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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported) December 23, 1993
PETROLEUM HEAT AND POWER CO., INC.
(Exact name of registrant as specified in its charter)
Minnesota 2-88526
(State or other jurisdiction of incorporation) (Commission File No.)
Clearwater House
2187 Atlantic Street
Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 325-5400
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Item 1. Change in Control of Registrant.
None
Item 2. Acquisition Or Disposition of Assets.
On December 23, 1993, Petroleum Heat and Power Co., Inc.
(the "Company") invested $16 million in Star Gas Corporation
("Star Gas"), a Delaware corporation engaged in the retail
distribution of propane. Star Gas is the tenth largest retail
distributor of propane in the United States with operations in
the Midwest, Southeast and Northeast, selling approximately 100
million gallons of retail propane annually.
The Company's investment was part of an overall
restructuring of the debt and equity of Star Gas, whereby
approximately $27 million of new cash equity was invested into
Star Gas by the Company, Star Gas Holdings, Inc. ("Holdings") and
First Reserve Secured Energy Assets Fund, L.P., American Gas &
Oil Investors, AmGo II, AmGo III and FRC Star Gas, Inc. (the
"Other Investors") pursuant to a Purchase Agreement dated as of
December 21, 1993. The Company's investment of $16 million, $2
million of which was invested through Holdings, is in the form of
Series A 8% Cumulative Convertible Preferred Stock of Star Gas,
which stock is convertible into approximately 29.5% of Star Gas'
equity as of the closing (which percentage is expected to
increase to approximately 36.7% without any further investment by
the Company, after completion of the reorganization of Star Gas
over the next two years). The Company's $16 million investment
was funded with working capital of the Company.
Star Gas has granted to the Company an option to purchase an
additional 10% of Star Gas' equity for cash. Further, the Other
Investors and The Prudential Insurance Company of America
("Prudential"), an additional investor in Star Gas, have granted
to the Company the right to purchase, for either cash or the
Company's common stock, at the Company's discretion, Star Gas'
remaining equity held by them, which option is exercisable for
the period beginning on the date on which Star Gas' audited
financial statements for the fiscal year ending September 30,
1994 are first delivered to the Company and ending December 31,
1998. In addition, the Other Investors and Prudential each have
an option to require the Company to purchase all of the Star Gas
equity held by them, which option is exercisable beginning
January 1, 1999 (or upon a change of control of the Company).
The Company has entered into a Shareholders' Agreement with
the Other Investors and Prudential, which provides that the
Company is entitled to nominate for election up to three persons
to serve as a director of Star Gas, Holdings is entitled to
nominate up to two persons, and the Other Investors (as a group)
and Prudential together are entitled to nominate for election up
to a total of three persons. Further, the parties to the
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Shareholders' Agreement have agreed to fill any vacancy on the
Board of Directors of Star Gas by the election of a person
designated by the shareholders of the category of shareholders
entitled to fill such vacancy.
The Company will manage Star Gas' business under a
Management Services Agreement which provides for an annual fee of
$500,000 and an annual bonus payable in Star Gas common stock
equal to 5% of the increase in Star Gas' net income before
interest, taxes and annual depreciation and amortization
("EBITDA"), over the year-end September 30, 1993. Star Gas also
shall reimburse the Company for its expenses and the cost of
certain Company personnel.
Item 3. Bankruptcy Or Receivership.
None
Item 4. Changes in Registrant's Certifying Accountant.
None
Item 5. Other Events.
None
Item 6. Resignation of Registrant's Directors.
None
Item 7. Financial Statements and Exhibits.
(a)-(b) It is impracticable for the Company at this time
to file the audited financial statements of Star Gas, as well as
the pro forma financial information required relative to the Star
Gas business. Such financial statements shall be provided to the
Securities and Exchange Commission as soon as they become
available, in any event no later than sixty days from the date
hereof.
(c) The following documents are filed herewith as exhibits:
(1) Purchase Agreement, dated as of December 21, 1993,
among Star Gas Holdings, Inc., First Reserve
Secured Energy Assets Fund, L.P. American Gas &
Oil Investors, AmGo II, AmGo III, FRC Star Gas,
Inc., Star Gas and the Company.
(2) Option from Star Gas to the Company, dated as of
December 21, 1993.
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(3) Shareholder Put/Call Agreement, dated as of December
21, 1993, among the Company, the Other Investors and
Prudential.
(4) Shareholders' Agreement, dated as of December 21, 1993,
among the Company, the Other Investors and Prudential.
(5) Management Services Agreement, dated as of December 21,
1993, between the Company and Star Gas.
Item 8. Changes in Fiscal Year.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
PETROLEUM HEAT AND POWER CO., INC.
/s/ Irik P. Sevin
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Name: Irik P. Sevin
Title: President, Chairman of the
Board and Chief Financial and
Accounting Officer and Director
Date: January 4, 1994
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EXHIBITS
Exhibit No. Exhibit Page
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1. Purchase Agreement, dated as of December 21,
1993, among Star Gas Holdings, Inc., First
Reserve Secured Energy Assets Fund, L.P.
American Gas & Oil Investors, AmGo II, AmGo
III, FRC Star Gas, Inc., Star Gas and the
Company.
2. Option from Star Gas to the Company, dated as
of December 21, 1993.
3. Shareholder Put/Call Agreement, dated as of
December 21, 1993, among the Company, the Other
Investors and Prudential.
4. Shareholders' Agreement, dated as of December 21,
1993, among the Company, the Other Investors and
Prudential.
5. Management Services Agreement, dated as of
December 21, 1993, between the Company and Star
Gas.
Exhibit 1
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PURCHASE AGREEMENT
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AGREEMENT entered into this 21st day of December, 1993
among PETROLEUM HEAT AND POWER CO., INC., a Minnesota corporation
("Petro"), STAR GAS HOLDINGS, INC. ("Holdings"), a Delaware
corporation, FIRST RESERVE SECURED ENERGY ASSETS FUND, L.P.
("SEA"), AMERICAN GAS & OIL INVESTORS, AmGO II, AmGO III, FRC
STAR GAS, INC. and STAR GAS CORPORATION, a Delaware corporation
(the "Company" or "Star Gas").
ARTICLE I
1.1. Purchase and Sale of Preferred Stock. Subject to
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the terms and conditions hereof and on the basis of the
representation and warranties hereinafter set forth, at the
Closing, the Company shall issue and sell to each of the
Investors, and each of the Investors agrees to purchase, shares
of Preferred Stock, in the aggregate principal amount, and of the
series, opposite the name of each Investor in Schedule 1 at a
price of $100 per share.
ARTICLE II
2.1. Definitions. For all purposes of this Agree-
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ment, except as otherwise expressly provided or unless the con-
text otherwise requires:
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"Affiliate" and "Associate" have the meanings pre-
scribed by Rule 12b-2 of the regulations promulgated pursuant to
the Securities Exchange Act of 1934, as amended.
"Balance Sheet" means the consolidated balance sheet of
the Company referred to in Section 3.6(ii) of this Agreement.
"Closing" means the closing referred to in Section 11.1
of this Agreement.
"Closing Date" means the date on which the Closing
occurs.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company Subsidiary" means any corporation (a) of which
the Company directly or indirectly owns or controls at the time
outstanding shares of stock which have in ordinary circumstances
(not dependent upon the happening of a contingency) voting power
to elect a majority of the board of directors of said corpora-
tion, or (b) of which shares of stock of the character described
in the foregoing clause (a) shall at the time be owned or con-
trolled directly or indirectly by the Company and one or more
Company Subsidiaries as defined in the foregoing clause (a) or
directly or indirectly by one or more such Company Subsidiaries.
"Disclosure Schedule" means the document delivered by
the Company to the Investors simultaneously with the execution
hereof containing the information required to be included therein
pursuant to this Agreement.
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"Existing Shareholders" means American Gas & Oil
Investors, SEA, FRC Star Gas, Inc., AmGO II and AmGO III.
"FTC" means the United States Federal Trade Commission.
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act.
"Investor" means each of, and "Investors" means
collectively all of, Petro, Holdings, American Gas & Oil
Investors, SEA, AmGO II and AmGO III.
"Preferred Stock" means the Series A, Series B, Series
C, Series D and Series E 8% Cumulative Convertible Preferred
Stock of the Company and the Series A and Series B 12.625%
Cumulative Redeemable Preferred Stock of the Company as described
in the Certificate of Designations, Preferences and Rights of the
8% Cumulative Convertible Preferred Stock and the 12.625%
Cumulative Redeemable Preferred Stock of Star Gas Corporation
annexed as Schedule 2.1 ("Certificate of Designation").
"Prudential" means The Prudential Insurance Company of
America, a New Jersey mutual insurance corporation.
Certain terms used principally in Section 3.31 of this
Agreement are defined in that section. The plural of any defined
term shall have a meaning correlative to such defined term.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company hereby represents and warrants to Investors
as follows:
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3.1. Corporate Organization; Etc. The Company is a
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corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full corporate
power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns; is
duly qualified or licensed to do business as a foreign corpora-
tion in good standing in the jurisdictions listed in Section 3.1
of the Disclosure Schedule, which are all the jurisdictions in
which ownership of property or the conduct of its business
requires such qualification except jurisdictions in which the
Company's failure to qualify to do business will not have a
material adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of the
Company and the Company Subsidiaries taken as a whole or, if the
Company is not so qualified in any such jurisdiction, and is not
required to qualify based upon ownership of property or the
conduct of its business but is required to qualify on a different
basis, it can become so qualified in such jurisdiction without
any material adverse effect (including assessment of state taxes
for prior years) upon its business and properties. The copies of
the Certificate of Incorporation and By-Laws of the Company
heretofore delivered to Investors are complete and correct copies
of such instruments as presently in effect.
3.2. Capitalization of the Company. Prior to the
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effective date of this Agreement and the filing of a revised
Amended and Restated Certificate of Incorporation for the
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Company, the authorized capital stock of the Company consists of
20,000 shares of Common Stock, $1 par value per share, of which
251.31 shares are issued and outstanding and 15.12 shares are
held in the treasury of the Company, and 302,500 shares of
preferred stock, 2,500 shares of which have a par value of $.01
per share and 300,000 of which have no par value per share, of
which 48,000 shares have been designated Series A Preferred
Stock, of which 40,309.5 shares are issued and outstanding and
1,420 shares have been designated as 8% cumulative convertible
preferred stock all of which are issued and outstanding. All
issued and outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. All of the shares
of 8% Cumulative Convertible Preferred Stock to be issued under
this Agreement have been duly authorized and when issued to the
Investors in accordance with the terms of this Agreement, will be
duly and validly issued, fully paid and non-assessable. Except
as contemplated by this Agreement and except for the Company's 8%
Cumulative Convertible Preferred Stock to be issued to Prudential
in connection with a capital restructuring, there are no
outstanding (a) securities convertible into or exchangeable for
the Company capital stock; (b) options, warrants or other rights
to purchase or subscribe for capital stock of the Company or
securities convertible into or exchangeable for capital stock of
the Company; or (c) contracts, commitments, agreements, under-
standings or arrangements of any kind to which the Company and
any Company Subsidiary is a party or by which the Company or any
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Company Subsidiary is bound relating to the issuance of any
capital stock of the Company, any such convertible or ex-
changeable securities or any such options, warrants or rights.
3.3. Subsidiaries and Affiliates. Section 3.3(a) of
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the Disclosure Schedule sets forth the name, jurisdiction of in-
corporation and capitalization of each Company Subsidiary and the
jurisdictions in which each Company Subsidiary is qualified to do
business. Except as disclosed in Section 3.3(b) of the Disclo-
sure Schedule, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any corporation
or have any direct or indirect equity or ownership interest in
any business not listed in Section 3.3(a) of the Disclosure
Schedule. Except as and to the extent set forth in Section
3.3(a) of the Disclosure Schedule, all the outstanding capital
stock of each Company Subsidiary is owned directly or indirectly
by the Company free and clear of all liens, options or encum-
brances of any kind and all material claims or charges of any
kind, and is validly issued, fully paid and nonassessable, and
there are no outstanding options, rights or agreements of any
kind relating to the issuance, sale or transfer of any capital
stock or other equity securities of any such Company Subsidiary
to any person except the Company. Each Company Subsidiary (i) is
a corporation duly organized, validly existing and in good stand-
ing under the laws of its state of incorporation; (ii) has full
corporate power and authority to carry on its business as it is
now being conducted and to own the properties and assets it now
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owns; and (iii) is duly qualified or licensed to do business as a
foreign corporation in good standing in each jurisdiction listed
immediately below the name of such Company Subsidiary in Section
3.3(c) of the Disclosure Schedule which is every jurisdiction in
which ownership of property or the conduct of its business
requires such qualification except jurisdictions in which such
Company Subsidiary's failure to qualify will not have a material
adverse effect on the business, prospects, operations,
properties, assets, or condition (financial or otherwise) of the
Company and the Company Subsidiaries taken as a whole, or, if a
Company Subsidiary is not so qualified in any such jurisdiction,
and is not required to qualify based upon ownership of property
or the conduct of its business, but is required to qualify on a
different basis, it can become so qualified in such jurisdiction
without any material adverse effect (including assessment of
state taxes for prior years) upon its business and properties.
The Company has heretofore delivered to Investors complete and
correct copies of the certificate of incorporation and by-laws of
each Company Subsidiary, as presently in effect.
3.4. Authorization, Etc. The Company has full
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corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby. The Board of
Directors and stockholders of the Company have taken all action
required by law, the Company's Certificate of Incorporation, its
By-Laws or otherwise to be taken by them to authorize the
execution and delivery of this Agreement and the consummation of
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the transactions contemplated hereby, and this Agreement is a
valid and binding agreement of the Company enforceable in
accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' rights, and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
3.5. No Violation. Neither the execution and delivery
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of this Agreement nor the consummation of the transactions
contemplated hereby will violate any provision of the Certificate
of Incorporation or By-Laws of the Company or any Company
Subsidiary, or, except as specified in Section 3.5 of the
Disclosure Schedule, violate, or be in conflict with, or consti-
tute a default (or an event which, with notice or lapse of time
or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or
cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any
security interest, lien or other encumbrance upon any property or
assets of the Company or any Company Subsidiary under, any agree-
ment or commitment to which the Company or any Company Subsidiary
is a party or by which the Company or any Company Subsidiary is
bound, or to which the property of the Company or any Company
Subsidiary is subject, or violate any statute or law or any judg-
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ment, decree, order, regulation or rule of any court or govern-
mental authority, which violations, conflicts, defaults,
terminations, accelerations, security interests, encumbrances,
liens and violations would individually or in the aggregate
materially and adversely affect the business of the Company and
the Company Subsidiaries taken as a whole.
3.6. Financial Statements. The Company has heretofore
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delivered to Investors true, complete and accurate copies of the
following: (i) a consolidated balance sheet of the Company and
the Company Subsidiaries as at September 30 in each of the years
1987 through 1992; and consolidated statements of operations,
stockholders' equity and cash flows for each of the years then
ended, all certified by Ernst & Young, independent certified
public accountants, or by another nationally recognized firm of
independent certified public accountants, whose reports thereon
are included therein; and (ii) an unaudited consolidated balance
sheet of the Company and the Company Subsidiaries as at September
30, 1993, and unaudited consolidated statements of operations,
stockholders' equity and cash flows for the year then ended.
Such consolidated balance sheets and, where applicable, the notes
thereto fairly present in all material respects the consolidated
assets, liabilities and financial condition of the Company and
the Company Subsidiaries as at the respective dates thereof, and
such consolidated statements of income, stockholders' equity and
cash flows and the notes thereto fairly present in all material
respects the consolidated results of operations of the Company
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and the Company Subsidiaries for the periods therein referred to;
all in accordance with generally accepted accounting principles
consistently applied throughout the periods involved.
3.7. No Undisclosed Liabilities; Etc. Except as
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disclosed in Section 3.7 of the Disclosure Schedule, neither the
Company nor any Company Subsidiary has any material liabilities
or obligations of any nature (absolute, accrued, contingent or
otherwise) which are required to be disclosed in its financial
statements and the notes thereto in accordance with generally
accepted accounting principles which were not fully reflected or
reserved against in the Balance Sheet or disclosed in the notes
thereto, except for such liabilities and obligations incurred in
the ordinary course of business and consistent with past practice
since the date thereof. An undisclosed liability or obligation
will not be considered material if it was unknown to the Company
or Company Subsidiaries on the date hereof and both (i) it is
less than $100,000 (provided that all such undisclosed
liabilities do not exceed $300,000 in the aggregate) and (ii)
does not have a material adverse effect on the business,
prospects, operations, properties, assets or condition (financial
or otherwise) of the Company and the Company Subsidiaries taken
as a whole.
3.8. Accounts Receivable. All accounts receivable of
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the Company and each Company Subsidiary, whether reflected in the
Balance Sheet or arising after September 30, 1993, represent
sales actually made in the ordinary course of business, and the
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reserves shown on the Balance Sheet or established thereafter
were calculated in a manner consistent with past practice.
3.9. Inventory. The quantities of all inventory of the
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Company and each Company Subsidiary are reasonable in the present
circumstances of their respective businesses.
3.10. Absence of Certain Changes. Except as and to
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the extent set forth in Section 3.10 of the Disclosure Schedule
and costs associated with the execution of this Agreement and the
consummation of the transactions contemplated hereby, since the
date of the Balance Sheet, neither the Company nor any Company
Subsidiary has:
(a) Suffered any material adverse change in its
working capital, financial condition, assets, reserves, business,
operations or prospects, except such adverse changes as would not
have a material adverse effect on the Company and the Company
Subsidiaries taken as a whole and except for changes related to
warm weather and seasonality which have affected the industry as
a whole or, for the period between the date hereof and the
Closing, any matters which affect the industry as a whole;
(b) Incurred any obligations (absolute, accrued,
contingent or otherwise) except items incurred in the ordinary
course of business and consistent with past practice;
(c) Paid, discharged or satisfied any claim,
liabilities or obligations (absolute, accrued, contingent or
otherwise) other than the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice
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of liabilities and obligations reflected or reserved against in
the Balance Sheet or incurred in the ordinary course of business
and consistent with past practice since the date of the Balance
Sheet;
(d) Without the consent of Petro, written down
the value of any inventory (including write-downs by reason of
shrinkage or mark-down) or written off as uncollectible any notes
or accounts receivable, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with
past practice;
(e) Canceled any debts or waived any claims or
rights of substantial value;
(f) Sold, transferred, or otherwise disposed of
any of its properties or assets (real, personal or mixed, tang-
ible or intangible), except in the ordinary course of business
and consistent with past practice;
(g) Granted any general increase in the com-
pensation of officers or employees (including any such increase
pursuant to any bonus, pension, profit sharing or other plan or
commitment) and no such increase is customary on a periodic basis
or required by agreement or understanding;
(h) Made any single capital expenditure or
commitment in excess of $100,000 for additions to property,
plant, equipment or intangible capital assets or made aggregate
capital expenditures and commitments in excess of $500,000 (on a
consolidated basis) for additions to property, plant, equipment
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or intangible capital assets and which is not consistent with
past practices;
(i) Declared, paid or set aside for payment any
dividend or other distribution in respect of its capital stock,
except in either case by a Company Subsidiary to another Company
Subsidiary or to the Company or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or
other securities of the Company;
(j) Made any material change in any method of ac-
counting or accounting practice;
(k) Paid, loaned or advanced any amount to, or
sold, transferred or leased any properties or assets (real,
personal or mixed, tangible or intangible) to, or entered into
any agreement or arrangement with, any of its officers or direc-
tors or any affiliate or associate of any of its officers or
directors except for directors' fees; or
(l) Agreed, whether in writing or otherwise, to
take any action described in this Section.
3.11. Title to Properties; Encumbrances. Subject
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to matters set forth on Schedule 3.11(a), each of the Company and
the Company Subsidiaries has good, valid and marketable title to
all the properties and assets reflected in the Balance Sheet
(except (i) for its wholly owned subsidiary Federal Petroleum
Company which the Company has sold and (ii) such assets and
property as have been sold since the date of the Balance Sheet in
the ordinary course of business and consistent with past
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practice), and all the properties and assets purchased by the
Company and Company Subsidiaries since the date of the Balance
Sheet, which subsequently acquired properties and assets (other
than inventory), all of which have been acquired in the ordinary
course of business. Except as disclosed in Section 3.11(b) of
the Disclosure Schedule, all properties and assets reflected in
the Balance Sheet or acquired thereafter are free and clear of
all title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever includ-
ing, without limitation leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title
or interest retention arrangements, and are not, in the case of
real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations or limitations
of any nature whatsoever except, with respect to all such proper-
ties and assets, (a) liens shown on the Balance Sheet as securing
specified liabilities or obligations and liens incurred in con-
nection with the purchase of property and/or assets, if such
purchase was effected after the date of the Balance Sheet, with
respect to which no default exists; (b) minor imperfections of
title, if any, none of which impair the use of the property
subject thereto, or impair the operations of the Company or any
Company Subsidiary since the date of the Balance Sheet; and (c)
liens for current taxes not yet due. The rights, properties and
other assets presently owned, leased or licensed by the Company
and the Company Subsidiaries and described elsewhere in this
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Agreement include all rights, properties and other assets
necessary to permit the Company and the Company Subsidiaries to
conduct their businesses in all material respects in the same
manner as their businesses are being conducted prior to the date
hereof.
3.12. Plant and Equipment. Except as disclosed in
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Section 3.12 of the Disclosure Schedule, to the Company's
knowledge, none of such plants, structures or equipment are in
need of maintenance or repairs except for ordinary, routine
maintenance and repairs which are not material in nature or cost
and except for capital improvements consistent with past
experience.
3.13. Patents, Trademarks, Trade Names, Etc.
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Neither the Company nor any Company Subsidiary owns, or is
licensed to use any patents, copyrights, technology, know-how or
processes. Except as disclosed in Section 3.13 of the Disclosure
Schedule, the Company and each Company Subsidiary owns or has the
unrestricted right to use all trademarks and trade names used in
or necessary for the conduct of its business as presently
conducted without payment of any kind. Section 3.13 of the
Disclosure Schedule contains an accurate and complete description
of all trademarks and trade names used or proposed to be used by
the Company or any Company Subsidiary and all pending
applications therefor. Except as set forth in Section 3.13 of
the Disclosure Schedule, the Company and each Company Subsidiary
has the sole and exclusive right to use the trademarks and trade
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names referred to in the Disclosure Schedule, and the
consummation of the transactions contemplated hereby will not
alter or impair any such rights; no claims have been asserted by
any person to the use of any such trademarks or trade names and
the Company does not know of any valid basis for any such claim;
and the use of such trademarks and trade names by the Company or
any Company Subsidiary does not infringe on the rights of any
person.
3.14. Leases. Section 3.14 of the Disclosure
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Schedule contains an accurate and complete description of all
leases or forms of leases pursuant to which the Company or any
Company Subsidiary leases real or personal property and accurate
copies of such leases and forms of leases have been delivered, or
have been made available, to Investors. Except as set forth in
Section 3.14 of the Disclosure Schedule (i) all such leases are
valid, binding and enforceable in accordance with their terms,
and are in full force and effect subject to limitations imposed
by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally, (ii) there are no existing defaults by the Company or
any Company Subsidiary thereunder or to the knowledge of the
Company by any other party, and (iii) no known event of default
has occurred which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would consti-
tute a default thereunder except in the case of clauses (i), (ii)
and (iii) where such invalidity, defaults or events of default
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would not, individually or in the aggregate, have a material
adverse effect on the business, prospects, operations,
properties, assets or condition (financial or otherwise) of the
Company and the Company Subsidiaries taken as a whole. Executed
counterpart copies of all consents referred to in the preceding
sentence have been delivered to Investors.
3.15. Intentionally Deleted.
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3.16. Taxes. Each of the Company and the Company
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Subsidiaries has duly filed all material tax reports and returns
required to be filed by it and has duly paid (or has adequate
reserves for) all material taxes and other charges due or claimed
to be due from it by federal, state, local or foreign taxing
authorities (including, without limitation, those due in respect
of the properties, income, franchises, licenses, sales or
payrolls of any of them); the reserves for taxes reflected in the
Balance Sheet are adequate; and there are no material tax liens
upon any property or assets of the Company or any Company
Subsidiary except liens for current taxes not yet due. The
federal income tax returns of the Company and each Company
Subsidiary have been examined by the Internal Revenue Service for
those periods set forth in Section 3.16(a) of the Disclosure
Schedule; and, except to the extent shown therein, all deficien-
cies asserted as a result of such examinations have been paid or
finally settled and no issue has been raised by the Internal
Revenue Service in any such examination which, by application of
the same or similar principles, reasonably could be expected to
18
<PAGE>
result in a proposed deficiency for any other period not so ex-
amined. Except to the extent set forth in Section 3.16(b) of the
Disclosure Schedule, there are no outstanding agreements or
waivers extending the statutory period of limitation applicable
to any federal income tax return for any period. Copies of all
federal income tax returns for the Company and the Company
Subsidiaries in respect of all years not barred by the statute of
limitations have heretofore been delivered by the Company to
Investors and all such returns are listed in Section 3.16(b) of
the Disclosure Schedule. Neither the Company nor any Company
Subsidiary has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f)(2) of the Code.
