<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1994
REGISTRATION NO. 33-53343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMPIRE GAS CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSOURI 5984 43-1494323
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
P.O. BOX 303
(1700 SOUTH JEFFERSON STREET)
LEBANON, MISSOURI 65536
(417) 532-3101
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
See table of additional registrants.
--------------------------
Paul S. Lindsey, Jr.
Chief Operating Officer
Empire Gas Corporation
P.O. Box 303
Lebanon, Missouri 65536
(417) 532-3101
(Name and address, including zip code, and telephone number, including area
code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Richard W. Cass, Esq. Joseph A. Coco, Esq.
Wilmer, Cutler & Pickering Skadden, Arps, Slate, Meagher & Flom
2445 M Street, N.W. 919 Third Avenue
Washington, D.C. 20037-1420 New York, New York 10022
(202) 663-6000 (212) 735-3000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS POSSIBLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT (2) FEE
<S> <C> <C> <C> <C>
Units (each unit consisting of $
principal amount of % Senior Secured
Notes due 2004 and Warrants to
purchase Common Stock)................... (1) (1) $100,000,000 $34,483
Guarantee of the % Senior Secured Notes
due 2004 by subsidiaries of the
Registrant (3)........................... (1) -- -- --
Common Stock, par value $.001 per share
(4)...................................... 175,469 shares $7.00 $1,228,286 $423.55
<FN>
(1) The amount to be registered and proposed maximum offering price of the
Senior Secured Notes will be calculated to result in a maximum aggregate
offering price to the public of $100,000,000.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457.
(3) The guarantors listed on the attached table will jointly and severally
issue full and unconditional guarantees of the payment of the Senior
Secured Notes. No separate consideration will be received for the
guarantees.
(4) Issuable upon exercise of the Warrants offered hereunder. An indeterminate
number of additional shares of Common Stock is registered hereunder, which
may be issued pursuant to the anti-dilution provisions of the Warrants. No
additional registration fee is included for such shares.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS,
INCLUDING ZIP
CODE AND
PRIMARY TELEPHONE NUMBER,
STANDARD INCLUDING AREA
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER CODE, OF
JURISDICTION OF CLASSIFICATION IDENTIFICATION PRINCIPAL
NAME INCORPORATION CODE NUMBER NUMBER EXECUTIVE OFFICES
- --------------------------------------------------- ----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
EMPIRE TANK LEASING CORPORATION.................... DELAWARE 5984 43-0909092 (1)
EMPIREGAS EQUIPMENT CORPORATION.................... CALIFORNIA 5984 43-0966160 (1)
EMPIRE UNDERGROUND STORAGE, INC.................... KANSAS 5984 43-1034230 (1)
EMPIRE INDUSTRIAL SALES OKLAHOMA
CORPORATION....................................... 5984 43-0898527 (1)
UTILITY COLLECTION CORPORATION..................... DELAWARE 5984 43-0796108 (1)
EMPIREGAS TRANSPORTS, INC. (MISSOURI).............. DELAWARE 5984 43-0794408 (1)
EMPIRE AVIATION CORPORATION........................ DELAWARE 5984 43-1405593 (1)
EMPIREGAS TRANSPORTS, INC. -- OR................... OREGON 5984 43-1623931 (1)
EMPIREGAS INC. OF CLINTON (MISSOURI)............... DELAWARE 5984 43-1222571 (1)
EMPIREGAS INC. OF KANSAS CITY...................... DELAWARE 5984 43-0815037 (1)
EMPIREGAS INC. OF ALBANY........................... OREGON 5984 43-1526762 (1)
EMPIREGAS INC. OF AIKEN............................ SOUTH CAROLINA 5984 43-1113382 (1)
EMPIREGAS OF ARMA, INC............................. KANSAS 5984 43-0797739 (1)
EMPIREGAS INC. OF ARNAULDVILLE..................... LOUISIANA 5984 43-0969880 (1)
EMPIREGAS INC. OF AUBURN........................... WASHINGTON 5984 43-1547484 (1)
EMPIREGAS INC. OF BIG RAPIDS....................... MICHIGAN 5984 43-0991732 (1)
EMPIREGAS INC. OF BOLIVAR.......................... DELAWARE 5984 43-0794420 (1)
EMPIREGAS INC. OF BOISE............................ IDAHO 5984 82-0456341 (1)
EMPIREGAS INC. OF BOULDER.......................... COLORADO 5984 43-0910833 (1)
EMPIREGAS INC. OF BOWLING GREEN.................... DELAWARE 5984 43-0813526 (1)
EMPIREGAS INC. OF BRANDON.......................... IOWA 5984 43-0961168 (1)
EMPIREGAS INC. OF BREMERTON........................ WASHINGTON 5984 43-1655742 (1)
EMPIREGAS OF BRISTOW, INC.......................... OKLAHOMA 5984 43-0864361 (1)
EMPIREGAS INC. OF BUFFALO.......................... DELAWARE 5984 43-0896236 (1)
EMPIREGAS INC. OF ADRIAN........................... DELAWARE 5984 43-0914797 (1)
EMPIREGAS INC. OF CAMDENTON........................ DELAWARE 5984 43-0897842 (1)
EMPIREGAS INC. OF CANON CITY....................... COLORADO 5984 43-0911108 (1)
EMPIREGAS INC. OF CANTON........................... TEXAS 5984 43-1124489 (1)
EMPIREGAS INC. OF CARTHAGE......................... DELAWARE 5984 43-1024249 (1)
EMPIREGAS INC. OF CASTLE ROCK...................... COLORADO 5984 43-0961711 (1)
EMPIREGAS INC. OF CENTERVILLE...................... IOWA 5984 43-0831405 (1)
EMPIREGAS INC. OF CHARLOTTE........................ MICHIGAN 5984 43-0991735 (1)
EMPIREGAS INC. OF CHASSEL.......................... MICHIGAN 5984 43-0994501 (1)
EMPIREGAS INC. OF CHEHALIS......................... WASHINGTON 5984 43-1521611 (1)
EMPIREGAS INC. OF CLINTON, ILLINOIS................ DELAWARE 5984 43-0813524 (1)
EMPIREGAS OF COLCORD, INC.......................... OKLAHOMA 5984 43-0893108 (1)
EMPIREGAS INC. OF COLE CAMP........................ DELAWARE 5984 43-1519473 (1)
EMPIREGAS INC. OF COLEMAN.......................... MICHIGAN 5984 43-0991731 (1)
EMPIREGAS INC. OF COLORADO SPRINGS................. COLORADO 5984 43-0914812 (1)
EMPIREGAS INC. OF COQUILLE......................... OREGON 5984 43-0961770 (1)
EMPIREGAS INC. OF CUBA............................. DELAWARE 5984 43-0810587 (1)
EMPIREGAS INC. OF CHETEK........................... WISCONSIN 5984 43-0957058 (1)
EMPIREGAS INC. OF DENVER........................... COLORADO 5984 43-0910829 (1)
EMPIREGAS INC. OF DOVER............................ DELAWARE 5984 43-0908483 (1)
EMPIREGAS INC. OF DURAND........................... MICHIGAN 5984 43-0998704 (1)
EMPIREGAS INC. OF EL DORADO SPRINGS................ DELAWARE 5984 43-1180992 (1)
EMPIREGAS INC. OF ELSBERRY......................... DELAWARE 5984 43-0911111 (1)
EMPIREGAS INC. OF ELSINORE......................... CALIFORNIA 5984 43-0962196 (1)
EMPIREGAS INC. OF ESCONDIDO........................ CALIFORNIA 5984 43-0962188 (1)
EMPIREGAS INC. OF EUNICE........................... DELAWARE 5984 43-1175673 (1)
EMPIREGAS INC. OF EVERGREEN........................ COLORADO 5984 43-0914820 (1)
SALGAS INC. OF FAIRPLAY............................ COLORADO 5984 43-0911113 (1)
EMPIREGAS INC. OF EAU CLAIRE....................... WISCONSIN 5984 43-0957057 (1)
EMPIREGAS INC. OF FORT COLLINS..................... COLORADO 5984 43-0910828 (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS,
INCLUDING ZIP
CODE AND
PRIMARY TELEPHONE NUMBER,
STANDARD INCLUDING AREA
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER CODE, OF
JURISDICTION OF CLASSIFICATION IDENTIFICATION PRINCIPAL
NAME INCORPORATION CODE NUMBER NUMBER EXECUTIVE OFFICES
- --------------------------------------------------- ----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
EMPIREGAS INC. OF FOWLER........................... COLORADO 5984 43-0911116 (1)
EMPIREGAS INC. OF MID-MISSOURI..................... DELAWARE 5984 43-0831431 (1)
EMPIREGAS INC. OF GALVESTON........................ TEXAS 5984 43-0968240 (1)
EMPIREGAS INC. OF GALVA............................ DELAWARE 5984 43-1078190 (1)
EMPIREGAS INC. OF GAYLORD.......................... MICHIGAN 5984 43-1617313 (1)
EMPIREGAS INC. OF GLOBE............................ ARIZONA 5984 43-1080630 (1)
EMPIREGAS INC. OF GOOSE CREEK...................... SOUTH CAROLINA 5984 43-1116503 (1)
EMPIREGAS INC. OF GREELEY.......................... COLORADO 5984 74-1622653 (1)
EMPIREGAS INC. OF GRAND JUNCTION................... COLORADO 5984 43-0961675 (1)
EMPIREGAS OF GROVE, INC............................ OKLAHOMA 5984 43-0815874 (1)
EMPIREGAS INC. OF HERMISTON........................ OREGON 5984 43-1559568 (1)
EMPIREGAS INC. OF HERMITAGE........................ DELAWARE 5984 43-0897840 (1)
EMPIREGAS INC. OF HIAWASSEE........................ DELAWARE 5984 96-3748077 (1)
EMPIREGAS INC. OF HIGGINSVILLE..................... MISSOURI 5984 43-1648250 (1)
EMPIREGAS OF HITICHITA, INC........................ OKLAHOMA 5984 43-0887746 (1)
EMPIREGAS INC. OF HOOPESTON........................ DELAWARE 5984 43-0976128 (1)
EMPIREGAS INC. OF HORNICK.......................... IOWA 5984 43-0961106 (1)
EMPIREGAS INC. OF HUMANSVILLE...................... DELAWARE 5984 43-0797681 (1)
EMPIREGAS INC. OF JACKSONVILLE..................... DELAWARE 5984 43-0976132 (1)
EMPIREGAS INC. OF JACKSON, MI...................... MICHIGAN 5984 36-3657583 (1)
EMPIREGAS INC. OF KALAMAZOO........................ MICHIGAN 5984 43-1438800 (1)
EMPIREGAS INC. OF KIRKSVILLE....................... DELAWARE 5984 43-0810527 (1)
EMPIREGAS INC. OF LAFAYETTE........................ LOUISIANA 5984 43-0914806 (1)
EMPIREGAS INC. OF LAKE CHARLES..................... LOUISIANA 5984 43-0914807 (1)
EMPIREGAS INC. OF LAKE PROVIDENCE.................. LOUISIANA 5984 43-0914808 (1)
EMPIREGAS INC. OF LAURIE........................... DELAWARE 5984 43-1073506 (1)
EMPIREGAS OF LE SUEUR, INC......................... MINNESOTA 5984 43-0992082 (1)
EMPIREGAS INC. OF LINCOLN.......................... ARKANSAS 5984 43-0820385 (1)
EMPIREGAS INC. OF LONGMONT......................... COLORADO 5984 43-0910827 (1)
EMPIREGAS INC. OF LOS ANGELES...................... CALIFORNIA 5984 43-0962195 (1)
EMPIREGAS INC. OF LOVELAND......................... COLORADO 5984 43-0914809 (1)
EMPIREGAS INC. OF MARQUETTE........................ MICHIGAN 5984 43-0971920 (1)
EMPIREGAS INC. OF MARSHALL......................... MISSOURI 5984 43-0813522 (1)
EMPIREGAS INC. OF MEDFORD.......................... OREGON 5984 43-1559569 (1)
EMPIREGAS INC. OF MENOMONIE........................ WISCONSIN 5984 39-1135410 (1)
EMPIREGAS INC. OF MERILLAN......................... WISCONSIN 5984 43-0957846 (1)
EMPIREGAS INC. OF MILLER........................... DELAWARE 5984 43-0796054 (1)
EMPIREGAS INC. OF MODESTO.......................... CALIFORNIA 5984 43-0962187 (1)
EMPIREGAS INC. OF MONTE VISTA...................... COLORADO 5984 43-0971965 (1)
EMPIREGAS INC. OF MOUNT VERNON..................... OHIO 5984 43-1078168 (1)
EMPIREGAS INC. OF MUNISING......................... MICHIGAN 5984 43-0971911 (1)
EMPIREGAS INC. OF MURPHY........................... NORTH CAROLINA 5984 43-1584673 (1)
THRIF-T-GAS INC. OF BLACKWATER..................... DELAWARE 5984 43-0914888 (1)
EMPIREGAS INC. OF NORTH BEND....................... OREGON 5984 43-0961772 (1)
EMPIREGAS INC. OF NORTH MYRTLE BEACH, INC.......... OKLAHOMA 5984 43-0815797 (1)
EMPIREGAS INC. OF OAK GROVE........................ LOUISIANA 5984 43-0914896 (1)
EMPIREGAS INC. OF ONAWA............................ IOWA 5984 43-0961040 (1)
EMPIREGAS INC. OF ORANGEBURG....................... SOUTH CAROLINA 5984 43-1107825 (1)
EMPIREGAS INC. OF OWENSVILLE....................... DELAWARE 5984 43-0911121 (1)
EMPIREGAS INC. OF SANTA PAULA...................... CALIFORNIA 5984 43-0962185 (1)
EMPIREGAS INC. OF PADUCAH.......................... TEXAS 5984 43-1208276 (1)
EMPIREGAS INC. OF PALMYRA.......................... DELAWARE 5984 43-0890013 (1)
EMPIREGAS INC. OF PLACERVILLE...................... CALIFORNIA 5984 43-0962190 (1)
EMPIREGAS INC. OF POMONA........................... CALIFORNIA 5984 43-0962191 (1)
EMPIREGAS INC. OF POTOSI........................... DELAWARE 5984 43-0898220 (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS,
INCLUDING ZIP
CODE AND
PRIMARY TELEPHONE NUMBER,
STANDARD INCLUDING AREA
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER CODE, OF
JURISDICTION OF CLASSIFICATION IDENTIFICATION PRINCIPAL
NAME INCORPORATION CODE NUMBER NUMBER EXECUTIVE OFFICES
- --------------------------------------------------- ----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
EMPIREGAS INC. OF PUEBLO........................... COLORADO 5984 43-0914833 (1)
EMPIREGAS INC. OF REEDSPORT........................ OREGON 5984 43-0961774 (1)
EMPIREGAS INC. OF RICHLAND......................... DELAWARE 5984 43-0897850 (1)
EMPIREGAS INC. OF ROLLA............................ DELAWARE 5984 43-0911115 (1)
EMPIREGAS INC. OF SACRAMENTO....................... CALIFORNIA 5984 43-0962193 (1)
EMPIREGAS INC. OF SANDY............................ DELAWARE 5984 43-0964734 (1)
EMPIREGAS INC. OF SHELL LAKE....................... WISCONSIN 5984 43-0957054 (1)
EMPIREGAS INC. OF SILOAM SPRINGS................... ARKANSAS 5984 43-0820384 (1)
EMPIREGAS OF STIGLER, INC.......................... OKLAHOMA 5984 43-0836428 (1)
EMPIREGAS INC. OF SUSANVILLE....................... CALIFORNIA 5984 43-1618791 (1)
EMPIREGAS INC. OF SUNNYSIDE........................ WASHINGTON 5984 43-0961777 (1)
EMPIREGAS INC. OF ROCKY MOUNT...................... NORTH CAROLINA 5984 43-0985116 (1)
EMPIREGAS INC. OF THE DALLES....................... OREGON 5984 43-1559567 (1)
EMPIREGAS INC. OF TIPTON (IOWA).................... IOWA 5984 43-0961124 (1)
EMPIREGAS INC. OF TRAVERSE CITY.................... MICHIGAN 5984 43-1616711 (1)
EMPIREGAS INC. OF VANDALIA......................... DELAWARE 5984 43-1025019 (1)
EMPIREGAS INC. OF VASSAR........................... MICHIGAN 5984 43-0991734 (1)
EMPIREGAS INC. OF VINITA, INC...................... OKLAHOMA 5984 43-0865345 (1)
EMPIREGAS INC. OF WARREN........................... ARKANSAS 5984 43-1062386 (1)
EMPIREGAS INC. OF WARSAW (MISSOURI)................ DELAWARE 5984 43-0897849 (1)
EMPIREGAS INC. OF WASHINGTON....................... NORTH CAROLINA 5984 43-0976108 (1)
EMPIREGAS INC. OF WAUKON........................... IOWA 5984 43-0961125 (1)
EMPIREGAS INC. OF WAYNESVILLE...................... DELAWARE 5984 43-0914835 (1)
EMPIREGAS INC. OF WAYNESVILLE, NC.................. NORTH CAROLINA 5984 43-1136713 (1)
EMPIREGAS INC. OF WENATCHEE........................ WASHINGTON 5984 43-0961776 (1)
EMPIREGAS INC. OF WENTZVILLE....................... DELAWARE 5984 43-0828895 (1)
EMPIREGAS OF WESTVILLE, INC........................ OKLAHOMA 5984 43-0820386 (1)
EMPIREGAS INC. OF WILLS POINT...................... TEXAS 5984 43-1124487 (1)
EMPIREGAS INC. OF WILMINGTON....................... NORTH CAROLINA 5984 43-0986459 (1)
EMPIREGAS INC. OF WILSON........................... NORTH CAROLINA 5984 43-1009657 (1)
EMPIREGAS INC. OF WOODLAND PARK.................... COLORADO 5984 43-0910830 (1)
EMPIREGAS INC. OF YAKIMA........................... WASHINGTON 5984 43-0961778 (1)
EMPIREGAS INC. OF YUCCA VALLEY..................... CALIFORNIA 5984 43-0962194 (1)
EMPIREGAS INC. OF ZEBULON.......................... NORTH CAROLINA 5984 43-1009658 (1)
EMPIREGAS INC. OF COLUMBIANA....................... OHIO 5984 43-1208278 (1)
EMPIREGAS OF ZUMBRO FALLS, INC..................... MINNESOTA 5984 43-0989945 (1)
GINCO GAS COMPANY, INC............................. COLORADO 5984 36-3943352 (1)
EMPIREGAS INC. OF ORANGE COUNTY.................... TEXAS 5984 43-1118050 (1)
EMPIREGAS INC. OF MORGAN COUNTY.................... DELAWARE 5984 43-1183774 (1)
EMPIREGAS INC. OF LAKE OZARK....................... DELAWARE 5984 43-0900202 (1)
EMPIREGAS INC. OF WACO............................. TEXAS 5984 43-1113582 (1)
EMPIREGAS INC. OF PARIS, TX........................ TEXAS 5984 43-1117378 (1)
EMPIREGAS INC. OF DALLAS, TX....................... TEXAS 5984 43-1050035 (1)
EMPIREGAS INC. OF KEMP............................. TEXAS 5984 43-1107542 (1)
EMPIREGAS INC. OF SAN ANTONIO...................... TEXAS 5984 43-1118053 (1)
THRIFT-T-GAS CO., INC.............................. DELAWARE 5984 43-1030760 (1)
EMPIREGAS INC. OF PARIS, MO........................ DELAWARE 5984 43-0830813 (1)
SALIDA GAS CO., INC................................ DELAWARE 5984 43-1078187 (1)
SALGAS INC. OF GUNNISON............................ COLORADO 5984 43-0815009 (1)
EMPIREGAS INC. OF TOLEDO........................... OHIO 5984 APPLIED FOR (1)
EMPIREGAS INC. OF WILKESBORO....................... NORTH CAROLINA 5984 APPLIED FOR (1)
EMPIREGAS INC. OF HENDERSONVILLE................... NORTH CAROLINA 5984 APPLIED FOR (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDRESS,
INCLUDING ZIP
CODE AND
PRIMARY TELEPHONE NUMBER,
STANDARD INCLUDING AREA
STATE OR OTHER INDUSTRIAL I.R.S. EMPLOYER CODE, OF
JURISDICTION OF CLASSIFICATION IDENTIFICATION PRINCIPAL
NAME INCORPORATION CODE NUMBER NUMBER EXECUTIVE OFFICES
- --------------------------------------------------- ----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
EMPIREGAS INC. OF NORTH CAROLINA................... NORTH CAROLINA 5984 APPLIED FOR (1)
EMPIREGAS INC. OF CREEDMOOR........................ NORTH CAROLINA 5984 APPLIED FOR (1)
EMPIREGAS INC. OF APEX............................. NORTH CAROLINA 5984 APPLIED FOR (1)
EMPIREGAS INC. OF DURHAM........................... NORTH CAROLINA 5984 APPLIED FOR (1)
EMPIREGAS INC. OF WARRENTON........................ NORTH CAROLINA 5984 APPLIED FOR (1)
<FN>
- ----------
(1) P.O. Box 303 (1700 South Jefferson Street), Lebanon, Missouri 65536, (417)
532-3101.
</TABLE>
<PAGE>
EMPIRE GAS CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page of
Prospectus....................................... Inside Front and Outside Back Cover Pages of Prospectus;
Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Consolidated
Financial and Other Data for the Company Prior to the
Transaction; Pro Forma Consolidated Financial and Other
Data; Selected Consolidated Financial and Other Data
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Not Applicable
6. Dilution.......................................... Not Applicable
7. Selling Security Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus; The Underwriter
9. Description of Securities to be Registered........ Outside Front Cover Page of Prospectus; Description of
the Units; Description of Senior Secured Notes;
Description of the Warrants; Description of Capital
Stock
10. Interests of Named Experts and Counsel............ Legal Matters; Experts
11. Information with Respect to the Registrant........ Outside and Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The Transaction;
Capitalization; Selected Consolidated Financial and
Other Data for the Company Prior to the Transaction;
Pro Forma Consolidated Financial and Other Data;
Selected Consolidated Financial and Other Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Relationships and Related
Transactions; Description of the Units; Description of
Senior Secured Notes; Description of the Warrants;
Description of Capital Stock; Description of Other
Indebtedness; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 21, 1994
EMPIRE GAS CORPORATION
$ REPRESENTING UNITS,
EACH UNIT CONSISTING OF % SENIOR SECURED NOTES DUE 2004
AND WARRANTS TO PURCHASE COMMON STOCK
-----------------
INTEREST PAYABLE AND
-------------------
CASH INTEREST ON THE SENIOR SECURED NOTES WILL BE PAYABLE AT THE RATE OF %
PER ANNUM OF THEIR PRINCIPAL AMOUNT AT MATURITY THROUGH AND
INCLUDING , 1999, AND AFTER SUCH DATE WILL BE PAYABLE AT THE
RATE OF % PER ANNUM OF THEIR PRINCIPAL AMOUNT AT MATURITY. THE
SENIOR SECURED NOTES WILL BE ISSUED AT A SUBSTANTIAL DISCOUNT FROM
THEIR PRINCIPAL AMOUNT AT MATURITY. SEE "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS." THE PRICE TO PUBLIC OF THE SENIOR SECURED
NOTES SHOWN BELOW REPRESENTS A YIELD TO MATURITY OF
% PER ANNUM, COMPUTED ON THE BASIS OF SEMIANNUAL
COMPOUNDING.
------------------------
THE SENIOR SECURED NOTES WILL BE REDEEMABLE AT THE OPTION OF THE COMPANY, IN
WHOLE OR IN PART, AT ANY TIME ON OR AFTER , 1999, INITIALLY AT %
OF THEIR ACCRETED VALUE, PLUS ACCRUED INTEREST, DECLINING TO 100% OF THEIR
ACCRETED VALUE PLUS ACCRUED INTEREST, ON OR AFTER , 2001. IN
ADDITION, UP TO $ MILLION AGGREGATE PRINCIPAL AMOUNT AT MATURITY (35%)
OF THE SENIOR SECURED NOTES WILL BE REDEEMABLE, IN WHOLE OR IN PART, AT
THE OPTION OF THE COMPANY, FROM THE PROCEEDS OF ONE OR MORE PUBLIC
EQUITY OFFERINGS (AS DEFINED HEREIN) FOLLOWING WHICH THERE IS A
PUBLIC MARKET (AS DEFINED HEREIN), AT THE REDEMPTION PRICES SET
FORTH HEREIN, PLUS ACCRUED INTEREST.
------------------------
EACH WARRANT ENTITLES THE HOLDER THEREOF TO PURCHASE ONE SHARE OF THE COMPANY'S
COMMON STOCK AT A PRICE OF $7.00 PER SHARE, SUBJECT TO ADJUSTMENT. THE
WARRANTS OFFERED HEREBY ENTITLE THE HOLDERS THEREOF TO PURCHASE, IN THE
AGGREGATE, APPROXIMATELY 10% OF THE COMPANY'S OUTSTANDING COMMON STOCK
(AFTER GIVING EFFECT TO THE EXERCISE OF THE WARRANTS). THE WARRANTS
WILL BE SEPARATELY TRANSFERABLE BEGINNING, AND WILL BE
EXERCISABLE ON OR AFTER, , 1994 AND EXPIRE ON
, 2004.
------------------------
THE SENIOR SECURED NOTES WILL BE SENIOR OBLIGATIONS OF THE COMPANY SECURED
BY A PLEDGE OF ALL OF THE CAPITAL STOCK OF THE COMPANY'S PRESENT AND FUTURE
SUBSIDIARIES. THERE IS CURRENTLY NO ESTABLISHED TRADING MARKET FOR SUCH STOCK
AND THE COMPANY DOES NOT INTEND TO HAVE THE STOCK LISTED FOR TRADING ON ANY
SECURITIES EXCHANGE OR ON ANY AUTOMATED DEALER QUOTATION SYSTEM. THE SENIOR
SECURED NOTES WILL RANK PARI PASSU WITH ALL EXISTING AND FUTURE SENIOR
INDEBTEDNESS OF THE COMPANY. THE SENIOR SECURED NOTES WILL BE GUARANTEED BY ALL
WHOLLY-OWNED SUBSIDIARIES OF THE COMPANY, WHICH CARRY ON THE RETAIL BUSINESS OF
THE COMPANY (COLLECTIVELY, THE "SUBSIDIARY GUARANTORS"). ON A PRO FORMA BASIS,
AS OF MARCH 31, 1994, AFTER GIVING EFFECT TO THE TRANSACTION (AS DEFINED
HEREIN), THE OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM, THE
COMPANY WOULD HAVE HAD NO SENIOR INDEBTEDNESS OUTSTANDING, EXCLUDING THE SENIOR
SECURED NOTES. THE COMPANY IS A HOLDING COMPANY, AND ACCORDINGLY, THE SENIOR
SECURED NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL EXISTING AND FUTURE
LIABILITIES OF THE COMPANY'S SUBSIDIARIES (EXCEPT TO THE EXTENT THAT THE
GUARANTEES REPRESENT DIRECT CLAIMS AGAINST SUCH SUBSIDIARIES). ON A PRO FORMA
BASIS, AS OF MARCH 31, 1994, AFTER GIVING EFFECT TO THE TRANSACTION, THE
OFFERING AND THE APPLICATION OF THE NET PROCEEDS THEREFROM, THE COMPANY'S
SUBSIDIARIES WOULD HAVE HAD APPROXIMATELY $530,000 OF OUTSTANDING LIABILITIES
(EXCLUDING GUARANTEES), INCLUDING TRADE PAYABLES AND ACCRUED EXPENSES AND TAXES
PAYABLE.
-------------------
SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A UNIT AND ACCRUED INTEREST
-----------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
PER UNIT.................................... % % %
TOTAL....................................... $ $ $
<FN>
- ---------
(1) PLUS ACCRUED INTEREST ON THE SENIOR SECURED NOTES FROM ,
1994.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITER AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. SEE "THE UNDERWRITER."
(3) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$ .
</TABLE>
THE UNITS ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITER AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS BY SKADDEN,
ARPS, SLATE, MEAGHER & FLOM, COUNSEL FOR THE UNDERWRITER. IT IS EXPECTED THAT
THE DELIVERY OF THE UNITS WILL BE MADE ON OR ABOUT , 1994, AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, NEW YORK, AGAINST PAYMENT
THEREFOR IN NEW YORK FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
JUNE , 1994
<PAGE>
[GRAPHIC]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE UNITS OFFERED
HEREBY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
UNTIL , 1994 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 10
The Transaction............................................................................................ 16
Use of Proceeds............................................................................................ 17
Capitalization............................................................................................. 18
Selected Consolidated Financial and Other Data For the Company Prior to the Transaction.................... 19
Pro Forma Consolidated Financial and Other Data............................................................ 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 29
Business................................................................................................... 37
Management................................................................................................. 44
Principal Shareholders..................................................................................... 50
Certain Relationships and Related Transactions............................................................. 51
Description of the Units................................................................................... 54
Description of the Senior Secured Notes.................................................................... 57
Description of the Warrants................................................................................ 83
Description of Capital Stock............................................................................... 86
Certain Federal Income Tax Considerations.................................................................. 87
Description of Other Indebtedness.......................................................................... 91
The Underwriter............................................................................................ 93
Legal Matters.............................................................................................. 93
Experts.................................................................................................... 93
Available Information...................................................................................... 93
Index to Financial Statements.............................................................................. F-1
</TABLE>
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR SECURED
NOTES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN
THIS PROSPECTUS. AS USED HEREIN, UNLESS THE CONTEXT REQUIRES OTHERWISE, THE
TERMS "EMPIRE GAS" AND THE "COMPANY" REFER TO EMPIRE GAS CORPORATION AND ITS
SUBSIDIARIES ASSUMING CONSUMMATION OF THE TRANSACTION, WHICH WILL OCCUR
SIMULTANEOUSLY WITH THIS OFFERING. ALL REFERENCES IN THE PROSPECTUS TO FISCAL
YEARS ARE TO THE COMPANY'S FISCAL YEAR WHICH ENDS ON JUNE 30.
THE COMPANY
Empire Gas is one of the largest retail distributors of propane in the
United States and, through its subsidiaries, has been engaged in the retail
distribution of propane since 1963. During the fiscal year ended June 30, 1993,
without giving effect to the Transaction, Empire Gas supplied propane to
approximately 200,000 customers in 27 states from 284 retail service centers and
sold approximately 142.1 million gallons of propane, accounting for
approximately 91.4% of its operating revenue. The Company also sells related
gas-burning appliances and equipment and rents customer storage tanks.
The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers (the "Stock Purchase") in exchange for all of the shares of
common stock of a subsidiary that owns 133 retail service centers located
primarily in the Southeast. Mr. Paul S. Lindsey, Jr., who has been with the
Company for 26 years and currently serves as the Company's Chief Operating
Officer and Vice Chairman of the Board, will become the Company's controlling
shareholder, Chief Executive Officer, and President. The change in ownership and
management will enable the Company to pursue a growth strategy focused on
acquiring propane operating companies. Contemporaneously with the Offering, the
Company will acquire the assets of PSNC Propane Corporation, a company located
in North Carolina that has six retail service centers and five additional bulk
storage facilities with annual volume of approximately 9.5 million gallons (the
"Acquisition," and together with the Stock Purchase, the "Transaction"), for an
aggregate purchase price of approximately $14.0 million (which includes payment
for inventory and accounts receivable). The Company also recently completed the
acquisition of a retail propane company in Colorado with annual volume of
approximately 700,000 gallons, and has entered into a contract to purchase a
retail propane company in Missouri with annual volume of approximately 690,000
gallons.
Following the Transaction, Empire Gas' operations will consist of 158 retail
service centers with 22 additional bulk storage facilities. During the fiscal
year ended June 30, 1993, Empire Gas, after giving effect to the Transaction,
sold approximately 84.8 million gallons of propane (approximately 40% less than
prior to the Transaction) to approximately 112,000 customers in 20 states, which
(based on retail gallons sold) makes it one of the 11 largest retail
distributors of propane in the United States. The impact on the Company's
operations of weather fluctuations in a particular region will be reduced as a
result of the substantial geographic diversification of the Company after the
Transaction, with operations in the west, the southwest, Colorado, the upper
midwest, the Mississippi Valley and the southeast.
Propane, a hydrocarbon with properties similar to natural gas, is separated
from natural gas at gas processing plants and refined from crude oil at
refineries. It is stored and transported in a liquid state and vaporizes into a
clean-burning energy source that is used for a variety of residential,
commercial, and agricultural purposes. Residential and commercial uses include
heating, cooking, water heating, refrigeration, clothes drying, and
incineration. Commercial uses also include metal cutting, drying, container
pressurization, and charring, as well as use as a fuel for internal combustion
engines. As of December 31, 1991, the propane industry had grown, as measured by
the gallons of retail residential/commercial propane sold, at the rate of 3.7%
per annum since 1984.
The Company believes the highly fragmented retail propane market presents
substantial opportunities for growth through consolidation. As of December 31,
1991, there were approximately 8,000 propane retail marketing companies in the
continental United States with approximately 13,500 retail distribution points.
In addition, Empire Gas believes growth can be achieved by the conversion to
propane of homes that
4
<PAGE>
currently use either electricity or fuel oil products because of the price
advantage propane has over electricity and because propane is a cleaner source
of energy than fuel oil products. As of December 31, 1990, there were
approximately 23.7 million homes that used electricity for heating, water
heating, cooking and other household purposes, approximately 11.2 million homes
that used fuel oil products, and approximately 5.7 million homes that used
propane for such purposes.
Empire Gas focuses on propane distribution to retail customers, including
residential, commercial, and agricultural users, emphasizing, in particular,
sales to residential customers, a stable segment of the retail propane market
that traditionally has generated higher gross margins per gallon than other
retail segments. Sales to residential customers, giving effect to the
Transaction, accounted for approximately 65.5% of the Company's aggregate
propane sales revenue and 74.3% of its aggregate gross margin from propane sales
in fiscal year 1993.
Empire Gas attracts and retains its residential customers by supplying them
storage tanks, by offering them superior service and by strategically locating
visible and accessible retail service centers on or near major highways. Empire
Gas focuses its operations on sales to customers to which it also leases tanks,
as sales to this segment of the retail propane market tend to be more stable and
typically provide higher gross margins than sales to customers who own tanks.
After the Transaction, Empire Gas will own approximately 109,000 storage tanks
that it leases to approximately 83% of its customers. Empire Gas' residential
customer base is relatively stable, because (i) fire safety regulations and
state container laws restrict the filling of a leased tank solely to the propane
supplier that leases the tank, (ii) rental agreements for its tanks restrict the
customers from using any other supplier, and (iii) the cost and inconvenience of
switching tanks minimizes a customer's tendency to change suppliers.
Historically, the Company has retained 90% of all its customers from year to
year, with the average customer remaining with Empire Gas for approximately 10
years.
The change in ownership and management of the Company will enable it to
pursue a business strategy to increase its revenues and profitability through
(i) expansion by acquisitions and start-ups, (ii) expansion of its existing
residential customer base, and (iii) geographic rationalization and the
reduction of operating expenses. Empire Gas will seek opportunities to acquire
retail service centers in areas where it already has a strong presence and to
develop new retail service centers in new markets. Efforts to expand the
existing residential customer base will focus primarily on conversion of
customers currently using electricity for heating, conversion of customers
currently using fuel oil and wood due to environmental impact, and soliciting
customers created by the new home construction market in growth areas. Empire
Gas intends to dispose of a limited number of retail service centers that are
located in markets in which it does not have, and does not desire to develop, a
strong presence or that do not have the potential for long-term growth. Empire
Gas believes it will be able to reduce its operating expenses through a program
of consolidating a number of retail service centers where such consolidations
will yield operating efficiencies.
The Company's principal executive offices are located at 1700 South
Jefferson Street, Lebanon, Missouri 65536. The Company's telephone number is
(417) 532-3101.
THE OFFERING
THE UNITS
<TABLE>
<S> <C>
Securities Offered................ Units (the "Units") consisting of % Senior Secured
Notes due 2004 (the "Senior Secured Notes"), each
having an initial accreted value of $ , and
Warrants. Each Warrant entitles the holder thereof
to purchase one share of Common Stock , par value
$.001 per share, of the Company (the "Common Stock")
at an exercise price of $7.00 per share. See
"Description of the Units."
Separability...................... The Senior Secured Notes and the Warrants will become
separately transferrable on , 1994 (the
"Separation Date").
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE SENIOR SECURED NOTES
<S> <C>
Notes Offered..................... $ estimated aggregate principal amount
($100,000,000 initial accreted value) of % Senior
Secured Notes due 2004. See "Description of the Senior
Secured Notes."
Maturity Date..................... , 2004
Interest.......................... Cash interest on the Senior Secured Notes will be
payable at the rate of % per annum of their principal
amount at maturity through and including ,
1999, and after such date will be payable at the rate
of % per annum of their principal amount at
maturity. See "Original Issue Discount" below. In-
terest on the Senior Secured Notes is payable
semiannually on and ,
commencing , 1994. The price to the public
of the Senior Secured Notes represents a yield to
maturity of % per annum, computed on the basis of
semiannual compounding.
Optional Redemption............... The Senior Secured Notes will be redeemable at the
option of the Company, in whole or in part, on or after
, 1999 at the redemption prices set forth
herein, plus accrued interest. In addition, up to
$ million aggregate principal amount at maturity
(35%) of the Senior Secured Notes are redeemable, in
whole or in part, at the option of the Company, from
the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at the
redemption prices set forth herein, plus accrued
interest.
Change of Control................. Upon a Change of Control (as defined herein), holders of
the Senior Secured Notes will have the right to require
the Company to purchase the Senior Secured Notes at a
purchase price of 101% of the accreted value thereof,
plus accrued and unpaid interest, if any, to the date
of purchase. The Company may not have sufficient funds
or the financing to satisfy its obligations to
repurchase the Senior Secured Notes and other debt
that may come due upon a Change of Control.
Security.......................... The Senior Secured Notes will be secured by a pledge of
all of the capital stock of the Company's present and
future subsidiaries, subject to certain exceptions.
Subsidiary Guarantees............. The Senior Secured Notes will be guaranteed (each a
"Subsidiary Guarantee") by all of the wholly owned
subsidiaries of the Company, which carry on the retail
business of the Company (collectively, the "Subsidiary
Guarantors"). The Subsidiary Guarantees will be senior
indebtedness of the respective Subsidiary Guarantors
and will rank PARI PASSU with the guarantees by the
Subsidiary Guarantors of other senior indebtedness,
including indebtedness under the New Credit Facility
(as hereinafter defined).
Ranking........................... The Senior Secured Notes will be senior obligations of
the Company and will rank PARI PASSU in right of payment
with the Company's existing and future senior
indebtedness. On a pro forma basis as of March 31,
1994, after giving effect to the application of the
net proceeds of the Offering and the Transaction, the
Company would have had no senior indebtedness
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
outstanding, excluding the Senior Secured Notes. In
addition, because the Company is a holding company,
the Senior Secured Notes will be effectively
subordinated to all existing and future liabilities of
the Company's subsidiaries (except to the extent the
Subsidiary Guarantees represent direct claims against
such subsidiaries). On a pro forma basis as of March
31, 1994, after giving effect to the application of
the net proceeds of the Offering and the Transaction,
the aggregate liabilities (excluding guarantees) of
the Company's subsidiaries would have been
approximately $530,000, including trade payables,
accrued expenses, and taxes payable. On a pro forma
basis, as of March 31, 1994, after giving effect to
the application of the net proceeds of the Offering
and the Transaction, the Senior Secured Notes would be
senior to approximately $6.4 million of 9%
Subordinated Debentures due 2007.
Certain Covenants................. The Indenture governing the Senior Secured Notes (the
"Indenture") will contain covenants, including, but not
limited to, covenants with respect to the following
matters: (i) limitations on the incurrence of
additional indebtedness; (ii) limitations on
restricted payments; (iii) limitations on incurrence
of additional indebtedness by subsidiaries; (iv)
limitations on the sale and issuance of capital stock
by subsidiaries; (v) limitations on dividends and
other payments; (vi) limitations on transactions with
affiliates; (vii) limitations on liens; (viii)
limitations on mergers, consolidations, or asset
sales; and (ix) limitations on subsidiary investments.
Events of Default................. Events of default under the Senior Secured Notes
include: (i) non-payment of interest for 30 days; (ii)
non-payment of principal when due or failure to redeem
when required; (iii) default in performance of other
covenants or agreements for 30 days after written
notice to the Company; (iv) default on other
indebtedness of the Company or its subsidiaries having
a principal amount of $2,000,000 singly or $5,000,000
in the aggregate; (v) a final judgment or order for
the payment of money in the amount of $2,000,000
singly or $5,000,000 in the aggregate that is not
discharged or appealed within 30 days; (vi) certain
events of bankruptcy, insolvency and reorganization of
the Company; (vii) except as permitted by the Inden-
ture, the Trustee's failure to have a perfected
security interest in the Collateral; and (viii) except
as permitted by the Indenture and the Senior Secured
Notes, the cessation of effectiveness of any
Subsidiary Guarantee as against any Subsidiary
Guarantor.
Actions by Noteholders............ Holders of the Senior Secured Notes may not pursue any
remedy with respect to the Indenture (except actions for
payment of overdue principal or interest) unless: (i)
the Holder has given notice to the Trustee of a
continuing Event of Default: (ii) Holders of at least
25% in principal amount of the Senior Secured Notes
have made a written request to the Trustee to pursue
such remedy and offered the Trustee security or indem-
nity reasonably satisfactory to the Trustee; (iii) the
Trustee has not complied with such request within 60
days; and (iv) the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Holders of a majority in principal amount of the
Senior Secured Notes have not given the Trustee an
inconsistent direction during such 60-day period.
Original Issue Discount........... The Senior Secured Notes are being issued with original
issue discount. For Federal income tax purposes, holders
of the Senior Secured Notes will be required to
include amounts in gross income in advance of receipt
of cash to which the income is attributable. See
"Certain Federal Income Tax Considerations."
Use of Proceeds................... The net proceeds to the Company from this Offering will
be used to repay certain indebtedness of the Company, to
complete the Acquisition, to repay certain amounts due
in connection with the Stock Purchase, and for general
corporate purposes.
Governing Law..................... State of New York.
<CAPTION>
THE WARRANTS
<S> <C>
Warrants Offered.................. Warrants to purchase Common Stock. The aggregate number
of shares of Common Stock issuable upon exercise of
the Warrants is equal to approximately 10% of the
outstanding shares of Common Stock on a fully diluted
basis, subject to certain exceptions. See "Description
of the Warrants."
Exercise Price.................... Each Warrant entitles the holder thereof to purchase one
share of Company Common Stock at the exercise price of
$7.00 per share, subject to adjustment.
Exercise.......................... The Warrants may be exercised at any time after
, 1994 and prior to , 2004.
Warrants that are not exercised by such date will
expire. A Warrant does not entitle the holder thereof
to receive any dividends paid on the Common Stock.
Repurchase Offer.................. Following the occurrence of a Repurchase Event, the
Company must offer to repurchase all of the outstanding
Warrants. A Repurchase Event will occur upon the
merger or consolidation of the Company with or into,
or the sale by the Company of all or substantially all
of its assets to, another person, if the consid-
eration for such transaction does not consist solely
of cash or if the transaction is entered into with
certain entities.
Repurchase Price.................. The repurchase of Warrants following a Repurchase Event
will be: (i) at the average of the closing sales prices
of the Common Stock for the 20 days prior to such
Repurchase Event if the Common Stock is registered
under the Securities Exchange Act of 1934, as amended;
or (ii) if the Common Stock is not so registered or
the value cannot be computed under clause (i), at the
value, as determined by an independent financial
expert, of the shares of Common Stock or other
securities issuable upon exercise of the Warrants less
the exercise price thereof.
</TABLE>
RISK FACTORS
An investment in the Units involves a high degree of risk. Each prospective
purchaser of the Units should consider carefully the specific factors set forth
under "Risk Factors," as well as the other information set forth in this
Prospectus, before purchasing the Units offered by this Prospectus.
8
<PAGE>
SUMMARY PRO FORMA FINANCIAL AND OTHER DATA
The following table presents selected summary pro forma financial and other
data of the subsidiaries that will be retained by the Company following the
consummation of the Stock Purchase and PSNC Propane Corporation (the "PSNC
Operations") for the year ended June 30, 1993, and for the nine and twelve
months ended March 31, 1994. The pro forma financial operating and other data
for the year ended June 30, 1993 and for the nine and twelve months ended March
31, 1994 give effect to the Offering and the Transaction, as if these
transactions had occurred on July 1, 1992. Due to the seasonal nature of the
Company's business, the majority of the Company's revenues are earned in its
second and third fiscal quarters. Accordingly, the results of operations for the
nine months ended March 31, 1994 are not indicative of the results of operations
to be expected for the full year. Data for the twelve months ended March 31,
1994 have been set forth to provide recent data covering a full year's
operations. The financial data set forth below should be read in conjunction
with the Company's consolidated financial statements and related notes,
"Selected Consolidated Financial and Other Data for the Company Prior to the
Transaction," "Pro Forma Financial and Other Data," and "Management's Discussion
and Analysis of Results of Operations and Financial Condition," all contained
elsewhere in this Prospectus. See "Selected Consolidated and Other Financial
Data for the Company Prior to the Transaction" for a presentation of the
Company's historical consolidated financial data.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
TRANSACTION AND OFFERING(1)
----------------------------------------------------
YEAR ENDED
JUNE 30, NINE MONTHS ENDED TWELVE MONTHS ENDED
1993 MARCH 31, 1994 MARCH 31, 1994
---------- ----------------- -------------------
(IN THOUSANDS, EXCEPT RATIOS AND GROSS PROFIT
PER GALLON DATA)
<S> <C> <C> <C>
OPERATING DATA:
Operating revenue............................... $ 76,931 $ 64,996 $ 76,463
Gross profit (2)................................ 41,243 34,931 41,951
Operating expenses.............................. 23,825 18,617 24,304
Depreciation and amortization................... 6,722 4,980 6,332
Operating income................................ 10,696 11,334 11,315
Interest expense:
Cash interest................................. 10,167 7,375 9,808
Amortization of debt discount and expense..... 4,344 3,324 4,446
Total interest expense...................... 14,501 10,699 14,254
Net income (loss)............................... (2,733) 2 (2,410)
OTHER OPERATING DATA AND FINANCIAL RATIOS:
Capital expenditures:
Existing operations........................... 1,905 1,834 2,358
Start-up of new retail service centers........ 729 453 664
Acquisitions.................................. -- 444 444
---------- ------- -------
Total capital expenditures.................. 2,634 2,731 3,466
Cash from sale of retail service centers and
other assets................................... 898 228 948
EBITDA (3)...................................... 17,418 16,314 17,647
EBITDA (3) to interest expense.................. 1.20x 1.52x 1.24x
EBITDA (3) to cash interest..................... 1.71x 2.21x 1.80x
Retail gallons sold............................. 84,840 72,021 83,980
Weighted average gross profit per gallon........ .429 .435 .442
<FN>
- ------------
(1) For an explanation of adjustments to arrive at pro forma data, see
"Capitalization," and "Pro Forma Consolidated Financial and Other Data."
(2) Represents operating revenue less the cost of products sold.
(3) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA is presented here
because it is a widely accepted financial indicator of a highly leveraged
company's ability to service and/ or incur indebtedness. However, EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles) or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles).
</TABLE>
9
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
PURCHASERS OF THE UNITS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
EVALUATING AN INVESTMENT IN THE UNITS.
HIGH LEVERAGE AND ABILITY TO SERVICE DEBT
As of March 31, 1994, on a pro forma basis after giving effect to the
application of the proceeds of this Offering as set forth in "Use of Proceeds,"
and the Transaction, the Company would have had approximately $107.2 million
aggregate outstanding principal amount (in the case of the Senior Secured Notes,
such amount being the accreted value) of indebtedness on a consolidated basis,
and a stockholders' deficit of approximately $27.8 million. See
"Capitalization."
On a pro forma basis, after giving effect to the application of the proceeds
of this Offering and the Transaction, earnings would have been inadequate to
cover fixed charges by $4.4 million for fiscal year 1993, $2.2 million for the
nine months ended March 31, 1994 and by $4.4 million for the twelve months ended
March 31, 1994, resulting in the reporting of losses of $2.7 million and $2.4
million, respectively, for the fiscal year ended June 30, 1993 and the twelve
months ended March 31, 1994. The Company had income of $2,000 on a pro forma
basis for the nine months ended March 31, 1993. On a historical basis, the
Company reported income of $2.2 million, $5.8 million and $2.1 million for the
fiscal year ended June 30, 1993, and the nine and twelve months ended March 31,
1994, respectively. See "Capitalization"; "Selected Consolidated Financial and
Other Data for the Company Prior to the Transaction;" and "Pro Forma
Consolidated Financial and Other Data." The Company expects earnings to be
inadequate to cover fixed charges for fiscal year 1994, resulting in the
reporting of a loss for that period.
The Company's high degree of leverage will make it vulnerable to adverse
changes in the weather and may limit its ability to respond to market
conditions, to capitalize on business opportunities, and to meet its contractual
and financial obligations. Fluctuations in interest rates will affect the
Company's financial condition inasmuch as the credit facility the Company will
enter into simultaneously with this Offering (the "New Credit Facility") will
bear interest at a floating rate.
The Company will be required to use a significant portion of its cash flow
from operations to meet its debt service obligations, which through fiscal year
1997 are expected to consist primarily of interest, including interest on the
Senior Secured Notes. On a pro forma basis, after giving effect to the Offering
and the Transaction, debt service obligations (which consist of interest expense
and mortgage principal payments) would have been $10.4 million for the fiscal
year ended June 30, 1993 and $7.5 million for the nine months ended March 31,
1994, and earnings before interest, taxes, depreciation and amortization
(EBITDA) would have been $17.4 million and $16.3 million, respectively. After
meeting its debt service obligations, operating cash flow for the Company on a
pro forma basis would have been approximately $2.3 million and approximately
$7.8 million respectively for these periods. The ability of the Company to meet
its debt service obligations, including the increase in the cash interest rate
on the Senior Secured Notes to % in fiscal year 1999, and to reduce its
total debt, will be dependent upon the future performance of the Company and its
subsidiaries, which, in turn, will be subject to general economic conditions and
to financial, business, weather, and other factors, including factors beyond the
Company's control. The Company believes that, based on current levels of
operations and assuming winter weather that is not substantially warmer in the
various regions in which the Company operates than the historical average of
winter temperatures for these regions, it will be able to fund these debt
service obligations from funds generated from operations, proceeds of the sales
of service centers pursuant to the Company's consolidation strategy and, if
necessary, funds available under the New Credit Facility. If the Company and its
subsidiaries are unable to comply with the terms of their debt agreements and
fail to generate sufficient cash flow from operations in the future, they may be
required to refinance all or a portion of their existing debt or to obtain
additional financing. There can be no assurance that any such refinancing would
be possible or that any additional financing could be obtained, particularly in
view of the Company's anticipated high levels of debt, the fact that a
significant portion of the Company's consolidated current assets will be given
as collateral to secure indebtedness under the New Credit Facility and all of
the capital stock of the Company's present and future subsidiaries will be
pledged to secure the Senior Secured Notes, and the debt incurrence restrictions
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under existing debt agreements. If no such refinancing or additional financing
were available, the Company could be forced to default on its respective debt
obligations and, as an ultimate remedy, seek protection under the federal
bankruptcy laws.
RESTRICTIONS IN FINANCING AGREEMENTS
The Indenture contains provisions that will limit, among other things, (a)
the ability of the Company and its subsidiaries to incur additional
indebtedness, (b) certain restricted payments and investments, (c) the sale and
issuance of capital stock by subsidiaries, (d) dividend and other payments, (e)
transactions with affiliates, (f) the creation of liens, (g) the types of
mergers, consolidations, or asset sales in which the Company may participate,
and (h) subsidiary investments. The Indenture also contains provisions which
require the Company, in the event of a Change in Control, to make an offer to
purchase the Senior Secured Notes. A Change in Control is defined in the
Indenture to include: (i) the acquisition of over 30% of the voting shares of
the Company in certain circumstances; (ii) certain changes in the Board of
Directors of the Company; (iii) a sale of all or substantially all of the assets
of the Company; (iv) a reduction in the percentage of voting shares of the
Company held by certain members of management below 50%; or (v) the failure of
the Board of Directors to have at least two independent members, to have an
audit committee consisting solely of independent members or to have fewer than
eight members. See "Description of the Senior Secured Notes -- Certain
Definitions (Change of Control)." There can be no assurance that the Company
will have the financial resources necessary to purchase the Senior Secured Notes
upon a Change in Control. See "Description of the Senior Secured Notes --
Covenants."
The New Credit Facility will contain provisions similar to the provisions in
the Indenture, as well as certain financial maintenance tests. Any failure of
the Company to comply with these or other covenants contained in these
agreements could result in a default thereunder, which, in turn, could cause
such indebtedness (and by reason of cross-default provisions, the Senior Secured
Notes) to be declared immediately due and payable. The ability of the Company to
comply with these provisions may be affected by events beyond its control. See
"Description of Other Indebtedness -- New Credit Facility."
EFFECTIVE RANKING OF SENIOR SECURED NOTES
The Senior Secured Notes will be senior secured obligations of the Company
and will rank PARI PASSU with all other existing and future senior indebtedness
of the Company. Pursuant to the Indenture, the Company may incur up to $15.0
million of senior secured indebtedness under the New Credit Facility and may,
subject to certain limitations, incur other secured indebtedness. In the event
of a bankruptcy, liquidation or similar proceeding affecting the Company, the
other secured creditors of the Company would be entitled to repayment in full
from the proceeds of any collateral subject to their security interests before
any payment therefrom could be made to holders of the Senior Secured Notes. See
"Description of Senior Secured Notes -- General" and "Description of Other
Indebtedness."
The Company is a holding company that conducts its operations through its
subsidiaries (the vast majority of which are retail service centers) and has no
material assets other than its interests in its subsidiaries. As a result of the
Company's holding company structure, except to the extent that the Senior
Secured Notes (and the Subsidiary Guarantees) constitute recognized creditor
claims against the assets and earnings of the Company's subsidiaries, claims of
creditors of the Company's subsidiaries (including lenders under the New Credit
Facility which will also be guaranteed by subsidiaries of the Company) will have
priority with respect to the assets and earnings of such subsidiaries over the
claims of creditors of the Company, including holders of the Senior Secured
Notes, even though such subsidiary obligations do not constitute senior
indebtedness. On a pro forma basis as of March 31, 1994, after giving effect to
the application of the proceeds of the Offering and the Transaction, the
obligations of the Company's subsidiaries, other than their respective
guarantees of Empire Gas' obligations under the Senior Secured Notes and the New
Credit Facility, would have consisted of total payables of approximately
$530,000 including trade payables, accrued expenses and taxes payable. The New
Credit Facility and the Indenture will restrict the subsidiaries' ability to
incur additional indebtedness other than in limited circumstances, including to
fund acquisitions. See "Description of the Senior Secured Notes."
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SECURITY FOR THE SENIOR SECURED NOTES
The Senior Secured Notes will be secured by a pledge of all of the capital
stock of the Company's present and future subsidiaries. Currently there is no
market for such stock. There can be no assurance that the proceeds from the sale
or sales of all such collateral would be sufficient to satisfy the amounts due
on the Senior Secured Notes in the event of a default. If such proceeds are not
sufficient to repay all such amounts due on the Senior Secured Notes, then
Holders of the Senior Secured Notes (to the extent not repaid from the proceeds
of the sale of the collateral) would have only an unsecured claim against the
Company's remaining assets (together with a claim against the Subsidiary
Guarantors pursuant to the Subsidiary Guarantees). In addition, the ability of
the Holders of the Senior Secured Notes to rely upon the collateral (or upon the
Subsidiary Guarantees) for fulfillment of the Company's obligations under the
Indenture may be subject to certain bankruptcy law limitations in the event of a
bankruptcy.
PAYMENTS DUE ON INDEBTEDNESS PRIOR TO MATURITY OF SENIOR SECURED NOTES
The Company intends to refinance or replace some portion of its New Credit
Facility prior to its maturity on or about July 1997. There can be no assurance
that any such refinancing will be possible, or that any additional financing in
the future can be obtained, particularly in view of the Company's anticipated
high levels of debt, and the restrictions on the Company's ability to incur
additional debt under the New Credit Facility and the Indenture. If no such
refinancing or additional financing is available or possible, as the case may
be, the Company could be forced to default on its debt obligations and, as an
ultimate remedy, seek protection under the federal bankruptcy laws.
TAX CONSEQUENCES OF THE OFFERING
The Senior Secured Notes will be issued at a substantial discount from their
principal amount. Consequently, purchasers of Units generally will be required
to include amounts in gross income for Federal income tax purposes in advance of
their receipt of the cash payments to which the income is attributable. If the
Senior Secured Notes are "applicable high yield discount obligations," the
Company's federal income tax deductions with respect to the original issue
discount on the Senior Secured Notes will be deferred until the Company makes
the related payments and possibly, in part, disallowed. See "Certain Federal
Income Tax Considerations -- Certain Federal Income Tax Consequences to the
Company and to Corporate Holders."
BANKRUPTCY CONSIDERATIONS
If a bankruptcy case is commenced by or against the Company under the
Bankruptcy Code after the issuance of the Senior Secured Notes, the claim of a
holder of Senior Secured Notes may be limited to an amount equal to the sum of
(i) the initial public offering price of the Senior Secured Notes (which may
exclude amounts attributable to the value of the Warrants) and (ii) that portion
of original issue discount which is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Any original issue discount that
was not amortized as of the date of any such bankruptcy filing would constitute
"unmatured interest."
WEATHER
Weather conditions have a substantial impact on the demand for propane,
particularly by retail customers, with peak sales typically occurring during the
winter months. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Warmer than normal winter weather in fiscal years
1991 and 1992 had a material adverse effect on the Company's operating income in
each of those years. Warmer than normal weather in the future could have a
material adverse effect on the Company's operating income and could affect its
ability to fulfill its debt service obligations. While the fiscal year 1993
winter was a nearly normal winter, there can be no assurance that average
temperatures in future years will be closer to the historical average.
PROPANE COST VOLATILITY
The cost of propane purchased by the Company can fluctuate dramatically over
a short period of time due to a variety of factors, including severe cold
weather and product transportation difficulties. In general, the Company's
supply contracts permit its suppliers to charge posted prices at the time of
delivery, less any
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negotiated discount. The Company has generally been able to pass any cost
increases on to its customers; however, there can be no assurance that the
Company will be able to pass on such cost increases in the future.
COMPETITION
Empire Gas encounters competition from a number of other propane
distributors in each geographic region in which it operates and competes for
customers against suppliers of other energy sources. For residential and
commercial customers, Empire Gas competes primarily with suppliers of
electricity and propane. The Company currently enjoys, and historically has
enjoyed, a competitive advantage over suppliers of electricity because of the
higher cost of electricity. The Company believes that fuel oil does not present
a significant competitive threat in the Company's primary service areas because:
(i) propane is a residue-free, cleaner energy source, (ii) environmental
concerns make fuel oil relatively unattractive, and (iii) fuel oil appliances
are not as efficient as propane appliances. Empire Gas generally does not
attempt to sell propane in areas served by natural gas distribution systems,
except sales for specialized industrial applications and for motor fuel, because
the price per equivalent energy unit of propane is, and has historically been,
higher than that of natural gas. To use natural gas, however, a retail customer
must be connected to a distribution system provided by a local utility. Because
of the costs involved in building or connecting to a natural gas distribution
system, natural gas is not expected to create significant competition for the
Company in areas that are not currently served by natural gas distribution
systems.
CONSERVATION AND IMPROVED EFFICIENCY OF GAS APPLIANCES
Retail customers primarily use propane for heating, water heating, and
cooking. Conservation measures or technological advances, including the
development of more efficient gas appliances, could slow the growth of demand
for propane by retail propane customers. The Company believes that decreases in
oil and gas prices in recent years have decreased the incentive to conserve and
that the gas appliances used today are already operating at high levels of
efficiency. The Company cannot predict the impact of future conservation
measures. Nor is the Company able to predict the effect that any technological
advances might have on the Company's operations.
OPERATING RISKS
The Company's propane operations are subject to all operating hazards and
risks normally incident to handling, storing and transporting combustible
liquids, such as the risk of personal injury and property damage caused by fire.
Empire Gas maintains insurance policies with insurers in such amounts and with
such coverages and deductibles as management of the Company believes is
reasonable and prudent. Empire Gas' current automobile liability policy provides
coverage for losses of up to $101.0 million per occurrence with a $500,000
deductible per occurrence. Empire Gas' general liability policy has a $500,000
deductible per occurrence (subject to an aggregate deductible of $1.0 million
per policy period) with total coverage of $101.0 million. Current workers
compensation coverage also has a $500,000 deductible per incident. Current
liability insurance coverage substantially exceeds any liability Empire Gas has
previously incurred, though the $500,000 deductible on each of the policies
means that the Company is effectively self-insured for liability up to these
deductibles. The occurrence of an event not fully covered by insurance could
have a material adverse effect on the Company's financial condition and results.
See "Business of the Company -- Propane Operations -- Risks of Business."
REORGANIZATION OF THE COMPANY
Prior to the Offering, the Company consisted of 284 retail outlets operating
in 27 states. As a result of the Transaction, the number of retail outlets will
be reduced to 158 operating in 20 states (resulting in a decrease of
approximately 40% based on gallons sold during the fiscal year ended June 30,
1993). In addition, new management of the Company after the Offering intends to
pursue a strategy of acquisitions and start-ups, expansion of the Company's
existing residential customer base, geographic rationalization and reduction of
operating expenses, which differs in some regards from the strategy of current
management. See "Business -- Business Strategy." The operations of the Company
after the Offering will therefore differ from the operations prior to the
Offering in terms of the size, geographical scope, management and leverage
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of the Company and there is no assurance that new management's business strategy
will be carried out effectively. Accordingly, operations of the Company prior to
the Offering are not indicative of expected operations of the Company after the
Offering.
POTENTIAL ACQUISITIONS AND DEVELOPMENT OF NEW RETAIL SERVICE CENTERS
The Company intends to consider and evaluate opportunities for growth in its
industry through acquisitions and the development of new retail propane service
centers. While the Company recently completed an acquisition of one retail
service center in Colorado, has signed an agreement to purchase a small retail
propane company in Missouri, and will complete the Acquisition contemporaneously
with this Offering, there can be no assurance that the Company will continue to
find attractive acquisition opportunities, or to the extent such opportunities
or opportunities to develop new retail service centers are identified, that the
Company will be able to consummate the acquisitions or develop such centers or
will be able to obtain financing for any such acquisitions or projects. In
addition, the Company's ability to undertake acquisitions will be limited in
certain geographic areas by the non-competition agreement (the "Non-Competition
Agreement") entered into by the Company and Empire Energy Corporation
("Energy"), whose stock will be transferred to Mr. Plaster and certain other
departing officers as part of the Transaction. Subject to an exception for
multi-state acquisitions, the Non-Competition Agreement restricts the Company
from making acquisitions in seven states (Alabama, Florida, Georgia, Indiana,
Kentucky, Mississippi and Tennessee) and certain territories in three states
(southeastern Missouri, northern Arkansas and an area within a 50-mile radius of
an existing Energy operation in Illinois) (the "Energy Territories") for a
period of three years from the date the Stock Purchase is consummated (the
"Effective Date"). The Non-Competition Agreement also restricts the Company from
starting service centers (other than through acquisitions) in western Virginia
and western West Virginia. The Non-Competition Agreement also requires the
Company not to disclose secret information it may have regarding Energy, not to
solicit Energy customers or employees, and to grant Energy an option to purchase
from the Company (on terms substantially equivalent to the terms on which the
Company acquired the business) any business the Company acquires in violation of
the Non-Competition Agreement. The same restrictions apply to Energy under the
Non-Competition Agreement. See "The Transaction" and "Certain Relationships and
Related Transactions -- The Transaction." No assurance can be given as to the
extent to which acquisitions or new retail service centers will contribute to
the Company's cash flows or results of operations.
DEPENDENCE ON CONTROLLING SHAREHOLDER AND CONFLICT OF INTERESTS
Upon consummation of the Transaction, Empire Gas will be dependent on the
efforts of Paul S. Lindsey, Jr. who will serve as the Company's Chief Executive
Officer, President, and Chairman of the Board. Mr. Lindsey and his wife, Kristin
L. Lindsey, will hold approximately 96% of the Company's Common Stock and
generally will be able to control the Company's operations. Although the Company
will purchase a key man life insurance policy in the amount of $30 million, the
loss of Mr. Lindsey's services could have a material adverse effect on the
business of the Company. As the holder of a majority of the Company's
outstanding Common Stock, Mr. Lindsey may have interests different from those of
holders of the Units. In case of such a conflict of interests, there can be no
assurance that the Company will take actions in the best interests of the
holders of the Units.
FRAUDULENT TRANSFER CONSIDERATIONS ASSOCIATED WITH THE STOCK REPURCHASE AND DEBT
REFINANCING
Under fraudulent transfer provisions of the Bankruptcy Code or comparable
provisions of state fraudulent transfer law, a transfer of property made within
a year before a bankruptcy filing (or within the applicable state law period)
can be avoided if a company or a subsidiary thereof (a) made such transfer with
the intent of hindering, delaying, or defrauding current or future creditors, or
(b)(i) received less than reasonably equivalent value or fair consideration
therefor and (ii) at the time of such transfer (A) was insolvent or was rendered
insolvent by such transfer, (B) was engaged or was about to engage in a business
or transaction for which its remaining assets constituted unreasonably small
capital to carry on such business, or (C) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they mature.
If a court were to find that, in substance, the Senior Secured Notes were
issued to repurchase the Common Stock of Mr. Plaster and the departing officers,
the court could find that the Company did not
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receive fair consideration or reasonably equivalent value for the issuance of
the Senior Secured Notes. In addition, to the extent the proceeds are being used
to repay (i) the Company's 12% Senior Subordinated Debentures due 2002 (the "12%
Senior Subordinated Debentures") which were incurred in repaying certain
indebtedness incurred in the 1983 leveraged buy-out of Empire Gas Corporation
(the "LBO"), and (ii) $13.7 million principal amount of the Company's 9%
Subordinated Debentures due 2007 (the "2007 9% Subordinated Debentures"), which
were incurred in the LBO, of which $4.7 million principal amount will be
purchased from Mr. Plaster, a court could find that the Company did not receive
fair consideration or reasonably equivalent value for the issuance of the Senior
Secured Notes. If a court found a lack of fair consideration for the Senior
Secured Notes and also concluded that one or more of the financial conditions
described above was satisfied at the time Empire Gas incurred the debt to the
holders of the Senior Secured Notes, or if the court found that the transaction
was entered into with the intent of hindering, delaying, or defrauding
creditors, the court could set aside the transaction as a fraudulent transfer
and void the Senior Secured Notes and order the return of any payments of
principal and interest made on the Senior Secured Notes. To the extent any
Senior Secured Note was avoided as a fraudulent transfer, the holder of that
Senior Secured Note would cease to have any claim in respect of the Company. In
addition, the avoidance of the Senior Secured Notes could result in an event of
default with respect to the other indebtedness of the Company and could result
in the acceleration of such indebtedness, a change in control of the Company, or
otherwise adversely affect the Company.
The obligations of the Company's existing subsidiaries to guarantee the
Company's obligations under the Senior Secured Notes pursuant to the Subsidiary
Guarantees may also be avoidable as fraudulent transfers. In the event that a
court finds that (a) any such subsidiary did not receive reasonably equivalent
value or fair consideration in exchange for such subsidiary's incurrence of the
obligations under its respective Subsidiary Guaranty, and (b) that such
subsidiary was insolvent or rendered insolvent by such Subsidiary Guaranty, had
unreasonably small capital, or intended to or believed that it would incur debt
beyond its ability to repay, such Subsidiary Guaranty could be avoided. The
Subsidiary Guarantees could also be subject to avoidance as a fraudulent
transfer if a court finds that such obligations were incurred with actual intent
to delay, hinder or defraud any of the subsidiaries' creditors.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a company will be considered insolvent if the sum of its debts, including
estimated contingent liabilities, was greater than all of its assets at a fair
valuation or if the present fair saleable value of its assets is less than the
amount that would be required to pay its probable liability on its existing
debts, including estimated contingent liabilities, as they become absolute and
mature.
The Company believes that the indebtedness represented by the Senior Secured
Notes and the Subsidiary Guarantees is being incurred for proper purposes and in
good faith, and without any actual intent to delay, hinder, or defraud the
Company's creditors. Furthermore, the Company believes, based on analyses of
internal cash flow, that it (i) will not be considered insolvent, at the time of
or as a result of the issuance of the Senior Secured Notes, under any of the
foregoing standards, (ii) will have sufficient capital to meet the needs of the
business in which it is engaged, and (iii) will not have incurred debts beyond
its ability to pay such debts as they mature. Furthermore, as a condition to the
consummation of the Stock Purchase, the Company will receive a solvency opinion
that the Stock Purchase and this Offering will not render the Company insolvent,
leave the Company with inadequate or unreasonably small capital or result in the
Company incurring indebtedness beyond its ability to repay such indebtedness as
it matures. There can be no assurance, however, that a court passing on such
questions would agree with the Company.
ABSENCE OF PUBLIC MARKET
There is currently no established trading market for the Units, the Senior
Secured Notes, the Warrants or shares of Common Stock and the Company does not
intend to have the Units, the Senior Secured Notes, the Warrants or the shares
of Common Stock listed for trading on any securities exchange or on any
automated dealer quotation system. The Underwriter has advised the Company that
it presently intends to make a market in the Units, the Senior Secured Notes and
the Warrants, but the Underwriter is not obligated to make such markets and any
such market making may be discontinued at any time at the sole discretion of the
Underwriter. Accordingly, no assurance can be given as to the prices or
liquidity of, or
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trading markets for, the Units, the Senior Secured Notes, the Warrants or shares
of Common Stock. The liquidity of any market for the Units, the Senior Secured
Notes, the Warrants or shares of Common Stock will depend upon the number of
holders of such securities, the interest of securities dealers in making a
market in such securities, and other factors. The absence of an active market
for the Units, the Senior Secured Notes, the Warrants or shares of Common Stock
would adversely affect the liquidity of such securities. The liquidity of, and
trading markets for, the Senior Secured Notes may also be adversely affected by
the liquidity of, and market for high yield securities generally. Such a decline
may adversely affect the liquidity of, and trading markets for, the Senior
Secured Notes, independent of the financial performance of, and prospects for,
the Company.
THE TRANSACTION
The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers in exchange for all of the shares of a subsidiary that owns
133 retail service centers located primarily in the Southeast. Mr. Paul S.
Lindsey, Jr., who has been with the Company for 26 years and currently serves as
the Company's Chief Operating Officer and Vice Chairman of the Board, will
become the Company's controlling shareholder, Chief Executive Officer, and
President. The change in ownership and management will enable the Company to
pursue a growth strategy focusing on acquiring propane operating companies.
Contemporaneously with the Offering, the Company will acquire the assets of PSNC
Propane Corporation, a company located in North Carolina that has six retail
service centers and five additional bulk storage facilities with annual volume
of approximately 9.5 million gallons, for an aggregate purchase price of
approximately $14.0 million (which includes payment for inventory and accounts
receivable). The Company also recently completed the acquisition of a retail
propane company in Colorado with annual volume of approximately 700,000 gallons,
and has entered into a contract to purchase a retail propane company in Missouri
with annual volume of approximately 690,000 gallons.
Pursuant to the Stock Purchase, the Company will transfer 100% of the common
stock of its subsidiary, Energy ("Energy Common Stock"), to Mr. Robert W.
Plaster and certain departing directors, officers and employees in exchange for
12,004,430 of their shares of Common Stock. Certain of the departing officers
and employees will receive $7.00 per share for the remaining 346,223 of shares
of Common Stock that they hold. Energy owns the common stock of approximately
136 subsidiaries, 133 of which are retail service centers located in ten states,
primarily in the Southeast, and certain other assets. Empire Gas will retain
ownership of 158 retail service centers located in 20 states and 8 nonretail
subsidiaries that provide services related to the Company's retail propane
business. Following the Transaction, Mr. Lindsey and his wife Kristin Lindsey
will beneficially own approximately 96% of the approximately 1,600,000 shares of
the Company's Common Stock remaining outstanding and Mr. Lindsey will become the
Company's Chief Executive Officer and President.
In connection with the Stock Purchase, Mr. Plaster will terminate his
positions with the Company as Chief Executive Officer and Chairman of the Board
of Directors. Mr. Plaster's employment contract with the Company will be
terminated. See "Management -- Employment Agreement." Similarly, the departing
directors, officers and employees will terminate their positions with the
Company and its subsidiaries.
In connection with the Stock Purchase, certain lease and use agreements
between the Company and Mr. Plaster, or entities controlled by Mr. Plaster, will
be terminated. The Company has also entered into certain agreements that will
become effective on the Effective Date, including the Non-Competition Agreement,
a lease for the Company's headquarters, and a services agreement pursuant to
which Empire Service Corporation ("Service Corp."), a subsidiary of Energy, will
provide data processing, management information and other services to the
Company (the "Service Agreement"). See "Certain Relationships and Related
Transactions."
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The Company has received a private letter ruling from the Internal Revenue
Service concerning the federal income tax consequences of the Stock Purchase,
which provides, among other things, that, based on certain representations
contained in the rulings, neither income nor gain for federal income tax
purposes will be recognized by the Company as a result of the Stock Purchase.
The obligations of the parties to consummate the Stock Purchase are also
subject to certain other conditions, including the receipt of a solvency opinion
that the consummation of the Stock Purchase and this Offering will not render
the Company insolvent, leave the Company with inadequate or unreasonably small
capital or result in the Company incurring indebtedness beyond its ability to
repay such indebtedness as it matures.
Simultaneously with this Offering, the Company will consummate the
acquisition of PSNC Propane Corporation, a company that has six retail service
centers and an additional five bulk storage facilities located in North
Carolina, an area in which the Company desires to strengthen its presence. The
Company will use approximately $12.0 million of the proceeds towards the $14.0
million aggregate purchase price. Approximately $1.5 million of the remaining
purchase price will be funded by borrowings on the Company's New Credit
Facility. The remaining $500,000 will be paid by the Company over five years.
See "Use of Proceeds." During 1993, PSNC Propane Corporation sold approximately
9.5 million gallons, 70% of which were higher margin sales to residential
customers.
The Company will use a portion of the proceeds to repay certain of its
existing indebtedness that have earlier maturity dates or that carry a higher
effective interest rate. The Company will enter into the $15.0 million New
Credit Facility.
Immediately prior to the consummation of the Offering, the Company's
subsidiary, Empire Gas Operating Corporation ("EGOC"), which owns the
outstanding capital stock of the Company's retail service centers and certain
nonretail subsidiaries, and certain other assets, will merge into the Company.
USE OF PROCEEDS
The net proceeds to the Company from the issuance and sale of the Units
offered hereby will be approximately $95.0 million. The Company intends to use
approximately $72.1 million of the net proceeds to retire existing indebtedness.
Approximately $22.3 million will be used to redeem the Company's 12% Senior
Subordinated Debentures due 2002, which currently have an annual sinking fund
requirement of $690,000. Approximately $20.0 million will be used to redeem the
Company's 9% Convertible Subordinated Debentures due 1998, which currently have
an annual sinking fund requirement of $1.25 million. Approximately $16.1 million
will be used to repay the term loan (currently accruing interest at 6.125% per
annum) under the existing credit facility (the "Term Loan"), which matures June
30, 1998 and which currently has a quarterly sinking fund requirement of
$650,000. Approximately $13.7 million will be used to repurchase $13.7 million
principal amount of 2007 9% Subordinated Debentures, $4.7 principal amount of
which will be purchased from Mr. Robert W. Plaster. See "Certain Relationships
and Related Transactions." The purchase of the 2007 9% Subordinated Debentures
will satisfy the Company's $1.37 million annual sinking fund requirement through
the maturity date of the Senior Secured Notes. Approximately $12.0 million of
the remaining net proceeds will be used by the Company to complete the
Acquisition, which has an aggregate purchase price of $14.0 million (which
includes payment for inventory and accounts receivable). See "The Transaction"
and "Business -- Business Strategy -- Growth through acquisition of retail
service centers." Approximately $2.6 million of the net proceeds will be used to
repurchase, at $7.00 per share, approximately 346,223 shares of Common Stock
held by the departing directors, officers and employees, and approximately
31,642 shares of Common Stock held by other shareholders. The Company will use
approximately $4.1 million of the net proceeds to make a payment to Energy in
connection with the Stock Purchase, reduced to the extent Energy may be required
to make a payment to the Company based on the balance, as of the Effective Date,
of certain of the Company's liabilities net of certain of its assets. See
"Certain Relationships and Related Transactions -- The Transaction." Any
remaining net proceeds (estimated to be $4.2 million) will be used by the
Company for general corporate purposes which could include payment of accrued
interest, repayment of the existing credit facility and future acquisitions.
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CAPITALIZATION
The following table sets forth, as of March 31, 1994, the historical
capitalization of the Company and the pro forma capitalization of the Company as
adjusted to give effect to the Transaction and the application of the proceeds
of the Offering as described in "Use of Proceeds". This table should be read in
conjunction with the Company's consolidated financial statements and the pro
forma financial statements, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1994
-----------------------------
HISTORICAL AS ADJUSTED
------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt.............. $ 6,135 $ 329
------------- -------------
------------- -------------
Long-term debt (excluding current portion of
long-term debt):
Existing Credit Facility:
Term Loan....................................... $ 13,450 $ --
$22 million revolving credit facility........... 3,500 --
New Credit Facility:
$15 million revolving credit facility........... --
% Senior Secured Notes due 2004................. 99,360(2)
9% Convertible Subordinated Debentures due
1998............................................. 15,875 --
9% Subordinated Debentures due 2007.............. 14,731 6,415(1)
12% Senior Subordinated Debentures due 2002....... 18,201 --
Purchase contract obligations..................... 939 1,101
------------- -------------
Total long-term debt............................ 66,696 106,876
------------- -------------
Stockholders' equity (deficit):
Common stock...................................... 14 14
Common stock purchase warrants.................... -- 640(2)
Additional paid-in capital........................ 27,088 27,088
Retained earnings................................. 5,899 32,393
------------- -------------
33,001 60,135
Less: Treasury stock.............................. (1,299) (87,975)
------------- -------------
Total stockholders' equity (deficit)............ 31,702 (27,840)
------------- -------------
Total capitalization.......................... $ 98,398 $ 79,036
------------- -------------
------------- -------------
<FN>
- ---------
(1) Face amount $12.3 million.
(2) Reflects estimated $100 million of gross proceeds of the Units offered
hereby, including $99.4 million of allocated value to the Senior Secured
Notes and $.6 million of allocated value to the warrants.
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FOR THE COMPANY PRIOR TO THE TRANSACTION
The following table presents selected consolidated operating and balance
sheet data of Empire Gas, prior to the consummation of the Transaction, as of
and for each of the years in the five-year period ended June 30, 1993, as of and
for the nine months ended March 31, 1993 and 1994, and for the twelve months
ended March 31, 1994. The financial data of the Company as of and for each of
the years in the five-year period ended June 30, 1993 were derived from the
Company's audited consolidated financial statements. The financial data for the
Company as of and for the nine months ended March 31, 1993 and 1994, were
derived from the Company's unaudited consolidated financial statements which, in
the opinion of the Company, reflect all adjustments, of a normal and recurring
nature, necessary for a fair presentation of the results for the unaudited
periods. Due to the seasonal nature of the Company's business, the majority of
the Company's revenues are earned in its second and third fiscal quarters.
Accordingly, the results of operations for the nine months ended March 31, 1994
are not indicative of the results of operations to be expected for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Data for the twelve months ended March 31, 1994 have
been set forth to provide recent data concerning a full year's operations. The
financial and other data set forth below should be read in conjunction with the
Company's consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus. Because these data do not take into
account the effects of the Transaction on the Company's results and financial
condition, management does not believe they are indicative of the results of the
Company that can be expected after the Transaction and Offering.
<TABLE>
<CAPTION>
EMPIRE GAS BEFORE THE TRANSACTION AND OFFERING
------------------------------------------------------------------------------------
NINE MONTHS ENDED TWELVE MONTHS
YEAR ENDED JUNE 30, MARCH 31, ENDED
------------------------------------------------ ------------------ MARCH 31,
1989 (1) 1990 1991 1992 1993 1993 1994 1994
-------- -------- -------- -------- -------- -------- -------- --------------
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating data:
Operating revenue..................... $108,389 $123,153 $121,758 $112,080 $128,401 $111,332 $110,108 $127,177
Gross profit (2)...................... 61,995 64,962 61,787 61,107 68,199 58,525 59,338 69,012
Operating expenses.................... 36,438 39,062 44,772 40,052 41,845 31,986 33,109 42,968
Depreciation and amortization......... 8,194 9,334 9,552 10,062 10,351 7,672 7,494 10,173
Operating income...................... 17,363 16,566 7,463 10,993 16,003 18,867 18,735 15,871
Interest expense:
Cash interest....................... 12,288 11,437 12,038 10,721 9,826 7,541 6,446 8,731
Amortization of debt discount and
expenses........................... 1,469 1,147 890 1,006 1,686 1,167 1,396 1,915
-------- -------- -------- -------- -------- -------- -------- --------------
Total interest expense............ 13,757 12,584 12,928 11,727 11,512 8,708 7,842 10,646
Net income (loss) (3)................. 857 1,216 (4,557) (1,474) 2,228 5,929 5,789 2,088
Other operating data:
Ratio of earnings to fixed
charges (4).......................... 1.16x 1.23x -- -- 1.36x 2.14x 2.27x 1.39x
Deficiency in earnings available to
cover fixed charges (4).............. -- -- $ (6,167) $ (1,184) -- -- -- --
Capital expenditures:
Existing operations................. 4,310 3,993 4,148 4,048 2,964 1,839 3,429 4,554
Acquisitions........................ 2,863 260 1,708 225 -- -- 444 444
Start up of new retail service
centers............................ 450 1,987 2,957 2,430 1,394 1,259 848 983
-------- -------- -------- -------- -------- -------- -------- --------------
Total capital expenditures.......... 7,623 6,240 8,813 6,703 4,358 3,098 4,721 5,981
Cash from sale of retail service
centers and other assets............. 1,301 430 497 3,062 1,088 360 153 881
EBITDA (5)............................ 25,557 25,399 17,015 21,055 26,354 26,539 26,229 26,044
Income (loss) per share............... $ .05 $ .04 $ (.33) $ (.11) $ .16 $ .41 $ .40 $ .14
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF
---------------------------------------------------------------------------------- MARCH 31, 1994
1989 1990 1991 1992 1993 --------------
-------------- -------------- -------------- -------------- -------------- (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets................ $ 161,155 $ 158,383 $157,138 $ 151,471 $ 148,020 $152,193
Long-term debt (including
current maturities)........ 77,775 79,666 84,289 78,958 79,249 72,831
Stockholders' equity........ 29,473 30,982 26,438 24,901 25,913 31,702
<FN>
- ------------
(1) The operating data for 1989 include the operating results of the Company's
predecessor, which was also named Empire Gas Corporation ("Old Empire"),
for the period ended October 28, 1988. The Company was formed in September
1988 to acquire Old Empire.
(2) Represents operating revenue less the cost of products sold.
(3) Empire Gas did not declare or pay dividends on its common stock during the
five-year period ending June 30, 1993 or during the nine-month period
ending March 31, 1994.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" represents net income before income taxes, plus "fixed charges"
and the amortization of capitalized interest, less interest capitalized.
"Fixed charges" consist of interest (including amortization of debt
issuance costs) and amortization of discount on indebtedness.
(5) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA is presented here
because it is a widely accepted financial indicator of a highly leveraged
company's ability to service and/ or incur indebtedness. However, EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles)
or (ii) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
</TABLE>
20
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The following unaudited pro forma consolidated statements of operations have
been derived from the consolidated statement of operations of the Company for
the fiscal year ended June 30, 1993 and the consolidated statement of operations
for the nine months and twelve months ended March 31, 1994 and adjust such
information to give effect to the Offering and the Transaction as if they had
been consummated on July 1, 1992. The unaudited pro forma consolidated balance
sheet has been derived from the consolidated balance sheet of the Company and
adjusts such information to give effect to the Offering and the Transaction as
if they had been consummated on March 31, 1994. The Pro Forma Consolidated
Financial and Other Data and accompanying notes should be read in conjunction
with the consolidated financial statements and related notes thereto appearing
elsewhere in this Prospectus. The Pro Forma Consolidated Financial and Other
Data is presented for informational purposes only and does not purport to
represent what the results of operations would actually have been if the
Offering and the Transaction had occurred on July 1, 1992, or what the Company's
financial position would actually have been if the Offering and the Transaction
had occurred on March 31, 1994, or to project the Company's results of
operations or financial position at any future date or for any future period.
The Transaction is being accounted for as a treasury stock transaction using the
fair value of Energy assets conveyed to repurchase the Company's stock. The fair
value of Energy assets is based on a valuation method derived principally on
gallons of retail sales and operating cash flows, and, in management's view, is
consistent with valuation methods generally used in valuing propane distribution
companies.
21
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
----------------------------------------------------------------
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
-------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $128,401 $(61,057)(1) $ 9,587 $ $ 76,931
COST OF PRODUCT SOLD.................... 60,202 (29,157)(1) 4,643 35,688
-------- ------------ ------------ ---------
GROSS PROFIT............................ 68,199 (31,900) 4,944 41,243
-------- ------------ ------------ ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts....... 958 (442)(1) 30 546
General and administrative............ 40,437 (19,852)(2) 2,619 23,204
Rent expense to related party......... 450 (375)(2) 75
Depreciation and amortization......... 10,351 (4,687)(3) 1,058 6,722
-------- ------------ ------------ ---------
52,196 (25,356) 3,707 30,547
-------- ------------ ------------ ---------
OPERATING INCOME........................ 16,003 (6,544) 1,237 10,696
-------- ------------ ------------ ---------
OTHER EXPENSE
Interest expense...................... (8,877) 271(4) (1,064) (497) (6) (10,167)
Interest expense to related party..... (949) 94(4) 855(6)
Amortization of debt discount and
expense.............................. (1,686) (423) (2,235) (7) (4,344)
Restructuring proposal costs.......... (223) 105(2) (118)
-------- ------------ ------------ ----------- ---------
(11,735) 470 (1,487) (1,877) (14,629)
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 4,268 (6,074) (250) (1,877) (3,933)
PROVISION (CREDIT) FOR INCOME TAXES 2,040 (2,433)(5) (100) (707) (8) (1,200)
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM................................... $ 2,228 $ (3,641) $ (150) $(1,170) (9) $ (2,733)
-------- ------------ ------------ ----------- ---------
-------- ------------ ------------ ----------- ---------
INCOME (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM..................... $ .16 -- -- -- $ (1.73)
-------- ---------
-------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 1.36x -- -- -- --
--------
--------
Deficiency in earnings to cover fixed
charges.............................. -- -- -- -- $ (4,352)
---------
---------
EBITDA**.............................. $ 26,354 -- -- -- $ 17,418
EBITDA to total interest expense...... 2.29x -- -- -- 1.20x
EBITDA to cash interest............... 2.68x -- -- -- 1.71x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
** EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA is presented here
because it is a widely accepted financial indicator of a highly leveraged
company's ability to service and/ or incur indebtedness. However, EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles)
or (ii) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
</TABLE>
22
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1994
----------------------------------------------------------------
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
-------- ------------ ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $110,108 $(54,638)(1) $ 9,526 $ $ 64,996
COST OF PRODUCT SOLD.................... 50,770 (25,368)(1) 4,663 30,065
-------- ------------ ------------ ----------- ---------
GROSS PROFIT............................ 59,338 (29,270) 4,863 34,931
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts 413 (215)(1) 34 232
General and administrative............ 32,359 (15,925)(2) 1,894 18,328
Rent expense to related party 337 (280)(2) 57
Depreciation and amortization......... 7,494 (3,292)(3) 778 4,980
-------- ------------ ------------ ---------
40,603 (19,712) 2,706 23,597
-------- ------------ ------------ ---------
OPERATING INCOME........................ 18,735 (9,558) 2,157 11,334
-------- ------------ ------------ ---------
OTHER EXPENSE
Interest expense...................... (6,446) 105(4) (801) (233)(6) (7,375)
Amortization of debt discount and
expense.............................. (1,396) (353) (1,575)(7) (3,324)
Restructuring proposal costs.......... (674) 321(2) (353)
-------- ------------ ------------ ----------- ---------
(8,516) 426 (1,154) (1,808) (11,052)
-------- ------------ ------------ ----------- ---------
INCOME BEFORE INCOME TAXES.............. 10,219 (9,132) 1,003 (1,808) 282
PROVISION FOR INCOME TAXES 4,430 (3,717)(5) 390 (823)(8) 280
-------- ------------ ------------ ----------- ---------
NET INCOME.............................. $ 5,789 $ (5,415) $ 613 $ (985) $ 2
-------- ------------ ------------ ----------- ---------
-------- ------------ ------------ ----------- ---------
INCOME PER SHARE........................ $ .40 -- -- -- $ .00
-------- ---------
-------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 2.27x -- -- --
--------
--------
Deficiency in earnings to cover fixed
charges.............................. -- -- -- -- (2,215)
---------
---------
EBITDA**.............................. $ 26,229 -- -- -- $ 16,314
EBITDA to total interest expense...... 3.34x -- -- -- 1.52x
EBITDA to cash interest............... 4.07x -- -- -- 2.21x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial Statements
of PSNC elsewhere in this Prospectus.
** EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA is presented here
because it is a widely accepted financial indicator of a highly leveraged
company's ability to service and/ or incur indebtedness. However, EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles) or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles).
</TABLE>
23
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31, 1994
------------------------------------------------------------------
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
--------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE....................... $ 127,177 $(61,319)(1) $ 10,605 $ $ 76,463
COST OF PRODUCT SOLD.................... 58,165 (28,817)(1) 5,164 34,512
--------- ------------ ------------ ---------
GROSS PROFIT............................ 69,012 (32,502) 5,441 41,951
--------- ------------ ------------ ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts....... 1,073 (512)(1) 40 601
General and administrative............ 41,445 (20,308)(2) 2,491 23,628
Rent expense to related party......... 450 (375)(2) 75
Depreciation and amortization......... 10,173 (4,880)(3) 1,039 6,332
--------- ------------ ------------ ---------
53,141 (26,075) 3,570 30,636
--------- ------------ ------------ ---------
OPERATING INCOME........................ 15,871 (6,427) 1,871 11,315
--------- ------------ ------------ ---------
OTHER EXPENSE
Interest expense...................... (8,450) 85(4) (1,060) (383)(6) (9,808)
Interest expense to related party..... (281) 94(4) 187(6) --
Amortization of debt discount and
expense.............................. (1,915) (462) (2,069)(7) (4,446)
Restructuring proposal costs.......... (897) 426(2) (471)
--------- ------------ ------------ ------------ ---------
(11,543) 605 (1,522) (2,265) (14,725)
--------- ------------ ------------ ------------ ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 4,328 (5,822) 349 (2,265) (3,410)
PROVISION (CREDIT) FOR INCOME TAXES..... 2,240 (2,500)(5) 130 (870)(8) (1,000)
--------- ------------ ------------ ------------ ---------
NET INCOME (LOSS)....................... $ 2,088 $ (3,322) $ 219 $ (1,395) $ (2,410)
--------- ------------ ------------ ------------ ---------
--------- ------------ ------------ ------------ ---------
INCOME (LOSS) PER SHARE................. $ .14 $ (1.53)
--------- ---------
--------- ---------
OTHER OPERATING DATA AND FINANCIAL
RATIOS
Ratio of earnings to fixed charges.... 1.39x
---------
---------
Deficiency in earnings to cover fixed
charges.............................. $ $ (4,407)
---------
---------
EBITDA**.............................. $ 26,044 $ 17,647
EBITDA to total interest expense...... 2.45x 1.24x
EBITDA to cash interest............... 2.98x 1.80x
Total Long-term debt (including
current portion) to EBITDA........... 2.80x 6.07x
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
** EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, and other non-recurring expenses. EBITDA is presented here
because it is a widely accepted financial indicator of a highly leveraged
company's ability to service and/ or incur indebtedness. However, EBITDA
should not be construed as an alternative either (i) to operating income
(determined in accordance with generally accepted accounting principles)
or (ii) to cash flows from operating activities (determined in accordance
with generally accepted accounting principles).
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS OF EMPIRE GAS
CORPORATION (EGC)
FOR THE YEAR ENDED JUNE 30, 1993, NINE MONTHS ENDED MARCH 31, 1994,
AND TWELVE MONTHS ENDED MARCH 31, 1994.
The pro forma consolidated income statement amounts are based on the
estimated pro forma effects of the consolidated balance sheet adjustments
assuming the transactions were consummated on July 1, 1992. The basis for the
allocation of income and expenses between the Company and Energy is described in
detail below. The amounts presented reflect actual operations of the retail
subsidiaries while certain non-retail general and administrative expenses have
been allocated on the bases set forth below to the extent they were not
otherwise related to specific subsidiaries. The consolidated statement of
operations amounts after the Transaction closes may differ from the pro forma
statements because of changes in the consolidated balance sheet between July 1,
1992 and the actual consummation date.
(1) The revenues and expenses of the retail subsidiaries of Energy were
excluded. These subsidiaries represent substantially all the Operating
Revenue, Cost of Product Sold and the Provision for Doubtful Accounts
excluded on the pro forma statement of operations.
(2) The general and administrative expenses of Energy retail subsidiaries were
excluded. Exclusions of Energy non-retail general and administrative
expenses were determined as follows:
The amounts related to the salaries and related expenses of the
departing officers and certain agreements between the Company and
Mr. Plaster, or entities controlled by him, being terminated were
estimated as follows and eliminated:
<TABLE>
<S> <C>
Year Ended June 30, 1993.................. $2,556,100
Nine Months Ended March 31, 1994.......... $1,740,425
Twelve Months Ended March 31, 1994........ $2,320,567
</TABLE>
Expenses related to maintenance and management of specific energy
non-retail assets were identified and eliminated.
All remaining non-retail expenses were assigned 52.3% to the
Company and 47.7% to Energy based on the respective proportions of
consolidated retail revenues.
(3) Depreciation and amortization of the assets of Energy retail subsidiaries
and non-retail subsidiaries were excluded.
(4) Interest expense and amortization of debt acquisition costs related to (a)
amounts directly related to liabilities of Energy retail subsidiaries and
(b) the revolving bank debt and related party note borrowings applicable to
Energy were excluded.
(5) Income tax expenses were based on the proportion of Energy taxable income to
the consolidated EGC taxable income.
(6) To (a) recognize additional interest expense assuming interest paid at 7% on
face value $107,844,000 (which represents 88% of the total $122,550,000) of
Senior Secured Note borrowings (the remaining $14,706,000 of Senior Secured
borrowings are included in the pro forma statements reflecting the
Acquisition), (b) eliminate interest expense on the repaid term credit
facility, 9% Convertible Subordinated Debentures due 1998 and the 12% Senior
Subordinated Debentures due 2002, the reduced amount of the 9% Subordinated
Debentures due 2007, and related party note borrowings and (c) reduce
interest expense on the revolving credit facility to reflect the reduction
due to the proceeds of this Offering.
(7) To (a) recognize amortization of new debt acquisition costs being amortized
over 10 years, (b) recognize amortization of new original issue discount on
new Senior Secured Secured Notes to bring the effective rate of the new debt
(excluding the amount included in the PSNC purchase accounting adjustments)
to 12% using the effective interest method, (c) eliminate amortization of
the discount on the 9% Convertible Subordinated Debentures due 1998 and the
12% Senior Subordinated Debentures due 2002, (d) reduce the amortization of
the discount that will result from the reduction of 9% Subordinated
Debentures due 2007 outstanding as a result of the Offering, and (e)
eliminate amortization of debt acquisition costs related to Bank of Boston
term credit facility and revolving credit facility being repaid.
25
<PAGE>
(8) To record the increased estimated income tax credit provision, computed at
an effective rate of 38%, associated with the additional deductible expense
as a result of the operations after the Offering.
(9) The foregoing pro forma consolidated income statement does not give effect
to the gain of approximately $37.2 million, resulting from the excess of the
fair value of Energy assets ($84.0 million) over the book value of these
assets ($46.8 million) which have been conveyed to repurchase EGC common
stock, and the extraordinary expense of approximately $8.6 million (net of
estimated income tax effect of approximately $4.2 million) for the remaining
unamortized debt discount related to the 9% Convertible Subordinated
Debentures due 1998 and the 12% Senior Subordinated Debentures due 2002 and
the reduction of the 9% Subordinated Debentures due 2007 that will be
recognized as a result of the use of proceeds of the Offering. The gain on
disposition of Energy has been assumed to be non-taxable. If any portion of
the gain is deemed to be taxable, such liability would be accrued and
payable by the Company.
26
<PAGE>
EMPIRE GAS CORPORATION
PRO FORMA BALANCE SHEET
MARCH 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS EFFECTS OF
EMPIRE TO EXCLUDE PSNC EFFECTS OF
GAS ENERGY ACQUISITION* OFFERING PRO FORMA
--------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash.................................. $ 183 $ (454)(1) $ $ (239)(5) $ 1,591
(2,645)(8)
4,746(10)
Trade Receivables..................... 15,072 (7,351)(1) 1,180 8,901
Inventories........................... 9,313 (4,506)(1) 700 5,507
Prepaid Expenses...................... 299 (110)(1) 189
Due from Energy....................... 3,886(2) (3,886)(5)
Deferred Income taxes................. 408 (350)(1) 287(6) 345
--------- ------------ ----------- ------------ ---------
Total current assets................ 25,275 (8,885) 1,880 (1,737) 16,533
--------- ------------ ----------- ------------ ---------
PROPERTY AND EQUIPMENT
At cost, net of accumulated
depreciation......................... 107,838 (51,174)(1) 12,000 68,664
--------- ------------ ----------- ---------
OTHER ASSETS
Debt acquisition, costs, net of
amortization......................... 446 4,554(7) 5,000
Excess of cost over fair value of net
assets acquired, at amortized cost... 17,870 (3,567)(3) 14,303
Other................................. 764 (275)(1) 500 (250)(11) 739
--------- ------------ ----------- ------------ ---------
19,080 (3,842) 500 4,304 20,042
--------- ------------ ----------- ------------ ---------
$ 152,193 $(63,901) $ 14,380 $ 2,567 $105,239
--------- ------------ ----------- ------------ ---------
--------- ------------ ----------- ------------ ---------
CURRENT LIABILITIES
Due to Energy......................... $ $ 4,125(2) $ $ (4,125)(5) $
Current maturities of long-term
debt................................. 6,135 (76)(1) 100 (5,830)(10) 329
Accounts payable and accrued
expenses............................. 14,407 (2,463)(1) 250 (1,126)(10) 10,818
(250)(11)
--------- ------------ ----------- ------------ ---------
Total current liabilities........... 20,542 1,586 350 (11,331) 11,147
--------- ------------ ----------- ------------ ---------
LONG-TERM DEBT.......................... 66,696 (162)(1) 12,000 87,360(9)
400 (71,298)(10)
1,630 10,250(6)
106,876
--------- ------------ ----------- ------------ ---------
DEFERRED INCOME TAXES................... 31,214 (13,921)(1) (3,313)(6) 13,980
--------- ------------ ------------ ---------
ACCRUED SELF INSURANCE LIABILITY........ 2,039 (963)(1) 1,076
--------- ------------ ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock
Common stock.......................... 14 14
Common stock purchase warrants........ 640(9) 640
Additional paid-in capital............ 27,088 27,088
Retained earnings..................... 5,899 33,590(4) (7,096)(6) 32,393
--------- ------------ ------------ ---------
33,001 33,590 (6,456) 60,135
Treasury Stock at cost................ (1,299) (84,031)(4) (2,645)(8) (87,975)
--------- ------------ ------------ ---------
31,702 (50,441) (9,101) (27,840)
--------- ------------ ----------- ------------ ---------
$ 152,193 $(63,901) $ 14,380 $ 2,567 $105,239
--------- ------------ ----------- ------------ ---------
--------- ------------ ----------- ------------ ---------
<FN>
- ------------
* For adjustments from actual PSNC results see Pro Forma Financial
Statements of PSNC elsewhere in this Prospectus.
</TABLE>
27
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF EMPIRE GAS
CORPORATION (EGC) AS OF MARCH 31, 1994
The pro forma consolidated balance sheet amounts assume the transactions
described below were consummated on March 31, 1994. The allocation of assets and
liabilities between the Company and Energy is based on the allocation in the
Stock Redemption Agreement. The actual consolidated amounts may differ
substantially because of changes in the financial position of the Company,
Energy and PSNC Propane Corporation as of the actual consummation date.
(1) The assets and liabilities of the retail distribution subsidiaries and
certain non-retail assets of Energy (principally administrative office and
data processing equipment, vehicles, airplanes, and home office parts
inventories) were excluded.
(2) The amount of $3,886,000 due from Energy was accrued under the provisions
of the Stock Redemption Agreement pertaining to certain non-retail assets
retained and liabilities assumed by the Company. The amount due to Energy
of $4,125,000 was accrued under the provisions of the Stock Redemption
Agreement.
(3) The historical unamortized excess of cost over fair value of net assets
acquired for Energy retail subsidiaries was excluded.
(4) The fair value ($84,031,000) of Energy assets conveyed to repurchase
12,004,430 of EGC common stock was charged to Treasury Stock and the
resulting gain of $33,590,000, representing the excess of fair value of
Energy assets over book value, was credited to Retained Earnings. The gain
on disposition of Energy has been assumed to be non-taxable. If any portion
of the gain is deemed to be taxable, such liability would be accrued and
payable by the Company.
(5) To record the net payment due to Energy at the closing date of the
Transaction.
(6) To (a) eliminate the unamortized discount from face value of the 9%
Convertible Subordinated Debentures due 1998 and the 12% Senior
Subordinated Debentures due 2002 and the unamortized discount from face
value related to the paid 9% Subordinated Debentures due 2007 and (b)
record the tax benefit from the deductions related to the discounts.
(7) To (a) record $5,000,000 of debt acquisition costs paid in arranging the
financing which will be amortized on a straight-line basis over the term of
the new debt of 120 months and (b) eliminate the remaining unamortized debt
issuance costs of $446,000 for Bank of Boston term credit facility and
revolving credit facility.
(8) To record $2,645,000 for the purchase of 346,220 shares of Common Stock
from departing officers, directors and employees and 31,540 shares of
Common Stock from employees who are remaining with the Company.
(9) To record the estimated gross proceeds from the Units offered hereby, which
include $640,000 of assumed value of Warrants with the remainder consisting
of the initial accreted value of the Senior Secured Notes. For pro forma
purposes, the Warrants are valued using Black-Scholes methodology with an
assumed annualized volatility of the underlying Common Stock and without
any liquidity discount. No assurance can be given that this valuation is
indicative of the price at which the Warrants may actually trade.
