating that in the opinion of such counsel such action has been
taken with respect to the recording, filing, re-recording and re-filing of
the Security Documents and any financing statements necessary to maintain the
Lien or security interest created thereby and reciting the details of such
action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien or security interest; PROVIDED, HOWEVER, that
such opinion may be from counsel not located in such jurisdiction and
PROVIDED, FURTHER, that such opinion is not required to address filings with
respect to the perfection of any lien or security interest in fixtures.
10.15. INFORMATION REQUIRED BY RULE 144A. The Company covenants
that it will, upon the prior written request of the holder of any Note,
provide such holder, and any qualified institutional buyer designated by such
holder, such financial and other information as such holder may reasonably
determine to be necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act of 1933, as amended, in
connection with the resale of Notes, except at such times as the
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Company is subject to the reporting requirements of section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended. For the purpose of this
Section 10.15, the term "qualified institutional buyer" shall have the
meaning specified in Rule 144A under the Securities Act of 1933, as amended.
10.16. COVENANT TO SECURE NOTES EQUALLY. The Company covenants
that, if it or any Restricted Subsidiary shall create or assume any Lien upon
any of its property or assets, whether now owned or hereafter acquired, other
than Liens permitted by the provisions of Section 10.2 (unless prior written
consent to the creation or assumption thereof shall have been obtained
pursuant to Section 18 and except any such Lien arising by operation of law),
it will make or cause to be made effective provision whereby the Notes will
be secured by such Lien equally and ratably with any and all other
Indebtedness thereby secured so long as any such other Indebtedness shall be
so secured, it being understood that the provision of such equal and ratable
security shall not constitute a cure or waiver of any related Event of
Default.
10.17. COMPLIANCE WITH LAWS. (a) The Company will, and will cause
each Subsidiary to, comply with all applicable statutes, rules, regulations,
and orders of, and all applicable restrictions imposed by, the United States
of America, foreign countries, states, provinces and municipalities, and of
or by any governmental department, commission, board, regulatory authority,
bureau, agency and instrumentality of the foregoing, and of or by any court,
arbitrator or grand jury, in respect of the conduct of their respective
businesses and the ownership of their respective properties or business
(including, without limitation, Environmental Laws), except (i) such as are
being contested in good faith by appropriate proceedings promptly initiated
and diligently conducted and if such reserve or other appropriate provision,
if any, as shall be required by GAAP shall have been made therefor or (ii)
for any failure to so comply which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(b) The Company will, and will cause each Restricted Subsidiary to,
comply with all Environmental Laws, other than noncompliance which could not
reasonably be expected to result in a Material Adverse Effect, individually
or in the aggregate, with any other liability under any Environmental Laws.
10.18. FURTHER ASSURANCES. At any time and from to time promptly,
the Company shall, at its expense, execute and deliver to each holder of a
Note and to the Trustee such further instruments and documents, and take such
further action, as the holders of the Notes may from time to time reasonably
request, in order to further carry out the intent and purpose of this
Agreement and to establish and protect the rights, interests and remedies
created, or intended to be created, in favor of the holders of the Notes,
including, without limitation, the execution, delivery and recordation and
filing of security agreements and financing statements and continuation
statements under the Uniform Commercial Code of any applicable jurisdiction.
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10.19. SUBSIDIARIES. (a) The Company may designate any
Restricted Subsidiary or newly acquired or formed Subsidiary as an
Unrestricted Subsidiary or any Unrestricted Subsidiary or newly acquired or
formed Subsidiary as a Restricted Subsidiary, in each case subject to
satisfaction of the following conditions:
(i) immediately before and after giving effect to such
designation no condition or event shall exist which constitutes an
Event of Default or Potential Event of Default;
(ii) immediately after giving effect to such designation, (1)
(other than in the case of a designation of an Unrestricted
Subsidiary that does not have any Indebtedness as a Restricted
Subsidiary), the Company would be permitted to incur at least $1 of
additional Indebtedness in compliance with subdivisions (i), (ii) and
(iii) of Section 10.1(f), (2) the Company and the Restricted
Subsidiaries would not be liable with respect to Indebtedness or any
Guaranty, would not own any Investments and their property would not
be subject to any Lien which is not permitted by this Agreement and
(3) substantially all of the Company's and the Restricted
Subsidiaries' assets will be located, and substantially all of the
Company's and the Restricted Subsidiaries' business will be
conducted, in the United States of America;
(iii) in the case of a designation as an Unrestricted
Subsidiary, if such designation (and all other prior designations of
Restricted Subsidiaries or newly acquired or formed Subsidiaries as
Unrestricted Subsidiaries during the current fiscal year) were deemed
to constitute an Investment by the Company in respect of all the
assets of the Subsidiary so designated, such Investment would be in
compliance with Section 10.3(c), with the amount of such Investment
being deemed to equal the net book value of such assets (as
determined in good faith by the Managing General Partner) in the case
of a Restricted Subsidiary or the cost of acquisition or formation in
the case of a newly acquired or formed Subsidiary, PROVIDED, that
this subdivision (iii) of this Section 10.19(a) shall not apply to an
acquisition or formation by the Company or a Restricted Subsidiary of
a newly acquired or formed Unrestricted Subsidiary to the extent such
acquisition or formation (1) is funded solely by the net cash
proceeds received by the Company from either General Partner or from
the Public Partnership as a capital contribution or as consideration
for the issuance by the Company of additional partnership interests
or (2) the assets involved in such acquisition are acquired in
exchange for additional partnership interests of the Company or the
Public Partnership PROVIDED, FURTHER, the net book value of the
Restricted Subsidiary designated an Unrestricted Subsidiary and the
cost (other than the amount paid in cash) of the acquisition or
formation of a newly acquired or formed Subsidiary shall be deemed
proceeds from the sale of assets of the Company for purposes of
Section 10.7 and Section 9.4;
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(iv) in the case of a designation of a Restricted Subsidiary
as an Unrestricted Subsidiary, such Restricted Subsidiary shall not have
been an Unrestricted Subsidiary prior to being designated a Restricted
Subsidiary; and
(v) the Company shall deliver to each holder of Notes,
within 20 Business Days after any such designation, an Officers'
Certificate stating the effective date of such designation and confirming
compliance with the provisions of this Section 10.19.
In the case of the designation of any Unrestricted Subsidiary as a
Restricted Subsidiary, such new Restricted Subsidiary shall be deemed to have
(a) made or acquired all Investments owned by it, and (b) incurred all
Indebtedness owing by it and all Liens to which any of its properties are
subject, on the date of such designation.
(b) The Company will cause each Qualifying Restricted Subsidiary, at
the time it is or is deemed to be designated as a Restricted Subsidiary, to
(i) become a party to the Company Security Agreement, the Subsidiary
Guarantee Agreement and the Trust Agreement by execution of a Supplemental
Agreement and deliver a Perfection Certificate and (ii) enter into such
documents as may be necessary or as you may request in form and substance
satisfactory to the Required Holders in order to secure such Restricted
Subsidiary's obligations under the Subsidiary Guarantee Agreement with all or
substantially all of the assets of such Restricted Subsidiary of any type
which, if they were assets of the Company, would be Collateral. Prior to the
designation of a Subsidiary as a Restricted Subsidiary, the Company shall
deliver to the holders of the Notes an opinion of counsel with respect to the
due execution and delivery of the Supplemental Agreement by such Subsidiary
and as to the enforceability of the Company Security Agreement, the Trust
Agreement, the Supplemental Agreement and the Subsidiary Guarantee Agreement
with respect to such Subsidiary, such opinion to be in form and substance
satisfactory to the Required Holders.
(c) The Company will not own any Unrestricted Subsidiaries other
than Wholly Owned Subsidiaries satisfying the requirements in clauses (a),
(b) and (c) of the definition of Restricted Subsidiary.
10.20. DAMAGE, DESTRUCTION, TAKING, ETC. In the event of any
damage, destruction or a taking in respect of all or a portion of the
properties subject to any of the Security Documents or in the event there
shall be proceeds under title insurance policies with respect to any real
property, the Company will not apply any net insurance proceeds or
self-insurance amounts, net awards, if such proceeds (whether resulting from
one or a series of events or circumstances) exceed $25,000,000 in the
aggregate, to the cost of repairing or replacing any damaged or destroyed
assets without the prior written consent of the Required Holders.
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10.21. ACCOUNTING CHANGES. The Company will not, and will not
suffer or permit any Restricted Subsidiary to, make any significant change in
accounting treatment or reporting practices, except as required by GAAP or
consented to by the Company's independent public accountant. The Company
will, and will cause each Restricted Subsidiary to, cause its fiscal year to
end on June 30 in each year.
10.22. ACQUISITIONS. Except as otherwise permitted by Section
10.7, the Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, purchase, lease or otherwise acquire (in one
transaction or a series of transactions) all or any substantial part of the
assets of any other Person, except that (a) the Company and any of the
Restricted Subsidiaries may purchase Inventory in the ordinary course of
business and (b) the Company or any Restricted Subsidiary may engage in any
such acquisition if no Event of Default or Potential Event of Default has
occurred and is continuing at the time of any such acquisition or would occur
immediately after giving effect thereto.
10.23. IMPAIRMENT OF SECURITY INTERESTS. Other than with respect
to Permitted Encumbrances, the Company will not, and will not permit any of
the Restricted Subsidiaries to, take or omit to take any action, which action
or omission might or would have the result of materially impairing the
security interests in favor of the Trustee with respect to the Collateral,
and the Company will not, and will not permit any of the Restricted
Subsidiaries to, grant to any Person (other than the Trustee) any interest
whatsoever in the Collateral.
10.24. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS, ETC.
The Company will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its capital stock, or pay any Indebtedness
owed to the Company or any Restricted Subsidiary, (b) make loans or advances
to the Company or any Restricted Subsidiary or (c) transfer any of its
properties or assets to the Company or any Restricted Subsidiary, except for
such encumbrances or restrictions existing under or by reason of (i)
customary non-assignment provisions in any lease governing a leasehold
interest or other contract entered into in the ordinary course of business
consistent with past practices, (ii) restrictions on the payment of dividends
and distributions pursuant to the terms of Indebtedness incurred by such
Restricted Subsidiary in accordance with Section 10.1 or (iii) this Agreement
or any other Operative Agreement.
10.25. NO OTHER NEGATIVE PLEDGES. The Company will not, and will
not cause or permit any of the Restricted Subsidiaries to, directly or
indirectly, enter into any agreement prohibiting the creation or assumption
of any Lien upon the properties or assets of the Company or any Restricted
Subsidiary, whether now owned or hereafter acquired, or requiring an
obligation to be secured if some other obligation is secured,
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except for this Agreement, the Other Agreements, the Bank Credit Facilities
and the terms of any other Indebtedness incurred in accordance with Section
10.1 (PROVIDED that the terms of such agreement for such other Indebtedness
are no more onerous to the Company and its Subsidiaries than those terms set
forth in Section 10.2); PROVIDED that no such agreement shall prohibit the
granting of Liens on assets of the Company and its Restricted Subsidiaries as
contemplated by the terms of this Agreement, the Security Documents and any
documents evidencing or creating any other Parity Debt.
10.26. SALES OF RECEIVABLES. The Company will not, and will not
cause or permit any of the Restricted Subsidiaries to, sell with recourse,
discount or otherwise sell or dispose of its notes or accounts receivable,
except for (a) accounts receivable consisting of assets of an operating unit
sold as a going concern in accordance with all other provisions of this
Agreement and (b) sales of account receivables which have been written off as
uncollectable or collectable only after extended delays.
