United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended June 30, 1996
Commission file Number 1-6537
ALL STAR GAS CORPORATION
(formerly known as Empire Gas Corporation)
(Exact Name of Registrant as Specified in Its Charter)
Missouri 43-1494323
(State or other jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
P.O. Box 303
1700 South Jefferson Street, Lebanon, Missouri 65536
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (417) 532-3103
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
9% Subordinated Debentures due 2007
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part II of this Form
10-K or any amendment to this Form 10-K. (X)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of close of business on September 19, 1996 is: $116,480
Shares of Common Stock, $0.001 par value, outstanding as of close of
business on September 19, 1996: 1,579,225.
Upon request, All Star Gas Corporation will furnish a copy of an exhibit
listed but not contained herein. A fee of $.05 per page, to cover the
Company's costs in furnishing exhibits requested will be charged. Please
direct all requests to: Corporate Secretary, 1700 South Jefferson, Lebanon,
Missouri 65536; Telephone (417) 532-3103.
PART 1
Items 1 and 2. Business and Properties
Introduction
All Star Gas Corporation (formerly known as Empire Gas
Corporation) ("All Star Gas" or the "Company") was founded in 1963 and
through its subsidiaries has been in operation for over 33 years. The
Company is engaged primarily in (a) the retail marketing of propane to
residential, agricultural, and commercial customers, (b) the retail
marketing of propane-related appliances, supplies, and equipment, and (c)
the rent of consumer propane storage tanks to residential and commercial
customers under various brand names, including All Star, Empiregas, and the
names of numerous predecessors. During the fiscal year which ended 6/30/96,
All Star Gas supplied propane to approximately 112,000 customers in 20
states from 127 retail service centers and sold approximately 88.9 million
gallons.
On August 15, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Corporation, to acquire the assets of Synergy Group Incorporated,
the nation's fifth largest LP gas distributor. The Company has acquired,
for $30,000, 30% of the common stock of SYN, Inc. ("Synergy"), the
acquisition entity. The Company has entered into a Management Agreement
pursuant to which the Company provides all management of the retail
facilities and accounting services at the central office. In exchange for
those services, the Company receives a $500,000 annual base management fee,
an incentive management fee, and $3.25 million annual overhead cost
reimbursement (adjusted annually for inflation). Unless specifically
referenced, all information contained herein excludes information
pertaining to the Synergy operations.
On December 7, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public
Service Company to acquire the stock of Myers Propane Gas Company, a large
Ohio LP gas distributor. The Company has acquired 49% of the common stock
of Acquisition Company (Myers), the acquisition entity. The Company entered
into a Management Agreement pursuant to which the Company provides all
management and administrative services. In exchange for these services,
the Company is entitled a management fee upon the attainment of certain
performance goals.
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 recognized for it's
transportability and ease of use relative to other forms of stand alone
energy. 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, such as
over-the-road vehicles, forklifts, and stationary engines. Agricultural
uses include brooder heating, stock tank heating, crop drying, tobacco
curing, and weed control, as well as use as a motor fuel for farm equipment
and vehicles.
Propane is recognized as a clean alternative transportation fuel
"ATF" by the Federal and state governments and is the most widely used ATF
in the United States. The Federal government has enacted certain mandates
for use of ATF's by government and private fleets under the Clean Air Act
of 1990 and Energy Act of 1992. Federal and state governments have also
provided various economic incentives for use of ATF's which will positively
impact propane demand.
The retail propane business is a "margin-based" business in which
gross profits depend on the excess of sales price over propane supply
costs. 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 approximately 65.5% of the Company's aggregate
propane sales revenue and 72.2% of its aggregate gross margin from propane
sales in fiscal year 1996. Historically, this market has provided higher
margins than other retail propane sales. Based on fiscal year 1996 propane
sales revenue, the customer base consisted of 22.6% commercial and 11.9%
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 1.2% of
revenue from sales.
On June 30, 1994, the Company engaged in a series of transactions
(the "Transaction") including the transfer of all of the shares of common
stock of Empire Energy Corporation ("Energy") to the Company's former
chairman, Robert W. Plaster, and certain departing directors, officers, and
employees. Energy held the common stock of 136 subsidiaries of the Company
that carried on the business of the Company in ten states, primarily in the
Southeast. As part of the Transaction, the Company also acquired the assets
of PSNC Propane Corporation ("PSNC"). Except where noted otherwise, all
financial information in this report and the financial statements included
with this report include the results of operations of Energy through June
30, 1994, and exclude the results of operations of PSNC, but balance sheet
data for June 30, 1994, and all financial information from periods
beginning thereafter exclude the assets of Energy and include the assets of
PSNC.
Sources of Supply. During 1996, approximately 80% of the Company's
propane purchases of its propane supply were on a contractual basis
(generally, one year agreements subject to annual renewal). The Company's
two largest suppliers provide 20.0% and 11.0% of the total supply purchased
by the Company. Supply contracts do not, generally, lock in prices, but
rather provide for pricing in accordance with posted prices at the time of
delivery or established by current major storage points, such as Mont
Belvieu, TX, and Conway, KS. The Company has established relationships with
a number of suppliers 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 from its two major 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. The Company is a shipper
on all major interstate LPG pipeline systems. The retail service
centers have an aggregate storage capacity of approximately 16.1
million gallons of propane, and each service center has equipment for
transferring the gas into and from the bulk storage tanks. The Company
operates 11 over-the-road tractors and 7 transport trailers to deliver
propane and consumer tanks to its retail service centers and also relies on
common carriers to deliver propane to its retail service centers.
Deliveries to customers are made by means of 346 propane delivery
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. Most 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.
Operations. The Company has organized its operations in a manner
that the Company believes enables it to provide excellent service to its
customers and to achieve maximum operating efficiencies. The Company's
retail propane distribution business is organized into 15 regions which
include the 122 service centers managed, pursuant to the Management
Agreements relating to Synergy and Myers. Each region is supervised by a
Regional Manager. The regions are grouped into four divisions, which are
supervised by Divisional Vice Presidents, or Managers. 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 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
connected to the central management information system in the Company's
corporate headquarters. 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 to plan accordingly to improve
the operations of the Company. 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.
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 two-thirds of the Company's retail
propane sales 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.
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. Propane competes primarily with natural gas, electricity and
fuel oil principally on the basis of price, availability and portability.
The Company also competes with suppliers of electricity. Generally
speaking, the cost of propane compares favorably to electricity allowing the
Company to enjoy a competitive advantage due to the higher costs of elec-
tricity. Fuel oil does not present a significant competitive threat in the
Company's 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.
Although propane is generally more expensive than natural gas on
an equivalent BTU basis comparison, propane serves as an alternative to
natural gas in rural areas where natural gas is not available. Propane is
also utilized by natural gas customers on a stand-by basis during peak
demand periods. The costs involved in building or connecting to a natural
gas distribution system have tempered natural gas growth in most of the
Company's trade territory.
The Company believes the highly fragmented retail propane market
presents substantial opportunities for growth through acquisitions. The
Company's ability to compete through acquisitions will be limited in
certain geographic areas as a result of a non-competition agreement signed
in connection with the Transaction and amended in April 1995. Subject to an
exception for multi-state acquisition, the non-competition agreement as
amended restricts the Company from making acquisitions in certain
territories in two states (southeastern Missouri and northern Arkansas) and
an area within a 50-mile radius of an Energy operation in any state east of
the Mississippi River until June 30, 1997. Reciprocal restrictions apply to
Energy under the agreement.
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.
Effective June 30, 1996, the Company's comprehensive general and excess
liability policy provides for losses of up to $101.0 million with a
$250,000 self insured retention. Above the SIR is a corridor deductible of
$750,000 per occurrence and $1,250,000 in the aggregate. The aggregate is
shared between All Star and Synergy.
From July 1994 until July 1996 the Company had obtained workers'
compensation coverage from carriers and state insurance pools. Beginning
with July 1996 the company's combined auto and workers' compensation
coverage has a $250,000 deductible per occurrence. There is a $2 million
stop loss aggregate on the combined auto and workers' compensation losses
for Synergy and All Star Gas jointly.
The deductibles on the comprehensive general, auto and worker's
compensation mean that the Company is effectively self insured 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
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.
All Star 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 hazardous materials training. The Company has established ongoing
training programs in all phases of product knowledge and safety including
participation in the National Propane Gas Association's ("NPGA") Certified
Employee Training Program.
Employees
As of September 15, 1996, the Company had approximately 617
employees, none of whom was represented by unions. The Company has never
experienced any significant work stoppage or other significant labor
problems and believes it has good relations with its employees.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual shareholder meeting on July 16, 1996.
The only matter presented for a vote was the re-election of Kristin L.
Lindsey and Bruce M. Withers, Jr. as directors. Mrs. Lindsey and Mr.
Withers were re-elected with 1,579,225 votes cast in favor and no votes
cast against, withheld or abstaining. The term of office of the following
directors continued after the meeting: Paul S. Lindsey, Jr., Douglas A.
Brown, Kristin L. Lindsey, Jim J. Shoemake, and Bruce M. Withers, Jr.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
As of September 19, 1996, the Company's Common Stock was held of
record by 9 shareholders. There is currently no active trading market in
the Company's Common Stock.
As of September 19, 1996, there are outstanding warrants to
purchase 175,536 shares of the Company's Common Stock.
No dividends on the Common Stock of the Company were paid during
the Company's 1995 or 1996 fiscal years. The indenture relating to the 12
7/8% Senior Secured Notes due 2004 and the terms of the Company's revolving
credit facility each contain dividend restrictions that prohibit the
Company from paying common stock cash dividends. As a result, the Company
has no current intention of paying cash dividends on the Common Stock.
Item 6. Selected Financial Data.
The following table presents selected consolidated operating and
balance sheet data of All Star Gas as of and for each of the years in the
five-year period ended June 30, 1996. The financial data of the Company as
of and for each of the years in the five-year period ended June 30, 1996
were derived from the Company's audited consolidated financial statements.
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 with this report. Because the operating data for the
period ending June 30, 1994 do not take into account the effects of the
Transaction on the Company, the data for that period are not comparable to
the data for the year ended June 30, 1996.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
----- ----- ---- ---- ----
(In thousands except ratios and per share amounts)
Operating data:
<S> <C> <C> <C> <C> <C>
Operating revenue $111,322 $128,556 $124,452 $74,090 $82,702
Gross profit (1) 61,107 68,199 66,632 39,028 39,384
Operating expenses 40,052 41,845 44,966 29,694 28,382
Depreciation & amortization. 10,062 10,351 10,150 6,166 6,770
Operating income 10,993 16,003 11,516 3,168 4,232
Interest expense:
Cash interest 10,721 9,826 8,542 10,681 10,657
Amortization of debt discount & expenses 1,006 1,686 2,016 4,889 5,476
Total interest expense 11,727 11,512 10,558 15,570 16,133
Net income (loss) before extraordinary items (2) (1,474) 2,228 (1,190) (8,726) (7,897)
Other operating data:
Capital expenditures 6,703 4,358 20,015 11,874 8,838
Cash from sale of retail service centers
and other assets 3,062 1,088 366 2,956 6,177
EBITDA (3) 20,297 26,509 21,566 8,784 11,302
Income (loss) per share before extraordinary
items $(.11) $.16 $(0.08) $(5.53) $(5.00)
Year Ended June 30,
-------------------------------------------------------------------
1992 1993 1994 1995 1996
----- ----- ---- ---- ----
Balance sheet data:
Total assets $151,471 $148,020 $104,644 $105,128 $102,002
Long-term debt (including current maturities) 78,958 79,249 105,612 115,647 122,858
Stockholders' equity (deficit) 24,901 25,913 (28,220) (36,946) (44,843)
</TABLE>
(1) Represents operating revenue less the cost of products sold.
(2) All Star Gas did not declare or pay dividends on its common stock
during the five-year period ending June 30, 1996.
(3) EBITDA consists of earning 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).
Item 7. 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 historical consolidated financial statements of All Star Gas and
the notes thereto included in this Report.
Historical financial data for years ended prior to June 30, 1994,
do not reflect either the transfer of Energy or the acquisition of the
assets of PSNC in the Transaction and therefore historical data for those
periods are not comparable to results for the periods subsequent to June
30, 1994. In general, these transactions have resulted in a net reduction
in the number of gallons sold, and thus in results (including operating
revenue, cost of the products sold, and provisions for doubtful accounts)
that are related to the number of gallons sold. General and administrative
expenses have also declined as a result of the elimination of salaries and
related expenses of departing officers, the termination of certain
agreements between the Company and its former principal shareholder or
entities controlled by him, and the elimination of costs related to service
centers that are no longer part of the Company.
Results of Operations
General
All Star Gas' primary source of revenue is retail propane sales,
which accounted for approximately 91% of its revenue in fiscal year 1996.
Other sources of revenue include sales of service labor, 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. Therefore,
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.
The severity of the weather will affect the volume sold because a substan-
tial amount of the propane sold by the Company to residential and commercial
customers is used for heating. 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.
The Company's expenses consist primarily of cost of products sold,
general and administrative expense and, to a much lesser extent,
depreciation, amortization and interest expense. Purchases of propane
inventory account for the majority of the cost of products sold. The
Company's general and administrative expenses consist mainly of salaries
and related employee benefits, vehicle expenses, and insurance. The
Company's interest expense consists primarily of interest on its existing
credit facility and the 12-7/8% Senior Secured Notes due 2004 (the "Senior
Secured Notes"). Interest expense increased significantly between 1994 and
1995 as a result of issuance of the Senior Secured Notes at the end of
June, 1994. Through 1999, a significant portion of the increase will be
non-cash amortization of original issue discount.
Fiscal Years Ended June 30, 1996 and June 30, 1995
Operating Revenue. Operating revenue increased $8.6 million, or
11.6%, to $82.7 million in fiscal year 1996 as compared to $74.1 million in
fiscal year 1995. The increase was due to a $9.2 million increase in gas
sales and the addition of the SYN, Inc. management fee of $400,000 (prorated
for a 10 month period), offset by decreases of $500,000 in gas systems and
appliance sales, $200,000 in service labor, and $300,000 in service charges.
The increase in gas sales was due to an approximate $.06 per gallon increase
in the average net sales price of propane and a net increase of approximately
2.0 million gallons, or 2.3%. Taking into account the acquisitions and dis-
posals of stores in fiscal year 1996, gallonage increased 6.5 million
gallons, or 8.1% on a same store basis, as a result of increased demand due
to a colder winter than in fiscal year 1995 and new customer growth.
Decreases in gas systems and appliance sales and the related service labor
were due primarily to divestures of retail outlets. The decrease in
service charges results from improved collection efforts and more stringent
credit policies and procedures.
Cost of products sold. Cost of products sold increased $7.7
million, or 21.7%, to $43.3 million in fiscal year 1996 as compared to
$35.6 million in fiscal year 1995. This increase was due to an increase of
approximately $8.0 million in cost of gas sales due to the net 2.0 million
gallon volume increase and an approximate $.05 per gallon rise in the
wholesale cost of propane offset by a decrease of approximately $300,000
in the cost of gas systems and appliance sales due to the decrease in sales
volume.
Gross profit. The Company's gross profit for the year increased
$900,000, or 2.3%, to $39.4 million in fiscal year 1996 as compared to
$38.5 million in fiscal year 1995. The Company's gross project per gallon
increased approximately $.01 to approximately $.39 per gallon in fiscal
year 1996, as a result of the increase in sales price of approximately $.06
per gallon offset by the $.05 increase in the cost of propane. The
resulting increase in gross profit of $1.2 million from gas sales was
offset by a decrease in gross profit of approximately $200,000 from gas
systems and appliances due to the decrease in sales volume and the decrease
in other revenues of approximately $100,000.
General and administrative expense. General and administrative
expenses decreased $1.1 million, or 3.8%, to $27.5 million in fiscal year
1996 compared to $28.6 million in fiscal year 1995. This decrease is due
primarily to a decrease in insurance and liability claims of $300,000, an
increase of $400,000 in rent and maintenance and the net effect of the
Management Agreement with SYN, Inc.
The decrease in insurance and liability claims was due to improved
claim history. The increase in rent and maintenance was due primarily to
the addition of new rental agreements entered into as a part of retail
service centers acquired during fiscal years 1995 and 1996 and increased
tank painting and building maintenance related both to the conversion to a
new identity for acquired retail service centers and as part of the
Company's Modernization program.
The decrease that occurred because of the SYN, Inc. Management
Agreement is due to the impact of increased costs in the other general and
administrative cost centers offset by the annual overhead reimbursement
made, which was $2.8 million in fiscal year 1996, and an additional one
time $1.1 million payment related to the SYN, Inc. acquisition. These
reimbursements were made to offset the increased costs required for the
management of SYN, Inc. including additional home office employee salaries
and related other costs.
Provision for doubtful accounts. The provision for doubtful
accounts decreased approximately $250,000, or 22.0%, from approximately
$1.1 million in fiscal year 1995 to approximately $900,000 in fiscal year
1996. The decrease is due to the final determination of management
regarding an appropriate estimate for the allowance based on historical
trends, the aging of accounts receivable, and the enhanced credit and
collection efforts in place.
Depreciation and amortization. Depreciation and amortization
increased by $600,000, or 9.7%, to $6.8 million in fiscal year 1996 from
$6.2 million in fiscal year 1995. The increase is due to an increase in
amortization of approximately $100,000 due to newly acquired goodwill and
intangibles related to the acquisition of certain retail service centers.
The remaining increase of $500,000 is due to the effect of increasing
depreciable fixed assets through capital expenditures and acquisitions
while disposing of partially or fully depreciated assets through disposals
of retail service centers and other sales.
Interest expense. Interest expense was relatively unchanged from
fiscal year 1995 to 1996.
Fiscal Years Ended June 30, 1995 and June 30, 1994
Operating revenue. Operating revenue decreased $50.3 million to
$74.1 million in fiscal year 1995 as compared to $124.4 million in fiscal
year 1994. The decrease was primarily due to the disposition of service
centers in the Transaction, offset by increases due to the acquisition of
service centers from PSNC in the Transaction. Operating revenue from
service centers retained in the Transaction and acquired from PSNC was
$74.8 million in fiscal year 1994. The decrease of $600,000, or .5%, in
fiscal year 1995 was due to a $1.9 million decrease in gas sales offset by
increases of $1.0 million in gas systems and appliances, and $300,000 in
service labor. The decrease in gas sales was due to an approximately $.06
per gallon decrease in the average net sales price of propane created by
competitive pressures resulting from decreased demand due to warm weather.
The decrease was partially offset by a 3.9 million gallon volume increase
due to the addition of retail service centers through five acquisitions and
ten new startups during the fiscal year 1995. The increase in service labor
is due to the increased installations from greater appliance sales and the
increased service market created by the acquisitions discussed above.
Cost of products sold. Cost of products sold decreased $22.3
million to $35.6 million in fiscal year 1995 as compared to $57.9 million
in fiscal year 1994, primarily as a result of the Transaction. Cost of
product sold from service centers retained in the Transaction and acquired
from PSNC was $35.1 million in fiscal year 1994. The increase of $500,000,
or 1.4%, is the result of the 3.9 million gallon volume increase, partially
offset by a $.01 reduction in the cost of propane and an increase in gas
systems and appliances cost due to the volume of sales.
Gross profit. The Company's gross profit for the year decreased
$28.0 million to $38.5 million in fiscal year 1995 as compared to $66.5
million in fiscal year 1994, primarily as a result of the Transaction.
Gross profit from service centers retained in the Transaction and acquired
from PSNC was $39.7 million in fiscal year 1994. The decrease of $1.1
million, or 1.7%, was caused by the .5% decrease in operating revenue and
the 1.4% increase in cost of products sold. The Company's gross profit per
gallon decreased from $.43 in 1994 for service centers retained in the
Transaction and acquired from PSNC to $.38 in fiscal year 1995, as a result
of the decrease in sales price of $.06 per gallon offset by the $.01
reduction in the cost of propane.
General and administrative expense. General and administrative
expenses decreased $15.4 million to $28.6 million in fiscal year 1995 from
$43.9 million in fiscal year 1994, primarily as a result of saving
resulting from the reduction of personnel in connection with the
Transaction. As a percentage of total revenues, general and administrative
expenses increased to 38.3% in fiscal year 1995 from 35.3% in fiscal year
1994. The increase is due primarily to increases as a percent of total
revenues of 2.2% in salaries and commissions, .6% in professional fees, .3%
in both rent and maintenance and taxes and licenses, and .4% in office
expenses. These increases were partially offset by a decrease of .5% in
vehicle fuel and maintenance and .4% in insurance and liability claims.
Other smaller increases were incurred in miscellaneous expenses and travel
and entertainment and advertising.
The increase in salaries and commissions was due to several
factors including 1) increased retail salary expense due primarily to
additional employees as a result of acquisitions and startups and increased
commissions as a result of increased emphasis on new customers and tank
sets, and 2) increased home office salary expense as a result primarily of
additional operational employees due to acquisitions and additional
marketing employees to support the Company's emphasis on enhanced sales
efforts. The increase in professional fees is due to fees related to the
formation of a 401(k) Plan, a state income tax audit, and a supply
purchase consulting agreement. The increase in rent and maintenance
of buildings is primarily due to increased tank painting, building
and maintenance in converting certain retail facilities to a new
identity in connection with the restructuring and an increase in the rental
of facilities primarily related to the six retail service centers acquired
in June, 1994. The increase in taxes and licenses relates primarily to
property taxes paid for six retail service centers acquired in June, 1994.
The increase in office expenses is primarily due to additional spending
required for the change of identity for several retail sites and additional
mailings to customers. The decrease in insurance and liability claims is
due to a reduction in liability claims expense as a result of reduced
claims. The decrease in vehicle expense is due to the replacement of
older vehicles occurring at the end of fiscal year 1994, and in early
fiscal year 1995, resulting in lower maintenance expenses.
Provision for doubtful accounts. The provision for doubtful
accounts increased approximately $80,000 to a little over $1.1 million in
fiscal year 1995, from a little under $1.1 million in 1994. The increase is
due to the final determination of management regarding the aged balances of
accounts after substantial collection efforts during fiscal year 1995,
offset in part by reduction in the level of accounts receivable as a result
of the Transaction.
Depreciation and amortization. Depreciation and amortization costs
decreased by $4.0 million to $6.2 million from $10.2 million, primarily as
a result of the reduction in assets as a result of the Transaction.
Depreciation and amortization on assets retained in the Transaction or
acquired from PSNC increased by $700,000, or 12.7%, from $5.5 million for
the year ended June 30, 1994, due to amortization of non-compete agreements
acquired with new service centers and depreciation of the related assets
purchased in June, 1994, and fiscal 1995.
