<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 2-88526
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PETROLEUM HEAT AND POWER CO., INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 06-1183025
- ---------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2187 Atlantic Street, Stamford, CT 06902
- ---------------------------------- -----------------
(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code: (203) 325-5400
--------------
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 1996 there were 23,020,597 shares of the Registrant's Class
A Common Stock, 11,228 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
INDEX TO Form 10-Q
Page
----
Part 1 Financial Information:
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations for the
Three Months Ended
September 30, 1996 and September 30, 1995
and the Nine Months Ended
September 30, 1996 and September 30, 1995 4
Condensed Consolidated Statement of Changes in Stockholders'
Equity (Deficiency) for the Nine Months Ended
September 30, 1996 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended
September 30, 1996 and September 30, 1995 6 - 7
Notes to Condensed Consolidated Financial Statements 8 - 10
Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations 11 - 18
Part 2 Other Information:
Item 6 - Exhibits and reports on Form 8-K 19
Signature 20
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share data)
September 30, December 31,
Assets 1996 1995
----------- ---------
Current assets:
Cash and cash equivalents $ 25,223 $ 78,285
Restricted cash 3,000 6,000
Accounts receivable (net of allowance of $1,970
and $969) 57,129 95,361
Inventories 14,888 20,413
Prepaid expenses 6,761 6,115
Notes receivable and other current assets 1,541 1,617
--------- ---------
Total current assets 108,542 207,791
--------- ---------
Property, plant and equipment - net 29,273 30,263
--------- ---------
Intangible assets (net of accumulated amortization
of $282,223 and $264,456)
Customer lists 78,838 76,419
Deferred charges and pension costs 25,168 27,296
--------- ---------
104,006 103,715
--------- ---------
Investment in and advances to the Star Gas Partnership 8,642 14,648
--------- ---------
Other assets 911 824
--------- ---------
$ 251,374 $ 357,241
========= =========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Current debt $ 3,089 $ 47,001
Current maturities of cumulative redeemable
exchangeable preferred stock 4,167 4,167
Accounts payable 8,659 22,824
Customer credit balances 24,724 19,610
Unearned service contract revenue 13,898 15,535
Accrued expenses and other liabilities 28,851 33,246
--------- ---------
Total current liabilities 83,388 142,383
--------- ---------
Supplemental benefits and other liabilities 1,590 1,658
--------- ---------
Pension plan obligation 7,155 7,174
--------- ---------
Notes payable and other long-term debt 17,093 17,779
--------- ---------
Senior notes payable 34,150 35,200
--------- ---------
Subordinated notes payable 240,400 241,450
--------- ---------
Cumulative redeemable exchangeable preferred stock 8,333 12,500
--------- ---------
Common stock redeemable at option of stockholder 1,280 1,280
--------- ---------
Note receivable from stockholder (1,280) (1,280)
--------- ---------
Stockholders' equity (deficiency):
Class A common stock-par value $.10 per share;
40,000 shares authorized, 22,859 and 22,653
shares outstanding 2,286 2,266
Class B common stock-par value $.10 per share; 6,500
shares authorized, 11 and 14 shares outstanding 1 1
Class C common stock-par value $.10 per share; 5,000
shares authorized, 2,558 shares outstanding 256 256
Additional paid-in capital 78,150 76,418
Deficit (216,556) (174,972)
Minimum pension liability adjustment (4,872) (4,872)
--------- ---------
Total stockholders' equity (deficiency) (140,735) (100,903)
--------- ---------
$ 251,374 $ 357,241
========= =========
See accompanying notes to condensed consolidated financial statements.
- 3 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 51,060 $ 63,541 $ 422,060 $ 404,917
Cost of sales 44,854 47,768 293,064 256,342
-------- -------- --------- ---------
Gross profit 6,206 15,773 128,996 148,575
Selling, general and administrative expenses 24,909 31,426 76,863 93,503
Direct delivery expense 3,503 4,964 23,652 25,135
Restructuring charges -- -- 1,150 --
Corporate identity expenses 1,336 -- 2,128 --
Amortization of customer lists 4,561 4,843 14,090 15,539
Depreciation of plant and equipment 1,664 3,281 5,053 9,003
Amortization of deferred charges 989 1,631 3,677 4,659
Provision for supplemental benefits 218 368 655 1,039
-------- -------- --------- ---------
Operating income (loss) (30,974) (30,740) 1,728 (303)
Other income (expense):
Interest expense (8,440) (10,318) (26,007) (30,434)
Interest income 647 577 1,896 1,983
Other (10) 20 1,837 743
-------- -------- --------- ---------
Loss before income taxes,
equity interest and extraordinary item (38,777) (40,461) (20,546) (28,011)
Income taxes (benefit) (50) (75) 350 300
-------- -------- --------- ---------
Loss before equity interest
and extraordinary item (38,727) (40,386) (20,896) (28,311)
Share of loss of Star Gas Partnership (1,866) -- (394) --
-------- -------- --------- ---------
Loss before extraordinary item (40,593) (40,386) (21,290) (28,311)
Extraordinary item-loss on early
extinguishment of debt -- -- (6,414) (1,436)
-------- -------- --------- ---------
Net loss $(40,593) $(40,386) $ (27,704) $ (29,747)
======== ======== ========= =========
Net loss applicable to common stock $(41,788) $(41,879) $ (30,093) $ (33,010)
Loss before extraordinary item per
common share:
Class A Common Stock $ (1.63) $ (1.65) $ (.93) $ (1.25)
Class B Common Stock -- -- -- --
Class C Common Stock (1.63) (1.65) (.93) (1.25)
Extraordinary (loss) per common share:
Class A Common Stock $ -- $ -- $ (.25) $ (.06)
Class B Common Stock -- -- -- --
Class C Common Stock -- -- (.25) (.06)
Net loss per common share:
Class A Common Stock $ (1.63) $ (1.65) $ (1.18) $ (1.31)
Class B Common Stock -- -- -- --
Class C Common Stock (1.63) (1.65) (1.18) (1.31)
Cash dividends declared per common share:
Class A Common Stock $ .15 $ .15 $ .45 $ .45
Class B Common Stock -- -- -- --
Class C Common Stock .15 .15 .45 .45
Weighted average number of common shares
outstanding:
Class A Common Stock 23,021 22,855 22,939 22,656
Class B Common Stock 12 15 13 16
Class C Common Stock 2,598 2,598 2,598 2,598
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 4 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficiency)
(Unaudited)
Nine Months Ended September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------
Class A Class B Class C Minimum
------------------------------------------------------ Additional Pension
No. Of No. Of No. Of Paid-In Liability
Shares Amount Shares Amount Shares Amount Capital Deficit Adjustment Total
------ ------ ------ ------ ------ ------ ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 22,653 $ 2,266 14 $ 1 2,558 $ 256 $76,418 ($174,972) ($4,872) ($100,903)
Net income (27,704) (27,704)
Cash dividends declared
and paid (10,037) (10,037)
Cash dividends payable (3,843) (3,843)
Repurchase of Class B
Common Stock (3) (--) (39) (39)
Class A shares issued under the
Dividend Reinvestment Plan 206 20 1,409 1,429
Stock option compensation 362 362
------- -------- ----- ------- ----- ----- ------- --------- ------- ---------
Balance at September 30, 1996 22,859 $ 2,286 11 $ 1 2,558 $ 256 $78,150 ($216,556) ($4,872) ($140,735)
======= ======== ===== ======= ===== ===== ======= ========= ======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
- 5 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) September 30,
-----------------
1996 1995
---- ----
Cash flows from (used in) operating activities:
Net loss $(27,704) $(29,747)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Amortization of customer lists 14,090 15,539
Depreciation of plant and equipment 5,053 9,003
Amortization of deferred charges 3,677 4,659
Share of loss of Star Gas Partnership 394 --
Provision for losses on accounts receivable 1,295 1,575
Provision for supplemental benefits 655 1,039
Loss on early extinguishment of debt 6,414 1,436
Gain on sale of business (1,801) (788)
Other (54) 26
Change in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Decrease in accounts receivable 36,937 34,675
Decrease (increase) in inventory 5,525 (974)
Increase in other current assets (570) (3,322)
Increase in other assets (87) (553)
Decrease in accounts payable (14,165) (8,256)
Increase in customer credit balances 5,114 7,229
Decrease in unearned service contract revenue (1,637) (356)
Decrease in accrued expenses (4,374) (6,187)
-------- --------
Net cash provided by operating activities 28,762 24,998
-------- --------
Cash flows from (used in) investing activities:
Acquisitions (22,045) (17,516)
Capital expenditures (4,052) (8,106)
Proceeds from sale of business 4,073 1,477
Net proceeds from sales of fixed assets 395 308
Minimum quarterly distributions from Star
Gas Partnership 2,936 --
-------- --------
Net cash used in investing activities (18,693) (23,837)
-------- --------
See accompanying notes to condensed consolidated financial statements.
- 6 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
(In thousands) September 30,
-----------------
1996 1995
---- ----
Cash flows from (used in) financing activities:
Net proceeds from issuance of common stock 1,429 18,516
Net proceeds from issuance of subordinated notes -- 120,350
Repayment of notes payable (1,050) (80,372)
Redemption of preferred stock (4,167) (24,133)
Repurchase of common stock (39) (13,709)
Repurchase of subordinated notes (49,612) --
Credit facility borrowings 29,000 --
Credit facility repayments (29,000) (5,100)
Decrease in restricted cash 3,000 --
Cash dividends paid (13,859) (14,382)
Other 1,167 (1,565)
-------- ---------
Net cash provided by (used in) financing activities (63,131) (395)
-------- ---------
Net increase (decrease) in cash (53,062) 766
Cash at beginning of year 78,285 15,474
-------- ---------
Cash at end of period $ 25,223 $ 16,240
======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 29,528 $ 27,131
Income taxes 231 3,142
Non-cash investing activity:
Acquisitions -- (8,000)
Non-cash financing activity:
Issuance of note payable -- 8,000
See accompanying notes to condensed consolidated financial statements
- 7 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for the
fair statement of results for the interim periods.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
2. Per Share Data
Net income (loss) per common shares are computed utilizing the three class
method based upon the weighted average number of shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock outstanding after
adjusting net income (loss) for preferred dividends declared aggregating
$2,389,000 and $3,263,000 for the nine months ended September 30, 1996 and
1995 respectively. Fully diluted net income (loss) per common shares are
not presented because the effect is not material.
3. Acquisitions / Sale
During the nine month period ending September 30, 1996, the Company
acquired the customer lists and equipment of six unaffiliated fuel oil
dealers. The aggregate consideration for these acquisitions, accounted for
by the purchase method, was approximately $20.8 million. Sales and net
income of the acquired companies are included in the consolidated statement
of income from the respective dates of acquisition.
In June 1996, the Company sold its Springfield Massachusetts operations to
an unaffiliated fuel oil dealer. The Company received proceeds of
approximately $4.1 million and realized a gain on this transaction of
approximately $1.8 million.
Had these acquisitions and disposal occurred at the beginning of the
period, the pro forma unaudited results of operations for the nine months
ended September 30, 1996 would have been as follows:
(In thousands, Except Per Share)
--------------------------------
Net sales $ 422,917
Net loss before extraordinary loss (21,972)
Net loss (28,386)
Net loss per common share:
Class A Common Stock $ (1.21)
Class B Common Stock --
Class C Common Stock $ (1.21)
- 8 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Segment Information
From December 8, 1994 to December 19, 1995 the operations, assets and
liabilities of Star Gas Corporation ("Star Gas"), a wholly owned
subsidiary, were included in the consolidated financial statements of the
Company. Accordingly, for the nine months ended September 30, 1995, the
Company's operations were classified into two business segments: Home
Heating Oil and Propane. However, as a result of the Star Gas Master
Limited Partnership transaction in December 1995 involving the conveyance
of the Company's propane operations to Star Gas Propane, L.P., a minority
owned entity, for the nine and three months ended September 30, 1996 the
Company had no propane revenues or expenses.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Home Home
Heating Heating
Oil Propane* Consolidated Oil Propane Consolidated
--- -------- ------------ --- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $422,060 $-- $422,060 $ 333,044 $ 71,873 $ 404,917
Gross Profit 128,996 -- 128,996 110,041 38,534 148,575
Operating Expenses 103,793 -- 103,793 88,605 30,033 118,638
Depreciation and
Amortization 23,475 -- 23,475 23,106 7,134 30,240
Operating Income 1,728 -- 1,728 (1,670) 1,367 (303)
Assets 251,374 -- 251,374 224,102 150,989 375,091
Capital Expenditures 4,052 -- 4,052 2,795 5,311 8,106
</TABLE>
* For the nine months ended September 30, 1996 the Propane operations had
equity loss, which is presented in the Statement of Operations as
non-operating loss, of approximately $0.4 million representing the
Company's share of loss of Star Gas Partners, L.P.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Home Home
Heating Heating
Oil Propane** Consolidated Oil Propane Consolidated
--- --------- ------------ --- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $51,060 $-- $51,060 $46,716 $16,825 $ 63,541
Gross Profit 6,206 -- 6,206 7,008 8,765 15,773
Operating Expenses 29,748 -- 29,748 26,503 9,887 36,390
Depreciation and
Amortization 7,432 -- 7,432 7,615 2,508 10,123
Operating Loss (30,974) -- (30,974) (27,110) (3,630) (30,740)
</TABLE>
** For the three months ended September 30, 1996 the Propane operations had
equity loss, which is presented in the Statement of Operations as
non-operating loss, of approximately $1.9 million representing the
Company's share of loss of Star Gas Partners, L.P.
- 9 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Restructuring Charges
Under the guidance of the Chief Operating Officer and a leading consulting
firm, a major strategic study aimed at improving the Company's
organizational and marketing effectiveness and financial performance was
completed in late 1995. The study provided management with certain
recommendations regarding improvements in structure, training and
technology. The Company utilized the relatively less operationally
demanding non-heating season period from April to September to implement
the study's recommendations.
As part of the implementation program, Petro undertook certain business
improvement strategies in its Long Island, New York region. These steps
included the consolidation of the region's five home heating oil branches
into one central customer service center and three depots. The regional
customer service center has accounting, credit, customer service and sales
functions consolidated into a single, new facility in central Long Island.
All external communications and marketing previously undertaken in the five
branches have been centralized into this one location freeing the three
newly configured depots to focus on oil delivery and heating equipment
repair, maintenance and installation, in mutually exclusive operating
territories.
In April 1996, after finalizing all aspects of this plan the Company
formally announced to the employees its intention to restructure certain
aspects of its Long Island, New York operations and recorded a
restructuring charge of $1.2 million in the second quarter of 1996. These
charges included accruals and actual cash expenditures of $0.5 million for
severance and outplacement of employees displaced by the plan, $0.6 million
for lease payments remaining on non-cancelable non-strategic facilities,
and $0.1 million for the write-off and disposal of certain equipment not
compatible with equipment in the new region, along with other expenses
directly related to the restructuring plan.
- 10 -
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Overview
In analyzing Petro's results for the nine-month and three-month periods ended
September 30, 1996, one should consider the seasonal nature of the Company's
business, which results in the sale by the Company of approximately 50% of its
annual volume of fuel oil in the first quarter, 30% in the fourth quarter, and
20% in the second and third quarters combined. Unlike this pattern of
distribution, however, many of the Company's costs are incurred evenly
throughout the year, resulting in non-heating season operating and net losses.
In addition, as a result of the conversion of Star Gas Corporation into a Master
Limited Partnership (the "Star MLP", described more fully in the Company's 1995
10-K), Petro's nine months ended September 30, 1996 and third quarter 1996
results account for Star Gas' performance on an equity basis. In contrast,
Petro's nine months ended September 30, 1995 and third quarter 1995 results
include what had historically been the Company's propane operations, including
Star Gas, on a consolidated basis. In an effort to make the following discussion
more meaningful, the analysis of operating results primarily compares Petro's
home heating oil results for the two periods.
Nine Months Ended September 30, 1996
Compared to Nine Months Ended September 30, 1995
Volume. Home heating oil volume increased 18.9% to 322.8 million gallons for the
nine months ended September 30, 1996, as compared to 271.5 million gallons for
the nine months ended September 30, 1995. This increase was largely due to 12.8%
colder weather than in the previous year, as temperatures were slightly colder
than normal (4.3%) in the first nine months of 1996, in contrast to the warmer
than normal weather experienced during the first nine months of 1995. In
addition, heating oil volumes were favorably impacted by the inclusion of
gallonage from the Company's sixteen heating oil acquisitions completed since
the beginning of the first quarter of last year. Total retail gallons decreased
2.3% from the first nine months of 1995 to the first nine months of 1996, as
propane volume, which amounted to 58.8 million gallons in the first nine months
of 1995, was not included in Petro's 1996 financials as a result of the Star
MLP.
Net sales. Home heating oil net sales for home heating oil operations increased
26.7% to $422.1 million for the nine months ended September 30, 1996, as
compared to $333.0 million for the nine months ended September 30, 1995. This
growth was due both to increased volume and to higher selling prices associated
with the significant increases in wholesale product costs during fiscal 1996.
Total sales combined increased only 4.2% from the first nine months of 1995 to
the first nine months of 1996, as propane sales, which amounted to $71.9 million
in the first nine months of 1995, were excluded from Petro's 1996 financials as
a result of the Star MLP.
- 11 -
<PAGE>
Gross profit. Home heating oil gross profit increased 17.2% to $129.0 million
for the nine months ended September 30, 1996, as compared to $110.0 million for
the nine months ended September 30, 1995. The growth in gross profit resulting
from the increased volume was partially offset by an unusual decline in home
heating oil margins, caused by significant and rapid increases in supply costs
and the effect of record winter storms in 1996 on net service expense, which is
included in the Company's calculation of gross profit. While in previous years
the Company has been able to quickly respond to supply cost increases by raising
selling prices, the sudden and substantial increases in wholesale prices
occurring in 1996 hindered the Company's ability to maintain and increase its
margin. Total gross profit declined 13.2% from the first nine months of 1995 to
the first nine months of 1996, as propane gross profit, which amounted to $38.5
in the first nine months of 1995, was not included in Petro's 1996 financials as
a result of the Star MLP.
Selling, general and administrative expenses. Home heating oil selling, general
and administrative expenses increased 10.6% to $76.9 million for the nine months
ended September 30, 1996, as compared to $69.5 million for the nine months ended
September 30, 1995. On a per gallon basis, costs were 7.0% lower, despite the
impact of inflationary pressures and the effect of heavy winter storms in the
first quarter of 1996, which impacted branch expenses in the first nine months
of 1996 by an estimated $0.5 million. This improvement was due to the Company's
ongoing efforts in creating greater operational efficiencies and instituting
better controls in all major expense categories. Total selling, general and
administrative expenses decreased 17.8% from the first nine months of 1995 to
the first nine months of 1996, as propane expenses, which amounted to $24.0
million in the first nine months of 1995, were excluded from Petro's 1996
financials as a result of the Star MLP.
Direct delivery expenses. Home heating oil direct delivery expenses increased
23.9% to $23.7 million for the nine months ended September 30, 1996, as compared
to $19.1 million for the nine months ended September 30, 1995. In addition to
the growth in volume delivered, this increase was also a result of the severe
winter snow storms, which impacted delivery productivity and required the
Company to pay extraordinary overtime and retain additional temporary personnel.
Excluding the estimated $1.0 million effect of the storms, delivery expenses
remained unchanged on a per gallon basis despite inflationary pressures. Total
direct delivery expenses decreased 5.9% from the first nine months of 1995 to
the first nine months of 1996, as propane delivery expenses, which amounted to
$6.0 million in the first nine months of 1995, were not included in Petro's 1996
financials as a result of the Star MLP.
Restructuring charges. Restructuring charges for the nine months ended September
30, 1996 were $1.2 million. These charges represent costs associated with the
Company's regionalization and consolidation of its five full function Long
Island branches into one regional customer service center and three
geographically optimal delivery and service depots. The customer service center
began operation during May of 1996 and represents the first stage of
implementation of the recommendation of an operational effectiveness study
conducted by a nationally recognized consulting firm and senior Company
management in 1995.
Corporate identity expenses. Corporate identity expenses for the nine months
ended September 30, 1996 were $2.1 million. These expenses represent costs
associated with the company's brand identity program in Long Island, and include
the painting of over 400 delivery and service vehicles in the region. Through
this program, the Company is seeking to build significant brand equity by
marketing its services throughout the region under the "Petro" brand name,
rather than the twelve previously in use. These expenses are expected to
approximate a total of $2.5 million over the course of fiscal year 1996.
- 12 -
<PAGE>
Amortization of customer lists. Amortization of home heating oil customer lists
increased 1.9% to $14.1 million for the nine months ended September 30, 1996, as
compared to $13.8 million for the nine months ended June 30, 1995 due to the
Company's recent acquisitions, which were partially offset by the impact of
certain customer lists becoming fully amortized. Total amortization of customer
lists decreased 9.3% from the first nine months of 1995 to the first nine months
of 1996, as propane customer list amortization, which amounted to $1.7 million
in the first nine months of 1995, was not included in Petro's 1996 financials as
a result of the Star MLP.
Depreciation of plant and equipment. Depreciation of home heating oil plant and
equipment increased 17.9% to $5.1 million for the nine months ended September
30, 1996, as compared to $4.3 million for the nine months ended September 30,
1995 as a result of the Company's recent fixed asset additions associated with
acquisitions, which outpaced the impact of certain assets becoming fully
depreciated. Total depreciation of plant and equipment decreased 43.9% from the
first nine months of 1995 to the first nine months of 1996, as propane-related
depreciation, which amounted to $4.7 million in the first nine months of 1995,
was eliminated from Petro's 1996 financials as a result of the Star MLP.
Amortization of deferred charges. Amortization of home heating oil deferred
charges decreased 7.2% to $3.7 million for the nine months ended September 30,
1996, as compared to $4.0 million for the nine months ended September 30, 1995
as a result of certain deferred items becoming fully amortized. Total
amortization of deferred charges decreased from $4.7 million for the first nine
months of 1995 to $3.7 million for the first nine months of 1996, as the impact
of propane-related amortization of deferred charges, which amounted to $0.7
million in the first nine months of 1995, was not included in Petro's 1996
financials as a result of the Star MLP.
Provision for supplemental benefits. Provision for supplemental benefits
declined to $0.7 million for the nine months ended September 30, 1996, as
compared to $1.0 million for the nine months ended June 30, 1995. These
supplemental benefits reflect the extension of the exercise date of certain
options previously issued, and the change in provision is due to a reduction of
the accrual required under the vesting schedule of those options.
Operating income. Home heating oil operating income increased to $1.7 million
for the nine months ended September 30, 1996, as compared to an operating loss
of $1.7 million for the nine months ended September 30, 1995. This increase was
largely a result of higher volume and the improvement in per gallon operating
costs, and was achieved despite the decline in gross profit margins caused by
the rapid rise in product costs, the effect of the record snow storms, and the
restructuring and corporate identity charges. Total operating income also
increased $2.0 million, despite the non-consolidation of Star's operating income
which, for the first nine months of 1995, contributed $1.4 million.
Net interest expense. Net interest expense declined 15.3% to $24.1 million for
the nine months ended September 30, 1996, as compared to $28.5 million for the
nine months ended September 30, 1995. This decrease was due to the decline in
average borrowings versus the prior period resulting from the application of
proceeds from the Star MLP to debt repayment.
Other income. Other income increased from $0.7 million for the nine months ended
September 30, 1995 to $1.8 million for the nine months ended September 30, 1996,
reflecting the sale of the Company's Springfield, Massachusetts heating oil
operations during the second quarter of 1996 and New Hampshire heating oil
operations during the first quarter of 1995.
- 13 -
<PAGE>
Equity in earnings of Star Gas Partnership. Share of losses of Star Gas
Partnership were $0.4 million for the nine months ended September 30, 1996. For
the nine months ended September 30, 1995, Star Gas' results were consolidated
with the Company's. Through the third quarter of 1996, the Company had received
$2.9 million in distributions from Star Gas, reflecting the Company's
subordinate and general partnership interest for the period of December 20, 1995
to June 30 1996.
Income before extraordinary items. Income before extraordinary items improved
24.8% to a loss of $21.3 million for the nine months ended September 30, 1996,
as compared to a loss of $28.3 million for the nine months ended September 30,
1995. This improvement was due to the $4.3 million reduction in interest
expense, the $3.4 million increase in heating oil operating income and the $1.1
million increase in other income. Partially offsetting these gains was the
elimination of Star's $1.4 million of operating income in the first nine months
of 1995, and the recorded loss in earnings of Star Gas Corporation of $0.4
million for the first nine months of 1996.
Extraordinary item - loss on early extinguishment of debt. In February 1996, the
Company recorded an extraordinary charge of $6.4 million in connection with the
retirement of $43.8 million of 12.25% subordinated debentures due 2005. This
amount includes both a prepayment premium of $4.8 million and a write-off of
deferred charges of $1.6 million associated with the issuance of that debt.
Net income. Net income improved 6.9% to a loss of $27.7 million for the nine
months ended September 30, 1996, as compared to a loss of $29.7 million for the
nine months ended September 30, 1995. This increase was despite the
extraordinary item described above, and was due to improvements in core business
heating oil operating income, net interest expense and other income.