10.27. FIXED PRICE SUPPLY CONTRACTS; CERTAIN POLICIES. (a) The
Company will not, and will not permit any of the Restricted Subsidiaries to,
at any time be a party or subject to any contract for the purchase or supply
by such parties of propane or other product except where (i) the purchase
price is set with reference to a spot index or indices substantially
contemporaneously with the delivery of such product or (ii) delivery of such
propane or other product is to be made no more than one year after the
purchase price is agreed to.
(b) The Company will not amend, modify or waive the trading policy
or supply inventory position policy existing as of the date of Closing,
except that the Company may amend its supply inventory position policy such
that such policy provides that neither it nor any of the Restricted
Subsidiaries will hold on hand more than 90 days' of commodities inventory.
The Company will provide each holder of a Note with prompt written notice of
any such new commodity hedging agreement or any such change in such policy.
Subject to the foregoing exception, the Company and the Restricted
Subsidiaries will comply in all material respects with such policies at all
times.
10.28. INDEPENDENT CORPORATE EXISTENCE. (a) The Company shall
maintain, and shall cause each of its Subsidiaries to maintain, books,
records and accounts that are separate from the books, records and accounts
of the General Partners or any of their respective Subsidiaries (other than
the Company and its Subsidiaries) such that: (i) the revenues of the Company
and its Subsidiaries will be credited to the accounts of the Company and its
Subsidiaries only; (ii) all expenses incurred by the Company and its
Subsidiaries shall be paid only from the accounts of the Company and its
Subsidiaries (other than those paid by the Managing General Partner and
allocated to the Company or its Subsidiaries in the manner set forth in
subdivision (c) of this Section); (iii) only officers and employees of the
Managing General Partner, the Company and its Subsidiaries in their capacity
as such shall have the authority to make disbursements with respect to the
accounts of the Company and its Subsidiaries, as the case may be; (iv) there
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shall occur no sharing of accounts or funds between the Company and its
Subsidiaries, on the one hand, and either General Partner or any of their
respective Subsidiaries (other than the Company and its Subsidiaries), on the
other hand; and (v) all cash and funds of the Company and its Subsidiaries
shall be managed separately from the cash and funds of either General Partner
or any of their respective Subsidiaries (other than the Company and its
Subsidiaries), and there shall not occur any commingling, including for
investment purposes, of funds or assets of the Company and its Subsidiaries
with the funds or assets of either General Partner or any of their respective
Subsidiaries (other than the Company and its Subsidiaries).
(b) All full-time employees, consultants and agents of the Company
and its Subsidiaries shall be compensated directly from the bank accounts of
the Managing General Partner, the Company and such Subsidiaries for services
provided by such employees, consultants and agents and, to the extent any
employee, consultant or agent is also an employee, consultant or agent of
either General Partner or any of their respective Subsidiaries (other than
the Company and its Subsidiaries), the compensation of such employee,
consultant or agent shall be allocated in accordance with subdivision (c) of
this Section among the Company and its Subsidiaries, on the one hand, and
either General Partner and any of their respective Subsidiaries (other than
the Company and its Subsidiaries), on the other hand, on a basis which
reasonably reflects the services rendered to the Company and its Subsidiaries.
(c) All overhead expenses (including telephone and other utility
charges) for items shared by the Company and its Subsidiaries, on the one
hand, and either General Partner or any of their respective Subsidiaries
(other than the Company and its Subsidiaries), on the other hand, shall be
allocated on the basis of actual use to the extent practicable and, to the
extent such allocation is not practicable, on a basis reasonably related to
actual use.
(d) The Company shall not permit either General Partner or any of
their respective Subsidiaries (other than the Company and its Subsidiaries)
to be named as a loss payee or additional insured on the insurance policy
covering the property of the Company or any of its Subsidiaries, or enter
into an agreement with the holder of such policy whereby in the event of a
loss in connection with such property, proceeds are paid to either General
Partner and their respective Subsidiaries (other than the Company and its
Subsidiaries).
10.29. OTHER DEBT. (a) The Company shall ensure that the lenders
from time to time in respect of any Parity Debt or any other Indebtedness in
the aggregate principal amount of at least $3,750,000 outstanding as
permitted by paragraphs (b) through (f), (i) through (l) and (r) of Section
10.1, in the documents governing the terms of such Indebtedness, (i)
recognize the existence and validity of the obligations represented by the
Notes and (ii) agree to refrain from making or asserting any claim that this
Agreement or the obligations represented by the Notes are invalid or not
enforceable in accordance
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with its and their terms as a result of the circumstances surrounding the
incurrence of such obligations.
(b) Each holder of Notes from time to time, as evidenced by its
acceptance of such Notes, (i) acknowledges the existence and validity of the
obligations of the Company under the Bank Credit Facilities and the 1996 Note
Agreements (and any extension, renewal, refunding or refinancing of the Bank
Credit Facilities or the 1996 Notes permitted by Section 10.1) and (ii)
agrees to refrain from making or asserting any claim that such obligations or
the instruments governing the terms thereof are invalid or not enforceable in
accordance with its and their terms as a result of the circumstances
surrounding the incurrence of such obligations.
10.30. RESTRICTION ON GENERAL PARTNER. The Managing General
Partner shall not (i) exist for any purpose or engage in any business or
business activity except (a) to serve as the Managing General Partner of the
Company and the Public Partnership, in the circumstances provided in the
Partnership Agreement and Public Partnership Agreement, and (b) to own other
wholly-owned corporate Subsidiaries, PROVIDED that, each General Partner
shall have agreed (x) that it will not guaranty or, except with respect to
Indebtedness assumed by the Company or the Public Partnership, otherwise
agree to be liable with respect to any Indebtedness incurred by such
Subsidiary and at the time of formation or acquisition thereof and in
connection therewith, the assets of either General Partner are not and will
not be subject to any Liens relating to and Indebtedness or other obligations
of such Subsidiaries and (y) to be bound by the provisions of Section 10.28
(all references therein to the Company to be deemed references to the General
Partners and all references therein to Subsidiaries to be deemed references
to Subsidiaries of the General Partners) and (z) the General Partners shall
confirm with an Approved Rating Agency (as defined below) that its rating on
the Notes in effect at such time will not be downgraded solely as a result
thereof, or (ii) incur any Indebtedness or, other than with respect to the
activities described in subsection (i) (a) above, other liabilities (other
than tax liabilities). "Approved Rating Agency" shall mean any of Fitch
Investors Services, Inc., Standard & Poor's Ratings Group, Moody's Investor
Service, Inc. or Duff and Phelps Credit Rating Co.
SECTION 11. EVENTS OF DEFAULT; ACCELERATION.
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) the Company shall default in the payment of any principal of or
Make Whole Amount or Premium Amount, if any, on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise; or
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(b) the Company shall default in the payment of any interest on any
Note or any amount due and payable under any Operative Agreement for more
than 5 Business Days after the same becomes due and payable; or
(c) the Company or any Restricted Subsidiary shall default in the
performance of or compliance with any term contained in Section 7(f), any
of Sections 10.1 through 10.8 (other than Section 10.8(c)), inclusive, or
the Dedicated Funds are not used to repay Indebtedness as specified in
the pro forma calculations set forth in the definition of Consolidated
Pro Forma Debt Service or the definition of Maximum Consolidated Pro
Forma Debt Service, as the case may be; or
(d) the Company, either General Partner, the Public Partnership or
any Restricted Subsidiary shall default in the performance of or
compliance with any other term contained in this Agreement or any other
Operative Agreement and such default shall not have been remedied within
30 Business Days after the earlier of the date such default shall first
have become actually known to any Responsible Officer of such Person or
the date written notice thereof shall have been received by the Company
from the Trustee or from any Note holder; or
(e) any material representation or warranty made in writing by or on
behalf of the Company or any of its Affiliates in this Agreement, any
other Operative Agreement or in any instrument furnished in connection
with the transactions contemplated by this Agreement shall prove to have
been false or incorrect in any material respect on the date as of which
made or deemed made; or
(f) (i) the Company or any Restricted Subsidiary (as principal or
guarantor or other surety) shall default (after receiving notice, if any,
and/or the expiration of any applicable grace period) in the payment of
any amount of principal of or premium or interest on the Parity Debt or
any event shall occur or condition shall exist in respect of the Parity
Debt the effect of which is to cause such Parity Debt to become due
before its stated maturity or before its regularly scheduled dates of
payment and such default, event or condition shall continue for more than
the period of grace, if any, specified therein and shall not have been
waived pursuant thereto;
(ii) the Company or any Restricted Subsidiary (as principal or
guarantor or other surety) shall default (after receiving notice, if any,
and/or the expiration of any applicable grace period) in the payment of
any amount of principal of or premium or interest on any Indebtedness in
an amount at least equal to $10,000,000; or any event shall occur or
condition shall exist in respect of such other Indebtedness which is
outstanding in a principal amount of at least $10,000,000 or under any
evidence of any such Indebtedness or of any mortgage, indenture or other
agreement relating to such other Indebtedness, the effect of which is to
cause such other Indebtedness to become due before its stated maturity or
before its regularly scheduled dates of payment; or
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(g) filing by or on the behalf of the Company or the Managing
General Partner of a voluntary petition or an answer seeking
reorganization, arrangement, readjustment of its debts or for any other
relief under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
act or law, state or federal, now or hereafter existing ("Bankruptcy
Law"), or any action by the Company or the Managing General Partner, or
consent or acquiescence to, the appointment of a receiver, trustee or
other custodian of the Company or the Managing General Partner, or of all
or a substantial part of its property; or the making by the Company or
the Managing General Partner of any assignment for the benefit of
creditors; or the admission by the Company or the Managing General
Partner of the Company in writing of its inability to pay its debts as
they become due; or
(h) filing of any involuntary petition against the Company or the
Managing General Partner in bankruptcy or seeking reorganization,
arrangement, readjustment of its debts or for any other relief under any
Bankruptcy Law and an order for relief by a court having jurisdiction in
the premises shall have been issued or entered therein; or any other
similar relief shall be granted under any applicable Federal or state
law; or a decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee or
other officer having similar powers over the Company or the Managing
General Partner or over all or a part of its property shall have been
entered; or the involuntary appointment of an interim receiver, trustee
or other custodian of the Company or the Managing General Partner or of
all or a substantial part of its property; or the issuance of a warrant
of attachment, execution or similar process against any substantial part
of the property of the Company or the Managing General Partner; and
continuance of any such event for 60 consecutive days unless dismissed,
bonded to the satisfaction of the court having jurisdiction in the
premises or discharged; or
(i) filing by or on the behalf of any Restricted Subsidiary of a
voluntary petition or an answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any Bankruptcy
Law, or any action by any Restricted Subsidiary for, or consent or
acquiescence to, the appointment of a receiver, trustee or other
custodian of such Restricted Subsidiary or of all or a substantial part
of its property; or the making by any Restricted Subsidiary of any
assignment for the benefit of creditors; or the admission by any
Restricted Subsidiary in writing of its inability to pay its debts as
they become due; or
(j) filing of any involuntary petition against any Restricted
Subsidiary in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any Bankruptcy
Law and an order for relief by a court having jurisdiction in the
premises shall have been issued or entered therein; or any other similar
relief shall be granted under any applicable Federal or state law; or a
decree or
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order of a court having jurisdiction in the premises for the appointment
of a receiver, liquidator, sequestrator, trustee or other officer having
similar powers over any Restricted Subsidiary or over all or a part of
its property shall have been entered; or the involuntary appointment of
an interim receiver, trustee or other custodian of any Restricted
Subsidiary or of all or a substantial part of its property; or the
issuance of a warrant of attachment, execution or similar process against
any substantial part of the property of any Restricted Subsidiary; and
continuance of any such event for 60 consecutive days unless dismissed,
bonded to the satisfaction of the court having jurisdiction in the
premises or discharged; or
(k) a final judgment or judgments (which is or are non-appealable or
which has or have not been stayed pending appeal or as to which all
rights to appeal have expired or been exhausted) shall be rendered
against the Company or any Restricted Subsidiary for the payment of money
in excess of $10,000,000 in the aggregate (net of any insurance coverage)
and any one of such judgments shall not be discharged or execution
thereon stayed pending appeal within 60 days after the date due, or, in
the event of such a stay, such judgment shall not be discharged within 60
days after such stay expires or any action shall be legally taken by a
judgment creditor to levy upon the assets or properties of the Company or
any Restricted Subsidiary to enforce any such judgment; or
(l) any of the Security Documents shall at any time, for any reason,
cease in any material respect to be in full force and effect or shall be
declared to be null and void in whole or in any material part by the
final judgment (which is non-appealable or has not been stayed pending
appeal or as to which all rights to appeal have expired or been
exhausted) of any court or other governmental or regulatory authority
having jurisdiction in respect thereof, or if the validity or the
enforceability of any of the Security Documents shall be contested by or
on behalf of the Company, either General Partner, the Public Partnership,
or any Restricted Subsidiary, or the Company, either General Partner, the
Public Partnership, or any Restricted Subsidiary shall renounce any of
the Security Documents or deny that it is bound by the terms of any of
the Security Documents; or
(m) any order, judgment or decree is entered in any proceedings
against the Company decreeing a split-up of the Company, and such order,
judgment or decree shall not be dismissed or execution thereon stayed
pending appeal or review within 60 days after entry thereof, or in the
event of such a stay, such order, judgment or decree shall not be
dismissed within 60 days after such stay expires;
then, (x) upon the occurrence of any Event of Default described in
subdivision (g) or (h) of this Section 11, the unpaid principal amount of and
accrued interest on the Notes shall automatically become due and payable
(without Make Whole Amount), or, (y) upon the occurrence and continuance of
any other Event of Default, any holder or holders of more than 50% in
principal amount of the Notes at the time outstanding, may at any time
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(unless all defaults shall theretofore have been remedied in accordance with
the terms hereof) at its or their option, by written notice or notices to the
Company, declare all the Notes to be due and payable, whereupon the same
shall forthwith mature and become due and payable, together with interest
accrued thereon and, to the extent permitted by applicable law, the
applicable Make Whole Amount, if any, with respect to such Notes, all
without presentment, demand, protest or further notice, which are hereby
waived, PROVIDED that during the existence of an Event of Default described
in subdivision (a) or (b) (insofar as subdivision (b) relates to interest on
any Note) of this Section 11, any holder of the Notes at the time outstanding
may, at its option, by notice in writing to the Company, declare the Notes
then held by such holder to be due and payable, whereupon the Notes then held
by such holder shall forthwith mature and become due and payable, together
with interest accrued thereon and, to the extent permitted by applicable law,
the applicable Make Whole Amount with respect to such Notes.