Interest expense. Interest expense increased by approximately $2.4
million, or 25.9%, to $10.7 million in fiscal year 1995 as compared to $8.5
million in 1994, due to the approximately $45 million face value of
additional long-term debt outstanding as compared to the same period of the
prior year, partially offset by an overall lower rate of interest,
principally on the new senior secured notes issued in June 1994, as
compared to the higher rates on debt repaid with the June, 1994, offering.
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
flows generated by operations and from borrowings under its working capital
facility.
Cash flow provided from operating activities was $300,000 in
fiscal year 1996 as compared to $3.1 million in fiscal year 1995, related
primarily to an increase in interest paid over the prior year amounting to
$3.0 million.
Cash flow used in investing activities declined to a net $1.9
million in 1996 from $8.2 million in 1995. The Company's capital additions
in fiscal year 1996 was $8.1 million as compared to $11.2 million in the
preceding year. The Company expended $1.1 million in fiscal year 1996 in
acquisitions of retail service centers whereas in 1995 the purchase of four
service centers and the addition of several new start-ups amount to $7.0
million. This decrease was offset by an increase of $2.9 million due
primarily to increased asset purchases in conjunction with the Company's
modernization plan for providing better equipment and transportation for
its retail service centers. The Company raised $6.2 million and $2.9
million from the sale of marginally profitable service centers in 1996 and
1995 respectively, the proceeds of which were used to partially fund the
acquisitions noted above.
Pursuant to the indenture for the 12 7/8% Senior Secured Notes,
the Company is required to make a $4.5 million, semi-annual interest
payment on each July 15 and January 15. Beginning in fiscal year 2000, the
semi-annual cash interest payment on the Senior Secured Notes will increase
to $8.2 million. The Company met the July, 1996, interest payment through
the use of operating cash flows and available borrowings on its working
capital facility. Cash flow was further increased by the proceeds from
planned sales of retail service centers geographically remote from its
primary market areas.
The Company's high degree of leverage makes it vulnerable to
adverse changes in the weather and could 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 Company's working
capital facility bears interest at a floating rate. The Company believes
that, based on current levels of operations and assuming winter weather
comparable to fiscal year 1996, it will be able to fund its debt service
obligations from funds generated from operations and funds available under
its working capital facility. The Company's credit facility will mature on
June 29, 1997, at which time the Company will have to refinance or replace
the facility, and may be required to pay some portion of any outstanding
balance. The credit facility will be necessary to fund the Company's
seasonal operations and debt service requirements. There can be no assurance
that the Company will be able to refinance or replace the credit facility,
or the terms upon which any such financing may occur.
The seasonal nature of the Company's business will require it to
rely on borrowings under its $15.0 million 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 two-thirds of the Company's operating revenue
is earned in the second and third quarters of this fiscal year, 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.
The Company intends to fund its routine capital expenditures and
the purchase of assets for new retail service centers with cash from
operations, borrowings under its credit facility, or other bank financing
subject to borrowing availability covenants. The Company intends to fund
acquisitions from sales of marginally profitable and geographically remote
existing service centers, seller financing, to the extent feasible and
allowable under the Senior Secured Note agreement, and with cash from
operations or bank financing.
The Company's credit facility and the indenture for the Senior
Secured Notes impose restrictions on the Company's ability to incur
additional indebtedness. Such restrictions, together with the highly
leveraged position of the Company, could restrict the ability of the
Company to acquire financing for capital expenditures and other corporate
activities. These restrictions, as amended, restrict the acquisition
activity of the Company based on the availability of working capital
borrowing, earnings and certain proceeds less required debt service and
capital and certain other expenditures or approval from the lenders.
Acquisitions are further restricted to use no more than $3.0 million
in cash in a twelve month period without prior approval.
At June 30, 1996, the Company was not in compliance with the
capital expenditures, interest coverage ratio and tangible net worth
covenants. These covenants have been waived or amended, and the Company is
in compliance with the covenants as amended.
Item 8. Financial Statements and Supplementary Data.
See the Consolidated Financial Statements included elsewhere
herein.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as
follows:
<TABLE>
Position Held with the Company
Name Age and Principal Occupation
-------------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Paul S. Lindsey, Jr. 51 Chairman of the Board, Chief Executive Officer, and President
since June 1994; previously Vice Chairman of the Board (since
February 1987) and Chief Operating Office (since March 1988);
term as director expires 1997
Douglas A. Brown 36 Director since July 1994; member Holding Capital Group, Inc.
(since 1989); term as director expires 1997
Kristin L. Lindsey 48 Director/Vice President since June 1994; previously pursued
charitable and other personal interest; term as director
expires 1999
Bruce M. Withers, Jr. 69 Director since July 1994; Chairman and Chief Executive Officer
of Trident NGL Holding, Inc. (since August 1991) and President
of the Transmission and Processing Division of Mitchell Energy
Corporation (1979 to 1991); term as director expires 1999
Jim J. Shoemake 58 Director since July 1994; partner of Guilfoil, Petzall &
Shoemake (since 1970); term as director expires 1998
Valeria Schall 42 Vice President since 1992; Corporate Secretary since 1985 and
Assistant to the Chairman (Assistant to the Vice Chairman prior
to June 1994) since 1987
Mark Castaneda 32 Vice President Finance and Administration since August 1995;
previously Controller of Skelgas Propane since 1991 and an
accountant at Deloitte & Touche since 1986
Kenneth J. DePrinzio 49 Vice President-Corporate Development since June 1996;
previously Divisional Vice President since June 1993 and
Regional Manager since May 1992. From 1990 to 1991 Area Vice
President for Petrolane.
Mark W. Buettner 54 Divisional Vice President since June 1993; previously Regional
Manager since April 1989.
J. Greg House, Sr. 40 Vice President - Management Information Systems since June 1996;
previously Director-MIS since September 1994 and Manager-MIS,
Paul Mueller Co. since 1987.
Robert C. Heagerty 49 Divisional Vice President since June 1993; previously Regional
Manager since December 1986.
Daniel P. Binning 39 Divisional Vice President since June 1996; previously
Divisional Manager since August 1995 and Regional Manager since
August 1996 and Marketing Representative with Ferrell Gas
Corporation since December 1990.
James M. Trickett 46 Divisional Manager since June 1996 and Regional Manager since
August 1995. Divisional Manager with Synergy Gas Corporation
since 1990.
</TABLE>
After expiration of the initial terms of directors as set forth
above, each director will serve for a term of three years. Officers of the
Company are elected by the Board of Directors of the Company and will serve
at the discretion of the Board, except for Mr. Lindsey who is employed
pursuant to an employment agreement that expires June 24, 1999 (subject to
extension).
Item 11. Executive Compensation
Executive Compensation
The following table provides compensation information for each of
the years ended June 30, 1996, 1995, and 1994 for (i) the Chief Executive
Officer of the Company, (ii) the four other executive officers of the
Company who are most highly compensated and whose total compensation
exceeded $100,000 for the most recent fiscal year (of which there were
none) and (iii) those persons who are no longer executive officers of the
Company but were among the four most highly compensated and whose total
compensation exceeded $100,000 for the most recent year (of which there
were none)
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal
Position at End of Fiscal Fiscal Other Annual All Other
Year 1996 Year Salary Bonus Compensation Compensation
--------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul S. Lindsey, Jr. 1996 $350,000 --- --- ---
Chief Executive Officer, 1995 350,000 --- --- ---
Chairman of the Board 1994 300,000 $5,000 --- ---
and President
</TABLE>
Employment Agreement
On June 24, 1994, the Company entered into an employment agreement
with Mr. Lindsey. The agreement has a five-year term and provides for the
payment of an annual salary of $350,000 and reimbursement for reasonable
travel and business expenses. The agreement requires Mr. Lindsey to devote
substantially all of his time to the Company's business. The agreement is
for a term of five years, but is automatically renewed for one year unless
either party elects to terminate the agreement at least four months prior
to the end of the term or any extension. The agreement may be terminated by
Mr. Lindsey or the Company, but if the agreement is terminated by the
Company and without cause, the Company must pay one year's salary as
severance pay.
Incentive Stock Option Plan
There were no options granted to the named officer nor exercised
by him during fiscal year 1996 and no unexercised options held by him as of
the end of the 1996 fiscal year.
Compensation Committee Interlocks and Insider Participation
A compensation committee was formed in July 1994, consisting of
Messrs. Withers, Shoemake, and Brown. Mr. Lindsey makes the initial
recommendation concerning executive compensation for the executive officers
of the Company, other than recommendations concerning his own and his
wife's compensation, which are then approved by the compensation committee.
The compensation committee determines the compensation of Mr. Lindsey's
wife and, subject to the employment agreement described above, Mr. Lindsey.
Director Compensation
During the last completed fiscal year, the directors of All Star
Gas received an annual fee of $25,000, payable quarterly, for their
services.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth information with respect to the
beneficial ownership of shares of Common Stock of the Company as of
September 19, 1996, 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 owning shares, and by all directors and executive
officers of the Company as a group.
Number of Shares
Name of Beneficial Owner (1) Beneficially Owned Percent
- ---------------------------- ------------------ -------
Paul S. Lindsey, Jr. (2) 1,507,610 74.7
Kristin L. Lindsey (2) 753,805 37.3
Douglas A. Brown 122,830 6.1
Bruce M. Withers, Jr. 17,548 0.9
Jim J. Shoemake 17,548 0.9
All directors and executive
officers as a group (8 persons)(3) 1,905,843 94.4
- -----------------
(1) The address of each of the beneficial owners is c/o
All Star Gas Corporation, P.O. Box 303, 1700 South
Jefferson Street, Lebanon, Missouri 65536.
(2) 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 ownership of the shares held by her
husband in the Paul S. Lindsey, Jr. Trust. (3) The
amounts shown include the shares beneficially owned by
Mr. Lindsey and Mrs. Lindsey as set forth above, and
240,307 shares owned by other executive officers.
Item 13. Certain Relationships and Related Transactions.
Mrs. Kristin L. Lindsey, who beneficially owns approximately 47.7%
of the Company's outstanding Common Stock and became a director of the
Company upon consummation of the Transaction, is the majority stockholder
in a company that supplies paint and labels to the Company. The Company's
purchases of paint and labels from this company totaled $202,598 in fiscal
year 1996 and $157,842 in fiscal year 1995.
The Company has entered into an agreement with each shareholder
(all of whom are directors or employees of the Company) providing the
Company with 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.
In addition to purchased product at refineries, gas processing
plants, underground storage facilities, and pipeline terminals for use by
the Company, the Company also purchases product for use at the Synergy
retail locations and Myers. From time to time, the Company has also
purchased product which has been sold to Red Top Gas, a retail propane
distributor owned by a party related to the Chief Executive Officer of the
Company. At June 30, 1996, the Company had a receivable balance due from
Red Top Gas in the amount of $176,000.
During 1996, the Company sold its Cheyenne III aircraft. At the
time, the Company entered into an operating lease with its Chief Executive
Officer to lease a jet aircraft for use in Company travel. The lease
requires $282,981 in annual payments for a term of 3 years beginning in
June, 1996, and had a requirement for a $200,000 deposit.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of June 30,
1996 and 1995 Consolidated Statement of
Operations for the Years Ended
June 30, 1996, 1995, and 1994
Consolidated Statements of the Stockholders'
Equity (Deficit) for the Years Ended
June 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995, and 1994
(a)(2) Financial Statement Schedules
Schedule II Valuation and qualifying accounts
(a)(3) Exhibits
Exhibit
No. Description
3.1 Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No.
33-53343)
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Company, dated April 26, 1994,
relating to the change of name (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (No. 33-53343))
3.3 By-laws of the Company (incorporated herein by reference
to Exhibit 3.3 to the Company's Registration Statement on
Form S-1 (No. 33-53343))
4.1 Indenture between All Star 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
All Star Incorporated and Exco Acquisition Corp.
(Commission File No. 2-83683) Registration Statement on
Form S-14 with the Commission on May 11, 1983); and First
Supplemental Indenture thereto between All Star 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 All Star Gas
Corporation (now known as EGOC) Registration Statement on
Form 8-B filed with the Commission on February 1, 1990)
4.2 Indenture between the Company and Shawmut Bank
Connecticut, National Association, Trustee, relating to
the 12-7/8% Senior Secured Notes due 2004, including the
12-7/8% Senior Secured Notes due 2004, the Guarantee and
the Pledge Agreement (incorporated herein by reference to
Exhibit 4.2 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1994)
4.3 Warrant Agreement (incorporated herein by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1994)
10.1 Shareholder Agreement, dated as of October 28, 1988, by
and among All Star Gas Acquisition 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 Rein; Dan Weatherly;
Nina Irene Craighead; Joyce Sue Kinnett; Edwin H.
McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell
Stamper; and All Star Gas Corporation Employee Stock
Ownership Plan, Robert W. Plaster, Trustee (incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (No. 33-53343))
10.2 1995 Stock Option Plan of All Star Gas Company
(incorporated herein by reference to Exhibit 10.2
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
10.3 Credit Agreement between the Company and Continental
Bank, as agent (incorporated herein by reference to
Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1994)
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 All Star
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 Services Agreement, dated May 7, 1994, between the
Company and All Star Service Corporation (incorporated
herein by reference to Exhibit G of Exhibit 10.1 to the
All Star 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 All Star 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 Employment Agreement between the Company and Paul S.
Lindsey, Jr. (incorporated herein by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-1
(No. 33-53343))
10.8 Asset Purchase Agreement by and among the Company, All
Star Gas, Inc. of North Carolina, PSNC Propane
Corporation, and Public Service Company of North
Carolina, Incorporated (incorporated herein by reference
to Exhibit 10.8 to the Company's Registration Statement
on Form S-1 (No. 33-533343))
10.9 Indemnification Agreement between the Company and Douglas
A. Brown (incorporated herein by reference to Exhibit
10.9 to the Company's Registration Statement on Form S-1
(No. 33-53343))
10.10 Tax Indemnification Agreement between the Company and
Energy (incorporated herein by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1 (No.
33-53343))
10.11 Supply Contract No. 1, dated June 1, 1993, between EGOC
and Warren Petroleum Company (incorporated herein by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (No. 33-53343))
10.12 Supply Contract No. 2, dated June 1, 1993, between EGOC
and Warren Petroleum Company (incorporated herein by
reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (No. 33-53343))
10.13 Management Agreement between All Star Gas Corporation,
Northwestern Growth Corporation and SYN Inc. dated May
17, 1995
10.14 Agreement Among Initial Stockholders and SYN Inc. dated
May 17, 1995
10.15 Waiver Agreement dated April 29, 1995 by and among All
Star Gas Corporation, SYN Inc., Paul S. Lindsey, Jr.
Northwestern Growth Corporation, All Star Energy
Corporation, Robert W. Plaster, and Stephen R. Plaster
(incorporated herein by reference to Exhibit 10.15
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
10.16+ Propane Sales Agreement dated August 24, 1995, between
All Star Gas Corporation and Warren Petroleum Company
(incorporated herein by reference to Exhibit 10.16
to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1995)
10.17+ Supply Contract dated April 27, 1995, between All Star
Gas Corporation and Phillips 66 Company (incorporated
herein by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.18+ Dealer Sale Contract dated January 20, 1995, between All
Star Gas Corporation and Conoco Inc. (incorporated herein
by reference to Exhibit 10.18 to the Registrant's Annual
Report on Form 10-K for the year ended June 30, 1995)
10.19+ Supply Contract dated April 24, 1995 between All Star Gas
Corporation and Enron Gas Liquids, Inc. (incorporated
herein by reference to Exhibit 10.19 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.20+ Amendment No. 1 to Supplement A to Loan and Securities
Agreement dated June 29, 1995 between All Star Gas
Corporation and Bank of America Illinois (incorporated
herein by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended June 30,
1995)
10.21 9/9/96 Waiver, Amendment No. 2 to Loan and Security
Agreement and Amendment No. 4 to Supplement A to Loan and
Security Agreement with Bank of America Illinois
10.22 7/1/96 Agreement Amending Amended and Restated Agreement
Among Initial Stockholders and Syn Inc.
10.23 5/15/96 Waiver between Bank of America Illinois and All
Star Gas Corporation
10.24 2/13/96 Amendment No. 3 to Supplement A to Loan and
Security Agreement with Bank of America Illinois
10.25 11/3/95 Agreement Among Initial Stockholders and Mac Inc.
10.26 11/3/95 Management Agreement among NWPS, Myers
Acquisition Company and Empire
10.27 9/28/95 Amendment No. 1 to Loan and Security Agreement
and Amendment No. 2 to Supplement A to Loan and Security
Agreement with Bank of America Illinois
10.28 7/31/95 Agreement Amending Management Agreement
10.29 7/31/95 Agreement Amending and Restating Agreement
Among Initial Stockholders and Syn Inc.
10.30+ Propane Sales Agreement dated April 9, 1996, between All
Star Gas Corporation and Warren Petroleum Company
10.31+ Amendment to Supply Contract dated August 15, 1994, between
All Star Gas Corporation and Phillips 66 Company
10.32+ Supply Contract dated April 1, 1996, between All Star Gas
Corporation and Conoco Inc.
10.33 June 1, 1996 Lease of Aircraft between Paul S. Lindsey
Limited Liability Company and All Star Gas Corporation
21.1 Subsidiaries of the Company
27.1 Financial Data Schedules
+ Confidential treatment has been requested. The copy filed
as an exhibit omits the information subject to the
confidentiality request.
(b) Reports on Form 8-K
None
(c) Exhibits
See (a)(3) above.
(d) Financial Statements
See (a)(1) above.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
All Star Gas Corporation
By: /s/ Paul S. Lindsey, Jr.
-------------------------
Paul S. Lindsey, Jr.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Capacity in which Signed Date
/s/ Paul S. Lindsey, Jr. Chief Executive Officer and September 27, 1996
- ----------------------------- Chairman of the Board of
Paul S. Lindsey, Jr. All Star Gas Corporation
(principal executive officer)
/s/ Mark Castaneda Vice President Finance and September 27, 1996
- --------------------------- Administration
Mark Castaneda (principal financial/
accounting officer)
/s/ Douglas A. Brown Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Douglas A. Brown
/s/ Kristin L. Lindsey Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Kristin L. Lindsey
/s/ Bruce M. Withers, Jr. Director of All Star Gas September 27, 1996
- -------------------------- Corporation
Bruce M. Withers, Jr.