(10) To (a) record repayment of $55,948,000 face value of existing debentures,
(b) record repayment of $16,050,000 of the term credit facility, (c) record
reduction of $5,130,000 of the revolving credit facility, (d) payment of
$1,126,000 of accrued interest and (e) excess proceeds of $4,746,000.
(11) To eliminate in consolidation of the financial statements a $250,000
deposit made for the Acquisition.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's results of
operations, financial condition and liquidity should be read in conjunction with
the "Selected Consolidated Financial and Other Data," the "Consolidated Pro
Forma Financial and Other Data" and the historical consolidated financial
statements of Empire Gas and the notes thereto included in this Prospectus. Pro
forma results reflect completion of the Transaction and the Offering. The
Company believes that the pro forma results are most indicative of the past
performance of the business of the Company as constituted after the Transaction
and Offering. Historical results and percentage relationships set forth in
"Selected Consolidated Financial Information," "Consolidated Pro Forma Financial
and Other Data" and the financial statements of Empire Gas should not be taken
as indicative of future operations of the Company.
RESULTS OF OPERATIONS
GENERAL
Empire Gas' primary source of revenue is retail propane sales, which
accounted for approximately 91.4% (90.4% on a pro forma basis taking account of
the Transaction) of its revenue in fiscal year 1993. Other sources of revenue
include sales of gas appliances and rental of customer tanks.
The Company's operating revenue is subject to both price and volume
fluctuations. Price fluctuations are generally caused by changes in the
wholesale cost of propane. The Company is not materially affected by these price
fluctuations, inasmuch as it can generally recover any cost increase through a
corresponding increase in retail prices. Consequently, the Company's gross
profit per retail gallon is relatively stable from year to year within each
customer class. Volume fluctuations from year to year are generally caused by
variations in the winter weather from year to year. Because a substantial amount
of the propane sold by the Company to residential and commercial customers is
used for heating, the severity of the weather will affect the volume sold.
Volume fluctuations do materially affect the Company's operations because lower
volume produces less revenue to cover the Company's fixed costs, including any
debt service costs. Because a substantial amount of the propane sold to
residential and commercial customers is used for heating, the Company's business
is seasonal with approximately 60% (62% on a pro forma basis) of Empire Gas'
sales occurring during the five months of November through March.
The Company's expenses consist primarily of cost of products sold, general
and administrative expenses and, to a much lesser extent, depreciation and
amortization and interest expense. Purchases of propane inventory account for
the vast majority of the cost of products sold. Historically, the Company has
purchased approximately 75% of its propane under supply contracts with major oil
companies. The Company purchases propane on the spot market to satisfy its
remaining propane requirements. The typical supply contract is for a one-year
term and requires the Company to purchase propane at the supplier's daily posted
price or at a negotiated discount. The Company believes that it will continue to
purchase inventory in this manner. While the cost of propane may fluctuate
considerably from year to year, as discussed above, these fluctuations do not
generally affect the Company's operating income because of corresponding changes
in the Company's retail price. See "Risk Factors -- Propane Cost Volatility" and
"Risk Factors -- Operating Risks." The Company has not experienced any
difficulty in obtaining propane in recent years and believes that domestic
sources of propane will continue to meet its needs.
The Company's general and administrative expenses consist mainly of salaries
and related employee benefits, vehicle expenses, and insurance.
The Company's interest expense has consisted primarily of interest on its
existing credit facility, 12% Senior Subordinated Debentures, 1998 9%
Subordinated Debentures, and 2007 9% Subordinated Debentures. While the Company
will use a portion of the proceeds of this Offering or the New Credit Facility
to repay all of its existing indebtedness except a portion of its 2007 9%
Subordinated Debentures (see "Use of Proceeds"), the Company's interest expense
will increase substantially as a result of the issuance of the Senior Secured
Notes. Through 1999 a significant portion of the increase will be non-cash
interest expense.
29
<PAGE>
PRO FORMA OPERATIONS
GENERAL. Operating revenue of the Company on a pro forma basis is less than
actual operating revenue for each period because of a decrease in operating
revenue of approximately $61.1 million for the year ended June 30, 1993 and
$54.6 million for the nine months ended March 31, 1994 from the exclusion of the
sales from the 133 retail service centers that are being transferred in the
Transaction. This decrease will be partially offset by an increase of
approximately $9.6 million for the year ended June 30, 1993 and $9.5 million for
the nine months ended March 31, 1994 from the inclusion of sales from service
centers acquired in the Acquisition. On a pro forma basis, the Company reported
a loss of approximately $2.7 million for the fiscal year ended June 30, 1993 and
income of $2,000 for the nine months ended March 31, 1994. These compare to
income of $2.2 million and $5.8 million for the respective historical periods.
The changes from historical results are caused by an increase in interest
expense after the Transaction and by the fact that the Company will bear all of
the interest expense even though approximately 40% of the Company (based on
retail gallons sold) will be divested in the Transaction.
Changes between actual and pro forma results for most other operating
results (cost of products sold, gross profit, provisions for doubtful accounts
and depreciation and amortization) are roughly equivalent (on a percentage
basis) to changes in operating revenue. Other than for general and
administrative expenses and interest expense (discussed further below), the
Company does not currently foresee any changes in operating results resulting
from the Transaction that are not roughly proportional to changes in operating
revenue resulting from the disposition of centers and the Acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses on
a pro forma basis are $15.9 million less for the nine months ended March 31,
1994, and $19.9 million less for the year ended June 30, 1993, than the
respective historical amounts. The reduction represents the elimination of
salaries and related expenses of the departing officers, the termination of
certain agreements between the Company and Mr. Plaster or entities controlled by
him, and the elimination of costs related to service centers that will not be
part of the Company after the Transaction. This reduction will be partially
offset by an increase in costs of $1.9 million and $2.6 million for the nine
months ended March 31, 1994 and the year ended June 30, 1993, respectively,
related to the operations acquired in the Acquisition. The expenses of the
operations acquired in the Acquisition were, however, reduced by approximately
$1.2 million for the fiscal year ended June 30, 1993, reflecting elimination of
the costs of duplicative personnel and certain other items. The Company believes
that it will realize additional reductions in operating expenses (which are not
reflected in the pro forma financial information) through the consolidation of a
number of existing retail service centers.
INTEREST EXPENSE. Pro forma interest expense (plus amortization of debt
discount and expense) was $10.7 million and $14.5 million for the nine months
ended March 31, 1994 and the fiscal year ended June 30, 1993, respectively, an
increase of approximately 36% and 26%, respectively, over the actual amounts.
The overall increase results from a $30.3 million increase in total indebtedness
of the Company offset by a small reduction in the weighted average effective
interest rate from 12.8% (as of March 31, 1994) to 12.2%. The reduction in the
effective interest rate results from the repayment of all of the Company's
currently outstanding debt (other than approximately $12.3 million principal
amount of the 2007 9% Subordinated Indentures) in connection with the Offering,
and the replacement of that indebtedness with the Senior Secured Notes and the
New Credit Facility, which will carry a lower effective interest rate.
INCOME TAXES. The effective rate for pro forma income taxes varies from the
historical rate because of the increase in the nondeductible excess of cost over
fair value of net assets acquired as a result of the Transaction.
NINE MONTHS ENDED MARCH 31, 1994 AND MARCH 31, 1993
OPERATING REVENUE. Operating revenue decreased by approximately $1.2
million, or 1.1%, from $111.3 million for the nine months ended March 31, 1993
to $110.1 million for the nine months ended March 31, 1994. This decrease was
due to a decrease in propane sales of approximately $1.8 million offset by an
increase in parts and appliances sales of approximately $.6 million. The
decrease in propane sales was due to an approximate $.006 decrease in the
average net sales price per gallon combined with a 1% decrease in gallons sold.
The increase in parts and appliance sales was due to increased sales efforts by
the Company.
30
<PAGE>
COST OF PRODUCTS SOLD. Cost of products sold decreased by approximately
$2.0 million, or 3.8%, from $52.8 million for the nine months ended March 31,
1993 to $50.8 million for the nine months ended March 31, 1994. This decrease
was due to a decrease of approximately $2.5 million in the cost of propane
offset by an increase of approximately $.5 million in the cost of parts and
appliances. The decrease in the cost of propane was due to a $.016 decrease in
the average net cost per gallon combined with a 1% decrease in gallons sold. The
increase in the cost of parts and appliances was due to the increased sales
activity.
GROSS PROFIT. The Company's gross profit increased by approximately
$800,000 (or 1.4%) from $58.5 million for the nine months ended March 31, 1993
to $59.3 million for the nine months ended March 31, 1994. The Company's gross
profit per gallon increased from $.422 for the nine months ended March 31, 1993
to $.434 for the nine months ended March 31, 1994.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses for
the nine months ended March 31, 1994, increased approximately $1.1 million due
to increases of $700,000 in insurance and liability claims expense, $500,000 in
salaries and commissions, and $200,000 in payroll taxes and employee benefits.
These increases were offset by decreases of $100,000 each in vehicle fuel and
maintenance, rent and maintenance, and travel and entertainment. The increase in
insurance and liability claims was due primarily to increased claims. The
increase in salaries and commissions was due to normal pay increases combined
with a slight increase in the total number of employees. The increase in payroll
taxes and employee benefits was due to the increase in taxes related to the
increased payroll and the increase in health insurance expenses. The decrease in
vehicle fuel and maintenance was due to reduced vehicle maintenance as a result
of the purchase of new vehicles to replace older vehicles.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively constant, decreasing by approximately $200,000 or 3% from $7.7
million for the nine months ended March 31, 1993 to $7.5 million for the nine
months ended March 31, 1994.
INTEREST EXPENSE. Interest expense and amortization of debt discount and
expense decreased approximately $800,000 or 9%, from $8.7 million for the nine
months ended March 31, 1993 to $7.9 million for the nine months ended March 31,
1994. This decrease was the result of lower interest rates and reduced borrowing
levels as compared to the comparable period for the prior year.
INCOME TAXES. The effective income tax rate for the nine months ended March
31, 1994 was essentially unchanged from the effective rate for the nine months
ended March 31, 1993.
TRANSACTION PROPOSAL COSTS. Transaction proposal costs of $674,000 for the
nine months ended March 31, 1994 consisted of legal and accounting expenses
incurred in connection with a proposed restructuring of the Company's debt and
equity that resulted in the Transaction described herein.
FISCAL YEARS ENDED JUNE 30, 1993 AND JUNE 30, 1992
OPERATING REVENUE. Operating revenue increased $16.3 million, or 14.5%,
from $112.1 million in fiscal year 1992 to $128.4 million in fiscal year 1993.
This increase was the result of a $15.9 million increase in propane sales and
$800,000 increase in sales of parts and gas appliances, offset by a $400,000
decrease in other revenues. The increase in propane sales was caused by a 12.1%
increase in gallons sold and a 2% increase in the average gross sales price per
gallon. The increased volume reflects the results of a winter heating season
that was considered nearly normal based on historical standards as compared to a
warmer winter heating season in fiscal year 1992. There were approximately 12.7%
more weighted average heating degree days in fiscal year 1993 than in fiscal
year 1992. Other revenues decreased by $400,000 primarily due to a decrease in
fixed asset sales.
COST OF PRODUCTS SOLD. Cost of products sold increased $9.2 million, or
18%, from $51.0 million in fiscal year 1992 to $60.2 million in fiscal year
1993. The increase resulted from the 12.1% increase in gallons sold, which
reflects the increase in weighted average heating degree days, and a 4% increase
in the wholesale cost of propane.
31
<PAGE>
GROSS PROFIT. The Company's gross profit for the year increased $7.1
million, or 11.6%. The increase was caused by a 14.5% increase in operating
revenue offset by an 18% increase in cost of products sold. The Company's gross
profit per gallon was relatively constant at $.429 in fiscal year 1993 and $.425
in fiscal year 1992.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased $1.0 million, or 2.5%, from $39.4 million in fiscal year 1992 to $40.4
million in fiscal year 1993. The increase was due primarily to increases of
$800,000 in salaries and commissions and $600,000 in insurance and liability
claims, offset by a decrease of $200,000 in professional fees. The increase in
salaries and commissions reflects an increase in the commissions earned due to
the increased sales activity. The increase in insurance costs is primarily due
to higher worker compensation insurance premiums. The decrease in professional
fees is due to reduced legal fees primarily related to federal income tax
matters that have been settled.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased $760,000 from $200,000 in fiscal year 1992 to $960,000 in fiscal year
1993. This increase reflects the adjustment of the Company's annual provision to
a level that the Company believes will be indicative of normal provisions for
future years. The provision for fiscal year 1992 was much lower because the
Company had significantly increased its provision in fiscal year 1991 due to
concerns about the effect of the Persian Gulf crisis and the economy on its
operations. The provision for fiscal year 1991 was more than adequate due, in
part, to certain measures the Company implemented in fiscal year 1992 that
improved the monitoring of its accounts receivable. Accordingly, a relatively
small provision was required for fiscal year 1992. See "Fiscal Years Ended June
30, 1992 and June 30, 1991."
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
relatively constant, increasing by $300,000 or 3%, from $10.1 million in 1992 to
$10.4 million in 1993.
INTEREST EXPENSE. Cash interest expense decreased by approximately $900,000
or 8.4%, from $10.7 million in fiscal year 1992 to $9.8 million in fiscal year
1993. This decrease was primarily attributable to lower interest rates in fiscal
year 1993. Amortization of debt discount and expense increased $700,000 or 70%
from $1.0 million in 1992 to $1.7 million in 1993. This increase related to
increased amortization of the discounts on the Company's 1998 9% Subordinated
Debentures, 2007 9% Subordinated Debentures, and 12% Senior Subordinated
Debentures, as well as amortization of expenses related to the Company's
Existing Credit Facility.
RECAPITALIZATION COSTS. During fiscal year 1993, the Company incurred
$200,000 in expenses relating to a proposed recapitalization that the Company
later decided not to pursue.
INCOME TAXES. The effective tax rate for the fiscal year ended June 30,
1993 was 47.8% compared to 24.5% for the fiscal year ended June 30, 1992. The
increase was the result of the Company's reporting an income in the 1993 period
compared to a loss in the 1992 period. The Company had a positive effective tax
rate in 1992 despite its reported loss primarily because of state taxes imposed
on operations that were profitable in individual states and because of the
effective tax resulting from the amortization of the excess of cost over fair
value of assets sold.
FISCAL YEARS ENDED JUNE 30, 1992 AND JUNE 30, 1991
OPERATING REVENUE. Operating revenue decreased $9.7 million, or 8%, from
$121.8 million in 1991 to $112.1 million in 1992. The decrease was the result of
a $10.2 million decrease in propane sales offset by a $500,000 increase in other
revenues. The decrease in retail sales was the result of a 8.8% decrease in the
average gross sales price per gallon offset by a 1% increase in gallons sold.
The decrease in selling price was primarily attributable to the general trend of
a reduction in petroleum prices following the end of the Persian Gulf crisis.
Volume did not fluctuate significantly inasmuch as the weighted average degree
days decreased by less than 1% from fiscal year 1991 to 1992. Other revenues
increased $500,000 primarily due to gains on the sale of surplus real estate.
COST OF PRODUCTS SOLD. Cost of products sold decreased by $9.0 million, or
15%, from $60.0 million in fiscal year 1991 to $51.0 million in fiscal year
1992. The decrease in cost of products sold resulted from a
32
<PAGE>
15.7% decrease in the wholesale cost of propane offset by the 1% increase in
gallons sold. As discussed above, this cost decrease related to the general
trend of a reduction in petroleum prices following the end of the Persian Gulf
crisis.
GROSS PROFIT. The gross profit for the year decreased by $700,000, or 1.1%.
This decrease was caused by the 8% decrease in operating revenue offset by a
decrease of 15% in the cost of products sold. The Company's gross profit per
gallon decreased from $.441 in fiscal year 1991 to $.425 in fiscal year 1992.
The gross profit per gallon in 1991 was abnormally high as a result of the
Persian Gulf war.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
decreased $2.1 million, or 5%, from $41.5 million in 1991 to $39.4 million in
1992. The decrease was due to decreases of $800,000 in transportation expense,
$600,000 in insurance and liability claims, $400,000 in rent and maintenance,
and $300,000 in employee benefits. The decrease in transportation expense
primarily reflects the decrease in the cost of propane fuel used in the
transportation equipment. Insurance and liability claims expense decreased due
to a reduction in claims expense as the result of fewer claims. Maintenance
expense decreased primarily due to lower maintenance costs for the underground
storage facility and reduced purchases of paint for painting storage tanks.
Employee benefits decreased due to the reduction of the Company's costs for
employee health insurance claims due to an increase in the premiums charged to
employees which partially offset the cost of providing this insurance.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
decreased $2.6 million, or 92.9%, from $2.8 million in 1991 to $200,000 in 1992.
In fiscal year 1991 the Company reevaluated its reserve for doubtful accounts
and significantly increased its reserve because of concerns about the collection
of accounts due to the increase in retail propane prices caused by the Persian
Gulf Crisis and general concerns about the economy. Historically the Company's
provision had been approximately $1.2 million per year. During fiscal year 1992,
the Company completed the installation of computers in all of its retail service
centers, which enabled it to improve its monitoring of accounts receivable.
Because the Company's collection of accounts receivable relating to fiscal year
1991 was better than anticipated and because the Company improved its collection
process through the installation of the computers, a much smaller provision for
doubtful accounts was required for fiscal year 1992.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$500,000, or 5.2%, from $9.6 million in fiscal year 1991 to $10.1 million in
fiscal year 1992. This was primarily attributable to increased capital
expenditures.
INTEREST EXPENSE. Interest expense decreased $1.3 million, or 10.8%, from
$12.0 million in 1991 to $10.7 million in 1992. This decrease was primarily
attributable to decreased borrowing levels and lower interest rates in 1992 as
compared to 1991. Amortization of debt discount and expense increased $110,000
or 12.3% from $890,000 in 1991 to $1.0 million in 1992. This increase relates
primarily to increased amortization of the discounts on the Company's 1998 9%
Subordinated Debentures, 2007 9% Subordinated Debentures, and 12% Senior
Subordinated Debentures.
MERGER PROPOSAL COSTS. During fiscal year 1992, the Company recorded
expenses of $450,000 related to a proposed acquisition of a large competitor.
The Company incurred these costs in performing due diligence related to the
acquisition. The acquisition was later abandoned with the related costs being
expensed.
CRESTED BUTTE LITIGATION EXPENSE. During 1991, the Company incurred
approximately $700,000 in litigation losses related to a matter that was
concluded in fiscal year 1993. No further costs will be incurred.
INCOME TAXES. The effective tax rate for the fiscal year ended June 30,
1992 was approximately 24.5% compared to a tax benefit of 26.1% in the prior
year. Although the Company reported a loss for both periods, the loss was
greater in the fiscal year ended June 30, 1991 and taxes on earnings in
individual states where operations were profitable, plus the effect of
amortization of excess of costs over fair value of net assets acquired, resulted
in a net positive tax rate in the 1992 period.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements have arisen primarily from funding its
working capital needs, capital expenditures and debt service obligations.
Historically, the Company has met these requirements from cash flow generated by
operations and from borrowings under its revolving credit line.
OPERATING ACTIVITIES. Cash flow provided from operating activities was $6.2
million in fiscal year 1993 as compared to $10.0 million in fiscal year 1992.
Cash flow from operations for fiscal year 1993 does not fully reflect the
beneficial impact that the first nearly normal winter since fiscal year 1988 had
on the Company's operations. As discussed above, the Company's operating revenue
and gross profit increased approximately $16.3 million and $7.1 million,
respectively, due primarily to increased sales of propane as a result of the
increase in weighted average heating degree days for fiscal year 1993. See
"Results of Operations -- Fiscal Years Ended June 30, 1993 and June 30, 1992."
EBITDA also increased, from $21.1 million for fiscal year 1992 to $26.4 million
for fiscal year 1993. Cash flow from operations did not experience a similar
increase due to the following factors: (i) the Company used approximately $2.4
million during fiscal year 1993 for a non-recurring payment of accrued interest
on federal income taxes, (ii) the Company used approximately $3.5 million during
fiscal year 1993 to pay the current year's income taxes, a substantial increase
from the prior year's income tax payment, (iii) the Company used approximately
$1.5 million during fiscal year 1993 to reduce its accounts payables and accrued
expenses, and (iv) accounts receivable at the end of fiscal year 1993 increased
as a result of the increased sales activity.
Cash flow provided from operating activities was $12.3 million for the nine
months ended March 31, 1994, compared to $4.6 million for the same period in
1993. The increase in cash flow resulted primarily from an increase in payables
and a smaller increase in receivables compared to the prior period.
Cash flow of the Company from operating activities on a pro forma basis for
the fiscal year ended June 30, 1993 and for the nine months ended March 31, 1994
is $3.7 million and $4.4 million lower than the respective historical levels as
a result of the disposition of service centers in the Stock Purchase (resulting
in reductions of $3.9 million and $6.5 million for the respective periods),
partially offset by an increase (of $.2 million and $2.1 million in the
respective periods) resulting from operating cash flow contributed by the
centers acquired in the Acquisition. The Company intends to increase its
operating cash flow by reducing operating expenses by consolidating a number of
retail service centers, and by increasing its operating revenue through
acquisitions (including the Acquisition) of retail service centers, development
of new retail service centers, and expansion of the Company's existing
residential customer base. There can be no assurance that the foregoing
increases in cash flow from operations can be realized.
The seasonal nature of the Company's business will require it to rely on
borrowings under the $15.0 million New Credit Facility as well as cash from
operations particularly during the summer and fall months when the Company is
building its inventory in preparation for the winter heating season. While
approximately 62% of the Company's operating revenue (on a pro forma basis) is
earned in the second and third quarters, certain expense items such as general
and administrative expense are recognized on a more annualized basis. Interest
expense also tends to be higher during the summer and fall months because the
Company relies in part on increased borrowings on its revolving credit line to
finance inventory purchases in preparation for the Company's winter heating
season.
CAPITAL EXPENDITURES. The Company's capital expenditures consist of routine
expenditures for existing operations as well as non-recurring expenditures,
purchases of assets for the start-up of new retail service centers, and
acquisition costs (including costs of acquiring retail service centers). Routine
expenditures usually consist of expenditures relating to the Company's bulk
delivery trucks, customer tanks, and costs associated with the installation of
new tanks. The Company believes that capital expenditures will increase as the
Company more actively pursues acquisitions. See "Business -- Business Strategy."
The Company's capital expenditures totalled $4.4 million in fiscal year 1993
and $6.7 million in fiscal year 1992. These capital expenditures were offset by
proceeds from the sale of retail service centers and surplus real estate
totalling $1.1 million in fiscal year 1993 and $3.1 million in fiscal year 1992.
Of these amounts, approximately $2.5 million in fiscal year 1993 and $3.4
million in fiscal year 1992 were for routine
34
<PAGE>
capital expenditures for existing operations. The Company incurred relocation
expenditures of $225,000 in fiscal year 1992, relating to the relocation of the
Company's retail service centers to locations on or near major highways. The
Company incurred nonrecurring expenditures of $336,000 in fiscal year 1993 and
$268,000 in fiscal year 1992. These expenditures related to the development of a
new program to build dispensing stations and expenditures for the jet used by
the Company, which the Company is disposing of in connection with the
Transaction. The Company started 10 new retail service centers in fiscal year
1993, and 11 new retail service centers in fiscal year 1992, incurring costs of
approximately $1.4 million and $2.4 million, respectively. No expenditures were
made for acquisitions during fiscal year 1993, and acquisition costs of
approximately $225,000 were incurred in fiscal year 1992.
The Company believes that capital expenditures for routine expenditures
after the Transaction will be approximately $2.0 million per year, and that
capital expenditures for the start-up of new retail service centers will not
exceed $1.0 million per year. The Company anticipates that capital expenditures
in fiscal year 1994 will be significantly larger than 1993, primarily due to an
increase in acquisition activity. The Company will use approximately $12.0
million of the proceeds of this Offering to fund the majority of the $14.0
million Acquisition purchase price, with approximately $1.5 million being funded
through the Company's New Credit Facility. The remaining $500,000 will be funded
with cash from operations over a five-year period. The Company acquired a
service center in Colorado in March, 1994, at a cost of approximately $473,000,
of which $273,000 was paid in cash, with the remaining amount financed through
the issuance of two five-year notes to the seller, one for $100,000 bearing
interest at 7% and the other for $100,000 bearing no interest. The Company has
entered into an agreement to purchase another service center in Missouri at a
cost of $325,000, of which $210,000 will be paid in cash at closing and the
remaining amount will be financed through the issuance of two ten-year notes to
the seller, one for $90,000 bearing interest at 7% and the other for $25,000
bearing no interest. For future acquisitions, the Company intends to fund
acquisitions with seller financing, to the extent feasible, and with cash from
operations or bank financing. The Company intends to fund its routine capital
expenditures and the purchases of assets for new retail service centers with
cash from operations, borrowings on the New Credit Facility, or other bank
financing. The Company is currently in the process of opening two new service
centers at an expected initial cost of $150,000 each. The Company does not
currently have any material commitments for any capital expenditures other than
the agreements for the pending acquisitions and the new service centers
discussed above. The Company is also exploring the possibility of making
modifications to its underground storage facility, which will require additional
capital expenditures. The Company has not yet determined the amount that it
would need to spend to make such modifications, or whether such modifications
will in fact be made. See "Business -- Propane Operations (Distribution)." Any
acquisitions or purchases of assets will be subject to the restrictions on
investments and debt incurrence contained in the New Credit Facility and the
Indenture as well as the restrictions contained in the Non-Competition
Agreement. See "Financing Activities"; "Description of Senior Secured Notes";
"Description of Other Indebtedness"; "Certain Relationships and Related
Transactions -- The Transaction."
FINANCING ACTIVITIES. During fiscal year 1993, the Company replaced its old
term loan and its Old Working Capital Facility with the Company's current
existing credit facility. The Company also made non-recurring expenditures of
approximately $2.1 million in connection with the termination of two employee
benefit plans.
Upon consummation of the Offering and application of the net proceeds
therefrom, the Company will have substantial debt service obligations. While the
net proceeds will be used to retire all the Company's existing indebtedness and
approximately $13.7 million principal amount 2007 9% Subordinated Debentures,
the Company will carry a significant amount of debt and will be required to use
a substantial portion of its cash flow to make interest payments. On a pro forma
basis, after giving effect to the consummation of this Offering and the
application of the net proceeds therefrom, for the year ended June 30, 1993, the
Company's cash interest expense would have been approximately $8.4 million.
Because the New Credit Facility will bear interest at a floating rate, the
Company's financial condition will be affected by fluctuations in interest
rates. See "Description of Other Indebtedness -- New Credit Facility."
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<PAGE>
The Company's $15.0 million New Credit Facility will mature on or about
July, 1997, at which time the Company will have to refinance or replace some
portion of the facility and may be required to pay some portion of any
outstanding balance. There can be no assurance that the Company will be able to
refinance or replace the New Credit Facility, or the terms upon which any such
financing may occur. Beginning in fiscal year 1999, the cash interest rate on
the Senior Secured Notes will increase to %. The Company believes cash from
operations will be sufficient to meet the increased interest payments. See "Risk
Factors -- Payment on Indebtedness Prior to Maturity of Senior Secured Notes."
The Company's New Credit Facility and the Indenture will impose restrictions
on the Company's ability to incur additional indebtedness. Such restrictions,
together with the highly leveraged position of the Company, could restrict
corporate activities, including the Company's ability to respond to market
conditions, to provide funds for capital expenditures, to refinance its debt, if
desired, or to take advantage of business opportunities. After consummation of
the Offering, the Company's ability to borrow will be very limited.
The Company believes that based on current levels of operations and assuming
normal winter weather, cash flow from operations together with borrowings under
the New Credit Facility will be adequate to fund the Company's operating needs,
anticipated capital expenditures, and debt service obligations until the New
Credit Facility expires in 1997. The Company believes that earnings before
interest, taxes, depreciation and amortization and operating cash flow will
exceed debt service requirements and that seasonal needs for cash can be met
through borrowings under the New Credit Facility. The Company believes that it
will have sufficient capitalization and cash flow to refinance the New Credit
Facility when it expires, but there can be no assurance of this. In particular,
there can be no assurance that the Company's current level of operations will
continue or that the winter weather in the various regions in which the Company
operates will not be substantially warmer than the historical average of winter
temperatures for these regions. The Company's revenues and operating income
could decrease as a result of substantially abnormal winter weather to a level
that could adversely affect the Company's ability to service its debt from
operations. Furthermore, a substantial increase in interest rates could result
in an increase in interest expense under the New Credit Facility that could
similarly endanger the Company's ability to service its debt. If the Company
were unable to meet its debt service obligations or obtain refinancing or
additional financing, it could be forced to default on its respective debt
obligations and, as an ultimate remedy, seek protection under the federal
bankruptcy laws. See "Risk Factors -- High Leverage and Ability to Service
Debt."
EFFECTS OF INFLATION AND CHANGING PRICES
General inflation does not have a material effect upon Company operations.
Prices of propane will change materially from time to time due to either the
combined or individual effects of weather and available supplies of petroleum
products. Such changes may have differing effects on revenues and costs of
products sold depending upon the inventory levels when such changes occur.
Generally, increases in the cost of propane do not substantially affect the
Company's gross margin, inasmuch as these cost increases are usually recovered
through a corresponding increase in the Company's retail price.
FUTURE CHANGES IN ACCOUNTING PRINCIPLE
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). As a result of this change, there was no material effect upon the
Company's financial statements.
SFAS 109 requires recognition of deferred tax liabilities and assets for the
difference between the financial statement and tax basis of assets and
liabilities. Under this new standard, a valuation allowance is established to
reduce deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized.
Prior to fiscal year 1994, deferred taxes were determined using the
Statement of Financial Accounting Standards No. 96.
36
<PAGE>
BUSINESS
GENERAL
Empire Gas is one of the largest retail distributors of propane in the
United States and, through its subsidiaries, has been engaged in the retail
distribution of propane since 1963. During the fiscal year ended June 30, 1993,
without giving effect to the Transaction, Empire Gas supplied propane to
approximately 200,000 customers in 27 states from 284 retail service centers and
sold approximately 142.1 million gallons of propane, accounting for
approximately 91.4% of its operating revenue. The Company also sells related
gas-burning appliances and equipment and rents customer storage tanks.
The Company will implement a change in ownership and management
contemporaneously with this Offering by repurchasing shares of its common stock
from its controlling shareholder, Mr. Robert W. Plaster, and certain other
departing officers in exchange for all of the shares of common stock of a
subsidiary that owns 133 retail service centers located primarily in the
Southeast. Mr. Paul S. Lindsey, Jr., who has been with the Company for 26 years
and currently serves as the Company's Chief Operating Officer and Vice Chairman
of the Board, will become the Company's controlling shareholder, Chief Executive
Officer, and President. The change in ownership and management will enable the
Company to pursue a growth strategy focussed on acquiring independent propane
operating companies. Contemporaneously with the Offering, the Company will
acquire the assets of PSNC Propane Corporation, a company located in North
Carolina that has six retail service centers and five additional bulk storage
facilities with annual volume of approximately 9.5 million gallons for an
aggregate purchase price of approximately $14.0 million (which includes payment
for inventory and accounts receivable). The Company also recently completed the
acquisition of a retail propane company in Colorado with annual volume of
approximately 700,000 gallons and has entered into a contract to purchase a
retail propane company in Missouri with annual volume of approximately 690,000
gallons.
Following the Transaction, Empire Gas' operations will consist of 158 retail
service centers with 22 additional bulk storage facilities. During the fiscal
year ended June 30, 1993, Empire Gas, after giving effect to the Transaction,
sold approximately 84.8 million gallons of propane (approximately 40% less than
prior to the Transaction) to approximately 112,000 customers in 20 states, which
(based on retail gallons sold) makes it one of the 11 largest retail
distributors of propane in the United States. The impact on the Company's
operations of weather fluctuations in a particular region will be reduced as a
result of the substantial geographic diversification of the Company after the
Transaction, with operations in the west, the southwest, Colorado, the upper
midwest, the Mississippi Valley and the southeast.
Propane, a hydrocarbon with properties similar to natural gas, is separated
from natural gas at gas processing plants and refined from crude oil at
refineries. It is stored and transported in a liquid state and vaporizes into a
clean-burning energy source that is used for a variety of residential,
commercial, and agricultural purposes. Residential and commercial uses include
heating, cooking, water heating, refrigeration, clothes drying, and
incineration. Commercial uses also include metal cutting, drying, container
pressurization, and charring, as well as use as a fuel for internal combustion
engines. As of December 31, 1991, the propane industry had grown, as measured by
the gallons of retail residential/commercial propane sold, at the rate of 3.7%
per annum since 1984.
The Company believes the highly fragmented retail propane market presents
substantial opportunities for growth through consolidation. As of December 31,
1991, there were approximately 8,000 propane retail marketing companies in the
continental United States with approximately 13,500 retail distribution points.
In addition, Empire Gas believes growth can be achieved by the conversion to
propane of homes that currently use either electricity or fuel oil products
because of the price advantage propane has over electricity and because propane
is a cleaner source of energy than fuel oil products. As of December 31, 1990,
there were approximately 23.7 million homes that used electricity for heating,
water heating, cooking and other household purposes, approximately 11.2 million
homes that used fuel oil products, and approximately 5.7 million homes that used
propane for such purposes.
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Empire Gas focuses on propane distribution to retail customers, including
residential, commercial, and agricultural users, emphasizing, in particular,
sales to residential customers, a stable segment of the retail propane market
that traditionally has generated higher gross margins per gallon than other
retail segments. Sales to residential customers, giving effect to the
Transaction, accounted for approximately 65.5% of the Company's aggregate
propane sales revenue and 74.3% of its aggregate gross margin from propane sales
in fiscal year 1993.
Empire Gas attracts and retains its residential customers by supplying
storage tanks, by offering superior service and by strategically locating
visible and accessible retail service centers on or near major highways. Empire
Gas focuses its operations on sales to customers to which it also leases tanks,
as sales to this segment of the retail propane market tend to be more stable and
typically provide higher gross margins than sales to customers who own tanks.
After the Transaction, Empire Gas will own approximately 109,000 storage tanks
that it leases to approximately 83% of its customers. Empire Gas' residential
customer base is relatively stable, because (i) fire safety regulations and
state container laws restrict the filling of a leased tank solely to the propane
supplier that leases the tank, (ii) rental agreements for its tanks restrict the
customers from using any other supplier, and (iii) the cost and inconvenience of
switching tanks minimizes a customer's tendency to change suppliers.
Historically, the Company has retained 90% of all its customers from year to
year, with the average customer remaining with Empire Gas for approximately 10
years.
BUSINESS STRATEGY
The change in ownership and management of the Company will enable it to
pursue a business strategy to increase its revenues and profitability through
(i) expansion by acquisitions and start-ups, (ii) expansion of its existing
residential customer base, and (iii) geographic rationalization and the
reduction of operating expenses. Empire Gas will seek opportunities to acquire
retail service centers in areas where it already has a strong presence and to
develop new retail service centers in new markets. Efforts to expand the
existing residential customer base will focus primarily on conversion of
customers currently using electricity for heating, conversion of customers
currently using fuel oil and wood due to environmental impact, and soliciting
customers created by the new home construction market in growth areas. Empire
Gas intends to dispose of a limited number of retail service centers that are
located in markets in which it does not have, and does not desire to develop, a
strong presence or that do not have the potential for long-term growth. Empire
Gas believes it will be able to reduce its operating expenses through a program
of consolidating a number of retail service centers where such consolidations
will yield operating efficiencies.
GROWTH THROUGH ACQUISITION OF RETAIL SERVICE CENTERS. Historically, the
acquisition of other retail service centers has been viewed by the industry as
one of the primary means of growth and much of the Company's growth over the
past thirty years has been attributable to acquisitions. As of December 31,
1991, there were substantially in excess of 8,000 retail marketing companies in
the continental United States with at least 13,500 distribution points. The
Company intends to focus its acquisition efforts on candidates that meet certain
criteria, including minimum cash flow requirements and location in areas of
economic growth or areas in which the Company currently has a market position
which it desires to strengthen.
The Company has not engaged in significant acquisition activity over the
past several years. With the change in ownership and management, the new
management, under the leadership of Mr. Lindsey, will emphasize achieving growth
through acquisitions. The Company has entered into an agreement which provides
that, contemporaneously with this Offering, the Company will complete the
acquisition of the assets of PSNC Propane Corporation, a company that has six
retail service centers with five additional bulk storage facilities located in
North Carolina, an area the Company has targeted because of its high economic
growth. The aggregate purchase price of the Acquisition will be approximately
$14.0 million (which includes payment for inventory and accounts receivable),
which consists of $12.0 million for certain assets, primarily customer and
storage tanks, approximately $1.5 million for accounts receivable and inventory,
and $500,000 for a non-compete agreement with the seller. The Company will fund
$12.0 million of the purchase price with the proceeds of this Offering and will
fund the $1.5 million for the purchase of the accounts receivable and inventory
through the Company's New Credit Facility. The purchase price for the
non-compete agreement will be paid out over five years with cash flow from
operations.
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The Acquisition will enable the Company to expand its geographic market, to
increase its high margin residential customer base and to improve its operating
results and cash flow. The Company currently has only limited operations in
North Carolina, and all of the operations to be acquired from PSNC in the
Acquisition are out of the Company's current service territory. Based on the
gallons sold by the acquired operations in 1993, the Company believes this
acquisition will increase its annual propane sales by approximately 9.5 million
gallons, approximately 64% of which will be for sales to residential customers
with generally higher margins than sales to industrial and agricultural
customers. Empire Gas believes it will be able to improve PSNC Propane
Corporation's operating results and cash flow through the integration of its
operations into the Company's operations and the elimination of certain
administrative personnel as well as the elimination of certain other general and
administrative costs. See "Pro Forma Financial and Other Data." There can be no
assurance that the anticipated cash flows will be indicative of the actual cash
flows realized by the Company.
In March of 1994, the Company completed the acquisition of a retail service
center in Colorado with annual propane volume of approximately 700,000 gallons
and in April of 1994 signed a contract for the acquisition of a retail service
center in Missouri with annual propane volume of approximately 690,000 gallons.
The Colorado acquisition was completed at a cost of approximately $473,000, of
which $273,000 was paid in cash, with the remaining amount financed through the
issuance of two five-year notes to the sellers, one for $100,000 bearing
interest at 7% and the other for $100,000 bearing no interest. The Missouri
center will be purchased for a total cost of $325,000, of which $210,000 will be
paid in cash at closing, with the remaining amount financed through the issuance
of two ten-year notes to the seller, one for $90,000 bearing interest at 7% and
the other for $25,000 bearing no interest. The Company does not currently have
any material commitments for any acquisitions other than the agreements for the
pending acquisitions discussed above. The Company will continue to seek
additional opportunities to acquire retail service centers and intends to
finance such acquisitions, to the extent possible, through seller financing. The
Company will also rely on internally generated cash flow and bank financing,
including borrowing under the New Credit Facility, to meet any remaining
financing requirements. See "Risk Factors -- Potential Acquisitions and
Development of New Retail Service Centers." Any acquisitions will be subject to
the restrictions on investments and debt incurrence contained in the New Credit
Facility and the Indenture as well as the restrictions contained in the
Non-Competition Agreement. See "Description of the Senior Secured Notes";
"Description of Other Indebtedness"; "Certain Relationships and Related
Transactions -- The Transaction."
GROWTH THROUGH DEVELOPMENT OF NEW RETAIL SERVICE CENTERS IN NEW
MARKETS. The Company believes opportunities exist to increase the size and
profitability of its operations by starting new retail service centers in new
markets. The Company generally looks for opportunities in areas experiencing
economic growth. Indicators of this growth include the relocation of businesses
to an area or an increase in the population in the area. The Company started
three new retail service centers in fiscal year 1992 that will remain with the
Company after the Transaction (at an aggregate cost of $502,000) and four such
centers in fiscal year 1993 (at an aggregate cost of $453,000), and has started
three new retail service centers to date during fiscal year 1994 (at an
aggregate cost of $75,000 to date).
The Company continues to look for opportunities to purchase land and assets
to start new retail service centers. It is currently in the process of opening
new centers in Toledo, Ohio and Wilkesboro, North Carolina. Although the Company
expects to open additional centers, it has not yet begun opening any additional
centers and there can be no assurance additional centers will be open. Because
minimal capital expenditures (approximately $150,000 per center) are required to
cover first-year start up costs of a new retail service center, the Company
intends to rely primarily on internally generated cash flow to fund this
activity, with any remaining financing needs being met by bank financing. In
addition, the Company currently owns excess propane storage tanks that it will
be able to use to supply storage tanks needed in opening new service centers and
to reduce the cost of starting a new retail service center.
EXPANSION OF THE COMPANY'S EXISTING RESIDENTIAL RETAIL CUSTOMER
BASE. Empire Gas will also look for opportunities to expand its existing
residential customer retail base other than through acquisitions or the
development of new retail service centers. The Company believes there are
several factors that will enable it
39
<PAGE>
to expand its residential customer base including (i) the Company's ability to
supply storage tanks to its customers, (ii) the Company's reputation for quality
service, and (iii) the accessibility and visibility of the Company's retail
service centers, many of which are located on or near highways. The Company's
ability to expand its residential customer base other than through acquisitions
or the development of new retail service centers in new markets may be limited
by the relative stability of this market.
In addition to the foregoing, Empire Gas will look for growth opportunities
including opportunities to expand its commercial customer base and opportunities
presented from developments in the industry, including the potential for the
growth in the use of propane in the alternative motor fuel market or in
cogeneration plants. Any acquisitions or purchases of assets will be subject to
the restrictions on investments and debt incurrence contained in the New Credit
Facility and the Indenture. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Financing Activities"; "Description of Senior Secured Notes"; "Description of
Other Indebtedness -- New Credit Facility." Any acquisitions or start-ups of
retail service centers will also be subject to the restrictions in the
Non-Competition Agreement. See "The Transaction" and "Certain Relationships and
Related Transactions."
GEOGRAPHIC RATIONALIZATION AND REDUCTION OF OPERATING EXPENSES. The Company
believes that it can increase the efficiency with which it serves its customers
by consolidating a number of retail service centers, thereby reducing its
operating expenses. The Company has selected 16 service centers (two in
Missouri, six in Oklahoma and the remaining eight in Colorado, California,
Louisiana and Oregon) that can be consolidated into 8 service centers. The
Company consolidated several of these service centers in May of this year and
the remainder will be consolidated in June and July. The Company will continue
to evaluate opportunities to consolidate additional retail outlets. The
consolidation of companies will result in reduced operating expense due to
reduced general and administrative expenses and operating costs without a
corresponding reduction in revenue.
There can be no assurance as to the extent to which the implementation of
the Company's business strategy will contribute to the Company's operating
efficiencies, results of operations, or cash flow. See "Risk Factors --
Potential Acquisitions and Development of New Retail Service Centers."
PROPANE OPERATIONS
Propane is used for residential, commercial, and agricultural purposes.
Residential and commercial uses include heating, cooking, water heating,
refrigeration, clothes drying, and incineration. Commercial uses also include
metal cutting, drying, container pressurization, and charring, as well as use as
a fuel for internal combustion engines. Agricultural uses include brooder
heating, stock tank heating, crop drying, and weed control, as well as use as a
motor fuel for farm equipment and vehicles. Propane is also used for a number of
other purposes.
Sales of propane to residential and commercial customers, which account for
the vast majority of the Company's revenue, have provided a relatively stable
source of revenue for the Company. Sales to residential customers accounted for
65.5% of the Company's propane sales revenue and 74.3% of its gross margin (on a
pro forma basis after giving effect to the Transaction) in fiscal year 1993.
Historically, this market has provided higher margins than other retail propane
sales. Based on fiscal year 1993 propane sales revenue, the remaining customer
base consisted of 22.1% commercial and 12.4% agricultural and other customers.
While commercial propane sales are generally less profitable than residential
retail sales, the Company has traditionally relied on this customer base to
provide a steady, noncyclical source of revenues. No single customer accounts
for more than 2.1% of sales. On a pro forma basis, the Company's operations will
have substantial geographic diversification reducing the potential impact of
fluctuations of weather in a particular region.
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The following table sets forth, for the five years ending June 30, 1993,
selected aggregate operating data for the retail service centers of the Company
that will be retained after the Transaction and for the retail service centers
the Company is acquiring in the Acquisition.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PERCENTAGES, DEGREE DAYS AND PER
GALLON DATA)
<S> <C> <C> <C> <C> <C>
Operating revenue.......................................... $ 65,469 $ 75,342 $ 75,250 $ 69,216 $ 76,931
Gross profit (1)........................................... $ 36,838 $ 39,455 $ 37,799 $ 38,031 $ 41,243
Retail gallons sold........................................ 87,852 82,180 74,278 76,167 84,840
Weighted average gross profit per gallon................... $ .360 $ .418 $ .441 $ .426 $ .429
Actual weighted average heating degree days (2)............ 8,191 7,872 7,303 7,321 8,265
Deviation from normal weighted average heating degree days
(2)....................................................... 150 (193) (749) (715) 100
Percent deviation from normal average heating degree
days...................................................... 1.9% (2.4%) (9.3%) (8.9%) 1.2%
<FN>
- ---------
(1) Represents operating revenue less the cost of product sold.
(2) Actual weighted average heating degree days represents the average heating
degree days in the Company's market areas for November through March of
each year weighted to reflect the retail gallons sold in each area.
Heating degree days represent the summation of the amount by which a 65
degree Fahrenheit base amount exceeds the mean daily temperature (average
of daily maximum and minimum temperatures) at various locations in the
United States and are calculated by the National Weather Service. Normal
weighted average heating degree days are determined based on a 50-year
moving average. The increase in actual weighted average heating degree
days for fiscal year 1993 was due primarily to a change in the markets in
which the Company did business.
</TABLE>
SOURCES OF SUPPLY. Propane is derived from the refining of crude oil or is
extracted in the processing of natural gas. The Company obtains its supply of
propane primarily from oil refineries and natural gas plants located in the
South, West and Midwest. Most of the Company's propane inventory is purchased
under supply contracts with major oil companies which typically have a one-year
term, at the suppliers' daily posted prices or a negotiated discount. During
fiscal 1993, contract suppliers sold nearly 75% of the propane purchased by the
Company (including the centers that are being transferred in the Transaction),
and the two largest suppliers sold 21.2% and 18.5%, respectively, of the total
volume purchased by Empire Gas. The Company has established relationships with a
number of suppliers over the past few years and believes it would have ample
sources of supply under comparable terms to draw upon to meet its propane
requirements if it were to discontinue purchasing propane from its two largest
suppliers. The Company takes advantage of the spot market as appropriate. The
Company has not experienced a shortage that has prevented it from satisfying its
customer's needs and does not foresee any significant shortage in the supply of
propane.
DISTRIBUTION. The Company purchases propane at refineries, gas processing
plants, underground storage facilities and pipeline terminals and transports the
propane by railroad tank cars and tank trailer trucks to the Company's retail
service centers, each of which has bulk storage capacity ranging from 16,000 to
180,000 gallons. After the Transaction, the Company will have retail service
centers with an aggregate storage capacity of approximately 8.7 million gallons
of propane, and each service center will have equipment for transferring the gas
into and from the bulk storage tanks. The Company operates 15 over-the-road
tractors and 37 transport trailers to deliver propane to its retail service
centers and also relies on common carriers to deliver propane to its retail
service centers. The Company also maintains an underground storage capacity of
approximately 120 million gallons. This facility is not currently being used and
cannot be used until a new disposal well is constructed, and the system is
tested and brought up to industry standards. The Company can meet its storage
needs from existing capacity and third-party sources, but is considering
41
<PAGE>
making the necessary modifications to provide storage that it may use for its
own purposes or lease to third parties. The Company has not yet determined the
amount that it would need to spend to make such modifications, or whether such
modifications will in fact be made.
Deliveries to customers are made by means of 325 bulk delivery tank trucks
owned by the Company. Propane is stored by the customers on their premises in
stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons,
with large users having tanks with a capacity of up to 30,000 gallons.
Approximately 96% of the propane storage tanks used by the Company's residential
and commercial customers are owned by the Company and leased, rented, or loaned
to customers.
PROPANE GAS FROM SOURCE TO CUSTOMER
[GRAPHIC]
OPERATIONS. The Company has organized its operations in a manner that the
Company believes enables it to provide superior service to its customers and to
achieve maximum operating efficiencies. The Company's retail propane
distribution business is organized into eight regions: West Coast (North); West
Coast (South); Colorado; Midwest (North); Midwest (South); Midwest (Central);
North and South Carolina; and Mideast. Each region is supervised by a regional
manager. The regions are grouped into three divisions and the regional managers
report to their respective divisional vice president. Personnel located at the
retail service centers in the various regions are primarily responsible for
customer service and sales.
A number of functions are centralized at the Company's corporate
headquarters in order to achieve certain operating efficiencies as well as to
enable the personnel located in the retail service centers to focus on customer
service and sales. The Company makes centralized purchases of propane through
its corporate headquarters for resale to the retail service centers enabling the
Company to achieve certain advantages, including price advantages, because of
its status as a large volume buyer. The functions of cash management,
accounting, taxes, payroll, permits, licensing, asset control, employee
benefits, human resources, and strategic planning are also performed on a
centralized basis.
The corporate headquarters and the retail service centers are linked via a
computer system. Each of the Company's primary retail service centers is
equipped with a computer that is connected to a central data processing
department in the Company's corporate headquarters. Following the Transaction,
this central data processing department will be owned and operated by Service
Corp, which will be an affiliate of Energy. Service Corp. will provide data
processing and management information services to the Company pursuant to the
Services Agreement. See "Certain Relationships and Related Transactions." This
computer network system provides retail company personnel with accurate and
timely information on pricing, inventory, and customer accounts. In addition,
this system enables management to monitor pricing, sales, delivery and the
general operations of its numerous retail service centers and plan accordingly
to improve the operations of the Company as a whole.
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<PAGE>
FACTORS INFLUENCING DEMAND. Because a substantial amount of propane is sold
for heating purposes, the severity of winter weather and resulting residential
and commercial heating usage have an important impact on the Company's earnings.
Approximately 62% of the Company's retail propane sales (on a pro forma basis)
usually occur during the five months of November through March. Sales and
profits are subject to variation from month to month and from year to year,
depending on temperature fluctuations. See "Risk Factors -- Weather."
COMPETITION. The Company encounters competition from a number of other
propane distributors in each geographic region in which it operates. The Company
competes with these distributors primarily on the basis of service, stability of
supply, availability of consumer storage equipment, and price. The propane
distribution industry is composed of two types of participants: larger
multi-state marketers, including the Company, and smaller intrastate marketers.
Most of the Company's retail service centers face competition from a number of
other marketers.
Empire Gas also competes with suppliers of other energy sources. The Company
competes with suppliers of electricity for sales to residential and commercial
customers. The Company currently enjoys, and historically has enjoyed, a
competitive advantage because of the higher cost of electricity. Fuel oil does
not present a significant competitive threat in Empire Gas' primary service
areas due to the following factors: (i) propane is a residue-free, cleaner
energy source, (ii) environmental concerns make fuel oil relatively
unattractive, and (iii) fuel oil appliances are not as efficient as propane
appliances.
Empire Gas generally does not attempt to sell propane in areas served by
natural gas distribution systems, except sales for specialized industrial
applications, because the price per equivalent energy unit of propane is, and
has historically been, higher than that of natural gas. To use natural gas,
however, a retail customer must be connected to a distribution system provided
by a local utility. Because of the costs involved in building or connecting to a
natural gas distribution system, natural gas does not create significant
competition for the Company in areas that are not currently served by natural
gas distribution systems. In each of the past five years, the Company has lost
fewer than 0.5% of its customers to natural gas distributors.
The Company's ability to compete through acquisitions will be limited in
certain geographic areas as a result of the Non-Competition Agreement. Subject
to an exception for multi-state acquisitions, the Non-Competition Agreement
restricts the Company from making acquisitions in seven states (Alabama,
Florida, Georgia, Indiana, Kentucky and Tennessee) and certain territories in
three other states (southeastern Missouri, northern Arkansas and an area within
a 50-mile radius of an existing Energy operation in Illinois) for a period of
three years from the date the Stock Purchase Agreement is consummated. The Non-
Competition Agreement also restricts the Company from starting service centers
(other than through acquisitions) in western Virginia and western West Virginia.
The Non-Competition Agreement also requires the Company not to disclose secret
information it may have regarding Energy, not to solicit Energy customers or
employees, and to grant Energy an option to purchase from the Company (on terms
substantially equivalent to the terms on which the Company acquired the
business) any business the Company acquires in violation of the Non-Competition
Agreement. The same restrictions apply to Energy under the Non-Competition
Agreement. See "The Transaction" and "Certain Relationships and Related
Transactions -- The Transaction."
RISKS OF BUSINESS. The Company's propane operations are subject to all the
operating hazards and risks normally incident to handling, storing, and
transporting combustible liquids, such as the risk of personal injury and
property damages caused by accident or fire. The Company's current automobile
liability policy provides coverage for losses of up to $101.0 million with a
$500,000 deductible per occurrence. The Company's general liability policy
provides coverage for losses of up to $101.0 million per occurrence with a
$500,000 deductible per occurrence subject to an aggregate deductible of $1.0
million for any policy period. Current workers compensation coverage also has a
$500,000 deductible per incident. The deductibles mean that the Company is
effectively self-insured for liability up to these deductibles.
REGULATION
The Company's operations are subject to various federal, state, and local
laws governing the transportation, storage and distribution of propane,
occupational health and safety, and other matters. All states in
43
<PAGE>
which the Company operates have adopted fire safety codes that regulate the
storage and distribution of propane. In some states these laws are administered
by state agencies, and in others they are administered on a municipal level.
Certain municipalities prohibit the below ground installation of propane
furnaces and appliances, and certain states are considering the adoption of
similar regulations. The Company cannot predict the extent to which any such
regulations might affect the Company, but does not believe that any such effect
would be material. It is not anticipated that the Company will be required to
expend material amounts by reason of environmental and safety laws and
regulations, but inasmuch as such laws and regulations are constantly being
changed, the Company is unable to predict the ultimate cost to the Company of
complying with environmental and safety laws and regulations.
Empire Gas currently meets and exceeds Federal regulations requiring that
all persons employed in the handling of propane gas be trained in proper
handling and operating procedures. All employees have participated, or will
participate within 90 days of their employment date, in the National Propane Gas
Association's ("NPGA") Certified Employee Training Program. The Company has
established ongoing training programs in all phases of product knowledge and
safety.
EMPLOYEES
As of June 1, 1994, the Company had approximately 1,075 employees, none of
whom was represented by unions. Upon consummation of the Transaction, the
Company will have approximately 600 employees. The Company has never experienced
any significant work stoppage or other significant labor problems and believes
it has good relations with its employees.
LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in various routine
litigation incident to its business, none of which is expected to have a
material adverse effect on the Company's financial position or results of
operations.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Upon consummation of the Transaction, the directors and executive officers
of the Company will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------
<S> <C> <C>
Paul S. Lindsey, Jr. 49 Chairman of the Board, Chief Executive
Officer, and President
Douglas A. Brown 33 Director
Kristin L. Lindsey 46 Director/Vice President
Bruce M. Withers, Jr. 67 Director
Jim J. Shoemake 56 Director
Mark W. Buettner 51 Divisional Vice President
Kenneth J. DePrinzio 46 Divisional Vice President
Robert C. Heagerty 46 Divisional Vice President
James E. Acreman 56 Vice President/Treasurer
Valeria Schall 39 Vice President/Corporate Secretary
Willis D. Green 56 Controller
</TABLE>
The directors will serve for a term ending on the date of the Company's next
annual meeting in October 1994, or until their successors are elected or
qualified. Officers of the Company are elected by the Board of Directors of the
Company and will serve at the discretion of the Board. As required by the
Indenture, immediately following this Offering, an audit committee will be
formed consisting of two independent directors. See "Description of the Senior
Secured Notes -- Covenants."
BOARD OF DIRECTORS
Upon consummation of the Offering, the Company's directors will be as
follows:
44
<PAGE>
PAUL S. LINDSEY, JR. Mr. Lindsey will serve as Chairman of the Board, Chief
Executive Officer, and President of the Company. Mr. Lindsey currently serves as
Vice Chairman of the Board and Chief Operating Officer of the Company, positions
he has held since February 1987 and March 1988, respectively. Mr. Lindsey joined
the Company in 1967 when the company by which he was employed, a subsidiary of
Gulf Oil Company, was acquired by the Company. He has a total of 29 years of
experience in the oil and gas industry, 26 of which are with the Company. After
serving in various administrative positions with the Company, including the
position of Vice President of Finance, Mr. Lindsey assumed responsibility for
operation of the Company's retail service centers and, essentially, all other
operational functions of the Company. Mr. Lindsey has been a Director of the
NPGA, the industry's leading association, since February 1991, and has served on
the Governmental Affairs Committee of the NGPA since May 1987. He was recently
elected to NPGA's executive committee.
DOUGLAS A. BROWN. Mr. Brown will serve as a director of the Company. Since
1989, Mr. Brown has been a member of Holding Capital Group, Inc. an equity
investment group specializing in the acquisition of and investment in privately
held, middle market businesses. Holding Capital Group has performed certain
investment services for Empire Gas. See "Certain Relationships and Related
Transactions."
KRISTIN L. LINDSEY. Mrs. Lindsey will serve as a director and Vice
President of the Company. Mrs. Lindsey is the wife of Paul S. Lindsey, Jr., (see
above). For the past five years, Mrs. Lindsey has been pursuing charitable and
other personal interests. Ms. Lindsey has 11 years of experience in the LP gas
industry, all of these with the Company. Her experience is primarily in the area
of LP gas supply and distribution. In her capacity as Vice President, Mrs.
Lindsey will be involved in the Company's propane supply and distribution
activities.
BRUCE M. WITHERS, JR. Mr. Withers will serve as a director of the Company.
Mr. Withers is Chairman and Chief Executive Officer of Trident NGL Holding,
Inc., a major fully-integrated natural gas liquids company, a position he has
held since August, 1991. For the previous 18 years, Mr. Withers was President of
the Transmission & Processing Division of Mitchell Energy Corporation and, prior
to that, Mr. Withers was associated with Tenneco Oil & Gas.
JIM J. SHOEMAKE. Mr. Shoemake will serve as a Director of the Company. Mr.
Shoemake is lead litigation partner of Guilfoil, Petzall & Shoemake, located in
St. Louis, Missouri, where he has been since 1970. Mr. Shoemake was Assistant
U.S. Attorney of the Eastern District of Missouri from 1967 to 1970 and was with
the U.S. Dept of Justice for one year prior to that time.
EXECUTIVE OFFICERS
Upon consummation of the Transaction, the individuals listed below will
serve as the Company's executive officers. These individuals have an average of
20 years of experience in the LP gas industry and have been with the Company an
average of 12 years.
PAUL S. LINDSEY, JR. Chairman of the Board, Chief Executive Officer and
President. See description under "Board of Directors."
MARK W. BUETTNER. Mr. Buettner will serve the Company as a Divisional Vice
President, a position he has held with the Company since mid-1993. Mr. Buettner
has also held the positions of Regional Vice President and Regional Manager
during his five years with the Company. Mr. Buettner began his career in the LP
gas industry in a family-owned business and has a total of 39 years experience
in the LP gas industry. As Divisional Vice President of the Company, Mr.
Buettner is responsible for the Company's retail operations on the West Coast
and in Arizona, Colorado, and Idaho.
KENNETH J. DEPRINZIO. Mr. DePrinzio will serve the Company as a Divisional
Vice President, a position he has held with the Company since mid-1993. Mr.
DePrinzio joined the Company in May 1992 as a Regional Manager. From 1990 to
1991, Mr. DePrinzio was a Vice President of Star Gas Corporation. For the prior
17 years, Mr. DePrinzio worked with Petrolane, Inc., serving as an Area Vice
President during part of his tenure. From 1991 to 1992, he owned and operated a
restaurant. As Divisional Vice President of the Company, Mr. DePrinzio is
responsible for the Company's retail operations in Michigan, Ohio, South
Carolina, and North Carolina.
45
<PAGE>
ROBERT C. HEAGERTY. Mr. Heagerty will serve the Company as a Divisional
Vice President, a position he has held with the Company since mid-1993. Mr.
Heagerty has also held the positions of Regional Manager and Regional Vice
President during his seven years with the Company. He has 15 years of experience
in the LP gas industry and joined the Company when it acquired D&H Propane. At
the time of the acquisition, Mr. Heagerty was President of D&H Propane. As
Divisional Vice President of the Company, Mr. Heagerty is responsible for the
Company's retail operations in Oklahoma, Kansas, Missouri, Arkansas, Texas,
Louisiana, Iowa, Minnesota, Wisconsin, and Illinois.
JAMES E. ACREMAN. Mr. Acreman will serve the Company as Vice President and
Treasurer. Mr. Acreman has held the position of Senior Vice President of the
Company since 1989. Mr. Acreman has 16 years of experience in the LP gas
industry, all of those with the the Company. During that time he has held the
positions of Regional Vice President, Regional Manager, and Retail Manager. As
Senior Vice President of the Company, Mr. Acreman has been responsible for
various areas including expense control and human resources.
VALERIA SCHALL. Ms. Schall will serve the Company as Vice President,
Corporate Secretary, and Assistant to the Chairman of the Board of Directors.
She has held the position of Vice President of Empire Gas since December 1992,
and those of Corporate Secretary and Assistant to the Vice Chairman of the Board
of Directors since September 1985, and February 1987, respectively. Ms. Schall
has 13 years of experience in the LP gas industry, all of those with the
Company. During that time she has had various administrative and accounting
responsibilities. Ms. Schall is responsible for federal compliance filings,
acquisitions, divestitures, real estate closings, control of certain corporate
assets, internal audit, risk management, and communications with employees
through various corporate handbooks and manuals, and acting as a liaison with
legal counsel.
KRISTIN L. LINDSEY. Director and Vice President. See description under
"Board of Directors."
WILLIS D. GREEN. Mr. Green will serve as Controller of the Company, a
position he has held with the Company since July 1989. Mr. Green has 22 years of
experience in the LP gas industry. He joined the Company in 1979 and during his
tenure has had responsibility for various administrative and accounting
functions. Prior thereto, he was an internal auditor and systems analyst with
Phillips Petroleum Co. for nine years. Mr. Green is a Certified Public
Accountant and is responsible for the corporate financial control of the
Company.
The individuals currently serving as directors and executive officers of
Empire Gas are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Chairman of the Board and Chief Executive
Robert W. Plaster* 63 Officer (1)
Vice Chairman of the Board and Chief Operating
Paul S. Lindsey, Jr. 49 Officer
Stephen R. Plaster* 35 Director and President (2)
Robert L. Wooldridge* 63 Executive Vice President -- Marketing (3)
James E. Acreman 56 Senior Vice President
Valeria Schall 39 Vice President/Corporate Secretary
Willis D. Green 56 Vice President/Controller
<FN>
- ---------
* These individuals will terminate their employment with Empire Gas upon
consummation of the Transaction.
(1) Mr. Plaster has served as the Chairman of the Board and Chief Executive
Officer of the Company since 1963. Mr. Plaster established the Company in
1963 and has been involved in the propane industry since the early 1960s.
(2) Mr. Stephen Plaster has served as a director and President of the Company
since 1988. Prior thereto, Mr. Plaster served the Company in various
positions. Mr. Plaster is the son of Mr. Robert W. Plaster, the Chairman of
the Board, Chief Executive Officer and President of the Company.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
(3) Mr. Wooldridge has served the Company as Executive Vice President --
Marketing since April 1992. Prior thereto, he held the position of Senior
Vice President -- Marketing at the Company.
</TABLE>
EXECUTIVE COMPENSATION
The following table provides compensation information for each of the years
ended June 30, 1993, 1992, and 1991 for Empire Gas' Chief Executive Officer and
the four other most highly compensated executive officers of Empire Gas for
services rendered to the Company during each of those years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------- ALL
OTHER OTHER
FISCAL ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) (1) (2)
- --------------------------------------------- ------ ---------- ------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Robert W. Plaster(3) 1993 $1,000,000 -- $ 100,000(4) $ 1,648
Chief Executive Officer 1992 1,000,000 -- -- --
and Chairman of the Board 1991 947,916 -- -- --
Paul S. Lindsey, Jr. 1993 230,000 $ 5,000 -- 1,648
Chief Operating Officer and 1992 230,000 -- -- --
Vice Chairman of the Board 1991 230,000 -- -- --
Stephen R. Plaster(3) 1993 100,000 50,000 -- 927
President and Director 1992 75,000 50,000 -- --
1991 75,000 50,000 -- --
Robert L. Wooldridge(3) 1993 90,000 69,222 -- 970
Executive Vice President -- 1992 85,000 45,663 -- --
Marketing 1991 85,000 45,000 -- --
James E. Acreman 1993 70,000 34,794 -- 464
Senior Vice President 1992 40,000 22,664 -- --
1991 40,000 27,866 -- --
<FN>
- ---------
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosures adopted by
the Securities and Exchange Commission, amounts of Other Annual
Compensation and All Other Compensation for Empire Gas' 1992 and 1991
fiscal years are excluded.
(2) This amount includes the allocation of a portion of the forfeitures under
the Company's profit sharing plan (the "Profit Sharing Plan") to each of
the named officers in the following amounts: Mr. R. Plaster -- $1,296, Mr.
Lindsey -- $1,296, Mr. S. Plaster -- $198, Mr. Wooldridge -- $207, and Mr.
Acreman -- $99. This amount also includes the allocation of a portion of
the forfeitures under the Company's stock bonus plan (the "Stock Bonus
Plan") to each of the named officers in the following amounts: Mr. R.
Plaster -- $352, Mr. Lindsey -- $352, Mr. S. Plaster -- $729, Mr.
Wooldridge -- $763, and Mr. Acreman -- $365. The Company made no
contributions to either plan in fiscal year 1993. In September 1992, the
Company terminated both plans and filed with the Internal Revenue Service
("IRS") for determination that the plans were qualified at termination. The
IRS issued favorable determination letters for both plans in December 1992.
The Company liquidated the assets of both plans and paid out the plan
accounts to participants on March 31, 1993.
(3) Upon consummation of the Transaction, these individuals will no longer
serve as executive officers of the Company.
(4) Includes $75,000 to meet the requirements for a new car each year for Mr.
Plaster and $25,000 for services provided by the Company, free of charge,
to Empire Ranch, Inc., a corporation wholly owned by Mr. Plaster and
members of his family. These perquisites were provided to Mr. Plaster in
accordance
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
with the terms of his employment agreement with the Company. See "--
Employment Agreements." This amount does not include amounts paid to a
corporation owned by Mr. Plaster to lease the jet aircraft used by Mr.
Plaster. Nor does it include amounts paid to Empire Ranch, Inc. pursuant to
an agreement between the Company and Empire Ranch, Inc. See "Certain
Relationships and Related Transactions -- Past Transactions and
Relationships."
</TABLE>
EMPLOYMENT AGREEMENTS
Upon consummation of the Transaction, Mr. Lindsey will enter into an
employment agreement with the Company. The agreement will have a five-year term
and will provide for the payment of an annual salary of $350,000 and
reimbursement for reasonable travel and business expenses. The agreement will
require Mr. Lindsey to devote substantially all of his time to the Company's
business.
The Company has an employment agreement with Mr. Robert W. Plaster that will
be terminated, at no cost to the Company, in connection with the Transaction.
The agreement provides for payment of an annual salary of at least $1.0 million,
reimbursement of all expenses incurred pursuant to his employment and certain
fringe benefits, including but not limited to, a new car each year, the
provision of certain services free of charge to Empire Ranch, Inc., a
corporation owned by Mr. Plaster and members of his family, and the use of the
jet aircraft leased by the Company. See "Certain Relationships and Related
Transactions." Under the agreement, if Mr. Plaster dies or becomes permanently
incapacitated during its term, the agreement provides that the Company will make
a one-time payment, in an amount equal to Mr. Plaster's annual salary, to the
Robert W. Plaster Trust established December 31, 1988.
INCENTIVE STOCK OPTION PLAN
Pursuant to the Company's Incentive Stock Option Plan (the "Stock Option
Plan"), the Company grants options to its employees for the purchase of its
Common Stock. Options granted pursuant to the Stock Option Plan are exercisable
at the end of the first month following the date of grant at 6.7% of the total
number of shares subject to options and for each month thereafter, at the rate
of 1.7% of the total number of shares subject to options. The options expire ten
years from their grant. Stock issued under the Plan is subject to restrictions
on transfer including a right of first refusal exercisable by the Company in the
event an employee terminates his employment with the Company or wishes to
transfer his shares. During fiscal year 1993 no options were granted pursuant to
this Plan. Prior to the consummation of the Offering, all of the 129,250
outstanding options, all of which are exercisable, must be exercised. See
"Certain Relationships and Related Transactions."
The following table sets forth certain information concerning options
exercised during fiscal year 1993 and unexercised options held as of that date
by each of the individuals named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED JUNE 30, 1993
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED JUNE 30, 1993 JUNE 30, 1993(1)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------- ----------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Plaster.......... -- -- -- -- -- --
Paul S. Lindsey, Jr........ -- -- -- -- -- --
Stephen R. Plaster......... 19,500 $ 112,313 -- -- -- --
Robert L. Wooldridge....... 72,467 479,898 40,000 -- $ 220,000
James E. Acreman........... 13,250 87,755 8,000 -- 44,000 --
<FN>
- ---------
(1) Calculated based on the estimated fair market value of the Company's common
stock at the exercise date or year-end, as the case may be, minus the
exercise price. The Company has estimated the fair market value of the
stock as of these dates to be $7.00, the price per share to be received by
certain officers, directors, and employees in connection with the
Transaction.
</TABLE>
48
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee. Mr. Lindsey, the Vice
Chairman of the Board and Chief Operating Officer of the Company, makes the
initial decision concerning executive compensation for the executive officers of
the Company, other than decisions concerning his own and his wife's
compensation, which are then approved by the Board of Directors of the Company.
Upon consummation of the Transaction, the Company will not have a compensation
committee, and all decisions concerning compensation, other than decisions
concerning his own and his wife's compensation, will be made by Mr. Lindsey,
subject to approval by the Company's Board of Directors. The independent
directors will determine the compensation of Mr. Lindsey and his wife.
DIRECTOR COMPENSATION
The directors of Empire Gas do not receive any compensation for their
services. Directors of a subsidiary of Empire Gas, other than Mr. Lindsey and
Mr. Stephen Plaster, receive an annual fee of $25,000, payable quarterly, for
their services. Following the Transaction, all directors of Empire Gas will
receive an annual fee of $25,000, payable quarterly.
49
<PAGE>
PRINCIPAL SHAREHOLDERS
EMPIRE GAS
The table below sets forth the following information with respect to the
beneficial ownership of Empire Gas as of April 1, 1994, and on a pro forma
basis, upon consummation of the Transaction and this Offering and the
application of net proceeds therefrom, by persons owning more than five percent
of any class, by all directors of the Company, by the individuals named in the
Summary Compensation Table, and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
AS OF APRIL 1, 1994 TRANSACTION
---------------------------- --------------------------
NUMBER OF SHARES NUMBER OF SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED PERCENT BENEFICIALLY OWNED PERCENT
- ---------------------------------------- ------------------ -------- --------------------------
<S> <C> <C> <C> <C>
Robert W. Plaster(2).................... 10,974,103 79.3% -- --
Paul S. Lindsey, Jr.(3)................. 1,507,610 10.9 1,507,610 95.5%
Kristin L. Lindsey(3)................... 753,805 5.4 753,805 47.7
Stephen R. Plaster(4)................... 619,888 4.5 -- --
Robert L. Wooldridge(5)................. 260,500 1.9 -- --
James E. Acreman(6)..................... 21,550 .2 17,701 1.1
Douglas A. Brown........................ -- -- -- --
Bruce M. Withers, Jr.................... -- -- -- --
Jim J. Shoemake......................... -- -- -- --
All directors and executive officers as
a group
(3 persons, 8 persons on a pro forma
basis)(7).............................. 13,411,554 96.6 1,554,170 98.4
<FN>
- ---------
(1) The address of each of the beneficial owners is c/o Empire Gas
Corporation, P.O. Box 303, 1700 South Jefferson Street, Lebanon, Missouri
65536.
(2) Prior to the Transaction, Mr. Plaster's shares consist of 10,515,103
shares owned by the Robert W. Plaster Trust established December 13, 1988
and 459,000 shares owned by four trusts for the benefit of three of Mr.
Plaster's daughters, the Tammy Jane Plaster Trust established July 30,
1984, the Dolly Francine Plaster Trust established July 30, 1984, the
Cheryl Jean Plaster Schaefer Trust dated October 30, 1988 and the Cheryl
Jean Plaster Schaefer Trust dated July 30, 1984.
(3) Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S.
Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares owned
by the Kristin L. Lindsey Trust established January 24, 1992. Mr. Lindsey
has the power to vote and to dispose of the shares held in the Kristin L.
Lindsey Trust. Mrs. Lindsey's shares consist of the shares owned by the
Kristin L. Lindsey Trust. Mrs. Lindsey disclaims beneficial ownership of
the shares held by her husband in the Paul S. Lindsey, Jr. Trust.
(4) Mr. Stephen Plaster's shares are owned by the Stephen Robert Plaster Trust
established October 30, 1988 and the Stephen Robert Plaster Trust
established July 30, 1984.
(5) Includes 40,000 shares Mr. Wooldridge may acquire upon exercise of options
that are currently exercisable. Mr. Wooldridge will be required to
exercise these options prior to the Effective Date. See "Management --
Incentive Stock Option Plan."
(6) Includes 8,000 shares Mr. Acreman may acquire upon exercise of options
that are currently exercisable. Mr. Acreman will be required to exercise
these options prior to the Effective Date. See "Management -- Incentive
Stock Option Plan."
(7) The amount shown as of April 1, 1994, includes the shares beneficially
owned by Messrs. R. Plaster, Lindsey, S. Plaster, Wooldridge, and Acreman
as set forth above, and 236,903 shares owned by other executive officers,
including 15,000 shares those officers may acquire upon exercise of
options that are currently exercisable. The options must be exercised
prior to the Effective Date. See "Management --
</TABLE>
50
<PAGE>
<TABLE>
<S> <C>
Incentive Stock Option Plan." The amounts shown immediately after the
Transaction include the shares beneficially owned by Messrs. Lindsey and
Acreman, and Mrs. Lindsey as set forth above, and 28,859 shares owned by
other executive officers.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE TRANSACTION
The following will occur in connection with the Transaction:
Pursuant to the terms of the Stock Redemption Agreement, the Company will
repurchase the shares of Common Stock held by Mr. Robert W. Plaster, and trusts
for the benefit of Mr. Plaster, Mr. Stephen Plaster, and certain of their
relatives by exchanging one share of Energy Common Stock for each share of
Common Stock. The Stock Redemption Agreement also obligates the Company to
repurchase the shares of Common Stock held by Mr. Robert L. Wooldridge, an
executive officer of the Company, and Mr. S. A. Spencer, a director of a
subsidiary of the Company. Mr. Wooldridge and Mr. Spencer will receive $7.00 per
share for a portion of their shares of Common Stock and one share of Energy
Common Stock for their remaining shares of Common Stock. The aggregate amount of
shares of Common Stock held by these individuals and the consideration to be
received for the shares is as set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES OF ENERGY COMMON
NAME OF COMMON STOCK STOCK CASH
- ---------------------------------- ---------------- ---------------- --------
<S> <C> <C> <C>
Mr. Robert W. Plaster............. 10,974,103(1) 10,974,103 --
Mr. Stephen R. Plaster............ 619,888(2) 619,888 --
Mr. Wooldridge.................... 260,500(3) 163,686 $677,698
Mr. S.A. Spencer.................. 125,000 100,000 175,000
<FN>
- ---------
(1) Includes 459,000 shares held in four trusts for Mr. Plaster's daughters.
(2) These shares are held in two trusts for Mr. S. Plaster.
(3) Includes 40,000 options Mr. Wooldridge is required to exercise prior to
the Effective Date.
</TABLE>
Following the Transaction, Mr. Plaster will be the controlling shareholder of
Energy, which will own approximately 133 retail services centers located in ten
states. See "The Transaction."
Upon consummation of the Transaction, Mr. Plaster will resign from his
positions as Chairman of the Board and as Chief Executive Officer of the Company
and from his positions with the Company's subsidiaries. Messrs. S. Plaster,
Wooldridge, and Spencer will also resign from their positions with the Company
and its subsidiaries. Energy and Messrs. Plaster and S. Plaster have entered
into the Non-Competition Agreement which restricts them and their affiliates
from competing with the Company, Mr. Lindsey and their affiliates in the
territories in which the Company is doing business immediately following the
Stock Purchase. Similarly, Empire Gas, Mr. Lindsey, and their affiliates are
restricted from competing with Energy, Messrs. Plaster and S. Plaster and their
affiliates in seven states and certain areas within five states. The Non-
Competition Agreement is for a term of three years from the Effective Date.
Certain relatives of Mr. Plaster and Mr. Lindsey, and the officers of Energy and
the Company must enter into a substantially similar non-competition agreement.
See "The Transaction."
The Stock Redemption Agreement also provides for: (i) a payment to be made
by either the Company or Energy based on the balance of certain liabilities net
of certain assets as of the Effective Date; (ii) a payment of approximately $4.1
million to be made by the Company to Energy; (iii) an agreement regarding use of
the Empire Gas name and logo; and (iv) the allocation, between the Company and
Energy, of the responsibility for litigation relating to matters or events
occurring prior to the Effective Date (most of which is related to liability
within the Company's deductibles under its insurance policies), and the
responsibility for any costs related to any such litigation. The Company and
Energy have also entered into a tax indemnity agreement allocating liability for
taxes incurred prior to the Transaction.
51
<PAGE>
Pursuant to the terms of the Stock Redemption Agreement, the Company will
repurchase, at face value, $4.7 million principal amount of the Company's 2007
9% Subordinated Debentures from Robert W. Plaster and will purchase, at face
value, $300,000 principal amount of the Company's 2007 9% Subordinated
Debentures from certain departing officers and employees of the Company. See
"Use of Proceeds." The Company is required to redeem approximately $1.37 million
principal amount of the debentures in December of each year through the year
2006. As a result of this transaction and the purchase by the Company of an
additional $8.7 million principal amount of the 2007 9% Subordinated Debentures
from unaffiliated noteholders, the Company will not be required to purchase
additional 2007 9% Subordinated Debentures to meet sinking fund requirements
until after the maturity of the Senior Secured Notes.
ONGOING TRANSACTIONS AND RELATIONSHIPS
The following discussion describes ongoing transactions that will occur in
connection with the Transaction, and existing transactions and relationships
that are expected to continue following the Transaction.
The Company and Empire Service Corp. ("Service Corp."), a wholly owned
subsidiary of Energy that will be controlled by Mr. Robert W. Plaster following
the Transaction, have entered into the Service Agreement pursuant to which
Service Corp. will provide to the Company certain data processing, management
information, receptionist and switchboard services. The Company will perform its
own accounting and bookkeeping functions. The Company shall pay a monthly fee
equal to (i) its proportionate share of the actual costs incurred by Service
Corp. in providing these services to the Company and to Energy, less
approximately $2,500 for services provided to two other entities controlled by
Mr. Plaster, and (ii) the actual cost incurred for certain telephone and postal
costs and for the maintenance contract for the computer terminals used by the
Company in its operations. At any time after June 30, 1998, the Company may
terminate the Service Agreement in the event of a change in its business
circumstances, such as an acquisition. In the event the Service Agreement is
terminated by the Company prior to its expiration date, the Company will
continue to be obligated to pay, for the remainder of the original term, a
monthly payment equal to the amount paid by the Company for the last full month
for which services were rendered. The Service Agreement is for a term expiring
June 30, 2001, subject to earlier termination if the Company's new lease for its
headquarters expires or if there is a change in control of the Company.
The Company leases its headquarters in Lebanon, Missouri from a corporation
controlled by Mr. Robert W. Plaster, under a lease agreement effective June 30,
1991 for an initial term ending June 30, 2001. The Company made annual lease
payments of $200,000 in fiscal years 1991, 1992, and 1993. The Company also paid
the utilities, taxes and maintenance costs during each of those years. This
lease will be terminated and a new lease will become effective upon consummation
of the Transaction. The new lease provides the Company the right to use
approximately 8,020 square feet of office space in the Lebanon location as well
as the use of the parking facilities for a term expiring June 30, 2001. The
Company will pay monthly rent of $6,250 and will be responsible for its
proportionate share of utilities and taxes and for the payment of certain
repairs and maintenance costs. The lease is subject to earlier termination, at
the option of the lessor, in the event of a change in control of the Company. At
any time after June 30, 1998, the Company may terminate the lease in the event
of a change in its business circumstances, such as an acquisition. In the event
the Company terminates the lease prior to its expiration date, the Company will
continue to be obligated to pay, for the remainder of the original term, the
monthly rent payment; provided, however, that the lessor shall use its best
efforts to re-let the premises.
Pursuant to the Aircraft Facility Agreement, the Company leased a jet
aircraft and an airport hangar from a corporation owned by Mr. Robert W. Plaster
during the last quarter of fiscal year 1992 and all of fiscal year 1993. Under
the terms of this agreement, the Company was responsible for direct lease
payments and operating costs, including insurance, of the aircraft and the
hangar. The Company paid direct rent of $25,000 in fiscal year 1992 and $100,000
in fiscal year 1993. The Company also paid operating expenses relating to the
lease of $385,000 in fiscal year 1992 and $276,000 in fiscal year 1993. This jet
had been purchased by Mr. Plaster from the Company on June 30, 1991, when he
exercised an option to purchase the jet at its depreciated net book value of
$32,399, an amount the Company believes was substantially less than its fair
market value at that date. This option had been granted to Mr. Plaster pursuant
to an employment
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agreement, negotiated in 1983 between Mr. Plaster and the then-controlling
shareholders of the Company in connection with a leveraged buy-out and merger
involving the Company. In connection with the Transaction, the Aircraft Facility
Agreement will be terminated; however, pursuant to the Stock Redemption
Agreement, the Company may use the hangar, at no cost, for storage and
maintenance of the Company's two turbo prop aircraft for a term that coincides
with the Company's new lease for its headquarters.
Mrs. Kristin L. Lindsey, who beneficially owns approximately 5.4% of the
Company's outstanding common stock and who will become a director of the Company
upon consummation of the Transaction, is the majority stockholder in a company
that supplies paint to the Company. The Company's purchases of paint from this
company totalled $117,000 in fiscal year 1992 and $125,000 in fiscal year 1993.
During fiscal year 1993, the Company received certain financial advisory
services in connection with the negotiation of the existing credit facility from
Mr. Douglas A. Brown and Holding Capital Group, Inc. ("HCGI"), who received
$125,000 as compensation for these services. Mr. Brown, who will become a
director of the Company upon consummation of the Transaction and Mr. S.A.
Spencer, a director of a subsidiary of the Company, are affiliated with HCGI.
Mr. Brown and HCGI have been engaged to provide certain financial advisory
services in connection with the negotiation of the New Credit Facility and the
structuring and execution of this Offering, and will receive $500,000 for these
services.
The Company has entered into an agreement with each of its current
shareholders (all of whom are directors or employees of the Company) providing
that the Company has a right of first refusal with respect to the sale of any
shares by such shareholders. In addition, the Company has the right to purchase
from such shareholders all shares they hold at the time of their termination of
employment with the Company at the then current fair market value of the shares.
The fair market value is determined in the first instance by the Board of
Directors and by an independent appraisal (the cost of which is split between
the Company and the departing shareholder) if the departing shareholder disputes
the board's determination.
PAST TRANSACTIONS AND RELATIONSHIPS
The following discussion describes transactions that have occurred during
the past three fiscal years that are not expected to continue following the
Transaction.
During fiscal years 1991, 1992, and 1993, pursuant to the terms of the Ranch
Agreement, the Company paid $150,000 annually and provided services each year at
a cost of approximately $25,000 to a wildlife preserve owned by Empire Ranch,
Inc. The Company used the facilities at the preserve for meetings with Company
employees and business guests. In connection with the Transaction, the Ranch
Agreement is being terminated.
Mr. Robert W. Plaster and trusts or entities controlled by Mr. Plaster have
provided demand loans to the Company over the past three years. The maximum
amount loaned to the Company during fiscal year 1991, 1992, and 1993 was
$5,928,000, $5,753,000, and $3,000,000, respectively. These loans were fully
repaid by June 30, 1993. The interest rate on these loans was equal to or below
the average rates available to the Company through its bank lines of credit in
effect during each of those years. The Company incurred total interest expense
of $583,000, $315,000, and $200,000 for fiscal years 1991, 1992, and 1993,
respectively.
The Company provides bookkeeping, data processing, and accounting services
to two corporations controlled by Mr. Robert W. Plaster for an annual fee of
$84,000. The Company received an annual fee of $84,000 in fiscal year 1991,
1992, and 1993 for providing these services. Following the Transaction, the
Company will no longer provide these services to the two corporations. See "--
Ongoing Transactions and Relationships"
Mr. Paul W. Zeller, a director of a subsidiary of the Company during fiscal
year 1991 and 1992, was an officer of Reliance Insurance Company, the Company's
lender on its Old Term Loan. The maximum outstanding balance on the Old Term
Loan was $20 million during fiscal year 1991 and $13.25 million during fiscal
year 1992. The Company paid interest of $2.9 million, $2.4 million, and $710,000
on the Old Term Loan during fiscal years 1991, 1992, and 1993, respectively. In
November 1992, the Old Term Loan (which was accruing interest at 14.5% per
annum) was repaid with funds provided by a $13.25 million loan from Mr.
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Robert W. Plaster, through the Robert W. Plaster Trust established December 13,
1988. This loan was secured by substantially all of the assets of the Company
and its subsidiaries on a PARI PASSU basis with the Company's Old Working
Capital Facility. The loan bore interest at 10% per annum and was repaid in June
1993 with the proceeds from the Term Loan. The Company incurred interest expense
of $749,000 during fiscal year 1993 for this loan.
DESCRIPTION OF THE UNITS
Each Unit consists of Senior Secured Notes, each such Senior
Secured Note having a principal amount at maturity of $1,000 and
Warrants each to purchase one share of the Company's Common Stock at a price of
$7.00 per share, subject to adjustment. The Senior Secured Notes and the
Warrants will become separately transferable at the close of business on
, 1994 (the "Separation Date"). See "Description of the Senior
Secured Notes" and "Description of the Warrants" for further information
concerning the Senior Secured Notes and Warrants, respectively. In addition, see
"Description of Capital Stock" for additional information relating to the Common
Stock issuable upon exercise of the Warrants.
FORM, DENOMINATION AND REGISTRATION
The Senior Secured Notes will be issued in the form of a fully registered
Global Note (the "Global Note") and the Warrants will be issued in the form of a
fully registered Global Warrant (the "Global Certificate" and together with the
Global Note, the "Global Securities"), each of which will be deposited with, or
on behalf of, The Depository Trust Company (the "Depositary") and registered in
the name of a nominee of the Depositary. The Depositary has provided the Company
and the Underwriter with the information set forth below.
The Depositary will act as securities depositary for the Global Securities.
The Global Securities will be issued as fully-registered securities in the name
of Cede & Co. (the Depositary's partnership nominee).
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants (the "Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to the Depositary
system is also available to others such as securities brokers and dealers,
banks, and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Commission.
Purchases of Senior Secured Notes or Warrants under the Depositary system
must be made by or through Direct Participants, which will receive a credit for
the Senior Secured Notes or Warrants on the Depositary's records. The ownership
interest of each actual purchaser of each Senior Secured Note or Warrant (the
"Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Senior Secured Notes or Warrants are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners.
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Beneficial Owners will not receive certificates representing their ownership
interests in Senior Secured Notes or Warrants, except in the event that use of
the book-entry system for the Senior Secured Notes or the Warrants is
discontinued.
To facilitate subsequent transfers, all Senior Secured Notes and Warrants
deposited by Participants with the Depositary are registered in the name of the
Depositary's partnership nominee, Cede & Co. The deposit of Senior Secured Notes
or Warrants with the Depositary and their registration in the name of Cede & Co.
effect no change in beneficial ownership. The Depositary has no knowledge of the
actual Beneficial Owners of the Senior Secured Notes or the Warrants. The
Depositary's records reflect only the identity of the Direct Participants to
whose accounts such Senior Secured Notes or Warrants are credited, which may or
may not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. if less than all of the
Senior Secured Notes within an issue are being redeemed. The Depositary's
practice is to determine by lot the amount of the interest of each Direct
Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Senior Secured Notes. Under its usual procedures, the Depositary made an
Omnibus Proxy to the Company as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Senior Secured Notes are credited on the
record date identified in a listing attached to the Omnibus Proxy.
Principal and interest payments on the Senior Secured Notes will be made to
the Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the payment date in accordance with their respective holdings shown
on the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on such date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of the Depositary, the Agent, or the Company, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
principal and interest to the Depositary is the responsibility of the Company or
the Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
So long as the Depositary, or its nominee, is the registered owner of the
Global Securities, the Depositary or its nominee, as the case may be, will be
considered the record owner (the "Holder") of the Senior Secured Notes
represented by the Global Note or the Warrants represented by the Global
Certificate, as the case may be, for all purposes under the Indenture governing
such Senior Secured Notes and under the Warrant Agreement governing such
Warrants. Except as set forth below, owners of beneficial interests in such
Global Securities will not be entitled to have Senior Secured Notes represented
by the Global Note or Warrants represented by the Global Certificate registered
in their names, will not receive or be entitled to receive physical delivery of
Senior Secured Notes or Warrants, as the case may be, in definitive form and
will not be considered the owners or Holders thereof under the Indenture or the
Warrant Agreement, as the case may be. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of the
Depositary and, if such person is not a Participant, those of the Participant
through which such person owns its interests, in order to exercise any rights of
a Holder under the Indenture or the Senior Secured Notes, or the Warrant
Agreement or the Warrant, as the case may be.
The Indenture provides that the Depositary, as a Holder, may appoint agents
and otherwise authorize Participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other
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action which a Holder is entitled to give or take under the Indenture or the
Warrant Agreement, including the right to sue for payment of principal or
interest pursuant to Section 316(b) of the Trust Indenture Act of 1939, as
amended. The Company understands that under existing industry practices, when
the Company requests an action of Holders or when a Beneficial Owner desires to
give or take any action which a Holder is entitled to give or take under the
Indenture or the Warrant Agreement, as the case may be, the Depositary generally
will give or take such action, or authorize the relevant Participants to give or
take such action, and such Participants would authorize Beneficial Owners
through such Participants to give or take such action or would otherwise act
upon the instructions of Beneficial Owners owning through them.
The Company has been informed by the Depositary that the Depositary will
assist its Participants and their customers (Beneficial Owners) in taking any
action a Holder is entitled to take under the Indenture or the Warrant
Agreement, as the case may be, or exercise any rights available to Cede & Co.,
as the holder of record of the Senior Secured Notes or the Warrants, as the case
may be, including the right to demand acceleration upon an event of default as
defined under the Indenture or to institute suit for the enforcement of payment
of principal or interest pursuant to Section 316(b) of the Trust Indenture Act
of 1939, as amended. The Depositary has advised the Company that it will act
with respect to such matters upon written instructions from a Participant to
whose account with the Depositary the relevant beneficial ownership in the
Senior Secured Notes or the Warrants is credited. The Company understands that a
Participant will deliver such written instructions to the Depositary upon itself
receiving similar written instructions from either Indirect Participants or
Beneficial Owners, as the case may be. Under Rule 6 of the rules and procedures
filed by the Depositary with the Securities and Exchange Commission pursuant to
Section 17 of the Securities Exchange Act of 1934, as amended, Participants are
required to indemnify the Depositary against all liability the Depositary may
sustain without fault on the part of the Depositary or its nominee, as a result
of any action they may take pursuant to the instructions of the Participant in
exercising any such rights.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such limits and
such laws may impair the ability to transfer beneficial interests in Global
Securities.
Payments of principal, premium, if any, and interest on Senior Secured Notes
and payments made with respect to the Warrants registered in the name of or held
by the Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner or the Holder of the Global
Securities representing such Senior Secured Notes or Warrants. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
If the Depositary is at any time unwilling, unable or ineligible to continue
as depositary, or if the Company determines to discontinue use of the system of
book-entry transfers through the Depositary, and a successor depositary is not
appointed by the Company within sixty days (and with respect to the Senior
Secured Notes, if an Event of Default under the Indenture has occurred and is
continuing), the Company will issue Senior Secured Notes or Warrants in
definitive registered form, in exchange for the Global Security representing
such Senior Secured Notes or Warrants. In addition, the Company may at any time
and in its sole discretion determine not to have any Senior Secured Notes or
Warrants in registered form represented by the Global Securities and, in such
event, will issue Senior Secured Notes or Warrants in definitive registered form
in exchange for the Global Securities representing such Senior Secured Notes or
Warrants. In any such instance, an owner of a beneficial interest in Global
Securities will be entitled to physical delivery in definitive form of Senior
Secured Notes or Warrants represented by such Global Securities equal in
principal amount to such beneficial interest and to have such Senior Secured
Notes or Warrants registered in its name.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Underwriter believe to be reliable, but the Company and the Underwriter
take no responsibility for the accuracy thereof.
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DESCRIPTION OF THE SENIOR SECURED NOTES
GENERAL
The Senior Secured Notes are to be issued under an Indenture (the
"Indenture") to be dated as of , 1994, among the Company, the Subsidiary
Guarantors (as defined herein) and Shawmut Bank Connecticut, National
Association, as trustee (the "Trustee"). A copy of the proposed form of the
Indenture has been filed as an exhibit to the Registration Statement, of which
this Prospectus is a part. See "Available Information."
The following summary of certain provisions of the Indenture and the
Subsidiary Guarantees does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Indenture,
including the definitions of certain terms therein.
The Senior Secured Notes will be issued in fully registered form only,
without coupons, in denominations of $1,000 or integral multiples thereof.
The Senior Secured Notes are transferable and exchangeable at the office of
the Registrar. Principal, premium, if any, and interest are payable at the
office of the Paying Agent, but at the option of the Company, interest may be
paid by check mailed to the registered holders at their registered addresses.
The Company has initially appointed the Trustee as the Paying Agent and the
Registrar under the Indenture.
The Company has no sinking fund or mandatory redemption obligations with
respect to the Senior Secured Notes.
The Company is subject to the informational reporting requirements of
Sections 13 and 15(d) under the Exchange Act and, in accordance therewith, will
file certain reports and other information with the Commission. See "Available
Information." In addition, if Sections 13 and 15(d) cease to apply to the
Company, the Company will covenant in the Indenture to file such reports and
information with the Trustee and the Commission, and mail such reports and
information to Noteholders at their registered addresses, for so long as any
Senior Secured Notes remain outstanding.
The Company conducts substantially all of its operations through its
subsidiaries. Creditors of its subsidiaries, including trade creditors, would
have a claim on the subsidiaries' assets that would (except to the extent that
the Subsidiary Guarantees represent direct claims against such subsidiaries) be
prior to the claims of the holders of the Senior Secured Notes. See "Risk
Factors -- Effective Ranking of Senior Secured Notes."
The Senior Secured Notes will be issued in the form of a fully registered
Global Note and will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of a nominee of the Depositary. Except as set
forth in "Description of the Units -- Form, Denomination and Registration"
above, owners of beneficial interests in such Global Note will not be entitled
to have Senior Secured Notes registered in their names, will not receive or be
entitled to receive physical delivery of Senior Secured Notes in definitive form
and will not be considered the owners or Holders thereof under the Indenture.
See "Description of the Units -- Form, Denomination and Registration." No
service charge will be made for any registration of transfer or exchange of
Senior Secured Notes, but the Company may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
SUBSIDIARY GUARANTEE
The Senior Secured Notes will be unconditionally guaranteed as to the
payment of principal, premium, if any, and interest by the Subsidiary Guarantors
pursuant to the Subsidiary Guarantees. See "-- Certain Definitions -- Subsidiary
Guarantees." The Subsidiary Guarantors constitute all the subsidiaries of the
Company and they are all guaranteeing the Senior Secured Notes on a full,
unconditional and joint and several basis. Accordingly, separate financial
statements of the Subsidiary Guarantee have not been presented.
Upon the redesignation by the Company of a Subsidiary Guarantor from
Restricted Subsidiary to an Unrestricted Subsidiary in compliance with the
provisions of the Indenture, such Subsidiary shall cease to be a Subsidiary
Guarantor and shall be released from all of the obligations of a Subsidiary
Guarantor under its Subsidiary Guarantee.
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Upon the sale or disposition (by merger or otherwise) of any Subsidiary
Guarantor by the Company or any Subsidiary of the Company to any entity that is
not a Subsidiary of the Company and which sale or disposition is otherwise in
compliance with the terms of the Indenture, each such Subsidiary Guarantor shall
automatically be released from all obligations under its Subsidiary Guarantee,
PROVIDED, that each such Subsidiary Guarantor is sold or disposed of for fair
market value (evidenced by a board resolution and set forth in an Officers'
Certificate delivered to the Trustee).
TERMS OF THE SENIOR SECURED NOTES
The Senior Secured Notes will be senior obligations of the Company. The
Senior Secured Notes will mature on , 2004. Prior to , 1999,
interest will accrue on the Senior Secured Notes from , 1994, or from the
most recent Interest Payment Date to which interest has been paid or provided
for, and will be payable in cash semiannually at the rate of % per annum of
the principal amount at maturity of the Senior Secured Notes (to Holders of
record at the close of business on the or immediately preceding
the Interest Payment Date) on and of each year, commencing
, 1994. In addition, prior to , 1999, original issue discount will
accrete on the Senior Secured Notes such that the yield to maturity will be %
per annum, compounded on the basis of semiannual compounding. From and after
, 1999, interest on the Senior Secured Notes will accrue and be payable
in cash semiannually at the rate of % per annum of the principal amount at
maturity of the Senior Secured Notes (to Holders of record at the close of
business on the or immediately preceding the Interest Payment
Date) on and of each year, commencing , 1999.
For federal income tax purposes, Holders of Senior Secured Notes will be
required to recognize interest income in respect of the Senior Secured Notes in
the form of original issue discount in advance of the receipt of the cash
payments to which such income is attributable. See "Certain Federal Income Tax
Considerations" for information concerning certain federal income tax
considerations associated with the Senior Secured Notes.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Company may not redeem
the Senior Secured Notes prior to , 1999. On and after such date, the
Company may redeem the Senior Secured Notes at any time as a whole, or from time
to time in part, at the following redemption prices (expressed in percentages of
Accreted Value), plus accrued interest to the redemption date, if redeemed
during the 12-month period beginning :
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ----------------------------------- ----------------
<S> <C>
1999............................... %
2000............................... %
2001 and thereafter................ 100.00 %
</TABLE>
The Company may redeem up to $ million principal amount at maturity (35%)
of Senior Secured Notes with the proceeds of one or more Public Equity Offerings
following which there is a Public Market, at any time as a whole or from time to
time in part, at a redemption price (expressed as a percentage of Accreted
Value), plus accrued interest to the redemption date, of % if redeemed at any
time prior to , 1997.
SELECTION FOR REDEMPTION
In the case of any partial redemption, selection of the Senior Secured Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Senior Secured Note of $1,000 in
principal amount at maturity or less shall be redeemed in part. If any Senior
Secured Note is to be redeemed in part only, the notice of redemption relating
to such Senior Secured Note shall state the portion of the principal amount
thereof to be redeemed. A Senior Secured Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Senior Secured Note.
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RANKING
The Indebtedness evidenced by the Senior Secured Notes constitutes Senior
Indebtedness of the Company and will rank PARI PASSU in right of payment with
all existing and future Senior Indebtedness of the Company, including, without
limitation, amounts due under the New Credit Facility. The Subsidiary Guarantees
constitute senior indebtedness of the respective Subsidiary Guarantors and will
rank PARI PASSU with all existing and future senior indebtedness of the
Subsidiary Guarantors, including, without limitation, guarantees of amounts due
under the New Credit Facility. Any borrowings under the New Credit Facility, but
not the Senior Secured Notes, will be secured by the inventory and accounts
receivable of the Company and its subsidiaries. The Company conducts
substantially all of its operations through its subsidiaries. Claims of
creditors of such subsidiaries, including trade creditors and holders of
indebtedness guaranteed by such subsidiaries, will have priority with respect to
the assets and earnings of such subsidiaries over creditors of the Company,
including holders of Senior Secured Notes (except to the extent that such
creditors hold claims against such subsidiaries, such as guarantees). See "Risk
Factors -- Effective Ranking of Senior Secured Notes."
COLLATERAL AND SECURITY
Pursuant to the Indenture and the Pledge Agreement, the Company will pledge
to the Trustee all shares of Capital Stock of each of its Restricted
Subsidiaries (including, without limitation, PSNC Propane Corporation) and all
other Restricted Subsidiaries of the Company formed or acquired after the date
of the Indenture (such Capital Stock, together with any proceeds therefrom or
replacements therefor pursuant to the terms of the Indenture, being hereafter
referred to as the "Collateral"). The security interest in the Collateral will
be a first priority perfected security interest. However, absent any Default or
Event of Default, the Company will be able to receive dividends and vote, as it
sees fit in its sole discretion, the Capital Stock of the Restricted
Subsidiaries, provided that no vote may be cast, and no consent, waiver or
ratification given or action taken, which would be inconsistent with or violate
any provision of the Indenture or the Senior Secured Notes.
The Indenture will provide that the Collateral may be released from the Lien
thereon (a) upon payment in full of all obligations under the Indenture and the
termination thereof or (b) upon the sale or other disposition of such Collateral
if (i) the Company or a Subsidiary receives consideration at the time of such
sale or other disposition at least equal to the fair market value, as determined
in good faith by the Board of Directors, of the Collateral subject to the sale
or other disposition, (ii) at least 80% of the consideration thereof received by
the Company or a Subsidiary is in the form of Additional Assets or cash or cash
equivalents which cash equivalents are promptly converted into cash by the
Company, and (iii) an amount equal to 100% of the Net Available Cash is applied
by the Company as set forth in the following paragraph. The Net Available Cash
resulting from the sale or other disposition of any Collateral shall, to the
extent permitted by law, be immediately deposited in an account (the "Collateral
Account") subject to a first priority perfected Lien in favor of the Trustee,
and the Company shall cause any non-cash proceeds from such sale or other
disposition (including securities) received by the Company or a Subsidiary to
immediately become subject to a first priority perfected Lien in favor of the
Trustee.