At any time after the principal of, and interest accrued on, all the
Notes are declared due and payable, the Required Holders, by written notice
to the Company, may rescind and annul any such declaration and its
consequences (other than in respect of any Note which has been individually
accelerated pursuant to the proviso contained in the immediately preceding
paragraph) if (x) the Company has paid all overdue interest on the Notes, the
principal of and Make Whole Amount, if any, on any such Notes which have
become due otherwise than by reason of such declaration, and interest on such
overdue principal and the applicable Make Whole Amount and (to the extent
permitted by applicable law) overdue interest, at a rate per annum equal to
the rate of interest stated on the face of the Notes plus 2.0%, (y) all
Events of Default, other than nonpayment of amounts which have become due
solely by reason of such declaration, and all conditions and events which
constitute Events of Default or Potential Events of Default have been cured
or waived, and (z) no judgment or decree has been entered for the payment of
any monies due pursuant to the Notes or this Agreement; but no such
rescission and annulment shall extend to or affect any subsequent Event of
Default or Potential Event of Default or impair any right consequent thereon.
SECTION 12. REMEDIES ON DEFAULT; RECOURSE, ETC.
In case any one or more Events of Default or Potential Events of
Default shall occur and be continuing, (i) the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in such Note,
or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or
by law or otherwise, and (ii) the Trustee and the holders of the Notes may
exercise any rights or remedies in their respective capacities under the
Security Documents in accordance with the provisions thereof. In case of a
default in the payment or performance of any provision hereof or of the Notes
or of the Security Documents, the Company will pay to
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the holder of each Note such further amount as shall be sufficient to cover
the costs and expenses of collection, including, without limitation,
reasonable attorneys' fees, expenses and disbursements, and any out-of-pocket
costs and expenses of any such holder incurred in connection with analyzing,
evaluating, protecting, ascertaining, defending or enforcing any of its
rights as set forth herein or in any of the Security Documents. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall, to the extent permitted by law, operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this Agreement or by any
Note upon any holder thereof shall be exclusive of any other right, power or
remedy referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise.
SECTION 13. DEFINITIONS.
As used herein the following terms have the following respective
meanings:
1996 NOTE AGREEMENTS: the separate Note Agreements dated as of
December 11, 1996 among the Company, the General Partners and the Purchasers
listed in Schedule A attached hereto.
1996 NOTES: the 7.53% Senior Secured Notes due December 30, 2010, in
the aggregate original principal amount of $220,000,000, issued by the
Company pursuant to the 1996 Note Agreements.
ADMINISTRATIVE AGENT: Bank of America National Trust and Savings
Association, in its capacity as administrative agent for the Banks under the
Bank Credit Facilities, and its successors in such capacity.
AFFILIATE: as applied to any Person, any other Person directly or
indirectly controlling or controlled by or under common control with such
Person, PROVIDED that (i) for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with") as used with respect to any Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether as a general
partner or through the ownership of voting securities or by contract or
otherwise, (ii) as applied to the Company, the term "Affiliate" shall
include each General Partner and the Public Partnership, and (iii) neither
you nor any other Person which is an institution shall be deemed to be an
Affiliate of the Company solely by reason of ownership of the Notes or other
securities issued in exchange for the Notes or by reason of having the
benefits of any agreements or covenants contained in this Agreement or the
other Operative Agreements.
AGREEMENT: the meaning specified in Section 1.
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AVAILABLE CASH: with respect to any fiscal quarter of the Company,
(a) the sum of (i) all cash and cash equivalents of the Company and the
Restricted Subsidiaries on hand at the end of such quarter and (ii) all
additional cash and cash equivalents of the Company and the Restricted
Subsidiaries on hand on the date of determination of Available Cash with
respect to such quarter obtained through available borrowings for working
capital purposes made after the end of such quarter, less (b) (i) the amount
of cash reserves necessary or appropriate in the reasonable discretion of the
Managing General Partner to (A) provide for the proper conduct of the
business of the Company subsequent to such quarter and the Restricted
Subsidiaries (including, without limitation, cash reserves for future capital
expenditures) subsequent to such quarter or (B) provide funds for
distributions under Section 6.4 or 6.5 of the MLP Agreement in respect of any
one or more of the next four fiscal quarters or (C) comply with applicable
law or any loan agreement (including this Agreement), mortgage, security
agreement, debt instrument or other agreement or obligation to which the
Company or any Restricted Subsidiary is a party or by which it or its assets
are subject (including the payment of principal, Make Whole Amount or Premium
Amount, if applicable, and interest in respect of the Notes), or (ii) all
Dedicated Funds and (iii) all amounts which a Restricted Subsidiary is
prohibited from dividending or distributing to the Company; PROVIDED that
Available Cash shall exclude without duplication (x) in each fiscal calendar
quarter a reserve equal to at least 50% of the aggregate amount of all
interest payments, except for interest payments to be made in respect of
borrowings for working capital purposes, in respect of all Indebtedness of
the Company and the Restricted Subsidiaries upon which interest is due
semiannually or less frequently to be made in the next fiscal quarter
(assuming, in the case of Indebtedness incurred under the Bank Credit
Facilities and other Indebtedness bearing interest at fluctuating interest
rates which cannot be determined in advance, that the interest rate in effect
on the last Business Day of the immediately preceding fiscal quarter will
remain in effect until such Indebtedness is due to be paid), (y) with respect
to any Indebtedness secured equally and ratably with the Notes of which
principal is payable annually, in the third calendar quarter immediately
preceding each fiscal quarter in which any scheduled principal payment is due
with respect to such Notes and other Indebtedness (a "principal payment
quarter"), a reserve equal to at least 25% of the aggregate amount of all
principal to be paid in respect of such Notes and other such Indebtedness
secured equally and ratably with the Notes in such principal payment quarter;
in the second fiscal quarter immediately preceding a principal payment
quarter, a reserve equal to at least 50% of the aggregate amount of all
principal to be paid in respect of such Notes and other such Indebtedness in
such principal payment quarter; and in the fiscal quarter immediately
preceding a principal payment quarter, a reserve equal to at least 75% of the
aggregate amount of all principal to be paid in respect of such Notes and
other such Indebtedness in such principal payment quarter, and (z) with
respect to and any other Indebtedness secured equally and ratably with the
Notes of which principal is payable semiannually, in each fiscal quarter
which immediately precedes a fiscal quarter in which principal is payable in
respect of such Indebtedness a reserve equal to at least 50% of the aggregate
amount of all principal to be paid in respect of such other such
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Indebtedness in the next fiscal quarter; PROVIDED FURTHER that the amount of
such reserve specified in clauses (y) and (z) of this definition for
principal amounts to be paid shall be reduced by the aggregate principal
amount of all binding, irrevocable letters of credit established to refinance
such principal amounts.
BANK CREDIT FACILITIES: that Credit Agreement, dated as of November
20, 1998, among the Company, Bank of America National Trust and Savings
Association, as agent, and the Banks, pursuant to which the Initial
Acquisition Facility and the Working Capital Facility will be made available
to the Company, and any extension, renewal, refunding or replacement thereof
otherwise permitted to be incurred and outstanding under Section 10.1.
BANKRUPTCY LAW: the meaning specified in Section 11(g).
BANKS: the financial institutions listed in the signature pages of
the Bank Credit Facilities, each assignee which becomes a lender under the
Bank Credit Facilities pursuant to the terms thereof and their respective
successors.
BUSINESS: the operation by the Company and its Subsidiaries of the
wholesale and retail sale, distribution and storage of propane gas and
related petroleum derivative products, the leasing of propane storage tanks
and the related retail sale of supplies and equipment, including home
appliances, and such other businesses in which the Company and its Restricted
Subsidiaries were engaged on the date of Closing as may be described in the
Registration Statement.
BUSINESS DAY: any day other than a Saturday, a Sunday or a day on
which commercial banks in New York City or San Francisco, California are
required or authorized by law to be closed.
CALLED PRINCIPAL: with respect to any Note, the principal of such
Note that is to be prepaid pursuant to Section 9.2, 9.3 or 9.4 or becomes or
is declared to be immediately due and payable pursuant to Section 11, as the
context requires.
CAPITAL LEASE: as applied to any Person, any lease of any property
(whether real, personal or mixed) by such Person (as lessee or guarantor or
other surety) which would, in accordance with GAAP, be required to be
classified and accounted for as a capital lease on a balance sheet of such
Person.
CERCLA: the Federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended.