/s/ Jim J. Shoemake Director of All Star Gas September 27, 1996
- --------------------------- Corporation
Jim J. Shoemake
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
Accountants' Report and
Consolidated Financial Statements
June 30, 1996
Independent Accountants' Report
Board of Directors and Stockholders
All Star Gas Corporation
Lebanon, Missouri
We have audited the accompanying consolidated balance sheets of ALL STAR
GAS CORPORATION (FORMERLY EMPIRE GAS CORPORATION) as of June 30, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period
ended June 30, 1996. 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 financial position of ALL STAR
GAS CORPORATION as of June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
BAIRD KURTZ DOBSON
Springfield, Missouri
August 30, 1996
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
1996 1995
---- ----
CURRENT ASSETS
Cash $ 898 $ 821
Trade receivables, less allowance
for doubtful accounts; 1996 - $722,
1995 - $800 4,308 4,571
Receivable from sale of retail locations 2,390 --
Inventories 6,039 5,686
Prepaid expenses 276 521
Due from related parties 1,261 --
Refundable income taxes -- 1,567
Deferred income taxes 995 1,350
---------- ---------
Total Current Assets 16,167 14,516
---------- ---------
PROPERTY AND EQUIPMENT, AT COST
Land and buildings 8,868 9,496
Storage and consumer service facilities 66,336 68,706
Transportation, office and other equipment 22,203 20,015
---------- ---------
97,407 98,217
Less accumulated depreciation 29,497 27,111
---------- ---------
67,910 71,106
---------- ---------
OTHER ASSETS
Debt acquisition costs, net of amortization 4,228 4,856
Excess of cost over fair value of net assets
acquired, at amortized cost 11,536 12,992
Other 2,161 1,658
---------- ---------
17,925 19,506
---------- ---------
$ 102,002 $ 105,128
========== =========
See Notes to Consolidated Financial Statements
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1996 1995
---- ----
CURRENT LIABILITIES
Checks in process of collection $ 2,794 $ 1,585
Current maturities of long-term debt 7,358 504
Accounts payable 5,036 4,328
Accrued salaries 1,051 1,233
Accrued interest 4,553 4,100
Accrued expenses 897 1,130
Income taxes payable 181 --
--------- ---------
Total Current Liabilities 21,870 12,880
--------- ---------
LONG-TERM DEBT 115,500 115,143
--------- ---------
DEFERRED INCOME TAXES 8,935 13,140
--------- ---------
ACCRUED SELF-INSURANCE LIABILITY 540 911
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common; $.001 par value; authorized 20,000,000
shares; issued June 30, 1996 and 1995 -
14,291,020 shares 14 14
Common stock purchase warrants 1,227 1,227
Additional paid-in capital 27,279 27,279
Retained earnings 14,612 22,509
---------- ---------
43,132 51,029
Treasury stock, at cost
June 30, 1996 and 1995 - 12,711,795 shares (87,975) (87,975)
---------- ---------
(44,843) (36,946)
---------- ---------
$ 102,002 $ 105,128
========== =========
See Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING REVENUE $82,702 $74,090 $124,452
COST OF PRODUCT SOLD 43,318 35,612 57,920
------------ ------------ ------------
GROSS PROFIT 39,384 38,478 66,532
------------ ------------ ------------
OPERATING COSTS AND EXPENSES
Provision for doubtful accounts 889 1,136 1,056
General and administrative 27,493 28,558 43,910
Depreciation and amortization 6,770 6,166 10,150
------------ ------------ ------------
35,152 35,860 55,116
------------ ------------ ------------
OPERATING INCOME 4,232 2,618 11,416
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (10,657) (10,681) (8,542)
Amortization of debt discount and expense (5,476) (4,889) (2,016)
Restructuring proposal costs -- -- (398)
Gain on sale of assets 395 550 100
Write off of carrying value of underground
storage facility and closing costs (200) (924) (1,400)
------------ ------------ ------------
(15,938) (15,944) (12,256)
------------ ------------ ------------
LOSS BEFORE EQUITY IN NET INCOME
OF AFFILIATES (11,706) (13,326) (840)
EQUITY IN NET INCOME OF AFFILIATES 59 -- --
------------ ------------ ------------
LOSS BEFORE INCOME TAXES (11,647) (13,326) (840)
PROVISION (CREDIT) FOR
INCOME TAXES (3,750) (4,600) 350
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS (7,897) (8,726) (1,190)
EXTRAORDINARY ITEMS
Loss on extinguishment
of debt, net of income taxes -- -- (5,555)
Excess of fair value over book
value of Energy net assets,
net of income taxes -- -- 37,870
------------ ------------ ------------
NET INCOME (LOSS) $ (7,897) $ (8,726) $ 31,125
============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
LOSS BEFORE EXTRAORDINARY
ITEMS PER COMMON SHARE $ (5.00) $ (5.53) $ (.08)
EXTRAORDINARY ITEMS PER
COMMON SHARE
Loss on extinguishment
of debt, net of income taxes -- -- (.40)
Excess of fair value over book
value of Energy net assets,
net of income taxes -- -- 2.71
-------- --------- ----------
NET INCOME (LOSS) PER COMMON
SHARE $ (5.00) $ (5.53) $ 2.23
======== ========= ==========
<TABLE>
<CAPTION>
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
Common Total
Stock Additional Stockholders'
Common Purchase Paid-in Retained Treasury Equity
Stock Warrants Stock Earnings Stock (Deficit)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 $ 14 $ 1,227 $ 27,279 $31,235 $(87,975) $(28,220)
NET LOSS -- -- -- (8,726) -- (8,726)
------ ------- ------- ------ ------ ------
BALANCE, JUNE 30, 1995 14 1,227 27,279 22,509 (87,975) (36,946)
NET LOSS -- -- -- (7,897) -- (7,897)
------ ------- ------- ------ ------ ------
BALANCE, JUNE 30, 1996 $ 14 $ 1,227 $ 27,279 $14,612 $(87,975) $(44,843)
===== ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (7,897) $ (8,726) $ 31,125
Items not requiring (providing) cash:
Depreciation 5,427 4,971 8,973
Amortization 6,819 6,084 3,193
Gain on sale of assets (395) (550) (100)
Loss on underground storage facility 200 924 1,400
Undistributed earnings of affiliate (59) -- --
Extraordinary loss -- -- 5,555
Extraordinary gain -- -- (37,870)
Deferred income taxes (3,850) (3,000) (3,166)
Changes in:
Trade receivables 191 1,075 (130)
Inventories (896) (383) 1,170
Due from related parties (599) -- --
Accounts payable 508 289 (254)
Accrued expenses and self insurance 1,243 4,682 1,377
Prepaid expenses and other (375) (2,262) (1,617)
-------- -------- --------
Net cash provided by operating activities 317 3,104 9,656
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sales of retail service
centers and other assets 6,177 2,956 366
Acquisition of retail service centers (1,087) (7,047) (12,923)
Purchases of property and equipment (7,033) (4,154) (7,665)
-------- -------- --------
Net cash used in investing activities (1,943) (8,245) 20,222)
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM FINANCING
ACTIVITIES
Increase (decrease) in working capital
facility $ 1,331 $ 5,058 $ (3,200)
Principal payments on purchase obligations (837) (346) (203)
Checks in process of collection 1,209 (1,677) 3,262
Debenture sinking fund payments -- -- (2,023)
Purchase of treasury stock -- -- (2,274)
Proceeds from new debt offering -- -- 96,573
Retirement of debt with proceeds of
new debt offering -- -- (77,897)
Cash distributed with Empire Energy
Corporation -- -- (1,107)
-------- -------- --------
Net cash provided by financing activities 1,703 3,035 13,131
-------- -------- --------
INCREASE (DECREASE) IN CASH 77 (2,106) 2,565
CASH, BEGINNING OF YEAR 821 2,927 362
-------- -------- --------
CASH, END OF YEAR $ 898 $ 821 $ 2,927
======== ======== ========
</TABLE>
ALL STAR GAS CORPORATION
(FORMERLY EMPIRE GAS CORPORATION)
ALL STAR GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company's principal operation is the sale of wholesale and retail LP
gas. 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 western states and along the Pacific coast. At June 30,
1994, the Company's ownership and management was changed. See Note 2 for a
description of this restructuring transaction.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of All Star Gas
Corporation (Formerly Empire Gas Corporation) and its subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
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:
1996 1995
(In Thousands)
Gas and other petroleum products $ 2,835 $ 2,116
Gas distribution parts, appliances and equipment 3,204 3,570
--------- ---------
$ 6,039 $ 5,686
========= =========
PROPERTY AND EQUIPMENT
Depreciation is provided on all property and equipment on the straight-line
method over estimated useful lives of 3 to 33 years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996, the Company's only financial instruments are cash,
long-term debt and related accrued interest. It was not practicable to
estimate the fair value of long-term debt.
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.
AMORTIZATION
Debt acquisition costs are being amortized on a straight-line basis over
the terms of the debt to which the costs are related as follows: the 1994
senior secured note costs (originally $5,143,000) are amortized over ten
years; and the revolving credit facility costs (originally $341,000) are
amortized over three years.
Amortization of discounts on debentures and notes (Note 4) is on the
effective interest, bonds outstanding method.
The excess of cost over fair value of net assets acquired ($20,750,000)
is being amortized on the straight-line basis over 25 years.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed by dividing net income (loss)
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 1,579,225, 1,579,225 and 13,961,520 for each of the
fiscal years ended June 30, 1996, 1995 and 1994, respectively.
RECLASSIFICATION
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 financial statement presentation. These
reclassifications had no effect on net earnings.
NOTE 2: RESTRUCTURING TRANSACTION
On June 30, 1994, the Company implemented a change in ownership and
management by repurchasing 12,004,430 shares of Company common stock from its
former principal shareholder (Former Shareholder) and certain other departing
officers in exchange for all of the shares of a subsidiary, Empire Energy
Corporation (Energy), that owned 133 retail service centers located
principally in the Southeast plus certain home office assets and liabilities.
Certain departing officers and employees received $7.00 per share net of the
stock option exercise price for the remaining 377,865 shares of common stock
that they held. The Company retained ownership of 158 retail service centers
located in 20 states plus certain home office assets and liabilities.
In connection with the stock purchase, the Former Shareholder terminated
his employment with the Company as well as terminated certain lease and use
agreements with the Company (see Note 3). Following the stock purchase, the
Company's previous chief operating officer became the Company's president,
chairman of the board and principal shareholder (Principal Shareholder).
The Company has received a private letter ruling from the Internal Revenue
Service which provides that, based on certain representations contained in the
ruling, neither income nor gain for federal income tax purposes will be
recognized by the Company as a result of the stock purchase.
In connection with the stock purchase, the Company issued $127.2 million of
new debentures (with proceeds of $100.1 million before expenses of $3.5
million) which was used to retire $77.9 million of existing debt. The
remaining net proceeds were used to finance a $12.9 million acquisition of six
retail service centers in North Carolina, $2.5 million to repurchase treasury
stock and $3.3 million for working capital.
The retirement of existing debt (described in Note 4) resulted in an
extraordinary loss of $8,655,000, including net unamortized debt acquisition
costs of $420,000 related to the debt retired. These amounts were expensed in
June 1994, net of $3,100,000 of tax benefit.
The excess of fair value of net assets of Energy ($84,031,000) over book
value ($46,111,000) was an extraordinary credit to income ($37,870,000) in
June 1994, net of $50,000 of income tax expense.
The following table sets forth selected aggregate operating data for the
retail service centers of the Company which were retained after the
restructuring transaction and for the six retail service centers the Company
acquired in North Carolina. This acquisition was consummated June 30, 1994,
and was accounted for as a purchase of assets; accordingly, no revenues or
expenses related to the acquisition have been included in the statement of
operations for the year ended June 30, 1994.
North
Empire Gas Carolina
Corporation Acquisition Pro Forma
(After Giving (Unaudited)
Effect to (In Thousands)
Restructuring
Transaction)
June 30, 1994
Operating revenue $ 64,336 $ 10,501 $ 74,837
Cost of product sold 29,891 5,215 35,106
--------- ---------- ----------
Gross profit $ 34,445 $ 5,286 $ 39,731
=========== ========== ==========
NOTE 3: RELATED-PARTY TRANSACTIONS
During 1996, 1995 and 1994, the Company has purchased $202,598, $157,842
and $210,400, respectively, of paint from a corporation owned by the spouse of
the Principal Shareholder of the Company. During the year the Company also
advanced $251,000 to this related party which is outstanding at June 30, 1996.
During fiscal year 1994, the Company paid an investment banking firm
affiliated with a director of the Company $400,000 in return for services
rendered in connection with the negotiation of the Company's revolving credit
facility and with the restructuring transaction.
Beginning July 1, 1994, the Company entered into a seven-year services
agreement for a subsidiary of Energy to provide data processing and management
information services to the Company. The services agreement provides for
payments by the Company to be based on an allocation of the subsidiary's
actual costs based on the gallons of LP gas sold by the Company as a
percentage of the gallons of LP gas sold by the Company and Energy. For the
years ended June 30, 1996 and 1995, total expenses related to this services
agreement were $622,060 and $1.1 million, respectively.
Beginning July 1, 1994, the Company entered into a new lease agreement with
a corporation owned principally by the Former Shareholder to lease its
corporate office space. The new lease requires annual rent payments of $75,000
for a period of seven years, with two three-year renewal options.
In 1996 the Company entered into an operating lease with the Principal
Shareholder for a jet aircraft. The lease requires $282,981 in annual payments
for a term of 3 years beginning in June 1996. The lease also requires a
deposit of $200,000 which was paid in June 1996.
On August 15, 1995, the Company entered into a joint venture with
Northwestern Growth Corporation, a subsidiary of Northwestern Public Service
Corporation, to acquire the assets of Synergy Group Incorporated, the nation's
fifth largest LP gas distributor. The Company acquired 30% of the common stock
of SYN Inc., the acquisition entity, for $30,000 and entered into a Management
Agreement pursuant to which the Company provides management services for SYN
Inc. Under the terms of the Management Agreement, the Company provides all
management of the retail facilities and accounting services at the central
office. In exchange for those services, the Company receives a $500,000 annual
management fee and $3.25 million annual overhead cost reimbursement. During
1996 the Company received total payments of $3,281,000 related to management
fees and overhead reimbursement. In addition, $1,103,000 was reimbursed to the
Company for initial costs incurred related to the Synergy acquisition. The net
loss of SYN Inc. was $2.0 million after considering preferred dividends for
1996. The Company's 1996 equity share of the SYN Inc. loss was limited to its
basis of $30,000.
During 1996, the Company purchased on behalf of SYN, Inc. $42.0 million of
LP gas which was then transferred to them. A receivable of $116,000 has been
recorded primarily related to amounts owed the Company for purchases of
inventory and service provided on behalf of SYN Inc.
During 1996, the Company exchanged real and personal property of four of
its locations for three of SYN Inc.'s retail locations. The value of the
Company's locations exchanged was approximately $1,713,000 with the value of
SYN Inc.'s locations received of approximately $1,615,000 resulting in a
difference of $98,000 which was paid to the Company. In June 1996 the Company
sold to SYN Inc. one retail service center for $662,000 which is recorded as a
receivable at June 30, 1996.
During 1996 the Company acquired 49% of the common stock of Myers
Acquisition Company (Myers) through a joint venture with Northwestern Growth
Corporation. Myers acquired the stock of a retail LP distributor in Ohio. At
June 30, 1996, the Company has a receivable balance due from this related
party in the amount of $49,000. The Company's equity share in the net income
of Myers was $89,000 for the year ended June 30, 1996.
During 1996 the Company entered into lease agreements, under operating
leases, for the lease of transportation equipment to Propane Resources
Transportation, Inc. (PRT) of which SYN Inc. is a 15% shareholder. PRT
transports LP gas to the Company's and SYN Inc.'s retail locations. The
Company received $23,000 in lease income during 1996 from these leases. At
June 30, 1996, the Company has a receivable balance due from this related
party in the amount of $7,000.
The Company sells LP gas to Red Top Gas, a retail LP distributor owned by a
party related to the Principal Shareholder. At June 30, 1996, the Company has
a receivable balance due from this related party in the amount of $176,000.
Prior to the Restructuring Transaction described in Note 2, the Company had
various related party transactions with its Former Shareholder as described
below.
The Company leased its corporate home office, land, buildings and equipment
from a corporation principally owned by the Former Shareholder. The Company
paid $200,000 during the year ended June 30, 1994, related to this lease. This
lease was terminated effective June 30, 1994, at no additional expense to the
Company.
In connection with the stock purchase described in Note 2, the Company
repurchased, at face value, $4.7 million principal amount of the Company's
2007 9% subordinated debentures from the Former Shareholder and purchased,
at face value, $285,000 principal amount of the Company's 2007 9%
subordinated debentures from certain departing officers and employees of
the Company.
During 1994, the Company provided data processing, office rent and other
clerical services to two corporations owned principally by the Former
Shareholder and was being reimbursed $7,000 per month for these services.
The Company has discontinued providing these services as of June 30, 1994.
In 1994 the Company leased a jet aircraft and an airport hanger from a
corporation owned by the Former Shareholder. The lease required annual rent
payments of $100,000 beginning April 1, 1992. In addition to direct lease
payments, the Company was also responsible for the operating costs of the
aircraft and the hanger. During the year ended June 30, 1994, the Company
paid direct rent of $75,000. This lease was terminated effective June 30,
1994, at no additional expense to the Company.
The Company paid $150,000 in the year ended June 30, 1994, to a
corporation owned by the Former Shareholder pursuant to an agreement
providing the Company the right to use business guest facilities owned by
the corporation. This agreement was terminated effective June 30, 1994, at
no additional expense to the Company.
NOTE 4: LONG-TERM DEBT
Long-term debt at June 30 consisted of (In Thousands):
1996 1995
---- ----
Working capital facility (A) $ 6,389 $ 5,058
12_% Senior Secured Notes, due 2004 (B) 107,758 103,019
9% Subordinated Debentures, due 2007 (C) 5,203 5,094
Purchase contract obligations and
capital leases (D) 3,508 2,476
---------- -----------
122,858 115,647
Less current maturities 7,358 504
----------- -----------
$ 115,500 $ 115,143
=========== ===========
(A) The working capital facility was provided to the Company in June
1994 in conjunction with the offering of the 12 7/8% Senior Secured
Notes, due 2004. All of the Company's receivables and inventories
are pledged to the agreement which contains tangible net worth,
capital expenditures, interest coverage ratio, debt and certain
dividend restrictions. These dividend restrictions prohibit the
Company from paying common stock cash dividends. At June 30, 1996,
the Company was not in compliance with the original capital
expenditures, tangible net worth and interest coverage ratio
covenants. At June 30, 1995, the Company was not in compliance with
the capital expenditures and interest coverage covenants. The bank
has waived and amended the covenants, and the Company is in
compliance with the amended covenants.
The facility provides for borrowings up to $15 million, subject to a
sufficient borrowing base. The borrowing base generally limits the
Company's total borrowings to 85% of eligible accounts receivable and
52% of eligible inventory. In addition, the Company can borrow an
additional $1.5 million during the period September 9, 1996, to
December 31, 1996. The facility bears interest at either 1.5% over
prime or 3.0% over the LIBOR rate. The agreement provides for a
commitment fee of .375% per annum of the unadvanced portion of the
commitment. The Company's available revolving credit line amounted to
$1,793,000 at June 30, 1996, after considering $1,603,000 of
outstanding letters of credit. The letters of credit are principally
related to the Company's self-insurance program (Note 6). The working
capital facility is due on June 29, 1997 (see Note 14).
(B) The notes were issued June 1994 at a discount and bear interest at
7% through July 15, 1999, and at 12 7/8% thereafter. The notes are
redeemable at the Company's option. Prior to July 15, 1999, only 35%
of the original principal issued may be redeemed, as a whole or in
part, at 110% of the principal amount through July 15, 1997, and at
declining percentages thereafter. The notes are guaranteed by the
subsidiaries of the Company and secured by the common stock of the
subsidiaries of the Company.
The original principal amount of the notes issued ($127,200,000) was
adjusted ($27,980,000) to give effect for the original issue discount
and the common stock purchase warrants (effective interest rate of
13.0%). The discount on these notes is being amortized over the
remaining life of the notes using the effective interest, bonds
outstanding method. The face value of notes outstanding at June 30,
1996 and 1995, is $127,200,000.
The proceeds from this new offering were used to repay existing debt;
fund an acquisition; repurchase Company stock and for working capital
(Note 2).
Separate financial statements of the guarantor subsidiaries are not
included because such subsidiaries have jointly and severally
guaranteed the notes on a full and unconditional basis; the aggregate
assets and liabilities of the guarantor subsidiaries are substantially
equivalent to the assets and liabilities of the parent on a
consolidated basis; and the separate financial statements and other
disclosures concerning the subsidiary guarantors are not deemed to be
material.
The guarantor subsidiaries are restricted from paying dividends to the
Company during any periods of default under the respective debt
agreements, or in periods where the Company has borrowed under the
overadvance option described above.
(C) The debentures, issued June 1983, are redeemable at the Company's
option, as a whole or in part, at par value. A sinking fund payment
sufficient to retire $191,000 of principal outstanding is required on
December 31, 2005. In June 1994, the Company used proceeds from the
issuance of the 12 7/8% Senior Secured Notes, due 2004, to repurchase
$16,201,200 face value of these debentures at a discount which resulted
in an extraordinary charge (Note 2).
The original principal amount of debentures issued ($27,313,000) was
adjusted to market at issuance (effective interest rate of 16.5%). The
remaining 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, 1996 and 1995, is $23,215,000 of which $13,469,200 are registered
in the name of the Company.
(D) Purchase contract obligations arise from the purchase of operating
businesses and are collateralized by the equipment and real estate
acquired in the respective acquisitions. Capital leases include leases
covering data processing equipment for years expiring 1998. At June 30,
1996 and 1995, these obligations carried interest rates from 7% to 10%
and are due periodically through 2005.
Aggregate annual debt service requirements (in thousands) of the
long-term debt outstanding at June 30, 1996, are:
Total
Principal Interest Debt Service
1997 $ 7,358 * $ 10,023 $ 17,381
1998 980 9,945 10,925
1999 511 9,885 10,396
2000 244 17,328 17,572
2001 231 17,309 17,540
Thereafter 137,518 54,394 191,912
------------ ---------- -----------
$ 146,842 $ 118,884 $ 265,726
============ ========== ===========
* Includes the working capital facility which the Company intends to
refinance See Note 14).
NOTE 5: INCOME TAXES
The provision for income taxes includes these components.
1996 1995 1994
---- ---- ----
(In Thousands)
Taxes currently payable
(refundable) $ 100 $ (1,600) $ 2,887
Deferred income taxes (3,850) (3,000) (2,537)
-------- --------- ---------
$ (3,750) $ (4,600) $ 350
======== ========= =========
The tax effects of temporary differences at June 30 related to deferred
taxes were:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
(In Thousands)
Deferred Tax Assets
Allowance for doubtful accounts $ 271 $ 300
Accounts receivable advance collections 380 347
Self-insurance liabilities and contingencies 534 604
Original issue discount 3,341 1,564
Net operating loss carryforwards 1,769 --
Alternative minimum tax credit 1,200 1,300
------------ ------------
7,495 4,115
Deferred Tax Liability
Accumulated depreciation and tax cost differences (15,435) (15,905)
------- -------
Net deferred tax liability $ (7,940) $ (11,790)
============ ============
The above net deferred tax asset (liability) is presented on the June 30
balance sheets as follows:
1996 1995
---- ----
(In Thousands)
Deferred Tax Assets
Deferred tax asset - current $ 995 $ 1,350
Deferred tax liability - long-term (8,935) (13,140)
------------ ------------
Net deferred tax liability $ (7,940) $ (11,790)
============ ============
</TABLE>
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
1996 1995 1994
---- ---- ----
(In Thousands)
Computed at the statutory rate (34%) $ (3,960) $ (4,531) $ (285)
Increase (decrease) resulting from:
Amortization of excess of cost over
fair value of assets acquired 279 303 393
State income taxes - net of federal
tax benefit (347) (411) 150
Nondeductible travel costs and
other expenses 112 39 56
Other (84) 36
Additional accruals 250
Actual tax provision $ (3,750) $ (4,600) $ 350
============ ========= =======
At June 30, 1996, the Company had approximately $1.2 million of alternative
minimum tax credits available to offset future federal income taxes which
expire in the year 2010. The Company also has operating loss carryforwards of
$4.7 million which expire in the year 2011.
NOTE 6: SELF-INSURANCE AND RELATED 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 and vehicle liability. The Company
has a $500,000 deductible for each and every general liability incident. In
addition, the Company self-insures the first $500,000 of coverage above the
deductibles up to $1 million in aggregate losses. For the vehicle liability
program, 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.
Prior to July 1, 1995, the Company's excess coverage for comprehensive
general liability provided a loss limitation that limits the Company's
aggregate of self-insured losses to $1 million per policy period. For the
policy periods prior to July 1, 1991, July 1, 1992, through June 30, 1993, and
July 1, 1993, through June 30, 1994, the Company has provided for aggregate
comprehensive general liability losses through the policies' $1 million loss
limit. Additional losses, if any, are insured by the excess carrier and should
not result in additional expense to the Company. As of June 30, 1995, the
Company estimates losses for the comprehensive general liability policy
periods July 1, 1991, through June 30, 1992, and July l, 1994, through June
30, 1995, and July 1, 1995, through June 30, 1996, will not reach the $1
million loss limits and has provided accordingly.
Effective July 1, 1993, the Company self-insured the first $500,000 of
workers' compensation coverage (per incident). The Company purchased excess
coverage from carriers for workers' compensation claims in excess of the
self-insured coverage. Provisions for losses expected under this program were
recorded based upon the Company's estimates of the aggregate liability for
claims incurred. The Company provided letters of credit aggregating
approximately $2.3 million in connection with this program of which $856,000
is outstanding at June 30, 1996. Effective July 16, 1994, the Company changed
its policy so that it will obtain workers' compensation coverage from carriers
and state insurance pools.
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, vehicle and workers'
compensation liabilities (in thousands) for the years ended June 30, 1996,
1995 and 1994, are:
<TABLE>
<CAPTION>
Beginning Self- Ending
Self- Self- Insured Restructuring Self-
Insurance Insurance Claims Transaction Insurance
Liability Expenses Paid (Note 2) Liability
--------- -------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
June 30, 1994 $2,334 $3,709 $2,464 $1,707 $1,872
June 30, 1995 $1,872 $668 $1,129 $1,411
June 30, 1996 $1,411 $252 $623 $1,040
</TABLE>
The ending accrued liability includes $175,000 for incurred but not
reported claims at June 30, 1996, $350,000 at June 30, 1995, and $125,000 at
June 30, 1994. The current portion of the ending liability of $500,000 at June
30, 1996, 1995 and 1994, 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.