EBITDA*. Home heating oil EBITDA increased 17.6% to $25.2 million for the nine
months ended September 30, 1996, as compared to $21.4 million for the nine
months ended June 30, 1995. This gain resulted from increased volume and
improved per gallon operating expense performance, and was despite the impact of
the restructuring and corporate identity costs. Excluding these one-time costs,
heating oil EBITDA increased 32.9% to $28.5 million. Total EBITDA decreased
15.8% from the first nine months of 1995 to the first nine months of 1996, as
the impact of propane EBITDA, which amounted to $8.5 million in the first nine
months of 1995, was eliminated from Petro's 1996 financials as a result of the
Star MLP.
NIDA**. NIDA increased to $3.8 million for the nine months ended September 30,
1996, as compared to a $0.5 million loss for the nine months ended September 30,
1995. Excluding the one-time restructuring and corporate identity costs, NIDA
increased to $7.1 million. The Company was able to achieve this increase despite
the non-consolidation of Star Gas, which contributed $8.5 million of EBITDA in
the first nine months of 1995, due both to the improvement in heating oil EBITDA
and other income and to the reduction in net interest expense.
- ----------
* EBITDA is defined as operating income before depreciation and amortization,
non-cash charges relating to the grant of stock options to executives of the
Company, and the amount of non-cash expenses associated with key employees'
deferred compensation plans.
** NIDA is the Company's measure of cash flow and is defined as net income
(loss) before extraordinary items, plus depreciation, amortization, non-cash
charges relating to the grant of stock options to executives of the Company,
non-cash charges associated with deferred compensation plans and other non-cash
charges of a similar nature, if any, less dividends accrued on preferred stock,
excluding net income (loss) derived from investments accounted for by the equity
method, except to the extent of any cash dividends received by the Company.
- 14 -
<PAGE>
Three Months Ending September 30, 1996
Compared to Three Months Ending September 30, 1995
Volume: Retail home heating oil volume increased 6.1% to 28.6 million gallons
for the three months ended September 30, 1996, as compared to 26.9 million
gallons for the three months ended September 30, 1995. This increase was
primarily due to the Company's acquisition of fourteen heating oil companies
since the beginning of the third quarter of last year. Total retail gallons
decreased 28.7% from the third quarter of 1995 to the third quarter of 1996, as
propane volume, which amounted to 13.2 million gallons in the third quarter of
1995 was not included in Petro's 1996 financials as a result of the Star MLP.
Net Sales: Home heating oil net sales increased 9.3% to $51.1 million for the
three months ended September 30, 1996, as compared to $46.7 million for the
three months ended September 30, 1995. This increase was due to increased volume
and to higher selling prices driven by increased wholesale product costs. Total
sales decreased 19.6% from the third quarter of 1995 to the third quarter of
1996, as propane sales, which amounted to $16.8 million in the third quarter of
1995, were not included in Petro's 1996 financials as a result of the Star MLP.
Gross Profit: Home heating oil gross profit decreased 11.4% to $6.2 million for
the three months ended September 30, 1996, as compared to $7.0 million for the
three months ended September 30, 1995. This decrease in gross profit was due
primarily to the unexpected decrease in heating oil margins caused by the recent
sharp rise in product costs. Based on third quarter 1996 volumes, the impact of
this unusual margin decline is approximately $0.8 million. While, as noted in
the nine month discussion, the Company has historically been able to quickly
pass increased product costs through in its retail prices, the Company elected,
for marketing purposes, to not meet the rapid cost increase with similar price
increases in the third quarter. Total gross profit declined $9.6 million from
the third quarter of 1995 to the third quarter of 1996, as propane gross profit,
which amounted to $8.8 million in the third quarter of 1995, was not included in
Petro's 1996 financials as a result of the Star MLP.
Selling, General and Administrative Expenses. Home heating oil selling, general,
and administrative expenses increased 6.6% to $24.9 million for the three months
ended September 30, 1996, as compared to $23.4 million for the three months
ended September 30, 1995. This increase included a 10.8% increase in marketing
expense, which contributed to a 13.4% improvement in customer gains in the third
quarter of 1996 as compared to the third quarter of 1995. Total selling, general
and administrative expenses declined 20.7% from the third quarter of 1995 to the
third quarter of 1996, as propane expenses, which amounted to $8.1 million in
the third quarter 1995, were excluded from Petro's 1996 financials as a result
of the Star MLP.
Direct Delivery Expense. Home heating oil direct delivery expenses increased
11.9% to $3.5 million for the three months ended September 30, 1996, as compared
to $3.1 for the three months ended September 30, 1995. This increase is directly
related to the increase in volume for the three months ended September 30, 1996,
as well as to the timing of certain expenses. Total direct delivery expenses
declined 29.4% from the third quarter of 1995 to the third quarter of 1996, as
propane delivery expenses, which amounted to $1.8 million in the third quarter
of 1995, were not included in Petro's 1996 financials as a result of the Star
MLP.
Corporate Identity Expenses: Corporate identity expenses for the three month
period ended September 30, 1996 were $1.3 million. These expenses represent
costs associated with the Company's brand identity program in Long Island as
described in the nine month discussion.
- 15 -
<PAGE>
Amortization of Customer Lists: Home heating oil amortization of customer lists
remained relatively unchanged at $4.5 million for the three months ended
September 30, 1996, as the impact of the Company's recent acquisitions offset
the effect of certain customer lists becoming fully amortized. Total
amortization of customer lists decreased 5.8% from the third quarter of 1995 to
the third quarter of 1996, as propane customer list amortization, which amounted
to $0.3 million in the third quarter of 1995, was excluded from Petro's 1996
financials as a result of the Star MLP.
Depreciation of Plant and Equipment: Home heating oil depreciation of plant and
equipment increased to $1.7 million for the three months ended September 30,
1996, as compared to $1.5 million for the three months ended September 30, 1995
as a result of the Company's recent acquisitions, which outpaced the impact of
certain assets becoming fully depreciated. Total depreciation of plant and
equipment decreased 49.3% from the third quarter of 1995 to the third quarter of
1996, as propane-related depreciation, which amounted to $1.8 million in the
third quarter of 1995, was excluded from Petro's 1996 financials as a result of
the Star MLP.
Amortization of Deferred Charges: Home heating oil amortization of deferred
charges decreased 20.4% to $1.0 million for the three months ended September 30,
1996 as compared to $1.2 million for the three months ended September 30, 1995
as a result of certain deferred items becoming fully amortized at the start of
the third quarter 1996. Total deferred charges decreased 39.4% from the third
quarter of 1995 to the third quarter of 1996 as propane related deferred charge
amortization, which amounted to $0.4 million in the third quarter of 1995, was
not included in Petro's 1996 financials as a result of the Star MLP.
Provision for Supplemental Benefits: Provision for supplemental benefits
declined to $0.2 million for the three months ended September 30, 1996, as
compared to $0.4 million for the three months ended September 30, 1995. This
decrease in supplemental benefits reflect the extension of the exercise date of
certain options previously issued, and the change in provision is due to a
reduction of the accrual required under the vesting schedule of those options.
Operating Loss: Home heating oil operating loss increased 14.3% to $31.0 million
for the three months ended September 30, 1996, as compared to $27.1 million for
the three months ended September 30, 1995. This increase was due to the sudden
increase in product costs, expenses associated with the Company's corporate
identity program, and an increase in non-cash expenses. Total operating income
was virtually unchanged as the impact of propane operating loss, which amounted
to $3.6 million in the third quarter of 1995, was not included in Petro's 1996
financials.
Net Interest Expense: Net interest expense declined 20.0% to $7.8 million for
the three months ended September 30, 1996, as compared to $9.7 million for the
three months ended September 30,1995. This decline was primarily due to a
reduction in average debt outstanding over the two periods of $63.1 million
resulting largely from the application of proceeds from the Star MLP to debt
repayment.
Equity in Loss of Star Gas Partnership: Equity in loss of Star Gas Partnership
was $1.9 million for the three months ended September 30, 1996. Star Gas'
results were consolidated with the Company's for the three months ended
September 30, 1995.
- 16 -
<PAGE>
Net Income (Loss): Net loss remained virtually unchanged at $40.6 million,
despite the $1.3 million in corporate identity expense, an approximate $0.8
million reduction in gross profit associated with the rapid rise in wholesale
product costs and higher operating costs associated with higher volumes and an
increased focus on marketing. Offsetting these factors were lower interest
expense and the elimination of Star's operating loss, which amounted to $3.6
million in the third quarter of 1995, and which was greater than the recorded
equity in loss of Star Gas Corporation of $1.9 million in the third quarter of
1996.
EBITDA: Home heating oil EBITDA loss increased 20.8% to $23.5 million for the
three months ended September 30, 1996, as compared to $19.5 million for the
three months ended September 30, 1995. This change was also primarily due to
$1.3 million of corporate identity charges related to the Long Island
regionalization, higher operating costs associated with higher volume and the
decline in gross profit margins. Total EBITDA loss increased 14.2% to a loss of
$23.5 million for the three months ended September 30, 1996 compared to $20.6
million for the three months ended September 30, 1995, as Star Gas' third
quarter 1995 EBITDA loss of $1.1 million was excluded from Petro's 1996
financials as a result of the Star MLP.
NIDA: While home heating oil EBITDA decreased 20.8%, NIDA improved 1.6% to a
loss of $30.4 million for the three months ended September 30, 1996, as compared
to a loss of $30.9 million for the three months ended September 30, 1996. This
improvement was due to a $1.9 million decrease in net interest expense, the
receipt of $1.4 million in distribution from Star Gas, and the exclusion of $3.6
million of Star Gas NIDA loss in the third quarter of 1995 due to the Star MLP.
- 17 -
<PAGE>
Liquidity and Financial Condition
In December 1995, the Company received net proceeds from the transfer of its
propane assets to the Star Gas Partnership of $134.7 million, $83.7 million from
Star Gas Corporation's First Mortgage Notes and $51.0 million from the Star Gas
MLP equity offering. Approximately $30.0 million of these funds were used in
1995, $24.0 million to repay long-term debt and $6.0 million reserved to
guarantee the Star Gas Partnership's minimum quarterly distribution. In February
1996, $48.6 million of these funds were used to retire $43.8 million of the
Company's $125.0 million 12 1/4% Subordinated Debentures due 2005 at an eleven
percent premium. Overall, the transaction had the effect of enabling Petro to
recoup virtually its entire investment in Star Gas, while allowing Petro to
retain operational control as general partner and a continuing equity ownership
interest of 46.5%. Furthermore, the net proceeds of $134.7 million allowed Petro
to reduce its outstanding debt by approximately $70.0 million by the first
quarter of 1996, and provided the Company with a significant amount of
additional working capital to fund future expansion.
For 1996, net cash provided by operating activities of $28.8 million, combined
with the opening cash balance at January 1, 1996 of $78.3 million, and the
receipt of Star Gas's minimum quarterly distribution of $2.9 million, amounted
to $110.0 million. These funds were utilized in investing activities for
acquisitions and purchase of fixed assets of $25.7 million (which includes $2.0
million of capital expenditures associated with the Long Island regional
customer service center discussed in footnote 5 of the notes to the condensed
consolidated financial statements); and in financing activities to pay dividends
of $13.9 million, redeem preferred stock of $4.2 million, repay notes payable of
$2.1 million, and repurchase subordinated notes of $48.6 million (as described
in the preceding paragraph). These financing activities were partially offset by
cash provided by other financing activities of $5.6 million (which includes $1.4
million of dividend reinvestment proceeds and the release of $3.0 million from
the Star Gas minimum quarterly distribution guarantee based upon the fulfillment
of the guarantee provisions). In addition, the sale of the Company's Springfield
Massachusetts operations generated $4.1 million of proceeds. As a result of the
above activities, the Company's cash balance decreased by $53.1 million to $25.2
million at September 30, 1996.
The Company currently has available a $60.0 million working capital revolving
credit facility. At September 30, 1996, there were no working capital revolving
credit facility borrowings, and the Company had $25.2 million of working
capital.
For the remainder of 1996, the Company anticipates paying dividends on its
Common Stock before dividend reinvestment of approximately $3.8 million. Based
upon the Company's current cash and working capital position and bank credit
facility, the Company expects to be able to meet all of its current obligations
as they become due.
Star Gas Strategic Alternatives
On August 1, 1996 Star Gas Partners, L.P. ("Star Gas") announced that it had
retained an investment banking firm to assist it in the development and
consideration of strategic alternatives designed to maximize the value of Star
Gas to its unitholders, including Petro which owns a 46.5% equity interest. The
alternatives that were to be investigated included, but were not limited to, the
sale or merger of Star Gas. Star Gas has received indications of interest from a
variety of potential acquirers and merger partners, which it is currently
evaluating. Star Gas expects to conclude this evaluation of alternatives some
time during the fourth quarter of 1996 or the first quarter of 1997.
- 18 -
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Included Within:
(27) Financial Data Schedule
10.54 Fourth Amended and Restated Credit Agreement, dated
September 27, 1996, among Petroleum Heat and Power Co., Inc.
the banks and other financial institutions from time to time
parties hereto and The Chase Manhattan Bank.
(b)Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
- 19 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
Signature Title Date
- --------- ----- ----
/s/ Irik P. Sevin President, Chairman of the November 14, 1996
- ----------------- Board, Chief Executive Officer,
Irik P. Sevin and Chief Financial and
Accounting Officer and Director
- 20 -
<PAGE>
EXHIBIT 10.54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PETROLEUM HEAT AND POWER CO., INC.
------------------
FOURTH
AMENDED AND RESTATED
CREDIT AGREEMENT
DATED AS OF SEPTEMBER 27, 1996
------------------
THE CHASE MANHATTAN BANK
AS AGENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . 19
SECTION 2. AMOUNT AND TERMS OF WORKING
CAPITAL LOANS . . . . . . . . . . . . . . . . . . . . . . . . 20
2.1 Working Capital Loan Commitments. . . . . . . . . . . . . . . . . 20
2.2 Working Capital Notes . . . . . . . . . . . . . . . . . . . . . . 20
2.3 Procedure for Borrowing Working Capital Loans . . . . . . . . . . 21
2.4 Use of Proceeds of Working Capital Loans. . . . . . . . . . . . . 22
SECTION 3. TERMS OF INVENTORY LETTERS OF CREDIT
SUB-FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Inventory L/C Commitment. . . . . . . . . . . . . . . . . . . . . 22
3.2 Procedure for Issuance of Inventory Letters of Credit . . . . . . 22
3.3 Fees, Commissions and Other Charges . . . . . . . . . . . . . . . 23
3.4 Inventory L/C Participations. . . . . . . . . . . . . . . . . . . 23
3.5 Inventory Reimbursement Obligation of the Company . . . . . . . . 24
3.6 Obligations Absolute. . . . . . . . . . . . . . . . . . . . . . . 25
3.7 Inventory Letter of Credit Payments . . . . . . . . . . . . . . . 25
3.8 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4. AMOUNT AND TERMS OF ACCEPTANCE
SUB-FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1 Acceptance Commitments. . . . . . . . . . . . . . . . . . . . . . 26
4.2 Creation of Acceptances . . . . . . . . . . . . . . . . . . . . . 26
4.3 Discount of Acceptances . . . . . . . . . . . . . . . . . . . . . 27
4.4 Acceptance Reimbursement Obligations. . . . . . . . . . . . . . . 27
4.5 Mandatory Prepayment. . . . . . . . . . . . . . . . . . . . . . . 28
4.6 Supply of Drafts. . . . . . . . . . . . . . . . . . . . . . . . . 29
4.7 Delivery of Certain Documentation . . . . . . . . . . . . . . . . 29
4.8 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 29
<PAGE>
SECTION 5. TERMS OF ACQUISITION LETTER OF CREDIT
FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.1 Existing Letters of Credit. . . . . . . . . . . . . . . . . . . . 30
5.2 Fees, Commissions and Other Charges . . . . . . . . . . . . . . . 30
5.3 Acquisition L/C Participations. . . . . . . . . . . . . . . . . . 31
5.4 Acquisition L/C Reimbursement Obligation of the Company . . . . . 31
5.5 Obligations Absolute. . . . . . . . . . . . . . . . . . . . . . . 32
5.6 Acquisition Letter of Credit Payments . . . . . . . . . . . . . . 32
5.7 Cash Collateralization of Acquisition Letters of Credit . . . . . 33
SECTION 6. PROVISIONS RELATING TO CERTAIN EXTENSIONS
OF CREDIT; FEES AND PAYMENTS. . . . . . . . . . . . . . . . . 33
6.1 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Termination or Reduction of Commitments. . . . . . . . . . . . . 33
6.3 Payments and Voluntary Prepayments . . . . . . . . . . . . . . . 33
6.4 Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . . 34
6.5 Annual Clean-Up. . . . . . . . . . . . . . . . . . . . . . . . . 35
6.6 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . 35
6.7 Computation of Interest and Fees; Payments . . . . . . . . . . . 36
6.8 Conversion and Continuation Options. . . . . . . . . . . . . . . 36
6.9 Minimum Amounts of Tranches. . . . . . . . . . . . . . . . . . . 37
6.10 Inability to Determine Eurodollar Rate . . . . . . . . . . . . . 37
6.11 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.12 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . . 38
6.13 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.14 Pro Rata Treatment and Payments. . . . . . . . . . . . . . . . . 39
6.15 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 7. CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT
AND TO INITIAL EXTENSIONS OF CREDIT . . . . . . . . . . . . . 41
7.1 Conditions to Effectiveness of Initial Extensions of
Credit hereunder. . . . . . . . . . . . . . . . . . . . . . . . 41
(a) Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . 41
(b) Corporate Proceedings . . . . . . . . . . . . . . . . . . 41
(c) Corporate Documents . . . . . . . . . . . . . . . . . . . 42
(d) Incumbency Certificates . . . . . . . . . . . . . . . . . 42
(e) Receipt of Certain Documents . . . . . . . . . . . . . . . 42
(f) Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(g) Borrowing Base Certificate . . . . . . . . . . . . . . . . 43
(h) Lien Searches. . . . . . . . . . . . . . . . . . . . . . . 43
-ii-
<PAGE>
7.2 Conditions of All Extensions of Credit. . . . . . . . . . . . . . 43
(a) Representations and Warranties; No Default . . . . . . . . . 43
(b) Legal Matters . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 43
8.1 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . 43
8.2 Corporate Power and Authorization; Enforceable Obligations . . . 44
8.3 No Legal Bar to Loans. . . . . . . . . . . . . . . . . . . . . . 44
8.4 No Material Litigation . . . . . . . . . . . . . . . . . . . . . 44
8.5 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.6 Ownership of Properties; Liens . . . . . . . . . . . . . . . . . 45
8.7 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.8 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . 45
8.9 Filing of Statements and Reports . . . . . . . . . . . . . . . . 46
8.10 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.11 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.12 Investment Company Act; Other Regulations. . . . . . . . . . . . 46
8.13 Federal Regulations. . . . . . . . . . . . . . . . . . . . . . . 47
8.14 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 48
9.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 48
9.2 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . 50
9.3 Maintenance of Properties; Insurance . . . . . . . . . . . . . . 50
9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
9.5 Conduct of Business and Maintenance of Existence . . . . . . . . 51
9.6 Inspection of Property, Books and Records. . . . . . . . . . . . 51
9.7 ERISA Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.8 Execution of Guaranties and Security Agreements by Additional
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.9 Maintenance of Collateral. . . . . . . . . . . . . . . . . . . . 52
9.10 Update of Customer Lists . . . . . . . . . . . . . . . . . . . . 52
9.11 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 53
10.1 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . 53
10.2 Limitations on Liens. . . . . . . . . . . . . . . . . . . . . . 54
10.3 Limitation on Contingent Obligations. . . . . . . . . . . . . . 54
10.4 Prohibition of Fundamental Changes. . . . . . . . . . . . . . . 55
10.5 Limitation on Investments, Loans and Advances . . . . . . . . . 55
10.6 Prohibition of Certain Prepayments and Dividends. . . . . . . . 56
10.7 Consolidated Cash Flow; EBITDA. . . . . . . . . . . . . . . . . 57
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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<PAGE>
10.9 Covenant Not to Compete. . . . . . . . . . . . . . . . . . . . . 57
10.10 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . 58
10.11 Consolidated EBITDA Coverage Ratio. . . . . . . . . . . . . . . 58
SECTION 11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 12. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
12.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . 62
12.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . 62
12.4 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . . 62
12.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . 62
12.6 Non-Reliance on Agent and Other Banks. . . . . . . . . . . . . . 63
12.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 63
12.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . 64
12.9 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 13. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 64
13.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 64
13.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . 66
13.4 Survival of Representations and Warranties. . . . . . . . . . . 66
13.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . 66
13.6 Successors and Assigns; Participations; Purchasing Banks. . . . 67
13.7 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . . 69
13.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 70
13.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 70
13.10 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . 70
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SCHEDULES
- ---------
Schedule I Commitments; Commitment Percentages; Addresses for Notices
Schedule II Subsidiaries
Schedule III Subordinated and Other Indebtedness
Schedule IV Acquisitions Since March 31, 1994
Schedule V Existing Acquisition Letters of Credit
EXHIBITS
- --------
Exhibit A Form of Amended and Restated Working Capital Note
Exhibit B Form of Fourth Amended and Restated Company Security Agreement
Exhibit C Form of Amended and Restated Company Cash Collateral Agreement
Exhibit D Form of Fourth Amended and Restated Subsidiary Guarantee
Exhibit E Form of Fourth Amended and Restated Subsidiary Security Agreement
Exhibit F Form of Request for Acceptances
Exhibit G Form of Draft
Exhibit H Form of Borrowing Base Certificate
Exhibit I Form of Assignment and Acceptance
Exhibit J Form of Line Letter
-v-
<PAGE>
1
Exhibit 10.54
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 27,
1996, among:
(a) PETROLEUM HEAT AND POWER CO., INC., a Minnesota corporation (the
"COMPANY");
(b) the banks and other financial institutions from time to time parties hereto
(collectively, the "BANKS"); and
(c) THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York
banking corporation, as agent for such Banks (in such capacity, the
"AGENT").
W I T N E S S E T H:
WHEREAS, the Company and Manufacturers Hanover Trust Company were
parties to a Credit Agreement, dated as of December 31, 1986 (as amended,
supplemented or otherwise modified from time to time, the "ORIGINAL AGREEMENT");
WHEREAS, the Original Agreement was amended and restated pursuant to
the Amended and Restated Credit Agreement, dated as of May 1, 1989 (as amended,
supplemented or otherwise modified from time to time prior to the date hereof,
the "A&R AGREEMENT"), among the Company, Maxwhale Corp., the banks parties
thereto and Manufacturers Hanover Trust Company, as agent for such banks;
WHEREAS, the A&R Agreement was amended and restated pursuant to the
Second Amended and Restated Credit Agreement, dated as of December 31, 1992 (as
amended, supplemented or otherwise modified from time to time prior to the date
hereof, the "SECOND A&R AGREEMENT"), among the Company, Maxwhale Corp., the
banks parties thereto and Chemical Bank (as successor by merger to Manufacturers
Hanover Trust Company), as agent for such banks;
WHEREAS, the Second A&R Agreement was amended and restated pursuant to
the Third Amended and Restated Credit Agreement, dated as of August 1, 1994 (as
amended, supplemented or other modified from time to time prior to the date
thereof, the "EXISTING AGREEMENT"), among the Company, the banks parties thereto
and Chemical Bank, as agent for such banks;
WHEREAS, the Company has requested that the Existing Agreement be
amended to contain, INTER ALIA, (a) a revolving credit facility to finance the
working capital needs of the Company and its Subsidiaries in the ordinary course
of business, (b) a letter of credit facility to incorporate the Acquisition
Letters of Credit (as defined below) into this Agreement and (c) certain other
provisions upon the terms and subject to the conditions herein contained;
WHEREAS, each of the parties to the Existing Agreement is agreeable to
the requested amendments, but only upon the terms and subject to the conditions
set forth herein, and
<PAGE>
2
each of the parties to the Existing Agreement, for convenience of reference, has
agreed to restate the Existing Agreement as so amended; and
WHEREAS, each of the Banks and the other parties hereto are agreeable
to the terms and provisions of the Existing Agreement as amended and restated
hereby;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties to the Existing Agreement agree that the Existing
Agreement shall be and hereby is amended and restated in its entirety and the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings, unless the context otherwise requires:
"ACCEPTANCE RATE" shall mean the rate for any Acceptance financing
equal to 1 and 1/2% per annum above the discount rate, as determined from
time to time by each Bank in its sole and absolute discretion, as generally
available to other customers of such Bank for bankers' acceptances, for up
to and including 180-day tenor.
"ACCEPTANCE REIMBURSEMENT OBLIGATION" shall have the meaning set forth
in subsection 4.4(a) hereof.
"ACCEPTANCES" shall have the meaning set forth in subsection 4.1
hereof.
"ACCUMULATED FUNDING DEFICIENCY" shall have the meaning set forth in
Section 302 of ERISA.