CHANGE OF CONTROL: any of the following:
(a) the liquidation or dissolution of the Managing General Partner
of the Company;
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(b) any merger or consolidation of the Managing General Partner with
or into any Person (other than a Permitted Holder) if the Managing General
Partner is not the surviving entity thereof, or any sale, whether direct or
indirect, of all or substantially all of the assets of the Managing General
Partner to any Person or "group" (as used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than to a Permitted
Holder;
(c) any Person or "group" is or becomes, directly or indirectly,
the beneficial owner of more than 50% of the then outstanding total voting
power of all classes of stock (or other securities) of the Managing General
Partner, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors (or Persons
performing similar functions) of the Managing General Partner;
(d) during any period of twelve consecutive months after the date of
Closing, individuals who at the beginning of such twelve month period (or
Persons nominated by such members of the Board of Directors of the Managing
General Partner to succeed them) constitute the Board of Directors of the
Managing General Partner cease, for any reason, to constitute a majority of
the Board of Directors of the general partner of the Company then in office;
or
(e) if the Permitted Holders cease to own, directly or indirectly,
in the aggregate, an amount of the general partnership interest in the
Company equal to at least fifty percent of the amount of the general
partnership interest in the Company owned, collectively, by the General
Partners on the date of Closing (as reduced to reflect the effect of the
Overallotment Option), PROVIDED it shall not be a Change of Control pursuant
to paragraph (b), (c), (d) or (e), if the Chief Executive Officer or Chief
Financial Officer of the Company, immediately prior to the events specified
therein, serves as Chief Executive Officer or Chief Financial Officer, after
the occurrence of such an event.
CHC: Cornerstone Holding Corp., a Delaware corporation.
CLOSING: the meaning specified in Section 3.
CODE: the Internal Revenue Code of 1986, as amended from time to
time.
COLLATERAL: collectively, the properties referred to as the
"Collateral" under the Company Security Agreement and as the "Security"
in the Trust Agreement.
COMMODITY HEDGING AGREEMENT(S): any agreement or arrangement
designed solely to protect the Company against fluctuations in the price of
propane or natural gas with respect to quantities of propane or natural gas
that the Company reasonably expects to purchase from suppliers, sell to its
customers or need for its inventory during the period covered by such
agreement or arrangement.
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COMPANY: the meaning specified in the Introduction.
COMPANY SECURITY AGREEMENT: the Security Agreement among the
Company, the Qualifying Restricted Subsidiaries and the Trustee substantially
in the form attached hereto as Exhibit E as amended from time to time.
COMPETITOR: any Person engaged primarily in the wholesale and retail
sale, distribution and storage of propane gas and related petroleum
derivative products.
CONSOLIDATED CASH FLOW: at any date of determination, for the period
of four consecutive fiscal quarters most recently completed at least 45 days
(except that, in connection with any calculation required pursuant to Section
10.4, for the period of four consecutive fiscal quarters most recently
completed) prior to such date of determination,
(a) the sum of, without duplication, the amounts for such period,
taken as a single accounting period, (i) Consolidated Net Income and (ii)
all amounts deducted in the determination of such Consolidated Net Income
for such period in respect of (v) interest charges (including
amortization of debt discount and expense and imputed interest on Capital
Lease obligations), (x) provisions for all income taxes and reserves
(including reserves for deferred income taxes), (y) all other non-cash
items, and (z) all fees, cost and expenses with respect to the retirement
or repayment of Indebtedness of either General Partner existing
immediately prior to the Closing, LESS
(b) without duplication, all amounts added in the determination of
such Consolidated Net Income for such period in respect of non-cash items.
Consolidated Cash Flow shall be calculated after giving effect (without
duplication) on a pro forma basis for the four consecutive fiscal quarters
most recently completed prior to such date of determination to any asset
sales or asset acquisitions (including, without limitation, any asset
acquisition giving rise to the need to make such calculation as a result of
the Company or any Restricted Subsidiary (including any Person who becomes a
Restricted Subsidiary as a result of such asset acquisition) incurring,
assuming or otherwise being liable for acquired Indebtedness) occurring
during the period commencing on the first day of such four fiscal quarter
period to and including the date of determination (the "REFERENCE PERIOD"),
as if such asset sale or asset acquisition occurred on the first day of the
Reference Period; PROVIDED, that Consolidated Cash Flow generated by an
acquired business or asset shall be determined on the basis of, without
duplication, (a) the actual gross profit (revenues minus cost of goods sold)
of the acquired business or asset during the immediately preceding four full
fiscal quarters), minus (b) the pro forma expenses that would have been
incurred by the Company or such Restricted Subsidiary in the operation of
such acquired business or asset during such period computed on the basis of
personnel expenses for employees retained or to be retained by the Company or
such Restricted Subsidiary in the operation of such acquired business or
asset and non-personnel costs and expenses incurred by the Company or the
Managing General Partner
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in the operation of its business at similarly situated Company facilities or
Restricted Subsidiary facilities. If the applicable Reference Period for any
calculation of Consolidated Cash Flow shall include a partial period
occurring prior to the Closing, then such Consolidated Cash Flow shall be
calculated based upon the Consolidated Cash Flow on a PRO FORMA basis for
such portion of the Reference Period prior to the Closing (giving effect to
the transactions occurring on the date of Closing) and the Consolidated Cash
Flow for the remaining portion of the Reference Period occurring on and after
the Closing, giving PRO FORMA effect, as described in the preceding
sentences, to all applicable transactions occurring on the date of Closing or
otherwise.
CONSOLIDATED INTEREST EXPENSE: as of any date of determination, the
total amount payable by the Company and the Restricted Subsidiaries on a
consolidated basis, during the period of twelve consecutive months
immediately following such date of determination in respect of all interest
charges (including amortization of debt discount and expense and imputed
interest on payments under Capital Lease obligations) with respect to
Indebtedness of the Company and the Restricted Subsidiaries outstanding on
the date of determination, assuming for such purpose (a) the amount of such
Indebtedness is not reduced or increased during such twelve month period, and
(b) that interest expense for such twelve month period with respect to
Indebtedness of a revolving nature shall equal the actual interest expense
for Indebtedness of a revolving nature during the most recently completed
twelve month period.
CONSOLIDATED NET INCOME: with reference to any period, the net
income (or deficit) of the Company and the Restricted Subsidiaries for such
period (taken as a cumulative whole), after deducting all operating expenses,
provisions for all taxes and reserves (including reserves for deferred income
taxes) and all other proper deductions, all determined in accordance with
GAAP on a consolidated basis, after eliminating all intercompany
transactions, PROVIDED that there shall be excluded (a) the income (or
deficit) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or a Restricted
Subsidiary, (b) the income (or deficit) of any Person (other than a
Restricted Subsidiary) in which the Company or any Restricted Subsidiary has
an ownership interest, except to the extent that any such income has been
actually received by the Company or such Restricted Subsidiary in the form of
dividends or similar distributions, (c) the undistributed earnings of any
Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is not at
the time permitted by the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Restricted Subsidiary, (d) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of income accrued during such period, (e) any aggregate net
after-tax gain or net after-tax loss during such period arising from the
sale, exchange or other disposition of capital assets (such term to include
all fixed assets, whether tangible or intangible, all Inventory sold in
conjunction with the disposition of fixed assets, and all
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securities), (f) any write-up of any asset, (g) any net gain from the
collection of the proceeds of life insurance policies, (h) any gain arising
from the acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness, of the Company or any Restricted Subsidiary, (i) any after
tax gain or loss during such period from any change in accounting, from any
discontinued operations or the disposition thereof, from any extraordinary
events or from any prior period adjustments, (j) any deferred credit
representing the excess of equity in any Restricted Subsidiary at the date of
acquisition over the cost of the investment in such Restricted Subsidiary,
and (k) in the case of a successor to the Company by consolidation or merger
or as a transferee of its assets, any earnings of the successor corporation
prior to such consolidation, merger or transfer of assets.
CONSOLIDATED NET WORTH: as to the Company, the amount by which
(i) the total assets of the Company and the Restricted Subsidiaries
appearing on a consolidated balance sheet of the Company and the
Restricted Subsidiaries prepared in accordance with GAAP as of the date
of determination exceeds
(ii) total liabilities of the Company and the Restricted Subsidiaries
appearing on a consolidated balance sheet of the Company and the
Restricted Subsidiaries prepared in accordance with GAAP as of the date
of determination on a consolidated basis,
in each case after eliminating all intercompany transactions; and as to any
other Person, the amount by which
(i) the total assets of such Person and its Subsidiaries appearing
on a consolidated balance sheet of such Person and its Subsidiaries
prepared in accordance with GAAP as of the date of determination (after
eliminating all amounts properly attributable to minority interests in
the stock and surplus, if any, of its Subsidiaries) exceeds
(ii) total liabilities of such Person and its Subsidiaries appearing
on a consolidated balance sheet of such Person and its Subsidiaries
prepared in accordance with GAAP as of the date of determination on a
consolidated basis,
in each case after eliminating all intercompany transactions.
CONSOLIDATED PRO FORMA DEBT SERVICE: as of any date of
determination, the total amount payable by the Company and the Restricted
Subsidiaries on a consolidated basis, during the four consecutive calendar
quarters next succeeding the date of determination, in respect of scheduled
principal payments and all cash interest charges with respect to Indebtedness
of the Company and the Restricted Subsidiaries outstanding on such date of
determination, after giving effect to any Indebtedness proposed to be
incurred on such
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date (the "Incurrence Date") and to any Indebtedness proposed to be repaid
from funds of such newly incurred Indebtedness (x) within 30 days of the
Incurrence Date, or (y) within the twelve months following such Incurrence
Date as to which funds for such payments have been within 30 days of the
Incurrence Date irrevocably placed in escrow with the Trustee with
irrevocable instructions to the Trustee to make such repayments (such funds
pursuant to clauses (x) and (y) collectively, the "Dedicated Funds") and
(a) including actual payments under Capital Lease obligations, (b) assuming,
in the case of Indebtedness (other than Indebtedness incurred under the Bank
Credit Facilities) bearing interest at fluctuating interest rates which
cannot be determined in advance, that the rate in effect on such date will
remain in effect throughout such period, (c) assuming in the case of
Indebtedness incurred under the Bank Credit Facilities, that (1) the interest
payments payable during such four consecutive calendar quarters next
succeeding the date of determination will equal the actual interest payments
associated with the Bank Credit Facilities during the most recent four fiscal
quarters, (2) except for the twelve-month period immediately prior to the
termination or final maturity thereof (unless extended, renewed or
refinanced), no principal payments will be made under the Working Capital
Facility and (3) principal payments relating to the Initial Acquisition
Facility will (unless already converted to a fixed amortization schedule)
become due based on the assumption that the conversion to the fixed
amortization schedule pursuant to Section 3.1(f) of the Bank Credit
Facilities is effected on the dates set forth therein, (d) treating the
principal amount of all Indebtedness outstanding as of such date of
determination under a revolving credit or similar agreement (other than the
Bank Credit Facilities) as maturing and becoming due and payable on the
scheduled maturity date or dates thereof (including the maturity of any
payment required by any commitment reduction or similar amortization
provision), without regard to any provision permitting such maturity date to
be extended and (e) including any other designated repayments of Indebtedness
due within twelve months from such date of determination.
DEDICATED FUNDS: the meaning specified in the definition of
"Consolidated Pro Forma Debt Service."
DISCOUNTED VALUE: with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a
semi-annual basis) equal to the Reinvestment Yield plus 50 basis points with
respect to such Called Principal.
DOLLAR AND SIGN "$": lawful money of the United States of America.
ENVIRONMENTAL LAWS: applicable federal, state, local and foreign
laws, rules or regulations relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment (including,
without limitation, air, surface water, ground water or land), or
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otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes.
ENVIRONMENTAL NOTICE: the meaning specified in Section 7(i).
ERISA: the Employee Retirement Income Security Act of 1974, as
amended from time to time.
EVENT OF DEFAULT: the meaning specified in Section 11.
EXCESS PROCEEDS: the meaning specified in Section 10.7(c).