The Company and its subsidiaries are also defendants 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 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 $547,000, $240,000 and $979,000 for the years ended June
30, 1996, 1995 and 1994, respectively.
In conjunction with the restructuring transaction (Note 2), the Company and
Energy have agreed to share on a percentage basis the self-insured liabilities
and other business related lawsuits incurred prior to June 30, 1994, including
both reported and unreported claims. The self-insured liabilities included
under this agreement include general, vehicle, workers' compensation and
health insurance liabilities. Under the agreement, the Company assumed 52.3%
of the liability with Energy assuming the remaining 47.7%.
NOTE 7: CONTINGENCIES
The State of Missouri has assessed the Company approximately $1,400,000 for
additional state income tax for the years ended June 30, 1992 and 1993. An
amount approximating one-half of the above assessment could be at issue for
the year ended June 30, 1994. The Company has protested these assessments and
is currently waiting for a response from the Missouri Department of Revenue.
It is likely that this matter will have to be settled in litigation. The
Company believes that it has a strong position on this matter and intends to
vigorously contest the assessment.
The Internal Revenue Service (IRS) has begun a federal income tax audit of
the Company for the year ended June 30, 1994. While the audit is still in
process, the audit has principally focused on the deductibility of certain
professional fees and travel and entertainment expenses as well as in the
tax-free treatment of the restructuring transaction (See Note 2).
In conjunction with the restructuring transaction, the Company and Energy
agreed to share on a percentage basis amounts incurred related to federal and
state tax audits for fiscal years June 30, 1994, and prior.
The restructuring transaction was structured with the intent of qualifying
for tax-free treatment under Section 355 of the Internal Revenue Code and the
Company obtained a private letter ruling (the "Letter Ruling") from the IRS
confirming such treatment, subject to certain representations and conditions
specified in the Letter Ruling. The IRS is currently conducting an audit of
the Company for the year in which the restructuring transaction occurred. If
the IRS were to reverse the position it took in the Letter Ruling and prevail
on a challenge to the tax-free treatment of the restructuring transaction, the
Company would be liable along with Energy for a portion of any taxes, interest
and penalties due. The Company's liability could exceed the percentage under
the tax indemnity agreement with Energy if Energy were unable to fund its
percentage share under that agreement. If the Company were held liable for any
taxes, interest or penalties in connection with the above restructuring
transaction, the amount of this liability could be substantial and could
adversely effect the Company's financial position.
The Company and its subsidiaries are presently involved in other various
state tax audits which are not expected to have a material adverse effect on
the Company's financial position or results of operations.
NOTE 8: STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
The table below summarizes transactions under the Company's stock option
plan:
Number
of Shares Option Price
Balance June 30, 1993 129,250 $1.12 - $1.50
Exercised (129,250) 1.12 - 1.50
----------
Balance June 30, 1994 -0-
Issued 377,926 $7.00
-----------
Balance June 30, 1995 377,926 $7.00
Issued 66,000 $7.00
-----------
Balance June 30, 1996 443,926
===========
In June 1994 all outstanding stock options were exercised in connection
with the restructuring transaction (see Note 2). During the year ended June
30, 1995, a new stock option plan was approved resulting in the issuance of
additional options.
COMMON STOCK PURCHASE WARRANTS
In connection with the Company's restructuring, the Company attached
warrants to purchase common stock to the new issuance of 12 7/8% Senior Secured
Notes, due 2004. Each warrant represents the right to purchase one share of
the Company's common stock for $.01 per warrant. The warrants are exercisable
after January 15, 1995, and will expire on July 15, 2004.
The table below summarizes warrant activity of the Company:
Number
of Shares Exercise Price
Issued 175,536 $.01
--------
Balance at June 30, 1996
and 1995 175,536 $.01
========
NOTE 9: ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
NONCASH INVESTING AND FINANCING ACTIVITIES
Related party receivable from sale
of retail service center $662 -- --
Note receivable from sale of retail
service center $148 -- --
Receivable from sale of retail
service centers $2,390 -- --
Purchase contract obligations incurred $(1,111) $(1,433) $(1,015)
Capitalization of leases $(757) -- --
Debt acquisition costs in accounts payable -- -- $(746)
Purchase of treasury stock, net of option
exercise price, in accounts payable -- -- $(180)
Distribution of operating assets other than cash with Empire Energy
Corporation:
1994
Current assets $ 8,185
Fixed assets, net 51,620
Other assets 3,822
Current liabilities (2,697)
Long-term liabilities (15,926)
---------
$ 45,004
1996 1995 1994
---- ---- ----
ADDITIONAL CASH PAYMENT INFORMATION
Interest paid $10,216 $7,196 $9,191
Income taxes paid (net of refunds) $(1,647) $(2,321) $2,620
</TABLE>
NOTE 10: EMPLOYEE BENEFIT PLAN
The Company formed in fiscal year 1995 a defined contribution retirement
plan eligible to substantially all employees. Employees who elect to
participate may contribute a percentage of their salaries to the plan. The
Company may make contributions to the plan at the discretion of its Board of
Directors. No contributions to the plan were made by the Company during the
years ended June 30, 1995 or 1996.
NOTE 11: OPERATING LEASES
Noncancellable operating leases for the Company expire in various years
through 2004. These leases generally contain renewal options for periods
ranging from 1 to 5 years and require the Company to pay all executory costs
(property taxes, maintenance and insurance).
Future minimum lease payments (in thousands) at June 30, 1996, were:
1997 $ 547
1998 514
1999 420
2000 209
2001 200
Thereafter 135
--------------
Future minimum lease payments $ 2,025
==============
NOTE 12: RESTRUCTURING PROPOSAL COSTS
During the year ended June 30, 1994, the Company was considering a proposal
to restructure the debt and equity of the Company. The Company abandoned the
proposal and expensed the related costs of $398,000.
NOTE 13: UNDERGROUND STORAGE FACILITY
The Company owns salt cavern LPG underground storage facilities which are
not in use and are subject to a consent agreement with the state of Kansas.
Under the agreement, the Company was to submit a plan to the state for
resuming use of the facilities or permanently closing them.
During 1995 and 1994, charges of $924,000 and $1.4 million, respectively,
were taken against earnings to reduce the carrying value of the facilities to
zero. As of June 30, 1996, the Company has pursued the abandonment of the
facilities at an estimated cost of $200,000 which has been charged against the
current year's earnings.
NOTE 14: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Those matters include the following:
DEPENDENCE ON PRINCIPAL SUPPLIERS
One supplier, Warren Petroleum, accounts for approximately 20% of the
Company's volume of propane purchases.
ESTIMATES
Significant estimates related to self-insurance, goodwill amortization,
litigation, collectibility of receivables and income tax assessments are
discussed in Notes 3, 6 and 7. Actual losses related to these items could vary
materially from amounts reflected in the financial statements.
WORKING CAPITAL FACILITY
The Company's working capital facility is due on June 29, 1997. Although
the Company believes that the facility can be refinanced or replaced, in the
event that the Company is unable to refinance or replace this facility, the
failure to obtain alternate sources of financing for the Company's seasonal
working capital and debt service requirements would have a material adverse
effect on the Company.
NOTE 15: FUTURE ACCOUNTING PRONOUNCEMENTS
IMPACT OF SFAS NO. 121
In 1995 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for the Impairment of Long-Lived Assets to be
Disposed of." The Company must adopt this standard effective July 1, 1996. The
Company does not expect that the adoption of this standard will have a
material impact on its financial position or results of operations.
IMPACT OF SFAS NO. 123
The Financial Accounting Standards Board recently adopted Financial
Accounting Standards Statement No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This statement establishes a fair value based method
of accounting for stock-based compensation plans. It encourages entities to
adopt that method in place of the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", for all arrangements under which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of its stock. This statement applies to financial statements for fiscal 1997.
Management expects to continue to account for stock-based compensation in
accordance with the provisions of APB No. 25. Therefore, SFAS 123 is not
expected to have a significant impact on the Company's consolidated financial
statements.
NOTE 16: SUBSEQUENT SALES OF SUBSIDIARIES
Subsequent to year end, the Company sold five retail service centers for
sales prices totaling approximately $1.5 million in cash. Fiscal year 1996
summary data of the facilities sold were as follows:
In Thousands
Operating revenue $ 1,532
Cost of sales 959
-----------
Gross profit $ 573
===========
Working capital $ 214
===========
Net property, plant and equipment $ 1,197
===========
Independent Accountants' Report on Financial Statement Schedules
Board of Directors and Stockholders
All Star Gas Corporation
Lebanon, Missouri
In connection with our audit of the financial statements of ALL STAR GAS
CORPORATION (FORMERLY EMPIRE GAS CORPORATION) for each of the three years in
the period ended June 30, 1996, 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 on 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
August 30, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(In Thousands)
Balance at Charges Amount Balance at
Beginning Costs and Written End of
Description of Year Expenses Off Other Year
Valuation accounts
deducted from
assets to which
they apply - for
doubtful accounts
receivable:
June 30, 1996 $800 $889 $820 $(147)(D) $722
June 30, 1995 $1,620 $1,136 $1,973 $17(C) $800
June 30, 1994 $2,657 $1,056 $520 $(1,684)(A) $1,620
$111(B)
(A) Related to assets which were distributed in the Restructuring Transaction
described in Note 2 of the consolidated financial statements.
(B) Allowance for doubtful accounts receivable established with respect to the
acquisition described in Note 2 of the consolidated financial statements.
(C) Allowance for doubtful accounts receivable established with respect to the
acquisition of retail service centers.
(D) Related to accounts receivable which were sold in conjunction with the
disposition of retail service centers.
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated May 17, 1995, is made and
entered into among Empire Gas Corporation, a Missouri
corporation ("Empire"), Northwestern Growth Corporation,
a South Dakota corporation ("NGC"), and SYN Inc., a
Delaware corporation ("SYN"), with respect to the
following facts:
A. Empire, NGC and Syn have entered into that
certain Agreement Among Initial Stockholders and SYN
Inc., dated May 17, 1995 (the "Stock Agreement"), which,
among other things, requires this Agreement to be made
for the reasons recited in the Stock Agreement (such
recitals being incorporated herein by this reference).
B. SYN and NGC, immediately following the
execution of this Agreement, will be entering into that
certain Purchase and Sale Agreement, dated as of May 17,
1995, with Sherman C. Vogel, Stephen A. Vogel, Jeffrey K.
Vogel, Jon M. Vogel, Jeanette Vogel, Synergy Group
Incorporated (with its subsidiaries, "Synergy"), and S&J
Investments (the "Synergy Acquisition Agreement"),
providing for the acquisition by SYN of Synergy (the
"Synergy Acquisition").
C. This Agreement is essential to the ability of
SYN to finance and consummate the Synergy Acquisition,
and to manage the assets and business to be acquired by
the Synergy Acquisition.
NOW, THEREFORE, in consideration of the
premises and the agreements exchanged herein, the parties
hereto agree as follows:
ARTICLE 1: ENGAGEMENT TO PLAN AND MANAGE
SYN, on behalf of itself and its subsidiaries,
and for the benefit of its stockholders (of which NGC is
a principal one), hereby engages Empire to perform the
planning and management of the assets and business
operations of SYN and its subsidiaries (the "Management
Services"), and Empire hereby accepts such engagement and
agrees to perform the Management Services, subject to the
direction of the Board of Directors of SYN (the "Board")
and in accordance with the terms of this Agreement.
ARTICLE 2: BUSINESS PLAN; BUDGET
Section 2.01 INITIAL BUSINESS PLAN. The parties
hereto have developed a business plan, a copy of which is
attached as Exhibit A to this Agreement ("Initial Plan"),
for the conduct of business operations of SYN and its
subsidiaries after the completion of the Synergy
Acquisition (the "SYN Operations"), showing:
(a) The general longer-term objectives (to be
accomplished in a three to five year period of
time);
(b) The preliminary detailed plans for
conducting the SYN Operations through the end of
SYN's fiscal year ending June 30, 1996 ("fiscal
1996"), including the plant, facilities and
equipment (at various locations), and the personnel
staffing at the locations, needed to carry on the
SYN Operations for the balance of fiscal 1996
following the Synergy Acquisition and during the
longer term of the plan; and
(c) Capitalized reserves for (i) transition
costs including such items as costs of meetings with
personnel at the outlets and branches acquired in
the Synergy Acquisition, retail mailings and other
items, not to exceed $500,000 in the aggregate, and
(ii) costs of shutting down Synergy's facility at
Farmingdale, New York, offering severance to Synergy
employees and incorporating Synergy's operations
into Empire's facilities in Lebanon, Missouri.
Section 2.02 INITIAL BUDGET. The parties hereto
have developed a budget ("Initial Budget") for the
conduct of the SYN Operations for the balance of fiscal
1996 following the Synergy Acquisition in accordance with
the Initial Plan. A copy of the Initial Budget is
attached as Exhibit B to this Agreement.
Section 2.03 UPDATED AND AMENDED BUSINESS PLANS AND
BUDGETS. At least 30 days prior to June 30, 1996 and at
least 30 days prior to each June 30 thereafter until the
term of this Agreement expires or is terminated
(hereinafter sometimes referred to as the "end of the
term of this Agreement"), Empire will develop, in
consultation with NGC, and obtain the approval of the
Board of:
(d) An updated version of the Initial Plan (or
of the most recent previously updated version
thereof) to provide a detailed business plan for the
SYN Operations for the 18 months following such June
30 and a longer-term business plan for the three- to
five-year period following such June 30 (the Initial
Plan or updated version thereof in effect at a given
time, including all amendments thereto up to such
time, is hereinafter referred to as the "Applicable
Plan"); and
(e) An updated version of the Initial Budge
(or of the most recent previously updated version
thereof) to provide a budget for the conduct of the
SYN Operations for the 18 months following such June
30, (the Initial Budget or updated version thereof
in effect at a given time for a particular period,
including all amendments thereto up to such time, is
hereinafter referred to as the "Applicable Budget").
Empire may amend an Applicable Plan or an Applicable
Budget, or both, at any time and from time to time by
preparing such amendment, submitting the same to the
Board with such supporting information as the Board may
require, and obtaining the Board's approval thereof, but
no such amendment shall be effective unless and until
approved by the Board.
SECTION 2.04 ACTING WITHIN APPLICABLE PLAN AND
BUDGET. Empire shall mange the SYN Operations,
commencing with the Synergy Acquisition and continuing
thereafter until the end of the term of this Agreement,
in accordance with the Applicable plan and within the
applicable Budget, without obtaining approval of the
Board of the details of such management, but subject to
approvals by the Board required by law and to the
requirements for approval by the Board specified in
Article 9 herein. Notwithstanding the foregoing:
(f) Empire may take such management action
with respect to the SYN Operations as it may deem
advisable to respond to, and attempt to curtail or
avoid material adverse consequences resulting from
material unplanned adverse developments when
(reasonably) there is inadequate time in which to
secure advance approval of such action by the Board,
but in such event the situation and action taken
shall be submitted with reasonable promptness to the
Board for such further action as the Board may then
deem advisable;
(g) In addition to action taken pursuant to
preceding paragraph (a), Empire may cause SYN to
make maintenance capital expenditures which
individually exceed the Applicable Budget for such
expenditures or category of expenditures by not more
than $10,000, but only if the Board is notified
prior to, or at, the time of such expenditures,
while such expenditures in excess of such $10,000
limit may not be made or committed to unless
authorized in advance by the Board; and
(h) If Empire becomes aware that aggregate
operating or administrative expenses likely will be
1% or more in excess of what is provided for in the
then Applicable Budget, Empire shall promptly notify
the Board of such expected excess.
SECTION 2.05 OTHER ACTION. Any action that needs
to be taken in the performance of the Management Services
that is not provided for in an Applicable Plan or
Applicable Budget or otherwise provided for in this
Agreement shall be taken in accordance with Empire's good
faith judgment as to what is in the best interests of SYN
and its subsidiaries.
ARTICLE 3: EMPIRE'S SERVICES; KEY MAN INSURANCE
SECTION 3.01 EFFORT REQUIRED. Empire under the
management of Paul S. Lindsey, jr. ("Lindsey") as the
chief executive officer of Empire, shall devote
sufficient time and resources to reasonably assure
successful performance by Empire for SYN of the
Management Services in accordance with this Agreement.
SECTION 3.02 KEY MAN INSURANCE. To compensate SYN
for the loss of services that would occur in the event of
Lindsey's death, at all times while this Agreement is in
effect SYN may maintain in effect (at SYN's expense)
insurance on the life of Lindsey in an amount not less
than $10,000,000, payable to SYN, and Lindsey will
cooperate by providing personal information and taking
physical examinations as required by the insurance
carrier for issuing and maintaining such insurance
coverage. The cost of such insurance shall not be
charged, directly or indirectly, in any way to Empire or
to any of the compensation due Empire under this
Agreement. At the end of the term of this agreement, or
at such earlier time as the Board determines that SYN no
longer needs the insurance coverage provided for in this
Section, Lindsey will have the option to purchase
ownership of such insurance policies from SYN for a price
equal to any cash surrender value of the insurance.
ARTICLE 4: COMPENSATION OF EMPIRE
SECTION 4.01 COMPENSATION ENTITLEMENT. As
compensation in full for Empire's services under this
Agreement, SYN shall pay Empire a Fixed Fee (as defined
in Section 4.02 hereof) per annum and a Management Fee (as
defined in Section 4.03 hereof).
SECTION 4.02 FIXED FEE. The Fixed Fee (the amount
of which for each fiscal year of SYN, or part thereof,
will be included in the Applicable Budget for such
period), is intended to cover Empire's operating overhead
in performing its services under this Agreement. The
Fixed Fee shall be paid by SYN to Empire in equal monthly
installments in advance, upon commencement of Empire's
services and thereafter on the first day of each month,
and shall be at the initial annual rate of $3,250,000 for
the period commencing with the commencement of Empire's
services under this Agreement and ending June 30, 1996,
and for each 12-month period or portion thereof
thereafter until the end of the term of this agreement
the annual rate of the Fixed Fee shall increase by the
percentage increase in the Consumer Price Index. All
Items For all Urban Consumers, U.S. City Average (1982-84
= 100), as of the start of such period as determined by
the index number for the month most recently published by
the U.S. Department of Labor or any successor
governmental agency handling such publication, as of the
start of the period, compared to 151.4 (which is such
index figure for the month of March, 1995), but no
reduction in the annual rates of the Fixed Fee shall be
made if a decrease in such Consumer Price Index figure
shall occur. In addition to the foregoing adjustments in
the Fixed Fee related to changes in such Consumer Price
Index, the Fixed Fee shall be adjusted in an amount
approved by the Board to reflect Empire's increased fixed
operating overhead reasonably attributable to increases
in SYN's business resulting from acquisitions and start-
ups of business locations after the Synergy Acquisition
is completed. In the event of changes in the basis for
such Consumer Price index, or such index is discontinued,
the parties shall amend this Section 4.02 to provide as
closely as possible for the same adjustment mechanism,
using the changed basis or a different published index,
as appropriate.
SECTION 4.03 MANAGEMENT FEE. The Management Fee,
an estimate of which for each fiscal year shall be
included in the applicable Budget for such period, shall
be at the annual rate of $500,000 per annum payable by
SYN to Empire in equal monthly installments in advance
upon commencement of Empire's services and thereafter on
the first day of each month, plus a sum (the "Additional
Amount") equal to 10% of the amount by which the EBITDA
for SYN and its subsidiaries, on a consolidated basis,
exceeds the amount shown below for each period indicated,
with the Additional Amount for each such period to be
paid by SYN to Empire within 90 days after the end of
such period or at such earlier time as the final
calculation of the Additional Amount for such period is
completed:
$17,500,000 for the period ending June 30, 1996;
$18,000,000 for the 12 months ending June 30, 1997;
$18,300,000 for the 12 months ending June 30, 1998;
$18,600,000 for the 12 months ending June 30, 1999; and
$18,900,000 for the 12 months ending June 30, 2000;
For purposes of this Agreement, "EBITDA" means earnings
before interest, taxes, depreciation and amortization for
a specified period for the specified corporation, or the
specified group of corporations on a consolidated basis,
or the specified business locations, determined from
financial statements for such corporation or corporations
or business locations prepared on the basis of generally
accepted accounting principles, consistently applied.
ARTICLE 5: COMPETITION BETWEEN EMPIRE AND SYN
SECTION 5.01 OVERLAPPING MARKET AREAS. As promptly
as is reasonably possible, Empire and SYN shall use their
best efforts to exchange those outlets of Empire and SYN
that are designated in Exhibit C attached to this
agreement as having overlapping, competing market areas,
by having some of the SYN outlets listed on such Exhibit
C transferred to Empire and some of the Empire outlets
listed on such Exhibit C transferred to SYN, such that
upon completion of these transfers, the SYN outlets
transferred to Empire will have EBITDA (as defined in
Section 4.03 herein) and assets equivalent (with
immaterial exceptions) in value to the Empire outlets
transferred to SYN, and the overlapping, competing nature
of the market areas shown on Exhibit C will be eliminated
by such transfers. Any shortfall of EBITDA or asset
value to either party from such transfers shall be
compensated by either a transfer of assets or a cash
payment, the amount of which is to be negotiated between
NGC and SYN, as one party, and Empire, as the other
party.
SECTION 5.02 NON-COMPETITION; ACQUISITIONS.
(a) While this Agreement is in effect and for
a period of one year thereafter, Empire and SYN will
not solicit customers and employees from each other.
(b) Until the end of the term of this
Agreement and for a period of two years thereafter,
Empire and SYN shall not compete in each others area
of interest for new customers within such area.
Regarding individual acquisitions of retail propane
businesses greater than $7,500,000 which any party
hereto desires to make before the end of the term of
this Agreement, such acquisitions shall be owned
jointly by Empire and SYN in relation to the capital
provided for such acquisition or such other
arrangements as can be negotiated by such parties on
a case by case basis, but acquisitions less than
$7,500,000 shall be pursued first by the individual
entity with operations closest to the acquired
property, or if not successfully pursued by such
party, then jointly by Empire and SYN together,
based on capital provided, and if not successfully
pursued by those two parties, then by whichever
(Empire of SYN) was not such first party.