Within 360 days after consummation of any sale or disposition of Collateral,
the Company shall apply 100% of the Net Available Cash resulting from such sale
or disposition to (i) the purchase of Additional Assets (the "Replacement
Assets"), provided, however, that, when acquired, such Replacement Assets are
subject to a first priority perfected Lien in favor of the Trustee, (ii) the
purchase of Senior Secured Notes tendered to the Company for purchase at a price
equal to at least 100% of the Accreted Value thereof, plus accrued interest, if
any, to the date of purchase (which purchase shall be made pursuant to an offer
substantially similar to an Asset Sale Offer to all of the holders of the Senior
Secured Notes), or (iii) the acquisition or formation of a Subsidiary, provided,
however, that, when acquired or formed, the Capital Stock of such Subsidiary is
subject to a first priority perfected Lien in favor of the Trustee; PROVIDED,
that if the Company does not apply such Net Available Cash in accordance with
(i), (ii) or (iii) above, such Net Available Cash shall remain in the Collateral
Account and not be released until the obligations of the Company under the
Indenture and the Senior Secured Notes have been discharged. See "-- Covenants
- -- Sale of Assets." Subject to the proviso in the preceding sentence, amounts in
the Collateral Account shall be
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released (i) upon the purchase of Additional Assets, (ii) upon the purchase of
Senior Secured Notes pursuant to an clause (ii) above, or (iii) upon the
acquisition or formation of a Subsidiary, all of whose Capital Stock has been
pledged to the Trustee. Any such actions by the Trustee to release the
Collateral must be taken in accordance with the Trust Indenture Act of 1939, as
amended, including Section 314 thereunder.
There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indenture following an Event of Default would be sufficient to
satisfy payments due on the Senior Secured Notes. If such proceeds are not
sufficient to repay all such amounts due on the Senior Secured Notes, then
Holders of the Senior Secured Notes (to the extent not repaid from the proceeds
of the sale of the Collateral) would have only an unsecured claim against the
Company's remaining assets. In addition, the ability of the Holders of the
Senior Secured Notes to rely upon the Collateral for fulfillment of the
Company's obligations under the Indenture may be subject to certain bankruptcy
law limitations in the event of a bankruptcy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the
Indentures.
"ACCRETED VALUE" as of any date (the "specified date") means, with respect
to each $1,000 face amount of Senior Secured Notes, the following amount:
(i) if the specified date is one of the following dates (each an
"accrual date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
ACCRETED
ACCRUAL DATE VALUE
- ---------------------- -------------
<S> <C>
, 1994 --
, 1994 --
, 1995 --
, 1995 --
, 1996 --
, 1996 --
, 1997 --
, 1997 --
, 1998 --
, 1998 --
, 1999 1,000.00;
</TABLE>
(ii) if the specified date occurs between two accrual dates, the sum of
(A) the accreted value for the accrual date immediately preceding the
specified date and (B) an amount equal to the product of (i) the accreted
value for the immediately following accrual date less the accreted value for
the immediately preceding accrual date and (ii) a fraction, the numerator of
which is the number of days (not to exceed 180 days) from the immediately
preceding accrual date to the specified date, using a 360-day year of twelve
30-day months, and the denominator of which is 180 (or, if the immediately
following accrual date is , 1999, ); and
(iii) if the specified date occurs after , 1999, $1,000.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the time
at which such Person became a Subsidiary and not incurred in connection with, or
in contemplation of, such Person becoming a Subsidiary. Acquired Indebtedness
shall be deemed to be Incurred on the date the acquired Person becomes a
Subsidiary.
"ACQUISITION INDEBTEDNESS" means Indebtedness of a Restricted Subsidiary
incurred in connection with the acquisition of property or assets related to the
Line of Business which will be owned and used by the Company or a Restricted
Subsidiary, which Indebtedness is without recourse to the Company or any other
Restricted Subsidiary other than the Restricted Subsidiary issuing such
Acquisition Indebtedness.
"ADDITIONAL ASSETS" means (i) any property or assets related to the Line of
Business which will be owned and used by the Company or a Restricted Subsidiary;
(ii) the Capital Stock of a Person that becomes a
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Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary or (iii) Capital Stock constituting
a minority interest in any Person that at such time is a Restricted Subsidiary.
"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Covenants -- Transactions with
Affiliates" and "-- Sales of Assets" only, "Affiliate" shall also mean any
beneficial owner of 5% or more of the total Voting Shares (on a Fully Diluted
Basis) of the Company or of rights or warrants to purchase such stock (whether
or not currently exercisable) and any Person who would be an Affiliate of any
such beneficial owner pursuant to the first sentence hereof. For purposes of the
provision described under "-- Covenants -- Limitation on Restricted Payments"
only, "Affiliate" shall also mean any Person of which the Company owns 5% or
more of any class of Capital Stock or rights to acquire 5% or more or any class
of Capital Stock and any Person who would be an Affiliate of any such Person
pursuant to the first sentence hereof.
"ASSET SALE" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale leaseback transactions, but excluding (except
as provided for in the provisions described in the last paragraph under "--
Covenants -- Sales of Assets") those permitted by the provisions described under
"-- Covenants -- Merger and Consolidation") in one or a series of transactions
by the Company or any Restricted Subsidiary to any Person other than the Company
or any Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the
Company or any Restricted Subsidiary, (ii) all or substantially all of the
assets of any operating unit, division or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to acquire
property or assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Secured Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (A) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Indebtedness or
Preferred Stock multiplied by (B) the amount of such payment by (ii) the sum of
all such payments.
"BASIC AGREEMENTS" means (i) the Stock Redemption Agreement, dated May 7,
1994, among the Company, Energy, Mr. Lindsey, Mr. Robert Plaster, and the other
parties named therein; (ii) the Services Agreement between the Company and
Empire Service Corporation entered into pursuant to the Stock Redemption
Agreement; (iii) the Lease Agreement between the Company and Evergreen National
Corporation entered into pursuant to the Stock Redemption Agreement; (iv) and
the Non-Competition Agreement among the Company, Energy, Paul Lindsey, Robert
Plaster and Stephen Plaster entered into pursuant to the Stock Redemption
Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee thereof.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL STOCK" means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation or any and
all equivalent ownership interests in a Person (other than a corporation).
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; the Stated
Maturity
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thereof shall be the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which the lease may be terminated
by the lessee without payment of a penalty; and "Capitalized Lease Obligations"
means the rental obligations, as aforesaid, under such lease.
"CHANGE OF CONTROL" means the occurrence of any of the following events: (i)
at any time after the occurrence of a Public Market, any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than the
Management Group or an underwriter engaged in a firm commitment underwriting on
behalf of the Company, is or becomes the beneficial owner (as such term is used
in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of
this clause (i) a person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30%, of the total Voting Shares of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors together with any new directors
whose election by Board of Directors or whose nomination for election by the
stockholders was approved by a vote of 66 2/3% of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved cease
for any reason to constitute a majority of the Board of Directors, as the case
may be, then in office; (iii) a majority of the Company's and its Restricted
Subsidiaries' assets are sold, leased, exchanged or otherwise transferred to any
Person or group of Persons acting in concert; (iv) the Company is liquidated or
dissolved or adopts a plan of liquidation; (v) prior to the occurrence of a
Public Market, the Management Group ceases in the aggregate to beneficially own,
directly or indirectly, at least 50% in the aggregate of the total Voting Shares
of the Company; or (vi) at any time prior to the occurrence of a Change of
Control pursuant to clauses (i) to (v) of this definition as a result of which a
Change of Control Offer was made, (A) the failure of the Company for a period of
greater than 90 days in any 12 month period to continuously maintain (following
the 6 month anniversary of the Offering) on its Board of Directors at least two
Outside Directors, (B) the failure of the Company for a period of greater than
90 days in any 12 month period to continuously maintain an audit committee of
its Board of Directors consisting solely of Outside Directors or (C) the Board
of Directors consists of greater than seven members; and the Company has agreed
that upon the occurrence of any of the events in this item (vi) the Company
shall notify the Trustee of such occurrence.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means the party named as such in the Indenture until a successor
replaces it pursuant to the terms and conditions of the Indenture and thereafter
means the successor.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters to (ii) the Consolidated Interest Expense for
such four fiscal quarters; PROVIDED, HOWEVER, that if the Company or any
Restricted 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 Coverage Ratio is an Incurrence of Indebtedness, or
both, both EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to (x) such new Indebtedness
as if such Indebtedness had been Incurred on the first day of such period and
(y) the repayment, redemption, repurchase, defeasance or discharge of any
Indebtedness repaid, redeemed, repurchased, defeased or discharged with the
proceeds of such new Indebtedness as if such repayment, redemption, repurchase,
defeasance or discharge had been made on the first day of such period; PROVIDED,
FURTHER, that if within the period during which EBITDA or Consolidated Interest
Expense is measured, the Company or any of its Restricted Subsidiaries shall
have made any Asset Sales, (x) the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets or
Capital Stock which are the subject of such Asset Sales for such period, or
increased by an amount equal to the EBITDA (if negative), directly attributable
thereto for such period and (y) the Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness for which neither Company nor any
Restricted Subsidiary shall continue to be liable as a result of any such Asset
Sale or repaid, redeemed, defeased, discharged or otherwise retired in
connection with or with the proceeds of the assets or
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Capital Stock which are the subject of such Asset Sales for such period; and
PROVIDED, FURTHER, that if the Company or any Restricted Subsidiary shall have
made any acquisition of assets or Capital Stock (occurring by merger or
otherwise) since the beginning of such period (including any acquisition of
assets or Capital Stock occurring in connection with a transaction causing a
calculation to be made hereunder) the EBITDA and Consolidated Interest Expense
for such period shall be calculated, after giving pro forma effect thereto (and
without regard to clause (iv) of the definition of "Consolidated Net Income"),
as if such acquisition of assets or Capital Stock took place on the first day of
such period. For all purposes of this definition, if the date of determination
occurs prior to the completion of the first four full fiscal quarters following
the Issue Date, then "EBITDA" and "Consolidated Interest Expense" shall be
calculated after giving effect on a pro forma basis to the Offering as if the
Offering occurred on the first day of the four full fiscal quarters that were
completed preceding such date of determination.
"CONSOLIDATED CURRENT LIABILITIES," as of the date of determination, means
the aggregate amount of liabilities of the Company and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (i) all inter-company
items between the Company and any Subsidiary and (ii) all current maturities of
long-term Indebtedness, all as determined in accordance with GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, as applied to the
Company, the provision for local, state, federal or foreign income taxes on a
Consolidated basis for such period determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, as applied to the
Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in accordance
with GAAP, including, without limitation, (i) amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting, and amortization of debt issuance costs (other than issuance costs
with regard to the Offering, the execution of the New Credit Facility and the
related transactions occurring simultaneously therewith), (ii) accrued interest,
(iii) noncash interest payments, (iv) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (v) interest actually paid by the Company or any such Subsidiary
under any guarantee of Indebtedness or other obligation of any other Person and
(vi) net costs associated with Interest Rate Agreements (including amortization
of discounts) and Currency Agreements, plus (b) all but the principal component
of rentals in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued by the Company or its Consolidated Restricted
Subsidiaries, plus (c) one-third of all Operating Lease Obligations paid,
accrued and/or scheduled to be paid by the Company and its Consolidated
Restricted Subsidiaries, plus (d) amortization of capitalized interest, plus (e)
dividends paid in respect of Preferred Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary,
plus (f) cash contributions to any employee stock ownership plan to the extent
such contributions are used by such employee stock ownership plan to pay
interest or fees to any person (other than the Company or a Restricted
Subsidiary) in connection with loans incurred by such employee stock ownership
plan to purchase Capital Stock of the Company.
"CONSOLIDATED NET INCOME (LOSS)" means, for any period, as applied to the
Company, the Consolidated net income (loss) of the Company and its Consolidated
Restricted Subsidiaries for such period, determined in accordance with GAAP,
adjusted by excluding (without duplication), to the extent included in such net
income (loss), the following: (i) all extraordinary gains or losses; (ii) any
net income of any Person if such Person is not a Restricted Subsidiary, except
that (A) the Company's equity in the net income of any such Person for such
period shall be included in Consolidated Net Income (Loss) up to the aggregate
amount of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the equity of the Company or a Restricted Subsidiary in a net loss of any such
Person for such period shall be included in determining Consolidated Net Income
(Loss); (iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such income is not at the time thereof permitted, directly or
indirectly, by operation of the terms of its charter or by-laws or any
agreement, instrument, judgment,
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decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary or its stockholders; (iv) any net income (or loss) of any
Person combined with the Company or any of its Restricted Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
such combination; (v) any gain or loss realized upon the sale or other
disposition of any property, plant or equipment of the Company or its Restricted
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain (but not loss) realized upon the sale or other disposition by the Company
or any Restricted Subsidiary of any Capital Stock of any Person; and (vi) the
cumulative effect of a change in accounting principles; and further adjusted by
subtracting from such net income the tax liability of any parent of the Company
to the extent of payments made to such parent by the Company pursuant to any tax
sharing agreement or other arrangement for such period.
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of determination,
as applied to the Company, the total amount of assets (less accumulated
depreciation or amortization, allowances for doubtful receivables, other
applicable reserves and other properly deductible items) which would appear on a
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries, determined on a Consolidated basis in accordance with GAAP, and
after giving effect to purchase accounting and after deducting therefrom, to the
extent otherwise included, the amounts of: (i) Consolidated Current Liabilities;
(ii) minority interests in Consolidated Subsidiaries held by Persons other than
the Company or a Restricted Subsidiary; (iii) excess of cost over fair value of
assets of businesses acquired, as determined in good faith by the Board of
Directors; (iv) any revaluation or other write-up in value of assets subsequent
to December 31, 1993 as a result of a change in the method of valuation in
accordance with GAAP; (v) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (vi) treasury stock; and (vii) any cash set apart and
held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities.
"CONSOLIDATED NET WORTH" means, at any date of determination, as applied to
the Company, stockholders' equity as set forth on the most recently available
Consolidated balance sheet of the Company and its Consolidated Restricted
Subsidiaries (which shall be as of a date no more than 60 days prior to the date
of such computation), less any amounts attributable to Redeemable Stock or
Exchangeable Stock, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of Capital Stock of the Company or any
Subsidiary.
"CONSOLIDATION" means, with respect to any Person, the consolidation of
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and such subsidiaries are consolidated in accordance
with GAAP. The term "Consolidated" shall have a correlative meaning.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values to
or under which the Company or any Restricted Subsidiary is a party or a
beneficiary on the Issue Date or becomes a party or beneficiary thereafter.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DOMESTIC SUBSIDIARY" means a Restricted Subsidiary that is not a Foreign
Subsidiary.
"DEFAULTED INTEREST" means any interest on any Security which is payable,
but is not punctually paid or duly provided for on any Interest Payment Date.
"EBITDA" means, for any period, as applied to the Company, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net Income
(Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest Expense,
(c) depreciation expense, and (d) amortization expense, in each case for
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such period; PROVIDED that, if the Company has any Subsidiary that is not a
Wholly Owned Subsidiary, EBITDA shall be reduced (to the extent not otherwise
reduced by GAAP) by an amount equal to (A) the consolidated net income (loss) of
such Subsidiary (to the extent included in Consolidated Net Income (Loss)
multiplied by (B) the quotient of (1) the number of shares of outstanding common
stock of such Subsidiary not owned on the last day of such period by the Company
or any Wholly Owned Subsidiary of the Company divided by (2) the total number of
shares of outstanding common stock of such Subsidiary on the last day of such
period.
"ENERGY" means Empire Energy Corporation, a Tennessee corporation.
"EXCESS PAYMENTS" means any amounts paid in respect of salary, bonus,
insurance or annuity premiums (other than premiums for "key man" insurance the
sole beneficiary of which is the Company), or other payments or contributions to
any employee benefit, severance, retirement, stock ownership or stock purchase
plan or program or any similar plan or arrangement, to, or for the benefit of, a
Lindsey Entity in excess of the lesser of (A) the aggregate scheduled amounts of
any such payments as set forth in the Employment Agreements between each of Paul
Lindsey and Kristen Lindsey, on the one hand, and the Company on the other hand,
each dated as of , 1994, as they may be amended from time to time, and
(B) an aggregate of $1,000,000.
"EXCHANGEABLE STOCK" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).
"FOREIGN ASSET SALE" means an Asset Sale in respect of the Capital Stock or
assets of a Foreign Subsidiary or a Restricted Subsidiary of the type described
in Section 936 of the Code to the extent that the proceeds of such Asset Sale
are received by a Person subject in respect of such proceeds to the tax laws of
a jurisdiction other than the United States of America or any State thereof or
the District of Columbia.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States of America or a State thereof or the
District of Columbia.
"FULLY DILUTED BASIS" means after giving effect to the exercise of any
outstanding options, warrants or rights to purchase Voting Shares and the
conversion or exchange of any securities convertible into or exchangeable for
Voting Shares.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect and, to the extent optional, adopted by the Company on
the Issue Date, consistently applied, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"GUARANTEE" means, as applied to any obligation, contingent or otherwise, of
any Person, (i) a guarantee, direct or indirect, in any manner, of any part or
all of such obligation (other than by endorsement of negotiable instruments for
collection in the ordinary course of business) and (ii) an agreement, direct or
indirect, contingent or otherwise, the practical effect of which is to insure in
any way the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation, including the payment of
amounts drawn down under letters of credit.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name a Senior Secured
Note is registered on the Registrar's books.
"INCUR" means, as applied to any obligation, to create, incur, issue,
assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "INCURRED," "INCURRENCE" and
"INCURRING" shall each have a correlative meaning; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary; and PROVIDED, FURTHER, that any amendment,
modification or waiver of any provision of any document pursuant to which
Indebtedness was previously Incurred shall not
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be deemed to be an Incurrence of Indebtedness as long as (i) such amendment,
modification or waiver does not (A) increase the principal or premium thereof or
interest rate thereon, (B) change to an earlier date the Stated Maturity thereof
or the date of any scheduled or required principal payment thereon or the time
or circumstances under which such Indebtedness may or shall be redeemed, (C) if
such Indebtedness is contractually subordinated in right of payment to the
Senior Secured Notes, modify or affect, in any manner adverse to the Holders,
such subordination, (D) if the Company is the obligor thereon, provide that a
Restricted Subsidiary shall be an obligor, or (E) violate, or cause the
Indebtedness to violate, the provisions described under "-- Covenants --
Limitation on Payment Restrictions Affecting Subsidiaries" and "-- Limitation on
Liens" and (ii) such Indebtedness would, after giving effect to such amendment,
modification or waiver as if it were an Incurrence, comply with clause (i) of
the first proviso to the definition of "Refinancing Indebtedness."
"INDEBTEDNESS" of any Person means, without duplication, (i) the principal
of and premium (if any such premium is then due and owing) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable; (ii) all Capitalized Lease Obligations of
such Person; (iii) all obligations of such Person Incurred as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement; (iv) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the scheduled redemption,
repayment or other repurchase of any Redeemable Stock and, in the case of any
Subsidiary, with respect to any other Preferred Stock (but excluding in each
case any accrued dividends); (vi) all obligations of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any guarantee; (vii) all liabilities or other
obligations, contingent or otherwise, purchased, assumed or with respect to
which such Person shall otherwise become liable or responsible in connection
with the purchase, acquisition or assumption of property, services or business
operations to the extent reflected on the balance sheet of such Person in
accordance with GAAP; (viii) contractual obligations to repurchase goods sold or
distributed; (ix) all obligations of such Person in respect of Interest Rate
Agreements and Currency Agreements; and (x) all obligations of the type referred
to in clauses (i) through (ix) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured;
PROVIDED, HOWEVER, that Indebtedness shall not include trade accounts payable
arising in the ordinary course of business. The amount of Indebtedness of any
Person at any date shall be, with respect to unconditional obligations, the
outstanding balance at such date of all such obligations as described above and,
with respect to any contingent obligations (other than pursuant to clause (vii)
above, which shall be included to the extent reflected on the balance sheet of
such Person in accordance with GAAP) at such date, the maximum liability
determined by such Person's board of directors, in good faith, as, in light of
the facts and circumstances existing at the time, reasonably likely to be
Incurred upon the occurrence of the contingency giving rise to such obligation.
"INTERCOMPANY NOTES" means the notes issued to the Company by its
Subsidiaries pursuant to the Master Revolving Credit Note dated as of June ,
1994, among the Company and each of the Subsidiaries pursuant to which the
Company shall make certain loans to finance the working capital needs of the
Subsidiaries incurred pursuant to the New Credit Facility, or any substantially
similar master intercompany note pursuant to any credit facility Incurred
pursuant to clause (iv) of the second paragraph under "-- Limitation on
Incurrence of Indebtedness" refinancing the New Credit Facility as such
Intercompany Notes may be amended or otherwise modified from time to time.
"INTEREST PAYMENT DATE" means the stated maturity of an installment of
interest on the Senior Secured Notes.
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"INTEREST RATE AGREEMENT" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect against fluctuations in interest rates to or under which the Company
or any of its Restricted Subsidiaries is a party or beneficiary on the Issue
Date or becomes a party or beneficiary thereunder.
"INVESTMENT" means, with respect to any Person, any direct or indirect
advance, loan (other than advances to customers who are not Affiliates in the
ordinary course of business that are recorded as accounts receivable on the
balance sheet of such Person or its Subsidiaries) or other extension of credit
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any other investment in any other Person, or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities or assets issued or owned by any other Person (whether by
merger, consolidation, amalgamation, sale of assets or otherwise). For purposes
of the definition of "Unrestricted Subsidiary" and the provisions set forth
under "-- Covenants -- Limitation on Restricted Payments", (i) "Investment"
shall include the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"ISSUE DATE" means the date on which the Senior Secured Notes are originally
issued under the Indenture.
"LIEN" means any mortgage, lien, pledge, charge, or other security interest
or encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof).
"LINDSEY ENTITY" means Paul S. Lindsey, Jr., Kristen L. Lindsey, any member
of their family and any Person of which any of the foregoing Persons are
Affiliates.
"LINE OF BUSINESS" means the sale and distribution of propane gas and
operations related thereto.
"MANAGEMENT GROUP" means, collectively, (i) those individuals who
beneficially own, directly or indirectly, Voting Shares of the Company or any
successor thereto immediately following the consummation of the Offering and the
transactions related thereto and are members of management of the Company or any
of its Subsidiaries (or the estate or any beneficiary of any such individual or
any immediate family member of any such individual or any trust established for
the benefit of any such individual or immediate family member).
"NET AVAILABLE CASH" means, with respect to any Asset Sale or Collateral
Sale, the cash or cash equivalent payments received by the Company or a
Subsidiary in connection with such Asset Sale or Collateral Sale (including any
cash received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as or when received and also
including the proceeds of other property received when converted to cash or cash
equivalents) net of the sum of, without duplication, (i) all reasonable legal,
title and recording tax expenses, reasonable commissions, and other reasonable
fees and expenses incurred directly relating to such Asset Sale or Collateral
Sale, (ii) provision for all local, state, federal and foreign taxes expected to
be paid (whether or not such taxes are actually be paid or payable) as a
consequence of such Asset Sale or Collateral Sale, without regard to the
consolidated results of the Company and its Subsidiaries, (iii) payments made to
repay Indebtedness which is secured by any assets subject to such Asset Sale or
Collateral Sale in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or by applicable law, be repaid out of the proceeds from such Asset Sale or
Collateral Sale, and (iv) reasonable amounts reserved by the Company or any
Subsidiary of the Company receiving proceeds of such Asset Sale or Collateral
Sale against any liabilities associated with such Asset Sale or Collateral Sale,
including without limitation, indemnification obligations, PROVIDED that such
amounts shall not exceed 10% of the payments received by the Company
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or a Subsidiary in connection with such Asset Sale or Collateral Sale, and
PROVIDED FURTHER that such amounts will be applied as described under "--
Covenants -- Sales of Assets" or "Collateral and Security," as the case may be,
no later than the fifth anniversary of such Asset Sale or Collateral Sale if not
previously paid to satisfy such liabilities.
"NET CASH PROCEEDS" means, with respect to any issuance or sale of Capital
Stock by any Person, the cash proceeds to such Person of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultancy and other fees
actually incurred by such Person in connection with such issuance or sale and
net of taxes paid or payable by such Person as a result thereof.
"NEW CREDIT FACILITY" means the credit facility provided pursuant to the
credit agreement, dated as of June , 1994, between the Company and Continental
Bank, N.A.
"NON-CONVERTIBLE CAPITAL STOCK" means, with respect to any corporation, any
Capital Stock of such corporation which is not convertible into another security
other than non-convertible common stock of such corporation; PROVIDED, HOWEVER,
that Non-Convertible Capital Stock shall not include any Redeemable Stock or
Exchangeable Stock.
"OFFERING" means the public offering and sale of the Senior Secured Notes.
"OFFICER" means the Chairman, the President, any Vice President, the Chief
Operating Officer, the Chief Financial Officer, the Treasurer, the Secretary,
any Assistant Treasurer, any Assistant Secretary or the Controller of the
Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers, one of
whom must be the President, the Treasurer or a Vice President of the Company.
Each Officers' Certificate (other than certificates provided pursuant to TIA
Section 314(a)(4)) shall include the statements provided for in TIA Section
314(e).
"OPERATING LEASE OBLIGATIONS" means any obligation of the Company and its
Restricted Subsidiaries on a Consolidated basis incurred or assumed under or in
connection with any lease of real or personal property which, in accordance with
GAAP, is not required to be classified and accounted for as a capital lease.
"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel, if so acceptable, may be an employee of
or counsel to the Company or the Trustee. Each such Opinion of Counsel shall
include the statements provided for in TIA Section 314(e).
"OUTSIDE DIRECTOR" means any Person who is a member of the Board of
Directors who is not (i) an employee or Affiliate of the Company, any Subsidiary
of the Company or Energy, (ii) an employee or Affiliate of Holding Capital
Group, Inc., (iii) a Plaster Entity or a Lindsey Entity, or (iv) a Person who
has engaged in a transaction with the Company or any Subsidiary of the Company
that would be required to be disclosed under Item 13 of Form 10-K if such Person
were a director of a registrant under the Securities Exchange Act of 1934, as
amended.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PLASTER ENTITY" means Robert W. Plaster, Stephen R. Plaster, any member of
each of such individual's family, and any Person of which any of the foregoing
Persons are Affiliates.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated as of the date
of the Indenture, by the Company in favor of the Trustee, in the form attached
to the Indenture.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
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 or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
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"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
equity securities of the Company pursuant to an effective registration statement
under the Securities Act.
"PUBLIC MARKET" shall be deemed to have occurred if (x) a Public Equity
Offering has been consummated and (y) at least 25% (for purposes of the
definition of "Change of Control") or 20% (for purposes of the provisions
described under "-- Optional Redemption") of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any Person
that (a) by its terms, by the terms of any security into which it is convertible
or exchangeable or otherwise is, or upon the happening of an event or passage of
time would be, required to be redeemed (in whole or in part) on or prior to the
first anniversary of the Stated Maturity of the Senior Secured Notes, (b) is
redeemable at the option of the holder thereof at any time on or prior to the
first anniversary of the Stated Maturity of the Senior Secured Notes or (c) is
convertible into or exchangeable for Capital Stock referred to in clause (a) or
clause (b) above or debt securities at any time prior to the first anniversary
of the Stated Maturity of the Senior Secured Notes.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness of the Company or a Restricted Subsidiary
existing on the Issue Date or Incurred in compliance with the Indenture
(including Indebtedness of the Company that refinances Indebtedness of any
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) the
Refinancing Indebtedness shall be contractually subordinated in right of payment
to the Senior Secured Notes on terms at least as favorable to the Holders of
Senior Secured Notes as the terms set forth in the form of subordination
provisions attached to the Indenture, (ii) the Refinancing Indebtedness is
scheduled to mature either (a) no earlier than the Indebtedness being refinanced
or (b) after the Stated Maturity of the Senior Secured Notes, (iii) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iv) such Refinancing Indebtedness is in
an aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if issued with original issue discount, the aggregate accreted value)
then outstanding (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being refinanced; and PROVIDED, FURTHER, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary of
the Company that refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not
designated an Unrestricted Subsidiary by the Board of Directors.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a Person and leases it back from such Person, other than leases for
a term of not more than 36 months or between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries.
"SEASONAL OVERADVANCE" has the meaning ascribed to it in that certain Credit
Agreement dated as of the date of the Indenture, between the Company and
Continental Bank, N.A., which such Seasonal Overadvance shall not exceed
$3,000,000.
"SECURITIES" means all series of the Senior Secured Notes Due 2004 that are
issued under and pursuant to the terms of the Indenture, as amended or
supplemented from time to time.
"SENIOR INDEBTEDNESS" means (i) all obligations consisting of the principal
of and premium, if any, and accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not post-filing interest is
allowed in such proceeding),
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whether existing on the Issue Date or thereafter Incurred, in respect of (A)
Indebtedness of the Company for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable; (ii) all Capitalized Lease Obligations of
the Company; (iii) all obligations of the Company (A) for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) under Interest Rate Agreements and Currency Agreements entered
into in respect of any obligations described in clauses (i) and (ii) or (C)
issued or assumed as the deferred purchase price of property, and all
conditional sale obligations of the Company and all obligations of the Company
under any title retention agreement; (iv) all guarantees of the Company with
respect to obligations of other persons of the type referred to in clauses (ii)
and (iii) and with respect to the payment of dividends of other Persons; and (v)
all obligations of the Company consisting of modifications, renewals,
extensions, replacements and refundings of any obligations described in clauses
(i), (ii), (iii) or (iv); unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are subordinated in right of payment to the Senior Secured Notes, or
any other Indebtedness or obligation of the Company; PROVIDED, HOWEVER, that
Senior Indebtedness shall not be deemed to include (1) any obligation of the
Company to any Subsidiary, (2) any liability for Federal, state, local or other
taxes or (3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities).
"SIGNIFICANT SUBSIDIARY" means any Subsidiary (other than an Unrestricted
Subsidiary) that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulations S-X promulgated by the SEC.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the principal of such security is due
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency).
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is contractually
subordinated or junior in right of payment to the Senior Secured Notes or any
other Indebtedness of the Company.
"SUBSIDIARY" means, as applied to any Person, (i) a corporation at least a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect a majority of the Board of Directors of such corporation is at the
time, directly or indirectly, owned or controlled by such Person, by a
Subsidiary or Subsidiaries of such Person, or by such Person and a Subsidiary or
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, a Subsidiary or Subsidiaries of such Person, or such
Person and a Subsidiary or Subsidiaries of such Person, directly or indirectly,
at the date of determination, has at least a majority ownership interest. As of
the date of the Indenture, the Subsidiaries of the Company will include, without
limitation, PSNC Propane Corporation.
"SUBSIDIARY GUARANTEES" means the unconditional guarantees by the respective
Subsidiary Guarantors of the due and punctual payment of principal, premium, if
any, and interest on the Senior Secured Notes when and as the same shall become
due and payable and in the coin or currency in which the same are payable,
whether at Stated Maturity, by declaration of acceleration, call for redemption,
purchase or otherwise.
"SUBSIDIARY GUARANTOR" means each of the Persons listed on Schedule I
attached to the Indenture, each Person that becomes a Restricted Subsidiary of
the Company after the Issue Date and each other Person that becomes a Subsidiary
Guarantor under the Indenture pursuant to which such Person jointly and
severally unconditionally guarantees the Securities on a senior basis.
"UNRELATED BUSINESS" means any business other than the Line of Business.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly
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acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, that either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted pursuant to
the provisions under "Covenants -- Limitation on Restricted Payments". The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; PROVIDED, HOWEVER, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness pursuant to the first paragraph of "Covenants -- Limitation on
Incurrence of Indebtedness" and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the respective Trustee by promptly filing with the respective
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable before the maturity thereof.
"VOTING SHARES", with respect to any corporation, means the Capital Stock
having the general voting power under ordinary circumstances to elect at least a
majority of the board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary (other than an Unrestricted
Subsidiary) all the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.
COVENANTS
The Indentures contains covenants including, among others, the following:
LIMITATION ON RESTRICTED PAYMENTS. Under the terms of the Indenture, so
long as any of the Senior Secured Notes are outstanding, the Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly, (i)
declare or pay any dividend on or make any distribution or similar payment of
any sort in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Non-Convertible Capital Stock or rights to acquire its
Non-Convertible Capital Stock and dividends or distributions payable solely to
the Company or a Restricted Subsidiary), (ii) purchase, redeem, defease or
otherwise acquire or retire for value any Capital Stock of the Company or of any
direct or indirect parent of the Company, or, with respect to the Company,
exercise any option to exchange any Capital Stock that by its terms is
exchangeable solely at the option of the Company (other than into Capital Stock
of the Company which is neither Exchangeable Stock nor Redeemable Stock), (iii)
purchase, repurchase, redeem, defease or otherwise acquire or retire for value,
prior to scheduled maturity or scheduled repayment thereof or scheduled sinking
fund payment thereon, any Subordinated Indebtedness (other than the purchase,
repurchase, or other acquisition of Subordinated Indebtedness purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) make any Investment in any Unrestricted Subsidiary or any Affiliate of the
Company other than a Restricted Subsidiary or a Person which will become a
Restricted Subsidiary as a result of any such Investment (each such payment
described in clauses (i)-(iv) of this paragraph, a "Restricted Payment"), unless
at the time of and after giving effect to the proposed Restricted Payment: (1)
no Default or Event of Default shall have occurred and be continuing (or would
result therefrom); (2) the Company would be permitted to Incur an additional $1
of Indebtedness pursuant to the provisions described in the first paragraph
under "-- Limitation on Incurrence of Indebtedness", and
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(3) the aggregate amount of all such Restricted Payments subsequent to the Issue
Date shall not exceed the sum of (A) 50% of aggregate Consolidated Net Income
(or if such Consolidated Net Income is a deficit, minus 100% of such deficit),
and minus 100% of the amount of any write-downs, write-offs, other negative
reevaluations and other negative extraordinary charges not otherwise reflected
in Consolidated Net Income during such period; (B) the aggregate Net Cash
Proceeds received by the Company after the Issue Date from a sale by the Company
of Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the
Company or from the issuance of any options or warrants or other rights to
acquire Capital Stock (other than Redeemable Stock or Exchangeable Stock); (C)
the amount by which the principal amount of Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's Consolidated balance sheet
upon the conversion or exchange (other than by a Subsidiary) subsequent to the
Issue Date of any Indebtedness of the Company or any Restricted Subsidiary
converted or exchanged for Capital Stock (other than Redeemable Stock or
Exchangeable Stock) of the Company (less the amount of any cash, or the value of
any other property, distributed by the Company or any Restricted Subsidiary upon
such conversion or exchange); (D) an amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Unrestricted Subsidiary the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (E) $1,000,000 million, less the
aggregate of all Excess Payments made during such period.
The failure to satisfy the conditions set forth in clauses (2) and (3) of
the first paragraph under "Covenants -- Limitation on Restricted Payments" shall
not prohibit any of the following as long as the condition set forth in clause
(1) of such paragraph is satisfied (except as set forth below): (i) dividends
paid within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with the provisions described in
the first paragraph under "Covenants -- Limitation on Restricted Payments"; (ii)
any purchase, redemption, defeasance, or other acquisition or retirement for
value of Capital Stock or Subordinated Indebtedness of the Company made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock
and other than stock issued or sold to a Subsidiary or to an employee stock
ownership plan), PROVIDED, HOWEVER, that notwithstanding clause (1) of the
immediately preceding paragraph, the occurrence or existence of a Default or
Event of Default shall not prohibit the making of such purchase, redemption,
defeasance or other acquisition or retirement, and PROVIDED, FURTHER, such
purchase, redemption, defeasance or other acquisition or retirement shall not be
included in the calculation of Restricted Payments made for purposes of clause
(3) of the immediately preceding paragraph and PROVIDED, FURTHER, that the Net
Cash Proceeds from such sale shall be excluded from sub-clause (B) of clause (3)
of the immediately preceding paragraph; (iii) any purchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Indebtedness of the Company made by exchange for, or out of the proceeds of the
substantially concurrent Incurrence of for cash (other than to a Subsidiary),
new Indebtedness of the Company, PROVIDED, HOWEVER, that (A) such new
Indebtedness shall be contractually subordinated in right of payment to the
Senior Secured Notes on terms at least as favorable to the Holders of Senior
Secured Notes as the terms set forth in the form of subordination provisions
attached to the Indenture, (B) such new Indebtedness has a Stated Maturity
either (1) no earlier than the Stated Maturity of the Indebtedness redeemed,
repurchased, defeased, acquired or retired or (2) after the Stated Maturity of
the Senior Secured Notes and (C) such Indebtedness has an Average Life equal to
or greater than the Average Life of the Indebtedness redeemed, repurchased,
defeased, acquired or retired, and PROVIDED, FURTHER, that such purchase,
redemption, defeasance or other acquisition or retirement, shall not be included
in the calculation of Restricted Payments made for purposes of clause (3) of the
immediately preceding paragraph; (iv) any purchase, redemption, defeasance or
other acquisition or retirement for value of Subordinated Indebtedness upon a
Change of Control or an Asset Sale to the extent required by the indenture or
other agreement pursuant to which such Subordinated Indebtedness was issued, but
only if the Company (A) in the case of a Change of Control, has made an offer to
repurchase the Senior Secured Notes as described under "-- Covenants -- Change
of Control" or (B) in the case of an Asset Sale, has applied the Net Available
Cash from such Asset Sale in
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accordance with the provisions described under "-- Covenants -- Sales of Assets"
and certain provisions related to the release of collateral, if applicable; (v)
pro rata dividends paid by a Subsidiary with respect to a series or class of its
Capital Stock the majority of which is held by the Company or a Wholly Owned
Subsidiary; (vi) the payment of dividends on the Capital Stock of the Company
following an initial Public Equity Offering of such Capital Stock of up to an
amount per annum of 6% of the Net Cash Proceeds received by the Company in such
Public Equity Offering; (vii) the purchase, redemption, acquisition,
cancellation, or other retirement for value of shares of Capital Stock of the
Company, options on any such shares or related phantom stock, or stock
appreciation rights or similar securities held by officers or employees or
former officers or employees (or their estates or beneficiaries under their
estates), upon the death, disability, retirement or termination of employment of
such employee or former employee, pursuant to the terms of an employee benefit
plan or any other agreement under which such shares of stock or related rights
were issued, provided that the aggregate cash consideration paid, or
distributions made, pursuant to this clause (vii) after the date of the
Indenture does not exceed an aggregate amount of $1,000,000 plus the cash
proceeds received by or contributed to the Company from any reissuance of
Capital Stock by the Company to members of management and employees of the
Company and its Subsidiaries; and (viii) Investments in Unrestricted
Subsidiaries of up to $3,000,000 at any one time outstanding.
LIMITATION ON INCURRENCE OF INDEBTEDNESS. Under the terms of the Indenture,
the Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness, except that the Company may
Incur Indebtedness if, after giving effect thereto, the Consolidated Coverage
Ratio would be greater than 1.75:1, if such Incurrence takes place on or prior
to , 1998, or 2.0:1, if such Incurrence takes place thereafter.
The foregoing provision will not limit the ability of the Company or any
Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing
Indebtedness (except with respect to Indebtedness referred to in clause (ii),
(iii) or (iv) below); (ii) Acquisition Indebtedness at any one time outstanding
in an aggregate principal amount not to exceed $15,000,000, PROVIDED that not
more than an aggregate of $6,000,000 of such Acquisition Indebtedness may be
incurred in any twelve month period; (iii) Indebtedness of the Company which is
owed to and held by a Wholly Owned Subsidiary and Indebtedness of a Wholly Owned
Subsidiary which is owed to and held by the Company or a Wholly Owned
Subsidiary, including without limitation, the Indebtedness evidenced by the
Intercompany Notes; PROVIDED, HOWEVER, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any transfer of such Indebtedness (other than
to the Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Company or by a Wholly
Owned Subsidiary, as the case may be; (iv) Indebtedness of the Company (whether
under the New Credit Facility or otherwise) Incurred for the purpose of
financing the working capital needs of the Company and its Restricted
Subsidiaries, PROVIDED, HOWEVER, that after giving effect to the Incurrence of
such Indebtedness and any substantially simultaneous use of the proceeds
thereof, the aggregate principal amount of all such Indebtedness Incurred
pursuant to this clause (iv) and then outstanding immediately after such
Incurrence and such use of proceeds shall not exceed the sum of 60% of the book
value of the inventory and 90% of the book value of the receivables of the
Company and the Restricted Subsidiaries on a consolidated basis at such time
plus the amount of the Seasonal Overadvance, and PROVIDED FURTHER, that the
aggregate amount of Indebtedness pursuant to this clause (iv) shall not exceed
$15,000,000 at any time prior to , 1997 and PROVIDED FURTHER, that the
Company's Subsidiaries shall be permitted to guarantee Indebtedness incurred by
the Company pursuant to the New Credit Facility or pursuant to a credit facility
Incurred pursuant to this clause (iv) refinancing the New Credit Facility; (v)
Acquired Indebtedness; PROVIDED, HOWEVER, that the Company would have been able
to Incur such Indebtedness at the time of the Incurrence thereof pursuant to the
immediately preceding paragraph; and (vi) Indebtedness of the Company or a
Restricted Subsidiary outstanding on the Issue Date (other than Indebtedness
referred to in clause (iv) above and Indebtedness being repaid or retired with
the proceeds of the Offering.
Notwithstanding the provisions of this covenant described in the first two
paragraphs above, the Indenture provides that the Company shall not Incur any
Indebtedness if the proceeds thereof are used, directly or indirectly, to repay,
prepay, redeem, defease, retire, refund or refinance any Subordinated
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<PAGE>
Indebtedness unless such repayment, prepayment, redemption, defeasance,
retirement, refunding or refinancing is not prohibited under "-- Limitation on
Restricted Payments" or unless such Indebtedness shall be contractually
subordinated to the Senior Secured Notes at least to the same extent as such
Subordinated Indebtedness.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Under the terms
of the Indenture, the Company shall not, and shall not permit any Subsidiary, to
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing shall not apply to (a) any encumbrance or restriction existing
pursuant to the Indenture or any other agreement or instrument as in effect or
entered into on the Issue Date (including the New Credit Facility as in effect
on the Issue Date); (b) any encumbrance or restriction with respect to a
Subsidiary pursuant to an agreement relating to any Acquired Indebtedness of
such Subsidiary; PROVIDED, HOWEVER, that such encumbrance or restriction was not
Incurred in connection with or in contemplation of such Subsidiary becoming a
Subsidiary; (c) any encumbrance or restriction pursuant to an agreement
effecting a refinancing, renewal, extension or replacement of Indebtedness
referred to in clause (a) or (b) above or contained in any amendment or
modification with respect to such Indebtedness; PROVIDED, HOWEVER, that the
encumbrances and restrictions contained in any such agreement, amendment or
modification are no less favorable in any material respect with respect to the
matters referred to in clauses (i), (ii) and (iii) above than the encumbrances
and restrictions with respect to the Indebtedness being refinanced, renewed,
extended, replaced, amended or modified; (d) in the case of clause (iii) above,
customary non-assignment provisions of any leases governing a leasehold interest
or of any supply, license or other agreement entered into in the ordinary course
of business of the Company or any Subsidiary; (e) any restrictions with respect
to a Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary pending the closing of such sale or disposition or (f) any
encumbrance or restriction existing by reason of applicable law. Nothing
contained in the covenant described in this paragraph prevents the sale of
assets that secure Indebtedness of the Company or its Subsidiaries.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Under the terms of the
Indenture, the Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction unless (i) the Company or such
Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equally and ratably securing the Securities pursuant to the
covenant entitled "Limitation on Liens" or (ii) the net proceeds of such sale
are at least equal to the fair value (as determined by the Board of Directors)
of such property and the Company or such Subsidiary shall apply or cause to be
applied an amount in cash equal to the net proceeds of such sale to the
retirement, within 30 days of the effective date of any such arrangement, of
Senior Indebtedness or Indebtedness of a Restricted Subsidiary, PROVIDED,
HOWEVER, that the Company or any Restricted Subsidiary may enter into a
Sale/Leaseback Transaction as long as the sum of (x) the Attributable Debt with
respect to such Sale/Leaseback Transaction and all other Sale/Leaseback
Transactions entered into pursuant to this proviso, plus (y) the amount of
outstanding Indebtedness secured by Liens Incurred pursuant to the proviso to
the covenant described under "-- Limitation on Liens" below, does not exceed 5%
of Consolidated Net Tangible Assets as determined based on the consolidated
balance sheet of the Company as of the end of the most recent fiscal quarter for
which financial statements are available.
LIMITATION ON LIENS. Under the terms of the Indenture, except as described
under "-- Security," the Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including, without limitation,
Capital Stock), whether owned at the date of such Indenture or thereafter
acquired, other than (a) pledges or deposits made by such Person under workers'
compensation, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
statutory or regulatory
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<PAGE>
obligations of such Person or deposits of cash of United States Government bonds
to secure surety, appeal or performance bonds to which such Person is a party,
or deposits as security for contested taxes or import duties or for the payment
of rent, in each case Incurred in the ordinary course of business; (b) Liens
imposed by law such as carriers', warehousemen's and mechanics' Liens, in each
case, arising in the ordinary course of business and with respect to amounts not
yet due or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; or other Liens arising out of judgments or awards against
such Person with respect to which such Person shall then be diligently
prosecuting appeal or other proceedings for review; (c) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made; (d)
Liens in favor of issuers or surety bonds or letters of credit issued pursuant
to the request of and for the account of such Person in the ordinary course of
its business; PROVIDED, HOWEVER, that such letters of credit may not constitute
Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness or other extensions of credit and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such Person; (f) Liens securing Indebtedness Incurred to finance the
construction of, purchase of, or repairs, improvements or additions to, property
(including Acquisition Indebtedness Incurred pursuant to clause (ii) of the
penultimate paragraph under "-- Limitation on the Incurrence of Indebtedness");
PROVIDED, HOWEVER, that the Lien may not extend to any other property owned by
the Company or any Restricted Subsidiary at the time the Lien is incurred, and
the Indebtedness secured by the Lien may not be issued more than 180 days after
the later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
(g) Liens existing on the Issue Date (other than Liens relating to Indebtedness
or other obligations being repaid or Liens that are otherwise extinguished with
the proceeds of the Offering), (h) Liens on property of a Person (excluding
Capital Stock) of such Person at the time such Person becomes a Subsidiary;
PROVIDED, HOWEVER, that any Lien may not extend to any other property owned by
the Company or any Restricted Subsidiary; (i) Liens on property at the time the
Company or a Subsidiary acquires the property, including any acquisition by
means of a merger or consolidation with or into the Company or a Subsidiary;
PROVIDED, HOWEVER, that such Liens are not incurred in connection with, or in
contemplation of, such merger or consolidation; and PROVIDED, FURTHER, that the
Lien may not extend to any other property owned by the Company or any Restricted
Subsidiary; (j) Liens securing Indebtedness or other obligations of a Subsidiary
owing to the Company or a Wholly Owned Subsidiary, including without limitation,
the Indebtedness Incurred under the Intercompany Notes, PROVIDED that any Lien
securing Indebtedness pursuant to any Intercompany Notes shall be limited to the
inventory and accounts receivable of the Subsidiary of the Company issuing such
Intercompany Note; (k) Liens incurred by a Person other than the Company or any
Subsidiary on assets that are the subject of a Capitalized Lease Obligation to
which the Company or a Subsidiary is a party; PROVIDED, HOWEVER, that any such
Lien may not secure Indebtedness of the Company or any Subsidiary (except by
virtue of clause (x) of the definition of "Indebtedness") and may not extend to
any other property owned by the Company or any Restricted Subsidiary; (l) Liens
on inventory and accounts receivable of the Company and its subsidiaries and
Liens on Intercompany Notes, in any case securing Indebtedness permitted to be
Incurred under the provision described in clause (iv) of the second paragraph
under "-- Limitation on the Incurrence of Indebtedness"; (m) Liens to secure any
refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (g), (h), (i) and (m), PROVIDED, HOWEVER, that (x) such new Lien
shall be limited to all or part of the same property that secured the original
Lien (plus improvements on such property) and (y) the Indebtedness secured by
such Lien at such time is not increased (other than by an amount necessary to
pay fees and expenses, including premiums, related to the refinancing,
refunding, extension, renewal or replacement of such Indebtedness); and (n)
Liens by which the Senior Secured Notes are secured equally and ratably with
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<PAGE>
other Indebtedness of the Company pursuant to this paragraph, without
effectively providing that the Senior Secured Notes shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured; PROVIDED, HOWEVER, that the Company may incur other
Liens other than on the Collateral to secure Indebtedness as long as the sum of
(x) the amount of outstanding Indebtedness secured by Liens incurred pursuant to
this proviso plus (y) the Attributable Debt with respect to all outstanding
leases in connection with Sale/Leaseback Transactions entered into pursuant to
the proviso under "-- Limitation on Sale/Leaseback Transactions," does not
exceed 5% of Consolidated Net Tangible Assets as determined with respect to the
Company as of the end of the most recent fiscal quarter for which financial
statements are available.
CHANGE OF CONTROL. Under the terms of the Indenture, in the event of a
Change of Control, the Company shall make an offer to purchase (the "Change of
Control Offer") the Senior Secured Notes then outstanding at the time at a
purchase price equal to 101% of the Accreted Value thereof plus accrued interest
to the Change of Control Purchase Date (as defined below) on the terms set forth
in this provision. The date on which the Company shall purchase the Securities
pursuant to this provision (the "Change of Control Purchase Date") shall be no
earlier than 30 days, nor later than 60 days, after the notice referred to below
is mailed, unless a longer period shall be required by law. The Company shall
notify the Trustee in writing promptly after the occurrence of any Change of
Control of the Company's obligation to purchase the Senior Secured Notes.
Notice of a Change of Control Offer shall be mailed by the Company to the
Holders of the Senior Secured Notes at their last registered address (with a
copy to the Trustee and the Paying Agent) within thirty (30) days after a Change
in Control has occurred. The Change of Control Offer shall remain open from the
time of mailing until five (5) Business Days before the Change of Control
Purchase Date. The notice shall contain all instructions and materials necessary
to enable such Holders to tender (in whole or in part) the Senior Secured Notes
pursuant to the Change of Control Offer. The notice, which shall govern the
terms of the Change of Control Offer, shall state: (a) that the Change of
Control Offer is being made pursuant to the Indenture; (b) the purchase price
and the Change of Control Purchase Date; (c) that any Senior Secured Note not
surrendered or accepted for payment will continue to accrue interest; (d) that
any Senior Secured Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control Purchase Date
if payment is made; (e) that any Holder electing to have a Senior Secured Note
purchased (in whole or in part) pursuant to a Change of Control Offer will be
required to surrender the Senior Secured Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Senior Secured Note completed,
to the Paying Agent at the address specified in the notice (or otherwise make
effective delivery of the Senior Secured Note pursuant to book-entry procedures
and the related rules of the applicable depositories) at least five Business
Days before the Change of Control Purchase Date; and (f) that any Holder will be
entitled to withdraw his or her election if the Paying Agent receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Senior Secured Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his or her election to
have the Senior Secured Note purchased.
On the Change of Control Purchase Date, the Company shall (i) accept for
payment the Senior Secured Notes, or portions thereof, surrendered and properly
tendered and not withdrawn, pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent money sufficient to pay the purchase price plus
accrued interest of all the Senior Secured Notes or portions thereof, so
accepted and (iii) deliver to the Trustee the Senior Secured Notes so accepted
together with an Officers' Certificate stating that such securities have been
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of securities so accepted payment in an amount equal to the
purchase price. Holders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
TRANSACTIONS WITH AFFILIATES. Under the terms of the Indenture, the Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into, permit to exist, renew or extend any transaction or
series of transactions (including, without limitation, the sale, purchase,
exchange or lease of
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<PAGE>
any assets or property or the rendering of any services) with any Affiliate of
the Company, any Plaster Entity, any Lindsey Entity or Energy unless (i) the
terms of such transaction or series of transactions are (A) no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than would be
obtainable in a comparable transaction or series of related transactions in
arm's-length dealings with an unrelated third party and, in the case of a
transaction or series of transactions involving payments or consideration in
excess of $100,000, approved by a majority of the Outside Directors, and (B) set
forth in writing, if such transaction or series of transactions involves
aggregate payments or consideration in excess of $250,000, and (ii) with respect
to a transaction or series of transactions involving aggregate payments or
consideration in excess of $1 million, such transaction or series of
transactions has been determined, in the written opinion of an independent
nationally recognized investment banking firm, to be fair, from a financial
point of view, to the Company or such Restricted Subsidiary. The foregoing
provisions do not prohibit (i) the payment of reasonable fees to directors of
the Company and its subsidiaries, (ii) scheduled payments made pursuant to the
terms of any of the Basic Agreements, as the terms of each such agreement are in
effect on the Issue Date, or (iii) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries otherwise permitted
by the terms of the Indenture. Any transaction which has been determined, in the
written opinion of an independent nationally recognized investment banking firm,
to be fair, from a financial point of view, to the Company or the applicable
Restricted Subsidiary shall be deemed to be in compliance with this provision.
SALES OF ASSETS. Under the terms of the Indenture, neither the Company nor
any Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company
or such Restricted Subsidiary receives consideration at the time of such Asset
Sale at least equal to the fair market value, as determined in good faith by the
Board of Directors, of the shares or assets subject to such Asset Sale, (ii) at
least 80% of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of Additional Assets or cash or cash
equivalents which cash equivalents are promptly converted into cash by the
Person receiving such payment and (iii) an amount equal to 100% of the Net
Available Cash is applied by the Company (or such Subsidiary, as the case may
be) as set forth herein. Under the terms of the Indenture, the Company shall not
permit any Unrestricted Subsidiary to make any Asset Sale unless such
Unrestricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the shares or assets so disposed of as
determined in good faith by the Board of Directors.
Under the terms of the Indenture, within 360 days (such period being the
"Application Period") following the consummation of an Asset Sale, the Company
or such Restricted Subsidiary shall apply the Net Available Cash from such Asset
Sale as follows: (i) FIRST, to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets; (ii) SECOND, to the extent
of the balance of such Net Available Cash after application in accordance with
clause (i), and to the extent the Company or such Restricted Subsidiary elects
(or is required by the terms of any Senior Indebtedness or any Indebtedness of
such Restricted Subsidiary), to prepay, repay or purchase (A) secured Senior
Indebtedness or (B) Indebtedness (other than any Preferred Stock) of a
Restricted Subsidiary in either case other than Indebtedness owed to the Company
(except to the extent that the proceeds of any such repayment received by the
Company are used to repay secured Senior Indebtedness of the Company or an
Affiliate of the Company), (iii) THIRD, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (i) and (ii), to
make an offer to purchase the Senior Secured Notes at not less than 100% of
their Accreted Value, plus accrued interest (if any) pursuant to and subject to
the conditions set forth in the Indenture; PROVIDED, HOWEVER that in connection
with any prepayment, repayment or purchase of Indebtedness pursuant to clause
(ii) or (iii) above, the Company or Restricted Subsidiary shall retire such
Indebtedness and cause the related loan commitment (if any) to be permanently
reduced in an amount equal to the principal amount so prepaid, repaid or
purchased; and PROVIDED FURTHER that in the case of any prepayment or repayment
of Indebtedness under the New Credit Facility or Indebtedness Incurred pursuant
to clause (iv) of the second paragraph under "-- Limitation on Incurrence of
Indebtedness" refinancing the New Credit Facility, such related loan commitment
shall not be required to be permanently reduced. To the extent that any Net
Available Cash from Asset Sales remains after the application of such Net
Available Cash in accordance with this paragraph, the Company or such Restricted
Subsidiary may utilize such remaining Net Available Cash in any manner set forth
in clause (i) or clause (ii) above.
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To the extent that any or all of the Net Available Cash of any Foreign Asset
Sale is prohibited or delayed by applicable local law from being repatriated to
the United States, the portion of such Net Available Cash so affected shall not
be required to be applied at the time provided above, but may be retained by the
applicable Restricted Subsidiary so long, but only so long, as the applicable
local law will not permit repatriation to the United States (the Company hereby
agreeing to promptly take or cause the applicable Restricted Subsidiary to
promptly take all actions required by the applicable local law to permit such
repatriation). Once such repatriation of any of such affected Net Available Cash
is permitted under the applicable local law, such repatriation shall be
immediately effected and such repatriated Net Available Cash will be applied in
the manner set forth in this provision as if such Asset Sale had occurred on the
date of such repatriation.
To the extent that the Board of Directors determines, in good faith, that
repatriation of any or all of the Net Available Cash of any Foreign Asset Sale
would have a material adverse tax consequence to the Company, the Net Available
Cash so affected may be retained outside of the United States by the applicable
Restricted Subsidiary for so long as such material adverse tax consequence would
continue.
Under the Indenture, the Company shall not be required to make an offer to
purchase the Senior Secured Notes if the Net Available Cash available from an
Asset Sale (after application of the proceeds as provided in clauses (i) and
(ii) of the second paragraph of this covenant above) is less than $1,000,000 for
any particular Asset Sale (which lesser amounts shall not be carried forward for
purposes of determining whether an offer is required with respect to the Net
Available Cash from any subsequent Asset Sale).
Notwithstanding the foregoing, this provision shall not apply to, or prevent
any sale of assets, property, or Capital Stock of Subsidiaries to the extent
that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of Consolidated
Net Tangible Assets as determined as of the end of the most recent fiscal
quarter, and no violation of this provision shall be deemed to have occurred as
a consequence thereof.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the covenant described under "-- Merger and Consolidation", the
Successor Corporation shall be deemed to have sold the properties and assets of
the Company not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale.
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK AND THE INCURRENCE OF
INDEBTEDNESS OF RESTRICTED SUBSIDIARIES. Pursuant to the terms of the Indenture,
the Company shall not permit any Restricted Subsidiary, directly or indirectly,
to issue or sell, and shall not permit any Person other than the Company or a
Wholly Owned Subsidiary to own (except to the extent that any such Person may
own on the Issue Date), any shares of such Restricted Subsidiary's Capital Stock
(including options, warrants or other rights to purchase shares of Capital
Stock) except, to the extent otherwise permitted by the Indenture, (i) to the
Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of
the Company, or (ii) if, immediately after giving effect to such issuance and
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary for purposes of the Indenture. The Company shall not permit any
Restricted Subsidiary, directly or indirectly, to Incur Indebtedness other than
pursuant to the second paragraph under "-- Limitation on Indebtedness."
LIMITATION ON CHANGES IN THE NATURE OF BUSINESS. The Indenture provides
that the Company and its Subsidiaries shall not engage in any line of business
other than the business of the sale and distribution of propane gas and
operations related thereto for any period of time in excess of 270 consecutive
days for any such unrelated line of business.
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MERGER AND CONSOLIDATION. Under the terms of the Indenture, the Company
shall not, in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other corporation or sell, assign,
convey, transfer or lease or otherwise dispose of a majority of its properties
and assets to any Person or group of affiliated Persons unless: (a) either the
Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or to
which the properties and assets of the Company as an entirety are transferred
(the "Successor Corporation"), shall be a corporation organized and existing
under the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental to the
Indenture, executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all the obligations of the Company under
the Indenture and the Senior Secured Notes; (b) immediately before and
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the Company (or the
Successor Corporation if the Company is not the continuing obligor under the
Indenture) or any Restricted Subsidiary as a result of such transaction as
having been Incurred by such Person at the time of such transaction), no Default
shall have occurred and be continuing; (c) the Company shall have delivered, or
caused to be delivered, to the respective Trustee an Officers' Certificate and,
as to legal matters, an Opinion of Counsel, each in form and substance
reasonably satisfactory to the respective Trustee, each stating that such
consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent herein provided for relating to
such transaction have been complied with; (d) immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Company (or the Successor Corporation if the
Company is not the continuing obligor under the Indenture) or a Restricted
Subsidiary in connection with or as a result of such transaction as having been
Incurred by such Person at the time of such transaction, the Consolidated
Coverage Ratio of the Company (or the Successor Corporation if the Company is
not the continuing obligor under the Indenture) is at least 1:1, PROVIDED that,
if the Consolidated Coverage Ratio before giving effect to such transaction is
within the range set forth in column (A) below, then the pro forma Consolidated
Coverage Ratio of the Company or the Successor Corporation shall be at least
equal to the lessor of (1) the ratio determined by multiplying the percentage
set forth in column (B) below by the Consolidated Coverage Ratio of the Company
prior to such transaction and (2) the ratio set forth in column (C) below:
<TABLE>
<CAPTION>
(A) (B) (C)
- -------------------- ---- --------
<S> <C> <C>
1.11:1 to 1.99:1 90% 1.50:1
2.00:1 to 2.99:1 80% 2.10:1
3.00:1 to 3.99:1 70% 2.40:1
4.00:1 or more 60% 2.50:1;
</TABLE>
and (e) immediately after giving effect to such transaction on a pro forma basis
(and treating any Indebtedness which becomes an obligation of the Company (or
the Successor Corporation if the Company is not the continuing obligor under the
Indenture) or a Restricted Subsidiary in connection with or as a result of such
transaction as having been Incurred by such Person at the time of such
transaction), the Company (or the Successor Corporation if the Company is not
the continuing obligor under the Indenture) shall have Consolidated Net Worth in
an amount which is not less than the Consolidated Net Worth immediately prior to
such transaction. Notwithstanding the foregoing clauses (b), (d) and (e), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or any Wholly Owned Subsidiary or
Wholly Owned Subsidiaries and no violation of this provision will be deemed to
have occurred as a consequence thereof, as long as the requirements of clauses
(a) and (c) are satisfied in connection therewith.
Upon any such assumption by the Successor Corporation, except in the case of
a lease, the Successor Corporation shall succeed to and be substituted for the
Company under the Indenture and the Senior Secured Notes and the Company shall
thereupon be released from all obligations under the Indenture and under the
Senior Secured Notes and the Company as the predecessor corporation may
thereupon or at any time thereafter be dissolved, wound up or liquidated. The
Successor Corporation thereupon may cause to be signed, and may issue either in
its own name or in the name of the Company, all or any of the Senior Secured
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Notes issuable under the Indenture which theretofore shall not have been signed
by the Company and delivered to the Trustee; and, upon the order of the
Successor Corporation instead of the Company and subject to all the terms,
conditions and limitations prescribed in the Indenture, the Trustee shall
authenticate and shall deliver any Senior Secured Notes which the Successor
Corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the Senior Secured Notes so issued shall in all respects have
the same legal rank and benefit under the Indenture as the Senior Secured Notes
theretofore or thereafter issued in accordance with the terms of the Indenture
as though all such Senior Secured Notes had been issued at the date of the
execution of the Indenture. In the case of any such consolidation, merger or
transfer, such changes in form (but not in substance) may be made in the Senior
Secured Notes thereafter to be issued as may be appropriate.
EVENTS OF DEFAULT
"EVENTS OF DEFAULT" are defined in the Indenture as (i) default for 30 days
in payment of any interest installment due and payable on the Senior Secured
Notes, (ii) default in payment of the principal when due on the Senior Secured
Notes, or failure to redeem or purchase the Senior Secured Notes when required
pursuant to the respective Indenture, (iii) default in performance of any other
covenants or agreements in the Indenture, the Senior Secured Notes or the Pledge
Agreement and the default continues for 30 days after written notice to the
Company by the Trustee or the Collateral Agent or to the Company and the Trustee
by the holders of at least 25% in principal amount of the outstanding Senior
Secured Notes; PROVIDED that the failure to commence a Change of Control Offer
following a Change of Control pursuant to clause (vi) of the definition of
"Change of Control" shall not constitute an Event of Default if, during such 30
day period, the Company takes the necessary actions with respect to the Board of
Directors to comply with the requirements of clauses (vi)(A), (vi)(B) and
(vi)(C) of the definition of "Change of Control", (iv) there shall have occurred
either (a) a default by the Company or any Subsidiary under any instrument under
which there is or may be secured or evidenced any Indebtedness of the Company or
any Subsidiary of the Company (other than the Securities) having an outstanding
principal amount of $2,000,000 (or its foreign currency equivalent) or more
individually or $5,000,000 (or its foreign currency equivalent) or more in the
aggregate that has caused the holders thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity or (b) a default by the Company or
any Subsidiary in the payment when due of any portion of the principal under any
such instrument, and such unpaid portion exceeds $2,000,000 (or its foreign
currency equivalent) individually or $5,000,000 (or its foreign currency
equivalent) in the aggregate and is not paid, or such default is not cured or
waived, within any grace period applicable thereto; (v) any final judgment or
order (not covered by insurance) for the payment of money shall be rendered
against the Company or any Subsidiary in an amount in excess of $2,000,000 (or
its foreign currency equivalent) individually or $5,000,000 (or its foreign
currency equivalent) in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) and shall not be discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order in excess of
$2,000,000 individually or that causes the aggregate amount for all such final
judgments or orders outstanding against all such Persons to exceed $5,000,000
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; (vi) certain events of
bankruptcy, insolvency and reorganization of the Company; (vii) except as
permitted by the Indenture, the Trustee fails to have a first priority perfected
security interest in the Collateral; and (viii) except as permitted by the
Indenture and the Senior Secured Notes, the cessation of effectiveness of any
Subsidiary Guarantee as against any Subsidiary Guarantor, or the finding by any
judicial proceeding that any such Subsidiary Guarantee is, as to any Subsidiary
Guarantor, unenforceable or invalid, or the written denial or disaffirmation by
any Subsidiary Guarantor of its obligations under its Subsidiary Guarantee.
If any Event of Default (other than an Event of Default described in clause
(vi) with respect to the Company) has occurred and is continuing, the Indenture
provides that the Trustee may by notice to the Company, or the Holders of not
less than 25% in principal amount of the Senior Secured Notes may by notice to
the Company and the Trustee, declare the principal amount of the Senior Secured
Notes and any accrued and unpaid interest to be due and payable immediately. If
an Event of Default described in
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clause (vi) with respect to the Company occurs, the principal of and interest on
all the Senior Secured Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders of Senior Secured Notes. The Holders of a majority in principal amount
of the Senior Secured Notes by notice to the Trustee may rescind any such
declaration and its consequences (if the rescission would not conflict with' any
judgment or decree) if all existing Events of Default (other than the
non-payment of principal of or interest on the Senior Secured Notes which shall
have become due by such declaration) shall have been cured or waived.
The Company must file annually with the Trustee a certificate describing any
Default by the Company in the performance of any conditions or covenants that
has occurred under the Indenture and its status. The Company must give the
Trustee written notice within 30 days of any Default under the Indenture that
could mature into an Event of Default described in clause (iii), (iv), (v),
(vi), (vii) or (viii) of the second preceding paragraph.
The Trustee is entitled, subject to the duty of the Trustee during a Default
to act with the required standard of care, to be indemnified before proceeding
to exercise any right or power under the Indenture at the direction of the
Holders of the Senior Secured Notes or which requires the Trustee to expend or
risk its own funds or otherwise incur any financial liability. The Indenture
also provides that the Holders of a majority in principal amount of the Senior
Secured Notes issued under the Indenture may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; however, the Trustee may
refuse to follow any such direction that conflicts with law or the Indenture, is
unduly prejudicial to the rights of other Holders of the Senior Secured Notes,
or would involve the Trustee in personal liability.
The Indenture provides that while the Trustee generally must mail notice of
a Default or Event of Default to the holders of the Senior Secured Notes within
90 days of occurrence, the Trustee may withhold notice to the Holders of the
Senior Secured Notes of any Default or Event of Default (except in payment on
the Senior Secured Notes) if the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of the Senior
Secured Notes.
MODIFICATION OF THE INDENTURE
Under the terms of the Indenture, the Company, the Subsidiary Guarantors and
the Trustee may, with the consent of the Holders of a majority in principal
amount of the outstanding Senior Secured Notes amend or supplement the
Indenture, the Pledge Agreement or the Senior Secured Notes except that no
amendment or supplement may, without the consent of each affected Holder, (i)
reduce the principal of or change the Stated Maturity of any Senior Secured
Note, (ii) reduce the rate of or change the time of payment of interest on any
Senior Secured Note, (iii) change the currency of payment of the Senior Secured
Notes, (iv) reduce the premium payable upon the redemption of any Senior Secured
Note, or change the time at which any such Senior Secured Note may or shall be
redeemed, (v) reduce the amount of Senior Secured Notes, the holders of which
must consent to an amendment or supplement, (vi) change the provisions of the
Indenture relating to Waiver of past defaults, rights of Holders of the Senior
Secured Notes to receive payments or the provisions relating to amendments of
the Indenture that require the consent of Holders of each affected Senior
Secured Note, (vii) directly or indirectly release the Liens on all or
substantially all of the collateral securing the Senior Secured Notes or (viii)
modify or affect in any manner adverse to the Holders the terms and conditions
of the obligation of any Subsidiary Guarantor for the due and punctual payment
of the principal of premium, if any, or interest on the Senior Secured Notes. In
addition, certain amendments or supplements may be adopted without the consent
of Holders.
ACTIONS BY NOTEHOLDERS
Under the terms of the Indenture, a Holder of Senior Secured Notes may not
pursue any remedy with respect to the Indenture or the Senior Secured Notes
(except actions for payment of overdue principal or interest), unless (i) the
Holder has given notice to the Trustee of a continuing Event of Default, (ii)
Holders of at least 25% in principal amount of the Senior Secured Notes have
made a written request to the Trustee to pursue such remedy, (iii) such Holder
or Holders have offered the Trustee security or indemnity
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reasonably satisfactory to it against any loss, liability or expense, (iv) the
Trustee has not complied with such request within 60 days of such request and
offer and (v) the Holders of a majority in principal amount of the Senior
Secured Notes have not given the Trustee an inconsistent direction during such
60-day period.
DEFEASANCE, DISCHARGE AND TERMINATION
DEFEASANCE AND DISCHARGE. The Indenture provides that the Company will be
discharged from any and all obligations in respect of the Senior Secured Notes,
and the provisions of the Indenture will no longer be in effect with respect to
such Senior Secured Notes (except for, among other matters, certain obligations
to register the transfer or exchange of such Senior Secured Notes, to replace
stolen, lost or mutilated Senior Secured Notes, to maintain paying agencies and
to hold monies for payment in trust, and the rights of holders to receive
payments of principal and interest thereon), on the 123rd day after the date of
the deposit with the appropriate Trustee, in trust, of money or U.S. Government
Obligations that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
such Senior Secured Notes, when due in accordance with the terms of the
Indenture and such Senior Secured Notes. Such a trust may only be established
if, among other things, (i) the Company has delivered to the Trustee either (a)
an Opinion of Counsel (who must not be employed by the Company) to the effect
that holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must refer to and be based
upon a ruling of the Internal Revenue Service or a change in applicable federal
income tax law occurring after the date of the Indentures or (b) a ruling of the
Internal Revenue Service to such effect and (ii) no Default under the Indenture
shall have occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after such date of deposit and such deposit shall
not result in or constitute a Default or result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to the provisions described in clauses (d) and (e)
under "-- Merger and Consolidation," and all the covenants described herein
under "-- Covenants," clause (iii) under "-- Events of Default" with respect to
such covenants and clauses (d) and (e) under "-- Merger and Consolidation," and
clauses (v) and (vi) under "-- Events of Default" shall be deemed not to be
Events of Default under the Indenture, and the provisions described herein under
"-- Ranking" shall not apply, upon the deposit with the Trustee, in trust, of
money or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Senior Secured Notes issued thereunder when due in accordance
with the terms of the Indenture. Such a trust may only be established if, among
other things, the provisions described in clause (ii) of the immediately
preceding paragraph have been satisfied and the Company has delivered to the
Trustee an Opinion of Counsel (who must not be an employee of the Company) to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Senior Secured Notes, as described in the
immediately preceding paragraph and such Senior Secured Notes are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money or U.S. Government Obligations on deposit with
the relevant Trustee will be sufficient to pay principal of and interest on
Senior Secured Notes on the respective dates on which such amounts are due but
may not be sufficient to pay amounts due on such Senior Secured Notes, at the
time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
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TERMINATION OF COMPANY'S OBLIGATIONS IN CERTAIN CIRCUMSTANCES. The
Indenture further provides that the Company will be discharged from any and all
obligations in respect of the Senior Secured Notes and the provisions of such
Indenture will no longer be in effect with respect to the Senior Secured Notes
(except to the extent provided under "-- Defeasance and Discharge"), if such
Senior Secured Notes mature within one year or all of them are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
giving the notice of redemption, and the Company deposits with the appropriate
Trustee, in trust, money or U.S. Government Obligations that, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of,
premium if any and accrued interest on such Senior Secured Notes when due in
accordance with the terms of the applicable Indenture and such Senior Secured
Notes. Such a trust may only be established if, among other things, (i) no
Default under the Indenture shall have occurred and be continuing on the date of
such deposit, (ii) such deposit will not result in or constitute a Default or
result in a breach or violation of, or constitute a Default under, any other
agreement or instrument to which the Company is a party or by which it is bound
and (iii) the Company has delivered to the Trustee an Opinion of Counsel stating
that such conditions have been complied with. Pursuant to this provision, the
Company is not required to deliver an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such deposit and termination, and there is no assurance
that Holders would not recognize income, gain or loss for U.S. federal income
tax purposes as a result thereof or that Holders would be subject to U.S.
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and termination had not
occurred.
UNCLAIMED MONEY
Under the terms of the Indenture, subject to any applicable abandoned
property law, the Trustee will pay to the Company upon request any money held by
it for the payment of principal or interest that remains unclaimed for two
years. After payment to the Company, Noteholders entitled to such money must
look to the Company for payment as general creditors.
CONCERNING THE TRUSTEES AND PAYING AGENTS
Shawmut Bank Connecticut, National Association will act as Trustee under the
Indenture and the Pledge Agreement and will initially be Paying Agent and
Registrar for the Senior Secured Notes. The Company has had, from time to time,
and may have in the future, other relationships with such bank. Notices to the
Trustee, Paying Agent and Registrar under the Indenture should be directed to
Shawmut Bank Connecticut, National Association, 777 Main Street -- MSN 238,
Hartford, Connecticut 06115, Attention: Corporate Trust Administration.
GOVERNING LAW
Under the terms of the Indenture the laws of the State of New York govern
the Indenture and the Senior Secured Notes.
DESCRIPTION OF THE WARRANTS
GENERAL
The Company will issue an aggregate of Warrants to the purchasers of
the Senior Secured Notes. The Warrants will be issued pursuant to a Warrant
Agreement (the "Warrant Agreement") to be entered into between the Company and
Shawmut Bank Connecticut, National Association, as the Warrant Agent. The
following summary of certain provisions of the Warrant Agreement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Warrant Agreement, including the
definitions of certain terms therein.
Each Warrant is evidenced by a Warrant Certificate which entitles the holder
thereof, at any time, to purchase one share of Common Stock from the Company at
a price (the "Exercise Price") of $7.00 per share, subject to adjustment as
provided in the Warrant Agreement. The Warrants will be separately transferable
from the Notes and may be exercised at any time after , 1994 and
prior to , 2004. Warrants that are not exercised by such date will
expire.
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The aggregate number of shares of Common Stock issuable upon exercise of the
Warrants is equal to approximately 10% of the outstanding shares of Common
Stock, on a fully diluted basis, subject to certain exceptions described in the
Warrant Agreement. The Company has authorized and reserved for issuance such
number of shares of Common Stock as shall be issuable upon the exercise of all
outstanding Warrants. Such shares of Common Stock, when issued, will be duly and
validly issued and fully paid and nonassessable. The issuance of Common Stock
upon the exercise of the Warrants has been registered with the Securities and
Exchange Commission pursuant to the Registration Statement of which this
Prospectus forms a part.
The Warrants will be issued in the form of a fully registered Global
Certificate and will be deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. Except as set forth in
"Description of the Units -- Form, Denomination and Registration," owners of
beneficial interest in such Global Certificate will not be entitled to have
Warrants registered in their names, will not receive or be entitled to receive
physical delivery of Warrants in definitive form and will not be considered the
owners or holders thereof under the Warrant Agreement. No service charge will be
made for any registration of transfer or exchange of Warrants, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith. See "Description of
the Units."
Upon the occurrence of a merger in connection with which all of the
consideration to shareholders of the Company is not cash, the Company or its
successor by merger will be required, upon the expiration of the time periods
discussed below, to offer to repurchase the Warrants. This feature of the
Warrants may have the effect of increasing the cost of purchasing the Company to
any acquiror (including an acquiror in an unsolicited merger or similar
transaction).
CERTAIN DEFINITIONS
The Warrant Agreement contains, among others, the following definitions:
A "Repurchase Event" is defined to occur if at any time prior to
, 2004, the Company consolidates with, merges into or with (where
holders of the Common Stock receive consideration in exchange for all or part of
such shares of Common Stock), or sells all or substantially all of its assets to
another person which has a class of equity securities registered under the
Exchange Act or a wholly owned subsidiary of such person, if the consideration
for the transaction does not consist solely of cash or if such merger or
consolidation is not effected solely for the purpose of changing the Company's
state of incorporation or is effected with a Plaster Entity or a Lindsey Entity.
A "Financial Expert" is a nationally recognized investment banking firm.
An "Independent Financial Expert" is a Financial Expert which does not (or
whose directors, executive officers or 5% stockholders do not) have a direct or
indirect financial interest in the Company or any of its subsidiaries, which has
not been for at least five years, and, at the time that it is called upon to
give independent financial advice to the Company, is not (and none of its
directors, executive officers or 5% stockholders is) a promoter, director or
officer of the Company or any of its subsidiaries.
CERTAIN TERMS
REPURCHASE
Following the occurrence of a Repurchase Event, the Company must make an
offer to repurchase for cash all outstanding Warrants (a "Repurchase Offer").
The holders of the Warrants may, until 5:00 p.m. (New York City time) on the
date at least 30 but not more than 60 calendar days following the date on which
the Company gives notice of such Repurchase Offer (the "Final Surrender Date"),
surrender all or part of their Warrants for repurchase by the Company. Except as
otherwise provided in the Warrant Agreement, Warrants received by the Warrant
Agent in proper form for purchase during a Repurchase Offer prior to the Final
Surrender Date are to be repurchased by the Company at a price in cash (the
"Repurchase Price") equal to the value (the "Relevant Value"), on the date five
business days prior to notice of such Repurchase Offer (the "Valuation Date")
relating thereto, of the Common Stock issuable, and other securities of the
Company which would have been delivered, upon
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exercise of the Warrants had the Warrants been exercised, less the Exercise
Price therefor. The Relevant Value of the Common Stock and other securities,
assuming exercise of all Warrants, on any Valuation Date shall be (i) if the
Common Stock (or other securities) is registered under the Exchange Act, deemed
to be the average of the closing sales prices of the Common Stock (or other
securities) for the 20 consecutive trading days immediately preceding such
Valuation Date or, if the Common Stock (or other securities) has been registered
under the Exchange Act for less than 20 consecutive trading days before such
date, then the average of the closing sales prices for all of the trading days
before such date for which closing sales prices are available or (ii) if the
Common Stock (or other securities) is not registered under the Exchange Act or
if the value cannot be computed under clause (i) above, the value determined
(without giving effect to any discount for lack of liquidity, the fact that the
Company has no class of equity securities registered under the Exchange Act, or
the fact that the shares of Common Stock and other securities issuable upon
exercise of the Warrants represent a minority interest in the Company) by an
Independent Financial Expert.
In the case of clause (ii) of the preceding paragraph, the Board of
Directors of the Company is required to select an Independent Financial Expert
not less than five business days following any Repurchase Event. Within two
calendar days after its selection of the Independent Financial Expert, the
Company must deliver to the Warrant Agent a notice setting forth the name of
such Independent Financial Expert. The Company also must cause the Independent
Financial Expert to deliver to the Company, with a copy to the Warrant Agent, a
value report (the "Value Report") which states the Relevant Value of the Common
Stock and other securities of the Company, if any, being valued as of the
Valuation Date and contains a brief statement as to the nature and scope of the
examination of investigation upon which the determination was made. The Warrant
Agent will have no duty with respect to the Value Report, except to keep it on
file available for inspection by the holders of the Warrants. The determination
of the Independent Financial Expert as to Relevant Value in accordance with the
provisions of the Warrant Agreement shall be conclusive on all persons.
EXERCISE
In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the holder thereof is required to surrender to the Warrant Agent
the Warrant Certificate, a duly executed copy of the subscription form set forth
as part of the Warrant Certificate, and payment in full of the Exercise Price
for each share of Common Stock or other securities issuable upon exercise of the
Warrants as to which a Warrant Certificate is exercised, which payment may be
made in cash or by certified or official bank or bank cashier's check payable to
the order of the Company. Upon the exercise of any Warrants in accordance with
the Warrant Agreement, the Warrant Agent will cause the Company to transfer
promptly to or upon the written order of the holder of such Warrant Certificate
appropriate evidence of ownership of any shares of Common Stock or other
securities or property to which it is entitled, registered or otherwise placed
in such name or names as it may direct in writing, and will deliver such
evidence of ownership to the person or persons entitled to receive the same and
fractional shares, if any, or an amount in cash, in lieu of any fractional
shares, if any.
NO RIGHTS AS STOCKHOLDERS
The holders of unexercised Warrants are not entitled, as such, to receive
dividends or other distributions, receive notice of or vote at any meeting of
the stockholders, consent to any action of the stockholders, receive notice of
any other proceedings of the Company, or any other rights as stockholders of the
Company.
MERGERS, CONSOLIDATIONS, ETC.
Except as provided below, in the event that the Company consolidates with,
merges with or into, or sells all or substantially all of its property and
assets to another person, each Warrant thereafter shall entitle the holder
thereof to receive upon exercise thereof the number of shares of capital stock
or other securities or property which the holder of a share of Common Stock is
entitled to receive upon completion of such consolidation, merger or sale of
assets. If the Company merges or consolidates with, or sells all or
substantially all of the property and assets of the Company to, another person
(other than an Affiliate of the Company) and, in connection therewith,
consideration to the holders of Common Stock in exchange for their shares is
payable solely in cash, or in the event of the dissolution, liquidation or
winding-up of the Company, then the holders of the Warrants will be entitled to
receive distributions on an equal basis with the
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holders of Common Stock or other securities issuable upon exercise of the
Warrants, as if the Warrants had been exercised immediately prior to such event,
less the Exercise Price. Upon receipt of such payment, if any, the Warrants will
expire and the rights of the holders thereof will cease. If the Company has made
a Repurchase Offer that has not expired at the time of such transaction, the
holders of the Warrants will be entitled to receive the higher of (1) the amount
payable to the holders of the Warrants described above or (2) the Repurchase
Price payable to the holders of the Warrants pursuant to such Repurchase Offer.
In case of any such merger, consolidation or sale of assets, the surviving or
acquiring person and, in the event of any dissolution, liquidation or winding-up
of the Company, the Company must deposit promptly with the Warrant Agent the
funds, if any, necessary to pay the holders of the Warrants. After such funds
and the surrendered Warrant Certificates are received, the Warrant Agent must
make payment by delivering a check in such amount as is appropriate (or, in the
case of consideration other than cash, such other consideration as is
appropriate) to such person or persons as it may be directed in writing by the
holders surrendering such Warrants.
ADJUSTMENT
The number of shares of Common Stock issuable upon the exercise of each
Warrant and the Exercise Price are subject to adjustment in certain events,
including (a) a dividend or distribution on the Company's Common Stock in shares
of its capital stock, or a subdivision, combination, or reclassification of
Common Stock, (b) the issuance of rights, options, warrants or convertible or
exchangeable securities to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock at a price which is lower than the
Current Market Value (as defined in the Warrant Agreement) per share of Common
Stock, (c) the sale and issuance of shares of Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock at a price per share lower than
the Current Market Value per share of the Common Stock in effect immediately
prior to such sale or issuance, (taking into account the consideration received
for the issuance of such right, warrant, or option plus any consideration to be
received upon the exercise thereof) and (d) a distribution of the Common Stock
of evidence of indebtedness, assets, cash dividends or distributions (excluding
distributions in connection with the dissolution, liquidation or winding up of
the Company). Upon the expiration of any rights, options, warrants or conversion
or exchange privileges that have previously resulted in an adjustment, if any
thereof shall not have been exercised, the Exercise Price and the number of
shares of Common Stock issuable upon the exercise of each Warrant shall, upon
such expiration, be readjusted. Notwithstanding the foregoing, no adjustment in
the Exercise Price or the number of shares of Common Stock issuable upon
exercise or Warrants will be required until cumulative adjustments would result
in an adjustment of at least one percent in the number of shares of Common Stock
purchasable on exercise of the Warrant.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.001 per share. As of June 1, 1994, there were
13,832,270 shares of Common Stock outstanding; 129,250 shares of Common Stock
subject to options issued but not exercised; and 329,500 shares of Treasury
Stock. Immediately following consummation of the Transaction there will be
approximately 1,600,000 shares of Common Stock outstanding.
GENERAL
Each outstanding share of Common Stock will entitle the holder to one vote
on all matters presented to stockholders for a vote and have cumulative voting
rights. In all elections for directors, each stockholder shall have the right to
cast as many votes in the aggregate as shall equal the number of shares held by
such stockholder multiplied by the number of directors to be elected at the
election, and each shareholder may cast the whole number of votes, either in
person or by proxy, for one candidate or distribute them among two or more
candidates. Consequently, persons holding less than a majority of shares may by
themselves be able to elect one or more directors. The holders of a majority of
the Common Stock entitled to vote constitute a quorum at any meeting of
stockholders. The By-Laws provide that whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken, the meeting and vote of
shareholders may be dispensed
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with, if all the stockholders who would have been entitled to vote upon the
action if such meeting were held shall consent in writing to such corporate
action being taken. Holders of the Common Stock will have no preemptive rights.
MISSOURI LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Under the General and Business Corporation Law of Missouri, stockholders are
generally not liable for the Company's debts or obligations.
Pursuant to the General and Business Corporation Law of Missouri, the
Company cannot merge with or sell all or substantially all of the assets of the
Company, except upon the affirmative vote of the holders of at least two-thirds
of the outstanding shares entitled to vote on the proposed merger or sale.
Under the General and Business Corporation Law of Missouri, the certain
shares acquired in a control share acquisition (as defined in the statute) have
the same voting rights as were accorded the shares before the control share
acquisition only to the extent granted by resolution approved by the
shareholders of the issuing public corporation, UNLESS the corporation's
articles of incorporation or bylaws provide that this section does not apply to
control share acquisitions of the shares of the corporation. The Company's
Certificate of Incorporation provides that Missouri's control share acquisition
statute shall not apply to control share acquisitions of shares of the Company.
The Company's By-Laws provide that dividends upon the capital stock of the
Company may be declared by the Board of Directors at any regular or special
meeting. Before payment of any dividend, there may be set aside out of any funds
of the Company available for dividends such sum or sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Company, or for such other purpose as the
Directors shall think conducive to the interest of the Company, and the
Directors may modify or abolish any such reserve in the manner in which it was
created.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax consequences
associated with the acquisition, ownership, and disposition of the Senior
Secured Notes and the Warrants by holders who acquire the Units on original
issue for cash. Wilmer, Cutler & Pickering, tax counsel to the Company, is of
the opinion that the material federal income tax consequences of an investment
in Units are as described by the following discussion. The following summary
does not discuss all of the aspects of Federal income taxation that may be
relevant to a prospective holder of the Units in light of his or her particular
circumstances or to certain types of holders (including insurance companies,
tax-exempt entities, financial institutions or broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
which are subject to special treatment under the Federal income tax laws. In
addition, this summary does not describe any tax consequences under state,
local, or foreign tax laws.
The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
changes may be applied retroactively in a manner that could adversely affect a
holder of the Units. In the opinion of Wilmer, Cutler & Pickering, the Senior
Secured Notes will be treated as indebtedness for federal income tax purposes.
The Company has not sought and will not seek any rulings from the IRS with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the purchase,
ownership or disposition of the Senior Secured Notes and the Warrants which are
different from those discussed herein.
PROSPECTIVE PURCHASERS OF UNITS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE SPECIFIC TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF SENIOR SECURED NOTES AND THE WARRANTS, AS
WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS
ALLOCATION OF ISSUE PRICE BETWEEN THE SENIOR SECURED NOTES AND THE WARRANTS.
Each Unit is comprised of Senior Secured Notes and Warrants.
Consequently, the issue price of a Unit must be allocated between the Senior
Secured Notes and the Warrants. The "issue price" of a Senior Secured Note will
equal the first price at which a substantial amount of Units is sold for money
(excluding for such purposes sales to bond houses, brokers, or similar persons
or organizations acting in the capacity of underwriters, placement agents, or
wholesalers) less the amount allocable to the Warrants (based on the
relationship of the fair market value of each of the Senior Secured Notes and
the Warrants to the fair market value of the Senior Secured Notes and Warrants
taken together as a Unit). Based on the foregoing, the Company intends to treat
each Senior Secured Note as having been issued with an issue price of $ per
$1,000 principal amount, and each Warrant as having been issued with an issue
price of $3.65. No assurance can be given, however, that the IRS will not
challenge the Company's allocation of the issue price. If the IRS were to
challenge successfully the Company's allocation of the issue price between the
Senior Secured Notes and the Warrants, the Senior Secured Notes will have more
or less original issue discount. If as a result of such a reallocation, the
Senior Secured Notes have more original issue discount than they would have if
the Company's allocation were respected, holders of Senior Secured Notes will be
required to include in gross income a greater amount of original issue discount
(see below). Such a reallocation could also affect the determination whether the
Senior Secured Notes constitute "applicable high yield discount obligations"
(see below).
The Company's allocation of the issue price of the Units will be binding on
a holder, unless such holder discloses the use of a different allocation on the
applicable form attached to such holder's timely filed Federal income tax return
for the year of acquisition of such Unit. Holders intending to use an issue
price allocation different from that used by the Company should consult their
tax advisors as to the consequences to them of their particular allocation of
the issue price of the Unit.
AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE SENIOR SECURED NOTES
The Senior Secured Notes will be issued with original issue discount for
federal income tax purposes, and holders of the Senior Secured Notes will be
required to recognize such original issue discount as ordinary interest income
as it accrues on the Senior Secured Notes (regardless of whether the holder is a
cash or accrual basis taxpayer). As a result, in certain accrual periods the
holder will be required to recognize gross income in excess of the amount of
cash payments received.
The amount of original issue discount with respect to each Senior Secured
Note will be equal to the excess of the "stated redemption price at maturity" of
such Senior Secured Note over its issue price, as defined above. The "stated
redemption price at maturity" of each Senior Secured Note will include all cash
payments (other than stated interest to the extent that it is unconditionally
payable at least annually at a single fixed rate ("qualified stated interest"))
required to be made thereunder until maturity. Qualified stated interest on the
Senior Secured Notes is % per annum. To the extent that the stated interest
of % that accrues beginning , 1999 exceeds qualified stated interest,
such excess will be included in the Senior Secured Notes' stated redemption
price at maturity.
TAXATION OF ORIGINAL ISSUE DISCOUNT ON THE SENIOR SECURED NOTES
Each holder of a Senior Secured Note will be required to include in gross
income (as interest) an amount equal to the sum of the "daily portions" of the
original issue discount on the Senior Secured Notes for each day such holder
holds a Senior Secured Note. The daily portions of original issue discount
required to be included in a holder's gross income will be determined on a
constant yield basis by allocating to each day during the taxable year in which
the holder holds the Senior Secured Notes a pro rata portion of the original
issue discount thereon which is attributable to the "accrual period." The amount
of the original issue discount attributable to each accrual period will be the
product of the "adjusted issue price" of the Senior Secured Notes at the
beginning of such accrual period multiplied by the "yield to maturity" of the
Senior Secured Notes, less the amount of any qualified stated interest allocable
to the accrual period. Appropriate adjustments will be made in computing the
amount of original issue discount attributable to the initial accrual period.
The adjusted issue price of the Senior Secured Notes at the beginning of the
first accrual
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period is the issue price. Thereafter, the adjusted issue price of a Senior
Secured Note is the issue price of the Senior Secured Note plus the aggregate
amount of original issue discount that accrued in all prior accrual periods, and
less any payments (other than payments of qualified stated interest) on the
Senior Secured Note. The yield to maturity of a Senior Secured Note will be the
discount rate that, when used to compute the present value (on a semi-annual
compounded basis) of all principal and interest payments to be made under a
Senior Secured Note, produces a present value equal to the issue price of the
Senior Secured Note.
The "accrual periods" of a Senior Secured Note (other than the initial
accrual period) are each of the six-month periods during the term of the Senior
Secured Note that end on and of each year.
TAXATION OF QUALIFIED STATED INTEREST ON THE SENIOR SECURED NOTES
Absent some special circumstance that may be particular to a holder,
qualified stated interest paid on a Senior Secured Note will be taxable to a
holder as ordinary interest income at the time it accrues or is received, in
accordance with the holder's regular method of accounting for Federal income tax
purposes.
The Company will furnish annually to certain record holders of the Senior
Secured Notes and to the IRS information with respect to original issue discount
accruing during the calendar year (as well as qualified stated interest paid
during that year) as may be required under applicable regulations.
EFFECT OF MANDATORY REPURCHASE AND OPTIONAL REDEMPTION ON ORIGINAL ISSUE
DISCOUNT OF THE SENIOR SECURED NOTES
In the event the Company is required to make a Change of Control Offer, each
holder may require the Company to repurchase such holder's Senior Secured Notes
in accordance with such Offer. In addition, in the event of an Asset Sale the
Company may be required to make an offer (the "Asset Sale Offer") to purchase
the Senior Secured Notes. Treasury Regulations contain special rules for
calculating the yield to maturity and maturity on a note in the event the debt
instrument provides for a contingency that could result in the acceleration or
deferral of one or more payments. Further, Treasury Regulations contain special
rules for determining the yield to maturity or maturity of a debt instrument if
either the holder or the issuer has an option to defer or accelerate payments.
Because neither of these rules apply by reason of a Change of Control Offer or
an Asset Sale Offer, the Company has no present intention of treating such
repurchase provisions of the Senior Secured Notes as affecting the computation
of the yield to maturity or maturity date of any Senior Secured Notes.
The Company may redeem the Senior Secured Notes, in whole or part, at any
time on or after 1999. The Company may also redeem a limited portion of
the Senior Secured Notes (up to $ million principal amount at maturity) prior
to 1997, in connection with one or more Public Equity Offerings following
which there is a Public Market. Treasury Regulations set forth special rules,
relating to the determination of yield to maturity and maturity, for a debt
instrument that may be redeemed prior to its stated maturity date at the option
of the issuer. These rules should not apply to a debt instrument, and, hence,
should not affect the determination of the yield to maturity or the maturity
date of such debt instrument, unless the issuer's exercise of its redemption
rights would reduce the yield to maturity on such instrument. The Company's
exercise of either of these redemption rights would not reduce the yield to
maturity on the Senior Secured Notes; therefore the special option rules will
not apply to the Senior Secured Notes.
SALE OR OTHER TAXABLE DISPOSITION OF THE SENIOR SECURED NOTES
The sale or other taxable disposition of a Senior Secured Note will result
in the recognition of gain or loss to the holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received (except to the extent attributable to the payment of accrued qualified
stated interest) in exchange therefor and (b) the holder's adjusted tax basis in
such Senior Secured Note.
A holder's initial tax basis in a Senior Secured Note purchased by such
holder will be equal to the portion of the issue price of the Units allocable to
the Senior Secured Notes, as discussed above. The holder's initial tax basis in
a Senior Secured Note will be increased by the amount of original issue discount
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included in gross income with respect to such Senior Secured Note to the date of
disposition and decreased by the amount of payments (other than payments of
qualified stated interest) with respect to such Senior Secured Note.
Any gain or loss on the sale or other taxable disposition of a Senior
Secured Note will be capital gain or loss, assuming a purchaser of the Senior
Secured Note holds such security as a "capital asset" (generally property held
for investment) within the meaning of Section 1221 of the Code. Any capital gain
or loss will be long-term capital gain or loss if the Senior Secured Note had
been held for more than one year and otherwise will be short-term capital gain
or loss. Payments on such disposition for accrued qualified stated interest not
previously included in income will be treated as ordinary interest income.
SALE OR OTHER TAXABLE DISPOSITION OF WARRANTS
The sale or other taxable disposition of a Warrant (other than as a result
of a Repurchase Event, as discussed below) will result in the recognition of
gain or loss to the holder in an amount equal to the difference between (a) the
amount of cash and fair market value of property received in exchange therefor
and (b) the holder's adjusted tax basis in the Warrant, which will equal the
amount of the issue price of the Units that is properly allocable to the
Warrants as described above. Any gain or loss from the sale or other disposition
of a Warrant will be a capital gain or loss if the Warrant is held as a capital
asset within the meaning of Section 1221 of the Code. Any such capital gain or
loss will be long-term capital gain or loss if the Warrant had been held for
more than one year and otherwise will be short-term capital gain or loss. A
purchase by the Company of a Warrant pursuant to a Repurchase Event in which the
Company elects to repurchase the Warrant may give rise to ordinary income,
depending on the application of certain rules under the Code relating to whether
stock redemptions result in dividend/ordinary income treatment.
As a general rule, no gain or loss will be recognized to a holder upon the
exercise of a Warrant. The tax basis of a share of Common Stock so acquired will
be equal to the sum of the holder's adjusted tax basis in the exercised Warrant
and the exercise price, but the holding period of such share will not include
the holding period of the Warrant exercised.
Under Section 305 of the Code, adjustments to the exercise price of the
Warrants which occur under certain circumstances, or the failure to make such
adjustments, may result in a deemed dividend to holders of Common Stock, which
will be taxable to holders to the same extent as would an actual dividend.
Upon expiration of a Warrant, a holder will recognize a loss equal to such
holder's adjusted tax basis in the Warrant. If the Common Stock issuable upon
exercise of the Warrant would have been a capital asset of the holder if
acquired by the holder, such loss will be a capital loss.
PURCHASERS OF SENIOR SECURED NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE OR DATE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire Senior Secured Notes either (a) other than at the
time of original issuance or (b) at the time of original issuance other than at
the issue price, including those provisions of the Code relating to the
treatment of "market discount", "acquisition premium" and "amortizable bond
premium." Such purchasers should consult their tax advisors as to the
consequences to them of the acquisition, ownership, and disposition of the
Senior Secured Notes and the Warrants.
BACKUP WITHHOLDING
The backup withholding rules require a payor to deduct and withhold a tax if
(a) the payee fails to furnish a taxpayer identification number ("TIN") to the
payor, (b) the IRS notifies the payor that the TIN furnished by the payee is
incorrect, (c) the payee has failed to report properly the receipt of
"reportable payments" and the IRS has notified the payor that withholding is
required, or (d) there has been a failure of the payee to certify under the
penalty of perjury that a payee is not subject to withholding under section 3406
of the Code. As a result, if any one of the events discussed above occurs with
respect to a holder of Senior Secured Notes, the Company, its paying agent or
other withholding agent will be required to withhold a tax equal to 31% of any
"reportable payment" made in connection with the Senior Secured Notes of such
holder. A "reportable payment" includes, among other things, amounts paid in
respect of interest or original issue discount and amounts paid through brokers
in retirement of securities. Any amounts withheld from a
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payment to a holder under the backup withholding rules will be allowed as a
refund or credit against such holder's federal income tax, provided that the
required information is furnished to the IRS. Certain holders (including, among
others, corporations and certain tax-exempt organizations) are not subject to
the backup withholding and, as discussed above, information reporting
requirements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
OF SENIOR SECURED NOTES
The Senior Secured Notes will constitute "applicable high yield discount
obligations" ("AHYDOs") if (i) the yield to maturity of such Senior Secured
Notes is equal to or greater than the sum of the relevant applicable federal
rate (the "AFR") plus five percentage points, and (ii) such notes have
"significant original discount." The relevant AFR for debt instruments issued in
June 1994 is 7.38%. If the Senior Secured Notes constitute AHYDOs, the Company
will not be entitled to deduct original issue discount that accrues with respect
to such Senior Secured Notes until amounts attributable to original issue
discount are paid, although the tax consequences to holders will not be
affected. In addition, if the yield to maturity of the Senior Secured Notes
exceeds the sum of the relevant AFR plus six percentage points (the "Excess
Yield"), the "disqualified portion" of the original issue discount accruing on
the Senior Secured Notes will be characterized as a non-deductible dividend with
respect to the Company and also may be treated as a dividend distribution solely
for purposes of the dividends received deduction of Sections 243, 246 and 246A
of the Code with respect to holders which are corporations. In general, the
"disqualified portion" of original issue discount for any accrual period will be
equal to the product of (i) a percentage determined by dividing the Excess Yield
by the yield to maturity, and (ii) the original issue discount for the accrual
period. Assuming a corporate holder satisfies the requirements of Sections 243,
246 and 246A of the Code (which include a holding period requirement and a debt
financing limitation), such a holder will be entitled to a dividends received
deduction (generally at a 70% rate) with respect to the disqualified portion of
the accrued original issue discount if the Company has sufficient current or
accumulated "earnings and profits". To the extent that the Company's earnings
and profits are insufficient, any portion of the original issue discount that
otherwise would have been recharacterized as a dividend for purposes of the
dividends received deduction will continue to be taxed as ordinary original
issue discount income in accordance with the rules described above.
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
The Company expects to enter into a New Credit Facility contemporaneously
with the consummation of this Offering. The following is a brief description of
certain terms the Company expects the New Credit Facility will contain, based on
the commitment letter it has received from its lender. This summary is qualified
in its entirety by reference to the credit agreement governing the New Credit
Facility (the "Credit Agreement"). Capitalized terms used in this section and
not otherwise defined have the meanings ascribed thereto in the Credit
Agreement.
The New Credit Facility will be provided by Continental Bank, N.A. ("CBNA")
as agent. The Credit Agreement will provide for maximum borrowings under a
revolving credit line of $15 million, with available borrowings determined as
follows: (i) up to 85% of eligible accounts receivable with eligibility
determined by CBNA; plus (ii) the least of (a) $8,000,000, (b) 150% of eligible
accounts receivable and (c) up to 60% of eligible inventory; plus (iii) (a) for
the months of August 1994 through January 1995, an additional seasonal
overadvance of $3.0 million, and (b) for the months of August 1995 through
January 1996, an additional seasonal overadvance of $1.5 million. All current
assets of the Company (i.e., inventory and receivables) and a negative pledge on
fixed assets will secure the Company's obligations under the New Credit
Facility.
INTEREST AND FEES. Amounts borrowed under the revolving credit line will
bear interest at either (i) 1.0% over CBNA's Reference Rate per annum (as
defined), or, at the Company's option, (ii) 2.5% over the LIBOR rate.
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The Company will be required to pay a commitment fee of .375% per annum on
the unused portion of the New Credit Facility. The Company will be required to
pay a fee of 1% of the total New Credit Facility payable at the closing.
PRINCIPAL REPAYMENTS. The New Credit Facility will mature on or about July
1, 1997.
FINANCIAL COVENANTS. Under the Credit Agreement, the Company will be
subject to certain financial covenants, including financial covenants related to
(i) interest coverage, (ii) minimum tangible net worth, (iii) the ratio of
liabilities to net worth, and (iv) maximum capital expenditures. In addition,
the Credit Agreement will provide a number of other affirmative and negative
covenants.
EVENTS OF DEFAULT. The Credit Agreement will contain usual and customary
provisions specifying various events that shall be events of default and will
include cross default and cross acceleration provisions to all material
indebtedness of the Company, including the Senior Secured Notes.