GAAP: generally accepted accounting principles in effect in the
United States from time to time.
GENERAL PARTNER(S): the meaning specified in the Introduction.
GUARANTY: as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease (other than operating leases under which the Company or a
Restricted Subsidiary is the lessee), dividend or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed (otherwise than for collection or deposit in
the ordinary course of business) or discounted or sold with recourse by such
Person, or in respect of which such Person is otherwise directly or
indirectly liable or any other obligation under any contract which, in
economic effect, is substantially equivalent to a guaranty, including,
without limitation, any such obligation of a partnership in which such Person
is a general partner or of a joint venture in which such Person is a joint
venturer, and any such obligation in effect guaranteed by such Person through
any agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of
the obligor of such obligation, or to make payment for any products,
materials or supplies or for any transportation or services regardless of the
non-delivery or nonfurnishing thereof, in any such case if the purpose or
intent of such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss
in respect thereof.
HAZARDOUS MATERIALS: any gasoline or petroleum (including crude oil
or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos or asbestos-containing materials,
pollutants, contaminants, radioactivity, and any other materials or
substances of any kind, whether or not any such
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substance is defined as hazardous under any Environmental Law, that is
regulated pursuant to any Environmental Law or that could give rise to
liability under any Environmental Law.
INCURRENCE DATE: the meaning specified in the definition of
"Consolidated Pro Forma Debt Service."
INDEBTEDNESS: as applied to any Person (without duplication):
(a) any indebtedness for borrowed money which such Person has
directly or indirectly created, incurred or assumed;
(b) any indebtedness, whether or not for borrowed money, with
respect to which such Person has become directly or indirectly liable and
which represents the deferred purchase price (or a portion thereof) or
has been incurred to finance the purchase price (or a portion thereof) of
any property or service or business acquired by such Person, whether by
purchase, consolidation, merger or otherwise;
(c) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition or property, assets or businesses;
(d) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either
case with respect to property acquired by the Person (even though the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property);
(e) any obligations under Capital Leases to the extent such
obligations would, in accordance with GAAP, appear on a balance sheet of
such Person;
(f) any indebtedness, whether or not for borrowed money, secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien in respect of
property owned by such Person, whether or not such Person has assumed or
become liable for the payment of such indebtedness, PROVIDED that the
amount of such Indebtedness if not so assumed shall in no event be deemed
to be greater than the fair market value from time to time (as determined
in good faith by such Person) of the property subject to such Lien;
(g) all capital stock of such Person redeemable at the option of the
holder prior to the final maturity of the Notes, valued at the greater of
its voluntary or involuntary maximum fixed repurchase price or any
mandatory redemption payment obligations in respect thereon plus, in
either case, accrued dividends thereon;
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(h) any preferred stock of any Restricted Subsidiary of such Person
redeemable at the option of the holder prior to the final maturity of the
Notes, valued at the sum of the liquidation preference thereof or any
mandatory redemption payment obligations in respect thereof PLUS, in
either case, accrued dividends thereon;
(i) all liabilities of such Person in respect of letters of credit
or instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(j) any indebtedness of the character referred to in clause (a)
through (i) of this definition deemed to be extinguished under GAAP but
for which such Person remains legally liable; and
(k) any indebtedness of any other Person of the character referred
to in clause (a) through (j) of this definition with respect to which the
Person whose Indebtedness is being determined has become liable by way of
a Guaranty.
Notwithstanding the foregoing, in determining the Indebtedness of the Company
and the Restricted Subsidiaries, there shall be excluded all undrawn letters
of credit (not yet due and payable), all drawn letters of credit for which
the Company reimburses the issuer thereof in accordance with the terms of the
reimbursement agreement with respect thereto, trade accounts payable, accrued
interest and other accrued expenses and customer credit balances arising in
the ordinary course of business on ordinary terms.
INITIAL ACQUISITION FACILITY: that Initial Acquisition Facility
under the Bank Credit Facilities which shall permit borrowings thereunder in
an aggregate amount at any time no greater than as permitted by Section
10.1(e) and which shall be secured by the Collateral pursuant to the Security
Documents, and any extension, renewal, refunding or replacement thereof
otherwise permitted to be incurred and outstanding under Section 10.1.
INSTITUTIONAL INVESTOR: means (a) any original purchaser of a Note,
(b) any holder of a Note holding $1,000,000 or more of the aggregate
principal amount of the Notes then outstanding, and (c) any bank, trust
company, savings and loan association or other financial institution, any
pension plan, any investment company, any insurance company, any broker or
dealer, or any other similar financial institution or entity, regardless of
legal form.
INTERCOMPANY NOTES: any and all promissory notes of a Restricted
Subsidiary issued to the Company or to another Restricted Subsidiary, in the
form attached hereto as Exhibit F or such other form as may be satisfactory
to the Required Holders, representing all Indebtedness of such Restricted
Subsidiary to the Company or such other Restricted Subsidiary, as the case
may be.
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INTEREST RATE AGREEMENT: any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement
or arrangement designed solely to protect the Company against fluctuations in
interest rates on Indebtedness outstanding under the Bank Credit Facilities
entered into with one or more of the banks party to the Bank Credit
Facilities (or their affiliates).
INVENTORY: goods held by a Person for sale or lease and accounted
for as inventory under GAAP.
INVESTMENT: as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock or other securities of
any other Person, or any direct or indirect loan, advance or capital
contribution by such Person to any other Person, and any other item which
would be classified as an "investment" on a balance sheet of such Person
prepared in accordance with GAAP, including, without limitation, any direct
or indirect contribution by such Person of property or assets to a joint
venture, partnership or other business entity in which such Person retains an
interest. For the purposes of Section 10.3(b), the amount involved in
Investments made during any period shall be the aggregate cost to the Company
of all such Investments made during such period, determined in accordance
with GAAP, but without regard to unrealized increases or decreases in value,
or write-ups, write-downs or write-offs, of such investments and without
regard to the existence of any undistributed earnings or accrued interest
with respect thereto accrued after the respective dates on which such
Investments were made, less any net return of capital realized during such
period upon the sale, repayment or other liquidation of such Investment
(determined in accordance with GAAP, but without regard to any amounts
received during such period as earnings (in the form of dividends not
constituting a return of capital, interest or otherwise) on such Investment
or as loans from any Person in whom such Investments have been made).
LEGAL REQUIREMENT: any law, statute, ordinance, decree, requirement,
order, judgment, rule or regulation (or published official interpretation by
any governmental authority of any of the foregoing) of any governmental
authority.
LIEN: as to any Person, any mortgage, lien (statutory or otherwise),
pledge, reservation, right of entry, encroachment, easement, right of way,
restrictive covenant, license, charge, security interest or other encumbrance
in or on, or any interest or title of any vendor, lessor under any lease not
intended to be an operating lease, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
Capital Lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement with respect to any
of the foregoing which names such Person as debtor, or the signing of any
security agreement with respect to any of the foregoing authorizing any other
party as the secured party thereunder to file any financing statement or any
other agreement to give or grant any of the foregoing. Negative pledge
agreements, however, shall not constitute Liens for purposes of this
Agreement or any other Operative Agreement. For the purposes of this
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Agreement, a Person shall be deemed to be the owner of any asset which it has
placed in trust for the benefit of the holders of Indebtedness of such Person
and such trust shall be deemed to be a Lien if such Person remains legally
liable therefor, notwithstanding that such Indebtedness is or may be deemed
to be extinguished under GAAP.
MAKE WHOLE AMOUNT: with respect to any Note, an amount equal to the
excess, if any, of the Discounted Value of the Remaining Scheduled Payments
of the Called Principal of such Note over such Called Principal. The Make
Whole Amount shall in no event be less than zero.
MANAGING GENERAL PARTNER: Managing General Partner, so long as it
holds a general partner interest in the Company and shall be the managing
general partner as provided in the Partnership Agreement, and any successor
to such position as managing general partner, so long as such successor shall
hold such position.
MATERIAL ADVERSE EFFECT: a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects (financial or otherwise) of the Company and the Restricted
Subsidiaries, taken a whole (after giving effect to the transactions
contemplated by the Operative Agreements) or the Business, (b) the ability of
the Company, either General Partner or any Restricted Subsidiary to perform
its obligations under this Agreement or any other Operative Agreement to
which it is a party, or (c) the validity, enforceability, perfection or
priority of this Agreement or any other Operative Agreement or of the rights
or remedies of the holder of any Notes or the Trustee.
MAXIMUM CONSOLIDATED PRO FORMA DEBT SERVICE: as of any date of
determination, the highest total amount payable by the Company and the
Restricted Subsidiaries on a consolidated basis, during any period of four
consecutive fiscal quarters, commencing with the fiscal quarter in which such
date of determination occurs and ending on the maturity date of the Notes, in
respect of scheduled principal payments and all cash interest charges with
respect to all Indebtedness of the Company and the Restricted Subsidiaries
outstanding or to be outstanding as a result of the transactions occurring on
such date of determination, after giving effect to any Indebtedness to be
incurred on the Incurrence Date and to any Indebtedness proposed to be repaid
from Dedicated Funds and (a) including actual payments under Capital Lease
obligations, (b) assuming, in the case of Indebtedness (other than
Indebtedness incurred under the Bank Credit Facilities) bearing interest at
fluctuating interest rates which cannot be determined in advance, that the
rate in effect on such date will remain in effect throughout such period, (c)
assuming in the case of Indebtedness incurred under the Bank Credit
Facilities, that (1) the interest payments payable during such four
consecutive calendar quarters will equal the actual interest payments
associated with the Bank Credit Facilities during the most recent four fiscal
quarters, (2) except for the twelve-month period immediately prior to the
termination or final maturity thereof (unless extended, renewed or
refinanced) no principal payments will be made under the Working Capital
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Facility and (3) principal payments relating to the Initial Acquisition
Facility will (unless already converted to a fixed amortization schedule)
become due based on the assumption that the conversion to the fixed
amortization schedule pursuant to Section 3.1(f) of the Bank Credit
Facilities is effected on the dates set forth therein, (d) treating the
principal amount of all Indebtedness outstanding as of such date of
determination under a revolving credit or similar agreement (other than the
Bank Credit Facilities) as maturing and becoming due and payable on the
scheduled maturity date or dates thereof (including the maturity of any
payment required by any commitment reduction or similar amortization
provision), without regard to any provision permitting such maturity date to
be extended and (e) including any other designated repayments of Indebtedness.
MEMORANDUM: the meaning specified in Section 5.4(b).
MLP AGREEMENT: the Amended and Restated Agreement of Limited
Partnership of the Public Partnership.
MULTIEMPLOYER PLAN: a Plan which is a "multiemployer plan" within
the meaning of Section 4001(a)(3) of ERISA.
NOTES: the meaning specified in Section 1.
OBSOLETE ASSETS: means assets, property or equipment that have been
determined by the Company, in good faith, to no longer be useful in the
operations or the business of the Company or a Restricted Subsidiary.
OFFICERS' CERTIFICATE: as to any corporation, a certificate executed
on its behalf by the Chairman of the Board of Directors (if an officer) or
its President or one of its Vice Presidents and its Treasurer, or Controller,
or one of its Assistant Treasurers or Assistant Controllers, and, as to any
partnership, a certificate executed on behalf of such partnership by its
Managing General Partner in a manner which would qualify such certificate as
an Officers' Certificate of such Managing General Partner hereunder.
OPERATIVE AGREEMENTS: this Agreement, the Other Agreements, the
Notes, the Bank Credit Facilities, the Security Documents, the Underwriting
Agreement, the PCI Agreements, the MLP Agreement and the Partnership
Agreement.
OTHER AGREEMENTS: the meaning specified in Section 2.