ARTICLE 6: ACCOUNTING SYSTEM; ACCOUNTANTS
SECTION 6.01 ACCOUNTING SYSTEM. At all times until
the end of term of this Agreement, Empire will:
(a) Cause SYN and its subsidiaries to
implement and maintain a system of accounting for
the assets, liabilities, operations and cash flows
of SYN and its subsidiaries, and internal controls
over accounting and financial matters for SYN and
its subsidiaries, similar to the system and controls
maintained by Empire for itself, or, if requested by
the Board, as the Board shall reasonably require;
and in connection with the foregoing, Empire shall
cause SYN to provide NGC with such financial
statement and reports with respect to assets,
liabilities, operations and developments affecting
the business or assets of SYN and its subsidiaries,
as NGC may require (taking into account the
accounting and reporting requirements of NGC's
parent corporation. Northwestern Public Service
Company); and
(b) Cause SYN to engage a so-called "Big six"
firm of independent public accountants (or whatever,
at the time is the equivalent of the present Big
six) approved by the Board to make quarterly reviews
and annual audits of SYN and its subsidiaries; but
to the most efficient extent possible, Empire shall
cause SYN to engage Baird, Kurtz & Dobson ("BK&D")
to perform detailed compliance work to assist the
designated firm of independent accountants in
completing the quarterly reviews and annual audits.
SECTION 6.02 AUDIT OR REVIEW. At all times until
the end of the term of this Agreement, Empire will allow
the Board and its authorized representatives, upon at
least seven-days' prior notice to, and in coordination
with, the President and Chief Executive Officer of SYN,
to audit or review the books of account and records of
all kinds kept for SYN, inspect SYN's properties, consult
with SYN's personnel and with Empire's personnel involved
in Empire's performance of services under this Agreement,
and generally to observe and monitor the operation,
management and accounting for SYN's business and assets;
provided, however, that such review and/or audit shall
not last longer than five business days unless Empire is
in default under this Agreement. Such reviews shall be
restricted to no more than once a month at the home
office of SYN, as maintained by Empire, through June 30,
1996 and quarterly thereafter, and unrestricted at all of
SYN's retail locations. All reports resulting from these
audits or reviews shall be promptly furnished to the
Board.
ARTICLE 7: INSURANCE FOR SYN
In addition to the key man insurance which SYN
may maintain pursuant to Section 3.02 herein, at all times
while this Agreement is in effect insurance covering
liability exposures of SYN and its Board, with types and
amounts of coverage as shall be approved by the Board,
shall be obtained and maintained for SYN and its
subsidiaries (at SYN's expense, and at no cost to Empire)
by Empire as part of the Management Services. Empire
shall be named as a co-insured under such coverages. The
cost of such insurance shall be included in each
Applicable Budget.
ARTICLE 8: ATTENDANCE OF EMPIRE'S BOARD MEETINGS
At all times while this Agreement is in effect,
NGC will designate a representative who may, as invited,
be allowed to attend quarterly meetings of Empire's Board
of Directors and to receive copies of all information
supplied by Empire to the members of its Board of
Directors for such meetings.
ARTICLE 9: SYN BOARD APPROVAL REQUIRED
The assets and business of SYN and its
subsidiaries shall be managed as provided herein by
Empire while this Agreement remains in effect, subject to
the overall direction and supervision by the Board.
However, Empire shall not take for SYN (such term at all
times in this Article 9 includes SYN's subsidiaries), or
cause SYN to take, any of the following actions without
having obtained the prior approval of the Board:
(a) Sell, lease, transfer or otherwise dispose
of, or enter into any agreement or arrangement for
any sale, lease, transfer or other disposition of
assets of SYN, except for (i) a sale, lease,
transfer or other disposition specifically provided
for in the Applicable Budget, or (ii) the sale of
services to customers and the sale or lease of
products in the ordinary course of business of SYN;
(b) Purchase any goods or services from, or
sell any goods or services to, or enter into or
amend any agreement or other transaction with,
Empire or any affiliate of Empire that is not on an
arm's-length basis;
(c) Cause SYN to incur any indebtedness for
borrowed money (including without limitation, any
capitalized lease obligations) or to enter into an
agreement for such borrowing (or leasing) with the
exception of seller financing of the purchase of
particular assets;
(d) Mortgage or otherwise grant a lien upon or
security interest in any assets of SYN except liens
upon acquired assets to secure seller financing for
the acquisition of such assets;
(e) Cause SYN to become a surety or guarantor
of, or an accommodation party to, or otherwise
become or be contingently liable for any
indebtedness or obligations of any other party,
other than as a result of endorsing to negotiate
payment of instruments received from customers in
payment for goods and services in the ordinary
course of business in amounts less than $50,000;
(f) Cause SYN to enter into any joint venture
or similar relationship or acquire any stock, debt
obligations or other securities of, or loan to or
make any investment in or capital contribution to
any other party which is not a wholly-owned
subsidiary of SYN;
(g) Institute, defend, or settle any legal
proceeding on behalf of SYN, except legal
proceedings against SYN shall be defended and if the
matter is partially or wholly covered by insurance,
it may be settled if the settlement payment to be
made by SYN is an amount not exceeding the
deductible under such insurance coverage for such
matter and all other matters not partially or wholly
covered by insurance may be settled if the
settlement payment to be made by SYN is an amount
not exceeding $50,000 per matter;
(h) Enter into any new contract for the
leasing, as lessee, of any real or personal
property, other than operating leases entered into
in the ordinary course of business involving a term
of not more than one year total or rental of not
more than $0,000, and other than retail location
operating leases;
(i) File or consent to any petition in
bankruptcy, reorganization, liquidation or similar
proceeding with respect to SYN, or seek, consent to
or acquiesce in the appointment of a trustee,
receiver or liquidator of SYN, or of all or any part
of the assets of SYN, or make an assignment for the
benefit of SYN's creditors;
(j) Confess a judgment against SYN greater
than $50,000;
(k) Amend, modify, supplement or waive any
provision of any contract, the making of which was
approved or required to be approved by the Board;
(l) Make any employment, severance, consulting
or similar agreement, including any agreement with a
labor union, or amend the same, for SYN with any
other party involving payments by SYN greater than
$50,000, or adopt any employee benefit plan for
employees of SYN;
(m) Open or close a primary office, plant or
other business location for SYN, or make an
agreement or commitment of any kind to do so unless
it results from the merger or consolidation with
another SYN plant, office or other business
location; or
(n) Take any action in contravention of this
Agreement.
ARTICLE 10: DIRECTORS AND OFFICERS
SECTION 10.01 DIRECTORS AND OFFICERS OF SYN.
During the term of this Agreement, the provisions of
Section 5.02 of the Stock Agreement (which are hereby
incorporated herein by this reference) shall be carried
out by Empire and NGC even if the Stock Agreement ceases
to be in effect for any reason.
SECTION 10.02 DIRECTORS AND OFFICERS OF
SUBSIDIARIES. The directors and officers of subsidiaries
of SYN shall be designated by Empire to enable Empire to
achieve an efficient management and administration of the
business and affairs of the subsidiaries.
ARTICLE 11: TERM; TERMINATION
SECTION 11.01 TERM OF THIS AGREEMENT; TERMINATION.
The term of this Agreement shall be in effect until it
expires on June 30, 2000, or at the end of any fiscal
year thereafter if preceded by at least six-months'
written notice by SYN or one-year's written notice by
Empire of its desire to terminate as of such date, unless
sooner terminated at the election of the Board, and upon
giving notice to Empire of such election, on any earlier
date in the event of any of the following:
(a) Upon default by Empire under this
Agreement which remains uncured after 30 days
written notice of such default has been given to
Empire by SYN or NGC;
(b) Upon any change in ownership of Empire
which results in Lindsey having less than voting
control (as a stockholder) of Empire;
(c) Upon the filing or consent to any petition
in bankruptcy, reorganization, liquidation or
similar proceeding with respect to Empire, or the
appointment of a trustee, receiver or liquidator for
Empire for all or a substantial part of its assets,
or the making of an assignment by Empire for the
benefit of its creditors;
(d) Upon the failure of SYN and its
subsidiaries to achieve the following cumulative
(consolidated) EBITDA results for the periods
beginning with the Synergy Acquisition and ending on
the dates indicated below, as follows:
(i) for the period ended June 30, 1996,
cumulative EBITDA of at least $14
million;
(ii) for the period ended June 30, 1997,
cumulative EBITDA of at least $29
million;
(iii) for the period ended June 30, 1998,
cumulative EBITDA of at least $45
million;
(iv) for the period ended June 30, 1999,
cumulative EBITDA of at least $62
million;
(v) for the period ended June 30, 2000,
cumulative EBITDA of at least $80
million; and
(vi) for periods (if any) subsequent to
June 30, 2000, cumulative EBITDA at
the end of each fiscal year of SYN
shall be at least $20,000,000
higher than at the end of the
previous fiscal year;
(e) If SYN at any time is in default with
respect to more than $1,000,000 of its borrowings;
(f) If Empire at any time is in default with
respect to its outstanding publicly-held bonds;
(g) By mutual agreement of the parties or when
required by final court order or final award of
arbitrators; or
(h) If the stock of SYN, or stock entitling
the holder or holders thereof to cast a majority of
the votes in the general election of directors of
SYN, or substantially all of the assets of SYN, is
sold, directly or by merger or consolidation.
The term of this Agreement also may be terminated at the
election of Empire and upon giving notice to NGC and SYN
of such election in the event of any of the following:
(i) Upon default by SYN resulting from non-
payment of the Fixed Fee or the Management Fee to
Empire which remains uncured after 30 days written
notice of such default has been given by Empire to
SYN or NGC; or
(ii) If the stock of SYN, or stock entitling
the holder or holders thereof to cast a majority of
the votes in the general election of directors of
SYN, or substantially all of the assets of SYN is
sold, directly or by merger or consolidation; or
(iii) If any of the terms of this Agreement
are changed without the consent of Empire.
SECTION 11.02 TRANSITION UPON TERMINATION.
(i) Upon expiration or earlier termination of this
Agreement, the parties hereto will cooperate to the
fullest extent possible to facilitate the creation of a
staff of management personnel, and the establishment of
facilities owned or leased by SYN or otherwise available
for use by SYN on terms acceptable to SYN, to enable SYN
to plan and manage its business operations and assets
without the services that would have been provided by
Empire under this agreement had this agreement remained
in effect; and until that is accomplished (and the
parties hereto shall make a good faith effort to
accomplish it promptly), SYN shall have the use of the
personnel and facilities of Empire that had been devoted
in whole or in part to such planning and management at a
cost not to exceed the amount most recently budgeted
therefor in the last applicable Budget, or at Empire's
cost in the absence of such budgeted amount.
(j) Notwithstanding the foregoing, in the event
this Agreement is terminated by Empire, SYN shall have up
to 18 months (including the 12-months' notice period) to
plan and execute an operational and transition plan for
achieving what is provided for in preceding subsection
(a).
SECTION 11.03 PUTS AND CALLS.
(k) In the event this Agreement is terminated by
Empire, SYN shall have a call right to purchase Empire's
shares of common stock of SYN at a price equal to 100% of
fair market value, determined by appraisal, and Empire
shall have a put right to sell to SYN Empire's shares of
common stock of SYN at a price equal to 90% of fair
market value, determined by appraisal, provided that, in
case of a put by Empire, SYN has adequate liquidity, as
reasonably determined by its Board, to make such
purchase.
(l) In the event this Agreement is terminated by
SYN, SYN shall have a call right to purchase Empire's
shares of common stock of SYN at a price equal to 110% of
fair market value, determined by appraisal, and Empire
shall have a put right to sell to SYN Empire's shares of
common stock of SYN at a price equal to 100% of fair
market value, determined by appraisal, provided that in
the case of a put by Empire, SYN has adequate liquidity,
as reasonably determined by its Board, to ,make such
purchase.
(m) For these purposes, fair market value of the
shares of common stock of SYN to be sold and purchased
shall be determined by an appraiser or investment bunker
selected as provided in Section 1.04(a)(ii) of the Stock
Agreement, with the appraisal made in accordance with
such Section.
ARTICLE 12: RIGHT OF FIRST REFUSAL
So long as this Agreement is in effect, Empire will
require Lindsey not to sell or otherwise dispose of the
shares of stock of Empire which he owns (other than to an
affiliated entity or related party or to Empire
management personnel, provided that Lindsey retains
voting control of Empire), and Empire will not sell or
otherwise dispose of all or substantially all of its
business and assets, whether such transactions are to be
done directly or indirectly by means of a merger or
consolidation of Empire with the acquiring entity,
without first offering the same for sale to NGC, on the
same terms as are offered by the other party (with full
disclosure of such terms to NGC), and allowing not less
than 30 days after its receipt of the offer for NGC to
accept the offer, and if such offer is accepted by NGC,
NGC shall have 90 days in which to complete the purchase
on such terms.
ARTICLE 13: MISCELLANEOUS
SECTION 13.01 NOTES. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been give (a) when delivered in person,
(b) one business day after deposit with a nationally
recognized overnight courier service, (c) two business
days after being deposited in the United States mail,
postage prepaid, first class, registered or certified
mail, or (d) the business day on which it is sent and
received by facsimile, as follows:
If to SYN, to: SYN Inc.
c/o Northwestern Growth Corporation
33 Third Street , S.E.
Huron, SD 57350
Fax No. (605) 353-8286
Attn: Richard R. Hyland, President
and Chief Operating Officer
and to SYN Inc.
c/o Empire Gas Corporation
1700 South Jefferson Street
Lebanon, MO 65536
Fax No. (417) 532-8529
Attn: Paul S. Lindsey, Jr., Chief
Executive Officer
If to NGC: Northwestern Growth Corporation
33 Third Street, S.E.
Huron, SD 57350
Fax No. (605) 353-8286
Attn: Richard R. Hylland,
President
If to Empire: Empire Gas Corporation
PO Box 303
1700 South Jefferson
Lebanon, MO 65536
Fax No. (417) 532-8529
Attn: Paul S. Lindsey, Jr.,
President
or to such other person or address as any party hereto
shall specify in notice in writing given to the other
parties hereto.
SECTION 13.02 ASSIGNMENT RESTRICTED; SUCCESSORS AND
ASSIGNS. No party hereto may assign its interest in this
Agreement without first obtaining the written consent of
the other parties hereto, except that this Agreement may
be assigned by SYN, without obtaining such consents, to
(and in connection with the closing of the acquisition
by) an acquirer of substantially all of the business and
assets of SYN and its subsidiaries, provided that written
notice of such assignment is given to the other parties
hereto, and except further that this Agreement may be
assigned by NGC (in connection with the assignment of
NGC's shares of common stock of SYN) to NWPS, or any
wholly-owned subsidiary of NWPS, without obtaining such
consents, provided written notice of such assignment is
given to the other parties hereto.
SECTION 13.03 SEVERABILITY. Should any provision
of this Agreement for any reason be declared invalid or
unenforceable, such decision shall not affect the
validity or enforceability of any of the other provisions
of this Agreement, which remaining provisions shall
remain in full force and effect and the application of
such invalid or unenforceable provision to persons or
circumstances other than those as to which it is held
invalid or unenforceable shall be valid and be enforced
to the fullest extent permitted by law.
SECTION 13.04 INTERPRETATION. The article and
section headings contained in this Agreement are solely
for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement.
SECTION 13.05 ARBITRATION. Any dispute arising
under this Agreement shall be resolved by arbitration.
Each of the parties hereto agrees (a) that each such
arbitration shall be initiated and conducted in
accordance with the rules and procedures of the American
Arbitration Association ("AAA"), (b) to submit all such
disputes to the office of the AAA in charge of
arbitrations conducted in the metropolitan area of the
City of Minneapolis, Minnesota, and (c) to have each such
arbitration proceeding conducted in the metropolitan area
of the City of Minneapolis, Minnesota, and (d) to be
subject to the jurisdiction of the arbitrators in the
City of Minneapolis, Minnesota upon notice given in
accordance with the provisions of this Agreement that a
dispute has been submitted to such office of the AAA.
SECTION 13.06 GOVERNING LAW. This Agreement shall
be governed by the laws of the State of Delaware
(regardless of the laws, that might otherwise govern
under applicable principles of conflicts of law) as to
all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
SECTION 13.07 COUNTERPARTS. This Agreement may be
executed in counterparts, each of which shall be deemed
an original, but all of which collectively shall
constitute one and the same agreement.
IN WITNESS HEREOF, the parties hereto have
executed this Agreement as of the date first above
written.
Empire Gas Corporation SYN Inc.
By: /s/ Paul S. Lindsey, Jr. By:/s/ Paul S. Lindsey, Jr.
_______________________ _______________________
Its President Title:
Northwestern Growth
Corporation
By: /s/ Richard R. Hylland
________________________
Its President
AGREEMENT AMONG INITIAL STOCKHOLDERS AND SYN INC.
THIS AGREEMENT, dated May 17, 1995, is made and entered
into among Empire Gas Corporation, a Missouri corporation
("Empire"), Northwestern Growth Corporation, a South Dakota
corporation ("NGC"), and SYN Inc., a Delaware corporation
("SYN"), with respect to the following facts:
A. Empire currently is engaged in the business of
distributing and selling at retail liquefied petroleum ("LP") gas
and appliances, and has a management experienced in the operation
of such business.
B. NGC is a wholly-owned subsidiary of Northwestern
Public Service Company ("NWPS") and has as one of its objectives
the making of investments that could benefit NWPS and its
stockholders.
C. Empire and NGC, acting together, have made a
successful bid to acquire the LP gas distribution and appliance
business of Synergy Group Incorporated ("Synergy"; such
acquisition being hereinafter called the "Synergy Acquisition"),
in what is planned to be the first step in the proposed
development by Empire and NGC, on a team basis, of a significant
position in the LP gas distribution industry. Empire and NGC
have contemplated, in their bidding for the Synergy Acquisition,
that they will rely principally on Empire for management
expertise and on NGC to provide or arrange the financing for the
Synergy Acquisition, and that the success of the Synergy
Acquisition will depend in large measure upon the cost savings
and operating improvements expected to be achieved by having
Empire do the planning and management of the business of Synergy
and its subsidiaries, under the direction of the Board of
Directors of SYN.
D. Empire and NGC have caused SYN to be incorporated
to serve as the vehicle (directly or through subsidiaries to be
created) for making the Synergy Acquisition.
E. Empire and NGC, on behalf of SYN, are concluding
the negotiation of the definitive agreement (the "Synergy
Acquisition Agreement") for the Synergy Acquisition, and need to
provide for (i) the initial capitalization of SYN, (ii) certain
loan financing for SYN, (iii) the management of SYN and (iv) for
certain matters pertaining to the ownership of shares of stock of
SYN.
NOW THEREFORE, in consideration of the premises and the
agreements exchanged herein, the parties hereto agree as follows:
ARTICLE I: INITIAL CAPITALIZATION OF SYN;
STOCK SUBSCRIPTIONS AND RESERVATIONS OF STOCK
SECTION 1.01 INITIAL AUTHORIZED STOCK OF SYN. SYN has
been incorporated by Empire and NGC with an initial authorized
capitalization (as set forth in Article FOURTH of SYN's
Certificate of Incorporation, a true and complete copy of which
is attached hereto as Exhibit A), consisting of 100,000 shares of
common stock, par value 1 CENT per share (the "Common Stock"); and
the 100,000 shares of Common Stock referred to herein shall only
be increased with the prior written agreement of Empire and NGC
unless such increased number of shares is to be issued in an
arm's length transaction to a party who is not affiliated with
any of the parties to this Agreement), and 100,000 shares of
preferred stock, par value 1 CENT per share, issuable in one or more
series (the "Preferred Stock"). Prior to the consummation of the
Synergy Acquisition, SYN shall, and Empire and NGC shall cause
SYN to, take all action necessary to create and authorize the
issuance of a series of the Preferred Stock, namely, the Series A
Cumulative Preferred Stock, consisting of 70,500 shares, the
terms of which shall be as set forth in Exhibit B attached
hereto, with such changes therein as the parties hereto may
approve before such series is created (the "Series A Preferred
Stock").
SECTION 1.02 SUBSCRIPTIONS AND OPTION FOR STOCK. NGC
has previously purchased, and hereby subscribes for, stock of
SYN, and NGC has granted Empire an option to purchase certain
shares of stock from NGC, as follows:
(a) SYN and NGC acknowledge that NGC has
purchased from SYN, and SYN has sold and issued to NGC,
1,000 shares of Common Stock for a cash purchase price of
$1,000.00 which has been paid by NGC to SYN, and that these
shares are the only shares of stock of SYN that are
currently outstanding.
(b) NGC hereby subscribes for, and agrees to
purchase from SYN, and SYN hereby agrees to sell and issue
to NGC, an additional 71,500 shares of Common Stock for a
cash purchase price of $71,500.00 to be paid at the time of
such issuance, with this transaction to be consummated (the
"Subscription Closing") at the First Closing, as defined in
the Synergy Acquisition Agreement, unless an earlier time
for the Subscription Closing is agreed to by the parties
hereto. The obligation of NGC under its subscription in
this paragraph (b) is subject to the condition (unless
waived by NGC) that NGC shall have been able to obtain the
funds from the Permanent Financing or the Temporary
Financing, as those terms are defined in the Synergy
Acquisition Agreement, at or prior to the time of the
Subscription Closing.
(c) NGC hereby subscribes for, and agrees to
purchase from SYN, and SYN hereby agrees to sell and issue
to NGC, 68,000 shares of Series A Preferred Stock for a cash
purchase price of $1,000 per share ($68,000,000.00 total),
with this transaction to be consummated at the Subscription
Closing. The obligation of NGC under its subscription in
this paragraph (c) is subject to the condition (unless
waived by NGC) that NGC shall have been able to obtain the
funds from the Permanent Financing or the Temporary
Financing, as those terms are defined in the Synergy
Acquisition Agreement, at or prior to the time of the
Subscription Closing and that, at the time of the
Subscription Closing, the First Closing (as defined in the
Synergy Acquisition Agreement) is currently occurring or is
reasonably assured of being consummated immediately
thereafter.
(d) Empire hereby subscribes for, and agrees to
purchase from SYN, and SYN hereby agrees to issue and sell
to Empire, 10,000 shares of Common Stock (which shall
represent 10% of the issued and outstanding Common Stock)
for a cash purchase price of $10,000 to be paid at the time
of such issuance, with this transaction to be consummated at
the Subscription Closing. The obligation of Empire under
its subscription in this paragraph (d) is subject to the
condition (unless waived by Empire) that NGC consummates its
purchase of shares of Common Stock under paragraph (b) above
in this Section 1.02 at the Subscription Closing.