3.17. Contracts and Commitments. Except as set
--------------------------
forth in Section 3.17 of the Disclosure Schedule:
(a) Neither the Company nor any Company Subsid-
iary has any agreements, contracts, commitments or restrictions
which are material to the business, operations or prospects of
the Company and the Company Subsidiaries taken as a whole or
which require the making of any charitable contribution;
(b) No purchase contract or commitment of the
Company or any Company Subsidiary continues for a period of more
than 12 months or is in excess of the normal, ordinary and usual
requirements of business or contains commercially unreasonable
terms;
19
<PAGE>
(c) There are no outstanding sales contracts,
commitments or proposals of the Company or any Company Subsidiary
which continue beyond July 31, 1994;
(d) There are no propane purchase agreements of
the Company;
(e) Neither the Company nor any Company
Subsidiary has any outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable
by it on notice of not longer than 30 days and without liability,
penalty or premium or any agreement or arrangement providing for
the payment of any bonus or commission based on sales or
earnings;
(f) Neither the Company nor any Company Sub-
sidiary has any employment agreement, or any other agreement that
contains any severance or termination pay liabilities or obliga-
tions;
(g) Neither the Company nor any Company Sub-
sidiary has any collective bargaining or union contracts or
agreements;
(h) Neither the Company nor any Company Sub-
sidiary has any employee to whom it is paying compensation at the
annual rate of more than $100,000 for services rendered;
(i) Neither the Company nor any Company
Subsidiary is restricted by agreement from carrying on its
business as presently conducted anywhere in the world;
20
<PAGE>
(j) Neither the Company nor any Company Subsidi-
ary has any debt obligation for borrowed money, including
guarantees of or agreements to acquire any such debt obligation
of others;
(k) Neither the Company nor any Company Sub-
sidiary has any outstanding loan for borrowed money to any person
other than to the Company or a wholly-owned subsidiary of the
Company; and
(l) Neither the Company nor any Company Sub-
sidiary has any power of attorney outstanding or any obligations
or liabilities (whether absolute, accrued or contingent), as
guarantor, surety, co-signer, endorser, co-maker, or indemnitor
in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other
entity.
3.18. Suppliers. Section 3.18 of the Disclosure
---------
Schedule sets forth the ten largest suppliers of the Company and
the Company Subsidiaries (on a consolidated basis) of propane in
terms of purchases during the twelve months ended September 30,
1993, showing the approximate total purchases by the Company and
the Company Subsidiaries (on a consolidated basis) from each such
supplier during such nine month period and the items purchased.
Except to the extent set forth in Section 3.18 of the Disclosure
Schedule, no such supplier has advised the Company or any Company
Subsidiary of its intention to refuse to do business with the
Company, and the Company does not presently intend to terminate
21
<PAGE>
or modify any such relationship. Except for the suppliers named
in Sections 3.18 of the Disclosure Schedule, neither the Company
nor any Company Subsidiary (a) had any supplier from which it
purchased more than 5% of the goods or services which it
purchased during the twelve months ended September 30, 1993 or
(b) has any supplier the loss of which would materially and
adversely affect the business of the Company and the Company
Subsidiaries taken as a whole.
3.19. Customers. Section 3.19 of the Disclosure
---------
Schedule sets forth each retail customer of the Company which
accounted for more than $200,000 and each wholesale customer
which accounted for more than $500,000, of the sales of the
Company and the Company Subsidiaries on a consolidated basis
during the twelve months ended September 30, 1993 and the items
purchased. Except to the extent set forth in Section 3.19 of the
Disclosure Schedule, no customer set forth in Section 3.19 of the
Disclosure Schedule has advised the Company of its intention to
terminate or materially modify its normal business relationship
with the Company or any Company Subsidiary and neither the
Company nor any Company Subsidiary presently intends to terminate
or so modify any such relationship.
3.20. Operating Data. The area operating data,
--------------
schedule of writedowns and the listing of vehicles, tanks at
customers, tanks in the yard and bulk storage tanks set forth in
Section 3.20 of the Disclosure Schedule are substantially
accurate in all material respects.
22
<PAGE>
3.21. Agreements in Full Force and Effect. All
--------------------------------------
contracts, agreements, plans, policies and licenses referred to
in the Disclosure Schedule are valid and in full force and effect
subject to limitations imposed by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally, and true copies
thereof have been heretofore made available to Investors except,
in each case, where the invalidity of one or more of such
documents would not individually or in the aggregate materially
and adversely affect the business of the Company and the Company
Subsidiaries taken as a whole. Except as set forth in Section
3.21 of the Disclosure Schedule, neither the Company nor any
Company Subsidiary is in material default under or in material
violation of, or knows of any valid basis for any claim of
material default under or material violation of, any contract,
commitment or restriction to which it is a party or by which it
is bound, except for such violations or defaults which would not,
individually or in the aggregate, have a material adverse effect
on the business, prospects, operations, properties, assets or
condition (financial or otherwise) of the Company and the Company
Subsidiaries taken as a whole.
3.22. Insurance. Section 3.22(a) of the Disclosure
---------
Schedule contains a fair summary of all material policies of
fire, liability, workmen's compensation and other forms of
insurance owned or held by the Company and each Company
Subsidiary. All such policies are in full force and effect, all
23
<PAGE>
premiums with respect thereto covering all periods up to and
including the Closing Date have been paid when due, and no notice
of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance
with all requirements of law and of all agreements to which the
Company or any Company Subsidiary is a party; are valid,
outstanding and enforceable policies subject to limitations
imposed by bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights
generally; provide adequate insurance coverage for the assets and
operations of the Company and each Company Subsidiary in
accordance with prevailing industry standards; will remain in
full force and effect through the respective dates set forth in
Section 3.22(a) of the Disclosure Schedule; and will not in any
way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Section 3.22(b) of
the Disclosure Schedule identifies all risks which the Company
has designated as being self insured. Neither the Company nor
any Company Subsidiary has been refused any insurance with
respect to its assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the
last five years.
3.23. Labor Matters. Except to the extent set
--------------
forth in Section 3.23 of the Disclosure Schedule, to the
knowledge of the Company (a) the Company and all Company
24
<PAGE>
Subsidiaries are in material compliance with all applicable laws
respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged
in any unfair labor practice; (b) there is no unfair labor
practice complaint against the Company or any Company Subsidiary
pending before the National Labor Relations Board; (c) there is
no labor strike, dispute, slowdown or stoppage actually pending
or threatened against or affecting the Company or any Company
Subsidiary; (d) no representation question exists respecting the
employees of the Company or any Company Subsidiary; (e) no
grievance nor any arbitration proceeding arising out of or under
collective bargaining agreements other than in the ordinary
course of business and consistent with past practice is pending
and no claim therefor exists; (f) no collective bargaining
agreement which is binding on the Company or any Company
Subsidiary restricts any of them from relocating or closing any
of their operations; and (g) neither the Company nor any Company
Subsidiary has experienced any labor strike, dispute, slow down
or stoppage.
3.24. Fringe Benefit Plans. Except as set forth in
--------------------
Section 3.24 of the Disclosure Schedule, neither the Company nor
any Company Subsidiary has any bonus, deferred compensation,
pension, profit-sharing, retirement, stock purchase, stock option
or any other fringe benefit plan, arrangement or practice,
whether formal or informal. Section 3.24 of the Disclosure Sche-
dule sets forth the annual expense for each bonus, deferred
25
<PAGE>
compensation, pension, profit-sharing or retirement plan or
arrangement, and each other fringe benefit plan, of the Company
and each Company Subsidiary, whether formal or informal and the
Balance Sheet reflects in the aggregate an accrual of all amounts
accrued but unpaid under the aforesaid plans and arrangements as
of its date. Neither the Company nor any Company Subsidiary has
any commitment, whether formal or informal and whether legally
binding or not, to create any such additional plan or
arrangement. True copies of the plan documents for each employee
benefit plan identified in Section 3.24 of the Disclosure
Schedule and a related summary plan description have been
delivered or made available to the Investors.
3.25. Litigation. Except as set forth in Section
----------
3.25 of the Disclosure Schedule and other than routine claims
against the Company covered by insurance or routine claims by the
Company against customers for nonpayment, there is no action,
suit, inquiry, proceeding or investigation by or before any court
or governmental or any regulatory or administrative agency or
commission (other than regulatory matters affecting the industry
generally in which the Company or any Company Subsidiary has not
been identified as a target or in connection with which the
Company or any Company Subsidiary has not filed any documents) to
the knowledge of the Company or any Company Subsidiary pending or
threatened against or involving the Company or any Company
Subsidiary for which the Company or any Company Subsidiary may be
liable, or which questions or challenges the validity of this
26
<PAGE>
Agreement or any action taken or to be taken by the Company or
any Company Subsidiary pursuant to this Agreement or in connec-
tion with the transactions contemplated hereby; nor is there and
the Company or any Company Subsidiary does not know of any valid
basis for any such action, proceeding or investigation, except
where any such action, proceeding, or investigation would not
have a material adverse effect on the business, prospects,
operations, properties, assets or condition (financial or other-
wise) of the Company and the Company Subsidiaries taken as a
whole. Neither the Company nor any Company Subsidiary is
subject to any judgment, order or decree entered in any lawsuit
or proceeding which may have a material adverse effect on its
business practices or on its ability to acquire any property or
conduct its business in any area.
3.26. No Condemnation or Expropriation. Neither
----------------------------------
the whole nor any portion of the leaseholds or any other assets
of the Company or any Company Subsidiary is subject to any
governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor, to the Company's
knowledge, has any such condemnation, expropriation or taking
been proposed by any public authority having jurisdiction over
the assets of the Company or such Company Subsidiary.
3.27. Consents and Approvals of Governmental
---------------------------------------------
Authorities. Aside from compliance with the HSR Act which has
-----------
already been accomplished, no consent, approval or authorization
27
<PAGE>
of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with the
Company's execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby.
3.28. Consents. Except as set forth in Section 3.5
--------
of the Disclosure Schedule, no consent of any person is necessary
to the consummation by the Company of the transactions
contemplated hereby, including, without limitation, consents from
parties to loans, contracts, leases or other agreements and
consents from governmental agencies, whether federal, state or
local, except where failure to obtain such consent would not have
a material adverse effect on the business, operations or
prospects of the Company and the Company Subsidiaries, taken as a
whole.
3.29. Compliance with Law. Except with respect to
--------------------
matters covered by Section 3.30 or as disclosed in Section 3.29
of the Disclosure Schedule, to the knowledge of the Company, the
operations of the Company and the Company Subsidiaries have been
conducted in compliance with all applicable laws, regulations and
other requirements of all national governmental authorities, and
of all states, municipalities and other political subdivisions
and agencies thereof, having jurisdiction over the Company and
the Company Subsidiaries, including, without limitation, all such
laws, regulations and requirements relating to antitrust, con-
sumer protection, currency exchange, equal opportunity, health,
occupational safety, pension and securities matters, except where
28
<PAGE>
instances of noncompliance would not have, either individually or
in the aggregate, a material adverse effect on the business,
prospects, operations, properties, assets or condition (financial
or otherwise) of the Company and the Company Subsidiaries taken
as a whole. Except with respect to matters covered by Section
3.30 or as set forth in Section 3.12 of the Disclosure Schedule,
since December 31, 1991 neither the Company nor any Company
Subsidiary has received (a) notification that it is in violation
of any applicable building, zoning, labor, health or other law,
ordinance or regulation in respect of its plants or structures or
their operations or (b) any written report from an employee or
independent consultant relating to the condition, or compliance
with laws, of its plants, structures or equipment or the
operations there conducted.
3.30. Environmental Protection. Except as set
-------------------------
forth in Section 3.30 of the Disclosure Schedule, the Company and
the Company Subsidiaries have obtained all permits, licenses and
other authorizations which are required under federal, state and
local laws relating to the environment, including laws relating
to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or
wastes into ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or
wastes, except where failure to obtain such permit, licenses or
29
<PAGE>
authorizations would not, either individually or in the
aggregate, have a material adverse effect on the business,
prospects, operations, properties, assets or condition (financial
or otherwise) of the Company and the Company Subsidiaries taken
as a whole. Except as set forth in Section 3.30 of the
Disclosure Schedule, the Company and the Company Subsidiaries are
in full compliance in all material respects with all terms and
conditions of the required permits, licenses and authorizations,
and are also in full compliance in all material respects with all
other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in those laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder,
except where noncompliance would not, individually or in the
aggregate, have a material adverse effect on the business,
prospects, operations, properties, assets or condition (financial
or otherwise) of the Company and the Company Subsidiaries taken
as a whole. Except as set forth in Section 3.30 of the
Disclosure Schedule, the Company is not aware of, nor has the
Company nor any Company Subsidiary received notice of, any past
or present events, conditions, circumstances, activities,
practices, incidents, actions or plans ("Circumstances") which
the Company reasonably believes may interfere with or prevent
continued compliance, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim,
30
<PAGE>
action, suit, proceeding, hearing or investigation, which may
require remediation or which may expose the Company to any
material fine, penalty or damages based on or related to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge,
release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic material or waste,
except where any Circumstances, either individually or in the
aggregate, would not have a material adverse effect on the
business, prospects, operations, properties, assets or condition
(financial or otherwise) of the Company and the Company
Subsidiaries taken as a whole.
3.31. Compliance with ERISA.
---------------------
(a) Prohibited Transactions. Neither the Company
-----------------------
nor any Company Subsidiary has engaged in a transaction in
connection with which the Company or any Company Subsidiary could
be subject to either a material civil penalty assessed pursuant
to Section 502(i) of ERISA or a material tax imposed by Section
4975 of the Code.
(b) Defined Benefit Plans. Except as set forth
---------------------
in Section 3.31(b) of the Disclosure Schedule, neither the
Company nor any Company Subsidiary presently maintains, nor to
the knowledge of the Company has ever maintained, a defined
benefit pension plan.
(c) Material Liabilities. Except as and to the
--------------------
extent set forth in Section 3.31(b) of the Disclosure Schedule,
31
<PAGE>
no reportable event as defined in Section 4043 of ERISA with
respect to an employee benefit plan covered by Title IV of ERISA
has occurred which would materially and adversely affect the
business, prospects, operations, properties or the condition,
financial or otherwise, of the Company or any Company
Subsidiaries. The representations in this section are made to
the best knowledge of the Company, although it has made no
independent inquiries insofar as they relate to any Multiemployer
Plan.
(d) Compliance with Applicable Laws. To the
-------------------------------
knowledge of the Company, each Plan other than the Multiemployer
Plans is in material compliance with applicable federal laws,
including but not limited to ERISA. With respect to
Multiemployer Plans to which the Company or any Company Sub-
sidiary makes contributions, the Company has no knowledge of any
aspect of such Multiemployer Plans which is not in material
compliance with applicable federal laws.
(e) Definitions to Be Used in Conjunction with
---------------------------------------------
ERISA Representations, Warranties and Covenants. Whenever any of
-----------------------------------------------
the terms set forth below is used in this Agreement, it shall
have the following meaning: (i) "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended from time to
time; (ii) "Plan" shall mean an employee pension benefit plan
(within the meaning of Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have
been made, by the Company or any Company Subsidiary; and (iii)
32
<PAGE>
"Multiemployer Plan" shall mean an employee pension plan meeting
the definition of that term contained in Section 3(37) of ERISA,
to which contributions are or have been made by the Company or
any Company Subsidiary.
3.32. Intentionally Deleted.
---------------------
3.33. (a) Personnel. Section 3.33(a) of the
---------
Disclosure Schedule sets forth a true and complete list of:
(i) the names and current salaries of all
directors and elected or appointed officers and executive
employees of each of the Company and the Company Subsidiaries;
(ii) the wage rates for non-salaried and non-
executive salaried employees of each of the Company and the
Company Subsidiaries by classification, and all labor union con-
tracts; and
(iii) all group insurance programs in
effect for employees of each of the Company and the Company
Subsidiaries. Neither the Company nor any Company Subsidiary is
in material default with respect to any of its obligations
referred to in the preceding sentence.
(b) Except as set forth in Section 3.33(b) of the
Disclosure Schedule, to the knowledge of the Company, no former
employee or owner of any business entity acquired by the Company
or Company Subsidiary is presently competing with the Company in
the same or a similar business in which such employee worked or
which was acquired from such owner, as the case may be, except
where such competition would not have a material adverse effect
33
<PAGE>
on the business of the Company or any Company Subsidiary in any
operating region. The operating regions are as set forth on
Schedule 3.33(b).
3.34. Insider Interests. Except as set forth in
-----------------
Section 3.34 of the Disclosure Schedule, to the knowledge of the
Company, no officer or director or shareholder of the Company or
any Company Subsidiary has any material interest in any property,
real or personal, tangible or intangible, including without
limitation, trademarks or trade names, used in or pertaining to
the business of the Company or any Company Subsidiary or any
supplier or customer of the Company or any Company Subsidiary.
3.35. Intentionally Deleted.
---------------------
3.36. Disclosure. No representation or warranty by
----------
the Company in this Agreement (including, financial statements
and the Disclosure Schedule), contains or will contain any untrue
statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or
therein not misleading.
34
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS
-------------------------------------------
Each of the Investors represents and warrants to the
Company severally and not jointly as follows:
4.1. Corporate Organization; Etc. Such Investor, if a
---------------------------
corporation, is duly organized, validly existing and in good
standing under the laws of the State of its incorporation.
4.2. Authorization; Etc. Such Investor has full
-------------------
corporate power and authority or in the case of an Investor which
is a partnership full authority under law, to enter into this
Agreement and to carry out the transactions contemplated hereby.
The Boards of Directors of such corporate Investor has taken all
action required by law, its Certificate of Incorporation and By-
Laws and the general partner of each partnership Investor has
taken all action required by such partnership Investor's Articles
of Limited Partnership or otherwise to authorize the execution
and delivery of this Agreement and the transactions contemplated
hereby, and this Agreement is a valid and binding agreement of
such Investor enforceable in accordance with its terms except
that (i) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights and (ii) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may
be brought.
35
<PAGE>
4.3. No Violation. Neither the execution and delivery
------------
of this Agreement nor the consummation of the transactions
contemplated hereby will violate any provision of the respective
Certificate of Incorporation or By-Laws of such corporate
Investor, or the Articles of Limited Partnership of any
partnership Investor, or violate, or be in conflict with, or
constitute a default under, or cause the acceleration of the
maturity of any debt or obligation pursuant to, any agreement or
commitment to which such Investor is a party or by which such
Investor is bound, or violate any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental
authority or require the consent of any governmental authority
other than under the HSR Act, which violations, conflicts,
defaults, accelerations and violations would individually or in
the aggregate materially and adversely affect the business of the
Company and the Company Subsidiaries taken as a whole.
4.4. Financial Resources. Such Investor has the
-------------------
financial resources available to consummate the purchase of the
Preferred Stock required to be purchased by it as set forth on
Schedule 1. The Preferred Stock is being purchased by such
Investor for investment only and not with a view to any public
distribution thereof. Such Investor shall not transfer shares of
Preferred Stock or any shares of Common Stock received on
conversion thereof in violation of the Securities Act of 1933, as
amended.
36
<PAGE>
4.5. Petro's SEC Reports. Petro represents and
-------------------
warrants (and the other Investors do not) that the financial
statements and description of the business of Petro as set forth
in its Form 10-K for the year ending December 31, 1992 and the
financial information set forth in its Form 10-Q for the quarter
ended June 30, 1993, as filed with the Securities and Exchange
Commission, are true and accurate in all material respects, with
no material omissions.
4.6. Litigation. There is no (i) material claim,
----------
action, suit or proceeding pending or to the knowledge of such
Investor threatened before any Federal, State, municipal or other
court, governmental body or arbitration tribunal affecting such
Investor's ability to consummate the transactions contemplated by
this Agreement and (ii) existing order, decree or judgment of any
court enjoining or restraining such Investor or its officers or
requiring any of them to take any action of any kind which would
materially and adversely affect such Investor's ability to
perform its obligations under this Agreement.
ARTICLE V
CONDUCT OF THE COMPANY'S BUSINESS
PENDING THE CLOSING
---------------------------------
Pending the Closing, and except as otherwise expressly
provided herein or consented to or approved by Investors in
writing:
37
<PAGE>
5.1. Regular Course of Business. Each of the Company
---------------------------
and the Company Subsidiaries will carry on its respective busi-
ness diligently and substantially in the same manner as hereto-
fore conducted, and neither the Company nor any Company
Subsidiary shall institute any new methods of purchase, sale,
lease, management, accounting or operation or engage in any
transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business and con-
sistent with past practice.
5.2. Amendments. No change or amendment shall be made
----------
in the Certificate of Incorporation or By-Laws of the Company or
any Company Subsidiary, except that the Company will cause to be
filed the Amended and Restated Articles of Incorporation annexed
as Schedule 2.1.
5.3. Capital Changes; Dividends; Redemptions. Except
----------------------------------------
as to the exchange of the Company's Series A Preferred Stock for
common stock and the issuance of Preferred Stock for the Edge
Notes and Edge Preferred Stock as contemplated in Section 8.9,
neither the Company nor any Company Subsidiary will issue or sell
any shares of its capital stock or other securities, acquire
directly or indirectly, by redemption or otherwise, any such
capital stock, reclassify or split-up any such capital stock,
declare or pay any dividends thereon in cash, securities or other
property or make any other distribution with respect thereto, or
grant or enter into any options, warrants, calls or commitments
of any kind with respect thereto.
38
<PAGE>
5.4. Subsidiaries. Neither the Company nor any Company
------------
Subsidiary will organize any new subsidiary, acquire any capital
stock or other equity securities of any corporation or acquire
any equity or ownership interest in any business.
5.5. Organization. Except for the sale of the
------------
Company's Highway and Federal subsidiaries, or as permitted
pursuant to Section 5.6, each of the Company and the Company
Subsidiaries shall use its best efforts to preserve its corporate
existence and business organization intact, to keep available to
the Company its officers and key employees, and to preserve for
the Company its relationships with licensors, suppliers,
distributors, customers and others having business relations with
it.
5.6. Certain Changes. Neither the Company nor any
----------------
Company Subsidiary will:
(a) Borrow or agree to borrow any funds or incur,
or assume or become subject to, whether directly or by way of
guarantee or otherwise, any obligation or liability (absolute or
contingent), except obligations and liabilities incurred in the
ordinary course of business and consistent with past practice;
(b) Pay, discharge or satisfy any claim, liabil-
ity or obligation (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabili-
ties or obligations reflected or reserved against in the Balance
39
<PAGE>
Sheet or incurred in the ordinary course of business and consis-
tent with past practice since the date of the Balance Sheet;
(c) Except with respect to prepayments to The
Prudential Insurance Company of America, prepay any obligation
having a fixed maturity of more than 90 days from the date such
obligation was issued or incurred;
(d) Except for sale of the Company's Highway and
Federal divisions and pursuant to the terms of existing lending
arrangements, permit or allow any of its property or assets
(real, personal or mixed, tangible or intangible), to be
subjected to any mortgage, pledge, lien or encumbrance;
(e) Write down the value of any inventory or
write off as uncollectible any notes or accounts receivable,
except for immaterial write-downs and write-offs in the ordinary
course of business and consistent with past practice;
(f) Cancel any debts or waive any claims or
rights of substantial value or sell, transfer, or otherwise
dispose of any of its properties or assets, except in the
ordinary course of business and consistent with past practice;
provided, however, that the Company may, with the prior written
consent of the Investors which shall not be unreasonably
withheld, sell any asset not required in the ordinary conduct of
its business for its fair market value.
(g) Dispose of or permit to lapse any rights to
the use of any trademark or trade name;
40
<PAGE>
(h) Grant any general increase in the compensa-
tion of officers or employees (including any such increase
pursuant to any bonus, pension, profit sharing or other plan or
commitment);
(i) Make any single capital expenditure or com-
mitment in excess of $100,000 for additions to property, plant or
equipment or make aggregate capital expenditures and commitments
in excess of $500,000 (on a consolidated basis) for additions to
property, plant or equipment and not consistent with past
practices;
(j) Pay, loan or advance any material amount to,
or sell transfer or lease any material properties or assets to,
or enter into any material agreement or arrangement with, any of
its officers or directors or any Affiliate or Associate of any of
its officers or directors, except for directors' fees and compen-
sation to officers at rates not materially exceeding the rates of
compensation paid during the fiscal year ended September 30,
1992;
(k) Grant or extend any power of attorney or act
as guarantor, surety, co-signer, endorser, co-maker, indemnitor
or otherwise in respect of the obligation of any person,
corporation, partnership, joint venture, association,
organization or other entity, except guarantys by the Company for
the benefit of a Company Subsidiary or by a Company Subsidiary
for the benefit of the Company or another Company Subsidiary; or
41
<PAGE>
(l) Agree, whether in writing or otherwise, to do
any of the foregoing.
5.7. Contracts. No contract or commitment will be
---------
entered into, and no purchase of gases, petroleum products, parts
inventories, or supplies and no sale of assets will be made, by
or on behalf of the Company or any Company Subsidiary, except (i)
contracts or commitments for the purchase of, and purchases of,
gases, petroleum products, parts inventories or supplies, made in
the ordinary course of business and consistent with past
practice, (ii) contracts or commitments for the sale of, and
sales of, inventories (including gases and petroleum products) in
the ordinary course of business and consistent with past
practice, and (iii) other contracts, commitments, purchases or
sales in the ordinary course of business and consistent with past
practice.
5.8. Insurance; Property. The Company and each Company
-------------------
Subsidiary shall maintain all existing insurance policies and its
property shall be used, operated, maintained and repaired in
accordance with normal industry standards.
5.9. No Default. Neither the Company nor any Company
----------
Subsidiary shall do any act or omit to do any act, or permit any
act or omission to act, which will cause a breach of any material
contract or commitment of the Company or any Company Subsidiary
or which would cause the breach of any warranty made hereunder.
5.10. Compliance With Laws. The Company and each
--------------------
Company Subsidiary shall comply in all material respects with all
42
<PAGE>
laws applicable to it and its properties, operations, business
and employees.