OTHER PURCHASERS: the meaning specified in Section 2.
OVERALLOTMENT OPTION: the overallotment option granted to the
Underwriters by the Public Partnership pursuant to the Underwriting Agreement.
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PARITY DEBT: Indebtedness of the Company incurred in accordance with
Section 10.1(b), 10.1(e), 10.1(f), 10.1(i), 10.1(j), 10.1(m) or 10.1(s) and
secured by the lien of the Security Documents in accordance with Section
10.2(h), 10.2(i) or 10.2(m).
PARTNERSHIP AGREEMENT: the Amended and Restated Agreement of Limited
Partnership of the Company, as in effect on the date of the Closing, and as
the same may from time to time be amended, modified or supplemented in
accordance with the terms thereof and Section 10.12 hereof, in the form of
Exhibit G.
PBGC: the Pension Benefit Guaranty Corporation or any governmental
authority succeeding to any of its functions.
PCI: the meaning specified in Section 2.
PCI Agreements: (a) the Stock Purchase and Contribution Agreement
dated October 27, 1998, among the Public Partnership, CHC, PCI and the
holders of stock and warrants of PCI named therein, as amended from time to
time, and (b) each of the individual instruments of conveyance to be
delivered to the Company or its Affiliates pursuant to the agreement referred
to in the foregoing clause (a).
PERFECTION CERTIFICATE: a certificate from the Company in
substantially the form attached hereto as Exhibit H.
PERMITTED BANKS: the meaning specified in Section 10.3(a).
PERMITTED ENCUMBRANCES: the encumbrances and exceptions to title to
properties or assets (a) described in the Security Documents or (b) existing
on the date of Closing as permitted by the applicable provisions hereof with
respect to real property owned or leased by the Company or otherwise
permitted hereunder pursuant to Section 10.2(j).
PERMITTED EXCEPTIONS: the meaning specified in Section 5.8(a).
PERMITTED HOLDERS: Northwestern Corporation, a Delaware corporation,
and any Person directly or indirectly controlling or controlled by
Northwestern Corporation, PROVIDED that for purposes of this definition
"control" shall have the same meaning assigned to such term in the
definition of Affiliate.
PERMITTED INSURERS: insurers with ratings of A- or better according
to Best's Insurance Reports or a comparable rating agency for insurance
companies located outside of the United States of America and Canada and with
assets of no less than $500 million.
PERSON: a corporation, a limited liability company, a firm, a joint
venture, an association, a partnership, an organization, a business, a trust
or other entity or enterprise, an individual, a government or political
subdivision thereof or a governmental agency, department or instrumentality.
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PLAN: an "employee pension benefit plan" (as defined in Section
3(2) of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by either General Partner, the Company
or any Related Person of the Company or either General Partner or to which
either General Partner, the Company or any Related Person of the Company or
either General Partner is or has been obligated to contribute, or an employee
benefit plan as to which either General Partner, the Company or any Related
Person of the Company or either General Partner could be treated as a
contributory sponsor under Section 4069 or Section 4212 of ERISA if such plan
were terminated.
POTENTIAL EVENT OF DEFAULT: any condition or event which, with
notice or lapse of time or both, would become an Event of Default.
PREMIUM AMOUNT: the meaning specified in Section 9.3(d).
PUBLIC PARTNERSHIP: Cornerstone Propane Partners, L.P., a Delaware
limited partnership.
PURCHASE MONEY LIEN: the meaning specified in Section 10.2(j).
QPAM EXEMPTION: the meaning specified in Section 6.2(c).
QUALIFYING RESTRICTED SUBSIDIARIES: the Restricted Subsidiaries
other than Cornerstone Sales & Service Corporation.
RCRA: the Federal Resource Conservation and Recovery Act, as amended.
REGISTRATION STATEMENT: the Registration Statement on Form S-3 under
the Securities Act of 1933, as amended, of the Public Partnership
(Registration Number 333-60931), as initially filed with the Securities and
Exchange Commission on August 7, 1998, and as may be amended from time to
time through the date of Closing by subsequent filings with the Securities
and Exchange Commission, and the Prospectus Supplement delivered thereunder.
REINVESTMENT YIELD: with respect to the Called Principal of any
Note, the yield to maturity implied by (i) the yields reported, as of 10:00
a.m. (New York City time) on the Business Day next preceding the Settlement
Date with respect to such Called Principal, on the display designated as
"USD" on the Bloomberg Financial Markets (or such other display as may
replace USD on the Bloomberg Financial Markets) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not
be reported as of such time or the yields reported as of such time shall not
be ascertainable, including by interpolation (ii) the Treasury constant
maturity series yields reported, for the latest day for which such yields
shall have been so reported as of the Business Date next preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical
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Release H.15 (519) (or any comparable successor publication) for actively
traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield shall be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the maturity closest to and equal
to or greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the maturity closest to and equal to or less than
the Remaining Average Life.
RELATED PERSON: with respect to a Person, any trade or business,
whether or not incorporated, which, as of any date of determination, would be
treated as a single employer together with such Person under Section 414 of
the Code.
REMAINING AVERAGE LIFE: with respect to the Called Principal of any
Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the
products obtained by multiplying (a) each Remaining Scheduled Payment of such
Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due
date of such Remaining Scheduled Payment.
REMAINING SCHEDULED PAYMENTS: with respect to the Called Principal
of any Note, all payments of such Called Principal and interest thereon that
would be due on or after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, PROVIDED that if such Settlement Date is not a date on
which interest payments are due to be made under the terms of the Notes, then
the amount of the next succeeding scheduled interest payment will be reduced
by the amount of interest accrued to such Settlement Date and required to be
paid on such Settlement Date pursuant to Sections 9 or 11.
REQUIRED HOLDERS: the holders of at least 66-2/3% in principal
amount of the Notes at the time outstanding.
REQUISITE PERIOD: the meaning specified in Section 10.1(e)(ii)(l).
RESPONSIBLE OFFICER: with respect to any Person, the President, any
Vice President, the Chief Financial Officer, the Treasurer and the Secretary
of such Person and any other officer of such Person who is responsible for
compliance with or performance of any obligation under this Agreement or the
other Operative Agreements, with respect to the Company, any such officer of
the Managing General Partner and, in any case, any employee of the Company
performing any of the above functions.
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RESTRICTED AFFILIATE: Northwestern Growth Corporation, a Delaware
corporation, or any of its Subsidiaries as long as any such Person would
otherwise be an Affiliate of the Company.
RESTRICTED PAYMENT: as to any Person, (a) any payment, dividend or
other distribution, direct or indirect, in respect of any partnership
interest (general or limited) in, or on account of any shares of any class of
stock of, such Person, except a distribution payable solely in additional
partnership interests in, or shares of stock of, such Person, and (b) any
payment, direct or indirect, on account of the redemption, retirement,
purchase or other acquisition of any partnership interest in, or any shares
of any class of stock of, such Person now or hereafter outstanding or of any
warrants, rights or options to acquire any such shares, except to the extent
that the consideration therefor consists of shares of stock or partnership
interests in of such Person, PROVIDED payments by the Company or a Restricted
Subsidiary of the Company to either General Partner or any of its Affiliates
for services rendered to or on behalf of the Company or any Restricted
Subsidiary of the Company or expenses incurred in connection with the
operation of the business of the Company or any Restricted Subsidiary of the
Company (including, without limitation, reimbursement of expenses incurred
under any employee benefit plan) including plans providing for the issuance
of Units or options to acquire Units in the Public Partnership shall not be
deemed to be Restricted Payments.
RESTRICTED SUBSIDIARY: any Wholly Owned Subsidiary of the Company
(a) organized under the laws of the United States of America or any state
thereof or the District of Columbia, (b) none of the capital stock or
ownership interests of which is owned by Unrestricted Subsidiaries, (c)
substantially all of the operating assets of which are located in, and
substantially all of the business of which is conducted within the United
States of America and the business of which consists principally of the
wholesale and retail sale, distribution and storage of propane gas and/or
natural gas and related petroleum derivative products and/or the related
retail sale of supplies and equipment, including home appliances, and for the
provision of related services and (d) designated by the Company as a
Restricted Subsidiary, PROVIDED that (i) to the extent a newly formed or
acquired Wholly Owned Subsidiary satisfying the requirements of the foregoing
clauses (a), (b) and (c) is not declared either a Restricted Subsidiary or an
Unrestricted Subsidiary within 90 days of its formation or acquisition, such
Wholly Owned Subsidiary shall be deemed a Restricted Subsidiary and (ii) a
Restricted Subsidiary may be designated as an Unrestricted Subsidiary in
accordance with the provisions of Section 10.19(a). Solely for purposes of
the representations and warranties made in Section 5 (other than Section
5.4), PCI shall be deemed to be a Restricted Subsidiary as of the date of
this Agreement.
SECURITY DOCUMENTS: the Trust Agreement, the Company Security
Agreement, the Subsidiary Guarantee Agreement, the Perfection Certificate,
and all other security agreements and documents and instruments executed and
delivered in order to secure the
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Indebtedness and/or perfect the Liens referred to in the Trust Agreement or
to guarantee the Company's obligations hereunder and under the Notes.
SETTLEMENT DATE: shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant
to Section 9.2, 9.3 or 9.4 or is declared to be or becomes immediately due
and payable pursuant to Section 11, as the context requires.
SUBSIDIARY: of any Person, means any corporation, limited liability
company, business trust, association, partnership, joint venture or other
business entity at least a majority (by number of votes) of the stock of any
class or classes (or equivalent interests) of which is at the time owned by
such Person or by one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries of such Person, if the holders of the stock of
such class or classes (or equivalent interests) (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of
the directors (or Persons performing similar functions) of such business
entity, even though the right so to vote has been suspended by the happening
of such a contingency, or (b) are at the time entitled, as such holders, to
vote for the election of the majority of the directors (or Persons performing
similar functions) of such business entity, whether or not the right so to
vote exists by reason of the happening of a contingency. Unless the context
otherwise requires, any reference to a Subsidiary shall mean a Subsidiary of
the Company.
SUBSIDIARY GUARANTEE AGREEMENT: the Guarantee Agreement among the
Qualifying Restricted Subsidiaries and the Trustee substantially in the form
attached hereto as Exhibit I, as amended from time to time.
SUBSTANTIAL PORTION: the meaning specified in Section 7(a).
SUPPLEMENTAL AGREEMENT: an agreement between a Qualifying Restricted
Subsidiary and the Trustee substantially in the form attached hereto as
Exhibit J, as amended from time to time.
TRUST AGREEMENT: the Intercreditor and Trust Agreement, dated as of
December 11, 1996, among the Company, the Qualifying Restricted Subsidiaries,
the Trustee, the holders of the 1996 Notes and the other parties named
therein, which the Administrative Agent and the Banks have joined as
additional parties, substantially in the form attached hereto as Exhibit C,
as amended from time to time.
TRUSTEE: U.S. Trust Company of Texas, N.A., as Trustee under the
Trust Agreement, and its successors and assigns thereunder.
UNDERWRITERS: the underwriters named in the Underwriting Agreement.
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UNDERWRITING AGREEMENT: the Underwriting Agreement, dated December
7, 1998, among the Public Partnership, the Managing General Partner, the
Company and the Underwriters, relating to securities of the Public
Partnership registered under the Registration Statement.
UNIFORM COMMERCIAL CODE: the Uniform Commercial Code or similar
statute in effect from time to time in any jurisdiction.
UNITS: the units to be issued and sold by the Public Partnership
pursuant to the Underwriting Agreement, representing preference limited
partnership interests in the Public Partnership.