"ACQUISITION COMMITMENT" shall mean, as to any Bank, its obligation to
participate in Acquisition Letters of Credit on behalf of the Company
pursuant hereto in an aggregate principal and/or face amount not to exceed
at any one time outstanding the amount set forth opposite such Bank's name
in Schedule I, as such amount may be reduced from time to time as provided
herein (collectively, as to all of the Banks, the "ACQUISITION
COMMITMENTS").
"ACQUISITION L/C OBLIGATIONS" shall mean, at any time, an amount equal
to the sum of (a) the aggregate then undrawn and unexpired amount of the
then outstanding Acquisition Letters of Credit and (b) the aggregate amount
of drawings under Acquisition Letters of Credit which have not then been
reimbursed pursuant to subsection 5.4.
"ACQUISITION L/C REIMBURSEMENT OBLIGATIONS" shall mean the obligation
of the Company to reimburse the Issuing Bank pursuant to subsection 5.4 for
amounts drawn under Acquisition Letters of Credit.
"ACQUISITION LETTERS OF CREDIT" shall have the meaning set forth in
subsection 5.1(a).
"AGENT" shall have the meaning set forth in the preamble hereto.
"AGGREGATE OUTSTANDING WORKING CAPITAL EXTENSIONS OF CREDIT" shall
mean, as to any Bank at any time, an amount equal to the sum of (a) the
aggregate unpaid principal amount at such time of all Working Capital Loans
of such Bank then outstanding, (b) the
<PAGE>
3
aggregate amount of all Acceptances (including, without limitation,
Existing Acceptances) made by such Bank hereunder (or pursuant to the terms
of the Existing Agreement, as the case may be) then outstanding and (c)
such Bank's Commitment Percentage of the Inventory L/C Obligations then
outstanding.
"AGREEMENT" shall mean this Fourth Amended and Restated Credit
Agreement, as amended, supplemented or otherwise modified from time to
time.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day PLUS 1% and (c) the Federal Funds Effective Rate in
effect on such day PLUS 1/2 of 1%. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the Federal Funds
Effective Rate, or both, for any reason, including the inability or failure
of the Agent to obtain sufficient quotations in accordance with the terms
thereof, the Alternate Base Rate shall be determined without regard to
clause (b) or (c), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no
longer exist. Any change in the Alternate Base Rate due to a change in the
Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective on the effective day of such change in
the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"ALTERNATE BASE RATE LOANS" shall mean Loans the rate of interest
applicable to which is based upon the Alternate Base Rate.
"APPLICABLE MARGIN" shall mean, for any day, for each Type of Working
Capital Loan or for an Acquisition Letter of Credit, as the case may be,
the rate per annum set forth below for such Working Capital Loan or
Acquisition Letter of Credit, as the case may be, opposite the Interest
Coverage Ratio in effect on such day:
Working Capital Loans
-------------------------------
Interest Alternate Base Eurodollar Acquisition
Coverage Ratio Rate Loans Loans Letters of Credit
-------------- ---------- ---------- -----------------
Interest Coverage Ratio A .00% 1.25% 1.75%
Interest Coverage Ratio B .25% 1.50% 2.00%
Interest Coverage Ratio C .50% 1.75% 2.25%
Interest Coverage Ratio D .75% 2.00% 2.50%
<PAGE>
4
For purposes of this definition, the Interest Coverage Ratio shall be
determined as of the last day of each fiscal quarter of the Company for the
period of the four fiscal quarters of the Company ending on the last day of
such fiscal quarter. The Interest Coverage Ratio as so determined shall be
deemed to be in effect from the fifth Business Day following the date of
the receipt by the Banks of the financial statements covering such fiscal
quarter (or fiscal year, in the case of the last fiscal quarter of each
fiscal year) pursuant to subsections 9.1(a) or 9.1(b), as the case may be,
until (but not including) the fifth Business Day following the delivery to
the Banks of the financial statements covering the next succeeding fiscal
quarter pursuant to subsection 9.1(a) or 9.1(b), as the case may be.
"APPLICATION" shall mean an application, in such form as the Issuing
Bank may specify from time to time, requesting the Issuing Bank to open an
Inventory Letter of Credit as specified therein.
"ASSET DISPOSITION" shall mean any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions)
of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "DISPOSITION") by the Company or any of
its Subsidiaries (including any disposition by means of merger,
consolidation or similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a Subsidiary to a
wholly-owned Subsidiary, (ii) a disposition of property or assets at fair
market value in the ordinary course of business or (iii) a disposition of
obsolete assets in the ordinary course of business.
"AVAILABLE WORKING CAPITAL COMMITMENT" shall mean, as to any Bank at
any date, an amount equal to the excess, if any of (a) such Bank's Working
Capital Commitment at such date over (b) the sum of such Bank's Aggregate
Outstanding Working Capital Extensions of Credit at such date.
"BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one MINUS the C/D Reserve Percentage
and (b) the C/D Assessment Rate.
"BENEFITTED BANK" shall have the meaning set forth in subsection 13.7
hereof.
"BORROWING BASE" shall mean, on any date of determination thereof, the
amount equal to 85% of the aggregate amount of Eligible Accounts of the
Company and its Subsidiaries. The Borrowing Base (including without
limitation, the amount of Eligible Accounts) on any date shall be
determined by the Agent in accordance with the provisions of subsection
2.1(b) by reference to the most recent Borrowing Base Certificate delivered
hereunder.
"BORROWING BASE CERTIFICATE" shall mean the certificate, substantially
in the form of Exhibit H, to be provided by the Company pursuant to
subsection 9.1(i).
<PAGE>
5
"BORROWING DATE" shall mean any Business Day specified in a notice
pursuant to subsection 2.3 as a date on which the Company requests the
Banks to make Loans hereunder.
"BUSINESS" shall have the meaning set forth in subsection 8.14(b).
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or
required by law to close.
"CAPITAL STOCK" of any person shall mean any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such person,
including any Preferred Stock, but excluding any debt securities
convertible into or exchangeable for such equity.
"CASH COLLATERAL ACCOUNT" shall mean that certain bank account within
the exclusive dominion and control of Chase, as Depositary, opened for the
benefit of the Agent and the Banks pursuant to the Cash Collateral
Agreement.
"CASH COLLATERAL AGREEMENT" shall mean the Amended and Restated Cash
Collateral Agreement, dated as of the date hereof, among the Company, the
Agent and Chase, as Depositary, in substantially the form of Exhibit C
hereto.
"C/D ASSESSMENT RATE" shall mean, for any day as applied to any
Alternate Base Rate Loan, the net annual assessment rate (rounded upward to
the nearest 1/100th of 1%) determined by Chase to be payable on such day to
the Federal Deposit Insurance Corporation or any successor ("FDIC") for
FDIC's insuring time deposits made in Dollars at offices of Chase in the
United States.
"C/D RESERVE PERCENTAGE" shall mean, for any day as applied to any
Alternate Base Rate Loan, that percentage (as expressed as a decimal) which
is in effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) (the "BOARD"), for determining
the maximum reserve requirement for a Depository Institution (as defined in
Regulation D of the Board) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"CHASE" shall mean The Chase Manhattan Bank.
"CLOSING DATE" shall mean the date upon which this Agreement is
executed and delivered by each of the initial parties hereto.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMERCIAL INVENTORY LETTER OF CREDIT" shall have the meaning set
forth in subsection 3.1.
<PAGE>
6
"COMMITMENT PERCENTAGE" shall mean, as to any Bank, the percentage set
forth opposite such Bank's name on Schedule I hereto, as the same may be
adjusted from time to time in accordance herewith.
"COMMITMENT PERIOD" shall mean the period from and including the date
hereof to but not including the Commitment Termination Date or such earlier
date on which the Working Capital Commitments shall terminate as provided
herein.
"COMMITMENT TERMINATION DATE" shall mean June 30, 1998.
"COMMONLY CONTROLLED ENTITY" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA, as amended from time to time, or is part
of a group which includes the Company and which is treated as a single
employer under Section 414 of the Code.
"COMPANY" shall have the meaning set forth in the preamble hereto.
"CONSOLIDATED CASH FLOW" shall mean, for any period, the amount set
forth for such period opposite the line-item "Income (Loss) before Income
Taxes, Equity Interest in Star Gas and Extraordinary Item" on the most
recent consolidated statement of income and retained earnings of the
Company and its Subsidiaries provided pursuant to subsections 9.1(a) or
9.1(b), as the case may be, PLUS (a) (to the extent deducted in the
calculation thereof) (i) the amount of depreciation of the capital assets
of the Company and its Subsidiaries for such period, (ii) the amount of
amortization of the Customer Lists and deferred charges of the Company and
its Subsidiaries for such period, and (iii) charges of the Company and its
Subsidiaries for such period related to corporate identity changes and
restructuring charges and (b) (whether or not deducted in the calculation
thereof) cash dividends during such period from Star Gas Corporation to the
Company and its Subsidiaries to the extent that such dividends have been
distributed to Star Gas Corporation from Star Gas Partners, L.P. and Star
Gas Propane, L.P.; PROVIDED that all amounts used in determining
"Consolidated Cash Flow" shall be determined in accordance with GAAP and
the determination of "Consolidated Cash Flow" shall be made using
"first-in/first-out" inventory valuation basis.
"CONSOLIDATED EBITDA COVERAGE RATIO" as of any date of determination
shall mean the ratio of (i) the aggregate amount of EBITDA for the period
of the most recent four consecutive fiscal quarters ending at least 45 days
prior to the date of such determination to (ii) Consolidated Interest
Expense for such period of four consecutive fiscal quarters; PROVIDED,
HOWEVER, that:
<PAGE>
7
(1) if the Company or any Subsidiary has incurred any
indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
the Consolidated EBITDA Coverage Ratio is an incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a pro forma
basis to (A) such Indebtedness as if such Indebtedness had been
incurred on the first day of such period, (B) the discharge of any
other indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, and (C) the
interest income realized by the Company and its Subsidiaries on the
proceeds of such indebtedness, to the extent not yet applied at the
date of determination, assuming such proceeds earned interest at the
Treasury Rate from the date such proceeds were received through such
date of determination;
(2) if since the beginning of such period the Company or any
Subsidiary will have made any Asset Disposition, EBITDA for such
period will be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to
EBITDA (if negative), directly attributable thereto for such period
and Consolidated Interest Expense for such period will be reduced by
an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Subsidiaries in connection with such
Asset Dispositions for such period (or, if the Capital Stock of any
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer
liable for such Indebtedness after such sale); and
(3) if since the beginning of such period the Company or any
Subsidiary (by merger or otherwise) will have made an Investment in
any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of the assets of
an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period will be calculated after giving pro forma,
effect thereto (including the incurrence of any indebtedness) as if
such Investment or acquisition occurred on the first day of such
period.
<PAGE>
8
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with
any Indebtedness incurred in connection therewith the pro forma
calculations will be determined in good faith by a Responsible Officer of
the Company; PROVIDED, HOWEVER, that such Responsible Officer shall assume
(i) the historical sales and gross profit margins associated with such
assets for any consecutive 12-month period ended prior to the date of
purchase (PROVIDED that the first month of such period will be no more than
18 months prior to such date of purchase), less estimated post-acquisition
loss of customers (not to be less than 3%) and (ii) other expenses as if
such assets had been owned by the Company since the first day of such
period. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such indebtedness will be
calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period.
"CONSOLIDATED FUNDED DEBT" shall mean, as of any date of determination
thereof, all Indebtedness (other than the Star Gas Note) (the "ORIGINAL
INDEBTEDNESS") of the Company and its Subsidiaries (a) having a stated
maturity of more than one year from the date of its incurrence, (b) which
is extendible or renewable at the option of the Company or any of its
Subsidiaries to a date which is more than one year from the date of its
incurrence or (c) which, by its terms or pursuant to the agreement under
which such Original Indebtedness is issued, may be paid with proceeds of
other Indebtedness which (i) is issued under the same instrument or
agreement as the Original Indebtedness, (ii) has similar terms to the
Original Indebtedness and (iii) has a stated maturity which is more than
one year from the date of incurrence of the Original Indebtedness. For
purposes of this definition, (x) the term "Indebtedness" shall also include
(without duplication) all guarantees by the Company or any of its
Subsidiaries of any Indebtedness which would constitute Consolidated Funded
Debt of a Person (other than the Company and its Subsidiaries) and (y)
Working Capital Borrowings and Indebtedness relating to any Letter of
Credit referred to in subsection 10.3(f) shall not be deemed Consolidated
Funded Debt. Notwithstanding anything to the contrary contained herein,
Acquisition Letters of Credit (and, without duplication, the obligations
secured thereby) shall be included in the calculation of Consolidated
Funded Debt only to the extent that the face amount thereof is in excess of
the amount then on deposit in the Cash Collateral Account.
<PAGE>
9
"CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, the total
interest expense of the Company and its Subsidiaries, determined on a
consolidated basis, including (i) interest expense attributable to
Financing Leases, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any
such Subsidiary under any guarantee of indebtedness or other obligation of
any other Person, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) Preferred Stock dividends in
respect of all Preferred Stock of Subsidiaries held by persons other than
the Company or a wholly-owned Subsidiary, (ix) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan to pay interest or fees to any person
(other than the Company) in connection with loans incurred by such plan or
trust to purchase newly issued or treasury shares of the Company (but
excluding interest expense associated with the accretion of principal on a
non-interest bearing or other discount security) and (x) to the extent not
already included in Consolidated Interest Expense, the interest expense
attributable to Indebtedness of another person that is guaranteed by the
Company or any of its Subsidiaries, less interest income (exclusive of
deferred financing fees) of the Company and its Subsidiaries determined on
a consolidated basis in accordance with GAAP; PROVIDED that Consolidated
Interest Expense shall, without limitation, exclude (i) interest payable by
the Company on account of the Star Gas Notes, to the extent that the
Company and its Subsidiaries have received cash dividends to Star Gas
Corporation from Star Gas Partners, L.P. and Star Gas Propane, L.P. during
such period in an amount equal to the amount of such interest excluded from
the calculation of "Interest Expense" pursuant to this clause (i) and (ii)
fees on account of the letters of credit issued pursuant to the Line
Letter.
"CONSOLIDATED NET INCOME" shall mean for any period the aggregate of
the net income of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP and with such
calculation being made using a "first-in/first-out" inventory valuation
basis.
"CONTINGENT OBLIGATIONS" shall have the meaning set forth in
subsection 10.3.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CUSTOMER LIST" shall mean, at any time, the names and addresses of
all customers of the Company and its Subsidiaries at such time, together
with all trade names and trademarks and all supporting documents, including
but not limited to computer discs, programs, tapes, trial balances and
carrying media.
"CUSTOMER LIST DISPOSITION" shall have the meaning set forth in
subsection 6.4(d).
"DEFAULT" shall mean any of the events specified in Section 11 hereof,
whether or not any requirement for the giving of notice or the lapse of
time or both or any other condition has been satisfied.
<PAGE>
10
"DESIGNATED DEBT" shall be the collective reference to the 11.85%,
12.17% and 12.18% Senior and Subordinated Notes of the Company, due October
1, 1998.
"DOLLARS" and "$" shall mean dollars in lawful currency of the United
States of America.
"DRAFT" shall mean a draft substantially in the form of Exhibit G
hereto or in such other form as the relevant Bank shall reasonably request.
"EBITDA" for any period shall mean Consolidated Cash Flow for such
period, PLUS (to the extent deducted in the calculation of Consolidated Net
Income used in determining such Consolidated Cash Flow) (i) Consolidated
Interest Expense for such period and (ii) consolidated income tax expense
of the Company and its Subsidiaries for such period.
"ELIGIBLE ACCOUNTS" shall mean, as to any Person at a particular date,
the total outstanding balance of Accounts (as defined in the Uniform
Commercial Code in effect in the State of New York) of such Person recorded
on the books of such Person in accordance with GAAP after giving effect to
all normal reserves (including, without limitation, bad debt reserves) in
connection therewith (a) which are bona fide, valid and legally enforceable
obligations of the account debtor in respect thereof and arise from the
actual sale and delivery of goods or rendition and acceptance of services
in the ordinary course of business to such account debtor, (b) which are
not owed by an obligor which is an affiliate or Subsidiary of such Person,
(c) which are not owed by an obligor which has taken any of the actions or
suffered any of the events of the kind described in paragraph (g) of
Section 11, (d) which are owned solely by such Person free and clear of all
liens or other rights or claims of any other Person (except in favor of the
Agent for the ratable benefit of the Banks) and (e) in which the Agent has
a perfected, first priority security interest.
"ENVIRONMENTAL LAWS" shall mean any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of the environment, as now or
may at any time hereafter be in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS" shall mean, for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
<PAGE>
11
"EURODOLLAR BASE RATE" shall mean, with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate at which Chase is offered Dollar deposits at or about
12:00 Noon, New York City time, two Working Days prior to the beginning of
such Interest Period in the interbank eurodollar market where the
eurodollar and foreign currency and exchange operations in respect of its
Eurodollar Loans are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loan to be outstanding
during such Interest Period.
"EURODOLLAR LOANS" shall mean Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"EURODOLLAR RATE" shall mean, with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula (rounded
upward to the nearest 1/100th of 1%):
EURODOLLAR BASE RATE
-----------------------------------
1.00 - Eurocurrency Reserve Requirements
"EURODOLLAR TRANCHE" shall mean the collective reference to Eurodollar
Loans the Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Eurodollar Loans
shall originally have been made on the same day).
"EVENT OF DEFAULT" shall mean any of the events specified in Section
11 hereof, provided that any requirement for the giving of notice or the
lapse of time or both has been satisfied.
"EXISTING ACCEPTANCES" shall mean such bankers' acceptances created by
the lenders parties to the Existing Agreement for the account of the
Company pursuant thereto as are outstanding and unreimbursed on the Closing
Date.
"EXISTING AGREEMENT" shall have the meaning assigned to such term in
the recitals hereto.
"EXISTING LINE LETTERS" shall mean the collective reference to all
lines of credit made by the Banks in favor of the Company which were
outstanding immediately prior to the Closing Date.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"FINANCING LEASE" shall mean (a) any lease of property, real or
personal, if the then
<PAGE>
12
present value of the minimum rental commitment thereunder should, in accordance
with GAAP applied on a basis consistent with that of the preceding year, be
capitalized on a balance sheet of the lessee, and (b) any other such lease the
obligations under which are capitalized on a consolidated balance sheet of the
Company and its Subsidiaries.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time; PROVIDED, HOWEVER,
that Star Gas Corporation and its subsidiaries shall be excluded from the
consolidated financial statements of the Company and its Subsidiaries.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"GUARANTEES" shall mean the collective reference to (a) the
Subsidiaries Guarantee and (b) each other guarantee from time to time
provided to the Agent in connection herewith, as each of the same may be
amended, supplemented or otherwise modified from time to time; each, a
"GUARANTEE".
"HEDGING OBLIGATIONS" of any person shall mean the obligations of such
person pursuant to any interest rate swap agreement, foreign currency
exchange agreement, interest rate collar agreement, option or futures
contract or other similar agreement or arrangement designed to protect such
person against changes in interest rates or foreign exchange rates.
"INDEBTEDNESS" shall mean, at a particular date, the sum (without
duplication) at such date for a Person of (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, (b) the capitalized portion of all obligations of such Person
under Financing Leases and (c) all obligations of such Person in respect of
letters of credit, acceptances, or similar obligations issued or created
for the account of such Person.
"INDEMNIFIED LIABILITIES" shall have the meaning set forth in
subsection 13.5 hereof.
"INSOLVENCY" shall mean, with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of such term as
used in Section 4245 of ERISA.
"INSOLVENT" shall mean pertaining to a condition of insolvency.
"INTEREST COVERAGE RATIO" shall mean, for any period, the ratio of (x)
EBITDA for such period, to (y) Consolidated Interest Expense for such
period.
"INTEREST COVERAGE RATIO A" shall mean, for any period of
determination, that the Interest Coverage Ratio is greater than or equal to
2.75 to 1.00.
"INTEREST COVERAGE RATIO B" shall mean, for any period of
determination, that the Interest Coverage Ratio is greater than or equal to
2.00 to 1.00 but less than 2.75 to 1.00.
<PAGE>
13
"INTEREST COVERAGE RATIO C" shall mean, for any period of
determination, that the Interest Coverage Ratio is greater than or equal to
1.75 to 1.00 but less than 2.00 to 1.00.
"INTEREST COVERAGE RATIO D" shall mean, for any period of
determination, that the Interest Coverage Ratio is less than 1.75 to 1.00.
"INTEREST PAYMENT DATE" shall mean, (a) as to any Alternate Base Rate
Loan, the last day of each calendar month to occur while such Loan is
outstanding and (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period and (c) as to
any Eurodollar Loan having an Interest Period longer than three months,
each day which is three months or a whole multiple thereof after the first
day of such Interest Period and the last day of such Interest Period.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan,
initially, the period commencing on the date of borrowing or conversion, as
the case may be, with respect to such Eurodollar Loan and ending one, two,
three or six months thereafter, as selected by the Company in its notice of
borrowing as provided in subsection 2.3 or its notice of conversion as
provided in subsection 6.8, as the case may be, and thereafter, each period
commencing on the last day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Company, by irrevocable notice to the Agent
not less than two (2) Working Days prior to the last day of the then
current Interest Period with respect to such Eurodollar Loan, PROVIDED
THAT, all of the foregoing provisions relating to the Interest Period are
subject to the following:
(a) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day which is not a Working Day, that Interest
Period shall be extended to the next succeeding Working Day unless the
result of such extension would be to carry such Interest Period into
another calendar month in which event such Interest Period shall end
on the immediately preceding Working Day and, notwithstanding the
provisions of subsection 6.7 hereof, if such Interest Period is so
extended, then such Loan shall bear interest during the period from
the last day of such Interest Period to such succeeding Working Day as
if it were a Alternate Base Rate Loan;
(b) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Working Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Working Day
of a calendar month;
(c) if any Interest Period includes a day on which an
installment of principal on a Eurodollar Loan is due and payable but
does not begin or end on such date, then the portion of the Eurodollar
Loan then maturing shall have an Interest Period ending on such
payment date; and
(d) any Interest Period that would otherwise extend beyond the
Commitment Termination Date shall end on the Commitment Termination
Date or such date of final payment.
<PAGE>
14
"INVENTORY L/C COMMITMENT" shall mean $15,000,000.
"INVENTORY L/C OBLIGATIONS" shall mean, at any time, an amount equal
to the sum of (a) the aggregate then undrawn and unexpired amount of the
then outstanding Inventory Letters of Credit and (b) the aggregate amount
of drawings under Inventory Letters of Credit which have not then been
reimbursed pursuant to subsection 3.5.
"INVENTORY LETTERS OF CREDIT" shall have the meaning set forth in
subsection 3.1(a).
"INVENTORY REIMBURSEMENT OBLIGATION" shall mean the obligation of the
Company to reimburse the Issuing Bank pursuant to subsection 3.5 for
amounts drawn under Inventory Letters of Credit.
"INVESTMENT" in any Person shall mean any loan or advance to, any
guarantee of, any acquisition of any Capital Stock, equity interest,
obligation or other security of, or capital contribution or other
investment in, such Person; PROVIDED however, that advances to customers
and suppliers in the ordinary course of business shall be deemed not to be
"Investments".
"ISSUING BANK" shall mean Chase, in its capacity as issuer of any
Inventory Letter of Credit and/or Acquisition Letter of Credit, as the
context may require.
"L/C FEE PAYMENT DATE" shall mean the last day of each March, June,
September and December.
"L/C OBLIGATION" shall mean an Inventory L/C Obligation or an
Acquisition L/C Obligation, as the context shall require; collectively, the
"L/C OBLIGATIONS".
"L/C PARTICIPANTS" shall mean, with respect to any Inventory Letter of
Credit or Acquisition Letter of Credit, the collective reference to all the
Banks other than the Issuing Bank with respect thereto.
"L/C REIMBURSEMENT OBLIGATIONS" shall be the collective reference to
the Inventory Reimbursement Obligations and the Acquisition L/C
Reimbursement Obligations.
"LETTERS OF CREDIT" shall mean the collective reference to the
Inventory Letters of Credit, the Acquisition Letters of Credit and all
letters of credit issued by any Bank for the account of the Company which
are permitted by subsection 10.3(f) hereof.
"LINE LETTER" shall mean that certain letter in the form of Exhibit J
hereto, dated as of the date hereof, executed by each of the Banks and the
Company and establishing a $15,000,000 line of credit in favor of the
Company to be used exclusively to open standby Letters of Credit (to the
extent permitted by this Agreement) to support insurance requirements of
the Company and its Subsidiaries, as amended, supplemented, superseded or
otherwise modified from time to time.
"LOAN" shall mean a Working Capital Loan.
<PAGE>
15
"LOAN DOCUMENTS" shall mean the collective reference to this
Agreement, the Notes, the Security Documents, the Drafts and the
Applications.
"MATERIAL ADVERSE EFFECT" shall mean, a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company to perform its obligations under this Agreement of
any of the Notes or any of the other Loan Documents or (c) the validity or
enforceability of this Agreement or any of the Notes or any of the other
Loan Documents or (d) the rights and remedies of the Agent or the Banks
hereunder or thereunder.