5.11. Tax Returns. Each of the Company and the
-----------
Company Subsidiaries shall prepare and file all material federal,
state, local and foreign income tax returns and amendments
thereto required to be filed by it. The Company will ensure that
Investors shall have a reasonable opportunity to review each such
return and amendment prior to the filing thereof.
ARTICLE VI
COVENANTS OF THE COMPANY
------------------------
The Company hereby covenants and agrees with Investors:
6.1. Full Access. The Company shall, and shall cause
-----------
each Company Subsidiary to, afford to Investors, their counsel,
accountants and other representatives full access to the plants,
offices, warehouses, properties, books and records of the Company
and each Company Subsidiary in order that Investors may have full
opportunity to make such investigations as they shall desire to
make of the affairs of the Company and the Company Subsidiaries;
and the Company will cause its officers and accountants to furn-
ish such additional financial and operating data and other in-
formation as Investors shall from time to time request; provided,
however, that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the
businesses of the Company and the Company Subsidiaries. The
Company agrees that any inquiry or investigation made by
43
<PAGE>
Investors pursuant to this Agreement shall not in any way affect
or lessen the representations and warranties made by it in this
Agreement or the survival of such representations and warranties
of the Closing to the extent provided herein. In any action or
proceeding based upon the breach of any representation or
warranty, the Company hereby waives the defense that the
Investors knew or should have known the true facts or
circumstances; provided, however, that if the Company proves in
any proceeding that Investors were aware of any fact prior to the
Closing which could have permitted the Company to mitigate its
damages (other than by electing not to close), or if revealed to
the Company could have permitted the Company to mitigate
Investors' damages, then Investors' damages shall be deemed
reduced to the extent that the Company could have affected such
mitigation, but net of the cost of the mitigation. Notwith-
standing the foregoing, if between the execution of this
Agreement and the Closing (i) Investors actually receive written
notice from the Company of any matter which the Company
identifies as a breach or misrepresentation on the part of the
Company and (ii) such breach or representation was not, in fact,
known to the Company at the time of the execution of this
Agreement, then Investors shall have the option of (i) proceeding
with the Closing, in which event Investors shall have no claim
against the Company based upon such breach or misrepresentation
or (ii) terminating this Agreement, in which event, neither the
44
<PAGE>
Company nor the Investors shall have any further liability to the
other except as provided in Section 13.2.
6.2. Consents. The Company shall, and shall cause each
--------
Company Subsidiary to, use its best efforts to obtain at the
earliest practicable date and prior to the Closing all consents
necessary to the consummation of the transactions contemplated
hereby and will provide to Investors copies of each such consent
promptly after it is obtained.
6.3. Supplements to Disclosure Schedule. From time to
----------------------------------
time prior to the Closing, the Company will promptly supplement
or amend the Disclosure Schedule with respect to any matter
hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or de-
scribed in the Disclosure Schedule. No supplement or amendment
of the Disclosure Schedule made pursuant to this section shall be
deemed to cure any breach of any representation of or warranty
made in this Agreement unless Investors specifically agree there-
to in writing.
6.4. Covenant to Satisfy Conditions. Each of the
---------------------------------
Company and the Company Subsidiaries will use its best efforts to
insure that the conditions set forth in Article VIII hereof are
satisfied, insofar as such matters are within the control of any
of them.
6.5. Certificates. At the Closing the Company will
------------
furnish Investors with such certificates of its officers and
45
<PAGE>
others to evidence compliance with the covenants set forth in
this Article VI as may be reasonably requested by Investors.
ARTICLE VI-A
COVENANTS OF THE INVESTORS
--------------------------
Each of the Investors severally, but not jointly,
covenants and agrees with the Company:
6A.1 Covenant to Satisfying Conditions. Such Investor
---------------------------------
will use its best effort to insure that the conditions set forth
in Article VII are satisfied insofar as such matters are within
the control of such Investor.
ARTICLE VII
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
Each and every obligation of the Company under this
Agreement to be performed on or before the Closing shall be sub-
ject to the satisfaction, on or before the Closing, of each of
the following conditions, unless waived in writing by the Com-
pany:
7.1. Representations and Warranties True. Subject to
------------------------------------
the right of the Investors to cure a breach or default as set
forth in Article XIII, the representations and warranties of each
of the Investors contained herein shall be in all material
respects true and accurate as of the date when made and at and as
of the Closing Date as though such representations and warranties
46
<PAGE>
were made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement.
7.2. Performance. The Investors shall have performed
-----------
and complied with all agreements, obligations and conditions
required by this Agreement to be performed or complied with by
them on or prior to the Closing.
7.3. Deliveries. Company shall have received all of the
----------
deliveries required to be made by the Investors pursuant to
Article X.
7.4. No Injunction. On the Closing Date there shall be
-------------
no effective injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent jurisdic-
tion directing that the transactions provided for herein or any
of them not be consummated as so provided or imposing any condi-
tions on the consummation of the transaction contemplated hereby
which the Company deems unacceptable in its sole discretion.
7.5. Consents Obtained. All consents referred to in
-----------------
Section 3.5 shall have been obtained.
7.6. Put/Call Agreement. The Investors and Prudential
------------------
shall have entered into the Shareholder Put/Call Agreement, a
copy of which is annexed hereto as Exhibit 8.6.1 and Star Gas and
Prudential shall have entered into the Star Gas Put/Call
Agreement, a copy of which is annexed hereto as Exhibit 8.6.2.
7.7. Shareholders' Agreement. The Investors and
------------------------
Prudential shall have entered into the Shareholders Agreement
annexed as Exhibit 8.7.
47
<PAGE>
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF INVESTORS
--------------------------------------
Each and every obligation of Investors under this
Agreement to be performed on or before the Closing shall be
subject to the satisfaction, on or before the Closing, of each of
the following conditions, unless waived in writing by the
Investors:
8.1. Representations and Warranties True. Subject to
------------------------------------
the right of the Company to cure a breach or default as set forth
in Article XIII, the representations and warranties contained in
Article III hereof, the Disclosure Schedule and in all
certificates to Investors or their representatives pursuant
hereto shall be in all material respects true, complete and
accurate as of the date when made and at and as of the Closing
Date as though such representations and warranties were made at
and as of such date, except for changes expressly permitted or
contemplated by the terms of this Agreement.
8.2. Performance. The Company and each Company Sub-
-----------
sidiary shall have performed and complied in all material
respects with all agreements, obligations and conditions required
by this Agreement to be performed or complied with by them on or
prior to the Closing.
8.3. No Government Proceeding or Litigation. No suit,
--------------------------------------
action, investigation, inquiry or other proceeding by any govern-
mental body or other person or legal or administrative proceeding
48
<PAGE>
shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby.
8.4. No Injunction. On the Closing Date there shall be
-------------
no effective injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent jurisdic-
tion directing that the transactions provided for herein or any
of them not be consummated as so provided or imposing any condi-
tions on the consummation of the transaction contemplated hereby
which the Investors deems unacceptable in their sole discretion.
8.5. Consents Obtained. All consents referred to in
-----------------
Section 3.5 shall have been obtained.
8.6. Put/Call Agreement. The Investors and Prudential
------------------
shall have entered into the Shareholder Put/Call Agreement, a
copy of which is annexed hereto as Exhibit 8.6.1 and Prudential
shall have entered into the Star Gas Put/Call Agreement, a copy
of which is annexed hereto as Exhibit 8.6.2.
8.7. Shareholders' Agreement. The Investors and
------------------------
Prudential shall have entered into the Shareholders Agreement
annexed as Exhibit 8.7.
8.8. Deliveries. Investors shall have received all of
----------
the deliveries required to be made by the Company pursuant to
Article IX.
8.9. Recapitalization. Simultaneously with the
----------------
Closing, the exchange of stock shall occur under the Exchange
Agreement dated as of the date hereof among the Company, SEA,
49
<PAGE>
American Gas & Oil Investors, AmGO II, AmGO III and FRC Star Gas,
Inc.
8.10. Debt Restructuring. At the Closing,
--------------------
Prudential shall exchange (a) $25,000,000 of the Company's
12.625% Senior Subordinated Participating Notes due 2001 for
$25,000,000 of 8% Cumulative Convertible Preferred Stock and (b)
$7,500,000 of the Company's 12.625% Senior Subordinated
Participating Notes due 2001 for $7,500,000 of 12.625% Cumulative
Redeemable Preferred Stock, and Prudential, PruSupply, Inc. and
The First National Bank of Boston shall have agreed to a
restructuring on terms satisfactory to the Company.
ARTICLE IX
DELIVERIES OF COMPANY
---------------------
At the Closing the Company shall deliver or cause to be
delivered to the Investors the following:
9.1. Certificate dated a current date from the
appropriate authorities in the State of Delaware attesting to the
existence and good standing of the Company.
9.2. Opinion of the Company's Counsel. The Company
----------------------------------
shall have delivered to Investors an opinion of Wilmer, Cutler
and Pickering, counsel to the Company, dated as of the Closing
Date, in form and substance satisfactory to Investors, to the
effect that:
50
<PAGE>
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation.
(b) The Company is duly qualified as a foreign
corporation and in good standing in each jurisdiction in which
the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary
except where the Company's failure to qualify to do business will
not have a material adverse effect on the business, prospects,
operations, properties, assets or condition (financial or
otherwise) of the Company and the Company Subsidiaries taken as a
whole.
(c) The Company has the corporate power and
authority to carry on its business as it is now being conducted
and to own the properties and assets it now owns, and the Company
has the full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
(d) Except as disclosed in or as contemplated by
this Agreement, to the actual knowledge of such counsel, there
are no outstanding options, warrants or other rights to purchase
or acquire any capital stock of the Company.
(e) To the actual knowledge of such counsel,
except as specifically disclosed by the Company in this Agreement
or in the Disclosure Schedule hereto, neither the Company nor any
Company Subsidiary is engaged in or threatened with any legal
action or other proceeding or has incurred or been charged with
51
<PAGE>
or is under investigation with respect to any violation of any
federal, state or local law or administrative regulation which if
adversely determined might, in such counsel's opinion, materially
adversely affect or impair the business or condition, financial
or otherwise, of the Company.
9.3. Certified copies of the resolutions of the Board
of Directors and the shareholders of the Company approving the
execution of this Agreement and the transactions contemplated
herein.
9.4. Such certificates of its officers to evidence
compliance with the conditions set forth in Article VIII as may
reasonably be requested by the Investors.
9.5. The Management Services Agreement in the form of
Exhibit 9.5.
9.6. The Petro Option Agreement in the form of Exhibit
9.6.
9.7. Certificates representing the Preferred Stock in
accordance with Schedule 1.
9.8. Resignations of the directors and officers of the
Company and the Company Subsidiaries.
9.9. A schedule of the names and locations of all
banks, trust companies, savings and loan associations and other
financial institutions at which the Company and each Company
Subsidiary maintains safe deposit boxes or accounts of any nature
and the names of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto and copies of all
52
<PAGE>
records, including all signature or authorization cards,
pertaining to such bank accounts.
9.10. The Existing Shareholders Option Agreements (the
"FRC Option") in the form of Exhibit 9.10.
ARTICLE X
DELIVERIES OF THE INVESTORS AT THE CLOSING
------------------------------------------
At the Closing, the Investors shall deliver or
cause to be delivered to the Company the following:
10.1. Certificates. Each of the Investors shall
------------
have furnished the Company with such certificates of their
officers to evidence compliance with the conditions set forth in
Article VII as may be reasonably requested by the Company.
10.2. Certified Resolutions. C e r t i f i e d
---------------------
resolutions of the Board of Directors of each of the corporate
Investors and action of the partners of each partnership Investor
authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
herein.
10.3. Payment for Preferred Stock. Wire transfers
---------------------------
of immediately available funds in the aggregate amount of
$26,975,000.
10.4. Other Agreements. Signed counterparts of
----------------
the Option Agreement and the Management Services Agreement.
10.5. Opinion of Petro Counsel. Petro shall
------------------------
have delivered to the Company an opinion of Phillips, Nizer,
53
<PAGE>
Benjamin, Krim & Ballon, counsel to Petro, dated as of the
Closing Date, in form and substance satisfactory to the Company,
to the effect that:
(a) Petro is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Minnesota;
(b) Petro has the corporate power and authority
to carry on its business as it is now being conducted and to own
the properties and assets it now owns, and has the full corporate
power and authority to enter into this Agreement and to consum-
mate the transactions contemplated hereby;
(c) All corporate action by Petro required in
order to authorize the transactions contemplated hereby has been
duly and validly taken; and this Agreement has been duly executed
and delivered by Petro and is the valid and binding obligation of
Petro enforceable in accordance with its terms except that (i)
such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights and, (ii) the remedy of
specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought;
(d) Neither the execution and delivery of this
Agreement by Petro nor the consummation of the transactions
contemplated hereby will violate the Certificate of Incorporation
or By-Laws of Petro or, to the knowledge of such counsel, will
54
<PAGE>
violate, conflict with, or constitute a default under, or cause
the acceleration of maturity of any debt or obligation pursuant
to, or result in the creation or imposition of any security
interest, lien or other encumbrance upon any property or assets
of Petro or any Company Subsidiary under, any contract,
commitment, agreement, trust, understanding, arrangement or
restriction of any kind to which Petro is a party or by which
Petro is bound or violate any statute or law, or any judgment,
decree, order, regulation or rule of any court or governmental
authority;
(e) Except for compliance with the HSR Act, no
consent of any governmental body nor, to the knowledge of such
counsel, of any other person, is required for the consummation by
Petro of the transactions contemplated hereby.
ARTICLE XI
THE CLOSING
-----------
11.1. The closing ("Closing") shall take place at
the offices of Phillips, Nizer, Benjamin, Krim & Ballon, 31 West
52nd Street, New York, NY, simultaneously with the execution of
this Agreement (the "Closing Date").
ARTICLE XI-A
POST CLOSING ADJUSTMENT
-----------------------
If the Company redeems shares of its Series D 8%
Cumulative Convertible Preferred Stock issued on the Closing Date
in accordance with its terms as in effect on such date at any
55
<PAGE>
time following the Closing, then upon each such redemption the
Existing Shareholders agree to return as a contribution to the
capital of the Company, a number of shares of Common Stock of the
Company determined by multiplying 48,567 by a fraction the
numerator of which is the face value of the Series D 8%
Cumulative Convertible Preferred Stock so redeemed and the
denominator of which is $10 million.
ARTICLE XII
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES
---------------------------
12.1. Investigations; Survival of Warranties. The
---------------------------------------
representations and warranties of the Company contained herein or
in any certificates or other documents delivered prior to or at
the Closing shall not be deemed waived or otherwise affected by
any investigation made by any party hereto and shall survive the
Closing; provided however, that the representations and
warranties set forth in sections 3.6, 3.8, 3.9, 3.10, 3.11, 3.12,
3.13, 3.14, 3.17, 3.18, 3.19, 3.20, 3.21, 3.22, 3.23, 3.24, 3.25,
3.26, 3.29, 3.33, 3.34 and 3.36 shall expire on the first
anniversary of the Closing, the representations and warranties
set forth in section 3.7 shall expire 18 months following the
Closing, the representations and warranties set forth in section
3.30 shall expire on the third anniversary of the Closing, and
the representations and warranties set forth in sections 3.16 and
3.31 shall expire upon the expiration of the relevant statute of
limitations.
56
<PAGE>
ARTICLE XIII
IMPLEMENTATION OF MONEY DAMAGES
-------------------------------
13.1. Implementation of Money Judgment. Subject to
--------------------------------
Sections 13.2 and 13.3, if any Investor receives a money judgment
based upon a breach or default of the Company pursuant to the
Agreement, other than any breach or default of Section 3.2, the
first sentence of Section 3.4 or the second sentence of Section
3.4 (other than issues of enforceability not caused by a breach
of the foregoing sections), the Existing Shareholders shall at
their option either:
(a) pay the full amount of the money judgment to
the Company in cash, or
(b) deliver prorata, to the shareholders of Star
Gas, other than the Existing Shareholders, shares of Star Gas
equal in value to the amount of such money damages. The value of
the Star Gas stock ("Stock Value") shall be determined by
applying the average of the Put Price and Call Price formulas set
forth in the Shareholder Put/Call Agreement at the end of the
quarter next preceding the delivery of the shares; provided,
however, that (i) if the Put Option or Call Option under the
Shareholder Put/Call Agreement has been exercised with respect to
the shares of Common Stock owned by the Existing Shareholders,
then the Stock Value shall be the Put Option Price or the Call
Option Price with respect to such exercise and (ii) until the
release of the September 30, 1994 audited financial statements of
57
<PAGE>
the Company, the per share value of the shares of Star Gas shall
be no less than $10.30 per share. For purposes of allocating the
shares, each Shareholder shall be deemed to own the maximum
number of shares then issuable to such Shareholder pursuant to
options and convertible preferred stock owned by such
Shareholder.
13.2. (a) No claim for breach of representation or
warranty ("Claim") may be asserted by the Investors against the
Company unless and until the aggregate of all such Claims exceeds
$175,000.
(b) Whenever the Company shall receive notice of
any Claim by any Investor for breach of any representation,
warranty or covenant contained in this Agreement or in any
certificate delivered by or on behalf of the Company to such
Investor or otherwise arising out of the transactions
contemplated by this Agreement, the Company shall as soon as
reasonably possible, and in any event within 15 days of receipt
of such notice, notify the Existing Shareholders of such Claim
and all of the relevant facts within its knowledge which relate
thereto; provided, however, that the failure of the Company to
give timely notice hereunder shall not relieve Existing
Shareholders of their obligations under Section 13.1 unless, and
only to the extent that, lack of notice caused the amount to be
paid hereunder to be greater than it would have been had the
Company given timely notice hereunder. The Existing Shareholders
shall have the right, but not the obligation, to assume the
58
<PAGE>
defense of any such Claim. The Existing Shareholders shall
notify the Company within thirty days of receipt of such notice
of their intention to assume such defense. If the Existing
Shareholders assume such defense, the Company shall be entitled
to participate at its own expense, but without diminishing the
exclusive control of the Existing Shareholders. If the Existing
Shareholders fail to assume the defense of any such claim or
demand as soon as reasonably possible, then the Company shall
have the right to undertake the defense of any such claim or
demand utilizing counsel selected by it. The Company shall not
settle any such action or agree to make any payment to any
Investor without the consent of the Existing Shareholders.
13.3. Notwithstanding the foregoing, in no event
will the aggregate liability of the Existing Shareholders
(including any liability in respect of Paragraph 1 of the letter
agreement, dated December 21, 1993, among the Company, The
Prudential Insurance Company of America and PruSupply, Inc.)
exceed the aggregate value of (i) 250,000 shares of Star Gas
common stock minus (ii) the number of shares of Star Gas common
-----
stock returned to the Company pursuant to Article XI-A. For
purposes of this Section 13.3, each share of Star Gas common
stock delivered to shareholders pursuant to Section 13.1(b) shall
be deemed to have a value of one share of Star Gas common stock
and any cash amounts paid to the Company pursuant to Section
13.1(a) shall be deemed to have a value of that number of shares
of Star Gas common stock equal to the amount of such cash payment
59
<PAGE>
divided by the Stock Value (as defined in Section 13.1(b)) at the
time of such payment.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
------------------------
14.1. Amendment and Modification. Subject to ap-
--------------------------
plicable law, this Agreement may be amended, modified and supple-
mented by written agreement of the respective Boards of Directors
or other governing board of the Company and Investors or by their
respective officers authorized by such Boards of Directors at any
time prior to the Closing with respect to any of the terms
contained herein.
14.2. Waiver of Compliance. Any failure of the
---------------------
Company, on the one hand, or Investors, on the other, to comply
with any obligation, covenant, agreement or condition herein may
be expressly waived in writing by the President or a Vice
President or other duly authorized agent of each of the Investors
or the Company, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
14.3. Notices. All notices, requests, demands and
-------
other communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if delivered
60
<PAGE>
by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to the Company, to:
Star Gas Corp.
500 Birchfield Drive
Mt. Laurel, NJ 08054
(with a copy to:)
Wilmer, Cutler & Pickering
2445 M St., N.W.
Washington, D.C. 20037
Attn: Richard Cass, Esq.
or to such other person or address as the Company shall furnish
to Investors in writing.
(b) If to Investors, to:
Star Gas Holdings, Inc.
c/o Hanseatic Corporation
450 Park Avenue
New York, NY 10022
Attn: Paul Biddelman
Petroleum Heat and Power Co., Inc.
2187 Atlantic Street - 5th Fl.
Stamford, CT 06902
Attn: George Leibowitz
First Reserve Corporation
475 Steamboat Road
Greenwich, Connecticut 06830
Attn: William E. Macaulay
(with a copy to:)
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center, 9th Fl.
100 Mulberry Street
Newark, NJ 07102-4069
Attn: Managing Director
Fax: 201-802-2662
Willkie Farr & Gallagher
61
<PAGE>
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
Attn: Duncan Stewart, Esq.
Fax: 212-821-8111
Phillips, Nizer, Benjamin, Krim & Ballon
31 West 52nd Street
New York, NY 10019
Attn: Alan Shapiro, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Richard Capelouto, Esq.
or to such other person or address as Investors shall furnish to
the Company in writing.
14.4. Assignment. This Agreement and all of the
----------
provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and per-
mitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other
parties.
14.5. Publicity. Neither the Company nor Investors
---------
shall make or issue, or cause to be made or issued, any announce-
ment or written statement concerning this Agreement or the trans-
actions contemplated hereby for dissemination to the general
public without the prior consent of the other party. This pro-
vision shall not apply, however, to any announcement or written
statement required to be made by law or the regulations of any
federal or state governmental agency or any stock exchange, ex-
cept that the party required to make such announcement shall,
62
<PAGE>
whenever practicable, consult with the other party concerning the
timing and content of such announcement before such announcement
is made.
14.6. Governing Law. This Agreement and the legal
-------------
relations among the parties hereto shall be governed by and con-
strued in accordance with the laws of the State of Delaware,
without regard to its conflicts of law doctrine.
14.7. Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
14.8. Headings. The headings of the Sections and
--------
Articles of this Agreement are inserted for convenience only and
shall not constitute a part hereof or affect in any way the mean-
ing or interpretation of this Agreement.
14.9. Entire Agreement. This Agreement, including
----------------
the Exhibits hereto, the Disclosure Schedule and the other docu-
ments and certificates delivered pursuant to the terms hereof,
set forth the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, arrange-
ments, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of
any party hereto.
14.10. Third Parties. Except as specifically set
--------------
forth or referred to herein, nothing herein expressed or implied
63
<PAGE>
is intended or shall be construed to confer upon or give to any
person or corporation other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason
of this Agreement.
14.11. After the Closing, the Company shall from
time to time, at the request of the Investors and without further
cost or expense to Investors, execute and deliver such other
instruments of conveyance and transfer and take such other
actions as Investors may reasonably request, in order to more
effectively consummate the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate
seals
64
<PAGE>
to be affixed hereto, all as of the day and year first above
written.
PETROLEUM HEAT AND POWER CO., INC.
By: /s/ George Leibowitz
------------------------
George Leibowitz
Senior Vice President
ACCEPTED AND AGREED:
STAR GAS CORPORATION
By: /s/ Robert M. Cherry
------------------------
Robert M. Cherry
Senior Vice President
The undersigned shareholders
of Star Gas Corporation agree
to the execution of the
foregoing agreement and that
they will not take any action
inconsistent with the obliga-
tions of Star Gas Corporation
AMERICAN GAS & OIL INVESTORS AmGO III
By: First Reserve Corporation, By: First Reserve Capital
as managing partner, Corporation, as
managing general
partner,
By: /s/ William Macaulay By: /s/ William Macaulay
------------------------- -------------------------
William Macaulay William Macaulay
Managing Director Managing Director
AmGO II
By: First Reserve Capital
Corporation, as
managing general partner,
By: /s/ William Macaulay FIRST RESERVE SECURED
------------------------- ENERGY ASSETS FUND, L.P.
William Macaulay
Managing Director
FRC STAR GAS, INC. By: First Reserve
Corporation, as managing
general partner
By: /s/ William Macaulay
------------------------
William Macaulay
Managing Director
STAR GAS HOLDINGS, INC. By: /s/ William Macaulay
-------------------------
By: /s/ Paul Biddelman William Macaulay
------------------------ Managing Partner
Paul Biddelman
65
<PAGE>
SCHEDULES
Schedule 1 - Purchase of preferred stock
Schedule 2 - Amended and Restated Articles of Incorporation
Schedule 3 - Series A Preferred Stock exchange ratios
EXHIBITS
8.6.1 Shareholder Put/Call Agreement
8.6.2 Star Gas Put/Call Agreement
8.7 Shareholders Agreement
9.5 Management Services Agreement
9.6 Petro Option Agreement
9.10 Existing Shareholder Option Agreement
DISCLOSURE SCHEDULE
3.01 Corporate organization, etc.
3.03 (a) Subsidiaries and affiliates
(b) Equity investments
(c) Foreign qualification of subsidiaries
3.05 Violation of agreements, etc.
3.07 Undisclosed Liabilities
3.10 Certain changes
3.11 (a) Title to property - exceptions
(b) Liens, etc.
3.12 Plant and equipment
3.13 Patents, trademarks, etc.
3.14 Leases
3.16 (a) Examination of Federal income tax returns
(b) Federal income tax returns
3.17 Contracts and commitments
3.18 Suppliers
3.19 Customers
3.20 Operating data
3.22 (a) Insurance in effect
(b) Self-insured risks
3.23 Labor matters
3.24 Fringe benefit plans
3.25 Litigation
3.29 Compliance with law
3.30 Environmental protection
3.31 (b) Reportable events, etc.