UNRESTRICTED SUBSIDIARY: any Subsidiary other than a Restricted
Subsidiary which is organized under the laws of the United States of America
or any state thereof or the District of Columbia and substantially all of the
operating assets of which are located in, and substantially all of the
business of which is conducted within the United States of America and which
business consists principally of the distribution of propane gas or related
supplies and equipment.
WHOLLY OWNED: as applied to any Subsidiary, a Subsidiary all of the
outstanding shares (other than directors' qualifying shares, if required by
law) of every class of stock or other equity interests of which are at the
time owned by the Company or by one or more Wholly Owned Restricted
Subsidiaries or by the Company and one or more Wholly Owned Restricted
Subsidiaries.
WORKING CAPITAL FACILITY: that Working Capital Facility under the
Bank Credit Facilities which shall permit borrowings and the issuance of
letters of credit for the Company thereunder in an aggregate amount
outstanding at any time no greater than as permitted by Section 10.1(e) and
which shall be secured by the Collateral pursuant to the Security Documents
and any extension, renewal, refunding or replacement thereof otherwise
permitted to be incurred and outstanding under Section 10.1.
YEAR 2000 COMPLIANT: shall mean that neither performance nor
functionality of any of the Borrower's or its Subsidiaries' computer hardware
or software is materially affected by dates prior to, on, or after December
31, 1999. In particular: (a) no value for any current date will cause any
material interruption in operation; and (b) date based functionality must
behave consistently for dates prior to, on and after December 31, 1999 in all
material respects.
YEAR 2000 PROBLEM: means the risk that computer applications used by
the Borrower and its Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving any date prior to, on or after
December 31, 1999.
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SECTION 14. REGISTRATION, TRANSFER AND SUBSTITUTION OF NOTES.
14.1. NOTE REGISTER; OWNERSHIP OF NOTES. Any Notes issued in
substantially the form of Exhibit A are in "registered form". The Company
will keep at its principal office a register in which the Company will
provide for the registration of Notes in registered form and the registration
of transfers of Notes in registered form. The Company and the Trustee may
treat the Person in whose name any Note is registered on such register as the
owner thereof for the purpose of receiving payment of the principal of and
the Make Whole Amount or premium, if any, and interest on such Note and for
all other purposes, whether or not such Note shall be overdue, and the
Company shall not be affected by any notice to the contrary. All references
in this Agreement or in a Note to a "holder" of any Note shall mean the
Person in whose name such Note is at the time registered on such register.
14.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note
for registration of transfer or for exchange to the Company at its principal
office, the Company at its expense will execute and deliver in exchange
therefor a new Note or Notes in denominations of at least $500,000 (except
one Note may be issued in a lesser principal amount if the unpaid principal
amount of the surrendered Note is not evenly divisible by, or is less than,
$500,000), as requested by the holder or transferee, which aggregate the
unpaid principal amount of such surrendered Note. Each such new Note shall
be in registered form. Each such Note shall be dated so that there will be
no loss of interest on such surrendered Note and otherwise of like tenor, and
shall be registered in the name or names of such Person as such holder or
transferee may request. Any Note in lieu of which any such new Note has been
executed and delivered shall not be deemed to be an outstanding Note for any
purpose of this Agreement.
14.3. REPLACEMENT OF NOTES. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Note and, in the case of any such loss, theft or destruction of any Note,
upon delivery of an indemnity bond in such reasonable amount as the Company
may determine (or, in the case of any Note held by you or another
Institutional Investor holder or your or its nominee, of an unsecured
indemnity agreement from you or such other holder), or, in the case of any
such mutilation, upon the surrender of such Note for cancellation to the
Company at its principal office, the Company at its expense will execute and
deliver, in lieu thereof, a new Note in the unpaid principal amount of such
lost, stolen, destroyed or mutilated Note, dated so that there will be no
loss of interest on such Note and otherwise of like tenor. Any Note in lieu
of which any such new Note has been so executed and delivered by the Company
shall not be deemed to be an outstanding Note for any purpose of this
Agreement.
14.4. NOTES HELD BY COMPANY, ETC. DEEMED NOT OUTSTANDING. For
the purposes of determining whether the holders of the Notes of the requisite
principal amount at the
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time outstanding have taken any action authorized by this Agreement or any
other Operative Agreement with respect to the giving of consents or approvals
or with respect to the acceleration upon an Event of Default, any Notes
directly or indirectly owned by the Company, either General Partner or any of
their respective Affiliates shall be disregarded and deemed not to be
outstanding.
SECTION 15. PAYMENTS ON NOTES.
15.1. PLACE OF PAYMENT. Payments of principal, Make Whole
Amount, Premium Amount or premium, if any, and interest becoming due and
payable on the Notes shall be made at the principal office of the Trustee in
the Borough of Manhattan, the City and State of New York by 12:00 noon,
unless the Company, by written notice to each holder of any Notes, shall
designate the principal office of another bank or trust company in such
Borough as such place of payment, in which case the principal office of such
other bank or trust company shall thereafter be such place of payment.
15.2. HOME OFFICE PAYMENT. So long as you or your nominee shall
be the holder of any Note, and notwithstanding anything contained in Section
15.1 or in such Note to the contrary, the Company will pay all sums becoming
due on such Note for principal, Make Whole Amount and Premium Amount, if any,
and interest no later than 12:00 noon (New York City time) and by the method
and at the address specified for such purpose in Schedule A, or by such other
reasonable method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that any Note paid or prepaid in full shall, after such payment or
prepayment in full, be surrendered to the Company at its principal office or
at the place of payment maintained by the Company pursuant to Section 15.1
for cancellation. Prior to any sale or other disposition of any Note held by
you or your nominee you will, at your election, either endorse thereon the
amount of principal paid thereon and the last date to which interest has been
paid thereon or surrender such Note to the Company in exchange for a new Note
or Notes pursuant to Section 14.2. The Company will afford the benefits of
this Section 15.2 to any Institutional Investor which is the direct or
indirect transferee of any Note purchased by you under this Agreement and
which has made the same agreement relating to such Note as you have made in
this Section 15.2.
SECTION 16. EXPENSES, INDEMNIFICATION, ETC.
(a) Whether or not the transactions contemplated hereby shall be
consummated, the Company will pay all reasonable expenses in connection with
such transactions and in connection with any amendments or waivers (whether
or not the same become effective) under or in respect of this Agreement, the
other Operative Agreements or the Notes, including, without limitation: (i)
the cost and expenses of preparing and reproducing this Agreement, the other
Operative Agreements and the Notes, of furnishing all opinions by counsel for
the Company, the Restricted Subsidiaries or the General
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Partners (including any opinions requested by your special counsel, Debevoise
& Plimpton, as to any legal matter arising hereunder) and all certificates on
behalf of the Company, either General Partner or any Restricted Subsidiary,
and of the Company's, either General Partner's or any Restricted Subsidiary's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with; (ii) the cost of
delivering to your principal office, insured to your satisfaction, the Notes
issued in exchange for the Notes sold to you hereunder and any Notes
delivered to you upon any substitution thereof pursuant to Section 14 and of
your delivering any Notes, insured to your satisfaction, upon any such
substitution; (iii) the reasonable fees, expenses and disbursements of your
special counsel, Debevoise & Plimpton (or such other counsel as may be
selected by the Note holders) and your local counsel in connection with such
transactions and any such amendments or waivers; (iv) the costs and expenses,
including attorneys' fees, incurred by you or any subsequent holder of a Note
in enforcing (or determining whether or how to enforce) any rights under this
Agreement, any other Operative Agreement or the Notes or in responding to any
subpoena or other legal process in connection with this Agreement, any other
Operative Agreement or the Notes or the transactions contemplated hereby or
by reason of you or any subsequent holder of Notes having acquired any Note,
including without limitation costs and expenses incurred in any bankruptcy
case; (v) the cost and expenses of obtaining a Private Placement Number for
the Notes; and (vi) the reasonable out-of-pocket expenses incurred by you in
connection with such transactions and any such amendments or waivers,
PROVIDED that the Company shall be required to pay the cost and expenses of
only one firm (and any local counsel) retained by the Note holders in
connection with any waivers or amendments. The Company also will pay, and
will save you and each holder of any Notes harmless from, all claims in
respect of the fees, if any, of brokers and finders (unless engaged by you)
and any and all liabilities with respect to any taxes (including interest and
penalties) (other than income taxes) which may be payable in respect of the
execution and delivery hereof, the issue of the Notes hereunder and any
amendment or waiver under or in respect hereof or of the Notes. In
furtherance of the foregoing, on the date of the Closing the Company will pay
the reasonable fees and disbursements of your special counsel which are
reflected as unpaid in the statement of Debevoise & Plimpton, your special
counsel, delivered to the Company prior to the date of the Closing; and
thereafter the Company will pay, promptly upon receipt of supplemental
statements therefor from time to time, additional fees, if any, and
disbursements of your special counsel in connection with the transactions
hereby contemplated (including unposted disbursements as of the date of the
Closing).
(b) The Company will protect, indemnify and save harmless the
Trustee and each present, future and former holder of any Note and their
respective officers, directors, trustees, employees, agents and
representatives (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties") from and against all losses, liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, attorneys' fees and expenses) imposed upon or
incurred by or asserted against
85
<PAGE>
any Indemnified Party by reason of (a) ownership of the Collateral, or any
interest therein, or receipt of any rent or other sum therefrom, (b) any
accident or injury to or death of persons or loss of or damage to property
occurring on or about the Collateral or any part thereof, (c) any use,
non-use or condition of the Collateral or any part thereof, (d) any failure
on the part of the Company, either General Partner or any of their respective
Subsidiaries or Affiliates to perform or comply with any of the terms of this
Agreement or any other Operative Agreement, (e) the performance of any labor
or services or the furnishing of any materials or other property in respect
of the Collateral or any part thereof, (f) any negligence or tortious act on
the part of the Company, either General Partner, any of their respective
Subsidiaries or Affiliates or any of their respective agents, contractors,
sublessees, licensees or invitees, (g) any work in connection with any
alterations, changes or construction of the Collateral, (h) any other
relationship that has arisen or may arise between the Company, either General
Partner or any of their respective Subsidiaries or Affiliates and the
Indemnified Parties or the Collateral as a result of the delivery or
performance of this Agreement, any other Operative Agreement or any action
contemplated hereby or thereby or by any other document executed in
connection herewith or therewith, (i) the presence or removal, or the
discharge, spillage, leakage, emission, release, threat of release or
disposal, of any Hazardous Materials on, under, about or from the Collateral
or the noncompliance with any Legal Requirement relating thereto, whether
arising prior to the issuance of the Notes or at any time thereafter and
whether or not the Company, either General Partner or any of their respective
Subsidiaries or Affiliates is responsible therefor or (j) the holding of, or
any interest in, any sum deposited or paid under this Agreement, the Notes or
any other Operative Agreement, PROVIDED that nothing contained herein shall
be deemed to require the Company to indemnify the Indemnified Parties for
conditions (other than matters covered by clause (f) above) first occurring
subsequent to the earlier of (x) the taking of exclusive possession and
control of the Collateral for operational purposes pursuant to Section 6.03
of the Company Security Agreement, (y) the foreclosure of the Lien under any
Security Document and the transfer of title to the Trustee, or (z) for their
respective gross negligence or willful misconduct, or for their breach of
their respective obligations under this Agreement or the other Operative
Agreements.