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, material or wastes, defined
or regulated as such in or under any Environmental Law, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"MULTIEMPLOYER PLAN" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" shall mean, with respect to any issuance or
creation of any Indebtedness or any other financing or any sale, lease or
other disposition of assets or issuance of capital stock (other than
pursuant to the exercise of employee or director stock options), (a) the
cash proceeds (including, without limitation, all cash proceeds received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received) received by the
Company or any Subsidiary of the Company, MINUS, (b) brokerage commissions
and other fees and expenses (including fees and expenses of counsel and
investment bankers) related to such financing, sale, lease or other
disposition or issuance, and MINUS (c) in the case of any such issuance or
creation of any Indebtedness or financing, sale, lease or other disposition
of assets, (i) provisions for all taxes payable as a result thereof and in
connection therewith, (ii) payments made to retire Indebtedness secured by
or otherwise relating directly to such assets being sold or otherwise
disposed of or the assets which are securing such issuance, creation or
financing where payment of such Indebtedness is required in connection
therewith and (iii) appropriate amounts to be provided by the Company or
any Subsidiary of the Company, as the case may be, as a reserve, in
accordance with GAAP consistently applied with those applied in the
preparation of the financial statements referred to in subsection 8.8,
against any liabilities associated with such assets being sold or otherwise
disposed of and retained by the Company or any Subsidiary of the Company,
as the case may be, after such sale, lease or other disposition of such
assets.
"NOTES" shall mean the Working Capital Notes.
"ORIGINAL AGREEMENT" shall have the meaning assigned to such term in
the recitals hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
<PAGE>
16
pursuant to Subtitle A of Title IV of ERISA.
"PARTICIPANT" shall have the meaning set forth in subsection 13.6(b).
"PERSON" shall mean any individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, government authority or other entity of whatever nature.
"PLAN" shall mean any "pension plan" (as defined in Section 3(2) of
ERISA) and in respect of which the Company or a Commonly Controlled Entity
is an "employer" as defined in Section 3(5) of ERISA.
"PREFERRED STOCK" as applied to the Capital Stock of any corporation,
shall mean Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary liquidation or dissolution of such corporation,
over shares of Capital Stock of any other class of such corporation;
PROVIDED, HOWEVER, that Preferred Stock will not include the Company's
Class B Common Stock.
"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by the Agent as its prime rate in effect at its
principal office in New York City (each change in the Prime Rate to be
effective on the date such change is publicly announced).
"PROHIBITED TRANSACTION" shall have the meaning set forth in Section
406 of ERISA or Section 4975 of the Code.
"PROPERTIES" shall have the meaning set forth in subsection 8.14(a).
"PURCHASING BANKS" shall have the meaning set forth in subsection
13.6(c).
"REGISTER" shall have the meaning set forth in subsection 13.6(d).
"REORGANIZATION" shall mean, with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of
such term as used in Section 4241 of ERISA.
"REPORTABLE EVENT" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"REQUEST FOR ACCEPTANCES" shall mean the form of Request for
Acceptances, substantially in the form of Exhibit F hereto, with
appropriate insertions, or in such other form as the relevant Bank shall
reasonably request, duly executed by the Company.
"REQUIRED BANKS" shall mean, at a particular time, Banks whose
Commitment Percentages (or, during such time as no Commitments are then in
effect, Loans) aggregate at least 71%.
<PAGE>
17
"REQUIREMENT OF LAW" shall mean, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"RESERVE DETERMINATION" shall have the meaning set forth in subsection
4.5(a) hereof.
"SECURITY AGREEMENTS" shall mean the collective reference to each of
the Fourth Amended and Restated Company Security Agreement, substantially
in the form of Exhibit B hereto and the Fourth Amended and Restated
Subsidiary Security Agreement, substantially in the form of Exhibit E
hereto, each as the same may be amended, supplemented or otherwise modified
from time to time; each, a "SECURITY AGREEMENT".
"SECURITY DOCUMENTS" shall mean the Security Agreements, the Cash
Collateral Agreement and the Guarantees.
"SINGLE EMPLOYER PLAN" shall mean any Plan which is not a
Multiemployer Plan.
"STANDBY INVENTORY LETTER OF CREDIT" shall have the meaning set forth
in subsection 3.1.
"STAR GAS NOTE" shall mean the promissory note, dated as of December
20, 1995, issued by the Company in favor of Star Gas Corporation, in an
original principal amount equal to $12,000,000.
"SUBORDINATED DEBT" shall mean (i) all Indebtedness of the Company
existing on the date hereof which is set forth on Schedule III hereto, (ii)
all Indebtedness of the Company containing subordination provisions
substantially similar to those set forth in the Note Agreement, dated as of
September 1, 1988, (as amended through the date hereof) relating to the
subordinated portion of the Designated Debt and (iii) all other
Indebtedness of the Company which shall otherwise be subordinated in right
of payment, in a manner satisfactory to the Required Banks.
"SUBSIDIARIES GUARANTEE" shall mean the Fourth Amended and Restated
Subsidiary Guarantee, substantially in the form of Exhibit D hereto, as the
same may be amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY" shall mean any corporation, partnership or other entity
more than 50% of whose issued and outstanding voting equity interests
(except directors' qualifying shares, if required by law) at the time is
owned by the company, directly or through one or more Subsidiaries,
including, without limitation, each of the Subsidiaries listed on Schedule
II attached hereto; PROVIDED that in no event shall Star Gas Corporation,
Star Gas Partners, L.P., Star Gas Propane, L.P. or any of their respective
Subsidiaries be deemed to be Subsidiaries of the Company.
"TAXES" shall have the meaning set forth in subsection 6.16(a).
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18
"THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board of Governors of the Federal Reserve
System through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of such
Board, be published in Federal Reserve Statistical Release H.15(519) during
the week following such day), or, if such rate shall not be so reported on
such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money
center banks in New York City received at approximately 10:00 A.M., New
York City time, on such day (or, if such day shall not be a Business Day,
on the next preceding Business Day) by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it.
"TRANSFEREE" shall have the meaning set forth in subsection 13.6(f).
"TREASURY RATE" as of any date of determination shall mean the yield
to maturity at the time of computation of United States Treasury securities
with a constant maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has become publicly
available at least two business days prior to such date of determination
(or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) of one year.
"TYPE" shall mean, as to any Loan, its nature as an Alternate Base
Rate Loan or a Eurodollar Loan.
"UNIFORM CUSTOMS" shall mean the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"WORKING CAPITAL BORROWINGS" shall mean, on the date of determination,
all Indebtedness of the Company and its Subsidiaries, on a consolidated
basis, incurred to finance current assets; PROVIDED that, in any event, the
excess of current liabilities over current assets (determined in accordance
with GAAP) shall not be deemed Working Capital Borrowings.
"WORKING CAPITAL COMMITMENT" shall mean, as to any Bank, its
obligation to make Working Capital Loans to the Company, issue Acceptances
on behalf of the Company and issue or participate in Inventory Letters of
Credit on behalf of the Company pursuant hereto in an aggregate principal
and/or face amount not to exceed at any one time outstanding the amount set
forth opposite such Bank's name in Schedule I, as such amount may be
reduced from time to time as provided herein (collectively, as to all of
the Banks, the "WORKING CAPITAL COMMITMENTS").
"WORKING CAPITAL LOANS" shall have the meaning set forth in subsection 2.1.
"WORKING CAPITAL NOTE" shall have the meaning set forth in subsection 2.2.
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19
"WORKING DAY" shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in London and in
New York.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Company and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF WORKING CAPITAL
LOANS
2.1 WORKING CAPITAL LOAN COMMITMENTS. (a) Subject to the terms and
conditions of this Agreement, each Bank severally agrees to make loans (the
"WORKING CAPITAL LOANS") to the Company at any time and from time to time during
the Commitment Period, in an aggregate principal amount at any one time
outstanding not to exceed such Bank's Working Capital Commitment; PROVIDED that
no Bank shall have an obligation to make any Working Capital Loan if, after
giving effect to the making (and the use of proceeds) thereof, (x) the Available
Working Capital Commitment of such Bank would be less than zero or (y) the
Aggregate Outstanding Working Capital Extensions of Credit would exceed such
Bank's Commitment Percentage of the Borrowing Base. The Working Capital Loans
may from time to time be either (a) Alternate Base Rate Loans, (b) Eurodollar
Loans or (c) a combination thereof, as determined by the Company and notified to
the Agent in accordance with subsection 2.3 and 6.8 hereof; PROVIDED that no
Working Capital Loan shall be made as a Eurodollar Loan after the day that is
one month prior to the Commitment Termination Date. The Company may use the
Working Capital Commitment by borrowing, prepaying the Working Capital Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions of this Agreement.
(b) The Company shall deliver a Borrowing Base Certificate to the
Agent sufficiently in advance of the Closing Date to permit the Agent to
determine the Borrowing Base to be in effect on the Closing Date and,
thereafter, shall deliver Borrowing Base Certificates and such other materials
to the Agent in accordance with the provisions of subsection 9.1(i). Each such
Borrowing Base Certificate shall certify the Borrowing Base in effect on the
last day of the applicable reporting period. Promptly following its receipt of
each Borrowing Base Certificate, the Agent shall determine the then current
Borrowing Base using the information contained in such Borrowing Base
Certificate and shall notify the Company and each Bank of the Borrowing
<PAGE>
20
Base so determined. Each determination of the Borrowing Base by the Agent shall
remain in effect until notice of a redetermined Borrowing Base shall have been
given by the Agent in accordance with the provisions of this subsection 2.1(b).
2.2 WORKING CAPITAL NOTES. (a) The Working Capital Loans made by
each Bank shall be evidenced by an amended and restated promissory note of the
Company, substantially in the form of Exhibit A, with appropriate insertions as
to payee, date and principal amount (a "WORKING CAPITAL NOTE"), payable to the
order of such Bank and in a principal amount equal to the lesser of (a) the
amount of the initial Working Capital Commitment of such Bank and (b) the
aggregate unpaid principal amount of all Working Capital Loans made by such
Bank. Each Bank is hereby authorized to record the date, Type and amount of
each Working Capital Loan made by such Bank, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and amount of
each payment or prepayment of principal thereof and, in the case of Eurodollar
Loans, the length of each Interest Period with respect thereto, on the schedule
annexed to and constituting a part of its Working Capital Note, and any such
recordation shall constitute PRIMA FACIE evidence of the accuracy of the
information so recorded. Each Working Capital Note shall (x) be dated the
Closing Date, (y) be stated to mature on the Commitment Termination Date and (z)
provide for the payment of interest in accordance with subsection 6.6.
(b) Each Bank, which is a party to the Existing Agreement, shall, on
or before the Closing Date, deliver to the Agent the notes held by such Bank
pursuant to the Existing Agreement and the Existing Line Letters, and, on the
Closing Date, the Agent shall mark each such note so delivered to it
"superseded" and turn over all such notes to the Company. Amounts outstanding
pursuant to the terms of the Existing Agreement shall on the Closing Date be
deemed to be Working Capital Loans, Inventory Letters of Credit or Acceptances
(as appropriate) hereunder and reduce the Available Working Capital Commitment
accordingly. The Working Capital Notes delivered pursuant to the terms hereof
shall be delivered in substitution and replacement for, but not in payment of,
such superseded notes referred to in the immediately preceding sentence.
Amounts outstanding under the Existing Line Letters (including, without
limitation, any undrawn letters of credit issued pursuant thereto) shall on the
Closing Date be deemed to be outstanding under the Line Letters and the Company
hereby acknowledges and agrees that as of the Closing Date the Existing Line
Letters shall be terminated and have no further force and effect.
2.3 PROCEDURE FOR BORROWING WORKING CAPITAL LOANS. The Company may
borrow under the Working Capital Commitments on any Working Day, if all or any
part of the requested Working Capital Loans are to be initially Eurodollar
Loans, or on any Business Day, otherwise, PROVIDED that the Company shall give
the Agent irrevocable notice (which notice must be received by the Agent prior
to 11:00 A.M., New York City time, (a) two Working Days prior to the requested
Borrowing Date, if all or any part of the requested Working Capital Loans are to
be initially Eurodollar Loans and (b) on the same Business Day as the requested
Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, Alternate Base Rate Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing pursuant to the Working Capital
Commitments shall be in an aggregate principal amount of the lesser of (a)
$500,000 or any whole multiple of $100,000 in excess thereof, in the case of
Alternate Base Rate Loans or $1,000,000 or any whole multiple of
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21
$100,000 in excess thereof, in the case of Eurodollar Loans or (b) the then
Available Working Capital Commitment. Upon receipt of any such notice from the
Company, the Agent shall promptly notify each Bank thereof. Each Bank will make
the amount of its pro rata share of each borrowing available to the Agent for
the account of the Company at the office of the Agent specified in subsection
13.2 prior to 3:00 P.M., New York City time, on the Borrowing Date requested by
the Company in funds immediately available to the Agent. Such borrowing will
then be made available to the Company by the Agent crediting the account of the
Company on the books of such office with the aggregate of the amounts made
available to the Agent by the Bank and in like funds as received by the Agent.
2.4 USE OF PROCEEDS OF WORKING CAPITAL LOANS. The proceeds of
Working Capital Loans shall be used to finance working capital requirements of
the Company and its Subsidiaries in accordance with the terms of this Agreement.
SECTION 3. TERMS OF INVENTORY LETTERS OF CREDIT
SUB-FACILITY
3.1 INVENTORY L/C COMMITMENT. (a) Subject to the terms and
conditions hereof, the Issuing Bank, in reliance on the agreements of the other
Banks set forth in subsection 3.4(a), agrees to issue letters of credit
("INVENTORY LETTERS OF CREDIT") for the account of the Company on any Business
Day during the Commitment Period in such form as may be approved from time to
time by the Issuing Bank; PROVIDED that the Issuing Bank shall have no
obligation to issue any Inventory Letter of Credit if, after giving effect to
such issuance:
(i) the sum of (A) the Inventory L/C Obligations and (B) the
Acceptance Reimbursement Obligations would exceed the Inventory L/C Commitment;
(ii) the Available Working Capital Commitment of such Bank would be
less than zero; or
(iii) the Aggregate Outstanding Working Capital Extensions of Credit
of such Bank would exceed such Bank's Commitment Percentage of the Borrowing
Base.
Each Inventory Letter of Credit shall (i) (A) in the case of a Standby Inventory
Letter of Credit (as defined below), have an expiry date no later than 360 days
from the date of issuance thereof or, if earlier, the Commitment Termination
Date, and (B) in the case of a Commercial Inventory Letter of Credit (as defined
below), have an expiry date no later than 180 days from the date of issuance
thereof, or if earlier, the Commitment Termination Date, (ii) be denominated in
Dollars, (iii) be in a minimum face amount of $100,000 and (iv) be either (x) a
standby letter of credit issued to support obligations of the Company with
respect to inventory purchases (a "STANDBY INVENTORY LETTER OF CREDIT") or (y) a
documentary letter of credit in respect of the purchase of inventory by the
Company (a "COMMERCIAL INVENTORY LETTER OF CREDIT").
(b) Each Inventory Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Bank shall not at any time be obligated to issue any
Inventory
<PAGE>
22
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 PROCEDURE FOR ISSUANCE OF INVENTORY LETTERS OF CREDIT. The
Company may from time to time request that the Issuing Bank issue an Inventory
Letter of Credit by delivering to the Issuing Bank at its address for notices
specified herein an Application therefor, completed to the satisfaction of the
Issuing Bank, and such other certificates, documents and other papers and
information as the Issuing Bank may request. Upon receipt of any Application,
the Issuing Bank will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Inventory
Letter of Credit requested thereby (but in no event shall the Issuing Bank be
required to issue any Inventory Letter of Credit earlier than three Business
Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Inventory Letter of Credit to the beneficiary
thereof or as otherwise may be agreed by the Issuing Bank and the Company. The
Issuing Bank shall furnish a copy of such Inventory Letter of Credit to the
Company promptly following the issuance thereof.
3.3 FEES, COMMISSIONS AND OTHER CHARGES.
(a) The Company shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit commission with
respect to the undrawn face amount of each Standby Inventory Letter of Credit,
computed for the period from the date of such payment to the date upon which the
next such payment is due hereunder, in an amount equal to the Applicable Margin
then in effect for Working Capital Loans which bear interest at a rate based
upon the Eurodollar Rate. Such commissions shall be payable in advance on the
date of issuance of each Standby Inventory Letter of Credit and on each L/C Fee
Payment Date to occur thereafter and shall be nonrefundable.
(b) The Company shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a fronting fee with respect to each
Commercial Inventory Letter of Credit in an amount equal to 1/4 of 1% of the
face amount of such Commercial Inventory Letter of Credit. Such fronting fee
shall be payable in advance on the date of issuance of such Commercial Inventory
Letter of Credit and shall be nonrefundable.
(c) In addition to the foregoing fees and commissions, the Company
shall pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in issuing, effecting
payment under, amending or otherwise administering any Inventory Letter of
Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the L/C Participants all fees and commissions
received by the Agent for their respective accounts pursuant to this subsection.
3.4 INVENTORY L/C PARTICIPATIONS. (a) The Issuing Bank irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Bank to issue Inventory Letters of Credit hereunder, each L/C
Participant irrevocably agrees to accept and purchase and hereby accepts and
purchases from the Issuing Bank, on the terms and conditions
<PAGE>
23
hereinafter stated, for such L/C Participant's own account and risk an undivided
interest equal to such L/C Participant's Commitment Percentage in the Issuing
Bank's obligations and rights under each Inventory Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Bank thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Bank that, if a draft is paid under any Inventory Letter of Credit for which the
Issuing Bank is not reimbursed in full by the Company in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon
demand at the Issuing Bank's address for notices specified herein an amount
equal to such L/C Participant's Commitment Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed. The Agent agrees to
provide to each L/C Participant a copy of each Inventory Letter of Credit issued
pursuant to the terms hereof and a copy of any draft paid under any such
Inventory Letter of Credit.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Inventory Letter of
Credit is paid to the Issuing Bank within three Business Days after the date
such payment is due, such L/C Participant shall pay to the Issuing Bank on
demand an amount equal to the product of (i) such amount, TIMES (ii) the daily
average Federal Funds Effective Rate during the period from and including the
date such payment is required to the date on which such payment is immediately
available to the Issuing Bank, TIMES (iii) a fraction the numerator of which is
the number of days that elapse during such period and the denominator of which
is 360. If any such amount required to be paid by any L/C Participant pursuant
to subsection 3.4(a) is not in fact made available to the Issuing Bank by such
L/C Participant within three Business Days after the date such payment is due,
the Issuing Bank shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum equal to the rate then payable on Working Capital Loans which
bear interest at a rate based upon the Alternate Base Rate. A certificate of
the Issuing Bank submitted to any L/C Participant with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Issuing Bank has made payment
under any Inventory Letter of Credit and has received from any L/C Participant
its PRO RATA share of such payment in accordance with subsection 3.4(a), the
Issuing Bank receives any payment related to such Inventory Letter of Credit
(whether directly from the Company or otherwise, including proceeds of
collateral applied thereto by the Issuing Bank), or any payment of interest on
account thereof, the Issuing Bank will distribute to such L/C Participant its
PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such
payment received by the Issuing Bank shall be required to be returned by the
Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion
thereof previously distributed by the Issuing Bank to it.
3.5 INVENTORY REIMBURSEMENT OBLIGATION OF THE COMPANY. The Company
agrees to reimburse the Issuing Bank on each date on which the Issuing Bank
notifies the Company of the date and amount of a draft presented under any
Inventory Letter of Credit and paid by the Issuing Bank for the amount of (a)
such draft so paid and (b) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Bank in connection with such payment. Each such payment
shall be made to the Issuing Bank at its address for notices specified herein in
lawful money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the Company
under this subsection from the date such amounts become payable (whether at
stated maturity, by acceleration or otherwise)
<PAGE>
24
until payment in full at the rate which would be payable on any overdue Working
Capital Loans which bear interest at a rate based upon the Alternate Base Rate.
Each drawing under any Inventory Letter of Credit shall constitute a request by
the Company to the Agent for a borrowing pursuant to subsection 2.1 of Alternate
Base Rate Loans in the amount of such drawing. The Borrowing Date with respect
to such borrowing shall be the date of such drawing.
3.6 OBLIGATIONS ABSOLUTE. The Company's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any set-off, counterclaim or defense to payment which the
Company may have or have had against the Issuing Bank or any beneficiary of an
Inventory Letter of Credit. The Company also agrees with the Issuing Bank that
the Issuing Bank shall not be responsible for, and the Company's Inventory
Reimbursement Obligations under subsection 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Company and any
beneficiary of any Inventory Letter of Credit or any other party to which such
Inventory Letter of Credit may be transferred or any claims whatsoever of the
Company against any beneficiary of such Inventory Letter of Credit or any such
transferee. The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Inventory Letter of Credit,
except for errors or omissions caused by the Issuing Bank's gross negligence or
willful misconduct. The Company agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Inventory Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards or care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Company and shall not result in any liability of the Issuing Bank to the
Company.
3.7 INVENTORY LETTER OF CREDIT PAYMENTS. If any draft shall be
presented for payment under any Inventory Letter of Credit, the Issuing Bank
shall promptly notify the Company of the date and amount thereof. The
responsibility of the Issuing Bank to the Company in connection with any draft
presented for payment under any Inventory Letter of Credit shall, in addition to
any payment obligation expressly provided for in such Inventory Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Inventory Letter of Credit in connection with such
presentment are in conformity with such Inventory Letter of Credit.
3.8 APPLICATION. To the extent that any provision of any Application
related to any Inventory Letter of Credit is inconsistent with the provisions of
this Section 3, the provisions of this Section 3 shall apply.
<PAGE>
25
SECTION 4. AMOUNT AND TERMS OF ACCEPTANCE
SUB-FACILITY
4.1 ACCEPTANCE COMMITMENTS. Subject to the terms and conditions
hereof, each Bank severally, and not jointly, agrees to create acceptances (the
"ACCEPTANCES"), in respect of Drafts drawn on such Bank by the Company and
discounted by such Bank for the account of the Company from time to time during
the Commitment Period; PROVIDED that concurrently therewith, the Company
requests that such Bank discount such Draft pursuant to subsection 4.3; and
PROVIDED, FURTHER such Bank shall have no obligation to create any acceptance
if, after giving effect to such creation (and the use of the proceeds thereof):
(i) the sum of (A) the Acceptance Reimbursement Obligations and (B)
the Inventory L/C Obligations would exceed the Inventory L/C Commitment;
(ii) the Available Working Capital Commitment of such Bank would be
less than zero; or
(iii) the Aggregate Outstanding Working Capital Extensions of Credit
of such Bank would exceed such Bank's Commitment Percentage of the Borrowing
Base.
The Company may utilize the Working Capital Commitments in this manner by
drawing Drafts on each of the Banks and presenting such Drafts for acceptance
pursuant to subsection 4.3, paying its obligations with respect thereto pursuant
to subsection 4.4, and again drawing Drafts on each of the Banks and presenting
them for acceptance, all in accordance with the terms and conditions of this
Section 4.
4.2 CREATION OF ACCEPTANCES. (a) The Company may request the
creation of Acceptances hereunder by submitting to each Bank at its office
specified in Schedule I hereto at least two Business Days prior to the requested
date of acceptance, (i) a Request for Acceptances, with a copy to the Agent,
completed in a manner in form and substance satisfactory to such Bank and
specifying, among other things, the date (which must be a Business Day),
maturity and amount of the Draft to be accepted, (ii) to the extent not
previously supplied to such Bank in accordance with subsection 4.6, a Draft to
be drawn on such Bank, appropriately completed in accordance with this
subsection 4.2 and (iii) such other certificates, documents and other papers and
information as such Bank may reasonably request. Notwithstanding the foregoing,
the Company shall not make a Request for Acceptances or submit any Drafts for
payment to any Bank hereunder unless (y) the Company shall have simultaneously
provided to each other Bank a Request for Acceptances or a Draft, as the case
may be, which has a maturity date identical to that provided to each other Bank
and an undiscounted face amount equal to such Bank's Commitment Percentage of
all Acceptances requested or drawn upon at such time and (z) the undiscounted
face amount of all Acceptances requested or drawn upon at such time is the
lesser of (i) $250,000 or any greater amount which is a whole multiple of
$100,000 in excess thereof or (ii) the then Available Working Capital
Commitment.
(b) Each Draft submitted by the Company for acceptance hereunder
shall be denominated in Dollars, shall be dated the date specified in the
Request for Acceptances with respect thereto and shall be stated to mature on a
Business Day which is 30, 60, 90 or 180 days after the date thereof and, in any
event, not more than 180 days after the anticipated date of
<PAGE>
26
shipment specified in the relevant Request for Acceptances. No Acceptance
created hereunder shall (i) mature after the date which is 30 days prior to the
Commitment Termination Date, (ii) be created more than 30 days after the date of
any shipments of goods to which such Acceptance relates, (iii) have a tenor in
excess of the period of time which is usual and reasonably necessary to finance
transactions of a similar character, (iv) be in a undiscounted face amount of
less than $200,000 or (v) be in a face amount which, when taken together with
all other Acceptances and other financings relating to the shipment of goods to
which such Acceptance relates, exceeds the fair market value of such shipment.