2007 9% SUBORDINATED DEBENTURES
The following is a brief description of certain terms contained in the
Company's indenture, as such indenture has been amended, for the 2007 9%
Subordinated Debentures and is qualified in its entirety by reference to the
indenture, as amended. Capitalized terms used in this section and not otherwise
defined have the meanings ascribed thereto in the indenture, as amended
Pursuant to an indenture dated June 7, 1983, as amended by the First
Supplemental Indenture dated December 13, 1989, the Company is indebted to the
holders of $25.9 principal amount of debentures due in 2007. The Company will
repurchase approximately $13.7 million principal amount of these debentures,
$4.7 million of which will be repurchased from Mr. Plaster, with the proceeds of
this Offering. See "Use of Proceeds" and "Certain Relationships and Related
Transactions." The 2007 9% Subordinated Debentures represent general unsecured
obligations of the Company and rank junior in right of payment to all Senior
Indebtedness (as defined) of the Company, including the Senior Secured Notes.
The 2007 9% Subordinated Debentures mature on December 31, 2007, unless
redeemed before such date. The 2007 9% Subordinated Debentures bear interest at
the rate of 9% per annum payable semi-annually on December 31 and June 30 of
each year.
The 2007 9% Subordinated Debentures are subject to redemption at any time,
in whole or in part, at the option of the Company, at a redemption price,
beginning January 1, 1993, of 100% of the principal amount thereof, plus accrued
and unpaid interest. The Company is required to redeem $1.37 million principal
amount 2007 9% Subordinated Debentures commencing December 31, 1993 and on each
December 31 thereafter, at 100% of the principal amount thereof plus accrued and
unpaid interest. The repurchase of $13.7 million principal amount of these
debentures will satisfy the Company's sinking fund obligation through 2004.
The 2007 9% Subordinated Debenture indenture contains a number of covenants,
including affirmative covenants relating to maintenances of offices or agency,
maintenance of corporate existence, and other matters.
Events of default under the indenture for the 2007 9% Subordinated
Debentures include: (i) failure to pay any interest on any debenture when due
and the continuance of such failure for a period of 30 days; (ii) failure to pay
the principal or any premium, on any debenture when due whether at maturity or
upon redemption by declaration or otherwise, including any Sinking Fund (as
defined) payment; (iii) failure to perform or breach of the covenants or
agreements on the part of the Company contained in the debenture or in the
indenture and the continuance of such failure for a period of 60 days following
written notice of such failure; or (iv) certain events of bankruptcy or
insolvency.
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THE UNDERWRITER
Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof, Morgan Stanley & Co. Incorporated (the "Underwriter") has
agreed to purchase, and the Company has agreed to sell to the Underwriter, the
Units.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of the Units is subject to the approval of
certain legal matters by its counsel and to certain other conditions. The
Underwriter is obligated to take and pay for all the Units if any are taken.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriter proposes to offer part of the Units directly to the public
initially at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the principal amount at maturity of the Units. The Underwriter may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount at maturity of the Units to certain other dealers.
The Company does not intend to apply for listing of the Units, the Senior
Secured Notes, the Warrants or the Common Stock on a national securities
exchange, but has been advised by the Underwriter that it presently intends to
make a market in the Units, the Senior Secured Notes, and the Warrants, as
permitted by applicable laws and regulations. The Underwriter is not obligated,
however, to make a market in the Units, the Senior Secured Notes or the Warrants
and any such market making may be discontinued at any time at the sole
discretion of the Underwriter. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Units, the Senior Secured Notes and
the Warrants. See "Risk Factors -- Absence of Public Market."
LEGAL MATTERS
The validity of the issuance of the Units offered hereby will be passed upon
for the Company by Wilmer, Cutler & Pickering, Washington, D.C. Certain legal
matters with respect to the Offering will be passed upon for the Underwriter by
Skadden, Arps, Slate, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements and the related schedules of Empire
Gas included in this Prospectus and the Registration Statement have been
examined by Baird, Kurtz, & Dobson, independent public accountants, for the
periods indicated in its reports thereon which appear elsewhere herein and in
the Registration Statement. The consolidated financial statements and schedules
examined by Baird, Kurtz & Dobson have been included in reliance on its reports
given on its authority as experts in accounting and auditing.
AVAILABLE INFORMATION
Empire Gas and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") in Washington, D.C. a Registration Statement on
Form S-1 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Units offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement as permitted by the
rules and regulations of the Commission. For further information pertaining to
the Company and the Units offered hereby, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, with respect to any
contract or other document filed as an exhibit to the Registration Statement,
each such statement is qualified in all respects by reference to such exhibit.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"). As a result of the
Offering, the Company will become subject to such
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requirements, and in accordance therewith will file periodic reports and other
information with the Commission. Empire Gas Operating Corporation (formerly
Empire Gas Corporation), a subsidiary of the Company, is currently subject to
the informational requirements of the Exchange Act, and in accordance therewith,
files periodic reports and other information with the Commission and with the
Pacific Stock Exchange. The Registration Statement and the exhibits and
schedules thereto, filed by Empire Gas Operating Corporation as well as the
reports and information filed by the Company under the Exchange Act, may be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511 and Suite 1300, 7 World Trade Center, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such reports and other information concerning the Company can
also be inspected at the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California.
The Indenture requires the Company to file with the Commission annual
reports containing consolidated financial statements and the related report of
independent public accountants and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year for so long as any Senior Secured Notes are outstanding.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
EMPIRE GAS CORPORATION
HISTORICAL:
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets as of June 30, 1992 and 1993 and
as of March 31, 1994 (unaudited).......................................... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1991, 1992, and 1993 and for the Nine Months Ended
March 31, 1993 and 1994 (unaudited)....................................... F-4
Consolidated Statements of Stockholders' Equity for the Years
June 30, 1991, 1992, and 1993 and for the Nine Months
Ended March 31, 1994 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1991, 1992, and 1993 and for the
Nine Months Ended March 31, 1993 and 1994 (unaudited)..................... F-6
Notes to Consolidated Financial Statements................................. F-7
PSNC PROPANE CORPORATION
Report of Independent Accountants.......................................... F-17
Balance Sheets as of June 30, 1993
and as of March 31, 1994 (unaudited)...................................... F-18
Statements of Income for the Year Ended June 30, 1993
and for the Nine Months Ended March 31, 1994 (unaudited).................. F-19
Statements of Stockholder's Equity for the Year Ended June 30, 1993
and for the Nine Months Ended March 31, 1994 (unaudited).................. F-20
Statements of Cash Flows for the Year Ended June 30, 1993
and for the Nine Months Ended March 31, 1994 (unaudited).................. F-21
Notes to Financial Statements.............................................. F-22
PRO FORMA:
Unaudited Pro Forma Income Statements of PSNC Propane
Corporation (PSNC) for the Year Ended June 30,
1993, Nine Months Ended March 31, 1994, and
Twelve Months Ended March 31, 1994........................................ P-1
Unaudited Pro Forma Balance Sheet of PSNC Propane
Corporation (PSNC) as of March 31, 1994................................... P-7
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri
We have audited the accompanying consolidated balance sheets of EMPIRE GAS
CORPORATION (FORMERLY EMPIRE GAS ACQUISITION CORPORATION) as of June 30, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EMPIRE GAS CORPORATION as of June 30, 1993 and 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1993, in conformity with generally accepted accounting
principles.
BAIRD KURTZ & DOBSON
Springfield, Missouri
July 30, 1993
F-2
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1992 1993
--------- --------- MARCH 31,
------------
1994
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................. $ 216 $ 362 $ 183
Trade receivables, less allowance for doubtful accounts; June 30,
1992 - $2,720, June 30, 1993 - $2,657, March 31, 1994 - $2,953
(NOTE 3)........................................................ 6,508 8,199 15,072
Inventories (NOTE 3)............................................. 7,913 9,691 9,313
Prepaid expenses................................................. 629 305 299
Deferred income taxes (NOTE 4)................................... -- -- 408
--------- --------- ------------
Total Current Assets........................................... 15,266 18,557 25,275
--------- --------- ------------
PROPERTY AND EQUIPMENT, At Cost (NOTE 3)
Land and buildings............................................... 11,821 12,215 12,626
Storage and consumer service facilities.......................... 113,450 113,821 114,973
Transportation, office and other equipment....................... 24,245 25,550 27,668
--------- --------- ------------
149,516 151,586 155,267
Less accumulated depreciation.................................... 34,055 41,906 47,429
--------- --------- ------------
115,461 109,680 107,838
--------- --------- ------------
OTHER ASSETS
Debt acquisition costs, net of amortization...................... -- 475 446
Excess of cost over fair value of net assets acquired, at
amortized cost.................................................. 20,212 18,834 17,870
Other............................................................ 532 474 764
--------- --------- ------------
20,744 19,783 19,080
--------- --------- ------------
$ 151,471 $ 148,020 $ 152,193
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (NOTE 3).................... $ 16,590 $ 5,181 $ 6,135
Accounts payable................................................. 5,341 4,485 3,823
Accrued salaries................................................. 1,574 1,573 2,970
Accrued expenses................................................. 2,612 2,193 3,792
Income taxes payable (NOTE 9).................................... 3,094 165 3,822
--------- --------- ------------
Total Current Liabilities.................................... 29,211 13,597 20,542
--------- --------- ------------
LONG-TERM DEBT (NOTE 3)............................................ 59,372 74,068 66,696
--------- --------- ------------
DUE TO RELATED PARTY (NOTES 2 AND 3)............................... 2,996 -- --
--------- --------- ------------
DEFERRED INCOME TAXES (NOTE 4)..................................... 33,428 32,568 31,214
--------- --------- ------------
ACCRUED SELF INSURANCE LIABILITY (NOTE 8).......................... 1,563 1,874 2,039
--------- --------- ------------
STOCKHOLDERS' EQUITY...............................................
Common; $.001 par value; authorized 20,000,000 shares; issued
and outstanding June 30, 1992 - 13,921,458 shares, June 30,
1993 and March 31, 1994 - 13,832,270 shares................... 14 14 14
Additional paid-in capital..................................... 27,133 27,088 27,088
Retained earnings (deficit).................................... (2,118) 110 5,899
--------- --------- ------------
25,029 27,212 33,001
Treasury stock, at cost June 30, 1992 - 39,367 shares, June 30,
1993 and March 31, 1994 - 329,500 shares...................... (128) (1,299) (1,299)
--------- --------- ------------
24,901 25,913 31,702
--------- --------- ------------
$ 151,471 $ 148,020 $ 152,193
--------- --------- ------------
--------- --------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------- ----------------------
1991 1992 1993 1993 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE.................................... $ 121,758 $ 112,080 $ 128,401 $ 111,332 $ 110,108
COST OF PRODUCT SOLD................................. 59,971 50,973 60,202 52,807 50,770
---------- ---------- ---------- ---------- ----------
GROSS PROFIT......................................... 61,787 61,107 68,199 58,525 59,338
---------- ---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.................... 2,828 214 958 298 413
General and administrative......................... 41,594 39,463 40,437 31,351 32,359
Rent expense to related party (NOTE 2)............. 350 375 450 337 337
Depreciation and amortization...................... 9,552 10,062 10,351 7,672 7,494
---------- ---------- ---------- ---------- ----------
54,324 50,114 52,196 39,658 40,603
---------- ---------- ---------- ---------- ----------
OPERATING INCOME..................................... 7,463 10,993 16,003 18,867 18,735
---------- ---------- ---------- ---------- ----------
OTHER EXPENSE
Interest expense................................... (11,455) (10,406) (8,877) (6,873) (6,446)
Interest expense to related party
(NOTES 2 AND 3).................................. (583) (315) (949) (668) --
Amortization of debt discount and expense.......... (890) (1,006) (1,686) (1,167) (1,396)
Crested Butte litigation (NOTE 8).................. (702) -- -- -- --
Merger proposal costs (NOTE 5)..................... -- (450) -- -- --
Restructuring proposal costs (NOTE 6).............. -- -- (223) -- (674)
---------- ---------- ---------- ---------- ----------
(13,630) (12,177) (11,735) (8,708) (8,516)
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.................... (6,167) (1,184) 4,268 10,159 10,219
PROVISION (CREDIT) FOR INCOME TAXES (NOTE 4)......... (1,610) 290 2,040 4,230 4,430
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................................... $ (4,557) $ (1,474) $ 2,228 $ 5,929 $ 5,789
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) PER COMMON SHARE (NOTE 1).............. $ (.33) $ (.11) $ .16 $ .41 $ .40
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PAID-IN EARNINGS TREASURY STOCKHOLDERS'
COMMON STOCK CAPITAL (DEFICIT) STOCK EQUITY
------------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1990................................. $ 14 $ 27,105 $ 3,913 $ (50) $ 30,982
STOCK OPTIONS EXERCISED................................ -- 13 -- -- 13
NET LOSS............................................... -- -- (4,557) -- (4,557)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1991................................. 14 27,118 (644) (50) 26,438
STOCK OPTIONS EXERCISED................................ -- 15 -- -- 15
PURCHASE OF TREASURY STOCK............................. -- -- -- (78) (78)
NET LOSS............................................... -- -- (1,474) -- (1,474)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1992................................. 14 27,133 (2,118) (128) 24,901
STOCK OPTIONS EXERCISED................................ -- 225 -- -- 225
NET INCOME............................................. -- -- 2,228 -- 2,228
SALE OF TREASURY STOCK................................. -- (270) -- 270 --
PURCHASE OF TREASURY STOCK............................. -- -- -- (1,441) (1,441)
--- ----------- ----------- --------- ------------
BALANCE, JUNE 30, 1993................................. 14 27,088 110 (1,299) 25,913
NET INCOME (UNAUDITED)................................. -- -- 5,789 -- 5,789
--- ----------- ----------- --------- ------------
BALANCE, MARCH 31, 1994 (UNAUDITED).................... $ 14 $ 27,088 $ 5,899 $ (1,299) $ 31,702
--- ----------- ----------- --------- ------------
--- ----------- ----------- --------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------- --------------------
1991 1992 1993 1993 1994
--------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ (4,557) $ (1,474) $ 2,228 $ 5,929 $ 5,789
Items not requiring (providing) cash:
Depreciation....................................... 8,263 8,789 9,004 6,663 6,496
Amortization....................................... 2,179 2,279 3,033 2,107 2,394
(Gain) loss on sale of assets...................... 252 (758) 155 (162) 3
Deferred income taxes.............................. (2,210) (810) (860) (571) (1,762)
Changes in:
Bank overdraft..................................... (872) -- -- -- --
Trade receivables.................................. 1,360 32 (1,691) (9,393) (6,873)
Inventories........................................ (1,074) (300) (1,886) (1,251) 378
Accounts payable................................... 1,418 246 (856) (247) (662)
Accrued expenses and self insurance................ (560) 1,772 (3,158) 1,828 6,768
Prepaid expenses and other......................... 348 224 272 (350) (218)
--------- --------- ----------- --------- ---------
Net cash provided by operating activities........ 4,547 10,000 6,241 4,553 12,313
--------- --------- ----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets......................... 497 3,062 1,088 360 153
Purchases of property and equipment.................. (8,629) (6,601) (4,358) (3,098) (4,721)
--------- --------- ----------- --------- ---------
Net cash used in investing activities............ (8,132) (3,539) (3,270) (2,738) (4,568)
--------- --------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in working capital financing..... 3,500 3,400 (1,875) (200) (3,800)
Increase in notes payable to related party........... 1,498 554 -- 45 --
Principal payments on notes payable to related
party............................................... (1,116) (3,310) (2,996) -- --
Principal payments on acquisition credit facility.... -- (6,750) (13,250) -- --
Principal payments on other long-term debt........... (195) (191) (182) (134) (162)
Debenture sinking fund payments...................... -- -- (528) (528) (2,012)
Purchase of debentures from employee benefit plan.... -- -- (778) -- --
Proceeds from issuance of term credit facility....... -- -- 18,000 -- --
Principal payments on term credit facility........... -- -- -- -- (1,950)
Stock options exercised.............................. 13 15 173 163 --
Purchase of treasury stock........................... -- (78) (1,441) (142) --
Sale of treasury stock............................... -- -- 52 52 --
--------- --------- ----------- --------- ---------
Net cash provided by (used in) financing
activities...................................... $ 3,700 $ (6,360) $ (2,825) $ (744) $ (7,924)
--------- --------- ----------- --------- ---------
INCREASE (DECREASE) IN CASH............................ $ 115 $ 101 $ 146 $ 1,071 $ (179)
CASH, BEGINNING OF PERIOD.............................. -- 115 216 216 362
--------- --------- ----------- --------- ---------
CASH, END OF PERIOD.................................... $ 115 $ 216 $ 362 $ 1,287 $ 183
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
EMPIRE GAS CORPORATION
(Formerly Empire Gas Acquisition Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended June 30, 1991, 1992 and 1993
and for the Nine Months Ended March 31, 1993 and 1994 (Unaudited)
NOTE 1 : ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company's principal operations are the sale of LP gas at retail and
wholesale. Most of the Company's customers are owners of residential single or
multi-family dwellings who make periodic purchases on credit. Such customers are
located throughout the United States with the larger number concentrated in the
central and southeastern states and along the Pacific coast. The Company was
formed in September 1988 to acquire 100% of the stock of Empire Gas Operating
Corporation (formerly Empire Gas Corporation) in a transaction which was
accounted for by the purchase method of accounting. At acquisition date, asset
and liability values were recorded at their market values with respect to the
purchase price.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Empire Gas
Corporation and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly Empire
Gas Corporation's consolidated financial position as of December 31, 1993, and
the related consolidated results of its operations and cash flows for the
six-month periods ended December 31, 1992 and 1993. All such adjustments are of
a normal recurring nature.
The results of operations for the nine-month period ended March 31, 1994,
are not necessarily indicative of the results to be expected for the full year
due to the seasonal nature of the Company's business.
REVENUE RECOGNITION POLICY
Sales and related cost of product sold are recognized upon delivery of the
product or service.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method for retail operations and specific identification
method for wholesale operations. At June 30 the inventories were:
<TABLE>
<CAPTION>
1992 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gas and other petroleum products................ $ 3,199 $ 4,279
Gas distribution parts, appliances and
equipment...................................... 4,714 5,412
--------- ---------
$ 7,913 $ 9,691
--------- ---------
--------- ---------
</TABLE>
PROPERTY AND EQUIPMENT
Depreciation is provided on all property and equipment on the straight-line
method over estimated useful lives of 5 to 33 years.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
F-7
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 1 : ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATION
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 financial statement presentation. These
reclassifications had no effect on net earnings.
AMORTIZATION
The debt acquisition costs related to the revolving credit facility and term
credit facility (originally $525,000) are being amortized over five years.
Amortization of discounts on debentures (Note 3) is on the effective
interest, bonds outstanding method.
The excess of cost over fair value of net assets acquired (originally
$25,600,000) is being amortized on the straight-line basis over 20 years.
INCOME PER COMMON SHARE
Income per common share is computed by dividing net income by the weighted
average number of common shares and, except where anti-dilutive, common share
equivalents outstanding, if any. The weighted average number of common shares
outstanding used in the computation of earnings per share was 13,881,091,
13,885,087, and 14,055,407 for each of the fiscal years ended June 30, 1991,
1992, and 1993, respectively.
NOTE 2 : RELATED PARTY TRANSACTIONS
During each of the last three years, the Company has periodically borrowed
funds from an officer of the Company who is also a principal shareholder (the
"Shareholder") of the Company and from individuals and corporations related to
the Shareholder. The Company had no outstanding borrowings from this related
party at June 30, 1993. The amounts of outstanding borrowings from this related
party at June 30, 1991 and 1992, were $5,753,000 and $2,996,000, respectively.
The maximum amounts borrowed from this related party except for the November
1992 agreement described below during the years ended June 30, 1991, 1992 and
1993, were $5,928,000, $5,753,000 and $3,000,000, respectively. The interest
rate on these borrowings was equal to or below the rates available through the
working capital facility. Interest expense incurred on these related party
borrowings was $583,000, $315,000 and $200,000, for the years ended June 30,
1991, 1992 and 1993, respectively. During November 1992 the Shareholder loaned
under a separate agreement $13.25 million to the Company to repay the
acquisition credit facility (see Note 3). Interest expense incurred on this
related party borrowing for the year ended June 30, 1993, was $749,000. In June
1993, all outstanding borrowings from the Shareholder were repaid using the
proceeds from the new term credit facility.
The Company provides data processing, office rent and other clerical
services to two corporations principally owned by certain officers and
shareholders of the Company and is currently being reimbursed $7,000 per month
for these services.
The Company leases a jet aircraft and an airport hanger from a corporation
owned by the Shareholder. The lease requires annual rent payments of $100,000
beginning April 1, 1992, for a period of eight years. In addition to direct
lease payments, the Company is also responsible for the operating costs of the
aircraft and the hanger. During the years ended June 30, 1992 and 1993, the
Company paid direct rent of $25,000 and $100,000, respectively.
F-8
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 2 : RELATED PARTY TRANSACTIONS (CONTINUED)
The Company paid $150,000 in each of the three years ended June 30, 1993, to
a corporation owned by the Shareholder pursuant to an agreement providing the
Company the right to use business guest facilities owned by the corporation.
The Company has entered into a lease agreement with a corporation which is
principally owned by the Shareholder for the corporate home office, land,
buildings and equipment. The lease was extended in 1991 for a term of ten years,
with two three-year renewal options. The Company paid $200,000 during each of
the three years ended June 30, 1993, related to this lease.
NOTE 3 : LONG-TERM DEBT
Long-term debt (in thousands) consisted of:
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1992 1993 1994
--------- --------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Acquisition credit facility (A)......................... $ 13,250 $ -- $ --
Working capital facility (B)............................ 8,700 -- --
Term credit facility (C)................................ -- 18,000 16,050
Revolving credit facility (C)........................... -- 7,300 3,500
9% Convertible Subordinated Debentures,
due 1998 (D)........................................... 17,539 17,767 17,125
9% Subordinated Debentures, due 2007 (E)................ 16,040 15,691 16,097
12% Senior Subordinated Debentures,
due 2002 (F)........................................... 19,121 19,361 18,891
Purchase contract obligations (G)....................... 1,312 1,130 1,168
--------- --------- ------------
75,962 79,249 72,831
Less current maturities................................. 16,590 5,181 6,135
--------- --------- ------------
$ 59,372 $ 74,068 $ 66,696
--------- --------- ------------
--------- --------- ------------
<FN>
- ---------
(A) The acquisition credit agreement to which substantially all the Company's
assets were pledged bore interest at 14 1/2%.
In November 1992 the principal shareholder of the Company, referred to in
Note 2 as the Shareholder, loaned $13.25 million to the Company. The
proceeds were used by the Company to repay the acquisition credit facility.
The loan was secured by substantially all of the assets of the Company on
an equal basis with the working capital facility. The loan had interest at
10% per annum. This loan was repaid in June 1993, with the proceeds from
the new term credit facility.
(B) The Company's working capital facility, under which substantially all the
Company's assets were pledged, provided for borrowings up to $20 million
and bore interest at 1% over prime. The agreement provided for a commitment
fee of 1/2% per annum of the unadvanced portion of the commitment. This
loan was repaid in June 1993 with the proceeds from the new term and
revolving credit facilities.
</TABLE>
F-9
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 3 : LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
At June 30, 1992, the Company was in default of the working capital ratio
covenant and a covenant
requiring minimum consolidated operating cash flow. The lenders waived the
noncompliance with these covenants.
(C) The term credit facility and revolving credit facility are provided to the
Company by the same lender under one agreement. In June 1993 the proceeds
from these new loans were used to repay the $13.25 million loan from
Shareholder, working capital facility and other outstanding borrowings to
Shareholder. Substantially all of the Company's assets are pledged to the
agreement which contains working capital, debt and certain dividend
restrictions. These dividend restrictions prohibit the Company from paying
common stock cash dividends. The term credit facility bears interest at
either 1.125% over prime or 2.625% over the Eurodollar rate. The effective
interest rates at June 30, 1993 and March 31, 1994, are approximately 6.2%
and 6.1% respectively. The agreement requires quarterly principal payments
of $650,000.
The revolving credit facility provides for borrowings up to $22 million and
bears interest at either 1 % over prime or 2.5 % over the Eurodollar rate.
The effective interest rates at June 30, 1993 and March 31, 1994 are
approximately 6.2% and 7.0% respectively. The agreement provides for a
commitment fee of .5% per annum of the unadvanced portion of the
commitment. The Company's unused revolving credit line amounted to
$13,448,000 at June 30, 1993, after considering $1,252,000 of letters of
credit. At December 31, 1993, the Company was in default of the
consolidated working capital covenant. The lender waived the noncompliance
with this covenant.
(D) The convertible debentures issued in January 1981 were convertible into
common stock at a rate equal to $10.31 of principal amount for each share
of common stock through December 1989. In December 1989 the Company
executed a supplemental indenture for the convertible debentures. The
supplemental indenture provides that the holder of each convertible
debenture now has, in lieu of the right to convert each debenture into
common stock, the right to convert each debenture into the right to receive
$3.75 cash for each $10.31 face amount of debentures. The debentures mature
in 1998, and at maturity an 8% premium of the outstanding principal amount
will be paid. Such premium is being accrued over the term to maturity. The
debentures are redeemable at the Company's option, as a whole or in part,
at 100% of the principal amount plus accrued interest to the redemption
date, on any date prior to maturity. A sinking fund payment sufficient to
retire $1,250,000 of principal is required annually on each December 31.
The original principal amount of debentures outstanding ($21,854,000) was
adjusted to market value (effective interest rate of 14.5%) in October
1988, in accordance with the purchase method of accounting. The discount on
these debentures is being amortized over the remaining life of the
debentures using the effective interest, bonds outstanding method. The face
value of debentures outstanding at June 30, 1993, is $21,230,000.
(E) The debentures, issued June 1983, are redeemable at the Company's option,
as a whole or in part, at par value. Annual sinking fund payments
sufficient to retire $1,366,000 of principal outstanding are required on
each December 31.
The original principal amount of debentures issued ($27,313,000) was
adjusted to market value (effective interest rate of 16.5%) in October
1988, in accordance with the purchase method of accounting.
</TABLE>
F-10
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 3 : LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C>
The discount on these debentures is being amortized over the remaining life
of the debentures using the effective interest, bonds outstanding method.
The face value of debentures outstanding at June 30, 1993, is $26,037,000.
(F) The debentures, issued April 1986, are redeemable at the Company's option,
as a whole or in part, at 100% of the principal amount plus accrued
interest to the redemption date, on any date prior to maturity. Annual
sinking fund payments sufficient to retire $690,000 of principal
outstanding, are required beginning March 31, 1994.
The original principal amount of debentures issued ($23,000,000) was
adjusted to market value (effective interest rate of 15.0%) in October
1988, in accordance with the purchase method of accounting. The discount on
the debentures is being amortized over the remaining life of the debentures
using the effective interest, bonds outstanding method. The face value of
debentures outstanding at June 30, 1993, is $22,998,000.
(G) Purchase contract obligations arise from the purchase of operating
businesses and are collateralized by the equipment and real estate acquired
in the respective acquisitions. At June 30, 1992 and 1993, these
obligations carried interest rates from 7.5% to 10% and are due
periodically through 1999.
</TABLE>
Aggregate annual maturities and sinking fund requirements (in thousands) of
the long-term debt outstanding at June 30, 1993, are:
<TABLE>
<S> <C>
1994............................................................ $ 5,181
1995............................................................ 6,027
1996............................................................ 6,025
1997............................................................ 5,973
1998............................................................ 18,469
Thereafter...................................................... 37,574
---------
$ 79,249
---------
---------
</TABLE>
F-11
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 4 : INCOME TAXES
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED JUNE 30, 1991
Tax expense (benefit) before application of tax credits $ 241 $ (1,851)
Alternative minimum tax 359 (359)
----------- ---------
Tax expense (benefit) $ 600 $ (2,210)
----------- ---------
----------- ---------
YEAR ENDED JUNE 30, 1992
Tax expense (benefit) before application of tax credits $ 954 $ (664)
Alternative minimum tax 146 (146)
----------- ---------
Tax expense (benefit) $ 1,100 $ (810)
----------- ---------
----------- ---------
YEAR ENDED JUNE 30, 1993
Tax expense (benefit) before application of tax credits $ 3,548 $ (1,508)
Alternative minimum tax credit (648) 648
----------- ---------
Tax expense (benefit) $ 2,900 $ (860)
----------- ---------
----------- ---------
</TABLE>
Principal items making up the deferred income tax provisions are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and asset dispositions................................... $ (942) $ (1,332) $ (1,439)
Amortization of 1981 debenture costs.................................. (130) (190) (284)
Allowance for doubtful accounts....................................... (564) -- 23
Accrued expenses...................................................... (201) 936 147
Alternative minimum tax............................................... (359) (146) 648
Other................................................................. (14) (78) 45
--------- --------- ---------
$ (2,210) $ (810) $ (860)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reconciliation of the statutory federal income tax rate to the effective tax
rate as a percent of pretax financial income is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate................................................... (34.0)% (34.0)% 34.0%
State income taxes, net of federal income tax benefits............... 2.1 13.9 4.8
Amortization of excess of cost over fair value of net assets
acquired............................................................ 6.3 32.5 9.0
Unamortized excess of cost over fair value of assets sold............ -- 5.7 .9
Other tax accruals................................................... (.5) 6.4 (.9)
----------- ----------- ---
Effective tax rate............................................. (26.1)% 24.5 % 47.8%
----------- ----------- ---
----------- ----------- ---
</TABLE>
F-12
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 4 : INCOME TAXES (CONTINUED)
CHANGE IN ACCOUNTING PRINCIPLE
Effective July 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). As a result of the change, there was no effect on income tax expense and
the effect on current-noncurrent classification of deferred assets and
liabilities was not material.
SFAS 109 requires recognition of deferred tax liabilities and assets for the
difference between the financial statement and tax basis of assets and
liabilities. Under this new standard, a valuation allowance is established to
reduce deferred tax assets if it is more likely than not that a deferred tax
asset will not be realized.
Prior to July 1, 1993, deferred taxes were determined using the Statement of
Financial Accounting Standards No. 96.
Deferred tax balances at July 1, 1993, consisted of:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Deferred Tax Assets
Allowance for doubtful accounts............................................................... $ 1,016
Accounts receivable advance collections....................................................... 182
Self insurance liabilities and contingencies.................................................. 1,474
1981 debenture premium........................................................................ 403
--------------
3,075
--------------
Deferred Tax Liabilities
Accumulated depreciation...................................................................... (33,975)
1981 debenture discount....................................................................... (1,668)
--------------
(35,643)
--------------
Net Deferred Tax Liability.................................................................... $ (32,568)
--------------
--------------
</TABLE>
NOTE 5 : MERGER PROPOSAL COSTS
During the year ended June 30, 1992, the Company submitted a proposal to
acquire a large competitor in the propane business after incurring due diligence
costs including professional fees and out-of-pocket expenses in connection with
the proposed acquisition. The Company abandoned the proposal and expensed the
related $450,000 of costs in 1992.
NOTE 6 : RESTRUCTURING PROPOSAL COSTS
During the year ended June 30, 1993, the Company was considering proposals
to restructure the debt and equity of the Company. The Company abandoned the
proposal and expensed the related $223,000 of costs in 1993.
NOTE 7 : EMPLOYEE BENEFIT PLANS
The Company had a qualified profit-sharing plan which covered substantially
all full-time employees under which annual Company contributions were determined
by the Board of Directors. No contributions to the plan were made in the past
six fiscal years.
F-13
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 7 : EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company had an employee stock bonus plan which covered substantially all
full-time employees under which no contributions to the plan were made in fiscal
years ended June 30, 1992 and 1993. The annual Company contribution was $100,000
in the year ended June 30, 1991, as determined by the Board of Directors.
In April 1992 the Company's Board of Directors voted to terminate both
employee benefit plans effective June 30, 1992. Applications for a Determination
Upon Plan Termination were filed with the Internal Revenue Service (IRS) and
were approved in December 1992. The Company liquidated the plans' assets and
paid out the plans' funds to participants on March 31, 1993. The Company
purchased from the plans the Company's common stock for $1.3 million and Company
debentures for $.8 million.
NOTE 8 : SELF INSURANCE AND RELATED CONTINGENCIES
Under the Company's current insurance program, coverage for comprehensive
general liability and vehicle liability is obtained for catastrophic exposures
as well as those risks required to be insured by law or contract. The Company
retains a significant portion of certain expected losses related primarily to
comprehensive general liability and vehicle liability. Under these current
insurance programs, the Company self-insures the first $500,000 of coverage (per
incident). The Company obtains excess coverage from carriers for these programs
on claims-made basis policies. The excess coverage for comprehensive general
liability provides a loss limitation that limits the Company's aggregate of
self-insured losses to $1 million per policy period. The aggregate cost of
obtaining this excess coverage from carriers for the years ended June 30, 1991,
1992 and 1993, was $961,000, $1,222,000 and $1,441,000, respectively.
For the policy periods July 1, 1989 through December 30, 1989, and December
31, 1989 through June 30, 1991, the Company has incurred aggregate comprehensive
general liability losses in excess of the policies' $1 million loss limit.
Additional losses (except for punitive damages), if any, are insured by the
excess carrier and should not result in additional expense to the Company. As of
June 30, 1993, the Company has not exceeded the $1 million loss limit for the
comprehensive general liability policy periods July 1, 1991 through June 30,
1992, and July l, 1992 through June 30, 1993.
Provisions for self-insured losses are recorded based upon the Company's
estimates of the aggregate self-insured liability for claims incurred. A summary
of the self-insurance liability, general and vehicle liability (in thousands)
for the years ended June 30, 1991, 1992 and 1993, are:
<TABLE>
<CAPTION>
BEGINNING SELF
SELF SELF INSURED ENDING SELF
INSURANCE INSURANCE CLAIMS INSURANCE
LIABILITY EXPENSES PAID LIABILITY
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
June 30, 1991........... $ 2,070 $ 2,701 $ 2,533 $ 2,238
June 30, 1992........... $ 2,238 $ 1,764 $ 1,336 $ 2,666
June 30, 1993........... $ 2,666 $ 1,148 $ 1,480 $ 2,334
</TABLE>
The ending accrued liability for each period includes $500,000 for incurred
but not reported claims. The current portion of the ending liability of
$350,000, $1,103,000 and $460,000 at June 30, 1991, 1992 and 1993, respectively,
is included in accrued expenses in the consolidated balance sheets. The
noncurrent portion at the end of each period is included in accrued
self-insurance liability.
In November 1991 and February 1992, jury verdicts including compensatory and
punitive damages were returned in favor of numerous plaintiffs in claims filed
against the Company resulting from an explosion in
F-14
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 8 : SELF INSURANCE AND RELATED CONTINGENCIES (CONTINUED)
Crested Butte, Colorado, during 1990. All of the compensatory damage awards were
settled by the Company's insurance carrier in 1992. The Company paid $300,000 in
October 1992 to settle all the remaining punitive damage awards which were
accrued at June 30, 1991.
The Company and its subsidiaries are also defendants in various other
lawsuits related to the self-insurance program which are not expected to have a
material adverse effect on the Company's financial position or results of
operations.
During the years ended June 30, 1991, 1992 and 1993, the Company had
obtained workers' compensation coverage from carriers and state insurance pools
at annual costs of $810,000, $733,000 and $1,743,000, respectively. Effective
July 1, 1993, the Company changed its policy so that it will self-insure the
first $500,000 of workers' compensation coverage (per incident). The Company
will purchase excess coverage from carriers for workers' compensation claims in
excess of the self-insured coverage. Provisions for losses expected under this
program will be recorded based upon the Company's estimates of the aggregate
liability for claims incurred. The Company will provide letters of credit
aggregating approximately $2.3 million in connection with this program of which
$582,000 was already provided at June 30, 1993.
Interim accruals for the costs of excess coverages, general liability,
vehicle liability and workers' compensation are based on an estimate of the
related annual costs compared to the estimated total gallons of propane to be
sold during the same period. Presently, the resulting accrual rate of expense
recognizing these costs is 3.5 cents per gallon sold.
The Company currently self insures health benefits provided to the employees
of the Company and its subsidiaries. Provisions for losses expected under this
program are recorded based upon the Company's estimate of the aggregate
liability for claims incurred. The aggregate cost of providing the health
benefits was $1,151,000, $1,011,000 and $873,000 for the years ended June 30,
1991, 1992 and 1993, respectively.
NOTE 9 : LITIGATION CONTINGENCIES
The Company's federal income tax returns for the fiscal years 1979 and 1980
were audited by the Internal Revenue Service (IRS). Income tax due as a result
of these audits was initially assessed at approximately $2,030,000. Because of
subsequent reversals of the timing differences created by the IRS audits and net
operating loss carrybacks, the tax assessed was reduced to approximately
$640,000 at June 30, 1983, which was paid during the year ended June 30, 1989.
At June 30, 1983, the amount of compounded accrued interest on the unpaid
income tax assessments was approximately $850,000. The total unpaid assessments,
which included income taxes and accrued interest, continued to accrue additional
compounding interest at approximate average interest rates of 11% until June 30,
1989. When the income taxes were paid in 1989, the amount of interest accrued
was approximately $2,050,000. The Company continued to accrue compounding
interest during settlement discussions with the IRS until $2.4 million in
interest was paid during August 1992 to settle all outstanding federal tax
audits.
The last federal income tax return audited by the IRS was for fiscal year
1987. The Company has no federal income tax audits in process at June 30, 1993.
The Company and its subsidiaries are also defendants in various state income
tax audits and other business-related lawsuits which are not expected to have a
material adverse effect on the Company's financial position or results of
operations.
F-15
<PAGE>
EMPIRE GAS CORPORATION
(FORMERLY EMPIRE GAS ACQUISITION CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1991, 1992 AND 1993
AND FOR THE NINE MONTHS ENDED MARCH 31, 1993 AND 1994 (UNAUDITED)
NOTE 10 : STOCK OPTIONS
The table below summarizes transactions under the Company's stock option
plan:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
----------- ----------------
<S> <C> <C>
Balance June 30, 1990.................................... 495,737 $ .377 - $1.50
Exercised.............................................. (11,858) .377 - 1.50
-----------
Balance June 30, 1991.................................... 483,879 .377 - 1.50
Exercised.............................................. (15,950) .377 - 1.50
-----------
Balance June 30, 1992.................................... 467,929 .377 - 1.50
Exercised.............................................. (338,679) .377 - 1.50
-----------
Balance June 30, 1993.................................... 129,250 1.12 - 1.50
-----------
-----------
</TABLE>
NOTE 11 : SUBSEQUENT EVENT
The Company is considering an exchange of assets and liabilities of
approximately 133 retail subsidiaries plus other non-retail assets for
12,004,430 shares of Company Common Stock, at a fair value of $84,031,000. The
proposed shares of stock being redeemed are principally held by the Shareholder
described in Note 2. In connection with this transaction, the Company will issue
approximately $122 million of new debentures (with expected proceeds before
expenses of approximately $100 million) which will be used to retire
approximately $72 million of existing debt. The remaining net proceeds will be
used to finance an acquisition, repurchase common shares for cash and for
working capital.
NOTE 12 : ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------- --------------------
1991 1992 1993 1993 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
Mortgage obligations incurred on property and
equipment purchases.................................. $ 184 $ 102 -- -- $ 200
Short-term note payable issued for the repurchase of
debentures from the employee benefit plan............ -- -- -- $ 778 --
Short-term note payable issued for the purchase of
Company stock from the employee benefit plan......... -- -- -- $ 1,299 --
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid......................................... $ 11,880 $ 11,213 $ 12,185 $ 9,543 $ 6,043
Income taxes paid (net of refunds).................... $ 1,328 $ (441) $ 3,434 $ 2,384 $ 2,529
</TABLE>
F-16
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
PSNC Propane Corporation
Gastonia, North Carolina
We have audited the accompanying balance sheet of PSNC PROPANE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC.) as
of June 30, 1993, and the related statements of income, stockholder's equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSNC PROPANE CORPORATION as
of June 30, 1993, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
BAIRD, KURTZ & DOBSON
Springfield, Missouri
May 27, 1994
F-17
<PAGE>
PSNC PROPANE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1993
--------- MARCH 31,
1994
-----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 1,466 $ 1,094
Trade receivables, less allowance for doubtful accounts; June 30, 1993 -- $160, March
31, 1994 -- $184....................................................................... 512 1,180
Inventories............................................................................. 1,322 700
Prepaid expenses........................................................................ 147 119
Refundable income taxes................................................................. 100 --
Deferred income taxes (NOTE 3).......................................................... 434 434
--------- -----------
Total Current Assets.................................................................. 3,981 3,527
--------- -----------
PROPERTY AND EQUIPMENT, At Cost
Land and buildings...................................................................... 1,123 1,109
Storage and consumer service facilities................................................. 9,292 9,255
Transportation, office and other equipment.............................................. 2,354 2,419
--------- -----------
12,769 12,783
Less accumulated depreciation........................................................... 3,443 3,904
--------- -----------
9,326 8,879
--------- -----------
OTHER ASSETS.............................................................................. 432 296
--------- -----------
$ 13,739 $ 12,702
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable........................................................................ $ 570 $ 329
Accrued expenses........................................................................ 292 149
Income taxes payable.................................................................... -- 328
Due to related party (NOTE 2)........................................................... 375 462
Advances from related party (NOTE 2).................................................... 9,063 6,813
Cash deposit (NOTE 6)................................................................... -- 250
--------- -----------
Total Current Liabilities............................................................. 10,300 8,331
--------- -----------
DEFERRED INCOME TAXES (NOTE 3)............................................................ 2,188 2,289
--------- -----------
STOCKHOLDER'S EQUITY
Common stock; $1 par value; authorized 100,000 shares; issued and outstanding 500
shares................................................................................. 1 1
Retained earnings....................................................................... 1,250 2,081
--------- -----------
1,251 2,082
--------- -----------
$ 13,739 $ 12,702
--------- -----------
--------- -----------
</TABLE>
See Notes to Financial Statements
F-18
<PAGE>
PSNC PROPANE CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
1993
--------- NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1993 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE......................................................... $ 9,587 $ 8,515 $ 9,526
COST OF PRODUCTS SOLD..................................................... 4,643 4,136 4,663
--------- ------------ ------------
GROSS PROFIT.............................................................. 4,944 4,379 4,863
--------- ------------ ------------
OPERATING EXPENSES
Provision for doubtful accounts......................................... 30 24 34
General and administrative.............................................. 3,770 2,869 2,752
Rent expense to related party (NOTE 2).................................. 68 51 53
Depreciation and amortization........................................... 975 724 692
--------- ------------ ------------
4,843 3,668 3,531
--------- ------------ ------------
OPERATING INCOME.......................................................... 101 711 1,332
INTEREST INCOME........................................................... 61 46 27
--------- ------------ ------------
INCOME BEFORE INCOME TAXES................................................ 162 757 1,359
PROVISION FOR INCOME TAXES (NOTE 3)....................................... 63 301 528
--------- ------------ ------------
NET INCOME................................................................ $ 99 $ 456 $ 831
--------- ------------ ------------
--------- ------------ ------------
INCOME PER COMMON SHARE (NOTE 1).......................................... $ 198 $ 912 $ 1,662
--------- ------------ ------------
--------- ------------ ------------
</TABLE>
See Notes to Financial Statements
F-19
<PAGE>
PSNC PROPANE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDER'S
COMMON STOCK EARNINGS EQUITY
--------------- ----------------- -------------
<S> <C> <C> <C>
BALANCE,
JUNE 30, 1992................................................. $ 1 $ 1,151 $ 1,152
NET INCOME...................................................... 99 99
------ ------ ------
BALANCE,
JUNE 30, 1993................................................. 1 1,250 1,251
NET INCOME (UNAUDITED).......................................... 831 831
------ ------ ------
BALANCE,
MARCH 31, 1994 (UNAUDITED).................................... $ 1 $ 2,081 $ 2,082
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Financial Statements
F-20
<PAGE>
PSNC PROPANE CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30,
1993
----------- NINE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1993 MARCH 31, 1994
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................ $ 99 $ 456 $ 831
Items not requiring cash:
Depreciation........................................................ 778 586 568
Amortization........................................................ 197 138 124
Deferred income taxes............................................... 166 (192) 101
Loss on sale of assets.............................................. 26 -- 20
Changes in:
Trade receivables................................................... (60) (949) (668)
Inventories......................................................... (971) (92) 622
Accounts payable.................................................... 455 (8) (241)
Accrued expenses.................................................... 174 510 372
Prepaid expenses and other.......................................... (89) (10) 290
----------- ------ ------
Net cash provided by operating activities......................... 775 439 2,019
----------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets.......................................... 384 297 145
Purchases of property and equipment................................... (722) (554) (286)
----------- ------ ------
Net cash used in investing activities............................. (338) (257) (141)
----------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of related party advances.................................. (1,222) (1,001) (2,250)
----------- ------ ------
Net cash used in financing activities............................. (1,222) (1,001) (2,250)
----------- ------ ------
DECREASE IN CASH AND CASH EQUIVALENTS................................... (785) (819) (372)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 2,251 2,251 1,466
----------- ------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 1,466 $ 1,432 $ 1,094
----------- ------ ------
----------- ------ ------
</TABLE>
See Notes to Financial Statements
F-21
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1993 AND
NINE MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company's principal operations are the sale of LP gas at retail and
wholesale. Most of the Company's customers are owners of residential single or
multi-family dwellings who make periodic purchases on credit. Such customers are
located mainly in North Carolina and South Carolina with the larger number
concentrated in North Carolina. The Company is wholly-owned by Public Service
Company of North Carolina, Inc. (PSC).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly PSNC Propane
Corporation's financial position as of March 31, 1994, and the related results
of its operations and cash flows for the nine-month period ended March 31, 1994.
All such adjustments are of a normal recurring nature.
The results of operations for the nine-month period ended March 31, 1994,
are not necessarily indicative of the results to be expected for the full year
due to the seasonal nature of the Company's business.
REVENUE RECOGNITION
Sales and related cost of products sold are recognized upon delivery of the
product or service.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out method. At June 30, 1993, the inventories (in thousands)
were:
<TABLE>
<S> <C>
Gas and other petroleum products............................ $ 1,074
Gas distribution parts, appliances and equipment............ 248
---------
$ 1,322
---------
---------
</TABLE>
PROPERTY AND EQUIPMENT
Depreciation is provided on all property and equipment on the straight-line
method over estimated useful lives of 4 to 30 years.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that deferred tax asset will not be realized.
The Company files consolidated income tax returns with its parent, PSC.
Income taxes resulting from the consolidated returns are allocated to PSNC
Propane Corporation and subsidiaries based upon the separate-return method.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the
weighted average number of common shares and, except where anti-dilutive, common
share equivalents outstanding, if any. The weighted average number of common
shares outstanding used in the computation of earnings per share was 500 for the
fiscal year ended June 30, 1993.
F-22
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1993 AND
NINE MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AMORTIZATION
Noncompete agreements, included in other assets, are amortized on a
straight-line basis over the life of the agreement, which is generally 60
months.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At June 30, 1993, cash equivalents
consisted primarily of a repuchase account.
NOTE 2: RELATED PARTY TRANSACTIONS
The Company rents three of its offices under operating leases with PSC. The
leases required aggregate monthly rent payments of $5,900. During the year ended
June 30, 1993, the Company paid direct rents of $67,880.
At June 30, 1993, the Company had outstanding amounts due to PSC of $375,000
for Company payroll and other expenses paid by the parent which are generally
repaid within 60 days. The Company also had at June 30, 1993, outstanding
advances of $9,063,000 which were used to finance acquisitions and working
capital needs of the Company. Payment of advances are subject to a subordination
agreement for the holders of certain PSC debentures.
PSC provides payroll processing services to the Company and is currently
being reimbursed $4 per employee per month for these services. Included in 1993
PSC payroll charges are $26,000 allocated to the Company for payroll paid to PSC
administrative staff.
NOTE 3: INCOME TAXES
The provision for income taxes includes these components:
<TABLE>
<S> <C>
Taxes currently refundable............................... $(103,000)
Deferred income taxes.................................... 166,000
---------
$ 63,000
---------
---------
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheet were:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts...................... $ 65,000
Inventory overhead costs capitalized for tax
purposes............................................ 151,000
Pension costs paid deductible in the future.......... 218,000
------------
434,000
Deferred tax liabilities:
Accumulated depreciation............................. (2,188,000)
------------
Net deferred tax liability......................... $ (1,754,000)
------------
------------
</TABLE>
The above net deferred tax liability is presented on the balance sheet as
follows:
<TABLE>
<S> <C>
Deferred tax asset -- current.......................... $ 434,000
Deferred tax liability -- long term.................... (2,188,000)
------------
Net deferred tax liability......................... $ (1,754,000)
------------
------------
</TABLE>
F-23
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1993 AND
NINE MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
NOTE 3: INCOME TAXES (CONTINUED)
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<S> <C>
Computed at the statutory rate 34%......................... $ 55,000
Increase resulting from:
Nondeductible travel costs............................... 1,000
State income taxes -- net of federal tax benefit......... 7,000
---------
Actual tax provision....................................... $ 63,000
---------
---------
</TABLE>
NOTE 4: PENSION AND 401(K) SAVINGS PLAN
PENSION PLAN
The Company participates in the noncontributory defined benefit pension plan
provided by PSC. The plan covers all employees of the Company who meet the
eligibility requirements. To be eligible, an employee must be 21 years of age
and have completed one year of continuous service. The plan provides benefits
based upon the career earnings of each participant, subject to certain
reductions if the employee retires before reaching age 65.
401(K) SAVINGS PLAN
The Company participates in the Savings Plan provided by PSC. The Plan
covers all employees of the Company who meet certain eligibility requirements.
To be eligible, an employee must be 21 years of age and have one year of
continuous service. The Company matches a portion of employee contributions made
to the Plan, subject to certain limitations.
Net pension and 401(k) savings plan expense for the Company's employees
participating in the plans, as allocated by PSC to the Company, was $164,000 for
the year ended June 30, 1993.
NOTE 5: SELF-INSURANCE AND LITIGATION CONTINGENCIES
Under the Company's current insurance program, coverage for comprehensive
general liability, workers' compensation and vehicle liability is obtained for
catastrophic exposures as well as those risks required to be insured by law or
contract. The Company retains a significant portion of certain expected losses
related primarily to comprehensive general liability, workers' compensation and
vehicle liability. Under these current insurance programs, the Company
self-insures the first $200,000 of coverage (per incident). The Company obtains
excess coverage from carriers for these programs on claims-made basis policies.
The aggregate cost of obtaining this excess coverage as a subsidiary under PSC's
insurance policies for the year ended June 30, 1993, was approximately $51,000.
The Company is a defendant in various lawsuits related to the self-insurance
program and other business-related lawsuits which are not expected to have a
material adverse effect on the Company's financial position or results of
operations.
The last PSC consolidated federal income tax audit, which included the
Company as a subsidiary, was for 1991. There are no federal income tax audits in
process at June 30, 1993.
NOTE 6: SUBSEQUENT EVENT
SALE OF COMPANY
In January 1994 the Company entered into an agreement with Empire Gas
Corporation (EGC) to sell the Company's entire operations to EGC. The agreement
provides for the sale of all property and equipment for $12 million plus the
respective values for inventory and accounts receivable at closing. EGC paid a
F-24
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED JUNE 30, 1993 AND
NINE MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
NOTE 6: SUBSEQUENT EVENT (CONTINUED)
nonrefundable cash deposit of $250,000 in February 1994 under the agreement. In
May 1994, EGC obtained an extension of the closing date which can be no later
than June 30, 1994. For this extension, EGC paid an additional nonrefundable
cash deposit of $250,000.
NOTE 7: ADDITIONAL CASH FLOW INFORMATION
ADDITIONAL CASH PAYMENT INFORMATION
<TABLE>
<CAPTION>
JUNE 30,
1993
----------- MARCH 31,
1994
---------------
(UNAUDITED)
<S> <C> <C>
Income taxes paid (net of refunds).................... $ (222,000) $ --
</TABLE>
F-25
<PAGE>
UNAUDITED PRO FORMA INCOME STATEMENTS OF PSNC PROPANE CORPORATION (PSNC)
FOR THE YEAR ENDED JUNE 30, 1993, NINE MONTHS ENDED
MARCH 31, 1994, AND TWELVE MONTHS ENDED MARCH 31, 1994
The following unaudited income statements show the results of PSNC and the
pro forma effects of purchase accounting adjustments in connection with the
acquisition of PSNC by EGC as if the acquisition had been consummated as of July
1, 1992. The unaudited pro forma results are not necessarily indicative of the
actual results that would have occurred had the acquisition been consummated as
of July 1, 1992, or of the future operations of the Company.
The pro forma statements of operations reflect reductions in salaries and
other expenses related to the corporate headquarters of PSNC. EGC intends to
eliminate all employees of the corporate headquarters because it currently is
providing these services to its other subsidiaries through its existing home
office. In addition to eliminating salaries and other expenses related to the
corporate headquarters, EGC intends to eliminate certain guaranteed overtime
policies, courier services, answering services, dedicated computer lines,
vehicle expenses and advertising costs which will not be necessary to operate
PSNC as a subsidiary of EGC. No adjustments were made for any increases in cost
required by the addition of PSNC.
P-1
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
-------------------------------------
PURCHASE
PSNC ACCOUNTING
PROPANE ADJUSTMENTS PRO FORMA
CORPORATION ------------- ---------
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE.......................................................... $ 9,587 $ $ 9,587
COST OF PRODUCT SOLD....................................................... 4,643 4,643
----------- ---------
GROSS PROFIT............................................................... 4,944 4,944
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.......................................... 30 30
General and administrative............................................... 3,838 (1,219)(1) 2,619
Depreciation and amortization............................................ 975 83(2) 1,058
----------- ------------- ---------
4,843 (1,136) 3,707
----------- ------------- ---------
OPERATING INCOME........................................................... 101 1,136 1,237
----------- ------------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense)................................................ 61 (1,125)(3) (1,064)
Amortization of debt discount and expense................................ -- (423)(4) (423)
----------- ------------- ---------
61 (1,548) (1,487)
----------- ------------- ---------
INCOME (LOSS) BEFORE INCOME TAXES.......................................... 162 (412) (250)
PROVISION (CREDIT) FOR INCOME TAXES........................................ 63 (163)(5) (100)
----------- ------------- ---------
NET INCOME (LOSS).......................................................... $ 99 $ (249) $ (150)
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
P-2
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1994
-------------------------------------
PURCHASE
PSNC ACCOUNTING
PROPANE ADJUSTMENTS PRO FORMA
CORPORATION ------------- ---------
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE.......................................................... $ 9,526 $ $ 9,526
COST OF PRODUCT SOLD....................................................... 4,663 4,663
----------- ---------
GROSS PROFIT............................................................... 4,863 4,863
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts.......................................... 34 34
General and administrative............................................... 2,805 (911) 1,894
Depreciation and amortization............................................ 692 86 778
----------- ------------- ---------
3,531 (825) 2,706
----------- ------------- ---------
OPERATING INCOME........................................................... 1,332 825 2,157
----------- ------------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense)................................................ 27 (828) (801)
Amortization of debt discount and expense................................ -- (353) (353)
----------- ------------- ---------
27 (1,181) (1,154)
----------- ------------- ---------
INCOME BEFORE INCOME TAXES................................................. 1,359 (356) 1,003
PROVISION FOR INCOME TAXES................................................. 528 (138) 390
----------- ------------- ---------
NET INCOME................................................................. $ 831 $ (218) $ 613
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
P-3
<PAGE>
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1994
-------------------------------------
PURCHASE
ACCOUNTING
PSNC ADJUSTMENTS PRO FORMA
PROPANE ------------- ---------
CORPORATION
-----------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING REVENUE........................................................ $ 10,605 $ $ 10,605
COST OF PRODUCT SOLD..................................................... 5,164 5,164
----------- ---------
GROSS PROFIT............................................................. 5,441 5,441
----------- ---------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts........................................ 40 40
General and administrative............................................. 3,685 (1,194) 2,491
Depreciation and amortization.......................................... 933 106 1,039
----------- ------------- ---------
4,658 (1,088) 3,570
----------- ------------- ---------
OPERATING INCOME......................................................... 783 1,088 1,871
----------- ------------- ---------
OTHER INCOME (EXPENSE)
Interest income (expense).............................................. 42 (1,102) (1,060)
Amortization of debt discount and expense.............................. -- (462) (462)
----------- ------------- ---------
42 (1,564) (1,522)
----------- ------------- ---------
INCOME BEFORE INCOME TAXES............................................... 825 (476) 349
PROVISION FOR INCOME TAXES............................................... 291 (161) 130
----------- ------------- ---------
NET INCOME............................................................... $ 534 $ (315) $ 219
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
P-4
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993,
THE NINE MONTHS ENDED MARCH 31, 1994 AND
THE TWELVE MONTHS ENDED MARCH 31, 1994
(1) To record the effect of (a) elimination of salaries of executive and
administrative personnel and related costs, (b) elimination of auto and
travel expenses related to executive and administrative personnel being
terminated, (c) elimination of newspaper, radio, and magazine advertising,
(d) elimination of dedicated computer telephone lines and cellular
telephones, (e) elimination of temporary service personnel and overtime
wages, (f) elimination of payroll taxes related to salaries eliminated and
(g) elimination of courier service, credit bureau fees, answering service
expense and office supplies.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1993 MARCH 31, 1994 MARCH 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
Executive and administrative salaries............. $ 695,000 $ 521,000 $ 694,000
Auto and travel expenses.......................... 29,000 18,000 25,000
Advertising expenses.............................. 18,000 7,000 12,000
Telephone expenses................................ 56,000 39,000 52,000
Temporary personnel and overtime wages............ 241,000 213,000 254,000
Payroll taxes..................................... 67,000 51,000 67,000
Other expenses.................................... 113,000 62,000 90,000
------------- -------- -----------------
Total General and Administrative Expense
Reduction...................................... $ 1,219,000 $ 911,000 $ 1,194,000
------------- -------- -----------------
------------- -------- -----------------
</TABLE>
(2) To (a) record additional depreciation based upon the purchase price of
PSNC's property and equipment, (b) record amortization on the new
non-compete agreement being amortized over five years and (c) eliminate
amortization on pre-acquisition non-compete agreements.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1993 MARCH 31, 1994 MARCH 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
Depreciation...................................... $ 180,000 $ 135,000 $ 180,000
New non-compete amortization...................... 100,000 75,000 100,000
Old non-compete amortization...................... (197,000) (124,000) (174,000)
------------- ----------------- -----------------
$ 83,000 $ 86,000 $ 106,000
------------- ----------------- -----------------
------------- ----------------- -----------------
</TABLE>
(3) To (a) record additional interest expense assuming interest paid at 7% on
face value $14,706,000 of new Senior Secured Note borrowings, (b) recognize
additional interest expense on the revolving credit facility to reflect the
purchase of PSNC's working capital assets and the effect of operational
changes and (c) eliminate interest income earned on excess PSNC cash.
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1993 MARCH 31, 1994 MARCH 31, 1994
------------- ----------------- -----------------
<S> <C> <C> <C>
Senior Notes, due 2004............................ $ 1,030,000 $ 773,000 $ 1,030,000
Revolving Credit Facility......................... 34,000 27,000 29,000
Interest Income eliminated........................ 61,000 28,000 43,000
------------- -------- -----------------
$ 1,125,000 $ 828,000 $ 1,102,000
------------- -------- -----------------
------------- -------- -----------------
</TABLE>
P-5
<PAGE>
PSNC PROPANE CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993,
THE NINE MONTHS ENDED MARCH 31, 1994 AND
THE TWELVE MONTHS ENDED MARCH 31, 1994
(4) To recognize amortization of the original discount on face value $14,706,000
of new Senior Secured Notes to bring the effective rate of the new debt to
12% using the effective interest method.
<TABLE>
<S> <C>
Year Ended June 30, 1993.......................................... $ 423,000
Nine Months Ended March 31, 1994.................................. $ 353,000
Twelve Months Ended March 31, 1994................................ $ 462,000
</TABLE>
(5) To record the estimated income tax reduction, computed at an effective rate
of 39%, associated with the additional deductible expense as a result of the
acquired operations.
P-6
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET OF PSNC PROPANE CORPORATION (PSNC)
AS OF MARCH 31, 1994
The following unaudited balance sheet shows the balance sheet of PSNC and
the pro forma effects of purchase accounting adjustments in connection with the
acquisition of PSNC by EGC as if the acquisition had been completed on March 31,
1994.
PSNC PROPANE CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------------------------------
EFFECTS OF
PSNC PSNC PSNC
PROPANE ADJUSTMENTS ACQUISITION
CORPORATION --------------- -----------
-----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................ $ 1,094 $ (1,094)(1) $
Trade receivables.................................................... 1,180 1,180
Inventories.......................................................... 700 700
Prepaid expenses..................................................... 119 (119)(1)
Deferred Income taxes................................................ 434 (434)(5)
----------- ------- -----------
Total current assets............................................... 3,527 (1,647) 1,880
----------- ------- -----------
PROPERTY AND EQUIPMENT,
At Cost, net of accumulated depreciation............................. 8,879 3,121(2) 12,000
----------- ------- -----------
OTHER ASSETS........................................................... 296 204(3) 500
----------- ------- -----------
TOTAL ASSETS......................................................... $ 12,702 $ 1,678 $ 14,380
----------- ------- -----------
----------- ------- -----------
CURRENT LIABILITIES
Current maturities of long-term debt................................. $ $ 100(4) $ 100
Accounts payable and accrued expenses................................ 1,056 (806)(1) 250
Advances from and due to related party............................... 7,275 (7,275)(4)
----------- ------- -----------
8,331 (7,981) 350
----------- ------- -----------
LONG-TERM DEBT......................................................... 14,030(4) 14,030
------- -----------
DEFERRED INCOME TAXES.................................................. 2,289 (2,289)(5)
----------- -------
STOCKHOLDER'S EQUITY
Common stock......................................................... 1 (1)(5)
Retained earnings.................................................... 2,081 (2,081)(5)
----------- -------
2,082 (2,082)
----------- ------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................... $ 12,702 $ 1,678 $ 14,380
----------- ------- -----------
----------- ------- -----------
<FN>
- ---------
(1) To eliminate working capital assets and liabilities not acquired under the
acquisition agreement.
(2) To adjust the property and equipment to the acquisition price which is the
fair value.
(3) To (a) eliminate pre-acquisition deferred charges, intangibles and
non-compete agreements and (b) record a $500,000 non-compete agreement
issued as part of the PSNC acquisition by EGC.
(4) To (a) eliminate advances from and amounts due to PSNC's parent of
$7,275,000 not assumed under the acquisition agreement, (b) record the
estimated net proceeds ($12,000,000) of Senior Secured Notes issued to
acquire the fixed assets, (c) record a revolver advance of $1,630,000 to
purchase the accounts receivable and inventory under the acquisition
agreement (net of the $250,000 deposit made under the agreement) and (d)
record a liability to PSNC's parent of $500,000 for the non-compete
agreement issued.
(5) To eliminate pre-acquisition equity and deferred income taxes.
</TABLE>
P-7
<PAGE>
EMPIRE GAS CORPORATION
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the Offering described in this Registration Statement. All of
such amounts (except the Commission Registration Fee and the NASD Filing Fee)
are estimates.
<TABLE>
<S> <C>
Commission Registration Fee............................................... $ 34,907
NASD Filing Fee........................................................... 10,500
Blue Sky Fees and Expenses................................................ 25,500
Printing and Engraving Costs.............................................. 75,000
Legal Fees and Expenses................................................... 300,000
Accounting Fees and Expenses.............................................. 350,000
Trustee's Fees and Expenses............................................... 25,000
Miscellaneous............................................................. 125,000
---------
Total..................................................................... $ 945,907
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article 9 of the Company's Articles of Incorporation, included as Exhibit
3.1 to this Registration Statement to this Registration Statement, provide for
the indemnification of the directors, officers and employees of the Company. The
effect of these provisions is to indemnify the directors, officers and employees
for all expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, in which they are involved by reason
of their affiliation with the Company if they acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action, with no reasonable cause to
believe their actions unlawful, to the full extent allowed by The General and
Business Corporation Law of Missouri; except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person's conduct
shall have been adjudged to be knowingly fraudulent or deliberately dishonest or
willful misconduct.
Article VII, Section 7, of the Company's By-Laws, included as Exhibit 3.2 to
this Registration Statement, provides that the Company may purchase liability
insurance that indemnifies directors, officers, employees and agents against any
liability and any expense asserted against or incurred by them in their capacity
as such and also may establish a separate fund alone or with other companies to
provide and maintain such insurance. At the present time, the Company has not
purchased any such insurance, or established or contributed to any such fund.
Section 351.355 of The General and Business Corporation Law of Missouri
requires a corporation to indemnify a director, officer, employee, or agent of
the corporation who has been successful on the merits or otherwise in defense of
any action for all expenses, including attorneys' fees, actually and reasonably
incurred in connection with the action. The Section also permits indemnification
for expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with actions, suits or
proceedings in which a corporate director, officer, employee, or agent, if he is
a party by reason of the fact that he is or was such a director, officer,
employee, or agent, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with actions by
or in the right of the corporation is permitted only for expenses, including
attorneys' fees, and amounts paid in settlement actually and reasonably incurred
by him in connection with the defense or settlement of the action or suit and
only if the officer, director, or
II-1
<PAGE>
employee acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and is not adjudged liable
for negligence or misconduct in the performance of his duty to the corporation,
unless the court otherwise provides.
The employment agreement between the Company and Robert W. Plaster provides
that Mr. Plaster, his heirs, executors and administrators shall be indemnified
by the Company against fines, judgments, amounts paid in settlement and
reasonable expenses, including attorneys' fees, incurred by him in connection
with any pending, threatened or completed action, suit or proceeding against him
arising by reason of his being or having been a director or officer of the
Company, any parent company, or any subsidiary, except in relation to any matter
in which his conduct has been finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct. The obligation of the
Company to provide indemnification to Mr. Plaster shall continue after
termination of the employment agreement with respect to any matter against Mr.
Plaster arising by reason of his having been a director or officer of the
Company or of any parent or subsidiary of the Company prior to such termination,
or by reason of any action taken by him as such director or officer prior to the
date of such termination.
The Company has entered into agreements with directors, persons named as
becoming directors, and certain of its officers whereby the Company shall
indemnify such persons for all damages, judgments, settlements and costs, cost
of investigation, and cost of defense of legal actions (other than fines or
other obligations which it is prohibited by applicable law from paying for any
reason), because of any claim or claims made against such persons of any act or
omission or neglect or breach of duty including any actual or alleged error or
misstatement committed or suffered while acting in the capacity and solely
because of such capacity as officer and director.
Reference is made to Section 7 of the form of Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for additional indemnification
provisions.
See Item 17 for the Registrants' undertakings with respect to
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years that were not registered under the Securities
Act.
The purchases described below were made upon exercise of options issued
pursuant to the Company's Incentive Stock Option Plan.
On July 16, 1991, Mr. Alan Simer, an employee of the Company, purchased
2,010 shares of the Company's common stock, $.001 par value, at $.377 per share
and 8,000 shares at $1.50 per share for an aggregate purchase price of $12,758.
On August 20, 1991, Mr. Larry Bisig, an employee of the Company, purchased
8,000 shares of the Company's common stock at $1.50 per share and 7,950 shares
at $.377 per share, for an aggregate purchase price of $14,997.
On October 29, 1992, Joseph L. Schaefer, an executive officer of the
Company, purchased 39,750 shares of the Company's common stock at $.377 per
share, 20,250 shares at $1.125 per share, and 20,000 shares at $1.50 per share,
for an aggregate purchase price of $67,767.
On October 30, 1992, Mr. Stephen R. Plaster, a director and executive
officer of the Company, purchased 13,500 shares of the Company's common stock,
$.001 par value, at $1.125 per share and 6,000 shares at $1.50 per share, for an
aggregate purchase price of $24,188.
On November 27, 1992, Mr. Dwight Gilpin, an officer of the Company,
purchased 26,500 shares of the Company's common stock at $.377 per share, 20,000
shares at $1.50 per share, and 3,500 shares at $1.125 per share, for an
aggregate purchase price of $43,929.
II-2
<PAGE>
On December 10, 1992, Ms. Gwendolyn B. VanDerhoef, an officer of the
Company, purchased 26,500 shares of the Company's common stock at $.377 per
share, 8,000 shares at $1.50 per share, and 5,500 shares at $1.125 per share,
for an aggregate purchase price of $28,178.
On December 21, 1992, Mr. Robert L. Wooldridge, an executive officer of the
Company, purchased 72,467 shares of the Company's common stock at $.377 per
share, for an aggregate purchase price of $27,320.
On December 31, 1992, Floyd Waterman, an officer of the Company, purchased
5,000 shares of the Company's common stock at $1.125 per share, for an aggregate
purchase price of $5,625, and Earl L. Noe, an executive officer of the Company,
purchased 26,500 shares of the Company's common stock at $.377 per share for an
aggregate purchase price of $9,991.
On February 17, 1993, Mr. Paul Stahlman, an officer of the Company,
purchased 18,712 shares of the Company's common stock at $.377 per share, for an
aggregate purchase price of $7,054.
On April 15, 1993, Mr. Charles Jones, an officer of the Company, purchased
13,250 shares of the Company's common stock at $.377 per share, for an aggregate
purchase price of $4,995.
On June 18, 1993, Mr. James E. Acreman, an executive officer of the Company,
purchased 13,250 shares of the Company's common stock at $.377 per share, for an
aggregate purchase price of $4,995.
These transactions were completed without registration under the Securities
Act in reliance on Section 4(2) of the Act. In relying on this exemption, the
Company relied on representations from these purchasers that each purchaser was
an accredited investor, that each was acquiring the shares for investment
purposes, and that each had received adequate opportunity to obtain information
regarding the Company. The shares issued contained a legend restricting transfer
of the shares absent registration under the Securities Act or the availability
of an exemption therefrom.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <S>
1.1+ Form of Underwriting Agreement
2.1 Stock Redemption Agreement, dated May 7, 1994, between the Company, EGOC,
Energy, Robert W. Plaster, Paul S. Lindsey, Jr., Stephen R. Plaster, Joseph L.
Schaefer, the Robert W. Plaster Trust dated December 13, 1988, the Stephen
Robert Plaster Trust dated October 30, 1988, the Stephen Robert Plaster Trust
dated July 30, 1984, Empire Ranch, Inc., Empire Airlines, Inc., and Evergreen
National Corporation (incorporated herein by reference to Exhibit 10.1 to the
Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1994)
2.2+ Stock Redemption Agreement, dated May 7, 1994, between the Company, the Dolly
Francine Plaster Trust dated July 30, 1984, the Tammy Jane Plaster Trust dated
July 30, 1984, the Cheryl Jean Plaster Schaefer Trust dated October 30, 1988,
and the Cheryl Jean Plaster Schaefer Trust dated July 30, 1984
2.3+ Form of Merger Agreement by and between the Company and EGOC
3.1+ Articles of Incorporation of the Company
3.2+ Certificate of Amendment of the Certificate of Incorporation of the Company,
dated April 26, 1994, relating to the change of name
3.3+ By-laws of the Company
3.4 Form of Articles of Incorporation and By-laws of the Subsidiary Guarantors
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <S>
4.1 Indenture between Empire Gas Corporation and J. Henry Schroder Bank & Trust
Company, Trustee, relating to the 9% Subordinated Debentures due December 31,
2007 and the form of 9% Subordinated Debentures due December 31, 2007
(incorporated herein by reference to Exhibit 4(a) to the Empire Incorporated
and Exco Acquisition Corp. (Commission File No. 2-83683) Registration
Statement on Form S-14 filed with the Commission on May 11, 1983; and First
Supplemental Indenture thereto between Empire Gas Corporation (now known as
EGOC) and IBJ Schroder Bank & Trust Co., dated as of December 13, 1989
(incorporated herein by reference to Exhibit 4(c) to Empire Gas Corporation
(now known as EGOC) Registration Statement on Form 8-B filed with the
Commission on February 1, 1990)
4.2 Form of Proposed Indenture between the Company and Shawmut Bank Connecticut,
National Association, Trustee, relating to the % Senior Secured Notes due
2004, including the form of % Senior Secured Notes due 2004, the form of the
Guarantee and the form of the Pledge Agreement
4.3+ Form of Proposed Warrant Agreement
5.1 Opinion of Wilmer, Cutler & Pickering as to the validity of the issuance of the
Units and the Common Stock issuable upon exercise of the Warrants
8.1 Opinion of Wilmer, Cutler & Pickering with respect to certain tax matters
10.1+ Shareholder Agreement, dated as of October 28, 1988, by and among Empire Gas
Acquistion Corporation and Robert W. Plaster Trust, Robert W. Plaster,
Trustee; Paul S. Lindsey, Jr.; Stephen R. Plaster Trust, Lynn C. Hoover,
Trustee; Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee; Robert L.
Wooldridge; Gwendolyn B. VanDerhoef; Dwight Gilpin; Luther Henry Gill; Valeria
Schall; Floyd J. Waterman; Larry W. Bisig; Larry Weis; Robert Heagerty; Murl
J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St. John; James E.
Acreman; Carolyn S. Rein; Dan Weatherly; Nina Irene Craighead; Joyce Sue
Kinnett; Edwin H. McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell
Stamper; and Empire Gas Corporation Employee Stock Ownership Plan, Robert W.
Plaster, Trustee
10.2+ 1989 Incentive Stock Option Plan
10.3 Form of Credit Agreement between the Company and Continental Bank, as agent
10.4 Lease Agreement, dated May 7, 1994, between the Company and Evergreen National
Corporation (incorporated herein by reference to Exhibit F of Exhibit 10.1 to
the Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1994)
10.5 Form of Services Agreement, dated May 7, 1994, between the Company and Empire
Service Corporation (incorporated herein by reference to Exhibit G of Exhibit
10.1 to the Empire Gas Operating Corporation (Commission File No. 1-6537-3)
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994)
10.6 Non-Competition Agreement, dated May 7, 1994, by and among the Company, Energy,
Robert W. Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S. Lindsey,
Jr. (incorporated herein by reference to Exhibit E of Exhibit 10.1 to the
Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1994)
10.7+ Form of Employment Agreement between the Company and Paul S. Lindsey, Jr.
10.8+ Form of Asset Purchase Agreement by and among the Company, Empiregas, Inc. of
North Carolina, PSNC Propane Corporation, and Public Service Company of North
Carolina, Incorporated
10.9+ Form of Indemnification Agreement between the Company and Douglas A. Brown
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <S>
10.10+ Form of Tax Indemnification Agreement between the Company and Energy
10.11+ Supply Contract No. 1, dated September 13, 1991, between EGOC and Phillips 66
Company
10.12+ Supply Contract No. 2, dated September 13, 1991, between EGOC and Phillips 66
Company; and Amendment thereto between EGOC and Phillips 66 Company, dated
October 15, 1992
10.13+ Supply Contract, dated as of November 4, 1991, between EGOC and Conoco, Inc.
10.14+ Supply Contract, dated as of January 21, 1992, between EGOC and Conoco Inc.
10.15+ Supply Contract, dated as of January 24, 1992, between EGOC and Conoco, Inc.
10.16+ Supply Contract No. 1, dated November 20, 1986, between EGOC and Warren
Petroleum Company
10.17+ Supply Contract No. 2, dated November 20, 1986, between EGOC and Warren
Petroleum Company
10.18+ Supply Contract, dated November 22, 1986, between EGOC and Warren Petroleum
Company
10.19+ Supply Contract, dated November 24, 1986, between EGOC and Warren Petroleum
Company
10.20+ Supply Contract No. 1, dated June 1, 1993, between EGOC and Warren Petroleum
Company
10.21+ Supply Contract No. 2, dated June 1, 1993, between EGOC and Warren Petroleum
Company
12.1+ Statement regarding computation of ratio of earnings to fixed charges
21.1+ Subsidiaries of the Company
23.1+ Consent of Baird, Kurtz & Dobson, dated April 29, 1994
23.2 Consent of Wilmer, Cutler & Pickering, included in the opinions filed as
Exhibits 5.1 and 8.1
23.3+ Consent of Douglas A. Brown to being named as a director
23.4+ Second Consent of Baird, Kurtz & Dobson, dated June 3, 1994
23.5+ Consent of Valuation Research Corporation
23.6+ Consent of Bruce M. Withers, Jr. to being named as a director
23.7+ Consent of Jim J. Shoemake to being named as a director
23.8+ Third Consent of Baird, Kurtz & Dobson, dated June 9, 1994
23.9+ Fourth Consent of Baird, Kurtz & Dobson, dated June 17, 1994
24.1+ Power of Attorney, located on signature page
25.1+ Statement of Eligibility and Qualification of Trustee on Form T-1
25.2+ Report of Condition and Income of Shawmut Bank Connecticut, N.A., for the
period ending March 31, 1994
99.1+ Form of opinion of Valuation Research Corporation re solvency
<FN>
- ---------
+ Previously filed.
* To be supplied by amendment.
</TABLE>
II-5
<PAGE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- ---------- -----------------------------------------------------------------
<C> <S>
V. Property and Equipment
VI. Accumulated Depreciation
VIII. Valuation and Qualifying Accounts
X. Supplementary Income Statement Information
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrants hereby undertake as follows:
(1) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 14 hereof, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by the director, officer, or controlling person thereof in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1993;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(5) For the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 4 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the District of
Columbia on the 21st day of June, 1994.
EMPIRE GAS CORPORATION
By: /s/ Robert W. Plaster
--------------------------------------
CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
THE SUBSIDIARY GUARANTORS LISTED
BELOW
By: /s/ Paul S. Lindsey, Jr.
--------------------------------------
PRESIDENT OF EACH GUARANTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
Chief Executive Officer and Chairman of
/s/Robert W. Plaster* the Board of Empire Gas Corporation June 21, 1994
Robert W. Plaster (principal executive officer)
Vice President/Controller of Empire Gas
/s/Willis D. Green* Corporation (principal financial and June 21, 1994
Willis D. Green accounting officer)
/s/Paul S. Lindsey, Jr.
Paul S. Lindsey, Jr. Director of Empire Gas Corporation June 21, 1994
/s/Stephen R. Plaster*
Stephen R. Plaster Director of Empire Gas Corporation June 21, 1994
/s/Paul S. Lindsey, Jr. Principal Executive Officer of each of
Paul S. Lindsey, Jr. the Subsidiary Guarantors June 21, 1994
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
/s/Valeria Schall* Director of each of the Subsidiary
Valeria Schall Guarantors June 21, 1994
/s/Earl L. Noe* Director of each of the Subsidiary
Earl L. Noe Guarantors June 21, 1994
*By: /s/Paul S. Lindsey, Jr.
Paul S. Lindsey, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
GUARANTORS
EMPIRE TANK LEASING CORPORATION
EMPIREGAS EQUIPMENT CORPORATION
EMPIRE UNDERGROUND STORAGE, INC.
EMPIRE INDUSTRIAL SALES CORPORATION
UTILITY COLLECTION CORPORATION
EMPIREGAS TRANSPORTS, INC. (MISSOURI)
EMPIRE AVIATION CORPORATION
EMPIREGAS TRANSPORTS, INC. - OR
EMPIREGAS INC. OF CLINTON (MISSOURI)
EMPIREGAS INC. OF KANSAS CITY
EMPIREGAS INC. OF ALBANY
EMPIREGAS INC. OF AIKEN
EMPIREGAS OF ARMA, INC.
EMPIREGAS INC. OF ARNAULDVILLE
EMPIREGAS INC. OF AUBURN
EMPIREGAS INC. OF BIG RAPIDS
EMPIREGAS INC. OF BOLIVAR
EMPIREGAS INC. OF BOISE
EMPIREGAS INC. OF BOULDER
EMPIREGAS INC. OF BOWLING GREEN
EMPIREGAS INC. OF BRANDON
EMPIREGAS INC. OF BREMERTON
EMPIREGAS OF BRISTOW, INC.
EMPIREGAS INC. OF BUFFALO
EMPIREGAS INC. OF ADRIAN
EMPIREGAS INC. OF CAMDENTON
EMPIREGAS INC. OF CANON CITY
EMPIREGAS INC. OF CANTON
EMPIREGAS INC. OF CARTHAGE
EMPIREGAS INC. OF CASTLE ROCK
EMPIREGAS INC. OF CENTERVILLE
EMPIREGAS INC. OF CHARLOTTE
EMPIREGAS INC. OF CHASSEL
EMPIREGAS INC. OF CHEHALIS
EMPIREGAS INC. OF CLINTON, ILLINOIS
EMPIREGAS OF COLCORD, INC.
EMPIREGAS INC. OF COLE CAMP
EMPIREGAS INC. OF COLEMAN
EMPIREGAS INC. OF COLORADO SPRINGS
EMPIREGAS INC. OF COQUILLE
EMPIREGAS INC. OF CUBA
EMPIREGAS INC. OF CHETEK
EMPIREGAS INC. OF DENVER
EMPIREGAS INC. OF DOVER
EMPIREGAS INC. OF DURAND
EMPIREGAS INC. OF EL DORADO SPRINGS
EMPIREGAS INC. OF ELSBERRY
EMPIREGAS INC. OF ELSINORE
EMPIREGAS INC. OF ESCONDIDO
EMPIREGAS INC. OF EUNICE
EMPIREGAS INC. OF EVERGREEN
SALGAS INC. OF FAIRPLAY
EMPIREGAS INC. OF EAU CLAIRE
EMPIREGAS INC. OF FORT COLLINS
EMPIREGAS INC. OF FOWLER
EMPIREGAS INC. OF MID-MISSOURI
II-9
<PAGE>
EMPIREGAS INC. OF GALVESTON
EMPIREGAS INC. OF GALVA
EMPIREGAS INC. OF GAYLORD
EMPIREGAS INC. OF GLOBE
EMPIREGAS INC. OF GOOSE CREEK
EMPIREGAS INC. OF GREELEY
EMPIREGAS INC. OF GRAND JUNCTION
EMPIREGAS OF GROVE, INC.
EMPIREGAS INC. OF HERMISTON
EMPIREGAS INC. OF HERMITAGE
EMPIREGAS INC. OF HIAWASSEE
EMPIREGAS INC. OF HIGGINSVILLE
EMPIREGAS OF HITICHITA, INC.
EMPIREGAS INC. OF HOOPESTON
EMPIREGAS INC. OF HORNICK
EMPIREGAS INC. OF HUMANSVILLE
EMPIREGAS INC. OF JACKSONVILLE
EMPIREGAS INC. OF JACKSON, MI
EMPIREGAS INC. OF KALAMAZOO
EMPIREGAS INC. OF KIRKSVILLE
EMPIREGAS INC. OF LAFAYETTE
EMPIREGAS INC. OF LAKE CHARLES
EMPIREGAS INC. OF LAKE PROVIDENCE
EMPIREGAS INC. OF LAURIE
EMPIREGAS OF LE SUEUR, INC.
EMPIREGAS INC. OF LINCOLN
EMPIREGAS INC. OF LONGMONT
EMPIREGAS INC. OF LOS ANGELES
EMPIREGAS INC. OF LOVELAND
EMPIREGAS INC. OF MARQUETTE
EMPIREGAS INC. OF MARSHALL
EMPIREGAS INC. OF MEDFORD
EMPIREGAS INC. OF MENOMONIE
EMPIREGAS INC. OF MERILLAN
EMPIREGAS INC. OF MILLER
EMPIREGAS INC. OF MODESTO
EMPIREGAS INC. OF MONTE VISTA
EMPIREGAS INC. OF MOUNT VERNON
EMPIREGAS INC. OF MUNISING
EMPIREGAS INC. OF MURPHY
THRIF-T-GAS INC. OF BLACKWATER
EMPIREGAS INC. OF NORTH BEND
EMPIREGAS INC. OF NORTH MYRTLE BEACH, INC.
EMPIREGAS INC. OF OAK GROVE
EMPIREGAS INC. OF ONAWA
EMPIREGAS INC. OF ORANGEBURG
EMPIREGAS INC. OF OWENSVILLE
EMPIREGAS INC. OF SANTA PAULA
EMPIREGAS INC. OF PADUCAH
EMPIREGAS INC. OF PALMYRA
EMPIREGAS INC. OF PLACERVILLE
EMPIREGAS INC. OF POMONA
EMPIREGAS INC. OF POTOSI
EMPIREGAS INC. OF PUEBLO
EMPIREGAS INC. OF REEDSPORT
EMPIREGAS INC. OF RICHLAND
EMPIREGAS INC. OF ROLLA
II-10
<PAGE>
EMPIREGAS INC. OF SACRAMENTO
EMPIREGAS INC. OF SANDY
EMPIREGAS INC. OF SHELL LAKE
EMPIREGAS INC. OF SILOAM SPRINGS
EMPIREGAS OF STIGLER, INC.
EMPIREGAS INC. OF SUSANVILLE
EMPIREGAS INC. OF SUNNYSIDE
EMPIREGAS INC. OF ROCKY MOUNT
EMPIREGAS INC. OF THE DALLES
EMPIREGAS INC. OF TIPTON (IOWA)
EMPIREGAS INC. OF TRAVERSE CITY
EMPIREGAS INC. OF VANDALIA
EMPIREGAS INC. OF VASSAR
EMPIREGAS INC. OF VINITA, INC.
EMPIREGAS INC. OF WARREN
EMPIREGAS INC. OF WARSAW (MISSOURI)
EMPIREGAS INC. OF WASHINGTON
EMPIREGAS INC. OF WAUKON
EMPIREGAS INC. OF WAYNESVILLE
EMPIREGAS INC. OF WAYNESVILLE, NC
EMPIREGAS INC. OF WENATCHEE
EMPIREGAS INC. OF WENTZVILLE
EMPIREGAS OF WESTVILLE, INC.
EMPIREGAS INC. OF WILLS POINT
EMPIREGAS INC. OF WILMINGTON
EMPIREGAS INC. OF WILSON
EMPIREGAS INC. OF WOODLAND PARK
EMPIREGAS INC. OF YAKIMA
EMPIREGAS INC. OF YUCCA VALLEY
EMPIREGAS INC. OF ZEBULON
EMPIREGAS INC. OF COLUMBIANA
EMPIREGAS OF ZUMBRO FALLS, INC.
GINCO GAS COMPANY, INC.
EMPIREGAS INC. OF ORANGE COUNTY
EMPIREGAS INC. OF MORGAN COUNTY
EMPIREGAS INC. OF LAKE OZARK
EMPIREGAS INC. OF WACO
EMPIREGAS INC. OF PARIS, TX
EMPIREGAS INC. OF DALLAS, TX
EMPIREGAS INC. OF KEMP
EMPIREGAS INC. OF SAN ANTONIO
THRIFT-T-GAS CO., INC.
EMPIREGAS INC. OF PARIS, MO
SALIDA GAS CO., INC.
SALGAS INC. OF GUNNISON
EMPIREGAS INC. OF TOLEDO
EMPIREGAS INC. OF WILKESBORO
EMPIREGAS INC. OF HENDERSONVILLE
EMPIREGAS INC. OF NORTH CAROLINA
EMPIREGAS INC. OF CREEDMOOR
EMPIREGAS INC. OF APEX
EMPIREGAS INC. OF DURHAM
EMPIREGAS INC. OF WARRENTON
II-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
Board of Directors and Stockholders
Empire Gas Corporation
Lebanon, Missouri
In connection with our audit of the financial statements of EMPIRE GAS
CORPORATION (FORMERLY EMPIRE GAS ACQUISITION CORPORATION) for each of the three
years in the period ended June 30, 1993, we have also audited the following
financial statement schedules. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statement schedules based on our audits of the basic
financial statements. The schedules are presented for purposes of complying with
the Securities and Exchange Commission's rules and regulations and are not a
required part of the consolidated financial statements.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
BAIRD, KURTZ & DOBSON
Springfield, Missouri
July 30, 1993
S-1
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE V -- PROPERTY AND EQUIPMENT
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. B COL. F
---------- COL. C ----------
COL. A BALANCE AT ----------- COL. D COL. E BALANCE AT
- ------------------------------------------------------- BEGINNING ADDITIONS ----------- --------- END OF
CLASSIFICATION OF YEAR AT COST RETIREMENTS OTHER YEAR
- ------------------------------------------------------- ---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1993:
Land and buildings................................... $ 11,821 $ 884 $ 490 $ 12,215
Storage and consumer service facilities.............. 113,450 1,520 1,149 113,821
Transportation, office and other equipment........... 24,245 1,954 649 25,550
---------- ----------- ----------- ----------
$ 149,516 $ 4,358 $ 2,288 $ 151,586
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Year Ended June 30, 1992:
Land and buildings................................... $ 10,781 $ 1,381 $ 341 $ 11,821
Storage and consumer service facilities.............. 113,343 2,058 1,951 113,450
Transportation, office and other equipment........... 22,765 3,264 1,784 24,245
---------- ----------- ----------- ----------
$ 146,889 $ 6,703 $ 4,076 $ 149,516
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Year Ended June 30, 1991:
Land and buildings................................... $ 9,457 $ 1,439 $ 115 $ 10,781
Storage and consumer service facilities.............. 111,646 2,651 954 113,343
Transportation, office and other equipment........... 20,150 4,723 2,108 22,765
---------- ----------- ----------- ----------
$ 141,253 $ 8,813 $ 3,177 $ 146,889
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
S-2
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C
COL. B ----------- COL. F
----------- ADDITIONS -----------
COL. A BALANCE AT CHARGED TO COL. D COL. E BALANCE AT
- ------------------------------------------------------ BEGINNING COSTS AND ----------- --------- END OF
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS OTHER YEAR
- ------------------------------------------------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1993:
Buildings........................................... $ 1,444 $ 332 $ 73 $ 1,703
Storage and consumer service facilities............. 19,536 5,529 631 24,434
Transportation, office and other equipment.......... 13,075 3,143 449 15,769
----------- ----------- ----------- -----------
$ 34,055 $ 9,004 $ 1,153 $ 41,906
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended June 30, 1992:
Buildings........................................... $ 1,172 $ 302 $ 30 $ 1,444
Storage and consumer service facilities............. 14,751 5,473 688 19,536
Transportation, office and other equipment.......... 11,378 3,014 1,317 13,075
----------- ----------- ----------- -----------
$ 27,301 $ 8,789 $ 2,035 $ 34,055
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year Ended June 30, 1991:
Buildings........................................... $ 928 $ 260 $ 16 $ 1,172
Storage and consumer service facilities............. 9,710 5,316 275 14,751
Transportation, office and other equipment.......... 10,828 2,687 2,137 11,378
----------- ----------- ----------- -----------
$ 21,466 $ 8,263 $ 2,428 $ 27,301
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
S-3
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO AMOUNT BALANCE AT
BEGINNING COSTS AND WRITTEN END OF
DESCRIPTION OF YEAR EXPENSES OFF YEAR
- ------------------------------------------------------------------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Valuation accounts deducted from assets to which they apply -- for
doubtful accounts receivable:
June 30, 1993.................................................... $ 2,720 $ 958 $ 1,021 $ 2,657
June 30, 1992.................................................... 2,719 214 213 2,720
June 30, 1991.................................................... 1,648 2,828 1,757 2,719
</TABLE>
S-4
<PAGE>
EMPIRE GAS CORPORATION AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INFORMATION
YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. B
-----------
COL. A CHARGED TO
- ------------------------------------------------------------------------------------------------------ COSTS AND
ITEM EXPENSES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
June 30, 1993:
Maintenance and repairs............................................................................. $ 2,963
June 30, 1992:
Maintenance and repairs............................................................................. $ 3,070
June 30, 1991:
Maintenance and repairs............................................................................. $ 3,806
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1+ Form of Underwriting Agreement
2.1 Stock Redemption Agreement, dated May 7, 1994, between the Company, EGOC,
Energy, Robert W. Plaster, Paul S. Lindsey, Jr., Stephen R. Plaster, Joseph
L. Schaefer, the Robert W. Plaster Trust dated December 13, 1988, the
Stephen Robert Plaster Trust dated October 30, 1988, the Stephen Robert
Plaster Trust dated July 30, 1984, Empire Ranch, Inc., Empire Airlines,
Inc., and Evergreen National Corporation (incorporated herein by reference
to Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No.
1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1994)
2.2+ Stock Redemption Agreement, dated May 7, 1994, between the Company, the Dolly
Francine Plaster Trust dated July 30, 1984, the Tammy Jane Plaster Trust
dated July 30, 1984, the Cheryl Jean Plaster Schaefer Trust dated October
30, 1988, and the Cheryl Jean Plaster Schaefer Trust dated July 30, 1984
2.3+ Form of Merger Agreement by and between the Company and EGOC
3.1+ Articles of Incorporation of the Company
3.2+ Certificate of Amendment of the Certificate of Incorporation of the Company,
dated April 26, 1994, relating to the change of name
3.3+ By-laws of the Company
3.4 Form of Articles of Incorporation and By-laws of the Subsidiary Guarantors
4.1 Indenture between Empire Gas Corporation and J. Henry Schroder Bank & Trust
Company, Trustee, relating to the 9% Subordinated Debentures due December
31, 2007 and the form of 9% Subordinated Debentures due December 31, 2007
(incorporated herein by reference to Exhibit 4(a) to the Empire Incorporated
and Exco Acquisition Corp. (Commission File No. 2-83683) Registration
Statement on Form S-14 filed with the Commission on May 11, 1983; and First
Supplemental Indenture thereto between Empire Gas Corporation (now known as
EGOC) and IBJ Schroder Bank & Trust Co., dated as of December 13, 1989
(incorporated herein by reference to Exhibit 4(c) to Empire Gas Corporation
(now known as EGOC) Registration Statement on Form 8-B filed with the
Commission on February 1, 1990)
4.2 Form of Proposed Indenture between the Company and Shawmut Bank Connecticut,
National Association, Trustee, relating to the % Senior Secured Notes due
2004, including the form of % Senior Secured Notes due 2004, the form of
the Guarantee and the form of the Pledge Agreement
4.3+ Form of Proposed Warrant Agreement
5.1 Opinion of Wilmer, Cutler & Pickering as to the validity of the issuance of
the Units and the Common Stock issuable upon exercise of the Warrants
8.1 Opinion of Wilmer, Cutler & Pickering with respect to certain tax matters
10.1+ Shareholder Agreement, dated as of October 28, 1988, by and among Empire Gas
Acquistion Corporation and Robert W. Plaster Trust, Robert W. Plaster,
Trustee; Paul S. Lindsey, Jr.; Stephen R. Plaster Trust, Lynn C. Hoover,
Trustee; Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee; Robert L.
Wooldridge; Gwendolyn B. VanDerhoef; Dwight Gilpin; Luther Henry Gill;
Valeria Schall; Floyd J. Waterman; Larry W. Bisig; Larry Weis; Robert
Heagerty; Murl J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St. John;
James E. Acreman; Carolyn S. Rein; Dan Weatherly; Nina Irene Craighead;
Joyce Sue Kinnett; Edwin H. McMahon; Paul Stahlman; Ralph Wilson; Alan
Simer; Ferrell Stamper; and Empire Gas Corporation Employee Stock Ownership
Plan, Robert W. Plaster, Trustee
10.2+ 1989 Incentive Stock Option Plan
10.3 Form of Credit Agreement between the Company and Continental Bank, as agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
10.4 Lease Agreement, dated May 7, 1994, between the Company and Evergreen
National Corporation (incorporated herein by reference to Exhibit F of
Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No.
1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1994)
10.5 Form of Services Agreement, dated May 7, 1994, between the Company and Empire
Service Corporation (incorporated herein by reference to Exhibit G of
Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No.
1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1994)
10.6 Non-Competition Agreement, dated May 7, 1994, by and among the Company,
Energy, Robert W. Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S.
Lindsey, Jr. (incorporated herein by reference to Exhibit E of Exhibit 10.1
to the Empire Gas Operating Corporation (Commission File No. 1-6537-3)
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994)
10.7+ Form of Employment Agreement between the Company and Paul S. Lindsey, Jr.
10.8+ Form of Asset Purchase Agreement by and among the Company, Empiregas, Inc. of
North Carolina, PSNC Propane Corporation, and Public Service Company of
North Carolina, Incorporated
10.9+ Form of Indemnification Agreement between the Company and Douglas A. Brown
10.10+ Form of Tax Indemnification Agreement between the Company and Energy
10.11+ Supply Contract No. 1, dated September 13, 1991, between EGOC and Phillips 66
Company
10.12+ Supply Contract No. 2, dated September 13, 1991, between EGOC and Phillips 66
Company; and Amendment thereto between EGOC and Phillips 66 Company, dated
October 15, 1992
10.13+ Supply Contract, dated as of November 4, 1991, between EGOC and Conoco Inc.
10.14+ Supply Contract, dated as of January 21, 1992, between EGOC and Conoco Inc.
10.15+ Supply Contract, dated as of January 24, 1992, between EGOC and Conoco, Inc.
10.16+ Supply Contract No. 1, dated November 20, 1986, between EGOC and Warren
Petroleum Company
10.17+ Supply Contract No. 2, dated November 20, 1986, between EGOC and Warren
Petroleum Company
10.18+ Supply Contract, dated November 22, 1986, between EGOC and Warren Petroleum
Company
10.19+ Supply Contract, dated November 24, 1986, between EGOC and Warren Petroleum
Company
10.20+ Supply Contract No. 1, dated June 1, 1993, between EGOC and Warren Petroleum
Company
10.21+ Supply Contract No. 2, dated June 1, 1993, between EGOC and Warren Petroleum
Company
12.1+ Statement regarding computation of ratio of earnings to fixed charges
21.1+ Subsidiaries of the Company
23.1+ Consent of Baird, Kurtz & Dobson, dated April 29, 1994
23.2 Consent of Wilmer, Cutler & Pickering, included in the opinions filed as
Exhibits 5.1 and 8.1
23.3+ Consent of Douglas A. Brown to being named as a director
23.4+ Second Consent of Baird, Kurtz & Dobson, dated June 3, 1994
23.5+ Consent of Valuation Research Corporation
23.6+ Consent of Bruce M. Withers, Jr. to be named as a director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
23.7+ Consent of Jim J. Shoemake to be named as a director
23.8+ Third Consent of Baird, Kurtz & Dobson, dated June 9, 1994
23.9+ Fourth Consent of Baird, Kurtz & Dobson, dated June 17, 1994
24.1+ Power of Attorney, located on signature page
25.1+ Statement of Eligibility and Qualification of Trustee on Form T-1
25.2+ Report of Condition and Income of Shawmut Bank Connecticut, N.A., for the
period ending March 31, 1994
99.1+ Form of opinion of Valuation Research Corporation re solvency
<FN>
- ---------
+ Previously filed.
* To be supplied by amendment.
</TABLE>
<PAGE>
DESCRIPTION OF GRAPHIC:
Inside front cover
Map of the United States showing the locations of retail service centers,
transport terminals, rail terminals, underground storage, pipeline terminals
and home office (on a pro form basis for the Transaction).
Page 42
Illustration showing movement of propane from refinery or gas processing plant
to retail distriubtion center by rail, pipeline or truck, and then on to
residential, commercial and agricultural users.
<PAGE>
Articles of Incorporation
and
By-Laws of the Subsidiary Guarantors
The following Articles of Incorporation and By-Laws are
representative of the Articles and By-Laws of each of the Subsidiary
Guarantors. The Articles and By-Laws of the remaining Subsidiary Guarantors
do not differ in any material respect from those attached, except that the
corporate purpose of the Subsidiary Guarantors listed below reads as follows,
in lieu of the purposes set forth in the attached Articles of Incorporation:
"The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware."
Corporations with Alternative Purpose Statement
- -----------------------------------------------
EMPIREGAS TRANSPORTS, INC. (MISSOURI) EMPIREGAS INC. OF KEMP
EMPIREGAS INC. OF ALBANY EMPIREGAS INC. OF TOLEDO
EMPIREGAS INC. OF BIG RAPIDS EMPIREGAS INC. OF WILKESBORO
EMPIREGAS INC. OF BOISE EMPIREGAS INC. OF HENDERSONVILLE
EMPIREGAS INC. OF BRANDON EMPIREGAS INC. OF NORTH CAROLINA
EMPIREGAS INC. OF BREMERTON EMPIREGAS INC. OF CREEDMOOR
EMPIREGAS INC. OF CENTERVILLE EMPIREGAS INC. OF APEX
EMPIREGAS INC. OF CHARLOTTE EMPIREGAS INC. OF DURHAM
EMPIREGAS INC. OF CHASSEL EMPIREGAS INC. OF WARRENTON
EMPIREGAS INC. OF COLE CAMP
EMPIREGAS INC. OF COLEMAN
EMPIREGAS INC. OF CHETEK
EMPIREGAS INC. OF DURAND
EMPIREGAS INC. OF GAYLORD
EMPIREGAS INC. OF HERMISTON
EMPIREGAS INC. OF HIAWASSEE
EMPIREGAS INC. OF HORNICK
EMPIREGAS INC. OF JACKSON, MI
EMPIREGAS INC. OF KALAMAZOO
EMPIREGAS INC. OF MARQUETTE
EMPIREGAS INC. OF MARSHALL
EMPIREGAS INC. OF MEDFORD
EMPIREGAS INC. OF MUNISING
EMPIREGAS INC. OF MURPHY
EMPIREGAS INC. OF ONAWA
EMPIREGAS INC. OF SHELL LAKE
EMPIREGAS INC. OF SUSANVILLE
EMPIREGAS INC. OF ROCKY MOUNT
EMPIREGAS INC. OF THE DALLES
EMPIREGAS INC. OF TIPTON (IOWA)
EMPIREGAS INC. OF TRAVERSE CITY
EMPIREGAS INC. OF VASSAR
EMPIREGAS INC. OF WASHINGTON
EMPIREGAS INC. OF WAUKON
EMPIREGAS INC. OF WAYNESVILLE, NC
EMPIREGAS INC. OF WILMINGTON
EMPIREGAS INC. OF WILSON
EMPIREGAS INC. OF ZEBULON
EMPIREGAS INC. OF COLUMBIANA
GINCO GAS COMPANY, INC.
<PAGE>
ARTICLES OF INCORPORATION
The undersigned, a majority of whom are citizens of the United
States, desiring to form a corporation, for profit, under Sections 1701.01 et
seq. of the Revised Code of Ohio, do hereby certify:
ARTICLE ONE
The name of the corporation is: Empiregas Inc. of Mount Vernon
ARTICLE TWO
The address, including street and number, if any, of the
corporation's initial registered office in this state is: 111 South Mulberry
Street, Mount Vernon, Ohio 43050. The name of the Registered Agent is James
J. Cullers, Attorney at Law.
ARTICLE THREE
The aggregate number, class and par value, if any, of shares which
the corporation shall have authority to issue shall be:
300 shares of which 300 shares of the par value of $100.00 each,
amounting in the aggregate to $30,000.00. shall be common shares.
The preferences, qualifications, limitations, restrictions, and the
special or relative rights, including convertible rights,if any, in respect of
the shares of each class are as follows: None
ARTICLE FOUR
The number and class of shares to be issued before the corporation
shall commence business, the consideration to be paid therefor and the capital
with which the corporation will commence business are as follows:
<TABLE>
<CAPTION>
No. of Consideration
Shares Class to be paid Par Value
------ ----- -------------- ---------
<S> <C> <C> <C>
300 Common $30,000.00 $100.00
</TABLE>
The corporation will not commence business until consideration of
the value of at least Five Hundred Dollars has been received for the issuance
of shares.