In case any action, claim, suit or proceeding is brought against an
Indemnified Party by reason of any such occurrence, the Company may, and upon
the request of such Indemnified Party will, at the Company's expense resist
and defend such action, suit or proceeding or cause the same to be resisted
and defended by counsel for the insurer of the liability or by counsel
designated by the Company and reasonably satisfactory to the Indemnified
Party, as the case may be, PROVIDED that any Indemnified Party shall be
entitled to participate in any such action, suit or proceeding with counsel
of its own choice but at its own expense, and PROVIDED FURTHER that if any
Indemnified Party reasonably determines that a conflict of interest exists
with respect to the representation by such counsel of such Indemnified Party,
the Company shall pay the fees and expenses of counsel selected by such
Indemnified Party. In any event, if the Company fails to
86
<PAGE>
assume the defense within a reasonable time after any such request, the
Indemnified Party may assume such defense or other indemnification obligation
and the fees and expenses of its attorney will be paid by the Company. The
obligations of the Company under this Section 16 shall survive any
termination or satisfaction of this Agreement. Any amounts payable to any
Indemnified Party under this Section 16 which are not paid within 15 days
after written demand therefor by any Indemnified Party shall bear interest at
a rate per annum equal to the rate of interest stated on the face of the
Notes plus 2.0% from the date of such demand. In the event that the Company
shall be required to pay any indemnity under this Section 16, the Company
shall pay the Indemnified Party an amount which, after deduction of all taxes
required to be paid by such Indemnified Party in respect of the receipt or
accrual thereof (but not for any taxes payable with respect to amounts
received for the payment of income taxes), shall be equal to the amount of
such indemnity.
(c) In connection with the Closing, the Managing General Partner and
the Company are requesting that you make available for funding an amount
equal to the principal amount specified opposite your name in Schedule A.
If, for any reason, on the date scheduled by the Managing General Partner and
the Company as the date for the Closing, you shall at their request have made
such amount available, and (i) the closing conditions are not satisfied by
11:00 a.m. on such scheduled date, (ii) the Managing General Partner and the
Company do not, by 11:00 a.m. on such scheduled date reschedule such Closing
for a subsequent date, and (iii) the Closing in fact does not occur on such
scheduled date, the General Partners and the Company will protect, indemnify
and hold you harmless from and against any and all losses resulting from your
failure or inability to invest on the scheduled date for the Closing the
purchase price of the Notes to be purchased by you, for the period ending on
the next following Business Day at a rate of interest equal to or greater
than the rate of interest on the Notes.
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in this Agreement or the
other Operative Agreements, or made in writing by or on behalf of either
General Partner, the Company, any Restricted Subsidiary or any of their
Affiliates in connection with the transactions contemplated by this Agreement
or the other Operative Agreements, shall survive the execution and delivery
of this Agreement and the other Operative Agreements, any investigation at
any time made by you or on your behalf, the purchase of the Notes by you
under this Agreement and any disposition or payment of the Notes. All
statements contained in any certificate or other instrument delivered by or
on behalf of the General Partners, the Company or any Restricted Subsidiary
pursuant to this Agreement and/or the other Operative Agreements or in
connection with any amendment, waiver or modification of this Agreement or
any of the other Operative Agreements shall be deemed representations and
warranties of the Company under this Agreement.
87
<PAGE>
SECTION 18. AMENDMENTS AND WAIVERS.
Any term of this Agreement or of the Notes may be amended and the
observance of any term of this Agreement or of the Notes may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the Required
Holders, PROVIDED that, without the prior written consent of the holders of
all the Notes at the time outstanding, no such amendment or waiver shall (a)
change the maturity or the principal amount of, or change the rate of
interest or the time of payment of interest on, or change the amount or the
time of payment of any principal or Make Whole Amount or Premium Amount on
any prepayment of, any Note, (b), subject to other requirements set forth in
the Trust Agreement, release any Lien against the Collateral for the benefit
of the holders of the Notes, (c) reduce the aforesaid percentage of the
principal amount of the Notes the holders of which are required to consent to
any such amendment or waiver or change the rights of the holders of a Note
with respect thereto, (d) change the percentage of the principal amount of
the Notes the holders of which may declare the Notes to be due and payable as
provided in Section 11 or change the rights of the holders of a Note with
respect thereto, (e) change the percentage of the principal amount of the
Notes the holders of which may rescind and annul any such declaration as
provided in Section 11 or (f) modify the provisions of Section 9.8 or this
Section 18. Any amendment or waiver effected in accordance with this Section
18 shall be binding upon each holder of any Note at the time outstanding,
each future holder of any Note, either General Partner and the Company.
SECTION 19. NOTICES, ETC.
Except as otherwise provided in this Agreement, notices and other
communications under this Agreement shall be in writing and shall be
delivered by hand, by express courier service or by registered or certified
mail, return receipt requested, postage prepaid, addressed, (a) if to you, at
the address set forth in Schedule A or at such other address as you shall
have furnished to the Company in writing, except as otherwise provided in
Section 15.2 with respect to payments on Notes held by you or your nominee,
or (b) if to any other holder of any Note, at such address as such other
holder shall have furnished to the Company in writing, or, until any such
other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Note who has furnished an address to the
Company, or (c) if to the Company or either General Partner, at the address
set forth at the beginning of this Agreement to the attention of Senior Vice
President and Chief Financial Officer, or at such other address, or to the
attention of such other officer, as the Company shall have furnished to you
and each such other holder in writing.
88
<PAGE>
SECTION 20. REPRODUCTION OF DOCUMENTS.
This Agreement, each Operative Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and
notifications which may hereafter be executed, (b) documents received by you
at the Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to you,
may be reproduced by you by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and you may
destroy any original document so reproduced. Each General Partner and the
Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 21. MISCELLANEOUS.
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not, and, in particular, shall inure to the
benefit of and be enforceable by any holder or holders at the time of the
Notes or any part thereof, PROVIDED that the benefits of Sections 7, 14.3 and
15.2 shall be limited as therein provided. Except as stated in Section 17,
this Agreement embodies the entire agreement and understanding among you, the
General Partners and the Company and supersedes all prior agreements and
understandings relating to the subject matter hereof. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
SECTION 22. SUBMISSION TO JURISDICTION.
For the purpose of assuring that any holder of Notes may enforce its
rights under this Agreement, the Notes and the other Operative Agreements,
each General Partner and the Company, for itself and its successors and
assigns, hereby, to the fullest extent permitted by applicable law,
irrevocably (a) agrees that any legal or equitable action, suit or proceeding
brought against it arising out of or relating to this Agreement, any other
Operative Agreement and the Notes, or any transaction contemplated hereby or
the subject matter of any of the foregoing or for recognition or enforcement
of any judgment rendered in any such action, suit or proceeding may be
instituted in any state or federal court sitting in the Borough of Manhattan
in the State of New York, (b) waives any objection which it may now or
hereafter have to the laying of venue of any such action, suit or proceeding
brought in any such court, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient
forum, or any
89
<PAGE>
right to require the proceeding to be conducted in any other jurisdiction by
reason of its present or future domicile, (c) irrevocably submits itself to
the non-exclusive jurisdiction of any state or federal court of competent
jurisdiction sitting in the Borough of Manhattan in the State of New York for
purposes of any such action, suit or proceeding, and (d) irrevocably waives
any immunity from jurisdiction to which it might otherwise be entitled in any
such action, suit or proceeding which may be instituted in any state or
federal court sitting in the Borough of Manhattan in the State of New York,
and irrevocably waives any immunity from, or objection to, the maintaining of
an action against it to enforce any judgment for money obtained in any such
action, suit or proceeding and any immunity from execution.
SECTION 23. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER
OPERATIVE AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR THE
SUBJECT MATTER OF ANY OF THE FOREGOING.
SECTION 24. GOVERNING LAW.
THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED IN THE CITY OF NEW
YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA. THIS AGREEMENT AND
(UNLESS OTHERWISE EXPRESSLY PROVIDED) ALL AMENDMENTS AND SUPPLEMENTS TO, AND
ALL CONSENTS AND WAIVERS PURSUANT TO, THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SECTION 25. CONFIDENTIAL INFORMATION.
For the purposes of this Section 25, "Confidential Information"
means information delivered to you by or on behalf of the Company or any
Restricted Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that
was clearly marked or labeled or otherwise adequately identified when
received by you as being confidential information of the Company or such
Restricted Subsidiary, PROVIDED that such term does not include information
that (a) was publicly known or otherwise known to you prior to the time of
such disclosure, (b) subsequently becomes publicly known through no act or
omission by you or any person acting on your behalf, (c) otherwise becomes
known to you other than
90
<PAGE>
through disclosure by the Company or any Restricted Subsidiary or (d)
constitutes financial statements delivered to you under Section 7 that are
otherwise publicly available. You will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by you in good
faith to protect confidential information of third parties delivered to you,
PROVIDED that you may deliver or disclose Confidential Information to (i)
your directors, trustees, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with
the terms of this Section 25, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any
part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 25), (v) any Person from which you offer to
purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 25), (vi) any federal or state regulatory
authority having jurisdiction over you, (vii) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about your
investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to
which you are a party or (z) if an Event of Default has occurred and is
continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 25
as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this
Agreement or its nominee), such holder will enter into an agreement with the
Company embodying the provisions of this Section 25.
91
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Agreement and return the same
to the undersigned, whereupon this Agreement shall become a binding agreement
between you and the undersigned.
Very truly yours,
CORNERSTONE PROPANE, L.P.
By: CORNERSTONE PROPANE GP, INC.
as Managing General Partner
By /s/ Ronald J. Goedde
-------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
CORNERSTONE PROPANE GP, INC.
By /s/ Ronald J. Goedde
-------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
SYN INC.
By /s/ Daniel K. Newell
-------------------------------
Name: Daniel K. Newell
Title: Vice President
92
<PAGE>
The foregoing Agreement is
hereby accepted and agreed
to as of the date first
above written.
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Patricia W. Wilson
-------------------------
Name: Patricia W. Wilson
By /s/ Daniel C. Leimbach
-------------------------
Name: Daniel C. Leimbach
Authorized Signatories
AMERICAN CENTURION LIFE ASSURANCE COMPANY
By /s/ Lorraine R. Hart
-------------------------
Name: Lorraine R. Hart
Title: Vice President
AMERICAN PARTNERS LIFE INSURANCE COMPANY
By /s/ Lorraine R. Hart
-------------------------
Name: Lorraine R. Hart
Title: Vice President
93
<PAGE>
IDS LIFE INSURANCE COMPANY
By: American Express Financial Corporation
By /s/ Lorraine R. Hart
-------------------------
Name: Lorraine R. Hart
Title: Vice President
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By /s/ Robert E. Whalen, II
-------------------------
Name: Robert E. Whalen, II
Title: Second Vice President
NORTHERN LIFE INSURANCE COMPANY
By: ReliaStar Investment Research, Inc.
By /s/ James V. Wittich
-------------------------
Name: James V. Wittich
Title: Assistant Treasurer
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By /s/ Richard A. Strait
-------------------------
Name: Richard A. Strait
Title: Authorized Representative
94
<PAGE>
PACIFIC LIFE INSURANCE COMPANY formerly
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By /s/ Diane W. Dales By /s/ Peter S. Fiek
------------------------- -------------------------
Name: Diane W. Dales Name: Peter S. Fiek
Title: Assistant Vice President Title: Assistant Secretary
RELIASTAR LIFE INSURANCE COMPANY
By: ReliaStar Investment Research, Inc.
By /s/ James V. Wittich
-------------------------
Name: James V. Wittich
Title: Authorized Representative
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK
By: ReliaStar Investment Research, Inc.
By /s/ James V. Wittich
-------------------------
Name: James V. Wittich
Title: Vice President, Investments
RELIASTAR UNITED SERVICES LIFE INSURANCE COMPANY
By: ReliaStar Investment Research, Inc.
By /s/ James V. Wittich
-------------------------
Name: James V. Wittich
Title: Assistant Treasurer
95
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
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<CURRENT-ASSETS> 95,884
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0
0
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<INCOME-PRETAX> (4,741)
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