(e) NGC hereby grants to Empire an option to
purchase from NGC, at a price of $1.00 per share, up to
20,000 of the shares of Common Stock which shall represent
20% of the issued and outstanding Common Stock, subject to
NGC acquiring such shares pursuant to paragraph (b) above in
this Section 1.02. Such option may be exercised at any time
after September 30, 1995 and prior to September 30, 1997, or
the Determination Date (as defined in Section 1.04 herein),
whichever is earlier, by Empire's giving written notice of
such exercise to NGC. After the giving of such notice, NGC
shall assign and deliver to Empire the shares of Common
Stock for which the stock option was exercised, as promptly
as possible, but in any event within seven days, in exchange
for Empire's payment to NGC of the purchase price for such
shares; and the shares so assigned and delivered shall then
be shares owned by Empire and shall be held by Empire
subject to the terms of this Agreement.
SECTION 1.03 RESERVATIONS OF STOCK FOR ISSUANCE. SYN
shall, and Empire and NGC shall cause SYN to, take all action
necessary to reserve for initial issuance, 17,500 shares of
Common Stock and 2,500 shares of Series A Preferred Stock to be
issued to the Stockholders (as defined in the Synergy Acquisition
Agreement) at the Second Closing (also as defined in the Synergy
Acquisition Agreement), pursuant to the Synergy Acquisition
Agreement.
SECTION 1.04 COMMON STOCK RETURN. The following
provisions of this Section 1.04 apply in the event Empire
exercises the stock option granted to it in Section 1.02(d)
herein:
(f) The "Common Stock Return," as the term is
used herein, shall be the number of shares of Common Stock
of SYN which Empire hereby agrees to assign and deliver to
NGC, without cost to NGC, in the event that the common
equity value at a Determination Date (as defined below) is
below levels specified for such date in subparagraph (iii)
in this paragraph (a). The Common Stock Return shall be set
in accordance with the following formula:
(i) The Determination Date shall be the date
on which SYN is sold (meaning a sale of substantially
all of the assets of SYN and its subsidiaries, the
acquisition of SYN by another, non-affiliated entity by
merger or consolidation, or the sale of partnership
units or shares of stock or SYN which entitle the
holder thereof to cast at least a majority of the votes
entitled to be cast in the general election of
directors of SYN or the date on which the sale of
partnership units or shares of SYN's Common Stock is
closed in an underwritten public offering, for which
the partnership units or shares are registered under
the Securities Act of 1933, or the date on which this
Agreement expires or is terminated in accordance with
Section 7.02 herein, whichever of the foregoing first
occurs).
(ii) The value of the total outstanding
Common Stock of SYN on the Determination Date (the
"Value"), shall be determined by the parties hereto on
the basis of the sale price for SYN if the sale of SYN
is involved, or based upon the price to SYN (or the
selling stockholders if SYN is not the seller) in the
event an underwritten public offering of partnership
units or Common Stock of SYN is involved, or on the
basis of the fair market value of the outstanding
Common Stock of SYN in every other event, as determined
by an appraisal firm or an investment banking firm
selected by the parties hereto, with such fair market
value to be determined on the basis of the value of SYN
and its subsidiaries as a whole, if sold as a going
concern. In the event there is a combination of one or
more entities with SYN, the value of SYN will be
determined by either (x) a fair market value appraisal
or (y) in the event there is a public offering within
nine months after such combination, the value shall be
the initial price to the public of the SYN shares of
Common Stock or partnership units in such public
offering.
(iii) For these purposes, "deemed
outstanding shares of Common Stock" shall be the total
of the number of shares of Common Stock issued and
outstanding, plus the number that would be issued and
outstanding if all outstanding stock options, warrants,
conversion rights and other rights to acquire shares of
Common Stock were exercised, whether or not exercisable
at the time. The number of shares of Common Stock of
SYN constituting the Common Stock Return shall be the
percentage of the deemed outstanding shares of Common
Stock of SYN as of the Determination Date, determined
on the basis of the following table and paragraph (b)
below, if applicable:
Column A Column B Column C
Percentage of deemed Percentage of deemed
outstanding outstanding
shares of Common Stock shares of Common Stock
of SYN of SYN
shall be 0% if the shall be 7.5% if the
Fiscal Year of Value as of Value as of
SYN in which the Determination Date the Determination Date
Determination is at least the is less than the
Date occurs: following amount: following amount:
1996 $24,500,000 $22,250,000
1997 $30,000,000 $24,750,000
1998 $36,750,000 $27,500,000
1999 $45,000,000 $30,600,000
2000 $55,200,000 $34,000,000
After 2000 1.225 times the 1.1125 times the
previous year's amount previous year's amount
(g) If the Value as of the Determination Date is
more than the amount in Column C in Section 1.04(a)(iii)
above, but less than the amount in Column B therein, the
percentage used to determine the Common Stock Return shall
be a figure between 7.5% and 0% which is in proportion to
what the Value is to the amounts in the two columns for the
particular Determination Date.
SECTION 1.06 ACQUISITION FOR INVESTMENT. Empire and
NGC each represent and warrant to the other, and to SYN, as
follows: It has (through its management personnel) such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of purchase of
securities of SYN as provided for in this Agreement; it is
acquiring such securities, and will acquire them, for investment
and not with a view toward, or with any intention of,
distributing or selling any of the securities and it will not
sell or offer to sell or otherwise transfer any of the securities
in violation of the Securities Act of 1933, as amended.
ARTICLE II: LOAN FINANCING FOR SYN
NGC shall make a commercially reasonable effort to
arrange for SYN, or provide SYN with, loan financing for SYN, on
a fully secured basis, of up to $70,000,000 principal amount
needed by SYN for the Synergy Acquisition.
ARTICLE III: LIMIT TO FINANCING OBLIGATIONS
Neither Empire nor NGC, nor any of their affiliates,
shall have any obligation to provide, or arrange, financing for
SYN other than as expressly provided for in Articles I and II
herein.
ARTICLE IV: SYNERGY ACQUISITION
Each of the parties hereto will make a commercially
reasonable effort in cooperation with the other parties hereto,
to do those things within its control to consummate the Synergy
Acquisition in accordance with the terms of, and subject to the
conditions in, the Synergy Acquisition Agreement. Nothing in
this Agreement or otherwise shall be construed to give anyone who
is not a party to this Agreement, whether under a third party
beneficiary legal doctrine or otherwise, a right to enforce the
provisions of this Article or to obtain relief for any failure to
perform in accordance with the requirements of this Article.
ARTICLE V: MANAGEMENT OF SYN
SECTION 5.01 At or before the first Closing (as
defined in the Synergy Acquisition Agreement), the parties hereto
will enter into a management agreement in substantially the form
attached hereto as Exhibit C, or with such changes therein as the
parties hereto hereafter agree upon (the "Management Agreement"),
pursuant to which the planning and management of the business of
SYN subsequent to the Second Closing (as defined in the Synergy
Acquisition Agreement) will be conducted by Empire under the
direction of the Board of Directors of SYN, as provided therein.
SECTION 5.02 DIRECTORS AND OFFICERS OF SYN
(a) For purposes of this Agreement, "Control
Period" means the period of time commencing on the date of
this Agreement and continuing either (i) until this
Agreement is terminated pursuant to Section 7.02 herein
because of the termination of the Synergy Acquisition
Agreement without the Synergy Acquisition having been
completed or (ii) until a time after the First Closing, as
defined in the Synergy Acquisition Agreement, when (A) the
Control Period is terminated by agreement of the parties
hereto, (B) NGC no longer owns a majority of the shares of
Common Stock of SYN deemed to be outstanding (determined as
provided in Section 1.04 herein), (C) Empire no longer owns
at least 20% of the shares of Common Stock of SYN deemed to
be outstanding or has an option to acquire at least that
amount of shares, or (D) when SYN consummates an
underwritten public offering of partnership units or shares
of its Common Stock, registered under the Securities Act of
1933, whichever of (A), (B), (C) or (D) first occurs.
(b) Throughout the Control Period, NGC and Empire
shall vote their voting shares of stock of SYN that are
capable of being voted, and will otherwise use their
respective commercially reasonable efforts, to carry out the
following:
(i) the Board of Directors of SYN shall
consist of five members, three of whom shall be
nominees of NGC (the "NGC Positions") and two of whom
shall be nominees of Empire (the "Empire Positions");
and any vacancies occurring in the NGC Positions will
be promptly filled with nominees of NGC and any
vacancies occurring in the Empire Positions will be
promptly filled with nominees of Empire.
(ii) The officers of SYN shall include at all
times a Chairman of the Board and a Vice Chairman of
the Board, who will be persons nominated by NGC, and a
President and Chief Executive Officer, who will be Paul
S. Lindsey, Jr., and a Secretary, who will be a person
nominated by Empire. The authority and duties of such
officers shall be set forth in the by-laws of SYN, a
true and complete copy of which as in effect on the
date hereof is attached hereto as Exhibit D.
(c) To initiate compliance with preceding
paragraph (b), Empire and NGC have caused the following
person to be elected to the positions with SYN indicated by
their names, to serve for the period provided in the by-laws
of SYN:
* Chairman of the Board and director -- Merle
D. Lewis (an NGC nominee for such positions);
* Vice Chairman of the Board and director --
Richard R. Hylland (an NGC nominee for such
positions);
* President and Chief Executive officer and
director -- Paul S. Lindsey, Jr. (an Empire
nominee as to the position of director);
* Secretary and director -- Douglas A. Brown
(an Empire nominee for such positions);
with the fifth member of the Board of Directors of SYN (one
of the NGC Positions) to be nominated by NGC, and elected,
at a future time when NGC has selected the nominee for such
position.
ARTICLE VI: DISPOSITION OF SYN STOCK BY EMPIRE OR NGC
SECTION 6.01 PERMITTED DISPOSITIONS.
(a) NGC may at any time or from time to time
transfer any of the securities issued by SYN which NGC may
own at any time to NWPS or any wholly-owned subsidiary of
NWPS, provided that notice of such transfer is given to the
other parties to this Agreement and that the Transferee
becomes a party to this Agreement with respect to the
securities so transferred, by all of such transferees and
NGC shall collectively act, and be treated, as a single
entity with NGC acting as their representative for purposes
of this Agreement.
(b) Empire may at any time and from time to time
transfer any of the securities issued by SYN which Empire
may own at any time to any affiliated party, provided that
notice of such transfer is given to the other parties to
this Agreement and the transferee becomes a party to this
Agreement with respect to the securities so transferred, but
all such transferees and Empire shall collectively act, and
be treated, as a single entity with Empire acting as their
representative for purposes of this Agreement.
SECTION 6.02 RIGHTS OF FIRST REFUSAL.
(c) Except as permitted by Section 1.04 and
Section 6.01(b) herein, so long as the Management Agreement
is in effect, Empire will not sell or otherwise dispose of
any shares of Common Stock of SYN, or any other securities
convertible into such shares, to any party without first
offering the same for sale to NGC in writing on the same
terms as are offered to or by the other party (with full
disclosure of such terms to NGC) and allowing not less than
30 days after its receipt of the offer for NGC to accept the
offer, and if such offer is accepted by NGC, NGC shall have
90 days in which to complete the purchase on such terms.
(d) Except as permitted by Section 1.02(e) and
Section 6.01(a) herein, so long as the Management Agreement
is in effect, NGC will not sell or otherwise dispose of any
shares of Common Stock of SYN, or any other securities
convertible into such shares, to any party without first
offering the same for sale to Empire in writing on the same
terms as are offered to or by the other party (with full
disclosure of such terms to Empire) and allowing Empire not
less than 30 days after its receipt of the offer for Empire
to accept the offer, and if such offer is accepted by
Empire, Empire shall have 90 days in which to complete the
purchase on such terms, but if Empire declines such offer,
then Empire shall have the right to participate on a pro
rata basis in the sale of such shares by NGC.
ARTICLE VII: MISCELLANEOUS
SECTION 7.01 RESTRICTIVE LEGEND. Each certificate
issued by SYN to evidence shares of Common Stock, or securities
convertible into such shares, owned by either Empire or NGC shall
be endorsed with the following legend:
"The shares represented by this certificate
are subject to the Agreement among the
Corporation and its Initial Stockholders,
dated as of May 17, 1995, as the same may be
amended, on file with the issuing Corporation
at its principal business office and may be
transferred or otherwise disposed of only in
accordance therewith."
SECTION 7.02 TERM OF THIS AGREEMENT. This Agreement,
if not sooner terminated by agreement of the parties hereto or
pursuant to the next sentence, shall terminate when the Control
Period terminates. In the event the Synergy Acquisition
Agreement is terminated without the Synergy Acquisition having
been completed, the parties hereto will liquidate and dissolve
SYN as promptly as possible when all obligations of SYN under, or
with respect to, the Synergy Acquisition Agreement have been
discharged or provided for, and this Agreement shall then
automatically terminate.
SECTION 7.03 NOTICES. All notices and other
communications hereunder shall be in writing and shall be deemed
to have been given (a) when delivered in person, (b) one business
day after deposit with a nationally recognized overnight courier
service (c) two business days after being deposited in the United
States mail, postage prepaid, first class, registered or
certified mail, or (d) the business day on which it is sent and
received by facsimile, as follows:
(i) If to SYN, to:
SYN Inc.
c/o Northwestern Growth Corporation
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Richard R. Hylland, President
with a copy to Empire, addressed and
sent to it at the place required under
this Agreement for giving notice to
Empire
(ii) If to Empire, to:
Empire Gas Corporation
P.O. Box 303
1700 South Jefferson
Lebanon, Missouri 65536
Fax No. (417) 532-8529
Attention: Paul S. Lindsey, Jr., President
(iii) If to NGC, to:
Northwestern Growth Corporation
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Richard R. Hylland, President
SECTION 7.04 SECTION 351 OF THE CODE. Each of the
parties hereto agrees to comply with the requirements of Section
6.28 of the Synergy Acquisition Agreement, both with respect to
the transaction referred to therein and with respect to any
transaction under this Agreement to the extent necessary to
assure the result under Section 351 of the Internal Revenue Code
of 1986, as amended, for the transaction referred to in such
Section 6.28.
SECTION 7.05 CAPTIONS. The captions in this Agreement
are included for convenience of reference only and shall be
ignored in the construction and interpretation of this Agreement.
SECTION 7.06 GOVERNING LAW. This Agreement shall be
construed in accordance with and governed by the internal laws of
the State of Delaware without regard to the choice of law
principles thereof.
SECTION 7.07 COUNTERPARTS. Execution of separate
copies of this Agreement by each or some of the several parties
hereto shall have the same force and effect as though all such
parties had executed the original of this Agreement. Further,
the parties hereto may execute several counterparts of this
Agreement, all of which shall constitute but one and the same
agreement.
IN WITNESS WHEREOF, each of the parties hereto have
caused this Agreement to be executed in its name as of the date
first above written.
EMPIRE GAS CORPORATION
By /s/ Paul S. Lindsey, Jr.
__________________________
President
NORTHWESTERN GROWTH CORPORATION
By /s/ Richard R. Hylland
_____________________________
President
SYN INC.
By /s/ Paul S. Lindsey, Jr.
______________________________
Title:
WAIVER, AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
AND AMENDMENT NO. 4 TO SUPPLEMENT A
TO LOAN AND SECURITY AGREEMENT
September 9, 1996
Empire Gas Corporation
1700 South Jefferson Street
Lebanon, Missouri 65536
Attention: Ms. Valeria Schall
Ladies and Gentlemen:
Reference is made to the Loan and Security
Agreement dated as of June 29, 1994 among Empire Gas
Corporation ("Borrower"), the Lenders party thereto
("Lenders") and Bank of America Illinois, f/k/a
Continental Bank, f/k/a Continental Bank N.A., as a
Lender and as Agent for the Lenders, as amended through
the date hereof (the "Loan Agreement"). Unless otherwise
defined herein, capitalized terms used herein shall have
the meanings ascribed to such terms in the Loan
Agreement.
Reference is further made to the certain
conditional waiver letter dated May 15, 1996 executed by
Agent and addressed to Borrower (the "Waiver Letter").
Pursuant to the Waiver Letter, Borrower informed Agent
that Borrower had breached Section 6.2 of Supplement A to
the Loan Agreement by failing to comply with the
limitation on the acquisition of fixed assets set forth
herein for the 1996 Fiscal Year. The occurrence of such
breach and continuance thereof for a period exceeding ten
(10) days after the occurrence thereof constituted an
Event of Default under Section 6.1(h) of the Loan
Agreement (the "Existing Default"). Pursuant to the
Waiver Letter, Requisite Lenders agreed to waive the
Existing Default, subject to the satisfaction of certain
conditions on or prior to June 30, 1996. Such conditions
were not satisfied on or prior to June 30, 1996;
consequently, pursuant to the terms of the Waiver Letter,
on July 1, 1996, the waiver of the Existing Default
immediately ceased to be effective and the Existing
Default was immediately reinstated.
Borrower has informed Agent that the Existing
Default remains in existence as of the date hereof.
Consequently, Borrower has requested that Requisite
Lenders agree to waive the Existing Default. Requisite
Lenders have agreed to do so, on the terms and conditions
contained herein.
Borrower has also requested that Requisite
Lenders agree to amend various provisions contained in
the Loan Agreement and Supplement A. Requisite Lenders
have agreed to do so, on the terms and conditions
contained herein.
Therefore, the parties hereto agree as follows:
1. Waiver. Requisite Lenders hereby waive
the Existing Default and any and all rights and remedies
that Agent and Lenders may have under the Loan Agreement,
the Related Agreements and applicable law in respect
thereof. Other than as expressly set forth herein, the
foregoing waiver shall not constitute a waiver of any
Events of Default or Unmatured Events of Default that are
now in existence or that may hereafter occur or any
rights or remedies that Agent or any Lender may have
under the Loan Agreement, the Related Agreements or
applicable law with respect thereto, all of which rights
and remedies Agent and Lenders hereby specifically
reserve.
2. Amendments to Loan Agreement. The Loan
Agreement is hereby amended as follows:
(a) Section 1.1.
(i) Section 1.1 of the Loan Agreement is
hereby amended by inserting therein, in appropriate
alphabetical order, the following new definitions:
"'Acquisition Availability' means, for any
period, the sum of (a) net earnings before
interest expense, income tax expense,
depreciation and amortization for such period,
plus (b) proceeds from asset dispositions
consummated during such period and permitted
under Section 5.12 (or otherwise consented to
by Requisite Lenders), net of all related taxes
and disposition expenses, minus (c) cash
interest expense during such period in respect
of Indebtedness for borrowed money, including,
without limitation, Indebtedness under the
Agreement, in respect of the Senior Notes, in
respect of Subordinated Debt and in respect of
Acquisition Indebtedness, minus (d) taxes paid
during such period plus (e) tax refunds
received during such period, minus (f) required
principal payments during such period in
respect of Indebtedness for borrowed money,
including, without limitation, Indebtedness in
respect of the Senior Notes, in respect of
Subordinated Debt and in respect of Acquisition
Indebtedness and minus (g) capital expenditures
during such period and permitted under Section
6.2 of Supplement A (or otherwise consented to
by Requisite Lenders), each determined for
Borrower and its Subsidiaries on a consolidated
basis, and in accordance with GAAP."
"'Permitted Acquisition' means any
Acquisition that either is consented to in
writing by Requisite Lenders or satisfies the
following conditions:
(a) no Event of Default or Unmatured
Event of Default is in existence at the time of
such Acquisition or, after giving pro forma
effect to such Acquisition, would be caused
thereby;
(b) total cash consideration paid for
such Acquisition, together with the cash
consideration paid for all other Permitted
Acquisitions consummated in the immediately
preceding twelve month period, does not exceed
$3,000,000 in the aggregate;
(c) the Revolving Credit Amount exceeds
the outstanding principal balance of the
Revolving Loans plus the Letter of Credit
Obligations by at least $500,000 immediately
prior to, and immediately after, consummation
of such Acquisition;
(d) Agent has received, as soon as
available, copies of all agreements delivered
in connection therewith; and
(e) Agent has received a certificate of
Borrower's chief financial officer certifying
that all of the applicable conditions contained
herein to treating such Acquisition as a
Permitted Acquisition have been satisfied and
showing all appropriate calculations."
(ii) Section 1.1 of the Loan Agreement is
hereby further amended by amending and restating in
their entirety the definitions of the terms "LIBOR
Base Rate" and "LIBOR Rate" contained therein, as
follows:
"'LIBOR Base Rate' means, with respect to
each Interest Rate Period for a LIBOR Rate-
Loan, the rate per annum at which U.S. Dollar
deposits in immediately available funds are
offered to Bank of America Illinois 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 comprised 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 = 3.00% + LIBOR Base Rate
___________________________________
1 -Eurocurrency Reserve Requirement"
(b) Section 2.2. The third sentence of
subsection (b) of Section 2.2 of the Loan Agreement
is hereby amended by deleting therefrom the words
"one percent (1%)" and inserting in their place the
words "one and one-half percent (1.5%)".
(c) Section 5.12. Subsection (d) of Section
5.12 of the Loan Agreement is hereby amended and
restated in its entirety, as follows:
"(d) purchase or otherwise acquire, or
agree to purchase or otherwise acquire, any of
the stock, assets or business of any Person
(including, without limitation, by means of an
Acquisition), other than pursuant to a
Permitted Acquisition."
(d) Section 5.15. Subsection (h) of Section
5.12 of the Loan Agreement is hereby amended and
restated in its entirety, as follows:
"(h) 'Acquisition Indebtedness' as that
term is defined in the Senior Loan Documents in
an aggregate principal amount at any one time
outstanding not to exceed $10,000,000 and no
more than $3,000,000 of which may be incurred
in any twelve month period,"
3. Amendments to Supplement A. Supplement A
is hereby amended as follows:
(a) Section 2.2. Clauses (iii) and (iv) of
Section 2.2 of Supplement A are hereby amended and
restated in their entirety, as follows:
"(iii) during the period commencing on
September 9, 1996 and ending on December 31,
1996, $1,500,000."
(b) Section 3.1.1.
(i) Subsection (a) of Section 3.1.1 of
Supplement A is hereby amended by deleting the
percentage "1.00%" contained therein and inserting
in its place the percentage "1.50%."
(ii) Subsection (c) of Section 3.1.1 of
Supplement A is hereby amended by deleting the words
"LIBOR Base Rate" each time that it appears and
inserting in their place the words "LIBOR Rate."
(c) Section 6.2. Section 6.2 of Supplement A
is hereby amended by deleting the words "Acquisition
permitted under the Agreement" contained therein and
inserting in their place the words "Permitted
Acquisition."