3.33 (a) Personnel
(b) Competition
3.34 Insider Interests
66
<PAGE>
Schedule 1
<TABLE>
<S> <C>
Petroleum Heat and Power Co., Inc. - 140,000 Shares of Series
A 8% Cumulative
Convertible Preferred
Stock ($14 million)
Star Gas Holdings, Inc. - 20,000 Shares of Series A 8%
Cumulative Convertible
Preferred Stock ($2 million)
90,000 Shares of Series C 8% Cumulative
Convertible Preferred Stock ($9 million)
American Gas & Oil Investors - 7,811 Shares of Series A 8%
Cumulative Convertible
Preferred Stock ($781,100)
1,500 Shares of Series E 8% Cumulative
Convertible Preferred Stock ($15,000)
AmGO II - 8,223 Shares of Series A 8% Cumulative
Convertible Preferred Stock ($822,300)
692 Shares of Series E 8% Cumulative
Convertible Preferred Stock ($69,200)
AmGO III - 849 Shares of Series A 8%
Cumulative Convertible Preferred
Stock ($84,900)
152 Shares of Series E 8% Cumulative
Convertible Preferred Stock ($15,200)
First Reserve Secured - 2,867 Shares of Series A 8%
Energy Assets Fund, L.P. Cumulative Convertible Preferred
Stock ($286,700)
406 Shares of Series E 8% Cumulative
Convertible Preferred Stock ($40,600)
FRC Star Gas, Inc. - 2,250 Shares of Series E 8%
Cumulative Convertible
Preferred Stock ($225,000)
The Prudential Insurance Company - 150,000 shares of Series
of America (not party to B 8% Cumulative Convertible
Purchase Agreement) Preferred Stock ($9 million)
100,000 shares of Series D 8% Cumulative Convertible
Preferred Stock ($10 million)
60,000 shares of Series B 12.625%
Cumulative Redeemable Preferred Stock
15,000 shares of Series A 12.625%
Cumulative Redeemable Preferred Stock
</TABLE>
Exhibit 2
<PAGE>
Neither this Option, nor the shares of Common Stock issuable upon
its exercise, have been registered under the Securities Act of
1933, as amended. This Option has been, and the shares of Common
Stock issuable upon its exercise will be, acquired for invest-
ment. This Option may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with
the terms hereof and except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an
opinion of counsel, in form and substance satisfactory to the
Company, to the effect that registration is not then required
under such Act.
Option
To Purchase 500,000 shares of Class A Common Stock of
STAR GAS CORPORATION
December 21, 1993
THIS IS TO CERTIFY THAT Petroleum Heat and Power Co., Inc.
is entitled to purchase from Star Gas Corporation, a Delaware
corporation, (the "Company") at any time after December 21, 1993,
until 5:00 P.M., New York time, on December 20, 1998 (the
"Expiration Date"), Five Hundred Thousand (500,000) shares
(subject to adjustment as provided in Article Four hereof) of
Class A Common Stock, par value $.10 per share, of the Company,
at the Purchase Price (defined below) subject to exercise of the
other appurtent rights, powers and privileges, all on the terms
and conditions hereinafter provided.
1. Certain Definitions
For all purposes of this Option, unless the context
otherwise requires:
Act
The term "Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of
the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
-2-
<PAGE>
Affiliate
The term "Affiliate", as it applies to the Optionholder,
means an individual, corporation, partnership or other entity
which controls, is controlled by, or is under common control
with, the Optionholder.
Shares of Common Stock
The term "shares of Common Stock" means the Company's shares
of Class A Common Stock, par value $.10 per share, and any
capital stock into which such shares of Common Stock may
thereafter have been changed, and for purposes of Article Four
shall also include capital stock of the Company or any class of
the Company's securities thereafter authorized which ranks, or is
entitled to a participation, as to assets or dividends,
substantially on a parity with the shares of Common Stock.
Company
The term "Company" means Star Gas Corporation, a Delaware
corporation.
Expiration Date
The term "Expiration Date" means 5:00 P.M., New York time,
on December 20, 1998.
Number of Option Shares
The term "number of Option Shares" has the meaning assigned
to it in Article Four hereof.
Optionholder
The term "Optionholder" means Petroleum Heat and Power Co.,
Inc.
Options
The term "Options" means this Option and all Options issued
in substitution, combination or subdivision thereof. All Options
shall at all times be identical as to terms and conditions and
expiration date, except as to the number of shares of Common
Stock for which they may be exercised and except as otherwise
required by this Option or as otherwise agreed to by the Company
and the Optionholder.
-3-
<PAGE>
Option Shares
The term "Option Shares" means the shares of Common Stock
issuable upon the exercise of the Options.
Purchase Price
The term "Purchase Price" means $9.9031 per share as
adjusted pursuant to Article Four hereof.
2. Exercise of Option
2.1 Manner of Exercise
Until the Expiration Date, the Optionholder may exercise
this Option in whole at any time or in part from time to time for
the purchase of the number of shares of Common Stock which such
Optionholder is then entitled to purchase hereunder, at the
Purchase Price per Common Share determined in accordance with the
provisions hereof.
In order to exercise this Option, in whole or in part, the
Optionholder shall deliver on the exercise date to the Company at
its principal office or such other office or agency designated by
it for such purpose, (a) written notice of the Optionholder's
election to exercise this Option, which notice shall specify the
number of shares of Common Stock to be purchased, (b) cash or a
certified or bank check payable to the order of the Company in an
amount equal to the Purchase Price of the number of shares of
Common Stock being purchased and (c) this Option.
Upon receipt of the materials delivered by the Optionholder
under this section, the Company shall, as promptly as
practicable, execute and deliver, or cause to be executed and
delivered, to the Optionholder a certificate or certificates
representing the aggregate number of shares of Common Stock
specified in such notice. The certificate or certificates so
delivered shall be in such denomination or denominations as may
be specified in such notice and shall be registered in the name
of the Optionholder or, subject to Article Three, such other name
as shall be designated (together with an address) in such notice.
Such certificate or certificates shall be deemed to have
been issued and the Optionholder or any other person so
designated to be named therein shall be deemed to have become a
holder of record of such shares of Common Stock as of the date
such notice and payment is received by the Company as aforesaid
if this Option has been exercised in compliance with the above
provisions. If this Option shall have been exercised only in
part, the Company shall, at the time of delivery of such
certificate or certificates, deliver to the Optionholder a new
Option evidencing the rights of the holder to purchase the
-4-
<PAGE>
remaining shares of Common Stock called for by this Option, which
new Option shall in all other respects, except as provided in
Article Three, be identical with this Option, or, at the request
of the Optionholder, appropriate notation may be made on this
Option and the same returned to such holder. The Company shall
pay all expenses, taxes and other charges payable in connection
with the preparation, issuance and delivery of share certificates
under this section, except that, in the case such share
certificates shall be registered in a name or names other than
the name of the Optionholder, funds sufficient to pay all share
transfer taxes which shall be payable upon issuance of such share
certificate or certificates shall be paid by the Optionholder at
the time the notice of exercise hereinabove mentioned is
delivered to the Company.
2.2 Option Shares Fully Paid
All Option Shares shall be, when issued, duly authorized,
validly issued, fully paid and non-assessable.
2.3 Fractional Shares
The Company shall not be required upon the exercise of this
Option to issue a certificate representing any fraction of a
share of Common Stock, but, at the option of the Company, in lieu
of issuing such a fractional share, may pay for such fraction of
a share at the Purchase Price in effect on the date of such
exercise of this Option.
3. Transferability; Compliance With Securities Act
3.1 Restrictive Legend
Unless otherwise not required by this Article Three, each
certificate for Option Shares initially issued upon the exercise
of this Option, and each certificate for shares of Common Stock
issued to a subsequent transferee of any such certificate, shall
be stamped or otherwise imprinted with a legend in substantially
the following form:
The shares of Common Stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, and may not be
sold, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms hereof
and except pursuant to an effective registration
statement under such Act and any applicable state
securities laws, or an opinion of counsel, in form and
substance satisfactory to the Company, to the effect
that such registration is not then required.
-5-
<PAGE>
3.2 Restriction On Transferability
The Options shall not be transferable. The Option Shares
shall be freely transferable except to the extent limited by law
or by any agreement among shareholders of the Company.
4. Adjustments To Purchase Price And Number of Option Shares
The Purchase Price and the number of Option Shares
purchasable hereunder (such number, as in effect from time to
time, being hereinafter called the "number of Option Shares"), as
specified in this Option, shall be subject to adjustment from
time to time as follows:
4.1 Dividends and Reclassifications. In case the Company
shall (i) declare a dividend, or make a distribution, on its
outstanding shares of Common Stock in shares of its Common Stock,
(ii) subdivide or reclassify its outstanding Common Stock into a
greater number of shares or (iii) combine or reclassify its
outstanding Common Stock into a smaller number of shares, the
number of Option Shares in effect at the time of the record date
for such dividend or distribution or subdivision or combination,
or the effective date thereof if no record date is fixed
therefor, shall be proportionately adjusted so that the holder of
any Option surrendered for exercise immediately after the time of
such record date or such effective date (if no record date is
fixed) shall be entitled to receive the number of Option Shares
which such holder would have owned or been entitled to receive
had the Option been exercised immediately prior to such time.
Adjustment in the Purchase Price shall be made successively
whenever any event specified above shall occur.
4.2 Liquidating Dividends. In the event that the Company
shall make any distribution of its assets upon or with respect to
its Common Stock, as a liquidating or partial liquidating
dividend, or other than as a dividend payable out of earnings or
any surplus legally available for dividends under the laws of the
state of incorporation of the Company, the Optionholder shall,
upon the exercise of the Option after the record date for such
distribution or, in the absence of a record date, after the date
of such distribution, receive, in addition to the Option Shares,
the amount of such assets (or, at the option of the Company, a
sum equal to the value thereof at the time of distribution as
determined by the Board of Directors in its sole discretion)
which would have been distributed to the Optionholder if it had
exercised the Option immediately prior to the record date for
such distribution, or in the absence of a record date,
immediately prior to the date of such distribution.
4.3 Adjustment of Purchase Price. Upon each adjustment of
the number of Option Shares pursuant to this Article, the
Purchase Price shall be adjusted to equal the amount obtained by
-6-
<PAGE>
multiplying the Purchase Price in effect immediately prior to
such adjustment by a fraction, the numerator of which equals the
number of Option Shares in effect prior to such adjustment and
the denominator of which equals the number of Option Shares in
effect after such adjustment.
4.4 Miscellaneous Matters.
4.4.1 No adjustment of the Purchase Price shall be
made if the amount of such adjustment shall be less than one
percent of the then Purchase Price, but in such case any
adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time of and together
with the next subsequent adjustment which, together with the next
subsequent adjustment which, together with any adjustment so
carried forward, shall amount to not less than one percent of the
then Purchase Price.
4.4.2 The certificate of any independent firm of
public accountants of recognized standing selected by the Board
of Directors shall be conclusive of the correctness of any
computation made under this Article.
4.4.3 Whenever any adjustment is required in the then
Purchase Price, the Company shall forthwith (i) prepare a
statement describing in reasonable detail the adjustment and the
method of calculation used and (ii) cause a copy of such
statement to be mailed to the Optionholder.
4.4.4 The Company shall at all times reserve and keep
available out of its authorized shares of Common Stock the full
number of Option Shares into which all Options from time to time
outstanding are exercisable. If at any time the number of
authorized and unissued shares of Common Stock shall not be
sufficient to effect the exercise this Option at the Purchase
Price then in effect, the Company shall take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized Common Stock to such number of shares as
shall be sufficient for such purpose.
4.4.5 In case of any reclassification of or change in
the outstanding shares of Common Stock (other than a change in
par value, or a change from no par to par value or from par value
to no par value) or in the case of any consolidation of the
Company with, or merger of the Company into, another corporation
(other than a consolidation in which the Company is the
continuing corporation and which does not result in any
reclassification of or change in the outstanding shares of Common
Stock), or in case of any sale or conveyance to another
corporation of all or substantially all the assets of the
Company, the Optionholder shall have the right to exercise such
Option into the kind and amount of shares and other securities
and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the
-7-
<PAGE>
number of shares of Common Stock into which the Option could have
been exercised immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. After such
reclassification, change, consolidation, merger, sale or
conveyance, adjustments of the Purchase Price shall be as nearly
equivalent as may be practicable to the adjustments of the
Purchase Price provided for herein.
The Company and any successor shall not effect any such
consolidation, merger, sale or conveyance of property as an
entirety with or to another corporation unless and until such
other corporation shall agree to deliver to the Optionholder,
upon the exercise of the Option, such shares, securities and
property which, in accordance with the foregoing provisions, such
Optionholder shall have the right to receive. Successive
reclassifications, changes, consolidations, mergers, sales or
conveyances and adjustments of Purchase Price shall be similarly
treated.
Immediately before any such consolidation, merger, sale or
conveyance of property as an entirety with or to another
corporation the Company shall pay to the Optionholder an amount
of cash equal to the number of Option Shares multiplied by the
difference between (a) the cash or fair value of any property or
securities to be received by a holder of a share of Common Stock
pursuant to any such consolidation, merger, sale or conveyance of
property and (b) the Purchase Price.
5. Notice Of Certain Events.
In case at any time on or after the date hereof:
(a) there shall be any capital reorganization or
reclassification of the shares of Common Stock (other than a
subdivision or combination of its outstanding shares of Common
Stock and other than a change in the par value or the shares of
Common Stock, or a change from par value to no par value or from
no par value to par value), or any consolidation or merger to
which the Company is a party and for which approval of any
shareholders of the Company is required, or any sale or transfer
of all or substantially all the assets of the Company; or
(b) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be delivered to each
Optionholder, as promptly as possible but in any event at least
10 days prior to the applicable date hereinafter specified, a
notice stating the date on which such reorganization,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of shares of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
-8-
<PAGE>
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of
which it is expected that holders of shares of Common Stock of
record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
6. Limitation of Liability
No provision hereof, in the absence of affirmative action by
the Optionholder to purchase shares of Common Stock, and no mere
enumeration herein of the rights and privileges of the
Optionholder, shall give rise to any liability of such
Optionholder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. Miscellaneous Provisions
7.1 Notices and Demands on Company and Optionholder. Any
notice or demand which by any provision of this Option is
required or permitted to be given or served may be given or
served by being deposited postage prepaid, registered or
certified mail, return receipt requested, in a post office letter
box addressed (until another address of the Company is given by
the Company to the Optionholder) as follows: if to the Company,
then to Star Gas Corporation, 500 Birchfield Drive, Mt. Laurel,
New Jersey 08054; if to the Optionholder, then to Petroleum Heat
and Power Co., Inc., Davenport Street, Stamford, Connecticut
06094, Attn: George Leibowitz, Senior Vice President. All
notices shall be deemed to have been given upon delivery or
mailing thereof.
7.2 Amendments And Waivers. Any term of this Option may be
changed, waived, discharged or terminated only be a written
consent of the Company and the Optionholder.
7.3 Laws Of Delaware To Govern. This Option shall be
deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed
in accordance with the internal laws of such State.
7.4 Effect Of Headings. The Article and Section headings
herein are for convenience only and shall not affect the
construction hereof.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be
signed in its name by a duly authorized officer and attested by
its Secretary or Assistant Secretary.
Dated: December 21, 1993
STAR GAS CORPORATION
/s/ Robert M. Cherry
---------------------------------
Name: Robert M. Cherry
Title: Senior Vice President
ATTEST:
/s/ Melinda K. Estadt
----------------------------
Name: Melinda K. Estadt
Title: Secretary
-10-
Exhibit 3
<PAGE>
SHAREHOLDER PUT/CALL AGREEMENT
AGREEMENT entered into as of this 21st day of December, 1993
among Petroleum Heat and Power Co., Inc., a Minnesota corporation
("Petro"), American Gas & Oil Investors, a New York partnership,
AmGO II, a New York partnership, AmGO III, a New York
partnership, First Reserve Secured Energy Assets Fund, L.P., a
Delaware partnership, FRC Star Gas, Inc., and The Prudential
Insurance Company of America, a New Jersey corporation
("Prudential").
WHEREAS, American Gas & Oil Investors, First Reserve
Secured Energy Assets Fund, L.P., FRC Star Gas, Inc., AmGO II and
AmGO III (collectively, the "FRC Shareholders") own the
outstanding shares of common stock, par value $1.00 per share of
Star Gas Corporation, a Delaware corporation ("Star Gas") which,
together with such shares of Common Stock as the Investor
Shareholders may hereafter own, are referred to collectively as
"Common Stock"; the FRC Shareholders together with Prudential are
referred to herein as the "Investor Shareholders";
WHEREAS, the Investor Shareholders also own shares of 8%
Cumulative Convertible Preferred Stock of Star Gas, which
together with all shares of such preferred stock as the Investor
Shareholders may hereafter own, are referred to collectively as
"8% Cumulative Convertible Preferred Stock".
2
<PAGE>
WHEREAS, Star Gas has entered into an agreement to sell to
Petro, and Petro has agreed to buy, certain of Star Gas's 8%
Cumulative Convertible Preferred Stock and has further agreed to
provide an option to Petro to purchase shares of Common Stock;
and
WHEREAS, as a further inducement to Petro and the FRC
Shareholders to enter into such agreements, the FRC Shareholders
wish to grant Petro a call option to buy all the shares of Common
Stock owned by the FRC Shareholders as well as the 8% Cumulative
Convertible Preferred Stock and shares of Common Stock issued to
them upon the conversion of the 8% Cumulative Convertible
Preferred Stock of Star Gas and the exercise of certain options
and Petro wishes to grant to the FRC Shareholders a put option to
require Petro to purchase all the shares of Common Stock that
they own; and
WHEREAS, Prudential is also willing to grant to Petro a
call option to purchase all shares of its 8% Cumulative
Convertible Preferred Stock and shares of Common Stock issued
upon the conversion of the 8% Cumulative Convertible Preferred
Stock of Star Gas, subject, however, to the prior rights of Star
Gas and Prudential under the Star Gas Put/Call Agreement of even
date and Petro wishes to grant to Prudential a put option to
require Petro to purchase all the shares of Common Stock and 8%
Cumulative Convertible Preferred Stock owned by Prudential; and
3
<PAGE>
WHEREAS, the parties intend that this Agreement shall
be binding upon and inure to the benefit of any person who may
acquire 8% Cumulative Convertible Preferred Stock and Common
Stock from them, so that (a) the term "FRC Shareholders" shall
include FRC and any transferee of an existing FRC Shareholder,
(b) the term "Prudential Shareholders" shall include Prudential
and any transferee of Prudential and (c) the term "Investor
Shareholders" shall include all FRC Shareholders and Prudential
Shareholders as defined in this paragraph; provided, however,
that this Agreement shall not be binding upon or inure to the
benefit of any person who may acquire any such shares in a public
offering or in ordinary brokerage transactions pursuant to Rule
144 under the Securities Act of 1933, as amended ("Rule 144")
following a public offering of the Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, it is hereby agreed as follows:
1. The Options.
-----------
1.1 Call Option. For the period beginning on the date on
------------
which Star Gas' audited financial statements for the fiscal year
ending September 30, 1994 are first delivered to Petro and the
Investor Shareholders and ending December 31, 1998, subject to
Section 1.2 hereof, Petro shall have the option ("Call Option")
to acquire all, but not less than all, of the 8% Cumulative
4
<PAGE>
Convertible Preferred Stock and Common Stock from time to time
owned by the Investor Shareholders including without limitation
the shares of Common Stock issuable upon the conversion of the 8%
Cumulative Convertible Preferred Stock of Star Gas and shares
issued upon the exercise of the Shareholder Option Agreement to
the extent the Shareholder Option Agreement has been exercised
prior to its Expiration Date (as defined therein), in each case
for an aggregate purchase price ("Call Option Price") computed as
follows:
(a) first, by calculating the product of (i) Star Gas'
EBITDA for the 12 months ended with its most recent fiscal
quarter completed prior to the notice of exercise of the Call
Option and (ii) the greater of 7 or the Petro EBITDA Multiple;
(b) next, by taking such product in (a) above and (i)
subtracting from it the amount of Long-Term Obligations of Star
Gas as of the last day of such 12 month period, and (ii) adding
to it the amount of net working capital of Star Gas (i.e. current
assets less current liabilities) as of the last day of such 12
month period in excess of $4,000,000 and (iii) adding to it the
proceeds that would be received by Star Gas upon the exercise of
all options, warrants and similar rights to purchase securities
outstanding on the last day of such 12 month period to the extent
the shares issuable upon exercise are included in Fully Diluted
Shares;
5
<PAGE>
(c) next, by taking the result of (b) above and
dividing such result by the number of Fully Diluted Shares;
(d) next, by taking the per share amount calculated
in (c) above and multiplying it by the number of shares of Common
Stock of the Investor Shareholders being purchased pursuant to
such Call Option and the number of shares of Common Stock then
issuable upon the conversion of the 8% Cumulative Convertible
Preferred Stock of the Investor Shareholders to be purchased
pursuant to the Call Option.
1.2 The Call Option of Petro to acquire shares owned by
Prudential is subject to the Star Gas Put/Call Agreement of even
date pursuant to which Star Gas has a call on the Series D 8%
Cumulative Preferred Stock of Star Gas owned by Prudential and
shares of Star Gas Common Stock issued upon conversion thereof
and Prudential has the right to require Star Gas, under certain
circumstances to purchase said shares.
1.3 Put Option. For the period beginning January 1, 1999
----------
or, if earlier, from the date of a Change of Control with respect
to Petro, through and including December 31, 1999, each of the
Investor Shareholders, individually, will have an option ("Put
Option") to require Petro to purchase all but not less than all
of their shares of Common Stock and 8% Cumulative Convertible
6
<PAGE>
Preferred Stock for an aggregate purchase price ("Put Option
Price") computed as follows:
(a) first by calculating the product of (i) Star Gas'
EBITDA for the 12 months ended with its most recent fiscal
quarter completed prior to the notice of exercise of the Put
Option and (ii) the greater of (A) 5 or (B) .85 of Petro EBITDA
Multiple;
(b) next, by taking such product in (a) above and (i)
subtracting from it the amount of Long-Term Obligations of Star
Gas as of the last day of such 12 month period, and (ii) adding
to it the amount of net working capital of Star Gas (i.e. current
assets less current liabilities) as of the last day of such 12
month period in excess of $4,000,000 and (iii) adding to it the
proceeds that would be received by Star Gas upon the exercise of
all options, warrants and similar rights to purchase securities
outstanding on the last day of such 12 month period to the extent
the shares issuable upon exercise are included in Fully Diluted
Shares;
(c) next, by taking the result in (b) above and
dividing such result by the number of Fully Diluted Shares;
(d) next, by taking the per share amount in (c) above
and multiplying such amount by the number of shares of Common
7
<PAGE>
Stock of the Investor Shareholders being purchased pursuant to
such Put Option and the number of shares of Common Stock then
issuable upon the conversion of the 8% Cumulative Convertible
Preferred Stock of the Investor Shareholders to be purchased
pursuant to the Put Option.
1.4 Definitions.
-----------
"Change of Control" means the occurrence of any event which
results in the number of directors of Petro's Board of Directors
who are designated by the Sevin Group (in an individual or
fiduciary capacity) in accordance with a Shareholders Agreement
dated as of July 28, 1992 among Petro and certain shareholders,
constituting less than a majority of the Board. "Sevin Group"
shall mean collectively, the Estate of Malvin P. Sevin, Audrey L.
Sevin, Irik P. Sevin, Thomas J. Edelman, Phillip Ean Cohen and
Margot Gordon.
"EBITDA" for a company means consolidated income before
interest, depreciation and amortization and income taxes
excluding gains or losses from the sale of assets other than in
the ordinary course of business, non-recurring gains or losses,
extraordinary items and the costs of any restructuring,
calculated in accordance with generally accepted accounting
principles consistently applied, all as reported in that
company's financial statements; provided that consolidated income
of any other person (other than a corporation of which a majority
of the capital stock having voting power under ordinary
8
<PAGE>
circumstances to elect a majority of the board of directors is
owned by the company or a subsidiary of such company) will be
included only to the extent of dividends and distributions
received by the company. EBITDA shall include (without
duplication) EBITDA (defined as the same manner as in this
Agreement) of each business (on a pro forma basis) which has been
acquired during the 12 months ended with the most recently
completed fiscal quarter of Star Gas or Petro, as the case may
be, using the pro forma adjustments comparable to those
customarily made by Petro in SEC reporting of its acquisitions of
businesses pursuant to the periodic reporting requirements of the
Securities Exchange Act of 1934.
"Fully Diluted Shares" means with respect to Star Gas, as of
the date of determination, the number of shares of Common Stock
actually issued and outstanding, plus the number of shares
issuable upon the conversion of the 8% Cumulative Convertible
Preferred Stock, plus the number of shares of Common Stock
issuable pursuant to that certain option dated as of December 21,
1993 granted by Star Gas to Petro, plus the number of shares of
Common Stock issuable pursuant to all other options, warrants and
similar rights to purchase Common Stock, and plus the number of
shares of Common Stock issuable upon the conversion of any other
class of convertible securities of the Corporation; provided,
however, that only those options, warrants and similar rights to
purchase shares of Common Stock, that have an exercise price that
9
<PAGE>
is less than (i) the Call Price (determined without including the
shares issuable upon exercise of such options, warrants or
similar rights), when "Fully Diluted Shares" is being used to
determine the Call Price, or (ii) the Put Price (determined
without including the shares issuable upon exercise of such
options, warrants or similar rights), when "Fully Diluted Shares"
is being used to determine the Put Price, shall be deemed to be
included in this definition.