<PAGE>
ARTICLE FIVE
The name and place of residence of each incorporator is as follows:
NAME STREET CITY
---- ------ ----
Darrell Deputy, Jr. Highway 5 South Lebanon, Missouri 65536
ARTICLE SIX
The number of directors to constitute the board of directors is
three.
ARTICLE SEVEN
The duration of the corporation is perpetual.
ARTICLE EIGHT
The corporation is formed for the following purposes:
1.
To buy, sell, and deal in oil, gas, petroleum products and other
minerals; to transport, transmit, convey and deliver oil, gas, petroleum
products, and other minerals by means of pipe lines, tramways, railroads,
trucks, tank wagons, tank cars, or other conveyances; and to build, construct,
purchase, lease or otherwise acquire, maintain and operate pipe lines, tramways,
railroads, tank cars, locomotives, pumping stations, power plants, and all other
machinery, apparatus, and equipment necessary or incidental thereto, including
the acquiring, by purchase, lease, or otherwise, of rights of way, easements,
and lands necessary to the operation, installation, and maintenance thereof; and
to do all things necessary to the business of buying, selling, dealing in, or
transporting, transmitting, conveying and delivering oil, gas, petroleum
products and other minerals.
2.
To manufacture, buy and in any manner acquire manufactured gas and
to produce, drill for, buy and in any manner acquire natural gas, and to sell,
transmit, store, refine, distribute, mix and in any manner use and dispose of
natural and/or manufactured gas and their by-products and residual products for
light, heat, fuel, power, industrial and all other purposes and to construct,
purchase, lease and in any manner acquire, own, maintain, operate and sell,
lease, mortgage and in any manner dispose of buildings, plants, pipe lines,
mains, conduits, machinery, apparatus, appliances, materials, rights,
franchises, ordinances and all such property as may be necessary, useful or
convenient in the production, manufacture, drilling for, purchase, acquisition,
storage, distribution, transmission,
<PAGE>
dealing in or sale of natural or manufactured gas or their by-products or
residual products, and to manufacture, buy, lease, and acquire in any manner
and to sell, lease, deal in and otherwise dispose of fixtures, lamps, stoves
and all other apparatus, appliances and devices, tending directly or
indirectly to promote the consumption of natural or manufactured gas or their
by-products and residual products, or necessary, useful or convenient in
connection with the production, accumulation, distribution or.use in any way
of natural or manufactured gas or their byproducts or residual products.
3.
To produce, purchase or otherwise acquire, to sell or otherwise
dispose of, and generally to trade and deal in, any and all kinds of chemicals,
whether now known or hereafter to be discovered or created, ingredients,
mixtures, derivatives and compounds thereof, products and by-products thereof,
and any and all kinds of products, including fabricated products, of which any
of the foregoing constitutes a part or an ingredient thereof or is used in the
production thereof.
4.
To manufacture, purchase or otherwise acquire, to sell, lease or
otherwise dispose of, and generally to trade and deal in, other personal
property of every class and description.
5.
To acquire, and pay for in cash, property, stock, notes, debentures,
bonds or other securities of the corporation or otherwise, the good will,
rights, assets and property, and to undertake or assume the whole or any part of
the obligations or liabilities, of any person, partnership, association,
corporation or other enterprise.
6.
To acquire, hold, guarantee, sell, mortgage, pledge or otherwise
dispose of or deal in any of the shares or other interests in, or obligations
of, any person, partnership, association, corporation or other enterprise,
public or private, regardless of the nature of the business in which such
person, partnership, association, corporation or other enterprise is or may be
engaged.
<PAGE>
7.
To purchase or otherwise acquire, hold, use, sell, assign, lease,
grant licenses in respect of, mortgage or otherwise dispose of letters patent of
the United States or any foreign country, patent rights, licenses, privileges,
inventions, improvements, processes, copyrights, trade-marks, trade names,
concessions and formulae, of any nature whatsoever.
8.
To borrow or raise moneys for any of the objects or purposes of the
corporation and, from time to time without limit, as to amount, to issue, sell,
pledge or otherwise dispose of appropriate instruments to evidence such
indebtedness, and to secure the payment thereof by mortgage or other lien upon
the whole or any part of the property of the corporation, whether at the time
owned or thereafter acquired.
9.
To issue stock, bonds, debentures, notes, or other securities
convertible into stock of any class or other securities of any kind of the
corporation or bearing warrants or other evidence of optional rights to purchase
or subscribe to stock of any class or other securities of any kind of the
corporation.
10.
To make loans to any person, partnership, association, corporation
or otherwise enterprise, either with or without security, in furtherance of the
objects or purposes of the corporation.
11.
To assist the employees of the corporation or of any other
enterprise in which the corporation either directly or indirectly owns an
interest to acquire or lease homes and in that connection to acquire, hold,
improve, lease, mortgage, sell or otherwise dispose of real property, and to
make loans to such employees.
12.
To purchase, hold, sell and transfer the shares of its own capital
stock; provided it shall not use its funds or property for the purchase of its
own shares of capital stock when
<PAGE>
such use would cause any impairment of its capital except as otherwise
permitted by law, and provided further that shares of its own capital stock
belonging to it shall not be voted upon directly or indirectly.
13.
To carry on any business whatsoever which the corporation may deem
proper or convenient in connection with any of the foregoing purposes or
otherwise, or which may be calculated, directly or indirectly, to promote the
interests of the corporation or to enhance the value of its property; to conduct
its business in the State of Ohio,in other states, in the District of Columbia,
in the territories and colonies of the United States, and in foreign countries;
and to hold, purchase, mortgage and convey real and personal property, either in
or out of the State of Ohio, and to have and to exercise all the powers
conferred by the laws of Ohio upon corporations formed under the Act pursuant to
and under which the corporation is formed.
ARTICLE NINE
The bylaws of the corporation may be altered, amended or repealed by
action of the shareholders or the directors of the corporation at any regular or
special meeting.
IN WITNESS WHEREOF, the Articles of Incorporation have been signed
this 30th Day of August, 1976.
/s/ Darrell Deputy, Jr.
--------------------------
Darrell Deputy, Jr.
STATE Of MISSOURI )
) SS.
COUNTY OF LACLEDE )
I, James H. Smith, a notary public, do hereby certify that on the
30TH DAY OF AUGUST, personally appeared before me, Darrell Deputy, Jr., who
being by me first duly sworn, declared that he is the person who signed the
foregoing document as incorporator and that the statements therein contained
are true.
/s/ James H. Smith
------------------
My Commission Expires:
- ----------------------
<PAGE>
BYLAWS
EMPIREGAS INCORPORATED OF MOUNT VERNON
ARTICLE 1 - STOCKHOLDERS' MEETING
SECTION 1: The annual meeting of the stockholders of the
corporation shall be held each year commencing with the year 1976 on the third
Tuesday in September if not a legal holiday and if a legal holiday than on the
next regular day following at a time designated by the Board of Directors, at
such place, either within or without this State, as may be fixed from time to
time by the Board of Directors. Written notice of the annual meeting shall be
given to each stockholder entitled to vote thereat at least ten days before
the date of the meeting and said notice shall specify the time and place of
the meeting.
SECTION 2: Special meetings of the stockholders shall be held as
called by the Board of Directors, or by the President, to be held at such place,
either within or without this State, as may be fixed by the Board of Directors
or by the President. Notice of the time and place of such special meetings
shall be given to each stockholder of record of the corporation entitled to vote
at such meeting, by mailing to such stockholder, at the address of such
stockholder shown on the corporation records, at least five days prior to said
meeting.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1: The management and control of the business of the
corporation shall be vested in a Board of Directors, consisting of three
persons, who shall be elected at the annual meeting of the stockholders, for a
term of one year, and who shall hold office until their successors are elected
and qualified. Directors need not be stockholders. The Board of Directors may
employ such agents as it deems advisable.
SECTION 2: Any vacancies in the Board of Directors caused by
resignation, death, or otherwise may be filled by the remaining directors, at a
special meeting called for that purpose, or by the stockholders at any regular
or special meeting held prior to the filling of such vacancy by the board as
above provided. The person so chosen as director shall hold office until the
next annual meeting of stockholders, or until his successor is elected and
qualified.
ARTICLE II - DIRECTORS' MEETINGS
SECTION 1: the Board of Directors of the corporation may hold
meetings both regular and special either within or without this State.
<PAGE>
SECTION 2: Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
SECTION 3: Special meetings of the Board of Directors may be called
at any time by the President, or, in his absence, by the Vice-President, or by
any two directors. Notice of special meetings of the Board of Directors shall
be given to each director by five days service of the same by telegram, letter
or personally.
ARTICLE IV - OFFICERS
SECTION 1: The officers of the company shall consist of (1) a
president, (2) at least one vice-president, (3) a secretary, (4) a treasurer and
(5) such additional offices as the Board of Directors may create by resolution,
including, but not limited to, additional vice-presidents, assistant vice-
presidents, assistant secretaries and assistant treasurers. Each officer shall
be elected by the Board of Directors for one year at its first meeting after the
annual meeting of shareholders, and each officer shall hold office until his
successor is duly elected and qualified.
The office of secretary and treasurer may be held by the same
person. Any vacancies in office arising from death, resignation or otherwise
may be filled by the Board of Directors at any regular or special meeting.
The duties of the officers shall be such as are usually imposed upon such
officials of corporations and as are required by law, and such as may be
assigned to them, respectively, by the Board of Directors from time to time.
ARTICLE V - AMENDMENT OF BYLAWS
SECTION 1: These bylaws may be amended or repealed, or new bylaws
maybe made and adopted, at any annual or special meeting of stockholders or by
a vote of majority by the Board of Directors at a regular or special meeting of
the Board.
/s/
--------------------------
President
(SEAL)
ATTEST:
/s/ Darrell Deputy, Jr.
- ------------------------
Secretary
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EMPIRE GAS CORPORATION
and
CERTAIN SUBSIDIARY GUARANTORS HERETO
and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, Trustee
- -------------------------------------------------------------------------------
Indenture
Dated as of __________, 1994
- -------------------------------------------------------------------------------
$___,000,000 Principal Amount at Maturity
Senior Secured Notes Due 2004
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
Indenture
TIA Section Section
310 (a)(1)................................................. 6.10
(a)(2)................................................. 6.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(a)(5)................................................. 6.10
(b) ................................................. 6.8; 6.10
11.2
(c) ................................................. N.A.
311 (a) ................................................. 6.11
(b) ................................................. 6.11
(c) ................................................. N.A.
312 (a) ................................................. 2.5
(b) ................................................. 11.3
(c) ................................................. 11.3
313 (a) ................................................. 6.6
(b)(1)................................................. N.A.
(b)(2)................................................. 6.6
(c) ................................................. 6.6
(d) ................................................. 6.6
314 (a)(1)................................................. 3.10; 11.2
(a)(2)................................................. 3.10; 11.2
(a)(3)................................................. 3.10; 11.2
(a)(4)................................................. 3.9
(b) ................................................. 10.2
(c)(1)................................................. 10.6; 11.4
(c)(2)................................................. 10.6; 11.4
(c)(3)................................................. N.A.
(d) ................................................. 10.6
(e) ................................................. 11.5
(f) ................................................. N.A.
315 (a) ................................................. 6.1(b)
(b) ................................................. 6.5; 11.2
(c) ................................................. 6.1(a)
(d) ................................................. 6.1(c)
(e) ................................................. 5.11
316 (a) (last sentence) ................................. 2.9
(a)(1)(A) ............................................ 5.5
(a)(1)(B) ............................................ 5.4
(a)(2) ............................................... N.A.
(b) ................................................. 5.7
(c) ................................................. 8.7
317 (a)(1)................................................. 5.8
(a)(2)................................................. 5.9
(b) ................................................. 2.4
318 (a) ................................................. 11.1
- -----------
N.A. means not applicable.
<PAGE>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Other Definitions. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 1.3 Incorporation by Reference of
Trust Indenture Act . . . . . . . . . . . . . . . . . . . 27
SECTION 1.4 Rules of Construction . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
THE SECURITIES
SECTION 2.1 Form and Dating . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.2 Execution and Authentication . . . . . . . . . . . . . . . . 30
SECTION 2.3 Registrar and Paying Agent . . . . . . . . . . . . . . . . . 31
SECTION 2.4 Paying Agent To Hold Money in Trust . . . . . . . . . . . . 31
SECTION 2.5 Securityholder Lists . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.6 Transfer and Exchange . . . . . . . . . . . . . . . . . . . 32
SECTION 2.7 Replacement Securities . . . . . . . . . . . . . . . . . . . 35
SECTION 2.8 Outstanding Securities . . . . . . . . . . . . . . . . . . . 35
SECTION 2.9 Determination of Holders' Action . . . . . . . . . . . . . . 36
SECTION 2.10 Temporary Securities . . . . . . . . . . . . . . . . . . . . 36
SECTION 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Securities . . . . . . . . . . . . . . . . . . . 38
SECTION 3.2 Maintenance of Office or Agency . . . . . . . . . . . . . . 38
SECTION 3.3 Limitation on Restricted Payments. . . . . . . . . . . . . . 39
SECTION 3.4 Limitation on Incurrence of Indebtedness . . . . . . . . . . 43
SECTION 3.5 Limitation on Payment Restrictions
Affecting Subsidiaries . . . . . . . . . . . . . . . . . . 45
SECTION 3.6 Limitation on Sale/Leaseback Transactions . . . . . . . . . 46
SECTION 3.7 Limitation on Liens . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.8 Change of Control . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.9 Compliance Certificate . . . . . . . . . . . . . . . . . . . 52
SECTION 3.10 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.11 Transactions with Affiliates . . . . . . . . . . . . . . . . 53
SECTION 3.12 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.13 Corporate Existence . . . . . . . . . . . . . . . . . . . . 59
SECTION 3.14 Payment of Taxes and Other Claims . . . . . . . . . . . . . 60
SECTION 3.15 Notice of Defaults and Other Events . . . . . . . . . . . . 60
<PAGE>
SECTION 3.16 Maintenance of Properties and Insurance . . . . . . . . . . 60
SECTION 3.17 Limitation on Issuance of Capital Stock
and Incurrence of Indebtedness of
Restricted Subsidiaries . . . . . . . . . . . . . . . . . 61
SECTION 3.18 Limitation on Changes in the Nature of
the Business . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE IV
CONSOLIDATION, MERGER AND SALE
SECTION 4.1 Merger and Consolidation of Company . . . . . . . . . . . . 62
SECTION 4.2 Successor Substituted . . . . . . . . . . . . . . . . . . . 66
ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 5.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 5.4 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . 71
SECTION 5.5 Control by Majority . . . . . . . . . . . . . . . . . . . . 72
SECTION 5.6 Limitation on Suits . . . . . . . . . . . . . . . . . . . . 72
SECTION 5.7 Rights of Holders To Receive Payment . . . . . . . . . . . . 72
SECTION 5.8 Collection Suit by Trustee . . . . . . . . . . . . . . . . . 73
SECTION 5.9 Trustee May File Proofs of Claim . . . . . . . . . . . . . . 73
SECTION 5.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 5.11 Undertaking for Costs . . . . . . . . . . . . . . . . . . . 74
SECTION 5.12 Waiver of Stay or Extension Laws . . . . . . . . . . . . . . 74
ARTICLE VI
TRUSTEE
SECTION 6.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . 75
SECTION 6.2 Rights of Trustee . . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.3 Individual Rights of Trustee . . . . . . . . . . . . . . . . 77
SECTION 6.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . 77
SECTION 6.5 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . 78
SECTION 6.6 Reports by Trustee to Holders . . . . . . . . . . . . . . . 78
SECTION 6.7 Compensation and Indemnity . . . . . . . . . . . . . . . . . 78
SECTION 6.8 Replacement of Trustee . . . . . . . . . . . . . . . . . . . 80
SECTION 6.9 Successor Trustee by Merger, etc. . . . . . . . . . . . . . 81
SECTION 6.10 Eligibility; Disqualification . . . . . . . . . . . . . . . 81
SECTION 6.11 Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.12 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . 82
<PAGE>
ARTICLE VII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 7.1 Discharge of Liability on Securities;
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 7.2 Termination of Company's Obligations . . . . . . . . . . . . 83
SECTION 7.3 Defeasance and Discharge of Indenture . . . . . . . . . . . 84
SECTION 7.4 Defeasance of Certain Obligations . . . . . . . . . . . . . 87
SECTION 7.5 Application of Trust Money . . . . . . . . . . . . . . . . . 90
SECTION 7.6 Repayment to Company . . . . . . . . . . . . . . . . . . . . 90
SECTION 7.7 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 91
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS
SECTION 8.1 Without Consent of Holders . . . . . . . . . . . . . . . . . 91
SECTION 8.2 With Consent of Holders . . . . . . . . . . . . . . . . . . 92
SECTION 8.3 Compliance with Trust Indenture Act . . . . . . . . . . . . 94
SECTION 8.4 Revocation and Effect of Consents . . . . . . . . . . . . . 94
SECTION 8.5 Notation on or Exchange of Securities . . . . . . . . . . . 94
SECTION 8.6 Trustee To Sign Amendments . . . . . . . . . . . . . . . . . 94
SECTION 8.7 Fixing of Record Dates . . . . . . . . . . . . . . . . . . . 95
ARTICLE IX
REDEMPTION
SECTION 9.1 Notices to Trustee . . . . . . . . . . . . . . . . . . . . . 95
SECTION 9.2 Selection of Securities To Be Redeemed . . . . . . . . . . . 96
SECTION 9.3 Notice of Redemption . . . . . . . . . . . . . . . . . . . . 96
SECTION 9.4 Effect of Notice of Redemption . . . . . . . . . . . . . . . 97
SECTION 9.5 Deposit of Redemption Price . . . . . . . . . . . . . . . . 97
SECTION 9.6 Securities Redeemed in Part . . . . . . . . . . . . . . . . 97
ARTICLE X
SECURITY AND PLEDGE OF COLLATERAL
SECTION 10.1 Collateral Documents . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.2 Recording and Opinions . . . . . . . . . . . . . . . . . . . 99
SECTION 10.3 Remedies Upon an Event of Default . . . . . . . . . . . . . 99
SECTION 10.4 Release of the Collateral . . . . . . . . . . . . . . . . . 100
SECTION 10.5 Purchase of Securities with Net
Available Cash . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 10.6 Certificates of Company . . . . . . . . . . . . . . . . . . 104
SECTION 10.7 Authorization of Actions to be Taken
by the Trustee Under the Pledge
<PAGE>
Agreement . . . . . . . . . . . . . . . . . . . . . . . . 104
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Trust Indenture Act Controls . . . . . . . . . . . . . . . . 105
SECTION 11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 11.3 Communication by Holders with Other
Holders . . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 11.4 Certificate and Opinion as to Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . 106
SECTION 11.5 Statements Required in Certificate or
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 107
SECTION 11.6 Rules by Trustee and Agents . . . . . . . . . . . . . . . . 108
SECTION 11.7 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 11.8 Successors; No Recourse Against Others . . . . . . . . . . . 108
SECTION 11.9 Duplicate Originals . . . . . . . . . . . . . . . . . . . . 108
SECTION 11.10 Other Provisions . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 11.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 108
ARTICLE XII
SUBSIDIARY GUARANTEES
SECTION 12.1 Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . 109
SECTION 12.2 Execution and Delivery of Subsidiary
Guarantees . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 12.3 Subsidiary Guarantors May Consolidate, Etc.
on Certain Terms . . . . . . . . . . . . . . . . . . . . . 112
SECTION 12.4 Release of Subsidiary Guarantors . . . . . . . . . . . . . . 112
SECTION 12.5 Additional Subsidiary Guarantors . . . . . . . . . . . . . . 114
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SCHEDULE I--LIST OF SUBSIDIARY GUARANTORS . . . . . . . . . . . . . . . . . I-1
EXHIBIT A--FORM OF SECURITY . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B--FORM OF GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C--FORM OF SUBORDINATION PROVISIONS . . . . . . . . . . . . . . . . C-1
EXHIBIT D--PLEDGE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . D-1
<PAGE>
INDENTURE dated as of June ___, 1994, between Empire Gas
Corporation, a Missouri corporation (the "Company"), each of the Subsidiary
Guarantors (as hereinafter defined) and Shawmut Bank Connecticut, National
Association, a National Banking Association (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the holders of the Company's Senior
Secured Notes Due 2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"ACCRETED VALUE" means as of any date (the "specified date") with
respect to each $1,000 face amount of Securities, the following amount:
(i) if the specified date is one of the following dates (each an
"accrual date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
<S> <C>
ACCRUAL DATE ACCRETED VALUE
______, 1994 . . . . . . . . . . . . ______
______, 1994 . . . . . . . . . . . . ______
______, 1995 . . . . . . . . . . . . ______
______, 1995 . . . . . . . . . . . . ______
______, 1996 . . . . . . . . . . . . ______
______, 1996 . . . . . . . . . . . . ______
______, 1997 . . . . . . . . . . . . ______
______, 1997 . . . . . . . . . . . . ______
______, 1998 . . . . . . . . . . . . ______
______, 1998 . . . . . . . . . . . . ______
______, 1999 . . . . . . . . . . . . $1,000;
</TABLE>
(ii) if the specified date occurs between two accrual dates, the
sum of (A) the accreted value for the accrual date immediately preceding
the specified date and (B) an amount equal to the product of (i) the
accreted value for the immediately following accrual date less the
accreted value for
<PAGE>
the immediately preceding accrual date and (ii) a fraction, the numerator
of which is the number of days (not to exceed 180 days) from the
immediately preceding accrual date to the specified date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180 (or, if
the immediately following accrual date is _________, 1999, ___); and
(iii) if the specified date occurs after ______, 1999, $1,000.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at
the time at which such Person became a Subsidiary and not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
Acquired Indebtedness shall be deemed to be Incurred on the date the acquired
Person becomes a Subsidiary.
"ACQUISITION INDEBTEDNESS" means Indebtedness of a Restricted
Subsidiary incurred in connection with the acquisition of property or assets
related to the Line of Business which will be owned and used by the Company or
a Restricted Subsidiary, which Indebtedness is without recourse to the Company
or any Restricted Subsidiary other than the Restricted Subsidiary issuing such
Acquisition Indebtedness.
"ADDITIONAL ASSETS" means (i) any property or assets related to the
Line of Business which will be owned and used by the Company or a Restricted
Subsidiary, (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary or (iii) Capital Stock constituting a minority
interest in any Person that at such time is a Restricted Subsidiary.
"AFFILIATE" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by, or under direct or indirect common
control with, such specified Person. For the purposes of this definition,
"control," when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract
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<PAGE>
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of Sections 3.11 and 3.12 only,
"Affiliate" shall also mean any beneficial owner of 5% or more of the total
Voting Shares (on a Fully Diluted Basis) of the Company or of rights or
warrants to purchase such stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof. For purposes of Section 3.3, "Affiliate" shall also
mean any Person of which the Company owns 5% or more of any class of Capital
Stock or rights to acquire 5% or more of any class of Capital Stock and any
Person who would be an Affiliate of any such Person pursuant to the first
sentence hereof.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET SALE" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale/leaseback transactions, but excluding
(except as provided for in the last paragraph of Section 3.12(b)) those
permitted by Article IV hereof) in one or a series of transactions by the
Company or any Restricted Subsidiary to any Person other than the Company or
any Wholly Owned Subsidiary, of (i) all or any of the Capital Stock of the
Company or any Restricted Subsidiary, (ii) all or substantially all of the
assets of any operating unit, or line of business of the Company or any
Restricted Subsidiary or (iii) any other property or assets or rights to
acquire property or assets of the Company or any Restricted Subsidiary outside
of the ordinary course of business of the Company or such Restricted
Subsidiary.
"ATTRIBUTABLE DEBT" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Securities, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"AVERAGE LIFE" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of (A) the numbers of years from the date of
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<PAGE>
determination to the dates of each successive scheduled principal payment of
such Indebtedness or scheduled redemption or similar payment with respect to
such Indebtedness or Preferred Stock multiplied by (B) the amount of such
payment by (ii) the sum of all such payments.
"BASIC AGREEMENTS" means (i) the Stock Redemption Agreement, dated
May 7, 1994, among the Company, Energy, Mr. Lindsey, Mr. Robert Plaster and the
other parties named therein; (ii) the Services Agreement, between the Company
and Empire Service Corp., entered into pursuant to the Stock Redemption
Agreement; (iii) the Lease Agreement, among the Company and Evergreen National
Corporation, entered into pursuant to the Stock Redemption Agreement and (iv)
the Non-Competition Agreement, among the Company, Energy, Paul Lindsey, Robert
Plaster and Stephen Plaster, entered into pursuant to the Stock Redemption
Agreement.
"BOARD OF DIRECTORS" means the Board of Directors of the Company or
any authorized committee thereof.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY" means each day which is not a Legal Holiday.
"CAPITAL STOCK" means any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation or
any and all equivalent ownership interests in a Person (other than a
corporation).
"CAPITALIZED LEASE" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; the
Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which the lease
may be terminated by the lessee
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<PAGE>
without payment of a penalty; and "Capitalized Lease Obligations" means the
rental obligations, as aforesaid, under such lease.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) at any time after the occurrence of a Public Market, any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than the Management Group or an underwriter engaged in a firm commitment
underwriting on behalf of the Company, is or becomes the "beneficial owner" (as
such term is used in Rules 13d-3 and 13d-5 under the Exchange Act, except that
for purposes of this clause (i) a person shall be deemed to have beneficial
ownership of all shares that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 30% of the total Voting Shares of the Company; (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors together with any new directors
whose election by the Board of Directors or whose nomination for election by
the stockholders was approved by a vote of 66-2/3% of the directors of such
person then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so approved
cease for any reason to constitute a majority of the Board of Directors then in
office; (iii) a majority of the Company's and its Restricted
Subsidiaries' assets are sold, leased, exchanged or otherwise transferred to
any Person or group of Persons acting in concert; (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation; (v) prior to the
occurrence of a Public Market, the Management Group ceases in the aggregate to
beneficially own, directly or indirectly, at least 50% in the aggregate of the
total voting power of the Voting Shares of the Company; or (vi) at any time
prior to the occurrence of a Change of Control pursuant to clauses (i) to
(v) of this definition as a result of which a Change of Control Offer was made,
(A) the failure of the Company for a period of greater than 90 days in any
12 month period to continuously maintain (following the 6 month anniversary of
the Offering) on its Board of Directors at least two Outside Directors,
(B) the failure of the Company for a period of greater than 90 days in any
12 month period to continuously maintain an audit committee of its Board of
Direc-
5
<PAGE>
tors consisting solely of Outside Directors or (C) the Board of Directors
consists of greater than seven members; PROVIDED, HOWEVER, that upon the
occurrence of any of the events in this item (vi) the Company shall notify the
Trustee of such occurrence.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means the collateral securing the Obligations of the
Company hereunder as defined in the Pledge Agreement.
"COLLATERAL ACCOUNT" means an account subject to a first priority
perfected Lien in favor of the Trustee, the funds of which shall be invested in
Temporary Cash Investments.
"COLLATERAL AGENT" means Shawmut Bank Connecticut, National
Association, as provided for in the Pledge Agreement until a successor replaces
it and thereafter means the successor.
"COMPANY" means the party named as such in the Indenture until a
successor replaces it pursuant to the terms and conditions of the Indenture and
thereafter means the successor.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters to (ii) the Consolidated Interest
Expense for such four fiscal quarters; PROVIDED, HOWEVER, that if the Company
or any Restricted 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 Coverage Ratio is an Incurrence of
Indebtedness, or both, both EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to (x) such
new Indebtedness as if such Indebtedness had been Incurred on the first day of
such period and (y) the repayment, redemption, repurchase, defeasance or
discharge of any Indebtedness repaid, redeemed, repurchased, defeased or
discharged with the proceeds of such new Indebtedness as if such repayment,
redemption, repurchase, defeasance or discharge had been
6
<PAGE>
made on the first day of such period; PROVIDED, FURTHER, that if within the
period during which EBITDA or Consolidated Interest Expense is measured, the
Company or any of its Consolidated Restricted Subsidiaries shall have made any
Asset Sales, (x) the EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets or Capital
Stock which are the subject of such Asset Sales for such period, or increased
by an amount equal to the EBITDA (if negative), directly attributable thereto
for such period and (y) the Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness for which neither the Company nor any
Consolidated Restricted Subsidiary shall continue to be liable as a result of
any such Asset Sale or which is repaid, redeemed, defeased, discharged or
otherwise retired in connection with or with the proceeds of the assets or
Capital Stock which are the subject of such Asset Sales for such period; and
PROVIDED, FURTHER, that if the Company or any Consolidated Restricted
Subsidiary shall have made any acquisition of assets or Capital Stock
(occurring by merger or otherwise) since the beginning of such period
(including any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder) the EBITDA and
Consolidated Interest Expense for such period shall be calculated, after giving
pro forma effect thereto (and without regard to clause (iv) of the proviso to
the definition of "Consolidated Net Income"), as if such acquisition of assets
or Capital Stock took place on the first day of such period. For all purposes
of this definition, if the date of determination occurs prior to the completion
of the first four full fiscal quarters following the Issue Date, then "EBITDA"
and "Consolidated Interest Expense" shall be calculated after giving effect on
a pro forma basis to the Offering as if the Offering occurred on the first day
of the four full fiscal quarters that were completed preceding such date of
determination.
"CONSOLIDATED CURRENT LIABILITIES," as of the date of determination,
means the aggregate amount of liabilities of the Company and its Consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (i) all inter-company
items be-
7
<PAGE>
tween the Company and any Subsidiary and (ii) all current maturities of long-
term Indebtedness, all as determined in accordance with GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" means, for any period, as applied
to the Company, the provision for local, state, federal or foreign income taxes
on a Consolidated basis for such period determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, as applied to
the Company, the sum of (a) the total interest expense of the Company and its
Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP, including, without limitation, (i) amortization of
original issue discount on any Indebtedness and the interest portion of
any deferred payment obligation, calculated in accordance with the
effective interest method of accounting, and amortization of debt issuance
costs (other than issuance costs with regard to the Offering, the
execution of the New Credit Facility and the related transactions
occurring simultaneously therewith), (ii) accrued interest,
(iii) noncash interest payments, (iv) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (v) interest actually paid by the Company or any such Subsidiary
under any guarantee of Indebtedness or other obligation of any other Person and
(vi) net costs associated with Interest Rate Agreements (including amortization
of discounts) and Currency Agreements, plus (b) all but the principal component
of rentals in respect of Capitalized Lease Obligations paid, accrued, or
scheduled to be paid or accrued by the Company or its Consolidated Restricted
Subsidiaries, plus (c) one-third of all Operating Lease Obligations paid,
accrued and/or scheduled to be paid by the Company and its Consolidated
Restricted Subsidiaries, plus (d) amortization of capitalized interest,
plus (e) dividends paid in respect of Preferred Stock of the Company or any
Consolidated Restricted Subsidiary held by Persons other than the Company
or a Wholly Owned Subsidiary, plus (f) cash contributions to any employee
stock ownership plan to the extent such contributions are used by such
employee stock ownership plan to pay interest or fees to any person (other
than the Company or a Restricted Subsidiary) in connection with loans
incurred by such employee stock ownership plan to purchase Capital Stock
8
<PAGE>
of the Company.
"CONSOLIDATED NET INCOME (LOSS)" means, for any period, as applied to
the Company, the Consolidated net income (loss) of the Company and its
Consolidated Restricted Subsidiaries for such period, determined in accordance
with GAAP, adjusted by excluding (without duplication), to the extent included
in such net income (loss), the following: (i) all extraordinary gains or
losses; (ii) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (A) the Company's equity in the net income of any such
Person for such period shall be included in Consolidated Net Income (Loss) up
to the aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution and (B) the equity of the Company or a Restricted Subsidiary in a
net loss of any such Person for such period shall be included in determining
Consolidated Net Income (Loss); (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such income is not at
the time thereof permitted, directly or indirectly, by operation of the terms
of its charter or by-laws or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders; (iv) any net income (or loss) of any Person
combined with the Company or any of its Restricted Subsidiaries on a "pooling
of interests" basis attributable to any period prior to the date of such
combination; (v) any gain or loss realized upon the sale or other disposition
of any property, plant or equipment of the Company or its Restricted
Subsidiaries (including pursuant to any sale/leaseback arrangement) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain (but not loss) realized upon the sale or other disposition by the
Company or any Restricted Subsidiary of any Capital Stock of any Person;
and (vi) the cumulative effect of a change in accounting principles; and
further adjusted by subtracting from such net income the tax liability
of any parent of the Company to the extent of payments made to such
parent by the Company pursuant to any tax sharing agreement or other
arrangement for such period.
9
<PAGE>
"CONSOLIDATED NET TANGIBLE ASSETS" means, as of any date of
determination, as applied to the Company, the total amount of assets (less
accumulated depreciation or amortization, allowances for doubtful receivables,
other applicable reserves and other properly deductible items) which would
appear on a Consolidated balance sheet of the Company and its Consolidated
Restricted Subsidiaries, determined on a Consolidated basis in accordance with
GAAP, and after giving effect to purchase accounting and after deducting
therefrom, to the extent otherwise included, the amounts of: (i) Consolidated
Current Liabilities; (ii) minority interests in Consolidated Subsidiaries held
by Persons other than the Company or a Restricted Subsidiary; (iii) excess of
cost over fair value of assets of businesses acquired, as determined in good
faith by the Board of Directors; (iv) any revaluation or other write-up in
value of assets subsequent to December 31, 1993 as a result of a change in the
method of valuation in accordance with GAAP; (v) unamortized debt discount and
expenses and other unamortized deferred charges, goodwill, patents, trademarks,
service marks, trade names, copyrights, licenses, organization or developmental
expenses and other intangible items; (vi) treasury stock; and (vii) any cash
set apart and held in a sinking or other analogous fund established for the
purpose of redemption or other retirement of Capital Stock to the extent such
obligation is not reflected in Consolidated Current Liabilities.
"CONSOLIDATED NET WORTH" means, at any date of determination, as
applied to the Company, stockholders' equity as set forth on the most recently
available Consolidated balance sheet of the Company and its Consolidated
Restricted Subsidiaries (which shall be as of a date no more than 60 days prior
to the date of such computation), less any amounts attributable to Redeemable
Stock or Exchangeable Stock, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of Capital Stock
of the Company or any Subsidiary.
"CONSOLIDATION" means, with respect to any Person, the consolidation
of accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and such subsidiaries are consolidated in
accordance with GAAP. The term "Consolidated" shall have a correlative
meaning.
10
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"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
the Company or any Restricted Subsidiary against fluctuations in currency
values to or under which the Company or any Restricted Subsidiary is a party
or a beneficiary on the Issue Date or becomes a party or beneficiary
thereafter.
"DEFAULT" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"DEPOSITARY" means The Depositary Trust Company, its nominees, and
their respective successors until a successor Depositary shall have become such
pursuant to the applicable provisions of this Indenture and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
hereunder.
"DEFAULTED INTEREST" means any interest on any Security which is
payable, but is not punctually paid or duly provided for on any Interest
Payment Date.
"EBITDA" means, for any period, as applied to the Company, the sum of
Consolidated Net Income (Loss) (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase accounting,
extraordinary losses or gains and any gains or losses from any Asset Sales),
plus the following to the extent included in calculating Consolidated Net
Income Loss): (a) Consolidated Income Tax Expense, (b) Consolidated Interest
Expense, (c) depreciation expense and (d) amortization expense, in each case
for such period; PROVIDED that, if the Company has any Subsidiary that is
not a Wholly Owned Subsidiary, EBITDA shall be reduced (to the extent not
otherwise reduced by GAAP) by an amount equal to (A) the consolidated net
income (loss) of such Subsidiary (to the extent included in Consolidated
Net Income (Loss)) multiplied by (B) the quotient of (1) the number of
shares of outstanding common stock of such Subsidiary not owned on
the last day of such period by the Company or any Wholly Owned
Subsidiary of the Company divided by (2) the total number of shares
of outstanding common stock of such Subsidiary on the last day of such period.
11
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"ENERGY" means Empire Energy Corporation, a Missouri corporation.
"EXCESS PAYMENTS" means any amounts paid in respect of salary, bonus,
insurance or annuity premiums (other than premiums for "key man" insurance the
sole beneficiary of which is the Company), or other payments or contributions
to any employee benefit, severance, retirement, stock ownership or stock
purchase plan or program or any similar plan or arrangement, to, or for
the benefit of, a Lindsey Entity in excess of the lesser of (A) the
aggregate scheduled amounts of any such payments as set forth in the
Employment Agreements between each of Paul Lindsey and Kristen Lindsey,
on the one hand, and the Company on the other hand, each
dated as of _______, 1994, as they may be amended from time to time
and (B) an aggregate of $1,000,000.
"EXCHANGEABLE STOCK" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).
"FAIR VALUE" of any property shall mean its fair value as of a date
not more than 90 days prior to the date of the certificate relating thereto,
such Fair Value to be determined in any case as if such property were free of
Liens securing Indebtedness, if any.
"FOREIGN ASSET SALE" means an Asset Sale in respect of the Capital
Stock or assets of a Foreign Subsidiary or a Restricted Subsidiary of the type
described in Section 936 of the Code to the extent that the proceeds of such
Asset Sale are received by a Person subject in respect of such proceeds to the
tax laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States of America or a
State thereof or the District of Columbia.
"FULLY DILUTED BASIS" means after giving effect to the exercise of
any outstanding options, warrants or rights to purchase Voting Shares and the
conversion or
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exchange of any securities convertible into or exchangeable for Voting Shares.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect and, to the extent optional, adopted by the
Company on the Issue Date, consistently applied, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board.
"GUARANTEE" means, as applied to any obligation, contingent or
otherwise, of any Person, (i) a guarantee, direct or indirect, in any manner,
of any part or all of such obligation (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) and (ii) an
agreement, direct or indirect, contingent or otherwise, the practical effect of
which is to insure in any way the payment or performance (or payment of damages
in the event of nonperformance) of any part or all of such obligation,
including the payment of amounts drawn down under letters of credit.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name a
Security is registered on the Registrar's books.
"INCUR" means, as applied to any obligation, to create, incur, issue,
assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "INCURRED," "INCURRENCE" and
"INCURRING" shall each have a correlative meaning; PROVIDED, HOWEVER, that any
Indebtedness or Capital Stock of a Person existing at the time such Person
becomes (after the Issue Date) a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary; and PROVIDED, FURTHER, that any amendment,
modification or waiver of any provision of any document pursuant to which
Indebtedness was previously Incurred shall not be deemed to be an Incurrence of
Indebtedness as long as (i) such amendment, modification or waiver does not (A)
increase the principal or premium thereof or interest rate thereon, (B) change
to an earlier date the
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Stated Maturity thereof or the date of any scheduled or required principal
payment thereon or the time or circumstances under which such Indebtedness may
or shall be redeemed, (C) if such Indebtedness is contractually subordinated in
right of payment to the Securities, modify or affect, in any manner adverse to
the Holders, such subordination, (D) if the Company is the obligor thereon,
provide that a Restricted Subsidiary shall be an obligor, or (E) violate, or
cause the Indebtedness to violate, the provisions of Sections 3.5 or 3.7 and
(ii) such Indebtedness would, after giving effect to such amendment,
modification or waiver as if it were an Incurrence, comply with clause (i) of
the first proviso to the definition of "Refinancing Indebtedness."
"INDEBTEDNESS" of any Person means, without duplication, (i) the
principal of and premium (if any such premium is then due and owing) in respect
of (A) indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable; (ii) all Capitalized
Lease Obligations of such Person; (iii) all obligations of such Person Incurred
as the deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement; (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other- than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with
respect to the scheduled redemption, repayment or other repurchase of any
Redeemable Stock and, in the case of any Subsidiary, with respect to any
Preferred Stock (but excluding in each case any accrued dividends);
(vi) all obligations of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or
liable, directly or indirectly, as obligor, guarantor or otherwise,
including by means of any guarantee; (vii) all liabilities or other
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obligations, contingent or otherwise, purchased, assumed or with respect to
which such Person shall otherwise become liable or responsible in connection
with the purchase, acquisition or assumption of property, services or business
operations to the extent reflected on the balance sheet of such Person in
accordance with GAAP; (viii) contractual obligations to repurchase goods sold
or distributed; (ix) all obligations of such Person in respect of Interest Rate
Agreements and Currency Agreements; and (x) all obligations of the type
referred to in clauses (i) through (ix) of other Persons secured by any Lien
on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the
obligation so secured; PROVIDED, HOWEVER, that Indebtedness shall not
include trade accounts payable arising in the ordinary course of business.
The amount of Indebtedness of any Person at any date shall be,
with respect to unconditional obligations, the outstanding balance at such
date of all such obligations as described above and,
with respect to any contingent obligations (other than pursuant to clause (vii)
above, which shall be included to the extent reflected on the balance sheet of
such Person in accordance with GAAP) at such date, the maximum liability
determined by such Person's board of directors, in good faith, as, in light of
the facts and circumstances existing at the time, reasonably likely to be
Incurred upon the occurrence of the contingency giving rise to such obligation.
"INTERCOMPANY NOTES" means the notes issued to the Company by its
Subsidiaries pursuant to the Master Revolving Credit Note, dated as of
June ___, 1994, among the Company and each of the Subsidiaries pursuant to
which the Company shall make certain loans to finance the working capital
needs of the Subsidiaries with the proceeds of the Indebtedness incurred
pursuant to the New Credit Facility, or any substantially similar master
intercompany note pursuant to any credit facility, Incurred pursuant
to Section 3.4(b)(iv) refinancing the New Credit Facility, as such
Intercompany Notes may be amended or otherwise modified from time to time.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment
of interest on the Securities.
"INTEREST RATE AGREEMENT" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap
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agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement
designed to protect against fluctuations in interest rates to or under which
the Company or any of its Restricted Subsidiaries is a party or beneficiary on
the Issue Date or becomes a party or beneficiary thereafter.
"INVESTMENT" means, with respect to any Person, any direct or
indirect advance, loan (other than advances to customers who are not
Affiliates in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person or its Subsidiaries)
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for
property or services for the account or use of
others), or any other investment in any other Person, or any purchase or
acquisition by such Person of any Capital Stock, bonds, notes, debentures or
other securities or assets issued or owned by any other Person (whether by
merger, consolidation, amalgamation, sale of assets or otherwise). For
purposes of the definition of "Unrestricted Subsidiary" and the
provisions set forth in Section 3.3, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the
net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the net assets of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"ISSUE DATE" means the date on which the Securities are originally
issued under the Indenture.
"LIEN" means any mortgage, lien, pledge, charge, hypothecation,
assignment, claim, option, priority, preferential arrangement of any kind or
nature or other security interest or encumbrance of any kind or nature
(including any conditional sale or other title retention agreement and any
lease in the nature thereof).
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"LINDSEY ENTITY" means Paul S. Lindsey, Jr., Kristen L. Lindsey, any
member of their family and any Person of which any of the foregoing Persons are
Affiliates.
"LINE OF BUSINESS" means the sale and distribution of propane gas and
operations related thereto.
"MANAGEMENT GROUP" means, collectively, those individuals who
beneficially own, directly or indirectly, Voting Shares of the Company or any
successor thereto immediately following the consummation of the Offering and
the transactions related thereto and are members of management of the Company
or any Subsidiaries of the Company (or the estate or any beneficiary of any
such individual or any immediate family member of any such individual or any
trust established for the benefit of any such individual or immediate family
member).
"NET AVAILABLE CASH" means, with respect to any Asset Sale or
Collateral Sale, the cash or cash equivalent payments received by the Company
or a Subsidiary in connection with such Asset Sale or Collateral Sale
(including any cash received by way of deferred payment of principal pursuant
to a note or installment receivable or otherwise, but only as or when received
and also including the proceeds of other property received when converted to
cash or cash equivalents) net of the sum of, without duplication, (i) all
reasonable legal, title and recording tax expenses, reasonable commissions,
and other reasonable fees and expenses incurred directly relating to such
Asset Sale or Collateral Sale, (ii) provision for all local, state, federal
and foreign taxes expected to be paid (whether or not such taxes are actually
paid or payable) as a consequence of such Asset Sale or Collateral Sale,
without regard to the consolidated results of the Company and its Subsidiaries,
(iii) payments made to repay Indebtedness which is secured by any assets
subject to such Asset Sale or Collateral Sale in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or by applicable law, be repaid out of the
proceeds from such Asset Sale or Collateral Sale, and (iv) reasonable amounts
reserved by the Company or any Subsidiary of the Company receiving proceeds of
such Asset Sale or Collateral Sale against any liabilities associated with such
Asset Sale or Collateral Sale,
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including without limitation, indemnification obligations PROVIDED that, such
amounts shall be applied as described in Section 3.12 or Section 10.4, as the
case may be, no later than the fifth anniversary of such Asset Sale or
Collateral Sale if not previously paid to satisfy such liabilities and PROVIDED
FURTHER that such amounts shall not exceed 10% of the payments received by the
Company or a Subsidiary in connection with such Asset Sale or Collateral Sale.
"NET CASH PROCEEDS" means, with respect to any issuance or sale of
Capital Stock by any Person, the cash proceeds to such Person of such issuance
or sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultancy and other
fees actually incurred by such Person in connection with such issuance or sale
and net of taxes paid or payable by such Person as a result thereof.
"NEW CREDIT FACILITY" means the credit facility provided pursuant to
the credit agreement, dated as of June ___, 1994, as it may be amended or
otherwise modified from time to time, between the Company and Continental Bank,
N.A. and its successors and assigns.
"NON-CONVERTIBLE CAPITAL STOCK" means, with respect to any
corporation, any Capital Stock of such corporation which is not convertible
into another security other than non-convertible common stock of such
corporation; PROVIDED, HOWEVER, that Non-Convertible Capital Stock shall not
include any Redeemable Stock or Exchangeable Stock.
"OBLIGATIONS" means for any Person all principal, premium, interest,
penalties, expenses, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness of such
Person.
"OFFERING" means the public offering and sale of the Securities.
"OFFICER" means the Chairman, the President, any Vice President, the
Chief Operating Officer, the Chief Financial Officer, the Treasurer, the
Secretary,
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any Assistant Treasurer, any Assistant Secretary or the Controller of the
Company.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers,
one of whom must be the President, the Treasurer or a Vice President of the
Company. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4)) shall include the statements provided for in TIA
Section 314(e).
"OPERATING LEASE OBLIGATIONS" means any obligation of the Company and
its Restricted Subsidiaries on a Consolidated basis incurred or assumed under
or in connection with any lease of real or personal property which, in
accordance with GAAP, is not required to be classified and accounted for as a
capital lease.
"OPINION OF COUNSEL" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel, if so acceptable, may be an
employee of or counsel to the Company or the Trustee. Each such Opinion of
Counsel shall include the statements provided for in TIA Section 314(e).
"OUTSIDE DIRECTOR" means any Person who is a member of the Board of
Directors who is not (i) an employee or Affiliate of the Company, any
Subsidiary of the Company or Energy, (ii) an employee or Affiliate of Holding
Capital Group, Inc. (iii) a Plaster Entity or a Lindsey Entity, or (iv) a
Person who has engaged in a transaction with the Company or any Subsidiary of
the Company that would be required to be disclosed under Item 13 of Form 10-K
if such Person were a director of a registrant under the Securities Exchange
Act of 1934, as amended.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PLASTER ENTITY" means Robert W. Plaster, Stephen R. Plaster, any
member of each such individual's
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family, and any Person of which any of the foregoing Persons are Affiliates.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, dated as of
the date hereof, by the Company in favor of the Trustee, in the form attached
hereto as EXHIBIT D, as amended, supplemented and/or restated.
"PREFERRED STOCK", as applied to the Capital Stock of any
corporation, means 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 or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"PRINCIPAL" means, with respect to the Securities, the Accreted Value
of the Securities.
"PUBLIC EQUITY OFFERING" means an underwritten primary public
offering of equity securities of the Company pursuant to an effective
registration statement under the Securities Act.
"PUBLIC MARKET" shall be deemed to have occurred if (x) a Public
Equity Offering has been consummated and (y) at least 25% (for purposes of the
definition of "Change of Control") or 20% (for purposes of paragraph 5 of the
Securities attached hereto) of the total issued and outstanding common stock of
the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"REDEEMABLE STOCK" means any class or series of Capital Stock of any
Person that (a) by its terms, by the terms of any security into which it is
convertible or exchangeable or otherwise is, or upon the happening of an event
or passage of time would be, required to be redeemed (in whole or in part) on
or prior to the first anniversary of the Stated Maturity of the Securities,
(b) is redeemable at the option of the holder thereof at any time on or prior
to the first anniversary of the Stated Maturity of the Securities or (c) is
convertible into or exchangeable for Capital Stock referred to in clause
(a) or clause (b) above or debt securities at any time prior
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to the first anniversary of the Stated Maturity of the Securities.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds,
refinances, replaces, renews, repays or extends (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" shall have a correlative meaning) any Indebtedness of the Company
or a Restricted Subsidiary existing on the Issue Date or Incurred in compliance
with the Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness; PROVIDED,
HOWEVER, that (i) the Refinancing Indebtedness shall be contractually
subordinated in right of payment to the Securities on terms at least as
favorable to the Holders of the Securities as the terms set forth in the form
of subordinated provisions attached hereto as Exhibit C, (ii) the Refinancing
Indebtedness shall be scheduled to mature either (a) no earlier than the
Indebtedness being refinanced or (b) after the Stated Maturity of the
Securities, (iii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced and (iv) such Refinancing
Indebtedness shall have an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if issued with original issue discount,
the aggregate accreted value) then outstanding (plus fees and expenses,
including any premium and defeasance costs) under the Indebtedness being
refinanced; and PROVIDED, FURTHER, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Subsidiary of the Company that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is
not designated an Unrestricted Subsidiary by the Board of Directors.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to
property now owned or hereafter acquired
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whereby the Company or a Subsidiary transfers such property to a Person and
leases it back from such Person, other than leases for a term of not more than
36 months or between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries.
"SEASONAL OVERADVANCE" has the meaning ascribed to it in that certain
Credit Agreement, dated as of the date hereof, between the Company and
Continental Bank, N.A., which such Seasonal Overadvance shall not exceed
$3,000,000.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means all series of the Senior Secured Notes Due 2004
that are issued under and pursuant to the terms of this Indenture, as amended
or supplemented from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SENIOR INDEBTEDNESS" means (i) all obligations consisting of the
principal of and premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not post-filing interest is
allowed in such proceeding), whether existing on the Issue Date or thereafter
Incurred, in respect of (A) Indebtedness of the Company for money borrowed and
(B) Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (ii)
all Capitalized Lease Obligations of the Company; (iii) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (B) under Interest Rate
Agreements and Currency Agreements entered into in respect of any obligations
described in clauses (i) and (ii) or (C) issued or assumed as the deferred
purchase price of property, and all conditional sale obligations of the Company
and all obligations of the Company under any title retention agreement;
(iv) all guarantees of the Company with respect to obligations of other persons
of the type referred to in clauses (ii) and (iii) and with respect to the
payment of dividends of
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other Persons; and (v) all obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii) or (iv); unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinated in right of
payment to the Securities, or any other Indebtedness or obligation of the
Company; PROVIDED, HOWEVER, that Senior Indebtedness shall not be deemed to
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes or (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities).
"SIGNIFICANT SUBSIDIARY" means any Subsidiary (other than an
Unrestricted Subsidiary) that would be a "Significant Subsidiary" of the
Company within the meaning of Rule 1-02 under Regulations S-X promulgated by
the SEC.
"STATED MATURITY" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
contractually subordinated or junior in right of payment to the Securities or
any other Indebtedness of the Company.
"SUBSIDIARY" means, as applied to any Person, (i) a corporation, at
least a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect a majority of the board of directors of such
corporation is at the time, directly or indirectly, owned or controlled by
such Person, by a Subsidiary or Subsidiaries of such Person, or by such Person
and a Subsidiary or
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, a Subsidiary or Subsidiaries of such Person, or such
Person and a Subsidiary or Subsidiaries of such Person, directly
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or indirectly, at the date of determination, has at least a majority ownership
interest. As of the date of this Indenture, the Subsidiaries of the Company
include, without limitation, PSNC Propane Corporation.
"SUBSIDIARY GUARANTEES" means the unconditional guarantees by the
respective Subsidiary Guarantors of the due and punctual payment of principal,
premium, if any, and interest on the Securities when and as the same shall
become due and payable and in the coin or currency in which the same are
payable, whether at Stated Maturity, by declaration of acceleration, call for
redemption, purchase or otherwise.
"SUBSIDIARY GUARANTOR" means each of the Persons listed on Schedule I
attached hereto, each Person that becomes a Restricted Subsidiary of the
Company after the Issue Date and each other Person that becomes a Subsidiary
Guarantor under this Indenture by executing a supplement to this Indenture
pursuant to which such Person jointly and severally unconditionally guarantees
the Securities on a senior basis.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-
77bbbb) as in effect on the date first above written.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations Guaranteed by the United States of America or any agency
thereof, in each case, maturing within 360 days of the date of acquisition
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company (including the Trustee) which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States having capital, surplus and
undivided profits aggregating in excess of $250,000,000 and whose debt is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by an registered broker
dealer or mutual fund distributor,(iii) repurchase obligations with a term of
not more than 30 days for
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underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate or Subsidiary
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-2"
(or higher) according to Moody's Investors Service, Inc. or "A-2" (or higher)
according to Standard and Poor's Corporation, (v) securities with maturities or
six months or less from the date of acquisition backed by standby or direct pay
letters of credit issued by any bank satisfying the requirements of clause (ii)
above and (vi) securities with maturities of six months or less from the date
of acquisition issued or fully Guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard and Poor's
Corporation or "A" by Moody's Investors Service, Inc.
"TRUSTEE" means the party named as such above until a successor
replaces it and thereafter means the successor.
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters or to whom any corporate
trust matter is referred because of that officer's knowledge of and familiarity
with the particular subject.
"UNIFORM COMMERCIAL CODE" means the New York Uniform Commercial Code
as in effect from time to time.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any
25
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other Subsidiary that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, that either (A) the Subsidiary to be so designated has
total assets of $1,000 or less or (B) if such Subsidiary has assets greater
than $1,000, that such designation would be permitted pursuant to Section 3.3.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness pursuant to Section 3.4(a) and (y) no Default or Event
of Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the respective Trustee by promptly
filing with the respective Trustee a copy of the board resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) are not callable or redeemable before the maturity
thereof.
"VOTING SHARES," with respect to any corporation, means the Capital
Stock having the general voting power under ordinary circumstances to elect at
least a majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary (other than an
Unrestricted Subsidiary) all the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary.
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SECTION 1.2 OTHER DEFINITIONS.
TERM DEFINED IN SECTION
"Application Period" . . . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Offer Amount" . . . . . . . . . . . . . . . . . . . . . 3.12
"Asset Sale Purchase Date" . . . . . . . . . . . . . . . . . . . . 3.12
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . 3.8
"Change of Control Purchase Date" . . . . . . . . . . . . . . . . . 3.8
"Collateral Application Period" . . . . . . . . . . . . . . . . . . 10.4
"Collateral Offer Period" . . . . . . . . . . . . . . . . . . . . . 10.5
"Collateral Sale" . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
"Collateral Sale Offer" . . . . . . . . . . . . . . . . . . . . . . 10.5
"Collateral Sale Offer Amount" . . . . . . . . . . . . . . . . . . 10.5
"Collateral Sale Purchase Date" . . . . . . . . . . . . . . . . . . 10.5
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . 5.1
"Global Securities" . . . . . . . . . . . . . . . . . . . . . . . . . 2.1
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . 3.3
"Successor Corporation" . . . . . . . . . . . . . . . . . . . . . . 4.1
SECTION 1.3 INCORPORATION BY REFERENCE OF
TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"COMMISSION" means the SEC;
"INDENTURE SECURITIES" means the Securities;
"INDENTURE SECURITY HOLDER" means a Holder or Securityholder;
"INDENTURE TO BE QUALIFIED" means this Indenture;
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"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee; and
"OBLIGOR" on the indenture securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings assigned to them.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "generally accepted accounting principles" means, and any
accounting term not otherwise defined has the meaning assigned to it and shall
be construed in accordance with, GAAP;
(c) "OR" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions;
(f) "including" means including, without limitation;
(g) unsecured debt shall not be deemed to be subordinate or junior
to secured debt merely by virtue of its nature as unsecured debt;
(h) the principal amount of any non-interest bearing or other
discount security (other than the Securities) at any date shall be the
principal amount thereof that would be shown on a balance sheet of the issuer
dated such date prepared in accordance with generally accepted accounting
principles and accretion of principal on such security shall be deemed to be
the Incurrence of Indebtedness; and
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(i) the principal amount (if any) of any Preferred Stock shall be
the greatest of (i) the stated value, (ii) the redemption price or (iii) the
liquidation preference of such Preferred Stock.
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ARTICLE II
THE SECURITIES
SECTION 2.1 FORM AND DATING.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A annexed hereto, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage and shall have endorsed thereon the
Subsidiary Guarantee executed by the Subsidiary Guarantors as provided in
Article XII. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the form of Security annexed
hereto as Exhibit A shall constitute, and are expressly made, a part of this
Indenture. To the extent applicable, the Company, each Subsidiary Guarantor
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
The Securities shall be issued initially in the form of one or more
permanent global Securities in registered form (the "Global Securities"),
deposited with, or on behalf of, the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. Each Global Security
shall bear such legend as may be required or reasonably requested by the
Depositary. Each Global Security shall have endorsed thereon the Subsidiary
Guarantee executed by the Subsidiary Guarantors.
The definitive Securities shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Securities may be listed, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
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SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and the Subsidiary Guarantee of the Subsidiary Guarantors shall be endorsed
thereon.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue up to
the aggregate principal amount stated in paragraph 4 of Exhibit A upon a
written order of the Company signed by two Officers. Such order shall specify
the amount of the Securities to be authenticated and the date on which the
original issue of Securities is to be authenticated. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.7.
The Trustee shall initially act as authenticating agent and may
subsequently appoint another Person acceptable to the Company as authenticating
agent to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the
Company. Provided that the authentication agent has entered into an agreement
with the Company concerning the authentication agent's duties, the Trustee
shall not be liable for any act or any failure of the authenticating agent to
perform any duty either required herein or authorized herein to be performed
by such person in accordance with this Indenture.
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The Securities shall be issued only in registered form without
coupons and only in denominations of $1,000 and integral multiples thereof.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Securities may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall promptly notify the Trustee of the name and address
of any such Agent and any change in the address of such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
6.7.
The Company or any Subsidiary or Affiliate of the Company may act as Paying
Agent, Registrar, co-registrar or transfer agent; provided, however, that the
Company shall not act as Paying Agent during such time as an Event of Default
shall have occurred and be continuing.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
On or prior to 1:00 p.m. on each due date of the principal and
interest on any Security (including any redemption date fixed under the terms
of such Security or this Indenture) the Company shall deposit with the Paying
Agent a sum of money sufficient to pay such principal and interest in funds
available when such becomes due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall
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hold in trust for the benefit of Securityholders or the Trustee all money held
by the Paying Agent for the payment of principal of or interest on the
Securities (whether such money has been paid to it by the Company or any other
obligor on the Securities, including any Subsidiary Guarantor) and shall notify
the Trustee of any default by the Company (or any other obligor on the
Securities, including any Subsidiary Guarantor) in making any such payment. If
the Company or a Subsidiary or an affiliate of the Company acts as Paying
Agent, it shall segregate the money held by it as Paying Agent and hold it as a
separate trust fund for the benefit of the Securityholders. If the Company
defaults in its obligation to deposit funds for the payment of principal and
interest the Trustee may, during the continuation of such default, require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
to account for any funds disbursed by it. Upon doing so, the Paying Agent
(other than the Company or a Subsidiary or Affiliate of the Company) shall have
no further liability for the money delivered to the Trustee.
SECTION 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee at least five Business Days before each interest
payment date and at such other times as the Trustee may request in writing a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of the Securityholders, and the Company shall
otherwise comply with TIA Section 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE.
The Securities shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
Section 8-401(1) of the Uniform Commercial Code are met and, if so required
by the Trustee, the Company or any Subsidiary Guarantor, if the Security
presented is accompanied by a written instrument of
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transfer in form satisfactory to the Trustee, the Company and each of the
Subsidiary Guarantors, duly executed by the registered owner or by his or her
attorney duly authorized in writing. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities endorsed thereon with the Subsidiary
Guarantee of the Subsidiary Guarantors at the Registrar's or co-registrar's
request. No service charge shall be made for any registration of transfer or
exchange of the Securities, but the Company may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange pursuant to Section 2.10 or 8.5 of
this Indenture).
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, each of the Subsidiary Guarantors, the Trustee, the
Paying Agent, the Registrar or any co-registrar may deem and treat the person
in whose name a Security is registered as the absolute owner of such Security
for the purpose of receiving payment of principal of and interest on such
Security and for all other purposes whatsoever, whether or not such Security
is overdue,
and none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
Notwithstanding any other provisions of this Section 2.6, unless and
until it is exchanged in whole or in part for Securities in definitive
registered form, a Global Security representing all or a portion of the
Securities may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another
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nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
If the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for the Global Securities or if at any time the
Depositary shall no longer be eligible under the next sentence of this
paragraph, the Company shall appoint a successor Depositary with respect to the
Securities. Each Depositary appointed pursuant to this Section 2.6 must, at the
time of its appointment and at all times while it serves as Depositary, be a
clearing agency registered under the Exchange Act and any other applicable
statute or regulation. The Company will execute, and the Trustee will
authenticate and deliver upon a written order of the Company signed by two
Officers, Securities in definitive registered form with the Subsidiary Guarantee
of the Subsidiary Guarantors endorsed thereon in any authorized denominations
representing such Securities in exchange for such Global Security or Securities
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue or unable to continue as Depositary for the Global Securities or if at
any time the Depositary shall no longer be eligible to serve as Depositary and a
successor Depositary for the Securities is not appointed by the Company within
60 days after the Company receives such notice or becomes aware of such
ineligibility or (ii) an Event of Default has occurred and is continuing.
The Company may at any time and in its sole discretion determine that
the Securities shall no longer be represented by a Global Security or
Securities. In such event the Company will execute, and the Trustee will
authenticate and deliver upon a written order of the Company signed by two
Officers, Securities with the Subsidiary Guarantee of the Subsidiary Guarantors
endorsed thereon in exchange for such Global Security or Securities.
Upon the exchange of a Global Security for Securities in definitive
registered form without coupons, in authorized denominations, such Global
Security shall be cancelled by the Trustee. Securities in definitive registered
form issued in exchange for a Global Security pursuant to this Section 2.6 shall
be registered in such names and in such authorized denominations as the Deposi-
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tary for such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to or as directed by the Persons in whose names
such Securities are so registered.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.7 REPLACEMENT SECURITIES.
If a mutilated security is surrendered to the Registrar or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken and the Holder furnishes to the Company, each Subsidiary
Guarantor and the Trustee evidence to their satisfaction of such loss,
destruction or wrongful taking, the Company shall issue and the Trustee shall,
in the absence of notice to the Company or the Trustee that such Security has
been acquired by a BONA FIDE purchaser, authenticate a replacement Security with
the Subsidiary Guarantee of the Subsidiary Guarantors endorsed thereon if the
requirements of Section 8-405 of the Uniform Commercial Code are met and if
there is delivered to the Company, each Subsidiary Guarantor and the Trustee
such security or indemnity as may be required to save each of them harmless,
satisfactory to the Company or the Trustee, as the case may be. The Company,
each Subsidiary Guarantor and the Trustee may charge the Holder for their
expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.8 OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, and those described in this Section as not outstanding.
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If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a BONA FIDE purchaser.
If all the principal and interest on any Securities are considered
paid under Section 3.1, such Securities cease to be outstanding under this
Indenture and interest on such Securities shall cease to accrue.
If the Paying Agent (other than the Company or a Subsidiary or an
Affiliate of the Company) holds in accordance with this Indenture on a
redemption date or maturity date money sufficient to pay all principal and
interest due on that date then on and after that date such Securities cease to
be outstanding and interest on them ceases to accrue (unless there shall be a
default in such payment).
If a Security is called for redemption, the Company and the Trustee
need not treat the Security as outstanding in determining whether Holders of the
required principal amount of Securities have concurred in any direction, waiver
or consent.
Subject to Section 2.9, a Security does not cease to be outstanding
because the Company or an Affiliate thereof holds the Security.
SECTION 2.9 DETERMINATION OF HOLDERS' ACTION.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, waiver or consent,
Securities owned by or pledged to the Company, any Subsidiary Guarantor, any
other obligor upon the Securities or any Affiliate of the Company, any
Subsidiary Guarantor or such other obligor shall be disregarded and deemed not
to be outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned or pledged shall be so
disregarded.
SECTION 2.10 TEMPORARY SECURITIES.
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Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities having endorsed
thereon temporary Subsidiary Guarantees executed by the Subsidiary Guarantors.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities and having duly endorsed thereon the Subsidiary Guarantees
which shall be substantially in the form of definitive Subsidiary Guarantees
but which may have variations that the Company believes appropriate for
temporary securities. Without unreasonable delay, the Company shall prepare
and the Trustee, upon the written order of the Company signed by two Officers,
shall authenticate definitive Securities in exchange for temporary Securities.
Until such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment or cancellation and shall destroy the same or
otherwise dispose of canceled Securities as the Company directs by written order
signed by two Officers. The Company may not issue new Securities to replace
Securities that it has paid or delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay defaulted interest, plus any interest payable on the defaulted
interest to the extent permitted by law, in any lawful manner. It may pay the
defaulted interest to the Persons who are Securityholders on a subsequent
special record date which date shall be at least five Business Days prior to the
payment date. The Company shall fix the special record date and payment date.
At least 15 days before the special record date, the Company (or the Trustee, in
the name of and at the expense of the Company) shall mail to
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Securityholders a notice that states the special record date, payment date and
amount of interest to be paid.
ARTICLE III
COVENANTS
SECTION 3.1 PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. The Company shall
pay interest on overdue principal at the rate borne by the Securities; it shall
pay interest on overdue installments of interest at the rate borne by the
Securities to the extent lawful. Principal and interest shall be considered
paid on the date due (including a redemption date) if the Trustee or the Paying
Agent (other than the Company or a Subsidiary or an Affiliate of the Company)
has received from or on behalf of the Company on or prior to 1:00 p.m. on that
date money sufficient to pay all principal and interest then due.
SECTION 3.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company or any Subsidiary Guarantor in
respect of the Securities any Subsidiary Guarantee endorsed thereon and this
Indenture may be served. The Company and the Subsidiary Guarantors will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company or any
Subsidiary Guarantor shall fail to maintain any such required office or agency
or to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 11.2 of this Indenture.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation
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or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, the City of New York,
for such purposes. The Company will give prompt written notice to the Trustee
of any such designation or rescission and of any change in the location of any
such other office or agency.
The Company hereby initially designates the office of Shawmut Trust
Company in the Borough of Manhattan, the City of New York, as such office of the
Company in accordance with Section 2.3.
SECTION 3.3 LIMITATION ON RESTRICTED PAYMENTS.
(a) So long as any of the Securities are outstanding, the Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend on or make any distribution or
similar payment of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of its Capital Stock (other than dividends or
distributions payable solely in its Non-Convertible Capital Stock or rights to
acquire its Non-Convertible Capital Stock and dividends or distributions
payable solely to the Company or a Restricted Subsidiary), (ii) purchase,
redeem, defease or otherwise acquire or retire for value any Capital Stock of
the Company or of any direct or indirect parent of the Company or, with respect
to the Company, exercise any option to exchange any Capital Stock that by its
terms is exchangeable solely at the option of the Company (other than into
Capital Stock of the Company which is neither Exchangeable Stock nor Redeemable
Stock), (iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity or scheduled repayment thereof or
scheduled sinking fund payment thereon, any Subordinated Indebtedness (other
than the purchase, repurchase, or other acquisition of Subordinated
Indebtedness purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition) or (iv) make any Investment in any Unrestricted
Subsidiary or any Affiliate of the Company other than a Restricted Subsidiary
or a Person which will become a Restricted Subsidiary as a result of any such
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Investment (each such payment described in clauses (i)-(iv) of this paragraph, a
"Restricted Payment"), unless at the time of and after giving effect to the
proposed Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing (or would result therefrom);
(2) the Company would be permitted to Incur an additional $1 of
Indebtedness pursuant to the provisions of Section 3.4(a); and
(3) the aggregate amount of all such Restricted Payments
subsequent to the Issue Date shall not exceed the sum of:
(A) 50% of aggregate Consolidated Net Income (or if such
Consolidated Net Income is a deficit, minus 100% of such deficit), and
minus 100% of the amount of any write-downs, write-offs, other
negative reevaluations and other negative extraordinary charges not
otherwise reflected in Consolidated Net Income during such period;
(B) the aggregate Net Cash Proceeds received by the Company
after the Issue Date from a sale by the Company of Capital Stock
(other than Redeemable Stock or Exchangeable Stock) of the Company or
from the issuance of any options or warrants or other rights to
acquire Capital Stock (other than Redeemable Stock or Exchangeable
Stock);
(C) the amount by which the principal amount of Indebtedness
of the Company or its Restricted Subsidiaries is reduced on the
Company's Consolidated balance sheet upon the conversion or exchange
(other than by a Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company or any Restricted Subsidiary converted or
exchanged for Capital Stock (other than Redeemable Stock or
Exchangeable Stock) of the Company (less the amount of any cash, or
the value of any other property,
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distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange);
(D) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investments"), not to exceed in
the case of any Unrestricted Subsidiary the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary; and
(E) $1,000,000, less the aggregate of all Excess Payments
made during such period.
(b) The failure to satisfy the conditions set forth in clauses (2) and
(3) of Section 3.3(a) shall not prohibit any of the following as long as the
condition set forth in Section 3.3(a)(1) is satisfied (except as set forth
below):
(i) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 3.3(a);
(ii) any purchase, redemption, defeasance, or other acquisition
or retirement for value of Capital Stock or Subordinated Indebtedness of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Redeemable Stock or Exchangeable Stock and other than stock issued or sold
to a Subsidiary or to an employee stock ownership plan), PROVIDED,
HOWEVER, that notwithstanding Section 3.3(a)(1), the occurrence or
existence of a Default or Event of Default shall not prohibit the making
of such purchase, redemption, defeasance or other acquisition or
retirement, and PROVIDED, FURTHER, such purchase, redemption, defeasance
or other acquisition or retirement shall not be included in
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the calculation of Restricted Payments made for purposes of Section
3.3(a)(3) and PROVIDED, FURTHER, that the Net Cash Proceeds from such sale
shall be excluded from Section 3.3(a)(3)(B);
(iii) any purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Indebtedness of the Company made by
exchange for, or out of the proceeds of the substantially concurrent
Incurrence of for cash (other than to a Subsidiary), new Indebtedness of
the Company, PROVIDED, HOWEVER, that (A) such new Indebtedness shall be
contractually subordinated in right of payment to the Securities on terms
at least as favorable to the Security holders as the terms set forth in the
form of subordination provisions attached hereto as Exhibit B, (B) such new
Indebtedness has a Stated Maturity either (1) no earlier than the Stated
Maturity of the Indebtedness redeemed, repurchased, defeased, acquired or
retired or (2) after the Stated Maturity of the Securities and (C) such
Indebtedness has an Average Life equal to or greater than the Average Life
of the Indebtedness redeemed, repurchased, defeased, acquired or retired,
and PROVIDED, FURTHER, that such purchase, redemption, defeasance or other
acquisition or retirement shall not be included in the calculation of
Restricted Payments made for purposes of Section 3.3(a)(3);
(iv) any purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness upon a Change of Control
or an Asset Sale to the extent required by the indenture or other agreement
pursuant to which such Subordinated Indebtedness was issued, but only if
the Company (A) in the case of a Change of Control, has made an offer to
repurchase the Securities as described under Section 3.8 or (B) in the case
of an Asset Sale, has applied the Net Available Cash from such Asset Sale
in accordance with Section 3.12 and Section 10.4 (if applicable);
(v) pro rata dividends paid by a Subsidiary with respect to a
series or class of its Capital Stock the majority of which is held by the
Company or a Wholly Owned Subsidiary;
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(vi) the payment of dividends on the Capital Stock of the Company
following an initial Public Equity Offering of such Capital Stock of up to
an amount per annum of 6% of the Net Cash Proceeds received by the Company
in such Public Equity Offering;
(vii) the purchase, redemption, acquisition, cancellation, or
other retirement for value of shares of Capital Stock of the Company,
options on any such shares or related phantom stock, or stock appreciation
rights or similar securities held by officers or employees or former
officers or employees (or their estates or beneficiaries under their
estates), upon the death, disability, retirement or termination of
employment of such employee or former employee, pursuant to the terms of
an employee benefit plan or any other agreement under which such shares of
stock or related rights were issued, provided that the aggregate cash
consideration paid, or distributions made, pursuant to this clause (vii)
after the date of this Indenture does not exceed an aggregate amount of
$1,000,000 plus the cash proceeds received by or contributed to the
Company from any reissuance of Capital Stock by the Company to members of
management and employees of the Company and its Subsidiaries; and
(viii) Investments in Unrestricted Subsidiaries of up to
$3,000,000 at any one time outstanding.
SECTION 3.4 LIMITATION ON INCURRENCE OF INDEBTEDNESS.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness, except that the
Company may Incur Indebtedness if, after giving effect thereto, the Consolidated
Coverage Ratio would be greater than 1.75:1 if such Incurrence takes place on or
prior to __________, 1998, or 2.0:1, if such Incurrence takes place thereafter.
(b) Notwithstanding the foregoing, this Section shall not limit the
ability of the Company or any Restricted Subsidiary to Incur the following
Indebtedness:
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(i) Refinancing Indebtedness (except with respect to
Indebtedness referred to in clauses (ii), (iii) or (iv) below);
(ii) Acquisition Indebtedness at any one time outstanding in an
aggregate principal amount not to exceed $15,000,000, PROVIDED that not
more than an aggregate of $6,000,000 of such Acquisition Indebtedness may
be incurred in any twelve month period;
(iii) Indebtedness of the Company which is owed to and held by a
Wholly Owned Subsidiary and Indebtedness of a Wholly Owned Subsidiary
which is owed to and held by the Company or a Wholly Owned Subsidiary,
including, without limitation, the Indebtedness evidenced by the
Intercompany Notes; PROVIDED, HOWEVER, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the Company or by a Wholly Owned Subsidiary, as the case
may be;
(iv) Indebtedness of the Company (whether under the New Credit
Facility or otherwise) Incurred for the purpose of financing the working
capital needs of the Company and its Restricted Subsidiaries, PROVIDED,
HOWEVER, that after giving effect to the Incurrence of such Indebtedness
and any substantially simultaneous use of the proceeds thereof, the
aggregate principal amount of all such Indebtedness Incurred pursuant to
this clause (iv) and then outstanding immediately after such Incurrence and
such use of proceeds shall not exceed the sum of 60% of the book value of
the inventory and 90% of the book value of the receivables of the Company
and the Restricted Subsidiaries on a consolidated basis at such time plus
the amount of the Seasonal Overadvance and, PROVIDED, FURTHER, that such
aggregate principal amount outstanding shall not exceed $15,000,000 at any
time prior to __________, 1997 and PROVIDED FURTHER, that the Company's
Subsidiaries shall be permitted to guaran-
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tee Indebtedness Incurred by the Company pursuant to the New Credit
Facility or pursuant to a credit facility Incurred pursuant to this
Section 3.4(b)(iv) refinancing the New Credit Facility;
(v) Acquired Indebtedness; PROVIDED, HOWEVER, that the Company
would have been able to Incur such Indebtedness at the time of the
Incurrence thereof pursuant to Section 3.4(a); and
(vi) Indebtedness of the Company or a Restricted Subsidiary
outstanding on the Issue Date (other than Indebtedness referred to in
clause (iv) above and Indebtedness being repaid or retired with the
proceeds of the Offering).
(c) Notwithstanding Sections 3.4(a) and (b), the Company shall not
Incur any Indebtedness if the proceeds thereof are used, directly or
indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any
Subordinated Indebtedness unless such repayment, prepayment, redemption,
defeasance, retirement, refunding or refinancing is not prohibited by Section
3.3 or unless such Indebtedness shall be contractually subordinated to the
Securities at least to the same extent as such Subordinated Indebtedness.
SECTION 3.5 LIMITATION ON PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any Subsidiary, to create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends to or make any other distributions on its Capital Stock, or pay
any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (ii) make any Investments in the Company or any other
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any other Restricted Subsidiary; PROVIDED, HOWEVER, that the
foregoing shall not apply to:
(a) any encumbrance or restriction existing pursuant to this Indenture
or any other agreement or instrument as in effect or entered into on the Issue
Date (including the New Credit Facility as in effect on the Issue Date);
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(b) any encumbrance or restriction with respect to a Subsidiary
pursuant to an agreement relating to any Acquired Indebtedness; PROVIDED,
HOWEVER, that such encumbrance or restriction was not Incurred in connection
with or in contemplation of such Subsidiary becoming a Subsidiary;
(c) any encumbrance or restriction pursuant to an agreement effecting
a refinancing, renewal, extension or replacement of Indebtedness referred to in
clause (a) or (b) above or contained in any amendment or modification with
respect to such Indebtedness; PROVIDED, HOWEVER, that the encumbrances and
restrictions contained in any such agreement, amendment or modification are no
less favorable in any material respect with respect to the matters referred to
in clauses (i), (ii) and (iii) above than the encumbrances and restrictions
with respect to the Indebtedness being refinanced, renewed, extended, replaced,
amended or modified;
(d) in the case of clause (c)(iii) above, customary non-assignment
provisions of any leases governing a leasehold interest or of any supply,
license or other agreement entered into in the ordinary course of business of
the Company or any Subsidiary;
(e) any restrictions with respect to a Subsidiary imposed pursuant to
an agreement entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary pending the closing of
such sale or disposition; or
(f) any encumbrance or restriction existing by reason of applicable
law.
Nothing contained in this Section 3.5 shall prohibit the sale of
assets that secure Indebtedness of the Company or its Subsidiaries.
SECTION 3.6 LIMITATION ON SALE/LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into any Sale/Leaseback Transaction unless (i) the Company or such
Subsidiary would be entitled to create a Lien on such property securing
Indebtedness in an amount equal to the Attributable Debt with respect to such
transaction without equal-
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ly and ratably securing the Securities pursuant to Section 3.7 or (ii) the net
proceeds of such sale are at least equal to the fair value (as determined by the
Board of Directors) of such property and the Company or such Subsidiary shall
apply or cause to be applied an amount in cash equal to the net proceeds of such
sale to the retirement, within 30 days of the effective date of any such
arrangement, of Senior Indebtedness or Indebtedness of a Restricted Subsidiary,
PROVIDED, HOWEVER, that the Company or any Restricted Subsidiary may enter into
a Sale/Leaseback Transaction as long as the sum of (x) the Attributable Debt
with respect to such Sale/Leaseback Transaction and all other Sale/Leaseback
Transactions entered into pursuant to this proviso, plus (y) the amount of
outstanding Indebtedness secured by Liens Incurred pursuant to the final proviso
of Section 3.7, does not exceed 5% of Consolidated Net Tangible Assets as
determined based on the consolidated balance sheet of the Company as of the end
of the most recent fiscal quarter for which financial statements are available.
SECTION 3.7 LIMITATION ON LIENS.
Except as provided for under Article X, the Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, incur or
permit to exist any Lien of any nature whatsoever on any of its properties
(including, without limitation, Capital Stock), whether owned at the date of
such Indenture or thereafter acquired, other than:
(a) pledges or deposits made by such Person under workers'
compensation, unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
statutory or regulatory obligations of such Person or deposits of cash of United
States Government bonds to secure surety, appeal or performance bonds to which
such Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case Incurred in the ordinary course
of business;
(b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens, in each case, arising in the ordinary course of business and
with respect
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to amounts not yet due or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be diligently
prosecuting appeal or other proceedings for review;
(c) Liens for property taxes not yet subject to penalties for non-
payment or which are being contested in good faith and by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
(d) Liens in favor of issuers or surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; PROVIDED, HOWEVER, that such letters of credit
may not constitute Indebtedness;
(e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness or other extensions of credit and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such Person;
(f) Liens securing Indebtedness Incurred to finance the construction
of, purchase of, or repairs, improvements or additions to, property (including
Acquisition Indebtedness Incurred pursuant to Section 3.4(b)(ii)); PROVIDED,
HOWEVER, that the Lien may not extend to any other property owned by the Company
or any Restricted Subsidiary at the time the Lien is incurred, and the
Indebtedness secured by the Lien may not be issued more than 180 days after the
later of the acquisition, completion of construction, repair, improvement,
addition or commencement of full operation of the property subject to the Lien;
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(g) Liens existing on the Issue Date (other than Liens relating to
Indebtedness or other obligations being repaid or Liens that are otherwise
extinguished with the proceeds of the Offering);
(h) Liens on property (excluding Capital Stock) of a Person at the
time such Person becomes a Subsidiary; PROVIDED, HOWEVER, that any such Lien may
not extend to any other property owned by the Company or any Restricted
Subsidiary;
(i) Liens on property at the time the Company or a Subsidiary acquires
the property, including any acquisition by means of a merger or consolidation
with or into the Company or a Subsidiary; PROVIDED, HOWEVER, that such Liens are
not incurred in connection with, or in contemplation of, such merger or
consolidation; and PROVIDED, FURTHER, that the Lien may not extend to any other
property owned by the Company or any Restricted Subsidiary;
(j) Liens securing Indebtedness or other obligations of a Subsidiary
owing to the Company or a Wholly Owned Subsidiary, including, without
limitation, the Indebtedness Incurred under Intercompany Notes; PROVIDED, that
any such Lien securing Indebtedness pursuant to any Intercompany Note shall be
limited to the inventory and accounts receivable of the Subsidiary of the
Company issuing such Intercompany Note;
(k) Liens incurred by a Person other than the Company or any
Subsidiary on assets that are the subject of a Capitalized Lease Obligation to
which the Company or a Subsidiary is a party; PROVIDED, HOWEVER, that any such
Lien may not secure Indebtedness of the Company or any Subsidiary (except by
virtue of clause (x) of the definition of "Indebtedness") and may not extend to
any other property owned by the Company or any Restricted Subsidiary;
(l) Liens on inventory and accounts receivable of the Company and its
Subsidiaries and Liens on Intercompany Notes, in any case securing
Indebtedness permitted to be incurred pursuant to Section 3.4(b)(iv);
(m) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive
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refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (g), (h) and (i), PROVIDED, HOWEVER, that (x) such new Lien shall
be limited to all or part of the same property that secured the original Lien
(plus improvements on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased (other than by an amount necessary to pay
fees and expenses, including premiums, related to the refinancing, refunding,
extension, renewal or replacement of such Indebtedness); and
(n) Liens by which the Securities are secured equally and ratably with
other Indebtedness of the Company pursuant to this Section 3.7;
without effectively providing that the Securities shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured; PROVIDED, HOWEVER, that the Company may incur other
Liens other than on the Collateral to secure Indebtedness as long as the sum of
(x) the amount of outstanding Indebtedness secured by Liens incurred pursuant to
this proviso plus (y) the Attributable Debt with respect to all outstanding
leases in connection with Sale/Leaseback Transactions entered into pursuant to
the proviso to Section 3.6 does not exceed 5% of Consolidated Net Tangible
Assets as determined with respect to the Company as of the end of the most
recent fiscal quarter for which financial statements are available.
SECTION 3.8 CHANGE OF CONTROL.
In the event of a Change of Control, the Company shall make an offer
to purchase (the "Change of Control Offer") the Securities then outstanding at a
purchase price equal to one hundred-one percent (101%) of the Accreted Value
thereof plus accrued interest to the Change of Control Purchase Date (as defined
below) on the terms set forth in this Section. The date on which the Company
shall purchase the Securities pursuant to this Section (the "Change of Control
Purchase Date") shall be no earlier than 30 days, nor later than 60 days, after
the notice referred to below is mailed, unless a longer period shall be
required by law. The Company shall notify the Trustee in writing promptly after
the occurrence of any Change of Control of the Company's obligation to offer to
purchase the Securities.
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Notice of a Change of Control Offer shall be mailed by the Company to
the Holders of the Securities at their last registered address (with a copy to
the Trustee and the Paying Agent) within thirty (30) days after a Change in
Control has occurred. The Change of Control Offer shall remain open from the
time of mailing until five (5) Business Days before the Change of Control
Purchase Date. The notice shall contain all instructions and materials
necessary to enable such Holders to tender (in whole or in part) the Securities
pursuant to the Change of Control Offer. The notice, which shall govern the
terms of the Change of Control Offer, shall state:
(a) that the Change of Control Offer is being made pursuant to this
Section;
(b) the purchase price and the Change of Control Purchase Date;
(c) that any Security not surrendered or accepted for payment will
continue to accrue interest;
(d) that any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date if payment is made;
(e) that any Holder electing to have a Security purchased (in whole
or in part) pursuant to a Change of Control Offer will be required to surrender
the Security, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying Agent at the address specified
in the notice (or otherwise make effective delivery of the Security pursuant to
book-entry procedures and the related rules of the applicable depositories) at
least five Business Days before the Change of Control Purchase Date; and
(f) that any Holder will be entitled to withdraw his or her election
if the Paying Agent receives, not later than three Business Days prior to the
Change of Control Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a statement that such Holder
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is withdrawing his or her election to have the Security purchased.
On the Change of Control Purchase Date, the Company shall (i) accept
for payment the Securities, or portions thereof, surrendered and properly
tendered and not withdrawn, pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent money sufficient to pay the purchase price plus
accrued interest of all the Securities or portions thereof, so accepted and
(iii) deliver to the Trustee the Securities so accepted together with an
Officers' Certificate stating that such Securities have been accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the purchase
price. Holders whose Securities are purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 3.9 COMPLIANCE CERTIFICATE.
The Company shall, within 120 days after the close of each fiscal year
following the issuance of the Securities, file with the Trustee an Officer's
Certificate, with one of the Officers executing the same being the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company, covering the period from the date of issuance of the
Securities to the end of the fiscal year in which the Securities were issued, in
the case of the first such certificate, and covering the preceding fiscal year
in the case of each subsequent certificate, and stating whether or not, to the
knowledge of each such executing Officer, the Company and each Subsidiary
Guarantor has complied with and performed and fulfilled all
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conditions and covenants on its part contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions contained in this Indenture, and, if any such signer has obtained
knowledge of any default by the Company in the performance, observance or
fulfillment of any such condition, covenant, term or provision specifying each
such default and the nature thereof. For the purpose of this Section 3.9,
compliance shall be determined without regard to any grace period or requirement
of notice provided pursuant to the terms of this Indenture.
SECTION 3.10 SEC REPORTS.
The Company shall, to the extent required by TIA 314(a), file with
the Trustee, within 15 days after the filing with the SEC, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. In the event the Company is at any
time no longer subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, it shall, for so long as the Securities remain outstanding,
file with the Trustee and the SEC and mail to each Securityholder at such
Securityholder's registered address, within 15 days after the Company would have
been required to file such documents with the SEC, copies of the annual reports
and of the information, documents and other reports which the Company would have
been required to file with the SEC if the Company had continued to be subject to
such Sections 13 or 15(d). The Company also shall comply with the other
provisions of TIA 314(a).
SECTION 3.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into, permit to exist, renew or extend any
transaction or series of transactions (including, without limitation, the sale,
purchase, exchange or lease of any assets or property or the rendering of any
services) with any Affiliate of the Company, any Plaster Entity, any Lindsey
Entity or Energy unless (i) the terms of such transaction or series of
transactions are (A) no less favorable to
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the Company or such Restricted Subsidiary, as the case may be, than would be
obtainable in a comparable transaction or series of related transactions in
arm's-length dealings with an unrelated third party and, in the case of a
transaction or series of transactions involving payments or consideration in
excess of $100,000 approved by a majority of the Outside Directors, and (B) set
forth in writing if such transaction or series of transactions involves
aggregate payments or consideration in excess of $250,000, and (ii) with respect
to a transaction or series of transactions involving aggregate payments or
consideration in excess of $1,000,000, such transaction or series of
transactions has been determined, in the written opinion of an independent
nationally recognized investment banking firm, to be fair, from a financial
point of view, to the Company or such Restricted Subsidiary. The foregoing
provisions do not prohibit (i) the payment of reasonable fees to directors of
the Company and its subsidiaries, (ii) scheduled payments made pursuant to the
terms of any of the Basic Agreements, as the terms of each such agreement are in
effect on the Issue Date, or (iii) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries otherwise permitted
by the terms of the Indenture. Any transaction which has been determined, in
the written opinion of an independent nationally recognized investment banking
firm, to be fair, from a financial point of view, to the Company or the
applicable Restricted Subsidiary shall be deemed to be in compliance with this
Section 3.11.
SECTION 3.12 SALES OF ASSETS.
(a) Neither the Company nor any Restricted Subsidiary shall
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the fair
market value, as determined in good faith by the Board of Directors, of the
shares or assets subject to such Asset Sale, (ii) at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of Additional Assets or cash or cash equivalents which cash
equivalents are promptly converted into cash by the Person receiving such
payment and (iii) an amount equal to 100% of the Net Available Cash is applied
by the Company (or such Subsidiary, as the case may be) as set forth herein.
The Company shall not
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permit any Unrestricted Subsidiary to make any Asset Sale unless such
Unrestricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the shares or assets so disposed of as
determined in good faith by the Board of Directors.
(b) Within three hundred and sixty (360) days (such 360 days being
the "Application Period") following the consummation of an Asset Sale, the
Company or such Restricted Subsidiary shall apply the Net Available Cash from
such Asset Sale as follows: (i) FIRST, to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets; (ii) SECOND, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (i), and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness of such Restricted Subsidiary), to prepay, repay or purchase (A)
secured Senior Indebtedness or (B) Indebtedness (other than any Preferred Stock)
of a Restricted Subsidiary, in either case other than Indebtedness owed to the
Company (except to the extent that the proceeds of any such repayment received
by the Company are used to repay secured Senior Indebtedness of the Company or
an Affiliate of the Company); and (iii) THIRD, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (i) and
(ii), to make an offer to purchase the Securities at not less than 100% of their
Accreted Value, plus accrued interest (if any) pursuant to and subject to the
conditions of Section 3.12(c); PROVIDED, HOWEVER, that in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (ii) or
(iii) above, the Company or such restricted Subsidiary shall retire such
Indebtedness and cause the related loan commitment (if any) to be permanently
reduced in an amount equal to the principal amount so prepaid, repaid or
purchased; PROVIDED FURTHER that in the case of any prepayment or repayment of
Indebtedness under the New Credit Facility or Indebtedness Incurred pursuant to
Section 3.4(b) (iv) refinancing the New Credit Facility, such related loan
commitment shall not be required to be permanently reduced. To the extent that
any Net Available Cash remains after the application of such Net Available Cash
in accordance with this paragraph, the Company or such Restricted Subsidiary
shall utilize such remaining Net Available Cash in any manner set forth in
clause (i) or clause (ii) above.
To the extent that any or all of the Net Available Cash of any Foreign
Asset Sale is prohibited or delayed by applicable local law from being
repatriated to the United States, the portion of such Net Available Cash
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so affected shall not be required to be applied at the time provided above, but
may be retained by the applicable Restricted Subsidiary so long, but only so
long, as the applicable local law will not permit repatriation to the United
States (the Company hereby agreeing to promptly take or cause the applicable
Restricted Subsidiary to promptly take all actions required by the applicable
local law to permit such repatriation). Once such repatriation of any of such
affected Net Available Cash is permitted under the applicable local law, such
repatriation shall be immediately effected and such repatriated Net Available
Cash will be applied in the manner set forth in this Section as if such Asset
Sale had occurred on the date of such repatriation.
To the extent that the Board of Directors determines, in good faith,
that repatriation of any or all of the Net Available Cash of any Foreign Asset
Sale would have a material adverse tax consequence to the Company, the Net
Available Cash so affected may be retained outside of the United States by the
applicable Restricted Subsidiary for so long as such material adverse tax
consequence would continue.
Notwithstanding the foregoing, this Section shall not apply to, or
prevent any sale of assets, property, or Capital Stock of Subsidiaries to the
extent that the fair market value (as determined in good faith by the Board of
Directors) of such asset, property or Capital Stock, together with the fair
market value of all other assets, property, or Capital Stock of Subsidiaries
sold, transferred or otherwise disposed of in Asset Sales during the twelve
month period preceding the date of such sale, does not exceed 5% of Consolidated
Net Tangible Assets as determined as of the end of the most recent fiscal
quarter, and no violation of this Section shall be deemed to have occurred as a
consequence thereof.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under Article IV, the Successor Corporation shall be deemed to have
sold the properties and assets of the Company not so transferred for purposes of
Section 3.12, and shall comply with the Section 3.12 with respect to such deemed
sale as if it were an Asset Sale.
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(c) Subject to the last sentence of this paragraph, in the event of
an Asset Sale that requires the purchase of Securities pursuant to clause (iii)
of the first paragraph of Section 3.12(b), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Asset Sale Offer") at a purchase price of not less than 100% of
their Accreted Value plus accrued interest to the Asset Sale Purchase Date in
accordance with the procedures (including prorationing in the event of
oversubscription) set forth in Section 3.12(d). If the aggregate purchase price
of Securities tendered pursuant to the Asset Sale Offer is less than the Net
Available Cash allotted to the purchase of the Securities, the Company shall
apply the remaining Net Available Cash in accordance with the last sentence of
the first paragraph of Section 3.12(b). The Company shall not be required to
make an Asset Sale Offer for Securities pursuant to this Section if the Net
Available Cash available therefor (after application of the proceeds as provided
in Section 3.12(b)(i) and (ii)) is less than $1,000,000 for any particular Asset
Sale (which lesser amounts shall not be carried forward for purposes of
determining whether an Asset Sale Offer is required with respect to the Net
Available Cash from any subsequent Asset Sale).
(d) (1) Promptly, and in any event prior to the 360th day after the
later of the date of each Asset Sale as to which the Company must make an Asset
Sale Offer or the receipt of Net Available Cash therefrom, the Company shall be
obligated to deliver to the Trustee and send, by first-class mail to each
Holder, a written notice stating that the Holder may elect to have his
Securities purchased by the Company either in whole or in part (subject to
prorationing as hereinafter described in the event the Asset Sale Offer is
oversubscribed) in integral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice shall specify a purchase date not less
than 30 days, nor more than 60 days, after the date of such notice (the "Asset
Sale Purchase Date") and shall contain the information required in a notice for
a Change of Control Offer, to the extent applicable.
(2) Not later than the date upon which written notice of an
Asset Sale Offer is delivered to the Trustee as provided in Section 3.12(d)(1),
the Company
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shall deliver to the Trustee an Officers' Certificate as to (i) the amount of
the Asset Sale Offer (the "Asset Sale Offer Amount"), (ii) the allocation of the
Net Available Cash from the Asset Sales pursuant to which such Asset Sale Offer
is being made and (iii) the compliance of such allocation with Section 3.12(a).
On such date, the Company shall also deposit with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust) funds in
an amount equal to the Asset Sale Offer Amount to be held for payment in
accordance with the provisions of this Section. Upon the expiration of the
period for which the Asset Sale Offer remains open (the "Offer Period"), the
Company shall deliver, or cause to be delivered, to the Trustee the Securities
or portions thereof which have been properly tendered to and are to be accepted
by the Company. The Paying Agent shall, on the Asset Sale Purchase Date, mail
or deliver payment to each tendering Holder in the amount of the purchase price.
In the event that the aggregate purchase price of the Securities delivered, or
caused to be delivered, by the Company to the Trustee is less than the Asset
Sale Offer Amount, the Paying Agent shall deliver the excess to the Company
immediately after the expiration of the Offer Period.
(3) Holders electing to have a Security purchased will be
required to surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security duly completed, to the Company or
the Paying Agent, as specified in, and at the address specified in, the notice
at least ten Business Days prior to the Asset Sale Purchase Date. Holders will
be entitled to withdraw their election if the Trustee or the Paying Agent
receives, not later than three Business Days prior to the Asset Sale Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Asset Sale Offer Amount, the Company shall select the Securities to
be purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders
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whose Securities are purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company will also deliver an
Officers' Certificate stating that such Securities are to be accepted by the
Company pursuant to and in accordance with the terms of this Section. A
Security shall be deemed to have been accepted for purchase at the time the
Paying Agent, directly or through an agent, mails or delivers payment therefor
to the surrendering Holder.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 3.13 CORPORATE EXISTENCE.
Except as permitted under Article IV, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate existence of each Restricted Subsidiary in
accordance with the respective organizational documents of the Company and of
each Restricted Subsidiary and the rights (charter and statutory), licenses and
franchises of the Company and the Restricted Subsidiaries necessary or
appropriate to carry out their businesses; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right, license or franchise, or the
corporate existence of any Restricted Subsidiary if the preservation thereof is
no longer desirable in the conduct of the business of the Company and the
Restricted Subsidiaries taken as a whole; and PROVIDED, FURTHER, that any
Restricted Subsidiary may consolidate with, merge into, or sell, convey,
transfer, lease or otherwise dispose of all or part of its property and assets
to the Company or any Wholly Owned Subsidiary to the extent otherwise permitted
under this Indenture.
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SECTION 3.14 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge, or cause to be paid or discharged,
before any material penalty accrues thereon all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required
to pay or discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves, if the same shall be required in accordance with generally accepted
accounting principles, have been made.
SECTION 3.15 NOTICE OF DEFAULTS AND OTHER EVENTS.
In the event that any Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $1,000,000 or more
individually or $2,000,000 or more in the aggregate has been or could be
declared due and payable before its maturity because of the occurrence of any
event of default under such Indebtedness (including any Default under this
Indenture), the Company, promptly after it becomes aware thereof, will give
written notice thereof to the Trustee.
SECTION 3.16 MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company shall cause all properties used or useful in the conduct
of its business or the business of each Restricted Subsidiary and material to
the Company and the Restricted Subsidiaries taken as a whole to be maintained
and kept in normal condition, repair and working order and supplied with all
necessary equipment; PROVIDED, HOWEVER, that nothing in this Section 3.16 shall
prevent the Company or any Restricted Subsidiary from discontinuing the use,
operation or maintenance of any of such properties or disposing of any of them,
if such discontinuance or disposal is, in the judgment of an Officer (or other
employee of the Company or any Restricted Subsidiary) of the Company or such
Restricted Subsidiary having managerial responsibility for any such property,
appropriate.
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The Company shall provide or cause to be provided, for itself and the
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
product liability insurance and public liability insurance with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, of such kinds, and in such amounts, with such
deductibles and by such methods as the Company in good faith shall determine to
be reasonable and appropriate in the circumstances.
SECTION 3.17 LIMITATION ON ISSUANCE OF CAPITAL STOCK AND INCURRENCE OF
INDEBTEDNESS OF RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, and shall not permit any Person other than the
Company or a Wholly Owned Subsidiary to own (except to the extent that any such
Person may own on the Issue Date), any shares of such Restricted Subsidiary's
Capital Stock (including options, warrants or other rights to purchase shares of
Capital Stock) except, to the extent otherwise permitted by this Indenture, (i)
to the Company or another Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company, or (ii) if, immediately after giving effect to such
issuance and sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary for purposes of this Indenture. The Company shall not
permit any Restricted Subsidiary, directly or indirectly, to Incur Indebtedness
other than pursuant to Section 3.4(b).
SECTION 3.18 LIMITATION ON CHANGES IN THE
NATURE OF THE BUSINESS.
The Company and its Subsidiaries shall not engage in any line of
business other than the business of the sale and distribution of propane gas and
operations related thereto for any period of time in excess of 270 consecutive
days for any such unrelated line of business.
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ARTICLE IV
CONSOLIDATION, MERGER AND SALE
SECTION 4.1 MERGER AND CONSOLIDATION OF COMPANY.
The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
corporation or sell, assign, convey, transfer or lease or otherwise dispose of
a majority of its properties and assets to any Person or group of affiliated
Persons unless:
(a) either the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which the properties and assets of the
Company as an entirety are transferred (the "Successor Corporation"), shall
be a corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto executed and delivered to the
Trustee, in form and substance satisfactory to the Trustee, all the
obligations of the Company under this Indenture and the Securities;
(b) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Company (or the Successor Corporation if the
Company is not the continuing obligor under the Indenture) or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by such Person at the time of such transaction), no Default shall
have occurred and be continuing;
(c) the Company shall have delivered, or caused to be
delivered, to the Trustee an Officers' Certificate and, as to legal
matters, an Opinion of Counsel, each in form and substance satisfactory to
the Trustee, each stating that such consolidation, merger or transfer and
such supplemental indenture comply with this Section and that
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all conditions precedent herein provided for relating to such transaction
have been complied with;
(d) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of
the Company (or the Successor Corporation if the Company is not the
continuing obligor under this Indenture) or a Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred
by such Person at the time of such transaction, the Consolidated Coverage
Ratio of the Company (or the Successor Corporation if the Company is not
the continuing obligor under this Indenture) is at least 1:1, PROVIDED
that, if the Consolidated Coverage Ratio before giving effect to such
transaction is within the range set forth in column (A) below, then the pro
forma Consolidated Coverage Ratio of the Company or the Successor
Corporation shall be at least equal to the lesser of (1) the ratio
determined by multiplying the percentage set forth in column (B) below by
the Consolidated Coverage Ratio of the Company prior to such transaction
and (2) the ratio set forth in column (C) below:
(A) (B) (C)
1.11:1 to 1.99:1 90% 1.50:1
2.00:1 to 2.99:1 80% 2.10:1
3.00:1 to 3.99:1 70% 2.40:1
4.00:1 or more 60% 2.50:1;
and
(e) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of
the Company (or the Successor Corporation if the Company is not the
continuing obligor under this Indenture) or a Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred
by such Person at the time of such transaction), the Company (or the
Successor Corporation if the Company is not the continuing obligor under
this Indenture) shall have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth immediately prior to such
transaction.
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Notwithstanding the foregoing paragraphs (b), (d) and (e), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or any Wholly Owned Subsidiary or
Wholly Owned Subsidiaries and no violation of this Section shall be deemed to
have occurred as a consequence thereof, as long as the requirements of
paragraphs (a) and (c) are satisfied in connection therewith.
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SECTION 4.2 SUCCESSOR SUBSTITUTED.
Upon any such consolidation or merger, or any conveyance,
transfer, or disposition of a majority of the properties or assets
of the Company in accordance with Section 4.1, but not in the case of a
lease, the Successor Corporation shall succeed to and be substituted for the
Company under this Indenture and the Securities, and the Company shall thereupon
be released from all obligations hereunder and under the Securities and the
Company, as the predecessor corporation, may thereupon or at any time thereafter
be dissolved, wound up or liquidated. The Successor Corporation thereupon may
cause to be signed, and may issue either in its own name or in the name of the
Company, all or any of the Securities issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee; and, upon the
order of the Successor Corporation instead of the Company and subject to all the
terms, conditions and limitations prescribed in this Indenture, the Trustee
shall authenticate and shall deliver any Securities which the Successor
Corporation thereafter shall cause to be signed and delivered to the Trustee for
that purpose. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
such Securities had been issued at the date of the execution hereof. In the
case of any consolidation, merger or transfer described above, such changes in
form (but not in substance) may be made in the Securities thereafter to be
issued as may be appropriate.