(c) Subject to subsection 4.2(d), not later than the close of
business at its office specified in Schedule I hereto on the Business Day
specified in a Request for Acceptances, and upon fulfillment of the applicable
conditions set forth in Section 7, each Bank will, in accordance with such
Request for Acceptances, (i) complete the date, amount and maturity of each
Draft presented for acceptance (to the extent not completed by the Company),
(ii) accept such Drafts and (iii) upon such acceptance, discount such
Acceptances in accordance with subsection 4.3.
(d) The acceptance and discounting of Drafts by any Bank hereunder
shall at all times be in the sole and absolute discretion of such Bank and no
Bank shall be obligated to accept or discount a Draft unless all Banks have
agreed to accept and discount their corresponding Drafts in accordance herewith.
4.3 DISCOUNT OF ACCEPTANCES. Each of the Banks severally agrees, on
the terms and conditions of this Agreement, that on any date on which it creates
an Acceptance hereunder, such Bank will discount such Acceptance at the
Acceptance Rate, by making available to the Company an amount in immediately
available funds equal to the face amount of each Acceptance created by such Bank
on such date less such discount and notify the Agent that such Draft has been
accepted and discounted by such Bank. Each Bank will then make the discounted
amount of such Acceptance available to the Agent for the account of the Company
at the office of the Agent specified in subsection 13.2 prior to 2:00 P.M., New
York City time, on the Business Day specified in the relevant Request for
Acceptances in funds immediately available to the Agent. Such proceeds will
then be made available to the Company by the Agent crediting the account of the
Company on the books of such office with the aggregate of the amounts made
available to the Agent by the Bank and in like funds as received by the Agent.
4.4 ACCEPTANCE REIMBURSEMENT OBLIGATIONS. (a) The Company shall be
obligated, and hereby unconditionally agrees to pay to each Bank, the face
amount of each Acceptance created by such Bank hereunder on the maturity
thereof, or such earlier date on which the obligations of the Company under this
Agreement shall become or shall have been declared due and payable pursuant to
the terms and conditions of this Agreement (the obligation of the Company under
this subsection 4.4 with respect to an Acceptance being an "ACCEPTANCE
REIMBURSEMENT OBLIGATION"). Interest shall accrue on any amount of an
Acceptance Reimbursement Obligation not paid when due (whether by scheduled
maturity, mandatory prepayment, acceleration or otherwise) from the date such
amount becomes due until paid in full at the rate applicable to overdue Working
Capital Loans bearing interest at a rate based upon the Alternate Base Rate
(before as well as after judgment). Such interest shall be payable by the
Company on demand by the Agent.
(b) The Company shall be obligated, and hereby unconditionally
agrees, to pay to
<PAGE>
27
each of the Banks, for its own account, the face amount of each Existing
Acceptance on the maturity date thereof, or such earlier date on which the
obligations of the Company under this Agreement shall become or shall have been
declared due and payable. For purposes hereof, the obligation of the Company to
make such payments shall be deemed an Acceptance Reimbursement Obligation.
4.5 MANDATORY PREPAYMENT. (a) In the event that (i) there is a
determination made by any regulatory body or instrumentality thereof (including,
without limitation, any Federal Reserve Bank or any bank examiner), or there is
a change in, or change in interpretation of, any applicable law, rule or
regulation (such determination or such change, a "RESERVE DETERMINATION"), in
either case to the effect that any bankers' acceptance created hereunder or in
connection with a substantially similar facility (whether or not the Company or
any Bank is directly involved as parties) will be ineligible for reserve-free
treatment (or if already discounted, should have been ineligible for
reserve-free treatment) under Federal Reserve rules or regulations, and as a
result any Bank is required to maintain, or determines as a matter of prudent
banking practice that it is appropriate for it to maintain, additional reserves,
or (ii) any restriction is imposed on any Bank (including, without limitation,
any change in acceptance limits imposed on any Bank) which would prevent such
Bank from creating bankers' acceptances or otherwise performing its obligations
in respect of the Acceptances, then, with the consent of the Banks, the Agent
may, or upon the direction of the Banks, the Agent shall, by notice to the
Company in accordance with subsection 13.2, demand prepayment of all outstanding
Acceptances, and the Banks shall have no further obligation to accept or
discount Drafts hereunder. The Company agrees that it shall, within two
Business Days of its receipt of a notice of mandatory prepayment of the
Acceptances, prepay all Acceptance Reimbursement Obligations in accordance with
the provisions of subsection 4.5(c) hereof.
(b) The Company agrees to prepay the amount of each Acceptance
Reimbursement Obligation prior to its stated maturity from the proceeds received
by it upon completion of the underlying transaction covered by the Acceptance or
Acceptances giving rise to such Acceptance Reimbursement Obligation to the
extent from time to time required by the Board of Governors of the Federal
Reserve System.
(c) Any prepayment of any Acceptance Reimbursement Obligation made
pursuant hereto shall be made to the Bank which created the underlying
Acceptance and shall be in an amount equal to the face amount of such Acceptance
MINUS a prepayment discount calculated by such Bank in accordance with its
customary practice for similar Acceptances and communicated to the Company;
PROVIDED that, in the event that the Company fails to make such prepayment as
provided in this subsection 4.5(c), the Acceptance Reimbursement Obligation with
respect to each Acceptance then outstanding shall be prepaid by a Working
Capital Loan under the Working Capital Loan Commitment made without further
request by the Company and pursuant to this subsection on the Business Day on
which such prepayment was due in a principal amount equal to the face amount of
such Acceptance and subject to the terms and conditions hereof applicable to
Working Capital Loans.
(d) The Company shall prepay all Acceptance Reimbursement Obligations
in accordance with subsection 4.5(c) to the extent necessary to satisfy
subsection 6.5 hereof.
(e) Notwithstanding the foregoing, any Acceptance Reimbursement
Obligation
<PAGE>
28
which is prepaid pursuant to this subsection 4.5 shall be deemed to be
outstanding, and shall be deemed to reduce the Available Working Capital
Commitment of each Bank so prepaid, until such time as the corresponding
Acceptance Reimbursement Obligations of each other Bank have been paid in the
same amount.
4.6 SUPPLY OF DRAFTS. To enable the Banks to create Acceptances in
the manner specified in this Section 4, the Company shall provide to each of the
Banks, on the Closing Date and thereafter from time to time upon request of the
Agent or the Banks, such number of blank Drafts conforming to the requirements
hereof as the Agent or such Banks may reasonably request, each duly executed on
behalf of the Company, and the Banks shall hold such documents in safekeeping.
The Company and the Banks hereby agree that in the event that any authorized
signatory of the Company whose signature shall appear on any Draft shall cease
to have such authority at the time that an Acceptance is to be created with
respect thereto, such signature shall nevertheless be valid and sufficient for
all purposes as if such authority had remained in full force and effect at the
time of such creation.
4.7 DELIVERY OF CERTAIN DOCUMENTATION. Upon request by the Agent or
any Bank creating an Acceptance, the Company shall furnish to the Agent or such
Bank (a) a copy of the contract of sale or any bill of lading, warehouse
receipt, policy or certificate of insurance or other document covering or
otherwise relating to each shipment of goods specified in the Request for
Acceptances relating to such Acceptance and (b) such other documents or
information as such Bank or the Agent shall reasonably request with respect to
the creation of such Acceptance.
4.8 NOTICE. The Agent shall notify the Federal Reserve Bank of New
York of the terms under which Acceptances may be made if requested or required
to do so by such institution.
4.9 USE OF PROCEEDS. The proceeds of the Acceptances shall be used
solely to finance the purchase and/or sale of inventory of the Company in
transactions which fulfill the requirements of regulations of the Board of
Governors of the Federal Reserve System of the United States governing the
creation and discounting of, and the maintenance of reserves with respect to,
bankers' acceptances.
SECTION 5. TERMS OF ACQUISITION LETTER OF CREDIT
FACILITY
5.1 EXISTING LETTERS OF CREDIT. (a) The parties hereto hereby agree
that each "Acquisition Letter of Credit" issued pursuant to (and as defined in)
the Existing Agreement which is listed on Schedule V and is outstanding on the
Closing Date (each, an "ACQUISITION LETTER OF CREDIT, and, collectively, the
"ACQUISITION LETTERS OF CREDIT") shall, from and after the Closing Date, be
deemed for all purposes hereof and of the other Loan Documents (including,
without limitation, the provisions of subsections 5.3 and 5.4) to have been
issued by the Issuing Bank for the account of the Company pursuant to this
Agreement. From and after the Closing Date, all commissions, fees and other
amounts owing with respect to each such Acquisition Letter of Credit shall
accrue in the amount and manner specified herein and shall be payable to the
Agent, for the account of the Banks, on each L/C Fee Payment Date.
(b) Each Acquisition Letter of Credit shall be subject to the Uniform
Customs
<PAGE>
29
and, to the extent not inconsistent therewith, the laws of the State of New
York.
5.2 FEES, COMMISSIONS AND OTHER CHARGES.
(a) The Company shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit commission with
respect to the undrawn face amount of each Acquisition Letter of Credit,
computed for the period from the date of such payment to the date upon which the
next such payment is due hereunder in an amount equal to the Applicable Margin
then in effect for Acquisition Letters of Credit, PROVIDED that to the extent
that such Acquisition Letter of Credit is cash collateralized pursuant to the
Cash Collateral Agreement (or otherwise in a manner acceptable to the Agent),
such commission shall instead be in an amount equal to 1/4 of 1% of the undrawn
face amount of such Acquisition Letter of Credit. Such commission shall be
payable on each L/C Fee Payment Date and shall be non-refundable.
(b) The Company shall pay to the Agent, for the account of the
Issuing Bank, a letter of credit fronting fee in the amount equal to 1/8 of 1%
of the portion of each Acquisition Letter of Credit which is not cash
collateralized pursuant to the Cash Collateral Agreement. Such fee shall be
payable, in advance, for the period from the date of such payment to the date
upon which the next such payment is due hereunder and shall be paid on each L/C
Fee Payment Date and shall be non-refundable.
(c) In addition to the foregoing fees and commissions, the Company
shall pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in effecting payment
under, amending or otherwise administering any Acquisition Letter of Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the L/C Participants all fees and commissions
received by the Agent for their respective accounts pursuant to this subsection
5.2.
5.3 ACQUISITION L/C PARTICIPATIONS. (a) Each L/C Participant
unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is
paid under any Acquisition Letter of Credit for which the Issuing Bank is not
reimbursed in full by the Company in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the
Issuing Bank's address for notices specified herein an amount equal to such L/C
Participant's Commitment Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed. The Agent agrees to provide to each L/C
Participant a copy of any draft paid under any such Acquisition Letter of
Credit.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 5.3(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Acquisition Letter of
Credit is paid to the Issuing Bank within three Business Days after the date
such payment is due, such L/C Participant shall pay to the Issuing Bank on
demand an amount equal to the product of (i) such amount, TIMES (ii) the daily
average Federal Funds Effective Rate during the period from and including the
date such payment is required to the date on which such payment is immediately
available to the Issuing Bank, TIMES (iii) a fraction the numerator of which is
the number of days that elapse during such period and the denominator of which
is 360. If any such amount required to be paid by any L/C Participant
<PAGE>
30
pursuant to subsection 5.3(a) is not in fact made available to the Issuing Bank
by such L/C Participant within three Business Days after the date such payment
is due, the Issuing Bank shall be entitled to recover from such L/C Participant,
on demand, such amount with interest thereon calculated from such due date at
the rate per annum equal to the Alternate Base Rate PLUS the Applicable Margin
then in effect with respect to Acquisition Letters of Credit. A certificate of
the Issuing Bank submitted to any L/C Participant with respect to any amounts
owing under this subsection shall be conclusive in the absence of manifest
error.
(c) Whenever, at any time after the Issuing Bank has made payment
under any Acquisition Letter of Credit and has received from any L/C Participant
its PRO RATA share of such payment in accordance with subsection 5.3(a), the
Issuing Bank receives any payment related to such Acquisition Letter of Credit
(whether directly from the Company or otherwise, including proceeds of
collateral applied thereto by the Issuing Bank), or any payment of interest on
account thereof, the Issuing Bank will distribute to such L/C Participant its
PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such
payment received by the Issuing Bank shall be required to be returned by the
Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion
thereof previously distributed by the Issuing Bank to it.
5.4 ACQUISITION L/C REIMBURSEMENT OBLIGATION OF THE COMPANY. (a)
The Company agrees to reimburse the Issuing Bank on each date on which the
Issuing Bank notifies the Company of the date and amount of a draft presented
under any Acquisition Letter of Credit and paid by the Issuing Bank for the
amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs
or expenses incurred by the Issuing Bank in connection with such payment. Each
such payment shall be made to the Issuing Bank at its address for notices
specified herein in lawful money of the United States of America and in
immediately available funds. Interest shall be payable on any and all amounts
remaining unpaid by the Company under this subsection 5.4 from the date such
amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate which would be payable on overdue
Acquisition Letters of Credit.
(b) Notwithstanding anything to the contrary, in the event of any
failure by the Company to reimburse the Issuing Bank in accordance with the
provisions of subsection 5.4(a), the Reimbursement Obligations which have not
been so reimbursed shall be deemed to be bifurcated into (i) the portion of such
Reimbursement Obligations which, in the aggregate, are equal to the amount then
on deposit in the Cash Collateral Account and (ii) the portion such
Reimbursement Obligations (if any) which is in excess thereof. Each of the
Agent, the Issuing Bank and each L/C Participant hereby agrees that it shall
have no recourse to the Company with respect to the portion of such
Reimbursement Obligations which are described in clause (i) above, but rather
that its sole recourse with respect to such Reimbursement Obligations shall be
to the amounts on deposit in the Cash Collateral Account; PROVIDED that the
Company shall remain liable for, and the Agent, the Issuing Bank and the L/C
Participants shall have full recourse to the Company in respect of, the portion
of such Reimbursement Obligations which is described in clause (ii) above.
5.5 OBLIGATIONS ABSOLUTE. Subject to the provisions of subsection
5.4(b), the Company's obligations under this Section 5 shall be absolute and
unconditional under any and all circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Company may have or have had
against the Issuing Bank or any beneficiary of an Acquisition
<PAGE>
31
Letter of Credit. The Company also agrees with the Issuing Bank that the
Issuing Bank shall not be responsible for, and the Company's Acquisition L/C
Reimbursement Obligations under subsection 5.4 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Company and any
beneficiary of any Acquisition Letter of Credit or any other party to which such
Acquisition Letter of Credit may be transferred or any claims whatsoever of the
Company against any beneficiary of such Acquisition Letter of Credit or any such
transferee. The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Acquisition Letter of
Credit, except for errors or omissions caused by the Issuing Bank's gross
negligence or willful misconduct. The Company agrees that any action taken or
omitted by the Issuing Bank under or in connection with any Acquisition Letter
of Credit or the related drafts or documents, if done in the absence of gross
negligence or willful misconduct and in accordance with the standards or care
specified in the Uniform Commercial Code of the State of New York, shall be
binding on the Company and shall not result in any liability of the Issuing Bank
to the Company.
5.6 ACQUISITION LETTER OF CREDIT PAYMENTS. If any draft shall be
presented for payment under any Acquisition Letter of Credit, the Issuing Bank
shall promptly notify the Company of the date and amount thereof. The
responsibility of the Issuing Bank to the Company in connection with any draft
presented for payment under any Acquisition Letter of Credit shall, in addition
to any payment obligation expressly provided for in such Acquisition Letter of
Credit, be limited to determining that the documents (including each draft)
delivered under such Acquisition Letter of Credit in connection with such
presentment are in conformity with such Acquisition Letter of Credit.
5.7 CASH COLLATERALIZATION OF ACQUISITION LETTERS OF CREDIT. The
Acquisition L/C Obligations shall be cash collateralized in consecutive annual
installments on the dates set forth below, with each such installment being in
the amount equal to the percentage of the Acquisition L/C Obligations
outstanding on the Closing Date which is set forth below opposite the date when
due:
DATE PERCENTAGE
---- ----------
June 30, 1998 66.67%
June 30, 1999 33.33%
; PROVIDED that, (i) the Acquisition L/C Obligations shall be 100% cash
collateralized on May 1, 1998 and (ii) the Working Capital Commitments shall
immediately terminate on May 1, 1998 in the event that, prior to such date, each
issue comprising the Designated Debt has not been repaid or refinanced with a
maturity of at least three years or more upon terms substantially similar to the
existing terms applicable to such issue (or otherwise upon terms reasonably
satisfactory to the Required Banks).
SECTION 6. PROVISIONS RELATING TO CERTAIN EXTENSIONS
OF CREDIT; FEES AND PAYMENTS
6.1 COMMITMENT FEE. The Company agrees to pay to the Agent, for the
account
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32
of each Bank, a commitment fee for the period from and including the Closing
Date to and including the Commitment Termination Date, computed at the rate of
3/8 of 1% per annum on the average daily amount of the Available Working Capital
Commitment of such Bank during the period for which payment is made. Such
commitment fee shall be payable on the last day of each month (commencing on
September 30, 1996) and on the Commitment Termination Date. If all or a portion
of any commitment fee shall not be paid when due, any such unpaid amount shall
bear interest at a rate per annum determined pursuant to subsection 6.6(c) until
paid in full and such interest shall be payable upon demand.
6.2 TERMINATION OR REDUCTION OF COMMITMENTS. The Company shall have
the right, upon not less than three Business Days' notice to the Agent, to
terminate the Working Capital Commitments or, from time to time, to reduce the
amount thereof. Any such reduction shall be in an amount equal to $1,000,000 or
a whole multiple of $100,000 in excess thereof and shall reduce permanently the
Working Capital Commitments then in effect. Notwithstanding anything to the
contrary contained herein, no voluntary termination or reduction of the Working
Capital Commitments shall be permitted if after giving effect to such
termination or reduction the Inventory L/C Obligations shall exceed the amount
of the Working Capital Commitments.
6.3 PAYMENTS AND VOLUNTARY PREPAYMENTS. (a) Any prepayment or
reduction of the Working Capital Notes shall be in the aggregate principal
amount of $1,000,000 or a whole multiple thereof or, if less, the aggregate
principal amount thereof which is then outstanding.
(b) The Company may at its option prepay the Working Capital Notes in
whole at any time or in part from time to time without premium or penalty.
(c) The Company shall give to the Agent prior irrevocable written,
telegraphic or tested telex notice of any repayment or prepayment (which notice
must be received by the Agent prior to 11:00 A.M., New York City time, two
Working Days prior to any such repayment or prepayment if all or any part of the
Loans to be repaid or prepaid are Eurodollar Loans or on the same Business Day
as such prepayment or repayment, otherwise), specifying (i) the date and amount
of prepayment, (ii) whether the prepayment is of Eurodollar Loans, Alternate
Base Rate Loans or a combination thereof, and if a combination thereof, the
amount allocable to each. Upon receipt of such notice, the Agent shall promptly
notify each Bank thereof. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with the other amounts required pursuant to the terms of this Agreement.
(d) The Company may pay any Eurodollar Loan without premium or
penalty in whole or in part on the last day of any Interest Period applicable
thereto and, subject to the provisions of subsection 6.13 hereof, may prepay a
Eurodollar Loan on any other date.
6.4 MANDATORY PREPAYMENTS. (a) If the Aggregate Outstanding Working
Capital Extensions of Credit of all of the Banks at any time exceed the Working
Capital Commitments then in effect, the Company shall immediately prepay such
Aggregate Outstanding Working Capital Extensions of Credit (and, to the extent
necessary, cash collateralize the Inventory L/C Obligations) in an aggregate
principal amount equal to such excess, together with commitment fees accrued to
the date of such payment. Any such prepayment shall be applied, FIRST, to the
Working Capital Loans, SECOND, to the Acceptance Reimbursement Obligations and,
THIRD, to cash collateralize, in a manner acceptable to the Agent and the Banks,
the then outstanding Inventory
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33
L/C Obligations.
(b) If at any time during the Commitment Period, the Aggregate
Outstanding Working Capital Extensions of Credit of all of the Banks exceed the
Borrowing Base then in effect, the Company shall, on the fourth Business Day
after a request therefor is made by the Agent or any Bank, prepay such Aggregate
Outstanding Working Capital Extensions of Credit (or, to the extent necessary,
cash collateralize the Inventory L/C Obligations) in an aggregate principal
amount equal to such excess, together with commitment fees accrued to the date
of such payment. Any such prepayment shall be applied, FIRST, to the Working
Capital Loans, SECOND, to the Acceptance Reimbursement Obligations and, THIRD,
to cash collateralize, in a manner acceptable to the Agent and the Banks, the
then outstanding Inventory L/C Obligations. Amounts prepaid pursuant to this
subsection may be reborrowed.
(c) In the event that the Company or any of its Subsidiaries sells,
assigns, transfers, leases or otherwise disposes of any of the Customer Lists,
then on the first Business Day after any such sale, assignment, transfer, lease
or other disposition (any of the foregoing, a "CUSTOMER LIST DISPOSITION"), the
Company shall or shall cause any of its Subsidiaries to apply the Net Cash
Proceeds to cash collateralize the Acquisition Letters of Credit pursuant to the
Cash Collateral Agreement (or, to the extent that no Acquisition Letters of
Credit are then in effect, reduce the Working Capital Commitments) by the amount
equal to (A) to the extent that the Net Cash Proceeds of such Customer List
Disposition, together with the Net Cash Proceeds from all other Customer List
Dispositions of the Customer Lists occurring prior to the date of such Customer
List Disposition but after the date hereof, is less than $10,000,000, 20% of
such remaining Net Cash Proceeds and (B) otherwise, 100% of such remaining Net
Cash Proceeds. Notwithstanding anything to the contrary contained herein, any
sale, assignment, transfer, lease or other disposition of any of the Customer
Lists which occurs within 180 days after the Company or any of its Subsidiaries,
as the case may be, acquired such Customer Lists shall not be deemed to be a
Customer List Disposition for purposes hereof.
(d) Each prepayment of the Loans pursuant to this subsection 6.4
shall be accompanied by payment in full of all accrued interest thereon to and
including the date of such prepayment, together with any additional amounts
owing pursuant to subsection 6.13.
(e) Notwithstanding anything to the contrary contained herein or in
the Cash Collateral Agreement, the Company shall not have any right to request
the withdrawal from the Cash Collateral Account of any amount deposited therein
pursuant to the terms of this subsection 6.4.
6.5 ANNUAL CLEAN-UP. The Company and its Subsidiaries shall repay
the Working Capital Loans, all Working Capital Borrowings of the type described
in subsection 10.1(g) and all outstanding Acceptances to the extent necessary to
cause there to be no amounts outstanding under the Working Capital Commitments
(other than with respect to L/C Obligations) and no other Working Capital
Borrowings outstanding for a period of at least 60 consecutive days during the
period from April 1 through September 30 of each calendar year.
6.6 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
PLUS the Applicable Margin then in effect for
<PAGE>
34
Working Capital Loans.
(b) Each Alternate Base Rate Loan shall bear interest for each day at
a rate per annum equal to the Alternate Base Rate PLUS the Applicable Margin
then in effect for Working Capital Loans.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any commitment fee, facility fee, agency
fee or other amount payable hereunder shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum which is (x) in the case of overdue principal, the
rate that would otherwise be applicable thereto pursuant to the foregoing
provisions of this subsection PLUS 2% or (y) in the case of overdue interest,
commitment fee, facility fee, agency fee or other amounts, the rate described in
paragraph (b) of this subsection PLUS 2%, in each case from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, PROVIDED that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
6.7 COMPUTATION OF INTEREST AND FEES; PAYMENTS. The commitment fee
and other fees payable pursuant to the terms hereof and interest shall be
calculated on the basis of a 360 day year for the actual days elapsed. Any
change in the interest rate on any Note resulting from a change in the Alternate
Base Rate or the Eurocurrency Reserve Requirements shall become effective as of
the opening of business on the day on which such change in the Alternate Base
Rate is announced, or such change in the Eurocurrency Reserve Requirements shall
become effective, as the case may be. The Agent shall as soon as practicable
notify the Company and the Banks of each determination of a Eurodollar Rate.
All payments (including prepayments) by the Company on account of principal and
interest on any Note and the commitment fee, facility fees and agency fees
hereunder shall be made to the Agent at its office specified in subsection 13.2
in lawful money of the United States of America in immediately available funds.
If any payment on any Note becomes due and payable on a Saturday, Sunday or
legal holiday under the laws of the State of New York, the maturity thereof
shall be extended to the next succeeding Business Day, and, with respect to
payments of principal, and interest thereon shall be payable at the then
applicable rate during such extension. Each determination of an interest rate
by the Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Company and the Banks in the absence of manifest error. The
Agent shall, at the request of the Company, deliver to the Company a statement
showing the quotations used by the Agent in determining any interest rate
pursuant to subsections 6.6(a), 6.6(b) or 6.6(c).