(d) Section 6.3. Section 6.3 of Supplement A
is hereby amended and restated in its entirety, as
follows:
"6.3 Interest Coverage Ratio. Borrower
will not permit the ratio ("Interest Coverage
Ratio") of (a) net earnings before interest
expense, income tax expense, depreciation and
amortization to (b) cash interest expense in
respect of Indebtedness for borrowed money,
including, without limitation, Indebtedness
under the Agreement, in respect of the Senior
Notes, in respect of Subordinated Debt and in
respect of Acquisition Indebtedness, in each
case measured on the last day of any calendar
quarter set forth below, calculated for the
twelve months ending on such date, and
determined for Borrower and its Subsidiaries on
a consolidated basis, and in accordance with
GAAP, to be less than the ratio set forth below
opposite such period:
Interest Coverage
Date Ratio
The quarter ending March 31, 1996 1.00:1.0
The quarter ending June 30, 1996 1.00:1.0
The quarter ending September 30, 1996 1.00:1.0
The quarter ending December 31, 1996 1.05:1.0
The quarter ending March 31, 1997 1.10:1.0
The quarter ending June 30, 1997 and 1.20:1.0"
each September 30, December 31,
March 31 and June 30 thereafter
(e) Section 6.4. A new Section 6.4 is hereby
added to Supplement A, as follows:
"6.4 Acquisition Availability. Borrower
will not permit Acquisition Availability,
measured on the last day of each calendar
quarter commencing September 30, 1996, and
calculated for the twelve months ending on such
date, to be less than zero."
4. Scope. This Waiver, Amendment No. 2 to
Loan and Security Agreement and Amendment No. 4 to
Supplement A to Loan and Security Agreement (the
"Amendment") shall have the effect of amending the Loan
Agreement, Supplement A and the Related Agreements as
appropriate to express the agreements contained herein.
In all other respects, the Loan Agreement, Supplement A
and the Related Agreements shall remain in full force and
effect in accordance with their respective terms.
5. Acknowledgment of Effect of Amendments.
Borrower hereby acknowledges that the effectiveness of
the amendments to the Loan Agreement and Supplement A
contained in this Amendment shall have the effect of
immediately increasing the LIBOR Rate, the Adjusted
Reference Rate and the Letter of Credit commissions
payable under Section 2.2(b) of the Loan Agreement.
Borrower further hereby acknowledges that such increases
shall effect interest accruing on and after the effective
date of this Amendment with respect to Loans outstanding
on such effective date (including, without limitation,
LIBOR Rate Loans) or advanced thereafter, and Letter of
Credit commissions accruing on and after such effective
date with respect to Letters of Credit and L/C Drafts
outstanding on such effective date or issued thereafter.
6. Conditions to Effectiveness. This
Amendment shall be effective immediately upon the
execution of this Amendment by BAI, on behalf of the
Requisite Lenders, acceptance hereof by Borrower and each
other Obligor, and delivery hereof to BAI at 231 South
LaSalle Street, Chicago, Illinois 60697, Attention: Mr.
Mark Cordes, on or prior to September 9, 1996, together
with a $20,000 work fee payable to the Agent for its own
account.
Very truly yours,
BANK OF AMERICA ILLINOIS,
f/k/a CONTINENTAL BANK,
f/k/a CONTINENTAL BANK N.A., AS
AGENT ON BEHALF OF REQUISITE
LENDERS
By /s/
__________________________
Its_______________________
Acknowledged and agreed to this
9th day of September, 1996.
EMPIRE GAS CORPORATION
By /s/ Mark Castaneda
_____________________
Its V.P., Finance
Acknowledgment and Acceptance of Guarantors
Each of the undersigned is a party to the
Master Corporate Guaranty dated June 29, 1994 in favor of
BAI, as Agent for itself and Lenders (the "Guaranty"),
pursuant to which each of the undersigned has guaranteed
the Obligations of Borrower under the Loan Agreement.
Each of the undersigned hereby acknowledges receipt of
the foregoing Amendment, accepts and agrees to be bound
by the terms thereof, ratifies and confirms all of its
obligations under the Guaranty, and agrees that the
Guaranty shall continue in full force and effect as to
it, notwithstanding such Amendment.
Acknowledged and Agreed to this
9th day of September, 1996.
EACH OF THE SUBSIDIARIES OF
EMPIRE GAS CORPORATION LISTED
ON EXHIBIT A ATTACHED HERETO
By /s/ Robert L. Mathews
___________________________
Vice President of each Subsidiary
AGREEMENT AMENDING AMENDED AND RESTATED
AGREEMENT AMONG INITIAL STOCKHOLDERS AND SYN INC.
THIS AGREEMENT, dated July 1, 1996, is made and
entered into among Empire Gas Corporation, a Missouri
corporation ("Empire"), Northwestern Growth Corporation,
a South Dakota corporation ("NGC"), and SYN Inc., a
Delaware corporation ("SYN"), with respect to the
following facts:
A. The parties hereto previously entered into
that certain agreement, effective as of May 17, 1995,
titled "Amended and Restated Agreement Among Initial
Stockholders and SYN Inc."
B. Such parties now desire to amend said
Amended and Restated Agreement Among Initial Stockholders
and SYN Inc.
NOW THEREFORE, the parties hereto agree that
Section 5.02(b)(i) of said Amended and Restated Agreement
Among Initial Stockholders and SYN is hereby amended to
read as follows:
(i) the Board of Directors of SYN
shall consist of six members, five of
whom shall be nominees of NGC (the
"NGC Positions"); and one of whom
shall be the nominee of Empire (the
"Empire Positions"); and any
vacancies occurring in the NGC
Positions will be promptly filled
with nominees of NGC and any
vacancies occurring in the Empire
Positions will be promptly filled
with nominees of Empire.
FURTHER, the parties hereto agree that Section
5.02(c) of said Amended and Restated Agreement Among
Initial Stockholders and SYN is hereby amended to read as
follows:
(c) To initiate compliance with
preceding paragraph (b), Empire and
NGC have caused the following persons
to be elected to the positions with
SYN indicated by their names, to
serve for the period provided in the
by-laws of SYN:
* Chairman of the Board and
director -- Merle D. Lewis
(an NGC nominee for such
positions);
* Vice Chairman of the Board
and director -- Richard R.
Hylland (an NGC nominee for
such positions);
* Director -- Douglas A.
Brown (an NGC nominee for
such position); [and]
* Director -- Daniel K. Newell
(an NGC nominee for such
position);
* President and Chief
Executive Officer and
director -- Paul S. Lindsey,
Jr. (an Empire nominee as
to the position of
director);
with the sixth member of the Board of
Directors of SYN (one of the NGC
Positions) to be nominated by NGC,
and elected, at a future time when
NGC has selected the nominee for such
position.
FURTHER, the parties hereto agree that said
Amended and Restated Agreement Among Initial Stockholders
and SYN is hereby amended to add the following:
Empire hereby grants to SYN the right
to use of the name Allstar and all
similar related names, marks and
logos, for so long as the Management
Agreement (as the same may be
amended) is in effect, and for a
transition period of twelve (12)
months thereafter, for the conduct of
business at all locations where
Empire has caused SYN to use such
name and/or all similar related
names, marks and logos.
IN WITNESS WHEREOF, each of the parties hereto
have caused this Agreement to be executed in its name as
of the date first above written.
EMPIRE GAS CORPORATION
By: /s/ Paul S. Lindsey, Jr.
__________________________
President
NORTHWESTERN GROWTH CORPORATION
By: /s/
___________________________
President
SYN INC.
By: /s/ Paul S. Lindsey, Jr.
___________________________
Title:______________________
[BANK OF AMERICA LETTERHEAD]
May 15, 1996
VIA FACSIMILE AND CERTIFIED MAIL
RETURN RECEIPT REQUESTED
Empire Gas Corporation
1700 South Jefferson Street
Lebanon, Missouri 65536
Attention: Valeria Schall
RE: LOANS BY BANK OF AMERICA ILLINOIS
TO EMPIRE GAS CORPORATION
Ladies and Gentlemen:
Reference is made hereby to the certain Loan
and Security Agreement dated as of June 29, 1994 between
Empire Gas Corporation ("Borrower") and Bank of America
Illinois (f/k/a Continental Bank N.A.), as agent
("Agent") and as lender ("Lender"), as amended to date
(the "Loan Agreement"). Unless defined herein,
capitalized terms used herein shall have the meanings
provided to such terms in the Loan Agreement.
Borrower has informed Agent that Borrower has
failed to comply with the limitation on the acquisition
of fixed assets for the 1996 Fiscal Year set forth in
Section 6.2 of Supplement A to the Loan Agreement. Such
breach has continued for a period exceeding ten (10) days
after the occurrence thereof. The occurrence and
continuance of such breach constitutes an Event of
Default under Section 6.1(h) of the Loan Agreement.
Borrower has further informed Agent that the
foregoing Event of Default (the "Existing Default")
remains in existence as of the date hereof.
Consequently, Borrower has requested that Requisite
Lenders agree to waive the Existing Default. Requisite
Lenders have agreed to do so, on the terms and conditions
contained herein.
Requisite Lenders hereby agree to waive the
Existing Default and any and all rights and remedies that
Agent and Lenders have under the Loan Agreement and
applicable law in respect thereof, conditional upon the
occurrence of the following events on or before June 30,
1996:
a. Borrower shall have delivered to Agent, in
form and substance satisfactory to Agent, revised
projections for the period from April 1, 1996
through June 30, 1997, which shall consist of a
detailed statement of cash flow projections and a
borrowing base analysis;
b. Borrower shall have delivered to Agent, in
form and substance satisfactory to Agent, such other
information regarding Borrower's and any
Subsidiary's financial condition and business as
Agent shall request;
c. Borrower shall have promptly notified
Agent in writing of the sale by Borrower or any
Subsidiary during the period from the date hereof
through June 30, 1996 of the capital stock or assets
of any Subsidiary permitted under the Loan
Agreement, specifying in each case the capital stock
or assets sold and the amount of the proceeds
received therefor;
d. No Events of Default (other than the
Existing Default) or Unmatured Events of Default
shall have occurred; and
e. Borrower and Requisite Lenders shall have
agreed on an amendment to the financial covenant
contained in Section 6.2 of Supplement A to the Loan
Agreement, which amendment shall be based on the
projections described in paragraph (a) above, and
shall be satisfactory to Requisite Lenders.
If any of the above conditions has not been
completed to Agent's and Requisite Lenders' satisfaction
on or before June 30, 1996, the above waiver shall
immediately cease to be effective, the Existing Default
shall be immediately reinstated and the financial
covenant contained in Section 6.2 of Supplement A to the
Loan Agreement, as it presently exists, shall remain in
effect for all testing dates. In such case, Agent and
Lenders shall have the immediate right, without further
notice to any Person, to take any and all actions
available to Agent or Lenders under the Loan Agreement
and applicable law with respect to the Existing Default.
Except as specifically set forth herein, this
letter shall not constitute a waiver by Agent or Lenders
of any Events of Default or Unmatured Events of Default
that are now in existence or may hereafter occur or any
rights or remedies that Agent or any Lender may have
under the Loan Agreement or applicable law with respect
thereto, all of which rights and remedies Agent and
Lenders hereby specifically reserve.
Very truly yours,
BANK OF AMERICA ILLINOIS,
as Agent for the Lenders
By /s/ Steve Standbridge
_________________________
Its Vice President
AMENDMENT NO. 3 TO SUPPLEMENT A
TO LOAN AND SECURITY AGREEMENT
February 13, 1996
Empire Gas Corporation
1700 South Jefferson Street
Lebanon, Missouri 65536
Attention: Ms. Valeria Schall
Ladies and Gentlemen:
Reference is made to the Loan and Security
Agreement dated as of June 29, 1994 among Empire Gas
Corporation ("Borrower"), the Lenders party thereto (the
"Lenders") and Bank of America Illinois, f/k/a
Continental Bank, f/k/a Continental Bank N.A., as a
Lender and as Agent for the Lenders, as amended through
the date hereof (the "Loan Agreement"). Unless otherwise
defined herein, capitalized terms used herein shall have
the meanings ascribed to such terms in the Loan
Agreement.
Borrower has requested that Lenders agree to
amend the Interest Coverage Ratio contained in Section
6.3 of Supplement A to the Loan Agreement, retroactive to
December 31, 1995. Lenders have agreed to the foregoing
request on the following terms and conditions:
1. Amendment to Supplement A. The first
paragraph of Section 6.3 of Supplement A is hereby
amended and restated in its entirety, retroactively
effective as of December 31, 1995, as follows:
"6.3 Interest Coverage Ratio. Borrower
will not permit the ratio ("Interest Coverage
Ratio") of (a) net earnings before interest
expense, income tax expense, depreciation and
amortization to (b) cash interest expense in
respect of Indebtedness under the Agreement, in
respect of the Senior Notes, in respect of
Subordinated Debt and in respect of Acquisition
Indebtedness, in each case measured on the last
day of any calendar month in any period set
forth below, calculated for the 12 months
ending on such date, and determined for
Borrower and its Subsidiaries on a consolidated
basis, and in accordance with GAAP, to be less
than the ratio set forth below opposite such
period:
Interest Coverage
Period Ratio
December 31, 1995 through and 0.82:1.0
including March 30, 1996
March 31, 1996 through and 1.00:1.0
including June 29, 1996
June 30, 1996 and thereafter 1.35:1.0"
2. Scope. This Amendment No. 3 to Supplement
A to Loan and Security Agreement ("Amendment") shall have
the effect of amending the Loan Agreement, Supplement A
and the Related Agreements as appropriate to express the
agreements contained herein. In all other respects, the
Loan Agreement, Supplement A and the Related Agreements
shall remain in full force and effect in accordance with
their respective terms.
3. Condition to Effectiveness. This Amendment
No. 3 to Supplement A to Loan and Security Agreement
shall be effective immediately upon the execution of this
Amendment No. 3 to Supplement A to Loan and Security
Agreement by BAI, on behalf of the Lenders, acceptance
hereof by Borrower and each other Obligor, and delivery
hereof to BAI at 231 South LaSalle Street, Chicago,
Illinois 60697, Attention: Mark Cordes, on or prior to
February 14, 1996.
Very truly yours,
BANK OF AMERICA ILLINOIS,
f/k/a CONTINENTAL BANK,
f/k/a CONTINENTAL BANK N.A.,
ON BEHALF OF LENDERS
By /s/ John P. Hesselmann
__________________________
Its Sr. Vice President
Acknowledged and agreed to this
15th day of February, 1996.
EMPIRE GAS CORPORATION
By /s/ Valeria Schall
_______________________
Its Vice President
Acknowledgment and Acceptance of Guarantors
Each of the undersigned is a party to the
Master Corporate Guaranty dated June 29, 1994 in favor of
BAI, as Agent for itself and Lenders (the "Guaranty"),
pursuant to which each of the undersigned has guaranteed
the Obligations of Borrower under the Loan Agreement.
Each of the undersigned hereby acknowledges receipt of
the foregoing and Amendment No. 3 to Supplement A to Loan
and Security Agreement ("Amendment"), accepts and agrees
to be bound by the terms thereof, ratifies and confirms
all of its obligations under the Guaranty, and agrees
that the Guaranty shall continue in full force and effect
as to it, notwithstanding such Amendment.
Acknowledged and Agreed to this
15th day of February, 1996.
EACH OF THE SUBSIDIARIES OF EMPIRE
GAS CORPORATION LISTED ON EXHIBIT
ATTACHED HERETO
By /s/ Valeria Schall
_________________________________
Vice President of each Subsidiary
AGREEMENT AMONG INITIAL STOCKHOLDERS AND MAC INC.
THIS AGREEMENT, dated November 3, 1995, is made
and entered into among Empire Gas Corporation, a Missouri
corporation ("Empire"), Northwestern Public Service
Corporation, a Delaware ("NWPS"), and Myers Acquisition
Company, a Delaware corporation ("MAC"), with respect to
the following facts:
A. Empire currently is engaged in the
business of distributing and selling at retail liquefied
petroleum ("LP") gas and appliances, and has a management
experienced in the operation of such business.
B. Northwestern Public Service Company
("NWPS") has as one of its objectives the making of
investments that could benefit NWPS and its stockholders.
C. Empire and NWPS, acting together, have
made a successful bid to acquire the LP gas distribution
and appliance business of Myers Propane Gas Company
("Myers"- such acquisition being hereinafter called the
"Myers Acquisition"). Empire and NWPS have contemplated,
in their bidding for the Myers Acquisition, that they
will rely principally on Empire for management expertise
and on NWPS to provide or arrange the financing for the
Myers Acquisition, and that the success of the Myers
Acquisition will depend in part upon the cost savings and
operating improvements expected to be achieved by having
Empire do the planning and management of the business of
Myers and its subsidiaries, under the direction of the
Board of Directors of MAC.
D. Empire and NWPS have caused MAC to be
incorporated to serve as the vehicle for making the Myers
Acquisition.
E. Empire and NWPS, on behalf of MAC, are
concluding the negotiation of the definitive agreement
(the "Myers Agreement of Merger") for the Myers
Acquisition, and need to provide for (i) the initial
capitalization of MAC, (ii) the management of MAC and
(iii) for certain matters pertaining to the ownership of
shares of stock of MAC.
NOW THEREFORE, in consideration of the premises
and the agreements exchanged herein. the parties hereto
agree as follows:
ARTICLE 1: INITIAL CAPITALIZATION OF MAC;
STOCK SUBSCRIPTIONS AND RESERVATIONS OF STOCK
SECTION 1.01 INITIAL AUTHORIZED STOCK OF MAC.
MAC has been incorporated by Empire and NWPS with an
initial authorized capitalization (as set forth in
Article IV of MAC's Certificate of Incorporation, a true
and complete copy of which is attached hereto as Exhibit
A), consisting of 1,000 shares of common stock, par value
$1 per share (the "Common Stock"; and 4,000 shares of
preferred stock, par value $ 1,000 per share, issuable in
one or more series (the "Preferred Stock"). The 1,000
shares of common stock and 4,000 shares of Preferred
Stock referred to herein shall only be increased with
their prior written agreement of Empire and NWPS.
SECTION 1.02 SUBSCRIPTIONS AND OPTION FOR
STOCK. NWPS has previously purchased, and hereby
subscribes for. stock of MAC, and Empire hereby
subscribes for stock of MAC, as follows:
(a) MAC and NWPS acknowledge that NWPS has
purchased from MAC, and MAC has sold and issued to
NWPS, 51 shares of Common Stock for a cash purchase
price of $51 which has been paid by NWPS to MAC, and
that these shares are the only shares of stock of
MAC that are currently outstanding.
(b) NWPS hereby subscribes for, and agrees to
purchase from MAC, and MAC hereby agrees to sell and
issue to NWPS, 2,300 shares of Series A Voting
Preferred Stock for purchase price of $ 1,000 per
share ($2,300,000 total), with this transaction to
be consummated at the Closing of the Myers
Acquisition. NWPS will deliver to MAC $1,150,000 of
its own common stock and 11,500 shares of 6 1/2%
series of NWPS preferred stock, $100 par value with
a combined value of $2,300,000 in fulfillment of its
purchase obligation.
(c) Empire hereby subscribes for, and agrees
to purchase from MAC, and MAC hereby agrees to issue
and sell to Empire, 49 shares of Common Stock (which
shall represent 49% of the issued and outstanding
Common Stock) for a cash purchase price of $49 to be
paid at the time of such issuance, with this
transaction to be consummated at the closing of the
Myers Acquisition.
SECTION 1.03 ACQUISITION FOR INVESTMENT.
Empire and NWPS each represent and warrant to the other,
and to MAC, as follows: It has (through its management
personnel) such knowledge and experience in financial and
business matters that it is capable of evaluating the
merits and risks of its purchase of securities of MAC as
provided for in this Agreement; it is acquiring such
securities, and will acquire them, for investment and not
with a view toward, or with any intention of,
distributing or selling any of the securities and it will
not sell or offer to sell or otherwise transfer any of
the securities in violation of the Securities Act of
1933, as amended.
ARTICLE 2: MYERS ACQUISITION
Each of the parties hereto will make a
commercially reasonable effort in cooperation with the
other parties hereto, to do those things within its
control to consummate the Myers Acquisition in accordance
with the terms of and subject to the conditions in, the
Myers Agreement of Merger. Nothing in this Agreement or
otherwise shall be construed to give anyone who is not a
party to this Agreement, whether under a third party
beneficiary legal doctrine or otherwise, a right to
enforce the provisions of this Article or to obtain
relief for any failure to perform in accordance with the
requirements of this Article.
ARTICLE 3: MANAGEMENT OF MAC
SECTION 3.01 At or before the Closing (as
defined in the Myers Agreement of Merger), the parties
hereto will enter into a management agreement in
substantially the form attached hereto as Exhibit B, or
with such changes therein as the parties hereto hereafter
agree upon (the "Management Agreement"), pursuant to
which the planning and management of the business of MAC
subsequent to the Closing (as defined in the Myers
Agreement of Merger) will be conducted by Empire under
the direction of the Board of Directors of MAC, as
provided therein.
SECTION 3.02 DIRECTORS AND OFFICERS OF MAC.
(a) For purposes of this Agreement, "Control
Period" means the period of time commencing on the
date of this Agreement and continuing either (i)
until this Agreement is terminated pursuant to
Section 5.02 herein because of the termination of
the Myers Agreement of Merger without the Myers
Acquisition having been completed or (ii) until (A)
NWPS no longer owns a majority of the shares of both
the Common Stock and Preferred Stock of MAC deemed
to be outstanding, (B) Empire no longer owns at
least 49% of the shares of Common Stock of MAC
deemed to be outstanding or (C) when MAC consummates
an underwritten public offering of partnership units
or shares of its Common Stock, registered under the
Securities Act of 1933, whichever of (A), (B), or
(C) first occurs.
(b) Throughout the Control Period, NWPS and
Empire shall vote their voting shares of stock of
MAC that are capable of being voted, and will
otherwise use their respective commercially
reasonable efforts, to carry out the following:
(i) the Board of Directors of MAC shall
consist of six members, five of whom shall be
nominees of NWPS (the "NWPS Positions") and one
of whom shall be a nominee of Empire (the
"Empire Position"); and any vacancies occurring
in the NWPS Positions will be promptly filled
with nominees of NWPS and any vacancy occurring
in the Empire Position will be promptly filled
with a nominee of Empire.
(ii) The officers of MAC shall include at
all times a Chairman of the Board, who will be
a person nominated by NWPS, and a President and
Chief Executive Officer, who will be a person
nominated by Empire. The authority and duties
of such officers shall be as set forth in the
bylaws of MAC, a true and complete copy of
which as in effect on the date hereof is
attached hereto as Exhibit C.