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ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.1 EVENTS OF DEFAULT.
An "Event of Default" means any of the following events:
(a) default in the payment of interest on any Security when the same
becomes due and payable, and such default continues for a period of 30 days;
(b) default in the payment of the principal of any Security when the
same becomes due and payable at maturity or otherwise or a failure to redeem or
purchase Securities when required pursuant to this Indenture or the Securities;
(c) default in performance of any other covenants or agreements in
the Securities, this Indenture or the Pledge Agreement and the default continues
for 30 days after the date on which written notice of such default is given to
the Company by the Trustee or the Collateral Agent or to the Company and the
Trustee by Holders of at least 25% in principal amount of the Securities then
outstanding hereunder; PROVIDED that the failure to commence a Change of Control
Offer following a Change of Control pursuant to clause (vi) of the definition of
"Change of Control" shall not constitute an Event of Default if, during such 30
day period, the Company takes the necessary actions with respect to the Board of
Directors to comply with the requirements of clauses (vi)(A), (vi)(B) and
(vi)(C) of the definition of "Change of Control";
(d) there shall have occurred either (a) a default by the Company or
any Subsidiary under any instrument under which there is or may be secured or
evidenced any Indebtedness of the Company or any Subsidiary of the Company
(other than the Securities) having an
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outstanding principal amount of $2,000,000 (or its foreign currency equivalent)
or more individually or $5,000,000 (or its foreign currency equivalent) or more
in the aggregate that has caused the holders thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity or (b) a default
by the Company or any Subsidiary in the payment when due of any portion of the
principal under any such instrument, and such unpaid portion exceeds $2,000,000
(or its foreign currency equivalent) individually or $5,000,000 (or its foreign
currency equivalent) in the aggregate and is not paid, or such default is not
cured or waived, within any grace period applicable thereto;
(e) any final judgment or order (not covered by insurance) for the
payment of money shall be rendered against the Company or any Significant
Subsidiary in an amount in excess of $2,000,000 (or its foreign currency
equivalent) individually or $5,000,000 (or its foreign currency equivalent) in
the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) and
shall not be discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order in excess of $2,000,000 (or its
foreign currency equivalent) individually or that causes the aggregate amount
for all such final judgments or orders outstanding against all such Persons to
exceed $5,000,000 (or its foreign currency equivalent) during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(f) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
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(v) admits in writing its inability to generally pay its debts
as such debts become due,
or takes any comparable action under any foreign laws relating to insolvency;
(g) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of its property, or
(iii) orders the winding up or liquidation of the Company or any
Significant Subsidiary,
or any similar relief is granted under any foreign laws; and the order or decree
remains unstayed and in effect for 60 days; and
(h) except as permitted by this Indenture, the Trustee fails to have
a first priority perfected security interest in the Collateral; and
(i) except as permitted by the terms hereof and the Securities, the
cessation of effectiveness of any Subsidiary Guarantee as against any Subsidiary
Guarantor, or the finding by any judicial proceeding that any such Subsidiary
Guarantee is, as to any Subsidiary Guarantor, unenforceable or invalid, or the
written denial or disaffirmation by any Subsidiary Guarantor of its obligations
under its Subsidiary Guarantee.
The term "Bankruptcy Law" means Title 11 of the U.S. Code or any
similar Federal or State law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Any notice of Default given by the Trustee or Securityholders under
this Section must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default."
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The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which with the giving of notice
or the lapse of time or both would become an Event of Default under clause (c),
(d), (e), (g), (h) or (i) hereof.
Subject to the provisions of Section 6.1 and 6.2, the Trustee shall
not be charged with knowledge of any Event of Default unless written notice
thereof shall have been given to the Trustee as specified in Section 11.2 by the
Company, the Paying Agent, the Collateral Agent, any Holder or an agent of any
Holder.
SECTION 5.2 ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clause (f) and (g) of Section 5.1 with respect to the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the Securities by notice to the Company and the Trustee,
may declare the principal of and accrued interest on all the Securities to be
due and payable. Upon such declaration the principal amount at maturity and
interest shall be due and payable immediately. If an Event of Default specified
in clause (f) or (g) of Section 5.1 with respect to the Company occurs, the
principal amount at maturity of and interest on all the Securities shall IPSO
FACTO become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholders. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration. No such rescission shall affect any
subsequent or other Default or Event of Default or impair any consequent right.
SECTION 5.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal amount at
maturity or
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interest on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 5.4 WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the Securities by
notice to the Trustee may waive an existing Default and its consequences except
(a) a Default in the payment of the principal of or interest on any Security or
(b) a Default in respect of a provision that under Section 8.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any consequent right.
SECTION 5.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Securities may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture, or, subject to Section 6.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders, or would involve the
Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification reasonably satisfactory to it against all risk, losses and
expenses caused by taking or not taking such action. Subject to Section 6.1,
the Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Indenture at the request or direction of the
Securityholders pursuant to this Indenture, unless such Securityholders shall
have provided to
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the Trustee security or indemnity reasonably satisfactory to it against the
costs, expenses and liabilities which might be incurred in compliance with such
request or direction.
SECTION 5.6 LIMITATION ON SUITS.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer to the Trustee security reasonably
satisfactory to it or indemnity against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(e) the Holders of a majority in principal amount of the Securities
do not give the Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 5.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
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SECTION 5.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 5.1(a) or (b) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid (together with interest on such unpaid interest to the
extent lawful) and the amounts provided for in Section 6.7.
SECTION 5.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents and take such other actions including participating as a member or
otherwise in any committees of creditors appointed in the matter as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the amounts provided in Section 6.7) and the Securityholders allowed
in any judicial proceedings relative to the Company, its creditors or its
property and, unless prohibited by law or applicable regulations, may vote on
behalf of the Holders in any election of a trustee in bankruptcy or other Person
performing similar functions, and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make payments to the Trustee and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 6.7. To
the extent that the payment of any such amount due to the Trustee under Section
6.7 out of the estate in any such proceeding shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties which
the Holders of the Securities may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.
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SECTION 5.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 6.7;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall give written notice to each Securityholder and the
Trustee of the record date, the payment date and amount to be paid.
SECTION 5.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 5.7, or a suit by Holders of more than 10% in principal
amount of the Securities.
SECTION 5.12 WAIVER OF STAY OR EXTENSION LAWS.
The Company and each Subsidiary Guarantor (to the extent that each of
them may lawfully do so) shall not at any time insist upon, or plead, or in any
manner whatsoever, claim or take the benefit or advantage of,
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any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company and each Subsidiary Guarantor (to the extent that each of them may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and shall not hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE VI
TRUSTEE
SECTION 6.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and the Pledge Agreement, and use the same degree of care and skill in
their exercise, as a prudent Person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture or the Pledge
Agreement against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture or the
Pledge Agreement. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture or the Pledge Agreement.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent
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failure to act, or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of
this Section.
(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.2, 5.4 or 5.5.
(iv) No provision of this Indenture and the Pledge Agreement
shall require the Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, unless it
receives indemnity satisfactory to it against any risk, loss, liability or
expense.
(d) Every provision of this Indenture and the Pledge Agreement that
in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of
this Section.
(e) The Trustee, in its capacity as Trustee and Registrar and Paying
Agent, shall not be liable to the Company, the Securityholders or any other
Person for interest on any money received by it, including, but not limited to,
money with respect to principal of or interest on the Securities, except as the
Trustee may agree with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 6.2 RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document reasonably believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee
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need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion
of such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice of such
counsel.
(f) The Trustee shall not be obligated to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture or any other paper or document.
SECTION 6.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
6.10 and 6.11.
SECTION 6.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture, the Pledge Agreement, the Subsidiary Guarantees or the
Securities, it
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shall not be accountable for the Company's use of the proceeds from the
Securities, it shall not be responsible for the use or application of any money
received by the Paying Agent (other than the Trustee) and it shall not be
responsible for any statement in the Securities other than its authentication.
SECTION 6.5 NOTICE OF DEFAULTS.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Securityholders a notice of
the Default or Event of Default within 90 days of notification of such
occurrence. Except in the case of a Default in any payment on any Security, the
Trustee may withhold the notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 6.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after the reporting date stated in Section 11.10, the
Trustee shall mail to Securityholders a brief report dated as of such reporting
date that complies with TIA Section 313(a) if required by that Section. The
Trustee also shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall promptly notify the Trustee when the Securities are
listed on any stock exchange and of any delisting thereof.
SECTION 6.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket
disbursements, expenses and advances incurred by it. Such expenses shall
include the
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reasonable compensation and out-of-pocket disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss, liability and expenses including reasonable attorneys' fees,
disbursements and expenses, incurred by it in connection with the administration
of this trust and the performance of its duties hereunder and under the Pledge
Agreement including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder and thereunder. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder. The Company shall defend the claim
and the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent;
provided however, that the consent of the Company shall not be required if the
Company has instituted proceedings to be adjudicated a bankrupt or insolvent, or
is otherwise subject to proceedings under Title 11 of the United States
Bankruptcy Code, or has consented to the appointment of a receiver, liquidator,
assignee, trustee or similar official for the Company or of any substantial part
of its property, or has made an assignment for the benefit of creditors, or has
admitted in writing its inability to pay its debts generally as they become due,
or has taken corporate action in furtherance of any such action.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(f) or (g) occurs, the expenses and the
compensation
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for the services are intended to constitute expenses of administration under any
Bankruptcy Law.
The Company's obligations under this Section 6.7 and any Lien arising
hereunder shall survive the resignation or removal of the Trustee, the
satisfaction and discharge of the Company's obligations pursuant to Article VII
of this Indenture or the termination of this Indenture or the Pledge Agreement.
SECTION 6.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign at any time by so notifying the Company. The
Holders of a majority in principal amount of the Securities may, by written
notice to the Trustee, remove the Trustee by so notifying the Trustee and the
Company. The Company, by notice to the Trustee, shall remove the Trustee if:
(a) the Trustee fails to comply with Section 6.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the Securities may
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petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 6.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture and the Pledge Agreement. The successor Trustee shall mail
a notice of its succession to Securityholders. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
subject to the Lien provided for in Section 6.7.
SECTION 6.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 6.10 ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1). The Trustee shall always have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA Section
310(b). Nothing herein shall prevent the Trustee from filing with the SEC the
application referred to in the second-to-last paragraph of TIA Section 310(b).
SECTION 6.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), except with respect
to any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been
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removed is subject to TIA Section 311(a) to the extent indicated.
SECTION 6.12 PAYING AGENTS.
The Company shall cause each Paying Agent other than the Trustee to
execute and deliver to it and the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 6.12:
(a) that it will hold all sums held by it as agent for the payment of
principal of, or interest on, the Securities (whether such sums have been paid
to it by the Company or by any obligor on the Securities) in trust for the
benefit of Holders of the Securities;
(b) that it will at any time during the continuance of any Event of
Default specified in Section 5.1, upon written request from the Trustee, deliver
to the Trustee all sums so held in trust by it;
(c) that it will give the Trustee written notice within one (1)
Business Day of any failure of the Company (or by any obligor on the Securities)
in the payment of any installment of the principal of, or interest on, the
Securities when the same shall be due and payable; and
(d) that it will comply with the provisions of the TIA applicable to
it.
ARTICLE VII
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 7.1 DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
If (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.7) for cancellation or
(ii) all outstanding Securities have become due and payable and the Company or a
Subsidiary Guarantor irrevocably deposits with the Trustee as trust funds
solely for the benefit of the Holders for that purpose funds sufficient to pay
at maturity the principal of and all accrued interest
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on all outstanding Securities (other than Securities replaced pursuant to
Section 2.7), and if in either case the Company or a Subsidiary Guarantor pays
all other sums payable hereunder by the Company, then, subject to Sections 7.2
and 7.7, this Indenture shall cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on written demand of
the Company accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Company.
SECTION 7.2 TERMINATION OF COMPANY'S OBLIGATIONS.
Except as otherwise provided in this Section 7.2, the Company may
terminate its obligations under the Securities and this Indenture if:
(i) the Securities mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for giving the notice of redemption, (ii) the Company irrevocably
deposits in trust with the Trustee or Paying Agent (other than the Company or a
Subsidiary or Affiliate of the Company) during such one-year period, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds solely for the benefit of the Holders for that
purpose, money or U.S. Government Obligations sufficient (in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee), without consideration
of any reinvestment of such interest, to pay principal and interest on the
Securities to maturity or redemption, as the case may be, and to pay all other
sums payable by it hereunder, (iii) no Default shall have occurred and be
continuing on the date of such deposit, (iv) such deposit will not result in or
constitute a Default or result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a party
or by which it is bound and (v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with; PROVIDED that the Trustee
or Paying Agent shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations
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to the payment of such principal and interest with respect to the Securities.
With respect to the foregoing, the Company's obligations in Sections
2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7, 6.8, 7.5, 7.6 and 7.7 shall
survive until the Securities are no longer outstanding. Thereafter, only the
Company's obligations in Sections 6.7, 6.8, 7.6 and 7.7 shall survive. After
any such irrevocable deposit, the Trustee upon request shall acknowledge in
writing the discharge of the Company's obligations under the Securities and
this Indenture except for those surviving obligations specified above.
SECTION 7.3 DEFEASANCE AND DISCHARGE OF INDENTURE.
The Company will be deemed to have paid and will be discharged from
any and all obligations in respect of the Securities on the 123rd day after the
date of the deposit referred to in clause (i) hereof, and the provisions of this
Indenture will no longer be in effect with respect to the Securities, and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same, except as to (a) rights of registration of transfer and
exchange, (b) substitution of mutilated, defaced, destroyed, lost or stolen
Securities pursuant to Section 2.7, (c) rights of Holders to receive payments of
principal thereof and interest thereon, (d) the Company's obligations under
Sections 3.2 and 6.7, (e) the rights, obligations and immunities of the Trustee
hereunder and (f) the rights of the Holders as beneficiaries of this Indenture
with respect to the property so deposited with the Trustee payable to all or any
of them; PROVIDED that the following conditions shall have been satisfied:
(i) with reference to this Section 7.3, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirement of Section 6.10) or
Paying Agent (other than the Company or a Subsidiary or Affiliate of the
Company) and conveyed all right, title and interest for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to,
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the benefit of the Holders, in and to, (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and principal
in respect thereof in accordance with their terms, will provide, not later
than one day before the due date of any payment referred to in this clause
(i), money in an amount or (C) a combination thereof in an amount
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, without consideration of the
reinvestment of such interest and after payment of all federal, state and
local taxes or other fees, charges and assessments in respect thereof
payable by the Trustee or Paying Agent, the principal of and interest on
the outstanding Securities when due; PROVIDED that the Trustee or Paying
Agent shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of such
principal and interest with respect to the Securities;
(ii) such deposit will not result in or constitute a Default or
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company is a party or by which
it is bound;
(iii) no Default shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after
such date of deposit;
(iv) the Company shall have delivered to the Trustee (A) either
(1) a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders will not recognize income, gains or
loss for federal income tax purposes as a result of the Company's exercise
of its option under this Section 7.3 and will be subject to federal income
tax on the same amount and in the same manner and at the same times as
would have been the case if such option had not been exercised or (2) an
Opinion of Counsel (who must not be an employee of the Company) to the same
effect as the ruling described in clause (1) accompanied by a
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ruling to that effect published by the Internal Revenue Service, unless
there has been a change in the applicable federal income tax law since the
date of this Indenture such that a ruling from the Internal Revenue Service
is no longer required and (B) an Opinion of Counsel to the effect that (1)
the creation of the defeasance trust does not violate the Investment
Company Act of 1940, (2) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of Title 11 of the
United States Bankruptcy Code, after one year following the deposit), the
trust funds will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law in a case commenced by or against the Company under either such
statute, and either (x) the trust funds will no longer remain the property
of the Company (and therefore, will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally) or (y) if a court were to rule under any such
law in any case or proceeding that the trust funds remained property of the
Company, (I) assuming such trust funds remained in the possession of the
Trustee prior to such court ruling to the extent not paid to Holders, the
Trustee will hold, for the benefit of the Holders, a valid and perfected
first priority security interest in such trust funds that is not avoidable
in bankruptcy or otherwise except for the effect of Section 552(b) of
the United States Bankruptcy Code on interest on the trust funds accruing
after the commencement of a case under such statute and (II) the Holders
will be entitled to receive adequate protection of their interests in
such trust funds if such trust funds are used in such case or proceeding;
and
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(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.3 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day period
referred to in clause (iv)(B)(2) above, none of the Company's obligations under
this Indenture shall be discharged. Subsequent to the end of such 123-day
period with respect to this Section 7.3, the Company's obligations in Sections
2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.12, 3.1, 3.2, 6.7, 6.8, 7.6 and 7.7 shall
survive until the securities are no longer outstanding. Thereafter, only the
Company's obligations in Sections 6.7, 7.6 and 7.7 shall survive. If and when a
ruling from the Internal Revenue Service or Opinion of Counsel referred to in
clause (iv)(A) above is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
3.1, then the Company's obligations under such Section 3.1 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.3.
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After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 7.4 DEFEASANCE OF CERTAIN OBLIGATIONS.
The Company may omit to comply with any term, provision or condition
set forth in clauses (d) and (e) of Section 4.1 and Sections 3.3 through 3.18,
and clause (c) of Section 5.1 with respect to clauses (d) and (e) of
Section 4.1 and Sections 3.3 through 3.18, and clauses (d) and (e) of Section
5.1 shall be deemed not to be Events of Default, in each case with
respect to the outstanding Securities if:
(i) with reference to this Section 7.4, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section 6.10) or
Paying Agent (other than the Company or a Subsidiary or Affiliate of the
Company) and conveyed all right, title and interest for the benefit of the
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Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders, in and to, (A) money in an amount, (B) U.S. Government obligations
that, through the payment of interest and principal in respect thereof in
accordance with their terms, will provide, not later than one day before
the due date of any payment referred to in this clause (i), money in an
amount or (C) a combination thereof in an amount, sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, without consideration of the reinvestment of interest
and after payment of all federal, state and local taxes or other fees,
charges and assessments in respect thereof payable by the Trustee or Paying
Agent, the principal of and interest on the outstanding Securities when
due; PROVIDED that the Trustee or Paying Agent shall have been irrevocably
instructed to apply such money or the proceeds of such U.S. Government
Obligations to the payment of such principal and interest with respect to
the Securities;
(ii) such deposit will not result in or constitute a Default or
result in a breach or violation of, or constitute a default under, any
other agreement or instrument to which the Company is a party or by which
it is bound;
(iii) no Default shall have occurred and be continuing on the
date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of
Counsel who is not employed by the Company to the effect that (A) the
creation of the defeasance trust does not violate the Investment Company
Act of 1940, (B) the Holders have a valid first-priority security interest
in the trust funds, (C) the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance
of certain obligations and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been
the case if such deposit
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and defeasance had not occurred and (D) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the United States Bankruptcy Code, after one year following the deposit),
the trust funds will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law in a case commenced by or against the Company under either
such statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore, will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (2) if a court were to rule
under any such law in any case or proceeding that the trust funds
remained property of the Company, (x) assuming such trust funds remained
in the possession of the Trustee prior to such court ruling to the extent
not paid to Holders, the Trustee will hold, for the benefit of the
Holders, a valid and perfected first priority security interest in such
trust funds that is not avoidable in bankruptcy or otherwise except for
the effect of Section 552(b) of the United States Bankruptcy Code on
interest on the trust funds accruing after the commencement of a case
under such statute and (y) the Holders will be entitled to receive
adequate protection of their interests in such trust funds if such trust
funds are used in such case or proceeding; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 7.4 have been complied with.
SECTION 7.5 APPLICATION OF TRUST MONEY.
Subject to Section 7.7 of this Indenture, the Trustee or Paying Agent
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 7.2, 7.3 or 7.4 of this Indenture, as the case may be, and
shall apply the deposited money and the money from U.S. Government Obligations
in accordance with this
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Indenture to the payment of principal of and interest on the Securities. The
Trustee shall be under no obligation to invest such money or U.S. Government
Obligations except as it may agree with the Company.
SECTION 7.6 REPAYMENT TO COMPANY.
Subject to Sections 6.7, 7.2, 7.3 and 7.4 of this Indenture, the
Trustee and the Paying Agent shall promptly pay to the Company upon written
request any excess money held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years; PROVIDED, HOWEVER, that the Company shall, if requested by the Trustee or
the Paying Agent, give the Trustee or such Paying Agent indemnification
reasonably satisfactory to it against any and all liability which may be
incurred by it by reason of such payment; and PROVIDED, FURTHER, that the
Trustee or such Paying Agent before being required to make any payment may cause
to be published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address as set forth in the Security Register notice that
such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 7.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 7.2, 7.3 or 7.4 of this
Indenture, as the case may be, by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived
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and reinstated as though no deposit had occurred pursuant to Section 7.2, 7.3 or
7.4 of this Indenture, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money or U.S. Government Obligations
in accordance with Section 7.2, 7.3 or 7.4 of this Indenture, as the case may
be; PROVIDED that, if the Company has made any payment of principal of or
interest on any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS
SECTION 8.1 WITHOUT CONSENT OF HOLDERS.
The Company, the Subsidiary Guarantors and the Trustee may amend or
supplement this Indenture, the Pledge Agreement or the Securities without notice
to or the consent of any Securityholder:
(a) to cure any ambiguity, omission, defect or inconsistency;
(b) to comply with Article IV;
(c) to provide for uncertificated Securities in addition to
certificated Securities; PROVIDED, HOWEVER, that the uncertificated Securities
are issued in registered form for purposes of Section 163(f) of the Internal
Revenue Code of 1986, as amended, or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(d) to add additional guarantees with respect to the Securities or to
secure the Securities;
(e) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the Company;
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(f) to comply with the requirements of the SEC in connection with
qualification of the Indenture under the TIA;
(g) to make any change that does not adversely affect the rights of
any Securityholder;
(h) to provide for certain amendments to the Pledge Agreement
expressly called for therein and to add Collateral thereto; or
(i) to increase the aggregate principal amount at maturity of
Securities that may be issued by the Company pursuant to this Indenture;
PROVIDED, HOWEVER, that any such additional Indebtedness Incurred is otherwise
permitted to be Incurred by the Company pursuant to the terms of this Indenture.
After an amendment or supplement under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly describing such
amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment or supplement under this Section.
SECTION 8.2 WITH CONSENT OF HOLDERS.
The Company, the Subsidiary Guarantors and the Trustee may amend or
supplement this Indenture, the Pledge Agreement or the Securities with the
written consent of the Holders of a majority in principal amount of the
Securities. However, without the consent of each Securityholder affected, an
amendment or supplement under this Section may not:
(a) reduce the amount of Securities the Holders of which must consent
to an amendment or supplement;
(b) reduce the rate of or change the time for payment of interest on
any Security;
(c) reduce the principal of or change the Stated Maturity of any
Security;
(d) reduce the premium payable upon the redemption of any Security or
change the time at which any
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Security may or shall be redeemed in accordance with Article IX;
(e) make any Security payable in currency or consideration other than
that stated in the Security;
(f) make any change in Section 5.4, 5.7 or 8.2 (second sentence);
(g) directly or indirectly release Liens on all or substantially all
of the Collateral; or
(h) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of any Guarantor for the due and punctual
payment of the principal of, premium, if any, or interest on the Securities.
It shall not be necessary for the consent of the Holders under this
Section 8.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment or supplement under this Section becomes effective,
the Company shall mail to Securityholders a notice briefly describing such
amendment or supplement. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or affect the validity
of an amendment or supplement under this Section.
SECTION 8.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Securities
shall be set forth in a supplemental indenture that complies with the TIA as
then in effect.
SECTION 8.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or supplement under this Article or a waiver under
Article V becomes effective, a consent to it by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. Howev-
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er, any such Holder or subsequent Holder may revoke the consent as to his
Security or portion of a Security if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective.
After an amendment or supplement becomes effective, it shall bind
every Securityholder.
SECTION 8.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Security regarding the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
SECTION 8.6 TRUSTEE TO SIGN AMENDMENTS.
The Trustee shall sign any supplemental indenture which sets forth an
amendment or supplement authorized pursuant to this Article if the amendment or
supplement does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. If it does, the Trustee may but need not sign it.
In signing such supplemental indenture the Trustee shall be entitled to receive,
and (subject to Section 6.1) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that such supplemental
indenture is authorized or permitted by this Indenture.
SECTION 8.7 FIXING OF RECORD DATES.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to take any action under this
Indenture by vote or consent. Except as provided herein, such record date shall
be the later of 30 days prior to the first solicitation of such consent or vote
or the date of the most recent list of Securityholders furnished to the Trustee
pursuant to Section 2.5 prior to such solicita-
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tion. If a record date is fixed, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to take such action by vote or consent or to revoke any vote or consent
previously given, whether or not such Persons continue to be Holders after such
record date; PROVIDED, HOWEVER, that unless such vote or consent is obtained
from the Holders (or their duly designated proxies) of the requisite principal
amount of outstanding Securities prior to the date which is the 120th day after
such record date, any such vote or consent previously given shall automatically
and without further action by any Holder be canceled and of no further effect.
ARTICLE IX
REDEMPTION
SECTION 9.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to paragraph 5 of
the Securities it shall notify the Trustee in writing of the redemption date and
the principal amount (not including any premium in respect thereof) of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Company shall give the notices provided for in this Section at
least 40 days before the redemption date (unless a shorter period shall be
satisfactory to the Trustee). Such notice shall be accompanied by an Officers'
Certificate to the effect that such redemption will comply with the conditions
herein. If fewer than all the Securities are to be redeemed, the record date
relating to such redemption shall be selected by the Company and given to the
Trustee, which record date shall be not less than 15 days after the date of
notice to the Trustee.
SECTION 9.2 SELECTION OF SECURITIES TO BE REDEEMED.
If fewer than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by any other method
that complies with applicable legal and securities exchange
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requirements, if any, and that the Trustee considers, in its sole discretion,
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make
the selection not more than 75 days before the redemption date from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000 in original principal amount at maturity. Securities and
portions of them selected by the Trustee shall be in amounts of $1,000 or whole
multiples of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
SECTION 9.3 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption to each Holder whose Securities
are to be redeemed at the address set forth for such Holder on the register
referred to in Section 2.3.
The notice shall identify the Securities to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(e) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(f) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the redemption date; and
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(g) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Securities.
At the Company's written request, made at least 45 days before a
redemption date, unless a shorter period shall be satisfactory to the Trustee,
the Trustee shall give the notice of redemption provided for in this Section in
the Company's name and at its expense.
SECTION 9.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the redemption price. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued and unpaid interest to the redemption
date.
SECTION 9.5 DEPOSIT OF REDEMPTION PRICE.
Prior to the redemption date, the Company shall deposit with the
Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued and unpaid interest on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 9.6 SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder (at the
Company's expense) a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.
ARTICLE X
SECURITY AND PLEDGE OF COLLATERAL
SECTION 10.1 COLLATERAL DOCUMENTS.
The due and punctual payment of the principal of, premium, if any, and
interest on the Securities when
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and as the same shall be due and payable, whether on an interest payment date,
at maturity, by acceleration, repurchase, redemption or otherwise, and interest
on the overdue principal of, premium and interest (to the extent permitted by
law), if any, on the Securities and performance of all other Obligations of the
Company to the Holders or the Trustee under this Indenture and the Securities,
according to the terms hereunder and thereunder, shall be secured as provided in
the Pledge Agreement. Each Holder, by its acceptance of a Security, consents
and agrees to the terms of the Pledge Agreement (including, without limitation,
the provisions providing for foreclosure and release of Collateral) as the same
may be in effect or may be amended from time to time in accordance with the
terms thereof and hereof and authorizes and directs the Trustee to enter into
the Pledge Agreement and to perform its Obligations and exercise its rights
thereunder in accordance therewith. The Company will do or cause to be done all
such acts and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Collateral contemplated hereby and by the Pledge
Agreement, as from time to time constituted, so as to render the same available
for the security and benefit of this Indenture and of the Securities secured
hereby, according to the intent and purposes herein expressed. The Company
shall take, upon request of the Trustee, any and all actions required to cause
the Pledge Agreement to create and maintain, as security for the Obligations of
the Company under this Indenture and the Securities, valid and enforceable,
perfected (except as expressly provided therein), Liens in and on all the
Collateral, in favor of the Trustee, superior to and prior to the rights of all
third Persons, and subject to no other Liens, other than as provided herein and
therein.
SECTION 10.2 RECORDING AND OPINIONS.
The Company shall furnish to the Trustee within 5 days after the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, the Pledge
Agreement, financing statements or other instruments necessary to make effective
the first priority Lien intended to be created by the Pledge Agreement, and
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reciting the details of such action, or (ii) stating that, in the opinion of
such counsel, no such action is necessary to make such Lien effective. To
the extent required by the TIA, the Company shall also furnish to the Trustee
at least annually an Opinion of Counsel either (i) stating that in the opinion
of such counsel such action has been taken with respect to the recording,
filing, re-recording and refiling of this Indenture, the Pledge Agreement,
financing statements or other instruments necessary to make effective the
Lien intended to be created by the Pledge Agreement and reciting the details
of such action or (ii) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien.
SECTION 10.3 REMEDIES UPON AN EVENT OF DEFAULT.
Upon the occurrence of an Event of Default, then or at any time
during the continuance of such occurrence, the Trustee is hereby authorized and
empowered, at its election, in accordance with its rights hereunder and under
the Pledge Agreement (i) to transfer and register in its name or in the
names of any of its nominees the whole or any part of the Collateral,
(ii) to exercise all voting rights with
respect thereto, (iii) to demand, sue for, collect, receive and give acquittance
for any and all cash dividends or other distributions or monies due or to become
due upon or by virtue thereof, and to settle, prosecute or defend any action or
proceeding with respect thereto, (iv) to exchange
certificates or instruments representing or evidencing the Collateral
for certificates or instruments of different denominations, (v) to sell in one
or more sales the whole or any part of the Collateral or otherwise to transfer
or assign the same, applying the proceeds therefrom to the payment of the
Securities in accordance with Section 5.10, and (vi) otherwise to act with
respect to the Collateral or the proceeds thereof as though the Trustee were the
outright owner thereof.
SECTION 10.4. RELEASE OF THE COLLATERAL.
(a) As long as no Event of Default shall have occurred and be
continuing, at the sole cost and expense of the Company, the Company shall be
entitled at any time and from time to time to request the Trustee to release a
portion of the Collateral and the Trustee shall release such portion of the
Collateral upon:
(i) payment in full of all obligations under this Indenture and
the termination thereof; or
(ii) the sale or other disposition of the Collateral (the
"Collateral Sale") if (A) the Company or a Subsidiary receives
consideration at the time of the Collateral Sale at least equal to the
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fair market value, as determined in good faith by the Board of Directors
and by an independent engineer, appraiser or other expert, to
the extent required by the TIA, of the Collateral subject
to the sale or disposition, (B) at least 80% of the consideration
thereof received by the Company or a Subsidiary is in the
form of Additional Assets or cash or cash equivalents which cash
equivalents are promptly converted into cash by the Company (or a
Subsidiary, as the case may be), (C) an amount equal to 100% of the Net
Available Cash is immediately deposited in the Collateral Account to be
used in accordance with Section 10.4(b), (D) the non-cash proceeds from
such Collateral Sale (including securities or other Additional Assets)
received by the Company or a Subsidiary immediately become subject to a
first priority perfected Lien in favor of the Trustee, and (E) the Company
(or a Subsidiary, as the case may be) complies with all the requirements
of Section 10.6,
PROVIDED, that the Trustee shall not release any Lien on any Collateral pursuant
to this Section 10.4 unless and until it shall have received from the Company an
Officers' Certificate and an Opinion of Counsel certifying that all
conditions precedent hereunder have been met, to the extent required by the
TIA, an Opinion of Counsel that the release of such Lien complies
with the TIA and such other documents required by Section 10.6 hereof. Upon
compliance with the above provisions, the Trustee shall execute, deliver or
acknowledge any necessary or proper instruments of termination, satisfaction or
release to evidence the release of any Collateral permitted to be released
pursuant to this Indenture.
(b) Within three hundred and sixty (360) days (such 360 days being
the "Collateral Application Period") following the sale or disposition of the
Collateral, the Company or such Subsidiary shall apply the Net Available Cash
from such Collateral Sale as follows: (i) FIRST, if the Collateral Sale results
in the Person sold no longer being a Subsidiary, then to the extent required by
the agreement governing the New Credit Facility (or the agreement
governing Indebtedness Incurred pursuant to Section 3.4(b)(iv)
refinancing the New Credit Facility) and not otherwise satisfied in
connection with such Collateral Sale, to outstanding Indebtedness Incurred under
the New Credit Facility in an amount equal to (A) the outstanding principal
amount of Indebtedness to the Company of the Subsidiary subject to such
Collateral Sale as evidenced by the applicable Intercompany Note, plus (B) an
additional amount, if any, necessary to prevent the aggregate outstanding
Indebtedness Incurred pursuant to the New Credit Facility to exceed the amount
of Indebtedness then
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permitted to be outstanding pursuant to the borrowing formulae contained in the
agreement evidencing such Indebtedness plus the Seasonal Overadvance to
the extent applicable; (ii) SECOND, to the extent that the balance
of such Net Available Cash after application in accordance with
clause (i), and to the extent the Company or the Subsidiary elects, to
reinvest in Additional Assets, provided, however, that,
when acquired, (A) if such Additional Assets are stock of a Subsidiary, then
such Additional Assets shall be subject to a first priority perfected Lien in
favor of the Trustee, and (B) if such Additional Assets are other than stock of
a Subsidiary, accounts receivable or inventory, then such Additional Assets
shall be unencumbered by any Lien; (iii) THIRD, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (i) and
(ii), and to the extent the Company or such Subsidiary elects, to make an offer
to purchase the Securities at not less than 100% of their Accreted Value, plus
accrued interest (if any) pursuant to and subject to the conditions of Section
10.5(a); and (iv) FOURTH, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (i), (ii) and (iii), and to
the extent the Company or such Subsidiary elects, to acquire or form a
Subsidiary which, when acquired or formed, the Capital Stock of such Subsidiary
shall be subject to a first priority perfected Lien in favor of the Trustee. To
the extent that any Net Available Cash remains after the application of the Net
Available Cash in accordance with the previous sentence, such Net Available Cash
will remain in the Collateral Account and will not be released until the
obligations of the Company under this Indenture and the Securities have been
discharged.
SECTION 10.5. PURCHASE OF SECURITIES WITH NET AVAILABLE CASH.
(a) In the event of a purchase of Securities pursuant to clause (ii)
of Section 10.4(b), the Company will purchase Securities tendered pursuant to an
offer by the Company for the Securities (the "Collateral Sale Offer") at a
purchase price of not less than 100% of their Accreted Value plus accrued
interest to the Collateral Sale Purchase Date in accordance with the procedures
(including prorationing in the event of oversubscription) set forth below. If
the aggregate purchase price of Securities tendered pursuant to the Collateral
Sale Offer is less than the Net Available Cash allotted
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to the purchase of the Securities, the Company shall apply the remaining Net
Available Cash in accordance with Section 10.4(b).
(b) Promptly, and in any event prior to the 360th day after the later
of the date of each Collateral Sale as to which the Company makes a Collateral
Sale Offer or the receipt of Net Available Cash therefrom, the Company shall be
obligated to deliver to the Trustee and send, by first-class mail to each
Holder, a written notice stating that the Holder may elect to have his
Securities purchased by the Company either in whole or in part (subject to
prorationing as hereinafter described in the event the Collateral Sale Offer is
oversubscribed) in integral multiples of $1,000 of principal amount at maturity,
at the applicable purchase price. The notice shall specify a purchase date not
less than 30 days, nor more than 60 days, after the date of such notice (the
"Collateral Sale Purchase Date") and shall contain the information required in a
notice for a Change of Control Offer as described in Section 3.8, to the extent
applicable.
(c) Not later than the date upon which written notice of a Collateral
Sale Offer is delivered to the Trustee as provided below, the Company shall
deliver to the Trustee an Officers' Certificate as to (i) the amount of the
Collateral Sale Offer (the "Collateral Sale Offer Amount"), (ii) the allocation
of the Net Available Cash from the Collateral Sale pursuant to which such
Collateral Sale Offer is being made and (iii) the compliance of such allocation
with Section 10.4(a). On such date, the Trustee shall also deposit with a
Paying Agent other than the Company or a Subsidiary or an Affiliate of the
Company funds in an amount equal to the Collateral Sale Offer Amount to be held
for payment in accordance with the provisions of Section 10.4. Upon the
expiration of the period for which the Collateral Sale Offer remains open (the
"Collateral Offer Period"), the Company shall deliver, or cause to be delivered,
to the Trustee the Securities or portions thereof which have been properly
tendered to and are to be accepted by the Company. The Paying Agent shall, on
the Collateral Sale Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price. In the event that the aggregate
purchase price of the Securities delivered, or caused to be delivered, by the
Company to the Trustee is
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less than the Collateral Sale Offer Amount, the Paying Agent shall deliver the
excess to the Trustee immediately after the expiration of the Collateral Offer
Period and the Trustee shall place such funds in the Collateral Account.
(d) Holders electing to have a Security purchased will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security duly completed, to the Company or the
Paying Agent, as specified in, and at the address specified in, the notice at
least ten Business Days prior to the Collateral Sale Purchase Date. Holders
will be entitled to withdraw their election if the Trustee or the Paying Agent
receives, not later than three Business Days prior to the Collateral Sale
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the
Collateral Offer Period the aggregate principal amount of Securities surrendered
by Holders exceeds the Collateral Sale Offer Amount, the Company shall select
the Securities to be purchased on a pro rata basis (with such adjustments as may
be deemed appropriate by the Company so that only Securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(e) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company will also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Paying Agent,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant
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to clause (ii) of Section 10.4(b). To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section, the
Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 10.6. CERTIFICATES OF COMPANY.
(a) The Company will furnish to the Trustee prior to each proposed
release of Collateral pursuant to Section 10.4 all documents required by
Sections 314(c) and 314(d) of the TIA. The Trustee may, to the extent permitted
by Sections 6.1 and 6.2 hereof, accept as conclusive evidence of compliance with
the foregoing provisions the appropriate statements contained in such
instruments. Any certificate or opinion required by Sections 314(c) and 314(d)
of the TIA may be made by an Officer of the Company, except in cases where TIA
Sections 314(c) and 314(d) require that such certificate or opinion be made by
an independent engineer, appraiser or other expert within the meaning of
Sections 314(c) and 314(d) of the TIA.
SECTION 10.7 AUTHORIZATION OF ACTIONS TO BE TAKEN UNDER THE PLEDGE AGREEMENT.
The Trustee may, in its sole discretion and without the consent of the
Holders, on behalf of the Holders, take all actions its deems necessary or
appropriate in order to (a) enforce any of the terms of the Pledge Agreement and
(b) collect and receive any and all amounts payable in respect of the
Obligations of the Company hereunder. The Trustee shall have the power to
institute and to maintain such suits and proceedings as it may deem expedient to
prevent any impairment of the Collateral by any acts that may be unlawful or in
violation of the Pledge Agreement or this Indenture, and such suits and
proceedings as the Trustee may deem expedient to preserve or protect its
interests and interests of the Holders in the Collateral (including power to
institute and maintain suits or proceedings to restrain the enforcement of or
compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of,
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or compliance with, such enactment, rule or order would impair the security
interest hereunder or be prejudicial to the interests of the Holders or of the
Trustee).
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by any of TIA Sections 310 to 317, inclusive, through
operation of TIA Section 318(c), such imposed duties shall control.
SECTION 11.2 NOTICES.
Any notice or communication shall be in writing and delivered in
person, or mailed by first-class mail (certified, return receipt requested),
addressed as follows:
if to the Company or the Subsidiary Guarantors:
Empire Gas Corporation
1700 South Jefferson Street
P.O. Box 303
Lebanon, Missouri 65536
Attention: Secretary
if to the Trustee:
Shawmut Bank Connecticut,
National Association
777 Main Street - MSN 238
Hartford, Connecticut 06115
Attention: Corporate Trust Administration
The Company, any Subsidiary Guarantor or the Trustee by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
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Any notice or communication to a Securityholder shall be mailed by
first-class mail to the Securityholder's address shown on the register kept by
the Registrar. Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company or any Subsidiary Guarantor mails a notice or
communication to Securityholders, it shall mail a copy to the Trustee and each
Agent at the same time.
SECTION 11.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA Section 312(c).
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Company
shall, if requested by the Trustee, furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers, all
conditions precedent (including any covenants compliance with which constitutes
a condition precedent), if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel (which
may rely upon an Officers' Certificate as to factual matters), all such
conditions precedent have been complied with.
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SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture other than certificates
provided pursuant to Section 3.9 shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 11.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.7 LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York, the State of
Connecticut or the State in which the principal office of the Paying Agent is
located. If a payment date is a Legal Holiday, payment may be made at that
place on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the regular record date shall not be affected.
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SECTION 11.8 SUCCESSORS; NO RECOURSE AGAINST OTHERS.
(a) All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
(b) All liability of the Company or any Subsidiary Guarantor
described in the Securities insofar as it relates to any director, officer,
employee or stockholder, as such, of the Company is waived and released by each
Securityholder.
SECTION 11.9 DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 11.10 OTHER PROVISIONS.
The first certificate pursuant to Section 3.9 shall be for the fiscal
year ending on June 30, 1994. The reporting date for Section 6.6 is May 15th of
each year. The first reporting date is May 15, 1995.
SECTION 11.11 GOVERNING LAW.
The laws of the State of New York govern this Indenture and the
Securities, without regard to the conflicts of laws rules thereof.
ARTICLE XII
SUBSIDIARY GUARANTEES
SECTION 12.1 SUBSIDIARY GUARANTEES.
Each of the Subsidiary Guarantors hereby jointly and severally
unconditionally guarantees to each Holder of a Security authenticated
and delivered by the Trustee, and to the Trustee on behalf of such Holder, the
due and punctual payment of the principal of (and premium, if any) and interest
on such Security when and as the same shall become due and payable,
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whether at the Stated Maturity, by acceleration, call for redemption, purchase
or otherwise, in accordance with the terms of such Security and of
this Indenture; provided, however, that the liability of a Subsidiary Guarantor
hereunder shall not exceed at any time the maximum amount of Indebtedness
permitted at the time of the grant of such Subsidiary Guarantee or, if
greater, at the time payment is required under such Subsidiary Guarantee, to
be incurred in compliance with any applicable fraudulent conveyance or similar
law. In case of the failure of the Company punctually to make any
such payment, each of the Subsidiary Guarantors hereby jointly and severally
agrees to cause such payment to be made punctually when and as the same shall
become due and payable, whether at the Stated Maturity or by acceleration,
call for redemption, purchase or otherwise, and as if such payment were made
by the Company.
Each of the Subsidiary Guarantors hereby jointly and severally agrees
that its obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of such Security or this Indenture,
the absence of any action to enforce the same, any exchange, release
or non-perfection of any Lien on any collateral for, or any release or amendment
or waiver of any term of any other guarantee of, or any consent to departure
from any requirement of any other guarantee of all or any of the Securities, the
election by the Trustee or any of the Holders in any proceeding under Chapter
11 of the Bankruptcy Law of the application of Section 1111(b)(2) of the
Bankruptcy Law, any borrowing or grant of a security interest by the Company,
as debtor-in-possession, under Section 364 of the Bankruptcy Law, the
disallowance, under Section 502 of the Bankruptcy Law, of all or any portion of
the claims of the Trustee or any of the Holders for payment of any of the
Securities, any waiver or consent by the Holder of such Security or by the
Trustee with respect to any provisions thereof or of this Indenture, the
obtaining of any judgment against the Company or any action to enforce the same
or any other circumstances which might otherwise constitute a legal or equitable
discharge or defense of a guarantor. Each of the Subsidiary Guarantors hereby
waives the benefits of diligence, presentment, demand of payment, any
requirement that the Trustee or any of the Holders protect, secure, perfect or
insure any security interest in or other Lien on any property subject thereto
or exhaust any right or take any action against the Company or any other Person
or any Collateral, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the Indebtedness
evidenced thereby and all demands whatsoever, and covenants, that this
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<PAGE>
Subsidiary Guarantee will not be discharged in respect of such Security except
by complete performance of the obligations contained in such Security and in
this Subsidiary Guarantee. Each of the Subsidiary Guarantors hereby agrees
that, in the event of a default in payment of principal
(or premium, if any) or interest on such Security, whether at their
Stated Maturity, by acceleration, call for redemption, purchase or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set
forth in this Indenture, directly against each of the Subsidiary Guarantors to
enforce this Subsidiary Guarantee without first proceeding against the Company.
Each Subsidiary Guarantor agrees that if, after the occurrence and during the
continuance of an Event of Default, the Trustee or any of the Holders are
prevented by applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with
respect to the Securities, or the Trustee or the Holders are prevented
from taking any action to realize on the Collateral, such Subsidiary Guarantor
agrees to pay to the Trustee for the account of the Holders, upon demand
therefor, the amount that would otherwise have been due and payable had such
rights and remedies been permitted to be exercised by the Trustee or any of the
Holders.
Each Subsidiary Guarantor shall be subrogated to all rights of the
Holders of the Securities upon which its guarantee is endorsed against
the Company in respect of any amounts paid by such Subsidiary Guarantor on
account of such Securities pursuant to the provisions of its Subsidiary
Guarantee or this Indenture; PROVIDED, HOWEVER, that no Subsidiary Guarantor
shall be entitled to enforce or to receive any payments arising out of, or based
upon, such right of subrogation until the principal of (and premium, if any) and
interest on all Securities issued hereunder shall have been paid in
full.
Each Subsidiary Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors
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or should a receiver or trustee be appointed for all or any significant part of
the Company's assets, and shall, to the fullest extent permitted by law,
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Securities, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee on the Securities, whether as a "voidable preference,"
"fraudulent transfer," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Securities shall, to the
fullest extent permitted by law, be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
SECTION 12.2 EXECUTION AND DELIVERY OF SUBSIDIARY
GUARANTEES.
The Subsidiary Guarantees to be endorsed on the Securities
shall include the terms of the Subsidiary Guarantee set forth in Section 12.1
and any other terms that may be set forth in the form established pursuant to
Exhibit B annexed hereto, which is part of this Indenture. Each of the
Subsidiary Guarantors hereby agrees to execute its Subsidiary Guarantee, in a
form established pursuant to Exhibit B, to be endorsed on each Security
authenticated and delivered by the Trustee.
The Subsidiary Guarantee shall be executed on behalf of each
respective Subsidiary Guarantor by any one of such Subsidiary Guarantor's
Chairman of the Board, Vice Chairman of the Board, President or Vice Presidents,
attested by its Secretary or Assistant Secretary. The signature of any or all
of these officers on the Subsidiary Guarantee may be manual or facsimile.
A Subsidiary Guarantee bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of a Subsidiary Guarantor
shall bind such Subsidiary Guarantor, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of the Security on which such Subsidiary Guarantee is endorsed or did
not hold such offices at the date of such Subsidiary Guarantee.
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The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee endorsed thereon on behalf of the Subsidiary Guarantors.
Each of the Subsidiary Guarantors hereby jointly and severally agrees that its
Subsidiary Guarantee set forth in Section 12.1 shall remain in full force and
effect notwithstanding any failure to endorse a Subsidiary Guarantee on any
Security.
SECTION 12.3 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Except as set forth in Section 12.4 and in Articles III and IV hereof,
nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of a Subsidiary Guarantor with or into the
Company or a Subsidiary Guarantor or shall prevent any sale or conveyance of the
property of a Subsidiary Guarantor as an entirety of substantially as an
entirety to the Company or a Subsidiary Guarantor.
SECTION 12.4 RELEASE OF SUBSIDIARY GUARANTORS.
(a) Concurrently with any consolidation or merger of a Subsidiary
Guarantor or any sale or conveyance of the property of a Subsidiary Guarantor as
an entirety or substantially as an entirety, in each case as permitted by
Section 12.3 hereof, and upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to the effect that such
consolidation, merger, sale or conveyance was made in accordance with Section
12.3 hereof, the Trustee shall execute any documents reasonably required in
order to evidence the release of such Subsidiary Guarantor from its obligations
under its Subsidiary Guarantees endorsed on the Securities and under
this Article XII. Any Subsidiary Guarantor not released from its obligations
under its Subsidiary Guarantees endorsed on the Securities and under
this Article XII shall remain liable for the full amount of principal of and
interest on the Securities and for the other obligations of a
Subsidiary Guarantor under its Subsidiary Guarantees endorsed on the
Securities and under this Article XII.
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<PAGE>
(b) Concurrently with the defeasance of the Securities under
Section 7.2 hereof, the Subsidiary Guarantors shall be released from all
of their obligations under their Subsidiary Guarantees endorsed on the
Securities and under this Article XII subject to reinstatement if the
obligations under the Securities are reinstated pursuant to Section 7.7.
(c) Upon the sale or disposition (by merger or otherwise) of any
Subsidiary Guarantor by the Company or any Restricted Subsidiary of the Company
to any entity that is not the Company or a Subsidiary or Affiliate thereof and
which sale or disposition is otherwise in compliance with the terms of this
Indenture, such Subsidiary Guarantor shall automatically be released from all
obligations under its Subsidiary Guarantees endorsed on the Senior Secured Notes
and under this Article XII, PROVIDED THAT such Subsidiary Guarantor is sold or
disposed of for fair market value (evidenced by a Board Resolution and set forth
in an Officers' Certificate delivered to the Trustee and by an independent
engineer, appraiser or other expert, to the extent required by the TIA).
(d) Upon the redesignation by the Company of a Subsidiary Guarantor
from Restricted Subsidiary to an Unrestricted Subsidiary in compliance with the
provisions of this Indenture, such Subsidiary shall cease to be a Subsidiary
Guarantor and shall be released from all of the obligations of a Subsidiary
Guarantor under its Subsidiary Guarantees endorsed on the Securities
and under this Article XII.
SECTION 12.5 ADDITIONAL SUBSIDIARY GUARANTORS.
(a) The Company shall cause any Person that becomes a Restricted
Subsidiary after the date of this Indenture to become a Subsidiary Guarantor
with respect to the Securities. Any such Person shall become a
Subsidiary Guarantor by executing and delivering to the Trustee (a) a
supplemental indenture, in form and substance satisfactory to the Trustee, which
subjects such Person to the provisions (including the representations and
warranties) of this Indenture as a Subsidiary Guarantor and (b) an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized
and executed by such Person and constitutes the legal, valid, binding and
enforceable obligation of such Person (subject to such customary exceptions
concerning credi-
114
<PAGE>
tors' rights and equitable principles as may be reasonably acceptable to the
Trustee in its discretion).
(b) The Company will cause any Subsidiary of the Company that is or
becomes a borrower under or guarantor of the Company's obligations under the
New Credit Facility to become a Subsidiary Guarantor with respect to the
Securities.
115
<PAGE>
SIGNATURES
Dated: , 199_
EMPIRE GAS CORPORATION
By_______________________
Name:
Title:
Attest: By_______________________
Name:
Title:
_________________________
Each of the SUBSIDIARY GUARANTORS listed on
Schedule I attached hereto
By_______________________
Name:
Title:
Attest:
_________________________
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, as
Trustee
By_______________________
Name:
Title:
[SEAL]
Attest:
_________________________
116
<PAGE>
SCHEDULE I
Empire Tank Leasing Corporation
Empiregas Equipment Corporation
Empire Underground Storage, Inc.
Empire Industrial Sales Corporation
Utility Collection Corporation
Empiregas Transports, Inc. (Missouri)
Empiregas Aviation Corporation
Empiregas Transports, Inc. - OR
Empiregas Inc. of Clinton (Missouri)
Empiregas Inc. of Kansas City
Empiregas Inc. of Albany
Empiregas Inc. of Aiken
Empiregas of Arma, Inc.
Empiregas Inc. of Arnauldville
Empiregas Inc. of Auburn
Empiregas Inc. of Big Rapids
Empiregas Inc. of Bolivar
Empiregas Inc. of Boise
Empiregas Inc. of Boulder
Empiregas Inc. of Bowling Green
Empiregas Inc. of Brandon
Empiregas Inc. of Bremerton
Empiregas of Bristow, Inc.
Empiregas Inc. of Buffalo
Empiregas Inc. of Adrian
Empiregas Inc. of Camdenton
Empiregas Inc. of Canon City
Empiregas Inc. of Canton
Empiregas Inc. of Carthage
Empiregas Inc. of Castle Rock
Empiregas Inc. of Centerville
Empiregas Inc. of Charlotte
Empiregas Inc. of Chassel
Empiregas Inc. of Chehalis
Empiregas Inc. of Clinton, Illinois
Empiregas of Colcord, Inc.
Empiregas Inc. of Cole Camp
Empiregas Inc. of Coleman
Empiregas Inc. of Colorado Springs
Empiregas Inc. of Coquille
Empiregas Inc. of Cuba
1
<PAGE>
Empiregas Inc. of Chetek
Empiregas Inc. of Denver
Empiregas Inc. of Dover
Empiregas Inc. of Durand
Empiregas Inc. of El Dorado Springs
Empiregas Inc. of Elsberry
Empiregas Inc. of Elsinore
Empiregas Inc. of Escondido
Empiregas Inc. of Eunice
Empiregas Inc. of Evergreen
Salgas Inc. of Fairplay
Empiregas Inc. of Eau Claire
Empiregas Inc. of Fort Collins
Empiregas Inc. of Fowler
Empiregas Inc. of Mid-Missouri
Empiregas Inc. of Galveston
Empiregas Inc. of Galva
Empiregas Inc. of Gaylord
Empiregas Inc. of Globe
Empiregas Inc. of Goose Creek
Empiregas Inc. of Greeley
Empiregas Inc. of Grand Junction
Empiregas of Grove, Inc.
Empiregas Inc. of Hermiston
Empiregas Inc. of Hermitage
Empiregas Inc. of Hiawassee
Empiregas Inc. of Higginsville
Empiregas of Hitichita, Inc.
Empiregas Inc. of Hoopeston
Empiregas Inc. of Hornick
Empiregas Inc. of Humansville
Empiregas Inc. of Jacksonville
Empiregas Inc. of Jackson, MI
Empiregas Inc. of Kalamazoo
Empiregas Inc. of Kirksville
Empiregas Inc. of Lafayette
Empiregas Inc. of Lake Charles
Empiregas Inc. of Lake Providence
Empiregas Inc. of Laurie
Empiregas of Le Sueur, Inc.
Empiregas Inc. of Lincoln
Empiregas Inc. of Longmont
Empiregas Inc. of Los Angeles
Empiregas Inc. of Loveland
Empiregas Inc. of Marquette
Empiregas Inc. of Marshall
Empiregas Inc. of Medford
2
<PAGE>
Empiregas Inc. of Menomonie
Empiregas Inc. of Merillan
Empiregas Inc. of Miller
Empiregas Inc. of Modesto
Empiregas Inc. of Monte Vista
Empiregas Inc. of Mount Vernon
Empiregas Inc. of Munising
Empiregas Inc. of Murphy
Thrif-T-Gas Inc. of Blackwater
Empiregas Inc. of North Bend
Empiregas Inc. of North Myrtle Beach, Inc.
Empiregas Inc. of Oak Grove
Empiregas Inc. of Onawa
Empiregas Inc. of Orangeburg
Empiregas Inc. of Owensville
Empiregas Inc. of Santa Paula
Empiregas Inc. of Paducah
Empiregas Inc. of Palmyra
Empiregas Inc. of Placerville
Empiregas Inc. of Pomona
Empiregas Inc. of Potosi
Empiregas Inc. of Pueblo
Empiregas Inc. of Reedsport
Empiregas Inc. of Richland
Empiregas Inc. of Rolla
Empiregas Inc. of Sacramento
Empiregas Inc. of Sandy
Empiregas Inc. of Shell Lake
Empiregas Inc. of Siloam Springs
Empiregas of Stigler, Inc.
Empiregas Inc. of Susanville
Empiregas Inc. of Sunnyside
Empiregas Inc. of Rocky Mount
Empiregas Inc. of the Dalles
Empiregas Inc. of Tipton (Iowa)
Empiregas Inc. of Traverse City
Empiregas Inc. of Vandalia
Empiregas Inc. of Vassar
Empiregas Inc. of Vinita, Inc.
Empiregas Inc. of Warren
Empiregas Inc. of Warsaw (Missouri)
Empiregas Inc. of Washington
Empiregas Inc. of Waukon
Empiregas Inc. of Waynesville
Empiregas Inc. of Waynesville, NC
Empiregas Inc. of Wenatchee
Empiregas Inc. of Wentzville
3
<PAGE>
Empiregas of Westville, Inc.
Empiregas Inc. of Wills Point
Empiregas Inc. of Wilmington
Empiregas Inc. of Wilson
Empiregas Inc. of Woodland Park
Empiregas Inc. of Yakima
Empiregas Inc. of Yucca Valley
Empiregas Inc. of Zebulon
Empiregas Inc. of Columbiana
Empiregas of Zumbro Falls, Inc.
Ginco Gas Company, Inc.
Empiregas Inc. of Orange County
Empiregas Inc. of Morgan County
Empiregas Inc. of Lake Ozark
Empiregas Inc. of Waco
Empiregas Inc. of Paris, TX
Empiregas Inc. of Dallas, TX
Empiregas Inc. of Kemp
Empiregas Inc. of San Antonio
Thrift-T-Gas Co., Inc.
Empiregas Inc. of Paris, MO
Salida Gas Co., Inc.
Salgas Inc. of Gunnison
Empiregas Inc. of Toledo
Empiregas Inc. of Wilkesboro
Empiregas Inc. of Hendersonville
Empiregas Inc. of North Carolina
Empiregas Inc. of Creedmoor
Empiregas Inc. of Apex
Empiregas Inc. of Durham
Empiregas Inc. of Warrenton
4
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Form of Face of Security)
Unless this certificate is presented by an authorized representative
of The Depositary Trust Company, a New York corporation ("DTC"), to the Company
(as defined below) or its agent for registration of transfer, exchange or
payment, and any certificate issued is registered in the name of Cede & Co., or
such other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co., or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, this certificate may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor Depositary or a
nominee of such successor Depositary.
EMPIRE GAS CORPORATION
% SENIOR SECURED NOTE DUE 2004
No. $
Empire Gas Corporation, a Missouri corporation, promises to pay to
, or registered assigns, the principal sum of Dollars on ,
2004.
Interest Payment Dates:
Record Dates:
Additional provisions of this Security are set forth on the reverse
hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Date:
EMPIRE GAS CORPORATION
By_______________________
Name:
Title:
By_______________________
Name:
Title:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:
Shawmut Bank Connecticut,
National Association, as Trustee,
certifies that this is one
of the Securities referred
to in the Indenture. (SEAL)
By: _________________________
Authorized Signature
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-2
<PAGE>
(Form of Back of Security)
EMPIRE GAS CORPORATION
% SENIOR SECURED NOTE DUE 2004
(1) INTEREST. Empire Gas Corporation, a Missouri corporation (such
corporation, and its successors and assigns under the Indenture referred to
below, being herein called the "Company"), promises to pay interest on the
principal amount at maturity of this Security at the rate of [____]% per annum
until [______], 1999 and at the rate of [__]% per annum from and including
[________], 1999 until maturity.
Interest will be payable semiannually (to the holders of record of the
Securities at the close of business on the [_____] or [_____] immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
[___________], 1994.
Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from [_____],
1994; PROVIDED that, if there is no existing default in the payment of interest
and if this Security is authenticated between a Regular Record Date referred to
on the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
(2) METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the persons who are registered Holders
of Securities at the close of business on the record date next preceding the
interest payment date even though Securities are canceled after the record date
and on or before the interest payment date. Holders must surrender Securities
to a Paying Agent to collect principal payments. The Company will pay principal
and interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and
A-3
<PAGE>
interest by check payable in such money. It may mail an interest check to a
Holder's registered address.
(3) PAYING AGENT, REGISTRAR. Initially, Shawmut Bank Connecticut,
National Association, a National Banking Association (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without notice. The Company may act as Paying Agent,
Registrar or co-registrar.
(4) INDENTURE. The Company issued the Securities under an Indenture
dated as of , 1994 (the "Indenture") between the Company, the
Subsidiary Guarantors (as defined therein) and the Trustee. The Securities are
general obligations of the Company limited to $ aggregate principal
amount at maturity, subject to increase pursuant to the terms of the Indenture.
The terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA"). Capitalized terms used herein but not
defined herein are used as defined in the Indenture, and references to the
principal amount of any Security refer to the Accreted Value of such Security as
determined pursuant to the Indenture. The Securities are subject to all such
terms, and Securityholders are referred to the Indenture and the TIA for a
statement of such terms.
(5) OPTIONAL REDEMPTION. Except as set forth in the following
paragraph, the Company may not redeem the Securities prior to _____, 1999. On
and after such date, the Company may redeem the Securities at any time as a
whole, or from time to time in part, at the following redemption prices
(expressed in percentages of Accreted Value), plus accrued interest to the
redemption date, if redeemed during the 12-month period beginning _____,
YEAR %
1999 . . . . . . . . . .
2000 . . . . . . . . . .
2001, and thereafter . .
The Company may redeem up to $ principal amount at maturity
of Securities with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at any time in whole or from time to time in
part, at a price (expressed as a percentage of Accreted
A-4
<PAGE>
Value), plus accrued interest to the redemption date, of % if redeemed at
any time prior to , 1997.
(6) NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at the address set forth for such Holder on
the register referred to in Section 2.3 of the Indenture. Unless the Company
shall default in payment of the redemption price plus accrued interest, on and
after the redemption date interest ceases to accrue on such Securities or
portions of them called for redemption. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000.
(7) "ACCRETED VALUE" means as of any date (the "specified date") with
respect to each $1,000 face amount of Securities, the following amount:
(i) if the specified date is one of the following dates (each an
"accrual date"), the amount set forth opposite such date below:
ACCRUAL DATE ACCRETED VALUE
______, 1994 . . . . . . . . . . . . ______
______, 1994 . . . . . . . . . . . . ______
______, 1995 . . . . . . . . . . . . ______
______, 1995 . . . . . . . . . . . . ______
______, 1996 . . . . . . . . . . . . ______
______, 1996 . . . . . . . . . . . . ______
______, 1997 . . . . . . . . . . . . ______
______, 1997 . . . . . . . . . . . . ______
______, 1998 . . . . . . . . . . . . ______
______, 1998 . . . . . . . . . . . . ______
______, 1999 . . . . . . . . . . . . $1,000;
(ii) if the specified date occurs between two accrual dates, the
sum of (A) the accreted value for the accrual date immediately preceding
the specified date and (B) an amount equal to the product of (i) the
accreted value for the immediately following accrual date less the accreted
value for the immediately preceding accrual date and (ii) a fraction, the
numerator of which is the number of days (not to exceed 180 days) from the
immediately preceding accrual date to the specified date, using a 360-day
year of twelve 30-
A-5
<PAGE>
day months, and the denominator of which is 180 (or, if the immediately
following accrual date is _________, 1999, ___); and
(iii) if the specified date occurs after _____ __, 1999, $1,000.
(8) DENOMINATIONS; TRANSFER; EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 in face amount and
whole multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption (except, in the case
of a Security to be redeemed in part, the portion thereof not to be redeemed) or
any Securities for a period of 15 days before a selection of Securities to be
redeemed, or 15 days before an interest payment date.
(9) PUT PROVISIONS. Upon a Change of Control, any Holder of
Securities will have the right to cause the Company to repurchase all or any
part of the Securities of such Holder at a repurchase price equal to 101% of the
principal amount of the Securities to be repurchased plus accrued interest to
the date of repurchase as provided in, and subject to the terms of, the
Indenture.
(10) DEFEASANCE. Subject to certain conditions, the Company at any
time may terminate some or all of its obligations under the Securities and the
Indenture if the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
(11) SECURITY. As provided in the Indenture and the Pledge
Agreement, and subject to certain limitations set forth therein, the Obligations
of the Company under the Indenture and the Pledge Agreement are secured by the
Collateral as provided in the Indenture and the Pledge Agreement. Each Holder,
by accepting a Security, agrees to be bound by all terms and provisions of the
Pledge Agreement, as the same may be amended form time to time. The Liens
created under the Indenture and the Pledge Agreement shall
A-6
<PAGE>
be released upon the terms and subject to the conditions set forth in the
Indenture and Pledge Agreement.
(12) PERSONS DEEMED OWNERS. The registered Holder of a Security may
be treated as its owner for all purposes, except that interest (other than
defaulted interest) will be paid to the person that was the registered Holder on
the relevant record date for such payment of interest.
(13) AMENDMENTS AND WAIVERS. Subject to certain exceptions, (i) the
Indenture or the Securities may be amended or supplemented with the consent of
the Holders of a majority in principal amount of the Securities; and (ii) any
existing default may be waived with the consent of the Holders of a majority in
principal amount of the Securities. Without the consent of any Securityholder,
the Indenture or the Securities may be amended or supplemented to cure any
ambiguity, omission, defect or inconsistency, to provide for assumption of
Company obligations to Securityholders or to provide for uncertificated
Securities in addition to or in place of certificated Securities, to provide for
guarantees with respect to, or security for, the Securities, or to comply with
the TIA or to add additional covenants or surrender Company rights, to make
certain amendments to the Pledge Agreement called for therein to add Collateral
or to make any change that does not adversely affect the Rights of any
Securityholder.
(14) REMEDIES. If an Event of Default occurs and is continuing, the
Trustee or Holders of at least 25% in principal amount of the Securities may
declare all the Securities to be due and payable immediately. Securityholders
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee may require an indemnity before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Securityholders
notice of any continuing default (except a Default in payment of principal or
interest) if it determines that withholding notice is in their interests. The
Company must furnish an annual compliance certificate to the Trustee.
(15) TRUSTEE DEALINGS WITH COMPANY. Subject to the provisions of the
TIA, the Trustee under the Indenture,
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<PAGE>
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may otherwise
deal with the Company or its Affiliates, as if it were not Trustee. The Trustee
will initially be Shawmut Bank Connecticut, National Association.
(16) NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company or a Subsidiary Guarantor shall not have
any liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
(17) AUTHENTICATION. This Security shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.
(18) ABBREVIATIONS. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A
(= Uniform Gifts to Minors Act).
(19) SUBSIDIARY GUARANTEE. The payment of principal of, premium, if
any and interest on the Securities is guaranteed on a senior basis by the
Guarantors pursuant to Article XII of the Indenture.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE A COPY OF THE INDENTURE AND THE PLEDGE AGREEMENT, WHICH
INDENTURE HAS IN IT THE
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<PAGE>
TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: SECRETARY,
EMPIRE GAS CORPORATION, 1700 SOUTH JEFFERSON STREET, P.O. BOX 303, LEBANON,
MISSOURI, 65536 ATTENTION: SECRETARY.
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<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Insert assignee's soc. sec or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
____________________________________________________________
Dated: ________________ Signed: ____________________
____________________
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee: _______________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPTION OF HOLDER TO ELECT PURCHASE FORM
If you wish to elect to have this Security purchased by the Company
pursuant to Section 3.8, 3.12 or 10.5 of the Indenture, check this box:
/ /
If you wish to elect to have only part of this Security purchased by the
Company pursuant to Section 3.8, 3.12 or 10.5 of the Indenture, state the
amount: $
*As set forth in the Indenture, any purchase pursuant to Section 3.12 is
subject to proration in the event the offer is oversubscribed.
Dated: ________________ Signed: ____________________
____________________
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee: _______________________________________
A-10
<PAGE>
EXHIBIT B
FORM OF GUARANTEE
GUARANTEE
For value received, each of the Subsidiary Guarantors listed below
hereby jointly and severally unconditionally guarantees to the Holder of the
Security on which this guarantee is endorsed, and to the Trustee on behalf of
such Holder, the due and punctual payment of the principal of (and premium, if
any) and interest on such Security when and as the same shall become due and
payable, whether at the Stated Maturity, by acceleration, call for redemption,
purchase or otherwise, according to the terms thereof and of the Indenture
referred to therein; provided, however, that the liability of a Subsidiary
Guarantor hereunder shall not exceed at any time the maximum amount of
Indebtedness permitted at the time of the grant of such Subsidiary Guarantee
or, if greater, at the time payment is required under such Subsidiary
Guarantee, to be incurred in compliance with any applicable fraudulent
conveyance or similar law. In case of the failure of the Company
punctually to make any such payment, each of the Subsidiary Guarantors hereby
jointly and severally agrees to cause such payment to be made punctually when
and as the same shall become due and payable, whether at the Stated Maturity or
by acceleration, call for redemption, purchase or otherwise, and as if such
payment were made by the Company.
Each of the Subsidiary Guarantors hereby jointly and severally agrees
that its obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of such Security or the Indenture, the
absence of any action to enforce the same, or any release or amendment or
waiver of any term of any other guarantee of, or any consent to departure from
any requirement of any other guarantee of all or of any of the Securities, the
election by the Trustee or any of the Holders in any proceeding under
Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101-13330, as amended
(the "Bankruptcy Law") of the application of Section 1111(b)(2) of the
Bankruptcy Law, any borrowing or grant of a security interest by the Company,
as debtor-in-possession, under Section 364 of the Bankruptcy Law, the
disallowance, under Section 502 of the Bankruptcy Law, of all or any portion
of the claims of the Trustee or any of the Holders for payment of any of the
Securities, any waiver or consent by the Holder of such Security or by the
Trustee or either of them with respect to any provisions thereof or of the
Indenture, the obtaining of any judgment against the Company or any action
to enforce
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<PAGE>
the same or any other circumstances which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. Each of the Subsidiary
Guarantors hereby waives the benefits of diligence, presentment, demand of
payment, any requirement that the Trustee or any of the Holders protect,
secure, perfect or insure any security interest in or other Lien on any
property subject thereto or exhaust any right or take any action against the
Company or any other Person, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest or notice with respect to such Security or
the Debt evidenced thereby and all demands whatsoever, and covenants that this
Subsidiary Guarantee will not be discharged except by complete performance of
the obligations contained in such Security and in this Subsidiary Guarantee.
Each of the Subsidiary Guarantors hereby agrees that, in the event of a
default in payment of principal (or premium, if any) or interest on such
Security, whether at its Stated Maturity, by acceleration, call for redemption
purchase or otherwise, legal proceedings may be instituted by the Trustee on
behalf of, or by, the Holder of such Security, subject to the terms and
conditions set forth in the Indenture, directly against each of the Subsidiary
Guarantors to enforce this Subsidiary Guarantee without first proceeding
against the Company. Each Subsidiary Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or
any of the Holders are prevented by applicable law from exercising their
respective rights to accelerate the maturity of the Securities, to collect
interest on the Securities, or to enforce or exercise any other right or remedy
with respect to the Securities, such Subsidiary Guarantor agrees to pay to
the Trustee for the account of the Holders, upon demand therefor, the amount
that would otherwise have been due and payable had such rights and remedies
been permitted to be exercised by the Trustee or any of the Holders.
No reference herein to the Indenture and no provision of this
Subsidiary Guarantee or of the Indenture shall alter or impair the Subsidiary
Guarantee of any Subsidiary Guarantor, which is absolute and unconditional, of
the due and punctual payment of the principal (and premium, if any) and interest
on the Security upon which this Subsidiary Guarantee is endorsed.
B-2
<PAGE>
Each Subsidiary Guarantor shall be subrogated to all rights of the
Holder of this Security against the Company in respect of any amounts paid by
such Subsidiary Guarantor on account of this Security pursuant to the
provisions of this Subsidiary Guarantee or the Indenture; PROVIDED, HOWEVER,
that such Subsidiary Guarantor shall not be entitled to enforce or to receive
any payments arising out of, or based upon, such right of subrogation until the
principal of (and premium, if any) and interest on this Security and all other
Securities issued under the Indenture shall have been paid in full.
This Subsidiary Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall,
to the fullest extent permitted by law, continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Securities, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee on the Securities
whether as a "voidable preference," "fraudulent transfer," or otherwise,
all as though such payment or performance had not been made. In the event
that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Securities shall, to the fullest extent permitted by
law, be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
The Subsidiary Guarantors shall have the right to seek contribution
from any non-paying Subsidiary Guarantor so long as the exercise of such right
does not impair the rights of the Holders under this Subsidiary Guarantee.
The Subsidiary Guarantors or any particular Subsidiary Guarantor shall
be released from this Subsidiary Guarantee upon the terms and subject to certain
conditions provided in the Indenture.
By delivery of a Supplemental Indenture to the Trustee in accordance
with the terms of the Indenture, each Person that become a Subsidiary Guarantor
after the date of the Indenture will be deemed to have executed and delivered
B-3
<PAGE>
this Subsidiary Guarantee for the benefit of the Holder of this Security with
the same effect as if such Subsidiary Guarantor was named below.
All terms used in this Subsidiary Guarantee which are defined in the
Indenture referred to in the Security upon which this Subsidiary Guarantee is
endorsed shall have the meanings assigned to them in such Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Security upon which
this Subsidiary Guarantee is endorsed shall have been executed by the Trustee
under the Indenture by manual signature.
Reference is made to Article Twelve of the Indenture for further
provisions with respect to this Subsidiary Guarantee.
THIS SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this
Subsidiary Guarantee to be duly executed.
Each of the SUBSIDIARY GUARANTORS listed on Schedule I
attached hereto
Each as Subsidiary Guarantor
By
Title:
Attest:
___________________________
Title:
B-4
<PAGE>
EXHIBIT C
FORM OF SUBORDINATION PROVISIONS
[THE TERM "SECURITIES" IN THIS FORM
REFERS TO THE SUBORDINATED SECURITIES
REFERRED TO IN THE DEFINITION OF
"REFINANCING INDEBTEDNESS" AND SECTION 3.4(B)
TO WHICH THESE PROVISIONS WOULD APPLY.]
ARTICLE __
SUBORDINATION
SECTION ____ AGREEMENT TO SUBORDINATE.
The Company agrees, and each Securityholder by accepting a Security agrees,
that the indebtedness evidenced by the Securities is subordinated in right of
payment, to the extent and in the matter provided herein, to the prior payment
in full of all Senior Debt, and that the subordination is for the benefit of the
holders of Senior Debt.
SECTION ____ CERTAIN DEFINITIONS.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative for an issue of Senior Debt.
"SENIOR DEBT" means (a) the principal of and accrued and unpaid interest
(including interest accruing on or after filing of any petition in bankruptcy or
for reorganization relating to the Company whether or not a claim for post-
filing interest is allowed in such proceeding) in respect of (1) indebtedness
(other than the Securities) of the Company for money borrowed, including,
without limitation, the Senior Secured Notes Due 2004 of the Company, and for
the reimbursement of amounts paid under letters of credit, (2) express written
guarantees by the Company of indebtedness for money borrowed by any other
Person, (3) indebtedness evidenced by notes, debentures, bonds or other
instruments of indebtedness for the payment of which the Company is responsible
or liable, by guarantees or otherwise, (4) obligations of the Company under any
agreement in respect of any interest rate or currency swap, interest rate cap,
floor or collar, interest rate future, currency exchange or for-
C-1
<PAGE>
ward currency transaction, or any similar interest rate or currency hedging
transaction, but only to the extent such obligations relate to other Senior Debt
(exclusive of Senior Debt consisting of obligations referred to in this clause
(4)) and (5) obligations of the Company under any agreement to lease, or any
lease of, any real or personal property which, in accordance with generally
accepted accounting principles, is classified upon the Company's balance sheet
as a liability, irrespective of whether in any case referred to in the foregoing
(1) through (5) such indebtedness, guarantee or obligation is outstanding on the
date of execution of this Indenture or thereafter created, incurred or assumed,
and (b) modifications, renewals, extensions and refundings of any such
indebtedness, guarantee or obligation; unless, in any case referred to in the
foregoing clauses (a) and (b), in the instrument creating or evidencing the
indebtedness, guarantee or obligation or pursuant to which the same is
outstanding, it is provide that such indebtedness, guarantee or obligation, or
such modification, renewal, extension or refunding thereof, is not superior in
right of payment to the Securities; PROVIDED, HOWEVER, that Senior Debt shall
not be deemed to include (i) any obligation of the Company to any Subsidiary and
(ii) any other indebtedness, guarantee or obligation of the Company of the type
set forth in clauses (a) or (b) above which is subordinate or junior in ranking
in any respect to any other indebtedness, guarantee or obligation of the
Company.
SECTION ____ LIQUIDATION, DISSOLUTION, BANKRUPTCY.
Upon any payment or distribution of assets of the Company to creditors upon
a liquidation or total or partial dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) holders of Senior Debt shall be entitled to receive payment in
full of the Senior Debt before Securityholders shall be entitled to
received any payment of principal of, or interest on, the Securities; and
(2) until Senior Debt shall received payment in full, any
distribution to which Securityholders would be entitled but for this
Article shall be made to holders of Senior Debt as their interests may
appear, except that Securityholders may receive securities that
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<PAGE>
are subordinated to Senior Debt to at least the same extent as the
Securities.
For purposes of this Section "payment in full", as used with respect to Senior
Debt, means the receipt of cash or securities (taken at their fair value at the
time of receipt, determined as hereinafter provided) equal to the principal of
and interest on the Senior Debt to the date of payment. "Fair value" means (i)
if the securities are quoted on a nationally recognized securities exchange, the
closing price on the day such securities are received or, if there are no sales
reported on that day, the reported closing bid price on that day, and (ii) if
the securities are not so quoted, a price determined by a nationally recognized
investment banking house selected by the Trustee or the Holders of a majority in
principal amount of the Securities and the Representative or the holders of
Senior Debt receiving such securities, such price to be determined as of the
date of receipt of such securities by the holders of Senior Debt.
SECTION ____ DEFAULT ON SENIOR DEBT.
(a) The Company may not pay principal of or interest on the Securities and
may not (and may not permit any Subsidiary to) acquire any Securities for cash
or property, other than capital stock of the Company, if:
(i) a default in the payment of any principal of or interest on any
Senior Debt occurs and is continuing, whether at maturity or at a date
fixed for redemption or by declaration or otherwise; or
(ii) a default on Senior Debt (other than as described in clause
(a)(i) of this Section) occurs and is continuing that permits holders of
such Senior Debt to accelerate its maturity, and the default is the subject
of judicial proceedings or the Company receives a notice of the default
from a Person who may give it pursuant to Section .12 (if the Company
receives any such notice, a similar notice received within nine months
thereafter relating to the same default on the same issue of Senior Debt
shall not be effective for purposes of this Section).
(b) The Company may resume payment on the Securities and the Company or a
Subsidiary may acquire them when:
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<PAGE>
(i) the default is cured or waived, or
(ii) in the case of clause (a)(ii) of this Section, 180 days pass
after the notice is given if the default is not the subject of judicial
proceedings,
if this Article otherwise permits the payment or acquisition at that time.
SECTION ____ ACCELERATION OF SECURITIES.
If payment of the Securities is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify holders of Senior Debt and
their Representative of the acceleration. The Company may not pay principal of
or interest on the Securities until after 180 days following the acceleration
and only if this Article permits the payment at that time.
SECTION ____ WHEN PAYMENT OR DISTRIBUTION MUST BE PAID OVER.
If a payment or distribution is made to Securityholders that because of
this Article should not have been made to them, the Securityholders who receive
the payment or distribution shall hold it in trust for holders of Senior Debt
and pay it over to them or their Representative, if any, as their interests may
appear promptly after receipt thereof.
SECTION ____ NOTICE BY COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of principal of or
interest on the Securities to violate this Article.
SECTION ____ SUBROGATION.
After all Senior Debt is paid in full and until the Securities are paid in
full, Securityholders shall be subrogated to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Securityholders have been applied to the
payment of Senior Debt. A distribution made under this Article to holders of
Senior Debt which otherwise would have been made to Securityholders is not, as
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<PAGE>
between the Company and Securityholders, a payment by the Company on Senior
Debt.
SECTION ____ RELATIVE RIGHTS.
This Article defines the relative rights of Securityholders and holders of
Senior Debt. Nothing in this Indenture shall:
(a) impair, as between the Company and Securityholders, the obligation of
the Company, which is absolute and unconditional, to pay principal of and
interest on the Securities in accordance with their terms;
(b) affect the relative rights of Securityholders and creditors of the
Company other than holders of Senior Debt; or
(c) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of Senior
Debt to receive distribution otherwise payable to Securityholders.
SECTION ____ SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
No right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION ____ DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
SECTION ____ RIGHTS OF TRUSTEE AND PAYING AGENT.
The Trustee or Paying Agent may continue to make payments on the Securities
until it receives notice of facts that would cause a payment of principal of or
interest on the Securities to violate this Article. The Company, the Registrar,
the Paying Agent, a Representative or a holder of an issue of Senior Debt that
has no Representative may give the notice.
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<PAGE>
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with the like rights.
SECTION ____ TRUSTEE AND SECURITYHOLDERS ENTITLED TO RELY.
In connection with any payment or distribution pursuant to this Article,
the Trustee and the Securityholders shall be entitled to rely (i) upon any order
or decree of a court of competent jurisdiction in which any proceedings of the
nature referred to in Section .03 are pending, (ii) upon a certificate of the
liquidating trustee or agent or other Person making such payment or distribution
to the Securityholders or (iii) upon the Representative, if any, of the holders
of Senior Debt for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payment thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Debt to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such Person
under this Article, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment.
SECTION ____ ARTICLE [ ] NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO
ACCELERATE.
The failure to make a payment pursuant to the Securities by reason of any
provision in this Article shall not be construed as preventing the occurrence of
a Default or an Event of Default. Nothing in this Article shall have any effect
on the right of the Securityholders to accelerate the maturity of the
Securities.
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<PAGE>
SECTION ____ TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Securityholder by accepting a Security authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Securityholders and the
holders of Senior Debt as provided in this Article and appoints the Trustee as
attorney-in-fact for any and all such purposes.
SECTION ____ TRUSTEE NOT CHARGED WITH KNOWLEDGE OF PROHIBITION.
Notwithstanding the provisions of this Article or any other provision of
this Indenture, but subject to the provisions under "Duties of Trustee" and
"Rights of Trustee", the Trustee and any Paying Agent shall not be charged with
knowledge of the existence of any Senior Debt, or of any default in the payment
of the principal of, or interest on, any Senior Debt, or of any facts which
would prohibit the making of any payment of money to or by the Trustee or any
such Paying Agent, unless and until the Trustee or such Paying Agent shall have
received at least three business days prior to the date set for payment under
the terms of this Indenture written notice thereof from the Company or a holder
of any kind or category of any Senior Debt or the Representative or such holder;
nor shall the Trustee or any such Paying Agent be charged with knowledge of the
curing of any such default or of the elimination of the fact or condition
preventing any such payment, unless and until the Trustee or such Paying Agent
shall have received an Officers' Certificate to such effect. Nothing contained
in this Section shall limit the rights of holders of Senior Debt to recover
payments pursuant to Section .06.
SECTION ____ TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt and shall not be liable to any such holders if it shall mistakenly
pay over or distribute to Securityholders or the Company or any other Person,
money or assets to which any holders of Senior Debt shall be entitled by virtue
of this Article or otherwise.
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<PAGE>
SECTION ____ ARTICLE APPLYING TO PAYING AGENTS.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article in addition to or in place of the Trustee.
SECTION ____ RELIANCE BY HOLDERS OF SENIOR DEBT ON SUBORDINATION PROVISIONS.
Each Securityholder by accepting a Security acknowledges and agrees that
the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Debt and such holder of Senior Debt shall be deemed conclusively to have relied
on such subordination provisions in acquiring and continuing to hold, or in
continuing to hold, such Senior Debt.
SECTION ____ ENFORCEMENT BY HOLDERS OF SENIOR DEBT.
Each Securityholder by accepting a Security appoints each holder of Senior
Debt and each such holder's Representative as such Securityholder's agent and
attorney-in-fact to make and enforce any matured claim of such Securityholder
against the Company for payment on the Securities in the event that the Trustee
or such Securityholder does not make and enforce such a claim within 60 days
after receipt by the Trustee of a written demand for such enforcement made by a
holder of Senior Debt or such holder's Representative. Each Securityholder
authorizes such holder or Representative to take all action and to execute all
documents on behalf of such Securityholder or the Trustee to make and enforce
such a claim in such event.
C-8
<PAGE>
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, DC 20037-1420
EXHIBIT 5.1
June 20, 1994
Empire Gas Corporation
1700 South Jefferson
Post Office Box 303
Lebanon, Missouri 65536
Ladies and Gentlemen:
We have acted as counsel to Empire Gas Corporation (the "Company") and
its subsidiaries in connection with the registration under the Securities Act of
1933, as amended, on a registration statement on Form S-1, Registration No. 33-
53343 (the "Registration Statement"), (i) by the Company of Units (the "Units")
consisting of Senior Secured Notes due 2004 (the "Senior Secured Notes"),
Warrants (the "Warrants") to purchase the Company's Common Stock, $.001 par
value per share (the "Common Stock"), and the Common Stock to be issued upon the
exercise of the Warrants and (ii) by the Company's wholly-owned subsidiaries
identified as guarantors in the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on April 29, 1994, as amended,
(collectively, the "Subsidiary Guarantors") of the guarantees of the Company's
indebtedness (the "Subsidiary Guarantees"). The Senior Secured Notes will be
issued under an Indenture (the "Indenture") in the form filed as Exhibit 4.2 to
the Registration Statement. The Warrants will be issued under a Warrant
Agreement (the "Warrant Agreement") in the form filed as Exhibit 4.3 to the
Registration Statement.
In connection with this opinion, we have examined and are familiar
with the originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration
<PAGE>
2
Statement, (ii) the form of the Indenture, (iii) the form of the Senior Secured
Notes to be issued by the Company included as an exhibit to the Indenture, (iv)
the form of the Warrant Agreement, (v) the form of the Warrants to be issued by
the Company included as an exhibit to the Warrant Agreement, (vi) the form of
the Guarantees to be issued by the Subsidiary Guarantors included as an exhibit
to the Indenture, (vii) the proposed form of the Underwriting Agreement included
as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"),
(viii) the certificate or articles of incorporation and by-laws of the Company
and each of the Subsidiary Guarantors, (ix) resolutions of the Boards of
Directors of the Company and each of the Subsidiary Guarantors relating to the
proposed issuance of the Senior Secured Notes, the Warrants, the Common Stock,
and the Guarantees, and (x) such other documents as we have deemed necessary
or appropriate as a basis for this opinion.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
statements or representations of officers and other representatives of the
Company and the Subsidiary Guarantors:
Based upon the foregoing, it is our opinion that:
1. The Senior Secured Notes have been duly authorized by the
Company. When executed, delivered and paid for as contemplated in the
Registration Statement, the Indenture and the Underwriting Agreement and
authenticated by the trustee under the Indenture, the Senior Secured Notes will
be legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except (a) as the enforcement
thereof may be limited by (i) bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and (ii) general principles of equity,
whether such enforceability is considered in a proceeding at law or in equity,
and the discretion of the court before which any proceeding therefor may be
brought, and (b) we express no opinion on the enforceability of the waiver of
stay and extension laws contained in the Indenture.
2. The Warrants have been duly authorized by the Company. When
executed, issued, and delivered as contemplated in the Registration Statement,
the Warrant Agreement and the Underwriting Agreement and authenticated by the
warrant agent under the Warrant Agreement, the Warrants will be legal, valid
<PAGE>
3
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms and the terms of the Warrant Agreement,
except as the enforcement thereof may be limited by (i) bankruptcy,
reorganization, insolvency, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and (ii) general
principles of equity, whether such enforceability is considered in a proceeding
at law or in equity, and the discretion of the court before which any proceeding
therefor may be brought.
3. The shares of Common Stock of the Company to be issued upon the
exercise of the Warrants are validly authorized and, assuming (a) no change
occurs in the applicable law or pertinent facts, (b) the pertinent provisions of
such "blue-sky" and securities laws as may be applicable have been complied with
and (c) the Warrants are exercised and payment of the exercise price is made in
accordance with their terms and the terms of the Warrant Agreement, then the
shares of Common Stock so issuable will be validly issued, fully paid, and
nonassessable.
4. The Subsidiary Guarantees have been duly authorized by each
Subsidiary Guarantor. When executed and delivered as contemplated in the
Registration Statement, the Indenture and the Underwriting Agreement, the
Subsidiary Guarantees will be legal, valid and binding obligations of each
Subsidiary Guarantor, enforceable against each Subsidiary Guarantor in
accordance with their respective terms, except (a) as the enforcement thereof
may be limited by (i) bankruptcy, reorganization, insolvency, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally and (ii) general principles of equity, whether such
enforceability is considered in a proceeding at law or in equity, and the
discretion of the court before which any proceeding therefor may be brought, and
(b) we express no opinion on the enforceability of the waiver of stay and
extension laws contained in the Indenture.
This opinion is effective as of the date hereof. We undertake no
obligation to update or supplement this letter to reflect any changes in laws
that may occur. We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the prospectus that is a part of the Registration Statement.
Very Truly Yours,
Wilmer, Cutler & Pickering
By: /s/ Richard W. Cass
------------------------------------
Richard W. Cass
<PAGE>
Wilmer, Cutler & Pickering
2445 M Street, NW
Washington, D.C. 20037-1420
EXHIBIT 8.1
June 20, 1994
Empire Gas Corporation
1700 S. Jefferson
Lebanon, Missouri 65536
Ladies and Gentlemen:
You have requested our opinion with respect to certain United States
Federal income tax issues relating to the issuance of Senior Secured Notes and
Warrants as more fully described in the Registration Statement of Empire Gas
Corporation ("the Company") filed under the Securities Act of 1933 with the
Securities and Exchange Commission on April 29, 1994, as amended through the
date hereof (the "Registration Statement"). Capitalized terms used herein and
not otherwise defined have the meanings set forth in the Registration Statement.
In rendering this opinion we have examined such statutes, regulations,
records, certificates and other documents as we have considered necessary or
appropriate as a basis for such opinion, including the Registration Statement
and the Form of Proposed Indenture between the Company and Shawmut Bank
Connecticut, National Association, Trustee, relating to the Senior Secured
Notes due 2004 (the "Proposed Indenture"). In such examination, we have assumed
that the Proposed Indenture will be executed substantially in the form we have
reviewed. We have also assumed the genuineness of all signatures, the proper
execution of all documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of documents submitted to us as copies,
and the authenticity of the originals of any copies. Further, this opinion is
based on a representation of the Company made to us in a letter dated June 20,
1994 that the factual statements in the Registration Statement are true and
correct as of that date. We are not aware of any facts or circumstances
contrary to or inconsistent with such representation.
<PAGE>
-2-
This opinion is based in part on our opinion dated June 20, 1994
addressed to the Company that the Senior Secured Notes have been duly authorized
by the Company and that when executed, delivered and paid for as contemplated in
the Registration Statement, the Indenture and the Underwriting Agreement, the
Senior Secured Notes will be legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, subject to the exceptions noted in such opinion.
Based on the foregoing, we are of the opinion that the material
Federal income tax consequences of an investment in Units are as described in
the Registration Statement under the heading "Certain Federal Income Tax
Considerations."
We are further of the opinion that the Senior Secured Notes will be
treated as indebtedness for Federal income tax purposes.
The opinions set forth in this letter are based on relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), of Treasury
Regulations thereunder (including Proposed and Temporary Regulations), and
interpretations of the foregoing as expressed in court decisions, administrative
determinations, and legislative history as of the date hereof. This opinion is
effective as of the date hereof. We undertake no obligation to update or
supplement this letter to reflect any changes in laws that may occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "Certain Federal Income Tax Considerations."
Sincerely yours,
Wilmer, Cutler & Pickering
By: /s/ William J. Wilkins
------------------------------
William J. Wilkins
A Partner
<PAGE>
_________________________________________________________________
_________________________________________________________________
LOAN AND SECURITY AGREEMENT
DATED AS OF JUNE __, 1994
AMONG
EMPIRE GAS CORPORATION, AS BORROWER,
CONTINENTAL BANK N.A., AS AGENT AND A LENDER,
AND
THE OTHER LENDERS PARTY HERETO
_________________________________________________________________
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND OTHER TERMS . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . 18
1.3 Interpretation of Agreement . . . . . . . . . 19
1.4 Compliance with Financial Restrictions . . . . 19
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS . . . . . . . . 19
2.1 Loans . . . . . . . . . . . . . . . . . . . . 19
2.2 Letters of Credit . . . . . . . . . . . . . . 22
2.3 Loan Account; Demand Deposit Account . . . . . 24
2.4 Interest and Fees . . . . . . . . . . . . . . 24
2.5 Requests for Loans; Borrowing Base
Certificates; Other Information . . . . . . . 25
2.6 Statements . . . . . . . . . . . . . . . . . . 26
2.7 Overdraft Loans . . . . . . . . . . . . . . . 26
2.8 Over Advances . . . . . . . . . . . . . . . . 27
2.9 All Loans One Obligation . . . . . . . . . . . 27
2.10 Making of Payments; Application of
Collections; Charging of Accounts . . . . . . 28
2.11 Agent's Election Not to Enforce . . . . . . . 29
2.12 Reaffirmation . . . . . . . . . . . . . . . . 29
2.13 Setoff . . . . . . . . . . . . . . . . . . . . 30
2.14 Closing Fee . . . . . . . . . . . . . . . . . 30
2.15 Settlements, Distributions and Apportionment
of Payments . . . . . . . . . . . . . . . . . 30
3. COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . 31
3.1 Grant of Security Interest . . . . . . . . . . 31
3.2 Accounts Receivable . . . . . . . . . . . . . 32
3.3 Inventory . . . . . . . . . . . . . . . . . . 36
3.4 Supplemental Documentation . . . . . . . . . . 37
3.5 Collateral for the Benefit of Agent and
Lenders . . . . . . . . . . . . . . . . . . . 37
4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 37
4.1 Organization . . . . . . . . . . . . . . . . . 38
4.2 Authorization . . . . . . . . . . . . . . . . 38
4.3 No Conflicts . . . . . . . . . . . . . . . . . 38
4.4 Validity and Binding Effect . . . . . . . . . 38
4.5 No Default . . . . . . . . . . . . . . . . . . 39
4.6 Financial Statements . . . . . . . . . . . . . 39
4.7 Insurance . . . . . . . . . . . . . . . . . . 39
4.8 Litigation; Contingent Liabilities . . . . . . 39
4.9 Liens . . . . . . . . . . . . . . . . . . . . 40
4.10 Subsidiaries . . . . . . . . . . . . . . . . . 40
4.11 Partnerships; Joint Ventures . . . . . . . . . 40
4.12 Business and Collateral Locations . . . . . . 41
4.13 Senior Notes . . . . . . . . . . . . . . . . . 41
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<PAGE>
4.14 Eligibility of Collateral . . . . . . . . . . 41
4.15 Intentionally Omitted . . . . . . . . . . . . 42
4.16 Patents, Trademarks, etc . . . . . . . . . . . 42
4.17 Solvency . . . . . . . . . . . . . . . . . . . 42
4.18 Contracts; Labor Matters . . . . . . . . . . . 42
4.19 Pension and Welfare Plans . . . . . . . . . . 42
4.20 Regulations G and U . . . . . . . . . . . . . 43
4.21 Compliance . . . . . . . . . . . . . . . . . . 43
4.22 Taxes . . . . . . . . . . . . . . . . . . . . 43
4.23 Investment Company Act Representation . . . . 43
4.24 Public Utility Holding Company Act
Representation . . . . . . . . . . . . . . . . 43
4.25 Environmental and Safety and Health Matters . 44
4.26 Related Agreements . . . . . . . . . . . . . . 45
4.27 Capitalized Lease Obligations . . . . . . . . 45
5. BORROWER COVENANTS . . . . . . . . . . . . . . . . . . . 45
5.1 Financial Statements and Other Reports . . . . 45
5.2 Notices . . . . . . . . . . . . . . . . . . . 48
5.3 Existence . . . . . . . . . . . . . . . . . . 50
5.4 Nature of Business . . . . . . . . . . . . . . 50
5.5 Books, Records and Access . . . . . . . . . . 50
5.6 Insurance . . . . . . . . . . . . . . . . . . 51
5.7 Insurance Survey . . . . . . . . . . . . . . . 52
5.8 Repair . . . . . . . . . . . . . . . . . . . . 52
5.9 Taxes . . . . . . . . . . . . . . . . . . . . 53
5.10 Compliance . . . . . . . . . . . . . . . . . . 53
5.11 Pension Plans . . . . . . . . . . . . . . . . 53
5.12 Merger, Purchase and Sale . . . . . . . . . . 53
5.13 Restricted Payments . . . . . . . . . . . . . 54
5.14 Borrower's and Subsidiaries' Stock . . . . . . 54
5.15 Indebtedness . . . . . . . . . . . . . . . . . 55
5.16 Liens . . . . . . . . . . . . . . . . . . . . 55
5.17 Guaranties . . . . . . . . . . . . . . . . . . 55
5.18 Investments . . . . . . . . . . . . . . . . . 56
5.19 Subsidiaries . . . . . . . . . . . . . . . . . 56
5.20 Intentionally Omitted . . . . . . . . . . . . 56
5.21 Change in Accounts Receivable . . . . . . . . 56
5.22 Environmental Issues . . . . . . . . . . . . . 56
5.23 Related Agreements . . . . . . . . . . . . . . 57
5.24 Unconditional Purchase Options . . . . . . . . 57
5.25 Use of Proceeds . . . . . . . . . . . . . . . 57
5.26 Transactions with Related Parties . . . . . . 57
5.27 Amendment of Documents . . . . . . . . . . . . 58
6. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 58
6.1 Event of Default . . . . . . . . . . . . . . . 58
6.2 Effect of Event of Default; Remedies . . . . . 61
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S
RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.1 Notice of Disposition of Collateral . . . . . 62
7.2 Application of Proceeds of Collateral . . . . 62
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<PAGE>
7.3 Care of Collateral . . . . . . . . . . . . . . 62
7.4 Performance of Borrower's Obligations . . . . 62
7.5 Agent's Rights . . . . . . . . . . . . . . . . 63
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Conditions Precedent to Initial Loans . . . . 63
8.2 Continuing Conditions Precedent to all Loans;
Certification . . . . . . . . . . . . . . . . 68
9. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . 69
9.1 Environmental and Safety and Health
Indemnity . . . . . . . . . . . . . . . . . . 69
9.2 General Indemnity . . . . . . . . . . . . . . 70
9.3 Capital Adequacy . . . . . . . . . . . . . . . 70
10. AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1 Appointment of Agent . . . . . . . . . . . . . 71
10.2 Nature of Duties of Agent . . . . . . . . . . 71
10.3 Agent in its Capacity as Lender . . . . . . . 72
10.4 Independent Credit Analysis . . . . . . . . . 72
10.5 General Immunity . . . . . . . . . . . . . . . 73
10.6 Action by Agent. . . . . . . . . . . . . . . . 73
10.7 Right to Indemnity. . . . . . . . . . . . . . 74
10.8 Rights and Remedies to be Exercised by Agent
Only. . . . . . . . . . . . . . . . . . . . . 75
10.9 Agent's Resignation. . . . . . . . . . . . . . 75
10.10 Disbursement of Proceeds of Loans and Other
Advances. . . . . . . . . . . . . . . . . . . 75
10.11 Release of Collateral. . . . . . . . . . . . . 75
10.12 Agreement to Cooperate. . . . . . . . . . . . 76
10.13 Sharing of Collateral. . . . . . . . . . . . . 76
10.14 Lenders to Act as Agents. . . . . . . . . . . 76
11. ADDITIONAL PROVISIONS . . . . . . . . . . . . . . . . . 77
12. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . 77
12.1 Borrower Waiver . . . . . . . . . . . . . . . 77
12.2 Power of Attorney . . . . . . . . . . . . . . 77
12.3 Expenses; Attorneys' Fees . . . . . . . . . . 78
12.4 Continental's Fees and Charges . . . . . . . . 79
12.5 Lawful Interest . . . . . . . . . . . . . . . 79
12.6 No Waiver by Agent or any Lender; Amendments . 80
12.7 Termination of Revolving Credit . . . . . . . 80
12.8 Notices . . . . . . . . . . . . . . . . . . . 81
12.9 Assignments and Participations; Information . 81
12.10 Severability . . . . . . . . . . . . . . . . . 84
12.11 Successors . . . . . . . . . . . . . . . . . . 84
12.12 Construction . . . . . . . . . . . . . . . . . 84
12.13 Consent to Jurisdiction . . . . . . . . . . . 84
12.14 Subsidiary Reference . . . . . . . . . . . . . 84
12.15 Waiver of Jury Trial . . . . . . . . . . . . . 84
-iii-
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT ("Agreement") is made as of this ____
day of June, 1994 by and among CONTINENTAL BANK N.A. (in its
individual capacity, "Continental"), a national banking
association having its principal office at 231 South LaSalle
Street, Chicago, Illinois 60697, as Agent and a Lender hereunder,
the other Lenders from time to time party hereto, and EMPIRE GAS
CORPORATION ("Borrower"), a Missouri corporation having its
principal office at 1700 South Jefferson Street, Lebanon,
Missouri 65536.
W I T N E S S E T H:
WHEREAS, Borrower may, from time to time, request loans
or other financial accommodations from Lenders, and the parties
wish to provide for the terms and conditions upon which such
loans or other financial accommodations shall be made;
NOW, THEREFORE, in consideration of any loan or advance
or grant of credit (including any loan or advance or grant of
credit by renewal or extension) hereafter made to Borrower by, or
on behalf of, Lenders, and for other good and valuable considera-
tion, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS AND OTHER TERMS.
1.1 DEFINITIONS. In addition to terms defined
elsewhere in this Agreement or any Supplement, Schedule or
Exhibit hereto, when used herein, the following terms shall have
the following meanings (such meanings shall be equally applicable
to the singular and plural forms of the terms used, as the
context requires):
"Account Debtor" means any Person who is or who may
become obligated to Borrower or any Subsidiary under, with
respect to, or on account of an Account Receivable, Contract
Right or other Collateral.
"Account Receivable" means any account of Borrower or
any Subsidiary and any other right of Borrower or any Subsidiary
to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and
whether or not yet earned by performance.
"Acquisitions" means, collectively, the acquisitions
from time to time by Borrower of other businesses engaged in
businesses comparable to those conducted by Borrower and the
Subsidiaries, including without limitation the acquisition of
PSNC Propane Corporation consummated on the date hereof.
"Adjusted Reference Rate" has the meaning ascribed to
such term in SUPPLEMENT A.
<PAGE>
"Agent" means Continental in its capacity as agent for
Lenders hereunder and under the Related Agreements, or any
successor agent pursuant to SECTION 10.
"Agreement" means this Loan and Security Agreement, as
the same may be amended, modified or supplemented from time to
time.
"Application" means an application by Borrower, in a
form and containing terms and provisions acceptable to Agent and
Issuing Bank, for the issuance by Issuing Bank of a Letter of
Credit.
"Assignee Deposit Account" has the meaning ascribed to
such term in SECTION 3.2(d).