"Long-Term Obligations" of an entity means the face value of
indebtedness for money borrowed (excluding any discounts,
including original issue discount, or premiums) of such entity
that pays cash interest or interest in the form of instruments
representing similar indebtedness plus the amortization payments
of all other debt discounted at an annual rate of 11% plus the
amounts of capitalized lease obligations and minus the current
portion of any such indebtedness and obligations; provided,
however, that the amount of any debt security convertible into
shares of common stock shall be excluded from Long-Term
Obligations to the extent that such security is deemed converted
for purposes of Fully Diluted Shares.
"Petro's EBITDA Multiple" means the amount determined by
dividing (i) the sum of the amount of Long Term Obligations of
Petro other than securities convertible into common stock and the
face value of any preferred stock of Petro outstanding on the
10
<PAGE>
date EBITDA is determined other than securities convertible into
common stock and the product of (a) the number of issued and
outstanding shares of all classes Petro's common stock on a fully
diluted basis, assuming the conversion of all convertible
securities, on the date EBITDA is determined and (b) the average
of the last reported sales price for each respective class of
stock (with the sales prices for the Class C Common Stock deemed
to be the same as the sales prices for the Class A Common Stock)
for the 10 trading days preceding the date on which the Put
Option or Call Option is exercised as reported by the NASDAQ
National Market System, or if a class of stock is not included in
the NASDAQ National Market System, then on the stock exchange or
listing service on which such class is included, or, if no such
sales prices exist, then the fair value of such class of stock as
determined by an investment banking firm of nationally recognized
standing selected by Petro by (ii) Petro's EBITDA (defined in the
same manner as in this Agreement) for the 12 months ended with
its most recently completed fiscal quarter completed prior to the
exercise of the Put Option or the Call Option.
"Shareholder Option Agreement" means the Shareholder Option
Agreements of even date between Star Gas and each of the FRC
Shareholders.
1.5 Minimum Prudential Call Option Price. Notwithstanding
-------------------------------------
the foregoing, if Petro exercises the Call Option to purchase the
11
<PAGE>
shares of Common Stock and 8% Cumulative Convertible Preferred
Stock owned by Prudential, the Call Option Price for such shares
shall be no less than $14.1350 per share of Common Stock or share
of Common Stock which would be receivable upon conversion of the
8% Cumulative Convertible Preferred Stock (in each case, as
adjusted for stock splits, stock dividends and the like) plus
such additional amount as will result in a yield to Prudential on
the shares so purchased of 12.625% per annum compounded semi-
annually from December 1, 1993 ("Floor Option Price"). The Floor
Option Price shall include, and Prudential shall transfer to
Petro for no additional consideration, all shares of 8%
Cumulative Convertible Preferred Stock issued as a dividend on
the shares of 8% Cumulative Convertible Preferred Stock owned by
Prudential to be repurchased pursuant to the Call Option.
1.6 Petro's Special Call Option on the Holdings of the
-------------------------------------------------------
Prudential Shareholders. If at any time prior to the fifth
------------------------
anniversary of the execution of this Agreement, any Prudential
Shareholder shall vote any Star Gas equity securities owned by it
against any bona fide merger proposal or against the liquidation
or dissolution of Star Gas, then Petro may exercise the Call
Option to purchase the securities of all Prudential Shareholders
subject thereto on the terms set forth above except that (a) the
one year waiting period in Section 1.1 shall not apply (b) the
EBITDA multiple of 7 in Section 1.1(a)(ii) shall be reduced to 6
and (c) notwithstanding Article 2, the entire Call Option Price
would be payable by wire transfer of immediately available funds.
12
<PAGE>
1.7 Option Agreement. Immediately upon the exercise of the
----------------
Call Option, Petro shall grant to the FRC Shareholders an option
to purchase, on terms and conditions identical to those set forth
in those certain Option Agreements, dated as of December 21,
1993, from Star Gas Corporation to various FRC Shareholders (the
"Option Agreement"), a total number of shares of Petro Class A
Common Stock equal to the number of shares of Star Gas Common
Stock which could then be purchased under the unexercised portion
of the Option Agreement, multiplied by a fraction, the numerator
of which is the Call Price and the denominator of which is the
per share value of the Petro Class A Common Stock determined
pursuant to Clause 1.4(b) and the Purchase Price of such option
shall be equal to the current Purchase Price under the Option
Agreement divided by the same fraction.
1.8 Minimum FRC Call Option Price. Anything in this
--------------------------------
Agreement to the contrary notwithstanding, if Petro exercises the
Call Option to purchase the shares of Series A 8% Cumulative
Convertible Preferred Stock owned by the FRC Shareholders on the
date hereof (or shares of Common Stock received on the conversion
thereof), the Call Option Price per share of Common Stock shall
be no less than $10.8368 per share (in each case, as adjusted for
stock splits, stock dividends and the like).
13
<PAGE>
2. Exercise of Option
------------------
2.1 Manner of Exercise
------------------
Until the expiration date of the Call Option or the Put
Option, the holder thereof may exercise such option in accordance
with the provisions hereof.
(a) In order to exercise the Call Option, Petro shall
deliver on the exercise date to the Investor Shareholders, at
their respective principal offices or such other office or agency
designated by each of them for such purpose, written notice of
Petro's election to exercise such option and at Petro's election
it shall (i) make a wire transfer in immediately available funds
equal to the Call Option Price to accounts designated by the
Investor Shareholders or (ii) deliver a certificate or
certificate for the number of shares of Petro's Class A Common
Stock ("Class A Common Stock") having a value determined in
accordance with Section 2.2 equal to the Call Option Price;
provided, however, that in the case of Prudential, at least
twenty percent (20%) of the Call Option Price shall be paid by
wire transfer in immediately available funds. The certificate or
certificates representing Class A Common Stock so delivered shall
be in such denomination or denominations as may be specified by
the applicable Investor Shareholder and shall be registered in
the name of such holder.
Upon receipt of the materials delivered by Petro upon the
exercise of a Call Option under this section, each Investor
14
<PAGE>
Shareholder shall, against payment, execute and deliver, or cause
to be executed and delivered, to Petro a certificate or
certificates representing the aggregate number of shares of
Common Stock or 8% Cumulative Convertible Preferred Stock owned
by such Investor Shareholder together with executed stock
transfer powers to Petro or to any person designated by Petro.
The certificate or certificates representing Common Stock or
8% Cumulative Convertible Preferred Stock and Class A Common
Stock shall be deemed to have been issued and the holder thereof
or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares of Common
Stock or 8% Cumulative Convertible Preferred Stock or Class A
Common Stock, as the case may be, as of the date such notice is
received by the Investor Shareholders as aforesaid if such option
has been exercised in compliance with the above provisions.
Petro shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of share
certificates under this section.
(b) In order to exercise the Put Option, an Investor Share-
holder shall deliver to Petro, at its principal office or such
other office or agency designated by it for such purpose, written
notice of such holder's election to exercise such option and
within three days thereafter such Investor Shareholder shall
deliver to Petro a certificate or certificates representing the
15
<PAGE>
number of shares of Common Stock or 8% Cumulative Convertible
Preferred Stock owned by such Investor Shareholder together with
executed stock transfer powers to Petro or to any person
designated by Petro.
Simultaneously with receipt of the materials delivered by
the Investor Shareholders following the exercise of a Put Option,
Petro shall, at its election, either (i) wire transfer the amount
of the purchase price in immediately available funds to an
account designated by the Investor Shareholder or (ii) execute
and deliver, or cause to be executed and delivered, to each such
Investor Shareholder the shares of Petro Class A Common Stock
valued pursuant to Section 2.2 in payment of the Put Option
Price. The certificate or certificates so delivered shall be in
such denomination or denominations as may be specified in such
notice and shall be registered in the name of such holder.
Such certificate or certificates shall be deemed to have
been issued and such holder or any other person so designated to
be named therein shall be deemed to have become a holder of
record of such shares of Class A Common Stock, 8% Cumulative
Convertible Preferred Stock or Common Stock, as the case may be,
as of the date such notice is received by Petro as aforesaid if
such option has been exercised in compliance with the above
provisions. Petro shall pay all expenses, taxes and other
16
<PAGE>
charges payable in connection with the preparation, issuance and
delivery of share certificates under this section.
2.2 Value of the Class A Common Stock. The value of
-------------------------------------
Petro's Class A Common Stock shall be deemed to be the average of
the last reported sales price for Petro's Class A Common Stock
for the 10 trading days preceding the date on which the option is
exercised as reported by the NASDAQ National Market System, or if
the Class A Common Stock is not included in the NASDAQ National
Market System, then on the stock exchange or listing service on
which the Class A Common Stock is included. In the event that
Petro's Class A Common Stock is not listed on any national public
securities exchange (including NASDAQ) in the United States at
the date of the exercise of the Call Option or the Put Option, as
the case may be, then the Call Option Price or the Put Option
Price shall be determined without regard to Petro's EBITDA
multiple, and shall be paid by wire transfer of immediately
available funds.
2.3 Option Shares Fully Paid
------------------------
All shares of Class A Common Stock issued upon the exercise
of an option shall be, when issued, duly authorized, validly
issued, fully paid and non-assessable.
2.4 Fractional Shares
-----------------
17
<PAGE>
Petro shall not be required upon the exercise of an option
to issue a certificate representing any fraction of a share of
Class A Common Stock, but, at the option of Petro, in lieu of
issuing such fractional share, may pay for such fraction of a
share in cash at the purchase price in effect on the date of such
exercise of such option.
2.5 Limits on Resale of Common Stock.
--------------------------------
In no event shall Petro offer for sale, sell or otherwise
transfer, directly or indirectly, any shares of Common Stock that
it owns, without the prior written consent of all of the Investor
Shareholders, during the twelve-month period commencing on the
exercise date of such Call Option; provided, however, that this
paragraph shall not prohibit Petro from selling substantially all
of its assets, merging or consolidating with or into another
entity or selling all its outstanding stock to another entity or
person.
Petro agrees that it shall cause Star Gas not to make a
public offering of its Common Stock registered under the
Securities Act of 1933, without the prior written consent of all
of the Investor Shareholders, during the twelve-month period
commencing on the exercise date of such Call Option; provided,
however, that such consent shall not be necessary if the number
of shares of Common Stock so offered are no more than an
18
<PAGE>
aggregate of twenty percent (20%) of the number of Fully Diluted
Shares.
3. Registration Rights.
-------------------
3.1. Piggy-Back Registration Rights.
------------------------------
3.1.1 If Petro proposes to file, on its behalf
and/or on behalf of any of its securities holders, a Registration
Statement under the Securities Act of 1993, as amended (the
"Securities Act") other than in connection with a dividend
reinvestment, employee stock purchase, option or similar plan or
in connection with a merger, consolidation or reorganization,
Petro shall give written notice to each Investor Shareholder
which acquired Petro Class A Common Stock at its address set
forth herein at least 30 days before the filing with the
Securities and Exchange Commission ("SEC") of such Registration
Statement. Each Investor Shareholder who desires to include any
of its shares of Class A Common Stock in such Registration
Statement shall give written notice to Petro within 20 days after
the date of mailing of such offer, and shall deliver to Petro a
letter from counsel selected by such Investor Shareholder to the
effect that registration under the Securities Act is required.
Petro shall thereupon include in such filing the shares of Class
A Common Stock designated by such Investor Shareholder and,
subject to its right to withdraw such filing, shall use its best
efforts to effect registration under the Securities Act of such
Shares.
19
<PAGE>
3.1.2 The right of the Investor Shareholders to
have shares included in any Registration Statement in accordance
with the provisions of this Section 3.1 shall be subject to the
following conditions:
3.1.2.1 Petro shall have the right to require
that Investor Shareholders participating in such
Registration Statement agree to refrain from offering
or selling (other than in a private sale) any shares of
Common Stock that they own which are not included in
any such Registration Statement in accordance with this
Section 3.1 for any time period (not to exceed 120
days) specified in writing by any managing underwriter
oftheofferingto whichsuchRegistrationStatement relates;
3.1.2.2 If any managing underwriter of the
offering to which the Registration Statement relates
informs Petro in writing that the total number of
shares of Common Stock requested by the Investor
Shareholders to be included in the Registration
Statement is sufficiently large to affect the success
of such offering adversely, then Petro will include
only the number of shares, if any, in the Registration
Statement that such managing underwriter shall advise
Petro will not so affect the offering, and reductions
in the number of shares of Common Stock owned by the
20
<PAGE>
Investor Shareholders will be made proportionate to
their respective percentages of ownership of shares to
be included in the Registration Statement;
3.1.2.3 Petro shall furnish Investor
Shareholders who have shares included in a Registration
Statement pursuant to this Section 3.1 with such number
of copies of the prospectus relating to the Offering
(the "Prospectus") (including any preliminary prospec-
tus or supplemental or amended prospectus) as such
Investor Shareholder may reasonably request in order to
facilitate the sale and distribution of its shares; and
3.1.3 Notwithstanding the foregoing, Petro in its
sole discretion may determine not to file the registration state-
ment or proceed with the offering as to which the notice speci-
fied herein is given without any liability to Investor
Shareholders.
3.1.4 Each Investor Shareholder shall have the
right to register shares of Common Stock under this Section 3.1
on an unlimited number of occasions.
21
<PAGE>
3.2. Independent Registration Rights.
-------------------------------
3.2.1 If either the FRC Shareholders or Prudential
Shareholders holding in either case a majority of the shares of
Petro Class A Common Stock held by the specific shareholder group
(determined by reference to the Shareholders' Agreement dated as
of December 21, 1993 relating to Star Gas), proposes to offer for
sale, sell or transfer their respective shares of Petro Class A
Common Stock which may require registration under the Securities
Act such shareholder shall give Petro written notice of their
desire to sell such shares, specifying the number of shares
proposed to be sold and the plan for distribution of such shares.
Petro will thereafter:
3.2.1.1 Prepare and file with all deliberate
speed a Registration Statement with the SEC on the
appropriate form and use its best efforts to cause such
Registration Statement to become effective in order that
such shareholders may sell their shares in accordance with
the proposed plan of distribution;
3.2.1.2 Prepare and file with the SEC such
amendments and supplements to such Registration Statement
and Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for
up to 120 days and to comply with the provisions of the
Securities Act with respect to the offer of the shares
22
<PAGE>
covered by such Registration Statement during the period
required for distribution of such shares, which period shall
not be in excess of three months from the effective date of
such Registration Statement;
3.2.1.3 Furnish to such shareholders, if such
shares have been included in the Registration Statement
pursuant to this Section 3.2, such number of copies of the
Prospectus (including any preliminary prospectus or supple-
mental or amended prospectus) as such shareholders may
reasonably request in order to facilitate the sale and
distribution of the shares;
3.2.1.4 Use reasonable efforts to register or
qualify such shares covered by such Registration Statement
under such other securities or blue sky laws of such
jurisdictions as the shareholders shall reasonably request,
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such
shareholders to consummate the disposition in such
jurisdictions of the shares owned by such shareholders,
except that Petro shall not for any such purpose be required
to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this
clause 3.2.1.4, it would not be obligated to be so
qualified, to subject itself to taxation in any such
23
<PAGE>
jurisdiction, or to consent to general service of process in
any such jurisdiction;
3.2.1.5 Use reasonable efforts to cause such
shares covered by such Registration Statement to be
registered with or approved by such other governmental
agencies or authorities as may be necessary to enable the
shareholders to consummate the dispositions of such shares
of Common Stock;
3.2.1.6 Notify promptly the shareholders selling
any such shares covered by such Registration Statement, at
any time when a Prospectus relating thereto is required to
be delivered under the Securities Act, of Petro's becoming
aware that the Prospectus included in such Registration
Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing, and, at the request of any such
selling shareholder, prepare and furnish to such selling
shareholder a reasonable number of copies of an amended or
supplemental Prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such
Prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to
24
<PAGE>
be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances
then existing;
3.2.1.7 Otherwise use reasonable efforts to
comply with all applicable rules and regulations of the SEC,
and make available to its security holders, as soon as
reasonably practicable (but not more than eighteen months)
after the effective date of the Registration Statement, an
earnings statement which shall satisfy the provisions of
Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
3.2.1.8 Use reasonable efforts to list or admit
for trading such shares of Common Stock on the National
Association of Securities Dealers, Inc. National Market
System ("NASDAQ NMS") or any securities exchange on which
the Common Stock is then listed, if such shares are not
already so listed and if such listing is then permitted
under the rules of the NASDAQ NMS or such exchange, and to
provide a transfer agent and registrar for such shares
covered by such Registration Statement not later than the
effective date of such Registration Statement;
3.2.1.9 Enter into an underwriting agreement
with a managing underwriter or underwriters containing
25
<PAGE>
representations, warranties, indemnities and agreements then
customarily included by an issuer in underwriting agreements
with respect to secondary distributions;
3.2.1.10 Use reasonable efforts to obtain a "cold
comfort" letter or letters from the Petro independent public
accountants in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the
shareholders selling such shares shall reasonably request;
3.2.1.11 Make available for inspection by the
shareholders selling such shares covered by such
Registration Statement, by any underwriter participating in
any disposition to be effected pursuant to such Registration
Statement and by any attorney, accountant or other agent
retained by any such shareholders or any such underwriter,
all pertinent financial and other records, pertinent
corporate documents and properties of Petro, and cause all
of Petro's officers, directors and employees to supply all
information reasonably requested by any such selling
shareholders, underwriter, attorney, accountant or agent in
connection with such Registration Statement; and
3.2.1.12 Obtain for delivery to the underwriters
or agent and to selling shareholders an opinion or opinions
from counsel for Petro in customary form and in form and
26
<PAGE>
scope reasonably satisfactory to such underwriter or agent
and their counsel.
3.2.2 The right of the Investor Shareholders to
have shares registered pursuant to the provisions of this Section
3.2 shall be subject to the following conditions:
3.2.2.1 If a request for registration is made
within 60 days prior to the conclusion of Petro's then
current fiscal year, Petro shall have the right to delay the
filing of the Registration Statement for such period of time
until Petro receives its audited financial statements for
such fiscal year;
3.2.2.2 If any managing underwriter of the
offering to which the Registration Statement relates informs
Petro that total number of shares of Common Stock requested
by the Investor Shareholders to be included in the
Registration Statement is sufficiently large to affect the
success of such offering adversely, then Petro will include
only the number of shares, if any, in the Registration
Statement that such managing underwriter shall advise Petro
will not so affect the offering and reductions in the number
of shares of Common Stock owned by the Investor Shareholders
will be made proportionate to their respective percentages
of ownership; provided, however, that the shareholders
27
<PAGE>
requesting such registration shall not be required to reduce
the number of shares of Common Stock that such shareholders
have requested to be included in the registration statement
without such shareholders' written consent;
3.2.2.3 Each of the Prudential Shareholders and
the FRC Shareholders shall each be entitled to request no
more than two (a total of four) Registration Statements;
provided, however, that a request will be disregarded in
determining a shareholder's rights under this paragraph if a
Registration Statement based upon such request does not
actually become effective; and
3.2.2.4 Petro shall not be required to file a
Registration Statement on behalf of Investor Shareholders
under this Section within six months after the effective
date of a Registration Statement in which the Investor
Shareholders are offered an opportunity to include shares
pursuant to Section 3.1 hereof.
3.3 Expenses. Petro will bear all the expenses in
--------
connection with any Registration Statement under Section 3.1 or
Section 3.2 hereof (including the reasonable fees and expenses of
counsel to any Investor Shareholders), other than transfer taxes
payable on the sale of such shares and fees and commissions of
brokers, dealers and underwriters.
28
<PAGE>
3.4 "No Action" Letter; Opinion of Counsel. No Investor
----------------------------------------
Shareholder shall have registration rights under this Article
with respect to any sales proposed by them of shares as to which
sales (i) a "no action" letter is received from the SEC or its
staff confirming the availability of an exemption from the
requirements of the Securities Act or (ii) an unqualified opinion
of counsel to Petro is rendered to the effect that registration
of such shares for such sales is not required; provided, further
however, that in both cases (i) and (ii) above, the volume
limitations of Rule 144(e) under the Securities Act shall not
limit the amount of shares of Common Stock that the Investor
Shareholders are entitled to offer and sell without registration
under the Securities Act.
3.5 Recall of Prospectuses, etc. With respect to a
-------------------------------
Registration Statement or amendment thereto filed pursuant to
this Article, if, at any time, Petro notifies the selling
Investor Shareholders that an amendment or supplement to such
Registration Statement or amendment or the prospectus included
therein is necessary or appropriate, the selling Investor
Shareholders will forthwith cease selling and distributing shares
thereunder and will forthwith redeliver to Petro all copies of
such Registration Statement and prospectuses then in their
possession or under their control. Petro will use its best
efforts to cause any such amendment or supplement to become
effective as soon as practicable and will furnish the selling
29
<PAGE>
Investor Shareholders with a reasonable number of copies of such
amended or supplemented Prospectus (and the period during which
Petro is required to use its best efforts to maintain such
Registration Statement in effect pursuant to this Agreement will
be increased by the period from the date on which the selling
Investor Shareholders ceased selling and distributing shares
thereunder to the date on which such amendment or supplement
becomes effective).
3.6 Cooperation of Investor Shareholders. Petro shall be
-------------------------------------
entitled to require that each selling Investor Shareholder
cooperate with Petro in connection with a registration of shares
of Class A Common Stock pursuant to this Article and furnish (i)
such information regarding such selling Investor Shareholders and
the distribution as may be reasonably required by Petro or as
required by law in connection therewith and (ii) such
representations, undertakings and agreements regarding such
selling Investor Shareholders and the distribution or any other
representation required by law in connection therewith.
3.7 Indemnification.
---------------
3.7.1 In the event of any registration of any
securities under the Securities Act pursuant to this Article,
Petro will indemnify and hold harmless each selling Investor
Shareholder, each affiliate of such Investor Shareholder and
their respective directors and officers and general and limited
30
<PAGE>
partners, any underwriter and each other person, if any, who
controls such selling Investor Shareholder or underwriter within
the meaning of the Securities Act, against any losses, claims,
damages, expenses or liabilities, joint or several, to which each
such selling Investor Shareholder or underwriter or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages, expenses or liabilities
(or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material
fact contained in such registration statement or preliminary
prospectus (if used prior to the effective date of such registra-
tion statement) or final or summary prospectus contained therein
(if used during the period the Petro is required to keep the
registration statement effective), or any amendment or supplement
thereto, or arise out of or are based upon the omission or al-
leged omission to state therein a material fact required to be
stated therein or necessary to make the statements made therein
not misleading, and will reimburse each such selling Investor
Shareholder, underwriter and controlling person for any legal or
any other expenses reasonably incurred as incurred by him in
connection with investigating or defending any such action or
claim, excluding any amounts paid in settlement of any
litigation, commenced or threatened, if such settlement is
effected without the prior written consent of Petro; provided,
however, that Petro will not be liable to a particular selling
Investor Shareholder or underwriter in any such case to the
31
<PAGE>
extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or omission or
alleged omission made in said registration statement, said
preliminary prospectus or said final or summary prospectus or any
amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to Petro by that
selling Investor Shareholder or its controlling affiliates or
representative, or by that underwriter, as the case may be,
specifically for use in the preparation thereof; and provided
further that the indemnity agreement contained in this Section
3.7 with respect to any preliminary prospectus shall not inure to
the benefit of any selling Investor Shareholder or underwriter or
to any person controlling the same in respect of any loss, claim,
damage, liability or action asserted by someone who purchased
shares from such person if a copy of the final prospectus (as the
same may be amended or supplemented) in connection with such
registration statement was not sent or given to such person with
or prior to written confirmation of the sale and if the untrue
statement or omission or alleged untrue statement or omission of
a material fact contained in such preliminary prospectus was
corrected in the final prospectus.
3.7.2 In the event of any registration of securi-
ties under the Securities Act pursuant to this Article, each
selling Investor Shareholder shall indemnify and hold harmless
Petro, each of its directors and officers, any underwriter and
32
<PAGE>
each other person, if any, who controls Petro or underwriter
within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which Petro
or any such director, officer, underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of any material fact con-
tained in such registration statement or preliminary prospectus
or final or summary prospectus contained therein, or any amend-
ment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
made therein not misleading, and will reimburse Petro, each such
director, officer, underwriter and controlling person for any
legal or other expenses reasonably incurred as incurred by them
in connection with investigating or defending any such action or
claim, excluding any amounts paid in settlement of any litiga-
tion, commenced or threatened, if such settlement is effected
without the prior written consent of the Investor Shareholder or
his representative, but in all such cases only if, and to the
extent that, any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission therein made in
reliance upon and in conformity with written information
furnished to Petro by the selling Investor Shareholder or its
33
<PAGE>
controlling affiliates or representative specifically for use in
the preparation thereof.