6.8 CONVERSION AND CONTINUATION OPTIONS. (a) The Company may elect
from time to time to convert Eurodollar Loans to Alternate Base Rate Loans by
giving the Agent at least one Business Day's prior irrevocable notice of such
election, PROVIDED that any such conversion of Eurodollar Loans may only be made
on the last day of an Interest Period with respect thereto. The Company may
elect from time to time to convert Alternate Base Rate Loans to Eurodollar Loans
by giving the Agent at least two Working Days' prior irrevocable notice of such
election. Any such notice of conversion to Eurodollar Loans shall specify the
length of the initial Interest Period or Interest Periods therefor. Upon
receipt of any such notice the Agent shall promptly
<PAGE>
35
notify each Bank thereof. All or any part of outstanding Eurodollar Loans and
Alternate Base Rate Loans may be converted as provided herein, PROVIDED that (i)
no Loan may be converted into a Eurodollar Loan when any Event of Default has
occurred and is continuing and the Agent has or the Required Banks have
determined that such a conversion is not appropriate, (ii) any such conversion
may only be made if, after giving effect thereto, subsection 6.9 shall not have
been contravened and (iii) no Loan may be converted into a Eurodollar Loan after
the date that is one month prior to the Commitment Termination Date for
conversions of Working Capital Loans.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Company giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in subsection 1.1, of the length of the next
Interest Period to be applicable to such Loans, PROVIDED that no Eurodollar Loan
may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent has or the Required Banks have determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto,
subsection 6.9 would be contravened or (iii) after the date that is one month
prior to the Commitment Termination Date for continuations of Working Capital
Loans, and PROVIDED, FURTHER, that if the Company shall fail to give any
required notice as described above in this paragraph or if such continuation is
not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to Alternate Base Rate Loans on the last day of such
then expiring Interest Period.
6.9 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and
continuations of Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections so
that, after giving effect thereto, (a) the aggregate principal amount of the
Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole
multiple of $500,000 in excess thereof and (b) there shall be no more than ten
Eurodollar Tranches at any one time outstanding.
6.10 INABILITY TO DETERMINE EURODOLLAR RATE. If the Agent determines
that extraordinary circumstances affecting the interbank eurodollar market make
it impracticable to ascertain the interest rate applicable for any Interest
Period or impossible to lend at the Eurodollar Rate, the Agent shall promptly
notify the Company of such determination and no additional Eurodollar Loans
shall be made nor any Alternate Base Rate Loans converted to Eurodollar Loans
until such notice is withdrawn. If any Eurodollar Loan is outstanding on the
date of such notice and such notice has not been withdrawn on the last day of
the then current Interest Period applicable thereto, the Company may on the last
day of such Interest Period either convert such Eurodollar Loan to a Alternate
Base Rate Loan or prepay the outstanding principal balance thereof and accrued
interest thereon in full.
6.11 ILLEGALITY. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Bank to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment hereunder to make Eurodollar Loans or convert Alternate Base Rate
Loans to Eurodollar Loans shall forthwith be cancelled and (b) Loans then
outstanding as Eurodollar Loans, if any, shall be converted to Alternate Base
Rate Loans on the last day of the Interest Period applicable thereto or within
such earlier period as required by law. The Company hereby agrees promptly to
pay to any Bank, upon its demand, any additional amounts necessary to compensate
such Bank for any unavoidable costs incurred by such Bank in making any
conversion
<PAGE>
36
in accordance with this subsection 6.11, including, but not limited to, any
interest or fees payable by such Bank to lenders of funds obtained by it or in
order to make or maintain its Eurodollar Loans hereunder (such Bank's notice
setting forth calculations of such costs to be conclusive absent manifest
error).
6.12 REQUIREMENTS OF LAW. (a) In the event that any law,
regulation, treaty or directive or any change therein or in the interpretation
or application thereof or compliance by any Bank with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority:
(i) does or shall subject such Bank to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Acceptance, any Loans, any
Inventory Letter of Credit, any Acquisition Letter of Credit or any Application,
or change the basis of taxation of payments to such Bank of principal, fees,
interest, L/C Reimbursement Obligations, Acceptance Reimbursement Obligations or
any other amount payable hereunder (except for taxes covered by subsection 6.16
and changes in the rate of any tax presently imposed on such Bank based upon the
overall net income of such Bank);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held by,
or deposits or other liabilities in or for the account of, advances or loans by,
letters of credit issued or participated in by, or other credit extended by, or
any other acquisition of funds by, any office of such Bank which are not
otherwise included in the determination of the Eurodollar Rate hereunder; or
(iii) does or shall impose on any Bank any other condition;
and the result of any of the foregoing is to increase the cost to any Bank of
making, renewing or maintaining advances or extensions of credit to the Company
in the form of Eurodollar Loans, Inventory Letters of Credit, Acquisition
Letters of Credit or Acceptances, or to reduce any amount receivable from the
Company thereunder then, in any such case, the Company shall promptly pay to
such Bank, upon its demand, any additional amounts necessary to compensate such
Bank for such additional cost or reduced amount receivable which such Bank deems
to be material as determined by such Bank with respect to this Agreement, any
Note, any Acceptance, the Loans, any Inventory Letter of Credit or any
Acquisition Letter of Credit. If any Bank becomes entitled to claim any
additional amounts pursuant to this subsection 6.12(a), it shall promptly notify
the Company of the event by reason of which it has become so entitled. A
certificate setting forth calculations as to any additional amounts payable
pursuant to the foregoing sentence submitted by such Bank to the Company shall
be conclusive in the absence of manifest error.
(b) If any Bank shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Bank or any
corporation controlling such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Bank's or such corporation's capital as a
consequence of its obligations hereunder or under any Inventory Letter of Credit
or any Acquisition Letter of Credit to a level below that
<PAGE>
37
which such Bank or such corporation could have achieved but for such change or
compliance (taking into consideration such Bank's or such corporation's policies
with respect to capital adequacy) by an amount deemed by such Bank to be
material, then from time to time, after submission by such Bank to the Company
(with a copy to the Agent) of a written request therefore, the Company shall pay
to such Bank such additional amount or amounts as will compensate such Bank for
such reduction. A certificate setting forth calculations as to any additional
amounts payable pursuant to the foregoing sentence submitted by such Bank to the
Company shall be conclusive in the absence of manifest error. So long as no
Default or Event of Default has occurred and is continuing, if the Company is
required to make a payment pursuant to this subsection 6.12(b) as required by
the immediately preceding section, it may, if there are no L/C Obligations
outstanding and subject to the provisions of subsection 6.13 hereof, immediately
terminate the Working Capital Commitment and Acquisition Commitment of such Bank
and prepay such Bank's Loans and Acceptances, together with accrued interest
thereon and all other amounts payable with respect thereto.
(c) This covenant shall survive termination of this Agreement and
payment of the Notes and all other amounts payable hereunder.
6.13 INDEMNITY. The Company agrees to indemnify each Bank and to
hold such Bank harmless from any loss or expense which such Bank may sustain or
incur as a consequence of (a) default by the Company in payment of the principal
of or interest on the Eurodollar Loans of such Bank, including, but not limited
to, any such loss or expense arising from additional interest or fees payable by
such Bank to lenders of funds obtained by it in order to maintain Eurodollar
Loans hereunder, (b) default by the Company in making a borrowing or conversion
after the Company has given a notice in accordance with subsection 2.3 or 6.8
hereof, (c) default by the Company in making any prepayment after the Company
has given a notice in accordance with subsection 6.3 hereof or (d) a voluntary
or involuntary prepayment of a Eurodollar Loan on a day which is not the last
day of an Interest Period with respect thereto, including, but not limited to,
any such loss or expense arising from interest or fees payable by such Bank to
lenders of funds obtained by it in order to maintain Eurodollar Loans hereunder.
This covenant shall survive termination of this Agreement and payment of the
Notes.
6.14 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the
Company from the Banks, each payment by the Company on account of any fee
hereunder and any reduction of the Working Capital Commitments of the Banks
hereunder shall be made PRO RATA according to the respective Commitment
Percentages of the Banks. Each payment (including each prepayment) by the
Company on account of principal of and interest on the Working Capital Loans
shall be made PRO RATA according to the respective outstanding principal amounts
of the Working Capital Loans held by each Bank. All payments on Loans
(including prepayments) to be made by the Company on account of principal,
interest and fees shall be made without set-off or counterclaim and shall be
made to the Agent, for the account of the Banks, at the Agent's office set forth
in subsection 13.2, in lawful money of the United States of America and in
immediately available funds. The Agent shall distribute such payments to the
Banks promptly upon receipt in like funds as received. If any payment hereunder
(other than payments on the Eurodollar Loans) becomes due and payable on a day
other than a Business Day, such payment shall be extended to the next succeeding
Business Day, and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension. If any payment on
a Eurodollar Loan becomes due and payable on a day other than a Working Day, the
maturity thereof shall be
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38
extended to the next succeeding Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Working Day.
(b) Unless the Agent shall have been notified in writing by any Bank
prior to a Borrowing Date that such Bank will not make the amount which would
constitute its Commitment Percentage of the borrowing on such Borrowing Date
available to the Agent, the Agent may assume that such Bank has made such amount
available to the Agent on such Borrowing Date, and the Agent may, in reliance
upon such assumption, make available to the Company a corresponding amount. If
such amount is made available to the Agent on a date after such Borrowing Date,
such Bank shall pay to the Agent on demand an amount equal to the product of (i)
the daily average Federal Funds Effective Rate, TIMES (ii) the amount of such
Bank's Commitment Percentage of such borrowing, TIMES (iii) a fraction the
numerator of which is the number of days that elapse from and including such
Borrowing Date to the date on which such Bank's Commitment Percentage of such
borrowing shall have become immediately available to the Agent and the
denominator of which is 360. A certificate of the Agent submitted to any Bank
with respect to any amounts owing under this subsection 6.14(b) shall be
conclusive, absent manifest error. If such Bank's Commitment Percentage of such
borrowing is not in fact made available to the Agent by such Bank within three
Business Days of such Borrowing Date, the Agent shall be entitled to recover
such amount with interest thereon (without duplication) at the rate per annum
applicable to Acquisition Loans which are Alternate Base Rate Loans hereunder,
on demand, from the Company.
6.15 TAXES. (a) All payments made by the Company under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Agent and each Bank, net
income taxes and franchise taxes (imposed in lieu of net income taxes) imposed
on the Agent or such Bank, as the case may be, as a result of a present or
former connection between the jurisdiction of the government or taxing authority
imposing such tax and the Agent or such Bank (excluding a connection arising
solely from the Agent or such Bank having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or the
Notes) or any political subdivision or taxing authority thereof or therein (all
such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and
withholdings being hereinafter called "TAXES"). If any Taxes are required to be
withheld from any amounts payable to the Agent or any Bank hereunder or under
the Notes, the amounts so payable to the Agent or such Bank shall be increased
to the extent necessary to yield to the Agent or such Bank (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by the Company, as promptly as possible thereafter the Company shall
send to the Agent for its own account or for the account of such Bank, as the
case may be, a certified copy of an original official receipt received by the
Company showing payment thereof. If the Company fails to pay any Taxes when due
to the appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Company shall indemnify the
Agent and the Banks for any incremental taxes, interest or penalties that may
become payable by the Agent or any Bank as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable hereunder.
<PAGE>
39
(b) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof agrees that it will deliver to the Bank and
the Agent (i) two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 or successor applicable form, as the case may be, and
(ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form.
Each such Bank also agrees to deliver to the Company and the Agent two further
copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor
applicable forms or other manner of certification, as the case may be, on or
before the date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to the Company, and such extensions or renewals thereof as may
reasonably be requested by the Bank or the Agent, unless in any such case an
event (including, without limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank so advises the Company and the Agent. Such Bank shall certify (i) in
the case of a Form 1001 or 4224, that it is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to
an exemption from United States backup withholding tax.
SECTION 7. CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND TO
INITIAL EXTENSIONS OF CREDIT
7.1 CONDITIONS TO EFFECTIVENESS OF INITIAL EXTENSIONS OF CREDIT
HEREUNDER. The effectiveness of this Agreement and the obligation of each Bank
to make its initial extension of credit hereunder on the Closing Date shall be
subject to the fulfillment of the following conditions precedent:
(a) LEGAL OPINION. There shall have been delivered to the Agent,
with a copy for each Bank, on the Closing Date an opinion of Phillips,
Nizer, Krim & Ballon, counsel to the Company and its Subsidiaries, in form
and substance satisfactory to the Banks.
(b) CORPORATE PROCEEDINGS. The Company shall have furnished to the
Agent, with a copy for each Bank (in form and substance satisfactory to the
Banks) a copy, certified by an appropriate officer on the Closing Date, of
the resolutions of the Board of Directors of (i) the Company, authorizing
all borrowings or other extensions of credit herein provided for and (ii)
the Company and each of its Subsidiaries, authorizing the execution,
delivery and performance of each Loan Document to which the Company or such
Subsidiary, as the case may be, is a party.
(c) CORPORATE DOCUMENTS. The Agent shall have received, with a
counterpart for each Bank, true and complete copies of the certificate of
incorporation and by-laws of the Company and each of its Subsidiaries in
each case, certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of each such Person.
(d) INCUMBENCY CERTIFICATES. The Agent shall have received, with a
counterpart for each Bank, an incumbency certificate with respect to the
relevant officers of each of
<PAGE>
40
the Company and its Subsidiaries in form and substance satisfactory to the
Agent.
(e) RECEIPT OF CERTAIN DOCUMENTS. There shall have been received by
the Agent on the Closing Date, with a copy for each Bank, the following
documents, which shall have been duly authorized, executed and delivered by
the appropriate party or parties thereto and which shall be satisfactory in
form and substance to the Banks:
(i) counterparts of this Agreement, executed and delivered by a
duly authorized officer of the Company and each Bank;
(ii) a Working Capital Note, payable to each Bank, substantially
in the form of Exhibit A hereto, executed and delivered by a duly
authorized officer of the Company;
(iii) each Security Agreement, executed and delivered by a duly
authorized officer of the grantor party thereto, together with such Uniform
Commercial Code financing statements and other documents, instruments and
agreements necessary (or otherwise reasonably required by the Agent) in
order to perfect (or continue the perfection of) the Agent's security
interest in the Collateral (as defined therein) granted thereunder;
(iv) the Subsidiaries Guarantee, executed and delivered by a
duly authorized officer of each Subsidiary of the Company;
(v) the Cash Collateral Agreement, executed and delivered by a
duly authorized officer of the Company;
(vi) the Line Letter, executed by the parties thereto; and
(vii) any and all other documents which are necessary or
desirable, in the opinion of the Agent or the Banks, to effectuate any of
the foregoing.
(f) FEES. The Agent shall have received, for the ratable account of
the Banks, a non-refundable facility fee in the aggregate amount equal to
$225,000.
(g) BORROWING BASE CERTIFICATE. The Agent shall have received, with
a copy for each Bank, a Borrowing Base Certificate, dated the Closing Date,
executed by the chief financial officer or a senior vice president of the
Company.
(h) LIEN SEARCHES. The Agent and the Banks shall have received a
copy, in form and substance satisfactory to them, of any lien and judgment
searches which the Agent may require.
(i) LEGAL MATTERS. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be satisfactory in form and
substance to the Banks, and each Bank shall have received copies of all
documents which it may have reasonably requested in connection therewith.
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41
7.2 CONDITIONS OF ALL EXTENSIONS OF CREDIT. The obligation of each
Bank to make any Loans, or create any Acceptances to be made by it hereunder or
to issue or participate in any Inventory Letters of Credit pursuant to the terms
hereof (including, without limitation, the initial extensions of credit
hereunder) shall be subject to the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties contained in Section 8 hereof shall be true and correct on
the date of the making of such Loan, creation of such Acceptance or the
issuance or participation in such Inventory Letters of Credit, as the case
may be, and no Default or Event of Default shall have occurred and be
continuing on such date. Each borrowing, request for the creation of an
Acceptance or request for the issuance of an Inventory Letter of Credit by
the Company hereunder shall constitute a representation by the Company as
of the date of each such borrowing, creation or issuance that the
conditions contained in the foregoing sentence have been satisfied.
(b) LEGAL MATTERS. All other instruments and legal and corporate
proceedings in connection with the transactions contemplated by this
Agreement shall be satisfactory in form and substance to the Agent and its
counsel, and counsel to the Agent shall have received copies of all
documents which it may have reasonably requested in connection therewith.
SECTION 8. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and to make
the Loans and other extensions of credit herein provided for, the Company hereby
represents and warrants to each Bank that:
8.1 CORPORATE EXISTENCE. The Company and each of its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power to own its assets and
to transact the business in which it is presently engaged, and is duly qualified
as a foreign corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to so qualify
will not materially and adversely affect the conduct of business taken as a
whole as it is currently conducted by the Company and its Subsidiaries.
8.2 CORPORATE POWER AND AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Company and each of its Subsidiaries has the corporate power, authority and
legal right to make, deliver and perform this Agreement, the Notes, the Security
Documents, the Applications and the other Loan Documents to which it is a party
and, in the case of the Company, to borrow hereunder. The Company has taken all
necessary corporate action to authorize the borrowings and/or issuance of the
Letters of Credit on the terms and conditions of this Agreement, the Notes, the
Security Documents, the Applications and the other Loan Documents to which it is
a party. Each Subsidiary has taken all necessary corporate action to authorize
the execution, delivery and performance by it of the Security Documents and the
other Loan Documents to which it is a party. No consent of any other party,
including stockholders of the Company or any Subsidiary,
<PAGE>
42
is required and no consent, license, approval or authorization of, or
registration or declaration with, any Governmental Authority is required in
connection with the execution, delivery, performance, validity or enforceability
of this Agreement, the Notes, the Security Documents, the Applications or any of
the other Loan Documents. This Agreement and each other Loan Document to be
entered into on the Closing Date by the Company and/or any of its Subsidiaries
has been duly executed and delivered on behalf of the Company and such
Subsidiary. This Agreement and each such other Loan Document constitutes a
legal, valid and binding obligation of the Company and/or such Subsidiary, as
the case may be, enforceable against the Company or such Subsidiary in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
8.3 NO LEGAL BAR TO LOANS. The execution, delivery and performance
of this Agreement, the Notes, the Security Documents, the Applications and the
other Loan Documents will not violate any provision of any existing law or
regulation or of any order or decree of any court or governmental
instrumentality, or of the Certificate of Incorporation or By-Laws of the
Company or any Subsidiary, or of any mortgage, indenture, contract or other
agreement to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary and any of its property or assets may be bound, and
will not result in the creation or imposition of any lien, charge or encumbrance
on, or security interest in, any of its properties pursuant to the provisions of
such mortgage, indenture, contract or other agreement.
8.4 NO MATERIAL LITIGATION. No litigation or administrative
proceedings of or before any court, tribunal or governmental body is presently
pending, or, to the knowledge of the Company, threatened against the Company or
any Subsidiary or any of its or their properties or with respect to this
Agreement, any Note, any Security Document, any Application or any other Loan
Document, which, if adversely determined, would, in the opinion of the Company,
have a Material Adverse Effect.
8.5 NO DEFAULT. Neither the Company nor any of its Subsidiaries is
in default in any material manner in the payment or performance of any of its
obligations or in the performance of any contract, agreement or other instrument
to which it is a party or by which it or any of its assets may be bound or if in
default, such default will not materially affect the conduct of the business of
the Company and its Subsidiaries taken as a whole, and no Default or Event of
Default hereunder has occurred and is continuing.
8.6 OWNERSHIP OF PROPERTIES; LIENS. The Company and each Subsidiary
have good and marketable title to all of their properties and assets, real and
personal, and none of such properties and assets are subject to any mortgage,
lien, pledge, charge, encumbrance, security interest or title retention or other
security agreement or arrangement of any nature whatsoever except as permitted
in subsection 10.2 hereof.
8.7 TAXES. The Company and each Subsidiary have filed or caused to
be filed all tax returns which to the knowledge of the Company are required to
be filed, and have paid all taxes shown to be due and payable on said returns or
on any assessments made against them (other than those being contested in good
faith by appropriate proceedings for which adequate reserves have been provided
on the books of the Company or such Subsidiary, as the case may
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43
be), and no material tax liens have been filed and, to the best of the knowledge
of the Company, no material claims are being asserted with respect to any taxes.
8.8 FINANCIAL CONDITION. The consolidated balance sheet of the
Company and its consolidated Subsidiaries as at December 31, 1995 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by KPMG Peat Marwick, copies of which have
heretofore been furnished to each Bank, are complete and correct and present
fairly the consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the fiscal year then ended. The unaudited
consolidated balance sheet of the Company and its consolidated Subsidiaries as
at June 30, 1996 and the related unaudited consolidated statements of income and
of cash flows for the three-month period ended on such date, certified by the
chief financial officer of the Company, copies of which have heretofore been
furnished to each Bank, are complete and correct and present fairly the
consolidated financial condition of the Company and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the three-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
such accountants or chief financial officer, as the case may be, and as
disclosed therein). Neither the Company nor any of its consolidated
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material guarantee obligation, contingent liability or liability for
taxes, or any long-term lease or unusual forward or long-term commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing statements or in
the notes thereto. During the period from June 30, 1996 to and including the
date hereof there has been no sale, transfer or other disposition by the Company
or any of its consolidated Subsidiaries of any material part of its business or
property and (except as set forth on Schedule IV) no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the consolidated financial condition of
the Company and its consolidated Subsidiaries at June 30, 1996. Since June 30,
1996, there has been no material adverse change in the condition, financial or
otherwise, of the Company and such Subsidiaries.
8.9 FILING OF STATEMENTS AND REPORTS. The Company and each
Subsidiary have filed copies of all statements and reports which, to the
knowledge of the Company, are required to be filed with any governmental
authority, agency, commission, board or bureau.
8.10 ERISA. Neither a Reportable Event nor an Accumulated Funding
Deficiency has occurred during the five-year period prior to the date on which
this representation is made or deemed made with respect to any Plan, and each
Plan has complied in all material respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred, and
no lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits in an amount in excess of $7,500,000. Neither the Company nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Company nor any Commonly Controlled Entity
would become subject to any liability under ERISA if the Company or any such
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44
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Company and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits by an amount in excess of $1,000,000.
8.11 SUBSIDIARIES. The corporations listed on Schedule II attached
hereto are wholly-owned Subsidiaries of the Company, and the Company owns no
common stock of any other corporation except for Subsidiaries which have no
material assets.
8.12 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Company is not
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. The
Company is not subject to regulation under any Federal or State statute or
regulation which limits its ability to incur Indebtedness.
8.13 FEDERAL REGULATIONS. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of any regulations of
such Board of Governors. If requested by any Bank or the Agent, the Company
will furnish to the Agent and each Bank a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.
8.14 ENVIRONMENTAL MATTERS.
(a) To the best knowledge of the Company, the facilities and
properties owned, leased or operated by the Company or any of its Subsidiaries
(the "PROPERTIES") do not contain, and have not previously contained, any
Materials of Environmental Concern in amounts or concentrations which (i)
constitute or constituted a violation of, or (ii) could reasonably be expected
to give rise to liability under, any Environmental Law in effect at the time
this representation is made or deemed to be made except in either case insofar
as such violation or liability, or any aggregation thereof, is not reasonably
likely to have a Material Adverse Effect.
(b) To the best knowledge of the Company, the Properties and all
operations at the Properties are in compliance, and have in the last five years
been in compliance, in all material respects with all applicable Environmental
Laws, and there is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the Properties or the
business operated by the Company or any of its Subsidiaries (the "BUSINESS")
which could materially interfere with the continued operation of the Properties
or which could have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the
<PAGE>
45
Business, nor does the Company have knowledge that any such notice will be
received or is being threatened except insofar as such notice or threatened
notice, or any aggregation thereof, does not involve a matter or matters that is
or are reasonably likely to have a Material Adverse Effect.
(d) To the best knowledge of the Company, Materials of Environmental
Concern have not been transported or disposed of from the Properties in
violation of, or in a manner or to a location which could reasonably be expected
to give rise to liability under, any Environmental Law, nor have any Materials
of Environmental Concern been generated, treated, stored or disposed of at, on
or under any of the Properties in violation of, or in a manner that could
reasonably be expected to give rise to liability under, any applicable
Environmental Law except insofar as any such violation or liability referred to
in this paragraph, or any aggregation thereof, is not reasonably likely to have
a Material Adverse Effect.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Company, threatened, under any
Environmental Law to which the Company or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business except insofar
as such proceeding, action, decree, order or other requirement, or any
aggregation thereof, is not reasonably likely to have a Material Adverse Effect.
(f) To the best knowledge of the Company, there has been no release
of Materials of Environmental Concern at or from the Properties, or arising from
or related to the operations of the Company or any Subsidiary in connection with
the Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could reasonably give rise to liability under
Environmental Laws except insofar as any such violation or liability referred to
in this paragraph, or any aggregation thereof, is not reasonably likely to have
a Material Adverse Effect.