"Assignment and Acceptance Agreement" means an
agreement in the form of EXHIBIT D pursuant to which a Lender
assigns all or a portion of its rights, and delegates all or such
portion of its obligations, under this Agreement and the Related
Agreements, to another Person.
"Attorneys' Fees" has the meaning ascribed to such term
in SECTION 12.3.
"Banking Day" means any day other than a Saturday,
Sunday or legal holiday on which banks are authorized or required
to be closed for the conduct of commercial banking business in
Chicago, Illinois; provided, with respect to LIBOR Rate Loans,
Banking Days shall not include a day on which dealings in U.S.
Dollars may not be carried on by Continental in the London
interbank LIBOR market.
"Borrower" has the meaning ascribed to such term in the
Preamble.
"Borrower Collateral" has the meaning ascribed to such
term in SECTION 3.1.
"Borrowing Base" has the meaning ascribed to such term
in SUPPLEMENT A.
"Borrowing Base Certificate" means a certificate in the
form of EXHIBIT A attached hereto, executed and certified as
accurate by an officer of Borrower designated in writing by
Borrower to Lender pursuant to resolutions of the Board of
Directors of Borrower.
"Borrowing Subsidiary" means any Subsidiary identified
in writing to Agent by Borrower from time to time as a Borrowing
Subsidiary and that has satisfied, in form and substance satis-
factory to Agent in its sole discretion, each of the following
requirements: (i) such Subsidiary has executed a guaranty of
favor of Agent, for the benefit of itself and Lenders, pursuant
to which such Subsidiary has unconditionally guarantied the
Liabilities; (ii) such Subsidiary has entered into a security
agreement with
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<PAGE>
Agent, for the benefit of itself and Lenders, pursuant to which
such Subsidiary has granted a security interest in its accounts
receivable, inventory, and certain other assets to Agent, for the
benefit of itself and Lenders, as collateral for the guaranty
described in CLAUSE (i) above, and Agent, for the benefit of
itself and Lenders has a validly perfected first priority
security interest in such assets; (iii) such Subsidiary has
entered into a security agreement with Borrower pursuant to which
such Subsidiary has granted a security interest in its accounts
receivable, inventory, and certain other assets to Borrower as
security for the Intercompany Loans, and Borrower has a validly
perfected second priority security interest in such assets; (iv)
such Subsidiary has executed such agreements, instruments and
documents as Agent shall require in order to evidence such
Subsidiary's Intercompany Loans and (v) Borrower has assigned the
proceeds of such Subsidiary's Intercompany Loan, all of the
agreements, instruments and documents described in CLAUSE (iv),
and the second priority security interest related thereto, to
Agent, for the benefit of itself and Lenders. The Borrowing
Subsidiaries as of the date hereof are designated as such on
SCHEDULE 4.10 hereto.
"Capitalized Lease" means any lease which is or should
be capitalized on the balance sheet of the lessee in accordance
with GAAP.
"Closing Date" means the first date on which Loans are
made, or Letters of Credit are issued, under this Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from
time to time. References to sections of the Code shall be
construed to also refer to any successor sections.
"Collateral" means, collectively, (a) Borrower
Collateral and (b) the Obligor Collateral.
"Continental" has the meaning ascribed to such term in
the Preamble.
"Contract Right" means any right of Borrower or any
Subsidiary to payment under a contract for the sale or lease of
goods or the rendering of services, which right is not yet earned
by performance.
"Credit" means the facility established under this
Agreement pursuant to which Lenders will make Revolving Loans
(the "Revolving Credit") to Borrower, and/or cause Issuing Bank
to issue Letters of Credit for the account of Borrower.
"Default Rate" means, with respect to a Loan, the rate
of interest which is applicable to such Loan after the occurrence
of an Event of Default, as determined pursuant to SUPPLEMENT A.
-3-
<PAGE>
"Demand Deposit Account" has the meaning ascribed to
such term in SECTION 2.3.
"Depository Accounts" has the meaning ascribed to such
term in SECTION 3.2(d).
"Disproportionate Advance" has the meaning ascribed to
such term in SECTION 2.1.1(a).
"Eligible Account Receivable" means an Account
Receivable owing to a Borrowing Subsidiary which meets the
following requirements:
(a) it is genuine and in all respects what it
purports to be;
(b) it arises from either (i) the performance of
services by such Borrowing Subsidiary, which services
have been fully performed and, if applicable, acknow-
ledged and/or accepted by the Account Debtor with
respect thereto or (ii) the sale or lease of goods by
such Borrowing Subsidiary; and if it arises from the
sale or lease of goods, (A) such goods comply with such
Account Debtor's specifications (if any) and have been
shipped to, or delivered to and accepted by, such
Account Debtor and neither Borrower nor such Borrowing
Subsidiary has knowledge that the Account Debtor has
failed to accept delivery of all or a portion of such
goods, and (B) such Borrowing Subsidiary has possession
of shipping and delivery receipts evidencing such
shipment, delivery and acceptance;
(c) it (i) is evidenced by an invoice rendered to
the Account Debtor with respect thereto which (A) is
dated not earlier than the date of shipment or perform-
ance and (B) has payment terms not unacceptable to
Agent in its reasonable judgment and (ii) meets the
additional Eligible Account Receivable requirements set
forth in SUPPLEMENT A;
(d) it is not subject to any assignment, claim or
Lien, other than (i) a Lien in favor of Agent, for the
benefit of itself and Lenders, (ii) a Lien in favor of
Borrower to secure the Intercompany Loans, so long as
Borrower has assigned such Lien to Agent, for the
benefit of itself and Lenders, (iii) a Lien for current
Taxes not delinquent, (iv) a carrier's, warehouseman's,
materialman's or other like statutory Lien arising in
the ordinary course of business and securing
obligations which are not overdue, or (v) a Lien
consented to by Agent in writing;
-4-
<PAGE>
(e) to Borrower's knowledge, it is a valid,
legally enforceable and unconditional obligation of the
Account Debtor with respect thereto, and is not subject
to setoff, counterclaim, credit or allowance (except
any credit or allowance which has been deducted in
computing the net amount of the applicable invoice as
shown in the original schedule or Borrowing Base
Certificate furnished to Agent identifying or including
such Account Receivable) or adjustment by the Account
Debtor with respect thereto, or to any claim by such
Account Debtor denying liability thereunder in whole or
in part, and such Account Debtor has not refused to
accept any of the goods or services which are the
subject of such Account Receivable or offered or
attempted to return any of such goods;
(f) to Borrower's knowledge, there are no
proceedings or actions which are then threatened or
pending against the Account Debtor with respect thereto
or to which such Account Debtor is a party which might
result in any material adverse change in such Account
Debtor's financial condition or in its ability to pay
any Account Receivable in full when due;
(g) it does not arise out of a contract which, by
its terms, forbids, restricts or makes void or
unenforceable the assignment by such Borrowing
Subsidiary to Agent, for the benefit of itself and
Lenders, of the Account Receivable arising with respect
thereto;
(h) the Account Debtor with respect thereto is
not a Subsidiary, Related Party or Obligor, or a
director, officer, employee or agent of Borrower, a
Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a
resident or citizen of, and is located within, the
United States of America;
(j) it is not an Account Receivable arising from
a "sale on approval," "sale or return" or
"consignment," or subject to any other repurchase or
return agreement;
(k) it is not an Account Receivable with respect
to which possession and/or control of the goods sold
giving rise thereto is held, maintained or retained by
such Borrowing Subsidiary or any Subsidiary, Related
Party or other Obligor (or by any agent or custodian of
such Borrowing Subsidiary, any Subsidiary, Related
Party or Obligor) for the account of or subject to
further and/or future direction from the Account Debtor
thereof;
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<PAGE>
(l) it is not an Account Receivable which in any
way fails to meet or violates any warranty, representa-
tion or covenant contained in this Agreement or any
Related Agreement relating directly or indirectly to
Accounts Receivable;
(m) the Account Debtor thereunder is not located
in the States of Indiana, New Jersey or Minnesota;
provided, however, that such restriction shall not
apply to an Account Receivable if at the time the
Account Receivable was created and at all times
thereafter (i) such Borrowing Subsidiary has filed and
has maintained effective a current Notice of Business
Activities Report with the appropriate office or agency
of the State of Indiana, New Jersey or Minnesota, as
applicable or (ii) such Borrowing Subsidiary was and
has continued to be exempt from the filing of such
Report and has provided Agent with satisfactory
evidence thereof;
(n) it arises in the ordinary course of such
Borrowing Subsidiary's business;
(o) if the Account Debtor is the United States of
America or any department, agency or instrumentality
thereof, and the face amount of such Account Receivable
is in excess of $10,000, such Borrowing Subsidiary has
assigned its rights to payment of such Account
Receivable to Agent, for the benefit of itself and
Lenders, pursuant to the Assignment of Claims Act of
1940, as amended;
(p) if Agent in its reasonable business judgment
has established a credit limit for an Account Debtor,
the aggregate dollar amount of Accounts Receivable due
from such Account Debtor, including such Account
Receivable, does not exceed such credit limit;
(q) if the Account Receivable is evidenced by
chattel paper or an instrument, (i) Agent shall have
specifically agreed in writing to include such Account
Receivable as an Eligible Account Receivable, (ii) only
payments then due and payable under such chattel paper
or instrument shall be included as an Eligible Account
Receivable and (iii) the originals of such chattel
paper or instruments have been endorsed and/or assigned
and delivered to Agent, for the benefit of itself and
Lenders, in a manner satisfactory to Agent; and
(r) it is an Account Receivable with respect to
which Agent, for itself and Lenders, has a valid, first
priority and fully perfected Lien.
Agent further reserves the right, from time to time hereafter, to
designate as ineligible specific Accounts Receivable that meet
the
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aforementioned criteria for Eligible Accounts Receivable if
either (i) such Accounts Receivable are deemed by Agent, in its
reasonable business judgment, to be unacceptable or (ii) Agent
determines, in its reasonable business judgment, that the
prospect of payment or performance by the Account Debtor with
respect thereto is or will be impaired for any reason whatsoever.
An Account Receivable which is at any time an Eligible Account
Receivable, but which subsequently fails to meet any of the
foregoing requirements, shall forthwith cease to be an Eligible
Account Receivable.
"Eligible Inventory" means Inventory of propane gas and
other hard good inventory (exclusive of propane gas tanks leased
and held for sale) of Borrower or any Borrowing Subsidiary, which
meets the following requirements:
(a) it is owned by Borrower or a Borrowing Sub-
sidiary and is not subject to any prior assignment,
claim or Lien, other than (i) a Lien in favor of Agent,
for the benefit of itself and Lenders, (ii) a Lien in
favor of Borrower to secure the Intercompany Loans, so
long as Borrower has assigned such Lien to Agent, for
the benefit of itself and Lenders, and (iii) Liens
consented to by Agent in writing;
(b) if it is a hard good held for sale or lease
or furnishing under contracts of service, it is (except
as Agent may otherwise consent in writing) new and
unused;
(c) except as Agent may otherwise consent, it is
in the possession and control of Borrower, a Borrowing
Subsidiary or their respective agents;
(d) if it is in the possession or control of a
bailee, warehouseman, processor or other Person other
than Borrower or a Borrowing Subsidiary, Agent is in
possession of such agreements, instruments and
documents as Agent may require (each in form and
content acceptable to Agent and duly executed, as
appropriate, by the bailee, warehouseman, processor or
other Person in possession or control of such
Inventory, as applicable), including but not limited to
warehouse receipts in Agent's name, for the benefit of
itself and Lenders, covering such Inventory;
(e) it is not Inventory which is dedicated to,
identifiable with, or is otherwise specifically to be
used in the manufacture of, goods which are to be sold
or leased to the United States of America or any
department, agency or instrumentality thereof and in
respect of which Inventory Borrower or a Borrowing
Subsidiary shall have received any progress or other
advance payment which is or may be against any Account
Receivable generated upon the sale or lease of any such
goods;
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(f) it is not Inventory produced in violation of
the Fair Labor Standards Act and subject to the "hot
goods" provisions contained in Title 29 U.S.C. Section
215 or any successor statute or section;
(g) it is not (i) packaging or shipping
materials, (ii) goods used in connection with
maintenance or repair of Borrower's or a Borrowing
Subsidiary's business, properties or assets, (iii)
work-in-process or (iv) general supplies;
(h) it is not Inventory which in any way fails to
meet or violates any warranty, representation or
covenant contained in this Agreement or any Related
Agreement relating directly or indirectly to Inventory;
(i) Agent has not determined in its reasonable
business judgment that it is unacceptable due to age,
type, category, quality and/or quantity;
(j) it is Inventory with respect to which (i)
Agent, for itself and Lenders, has a valid, first
priority and fully perfected Lien (as determined by
Agent in its reasonable discretion) and (ii) if it is
Inventory of a Borrowing Subsidiary, Borrower has a
valid, second priority and fully perfected Lien, and
such Lien has been assigned to Agent, for itself and
Lenders; and
(k) it is not Inventory the use of which by
Borrower or a Borrowing Subsidiary or the manufacture
or sale thereof by Borrower or a Borrowing Subsidiary,
is subject to any licensing, patent, royalty,
trademark, tradename or copyright agreement of any
other Person.
Inventory which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements
shall forthwith cease to be Eligible Inventory.
"Environmental Laws" means the Resource Conservation
and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, the Toxic Substances Control Act, and any other
federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree or other requirement regulating,
relating to, or imposing liability or standards of conduct
(including but not limited to permit requirements, and emission
or effluent restrictions) concerning any Hazardous Materials or
any hazardous, toxic or dangerous waste, substance or
constituent, or any pollutant or contaminant or other substance,
whether solid, liquid or gas, as now or at any time hereafter in
effect.
"Environmental Lien" means a Lien in favor of any
governmental entity for (a) any liability under any Environmental
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Law or (b) damages arising from or costs incurred by such govern-
mental entity in response to a Release of any Hazardous Material
or the spillage, disposal or release into the environment of any
other hazardous, toxic or dangerous waste, substance or
constituent, or other substance.
"Equipment" means all equipment of Borrower or any
Subsidiary of every description, including without limitation
fixtures, furniture, vehicles and trade fixtures, together with
any and all accessions, parts and equipment attached thereto or
used in connection therewith, and any substitutions therefor and
replacements thereof.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and any successor statute of similar
import, together with the regulations thereunder, in each case as
in effect from time to time. References to sections of ERISA
shall be construed to also refer to any successor sections.
"ERISA Affiliate" means any corporation, partnership,
or other trade or business (whether or not incorporated) that is,
along with Borrower, a member of a controlled group of
corporations or a controlled group of trades or businesses, as
described in Sections 414(b) and 414(c), respectively, of the
Code or Section 4001 of ERISA, or a member of the same affiliated
service group within the meaning of Section 414(m) of the Code.
"Eurocurrency Reserve Requirement" means, with respect
to any LIBOR Rate Loan for any Interest Rate Period, a percentage
equal to the daily average during such Interest Rate Period of
the percentages in effect on each day of such Interest Rate
Period, as prescribed by the Federal Reserve Board, for
determining the aggregate maximum reserve requirements (including
all basic, supplemental, marginal and other reserves) applicable
to "Eurocurrency liabilities" pursuant to Regulation D or any
other then applicable regulation of the Federal Reserve Board
which prescribes reserve requirements applicable to "Eurocurrency
liabilities," as presently defined in Regulation D. Without
limiting the effect of the foregoing, the Eurocurrency Reserve
Requirement shall reflect any other reserves required to be
maintained by Continental against (i) any category of liabilities
that includes deposits by reference to which the LIBOR Rate is to
be determined, or (ii) any category of extensions of credit or
other assets that includes LIBOR Rate Loans. For purposes of
this Agreement, any LIBOR Rate Loan hereunder shall be deemed to
be "Eurocurrency liabilities," as defined in Regulation D, and,
as such, shall be deemed to be subject to such reserve
requirements without the benefit of, or credit for, proration,
exceptions or offsets which may be available to Continental from
time to time under Regulation D.
"Event of Default" has the meaning ascribed to such
term in SECTION 6.1.
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<PAGE>
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal, for each day during
such period, to 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 for such
day (or, if such day is not a Banking Day, for the next preceding
Banking Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Banking Day, the
average of the quotations for such day on such transactions
received by Agent from three federal funds brokers of recognized
standing selected by it.
"Federal Reserve Board" means the Board of Governors of
the Federal Reserve System or any successor thereto.
"Fiscal Year" means any period of twelve (12)
consecutive calendar months ending on the thirtieth (30th) day of
June. References to a Fiscal Year with a number corresponding to
any calendar year (e.g. "Fiscal Year 1994") refer to the Fiscal
Year ending on the thirtieth (30th) day of June occurring during
such calendar year.
"GAAP" means generally accepted accounting principles
as in effect from time to time (except as otherwise provided in
SECTION 1.4), as applied in the preparation of the audited
financial statement of Borrower referred to in SECTION 4.6.
"Hazardous Materials" means any toxic substance,
hazardous substance, hazardous material, hazardous chemical or
hazardous waste defined or qualifying as such in (or for the
purposes of) any Environmental Law, or any pollutant or contami-
nant, and shall include, but not be limited to, petroleum,
including crude oil, any radioactive material, including but not
limited to any source, special nuclear or by-product material as
defined at 42 U.S.C. Section 2011 ET SEQ., as amended or
hereafter amended, polychlorinated biphenyls and asbestos in any
form or condition.
"Indebtedness" of any Person means, without
duplication, (a) the principal portion of any obligation of such
Person for borrowed money, including without limitation (i) any
obligation of such Person evidenced by bonds, debentures, notes
or other similar debt instruments and (ii) any obligation for
borrowed money which is non-recourse to the credit of such Person
but which is secured by a Lien on any asset of such Person, (b)
any obligation of such Person on account of deposits or advances,
(c) any obligation of such Person for the deferred purchase price
of any property or services, except Trade Accounts Payable, (d)
any obligation of such Person as lessee under a Capitalized
Lease, (e) any obligation of such Person with respect to interest
rate swaps, interest rate caps, interest rate collars or other
interest hedging agreements, (f) any obligation of such Person in
respect of foreign exchange contracts, (g) any obligation of such
Person with respect to Letters of Credit, acceptances, guarantees
or similar obligations
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of another Person issued for the account of such Person and (h)
any Indebtedness of another Person secured by a Lien on any asset
of such first Person, whether or not such Indebtedness is assumed
by such first Person. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general
partner or joint venturer.
"Intercompany Agreement" means that certain
Intercompany Agreement of even date herewith among Borrower and
each of the Borrowing Subsidiaries.
"Intercompany Loans" means revolving loans made by
Borrower to the Borrowing Subsidiaries with the proceeds of the
Loans pursuant to the terms of this Agreement and the
Intercompany Agreement. All funds downstreamed by Borrower to
the Borrowing Subsidiaries with the proceeds of the Loans will be
deemed to be Intercompany Loans.
"Interest Rate Period" means with respect to any
portion of the Revolving Loans, the period commencing on the date
on which the LIBOR Rate is deemed applicable to such portion of
the Revolving Loans, and ending on the numerically corresponding
day one (1), two (2) or three (3) months thereafter, as selected
by Borrower pursuant to SECTION 3.1.1(c) OF SUPPLEMENT A;
provided, however, that:
(a) any Interest Rate Period which would
otherwise end on a day which is not a Banking Day shall
end on the next succeeding Banking Day unless such next
succeeding Banking Day falls in another calendar month,
in which case such Interest Rate Period shall end on
the next preceding Banking Day;
(b) any Interest Rate Period which begins on the
last Banking 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 Rate Period)
shall end on the last Banking Day of the calendar month
at the end of such Interest Rate Period; and
(c) no Interest Rate Period shall extend beyond
the Termination Date.
"Inventory" means any and all of Borrower's and each
Subsidiary's goods (including without limitation goods in
transit) which are held for sale, furnished under any contract of
service, or held as raw materials, work in process, or supplies
or materials used or consumed in Borrower's or such Subsidiary's
business, or which are held for use in connection with the
manufacture, packing, shipping, advertising, selling or finishing
of such goods, and any and all goods the sale or other
disposition of which has given rise to an Account Receivable,
Contract Right or any other property
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described in SECTION 3.1(a), which are returned to and/or repos-
sessed and/or stopped in transit by, or at any time hereafter are
in the possession or under the control of, Borrower, any Subsidi-
ary, Agent or any Lender or any agent or bailee of any of them,
and all documents of title or other documents representing the
same; provided, that the foregoing does not include tanks leased
to, or held for lease to, customers, storage tanks and other
Equipment.
"Investment" of any Person means any investment, made
in cash or by delivery of any kind of property or asset, in any
other Person, whether by acquisition of shares of stock or
similar interest, Indebtedness or other obligation or security,
or by loan, advance or capital contribution, or otherwise.
"Issuing Bank" means Continental or any other Lender
selected by Agent with Borrower's consent (which will not be
unreasonably withheld) to issue Letters of Credit under this
Agreement.
"L/C Draft" means a draft drawn on Issuing Bank
pursuant to a Letter of Credit.
"Lenders" means, collectively, Continental and any
other Person that becomes a Lender under this Agreement and each
of their respective successors and assigns as provided in this
Agreement; and "Lender" means any one of Lenders.
"Letter of Credit" means a standby or documentary
letter of credit issued by the Issuing Bank on the Application of
Borrower.
"Letter of Credit Obligations" means at any time an
amount equal to the sum of (a) the aggregate outstanding face
amount of all Letters of Credit plus (b) the aggregate
outstanding face amount of all accepted but unpaid L/C Drafts.
"Liabilities" means all of the liabilities, obligations
(including obligations of performance) and indebtedness of
Borrower to Agent or any Lender of any kind or nature, however
created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing or due or to
become due, and arising under, or in connection with, this
Agreement, any Note, any Related Agreement, any Letter of Credit
or any Application therefor, including without limitation all
interest, charges, expenses, Attorneys' Fees and other sums
chargeable to Borrower by Agent or any Lender hereunder or
thereunder. "Liabilities" shall also include any and all amend-
ments, extensions, renewals, refundings or refinancings of any of
the foregoing.
"LIBOR Base Rate" means, with respect to each Interest
Rate Period for a LIBOR Rate Loan, the sum of two and one-half
percent (2.50%) PLUS the rate per annum at which U.S. Dollar
deposits in immediately available funds are offered to
Continental
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two (2) Banking Days prior to the beginning of such Interest Rate
Period by major banks in the London interbank eurodollar market
at or about 11:00 a.m., London time, for delivery on the first
day of such Interest Rate Period, for the number of days com-
prised therein and in an amount equal to the amount of the LIBOR
Rate Loan to be outstanding during such Interest Rate Period.
"LIBOR Rate" means, with respect to each Interest Rate
Period for a LIBOR Rate Loan, a rate per annum (rounded upward,
if necessary, to the nearest one hundredth of one percent
(1/100th of 1%)) determined pursuant to the following formula:
LIBOR Rate = LIBOR Base Rate
----------------------------------
1-Eurocurrency Reserve Requirement
"LIBOR Rate Loan" means any portion of the Revolving
Loan which bears interest at a rate determined with reference to
the LIBOR Rate.
"Lien" means any security interest, mortgage, pledge,
hypothecation, judgment lien or similar legal process, title
retention lien, or other lien or encumbrance, including without
limitation the interest of a vendor under any conditional sale or
other title retention agreement and the interest of a lessor
under any Capitalized Lease.
"Loan" means (a) any Revolving Loan made pursuant to
SECTION 2.1.1 and (b) any other loan or advance made to Borrower
by Agent or any Lender under or pursuant to this Agreement.
"Loan Account" has the meaning ascribed to such term in
SECTION 2.3.
"Margin Stock" has the meaning ascribed to such term in
Regulation U of the Federal Reserve Board or any regulation
substituted therefor, as in effect from time to time.
"Master Revolving Credit Note" means the Master
Revolving Credit Note dated on or about June 30, 1994 (as it may
be amended from time to time) executed by each Borrowing
Subsidiary in favor of Borrower and evidencing the Intercompany
Loans made to each Borrowing Subsidiary under the Intercompany
Agreement.
"Material Adverse Change" means (a) a material adverse
change in the condition (financial or otherwise), operations,
performance, prospects, properties or affairs [, TAKEN AS A
WHOLE,] of Borrower or in the ability of Borrower to perform its
obligations under any material agreement to which Borrower is a
party, (b) a material adverse change in the condition (financial
or otherwise), operations, performance, prospects, properties or
affairs of Borrower and the Subsidiaries taken as a whole or in
the ability of Borrower and the Subsidiaries taken as a whole to
perform their obligations under any material agreements to which
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they are parties or (c) an impairment of Agent's interest, for
the benefit of itself and Lenders, in any material portion of the
Collateral or the material diminution in value of the Collateral.
"Material Adverse Effect" means (a) a material adverse
effect upon the condition (financial or otherwise), operations,
performance, prospects, properties or affairs [,TAKEN AS A WHOLE,]
of Borrower or upon the ability of Borrower to perform its
obligations under any material agreement to which Borrower is a
party, (b) a material adverse effect upon the condition
(financial or otherwise), operations, performance, prospects,
properties or affairs of Borrower and the Subsidiaries taken as a
whole or upon the ability of Borrower and the Subsidiaries taken
as a whole to perform their obligations under any material
agreements to which they are parties or (c) an impairment of
Agent's interest, for the benefit of itself and Lenders, in any
material portion of the Collateral or the material diminution in
value of the Collateral.
"Maximum Facility" means $15,000,000.
"Maximum Loan Amount" means, with respect to any
Lender, the maximum amount of Loans which such Lender has agreed,
pursuant to the terms and conditions of this Agreement, to make
available to Borrower, as set forth on the signature page hereto
or in an Assignment and Acceptance Agreement executed by such
Lender.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA that is maintained for
employees of Borrower or any ERISA Affiliate.
"Note" means any promissory note of Borrower evidencing
any loan or advance made by any Lender to Borrower pursuant to
this Agreement, as the same may be amended, modified or supple-
mented from time to time.
"Obligor" means Borrower and each other Person who is
or shall become primarily or secondarily liable on any of the
Liabilities, or who grants to Agent, for the benefit of itself
and Lenders, a Lien on any property of such Person as security
for any of the Liabilities.
"Obligor Collateral" means any real or personal
property of any Obligor on which a Lien has been granted to
Agent, for the benefit of itself and Lenders, in order to secure
the Liabilities and/or such Obligor's guaranty of the
Liabilities.
"Occupational Safety and Health Law" means the Occupa-
tional Safety and Health Act of 1970 and any other federal, state
or local statute, law, ordinance, code, rule, regulation, order
or decree regulating, relating to or imposing liability or
standards of conduct concerning employee health and/or safety.
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"Over Advance" has the meaning ascribed to such term in
SECTION 2.8.
"Overdraft Loan" has the meaning ascribed to such term
in SECTION 2.7.
"Participant" means any Person, now or at any time or
times hereafter, participating with any Lender, pursuant to the
provisions of SECTION 12.9, in the Loans made or Letters of
Credit issued, pursuant to this Agreement or any Related
Agreement.
"Payment Liabilities" means all Liabilities other than
contingent obligations of Borrower with respect to which neither
Agent nor any Lender has asserted a claim against Borrower;
provided, that Payment Liabilities shall include the Letter of
Credit Obligations.
"PBGC" means the Pension Benefit Guaranty Corporation
and any entity succeeding to any or all of its functions under
ERISA.
"Pension Plan" means a "pension plan," as such term is
defined in Section 3(2) of ERISA, that is subject to the provi-
sions of Title IV of ERISA (other than a Multiemployer Plan) and
to which Borrower or any ERISA Affiliate may have any liability,
including any liability by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, or government
(whether national, federal, state, county, city, municipal or
otherwise, including without limitation any instrumentality,
division, agency, body or department thereof).
"Pre-Settlement Determination Date" has the meaning
ascribed to such term in SECTION 2.15.
"Pro Rata Share" means, with respect to any Lender, a
fraction (expressed as a percentage in nine (9) decimal places),
the numerator of which shall be the Maximum Loan Amount of such
Lender and the denominator of which shall be the aggregate amount
of the Maximum Loan Amounts of all Lenders.
"Real Property" means, collectively, all real property
presently owned or hereafter acquired, or presently or hereafter
leased, by Borrower or any Subsidiary.
"Reference Rate" means, at any time, the rate of
interest then most recently announced by Continental at Chicago,
Illinois as its reference rate. Each change in the interest rate
on any Loan shall take effect on the effective date of the change
in the Reference Rate.
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"Register" has the meaning ascribed to such term in
SECTION 12.9(d).
"Related Agreement" means any agreement, instrument or
document (including without limitation notes, guarantees, chattel
mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing
statements, subordination agreements, intercreditor agreements,
trust account agreements and all other written matter)
heretofore, now, or hereafter delivered to Agent or any Lender
with respect to or in connection with or pursuant to this
Agreement or any of the Liabilities, and executed by or on behalf
of Borrower, any Subsidiary or any other Obligor, as each of the
same may be amended, modified or supplemented from time to time
and shall specifically include any Notes.
"Related Party" means, with respect to any Person, any
other Person (a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, such first Person or a subsidiary of such first
Person, (b) that beneficially owns or holds ten percent (10%) or
more of the equity interest of such first Person or a subsidiary
of such first Person or (c) ten percent (10%) or more of the
equity interest of which is beneficially owned or held by such
first Person or a subsidiary of such first Person. The term
"control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Release" means any actual or threatened spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing of Hazardous
Materials into the environment.
"Reportable Event" has the meaning given to such term
in ERISA.
"Requisite Lenders" means Lenders having, in the
aggregate, Pro Rata Shares of (a) one hundred percent (100%) at
such times as there are one or two Lenders, or (b) at least
fifty-one percent (51%) at such times as there are three or more
Lenders.
"Revolving Credit" has the meaning ascribed to such
term in the definition of "Credit."
"Revolving Credit Amount" has the meaning ascribed to
such term in SUPPLEMENT A.
"Revolving Loan" has the meaning ascribed to such term
in SECTION 2.1.1.
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"Revolving Loan Availability" means the lesser of (a)
the Revolving Credit Amount minus the Letter of Credit
Obligations and (b) the Borrowing Base minus the Letter of Credit
Obligations.
"Senior Loan Documents" means, collectively, the
agreements, instruments and documents evidencing, governing and
securing the Senior Notes, including the indenture pursuant to
which the Senior Notes are issued, as each of the same may be
amended, modified or supplemented from time to time pursuant to
SECTION 5.27 hereof.
"Senior Loans" means, collectively, all indebtedness of
Borrower represented by the Senior Notes.
"Senior Notes" means, collectively, Borrower's
_____________ percent (___%) Senior Secured Notes due 2004 in the
aggregate principal amount due upon maturity of not more than
$___________, issued pursuant to the Senior Loan Documents.
"Settlement Date" has the meaning ascribed to such term
in SECTION 2.15.
"Stock Repurchase" means the repurchase by Borrower of
all shares of its common stock held by Mr. Robert W. Plaster and
certain other departing officers of Borrower, which is being
consummated on the date hereof.
"Subordinated Debt" means, collectively, (a)
Indebtedness of Borrower under the certain Indenture dated June
7, 1983 relating to Borrower's 9% Subordinated Debentures due
December 31, 2007, as supplemented by a certain First
Supplemental Indenture dated December 13, 1989, in the current
aggregate principal amount of $____________, and (b) that portion
of any other liabilities, obligations or Indebtedness of Borrower
which contains terms satisfactory to Agent and is subordinated,
in a manner satisfactory to Agent (as evidenced by Agent's
written agreement of satisfaction), as to right and time of
payment of principal and interest thereon, to all of the
Liabilities.
"Subordinated Debt Documents" means, collectively, the
agreements, instruments and documents evidencing or otherwise
pertaining to any Subordinated Debt, as each of the same may be
amended, modified or supplemented from time to time with the
consent of the Requisite Lenders.
"Subsidiary" means any Person of which or in which
Borrower and its other Subsidiaries own directly or indirectly
more than fifty percent (50%) of (a) the combined voting
power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of
directors of such Person, if it is a corporation, (b) the capital
interest or profits interest of such Person, if it is a
partnership, joint venture or
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similar entity or (c) the beneficial interest of such Person, if
it is a trust, association or other unincorporated organization.
"Supplemental Documentation" has the meaning ascribed
to such term in SECTION 3.4.
"Tangible Net Worth" means at any time, the total of
shareholders' equity (including capital stock, additional paid-in
capital and retained earnings and after deducting treasury
stock), less the sum of the total amount of all intangible
assets, in each case determined on a consolidated basis for
Borrower and the Subsidiaries and in accordance with GAAP.
Intangible assets shall include, without limitation, unamortized
debt discount and expense, unamortized deferred charges and
goodwill.
"Taxes" with respect to any Person means taxes, assess-
ments or other governmental charges or levies imposed upon such
Person, its income or any of its properties, franchises or
assets.
"Termination Date" means June __, 1997 or such later
date to which it may be extended pursuant to SECTION 12.7.
"Trade Accounts Payable" of any Person means trade
accounts payable of such Person with a maturity of not greater
than ninety (90) days incurred in the ordinary course of such
Person's business.
"Transactions" has the meaning ascribed to such term in
SECTION 8.1.3.
"UCC" means the Uniform Commercial Code as in effect in
the State of Illinois, and any successor statute, together with
any regulations thereunder, in each case as in effect from time
to time. References to sections of the UCC shall be construed to
also refer to any successor sections.
"Units" means the investment unit consisting of
$________ principal amount of Senior Notes and ________ Warrants.
"Unmatured Event of Default" means any event or
condition which, with the lapse of time or giving of notice to
Borrower or both, would constitute an Event of Default.
"Warrants" means warrants issued to holders of the
Senior Notes entitling such holders to purchase up to _____
shares of the common stock, $.001 par value per share, of
Borrower, in accordance with the Warrant Agreement dated as of
_____________, 1994.
1.2 OTHER DEFINITIONAL PROVISIONS. Unless otherwise
defined or the context otherwise requires, all financial and
accounting terms used herein or in any certificate or other
document made or delivered pursuant hereto shall be defined in
accordance with GAAP. Unless otherwise defined therein, all
terms
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defined in this Agreement shall have the defined meanings when
used in any Related Agreement or Supplemental Documentation.
Terms used in this Agreement which are defined in any SUPPLEMENT
or EXHIBIT hereto shall, unless the context otherwise indicates,
have the meanings given them in such SUPPLEMENT or EXHIBIT.
Other terms used in this Agreement shall, unless the context
indicates otherwise, have the meanings provided for by the UCC to
the extent the same are used or defined therein.
1.3 INTERPRETATION OF AGREEMENT. A SECTION, an
EXHIBIT or a SCHEDULE is, unless otherwise stated, a reference to
a section hereof, an exhibit hereto or a schedule hereto, as the
case may be. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this
Agreement. The words "hereof," "herein," "hereto" and
"hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. Reference to "this
Agreement" shall include the provisions of SUPPLEMENT A.
1.4 COMPLIANCE WITH FINANCIAL RESTRICTIONS.
Compliance with each of the financial ratios and restrictions
contained in SECTION 5 or SUPPLEMENT A shall, except as otherwise
provided herein, be determined in accordance with GAAP
consistently followed.
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.
2.1 LOANS.
2.1.1 REVOLVING LOANS.
(a) Subject to the terms and conditions of this
Agreement and the Related Agreements, and in reliance upon the
warranties and representations of Borrower set forth herein and
the warranties and representations of Borrower and each other
Obligor set forth in the Related Agreements, each Lender,
severally and not jointly, agrees to make its Pro Rata Share of
such loans or advances (individually each a "Revolving Loan" and
collectively the "Revolving Loans") from time to time before the
Termination Date to Borrower as Borrower may from time to time
request; provided, that Agent may, but shall not be obligated to,
make such Revolving Loans to Borrower on behalf of Lenders as a
"Disproportionate Advance" (as defined below); provided further,
that, except as provided in SECTION 2.8, the aggregate
outstanding principal amount of the Revolving Loans made by or on
behalf of Lenders shall not at any time exceed the Revolving Loan
Availability. Revolving Loans made by or on behalf of Lenders
may be repaid and, subject to the terms and conditions hereof,
reborrowed to but not including the Termination Date unless the
Credit extended under this Agreement is otherwise terminated as
provided in this Agreement. No Lender shall be obligated at any
time to make available to Borrower its Pro Rata Share of any
requested Revolving Loan if such amount, plus
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its Pro Rata Share of all Revolving Loans then outstanding, would
exceed such Lender's Maximum Loan Amount at such time. No Lender
shall be obligated to make available its Pro Rata Share of any
Revolving Loans during the occurrence of any Event of Default or
Unmatured Event of Default; provided that notwithstanding the
foregoing or anything contained herein to the contrary,
regardless of whether an Event of Default or an Unmatured Event
of Default exists, each Lender shall, at the request of Agent,
continue to be obligated to make its Pro Rata Share of the
Revolving Loans available to Borrower for a period of up to five
(5) Banking Days, but in any event, no Lender shall be obligated
at any time to make available to Borrower its Pro Rata Share of
any such requested Revolving Loan if such amount, plus its Pro
Rata Share of all Revolving Loans then outstanding, would exceed
such Lender's Maximum Loan Amount at such time. Neither Agent
nor any Lender shall be responsible for any failure by any other
Lender to perform its obligations to make advances hereunder, and
the failure of any Lender to make its Pro Rata Share of any
advance hereunder shall not relieve any other Lender of its
obligation, if any, to make its Pro Rata Share of Loans
hereunder, nor require such other Lender to make more than its
Pro Rata Share of any Loans hereunder. If Borrower makes a
request for a Revolving Loan as provided herein, or if Agent
desires to make a Revolving Loan pursuant to SECTIONS 2.2(b),
2.2(c), 2.2(d), 2.4.4, 2.10(c), 3.2(c), 5.5, 5.6, 5.22, 7.4,
12.3, 12.4 or any other provision of this Agreement or any
Related Agreement that permits Agent to advance Revolving Loans
to Borrower, Agent, at its option and in its sole and absolute
discretion, shall do either of the following:
(i) Advance the amount of the proposed Revolving
Loan to Borrower disproportionately (a
"Disproportionate Advance") out of Agent's own funds on
behalf of Lenders, and request settlement in accordance
with SECTION 2.15, such that upon such settlement, each
Lender's share of the outstanding Revolving Loans
(including, without limitation, the amount of any
Disproportionate Advance) equals its Pro Rata Share and
such Disproportionate Advance shall be deemed to be
repaid; or
(ii) Notify each Lender and Borrower by telecopy
or other similar form of teletransmission of the
proposed advance on the same day Agent is notified by
Borrower of Borrower's request for an advance hereunder
or the same day Agent desires to make a Revolving Loan
for the benefit of Borrower (to the extent permitted
hereunder or under any Related Agreement). Each Lender
shall remit, to the Demand Deposit Account, on or prior
to twelve o'clock noon, Chicago time, on the business
day immediately succeeding the date of such
notification, immediately available funds in an amount
equal to such Lender's Pro Rata Share of such proposed
advance.
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If and to the extent that a Lender does not settle with Agent as
required under CLAUSE (i), Borrower agrees to repay to Agent
forthwith on demand such amount required to be paid by such
Lender to Agent, together with interest thereon, for each day
from the date such amount is made available to Borrower until the
date such amount is repaid to Agent, at the interest rate
applicable at such time for such Revolving Loans; provided, that
Borrower's obligation to repay such advance to Agent shall not
relieve each Lender of its liability to Agent or Borrower for
failure to settle as provided in CLAUSE (i).
(b) In the event the aggregate outstanding principal
balance of the Revolving Loans exceeds the Revolving Loan Avail-
ability, Borrower shall, unless Agent permits such Over Advance
as provided in SECTION 2.8 or Requisite Lenders shall otherwise
consent, without notice or demand of any kind, immediately make
such repayments of the Revolving Loans or take such other actions
as shall be necessary to eliminate such excess.
(c) All Revolving Loans hereunder shall be paid by
Borrower on the Termination Date, unless payable sooner pursuant
to the provisions of this Agreement, but may, at Borrower's
election, be repaid in whole or in part at any time prior to such
date without premium or penalty (other than as expressly provided
in SECTION 3.4 of SUPPLEMENT A with respect to LIBOR Rate Loans
repaid prior to the end of the applicable Interest Rate Period).
2.1.2 PREPAYMENT OF ALL LIABILITIES; REDUCTION OF
REVOLVING CREDIT AMOUNT. Borrower may prepay all of the Liabil-
ities in full at any time, without premium or penalty (other than
as expressly provided in SECTION 3.4 of SUPPLEMENT A with respect
to LIBOR Rate Loans repaid prior to the end of the applicable
Interest Rate Period), by prepaying the outstanding principal
balance of the Revolving Loans, together with (a) all accrued and
unpaid interest on the Liabilities, (b) all other outstanding
Liabilities and (c) cash in the amount of, or adequate (in
Agent's determination) cash collateral for, the Letter of Credit
Obligations. Borrower may not permanently reduce the Revolving
Credit Amount except in connection with the prepayment in full of
all of the Liabilities.
2.1.3 MAXIMUM OUTSTANDING LIABILITIES. Notwithstanding
any other provision of this Agreement, the aggregate outstanding
principal balance of the Loans plus Letter of Credit Obligations
shall not exceed the Maximum Facility; PROVIDED, HOWEVER, that
the foregoing shall not limit the right of Agent to advance
Revolving Loans to Borrower pursuant to the provisions of SECTION
2.2(b), 2.2(c), 2.2(d), 2.4.4, 2.10(c), 3.2(c), 5.5, 5.6, 5.22,
7.4, 12.3 or 12.4 or any other provision of this Agreement or any
Related Agreement that permits Agent to advance Revolving Loans
to Borrower. Any Revolving Loan advanced by Agent to Borrower
under any of the foregoing provisions shall be deemed to be a
Revolving Loan made by Agent on behalf of Lenders.
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2.2 LETTERS OF CREDIT.
(a) In addition to Loans made pursuant to SECTION 2.1,
Agent will, upon receipt of duly executed Applications and such
other documents, instruments and/or agreements as Agent may
require, request, on Borrower's behalf, that Issuing Bank issue
Letters of Credit on such terms as are satisfactory to Agent and
Issuing Bank, PROVIDED, HOWEVER that no Letter of Credit will be
issued if, before or after taking such Letter of Credit into
account, (i) the Letter of Credit Obligations exceed $__________
or (ii) the Letter of Credit Obligations exceeds the lesser of
(A) the Revolving Credit Amount minus the outstanding principal
balance of the Revolving Loans and (B) the Borrowing Base minus
the outstanding principal balance of the Revolving Loans. If
such excess shall at any time exist, Borrower shall, unless
Requisite Lenders shall otherwise consent, promptly make such
payments as are necessary to eliminate such excess or shall
promptly post cash collateral in the amount of such excess. No
Letter of Credit shall have an expiry date after the date that is
thirty (30) days prior to the initial Termination Date or, if the
Termination Date is extended pursuant to SECTION 12.7, the
applicable extended Termination Date.
(b) Borrower agrees to pay to Issuing Bank, on demand,
Issuing Bank's standard issuance, negotiation and administrative
operating fees and charges in effect from time to time for
issuing and administering any Letters of Credit and if not so
paid, each Lender shall, without regard to any other provision of
this Agreement or any other Related Agreement, any defense that
Borrower may have to its obligation to pay Issuing Bank in
connection with such fees and charges or any defense that any
Lender may have in connection with the participation described in
SECTION 2.2(e) in connection with any Letter of Credit or L/C
Draft, pay Issuing Bank for such Lender's Pro Rata Share of such
fees and charges, and any payments so made by Lenders to Issuing
Bank shall be deemed to be Revolving Loans. Each Lender (other
than a Lender that is Issuing Bank) acknowledges and agrees that
it shall not be entitled to any of the fees and charges of
Issuing Bank. Borrower further agrees to pay Agent, for the
benefit of itself and Lenders, a commission equal to one percent
(1%) per annum (calculated on the basis of a year consisting of
three hundred sixty (360) days and paid for actual days elapsed)
of the daily average of the undrawn amount of each Letter of
Credit and on each L/C Draft accepted in connection therewith.
Such Letter of Credit commissions shall be paid in arrears on the
last day of each month thereafter. Agent may provide for the
payment of any fees, charges or commissions due hereunder by
advancing the amount thereof to Borrower as a Revolving Loan. At
all times that any Default Rate is being charged under this
Agreement, the Letter of Credit commission shall be equal to the
otherwise applicable commission plus two percent (2%) per annum.
(c) Borrower agrees to reimburse Issuing Bank, on
demand, for each payment made by Issuing Bank under or pursuant
to
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any Letter of Credit or L/C Draft and if not so reimbursed, each
Lender shall, without regard to any other provision of this
Agreement or any other Related Agreement, any defense that
Borrower may have to its obligation to reimburse Issuing Bank in
connection with such payment or any defense that any Lender may
have in connection with the participation described in SECTION
2.2(e) in connection with any Letter of Credit or L/C Draft,
reimburse Issuing Bank for such Lender's Pro Rata Share of such
payment, and any payments so made by Lenders to Issuing Bank
shall be deemed to be Revolving Loans. Agent and Lenders agree
that so long as there is sufficient Revolving Loan Availability
and provided that no Event of Default is then in existence or
would be caused thereby, Agent will provide for the payment of
any reimbursement obligations and any interest accrued thereon by
advancing the amount thereof to Borrower as a Revolving Loan.
Agent shall have the option, pursuant to SECTION 2.8, to so
provide for such payments even if there is not sufficient
Revolving Loan Availability or if an Event of Default is then in
existence or would be caused thereby and such amounts will bear
interest at the rate set forth in SECTION 2.8. Borrower agrees
to pay Agent, for the benefit of itself and Lenders, on demand,
interest at the Default Rate on any amounts paid by Issuing Bank
in respect of a Letter of Credit or an L/C Draft until the
earlier of (i) reimbursement of Issuing Bank by Borrower of such
payment and (ii) reimbursement of Issuing Bank by means of a
Revolving Loan made by Agent pursuant to the immediately
preceding two sentences.
(d) Notwithstanding anything to the contrary herein or
in any Application, upon the occurrence of an Event of Default,
an amount equal to the aggregate amount of the outstanding Letter
of Credit Obligations shall, at Agent's option and without demand
upon or further notice to Borrower, be deemed (as between Lenders
and Borrower) to have been paid or disbursed by Agent under the
Letters of Credit and accepted L/C Drafts (notwithstanding that
such amounts may not in fact have been so paid or disbursed), and
a Revolving Loan to Borrower in the amount of such Letter of
Credit Obligations to have been made and accepted, which Loan
shall be immediately due and payable. In lieu of the foregoing,
at the election of Agent at any time after an Event of Default,
Borrower shall, upon Agent's demand, deliver to Agent cash
collateral equal to the aggregate Letter of Credit Obligations.
Any such cash collateral and/or any amounts received by Agent in
payment of the Loan made pursuant to this PARAGRAPH (d) shall be
held by Agent, for the benefit of itself and Lenders, in the
Assignee Deposit Account or a separate account appropriately
designated as a cash collateral account in relation to this
Agreement and the Letters of Credit and shall be retained by
Agent, for the benefit of itself and Lenders, as collateral
security in respect of, first, the Liabilities under or in
connection with the Letters of Credit and L/C Drafts and then,
all other Liabilities. Such amounts shall not be used by Agent
to pay any amounts drawn or paid under or pursuant to any Letter
of Credit or L/C Draft, but may be applied to reimburse Issuing
Bank for drawings or payments under or pursuant
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to Letters of Credit or L/C Drafts which Issuing Bank has paid,
or if no such reimbursement is required, to payment of such other
Liabilities as Agent shall determine. Any amounts remaining in
any cash collateral account established pursuant to this
PARAGRAPH (d) following payment in full of all Liabilities shall
be returned to Borrower.
(e) Immediately upon the issuance of a Letter of
Credit in accordance with this Agreement, each Lender shall be
deemed to have irrevocably and unconditionally purchased and
received from Issuing Bank, without recourse or warranty, an
undivided interest and participation therein to the extent of
such Lender's Pro Rata Share (including without limitation, all
obligations of Borrower with respect thereto). Borrower hereby
indemnifies each of Agent and each Lender against any and all
liability and expense it may incur in connection with any Letter
of Credit or L/C Draft and agrees to reimburse each of Agent and
each Lender for any payment made by Agent or any Lender to
Issuing Bank, except for any liability incurred or payment made
as a result of Agent's or such Lender's gross negligence or
willful misconduct.
2.3 LOAN ACCOUNT; DEMAND DEPOSIT ACCOUNT. Agent shall
establish or cause to be established on its books in Borrower's
name one or more accounts (each a "Loan Account") to evidence
Loans made to Borrower. Agent or Lenders, as appropriate, will
credit or cause to be credited to a commercial account ("Demand
Deposit Account") maintained by Borrower at Continental's 231
South LaSalle Street, Chicago, Illinois office the amount of any
sums advanced as Loans hereunder. Any amounts advanced as Loans
hereunder which are credited to Borrower's Demand Deposit
Account, together with any other amounts advanced to Borrower as
a Loan pursuant to this Agreement, will be debited to the
applicable Loan Account and result in an increase in the
principal balance outstanding in such Loan Account in the amount
thereof.
2.4 INTEREST AND FEES.
2.4.1 INTEREST. The unpaid principal amount of each
Revolving Loan hereunder shall bear interest until maturity at
the rate or rates applicable to Revolving Loans indicated in
SUPPLEMENT A hereto. If any Revolving Loan or portion thereof is
not paid when due, whether by acceleration or otherwise, the
entire unpaid principal amount of the Revolving Loans shall bear
interest thereafter until such amount is paid in full at the
Default Rate applicable to Revolving Loans indicated in
SUPPLEMENT A hereto. Until maturity, interest on the Revolving
Loans shall be paid by Borrower on the date(s) indicated in
SUPPLEMENT A, and at such maturity. After maturity, whether by
acceleration or otherwise, accrued interest shall be payable on
demand.
2.4.2 NONUSE FEE. Borrower agrees to pay to Agent, for
the benefit of itself and Lenders, a fee equal to three-eighths
of one percent (0.375%) per annum on the daily average amount by
which
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the Revolving Credit Amount exceeds the outstanding principal
balance of the Revolving Loans plus the Letter of Credit Obliga-
tions. The fee provided for in this SECTION 2.4.2 shall be
payable monthly in arrears on the twenty-eighth day of each month
commencing July 28, 1994, and on the date the Revolving Credit
terminates for the period then ended.
2.4.3 METHOD OF CALCULATING INTEREST AND FEES. Interest
on the unpaid principal amount of each Loan shall accrue from and
including the date such Loan is made to, but not including, the
date such Loan is paid. Interest and any fees shall be
calculated on the basis of a year consisting of three hundred
sixty (360) days and paid for actual days elapsed.
2.4.4 PAYMENT OF INTEREST AND FEES. Agent may provide
for the payment of any unpaid accrued interest and any fees by
charging the Demand Deposit Account or any bank account
maintained by Borrower with Agent or by advancing the amount
thereof to Borrower as a Revolving Loan.
2.5 REQUESTS FOR LOANS; BORROWING BASE CERTIFICATES;
OTHER INFORMATION.
(a) Loans shall be requested in writing or by
telephone, except for Overdraft Loans and Revolving Loans made
pursuant to the provisions of SECTION 2.2(b), 2.2(c), 2.2(d),
2.4.4, 2.10(c), 3.2(c), 5.5, 5.6, 5.22, 7.4, 12.3, or 12.4 or any
other provision of this Agreement or any Related Agreement that
permits Agent to advance Revolving Loans to Borrower.
(b) In the event that Borrower shall at any time, or
from time to time, (i) make a request for a Loan hereunder or
(ii) be deemed to have requested an Overdraft Loan, Borrower
agrees to forthwith provide Agent and Lenders with such
information, at such frequency and in such format, as is
reasonably required by Agent, such information to be current as
of the time of such request. As of the date hereof, it is not
Agent's intent to require that Borrower provide information to
Agent and Lenders in excess of, or at times other than, that
specifically required to be provided by the terms of this
Agreement or the Related Agreements; however, Agent reserves the
right, from time to time, in its reasonable judgment to require
Borrower to provide information at different times than currently
required and/or to provide additional types of information.
(c) Borrower further agrees to provide to Agent and
Lenders a current Borrowing Base Certificate on the first Banking
Day of each month for the preceding month and, after the
occurrence of an Event of Default or an Unmatured Event of
Default, at such other times as Agent may request. Such
Borrowing Base Certificate shall be in substantially the same
form as that attached hereto as EXHIBIT A, executed and certified
as accurate by such officers or employees of Borrower as Borrower
designates in writing to Agent
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pursuant to duly adopted resolutions of Borrower's Board of
Directors authorizing such action.
(d) Borrower may request, telephonically or by written
authorization, the disbursement of Revolving Loans by Agent or
Lenders, as appropriate. Borrower shall provide Agent with
documentation satisfactory to Agent indicating the names of those
employees of Borrower authorized by Borrower to sign Borrowing
Base Certificates and/or to make telephonic requests for Loans
and Letters of Credit, and/or to authorize disbursement of the
proceeds of Loans by wire transfer or otherwise, and Agent and
Lenders shall be entitled to rely upon such documentation until
notified in writing by Borrower of any change(s) in the names of
the employees so authorized. Agent and Lenders shall be entitled
to act on the instructions of anyone identifying himself as one
of the persons authorized to request Loans and Letters of Credit,
or disbursements of Loan proceeds by telephone and Borrower shall
be bound thereby in the same manner as if the person were
actually so authorized. Borrower agrees to indemnify and hold
each of Agent and each Lender harmless from any and all claims,
damages, liabilities, losses, costs and expenses (including
Attorneys' Fees) which may arise or be created by the acceptance
of instructions for making or paying Loans in writing or by
telephone. Each such request must be received by Agent no later
than 11:00 a.m. (Chicago time) on the date on which such
Revolving Loan is requested to be made.
2.6 STATEMENTS. All Loans and payments hereunder
shall be recorded on Agent's books, which shall be rebuttably
presumptive evidence of the amount of such Loans outstanding at
any time hereunder. Agent will account monthly as to all Loans
and payments hereunder and, absent demonstrable error, each
monthly accounting will be fully binding on Borrower unless,
within fifteen (15) days of Borrower's receipt thereof, Borrower
shall provide Agent with a specific listing of exceptions.
Notwithstanding any term or condition of this Agreement to the
contrary, however, the failure of Agent to record the date and
amount of any Loan hereunder shall not limit or otherwise affect
the obligation of Borrower to repay any such Loan.
2.7 OVERDRAFT LOANS. Agent, in its sole and absolute
discretion, and subject to the terms hereof, may make a Revolving
Loan to Borrower in an amount equal to the amount of any
overdraft which may from time to time exist with respect to the
Demand Deposit Account or any bank account which Borrower may now
or hereafter have with Agent. The existence of any such
overdraft shall be deemed to be a request by Borrower for such
Loan. Borrower acknowledges that Agent is under no duty or
obligation to make any Loan to Borrower to cover any overdraft.
Borrower further agrees that if the making of a Loan to cover any
Overdraft would result in an Over Advance, such overdraft shall
constitute a separate Loan under this Agreement (an "Overdraft
Loan"), which shall bear, from the date on which the overdraft
occurred until paid, interest in an amount equal to the greater
of one hundred
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thirty percent (130%) of the highest rate of interest then
actually being charged for Revolving Loans (other than Overdraft
Loans) made hereunder, and $50 per day. If Agent, in its sole
and absolute discretion, decides not to make a Loan to cover part
or all of any overdraft, Agent may return any check(s) which
created such overdraft.
2.8 OVER ADVANCES. If the aggregate outstanding
Revolving Loans and Letter of Credit Obligations exceed the
lesser of (i) the Borrowing Base and (ii) the Revolving Credit
Amount (such excess Liabilities are herein referred to as "Over
Advances"), Agent, in its sole and absolute discretion, may, for
a period of five (5) Banking Days, to the extent such Over
Advance arises as a result of a reduction in the Borrowing Base,
permit such Over Advance to exist without the consent of any
Lender (but subject to SECTION 2.1.1(a)) and continue to make
Revolving Loans on behalf of Lenders, and after the expiration of
such five (5) Banking Day period, no such event or occurrence
shall cause or constitute a waiver by any Lender of its right to
refuse to make any further Revolving Loans at any time that an
Over Advance exists or would result therefrom; provided, that
Agent may not (i) make Revolving Loans on behalf of Lenders under
this SECTION 2.8 to the extent such Revolving Loans would cause a
Lender's Pro Rata Share of the Revolving Loans to exceed such
Lender's Maximum Loan Amount or (ii) make Revolving Loans on
behalf of Lenders under this SECTION 2.8 to the extent such
Revolving Loans would cause the then outstanding Revolving Loans
and Letter of Credit Obligations to exceed the sum of $1,000,000
and the amount of the outstanding Revolving Loans and Letter of
Credit Obligations as of the date Agent became aware of the Over
Advance. During any period in which an Over Advance exists, the
amount of Over Advances shall bear interest at a rate equal to
one hundred thirty percent (130%) of the highest rate of interest
then actually being charged for Revolving Loans made hereunder.
2.9 ALL LOANS ONE OBLIGATION. The Revolving Loans and
all other Loans under this Agreement shall constitute one Loan,
and all Indebtedness and other Liabilities of Borrower under this
Agreement and any of the Related Agreements shall constitute one
general obligation secured by Agent's Lien, for the benefit of
itself and Lenders, on all of the Collateral and by all other
Liens heretofore, now, or at any time or times hereafter granted
by Borrower or any other Obligor to Agent, for the benefit of
itself and Lenders. Borrower agrees that all of the rights of
Agent and Lenders set forth in this Agreement shall apply to any
modification of or supplement to this Agreement, any Supplements
or Exhibits hereto, and the Related Agreements, unless otherwise
agreed in writing.
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2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS;
CHARGING OF ACCOUNTS.
(a) All payments hereunder (including payment of
Letter of Credit Obligations and payments with respect to any
Notes) shall be made without set-off or counterclaim and shall be
made to Agent in immediately available funds (except for payments
to be made to Issuing Bank as provided in SECTION 2.2 and except
as Agent may otherwise consent) prior to 12:30 p.m., Chicago
time, on the date due at Continental's office at 231 South
LaSalle Street, Chicago, Illinois 60697, or at such other place
as may be designated by Agent to Borrower in writing. Any
payments received after such time shall be deemed received on the
next Banking Day. Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a date other than a
Banking Day, such payment may be made on the next succeeding
Banking Day, and such extension of time shall be included in the
calculation of interest and any fees.
(b) (i) Borrower authorizes Agent, and Agent will,
subject to the provisions of this PARAGRAPH (b), apply the whole
or any part of any amounts received by Agent (whether deposited
in the Assignee Deposit Account or otherwise received by Agent)
from the collection of items of payment and proceeds of any
Collateral (including without limitation proceeds of insurance),
against the principal and/or interest of any Loans made hereunder
and/or any other Liabilities, whether or not then due, in such
order of application as Agent may determine; PROVIDED, HOWEVER,
that prior to the occurrence of an Event of Default, any such
amounts received by Agent shall be applied in the manner, if any,
specifically set forth in this Agreement with respect to such
payment and if no such manner is specifically set out, then as
follows: FIRST, to payment of amounts then due with respect to
fees (including Attorneys' Fees), charges and expenses for which
Borrower is liable pursuant to this Agreement and the Related
Agreements; SECOND, to payment of amounts then due with respect
to interest on the Loans; THIRD, to payment of the principal of
the Loans;
(ii) Notwithstanding SUBPARAGRAPH (i) above, if prior
to an Event of Default or an Unmatured Event of Default, at any
time the funds received by Agent in the Assignee Deposit Account,
or otherwise, exceed (x) the sum of the outstanding principal
balance of the Loans bearing interest at the Adjusted Reference
Rate, and the amounts described in CLAUSES FIRST and SECOND of
the proviso set forth above in SUBPARAGRAPH (i) or [(y) THE SUM
OF THE AMOUNTS DESCRIBED IN CLAUSES FIRST, SECOND AND THIRD OF
THE PROVISO SET FORTH ABOVE IN SUBPARAGRAPH (i),] then in any
such case, Borrower may direct that such excess proceeds be held
in a cash collateral account maintained by Agent. The funds held
in any cash collateral account referred to in the preceding
sentence may be disbursed, at Borrower's direction, so long as
after giving effect to such disbursements, the Payment
Liabilities do not exceed Revolving Loan Availability;
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(iii) Notwithstanding anything to the contrary herein,
(i) all cash, checks, instruments and other items of payment,
solely for purposes of determining the occurrence of an Event of
Default, shall be deemed received upon actual receipt by Agent,
unless the same is subsequently dishonored for any reason
whatsoever, (ii) for purposes of determining whether, under
SECTIONS 2.1 and 2.2, there is availability for Loans or Letters
of Credit, all cash, checks, instruments and other items of
payment shall be applied against the Liabilities on the first
Banking Day after receipt thereof by Agent and (iii) solely for
purposes of interest calculation hereunder, all cash, checks,
instruments and other items of payment shall be deemed to have
been applied against the Liabilities on the first Banking Day
after receipt by Agent of collected funds with respect thereto;
further provided, that any amounts earned on such funds during
the period after receipt thereof by Agent and prior to
application thereof against the Liabilities as provided herein,
shall be retained by Agent for Agent's own account.
Notwithstanding the foregoing, no checks, drafts or other instru-
ments received by Agent shall constitute final payment with
respect to any Liabilities unless and until such item of payment
has actually been collected.
(c) Borrower hereby authorizes Agent, and Agent may,
in its sole and absolute discretion, charge to Borrower at any
time when due all or any portion of any of the Liabilities
including but not limited to any Attorneys' Fees and other costs
and expenses of Agent and Lenders for which Borrower is liable
pursuant to the terms of this Agreement or any Related Agreement,
or for which any other Obligor is liable pursuant to the terms of
any Related Agreement, by charging Borrower's Demand Deposit
Account or any bank account of Borrower with Agent or by
advancing the amount thereof to Borrower as a Revolving Loan;
PROVIDED, HOWEVER that the provisions of this SECTION 2.10(c)
shall not affect Borrower's obligation to pay when due all
amounts payable by Borrower under this Agreement, any Note or any
Related Agreement, whether or not there are sufficient funds
therefor in the Demand Deposit Account or any such other bank
account of Borrower.
2.11 AGENT'S ELECTION NOT TO ENFORCE. Notwithstanding
any term or condition of this Agreement to the contrary, Agent,
in the sole and absolute discretion of Requisite Lenders, at any
time and from time to time, may suspend or refrain from enforcing
any or all of the restrictions imposed in this SECTION 2, but no
such suspension or failure to enforce shall impair any right or
power of Agent or any Lender under this Agreement, including
without limitation any right of each Lender to refrain from
making a Loan or Issuing Bank to refrain from issuing a Letter of
Credit if all conditions precedent to such Lender's obligation to
make such Loan or Issuing Bank's obligation to issue such Letter
of Credit have not been satisfied.
2.12 REAFFIRMATION. Each Loan or Letter of Credit, or
designation or continuation of a LIBOR Rate Loan, in each case
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requested by Borrower pursuant to this Agreement, shall
constitute an automatic certification by Borrower to Agent and
Lenders that (a) all of the representations and warranties of
Borrower in this Agreement and each of the Related Agreements are
true and correct on the date of such request to the same extent
as if made on such date, except for such changes as are
specifically permitted hereunder (or under such Related
Agreement) and (b) immediately before and after making the
requested Loan or issuing the requested Letter of Credit, no
Event of Default, or Unmatured Event of Default, then exists or
would result therefrom.
2.13 SETOFF. In addition to and not in limitation of
all other rights and remedies (including other rights of offset
or banker's lien) that Agent and Lenders may have under
applicable law, each of Agent and each Lender shall, upon the
occurrence of any Event of Default described in SECTION 6.1, or
any Unmatured Event of Default described in SECTION 6.1(e), have
the right to appropriate and apply to the payment of the
Liabilities (whether or not then due), in such order of
application as Agent may elect, any and all balances, credits,
deposits (general or special, time or demand, provisional or
final), accounts or moneys of Borrower then or thereafter with
Agent or any Lender. Agent and each Lender shall promptly advise
Borrower of any such setoff and application but failure to do so
shall not affect the validity of such setoff and application.
2.14 CLOSING FEE. Borrower agrees to pay to
Continental, for its own account, in connection with the closing
of this Agreement, a closing fee of $150,000, which amount shall
be deemed fully earned and shall be payable in full on the
Closing Date. With Agent's consent, the amount of the closing
fee may be advanced to Borrower as a Revolving Loan.
2.15 SETTLEMENTS, DISTRIBUTIONS AND APPORTIONMENT OF
PAYMENTS. On a weekly basis (or more frequently if required by
Agent) (a "Settlement Date"), Agent shall provide each Lender
with a statement of the outstanding balance of the Liabilities as
of the end of the Banking Day preceding the Settlement Date (the
"Pre-Settlement Determination Date") and the current balance of
the Revolving Loans funded by each Lender (whether made directly
by such Lender to Borrower or constituting a settlement by such
Lender of a previous Disproportionate Advance made by Agent on
behalf of such Lender to Borrower). If such statement discloses
that such Lender's current balance of the Revolving Loans as of
the Pre-Settlement Determination Date exceeds such Lender's Pro
Rata Share of the Revolving Loans outstanding as of the Pre-
Settlement Determination Date, then Agent shall, one (1) Banking
Day after the Settlement Date, transfer to such Lender, by wire
transfer, the net amount due to such Lender in accordance with
such Lender's instructions, and if such statement discloses that
such Lender's current balance of the Revolving Loans as of the
Pre-Settlement Determination Date is less than such Lender's Pro
Rata Share of the Revolving Loans outstanding as of the Pre-
Settlement Determination
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Date, then such Lender shall, one (1) Banking Day after the
Settlement Date, transfer to Agent, by wire transfer the net
amount due to Agent in accordance with Agent's instructions. In
addition, payments actually received by Agent with respect to the
following items shall be distributed by Agent to Lenders as
follows:
(a) Within one (1) Banking Day of receipt thereof
by Agent, payments to be applied to interest on the
Loans shall be paid to each Lender in proportion to its
Pro Rata Share, subject to any adjustments for any
Disproportionate Advances so that Agent shall receive
interest on the Disproportionate Advances and each
Lender shall only receive interest on the amount of
funds actually advanced by such Lender; and
(b) Within one (1) Banking Day of receipt thereof
by Agent, payments to be applied to the unused line fee
set forth in SECTION 2.4.2 and the Letter of Credit
commission set forth in SECTION 2.2(b), shall each be
paid to each Lender in proportion to its Pro Rata
Share.
Notwithstanding the foregoing, if a Lender has failed to remit
its Pro Rata Share of any Loans required to be made pursuant to
SECTION 2.1.1 or has failed to make a settlement payment to Agent
pursuant to this SECTION 2.15, no payment shall be made to such
Lender by Agent at any time such Lender's share of the
outstanding Loans is less than such Lender's Pro Rata Share. If
Agent or any Lender fails to pay the other any payment due under
this Agreement on its due date, the party to whom such payment is
due shall be entitled to recover interest from the party
obligated to make such payment at a rate per annum equal to the
overnight Federal Funds Rate.
3. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST. As security for the
payment of all Loans now or hereafter made by, or on behalf of,
Lenders to Borrower hereunder or under any Note, and as security
for the payment or other satisfaction of all other Liabilities
(including without limitation all reimbursement obligations under
any Letters of Credit), Borrower hereby grants to Agent, for the
benefit of itself and Lenders, a security interest in and to the
following property of Borrower, whether now owned or existing, or
hereafter acquired or coming into existence, wherever now or
hereafter located (all such property is hereinafter referred to
collectively as the "Borrower Collateral"):
(a) Accounts Receivable; Contract Rights; any and
all security deposits and other security held by or
granted to Borrower to secure payments from any and all
persons who are or may become obligated to Borrower
under, with respect to, or on account of any Account
Receivable or Contract Right; and all chattel paper and
instruments evidencing, arising out of or relating to
any
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obligations to Borrower for goods sold or leased or
services rendered, or otherwise arising out of or
relating to any property described in this SECTION 3.1;
(b) any and all amounts from time to time owing
by Subsidiaries to Borrower pursuant to the Master
Revolving Credit Note; all agreements, instruments and
documents evidencing or otherwise pertaining to the
loans made pursuant to such Master Revolving Credit
Note; and any or all security held by or granted to
Borrower by any or all Subsidiaries to secure amounts
owing by any or all Subsidiaries to Borrower pursuant
to such Master Revolving Credit Note;
(c) Inventory (whether or not Eligible
Inventory);
(d) Any and all balances, credits, deposits
(general or special, time or demand, provisional or
final), accounts or monies of or in the name of
Borrower now or hereafter with Agent and any and all
property of every kind or description of or in the name
of Borrower now or hereafter, for any reason or purpose
whatsoever, in the possession or control of, or in
transit to, or standing to Borrower's credit on the
books of, Agent, any agent or bailee for Agent, or any
Participant;
(e) To the extent related to the property
described in CLAUSES (a) through (d) above, all books,
correspondence, credit files, records, invoices and
other papers and documents, including without
limitation, to the extent so related, all tapes, cards,
computer runs, computer programs and other papers and
documents in the possession or control of Borrower or
any computer bureau from time to time acting for
Borrower, and, to the extent so related, all rights in,
to and under all policies of insurance, including
claims of rights to payments thereunder and proceeds
therefrom, including any credit insurance; and
(f) All products and proceeds (including but not
limited to any Accounts Receivable or other proceeds
arising from the sale or other disposition of any
property described above, any returns of Inventory sold
by Borrower, and the proceeds of any insurance covering
any of the property described above) of any of the
foregoing.
3.2 ACCOUNTS RECEIVABLE.
(a) If requested by Agent, Borrower shall notify Agent
immediately of each dispute or claim by any Account Debtor in an
amount in excess of $10,000 and settle or adjust them, or cause
them to be settled or adjusted, at no expense to Agent or
Lenders.
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If Agent directs after the occurrence of an Event of Default, no
discount or credit allowance shall be granted thereafter by
Borrower or any Subsidiary to any Account Debtor, other than
discounts and trade allowances offered in the ordinary course of
Borrower's or a Subsidiary's business, on terms no more advanta-
geous to customers than those being granted by Borrower or such
Subsidiary to customers on the Closing Date. If requested by
Agent, Borrower will, and will cause each Subsidiary to, make
proper entries in its books and records, disclosing the
assignment of Accounts Receivable to Agent, for the benefit of
itself and Lenders.
(b) Borrower warrants and covenants that: (i) all of
the Accounts Receivable are and will continue to be bona fide
existing obligations created by the sale of goods, the rendering
of services, or the furnishing of other good and sufficient
consideration to Account Debtors in the regular course of
business; (ii) all shipping or delivery receipts and other
documents furnished or to be furnished to Agent upon Agent's
request in connection therewith are and will be genuine; and
(iii) none of the Accounts Receivable identified or included on
any schedule, Borrowing Base Certificate or report as Eligible
Accounts Receivable fail at the time so identified or included to
satisfy any of the requirements for eligibility set forth in the
definition of Eligible Accounts Receivable.
(c) Agent is authorized and empowered (which
authorization and power, being coupled with an interest, is
irrevocable until the last to occur of termination of this
Agreement and payment and performance in full of all of the
Payment Liabilities under this Agreement) at any time in its sole
and absolute discretion:
(i) After the occurrence of an Event of Default,
to request, in the name of Agent, in Borrower's or a
Subsidiary's name or the name of a third party,
confirmation from any Account Debtor or party obligated
under or with respect to any Collateral of the amount
shown by the Accounts Receivable or other Collateral to
be payable, or any other matter stated therein;
(ii) To endorse in Borrower's or a Subsidiary's
name and to collect any chattel paper, checks, notes,
drafts, instruments or other items of payment tendered
to or received by Agent in payment of any Account
Receivable or other obligation owing to Borrower or
such Subsidiary;
(iii) After the occurrence of an Event of Default,
to notify, either in Agent's name or Borrower's or a
Subsidiary's name, and/or to require Borrower or such
Subsidiary to notify, any Account Debtor or other
Person obligated under or in respect of any Collateral,
of the fact of Agent's Lien thereon, for the benefit of
itself
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and Lenders, and of the collateral assignment thereof
to Agent, for the benefit of itself and Lenders;
(iv) After the occurrence of an Event of Default,
to direct, either in Borrower's or a Subsidiary's name
or Agent's name, and/or to require Borrower or such
Subsidiary to direct, any Account Debtor or other
Person obligated under or in respect of any Collateral
to make payment directly to Agent of any amounts due or
to become due thereunder or with respect thereto; and
(v) After the occurrence of an Event of Default,
to demand, collect, surrender, release or exchange all
or any part of any Collateral or any amounts due there-
under or with respect thereto, or compromise or extend
or renew for any period (whether or not longer than the
initial period) any and all sums which are now or may
hereafter become due or owing upon or with respect to
any of the Collateral, or enforce, by suit or
otherwise, payment or performance of any of the
Collateral either in Agent's own name or in the name of
Borrower or a Subsidiary.
Under no circumstances shall Agent be under any duty to act in
regard to any of the foregoing matters. The costs relating to
any of the foregoing matters, including Attorneys' Fees and out-
of-pocket expenses, and the cost of any Depository Account,
Assignee Deposit Account, or other bank account or accounts which
may be required hereunder, shall be borne solely by Borrower
whether the same are incurred by Agent or Borrower, and Agent may
advance same to Borrower as a Revolving Loan.
(d) Unless otherwise consented to by Agent, Borrower
will, forthwith upon receipt by Borrower of all checks, drafts,
cash and other remittances in payment or as proceeds of, or on
account of, any of the Accounts Receivable or other Collateral,
deposit the same in special bank accounts (the "Depository
Accounts") at such banks or financial institutions as Agent shall
consent. Said proceeds shall be deposited in precisely the form
received except for Borrower's endorsement where necessary to
permit collection of items, which endorsement Borrower agrees to
make. Pending such deposit, Borrower agrees not to commingle any
such checks, drafts, cash and other remittances with any of its
funds or property, but will hold them separate and apart
therefrom and upon an express trust for Agent, for the benefit of
itself and Lenders, until deposit thereof is made in the
Depository Accounts. All funds in the Depository Accounts at the
end of each Banking Day will be wire transferred or transferred
by other means acceptable to Agent to a special bank account (the
"Assignee Deposit Account") at Continental, over which Agent
alone has power of withdrawal. Borrower acknowledges that the
maintenance of the Assignee Deposit Account is solely for the
convenience of Agent in facilitating its own operations and,
Borrower does not and shall not have any right, title or interest
in the Assignee Deposit Account or in the amounts
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at any time appearing to the credit thereof, except to the extent
that such amounts are transferred to a cash collateral account in
accordance with SECTION 2.10(b)(ii). Borrower agrees not to
maintain any depository accounts other than Depository Accounts
and the Assignee Deposit Account established pursuant to this
SECTION 3.2(d) and other than depository accounts established
solely for the proceeds of property of Borrower and the
Subsidiaries other than the Collateral pursuant to the terms of
the Senior Loan Documents. Upon Agent's request after the
occurrence of an Event of Default, Borrower agrees to notify its
Account Debtors to make all payments in respect of Borrower's
Accounts Receivable directly to one or more lockbox accounts
under the control of Agent and evidenced by agreements in form
and substance satisfactory to Agent. Upon the full and final
liquidation of all Payment Liabilities, Agent will pay over to
Borrower any excess amounts received by Agent as payment or
proceeds of Collateral, whether received by Agent as a deposit in
the Assignee Deposit Account, contained in a lockbox account or
any Depository Account or received by Agent as a direct payment
on any of the sums due hereunder. Borrower will cause each of
its Subsidiaries to establish accounts comparable to those set
forth above for the collection of the proceeds of their Accounts
Receivable, and Borrower shall cause each Subsidiary to take all
other actions to implement the collection mechanism set forth in
this SECTION 3.2(d).
(e) Borrower appoints Agent, or any Person whom Agent
may from time to time designate, as Borrower's attorney and
agent-in-fact with power: (i) after the occurrence of an Event
of Default, to notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated
by Agent; (ii) to receive, open and dispose of all mail addressed
to Borrower, but received by Agent; (iii) after the occurrence of
an Event of Default, to send requests for verification of
Accounts Receivable or other Collateral to Account Debtors; (iv)
to open an escrow account, Assignee Deposit Account, Depository
Accounts or other accounts under Agent's sole control for the
collection of Accounts Receivable or other Collateral, if not
required contemporaneously with the execution hereof; and (v) to
do all other things which Agent is permitted to do under this
Agreement or any Related Agreement or which are necessary to
carry out this Agreement and the Related Agreements. Neither
Agent nor any of its directors, officers, employees or agents
will be liable for any acts of commission or omission nor for any
error in judgment or mistake of fact or law, unless the same
shall have resulted from gross negligence or willful misconduct.
The foregoing appointment and power, being coupled with an
interest, is irrevocable until all Payment Liabilities under this
Agreement are paid and performed in full and this Agreement is
terminated. Borrower expressly waives presentment, demand,
notice of dishonor and protest of all instruments and any other
notice to which it might otherwise be entitled.
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(f) If any Account Receivable or Contract Right in an
amount in excess of $10,000 arises out of a contract with the
United States or any department, agency, or instrumentality
thereof, Borrower will, upon Agent's request, immediately notify
Agent in writing and execute any instruments and take any steps
required by Agent in order that all monies due and to become due
under such contract shall be assigned to Agent, for the benefit
of itself and Lenders, and notice thereof given to the government
under the Federal Assignment of Claims Act of 1940, as amended,
or other applicable laws or regulations.
(g) If any Account Receivable or Contract Right is
evidenced by chattel paper or promissory notes, trade
acceptances, or other instruments for the payment of money,
Borrower will, unless Agent shall otherwise agree, deliver the
originals of same to Agent, appropriately endorsed to Agent's
order and, regardless of the form of such endorsement, Borrower
hereby expressly waives presentment, demand, notice of dishonor,
protest and notice of protest and all other notices with respect
thereto.
3.3 INVENTORY.
(a) Borrower warrants and covenants that: (i) all of
the Inventory is, and at all times shall be, owned by Borrower or
a Subsidiary free of all claims and Liens (except as set forth in
SECTION 5.16); and (ii) neither Borrower nor any Subsidiary will
make any further assignment of any thereof or create or permit to
exist any further Lien thereon, unless approved in writing by
Requisite Lenders, nor permit any of Agent's rights therein to be
affected by any attachment, levy, garnishment or other judicial
process.
(b) Neither Agent nor any Lender shall be liable or
responsible in any way for the safekeeping of any Inventory
delivered to it, to any bailee appointed by or for it, to any
warehouseman, or under any other circumstances. Neither Agent
nor any Lender shall be responsible for collection of any
proceeds or for losses in collected proceeds held by Borrower or
any Subsidiary in trust for Agent. Any and all risk of loss for
any or all of the foregoing shall be upon Borrower and the
Subsidiaries, except for such loss as shall result from Agent's
or any Lenders' gross negligence or willful misconduct.
(c) Any material change in the value or condition of
any Inventory, and any errors discovered in any monthly inventory
certificate under SECTION 5.1.3 or any other schedule delivered
to Agent and Lenders, shall be reported to Agent promptly.
Borrower represents and warrants that, as to each schedule of
Inventory delivered to Agent or any Lender:
(i) The descriptions, origins, sizes, qualities,
quantities, weights, and markings of all goods stated
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thereon, or on any attachment thereto, are true and
correct in all material respects;
(ii) None of the goods are defective, of second
quality, used, or goods returned after shipment, except
where described as such; and
(iii) All Inventory not included on such schedule
has been previously scheduled.
3.4 SUPPLEMENTAL DOCUMENTATION. At Agent's request,
Borrower shall execute and deliver, or cause to be executed and
delivered, to Agent, at any time or times hereafter, such agree-
ments, documents, financing statements, warehouse receipts, bills
of lading, notices of assignment of Accounts Receivable,
schedules of Accounts Receivable assigned, and other written
matter necessary or reasonably requested by Agent to perfect and
maintain perfected Agent's security interest in the Collateral,
for the benefit of itself and Lenders (all the above hereinafter
referred to as "Supplemental Documentation"), in form and
substance acceptable to Agent, and pay all taxes, fees and other
costs and expenses associated with any recording or filing of the
Supplemental Documentation. Borrower hereby irrevocably makes,
constitutes and appoints Agent (and all Persons designated by
Agent for that purpose) as Borrower's true and lawful attorney
(and agent-in-fact) (which appointment and power, being coupled
with an interest, is irrevocable until the last to occur of
termination of this Agreement and payment and performance in full
of all of the Payment Liabilities under this Agreement) to sign
the name of Borrower on any of the Supplemental Documentation and
to deliver any of the Supplemental Documentation to such Persons
as Agent in its sole and absolute discretion, may elect.
Borrower agrees that a carbon, photographic, photostatic, or
other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement.
3.5 COLLATERAL FOR THE BENEFIT OF AGENT AND LENDERS.
All Liens granted to Agent hereunder and under the Related
Agreements and all Collateral delivered to Agent hereunder and
under the Related Agreements shall be deemed to have been granted
and delivered to Agent, for the benefit of itself and Lenders, to
secure the Liabilities.
4. REPRESENTATIONS AND WARRANTIES.
To induce Agent and Lenders to make Loans to, and issue
Letters of Credit for the account of, Borrower under this Agree-
ment, Borrower makes the following representations and warranties
to Agent and Lenders, all of which shall be true and correct as
of the date the initial Loan is made or the initial Letter of
Credit is issued and shall survive the execution of this
Agreement and the making of the initial Loan and the issuance of
the initial Letter of Credit:
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4.1 ORGANIZATION. Borrower and all of its corporate
Borrowing Subsidiaries are corporations duly organized, validly
existing and in good standing under the laws of the jurisdictions
of their respective incorporation. All of Borrower's other
Borrowing Subsidiaries, if any, are entities duly organized,
validly existing and in good standing under the laws of the
jurisdictions of their respective organization. Borrower and all
of the Borrowing Subsidiaries are in good standing and are duly
qualified to do business in each jurisdiction where, because of
the nature of their respective activities or properties, such
qualification is required. Except as set forth on SCHEDULE 4.1,
on the date hereof, Borrower and each Borrowing Subsidiary
conducts business in its own name exclusively. SCHEDULE 4.1 sets
forth a complete and accurate list, as of the date of this
Agreement, of (a) the state of formation of Borrower, (b) each
state in which Borrower is qualified to do business and (c) all
of Borrower's tradenames, trade styles or doing business forms.
4.2 AUTHORIZATION. Borrower is duly authorized to
execute and deliver this Agreement, any Notes, and any Related
Agreements or Supplemental Documentation contemplated by this
Agreement, and is and will continue to be duly authorized to
borrow monies hereunder and to perform its obligations under this
Agreement, any Notes and any such Related Agreements and Supple-
mental Documentation. Each Borrowing Subsidiary is duly
authorized to execute and deliver any Related Agreements or
Supplemental Documentation contemplated to be delivered by such
Borrowing Subsidiary, and is and will continue to be duly
authorized to perform its obligations thereunder. The execution,
delivery and performance by (a) Borrower of this Agreement, any
Notes, and any Related Agreements or Supplemental Documentation
contemplated by this Agreement, and the borrowings hereunder and
(b) each Borrowing Subsidiary of any Related Agreements or
Supplemental Documentation to which it is a party, do not and
will not require any consent or approval of any governmental
agency or authority.
4.3 NO CONFLICTS. The execution, delivery and
performance by (a) Borrower of this Agreement, any Notes, and any
Related Agreements or Supplemental Documentation contemplated by
this Agreement and (b) each Borrowing Subsidiary of any Related
Agreements or Supplemental Documentation to which it is a party,
do not and will not conflict with (i) any provision of law, (ii)
the Certificate or Articles of Incorporation, as applicable, or
by-laws, of Borrower or such Borrowing Subsidiary, (iii) any
agreement binding upon Borrower or such Borrowing Subsidiary or
(iv) any court or administrative order or decree applicable to
Borrower or such Borrowing Subsidiary, and do not and will not
require, or result in, the creation or imposition of any Lien on
any asset of Borrower or any Borrowing Subsidiary, except as
provided herein.
4.4 VALIDITY AND BINDING EFFECT. This Agreement, any
Notes, and any Related Agreements or Supplemental Documentation
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contemplated by this Agreement, when duly executed and delivered
will be legal, valid and binding obligations of Borrower and each
Subsidiary party thereto, as applicable, enforceable against
Borrower and each such Subsidiary in accordance with their
respective terms.
4.5 NO DEFAULT. Neither Borrower nor any Subsidiary
is in default under any agreement or instrument to which Borrower
or any Subsidiary is a party or by which any of their respective
properties or assets is bound or affected, which default is
reasonably likely to have a Material Adverse Effect. No Event of
Default or Unmatured Event of Default has occurred and is con-
tinuing.
4.6 FINANCIAL STATEMENTS. Borrower's consolidated
audited financial statements as at June 30, 1993 and Borrower's
consolidated unaudited financial statement as at March 31, 1994,
copies of which have been furnished to Agent, have been prepared
in conformity with GAAP applied on a basis consistent with that
of the preceding Fiscal Year and period and present fairly the
financial condition of Borrower and the Subsidiaries as at such
dates and the results of their operations for the periods then
ended, subject (in the case of the interim financial statement)
to year-end audit adjustments. Since March 31, 1994, there has
been no Material Adverse Change. Borrower's consolidated
unaudited pro forma balance sheets as of the Closing Date reflect
the pro forma effects of the Transactions and the application of
proceeds in respect thereof, and have been prepared in conformity
with GAAP and, to the best knowledge of Borrower, present fairly
the expected financial condition of Borrower and the Subsidiaries
as of such date.
4.7 INSURANCE. SCHEDULE 4.7 hereto is a complete and
accurate summary of the property and casualty insurance program
carried by Borrower and the Subsidiaries on the date hereof.
SCHEDULE 4.7 includes the insurer's(s') name(s), policy
number(s), expiration date(s), amount(s) of coverage, type(s) of
coverage, the annual premium(s), deductibles and self-insured
retention and describes any retrospective rating plan, fronting
arrangement or any other self-insurance or risk assumption agreed
to by Borrower or any Subsidiary or imposed upon Borrower or any
Subsidiary by any such insurer. This summary also includes any
self-insurance program that is in effect.
4.8 LITIGATION; CONTINGENT LIABILITIES.
(a) Except for those referred to in SCHEDULE 4.8,
there are no claims, litigation, arbitration proceedings or
governmental proceedings pending or threatened against or are
affecting Borrower or any Subsidiary which involve an amount in
controversy in excess of $25,000 or which request injunctive or
other equitable relief. Neither Borrower nor any Subsidiary is
subject to any claims, litigation, arbitration proceeding or
governmental proceeding,
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either pending or threatened, the results of which is reasonably
likely to have a Material Adverse Effect.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in SCHEDULE 4.8 or SCHEDULE
4.19, or provided for or disclosed in the financial statements
referred to in SECTION 4.6, neither Borrower nor any of the
Subsidiaries has any contingent liabilities which are reasonably
likely to have a Material Adverse Effect.
4.9 LIENS. None of the Collateral or other property,
revenues or assets of Borrower or any Subsidiary is subject to
any Lien (including but not limited to Liens pursuant to
Capitalized Leases under which Borrower or any Subsidiary is a
lessee) except: (a) Liens in favor of Agent, for the benefit of
itself and Lenders; (b) Liens for current Taxes not delinquent or
Taxes being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; (c)
carriers', warehousemen's, mechanics', materialmen's and other
like statutory Liens arising in the ordinary course of business
securing obligations which are not overdue or which are being
contested in good faith and by appropriate proceedings and as to
which such reserves or other appropriate provisions as may be
required by GAAP are being maintained; (d) Liens listed on
SCHEDULE 4.9 and Liens permitted by SECTION 5.16; (e) Liens
granted to the holders of the Senior Notes or their
representatives pursuant to the Senior Loan Documents; (f) Liens
on Obligor Collateral of the Borrowing Subsidiaries in favor of
Borrower, securing the Intercompany Loans and assigned to Agent,
for the benefit of itself and Lenders, and (g) Liens consented to
in writing by Requisite Lenders.
4.10 SUBSIDIARIES. All of Borrower's Subsidiaries are
listed on SCHEDULE 4.10. SCHEDULE 4.10 sets forth, for each
Subsidiary, a complete and accurate statement of (a) Borrower's
and each Subsidiary's percentage ownership of each of their
respective Subsidiaries, (b) the state or other jurisdiction of
formation or incorporation of each Subsidiary, (c) each state in
which each Subsidiary is qualified to do business and (d) all of
each Subsidiary's trade names, trade styles or doing business
forms. All of the Subsidiaries listed on SCHEDULE 4.10 are
"Restricted Subsidiaries" (as defined in the Senior Loan
Documents).
4.11 PARTNERSHIPS; JOINT VENTURES. Neither Borrower
nor any of the Subsidiaries is a partner or joint venturer in any
partnership or joint venture other than the partnerships and
joint ventures listed on SCHEDULE 4.11. SCHEDULE 4.11 sets
forth, for each such partnership or joint venture, a complete and
accurate statement of (a) Borrower's and each Subsidiary's
percentage ownership of each such partnership or joint venture,
(b) the state or other jurisdiction of formation or
incorporation, as appropriate, of each such partnership or joint
venture, (c) each state in which each such partnership or joint
venture is qualified to do
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business and (d) all of each such partnership's or joint
venture's trade names, trade styles or doing business forms on
the date of this Agreement.
4.12 BUSINESS AND COLLATERAL LOCATIONS.
(a) On the date hereof, the office where Borrower and
each Borrowing Subsidiary keeps its books and records concerning
its Accounts Receivable and other Collateral, and Borrower's
chief place of business and chief executive office, is located at
the address of Borrower set forth on the signature pages of this
Agreement. SCHEDULE 4.12 contains a complete and accurate list,
as of the date of this Agreement, of all of Borrower's and each
Subsidiary's places of business other than that referred to in
the first sentence of this PARAGRAPH (a).
(b) SCHEDULE 4.12 contains a complete and accurate
list, as of the date of this Agreement, of the locations of all
Inventory and other tangible Collateral and if any Inventory or
other Collateral is not in the possession or control of Borrower
or the owner of such Collateral, the name and mailing address of
each bailee, processor, warehouseman or other Person in
possession or control thereof.
4.13 SENIOR NOTES. The Units have been issued in
accordance with and pursuant to the terms of the Prospectus dated
as of June __, 1994 and in compliance with all applicable federal
and state securities laws. The issuance of the Units has been
duly authorized by all necessary corporate action on the part of
Borrower and will not require any consent or approval of any
governmental agency or authority that has not been obtained prior
to the date hereof. The issuance of the Units and the execution
of the Senior Loan Documents does not conflict with (i) any
provision of law, (ii) the Certificate of Incorporation or
by-laws of Borrower, (iii) any agreement binding upon Borrower or
(iv) any court or administrative order or decree applicable to
Borrower, and do not and will not require, or result in, the
creation or imposition of any Lien on any asset of Borrower or
any Subsidiary, except as expressly provided therein. All
representations and warranties of Borrower contained in the
Underwriting Agreement, dated June __, 1994, between Borrower and
Morgan Stanley & Co. Incorporated are true and correct in all
material respects as of the date hereof.
4.14 ELIGIBILITY OF COLLATERAL. Each Account
Receivable or item of Inventory which Borrower shall, expressly
or by implication (by inclusion on a Borrowing Base Certificate
or otherwise), request Agent to classify as an Eligible Account
Receivable or as Eligible Inventory, respectively, will, as of
the time when such request is made, conform in all respects to
the requirements of such classification set forth in the
respective definitions of "Eligible Account Receivable" and
"Eligible Inventory" set forth herein.
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4.15 INTENTIONALLY OMITTED.
4.16 PATENTS, TRADEMARKS, ETC. Borrower and each of
the Subsidiaries possesses adequate assets, licenses, patents,
patent applications, copyrights, trademarks, trademark
applications, trade styles, and tradenames to continue to conduct
its respective business as heretofore conducted by it, and all
such licenses, patents, patent applications, copyrights,
trademarks, trademark applications, trade styles, and tradenames
existing on the date hereof and that are material to the business
of Borrower or any Subsidiary, and, in the case of patents,
trademarks and copyrights, the date of issuance thereof, are
listed on SCHEDULE 4.16.
4.17 SOLVENCY. Each of Borrower and each of the
Subsidiaries now has capital sufficient to carry on its
respective business and transactions and all business and
transactions in which it is about to engage, and is able to pay
its respective debts as they mature. Each of Borrower and each
of the Subsidiaries is now solvent and now owns property having a
value, both at fair valuation and at present fair salable value,
greater than the amount required to pay Borrower's or such
Subsidiary's debts.
4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on
SCHEDULE 4.18: (a) neither Borrower nor any Subsidiary is a
party to any contract or agreement, or is subject to any charge,
corporate restriction, judgment, decree or order, which is
reasonably likely to have a Material Adverse Effect; (b) no labor
contract to which Borrower or any Subsidiary is a party or is
otherwise subject is scheduled to expire prior to the initial
Termination Date; (c) neither Borrower nor any Subsidiary has,
within the two (2)-year period preceding the date of this Agree-
ment, taken any action which would have constituted or resulted
in a "plant closing" or "mass layoff" within the meaning of the
Federal Worker Adjustment and Retraining Notification Act of 1988
or any similar applicable federal, state or local law, and
Borrower has no reasonable expectation that any such action is or
will be required at any time prior to the initial Termination
Date and (d) on the date of this Agreement (i) neither Borrower
nor any Subsidiary is a party to any labor dispute and (ii) there
are no strikes or walkouts relating to any labor contracts to
which Borrower or any Subsidiary is a party or is otherwise
subject.
4.19 PENSION AND WELFARE PLANS. Each Pension Plan
complies, and has been administered in compliance, in all
material respects, with all applicable statutes and governmental
rules and regulations; no Reportable Event has occurred and is
continuing with respect to any Pension Plan; neither Borrower nor
any ERISA Affiliate has withdrawn from any Multiemployer Plan in
a "complete withdrawal" or a "partial withdrawal" as defined in
Section 4203 or 4205 of ERISA, respectively; no steps have been
instituted to terminate any Pension Plan; no contribution failure
has occurred with respect to any Pension Plan sufficient to give
rise to a Lien under Section 302(f) of ERISA; no condition exists
or event or
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transaction has occurred in connection with any Pension Plan or
Multiemployer Plan that is reasonably likely to have a Material
Adverse Effect; and neither Borrower nor any ERISA Affiliate is a
"contributing sponsor" as defined in Section 4001(a)(13) of ERISA
of a "single-employer plan" as defined in Section 4001(a)(15) of
ERISA that has two or more contributing sponsors at least two of
whom are not under common control. Except as listed in SCHEDULE
4.19, neither Borrower nor any ERISA Affiliate, to the extent
there is joint and several liability with Borrower to pay such
benefits, has any liability to pay any welfare benefits under any
employee welfare benefit plan within the meaning of Section 3(l)
of ERISA to former employees thereof or to current employees with
respect to claims incurred after the termination of their
employment other than as required by Section 4980B of the Code or
Part 6 of Subtitle B of Title 1 of ERISA.
4.20 REGULATIONS G AND U. Borrower is not engaged in
the business of purchasing or selling Margin Stock or extending
credit to others for the purpose of purchasing or carrying Margin
Stock, and no part of the proceeds of any borrowing hereunder
will be used to purchase or carry any Margin Stock or for any
other purpose which would violate any of the margin regulations
of the Federal Reserve Board.
4.21 COMPLIANCE. Except as described on SCHEDULE 4.21
or SCHEDULE 4.25, Borrower and the Subsidiaries are in compliance
with all statutes and governmental rules and regulations
applicable to them, the noncompliance with which is reasonably
likely to have a Material Adverse Effect.
4.22 TAXES. Each of Borrower and the Subsidiaries has
filed all tax returns which are required to have been filed and
has paid, or made adequate provisions for the payment of, all of
its Taxes which are due and payable, except such Taxes, if any,
as are being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP have been maintained. The
federal income tax liability of Borrower and the Subsidiaries has
been audited by the Internal Revenue Service and has been finally
determined and satisfied (or the time for audit has expired) for
all tax years up to and including the tax year ended ___________.
Except as described on SCHEDULE 4.22, Borrower is not aware of
any proposed assessment against Borrower or any of the
Subsidiaries for additional Taxes (or any basis for any such
assessment) which might have a Material Adverse Effect.
4.23 INVESTMENT COMPANY ACT REPRESENTATION. Borrower
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.
4.24 PUBLIC UTILITY HOLDING COMPANY ACT REPRESENTATION.
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Borrower is not a "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" of a "holding company"
within the meaning of the Public Utility Holding Company Act of
1935, as amended.
4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS.
Except as disclosed on SCHEDULE 4.25, Borrower and each of the
Subsidiaries and/or each property, operations and facility that
Borrower or any Subsidiary may own, operate or control (a)
complies in all respects with (i) all applicable Environmental
Laws the failure with which to comply would be reasonably likely
to have a Material Adverse Effect and (ii) all applicable
Occupational Safety and Health Laws the failure with which to
comply would be reasonably likely to have a Material Adverse
Effect; (b) is not subject to any judicial or administrative
proceeding alleging the violation of any Environmental Law or
Occupational Safety and Health Law the violation of which would
be reasonably likely to have a Material Adverse Effect; (c) has
not received any notice (i) that it may be in violation of any
Environmental Law or Occupational Safety and Health Law the
violation of which would be reasonably likely to have a Material
Adverse Effect, (ii) threatening the commencement of any
proceeding relating to allegedly unlawful, unsafe or unhealthy
conditions, which, if adversely determined, would be reasonably
likely to have a Material Adverse Effect, in either case, or
(iii) alleging that it is or may be responsible for any response,
cleanup, or corrective action, including but not limited to any
remedial investigation/feasibility studies, under any
Environmental Law or Occupational Safety and Health Law, which,
if adversely determined, would be reasonably likely to have a
Material Adverse Effect, in either case; (d) is not the subject
of federal or state investigation evaluating whether any
investigation, remedial action or other response is needed to
respond to (i) a Release or threatened Release into the
environment of any Hazardous Material or the spillage, disposal
or release or threatened release into the environment of any
other hazardous, toxic or dangerous waste, substance or
constituent, or other substance or (ii) any allegedly unsafe or
unhealthful condition, which, if adversely determined, would be
reasonably likely to have a Material Adverse Effect, in either
case; (e) has not filed any notice under or relating to any
Environmental Law or Occupational Safety and Health Law
indicating or reporting (i) any past or present Release into the
environment of, or treatment, storage or disposal of, any
Hazardous Material or spillage, disposal or release into the
environment of any other hazardous, toxic or dangerous waste,
substance or constituent, or other substance or (ii) any poten-
tially unsafe or unhealthful condition, in either case, which, if
adversely determined, would be reasonably likely to have a
Material Adverse Effect, and there exists no basis for such
notice irrespective of whether such notice was actually filed;
and (f) has no contingent liability in connection with (i) any
actual or potential Release into the environment of, or otherwise
with respect to, any Hazardous Material or spillage, disposal or
release into the environment of any other hazardous, toxic or
dangerous waste,
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substance or constituent, or other substance, whether on any
premises owned or occupied by Borrower or any Subsidiary or on
any other premises or (ii) any unsafe or unhealthful condition,
in either case, which would be reasonably likely to have a
Material Adverse Effect. Except as disclosed on SCHEDULE 4.25,
there are no Hazardous Materials on, in or under any property or
facilities owned, operated or controlled by Borrower or any
Subsidiary, including but not limited to such Hazardous Materials
that may be contained in underground storage tanks, but excepting
such Hazardous Materials used in accordance with all applicable
laws and in the same manner as an ordinary consumer (e.g.,
gasoline in tanks of motor vehicles, small amounts of cosmetic
cleaners, etc.).
4.26 RELATED AGREEMENTS. All representations and
warranties of Borrower and each Subsidiary contained in any
Related Agreements and any agreement evidencing any of the other
Transactions (whether such representations and warranties were
made to Agent or any Lender or to another Person) are true and
correct as if made on the date hereof and Borrower hereby adopts
and affirms all such representations and warranties which
Borrower agrees shall be incorporated by reference herein and
made a part hereof.
4.27 CAPITALIZED LEASE OBLIGATIONS. As of the date
hereof, the Indebtedness of Borrower and its Subsidiaries under
Capitalized Leases is as set forth on SCHEDULE 4.27.
5. BORROWER COVENANTS.
From the date of this Agreement and thereafter until
the Credit is terminated and all Payment Liabilities of Borrower
hereunder are paid in full, Borrower agrees that unless Agent, at
the written direction of Requisite Lenders, shall otherwise
consent in writing, it will:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Furnish
to Agent and each Lender, in form satisfactory to Agent:
5.1.1 FINANCIAL REPORTS:
(a) ANNUAL AUDIT REPORT. Within ninety (90) days
after each Fiscal Year, a copy of the annual audited financial
statements of Borrower and the Subsidiaries prepared on a
consolidated basis and in conformity with GAAP and certified by
an independent certified public accountant who shall be
satisfactory to Agent, together with (i) a certificate from such
accountant, (x) in the form attached hereto as EXHIBIT B,
acknowledging to Agent and Lenders such accountant's
understanding that Agent, Lenders and any Participant are relying
on such annual audit report, (y) containing a computation of, and
showing compliance with, each of the financial ratios and
restrictions contained in this SECTION 5 or in SUPPLEMENT A, and
(z) to the effect that, in making the examination necessary for
the signing of such annual audit report, such accountant has not
become aware of any Event of Default or
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Unmatured Event of Default that has occurred and is continuing
and that relates to financial or other accounting matters or the
financial ratios and restrictions contained in this SECTION 5 or
in SUPPLEMENT A, or, if such accountant has become aware of any
such event, describing it and the steps, if any, being taken to
cure it and (ii) the annual operating statements of Borrower and
the Subsidiaries prepared on a consolidating basis and in
conformity with GAAP applied in a manner consistent with the
audit report referred to in preceding CLAUSES (A)(i), signed by
Borrower's chief financial officer.
(b) MONTHLY FINANCIAL STATEMENT. Within thirty (30)
days after the end of each month of each Fiscal Year of Borrower,
a copy of the unaudited financial statement of Borrower and the
Subsidiaries prepared on a consolidated basis and in conformity
with GAAP applied in a manner consistent with the audit report
referred to in preceding CLAUSE (A)(i), signed by Borrower's
chief financial officer and consisting of at least a balance
sheet as at the close of such month and an income statement and
cash flow statement for such month and for the period from the
beginning of such Fiscal Year to the close of such month,
compared, in each case, to the actual results for the same period
during the prior Fiscal Year and to Borrower's budget (delivered
pursuant to SECTION 5.1.1(c), for the current Fiscal Year.
(c) ANNUAL BUDGETS. Within thirty (30) days after the
end of each Fiscal Year of Borrower, a copy of an annual budget
for the current Fiscal Year, prepared on a consolidated basis and
in conformity with GAAP applied in a manner consistent with the
prior Fiscal Year's budget, signed by Borrower's chief financial
officer and consisting of at least a balance sheet, an income
statement and a cash flow statement, each calculated on a quarter
by quarter basis.