3.7.3 Action Commenced. Promptly after receipt by
----------------
a party entitled to indemnification under Section 3.7.1 or 3.7.2
hereof of notice of the commencement of any action, such indemni-
fied party will, if a claim in respect thereof is to be made
against the indemnifying party under either of such Sections,
notify the indemnifying party in writing of the commencement
thereof; provided, however, that the indemnifying party is
relieved of its obligations hereunder by the failure to give such
notice only to the extent the indemnifying party is adversely
affected by such failure. In case any such action is brought
against the indemnified party and it shall so notify the
indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent
that it so chooses, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided that
the indemnifying party will not agree to the entry of any
judgment or to any settlement without the prior consent of the
indemnified party (which consent shall not be unreasonably
withheld) unless such settlement requires no more than a monetary
payment for which the indemnifying party agrees to indemnify the
indemnified party and includes a full, unconditional and complete
release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the
34
<PAGE>
defense of any claim as to which, in the reasonable judgment of
the indemnifying party's counsel, representation of both the
indemnifying party and the indemnified party would be
inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between
them (except that if the selling Investor Shareholders are the
indemnifying party, such defense may be assumed only in a manner
chosen by the holders of a majority in interest of the shares of
Class A Common Stock included in the registration statement which
is the subject of such action), and, after notice from the
indemnifying party that it so chooses, such indemnifying party
shall not be liable for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof; provided, however, that if the indemnifying party fails
to take reasonable steps necessary to diligently defend such
claim within 20 days after receiving notice from the indemnified
party that the indemnified party believes the indemnifying party
has failed to take such steps, the indemnified party may assume
its own defense and the indemnifying party shall be liable for
any expenses therefor. The indemnity agreements in this Section
shall be in addition to any liabilities which the indemnifying
parties may have pursuant to law. In the event that an
indemnifying party assumes the defense of an action under this
Section, then such indemnifying party shall, subject to the
provisions of this Section, indemnify and hold harmless the
35
<PAGE>
indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
3.7.4 Contribution. If the indemnity provided for
------------
in the foregoing paragraphs of this Section is unavailable or
insufficient for any reason to hold harmless an indemnified party
in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party, agrees to contribute to the amount paid
or payable by such indemnified party as a result of such losses,
claims, damages or liabilities in such proportion as is
appropriate to reflect (i) the relative benefits received by the
indemnifying party on the one hand and the indemnified party on
the other hand from the sale of securities under such
Registration Statement, (ii) the relative fault of the
indemnifying party on the one hand and the indemnified party on
the other hand in connection with the statements, actions or
omissions which resulted in such losses, claims, damages or
liabilities and (iii) any other relevant equitable
considerations. The relative fault of the indemnifying party on
the one hand and of the indemnified party on the other hand (i)
in the case of an untrue or alleged untrue statement of a
material fact or an omission or alleged omission to state a
material fact, shall be determined by reference to, among other
things, whether such statement or omission relates to information
supplied by the indemnifying party or by the indemnified party,
respectively, and the parties' relative intent, knowledge, access
36
<PAGE>
to information and opportunity to correct or prevent such
statement or omission and (ii) in the case of any other action or
omission, shall be determined by reference to, among other
things, whether such action or omission was taken or omitted to
be taken by the indemnifying party or the indemnified party,
respectively, and the parties' relative intent, knowledge, access
to information and opportunity to prevent such action or
omission. The parties agree that it would not be just and
equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
sentences. The amount paid or payable by the indemnified party
as a result of the losses, claims, damages or liabilities
referred to in such sentences shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending any such action
or claim.
3.7.5 Non-Exclusivity. The obligations of the
---------------
parties under this Section shall be in addition to any liability
which any party may otherwise have to any other party.
4. Rule 144.
--------
For so long as Petro continues to be subject to the
requirements of Section 12 of the Exchange Act, Petro covenants
that it will file the reports required to be filed by it under
37
<PAGE>
the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is
not required to file such reports, it will, upon the request of
the holders of a majority of the shares of the Prudential
Shareholders or FRC Shareholders, make publicly available such
information), and it will take such further action as the holders
of a majority of the shares of the Prudential Shareholders or FRC
Shareholders may reasonably request, all to the extent required
from time to time to enable them to sell shares without
registration under the Securities Act within the limitation of
the exemptions provided by (i) Rule 144 under the Securities Act,
as such Rule may be amended from time to time ("Rule 144"), or
(ii) any similar rule or regulation hereafter adopted by the SEC.
Upon the request of a shareholder, Petro will deliver to such
shareholders a written statement as to whether it has complied
with such requirements. Notwithstanding anything contained in
this Section, Petro may deregister under Section 12 of the
Exchange Act if it then is permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
5. Miscellaneous.
-------------
5.1 Amendment and Modification. Subject to applicable law,
--------------------------
this Agreement may be amended, modified and supplemented by
written agreement of the parties hereto.
5.2 Waiver of Compliance. Any failure of Petro, on the one
--------------------
hand, or Investor Shareholders, on the other, to comply with any
38
<PAGE>
obligation, covenant, agreement or condition herein may be
expressly waived in writing by a managing director, vice
president (of any designation) or a duly authorized officer of
each of the Investor Shareholders or Petro, respectively, but
such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as
a waiver of, or estoppel with respect to, any subsequent or other
failure.
5.3 Notices. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be in
writing and shall be deemed to have been duly given if delivered
by hand or mailed, certified or registered mail with postage
prepaid:
(a) If to Petro, to:
Petroleum Heat and Power Co., Inc.
2187 Atlantic Street
Stamford, CT 06902
Attn: George Leibowitz
Senior Vice President
(with a copy to:)
Phillips, Nizer, Benjamin, Krim & Ballon
31 West 52nd Street
New York, NY 10019
Attn: Alan Shapiro, Esq.
(b) If to the FRC Shareholders, to:
First Reserve Corporation
475 Steamboat Road
Greenwich, Connecticut 06830
Attn: William E. Macaulay
39
<PAGE>
(c) If to Prudential, to:
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
4 Gateway Center - 9th Fl.
100 Mulberry Street
Newark, NJ 07102-4069
Attn: Managing Director
Fax: 201-802-2662
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
Attn: Duncan Stewart, Esq.
Fax: 212-821-8111
or to such other person or address as shareholders shall furnish
to the Company in writing.
5.4 Assignment. This Agreement and all of the provisions
----------
hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other
parties, except that each Investor Shareholder shall be deemed to
automatically assign its rights, interests and obligations
hereunder and shall be released from its obligations hereunder
(and no consent will be required) with respect to any securities
that are sold, transferred, assigned or otherwise disposed of by
such Investor Shareholder in accordance with the terms of the
Star Gas Shareholders' Agreement of even date herewith if such
40
<PAGE>
transferee agrees to be bound by the terms hereof or if such
transferee is Petro, provided that the terms of this Agreement
shall not be binding upon or inure to the benefit of any person
who may acquire any such shares in a public offering or in
ordinary brokerage transactions pursuant to Rule 144 following an
initial public offering of the Common Stock and the Investor
Shareholder will be released from all obligations hereunder in
respect of any shares so transferred.
5.5 Governing Law. This Agreement and the legal relations
--------------
among the parties hereto shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard
to its conflicts of law doctrine.
5.6 Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
5.7 Headings. The headings of the Sections and Articles of
--------
this Agreement are inserted for convenience only and shall not
constitute a part hereof or affect in any way the meaning or
interpretation of this Agreement.
5.8 Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding of the parties hereto in respect of
the subject matter contained herein, and supersede all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
41
<PAGE>
5.9 Third Parties. Except as specifically set forth or
-------------
referred to herein, nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any
person or corporation other than the parties hereto and their
successors or
42
<PAGE>
assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate
seals to be affixed hereto, all as of the day and year first
above written.
PETROLEUM HEAT AND POWER CO., INC.
By: /s/ George Leibowitz
--------------------------
George Leibowitz
Senior Vice President
ACCEPTED AND AGREED:
AMERICAN GAS & OIL INVESTORS AmGO III
By: First Reserve By: First Reserve
Corporation, Corporation
as managing general partner, as managing general
partner,
By: /s/ William Macaulay By: /s/ William Macaulay
------------------------- -------------------------
William Macaulay William Macaulay
Managing Director Managing Director
AmGO II THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: First Reserve
Corporation, By: /s/ Jeff Diamond
as managing general partner, -------------------------
Jeff Diamond
Vice President
By: /s/ William Macaulay
---------------------------
William Macaulay
Managing Director
FIRST RESERVE SECURED ENERGY ASSETS FUND, L.P.
By: First Reserve Corporation,
as managing general partner
By: /s/ William Macaulay
---------------------------
William Macaulay
Managing Director
43
<PAGE>
FRC STAR GAS, INC.
By: /s/ William Macaulay
--------------------------
William Macaualay
Managing Director
44
Exhibit 4
<PAGE>
SHAREHOLDERS' AGREEMENT
-----------------------
AGREEMENT made and entered into as of this 21st day of
December, 1993 by and among PETROLEUM HEAT AND POWER CO., INC.
("Petro"), STAR GAS HOLDINGS, INC. ("Holdings"), AMERICAN GAS &
OIL INVESTORS, AmGO II, AmGO III, FIRST RESERVE SECURED ENERGY
ASSETS FUND, L.P., FRC STAR GAS, INC. and THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA ("Prudential") (who are sometimes
hereinafter referred to individually as a "Shareholder" and
collectively as the "Shareholders") and STAR GAS CORPORATION
("Star Gas" or the "Corporation"), a Delaware corporation having
its principal place of business at 500 Birchfield Drive, Mt.
Laurel, New Jersey 08054.
W I T N E S S E T H :
- - - - - - - - - -
1. Recitals. This Agreement is entered into with
--------
reference to the following:
1.1 The Shareholders constitute the holders of
all of the outstanding shares of equity securities of Star Gas.
1.2 The term "Shares" as used herein means all
shares of equity securities of Star Gas now or hereafter owned by
the Shareholders. Except as provided herein, the term "Shares"
shall not include any equity securities held by a person who is
not a party to or bound by the terms and conditions of this
Agreement. When calculating the number or percentage of Shares
owned by a Shareholder, all Shares of convertible preferred stock
2
<PAGE>
shall be deemed to be converted to Shares of Common Stock at the
then conversion ratio and such Shareholder shall be deemed to own
all Shares of Common Stock issuable upon the conversion of
preferred stock of the Corporation. Aside from the signatories
of this Agreement, except as provided herein, no person shall
have the right to sign this Agreement and no person shall be
entitled to the benefits of this Agreement. Capitalized terms
used but not defined in this Agreement shall have the same
meaning as in the Purchase Agreement of even date among the
parties hereto (other than Prudential) ("Purchase Agreement").
1.3 The Shareholders desire to impose certain
restrictions on the sale, transfer or other disposition of the
Shares and to make arrangements for the voting of the Shares.
1.4 The Shareholders have agreed that for the
purpose of designating candidates for election of directors the
Shareholders shall be divided into four categories of
shareholders, as follows:
<TABLE>
<CAPTION>
Name Category
---- --------
<S> <C>
Petroleum Heat and Power Co., Inc. Petro Shareholder
Star Gas Holdings, Inc. Holdings Shareholder
American Gas & Oil Investors First Reserve Shareholders
AmGO II First Reserve Shareholders
AmGO III First Reserve Shareholders
First Reserve Secured Energy
Assets Fund, L.P. First Reserve Shareholders
FRC Star Gas, Inc. First Reserve Shareholders
Prudential Prudential Shareholder
</TABLE>
3
<PAGE>
The Petro Shareholder, the Holdings Shareholder, the First
Reserve Shareholders and the Prudential Shareholder are sometimes
referred to herein as the "Petro Shareholder", the "Holdings
Shareholder", the "First Reserve Shareholders" and the
"Prudential Shareholder", respectively, and collectively as, the
"Shareholders".
2. Elections to the Board of Directors.
-----------------------------------
2.1 Star Gas shall be governed by a Board of
Directors consisting of no less than 6 and no more than 8
persons. Each category of Shareholder shall have the right to
nominate directors as follows: The Petro Shareholder shall have
the right to nominate for election up to but no more than 3
directors, the Holdings Shareholder shall have the right to
nominate for election up to but no more than 2 directors, the
First Reserve Shareholders shall have the right to nominate for
election up to but no more than 1 director so long as the First
Reserve Shareholders collectively hold at least 5% of the
outstanding Shares and the Prudential Shareholder shall have the
right to nominate for election no more than 2 directors so long
as the Prudential Shareholder holds at least 15% of the
outstanding Shares and the right to nominate for election 1
director so long as the Prudential Shareholder holds at least 5%
and less than 15% of the outstanding Shares. The outstanding
Shares for purposes of calculating the percentage of any category
of Shareholders shall exclude Shares resulting from additional
4
<PAGE>
issuances of equity securities after the date hereof other than
(i) pursuant to the conversion of Convertible Preferred Stock
outstanding on the date hereof and (ii) Shares issued in
accordance with Section 4 hereof to the extent that such category
of Shareholders have exercised their preemptive rights.
2.2 (a) The current Board of Directors shall
consist of the following persons:
Petro Shareholder First Reserve Prudential
Directors Shareholders Director Shareholder Directors
--------- --------------------- ---------------------
3 persons 1 person 2 persons
Holdings Shareholder
Directors
---------
2 persons
(b) The Shareholders agree to vote their
Shares at any meeting of the Shareholders of Star Gas called for
such purpose (or to deliver their written consents in lieu of
such a meeting) as follows:
(i) To fill any vacancy on the Board of
Directors by the election of a person designated by the
Shareholders of the category of Shareholders entitled to fill
such vacancy.
(ii) To remove from office any director
elected as a representative of the Petro Shareholder, the
Holdings Shareholder, the First Reserve Shareholders or the
Prudential Shareholder at the request of the Shareholders of the
category of Shareholders which initially designated the director.
5
<PAGE>
The Petro Shareholder, the Holdings
Shareholder, the First Reserve Shareholders or Prudential
Shareholder may make their request for the election or removal of
a director representing the Shareholders of their respective
category by delivering to the other
Shareholders one or more written instruments signed by the
holders of the Shares representing a majority of the voting power
of the Shares held by the category of Shareholders making the
request.
The right to designate nominees for
directors and to have them elected under this Article shall inure
to the benefit of transferees of Shares pursuant to Articles 5
and 6; provided, however, that such benefits shall not inure to a
person which purchases Shares from Prudential pursuant to Section
5.2 prior to the date of a Change of Control with respect to
Petro.
2.3 For as long as the First Reserve Shareholders
are entitled to designate a director to the Board of Directors,
each First Reserve Shareholder that is a First Reserve
Shareholder on the date hereof (a "Current FRC Shareholder")
shall be entitled to designate a non-voting observer to attend
meetings of the Board of Directors, provided that the aggregate
number of observers and the First Reserve Shareholder director
shall not exceed the number of Current FRC Shareholders. The
Corporation shall provide each such observer with the same notice
of meetings of the Board of Directors as that provided to
6
<PAGE>
directors. Each such observer shall be provided reasonable access
to the books, records and properties of the Corporation and shall
be provided with a reasonable opportunity to discuss the business
and affairs of the Corporation with the officers of the
Corporation, provided that the First Reserve Shareholders shall
cause all information relating to the Corporation that is
provided to such observers to be held in confidence.
3. Certain Action Requiring Super Majority
--------------------------------------------------
Shareholder Vote.
----------------
3.1 The Shareholders shall vote their Shares to
include in the Certificate of Incorporation of Star Gas
provisions that whenever Star Gas shall take any of the actions
specified below, such action may be taken only by the affirmative
vote of the holders of eighty percent (80%) (this percentage
shall be adjusted after the issuance of any Shares after the date
hereof or upon the sale by Prudential of any Shares as provided
in Section 3.2) of the Shares (for this purpose, Shares includes
the Series B and Series D 8% Cumulative Convertible Preferred
Stock); provided, however, that (i) so long as Prudential shall
own 10% or more of such Shares no such action shall be taken
without the affirmative vote of Prudential; (ii) so long as First
Reserve Shareholders own any Common Stock no change will be made
to the Certificate of Designation of Star Gas establishing the
relative rights and preferences of the 8% Cumulative Convertible
Preferred Stock and the 12.625% Cumulative Redeemable Preferred
Stock without the affirmative vote of the First Reserve
7
<PAGE>
Shareholders holding a majority of the Common Stock owned by such
category; and (iii) the affirmative vote of a majority of the
holders of Shares of each Shareholder category shall be required
to approve any merger or other business combination in which the
value of the consideration (as determined pursuant to Section
5.7) to be received by any class or series of stock is not equal
to that received by all others:
(a) Any material change in the Certificate
of Incorporation or any Certificate of
Designations establishing the relative
rights and preferences of any class of
preferred stock.
(b) The merger or consolidation of the
Corporation with any other Corporation
if such other Corporation is engaged in
any business other than the sale and
distribution of propane and other
activities which are incidental to such
business, except the merger of any
subsidiary into another subsidiary or
the Corporation.
(c) The liquidation or dissolution of the
Corporation.
(d) Engaging in any business other than the
(i) sale and distribution of propane and
other activities which are incidental to
8
<PAGE>
that business and (ii) the engagement by
Star Gas' Highway division in its
present business activities.
(e) Granting to any employee of Star Gas any
option, warrant or right to purchase any
shares of capital stock of Star Gas.
(f) Except pursuant to the Star Gas Put/Call
Agreement of even date between the
Corporation and Prudential, repurchasing
from any Shareholder any shares of
capital stock of Star Gas except as
contemplated by the express terms of
such capital stock.
(g) Modifying, amending, repealing or
adopting any By-Law of Star Gas that
would materially alter the rights of any
category of Shareholders.
(h) Any reorganization or recapitalization
of the Corporation or the
reclassification of the Corporation's
capital stock.
(i) Amending, modifying or renewing the
Management Services Agreement.
(j) The sale by the Corporation of any
securities to a Shareholder or any
affiliate of a Shareholder other than
9
<PAGE>
for cash or other than pursuant to the
Petro Option, the FRC Option and the
Management Services Agreement.
3.2 If solely as a result of the sale or issuance
of additional equity securities of the Corporation, Prudential
shall own shares representing less than twenty percent (20%) of
the voting power of all shares entitled to vote on the matters
listed above, then the eighty percent (80%) voting requirement
shall be changed to equal that percentage that is one percentage
greater than 100% minus the actual percentage voting power of
Prudential; provided, however, (i) the percentage voting
requirement shall never exceed ninety percent (90%) and (ii) upon
transfer of Shares by Prudential pursuant to Article 5.2, the
voting percentage shall be reduced to sixty-six and 2/3 percent
(66 2/3%) if at the time of such transfer or any time thereafter
the FRC Shareholders hold less than 20% of the voting power of
all Shares entitled to vote on such matters. Notwithstanding the
foregoing, Sections 3.1 and 3.2 shall terminate at such time that
(a) Prudential holds less than 10% of the voting power of all
Shares entitled to vote on such matters and (b) the FRC
Shareholders hold less than 20% of the voting power of all Shares
entitled to vote on such matters.
It is understood that any sale of the assets or stock
of Petroleum Heat and Power Co., Inc. ("Petro") or a merger or
consolidation to which Petro is a party, other than a sale to, or
10
<PAGE>
a merger or consolidation with, Star Gas, is not covered by this
Section.
3.3 The By-Laws of the Corporation shall provide
that a special meeting of Shareholders shall be called by the
Secretary at the request of the holders of a majority of the
Shares held by any category of Shareholders or as otherwise
required by law.
3.4 Approval of Certain Matters. The affirmative
---------------------------
vote of a majority of the disinterested members of the
Corporation's Board of Directors, including, so long as there are
any Prudential Shareholder directors, at least one Prudential
Shareholder director and one First Reserve Shareholder director,
shall be required for each of the following:
(a) (i) Entering into or modifying any
agreement, arrangement or contract (other
than an agreement or contract for the
issuance or sale of equity securities
governed by Article 4 hereof) between Star
Gas and any Shareholder or any entity or
person controlling, controlled by or under
common control with, any Shareholder, or (ii)
issuing or selling any securities to any
Shareholder or any entity or person
controlling, controlled by or under common
control with, any Shareholder (other than any
issuance or sale of equity securities
11
<PAGE>
governed by Article 4 hereof or any issuance
of equity securities upon the conversion or
exchange of other securities in accordance
with their terms).
(b) Approving the reimbursement of Petro for
services rendered pursuant to Paragraph 4(d)
of that certain Management Services Agreement
dated the date hereof between Petro and Star
Gas.
(c) The exercise by the Corporation of First
Refusal Rights pursuant to this Agreement.
For purposes of this agreement, a "disinterested director" is a
director of the Corporation that does not have any direct or
indirect interest in the relevant matter and who was appointed by
a shareholder group no member of which, nor any affiliate of any
such member, has any direct or indirect interest in the relevant
matter except, in any such case, as a stockholder of Star Gas,
provided that the Holdings Shareholder Directors and the Petro
Shareholder Directors shall be deemed to be independent of each
other and disinterested as to matters only affecting the other,
unless Holdings owns securities representing 5% or more (i) of
the voting power of Petro's voting securities or (ii) in value of
Petro's outstanding equity securities. For purposes of paragraph
(a) above, each member of the Sevin Group shall be deemed to
control Petro.
12
<PAGE>
Notwithstanding the foregoing, at such time as
there are no Prudential Shareholder directors serving the
affirmative vote of the First Reserve Shareholders director shall
be required to take any action with respect to the matters set
forth in subsections (a), (b) or (c) of this Section 3.4.
3.5 The restrictions contained in this Article 3
that are applicable to Star Gas shall also apply to each Company
Subsidiary (as defined in the certain Purchase Agreement) now
existing or hereafter created and any restricted activity shall
not be taken without the required Star Gas director approval.
3.6 In the event the Corporation sells all or
substantially all of its assets, then at the election of
Prudential, all of the Shareholders shall vote their Shares so as
to cause the dissolution and liquidation of the Corporation.
3.7 The provisions of this Article 3 shall
terminate immediately upon the completion of the initial public
offering of the Common Stock of the Corporation.
3.8 All propane distribution business
opportunities that are referred to Petro shall be deemed business
opportunities of the Corporation and not of Petro. Petro may not
avail itself of any such opportunity without the unanimous vote
of the disinterested directors of the Corporation.
4. Sale of Equity Securities.
-------------------------
4.1 If the Board of Directors shall determine
that it is in the best interest of the Corporation to sell equity
securities for cash, then the Corporation may sell such equity
13
<PAGE>
securities provided, however, that prior to such sale the
Corporation shall provide to the Shareholders for a period of 30
days and on a pro rata basis in proportion to the number of
Shares owned by each Shareholder the right to purchase such
equity securities on the same terms and conditions as the
Corporation proposes to sell them. Each Shareholder may elect to
purchase all or any part of its pro rata portion of such
securities and may transfer its pre-emptive rights to one or more
persons controlling, controlled by or under common control with
such Shareholder. In determining the number of Shares of Common
Stock owned by a Shareholder for purposes of this Section, each
Shareholder shall be deemed to own the number of shares of Common
Stock actually owned by it plus the number of shares of Common
Stock issuable to it upon the conversion of the 8% Cumulative
Convertible Preferred Stock of the Company owned by such
Shareholder. Any Shareholder may condition its election to
purchase such equity securities on any one or more Shareholders
also electing to purchase such equity securities. Subject to the
preceding sentence, to the extent that all or any portion of such
equity securities are not purchased and paid for by the
Shareholders within such 30 day period, the Corporation may sell
such unpurchased securities on substantially the same terms and
conditions for a period of 120 days following the expiration of
such 30 day period. To the extent that such equity securities
are not sold during such period of 120 days, this section shall
apply to any future sale. The provisions of this Section 4.1
14
<PAGE>
shall terminate immediately upon the completion of the initial
public offering of Common Stock of the Corporation.
4.2 The Shareholders agree to cause the
Corporation to change its capital
structure immediately prior to any initial offering of equity
securities of the Corporation to the public. The new capital
structure shall require that each Shareholder contribute ten
percent (10%) of the Shares that it holds at such time to the
Corporation in return for an equal number of shares of Class C
Common Stock having the terms contained in the Amended and
Restated Certificate of Incorporation of Star Gas in effect on
the date hereof. In such event, the provisions of this Agreement
that relate to the Shares will terminate with respect to the
Shares and will instead apply to the shares of such Class C
Common Stock. Notwithstanding the foregoing, holders of Class B
Common Stock (non-voting) may elect in writing not to exchange
their Shares for Class C Common Stock. Such election shall be
irrevocable.
5. No Shares of the Corporation shall be sold, trans-
ferred, hypothecated, negotiated, pledged, assigned, encumbered
or otherwise disposed of by any Shareholder, except as herein
provided in accordance with the following procedures and the
procedures set forth in Article 6:
5.1 Any Shareholder may transfer all or any por-
tion of his Shares to any other Shareholder in its category of
15
<PAGE>
Shareholders, and Holdings may transfer its shares to Petro, free
of the First Offer Right and First Refusal Right referred to
below. Following any Change of Control with respect to Petro,
Prudential and each of the FRC Shareholders may transfer its
Shares free of any restrictions imposed by this Agreement. A
Shareholder may transfer Shares to any other person or entity
controlling, controlled by or under common control with it, free
of the First Refusal Right, and Prudential may transfer Shares to
any portfolio or fund managed or advised by Prudential or any of
its affiliates without restriction. In addition, the First
Reserve Shareholders may pledge their Shares to Brooklyn Union
Gas or a wholly owned subsidiary thereof or transfer the pledged
Shares subject to Section 5.4 hereof.
5.2 In addition to any rights it may have under
Section 5.3 below, Prudential may sell Shares to a Qualified
Purchaser provided it has granted a right to purchase such Shares
("First Offer Right") first to the Corporation and then to Petro
and Holdings as follows:
(a) Prudential shall give notice to the
Corporation and to Petro and Holdings stating its intention of
offer for sale a number of Shares, the number of Shares intended
to be so offered, the price at which such Shares will be offered
and any other terms of the Offer.
(b) Petro and Holdings shall have the First
Offer Right for a period of 30 days to purchase all, but not less
than all, of the Shares described in the notice and on a pro rata
16
<PAGE>
basis (or on such other proportions as they may agree upon) on
the same terms and conditions and at the same price.
(c) If the First Offer Right is not
exercised in its entirety as provided above, then no Shares shall
be purchased pursuant to this Section 5.2 and Prudential, subject
to the conditions set forth in Article 6, may sell such Shares to
a Qualified Purchaser (and to no other purchaser) in accordance
with the terms and at a price not less than the price specified
in the notice during the period of 120 days following the
expiration of the First Offer Right.