SECTION 9. AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees that so long as any Note
remains outstanding and unpaid or so long as any Commitment remains unterminated
or any amount remains outstanding or unpaid hereunder or so long as any Letter
of Credit or L/C Obligations remain outstanding:
<PAGE>
46
9.1 FINANCIAL STATEMENTS. The Company shall furnish to each Bank:
(a) as soon as available, but in any event not later than 90 days
after the close of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company, its Subsidiaries and Star Gas
Corporation, including therein a consolidated balance sheet of the Company,
its Subsidiaries and Star Gas Corporation as at the end of such fiscal
year, and a related consolidated statement of income and retained earnings
of the Company, its Subsidiaries and Star Gas Corporation for such fiscal
year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal period, and if such statements are
prepared on a last-in/first-out basis, the Company will submit in the
footnotes to such statements income and balance sheet statements prepared
on a first-in/first-out valuation, all in reasonable detail, prepared in
accordance with GAAP applied on a basis consistently maintained throughout
the period involved and with prior periods, such financial statements being
certified by independent certified public accountants of recognized
standing selected by the Company and acceptable to the Required Banks;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Company and 90 days after the close of each fiscal year of the
Company, an unaudited consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such fiscal quarter, and an unaudited
consolidated statement of income and retained earnings of the Company and
its Subsidiaries for the period from the beginning of such fiscal year to
the end of such fiscal quarter, setting forth in comparative form the
figures for the corresponding fiscal period of the previous year, all in
reasonable detail, prepared in accordance with GAAP applied on a basis
consistently maintained throughout the period involved and with prior
periods and certified by the chief financial officer of the Company
(subject to normal year-end audit adjustment);
(c) [Intentionally omitted];
(d) During such time as the Company owns Star Gas Corporation and
Star Gas Corporation is a general partner of Star Gas Partners, L.P., but
neither Star Gas Corporation nor Star Gas Partners, L.P. is considered a
Subsidiary for purposes of this Agreement, then (i) as soon as available,
but in any event not later than 45 days after the end of each of the first
three quarterly periods of each fiscal year of the Company, a copy of the
quarterly financial report of Star Gas Partners, L.P. and its Subsidiaries
on Form 10-Q of the Securities Exchange Act of 1934 (as amended) and (ii)
as soon as available, but in any event not later than 90 days after the end
of each fiscal year of the Company, a copy of the annual financial report
of Star Gas Partners, L.P. and its Subsidiaries on Form 10-K of said
Exchange Act;
(e) concurrently with the delivery of the financial statements
referred to in clause (a) above, a certificate of such independent
certified public accountants (i) stating that in making the examination
necessary for certifying such financial statements no knowledge was
obtained of any Events of Default or Defaults hereunder, except as
specifically indicated and (ii) setting forth the date and amount of each
interest payment and dividend, if any, between the Company and its
Subsidiaries, on the one hand, and Star Gas
<PAGE>
47
Corporation and its subsidiaries, on the other hand;
(f) concurrently with the delivery of the financial statements
referred to in clauses (a) and (b) above, a certificate of the chief
financial officer of the Company (i) stating that, to the best of his
knowledge, the Company during the relevant period has kept, observed,
performed and fulfilled each and every covenant and condition contained in
this Agreement, the Notes and the other Loan Documents and that he has
obtained no knowledge of any Events of Default or Defaults hereunder except
as specifically indicated and (ii) setting forth, in reasonable detail, the
calculations supporting such statements in respect of subsections 10.7,
10.8 and 10.11;
(g) promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its stockholders, and
promptly after the same are filed, copies of all financial statements and
reports which the Company may make to, or file with, any governmental
authority, agency, commission, board or bureau as may be reasonably
requested by the Agent or any Bank;
(h) promptly, such additional financial and other information as the
Agent or any Bank may from time to time reasonably request, including
unaudited consolidated balance sheets and statements of income and retained
earnings of the Company and its Subsidiaries on an annual or quarterly
basis; and
(i) on the 20th day of each month (or if such day shall not be a
Business Day, the next preceding Business Day) and promptly after any day
on which the Agent requests, a Borrowing Base Certificate showing the
Borrowing Base as of the last day of the most recently ended calendar month
or such other date as reasonably requested by the Agent, as the case may
be, in each case certified as complete and correct by the chief financial
officer or a senior vice president, as the case may be, of the Company
together with supporting documents reasonably acceptable to the Agent.
9.2 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause its
Subsidiaries to, pay and discharge, at or before maturity, all of their
respective obligations and liabilities, including without limitation tax
liabilities, except where the same may be contested in good faith, and will
maintain, and cause its Subsidiaries to maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
9.3 MAINTENANCE OF PROPERTIES; INSURANCE. The Company shall, and
shall cause its Subsidiaries to, keep all properties useful and necessary in the
business of the Company and its Subsidiaries in normal working order and
condition; maintain, and cause its Subsidiaries to maintain, with financially
sound and reputable insurance companies, insurance on all their properties in
such amounts as the Company deems proper in accordance with sound business
practices against such risks as are usually insured against in the same general
area and by companies engaged in the same or a similar business; and furnish to
the Agent and the Banks, upon written request, full information as to the
insurance carried.
9.4 NOTICES. The Company shall promptly give notice in writing to
the Agent and each Bank of:
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48
(a) the occurrence of any Default under this Agreement or of any
default under any material instrument or other agreement of the Company or
any Subsidiary;
(b) any litigation, proceeding, investigation or dispute which may
exist at any time between the Company or any Subsidiary and any
governmental regulatory body which might substantially interfere with the
normal business operations of the Company or any Subsidiary;
(c) all litigation and proceedings against the Company or any
Subsidiary in which the amount involved is $250,000 or more and not covered
by insurance or in which injunctive or similar relief is sought; and
(d) each acquisition made by the Company or any of its Subsidiaries,
including, without limitation, the material terms of all preferred and
common stock of the Company or any of its Subsidiaries to be issued in
connection with such acquisition, the other consideration with respect
thereto, the assets being acquired, the identity of the seller thereof and
such other information as any Bank may reasonably request with respect to
such investment.
9.5 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company
shall, and shall cause its Subsidiaries to, continue to engage in business of
the same general type as now conducted by the Company and its Subsidiaries, and
preserve, renew and keep in full force and effect their corporate existence and
take all reasonable action to maintain their rights, privileges and franchises
necessary or desirable in the normal conduct of business, PROVIDED that nothing
herein contained shall prevent the Company or any Subsidiary from (a)
discontinuing a part of its business, if such discontinuance is in the opinion
of the Board of Directors of the Company in the interest of the Company and not
disadvantageous to the Banks, or (b) engaging in such activities as permitted
pursuant to subsections 9.9 and 10.4 hereof.
9.6 INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company shall,
and shall cause its Subsidiaries to, permit any representatives of the Agent or
of any Bank to visit and inspect any of their respective properties and examine
and make abstracts from any of the books and records of the Company and any
Subsidiary at any reasonable time and as often as may reasonably be desired.
9.7 ERISA REPORTS. The Company shall furnish to the Agent and each
Bank (a) as soon as possible, and in any event within 30 days after any
executive officer of the Company knows or has reason to know of the following
events: (i) the occurrence or expected occurrence of any Reportable Event with
respect to any Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan, or (ii) the institution of proceedings
or the taking of any other action by the PBGC, the Company or any Commonly
Controlled Entity, or any Multiemployer Plan with respect to the withdrawal
from, or the termination, Reorganization or Insolvency of, any Plan, a statement
of the chief financial officer of the Company setting forth details thereof and
the action which the Company or the Commonly Controlled Entity proposes to take
with respect thereto, together with a copy of the notice of any Reportable Event
given to the PBGC, (b) at the request of the Agent or any Bank, promptly after
the filing thereof with the United States Secretary of Labor or the PBGC, copies
of each annual and other report with respect to each Plan, and (c) promptly
after receipt thereof, a copy of any notice the Company or
<PAGE>
49
any Commonly Controlled Entity may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or to appoint a trustee to
administer any Plan.
9.8 EXECUTION OF GUARANTIES AND SECURITY AGREEMENTS BY ADDITIONAL
SUBSIDIARIES. At any time when either (x) the Agent requests that the Company
do so or (x) such Subsidiary has assets with a fair market value in excess of
$100,000, the Company shall cause each of its Subsidiaries which is not then
party to a Guarantee and a Security Agreement to execute and deliver to the
Agent:
(a) a Security Agreement, substantially in the form of Exhibit E
hereto, accompanied by such documents, instruments, agreements and legal
opinions as the Agent reasonably may request in order to perfect (or evidence
the perfection of) the security interests granted by such Subsidiary thereunder;
and
(b) a Guarantee, substantially in the form of Exhibit D hereto.
Each Security Agreement and Guarantee which is delivered pursuant to this
subsection 9.8 shall be accompanied by such resolutions, incumbency certificates
and legal opinions as are reasonably requested by the Agent and as otherwise may
be necessary to cause such Security Agreement and Guarantee to constitute a
legal, valid and binding obligation of such Subsidiary, as the case may be,
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
9.9 MAINTENANCE OF COLLATERAL. The Company shall, and shall cause
its Subsidiaries to, keep their Customer Lists and all Inventory and Accounts
(as each such term is defined in the relevant Security Agreement) free and clear
of any and all liens, encumbrances, pledges or other security interests, except
(a) the security interests made in favor of the Agent, for the ratable benefit
of the Banks, and (b) so long as no Default or Event of Default has occurred and
is continuing, the Company and its Subsidiaries may sell, assign, transfer,
lease or otherwise dispose of all or any part of their Customer Lists, PROVIDED
the Net Cash Proceeds from any such sale, assignment, transfer, lease or other
disposition are applied in accordance with the terms of subsection 6.4(d).
9.10 UPDATE OF CUSTOMER LISTS. The Company shall, and shall cause
its Subsidiaries to, provide to the Agent on such dates as the Agent reasonably
may request (which request shall be made by the Agent not more than four times
in any calendar year) one or more computer tapes (or such other medium as may be
acceptable to the Agent) containing each Customer List owned by the Company or
any of its Subsidiaries and within 20 days of such request the Company and the
Agent agree that each Bank shall be permitted to review such tapes (or other
medium) during the reasonable business hours of the Agent.
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50
9.11 ENVIRONMENTAL LAWS. The Company shall, and shall cause its
Subsidiaries to:
(a) comply with, and use commercially reasonable efforts to ensure
material compliance by all tenants and subtenants, if any, with, all applicable
Environmental Laws and obtain and comply in all material respects with and
maintain, and ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws except to the extent that failure to do so could not be reasonably expected
to have a Material Adverse Effect;
(b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and comply with reasonable promptness in all material
respects with all lawful orders of all Governmental Authorities regarding
Environmental Laws except to the extent that the same are being contested in
good faith by appropriate proceedings and the pendency of such proceedings could
not be reasonably expected to have a Material Adverse Effect; and
(c) defend, indemnify and hold harmless the Agent and the Banks, and
their respective employees, agents, officers and directors, from and against any
and all claims, demands, penalties, fines, liabilities, settlements, damages,
costs and expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of the Company, any of its Subsidiaries or the Properties, or any
orders, or lawful requirements of Governmental Authorities related thereto,
including, without limitation, attorney's and consultant's fees, investigation
and laboratory fees, response costs, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor. The
agreements in this paragraph shall survive repayment of the Notes and all other
amounts payable hereunder.
SECTION 10. NEGATIVE COVENANTS
The Company hereby covenants and agrees that so long as any Note
remains outstanding and unpaid or so long as any Commitment remains unterminated
or any amount remains outstanding or unpaid hereunder or so long as any Letter
of Credit or L/C Obligations remain outstanding, the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly:
10.1 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist, any Indebtedness, except (a) Indebtedness in respect of the Loans, the
Notes, the Acceptances, the Letters of Credit and the other obligations of the
Company hereunder; (b) accounts payable (other than for borrowed money) incurred
in the ordinary course of business as presently conducted, provided that the
same shall not be overdue or, if overdue, are being contested in good faith and
by appropriate proceedings; (c) Indebtedness between Subsidiaries and between
any Subsidiaries and the Company; (d) other Indebtedness owing by the Company or
any Subsidiary on the date of this Agreement and which was reflected in the
balance sheet of the Company delivered to the Banks most recently prior to the
date hereof and referred to in subsection 8.8 hereof; (e) Subordinated Debt; (f)
Indebtedness of hereafter-acquired companies in the fuel oil or propane
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51
distribution business not exceeding in the aggregate a principal amount of
$1,000,000 outstanding at any one time; (g) purchase money Indebtedness created
as a result of the acquisition of companies in the fuel oil or propane
distribution business, PROVIDED that any such Indebtedness shall be included in
the calculations contained in subsection 10.8; (h) Indebtedness for funding of
capital expenditures not to exceed $3,000,000 outstanding at any one time; (i)
Indebtedness in respect of Letters of Credit issued by any Bank and permitted
pursuant to subsection 10.3(f) hereof; and (j) Indebtedness in respect of fuel
oil hedge agreements for the purpose of hedging price fluctuations of inventory
of the Company and its Subsidiaries (and not for investment or speculative
purposes).
10.2 LIMITATIONS ON LIENS. Create, incur, assume or suffer to exist,
any mortgage, pledge, lien, charge, security interest or encumbrance of any kind
upon any of its property or assets, income or profits, whether now owned or
hereafter acquired, except (a) the liens and security interests existing as of
the date of this Agreement referred to in the financial statements referred to
in subsection 8.8 hereof, PROVIDED, HOWEVER, that such liens and security
interests are not spread to cover other or additional indebtedness or property
of the Company or any of its Subsidiaries; (b) liens for taxes not yet due or
which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or such Subsidiary, as the case may be, in accordance with GAAP; (c)
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like
liens arising in the ordinary course of business for sums which are not overdue
for a period of more than 30 days or which are being contested in good faith and
by appropriate proceedings; (d) pledges or deposits in connection with worker's
compensation, unemployment insurance and other social security legislation; (e)
deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (f) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary course of business which, in
the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Company or its Subsidiaries;
(g) security interests and liens covering real or personal property in existence
at the time of acquisition thereof by the Company or any Subsidiary, and
purchase money mortgages and purchase money security interests (including the
lien or retained security title of a conditional vendor) covering real or
personal property hereafter acquired by the Company and its Subsidiaries,
PROVIDED that no such lien is spread to cover any additional property (except
for additional property in the nature of improvements to property already
subject to any such lien or additions to accounts receivable or inventory, as
the case may be, already subject to such lien); (h) liens, mortgages and
security interests in favor of the Agent, for the ratable benefit of the Banks,
under the Security Documents or otherwise in connection herewith (including,
without limitation, those arising pursuant to the Cash Collateral Agreement);
(i) liens arising out of judgments of awards not exceeding the aggregate
principal amount of $500,000 outstanding at any time; (j) purchase money liens
and security interests arising out of the funding of capital expenditures to the
extent not otherwise prohibited hereunder; and (k) liens created to secure
borrowings permitted under subsections 10.1(f) and 10.1(h) hereof and limited to
the amount borrowed under each such subsection. Notwithstanding the foregoing,
in no event shall the Company or any of its Subsidiaries create, incur, assume
or suffer to exist, any mortgage, pledge, lien, charge, security interest or
encumbrance of any kind upon the capital stock of Star Gas Corporation, other
than pursuant to agreements which provide such a mortgage, pledge, lien, charge,
security interest or encumbrance
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52
on the date hereof (as such agreements may be amended, supplemented, restated,
refinanced or otherwise modified from time to time).
10.3 LIMITATION ON CONTINGENT OBLIGATIONS. Assume, guarantee,
indorse or otherwise in any way be or become responsible or liable for the
obligations of any person, firm, corporation or other entity (all such
transactions being herein called "CONTINGENT OBLIGATIONS"), whether by agreement
to purchase or repurchase obligations, or by agreement to supply funds for the
purpose of paying, or enabling such entity to pay, any obligations (whether
through purchasing stock, making a loan, advance or capital contribution or by
means of agreeing to maintain or cause such entity to maintain, a minimum
working capital or net worth of any such entity, or otherwise), except (a)
contingent obligations by indorsement of instruments for deposit or collection
in the ordinary course of business; (b) contingent obligations of the Company in
respect of indebtedness of Subsidiaries or of any Subsidiary in respect of
indebtedness of the Company, PROVIDED that, in either such case, the
indebtedness in respect of which such contingent obligations are given is
permitted by subsection 10.1 hereof; (c) contingent obligations by the Company
or any Subsidiary of any purchase money obligations for the purchase of (i) any
oil delivery vehicle entered into by any operator of an oil delivery vehicle
which vehicle has been or will be used on behalf of the Company or such
Subsidiary or (ii) any fuel distribution company acquired by the Company or any
Subsidiary, PROVIDED that the amount of any such purchase money obligations
guaranteed by the Company or its Subsidiaries shall be included in any
calculation of Consolidated Funded Debt pursuant to subsection 10.8; (d)
contingent obligations assumed by the Company or any of its Subsidiaries as a
part of any acquisition of stock or assets of companies in the fuel oil
distribution business permitted in accordance with the terms hereof; (e)
contingent obligations in respect of any leases of real property by the Company
or any Subsidiary; and (f) contingent obligations relating to letters of credit
(including letters of credit issued under the Line Letter, but not including the
Inventory Letters of Credit and the Acquisition Letters of Credit) in an
aggregate amount not to exceed $15,000,000 at any one time outstanding.
10.4 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any transaction
of merger or consolidation or liquidate or dissolve itself (or suffer any
liquidation or dissolution) or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of related transactions, all or a
material part of its business, or any of its property or assets (including,
without limitation, accounts receivable, capital stock and securities
convertible into capital stock) which have a fair market value which is in
excess of 5% of the fair market value of the consolidated assets of the Company
and its Subsidiaries taken as a whole, or make any material change in the
present method of conducting business, except that: (a) any Subsidiary may be
voluntarily liquidated or dissolved, or may be merged into, or consolidated
with, the Company (PROVIDED that the Company shall be the continuing or
surviving corporation) or with any one or more Subsidiaries; (b) any Subsidiary
may sell, lease, transfer or otherwise dispose of any of its assets to the
Company or another Subsidiary; (c) the Company or any Subsidiary may sell their
respective Customer Lists subject to the provisions of subsection 6.4(c); and
(d) any Subsidiary may sell any or all of its assets (other than its Inventory
and Accounts, as each such term is defined in the relevant Security Agreement),
or discontinue to do business, if such sale or discontinuance is in the opinion
of the Board of Directors of the Company in the interest of the Company and not
disadvantageous to the Banks and such sale does not violate the provisions of
subsection 9.9.
10.5 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make or suffer
to exist any advances or loans to, or investments (by way of transfers of
property, contributions to capital,
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53
acquisitions of stock, or securities or evidences of indebtedness, acquisitions
of businesses or acquisitions of assets other than in the ordinary course of
business, or otherwise) in, any person, firm, corporation or other business
entity, except (a) investments in certificates of deposit issued by any domestic
commercial bank with a capital and surplus of at least $100,000,000, PROVIDED,
HOWEVER, that such certificates of deposit shall have a maturity of one year or
less from the date of purchase; (b) investments in direct obligations of the
United States of America or any agency thereof, or marketable obligations
directly and fully guaranteed by the United States of America or any money
market funds, or commercial paper, PROVIDED, HOWEVER, that any such obligations
or commercial paper shall have a maturity of one year or less from the date of
purchase and any such commercial paper either is issued by any of the Banks or
is rated "A-1" by Standard & Poor's Corporation (or has a similar rating by any
similar organization which rates commercial paper); (c) stock or obligations
issued in settlement of claims against any other person by reason of an event of
bankruptcy or composition or readjustment of debt or reorganization of any
debtor of the Company or any Subsidiary; (d) loans to Subsidiaries; (e) during
such time as no Default or Event of Default has occurred and is continuing,
non-hostile acquisitions of stock or assets of companies in the oil or propane
distribution business; (f) loans or advances to officers, directors and
employees; (g) loans in the ordinary course of business to oil delivery vehicle
operators for the purpose of purchasing oil or propane delivery vehicles; (h)
advances, loans and investments existing on the date hereof which are specified
in the financial statements referred to in subsection 8.8 hereof; and (i)
advances of oil to other companies in the oil business by way of "through-puts"
in accordance with industry practice.
10.6 PROHIBITION OF CERTAIN PREPAYMENTS AND DIVIDENDS. (a) Make any
payment of principal of any debt, with a maturity of more than one year, for
borrowed money (except with respect to Indebtedness evidenced by the Notes) or
for the deferred purchase price of property or services, except at the stated
maturity of such debt or as required by mandatory prepayment provisions relating
thereto as in effect on the date hereof; PROVIDED that:
(i) any such debt (other than Subordinated Debt) may be prepaid at
any time if no Default or Event of Default has occurred and is continuing
or would result therefrom; and
(ii) any Subordinated Debt may be prepaid at any time when no Default
or Event of Default has occurred and is continuing or would result
therefrom (x) following the termination of the Acquisition Commitments or
(y) prior to such termination, with the proceeds of new Subordinated Debt
or equity sales.
(b) Pay any dividend (other than dividends payable solely in common
stock of the Company) on, or make any payment on account of, or set apart assets
for a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Company or any Subsidiary or any warrants or options to purchase any such
Stock or make any other distribution in respect thereof, either directly or
indirectly (such payments, "RESTRICTED PAYMENTS"); PROVIDED that the provisions
of this subsection 10.6(b) shall not apply to (a) Restricted Payments made by
any Subsidiary of the Company to any wholly-owned Subsidiary of the Company or
to the Company and (b) other Restricted Payments made when no Default or Event
of Default has occurred and is continuing or would result therefrom.
10.7 CONSOLIDATED CASH FLOW; EBITDA. (a) Permit Consolidated Cash
Flow for
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54
the first fiscal quarter of each fiscal year of the Company to be less than
$40,000,000.
(b) Permit EBITDA for any fiscal year of the Company to be less than
$40,000,000.
10.8 LIMITATION ON FUNDED DEBT. Incur, create, assume, guarantee or
otherwise become liable ("INCUR") for any additional Funded Debt unless such
additional Funded Debt is permitted pursuant to subsection 10.1 and, after
giving effect thereto, the Consolidated EBITDA Coverage Ratio as of the date of
the most recent financial statements delivered pursuant to subsections 9.1(a) or
9.1(b) on or prior to the date on which such Funded Debt is to be Incurred
exceeds the ratio set forth opposite such period during which such date occurs:
Period Ratio
------ -----
Prior to 12/31/96 2.1 to 1.0
1/1/97 - 12/31/97 2.2 to 1.0
1/1/98 - 12/31/98 2.3 to 1.0
1/1/99 - 12/31/99 2.4 to 1.0
1/1/2000 and thereafter 2.5 to 1.0
Notwithstanding the foregoing provisions of this subsection 10.8, the Company
may incur, create, assume, guarantee or otherwise become liable for additional
Funded Debt to the extent that such additional Funded Debt is Incurred to
refund, extend or renew up to an equal amount of outstanding Funded Debt;
PROVIDED that if any Funded Debt is Incurred for the purpose of refunding,
extending or renewing any Indebtedness which is:
(i) subordinate to the obligations hereunder, then such new Funded
Debt must also be subordinated to the obligations hereunder to at least the
same extent as was the Indebtedness which is being refunded, extended or
renewed, as the case may be, thereby; or
(ii) of equal rank with the obligations hereunder, then such Funded
Debt may not be senior to the obligations hereunder.
10.9 COVENANT NOT TO COMPETE. Upon the sale of any Customer List by
the Company, any of its Subsidiaries, the Agent or any Bank to any Person
following the occurrence of any Event of Default, sell or distribute any product
of the type sold or distributed by the Company or any of its Subsidiaries to any
Person listed on such Customer List who purchased such products from the Company
or any of its Subsidiaries at any time during the one year period prior to the
date of sale of such Customer List, or otherwise utilize the information
contained in such Customer List as of the date of such sale, directly or
indirectly, for the foregoing purposes; PROVIDED, HOWEVER, that such covenant
shall terminate upon the date which is five years following the date of sale of
such Customer List. Notwithstanding anything to the contrary contained in this
Agreement, the terms and provisions of this subsection 10.9 and the protection
afforded by this subsection 10.9, shall be for the benefit only of the Agent,
the Banks and any Person who purchases Customer Lists from any of the foregoing
or from the Company or any of its Subsidiaries following the occurrence and
during the continuance of any Event of Default.
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55
10.10 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any
Person any agreement which prohibits or limits the ability of the Company or any
of its Subsidiaries to create, incur, assume or suffer to exist any Lien in
favor of the Agent and the Banks (or any successors thereto or assigns thereof)
upon any of the capital stock of Star Gas Corporation from time to time owned,
beneficially or of record, by it; PROVIDED that the provisions of this
subsection 10.10 shall not apply to (a) this Agreement, (b) the Agreement of
Limited Partnership of Star Gas Partners, L.P. dated as of December 20, 1995,
between Star Gas Corporation and William G. Powers, Jr., (c) the Agreement of
Limited Partnership of Star Gas Propane, L.P. dated as of December 20, 1995,
between Star Gas Corporation and Star Gas Partners, L.P. or (d) any other
agreements of the Company and its Subsidiaries which contain a provision to such
effect on the date hereof (as such other agreements may be amended,
supplemented, restated, refinanced or otherwise modified from time to time).