(d) OFFICER'S CERTIFICATE. Together with the
financial statements furnished by Borrower under the preceding
CLAUSES (a), and (b), a certificate of Borrower's chief
financial officer in the form of EXHIBIT C, dated the date of
such annual audit report or such monthly financial statement, as
the case may be, containing a statement that no Event of Default
or Unmatured Event of Default has occurred and is continuing, or,
if there is any such event, describing it and the steps, if any,
being taken to cure it, and containing a computation of, and
showing compliance with, each of the financial ratios and
restrictions contained in this SECTION 5 or in SUPPLEMENT A.
5.1.2 AGINGS. Within fifteen (15) days after the end of
each month, an aging of all Accounts Receivable and an aging of
all accounts payable of Borrower and the Borrowing Subsidiaries
as of the end of such month, in each case separated by region and
otherwise in form and content acceptable to Agent.
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5.1.3 INVENTORY CERTIFICATION. Within fifteen (15) days
after the end of each month, an Inventory certification report as
of the end of the month for all Inventory locations of Borrower
and the Borrowing Subsidiaries as of the end of such month, in
form and content acceptable to Agent.
5.1.4 OTHER REPORTS AND INFORMATION:
(a) SEC AND OTHER REPORTS. Copies of each filing and
report made by Borrower or any Subsidiary with or to any
securities exchange or the Securities and Exchange Commission
promptly upon the filing or making thereof;
(b) REPORT OF CHANGE RELATING TO BORROWER,
SUBSIDIARIES OR PARTNERSHIPS. Promptly from time to time, a
written report of any change in the information set forth in
SCHEDULE 4.1, SCHEDULE 4.10 or SCHEDULE 4.11 concerning Borrower,
any Subsidiary, or any partnership or joint venture;
(c) PATENTS, ETC. Within fifteen (15) days after the
end of each month, a written report of any change to the list of
patents, trademarks, copyrights and other information set forth
in SCHEDULE 4.16;
(d) OTHER INDEBTEDNESS NOTICES. On a weekly basis,
copies of any amendments, waivers or consents, notices of breach
or default, notices relating to the exercise or nonexercise of
any remedy available to any Person, notices of indemnity or other
claims, written materials relating to any dispute, written
materials relating to the exercise of any rights derived from or
arising in connection with any Indebtedness and other written
communications of a material nature, including any communications
by Borrower in connection with the Senior Loans or the
Subordinated Debt other than any such notice or other written
materials already sent to Agent pursuant to any other Section of
this Agreement;
(e) INTERCOMPANY LOANS. Within fifteen (15) days
after the end of each month, a list of all outstanding balances
of each Borrowing Subsidiary's Intercompany Loan as of the end of
such month, together with a list of all debits and credits with
respect thereto, in form and content acceptable to Agent;
(f) STOCK PURCHASE/ACQUISITIONS. Promptly from time
to time, copies of any agreements, instruments and documents and
any amendments, waivers or consents, notices of breach or
default, notices relating to the exercise or nonexercise of any
remedy available to any Person, notices of indemnity or other
claims, written materials relating to any dispute, written
materials relating to the exercise of any rights derived from or
arising in connection with the Stock Repurchase or any
Acquisition and other written communications of a material
nature, pertaining thereto; and
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(g) OTHER REPORTS. Any information required to be
provided pursuant to other provisions of this Agreement, and such
other reports or information from time to time reasonably
requested by Agent on behalf of itself or any Lender.
5.2 NOTICES. Notify Agent in writing of any of the
following within three (3) days after learning of the occurrence
thereof (or, in the case of CLAUSES (E)(i) and (ii) of this
SECTION 5.2, at least fifteen (15) days prior to the occurrence
thereof, or in the case of CLAUSES (E)(iii), (iv), (v), (vi) and
(vii) and (f) of this SECTION 5.2, at least thirty (30) days
prior to the occurrence thereof), describing the same and, if
applicable, the steps being taken by the Person(s) affected with
respect thereto:
(a) DEFAULT. The occurrence of (i) an Event of
Default or Unmatured Event of Default and (ii) to the
extent not included in CLAUSE (i) of this SECTION
5.2(a), the default by Borrower, any other Obligor or
any Subsidiary under any note, indenture, loan
agreement, mortgage, lease, deed or other similar
agreement to which Borrower, any other Obligor or any
Subsidiary, as appropriate, is a party or by which it
is bound (including without limitation any Senior Loan
Document or Subordinated Debt Document) that evidences
or secures Indebtedness in a principal amount in excess
of $_________, or where such default would be
reasonably likely to have a Material Adverse Effect;
(b) LITIGATION. The institution of any
litigation, arbitration proceeding or governmental
proceeding affecting Borrower, any other Obligor, any
Subsidiary or any Collateral, involving an amount in
controversy in excess of $100,000, whether or not
considered to be covered by insurance, or requesting
injunctive relief;
(c) JUDGMENT. The entry of any judgment or
decree against Borrower, any other Obligor or any
Subsidiary, if the amount of such judgment exceeds
$75,000;
(d) PENSION PLANS AND WELFARE PLANS. The occur-
rence of a Reportable Event with respect to any Pension
Plan; the filing of a notice of intent to terminate a
Pension Plan by Borrower or any ERISA Affiliate; the
institution of proceedings to terminate a Pension Plan
by the PBGC or any other Person; the withdrawal in a
"complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205, respectively, of
ERISA by Borrower or any ERISA Affiliate from any
Multiemployer Plan; the failure of Borrower or any
ERISA Affiliate to make a required contribution to any
Pension Plan, including but not limited to any failure
to pay an amount sufficient to give rise to a Lien
under Section 302(f) of ERISA; the taking of any action
with respect to a Pension
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Plan that could result in the requirement that Borrower
or any ERISA Affiliate furnish a bond or other security
to the PBGC or such Pension Plan; the occurrence of any
other event with respect to any Pension Plan that is
reasonably likely to have a Material Adverse Effect;
or, with respect to any "employee welfare benefit plan"
as defined in Section 3(l) of ERISA which covers former
employees thereof or current employees and their
beneficiaries with respect to claims incurred after the
termination of their employment, the establishment of a
new plan subject to ERISA or an amendment to any
existing plan which will result in a material increase
in contributions or benefits under such plan or the
incurrence of any material increase in the liability of
Borrower or an ERISA Affiliate to the extent there is
joint and several liability with Borrower or any other
Obligor or any Subsidiary;
(e) BUSINESS AND COLLATERAL INFORMATION. Any
change or proposed change in any of the information set
forth on SCHEDULE 4.10 or SCHEDULE 4.12, including but
not limited to (i) the formation of any new Subsidiary,
(ii) the consummation of any Acquisition, (iii) any
change in the location of any Inventory or any
Collateral to a location not included on such Schedule,
(iv) the identity of any new bailee, processor,
warehouseman or other Person in possession or control
of any Inventory or other Collateral, (v) any proposed
change in the location of Borrower's or any
Subsidiary's chief executive office or chief place of
business, (vi) any proposed opening, closing or other
change in the list of offices and other places of
business of Borrower and each Subsidiary and (vii) any
opening, closing or other change in the offices and
other places of business of each other Obligor;
(f) CHANGE OF NAME OR STATUS. Any change in the
name or address of Borrower, any Subsidiary or any
other Obligor;
(g) INSURANCE INFORMATION. Any material change
in the information set forth in SCHEDULE 4.7;
(h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS.
The occurrence of any event, or the acquisition of any
information which, if it had occurred or was true on or
before the Closing Date, would have been required to
have been disclosed and included on SCHEDULE 4.25,
including but not limited to existence of any
Environmental Lien and receipt of any notice from any
federal, state or local government or agency with
respect to any actual or alleged violation of any
Environmental Law or any Occupational Safety and Health
Law;
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(i) MATERIAL ADVERSE CHANGE. The occurrence of a
Material Adverse Change;
(j) DEFAULT BY OTHERS. Any default by any
Account Debtor or other Person obligated to Borrower,
any other Obligor, or any Subsidiary, under any
contract, chattel paper, note or other evidence of
amounts payable or due or to become due to Borrower,
such Obligor or Subsidiary, if the amount payable under
such contract, chattel paper, note or other evidence of
amounts payable or due or to become due is at least
$10,000;
(k) MOVEABLE COLLATERAL. If any of the
Collateral shall consist of goods of a type normally
used in more than one state (other than propane in
transit to the Subsidiaries' locations), whether or not
actually so used, any use of any such goods in any
state other than a state in which Borrower or a
Subsidiary shall have previously advised Agent such
goods will be used. Borrower agrees that such goods
will not, unless Agent shall otherwise consent in
writing, be used outside the continental United States;
(l) CHANGE IN OPERATING MANAGEMENT OR LINE(S) OF
BUSINESS. If any substantial change in the senior
management of Borrower, or any change occurs in Bor-
rower's or any Subsidiary's line(s) of business; and
(m) OTHER NOTICES. Any notices required to be
provided pursuant to any Related Agreement or the other
provisions of this Agreement, and notice of the occur-
rence of such other events as Agent may reasonably from
time to time specify.
5.3 EXISTENCE. Maintain and preserve, and cause each
Subsidiary to maintain and preserve, its respective existence as
a corporation or other form of business organization, as the case
may be, and all rights, privileges, licenses, patents, patent
rights, copyrights, trademarks, trade names, trade styles,
franchises and other authority to the extent material and
necessary for the conduct of its respective business in the
ordinary course as conducted from time to time.
5.4 NATURE OF BUSINESS. Engage in, and cause each
Subsidiary to engage in, substantially the same fields of
business as it is engaged in on the date hereof.
5.5 BOOKS, RECORDS AND ACCESS. Maintain, and cause
each Subsidiary to maintain, complete and accurate books and
records (including but not limited to records relating to
Accounts Receivable, Inventory, and other Collateral and
property), in which full and correct entries in conformity with
GAAP shall be made of all dealings and transactions in relation
to its respective
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business and activities, including without limitation complete
and accurate records of all debits and credits in respect of all
Intercompany Loans. Cause its books and records as at the end of
any calendar month to be posted and closed not more than thirty
(30) days after the last business day of such month. Permit, and
cause each Subsidiary to permit, access by Agent and each Lender
and its respective agents and employees to the books and records
of Borrower and such Subsidiary at Borrower's or such
Subsidiary's place or places of business at intervals to be
determined by Agent (but in the absence of an Event of Default no
more than five (5) times in any twelve (12) month period) upon
reasonable prior notice and during normal business hours and
without hindrance or delay, and permit and cause each Subsidiary
to permit Agent and each Lender and its respective agents and
employees to inspect the Real Property, Inventory and Equipment
and to inspect, audit, check and make copies and/or extracts from
the books, records, computer data and records, computer programs,
journals, orders, receipts, correspondence and other data
relating to Inventory, Accounts Receivable, and, any other
Collateral and property, or relating to any other transactions
between the parties hereto; provided, that after the occurrence
of an Event of Default, Agent and Lenders may have access to such
premises at such times as they desire, without having given prior
notice. Any and all such inspections, appraisals and/or audits
by Agent and its agents and employees shall be at Borrower's
expense, and Agent may advance same to Borrower as a Revolving
Loan.
5.6 INSURANCE. Maintain, and cause each Subsidiary to
maintain, insurance to such extent and against such hazards and
liabilities as is commonly maintained by companies similarly
situated. Keep the Collateral properly housed and insured for
its full insurable value (subject to customary deductibles)
against loss or damage by fire, theft, explosion, sprinklers and
such other risks as are customarily insured against by persons
engaged in business similar to that of Borrower or such
Subsidiary, as applicable, with such companies, in such amounts
and under policies in such form as shall be satisfactory to
Agent. Certificates of such policies of insurance have been
delivered to Agent prior to the date hereof together with
evidence of payment of all premiums therefor then due. Borrower
shall cause each issuer of an insurance policy for Borrower or
any Subsidiary to provide Agent, prior to the Closing Date, with
an endorsement or an independent instrument (a) substantially in
the form of EXHIBIT B or such other form and containing such
other terms as shall be acceptable to Agent and (b) showing loss
payable to Agent, for the benefit of itself and Lenders, with
respect to the Collateral and as its interest may appear and
naming Agent as an additional insured, for the benefit of itself
and Lenders. Borrower hereby directs all insurers under
Borrower's policies of insurance to pay all proceeds payable
thereunder directly to Lender, as its interest may appear.
Borrower appoints Agent and any Person whom Agent may from time
to time designate (and all officers, employees or agents
designated by Agent or such Person) as Borrower's true and lawful
attorney and
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agent-in-fact with power to make, settle and adjust all claims
under such policies of insurance in an amount of $100,000 or more
and all claims arising or in existence after the occurrence of an
Event of Default, and which relate to the Collateral, endorse the
name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such claims which are payable to
Agent or any Lender hereunder and make all determinations and
decisions with respect to such claims. The foregoing appointment
and power, being coupled with an interest, is irrevocable until
all Payment Liabilities under this Agreement are paid and
performed in full and this Agreement is terminated. In the event
Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required herein or to
pay any premium in whole or in part relating thereto when due,
then Agent, without waiving or releasing any obligation of or
default by Borrower hereunder, may at any time or times
thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and
take any other action with respect thereto which Agent deems
advisable. All sums so disbursed by Agent, including reasonable
Attorneys' Fees, court costs, expenses and other charges relating
thereto, shall be payable on demand by Borrower to Agent, and
Agent may, in its sole and absolute discretion, advance such sums
to Borrower as a Revolving Loan. Borrower shall cause each
Subsidiary to grant to Agent rights identical to those granted by
Borrower to Agent in respect of its insurance.
5.7 INSURANCE SURVEY. Provide to Agent and each
Lender at least annually within ninety (90) days of the end of
each of Borrower's Fiscal Years, a certificate signed by its
chief financial officer that attests to and summarizes the
property and casualty insurance program carried by Borrower and
the Subsidiaries. This summary shall include the insurer's(s')
name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, the annual premium(s), deductibles
and self-insured retention and shall describe any retrospective
rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by Borrower or any Subsidiary or
imposed upon Borrower or any Subsidiary by any such insurer, as
well as any self-insurance program that is in effect. Borrower
shall notify Agent in writing (a) at least twenty (20) days prior
to any cancellation or material change of any such insurance by
Borrower or any Subsidiary and (b) within five (5) Banking Days
after receipt of any notice (whether formal or informal) of any
cancellation or change in any of its insurance by any of its
insurers or any material change in the cost thereof.
5.8 REPAIR. Maintain, preserve and keep, and cause
each Subsidiary to maintain, preserve and keep, its properties in
good operating condition and repair, ordinary wear and tear
excepted, and from time to time make, and cause each Subsidiary
to make, all necessary and proper repairs, renewals,
replacements, additions, betterments and improvements thereto so
that at all times the
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efficiency thereof shall be fully preserved and maintained; and
at all times keep and cause each Subsidiary to keep its Equipment
in good operating condition and repair, ordinary wear and tear
excepted, and Borrower shall not and shall not permit any
Subsidiary to, without the prior written consent of Requisite
Lenders, sell, lease or otherwise dispose of any of its
Equipment, or any part thereof or interest therein; PROVIDED,
HOWEVER, that without Agent's or any Lender's consent (but with
notice to Agent) Borrower and each Subsidiary may dispose of
obsolete or unuseful Equipment in the ordinary course, PROVIDED
that the Equipment disposed of by Borrower and the Subsidiaries
in any Fiscal Year has an aggregate market value of $__________
or less.
5.9 TAXES. Pay, and cause each Subsidiary to pay,
when due, all of its Taxes, unless and only to the extent that
Borrower or such Subsidiary is contesting such Taxes in good
faith and by appropriate proceedings and Borrower or such
Subsidiary has set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP; not
file a consolidated tax return together with any other Person,
unless consented to in writing by Agent, except that Borrower and
the Subsidiaries may file consolidated returns; and not change
its Fiscal Year or tax year without Agent's prior written
consent.
5.10 COMPLIANCE. Comply, and cause each Subsidiary to
comply, with all statutes and governmental rules and regulations
applicable to it, except where the failure to so comply would not
be reasonably likely to have a Material Adverse Effect.
5.11 PENSION PLANS. Not permit, and not permit any
Subsidiary to permit, any condition to exist in connection with
any Pension Plan that might constitute grounds for the PBGC to
institute proceedings to have such Pension Plan terminated or a
trustee appointed to administer such Pension Plan; not fail, and
not permit any Subsidiary to fail, to make a required
contribution to any Pension Plan if such failure is sufficient to
give rise to a Lien under Section 302(f) of ERISA; and not engage
in, or permit to exist or occur, or permit any of the
Subsidiaries to engage in, or permit to exist or occur, any other
condition, event or transaction with respect to any Pension Plan
that is reasonably likely to result in a Material Adverse Effect.
5.12 MERGER, PURCHASE AND SALE. Not, and not permit
any Subsidiary to: (a) be a party to any merger, liquidation or
consolidation; (b) except for sales of Inventory in the normal
course of its business, sell, transfer, convey, lease or
otherwise dispose of its assets; (c) sell or assign, with or
without recourse, any Accounts Receivable, Contract Rights, notes
receivable or chattel paper, except as provided in this
Agreement; or (d) purchase or otherwise acquire all or
substantially all the stock or assets of any Person; provided,
that nothing herein shall prohibit the (i) merger of any
Borrowing Subsidiary with another Borrowing Subsidiary, (ii) any
sale of Equipment permitted by SECTION 5.8,
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(iii) purchase or other acquisition of all or substantially all
of the stock or assets of any Person unless such purchase or
other acquisition involves the incurrence of Indebtedness to the
seller thereof or unless the business being acquired is subject
to material actual or contingent liabilities, including without
limitation litigation or environmental matters and (iv) sale,
transfer, conveyance, lease or other disposition of all of the
capital stock of any Subsidiary or all or substantially all of
the assets of any Subsidiary if: (A) no Event of Default or
Unmatured Event of Default then exists or would exist after
giving effect to such transaction and the application of proceeds
thereof, and (B) Borrower delivers to Agent from the proceeds
thereof for application to the Loans in accordance with SECTION
2.10 an amount not less than the outstanding principal amount of
the Intercompany Loan of such Subsidiary, along with all accrued
interest thereon, as of the date of such transaction, PLUS the
amount, if any, of any Over Advance that would result from such
transaction after giving effect to the repayment of such
Intercompany Loan but before any other application of proceeds
thereof. Nothing in this Agreement shall be deemed to in any way
limit the right of the holders of the Senior Notes or their
representative to exercise any rights under the Senior Loan
Documents, although such exercise may constitute a breach of this
SECTION 5.12 or other Sections of this Agreement.
5.13 RESTRICTED PAYMENTS. Not, and not permit any
Subsidiary to, (a) purchase or redeem any shares of its stock or
any options or warrants therefor; (b) declare or pay any
dividends on any of its stock (other than dividends payable in
non-redeemable capital stock) or make any distribution to
stockholders as such or set aside any funds for any such purpose;
(c) make any voluntary prepayment, purchase or redemption of any
Senior Loans other than as expressly required by the terms of the
Senior Loan Documents; (d) except as permitted in any applicable
subordination or intercreditor agreements, or any subordination
terms contained within the applicable Subordinated Debt
Documents, pay, prepay, purchase or redeem any Subordinated Debt;
or (e) repay any amounts owing from time to time by any
Subsidiary to Borrower, exclusive of the Intercompany Loans;
provided, that if no Event of Default or Unmatured Event of
Default then exists and if the outstanding amount of the
Revolving Loans does not exceed the sum of the amounts described
in SECTIONS 2.2(i) and (ii) of SUPPLEMENT A, (i) any Borrowing
Subsidiary may pay dividends to Borrower from time to time, and
(ii) any Borrowing Subsidiary may repay any amounts owing from
time to time by such Borrowing Subsidiary to Borrower [other than
in respect of the Intercompany Loans].
5.14 BORROWER'S AND SUBSIDIARIES' STOCK. Not permit
any Subsidiary to purchase or otherwise acquire any shares of the
stock of Borrower, and not take any action, or permit any
Subsidiary to take any action, which will result in a decrease in
Borrower's or any Subsidiary's ownership interest in any
Subsidiary.
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5.15 INDEBTEDNESS. Not, and not permit any Subsidiary
to, incur or permit to exist any Indebtedness (including but not
limited to Indebtedness as lessee under Capitalized Leases),
except: (a) Indebtedness under the terms of this Agreement; (b)
Subordinated Debt; (c) other Indebtedness outstanding on the date
hereof and listed on SCHEDULE 5.15; (d) Indebtedness hereafter
incurred in connection with Liens permitted under SECTION
5.16(d); (e) Indebtedness in respect of the Senior Loans, with an
aggregate principal amount due upon maturity of not more than
$_________; (f) Indebtedness in respect of loans from Borrower to
a Borrowing Subsidiary, including without limitation any
Intercompany Loans the right to receive payment of which has been
assigned by Borrower to Agent, for the benefit of itself and
Lenders; (g) other unsecured Indebtedness not in excess of
$100,000 for Borrower and the Subsidiaries at any time
outstanding; and (h) other Indebtedness approved in writing by
Requisite Lenders.
5.16 LIENS. Not, and not permit any Subsidiary to,
create or permit to exist any Lien with respect to any property,
revenue or assets now owned or hereafter acquired, except: (a)
Liens for current Taxes not delinquent or Taxes being contested
in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by
GAAP are being maintained; (b) carriers', warehousemen's,
mechanics', materialmen's, repairmen's, and other like statutory
Liens arising in the ordinary course of business securing
obligations which are not overdue or which are being contested in
good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by
GAAP are being maintained; (c) pledges or deposits in connection
with workers' compensation, unemployment insurance and other
social security legislation; (d) Liens in connection with the
acquisition of personal property after the date hereof, by way of
purchase money mortgage, conditional sale or other title
retention agreement, Capitalized Lease or other deferred payment
contract, and attaching only to the property being acquired, if
(i) the Indebtedness secured thereby does not exceed seventy-five
percent (75%) of the fair market value of such property at the
time of the acquisition thereof, (ii) the Indebtedness secured by
any single piece of property does not exceed $100,000 and (iii)
the aggregate outstanding amount of such Indebtedness of Borrower
and the Subsidiaries does not exceed $1,000,000; (e) Liens in
favor of Agent, for the benefit of itself and Lenders; (f) Liens
on property of Borrowing Subsidiaries in favor of Borrower
securing the Intercompany Loans and assigned to Agent, for the
benefit of itself and Lenders; (g) Liens granted to the holders
of Senior Notes or their representative pursuant to the Senior
Loan Documents; (h) Liens referred to in SECTION 4.9; and (i)
Liens consented to in writing by Requisite Lenders.
5.17 GUARANTIES. Not, and not permit any Subsidiary
to, become or be a guarantor or surety of, or otherwise become or
be responsible in any manner (whether by agreement to purchase
any
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obligations, stock, assets, goods or services, or to supply or
advance any funds, assets, goods or services, or otherwise) with
respect to, any undertaking of any other Person, except for the
endorsement, in the ordinary course of collection, of instruments
payable to it or its order, except any guaranty in favor of
Agent, for the benefit of itself and Lenders and except for any
guaranty of the Senior Notes (in the form attached to the Senior
Loan Documents) executed by any Restricted Subsidiary.
5.18 INVESTMENTS. Not, and not permit any Subsidiary
to, make or permit to exist any Investment in any Person, except
for: (a) advances to employees of Borrower or any of the
Subsidiaries for travel or other ordinary business expenses
provided that the aggregate amount outstanding at any one time
shall not exceed $25,000 for any single employee and $75,000 in
the aggregate for all employees; (b) extensions of credit in the
nature of Accounts Receivable or notes receivable arising from
the sale of goods and services in the ordinary course of
business; (c) shares of stock, obligations or other securities
received in settlement of claims arising in the ordinary course
of business; (d) other Investments outstanding on the date hereof
and listed on SCHEDULE 5.18; (e) other Investments not in excess
of $50,000 in the aggregate for Borrower and the Subsidiaries;
(f) Investments made in the form of loans by Borrower to the
Borrowing Subsidiary, including without limitation the
Intercompany Loans, (g) Investments in the form of capital
contributions by Borrower in new and existing Subsidiaries with
funds not constituting proceeds of the Revolving Loans or the
Collateral and (h) other Investments consented to by Requisite
Lenders in writing.
5.19 SUBSIDIARIES. Except as provided in SECTION 5.12,
not, and not permit any Subsidiary to, acquire any stock or
similar interest in any Person, and not create, establish or
acquire any Subsidiaries; and not designate any Restricted
Subsidiary to be an "Unrestricted Subsidiary" (as defined in the
Senior Loan Documents), designate any Unrestricted Subsidiary to
be a Restricted Subsidiary or designate any Unrestricted
Subsidiary.
5.20 INTENTIONALLY OMITTED.
5.21 CHANGE IN ACCOUNTS RECEIVABLE. After the
occurrence of an Event of Default, not permit or agree to, or
permit any Subsidiary to permit or agree to, any extension,
compromise or settlement or make any change or modification of
any kind or nature with respect to any Account Receivable,
including any of the terms relating thereto.
5.22 ENVIRONMENTAL ISSUES. Provide such information
and certifications which Agent may reasonably request from time
to time pertaining to the environmental aspects of Borrower and
the Subsidiaries and any property owned, operated or controlled
by Borrower or any Subsidiary. In order to investigate
environmental aspects of Borrower and the Subsidiaries and their
properties,
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facilities and operations, Agent and its agents shall have the
right at any time to enter upon the property of Borrower or any
Subsidiary, take samples, review the books, records or other
documents of Borrower and the Subsidiaries, interview officers
and employees of Borrower or the Subsidiaries, and conduct such
other activities as Agent, in its sole discretion, deems
appropriate. Borrower shall, and shall cause the Subsidiaries
to, cooperate fully in the conduct of any such audit. Borrower
shall pay upon demand all costs and expenses (including
Attorney's Fees) connected with such audit; provided, that prior
to the occurrence of an Event of Default, Borrower shall be so
obligated with respect to no more than one such audit per annum.
Agent, may, in its discretion, provide for the payment of any
amount due from Borrower under this SECTION 5.22 by making
Borrower a Revolving Loan. Nothing in this SECTION 5.22, and no
actions taken by Agent or any Lender pursuant thereto, shall
give, or be construed as controlling, or giving to Agent or any
Lender the right or obligation to direct or control, the conduct
or action or inaction of Borrower or any Subsidiary with respect
to any environmental matters, including but not limited to those
pertaining to compliance with any Environmental Laws. Agent
agrees to share with Borrower the results of any such audit
conducted by a third party.
5.23 RELATED AGREEMENTS. Not enter into, or permit any
Subsidiary to enter into, any agreement containing any provision
which would be violated or breached by the performance by
Borrower or such Subsidiary of its obligations hereunder or under
any Related Agreement or any instrument or document delivered or
to be delivered by Borrower or such Subsidiary in connection
herewith.
5.24 UNCONDITIONAL PURCHASE OPTIONS. Not enter into or
be a party to, or permit any Subsidiary to enter into or be a
party to any contract for the purchase of materials, supplies or
other property or services, if such contract requires that
payment be made by it regardless of whether or not delivery is
ever made of such materials, supplies or other property or
services.
5.25 USE OF PROCEEDS. Not use or permit any proceeds
of the Loans or Letters of Credit to be used, either directly or
indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying" any Margin Stock, and
furnish to Agent upon request, a statement in conformity with the
requirements of Federal Reserve Form U-l referred to in
Regulation U of the Board of Governors of the Federal Reserve
System.
5.26 TRANSACTIONS WITH RELATED PARTIES. Not, and not
permit any Subsidiary to, (a) pay any management, consulting or
similar fees to any Related Party, whether for services rendered
to Borrower or any Subsidiary, or otherwise or (b) enter into or
be a party to any other transaction or arrangement, including
without limitation the purchase, sale, lease or exchange of
property or the rendering of any service, with any Related Party,
except in the ordinary course of and pursuant to the reasonable
requirements of
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Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to Borrower or such Subsidiary
than would obtain in a comparable arm's-length transaction with a
Person not a Related Party.
5.27 AMENDMENT OF DOCUMENTS. Not amend, modify or
alter, or permit to be amended, modified or altered, any Senior
Loan Document (other than a technical amendment that, pursuant to
the terms of the Subordinated Debt Documents, may be made by the
trustee for the holders of the Senior Notes without the consent
of such holders) or Subordinated Debt Document or any agreement,
instrument or document evidencing any of the Indebtedness listed
on SCHEDULE 5.15.
6. DEFAULT.
6.1 EVENT OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
(a) NON-PAYMENT. Default in the payment, when due or
declared due, of any of the Liabilities.
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. Default in the
payment when due, whether by acceleration or otherwise (subject
to any applicable grace period), of any Indebtedness of, or
guaranteed by, Borrower, any other Obligor or any Subsidiary with
a principal balance in excess of $___________ (other than (i) any
Indebtedness under this Agreement and any Notes or (ii) any
Indebtedness of any Subsidiary to Borrower or to any other
Subsidiary), including without limitation the Senior Loans and
the Subordinated Debt.
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or
condition shall occur which results in the acceleration of the
maturity of any Indebtedness of, or guaranteed by, Borrower, any
other Obligor or any Subsidiary with a principal balance in
excess of $__________ (other than (i) any Indebtedness of any
Subsidiary to Borrower or to any other Subsidiary and (ii) the
Indebtedness under this Agreement and any Notes), including
without limitation the Senior Loans and the Subordinated Debt, or
enables the holder or holders of such other Indebtedness or any
trustee or agent for such holders to accelerate the maturity of
such other Indebtedness.
(d) OTHER OBLIGATIONS. Default in the performance or
observance (subject to any applicable grace period or waiver of
such default) of (i) any obligation or agreement of Borrower, any
other Obligor or any Subsidiary to or with Agent or any Lender
(other than any obligation or agreement of Borrower hereunder and
under any Notes) or (ii) any obligation or agreement of Borrower,
any other Obligor or any Subsidiary to or with any other Person
(other than (x) any such obligation or agreement constituting or
related to Indebtedness, (y) Trade Accounts Payable or (z) any
obligation or agreement of any Subsidiary to Borrower or to any
other Subsidiary), if such default would be reasonably likely to
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have a Material Adverse Effect, except only to the extent that
the existence of any such default is being contested by Borrower,
such other Obligor or such Subsidiary, as the case may be, in
good faith and by appropriate proceedings and Borrower, such
other Obligor or such Subsidiary, as applicable, shall have set
aside on its books such reserves or other appropriate provisions
therefor as may be required by GAAP.
(e) BANKRUPTCY. Borrower, any other Obligor or any
Subsidiary applies for, consents to, or acquiesces in the
appointment of a trustee, receiver or other custodian for
Borrower, such other Obligor or such Subsidiary, or for a
substantial part of the property of Borrower, such other Obligor
or such Subsidiary, or makes a general assignment for the benefit
of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed
for Borrower, any other Obligor or any Subsidiary, or for a
substantial part of the property of Borrower, any other Obligor
or any Subsidiary and is not discharged or dismissed within sixty
(60) days; or any bankruptcy, reorganization, debt arrangement or
other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by or
against Borrower, any other Obligor or any Subsidiary; or any
warrant of attachment or similar legal process is issued against
any substantial part of the property of Borrower, any other
Obligor or any Subsidiary. Notwithstanding the foregoing, none
of the foregoing events that occurs with respect to a Subsidiary
shall constitute an Event of Default, unless such event would be
reasonably likely to have a Material Adverse Effect.
(f) INSOLVENCY. Borrower, any other Obligor or any
Subsidiary becomes insolvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they mature.
(g) ERISA LIABILITIES. Any of the following events
shall have occurred, if such event is reasonably likely to have a
Material Adverse Effect: (i) the existence of a Reportable
Event, (ii) the withdrawal of Borrower or any ERISA Affiliate
from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the occurrence of an obligation to provide affected parties
with a written notice of intent to terminate a Pension Plan in a
distress termination under Section 4041 of ERISA, (iv) the
institution by PBGC of proceedings to terminate any Pension Plan,
(v) any event or condition that would require the appointment of
a trustee to administer a Pension Plan, (vi) the withdrawal of
Borrower or any ERISA Affiliate from a Multiemployer Plan, and
(vii) any event that would give rise to a Lien under Section
302(f) of ERISA.
(h) NON-COMPLIANCE WITH THIS AGREEMENT. Default in
the performance of any of Borrower's agreements set forth in
SECTION 3.2, 3.3, 5.5, 5.6, 5.12 through 5.19, 5.21 through 5.27
or in SECTION 6 of SUPPLEMENT A hereto (and not constituting an
Event of
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Default under any of the other subsections of this SECTION 6.1)
and continuance of such default for ten (10) days after the
occurrence thereof; or default in the performance of any of
Borrower's agreements set forth in SECTION 5.1.1, 5.1.2, 5.1.3,
5.1.4 or 5.2 (and not constituting an Event of Default under any
of the other subsections of this SECTION 6.1), and continuance of
such default for five (5) days after the occurrence thereof; or
default in the performance of any of Borrower's other agreements
herein set forth (and not constituting an Event of Default under
any of the other subsections of this SECTION 6.1), and
continuance of such default for thirty (30) days after notice
thereof to Borrower by Agent.
(i) NON-COMPLIANCE WITH RELATED AGREEMENTS. Default
in the performance by Borrower, any other Obligor or any
Subsidiary of any of its agreements set forth in any Related
Agreement (and not constituting an Event of Default under any of
the other subsections of this SECTION 6.1), and continuance of
such default after notice from Agent and the expiration of the
grace or cure period (if any) set forth therein.
(j) REPRESENTATIONS AND WARRANTIES. Any
representation or warranty made by Borrower or any other Obligor
herein or in any Related Agreement is untrue or misleading in any
material respect when made or deemed made; or any schedule,
statement, report, notice, certificate or other writing furnished
by Borrower or any other Obligor to Agent or any Lender is untrue
or misleading in any material respect on the date as of which the
facts set forth therein are stated or certified; or any
certification made or deemed made by Borrower or any other
Obligor to Agent or any Lender is untrue or misleading in any
material respect on or as of the date made or deemed made.
(k) LITIGATION. There shall be entered against any
one of Borrower, any other Obligor or any Subsidiary one or more
judgments or decrees in excess of $500,000 in the aggregate at
any one time outstanding, excluding those judgments or decrees
(i) that shall have been outstanding less than thirty (30)
calendar days from the entry thereof, (ii) for and to the extent
which Borrower, such Obligor or such Subsidiary, as applicable,
is insured and with respect to which the insurer has assumed
responsibility in writing or for and to the extent which
Borrower, such Obligor or such Subsidiary, as applicable, is
otherwise indemnified if the terms of such indemnification are
satisfactory to Agent or (iii) which have been stayed pending
appeal and with respect to which Borrower, such Obligor or such
Subsidiary has posted the appropriate bond or letter of credit.
(l) TERMINATION OF OBLIGATIONS. If any Obligor shall
terminate any of its obligations to Agent or any Lender in
respect of the Liabilities.
(m) VALIDITY. If the validity or enforceability of
this Agreement or any Related Agreement shall be challenged by
Borrower
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or any other Obligor, or if this Agreement or any Related
Agreement shall fail to remain in full force and effect.
(n) CONDUCT OF BUSINESS. If Borrower, any other
Obligor or any Subsidiary is enjoined, restrained or in any way
prevented by court order, which has not been dissolved or stayed
within five (5) Banking Days, from conducting all or any material
part of its business affairs and such event might have a Material
Adverse Effect.
(o) CHANGE OF CONTROL. If Paul S. Lindsey, Jr., and
members of his immediate family cease to retain among them record
and beneficial ownership of not less than a majority of the
outstanding voting stock of Borrower on a fully diluted basis; or
if any "Change of Control" (as defined in the Senior Loan
Documents) occurs which results in an obligation of Borrower to
commence a "Change of Control Offer" pursuant to the terms of the
Senior Loan Documents.
(p) MATERIAL ADVERSE CHANGE. Agent shall have deter-
mined in good faith that a Material Adverse Change has occurred.
6.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default
described in SECTION 6.1(e) shall occur, then each Lender's
commitment and the Credit extended under this Agreement shall
terminate and all Liabilities hereunder and under any Notes shall
be immediately due and payable without demand, notice or declara-
tion of any kind whatsoever.
(b) In the event an Event of Default other than one
described in SECTION 6.1(e) shall occur, at the option of Agent
or Requisite Lenders, each Lender's commitment shall terminate
and all Liabilities hereunder and under any Notes shall
immediately be due and payable without demand or notice of any
kind whatsoever, whereupon the Credit extended under this
Agreement shall terminate. Agent shall promptly advise Borrower
of any such declaration, but failure to do so shall not impair
the effect of such declaration.
(c) In the event of the occurrence of any Event of
Default, Agent may exercise any one or more or all of the
following remedies, all of which are cumulative and non-
exclusive:
(i) Any remedy contained in this Agreement or in
any of the Related Agreements or any Supplemental
Documentation;
(ii) Any rights and remedies available to Agent or
any Lender under the UCC, and any other applicable law;
(iii) To the extent permitted by applicable law,
Agent may, without notice, demand or legal process of
any
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kind, take possession of any or all of the Collateral
(in addition to Collateral which it may already have in
its possession), wherever it may be found, and for that
purpose may pursue the same wherever it may be found,
and may enter into any premises where any of the
Collateral may be or is supposed to be, and search for,
take possession of, remove, keep and store any of the
Collateral until the same shall be sold or otherwise
disposed of, and Agent shall have the right to store
the same in any of Borrower's premises without cost to
Agent;
(iv) At Agent's request, Borrower will, at Bor-
rower's expense, assemble the Collateral and make it
available to Agent at a place or places to be
designated by Agent which is reasonably convenient to
Agent and Borrower; and
(v) Agent at its option, and pursuant to
notification given to Borrower as provided for below,
may sell any Collateral actually or constructively in
its possession at public or private sale and apply the
proceeds thereof as provided below.
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND AGENT'S
RIGHTS.
7.1 NOTICE OF DISPOSITION OF COLLATERAL. Any
notification of intended disposition of any of the Collateral
required by law shall be deemed reasonably and properly given if
given at least five (5) calendar days before such disposition.
7.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any
proceeds of any disposition by Agent of any of the Collateral may
be applied by Agent to the payment of expenses in connection with
the taking possession of, storing, preparing for sale, and
disposition of Collateral, including Attorneys' Fees and legal
expenses, and any balance of such proceeds may be applied by
Agent toward the payment of such of the Liabilities, and in such
order of application, as Agent may from time to time elect.
7.3 CARE OF COLLATERAL. Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any
Collateral in its possession if it takes such action for that
purpose as Borrower requests in writing, but failure of Agent to
comply with such request shall not, of itself, be deemed a
failure to exercise reasonable care, and no failure of Agent to
preserve or protect any rights with respect to such Collateral
against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by Borrower,
shall be deemed a failure to exercise reasonable care in the
custody or preservation of such Collateral.
7.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. Agent
shall have the right, but shall not be obligated, to discharge
any claims
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or Liens against, and any Taxes at any time levied or placed upon
any or all Collateral, including without limitation those arising
under statute or in favor of landlords, taxing authorities,
government, public and/or private warehousemen, common and/or
private carriers, processors, finishers, draymen, coopers,
dryers, mechanics, artisans, laborers, attorneys, courts, or
others. Agent may also pay for maintenance and preservation of
Collateral. Agent may, but is not obligated to, perform or
fulfill any of Borrower's responsibilities under this Agreement
which Borrower has failed to perform or fulfill. Agent may
advance to Borrower as a Revolving Loan any payment made or
expense incurred under this SECTION 7.4.
7.5 AGENT'S RIGHTS. None of the following shall
affect the obligations of Borrower or any Subsidiary to Agent or
any Lender under this Agreement or Agent's right with respect to
the remaining Collateral (any or all of which actions may be
taken by Agent at any time, whether before or after an Event of
Default, at its sole and absolute discretion and without notice
to Borrower):
(a) acceptance or retention by Agent or any
Lender of other property or interests in property as
security for the Liabilities, or acceptance or
retention of any Obligor(s), in addition to Borrower,
with respect to any of the Liabilities;
(b) release of its Lien on, or surrender or
release of, or the substitution or exchange of or for,
all or any part of the Collateral or any other property
securing any of the Liabilities (including but not
limited to any property of any Obligor other than
Borrower), or any extension or renewal for one or more
periods (whether or not longer than the original
period), or release, compromise, alteration or
exchange, of any obligations of any guarantor or other
Obligor with respect to any Collateral or any such
property;
(c) extension or renewal for one or more periods
(whether or not longer than the original period), or
release, compromise, alteration or exchange of any of
the Liabilities, or release or compromise of any
obligation of any Obligor with respect to any of the
liabilities; or
(d) failure by Agent or any Lender to resort to
other security or pursue any Person liable for any of
the Liabilities before resorting to the Collateral.
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER
MATTERS.
8.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTERS
OF CREDIT. The obligation of each Lender that is a party to this
Agreement on the date hereof to make the initial Loans and for
Issuing Bank to issue the initial Letters of Credit is subject to
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satisfaction of the following conditions precedent (in addition
to those provided in SECTION 8.2):
8.1.1 LEGAL AUDIT. Each Lender's counsel shall have
completed its legal due diligence relating to Borrower, each
Subsidiary, and each other Obligor, the results of which shall
provide such Lender with results and information which, in such
Lender's sole determination, are satisfactory to permit such
Lender to enter into the secured financing transaction described
in this Agreement and the Related Agreements. Such due diligence
examination may include but need not be limited to an analysis of
all of Borrower's, each Subsidiary's, and each other Obligor's
business operations, affairs, conditions, assets, liabilities and
commitments (including without limitation analysis of contingent
liabilities, environmental and health and safety matters,
material contracts, labor matters, union contracts, employee
benefit plans, pending or threatened litigation and tax matters).
8.1.2 LIENS. The Liens on the Collateral granted under
this Agreement and the Related Agreements and all other Liens
granted to Agent, for the benefit of itself and Lenders, to
secure the Liabilities, shall be senior, perfected Liens, except
for the Liens disclosed on SCHEDULE 4.9 which are designated as
senior to the Liens of Agent, and except as otherwise agreed by
Agent and Lenders, and all financing statements and other
documents relating to Collateral shall have been filed or
recorded, as appropriate.
8.1.3 TRANSACTIONS. (i) Borrower shall have issued the
Units, such Units and the Senior Loan Documents shall in all
respects be satisfactory to each Lender, the net proceeds of such
Units, in an amount not less than $95,000,000, shall have been
received by Borrower and the proceeds thereof shall have been
used by Borrower in substantially the manner described in the
"Use of Proceeds" section of the effective Registration Statement
for the Units (the "Prospectus"), (ii) the Stock Repurchase shall
have been consummated in accordance with the terms of the
applicable agreements and all applicable laws, (iii) Borrower
shall have acquired the assets of PSNC Propane Corporation, and
(iv) the merger of Energy Gas Operating Corporation and Borrower
shall have been consummated, all as described in the Prospectus
and all pursuant to agreements, instruments and documents in form
and substance satisfactory to each Lender (the transactions
referred to in CLAUSES (i), (ii), (iii) and (iv) are hereinafter
referred to as the "Transactions").
8.1.4 SOLVENCY. Each Lender shall be satisfied that,
after giving effect to the Transactions, and the initial Loans
and Letters of Credit, Borrower, each Subsidiary and each other
Obligor shall have assets (excluding goodwill and other
intangible assets not capable of valuation) having a value, both
at present fair salable value and at fair valuation, greater than
the amount of such Person's liabilities (including trade debt and
Indebtedness to Agent and Lenders). Each Lender shall be
satisfied that all of the
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assets supporting the Loans and Letters of Credit under this
Agreement shall be sufficient in value to provide Borrower and
each Subsidiary with sufficient cash flow and working capital to
enable it to thereafter profitably operate its business and to
meet its obligations as they become due. Each Lender shall be
satisfied that Borrower and each Subsidiary has adequate capital
for the business in which it is about to engage. In connection
with the foregoing, each Lender shall have received such written
appraisals, balance sheets, solvency certificates or other
materials as Agent shall reasonably request.
8.1.5 MAXIMUM INITIAL LOANS. There shall be no Loans
made on the Closing Date in excess of $2,000,000.
8.1.6 ORGANIZATION. Each Lender shall be satisfied with
the corporate, capital and legal structures of Borrower and the
Subsidiaries, and the terms of any agreements, documents or
instruments relating thereto.
8.1.7 EFFECT OF LAW. No law or regulation affecting
Agent's or any Lender's entering into the secured financing
transaction contemplated by this Agreement shall impose upon
Agent or such Lender any material obligation, fee, liability,
loss, penalty, cost, expense or damage.
8.1.8 EXHIBITS; SCHEDULES. All Exhibits and Schedules
to this Agreement shall have been completed and submitted to each
Lender, shall be in form and substance satisfactory to such
Lender and shall contain no facts or information which such
Lender, in its sole judgment, determines to be unacceptable.
8.1.9 LICENSES, PERMITS AND CONSENTS. All licenses,
permits, consents, judicial and regulatory approvals and
corporate action necessary to consummate the Transactions and the
making of the initial Loans and the issuance of the initial
Letters of Credit shall have been obtained on terms acceptable to
each Lender.
8.1.10 FEES. If not funded with the proceeds of the
initial Loans, Agent shall have received the closing fee referred
to in SECTION 2.14 and any other fees due and payable by Borrower
or any other Person on the funding of the initial Loans and the
issuance of the initial Letters of Credit.
8.1.11 TITLE TO ASSETS. Borrower and its Subsidiaries
shall have good, indefeasible and merchantable title to the
Collateral, free and clear of all Liens, except as otherwise
permitted in SECTION 5.16 hereof.
8.1.12 MATERIAL ADVERSE CHANGE; LITIGATION. No Material
Adverse Change, as reasonably determined by each Lender, shall
have occurred from March 31, 1994 through the Closing Date and
the issuance of the initial Letters of Credit and no Material
Adverse Change, as reasonably determined by such Lender, shall
have
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occurred in the facts and information disclosed to such Lender or
otherwise relied upon by such Lender in making its decision to
enter into this Agreement. In addition, there shall not have
been instituted or threatened any litigation or proceedings in
any court or administrative forum affecting or threatening to
affect the consummation of the Transactions or which would have a
Material Adverse Effect, in each case as reasonably determined by
each Lender.
8.1.13 DOCUMENTS. In addition to this Agreement, each
Lender shall have received all of the following, each duly
executed where appropriate and dated as of the Closing Date (or
such other date as shall be satisfactory to Agent), in form, and
containing terms and provisions, acceptable to such Lender:
(a) RESOLUTIONS. A copy, duly certified by the
secretary or an assistant secretary of Borrower of (i)
resolutions of the Board of Directors of Borrower
authorizing (A) the borrowings by Borrower hereunder,
(B) the execution, delivery and performance by Borrower
of this Agreement and each Related Agreement to which
Borrower is a party or by which it is bound, and (C)
certain officers or employees of Borrower to request
borrowings by telephone and to execute Borrowing Base
Certificates, and the consent of the shareholders of
Borrower thereto, (ii) all documents evidencing any
other necessary corporate action with respect to this
Agreement and the Related Agreements, (iii) all
approvals or consents, if any, with respect to this
Agreement and the Related Agreements, (iv) a list of
the names of all officers and directors of Borrower,
together with the true signatures of such officers, and
specifying those authorized to sign this Agreement and
the Related Agreements, (v) the by-laws of Borrower,
(vi) the Certificate of Incorporation of Borrower and
(vii) a list of all shareholders of Borrower and the
number of shares of Borrower's stock owned by each; and
similar certificates executed by the secretary or
assistant secretary of each Borrowing Subsidiary or
other Obligor;
(b) BORROWER'S CLOSING CERTIFICATE. The certifi-
cate of the President or Chairman of the Board of
Borrower certifying to the fulfillment of all
conditions precedent to closing (other than those
solely under the control of Agent and Lenders), and
funding the secured financing transaction contemplated
by this Agreement, to the truth and accuracy, as of
such date, of the representations and warranties of
Borrower contained in this Agreement and each Related
Agreement to which Borrower is a party or by which it
is bound and to the absence of any defaults under any
such agreements;
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(c) CERTIFICATES AND ARTICLES OF INCORPORATION.
A copy, duly certified by the Secretary of State of
Missouri, of Borrower's Certificate of Incorporation;
and a copy, duly certified by the Secretary of State of
the applicable state, of each Borrowing Subsidiary's
and other Obligor's Articles or Certificates of
Incorporation, as applicable;
(d) GOOD STANDING. A copy, duly certified by the
applicable Secretary of State of (i) a certificate of
good standing issued by the Secretary of the State of
each state where Borrower, any Borrowing Subsidiary or
any other Obligor is incorporated or organized and (ii)
in any state in which Borrower, any Borrowing
Subsidiary or any other Obligor is doing business under
an assumed name, a certificate or other document issued
by the Secretary of State of each such state evidencing
Borrower's, any Borrowing Subsidiary's or any other
Obligor's authority to use such name;
(e) LEGAL OPINION. Legal opinion from Wilmer,
Cutler & Pickering, counsel for Borrower and the
Subsidiaries;
(f) INSURANCE. Evidence satisfactory to Agent of
the existence of insurance on the Collateral and
business of Borrower and each Subsidiary, in amounts
and with insurers acceptable to Agent, together with
evidence establishing that Agent, for the benefit of
itself and Lenders, is named as the sole loss payee
with respect to property and casualty insurance
covering the Collateral, and additional insured with
respect to liability insurance;
(g) AUTHORIZATION TO PAY PROCEEDS. Written
authorization and instructions from Borrower, in form
satisfactory to Agent, for disbursement of the proceeds
of the initial Loans and issuance and delivery of the
initial Letters of Credit;
(h) INTERCOMPANY LOANS. The agreements, instru-
ments and documents governing the Intercompany Loans
shall have been executed and delivered by Borrower and
the Subsidiaries, such agreements, instruments and
documents shall be in form and substance satisfactory
to each Lender, and the liens and security interests
granted to secure such indebtedness shall have been
properly perfected;
(i) LANDLORD'S AGREEMENTS. A landlord's
agreement, duly executed by the owner of each leased
premise identified by Agent;
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(j) OTHER RELATED AGREEMENTS. Notes in the
aggregate amount of $15,000,000 with respect to the
Revolving Loans executed by Borrower; and a Solvency
Certificate executed by Borrower;
(k) SUBSIDIARY GUARANTY. Each Subsidiary shall
have entered into a guaranty in favor of Agent, for the
benefit of itself and Lenders, pursuant to which such
Subsidiary shall have unconditionally guaranteed the
Liabilities;
(l) SUBSIDIARY SECURITY AGREEMENT. Each
Subsidiary shall have entered into a security agreement
with Agent, for the benefit of itself and Lenders,
pursuant to which such Subsidiary shall have granted to
Agent, for the benefit of itself and Lenders, a
security interest in the accounts receivable,
inventory, and certain other assets of such Subsidiary
as collateral for the guaranty described in CLAUSE (k)
above; and
(m) OTHER DOCUMENTS. Such other documents as
Lenders shall determine, in their sole discretion, to
be necessary or desirable.
8.1.14 DEFAULT. No Event of Default or Unmatured Event
of Default shall have occurred and be continuing or would be
caused thereby.
8.2 CONTINUING CONDITIONS PRECEDENT TO ALL LOANS;
CERTIFICATION. The obligation of each Lender to make the initial
Loans and each subsequent Loan and to establish any LIBOR Rate
Loans, and for Issuing Bank to issue the initial Letters of
Credit and each subsequent Letter of Credit, is subject to
satisfaction of the following conditions precedent in addition to
those provided in SECTION 8.1:
(a) NO CHANGE IN CONDITION. No change in the
condition or operations, financial or otherwise, of
Borrower, any Subsidiary or any other Obligor, shall
have occurred which change, in the reasonable credit
judgment of Requisite Lenders, is reasonably likely to
have a Material Adverse Effect;
(b) DEFAULT. Before and after giving effect to
such Loan and/or Letter of Credit, no Event of Default
or Unmatured Event of Default shall have occurred and
be continuing;
(c) INSURANCE. There shall have been no material
change, or notice of prospective material change
(whether such notice is formal or informal), in the
nature, extent, scope or cost of the insurance policies
of Borrower or any Subsidiary listed on SCHEDULE 4.7
which
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change would have a Material Adverse Effect, or would
significantly adversely affect Borrower's or any
Subsidiary's ability to perform its obligations under
this Agreement, any Note(s), or any Related Agreement
to which it is a party or by which it is bound;
(d) REPRESENTATIONS AND WARRANTIES. Before and
after giving effect to such Loan and/or Letter of
Credit, the representations and warranties in SECTION 4
shall be true and correct as though made on the date of
such Loan and/or Letter of Credit, except for such
changes as are specifically permitted hereunder, and
except for the representation and warranty contained in
SECTION 4.26 with regard to the truthfulness and
correctness of all representations and warranties
contained in any agreement evidencing any of the
Transactions (which representations and warranties are
only being made as of the date hereof); and
(e) ACCOUNTING METHODS. Borrower shall not have
made any material (as determined by Agent) change in
its accounting methods or principles except as required
by GAAP.
Each request for a Loan or a Letter of Credit hereunder made or
deemed to have been made by Borrower shall be deemed to be a
certificate of Borrower as to the matters set out in the
foregoing provisions of this SECTION 8.2.
9. INDEMNITY.
9.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY.
Borrower hereby indemnifies Agent and each Lender and agrees to
hold Agent and each Lender harmless from and against any and all
losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including without
limitation court costs and Attorneys' Fees) which at any time or
from time to time may be paid, incurred or suffered by, or
asserted against, Agent or any Lender for, with respect to, or as
a direct or indirect result of the violation by Borrower or any
of the Subsidiaries of any Environmental Law or Occupational
Safety and Health Law, or with respect to, or as a direct or
indirect result of (a) the presence on or under, or the Release
from, properties utilized by Borrower and/or any Subsidiary in
the conduct of its business into or upon any land, the atmo-
sphere, or any watercourse, body of water or wetland, of any
Hazardous Material or the escape, seepage, leakage, spillage,
disposal, discharge, emission or release of any other hazardous
or toxic waste, substance or constituent, or other substance
(including without limitation any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any
Environmental Law) or (b) the existence of any unsafe or
unhealthful condition on or at any premises utilized by Borrower
and/or any Subsidiary in the conduct
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of its business, in either case, except for any such amounts
owing as a direct result of the gross negligence or willful
misconduct of Agent or any Lender. The provisions of and
undertakings and indemnification set out in this SECTION 9.1
shall survive satisfaction and payment of the Liabilities and
termination of this Agreement.
9.2 GENERAL INDEMNITY. In addition to the payment of
expenses pursuant to SECTION 12.3, whether or not the
transactions contemplated hereby shall be consummated, Borrower
agrees to indemnify, pay and hold Agent and each Lender, and the
officers, directors, employees, agents, and affiliates of each of
Agent and each Lender (collectively, the "Indemnitees") harmless
from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature
whatsoever (including without limitation the reasonable fees and
disbursements of counsel for any of such Indemnitees in
connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto) that may be
imposed on, incurred by, or asserted against any Indemnitee, in
any manner relating to or arising out of this Agreement or any
Related Agreement, the statements contained in any commitment
letter delivered by Agent or any Lender, Agent's or any Lender's
agreement to make the Loans or to issue Letters of Credit
hereunder, the use or intended use of any Letters of Credit, or
the use or intended use of the proceeds of any of the Loans
hereunder (the "indemnified liabilities"); PROVIDED that Borrower
shall have no obligation to an Indemnitee hereunder with respect
to indemnified liabilities arising from the gross negligence or
willful misconduct of such Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it violates any
law or public policy, Borrower shall contribute the maximum
portion that it is permitted to pay under applicable law to the
payment and satisfaction of all indemnified liabilities incurred
by the Indemnitees or any of them. The provisions of the
undertakings and indemnification set out in this SECTION 9.2
shall survive satisfaction and payment of the Liabilities and
termination of this Agreement.
9.3 CAPITAL ADEQUACY. If Agent or any Lender shall
reasonably determine that the application or adoption of any law,
rule, regulation, directive, interpretation, treaty or guideline
regarding capital adequacy, or any change therein or in the
interpretation or administration thereof, whether or not having
the force or law (including without limitation application of
changes to Regulation H and Regulation Y of the Federal Reserve
Board issued by the Federal Reserve Board on January 19, 1989 and
regulations of the Comptroller of the Currency, Department of the
Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of
the Currency on January 27, 1989) increases the amount of capital
required or expected to be maintained by Agent or such Lender or
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any Person controlling Agent or such Lender in excess of any such
increases affecting Agent or such Lender as of the date hereof,
and such increase is based upon the existence of Agent's or such
Lender's obligations hereunder and other commitments of this
type, then from time to time, within ten (10) days after demand
from Agent or such Lender, Borrower shall pay to Agent or such
Lender, as applicable, such amount or amounts as will compensate
Agent or such Lender or such controlling Person, as the case may
be, for such increased capital requirement. The determination of
any amount to be paid by Borrower under this SECTION 9.3 shall
take into consideration the policies of Agent or such Lender or
any Person controlling Agent or such Lender with respect to
capital adequacy and shall be based upon any reasonable
averaging, attribution and allocation methods. A certificate of
Agent or such Lender, as applicable, setting forth the amount or
amounts as shall be necessary to compensate Agent or such Lender
as specified in this SECTION 9.3 shall be delivered to Borrower
and shall be conclusive in the absence of manifest error.
10. AGENT.
10.1 APPOINTMENT OF AGENT. Each Lender hereby irrevoc-
ably appoints and authorizes Continental to act as its Agent
under this Agreement and the Related Agreements. Each Lender
hereby irrevocably appoints and authorizes Agent to take such
action on such Lender's behalf under the provisions of this
Agreement and the Related Agreements and to exercise such powers
and perform such duties under this Agreement and the Related
Agreements as are specifically delegated to Agent by the terms
hereof and thereof, together with such other powers as are
reasonably incidental hereto and thereto. Agent may perform any
of its duties hereunder or under the Related Agreements by or
through its agents or employees. The provisions of this SECTION
10 are solely for the benefit of Agent and Lenders, and neither
Borrower nor any Obligor shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the Related
Agreements, Agent shall act solely as agent of Lenders and does
not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for Borrower or
any Obligor.
10.2 NATURE OF DUTIES OF AGENT. Agent shall have no
duties, obligations or responsibilities except those expressly
set forth in this Agreement and the Related Agreements. Neither
Agent nor any of its officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such
hereunder or under the Related Agreements or in connection
herewith or therewith, unless caused by its or their gross
negligence or willful misconduct. The duties of Agent shall be
mechanical and administrative in nature; Agent shall not have by
reason of this Agreement or the Related Agreements a fiduciary
relationship in respect of any Lender; and nothing in this
Agreement or the Related Agreements, expressed or implied, is
intended to or shall be so
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construed as to impose upon Agent any obligations in respect of
this Agreement or the Related Agreements except as expressly set
forth herein or therein. No duty to act, or refrain from acting,
and no other obligation whatsoever, shall be implied on the basis
of or imputed in respect of any right, power or authority granted
to Agent or shall become effective in the event of any temporary
or partial exercise of such rights, power or authority.
10.3 AGENT IN ITS CAPACITY AS LENDER. With respect to
its obligation to lend under this Agreement and the Related
Agreements, the Loans made by it and its participation in Letters
of Credit, Agent shall have the same rights and powers under this
Agreement and the Related Agreements as any Lender and may
exercise the same as though it were not Agent, and the terms
"Lender" or "Lenders" shall, unless the context otherwise
indicates, include Agent in its capacity as a Lender hereunder.
Agent, any Lender and their respective affiliates may accept
deposits from, lend money to, and generally engage in any kind of
banking or trust business with Borrower, or Related Parties of
Borrower, as if it were not Agent or as if it or they were not a
Lender hereunder and without any duty to account therefor to the
other parties to this Agreement; provided, that the obligations
of Borrower under such transactions shall not be deemed to be
Liabilities or secured by any Collateral without the prior
written agreement of the Requisite Lenders; provided, further
that Lenders acknowledge and agree that the obligations of
Borrower to Continental or any other Lender as Issuing Bank and
with respect to any lockbox or bank account maintained by or for
the benefit of Borrower, including the Demand Deposit Account,
the Depository Accounts, and the Assignee Deposit Account, shall
be deemed to be Liabilities secured by the Collateral.
10.4 INDEPENDENT CREDIT ANALYSIS. Each Lender agrees
that it has, independently and without reliance upon Agent, any
other Lender, or the directors, officers, agents, attorneys or
employees of Agent or of any other Lender, and instead in
reliance upon information supplied to it by or on behalf of
Borrower, made its own independent credit analysis and decision
to enter into this Agreement and the Related Agreements to which
it is a party, and that it shall independently and without
reliance upon Agent, any other Lender, or the directors,
officers, agents, attorneys or employees of Agent or of any other
Lender, continue to make its own independent credit analysis and
decisions in acting or not acting under this Agreement and the
Related Agreements. Except as otherwise expressly provided
herein, Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to provide any Lender with
any credit or other information concerning the affairs, financial
condition, litigation, liabilities, or business of Borrower or
any other Obligor which may at any time come into the possession
of Agent (or any of its affiliates). In the event such
information is furnished to any Lender by Agent, Agent shall have
no duty to confirm or verify its accuracy or
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completeness and shall have no liability whatsoever with respect
thereto.
10.5 GENERAL IMMUNITY. Neither Agent nor any of its
directors, officers, agents, attorneys or employees shall be
liable to any Lender for any action taken or omitted to be taken
by it or them under this Agreement or the Related Agreements or
in connection herewith or therewith except for its or their own
willful misconduct or gross negligence. Without limiting the
generality of the foregoing, Agent: (i) shall not be responsible
to Lenders for any recitals, statements, warranties or
representations under this Agreement or the Related Agreements or
any agreement or document relative hereto or thereto or for the
financial or other condition of any Obligor, (ii) shall not be
responsible for the authenticity, accuracy, completeness, value,
validity, effectiveness, due execution, legality, genuineness,
enforceability, collectibility or sufficiency of this Agreement
or the Related Agreements or any other agreements or any
assignments, certificates, requests, financial statements,
projections, notices, schedules or opinions of counsel executed
and delivered pursuant hereto or thereto, (iii) shall not be
bound to ascertain or inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or
the Related Agreements on the part of Obligors or of any of the
terms of any such agreement by any party hereto or thereto and
shall have no duty to inspect the property (including the books
and records) of any Obligor, (iv) shall have no obligation
whatsoever to Lenders or to any other Person to assure that the
Collateral exists or is owned by Borrower or another Obligor or
is cared for, protected or insured or that the Liens granted to
Agent herein or in Related Agreements or pursuant hereto or
thereto have been properly or sufficiently or lawfully created,
perfected, protected, enforced, realized upon or are entitled to
any particular priority, and (v) shall incur no liability under
or in respect of this Agreement or the Related Agreements or any
other document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram, cable,
telex, telecopier or similar form of facsimile transmission)
believed by Agent to be genuine and signed or sent by the proper
party. Agent may consult with legal counsel (including counsel
for Borrower), independent public accountants and other experts
selected by Agent and shall not be liable for any action taken or
omitted to be taken in good faith in accordance with the advice
of such counsel, accountants or experts.
10.6 ACTION BY AGENT.
(a) ACTUAL KNOWLEDGE. Agent may assume that no Event
of Default has occurred and is continuing, unless Agent has
actual knowledge of the Event of Default, has received notice
from Borrower or Borrower's independent certified public
accountants stating the nature of the Event of Default, or has
received notice from a Lender stating the nature of the Event of
Default and that
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such Lender considers the Event of Default to have occurred and
to be continuing.
(b) DISCRETION TO ACT. Agent shall have the right to
request instructions from Requisite Lenders by notice to each
Lender. If Agent shall request instructions from Requisite
Lenders with respect to any act or action (including the failure
to act) in connection with this Agreement or any Related
Agreement, Agent shall be entitled to refrain from such act or
taking such action unless and until Agent shall have received
instructions from Requisite Lenders, and Agent shall not incur
liability to any Person by reason of so refraining. Without
limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or
refraining from acting hereunder or under any Related Agreement
in accordance with the instructions of Requisite Lenders. Agent
may give any notice required under SECTION 6 hereof without the
consent of any of Lenders unless otherwise directed by Requisite
Lenders in writing and will, at the direction of Requisite
Lenders, give any such notice required under SECTION 6. Except
for any obligation expressly set forth in this Agreement or the
Related Agreements, Agent may, but shall not be required to,
exercise its discretion to act or not act, except that Agent
shall be required to act or not act upon the instructions of
Requisite Lenders (unless all of Lenders are required to provide
such instructions as provided in SECTION 12.6) and those instruc-
tions shall be binding upon Agent and all Lenders; PROVIDED that
Agent shall not be required to act or not act if to do so would
expose Agent to liability or would be contrary to this Agreement
or any Related Agreements or to applicable law.
10.7 RIGHT TO INDEMNITY. Agent shall be fully
justified in failing or refusing to take any action under this
Agreement or the Related Agreements or in relation hereto or
thereto unless it shall first be indemnified (upon requesting
such indemnification) to its satisfaction by Lenders against any
and all liability and expense which it may incur by reason of
taking or continuing to take any such action. Lenders further
agree to indemnify Agent ratably in accordance with their Pro
Rata Shares for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against Agent in any way
relating to or arising out of this Agreement or the other Related
Agreements or the transactions contemplated hereby or thereby, or
the enforcement of any of the terms hereof or thereof or of any
other documents; provided no such liability, obligation, loss,
damage, penalty, action, judgment, suit, cost, expense or
disbursement results from Agent's gross negligence or willful
misconduct. Each Lender agrees to reimburse Agent in the amount
of its Pro Rata Share of any out-of-pocket expenses for which
Agent is entitled to receive, but has not received, reimbursement
pursuant to this Agreement. The agreements in this SECTION 10.7
shall survive the payment and fulfillment of the Liabilities and
termination of this Agreement.
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10.8 RIGHTS AND REMEDIES TO BE EXERCISED BY AGENT ONLY.
In the event any remedy may be exercised with respect to this
Agreement or the Related Agreements or the Collateral, Agent
shall pursue remedies designated by Requisite Lenders subject to
the proviso set forth in SECTION 10.6(b). Each Lender agrees
that no Lender shall have any right individually (a) to realize
upon the security created by this Agreement or the Related
Agreements, (b) enforce any provision of this Agreement or the
Related Agreements, or (c) make demand under this Agreement or
the Related Agreements; provided, that any Lender that is an
Issuing Bank may make demand upon Borrower as the Issuing Bank
pursuant to SECTIONS 2.2(b) and 2.2(c) and Continental may make
demand upon Borrower pursuant to SECTION 12.4. Without limiting
the foregoing, no Lender shall have any right individually to
take any action or provide any notice in connection with any
Subordinated Debt.
10.9 AGENT'S RESIGNATION. Agent may resign at any time
after giving at least thirty (30) days' prior written notice of
its intention to do so to each Lender and to Borrower. Upon
satisfaction of the foregoing condition, Requisite Lenders shall
have the right to appoint a successor Agent (such appointment to
be subject to the consent of Borrower (which consent of Borrower
shall not be unreasonably withheld or delayed); provided, that
Borrower's consent shall not be required if a Lender is appointed
Agent). If no successor Agent shall have been so appointed and
shall have accepted such appointment within twenty (20) days
after Agent's giving of such notice of resignation, then the
resigning Agent may appoint a successor Agent. After any
resigning Agent's resignation hereunder as Agent, it shall be
discharged from its duties and obligations under this Agreement
but the provisions of this SECTION 10 shall continue to bind
Agent and inure to Agent's benefit as to any actions taken or
omitted to be taken by it while it was Agent hereunder. Upon
appointment of a successor Agent, the term "Agent" shall for all
purposes of this Agreement thereafter mean such successor.
10.10 DISBURSEMENT OF PROCEEDS OF LOANS AND OTHER
ADVANCES. Agent may (and is hereby irrevocably authorized by
Lenders), but shall have no duty to make such other disbursements
and advances as Revolving Loans on behalf of Lenders, including
without limitation the making of advances for the expenditures
described in SECTION 7.4 of this Agreement, which Agent, in its
sole discretion, deems necessary or desirable to preserve or
protect the Collateral, or any portion thereof. Agent's use of
its own checks upon its funds or Agent's transfer of its own
funds, by wire or otherwise, to an account of Borrower or any
other Obligor shall be deemed to be disbursements made by each
Lender under this Agreement and pursuant to the Related
Agreements.
10.11 RELEASE OF COLLATERAL. Each Lender hereby
irrevocably authorizes Agent, at its option and in its
discretion, to release any Lien granted to or held by Agent upon
any Collateral and all guaranties of the Liabilities (i) upon
termination of
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Lenders' obligations to make Loans and payment and satisfaction
of all Loans, Letter of Credit reimbursement obligations and all
other Payment Liabilities and which Agent has been notified in
writing are then due and payable; (ii) constituting Collateral
being sold or disposed of if Borrower certifies to Agent that the
sale or disposition is made in compliance with the terms of this
Agreement (and, absent any actual knowledge of Agent to the
contrary, Agent may rely conclusively on any such certificate,
without further inquiry); (iii) constituting property in which
Borrower or any other Obligor owned no interest at the time the
Lien was granted and at all times thereafter; or (iv) if
approved, authorized or ratified in writing by Agent at the
direction of all Lenders. Upon request by Agent at any time,
each Lender will confirm in writing Agent's authority to release
particular types or items of Collateral pursuant to this SECTION
10.11.
10.12 AGREEMENT TO COOPERATE. Each Lender agrees to
cooperate to the end that the terms and provisions of this
Agreement may be promptly and fully carried out. Lenders also
agree, from time to time, at the request of Agent, to execute and
deliver any and all other agreements, documents or instruments
and to take such other actions, all as may be reasonably
necessary or desirable to effectuate the terms, provisions and
intent of this Agreement and the Related Agreements.
10.13 SHARING OF COLLATERAL. If any Lender shall obtain
any payment (whether voluntary, involuntary, through exercise of
any right of set off, or otherwise) on account of the Liabilities
in excess of the amount to which it is entitled pursuant to this
Agreement, such Lender shall forthwith purchase from the other
Lenders such participations in such other Lenders' claims against
Borrower as shall be necessary to cause such purchasing Lender to
share the excess payment with the other Lenders in accordance
with the provisions of this Agreement; provided, that if all or
any portion of such excess payment is thereafter recovered from
such purchasing Lender, such purchase from such other Lender
shall be rescinded and such other Lenders shall repay to the
purchasing Lender the purchase price to the extent of their
portion of such recovery together with an amount equal to the
share (according to the proportion of (i) the amount of such
other Lenders' required repayment, to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other
amount paid or payable by purchasing Lender in respect of the
total amount recovered.
10.14 LENDERS TO ACT AS AGENTS. If any Collateral or
proceeds thereof at any time comes into the possession or under
the control of any Lender, such Lender shall hold such Collateral
or proceeds thereof as agent for the joint benefit of Lenders,
and will, upon receipt therefor, deliver such Collateral or
proceeds thereof to Agent.
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11. ADDITIONAL PROVISIONS.
Additional provisions are set forth in SUPPLEMENT A.
12. GENERAL.
12.1 BORROWER WAIVER. Except as otherwise provided for
in this Agreement, Borrower waives (a) presentment, demand and
protest and notice of presentment, protest, default, non-payment,
maturity, release, compromise, settlement, one or more extensions
or renewals of any or all commercial paper, accounts, contract
rights, documents, instruments, chattel paper and guaranties at
any time held by Agent or any Lender on which Borrower may in any
way be liable and hereby ratifies and confirms whatever Agent or
any Lender may do in this regard; (b) all rights to notice and a
hearing prior to Agent's or any Lender's taking possession or
control of, or Agent's or any Lender's replevy, attachment or
levy on or of, the Collateral or any bond or security which might
be required by any court prior to allowing Agent or any Lender to
exercise any of Agent's or any Lender's remedies; and (c) the
benefit of all valuation, appraisement and exemption laws.
Borrower acknowledges that it has been advised by counsel of its
choice with respect to this Agreement and the transactions
evidenced by this Agreement.
12.2 POWER OF ATTORNEY. Borrower appoints Agent, or
any Person whom Agent may from time to time designate, as
Borrower's attorney and agent-in-fact with power (which
appointment and power, being coupled with an interest, is
irrevocable until all Payment Liabilities under this Agreement
are paid and performed in full and this Agreement is terminated),
without notice to Borrower, to:
(a) At such time or times hereafter as Agent or
said agent, in its sole and absolute discretion, may
determine in Borrower's or Agent's name (i) endorse
Borrower's name on any checks, notes, drafts or any
other items of payment relating to and/or proceeds of
the Collateral which come into the possession of Agent
or under Agent's control and apply such payment or
proceeds to the Liabilities; (ii) endorse Borrower's
name on any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar
document or agreement in Agent's possession relating to
Accounts Receivable, Inventory or any other Collateral;
(iii) after the occurrence of an Event of Default, use
the information recorded on or contained in any data
processing equipment and computer hardware and software
to which Borrower has access relating to Accounts
Receivable, Inventory and/or other Collateral; (iv)
after the occurrence of an Event of Default, use
Borrower's stationery and sign the name of Borrower to
verification of Accounts Receivable and notices thereof
to Account Debtors; and (v) if not done by Borrower, do
all acts and things determined by Agent
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to be necessary, to fulfill Borrower's obligations
under this Agreement; and
(b) At such time or times after the occurrence of
an Event of Default, as Agent or said agent, in its
sole and absolute discretion, may determine, in
Borrower's or Agent's name: (i) demand payment of the
Accounts Receivable; (ii) enforce payment of the
Accounts Receivable, by legal proceedings or otherwise;
(iii) exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts
Receivable and other Collateral; (iv) settle, adjust,
compromise, extend or renew the Accounts Receivable;
(v) settle, adjust or compromise any legal proceedings
brought to collect the Accounts Receivable; (vi) if
permitted by applicable law, sell or assign the
Accounts Receivable and/or other Collateral upon such
terms for such amounts and at such time or times as
Agent may deem advisable; (vii) discharge and release
the Accounts Receivable and/or other Collateral; (viii)
prepare, file and sign Borrower's name on any proof of
claim in bankruptcy or similar document against any
Account Debtor; (ix) prepare, file and sign Borrower's
name on any notice of lien, assignment or satisfaction
of lien or similar document in connection with the
Accounts Receivable and/or other Collateral; and (x) do
all acts and things necessary, in Agent's sole and
absolute discretion, to obtain repayment of the
Liabilities and to fulfill Borrower's other obligations
under this Agreement.
12.3 EXPENSES; ATTORNEYS' FEES. Borrower agrees,
whether or not any Loan is made or Letter of Credit is issued
hereunder, to pay upon demand all Attorneys' Fees and all other
reasonable expenses incurred by Agent at any time, including
fees, costs and expenses incurred in connection with Collateral
field audits or other due diligence investigations by Agent and
all Attorneys' Fees and other reasonable expenses incurred by any
Lender after the occurrence of an Event of Default. For purposes
of this Agreement, "Attorneys' Fees" means the reasonable value
of the services (and costs, charges and expenses related thereto)
of the attorneys (and all paralegals and any outside consultants
employed by such attorneys) employed by Agent or any Lender
(including but not limited to attorneys and paralegals who are
employees of Agent or any Lender) from time to time (a) in
connection with the negotiation, preparation, execution,
delivery, administration, syndication, participation, assignment
and enforcement of this Agreement, any Related Agreement, any
Supplemental Documentation and all other documents or instruments
provided for herein or in any thereof or delivered or to be
delivered hereunder or under any thereof or in connection
herewith or with any thereof, (b) to prepare documentation
related to the Loans made and other Liabilities incurred
hereunder, (c) to prepare any amendment to or waiver under this
Agreement or any Related Agreement and any documents or
instruments
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related thereto, (d) to represent Agent or any Lender in any
litigation, contest, dispute, suit or proceeding or to commence,
defend or intervene in any litigation, contest, dispute, suit or
proceeding or to file a petition, complaint, answer, motion or
other pleading, or to take any other action in or with respect
to, any litigation, contest, dispute, suit or proceeding (whether
instituted by Agent or any Lender, Borrower or any other Person
and whether in bankruptcy or otherwise) in any way or respect
relating to the Collateral, this Agreement or any Related
Agreement (other than any litigation, contest, dispute, suit or
proceedings involving a dispute between Agent and any Lender or
between any Lender and any other Lender), or Borrower's or any
other Obligor's or any Subsidiary's affairs, (e) to protect,
collect, lease, sell, take possession of, or liquidate any of the
Collateral, (f) to perfect or attempt to enforce any security
interest in any of the Collateral or to give any advice with
respect to such enforcement and (g) to enforce any of Agent's or
any Lender's rights to collect any of the Liabilities. Agent may
advance all such amounts to Borrower as a Revolving Loan.
Borrower also agrees (y) to indemnify and hold Agent and each
Lender harmless from any loss or expense which may arise or be
created by the acceptance of telephonic or other instructions for
making Loans or issuing Letters of Credit and (z) to pay, and
save Agent and each Lender harmless from all liability for, any
stamp or other taxes which may be payable with respect to the
execution or delivery of this Agreement, or any Related Agreement
or Supplemental Documentation, or the issuance of any Note or of
any other instruments or documents provided for herein or to be
delivered hereunder or in connection herewith. Borrower's
foregoing obligations shall survive any termination of this
Agreement.
12.4 CONTINENTAL'S FEES AND CHARGES. Borrower agrees
to pay Continental on demand by Continental the customary fees
and charges of Continental for maintenance of accounts with
Continental or for providing other services to Borrower
(including fees, costs, and expenses incurred in connection with
Collateral field audits or other due diligence investigations)
and if not so paid, each Lender shall, without regard to any
other provision of this Agreement or any other Related Agreement
or any defense that Borrower may have to its obligation to pay
Continental in connection with such fees and charges, pay
Continental for such Lender's Pro Rata Share of such fees and
charges, and any payments so made by Lenders to Continental shall
be deemed to be Revolving Loans. Each Lender (other than
Continental) acknowledges and agrees that it shall not be
entitled to any of the fees and charges of Continental as
provided in the immediately preceding sentence. Agent may, in
its sole and absolute discretion, provide for such payment by
advancing the amount thereof to Borrower as a Revolving Loan.
12.5 LAWFUL INTEREST. In no contingency or event
whatsoever shall the interest rate charged pursuant to the terms
of this Agreement exceed the highest rate permissible under any
law which a court of competent jurisdiction shall, in a final
deter-
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mination, deem applicable hereto. In the event that such a court
determines that any Lender has received interest hereunder in
excess of the highest applicable rate, such Lender shall promptly
refund its Pro Rata Share of such excess interest to Borrower.
12.6 NO WAIVER BY AGENT OR ANY LENDER; AMENDMENTS. No
failure or delay on the part of Agent or any Lender in the
exercise of any power or right, and no course of dealing between
Borrower and Agent or any Lender shall operate as a waiver of
such power or right, nor shall any single or partial exercise of
any power or right preclude other or further exercise thereof or
the exercise of any other power or right. The remedies provided
for herein are cumulative and not exclusive of any remedies which
may be available to Agent or any Lender at law or in equity. No
notice to or demand on Borrower not required hereunder shall in
any event entitle Borrower to any other or further notice or
demand in similar or other circumstances or constitute a waiver
of the right of Agent or any Lender to any other or further
action in any circumstances without notice or demand. No
amendment, modification or waiver of, or consent with respect to,
any provision of this Agreement or any Related Agreement shall in
any event be effective unless the same shall be in writing and
signed and delivered by Requisite Lenders. Notwithstanding the
foregoing, any amendment, modification, termination, waiver or
consent with respect to any of the following provisions of this
Agreement shall be effective only by a written agreement, signed
by each Lender affected thereby: (a) increase in the amount of
the Maximum Loan Amount of such Lender, (b) reduction of the
principal of, rate or amount of interest on the Revolving Loans
or any fees or charges (including, without limitation, any Letter
of Credit fees or charges) payable to such Lender (other than by
the payment or prepayment thereof), (c) postponement of the date
fixed for any payment of principal of, or interest on, the Loans
or any fees or charges) (including, without limitation, any
Letter of Credit fees or charges) or other amounts payable to
such Lender, (d) change in the aggregate Pro Rata Share of
Lenders which shall be required for Lenders or any of them to
take action hereunder or amend the definition of "REQUISITE
LENDERS," or (e) amendment of this SECTION 12.6. Agent may, but
shall have no obligation to, with the written concurrence of any
Lender, execute amendments, modifications, waivers or consents on
behalf of that Lender. Any waiver of any provision of this
Agreement, and any consent to any departure by Borrower from the
terms of any provision of this Agreement, shall be effective only
in the specific instance and for the specific purpose for which
given.
12.7 TERMINATION OF REVOLVING CREDIT. The Termination
Date and each Lender's commitment to make Loans hereunder may be
extended for successive one (1)-year periods by written agreement
among Borrower and each Lender executed at least ninety (90) days
prior to a scheduled Termination Date. Borrower may terminate
the Revolving Credit at any time upon notice to Agent and payment
in full of the outstanding principal balance of the Loans and all
other Payment Liabilities under this Agreement and the Related
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Agreements, as provided in SECTION 2.1.2. All of Agent's and
each Lender's rights and remedies, the Liens of Agent on the
Collateral, for the benefit of itself and Lenders, and all of
Borrower's duties and obligations under this Agreement shall
survive termination of the Credit extended to Borrower hereunder
until all of the Payment Liabilities hereunder have been finally
paid and performed in full. The termination or cancellation of
the Credit shall not affect or impair the liabilities and
obligations of Borrower or any one or more of the Obligors to
Agent and Lenders or Agent's and each Lender's rights with
respect to any Loans and advances made and other Liabilities
incurred prior to such termination or with respect to the
Collateral. Upon termination of the Revolving Credit and
repayment of the Payment Liabilities, Agent will promptly release
all of its Liens on the Collateral and all guaranties of the
Liabilities.
12.8 NOTICES. Except as otherwise expressly provided
herein, any notice hereunder to Borrower, Agent or any Lender
shall be in writing (including facsimile communication) and shall
be given to Borrower, Agent or such Lender at its address or
facsimile number set forth on the signature pages hereof or at
such other address or facsimile number as Borrower, Agent or such
Lender may, by written notice, designate as its address or
facsimile number for purposes of notices hereunder. All such
notices shall be deemed to be given when transmitted by
facsimile, delivered by courier, personally delivered or, in the
case of notice by mail, three (3) Banking Days following deposit
in the United States mails, properly addressed as herein
provided, with proper postage prepaid; provided, however, that
notice to Agent of Borrower's intent to terminate the Credit
shall not be effective until actually received by Agent.
12.9 ASSIGNMENTS AND PARTICIPATIONS; INFORMATION.
(a) This Agreement may not be assigned by Borrower
without the prior written consent of Agent and Lenders. Whenever
in this Agreement reference is made to any of the parties hereto,
such reference shall be deemed to include, wherever applicable, a
reference to the successors and permitted assigns of Borrower and
the successors and assigns of Agent and each Lender.
(b) Borrower and each Lender hereby agree that on or
after the date hereof, Continental may, in its discretion,
without Borrower's or any other Lender's consent, sell one or
more assignments of portions of its interest in the Credit. Each
sale described in the preceding sentence shall be to a Person or
Persons satisfactory to Continental, in its discretion, and on
such terms and conditions as Continental may determine. No other
Lender may sell any portion of its interest in the Credit without
the consent of Borrower and Agent, which consent will not be
unreasonably withheld.
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(c) Each assignment of an interest hereunder shall be
subject to the following conditions: (i) each assignment shall
be of a constant, and not a varying, ratable percentage of all of
the assigning Lender's rights and obligations under this
Agreement, and the Maximum Loan Amount assigned shall be in a
minimum amount of $5,000,000 and after giving effect to such
assignment no Lender's Maximum Loan Amount shall be less than
$5,000,000 (unless such Lender sells all of its interest in the
Credit), and (ii) the parties to each such assignment shall
execute and deliver to Agent, for its acceptance and recording in
the Register, an Assignment and Acceptance Agreement, with a copy
to Borrower. Upon such execution, delivery, acceptance and
recording in the Register, from and after the effective date
specified in each Assignment and Acceptance Agreement and agreed
to by Agent, (x) the assignee thereunder shall, in addition to
any rights and obligations hereunder held by it immediately prior
to such effective date, if any, have the rights and obligations
hereunder that have been assigned to it pursuant to such
Assignment and Acceptance Agreement and shall, to the fullest
extent permitted by law, have the same rights and benefits
hereunder as if it were an original Lender hereunder and (y) the
assigning Lender shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment
and Acceptance Agreement, relinquish its rights and be released
from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance Agreement covering all or the remaining
portion of such assigning Lender's rights and obligations under
this Agreement, the assigning Lender shall cease to be a party
hereto).
(d) Agent shall maintain a copy of each Assignment and
Acceptance Agreement delivered to and accepted by it and a
register (the "Register") for the recordation of the names and
addresses of Lenders and the Maximum Loan Amount and principal
amount of the Loans owing to each Lender from time to time. The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and Borrower, Agent and Lenders
may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
Agreement executed by the assigning Lender and the assignee and a
processing and recordation fee of $2,500 (payable by the
assigning Lender or the assignee, as shall be agreed between
them), Agent shall, if such Assignment and Acceptance Agreement
has been completed and is in compliance with this Agreement and
in substantially the form of EXHIBIT D and Agent has consented to
the assignment evidenced thereby, (i) accept such Assignment and
Acceptance Agreement, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to
Borrower.
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(f) Each Lender may sell participations to one or more
other financial institutions in or to all or a portion of its
rights and obligations under and in respect of any and all
facilities under this Agreement; PROVIDED, HOWEVER, that (i) such
Lender's obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii)
Borrower, Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (iv)
such participant's rights to agree or to restrict such Lender's
ability to agree to the modification, waiver or release of any of
the terms of this Agreement or the Related Agreements or to the
release of any Collateral covered by this Agreement or the
Related Agreements, to consent to any action or failure to act by
any party to this Agreement or any of the Related Agreements, or
to exercise or refrain from exercising any powers or rights which
any Lender may have under or in respect of this Agreement or the
Related Agreements or any Collateral, shall be limited to the
right to consent to (A) an increase in the Maximum Loan Amount of
Lender from whom such participant purchased a participation, (B)
reduction of the principal of, or rate or amount of interest on
the Loans subject to such participation (other than by the
payment or prepayment thereof) or (C) postponement of any date
fixed for any payment of principal of, or interest on, the Loans
subject to such participation.
(g) Any Lender may, in connection with any assignment
or participation or proposed assignment or participation pursuant
to this SECTION 12.9, disclose to the assignee or participant or
proposed assignee or participant, any information relating to
Borrower or its Subsidiaries furnished to such Lender by or on
behalf of Borrower; PROVIDED that, prior to any such disclosure,
such assignee or participant, or proposed assignee or
participant, shall agree to preserve the confidentiality of any
confidential information described therein and such Lender shall
notify Borrower of the assignee or participant, or proposed
assignee or participant.
(h) Anything in this Agreement to the contrary
notwithstanding, in the case of any participation, all amounts
payable by Borrower under this Agreement or the Related
Agreements shall be calculated and made in the manner and to the
parties required hereby as if no such participation had been
sold.
(i) Agent agrees to promptly notify Borrower of each
sale of a participation or permitted assignment hereunder.
Borrower agrees to use its best efforts to assist Lenders in
their efforts to sell assignments and participations hereunder.
In addition, Borrower agrees to execute new Notes in favor of
each of the selling and purchasing Lender, upon each sale of an
assignment hereunder, provided that the existing Notes in favor
of the selling Lender are simultaneously therewith returned to
Borrower.
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12.10 SEVERABILITY. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.11 SUCCESSORS. This Agreement shall be binding upon
each of Borrower, Agent and each Lender and their respective
successors and permitted assigns, and shall inure to the benefit
of each of Borrower, Agent and each Lender and their respective
successors and permitted assigns.
12.12 CONSTRUCTION. Borrower acknowledges that this
Agreement shall not be binding upon Agent or any Lender or become
effective until and unless accepted by Agent or such Lender, as
applicable, in writing. If so accepted by Agent or any Lender,
this Agreement and the Related Agreements and Supplemental
Documents shall, unless otherwise expressly provided therein, be
deemed to have been negotiated and entered into in, and shall be
governed and controlled by the laws of, the State of Illinois as
to interpretation, enforcement, validity, construction, effect,
choice of law, and in all other respects, including but not
limited to the legality of the interest rate and other charges,
but excluding perfection of security interests and liens which
shall be governed and controlled by the laws of the relevant
jurisdiction.
12.13 CONSENT TO JURISDICTION. To induce Agent and each
Lender to accept this Agreement, Borrower irrevocably agrees
that, subject to Agent's sole and absolute election, ALL ACTIONS
OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR
FROM OR RELATED TO THIS AGREEMENT, THE RELATED AGREEMENTS, OR THE
SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED
IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF
ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON BORROWER, AND AGREES THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT
THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
12.14 SUBSIDIARY REFERENCE. Any reference herein to a
Subsidiary or Subsidiaries of Borrower, and any financial defini-
tion, ratio, restriction or other provision of this Agreement
which is stated to be applicable to "Borrower and the
Subsidiaries" or which is to be determined on a "consolidated" or
"consolidating" basis, shall apply only to the extent Borrower
has any Subsidiaries and, where applicable, to the extent any
such Subsidiaries are consolidated with Borrower for financial
reporting purposes.
12.15 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH
LENDER EACH WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
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PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS
AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM
ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first written above.
EMPIRE GAS CORPORATION
By__________________________________
Title_____________________________
Address: 1700 South Jefferson
Street
Lebanon, Missouri 65536
Telecopier Number: (___) ___-____
Attention: ____________
CONTINENTAL BANK N.A.
By__________________________________
Title_____________________________
Address: 231 South LaSalle Street
Chicago, Illinois 60697
Telecopier Number: (312) 828-6647
Attention: Business Credit Group
Maximum Loan Amount: $15,000,000
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS:
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Accountant's Letter
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance Agreement
SCHEDULES:
Schedule 4.1 Schedule of Tradenames, State of Incorporation &
Qualification
Schedule 4.7 Insurance Summary
Schedule 4.8 Schedule of Litigation and Contingent Liabilities
Schedule 4.9 Schedule of Liens
Schedule 4.10 Schedule of Subsidiaries
Schedule 4.11 Schedule of Partnerships and Joint Ventures
Schedule 4.12 Schedule of Business and Collateral Locations
Schedule 4.16 Schedule of Patents, Trademarks and Copyrights
Schedule 4.18 Schedule of Labor Matters
Schedule 4.19 Schedule of Contingent Employee Benefit Plan
Liabilities
Schedule 4.21 Schedule of Noncompliance
Schedule 4.22 Schedule of Proposed Tax Assessments
Schedule 4.25 Schedule of Environmental Matters
Schedule 4.27 Schedule of Capitalized Lease Obligations
Schedule 5.15 Schedule of Indebtedness
Schedule 5.18 Schedule of Investments
<PAGE>
SUPPLEMENT A
to
LOAN AND SECURITY AGREEMENT
Dated as of June __, 1994 among
Empire Gas Corporation,
Continental Bank N.A., as Agent and a Lender,
and the other Lenders Party Thereto
1. LOAN AGREEMENT REFERENCE. This Supplement A, as it may be amended or
modified from time to time, is a part of the Loan and Security Agreement dated
as of June __, 1994 among Borrower, Agent and Lenders (together with all
amendments, modifications and supplements thereto, the "Loan Agreement"). Terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Loan Agreement.
2. REVOLVING CREDIT AMOUNT; BORROWING BASE.
2.1 REVOLVING CREDIT AMOUNT. The maximum amount of Revolving Loans
which Lenders will make available to Borrower (such amount is herein called the
"Revolving Credit Amount") is $15,000,000.
2.2 BORROWING BASE. The term "Borrowing Base," as used herein, shall
mean:
(i) an amount equal to up to 85% of the net
amount (after deduction of such reserves and allowances
as Agent deems proper and necessary in its reasonable
judgment) of Eligible Accounts Receivable ("Accounts
Receivable Availability"); PLUS
(ii) an amount equal to the least of (a)
$8,000,000, (b) 150% of Accounts Receivable
Availability and (c) up to 60% (after deduction of such
reserves and allowances as Agent deems proper and
necessary in its reasonable judgment) of Eligible
Inventory; PLUS
(iii) during the period commencing on August 1, 1994 and ending
on January 31, 1995, $3,000,000; PLUS
(iv) during the period commencing on August 1, 1995 and ending on
January 31, 1996, $1,500,000.
2.3 AGENT'S AND LENDERS' RIGHTS. Borrower agrees that nothing
contained in SUPPLEMENT A (i) shall be construed as Agent's or any Lender's
agreement to resort or look to a particular type or item of Collateral as
security for any specific Loan or portion of the Liabilities or advance or in
any way limit Agent's or any Lender's right to resort to any or all of the
Collateral as security for any of the Liabilities, (ii) shall be deemed to limit
or reduce any Lien upon any portion of the Collateral or other security for the
Liabilities or (iii) shall supersede SECTION 2.9 of the Loan Agreement.
<PAGE>
3. INTEREST.
3.1 LOANS.
3.1.1 REVOLVING LOANS.
(a) INTEREST TO MATURITY. The unpaid principal balance of the Revolving
Loans (other than Overdraft Loans and Over Advances) shall bear interest to
maturity at a per annum rate equal to the Reference Rate in effect from time to
time plus 1.00% (the "Adjusted Reference Rate"); provided, that pursuant to the
provisions of SECTION 3.1.1(c), below, from time to time Borrower may elect to
have all or any portion of the Revolving Loans bear interest at the LIBOR Rate.
(b) DEFAULT RATE. After the occurrence of any Event of Default, at the
option of Requisite Lenders, the entire unpaid principal balance of the
Revolving Loans shall bear interest until paid at a rate per annum equal to the
greater of (i) the applicable interest rate from time to time in effect plus
2.00% and (ii) 2.00% above the applicable interest rate in effect at the time of
such Event of Default.
(c) LIBOR RATE OPTION. Borrower shall have the right, from time to time,
to designate all or any portion of the Revolving Loans as bearing interest at
the then applicable LIBOR Rate, by means of a written notice to Agent specifying
(i) the amount of such Revolving Loans that will bear interest at a LIBOR Rate
(provided, that such LIBOR Rate Loans shall be in a minimum amount of
______________ _______________________ Dollars ($___________)); (ii) the date on
which the applicable Interest Rate Period shall begin; and (iii) the Interest
Rate Period applicable thereto. All designations of Revolving Loans as LIBOR
Rate Loans must be received by Agent not later than 10:00 a.m., Chicago time,
three (3) Banking Days prior to the date the applicable Interest Rate Period is
to begin (or is to be continued). Notwithstanding the foregoing, (x) all
undesignated portions of the Revolving Loans shall bear interest at the Adjusted
Reference Rate, (y) no Interest Rate Period may commence at any time that an
Event of Default or an Unmatured Event of Default is in existence, notwith-
standing a contrary designation by Borrower, and (z) in no event may more than
____________ (____) LIBOR Rate Loans having different Interest Rate Periods be
outstanding at any one time. Each designation by Borrower of a LIBOR Rate Loan
shall be irrevocable.
3.1.2 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances shall bear interest at the
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rate(s) determined pursuant to SECTION 2.7 or SECTION 2.8 of the Loan
Agreement, as applicable.
3.2 COMPUTATION. Interest shall be calculated on the basis of a year
consisting of 360 days and paid for actual days elapsed; provided, that the
computation of interest on LIBOR Rate Loans shall include the date on which the
applicable Interest Rate Period began, but shall exclude the last day of the
applicable Interest Rate Period. LIBOR Rate Loans not repaid on the last day of
the Interest Rate Period applicable thereto shall be continued or converted into
Revolving Loans bearing interest at the Adjusted Reference Rate, as applicable,
and bear interest as provided herein, from and including the last day of such
Interest Rate Period. Changes in any interest rate provided for herein which
are due to changes in the Reference Rate shall take effect on the date of the
change in the Reference Rate.
3.3 PAYMENT. Until maturity, interest on the Loans shall be payable
on the 28th day of each month, commencing on July 28, 1994, and at maturity;
provided, that interest on LIBOR Rate Loans shall be payable in arrears on the
last day of the Interest Rate Period applicable thereto and at maturity. After
maturity, whether by acceleration or otherwise, accrued interest shall be
payable on demand.
3.4 FUNDING INDEMNIFICATION. If any payment of a LIBOR Rate Loan
occurs on a date which is not the last day of the applicable Interest Rate
Period, whether because of acceleration, prepayment or otherwise, Borrower will
indemnify each Lender and Agent for any loss or cost incurred by it resulting
therefrom, including without limitation any loss or cost in liquidating or
employing deposits acquired to fund or maintain such Loan. Agent shall deliver
a written statement as to the amount due, if any, under this Section, after
consultation with each Lender so affected. Such written statement shall set
forth in reasonable detail the calculations upon which Agent and each Lender
determined such amount and shall be final, conclusive and binding on Borrower in
the absence of manifest error. Determination of amounts payable under this
Section shall be calculated as though each Lender funded its LIBOR Rate Loans
through the purchase of a deposit of the type and maturity corresponding to the
LIBOR Rate Loan and applicable Interest Rate Period bearing interest at the
LIBOR Base Rate less two and fifty hundredths percent (2.50%), as applicable,
whether or not the Lender actually funded the Loan in that manner. The amount
specified in the written statement shall be payable on demand after receipt by
Borrower of the written statement.
3.5 AVAILABILITY OF INTEREST RATE OPTIONS. If any Lender determines
that maintenance of any of its LIBOR Rate Loans would violate any applicable
law, rule, regulation or directive, whether or not having the force of law, the
Lender shall immediately notify Agent thereof and Agent shall suspend the
availability of such LIBOR Rate Loans and require any LIBOR Rate Loans
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<PAGE>
outstanding and so affected to be repaid; or if any Lender determines that (i)
deposits of a type or maturity appropriate to match fund LIBOR Rate Loans are
not available, (ii) the LIBOR Rate does not accurately reflect the cost of
making such Loans, or (iii) the Lender's ability to make or maintain LIBOR
Rate Loans has been materially adversely affected by the occurrence of any
event after the date hereof, then Lender shall immediately notify Agent
thereof and Agent shall suspend the availability of the LIBOR Rate Loans, as
applicable, after the date of any such determination.
3.6 LENDERS' OBLIGATION TO MITIGATE. Agent and each Lender agrees
that if it becomes aware of either (i) the occurrence of an event or the
existence of a condition described in SECTION 9.3 of the Loan Agreement or
SECTION 3.5 hereof that would cause Agent or such Lender to make a determination
of the nature described therein, or (ii) the imposition, assessment or
collection of any taxes on or in respect of any Loan or Letter of Credit, Agent
or such Lender will, to the extent consistent with its internal policies, use
reasonable efforts to issue, make, fund or maintain the affected Letters of
Credit or Loans through another lending office of such Agent or Lender, if any,
if, as a result thereof, the additional amounts that would otherwise be required
to be paid to Agent or such Lender in respect thereof, would be reduced, or
LIBOR Rate Loans could be maintained, as the case may be, and if, as determined
by Agent or such Lender in its reasonable discretion, the issuing, making,
funding or maintaining of such Letters of Credit or Loans through such other
lending office would not adversely affect Agent or such Lender or such Letters
of Credit or Loans. Borrower hereby agrees to pay all reasonable expenses
incurred by Agent or any Lender in using another lending office pursuant to this
SECTION 3.6.
4. ADDITIONAL ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS. Each Account
Receivable identified by Borrower as an Eligible Account Receivable must not be
unpaid on the date that is 120 days after the applicable invoice dates. If
invoices representing 25% or more of the unpaid net amount of all Accounts
Receivable from any one Account Debtor are unpaid more than 120 days after the
applicable invoice dates, then all Accounts Receivable relating to such Account
Debtor shall cease to be Eligible Accounts Receivable.
5. INTENTIONALLY OMITTED.
6. ADDITIONAL COVENANTS. From the Closing Date and thereafter until all of
Borrower's Liabilities under the Loan Agreement are paid in full, Borrower
agrees that, unless Requisite Lenders otherwise consent in writing:
6.1 TANGIBLE NET WORTH. Borrower will not permit Tangible Net Worth
to be less than the following amounts on any date set forth below:
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DATE TANGIBLE NET WORTH
[ ] [ ]
6.2 CAPITAL EXPENDITURES. Borrower will not purchase or otherwise
acquire (including, without limitation, acquisition by way of Capitalized
Lease), or commit to purchase or otherwise acquire, or permit its Subsidiaries
to purchase or otherwise acquire or commit to purchase or otherwise acquire, any
fixed asset if, after giving effect to such purchase or other acquisition, the
aggregate cost of all fixed assets purchased or otherwise acquired by Borrower
or its Subsidiaries in any period set forth below would exceed the following
amounts during the corresponding periods:
PERIOD CAPITAL EXPENDITURES
[ ] [ ]
6.3 INTEREST COVERAGE RATIO. Borrower will not permit the ratio
("Interest Coverage Ratio") of (a) net earnings before interest expense and
income tax expense for any period set forth below, to (b) interest expense in
respect of Indebtedness for such period, each determined for Borrower and its
Subsidiaries on a consolidated basis, and in accordance with GAAP, to be less
than the following for the corresponding period:
PERIOD INTEREST COVERAGE
[ ] [ ]
6.4 INDEBTEDNESS TO TANGIBLE NET WORTH RATIO. Borrower will not
permit the ratio of (a) the aggregate amount of Indebtedness on any date set
forth below, to (b) Tangible Net Worth as of such date, each determined for
Borrower and its Subsidiaries on a consolidated basis, and, except as otherwise
provided in the definition of the term "Tangible Net Worth," in accordance with
GAAP, to be greater than the following on the corresponding dates:
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<PAGE>
INDEBTEDNESS
TO
TANGIBLE NET
PERIOD WORTH
[ ] [ ]
6.5 FIXED CHARGE COVERAGE RATIO. Borrower will not permit the
ratio of (a) the sum of (i) net earnings for any period set forth below, PLUS
(ii) depreciation and amortization for such period, PLUS (iii) interest expense
in respect of Indebtedness for such period, MINUS (iv) capital expenditures made
during such period to (b) the aggregate amount of scheduled principal and
interest payments in respect of Indebtedness required during such period, all
determined for Borrower and its Subsidiaries on a consolidated basis and in
accordance with GAAP, to be less then the following for the corresponding
period:
PERIOD FIXED CHARGE
[ ] [ ]
For purposes of SECTION 6.3, (i) net earnings shall not include any
gains or losses on the sale or other disposition of Investments or fixed assets
or any other extraordinary items of income, and (ii) interest expense shall
include, without limitation, implicit interest expense on Capitalized Leases.
Borrower's Initials_______
Agent's Initials_________
Date: June __, 1994
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