(d) If such Shares are not sold as provided
herein within such period of 120 days, this Article 5 shall apply
to any future offer.
5.3 No Shareholder (other than sales by
Prudential pursuant to Section 5.2) ("Offeror Shareholder") may
sell any Shares until it has granted a right to purchase its
shares ("First Refusal Right") first to the Corporation and then
to the other Shareholders, including Prudential, as follows:
(a) If an Offeror Shareholder receives from
a third party or third parties (other than an underwriter in
connection with any public offering of Shares) a bonafide offer
or offers ("First Refusal Offer") to purchase or otherwise
acquire all or a portion of its Shares, it shall provide written
notice ("First Refusal Notice") to the Corporation and the other
Shareholders of the terms of the First Refusal Offer which shall
identify the purchaser(s), the number of Shares subject to the
17
<PAGE>
First Refusal Offer, the price and all other terms and
conditions. If the First Refusal Offer consists in part or in
whole of consideration other than cash, the Offeror Shareholder
shall provide such information as may be reasonably necessary to
analyze the non-cash component of the consideration, together
with the Offeror Shareholder's estimate of the fair value of such
non-cash component.
(b) Subject to subsection 5.3(d), for a
period of 15 days from the receipt of such notice, the
Corporation shall have the First Refusal Right to purchase all or
any portion of the Shares described in the First Refusal Notice
on the same terms and conditions and at the same price specified
in the First Refusal Notice.
(c) Subject to subsection 5.3(d), if the
First Refusal Right is not exercised in its entirety by the
Corporation, then the other Shareholders shall have the First
Refusal Right for an additional period of 15 days to purchase the
remaining Shares described in the First Refusal Notice on a pro
rata basis (or in such other proportions as they may agree upon)
on the same terms and conditions and at the same price as
described in the First Refusal Notice.
(d) If the First Refusal Right is not
exercised in its entirety as to all of the Shares as described
above, then no Shares shall be purchased pursuant to this Section
5.3 and the Offeror Shareholder may sell such Shares in
accordance with the First Refusal Offer during the period of 120
18
<PAGE>
days following the expiration of the First Refusal Right and to
the extent such Shares are not sold as provided herein within
such period of 120 days, this Article 5 shall apply to any future
offer.
5.4 Any transferee of shares, pursuant to Article
5 or 6 hereof, shall execute this Agreement. Any such transferee
shall become a member of the same category of Shareholders as its
transferor.
5.5 Any Shareholder entitled to take action
during a time period specified in
this Article 5 may waive the duration of such period and agree to
a time period of a shorter
duration.
5.6 Immediately upon completion of the initial
public offering of Common Stock of the Corporation, the
provisions of this Article 5 shall apply only to the
Corporation's Class C Common Stock and shall terminate with
respect to all other classes of Common Stock.
5.7 For purposes of Article 5 and Article 6, the
terms of any sale of Shares of one class or series of securities
(the "First Securities") shall be deemed to be the same as those
for another class or series of securities (the "Second
Securities") if (i) (A) the consideration received in such sale
for each Share of the First Securities divided by the number of
Shares of common stock of the Corporation which each Share of the
First Security could be converted into based on the relevant
19
<PAGE>
conversion ratio for such security in effect immediately
preceding such sale equals (B) the consideration received in such
sale for each Share of the Second Securities divided by one (if
the Second Security is common stock of the Corporation) or (in
all other cases) the number of Shares of common stock for the
Corporation which each Share of the Second Security could be
converted into based on the exchange ratio for such security in
effect immediately preceding such sale and (ii) all other terms
of the sale of the First Securities and the Second Securities are
the same.
5.8 Any party that acquires Shares of any First
Reserve Shareholder or the Prudential Shareholder shall agree in
writing to assume such party's obligations in respect of such
shares under the Shareholders Put/Call Agreement of even date
herewith in the event that such assumption is required by the
terms of the Shareholder Put/Call Agreement.
5.9 For purposes of this Agreement, the following
definitions shall apply:
"Qualified Purchaser" means:
(i) existing shareholders of the
Corporation;
(ii) insurance companies with
assets of not less than
$1,000,000,000;
(iii) commercial banks and
investments banks with
20
<PAGE>
assets of not less than
$1,000,000,000; and
(iv) investment managers (including
mutual funds and pension
funds) with assets under
management of not less than
$1,000,000,000.
"Change of Control" means the occurrence
of any event which results in the number of directors of Petro's
Board of Directors who are designated by the Sevin Group (in an
individual or fiduciary capacity) in accordance with a
shareholders agreement dated as of July 28, 1992 among Petro and
certain shareholders constituting less than a majority of the
Board. "Sevin Group" shall mean, collectively, the Estate of
Malvin P. Sevin, Audrey L. Sevin, Irik P. Sevin, Thomas J.
Edelman, Margot Gordon and Phillip Ean Cohen.
6. Tag Along Rights. (a)(i) If any Shareholder
-----------------
entitled to sell Shares pursuant to Section 5.2 or 5.3 (the
"Tag-along Offering Holders") receives from a third party or
third parties (other than from an underwriter in connection with
any public offering of Shares) a bona fide offer or offers to
purchase or otherwise acquire, in one transaction or any series
of similar transactions not subject to Section 5.1 (a "Tag-along
Transfer Offer"), a number of Shares representing at least 5% of
the then outstanding Shares (the "Tag-along Transfer Stock"),
such Tag-along Offering Holders shall then cause the Tag-along
21
<PAGE>
Transfer Offer to be reduced to writing and shall provide written
notice (the "Tag-along Transfer Notice") of such Tag-along
Transfer Offer to the Corporation and the Corporation shall
provide written notice of such Tag-along Transfer Notice to each
of the other Shareholders (the "Tag-along Transfer Offerees") in
the manner set forth in this Section. The Tag-along Transfer
Notice shall contain a true and correct copy of the Tag-along
Transfer Offer. In addition, the Tag-along Transfer Notice shall
identify the third party, the Tag-along Transfer Stock, the price
contained in the Tag-along Transfer Offer, the estimated expenses
associated with the sale, all the other terms and conditions of
the Tag-along Transfer Offer and, in the case of a Tag-along
Transfer Offer in which the consideration payable for Shares
consists in part or in whole of consideration other than cash,
such information as may be reasonably necessary to analyze the
non-cash component of the consideration, together with the
Tag-along Offering Holders' reasonable estimate of the fair value
of such non-cash component.
The Tag-along Transfer Offerees shall have the right
and option, exercisable as set forth below, to accept the
Tag-along Transfer Offer for up to such number of Shares as is
determined in accordance with the provisions of this Section
6(a). The terms of any sale of Shares by a Tag-along Transfer
Offeree pursuant to the exercise of its option under this Section
shall be the same terms as those for the sale of such Shares by
22
<PAGE>
the Tag-along Offering Holders; provided that any indemnity given
--------
by the sellers to the purchasers in connection with such sale
shall be apportioned among all the sellers according to the
consideration to be received by each seller. Each Tag-along
Transfer Offeree that desires to exercise such option shall
provide the Tag-along Offering Holder with written irrevocable
notice (specifying the number of shares of the Tag-along Transfer
Stock as to which such Tag-along Transfer Offeree is accepting
the offer) within 15 days after the date the Tag-along Transfer
Notice is received ("Tag-along Notice Period"), and shall
simultaneously provide a copy of such notice to the Corporation
and the other Tag-along Transfer Offerees. Such written notice
may not be withdrawn or modified at any time. At the expiration
of the Tag-along Notice Period each accepting Tag-along Transfer
Offeree shall, simultaneously with such expiration, deliver to
the Corporation (or such other person as may be agreed between
the Tag-along Offering Holder and the accepting Tag-along
Transfer Offeree) to be held by such person for sale or return
upon the terms of this Section 6, the certificate or certificates
representing the Shares to be sold or otherwise disposed of
pursuant to such Tag-along Transfer Offer by such Tag-along
Transfer Offeree, duly endorsed, together with a limited
power-of-attorney authorizing the Tag-along Offering Holder to
sell or otherwise dispose of such Shares pursuant to the terms of
the Tag-along Transfer Offer.
23
<PAGE>
(ii) Each Tag-along Transfer Offeree shall have the
right to sell, pursuant to the Tag-along Transfer Offer, an
amount of Shares equal to the amount specified in such person's
notice, or if less an amount of Shares equal to the product of
(A) the total number of Shares of Tag-along Transfer Stock
(including the shares of any Tag-along Transfer Offeree) to be
sold pursuant to such Tag-along Transfer Offer, times (B) a
fraction, the numerator of which shall be the total number of
Shares held by such Tag-along Transfer Offeree, and the
denominator of which shall be the total number of Shares held by
all Tag-along Transfer Offerees that are accepting such Offer and
the Tag-along Offering Holders. For purposes of this paragraph,
Shares held by any Shareholder shall include (without
duplication) Shares held by any affiliate of such shareholder,
and Shares then issuable upon exercise of all warrants or options
then held by such persons. The aggregate of such Shares for
which Tag-along Transfer Offerees have elected to sell pursuant
to this Section 6 shall be referred to as the "Tag-along Transfer
Offeree Shares."
(iii) Promptly after the consummation of the sale or
other disposition of the Shares of the Tag-along Offering Holder
and the Tag-along Transfer Offerees to the third party pursuant
to the Tag-along Transfer Offer and in any event no later than
one business day after such consummation, the Tag-along Offering
Holder shall notify the Tag-along Transfer Offerees thereof,
24
<PAGE>
shall remit to each of the Tag-along Transfer Offerees the total
sales price of the Shares of such Tag-along Transfer Offeree sold
or otherwise disposed of pursuant thereto (after deduction of
such Tag-along Transfer Offeree's proportionate share of the out-
of-pocket expenses associated with such sale based on the number
of Shares sold by the Tag-along Offering Holder and each
Tag-along Transfer Offeree), and shall furnish such other
evidence of the expenses associated with and the completion and
time of completion of such sale or other disposition and the
terms thereof as may be reasonably requested by the Tag-along
Transfer Offerees.
(iv) If at the termination of the Tag-along Notice
Period any Tag-along Transfer Offeree shall not have accepted the
offer contained in the Tag-along Transfer Notice with respect to
any Tag-along Transfer Offer, such Tag-along Transfer Offeree
will be deemed to have waived any of and all of its rights under
this Section 6 with respect to the sale or other disposition of
its Tag-along Transfer Offeree Shares pursuant to such Tag-along
Transfer Offer. The Tag-along Offering Holders shall have 120
days in which to sell the Tag-along Transfer Stock and Tag-along
Transfer Offeree Shares not otherwise excluded pursuant to the
previous sentence, to the third party, at a price not higher than
that contained in the Tag-along Transfer Notice and on terms not
more favorable to the Tag-along Offering Holder than were
contained in the Tag-along Transfer Notice. Promptly after any
25
<PAGE>
sale pursuant to this Section 6, the Tag-along Offering Holder
shall notify the Corporation of the consummation thereof and
shall furnish such evidence of the completion thereof (including
time of completion) of such sale and of the terms of the terms
thereof as the Corporation may request. If, at the end of such
60 day period (or such longer period, as aforesaid), the
Tag-along Offering Holder has not completed the sale of all the
Tag-along Transfer Stock and Tag-along Transfer Offeree Shares,
the Tag-along Offering Holder shall return to such Tag-along
Transfer Offerees all certificates representing the Shares which
such Tag-along Transfer Offerees delivered for sale or other
disposition pursuant to this Section 6(a), and all the
restrictions on sale or other disposition contained in this
Agreement with respect to Shares owned by the Tag-along Offering
Holder shall again be in effect.
(v) Notwithstanding anything contained in this Section
6, there shall be no liability on the part of the Tag-along
Offering Holder to any Tag-along Transfer Offeree if the sale of
Shares to a third party is not consummated for whatever reason.
Whether to effect a sale of Shares pursuant to this Section 6 by
the Tag-along Offering Holder is in the sole and absolute
discretion of such Tag-along Offering Holder.
(b) The failure by any Tag-along Transfer Offeree to
exercise its First Offer Right or First Refusal Right pursuant to
26
<PAGE>
Article 5 shall not affect the rights of such person to exercise
its Tag-along rights pursuant to Article 6, including its right
to exercise its Tag-along Rights in connection with the sale of
Tag-along Transfer Stock.
(c) The Tag-along Offering Holders shall cause any
third party purchasing Shares hereunder to assume the obligations
of the relevant Tag-along Transfer Offerees under the Shareholder
Put/Call Agreement of even date herewith in respect of the
relevant Shares.
(d) The provisions of this Article 6 shall terminate
immediately upon completion of the initial public offering of
Common Stock of the Corporation.
7. Financial Statements. During the term of this
--------------------
Agreement, the Corporation covenants and agrees that it shall
furnish to each Shareholder (i) within ninety (90) days after the
end of each fiscal year of the Corporation a consolidated balance
sheet of the Corporation and its subsidiaries as at the end of
such fiscal year and consolidated statements of income (loss),
stockholders' equity and cash flows of the Corporation and its
subsidiaries for such fiscal year audited by the Corporation's
regularly employed, nationally-recognized firm of independent
public accountants in accordance with generally accepted account-
ing principles applied on the basis consistently maintained
throughout the period involved, (ii) within forty-five (45) days
after the close of each fiscal quarter the financial statements
27
<PAGE>
referred to in clause "(i)" which shall be prepared by the
Corporation and need not be covered by the report of any
independent public accountants. With each quarterly and annual
financial report, the Corporation shall deliver a list of
shareholders including their respective equity security holdings.
The Corporation shall deliver to each Shareholder a description
of any action taken by written consent of directors or
shareholders in lieu of a meeting promptly after such action is
taken. The Corporation shall also deliver to each Shareholder a
true and complete copy of each report, including but not limited
to audit reports, review reports, special reports, reports on
internal controls and management reports, submitted by a firm of
certified public accountants to the Corporation or its board of
directors promptly after the Corporation or board receives such
report. Upon the request of any Shareholder, the Corporation
shall promptly deliver to such Shareholder the information
specified in paragraph (d)(4) of Rule 144A under the Securities
Act of 1933. Additionally, during normal business hours, the
Corporation shall permit each Shareholder reasonable access to
the books and records of the Corporation and shall make available
to representatives of each Shareholder, employees of the
Corporation to explain such books and records and financial
statements. The provisions of this Section shall terminate
immediately upon a class of equity securities of the Corporation
becoming subject to the periodic reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934.
28
<PAGE>
8. The parties agree that it is impossible to
determine the monetary damages which will accrue to a Shareholder
by reason of a failure of any other Shareholder to perform any of
the obligations under this Agreement requiring the performance of
an act other than the payment of money only. Therefore, if any
party hereto shall institute any action or proceeding in equity
to enforce the provisions hereof, any person (including the
Corporation) against whom such equitable action or proceeding is
brought hereby waives the claim or defense therein that such
party or such legal representative has an adequate remedy at law,
and such person shall not urge in such equitable action or
proceeding the claim or defense that such remedy at law exists.
9. In the event that any of the covenants, terms or
conditions of this Agreement are held illegal and in the further
event that director and/or shareholder action, including, but not
by way of limitation, the execution of any documents or instru-
ments, such as an amendment of the Certificate of Incorporation
of the Corporation, will make such covenants, terms or conditions
legal and enforceable, each of the parties hereto hereby agrees
that he shall take such action as may reasonably be required to
make any such covenant, term or condition valid and enforceable.
In the event that any of the parties hereto refuses to take such
action, the remaining Shareholders who are parties hereto are
hereby jointly and severally appointed as the attorney-in-fact
for the other Shareholders for the purpose of taking any action
29
<PAGE>
that is authorized by the terms of this paragraph, including, but
not limited to:
(a) The voting of the other Shareholder's
shares.
(b) The removal of the Shareholder or his
appointee(s) in breach of this paragraph as a director.
(c) The nomination and election of a new
director for the purpose of initiating and completing such action
as may be required to make any illegal or unenforceable covenant,
term or condition of this Agreement valid and enforceable.
(d) The signing of any document or
certificate, including, but not limited to an amendment to the
Certificate of Incorporation of the Corporation, which will make
said invalid and/or unenforceable covenant, term or condition
valid and enforceable.
10. The Shareholders agree that the following legends
shall be placed upon each certificate representing all or a
portion of their Shares:
"Transfer, hypothecation, negotiation, pledge,
sale, encumbrance, assignment or other disposition
of this share certificate and the shareholdings
represented hereby are restricted by and are
subject to all of the terms, conditions and
provisions of a certain agreement entered into
between certain of the shareholders and the
Corporation as of December 21, 1993, as amended, a
copy of which is on file with the Secretary at the
principal office of the Corporation."
11. Any controversy arising out of or in any way
relating to this Agreement including any modification or amend-
30
<PAGE>
ment thereof, shall be resolved by arbitration in the City of New
York, pursuant to the rules then obtaining of the American Arbi-
tration Association. The parties agree that the arbitrators
sitting in any such controversy shall have no power or jurisdic-
tion to alter or modify any express provision of this Agreement,
or to make any award which by its terms effects such alteration
or modification. The parties hereto hereby consent to (a) the
application of the Federal Arbitration Statutes (b) the jurisdic-
tion of the Supreme Court of the State of New York and of the
United States District Court for the Southern District of New
York for all purposes in connection with said arbitration and (c)
that any notice, process or notice of motion or other application
to either of said Courts or Judges thereof or of any notice in
connection therewith any arbitration hereunder, may be served in
or out of the State or Southern District of New York by certified
or registered mail return receipt requested or by personal ser-
vice, provided a reasonable time for appearance is allowed, or in
such other manner as may be permitted under the Rules of the
American Arbitration Association or of either of said Courts.
Judgment upon the award rendered may be entered by any court
having jurisdiction. Any provisional remedy which, but for this
Agreement to arbitrate disputes, would be available at law shall
be available to the parties hereto pending arbitration.
12. (a) This Agreement will terminate upon the
occurrence of any of the following events:
31
<PAGE>
(i) adjudication of the Corporation as
bankrupt or insolvent;
(ii) appointment of a receiver or trustee
for all or substantially all of the assets of the Corporation;
(iii) the making by the Corporation of
an assignment for the benefit of its creditors or the admission
in writing by the Corporation of its inability to pay its debts
generally as they become due; or
(iv) the dissolution of the Corporation.
None of the events referred to above shall effect any
obligations theretofore incurred by the Corporation or any Share-
holder pursuant to this Agreement.
(b) This Agreement may be modified or rescinded
only with the written consent of the Corporation and all of the
Shareholders.
13. This Agreement contains the entire agreement of
the parties concerning the subject matter hereof, and supersedes
any and all prior agreements and amendments among the
parties hereto concerning the subject matter hereof, which prior
agreements are hereby canceled. The Shareholders Agreement,
dated January 30, 1987, and as subsequently amended, between the
Corporation and the First Reserve Shareholders has been
terminated and canceled pursuant to a separate agreement. This
Agreement shall terminate ten years from the date hereof and
shall be automatically renewed for successive ten-year periods
thereafter unless the parties hereto agree otherwise in writing.
32
<PAGE>
14. If any provision of this Agreement is held
invalid, such invalidity shall not affect the other provisions
hereof which can be given effect without the invalid provision,
and to this end the provisions of this Agreement are intended to
be and shall be deemed severable.
15. Any and all notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally or sent by certified or registered
mail, postage prepaid, to each of the parties at the addresses
set forth at the end of this Agreement or to such addresses as
may from time to time be designated by any of them in writing by
notice similarly given to all parties in accordance with this
paragraph. Copies of all such notices, requests, demands or
other communications shall be sent to:
(a) If to the Petro Shareholder or to the
Corporation, to:
Petroleum Heat and Power Co., Inc.
Clearwater House
2187 Atlantic Street
Stamford, Connecticut 06902
Attn: George Leibowitz
Senior Vice President
with a copy to:
Phillips, Nizer, Benjamin, Krim & Ballon
31 West 52nd Street
New York, NY 10019
Attn: Alan Shapiro, Esq.
(b) If to the Holdings Shareholder, to:
Hanseatic Corporation
450 Park Avenue - Suite 2302
New York, NY 10022
33
<PAGE>
Attn: Paul Biddelman
(c) If to the First Reserve Shareholders, to:
First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06830
Attn: William E. Macaulay
(d) If to the Prudential Shareholder, to:
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center - 9th Fl.
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Fax: (201) 802-2662
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
Attn: Duncan Stewart, Esq.
Fax: (212) 821-8111
(e) If to Star Gas, to:
Star Gas Corporation
500 Birchfield Drive
Mt. Laurel, NJ 08054
Attn: William Powers
with a copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Richard Cass, Esq.
Notices under this Agreement shall be deemed delivered on the
date delivered personally to the recipient or on the date post-
marked by the United States Post Office, as the case may be.
34
<PAGE>
16. Waiver by any party of any breach of this Agree-
ment or failure to exercise any right hereunder shall not be
deemed to be a waiver of any other breach or right. The failure
of any party to take action by reason of any such breach or to
exercise any such right shall not deprive such party of the right
to take action at any time while such breach or condition giving
rise to such right continues.
17. As used in this Agreement, the masculine pronouns
shall refer to male or female persons or corporate entities where
such construction is required to give meaning to a provision
contained herein.
18. This Agreement shall be binding upon and inure to
the benefit of the respective successors and assigns of the
parties hereto, provided, however, that the provisions of this
paragraph shall not alter the provisions contained in this
Agreement restricting transfer of the shareholdings in the
Corporation.
19. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
35
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their
hands and the corporate seal the day and year first above
written.
PETROLEUM HEAT AND POWER CO., INC. STAR GAS CORPORATION
By: /s/ George Leibowitz By: /s/ Robert M. Cherry
------------------------- --------------------------
George Leibowitz Robert M. Cherry
Senior Vice President Senior Vice President
AMERICAN GAS & OIL INVESTORS AmGO II
By: First Reserve First Reserve
Corporation, Corporation,
as Managing General Partner, as Managing General
Partner,
By: /s/ William Macaulay By: /s/ William Macaulay
------------------------- -------------------------
William Macaulay William Macaulay
Managing Director Managing Director
AmGO III
By: First Reserve
Corporation,
as Managing General Partner, THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ William Macaulay By: /s/ Jeff Diamond
--------------------------- ---------------------
William Macaulay Jeff Diamond
Managing Director Vice President
FIRST RESERVE SECURED ENERGY ASSETS STAR GAS HOLDINGS, INC.
FUND, L.P.
By: First Reserve Corporation,
as Managing General Partner, By: /s/ Paul Biddelman
---------------------
Name: Paul Biddelman
By: /s/ William Macaulay
--------------------------
William Macaulay
Managing Director
FRC STAR GAS, INC.
By: /s/ William Macaulay
--------------------------
William Macaulay
Managing Director
36
Exhibit 5
<PAGE>
MANAGEMENT SERVICES AGREEMENT
-----------------------------
MANAGEMENT SERVICES AGREEMENT made as of this 21st day
of December, 1993 by and between STAR GAS CORPORATION, a Delaware
corporation with offices at 500 Birchfield Dr., Mt. Laurel, NJ
08054 (the "Company") and PETROLEUM HEAT AND POWER CO., INC., a
Minnesota corporation with offices at 2187 Atlantic Street,
Stamford, CT 06902 ("Petro").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of
propane distribution; and
WHEREAS, the Company desires to retain Petro to provide
executive, financial, and managerial oversight services to it on
the terms herein set forth, and Petro has capability enabling it
to provide such services and is agreeable to providing the same
on such terms:
NOW, THEREFORE, in consideration of the mutual
covenants herein contained, it is hereby agreed as follows:
1. Term and Duties.
---------------
For the ten-year period commencing on the date
hereof unless sooner terminated pursuant to the provisions of
paragraph 7 hereof (the "Term"), Petro shall provide executive,
financial, and managerial oversight services to the Company and
the Company's subsidiaries from time to time. It is understood
that all persons who will provide services to the Company will be
employees of Petro and will also have such other duties with
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<PAGE>
Petro, and that, therefore, none of said persons will devote full
business time to the business of the Company, but that they will
devote thereto only such time as may be necessary from time to
time properly to perform their duties.
2. Degree of Care.
--------------
Petro shall use its best efforts to perform its
services, and to cause its personnel to perform their services,
hereunder in a professional manner and with due care, but shall
have no liability to the Company for any act or omission except
for wilful default or gross negligence.
3. Fee.
---
In full consideration and compensation for the
services to be furnished by Petro to the Company and its
subsidiaries during the Term, the Company will pay to Petro and
Petro will accept (i) a basic fee of $500,000 per year, payable
in cash in equal monthly installments of $41,666.67, plus (ii) an
annual bonus fee equal to five percent (5%) of the increase, if
any, in the EBITDA (as defined below) of the Company for each
fiscal year of the Company ending during the Term beginning with
the fiscal year ending September 30, 1994 over the EBITDA of the
Company for the twelve-month period ended September 30, 1993,
payable no later than 30 days after the issuance of the audited
annual financial statements of the Company with respect to a
fiscal year, in the case of the bonus fee, in shares of common
stock of the Company at a per share price equal to (a)(i) the
product of the EBITDA of the Company for the immediately
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<PAGE>
preceding fiscal year multiplied by 5.5, (ii) minus the amount of
Long-Term Obligations of the Company as defined in the
Shareholder Put/Call Agreement dated as of December 21, 1993 (the
"Put/Call Agreement") (iii) plus the amount of net working
capital of the Company as of the last day of the preceding fiscal
year in excess of $4,000,000 and (iv) plus the amount of proceeds
that would be received by the Company from the exercise of all
options, warrants and other rights to purchase securities of the
Company outstanding on the last day of the preceding fiscal year
to the extent such shares are included in Fully Diluted Shares
(as defined below) of the Company divided by (b) the number of
Fully Diluted Shares of the Company.