10.11 CONSOLIDATED EBITDA COVERAGE RATIO. Permit the Consolidated
EBITDA Coverage Ratio for any fiscal year of the Company to be less than 1.35 to
1.00.
SECTION 11. EVENTS OF DEFAULT
Upon the occurrence of any of the following:
(a) failure by the Company to pay (A) the principal of or any
installment of the principal of any Note when due, including, without
limitation, pursuant to the terms of subsection 6.4 and 6.5, or (B) any
Acceptance Reimbursement Obligation or any L/C Obligation when due, or (C)
any interest on any Note or any fee (including, without limitation, any
commitment fee) within five days after any such interest or fee becomes
due;
(b) if any representation or warranty made by the Company or any of
its Subsidiaries in this Agreement or any other Loan Document or in any
certificate, financial or other statement furnished at any time under or in
connection with this Agreement or such Loan Document shall prove to have
been untrue or misleading in any material respect when made or deemed made;
(c) default by the Company or any other Subsidiary of the Company, as
the case may be, in the observance or performance of any of the covenants
or agreements contained in the Loan Documents (other than this Agreement
and the Guarantees) or in subsections 10.4 and 10.6 through and including
10.11 of this Agreement;
(d) default by the Company in the observance or performance of any
covenant or agreement contained in subsections 9.1(g), 10.1, 10.2, 10.3 and
10.5, and the continuance of same for 5 days after notice of such default
is given the Company by the Agent or any Bank;
(e) default by the Company in the observance or performance of any
other covenant or agreement contained in this Agreement, and the
continuance of the same for 15 days after notice of such default is given
the Company, by the Agent or any Bank;
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56
(f) if the Company, any Subsidiary or any guarantor of any Note, any
Acceptance Reimbursement Obligation, any Inventory Reimbursement Obligation
or any Acquisition L/C Reimbursement Obligation (if other than a
Subsidiary) shall (i) default in the payment of principal or interest on
any obligation for borrowed money (other than any Note), or for the
deferred purchase price of property, beyond the period of grace, if any,
provided with respect thereto or (ii) default in the performance or
observance of any other term, condition or agreement contained in any such
obligation or in any agreement relating thereto if the effect thereof is to
cause, or permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become due
prior to its stated maturity;
(g) (i) the Company, any of its Subsidiaries or any guarantor of any
Note, any Acceptance Reimbursement Obligation, any Inventory Reimbursement
Obligation or Acquisition L/C Reimbursement Obligation (if other than a
Subsidiary) shall commence any case, proceeding or other action (A) under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property, or the Company, any of its
Subsidiaries or any such guarantor shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the
Company, any of its Subsidiaries or any such guarantor any case, proceeding
or other action of a nature referred to in clause (i) above or seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its property, which case,
proceeding or other action (x) results in the entry of an order for relief
or (y) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) the Company, any of its Subsidiaries or any such guarantor
shall take any action indicating its consent to, approval of, or
acquiescence in, or in furtherance of, any of the acts set forth in clauses
(i) or (ii) above; or (iv) the Company, any of its Subsidiaries or any such
guarantor shall generally not, or shall be unable to, pay its debts as they
become due or shall admit in writing its inability to pay its debts;
(h) (i) any Person shall engage in any Prohibited Transaction
involving any Plan, (ii) any Accumulated Funding Deficiency, whether or not
waived, shall exist with respect to any Plan, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement
of proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Banks, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Company or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Banks is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist, with
respect to a Plan or any employee benefit plan which is covered by ERISA;
and in each case in clauses (i) through (vi) above, such event or
condition, together with all other such events or conditions, if any, could
subject the
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57
Company or any of its Subsidiaries to any tax, penalty or other liabilities
in the aggregate material in relation to the business, operations, property
or financial or other condition of the Company and its Subsidiaries taken
as a whole;
(i) default by any guarantor (including, without limitation, the
Company or any of its Subsidiaries) in the observance of any covenant or
agreement contained in its Guarantee or any other guarantee of any of the
obligations of the Company hereunder, any such Guarantee or other guarantee
shall cease to be in full force and effect or shall be declared to be null
and void, or the validity or enforceability thereof shall be contested by
any such guarantor, or such party shall deny that it has any further
liability to the Banks with respect thereto;
(j) failure by any guarantor to perform any agreements contained in
any agreement executed by a guarantor for the benefit of the Agent and/or
the Banks;
(k) (i) any of the Security Documents (other than the Guarantees)
shall cease, for any reason, to be in full force and effect, or the Company
shall so assert or (ii) the security interests created by the Security
Documents shall cease, for any reason other than a release by the Agent, to
be enforceable and of the same effect and priority purported to be created
thereby; or
(l) final judgment for the payment of money in excess of $500,000
shall be rendered against the Company, any Subsidiary or any guarantor of
any Note, any Acceptance Reimbursement Obligation, any Inventory
Reimbursement Obligation or Acquisition L/C Reimbursement Obligation (if
other than a Subsidiary), and the same shall remain undischarged, unbonded
or not insured, for a period of 30 days during which execution of such
judgment shall not be effectively stayed;
then (i) if such event is an event specified in paragraph (g) above, then the
Working Capital Commitments shall immediately terminate and the Loans hereunder
(with accrued interest thereon) and all other amounts owing under this Agreement
and the Notes (including, without limitation, all L/C Obligations whether or not
the beneficiaries thereof shall have presented the documents required thereunder
and all amounts of Acceptance Reimbursement Obligations whether or not matured)
shall be immediately due and payable without notice or demand and (ii) if such
event is any other Event of Default, either or both of the following actions may
be taken: (A) with the consent of the Required Banks, the Agent may, or upon
the direction of the Required Banks, the Agent shall, by notice to the Company,
declare the Working Capital Commitments to be terminated forthwith, whereupon
the Working Capital Commitments shall immediately terminate; and (B) with the
consent of the Required Banks, the Agent may, or upon the direction of the
Required Banks, the Agent shall, by notice of default to the Company, declare
the Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all L/C Obligations whether
or not the beneficiaries thereof shall have presented the documents required
thereunder and all amounts of Acceptance Reimbursement Obligations whether or
not matured) and the Notes to be due and payable forthwith, whereupon the same
shall immediately become due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in any Note or in any Acceptance or any Application or other
letter of credit application to the contrary notwithstanding; and (iii) with the
consent of the Required Banks, the Agent may, and
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58
upon the direction of the Required Banks, the Agent shall, exercise any and all
remedies and other rights provided pursuant to this Agreement and/or the other
Loan Documents. With respect to all Acceptances and Letters of Credit
(including, without limitation, Letters of Credit issued pursuant to the terms
of the Line Letters) that shall not have been paid or with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to this paragraph, the Company shall at such time deposit in the Cash
Collateral Account (or such other cash collateral account as the Agent shall
specify) an amount equal to the aggregate then undrawn and unexpired amount of
such Letters of Credit PLUS the aggregate outstanding amount of Acceptance
Reimbursement Obligations. Such monies shall be applied to payments of drafts
drawn under Letters of Credit and to payment of Acceptances at maturity, and the
unused portion thereof after such application, if any, shall be applied to repay
other obligations of the Company hereunder or under the Notes, and after all
Letters of Credit have expired, all Drafts and Acceptances have matured and been
repaid and all other obligations of the Company hereunder are paid in full, the
balance, if any, shall be returned to the Company. Except as expressly provided
above in this Section 11, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
SECTION 12. THE AGENT
12.1 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as the Agent of such Bank under this Agreement, and each such
Bank irrevocably authorizes Chase, as the Agent for such Bank, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and such other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement or
such other Loan Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein and therein, or any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist against the Agent.
12.2 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
12.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Loan Documents
(except for its or such Person's own gross negligence or willful misconduct), or
(ii) responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Company or any Subsidiary or any
officer thereof contained in this Agreement or the other Loan Documents or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Agent under or in connection with, this Agreement or the
other Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of
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59
the Company or any of its Subsidiaries to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Company.
12.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Company), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement and the other Loan Documents unless it shall first
receive such advice or concurrence of the Required Banks as it deems appropriate
or it shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement, the
Notes and the other Loan Documents in accordance with a request of the Required
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Banks and all future holders of the Notes.
12.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Bank or the Company
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Banks and to
the Company; PROVIDED, HOWEVER, that the failure of the Agent to give such
notice to the Company shall not affect the rights of the Agent and the Banks
hereunder or under the Security Documents. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Banks; PROVIDED that unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the Banks.
12.6 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Company, shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Company and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and
<PAGE>
60
decisions in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition and
creditworthiness of the Company and its Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder or by the other Loan Documents, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Company which may come into the possession of the Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
12.7 INDEMNIFICATION. The Banks agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Company and without
limiting the obligation of the Company to do so), ratably according to the
respective amounts of their Working Capital Commitments at the time that the
event giving rise to the indemnity obligation occurred, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including without limitation at any time following the payment of the
Notes) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement, the other Loan Documents, or any
documents contemplated by or referred to herein or therein (including, without
limitation, the Line Letter) or the transactions contemplated hereby or thereby
or any action taken or omitted by the Agent under or in connection with any of
the foregoing; PROVIDED that no Bank shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Notes and all other amounts payable
hereunder.
12.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Company and its Subsidiaries as though the Agent were not the
Agent hereunder. With respect to its Loans made or renewed by it and any Note
issued to it and with respect to any Letter of Credit issued or participated in
by it, the Agent shall have the same rights, powers, obligations and limitations
under this Agreement and the other Loan Documents as any Bank and is subject to
the same as though it were not the Agent, and the terms "Bank" and "Banks" shall
include the Agent in its individual capacity.
12.9 SUCCESSOR AGENT. The Agent may resign as Agent upon 10 days'
notice to the Banks. If the Agent shall resign as Agent under this Agreement,
then the Required Banks shall appoint from among the Banks a successor agent for
the Banks, subject to prior approval by the Company (which approval shall not be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further act
or deed on the part of such former Agent or any of the parties to this Agreement
or any holders of the Notes. After any retiring Agent's resignation hereunder
as Agent, the provisions of this subsection 12.9 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Agent under this
Agreement.
<PAGE>
61
SECTION 13. MISCELLANEOUS
13.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any Note or any
other Loan Document, nor any terms hereof of thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection 13.1. With the written consent of the Required Banks, the Agent and
the Company may, from time to time, enter into written amendments, supplements
or modifications hereto for the purpose of adding any provisions to this
Agreement, the Notes, or the other Loan Documents to which the Company is a
party or changing in any manner the rights of the Banks or of the Company
hereunder or thereunder or waiving, on such terms and conditions as the Agent
may specify in such instrument, any of the requirements of this Agreement or the
Notes or the other Loan Documents to which the Company is a party or any Default
or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver
and no such amendment, supplement or modification shall:
(i) without the written consent of each Bank, extend any scheduled
installment or the final scheduled maturity of any of the Loans or the
Notes, or reduce the rate or extend the time of payment of interest
thereon, or reduce the principal amount thereof, or change the amount or
payment terms (including, without limitation, fees and commissions) of any
Working Capital Commitment or Acquisition Commitment or consent to the
assignment or transfer by the Company of any of its rights and obligations
under this Agreement, or reduce the respective percentages specified in the
definitions of "Required Banks" in subsection 1.1, or amend the definition
of Borrowing Base in any respect which would increase the amount available
to the Company hereunder, or amend, modify or waive any provision of this
subsection 13.1;
(ii) without the written consent of all Banks, (x) release any of the
collateral provided for in any Security Document, except as set forth
therein or increase the amount of Indebtedness permitted pursuant to
subsection 10.1(g), or (y) amend, modify or waive any provision of
subsection 6.4(c), Section 9 (other than subsections 9.1, 9.3, 9.6, 9.7 and
9.11) and Section 10;
(iii) without the written consent of the Issuing Bank, amend,
supplement or otherwise modify any provisions of or directly applicable to
any Letter of Credit;
(iv) without the written consent of the then Agent, amend, modify or
waive any provision of Section 12.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Banks and shall be binding upon the Company, the Banks,
the Agent and all future holders of the Notes. In the case of any waiver, the
Company, the Banks and the Agent shall be restored to their former position and
rights hereunder and under the outstanding Notes, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
13.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telegraph or telex), and, unless otherwise
<PAGE>
62
expressly provided herein, shall be deemed to have been duly given or made when
delivered by hand, or 5 days after being deposited in the mail, postage prepaid,
or, in the case of telegraphic notice, when delivered to the telegraph company,
or, in the case of telex notice, when sent, answerback received, addressed as
follows in the case of the Company and the Agent, and as set forth in Schedule I
in the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes:
The Company: Petroleum Heat and Power Co., Inc.
Clearwater House
2187 Atlantic Street
Stamford, Connecticut 06902
Attention: President
Telecopier: (203) 328-7422
The Agent: The Chase Manhattan Bank
7600 Jericho Turnpike
Woodbury, New York 11797
Attention: John T. Mast, Vice President
Telecopier: (516) 364-3307
PROVIDED that any notice, request or demand to or upon the Agent or the Banks
pursuant to subsections 2.3, 6.2, 6.3 and 6.8 shall not be effective until
received.
13.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder or under any other Loan Document, shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided or provided in the
Loan Documents are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
13.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement, the Letters of
Credit and the Notes.
13.5 PAYMENT OF EXPENSES AND TAXES. The Company agrees (a) to pay or
reimburse the Agent for all its out-of-pocket costs and expenses incurred in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, the Notes and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the fees and disbursements of counsel to
the Agent, (b) to pay or reimburse each Bank and the Agent for all their costs
and expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes and any such other documents, including,
without limitation, fees and disbursements of counsel to the Agent and to the
several Banks, (c) to pay, indemnify, and hold each Bank, the Agent and the
officers, directors, employees, agents, attorneys-in-fact or affiliates of each
such Bank and the Agent (each an "INDEMNIFIED PARTY") harmless from, any and all
recording and filing fees and any
<PAGE>
63
and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of any
of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the Notes and any such other documents, and (d) to pay, indemnify,
and hold each Indemnified Party harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the Notes and any such other documents (all the foregoing,
collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED, that the Company shall
have no obligation hereunder to the Indemnified Parties with respect to
indemnified liabilities arising from (i) the gross negligence or willful
misconduct of any such Indemnified Party, (ii) legal proceedings commenced
against the Indemnified Party by any security holder or creditor thereof arising
out of and based upon rights afforded any such security holder or creditor
solely in its capacity as such, or (iii) legal proceedings commenced against the
Indemnified Party by any other Bank or by any transferee of any part of such
Bank's commitment hereunder. The agreements in this subsection shall survive
repayment of the Notes and all other amounts payable hereunder.
13.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING BANKS. (a)
This Agreement shall be binding upon and inure to the benefit of the Company,
the Banks, the Agent, all future holders of the Notes and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Bank.
(b) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("PARTICIPANTS") participating interests in any Loan
owing to such Bank, any Note held by such Bank, any Working Capital Commitment
or Acquisition Commitment of such Bank or any other interest of such Bank
hereunder and under the other Loan Documents. In the event of any such sale by
a Bank of a participating interest to a Participant, such Bank's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Bank shall remain solely responsible for the performance
thereof, such Bank shall remain the holder of any such Note for all purposes
under this Agreement and the other Loan Documents, and the Company and the Agent
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement and the other Loan
Documents. The Company agrees that if amounts outstanding under this Agreement
and the Notes are due or unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Bank under this Agreement or any Note, PROVIDED that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Banks the proceeds thereof as provided in subsection 13.7(a) as
fully as if it were a Bank hereunder. The Company also agrees that each
Participant shall be entitled to the benefits of subsections 6.12, 6.13 and 6.16
with respect to its participation in the Working Capital Commitments,
Acquisition Commitments and the Loans outstanding from time to time; PROVIDED,
that no Participant shall be entitled to receive any greater amount pursuant to
such subsections than the transferor Bank would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Bank
to such Participant had no such transfer
<PAGE>
64
occurred.
(c) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to any Bank or
any affiliate thereof and, with the consent of the Company and the Agent (which
in each case shall not be unreasonably withheld), to one or more additional
banks or financial institutions ("PURCHASING BANKS") all or any part of its
rights and obligations under this Agreement and the Notes pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit I, executed by
such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing
Bank that is not then a Bank or an affiliate thereof, by the Company and the
Agent) and delivered to the Agent for its acceptance and recording in the
Register. Upon such execution, delivery, acceptance and recording, from and
after the Effective Date determined pursuant to such Assignment and Acceptance,
(x) the Purchasing Bank thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights and obligations of a
Bank hereunder with a Working Capital Commitment and Acquisition Commitment, and
(y) the transferor Bank thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of a transferor Bank's rights and obligations under this Agreement, such
transferor Bank shall cease to be a party hereto). Such Assignment and
Acceptance shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Bank and the
resulting adjustment of Commitment Percentages arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement and the Notes. On or prior to the
Effective Date determined pursuant to such Assignment and Acceptance, the
Company, at its own expense, shall execute and deliver to the Agent in exchange
for the Working Capital Note of the transferor Bank a new Working Capital Note
to the order of such Purchasing Bank in an amount equal to the Working Capital
Commitment or Acquisition Commitment, as the case may be, assumed by it pursuant
to such Assignment and Acceptance and, if the transferor Bank has retained a
Working Capital Commitment hereunder, a new Working Capital Note to the order of
the transferor Bank in an amount equal to the Working Capital Commitment
retained by it hereunder. Such new Notes shall be dated the Closing Date or the
Commitment Termination Date, as the case may be, and shall otherwise be in the
form of the Note replaced thereby. The Note(s) surrendered by the transferor
Bank shall be returned by the Agent to the Company marked "cancelled".
Notwithstanding anything to the contrary contained herein or in any other Loan
Document, no Bank shall assign any portion of any of its Commitments hereunder
(or the extensions of credit outstanding thereunder) pursuant to an Assignment
and Acceptance without simultaneously assigning to the same Purchasing Bank a
ratable share of each other Commitment hereunder (or the extensions of credit
outstanding thereunder) and such Purchasing Bank becoming a party to the Line
Letter for its ratable share thereof.
(d) The Agent shall maintain at its address referred to in subsection
13.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "REGISTER") for the recordation of the names and addresses of the Banks and
the Working Capital Commitment and Acquisition Commitment of, and principal
amount of the Loans owing to, each Bank from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the Company,
the Agent and the Banks may treat each Person whose name is recorded in the
Register as the owner of the Loan recorded therein for all purposes of this
Agreement. The Register shall be available for inspection by the Company or any
Bank at any reasonable time and from time to time upon
<PAGE>
65
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by a
transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that
is not then a Bank or an affiliate thereof, by the Company and the Agent)
together with payment to the Agent of a registration and processing fee of
$2000, the Agent shall (i) promptly accept such Assignment and Acceptance and
(ii) on the Effective Date determined pursuant thereto record the information
contained therein in the Register and give notice of such acceptance and
recordation to the Banks and the Company.
(f) The Company authorizes each Bank to disclose to any Participant
or Purchasing Bank (each, a "TRANSFEREE") and any prospective Transferee any and
all financial information in such Bank's possession concerning the Company and
its affiliates which has been delivered to such Bank by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Bank by
or on behalf of the Company in connection with such Bank's credit evaluation of
the Company and its affiliates prior to becoming a party to this Agreement.
(g) If, pursuant to this subsection, any interest in this Agreement
or any Note is transferred to any Transferee which is organized under the laws
of any jurisdiction other than the United States or any state thereof, the
transferor Bank shall cause such Transferee, concurrently with the effectiveness
of such transfer, (i) to represent to the transferor Bank (for the benefit of
the transferor Bank, the Agent and the Company) that under applicable law and
treaties no taxes will be required to be withheld by the Agent, the Company or
the transferor Bank with respect to any payments to be made to such Transferee
in respect of the Loans, (ii) to furnish to the transferor Bank (and, in the
case of any Purchasing Bank registered in the Register, the Agent and the
Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue
Service Form 1001 (wherein such Transferee claims entitlement to complete
exemption from U.S. federal withholding tax on all interest payments hereunder)
and (iii) to agree (for the benefit of the transferor Bank, the Agent and the
Company) to provide the transferor Bank (and, in the case of any Purchasing Bank
registered in the Register, the Agent and the Company) a new Form 4224 or Form
1001 upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with applicable U.S. laws and regulations
and amendments duly executed and completed by such Transferee, and to comply
from time to time with all applicable U.S. laws and regulations with regard to
such withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
13.7 ADJUSTMENTS; SET-OFF. (a) If any Bank (a "BENEFITTED BANK")
shall at any time receive any payment of all or part of its Loans, Inventory
Reimbursement Obligations, Acquisition L/C Reimbursement Obligations or
Acceptance Reimbursement Obligations or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in clause (g) of
Section 11, or otherwise) in a greater proportion than any such payment to and
collateral received by any other Bank, if any, in respect of such other Bank's
Loans, Inventory Reimbursement Obligations, Acquisition L/C Reimbursement
Obligations
<PAGE>
66
or Acceptance Reimbursement Obligations or interest thereon, such benefitted
Bank shall purchase for cash from the other Banks such portion of each such
other Bank's Loans, Inventory Reimbursement Obligations, Acquisition L/C
Reimbursement Obligations or Acceptance Reimbursement Obligations, or shall
provide such other Banks with the benefits of any such collateral, or the
proceeds thereof, as shall be necessary to cause such benefitted Bank to share
the excess payment or benefits of such collateral or proceeds ratably with each
of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Bank, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Company agrees that each
Bank so purchasing a portion of another Bank's Loans, Inventory Reimbursement
Obligations, Acquisition L/C Reimbursement Obligations or Acceptance
Reimbursement Obligations may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Bank were the direct holder of such portion.
(b) In addition to any rights and remedies of the Banks provided by
law, each Bank shall have the right, without prior notice to the Company, any
such notice being expressly waived by the Company to the extent permitted by
applicable law, upon any amount becoming due and payable by the Company
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Bank to or for the credit or the account of the Company.
Each Bank agrees promptly to notify the Company and the Agent after any such
set-off and application made by such Bank, PROVIDED that the failure to give
such notice shall not affect the validity of such set-off and application.
13.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and the Agent.
13.9 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
13.10 SUBMISSION TO JURISDICTION; WAIVERS. (a) The Company hereby
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement or any other Loan Document to which
it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
<PAGE>
67
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Company at its address set forth in subsection 13.2 or at
such other address of which the Agent shall have been notified pursuant
thereto; and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) The Company, the Agent and each Bank hereby irrevocably and
unconditionally waive trial by jury and the Company hereby waives its right of
set-off and its right to interpose counterclaims in any legal action or
proceeding relating to this Agreement and for any counterclaim therein.
<PAGE>
68
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
PETROLEUM HEAT AND POWER CO., INC.
By:
--------------------------------------
Title:
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), as Agent
and as a Bank
By:
--------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
--------------------------------------
Title:
NATIONSBANK, N.A.
By:
--------------------------------------
Title:
FIRST UNION BANK OF CONNECTICUT
(formerly known as First Fidelity Bank)
By:
--------------------------------------
Title:
<PAGE>
Schedule I
Commitments; Commitment Percentages;
Addresses for Notices
-----------------------------
Working Capital Acquisition Commitment
Address for Notices Commitment Commitment Percentage
- ------------------- --------------- ----------- ----------
The Chase Manhattan Bank $21,000,000 $ 6,030,500 35%
7600 Jericho Turnpike
Woodbury, NY 11797
Attn: John Mast
The First National Bank $15,000,000 $ 4,307,500 25%
of Boston
100 Federal Street, #010802
Boston, MA 02110
Attn: Michael Hannon
NationsBank, N.A. $15,000,000 $ 4,307,500 25%
767 Fifth Avenue
New York, NY 10152
Attn: Eileen Higgins
First Union Bank of Connecticut $9,000,000 $ 2,584,500 15%
10 State House Sq. - 2nd Floor
Hartford, Connecticut 06103
Attn: Matt Riley
TOTAL $60,000,000 $ 17,230,000 100%
---------- ------------ ----
---------- ------------ ----
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION (IN THOUSANDS EXCEPT PER
SHARE DATA) EXTRACTED FROM PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,223
<SECURITIES> 0
<RECEIVABLES> 59,099
<ALLOWANCES> 1,970
<INVENTORY> 14,888
<CURRENT-ASSETS> 108,542
<PP&E> 70,173
<DEPRECIATION> 40,900
<TOTAL-ASSETS> 251,374
<CURRENT-LIABILITIES> 83,388
<BONDS> 291,643
8,333
0
<COMMON> 2,543
<OTHER-SE> (143,278)
<TOTAL-LIABILITY-AND-EQUITY> 251,374
<SALES> 392,558
<TOTAL-REVENUES> 422,060
<CGS> 236,121
<TOTAL-COSTS> 293,064
<OTHER-EXPENSES> 125,973
<LOSS-PROVISION> 1,295
<INTEREST-EXPENSE> 26,007
<INCOME-PRETAX> (20,546)
<INCOME-TAX> 350
<INCOME-CONTINUING> (20,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,414
<CHANGES> 0
<NET-INCOME> (27,704)
<EPS-PRIMARY> (1.18)
<EPS-DILUTED> (1.18)
</TABLE>