The term "Fully Diluted Shares" means with respect
to the Company, as of the date of determination, the number of
shares of Common Stock of the Company actually issued and
outstanding, plus the number of shares issuable upon the
conversion of the 8% Cumulative Convertible Preferred Stock, plus
the number of shares of Common Stock issuable pursuant to that
certain option dated as of December 21, 1993 granted by the
Company to Petro, plus the number of shares of Common Stock
issuable pursuant to all other options, warrants and similar
rights to purchase Common Stock, and plus the number of shares of
Common Stock issuable upon the conversion of any other class of
convertible securities of the Corporation; provided, however,
that only those options, warrants and similar rights to purchase
shares of Common Stock, that have an exercise price that is less
than either (i) the average of the then current Put Option Price
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<PAGE>
and the then current Call Option Price as set forth in the
Shareholder Put/Call Agreement dated as of December 21, 1993 (the
"Put/Call Agreement") (provided, however, that for purposes of
this calculation, Section 1.3(a)(ii)(B) of the Put/Call Agreement
shall not apply) or (ii) if the Common Stock is publicly traded,
the average of the last reported sales price for the shares of
Common Stock for the 10 trading days preceding the date on which
the option, warrant or similar right is exercised as reported by
the NASDAQ National Market System, or if a class of stock is not
included in the NASDAQ National Market System, then on the stock
exchange or listing service on which such class is included
(provided, however, that if no such sales prices exist, then the
formula set forth in (i) above applies) shall be deemed to be
included in this definition.
The term "EBITDA" means consolidated income before
interest, depreciation and amortization and income taxes
excluding gains or losses from the sale of assets other than in
the ordinary course of business, non-recurring gains and losses,
extraordinary items and the costs of restructuring, all
calculated in accordance with generally accepted accounting
principles as reported in the Company's audited year-end
financial statements; provided that consolidated income of any
other person (other than a corporation of which a majority of the
capital stock having voting power under ordinary circumstances to
elect a majority of the board of directors is owned by the
Company or a subsidiary) will be included only to the extent of
dividends and distributions received by the Company. EBITDA
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<PAGE>
shall include (without duplication) EBITDA (defined in the same
manner as in this Agreement) of each business (on a pro forma
basis) which has been acquired during the applicable fiscal year
of Star Gas using the pro forma adjustments comparable to those
customarily made by Petro in reporting of its acquisitions of
businesses on filings with the United States Securities &
Exchange Commission pursuant to the periodic reporting
requirements of the Securities Exchange Act of 1934.
The shares issuable in payment of the bonus fee
shall be issued when the amount of the bonus fee, if any, is
calculated.
The Company shall also grant to Petro an option to
purchase shares of the common stock of the Company in accordance
with, and on the terms and conditions set forth in, the Option
Agreement annexed hereto as Exhibit A.
4. Expenses.
--------
(a) During the Term, the personnel of Petro
assigned to perform duties hereunder will engage in such travel
as may be reasonably required in connection with the performance
of those duties. The Company will pay (or reimburse) all such
reasonable expenses upon submission of proper documentation.
(b) The Company will pay for, or reimburse Petro
for, all equipment and supplies bought by Petro and specifically
dedicated to the purposes of this Agreement (e.g. computer
supplies). Petro shall not be entitled to reimbursement of
incidental expense (e.g. use of Petro's offices) for purposes
hereof.
- 6 -
<PAGE>
(c) Petro will pay all salaries, wages, bonuses,
Blue Cross and other insurance expenses, pension fund payments,
payroll taxes and withholding and the like applicable to its
employees furnishing services hereunder, without right of reim-
bursement by the Company, except to the extent specified in
Section 4(d) hereof.
(d) The Company shall reimburse Petro for the
actual cost of services provided to the Company by Petro (other
than services provided by Irik P. Sevin, C. Justin McCarthy,
George Leibowitz and George Russell or their respective
successors in the offices of Chairman of the Board, Chief
Executive Officer, President, Senior Vice President - Operations,
Senior Vice President - Finance and Corporate Development and
Senior Vice President - Marketing) based on Petro's total
compensation cost (the components of total compensation cost are
set forth in Exhibit B annexed hereto) for persons providing such
services and the amount of time such employee actually spends on
matters directly related to the Company and its operations. The
reimbursement fee shall be based on reasonable rates taking into
account such employee's annual compensation from Petro; provided,
however, that in no event shall the amount of such reimbursement
be greater than the amount the Company would be required to pay
to an independent third party. Petro shall maintain time records
and shall provide the Company with a monthly statement for such
reimbursement fee, which the Company shall promptly pay. After
the financial statements become available for the quarter ended
March 31 and the year ended September 30, Petro shall submit to
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<PAGE>
the Company's Board of Directors the monthly statements for
reimbursement and the supporting records for the immediately
preceding six months, which the disinterested directors shall
review as to reasonableness. Annually, the disinterested
directors, with the assistance of the Company's independent
public accountants, shall review the reasonableness of such
monthly statements. If a majority of the disinterested directors
determines to terminate the reimbursement of Petro for certain
services, Petro and such directors shall agree on a procedure for
the orderly termination of the provision of such services and a
reimbursement of Petro that is appropriate in the circumstances.
(e) The Company will indemnify to the full extent
permitted by law the personnel of Petro who perform services
hereunder against any claims which may be made against them by
reason thereof.
5. Confidentiality; Propane Operations.
-----------------------------------
(a) All business opportunities which are referred
to Petro during the Term in the propane distribution business
shall be deemed business opportunities of the Company and not of
Petro. Petro may not avail itself of any such opportunity
without the unanimous vote of the disinterested director of the
Company.
(b) The Company acknowledges that Petro is
engaged in the #2 fuel oil business, and also is engaged in
propane operations in two locations in Massachusetts, one
location in Connecticut and one location in Rhode Island (the
"Propane Operations") and that all persons who perform services
- 8 -
<PAGE>
for the Company pursuant to this Agreement will be full time
employees of Petro and that their primary loyalty is to Petro.
The mere fact of Petro's business activities as described above
and the use of such employees to perform services for Petro shall
in no way give rise to any liability of Petro or such employees
under this Agreement. Business opportunities which are referred
to Petro during the Term in any business other than the
distribution of propane shall be deemed to be business
opportunities of Petro and not of the Company.
(c) In the event that Petro receives a bona fide
written offer (the "Offer") which it desires to accept for the
purchase of some or all of its Propane Operations (the
"Disposition Propane Assets"), other than a sale of Petro or all
or substantially all of its assets, Petro shall give written
notice to the Board of Directors of the terms of such Offer.
Within 30 days after the receipt of such notice, a majority of
the disinterested directors shall notify Petro in writing of
whether the Company will purchase such Propane Operations on the
terms of such Offer. If the Company does not agree to purchase
the Disposition Propane Assets on the terms of such Offer, or
having so agreed fails to consummate such purchase within 90 days
after receipt of such notice, Petro may sell the Disposition
Propane Assets in accordance with the terms and conditions of the
Offer after which this paragraph shall apply only to any future
offer to purchase other assets of the Propane Operations as well
as any Disposition Propane Assets not sold pursuant to the Offer.
- 9 -
<PAGE>
6. Relationship Between Parties.
----------------------------
The parties are not partners or joint venturers,
and neither shall have any power or right to incur any liability
on behalf of the other party; provided, however, that any of the
personnel of Petro elected an officer of the Company, shall have
power to obligate the Company as appropriate for his office.
Each party shall discharge its own debt and obligations without
recourse against the other.
7. Defaults.
--------
The following shall constitute events of default:
(a) The failure of the Company to pay Petro any
sums due it hereunder within ten (10) days of written demand
therefor by Petro.
(b) The failure of either party to perform, keep
or fulfill in any material respect any of the other covenants,
undertakings, obligations or conditions set forth in this
Agreement or the failure of Petro to perform the services
required under this Agreement with the degree of care set forth
in Paragraph 2 hereof, and the continuance of such default for a
period of thirty (30) days after notice of said failure.
Upon the occurrence of any of the events of
default, the non-defaulting party may give to the defaulting
party notice of intention to terminate this Agreement and upon
the expiration of a period of sixty (60) days from the date of
such notice specifying the cause therefor and if the defaulting
party shall fail to cure such defaults before the 60 day period
should expire, this Agreement shall terminate.
- 10 -
<PAGE>
The rights granted hereunder shall not be in
substitution for, but shall be in addition to, any rights and
remedies available to the non-defaulting party hereunder by
reason of applicable provisions of law.
8. Waiver.
------
The failure of either party to insist upon a
strict performance of any of the terms or provisions of this
Agreement or to exercise any option, right or remedy herein
contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option,
right or remedy, but the same shall continue and remain in full
force and effect. No waiver by either party of any term or
provision hereof shall be deemed to have been made unless
expressed in writing and signed by such party. In the event of
consent by either party to an assignment of this Agreement, no
further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be
made without such consent pursuant to the terms of this
Agreement. In the event that any portion of this Agreement shall
be declared invalid by order, decree or judgment of a court, this
Agreement shall be construed as if such portion had not been
inserted herein except when such construction would operate as an
undue hardship to Petro or the Company or constitute a
substantial deviation from the general intent and purpose of said
parties as reflected in this Agreement.
9. Assignment.
----------
- 11 -
<PAGE>
Neither party shall assign or transfer or permit
the assignment or transfer of this Agreement, or it rights or
obligations hereunder without the prior written consent of the
other; provided, however, that the sale of substantially all the
assets of Petro to, or the merger of Petro into, a single entity
or a group of entities under common control, shall not constitute
an assignment or transfer for purposes of this section.
10. Miscellaneous.
-------------
(a) Right to Make Agreement. The Company and
-------------------------
Petro each warrant that neither the execution of this Agreement
nor the consummation of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction,
order or decree of any court or governmental authority having
jurisdiction over the Company or Petro; result in or constitute a
breach under any indenture, contract, other commitment or
restriction to which either is a party or by which either is
bound; or require any consent, vote or approval which has not
been taken, or at the time of the transaction involved shall not
have been given or taken. Each party covenants that it has and
will continue to have throughout the term of this Agreement and
any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.
(b) Applicable Law. This Agreement shall be
--------------
construed under and shall be governed by the laws of the State of
Delaware.
(c) Notices. Notices, statements and other
-------
communications to be given under the terms of this Agreement
- 12 -
<PAGE>
shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested:
To the Company: Star Gas Corporation
500 Birchfield Drive
Mt. Laurel, NJ 08054
With Copy to: Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Richard Cass, Esq.
To Petro: Petroleum Heat and Power Co.,
Inc.
2187 Atlantic Street
Stamford, CT 06902
Attn: Irik P. Sevin
With Copy to: Phillips, Nizer, Benjamin,
Krim & Ballon
31 West 52nd Street
New York, NY 10019
Attn: Alan Shapiro, Esq.
With Copy to: The Prudential Insurance
Company of America
c/o Prudential Financial
Restructuring Group
Four Gateway Center-9th Fl.
100 Mulberry Street
Newark, NJ 07102-4069
Attn: Managing Director
Fax: 201-802-2662
With Copy to: Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022-4669
Attn: Duncan Stewart, Esq.
Fax: 212-821-8111
With Copy to: First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06830
Attn: William E. Macaulay
(d) Entire Agreement. This Agreement, together
----------------
with other writings signed by the parties expressly stated to be
supplementing hereto and together with any instruments to be
- 13 -
<PAGE>
executed and delivered pursuant to this Agreement, constitutes
the entire agreement between the parties and supersedes all prior
understandings and writings.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers on the
year and day first above written.
PETROLEUM HEAT AND POWER CO., INC.
By: /s/ George Leibowitz
-------------------------
George Leibowitz
Senior Vice President
STAR GAS CORPORATION
By: /s/ Robert M. Cherry
-------------------------
Name: Robert M. Cherry
Title: Senior Vice President
- 14 -
<PAGE>
EXHIBIT A
Neither this Option, nor the shares of Common Stock issuable
upon its exercise, have been registered under the Securities
Act of 1933, as amended. This Option has been, and the shares
of Common Stock issuable upon its exercise will be, acquired
for investment. This Option may not be sold, transferred,
pledged, hypothecated or otherwise disposed of except in
accordance with the terms hereof and except pursuant to an
effective registration statement under the Securities Act of
1933, as amended, or an opinion of counsel, in form and
substance satisfactory to the Company, to the effect that
registration is not then required under such Act.
Option
To Purchase 500,000 shares of Class A Common Stock of
STAR GAS CORPORATION
December 21, 1993
THIS IS TO CERTIFY THAT Petroleum Heat and Power Co.,
Inc. is entitled to purchase from Star Gas Corporation, a
Delaware corporation, (the "Company") at any time after
December 21, 1993, until 5:00 P.M., New York time, on December
20, 1998 (the "Expiration Date"), Five Hundred Thousand
(500,000) shares (subject to adjustment as provided in Article
Four hereof) of Class A Common Stock, par value $.10 per
share, of the Company, at the Purchase Price (defined below)
subject to exercise of the other appurtent rights, powers and
privileges, all on the terms and conditions hereinafter
provided.
1. Certain Definitions
For all purposes of this Option, unless the context
otherwise requires:
Act
The term "Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Securities and Exchange Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
Affiliate
The term "Affiliate", as it applies to the Optionholder,
means an individual, corporation, partnership or other entity
which controls, is controlled by, or is under common control
with, the Optionholder.
Shares of Common Stock
The term "shares of Common Stock" means the Company's
shares of Class A Common Stock, par value $.10 per share, and
any capital stock into which such shares of Common Stock may
thereafter have been changed, and for purposes of Article Four
shall also include capital stock of the Company or any class
of the Company's securities thereafter authorized which ranks,
or is entitled to a participation, as to assets or dividends,
substantially on a parity with the shares of Common Stock.
Company
The term "Company" means Star Gas Corporation, a Delaware
corporation.
Expiration Date
The term "Expiration Date" means 5:00 P.M., New York
time, on December 20, 1998.
Number of Option Shares
The term "number of Option Shares" has the meaning
assigned to it in Article Four hereof.
Optionholder
The term "Optionholder" means Petroleum Heat and Power
Co., Inc.
Options
The term "Options" means this Option and all Options
issued in substitution, combination or subdivision thereof.
All Options shall at all times be identical as to terms and
conditions and expiration date, except as to the number of
shares of Common Stock for which they may be exercised and
except as otherwise required by this Option or as otherwise
agreed to by the Company and the Optionholder.
-2
<PAGE>
Option Shares
The term "Option Shares" means the shares of Common Stock
issuable upon the exercise of the Options.
Purchase Price
The term "Purchase Price" means $9.9031 per share as
adjusted pursuant to Article Four hereof.
2. Exercise of Option
2.1 Manner of Exercise
Until the Expiration Date, the Optionholder may exercise
this Option in whole at any time or in part from time to time
for the purchase of the number of shares of Common Stock which
such Optionholder is then entitled to purchase hereunder, at
the Purchase Price per Common Share determined in accordance
with the provisions hereof.
In order to exercise this Option, in whole or in part,
the Optionholder shall deliver on the exercise date to the
Company at its principal office or such other office or agency
designated by it for such purpose, (a) written notice of the
Optionholder's election to exercise this Option, which notice
shall specify the number of shares of Common Stock to be
purchased, (b) cash or a certified or bank check payable to
the order of the Company in an amount equal to the Purchase
Price of the number of shares of Common Stock being purchased
and (c) this Option.
Upon receipt of the materials delivered by the
Optionholder under this section, the Company shall, as
promptly as practicable, execute and deliver, or cause to be
executed and delivered, to the Optionholder a certificate or
certificates representing the aggregate number of shares of
Common Stock specified in such notice. The certificate or
certificates so delivered shall be in such denomination or
denominations as may be specified in such notice and shall be
registered in the name of the Optionholder or, subject to
Article Three, such other name as shall be designated
(together with an address) in such notice.
Such certificate or certificates shall be deemed to have
been issued and the Optionholder or any other person so
designated to be named therein shall be deemed to have become
a holder of record of such shares of Common Stock as of the
date such notice and payment is received by the Company as
aforesaid if this Option has been exercised in compliance with
the above provisions. If this Option shall have been
exercised only in part, the Company shall, at the time of
delivery of such certificate or certificates, deliver to the
Optionholder a new Option evidencing the rights of the holder
to purchase the
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<PAGE>
remaining shares of Common Stock called for by this
Option, which new Option shall in all other respects,
except as provided in Article Three, be identical with this
Option, or, at the request of the Optionholder, appropriate
notation may be made on this Option and the same returned to
such holder. The Company shall pay all expenses, taxes and
other charges payable in connection with the preparation,
issuance and delivery of share certificates under this
section, except that, in the case such share certificates
shall be registered in a name or names other than the name of
the Optionholder, funds sufficient to pay all share transfer
taxes which shall be payable upon issuance of such share
certificate or certificates shall be paid by the Optionholder
at the time the notice of exercise hereinabove mentioned is
delivered to the Company.
2.2 Option Shares Fully Paid
All Option Shares shall be, when issued, duly authorized,
validly issued, fully paid and non-assessable.
2.3 Fractional Shares
The Company shall not be required upon the exercise of
this Option to issue a certificate representing any fraction
of a share of Common Stock, but, at the option of the Company,
in lieu of issuing such a fractional share, may pay for such
fraction of a share at the Purchase Price in effect on the
date of such exercise of this Option.
3. Transferability; Compliance With Securities Act
3.1 Restrictive Legend
Unless otherwise not required by this Article Three, each
certificate for Option Shares initially issued upon the
exercise of this Option, and each certificate for shares of
Common Stock issued to a subsequent transferee of any such
certificate, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
The shares of Common Stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, and may not be
sold, transferred, pledged, hypothecated or
otherwise disposed of except in accordance with the
terms hereof and except pursuant to an effective
registration statement under such Act and any
applicable state securities laws, or an opinion of
counsel, in form and substance satisfactory to the
Company, to the effect that such registration is not
then required.
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<PAGE>
3.2 Restriction On Transferability
The Options shall not be transferable. The Option Shares
shall be freely transferable except to the extent limited by
law or by any agreement among shareholders of the Company.
4. Adjustments To Purchase Price And Number of Option Shares
The Purchase Price and the number of Option Shares
purchasable hereunder (such number, as in effect from time to
time, being hereinafter called the "number of Option Shares"),
as specified in this Option, shall be subject to adjustment
from time to time as follows:
4.1 Dividends and Reclassifications. In case the
Company shall (i) declare a dividend, or make a distribution,
on its outstanding shares of Common Stock in shares of its
Common Stock, (ii) subdivide or reclassify its outstanding
Common Stock into a greater number of shares or (iii) combine
or reclassify its outstanding Common Stock into a smaller
number of shares, the number of Option Shares in effect at the
time of the record date for such dividend or distribution or
subdivision or combination, or the effective date thereof if
no record date is fixed therefor, shall be proportionately
adjusted so that the holder of any Option surrendered for
exercise immediately after the time of such record date or
such effective date (if no record date is fixed) shall be
entitled to receive the number of Option Shares which such
holder would have owned or been entitled to receive had the
Option been exercised immediately prior to such time.
Adjustment in the Purchase Price shall be made successively
whenever any event specified above shall occur.
4.2 Liquidating Dividends. In the event that the
Company shall make any distribution of its assets upon or with
respect to its Common Stock, as a liquidating or partial
liquidating dividend, or other than as a dividend payable out
of earnings or any surplus legally available for dividends
under the laws of the state of incorporation of the Company,
the Optionholder shall, upon the exercise of the Option after
the record date for such distribution or, in the absence of a
record date, after the date of such distribution, receive, in
addition to the Option Shares, the amount of such assets (or,
at the option of the Company, a sum equal to the value thereof
at the time of distribution as determined by the Board of
Directors in its sole discretion) which would have been
distributed to the Optionholder if it had exercised the Option
immediately prior to the record date for such distribution, or
in the absence of a record date, immediately prior to the date
of such distribution.
4.3 Adjustment of Purchase Price. Upon each adjustment
of the number of Option Shares pursuant to this Article, the
Purchase Price shall be adjusted to equal the amount obtained
by
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<PAGE>
multiplying the Purchase Price in effect immediately prior to
such adjustment by a fraction, the numerator of which equals
the number of Option Shares in effect prior to such adjustment
and the denominator of which equals the number of Option
Shares in effect after such adjustment.
4.4 Miscellaneous Matters.
4.4.1 No adjustment of the Purchase Price shall be
made if the amount of such adjustment shall be less than one
percent of the then Purchase Price, but in such case any
adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together
with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to not less than
one percent of the then Purchase Price.
4.4.2 The certificate of any independent firm of
public accountants of recognized standing selected by the
Board of Directors shall be conclusive of the correctness of
any computation made under this Article.
4.4.3 Whenever any adjustment is required in the
then Purchase Price, the Company shall forthwith (i) prepare a
statement describing in reasonable detail the adjustment and
the method of calculation used and (ii) cause a copy of such
statement to be mailed to the Optionholder.
4.4.4 The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock
the full number of Option Shares into which all Options from
time to time outstanding are exercisable. If at any time the
number of authorized and unissued shares of Common Stock shall
not be sufficient to effect the exercise this Option at the
Purchase Price then in effect, the Company shall take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized Common Stock to such
number of shares as shall be sufficient for such purpose.
4.4.5 In case of any reclassification of or change
in the outstanding shares of Common Stock (other than a change
in par value, or a change from no par to par value or from par
value to no par value) or in the case of any consolidation of
the Company with, or merger of the Company into, another
corporation (other than a consolidation in which the Company
is the continuing corporation and which does not result in any
reclassification of or change in the outstanding shares of
Common Stock), or in case of any sale or conveyance to another
corporation of all or substantially all the assets of the
Company, the Optionholder shall have the right to exercise
such Option into the kind and amount of shares and other
securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder
of the
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number of shares of Common Stock into which the Option
could have been exercised immediately prior to such
reclassification, change, consolidation, merger, sale or
conveyance. After such reclassification, change,
consolidation, merger, sale or conveyance, adjustments of the
Purchase Price shall be as nearly equivalent as may be
practicable to the adjustments of the Purchase Price provided
for herein.
The Company and any successor shall not effect any such
consolidation, merger, sale or conveyance of property as an
entirety with or to another corporation unless and until such
other corporation shall agree to deliver to the Optionholder,
upon the exercise of the Option, such shares, securities and
property which, in accordance with the foregoing provisions,
such Optionholder shall have the right to receive. Successive
reclassifications, changes, consolidations, mergers, sales or
conveyances and adjustments of Purchase Price shall be
similarly treated.
Immediately before any such consolidation, merger, sale
or conveyance of property as an entirety with or to another
corporation the Company shall pay to the Optionholder an
amount of cash equal to the number of Option Shares multiplied
by the difference between (a) the cash or fair value of any
property or securities to be received by a holder of a share
of Common Stock pursuant to any such consolidation, merger,
sale or conveyance of property and (b) the Purchase Price.
5. Notice Of Certain Events.
In case at any time on or after the date hereof:
(a) there shall be any capital reorganization or
reclassification of the shares of Common Stock (other than a
subdivision or combination of its outstanding shares of Common
Stock and other than a change in the par value or the shares
of Common Stock, or a change from par value to no par value or
from no par value to par value), or any consolidation or
merger to which the Company is a party and for which approval
of any shareholders of the Company is required, or any sale or
transfer of all or substantially all the assets of the
Company; or
(b) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then the Company shall cause to be delivered to each
Optionholder, as promptly as possible but in any event at
least 10 days prior to the applicable date hereinafter
specified, a notice stating the date on which such
reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected
that holders of shares of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property
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deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective,
and the date as of which it is expected that holders
of shares of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
6. Limitation of Liability
No provision hereof, in the absence of affirmative action
by the Optionholder to purchase shares of Common Stock, and no
mere enumeration herein of the rights and privileges of the
Optionholder, shall give rise to any liability of such
Optionholder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or
by creditors of the Company.
7. Miscellaneous Provisions
7.1 Notices and Demands on Company and Optionholder.
Any notice or demand which by any provision of this Option is
required or permitted to be given or served may be given or
served by being deposited postage prepaid, registered or
certified mail, return receipt requested, in a post office
letter box addressed (until another address of the Company is
given by the Company to the Optionholder) as follows: if to
the Company, then to Star Gas Corporation, 500 Birchfield
Drive, Mt. Laurel, New Jersey 08054; if to the Optionholder,
then to Petroleum Heat and Power Co., Inc., Davenport Street,
Stamford, Connecticut 06094, Attn: George Leibowitz, Senior
Vice President. All notices shall be deemed to have been
given upon delivery or mailing thereof.
7.2 Amendments And Waivers. Any term of this Option may
be changed, waived, discharged or terminated only be a written
consent of the Company and the Optionholder.
7.3 Laws Of Delaware To Govern. This Option shall be
deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and
construed in accordance with the internal laws of such State.
7.4 Effect Of Headings. The Article and Section
headings herein are for convenience only and shall not affect
the construction hereof.
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IN WITNESS WHEREOF, the Company has caused this Option to
be signed in its name by a duly authorized officer and
attested by its Secretary or Assistant Secretary.
Dated: December 21, 1993
STAR GAS CORPORATION
___________________________________
Name:
Title:
ATTEST:
____________________________
Name:
Title:
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EXHIBIT B - TOTAL COMPENSATION COST
The amount of compensation shown in the employee's Form
W-2 plus the following:
employer's share of FICA tax
federal unemployment tax
state unemployment tax
state disability tax
employee group insurance benefits
retirement benefits
expenses of a similar nature