(c) To initiate compliance with preceding
paragraph (b), Empire and NWPS have caused the
following persons to be elected to the positions
with MAC indicated by their names, to serve for the
period provided in the bylaws of MAC:
* Chairman of the Board -- Paul S. Lindsey, Jr.
(an NWPS nominee for such positions);
* President and Chief Executive Officer -- Dan P.
Binning (an Empire nominee for such positions);
* Vice Chairman -- Daniel K. Newell (NWPS nominee
for such position);
* Secretary and Director -- Valeria Schall (NWPS
nominee for such position);
* Director -- Rogene A. Thaden (NWPS nominee for
such position);
with the fifth and sixth member of the Board of Directors
of MAC (two NWPS Positions) to be nominated by NWPS, and
elected, at a future time when NWPS has selected the
nominee for such position.
ARTICLE 4: DISPOSITION OF MAC STOCK BY EMPIRE OR NWPS
SECTION 4.01 PERMITTED DISPOSITIONS.
(a) NWPS may at any time or from time to time
transfer any of the securities issued by MAC which
NWPS may own at any time to any wholly-owned
subsidiary of NWPS, provided that notice of such
transfer is given to the other parties to this
Agreement and that the transferee becomes a party to
this Agreement with respect to the securities so
transferred, but all of such transferees and NWPS
shall collectively act, and be treated, as a single
entity with NWPS acting as their representative for
purposes of this Agreement.
(b) Empire may at any time and from time to
time transfer any of the securities issued by MAC
which Empire may own at any time to any affiliated
party, provided that notice of such transfer is
given to the other parties to this Agreement and the
transferee becomes a party to this Agreement with
respect to the securities so transferred, but all
such transferees and Empire shall collectively act,
and be treated, as a single entity with Empire
acting as their representative for purposes of this
Agreement.
SECTION 4.02 RIGHTS OF FIRST REFUSAL.
(a) Except as permitted by Section 4.01(b)
herein, so long as the Management Agreement is in
effect, Empire will not sell or otherwise dispose of
any shares of Common Stock of MAC, or any other
securities convertible into such shares, to any
party without first offering the same for sale to
NWPS in writing on the same terms as are offered to
or by the other party (with full disclosure of such
terms to NWPS) and allowing not less than 30 days
after its receipt of the offer for NWPS to accept
the offer; and if such offer is accepted by NWPS,
NWPS shall have 90 days in which to complete the
purchase on such terms.
(b) Except as permitted by Section 4.01(a)
herein, so long as the Management Agreement is in
effect, NWPS will not sell or otherwise dispose of
any shares of Common Stock of MAC, or any other
securities convertible into such shares to any party
without first offering the same for sale to Empire
in writing on the same terms as are offered to or by
the other party (with full disclosure of such terms
to Empire) and allowing Empire not less than 30 days
after its receipt of the offer for Empire to accept
the offer, and if such offer is accepted by Empire,
Empire shall have 90 days in which to complete the
purchase on such terms.
ARTICLE 5: MISCELLANEOUS
SECTION 5.01 RESTRICTIVE LEGEND. Each
certificate issued by MAC to evidence shares of Common
Stock, or securities convertible into such shares, owned
by either Empire or MAC shall be endorsed with the
following legend:
"The shares represented by this certificate are
subject to the Agreement among the Corporation
and its Initial Stockholders, dated as of
November 1995, as the same may be amended, on
file with the issuing Corporation at its
principal business office and may be
transferred or otherwise disposed of only in
accordance therewith."
SECTION 5.02 TERM OF THIS AGREEMENT. This
Agreement, if not sooner terminated by agreement of the
parties hereto or pursuant to the next sentence, shall
terminate when the Control Period terminates. In the
event the Myers Agreement of Merger is terminated without
the Myers Acquisition haying been completed, the parties
hereto will liquidate and dissolve MAC as promptly as
possible when all obligations of MAC under, or with
respect to, the Myers Agreement of Merger have been
discharged or provided for, and this Agreement shall then
automatically terminate.
SECTION 5.03 NOTICES. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been given (a) when delivered in person,
(b) one business day after deposit with a nationally
recognized overnight courier service or (c) the business
day on which it is sent and received by facsimile, as
follows:
(i) If to MAC, to:
Myers Acquisition Company
c/o Northwestern Public Service Company
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Rogene Thaden, Treasurer
and to
Myers Acquisition Company
c/o Empire Gas Corporation
1700 Jefferson Street
Lebanon, Missouri 65536
Attention: Valeria Schall, Vice President
(ii) If to Empire, to:
Empire Gas Corporation
P.O. Box 303
1700 South Jefferson
Lebanon, Missouri 65536
Fax No. (417) 532-8529
Attention: Paul S. Lindsey, Jr., President
(iii) If to NWPS, to:
Northwestern Public Service Company
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Daniel K. Newell,
Vice President-Finance
SECTION 5.04 CAPTIONS. The captions in this
Agreement are included for convenience of reference only
and shall be ignored in the construction and
interpretation of this Agreement.
SECTION 5.05 GOVERNING LAW. This Agreement
shall be construed in accordance with and governed by the
internal laws of the State of Delaware without regard to
the choice of law principles thereof
SECTION 5.06 COUNTERPARTS. Execution of
separate copies of this Agreement by each or some of the
several parties hereto shall have the same force and
effect as though all such parties had executed the
original of this Agreement. Further, the parties hereto
may execute several counterparts of this Agreement, all
of which shall constitute but one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto
have caused this Agreement to be executed in its name as
of the date first above written.
EMPIRE GAS CORPORATION
By /s/ Paul S. Lindsey, Jr.
__________________________
President
NORTHWESTERN PUBLIC SERVICE
COMPANY
By /s/ Daniel K. Newell
___________________________
Title:
MYERS ACQUISITION COMPANY
By /s/ Valeria Schall
____________________________
Title:
MANAGEMENT AGREEMENT
THIS AGREEMENT, dated November 3, 1995, is made
and entered into among Empire Gas Corporation, a Missouri
corporation ("Empire"), Northwestern Public Service
Company, a Delaware corporation ("NWPS"), and Myers
Acquisition Company, a Delaware corporation ("MAC"), with
respect to the following facts:
A. Empire, NWPS and MAC have entered into that
certain Agreement Among Initial Stockholders and MAC
Inc., dated November 3, 1995 (the "Stock Agreement"),
which, among other things, requires this Agreement to be
made for the reasons recited in the Stock Agreement (such
recitals being incorporated herein by this reference).
B. MAC, NWPS and Empire immediately following
the execution of this Agreement, will be entering into
that certain Agreement of Merger by and among Empire,
NWPS, MAC, Myers Propane Gas Company, James T. Myers,
and William J. Myers dated November 3, 1995 providing for
the acquisition by MAC of Myers Propane Gas Company ("the
Myers Acquisition").
NOW, THEREFORE, in consideration of the
premises and the agreements exchanged herein, the parties
hereto agree as follows:
ARTICLE 1: ENGAGEMENT TO PLAN AND MANAGE
MAC, on behalf of itself, and for the benefit
of its stockholders (of which NWPS is a principal one),
hereby engages Empire to perform the planning and
management of the assets and business operations of MAC
(the "Management Services"), and Empire hereby accepts
such engagement and agrees to perform the Management
Services, subject to the direction of the Board of
Directors of MAC (the "Board") and in accordance with the
terms of this Agreement. Empire hereby acknowledges and
agrees that its opportunity to profit shall be derived
from its ability to manage MAC.
ARTICLE 2: BUSINESS PLAN; BUDGET
SECTION 2.01 INITIAL BUSINESS PLAN. The
parties hereto have developed a business plan, a copy of
which is attached as Exhibit A to this Agreement
("Initial Plan"), for the conduct of business operations
of MAC after the completion of the Myers Acquisition (the
"MAC Operations"), showing:
(a) The general longer-term objectives (to be
accomplished in a three to five year period of
time).
(b) The preliminary plans for conducting the
MAC Operations through the balance of MAC's fiscal
year ending June 30, 1996 ("fiscal 1995"), and
fiscal 1996 including the plant, facilities and
equipment (at various locations), and the personnel
staffing at the locations, needed to carry on the
MAC Operations following the Myers Acquisition and
during the longer term of the plan
SECTION 2.02 INITIAL BUDGET. The parties
hereto have developed a budget ("Initial Budget") for the
conduct of the MAC Operations for the balance of fiscal
1995 and fiscal 1996 following the Myers Acquisition in
accordance with the Initial Plan. A copy of the Initial
Budget is attached as Exhibit B to this Agreement.
SECTION 2.03 UPDATED AND AMENDED BUSINESS
PLANS AND BUDGETS. At least 30 days prior to January 31,
1996 and at least 30 days prior to each June 30
thereafter until the term of this Agreement expires or is
terminated (hereinafter sometimes referred to as the "end
of the term of this Agreement"), Empire will develop, in
consultation with NWPS, and obtain the approval of the
Board of:
(a) An updated version of the Initial Plan (or
of the most recent previously updated version
thereof) to provide a detailed business plan for the
MAC Operations for the 18 months following such June
30 and a longer-term business plan for the three- to
five-year period following such June 30 (the Initial
Plan or updated version thereof in effect at a given
time, including all amendments thereto up to such
time, is hereinafter referred to as the "Applicable
Plan"); and
(b) An updated version of the Initial Budget
(or of the most recent previously updated version
thereof) to provide a budget for the conduct of the
MAC Operations for the 18 months following such June
30, (the Initial Budget or updated version thereof
in effect at a given time for a particular period,
including all amendments thereto up to such time, is
hereinafter referred to as the "Applicable Budget").
Empire may amend an Applicable Plan or an Applicable
Budget, or both, at any time and from time to time by
preparing such amendment, submitting the same to the
Board with such supporting information as the Board may
require, and obtaining the Board's approval thereof, but
no such amendment shall be effective unless and until
approved by the Board.
SECTION 2.04 ACTING WITHIN APPLICABLE PLAN AND
BUDGET. Empire shall manage the MAC Operations,
commencing with the Myers Acquisition and continuing
thereafter until the end of the term of this Agreement,
in accordance with the Applicable Plan and within the
Applicable Budget, without obtaining approval of the
Board of the details of such management, but subject to
approvals by the Board required by law and to the
requirements for approval by the Board specified in
Article 7 herein. Notwithstanding the foregoing:
(a) Empire may take such management action
with respect to the MAC Operations as it may deem
advisable to respond to, and attempt to curtail or
avoid material adverse consequences resulting from
material unplanned adverse developments when
(reasonably) there is inadequate time in which to
secure advance approval of such action by the Board,
but in such event the situation and action taken
shall be submitted with reasonable promptness to the
Board for such further action as the Board may then
deem advisable;
(b) In addition to action taken pursuant to
preceding paragraph (a), Empire may cause MAC to
make maintenance capital expenditures which
individually exceed the Applicable Budget for such
expenditures or category of expenditures by not more
than $5,000, but only if the Board is notified prior
to, or at the time of such expenditures, while such
expenditures in excess of such $5,000 limit may not
be made or committed to unless authorized in advance
by the Board; and
(c) If Empire becomes aware that aggregate
operating or administrative expenses likely will be
10% or more in excess of what is provided for in the
then Applicable Budget, Empire shall promptly
notify the Board of such expected excess.
SECTION 2.05 OTHER ACTION. Any action that
needs to be taken in the performance of the Management
Services that is not provided for in an Applicable Plan
or Applicable Budget or otherwise in provided for in this
Agreement shall be taken in accordance with Empire's good
faith judgment as to what is in the best interests of MAC.
ARTICLE 3: EMPIRE'S SERVICES
SECTION 3.01 EFFORT REQUIRED. Empire, under
the management of Paul S. Lindsey, Jr. ("Lindsey") as the
chief executive officer of Empire, shall devote
sufficient time and resources to reasonably assure
successful performance by Empire for MAC of the
Management Services in accordance with this Agreement.
(new) SECTION 3.02 MANAGEMENT FEE. Empire receive a
management fee equal to 10% of the amount by which MAC's
EBITDA exceeds the following amounts:
Year Ended EBITDA
June 30, 1996 125% of the budgeted
amount under Section 2.2
June 30, 1997 $1,062,500
June 30, 1998 $1,156,250
June 30, 1999 $1,218,750
June 30, 2000 $1,281,250
Each year thereafter $1,312,500
ARTICLE 4: COMPETITION BETWEEN EMPIRE AND MAC
SECTION 4.01 NON-COMPETITION; ACQUISITIONS.
(a) While this Agreement is in effect and for
a period of one year thereafter, Empire and MAC will
not solicit customers and employees from each other.
(b) Until the end of the term of this
Agreement and for a period of two years thereafter,
Empire and MAC shall not compete in each others area
of interest for new customers within such area.
ARTICLE 5: ACCOUNTING SYSTEM; ACCOUNTANTS
SECTION 5.01 ACCOUNTING SYSTEM. At all times
until the end of term of this Agreement, Empire will:
(a) Cause MAC to implement and maintain a
system of accounting for the assets, liabilities,
operations and cash flows of MAC, and internal
controls over accounting and financial matters
for MAC, similar to the system and controls
maintained by Empire for itself or, if requested by
the Board as the Board shall reasonably require; and
in connection with the foregoing, Empire shall cause
MAC to provide NWPS with such financial statements
and reports with respect to assets, liabilities,
operations and developments affecting the business
or assets of MAC, as NWPS may require (taking into
account its accounting and reporting requirements),
and
(b) Cause MAC to engage a so-called "Big Six"
firm of independent public accountants (or whatever,
at the time, is the equivalent of the present Big
Six) approved by the Board to make annual audits of
MAC; but to the most efficient extent possible,
Empire shall cause MAC to engage Baird, Kurtz &
Dobson ("BK&D") to perform detailed compliance work
to assist the designated firm of independent
accountants in completing the quarterly reviews and
annual audits.
SECTION 5.02 AUDIT OR REVIEW. At all times
until the end of the term of this Agreement, Empire will
allow the Board and its authorized representatives, upon
at least seven-days' prior notice to, and in coordination
with, the President and Chief Executive Officer of MAC,
to audit or review the books of account and records of
all kinds kept for MAC, inspect MAC's properties, consult
with MAC's personnel and with Empire's personnel involved
in Empire's performance of services under this Agreement,
and generally to observe and monitor the operation,
management and accounting for MAC's business and assets;
provided, however, that such review and/or audit shall
not last longer than five business days unless Empire is
in default under this Agreement. Such reviews shall be
restricted to no more than once a month at the home
office of MAC, as maintained by Empire, through December
31, 1996 and quarterly thereafter, and unrestricted at
all of MAC's retail locations. All reports resulting
from these audits or reviews shall be promptly furnished
to the Board.
ARTICLE 6: INSURANCE FOR MAC
At all times while this Agreement is in effect
insurance covering liability exposures of MAC and its
Board, with types and amounts of coverages as shall be
approved by the Board, shall be obtained and maintained
for MAC (at MAC's expense, and at no cost to Empire) by
Empire as part of the Management Services. Empire and
NWPS shall be named as a named insured under such
coverages. The cost of such insurance shall be included
in each Applicable Budget. Empire shall provide NWPS
with certificates of insurance and copies of binders
showing NWPS as named insured under such coverages,
effective no later than the date of the closing of the
Myers Acquisition.
ARTICLE 7: MAC BOARD APPROVAL REQUIRED
The assets and business of MAC shall be managed
as provided herein by Empire while this Agreement remains
in effect, subject to the overall direction and super-
vision by the Board. However, Empire shall not take for
MAC or cause MAC to take, any of the following actions
without having obtained the prior approval of the Board:
(a) Sell, lease, transfer or otherwise dispose
of, or enter into any agreement or arrangement for
any sale, lease, transfer or other disposition of
assets of MAC, except for (i) a sale, lease,
transfer or other disposition specifically provided
for in the Applicable Budget, or (ii) the sale of
services to customers and the sale or lease of
products in the ordinary course of business of MAC;
(b) Purchase any goods or services from, or
sell any goods or services to, or enter into or
amend any agreement or other transaction with,
Empire or any affiliate of Empire that is not on an
arm's-length basis;
(c) Cause MAC to incur any indebtedness for
borrowed money (including, without limitation, any
capitalized lease obligations) or to enter into an
agreement for such borrowing (or leasing) with the
exception of seller financing of the purchase of
particular assets;
(d) Mortgage or otherwise grant a lien upon or
security interest in any assets of MAC except liens
upon acquired assets to secure seller financing for
the acquisition of such assets;
(e) Cause MAC to become a surety or guarantor
of, or an accommodation party to, or otherwise
become or be contingently liable for any
indebtedness or obligations of any other party,
other than as a result of endorsing to negotiate
payment of instruments received from customers in
payment for goods and services in the ordinary
course of business in amounts less than $25,000;
(f) Cause MAC to enter into any joint venture
or similar relationship or acquire any stock, debt
obligations or other securities of, or loan to or
make any investment in or capital contribution to
any other party;
(g) Institute, defend, or settle any legal
proceeding on behalf of MAC, except legal
proceedings against MAC shall be defended and if the
matter is partially or wholly covered by insurance,
it may be settled if the settlement payment to be
made by MAC is an amount not exceeding the
deductible under such insurance coverage for such
matter and all other matters not partially or wholly
covered by insurance may be settled if the
settlement payment to be made by MAC is an amount
not exceeding $10,000 per matter;
(h) Enter into any new contract for the
leasing, as lessee, of any real or personal
property, other than operating leases entered into
in the ordinary course of business involving a term
of not more than one year total or rental of not
more than $2,500, and other than retail location
operating leases;
(i) File or consent to any petition in
bankruptcy, reorganization, liquidation or similar
proceeding with respect to MAC, or seek, consent to
or acquiesce in the appointment of a trustee,
receiver or liquidator of MAC or of all or any part
of the assets of MAC, or make an assignment for the
benefit of MAC's creditors;
(j) Confess a judgment against MAC greater
than $2,500;
(k) Amend, modify, supplement or waive any
provision of any contract, the making of which was
approved or required to be approved by the Board;
(l) Make any employment, severance, consulting
or similar agreement, including any agreement with a
labor union, or amend the same, for MAC with any
other party involving payments by MAC greater than
$2,500, or adopt any employee benefit plan for
employees of MAC (new) that is dissimilar from
Empire's plan;
(m) Open or close a primary office, plant or
other business location for MAC, or make an
agreement or commitment of any kind to do so; or
(n) Take any action in contravention of this
Agreement.
ARTICLE 8: DIRECTORS AND OFFICERS
SECTION 8.01 DIRECTORS AND OFFICERS OF MAC.
During the term of this Agreement, the provisions of
Section 3 of the Stock Agreement (which are hereby
incorporated herein by this reference) shall be carried
out by Empire and NWPS even if the Stock Agreement ceases
to be in effect for any reason.
ARTICLE 9: TERM; TERMINATION
SECTION 9.01 TERM OF THIS AGREEMENT;
TERMINATION. The term of this Agreement shall be in
effect until it expires on June 30, 2000, or at the end
of any fiscal year thereafter, if preceded by at least
six-months' written notice by MAC or one-year's written
notice by Empire of its desire to terminate as of such
date, unless sooner terminated at the election of the
Board, and upon giving notice to Empire of such election,
on any earlier date in the event of any of the following:
(a) Upon default by Empire under this
Agreement which remains uncured after 30 days
written notice of such default has been given to
Empire by MAC or NWPS,
(b) Upon any change in ownership of Empire
which results in Lindsey having less than voting
control (as a stockholder) of Empire;
(c) Upon the filing or consent to any petition
in bankruptcy, reorganization, liquidation or
similar proceeding with respect to Empire, or the
appointment of a trustee, receiver or liquidator for
Empire for all or a substantial part of its assets,
or the making of an assignment by Empire for the
benefit of its creditors;
(new)(d) Upon the failure of MAC to achieve EBITDA
results for the period beginning with the Myers'
acquisition and ending on June 30, 1996, in amount
equal to 85% of the budgeted EBITDA as presented in
the budget called for under Section 2.02.
(e) Upon the failure of MAC to achieve the
following cumulative (consolidated) EBITDA results
for the periods beginning with July 1, 1996, and
ending on the dates indicated below, as follows;
(i) for the period ended June 30,
1997, cumulative EBITDA of at
least $850,000;
(ii) for the period ended June 30,
1998, cumulative EBITDA of at
least $1,775,000;
(iii) for the period ended June
30, 1999 cumulative EBITDA of at
least $2,750,000;
(iv) for the period ended June 30,
2000 cumulative EBITDA of at
least $3,775,000;
(v) for periods (if any) subsequent
to June 30, 2000, cumulative
EBITDA at the end of each fiscal
year of MAC shall be at least
$1,050,000 higher than at the
end of the previous fiscal year;
(f) If MAC at any time is in default with
respect to more than $50,000 of its borrowings;
(g) If Empire at any time is in default with
respect to its outstanding publicly-held bonds;
(h) By mutual agreement of the parties or when
required by final court order or final award of
arbitrators; or
(i) If the stock of MAC, or stock entitling
the holder or holders thereof to cast a majority of
the votes in the general election of directors of
MAC, or substantially all of the assets of MAC, is
sold, directly or by merger or consolidation.
(j) If Empire defaults under any of its
obligation under the Management Agreement among
Empire, Northwestern Growth Corporation and SYN,
Inc. dated May 17, 1995, as the same may be amended
from time to time.
The term of this Agreement also may be terminated at the
election of Empire and upon giving notice to NWPS and MAC
of such election in the event of any of the following:
(i) If the stock of MAC, or stock entitling
the holder or holders thereof to cast a majority of
the votes in the general election of directors of
MAC, or substantially all of the assets of MAC, is
sold, directly or by merger or consolidation; or
(ii) If any of the terms of this Agreement are
changed without the consent of Empire.
SECTION 9.02 TRANSITION UPON TERMINATION.
(a) Upon expiration on or earlier termination
of this Agreement, the parties hereto will cooperate
to the fullest extent possible to facilitate the
creation of a staff of management personnel, and the
establishment of facilities owned or leased by MAC
or otherwise available for use by MAC on terms
acceptable to MAC, to enable MAC to plan and manage
its business operations and assets without the
services that would have been provided by Empire
under this Agreement had this Agreement remained in
effect: and until that is accomplished (and the
parties hereto shall make a good faith effort to
accomplish it promptly), MAC shall have the use of
the personnel and facilities of Empire that had been
devoted in whole or in part to such planning and
management at a cost not to exceed the amount most
recently budgeted therefor in the last Applicable
Budget, or at Empire's cost in the absence of such
budgeted amount.
(b) Notwithstanding the foregoing, in the
event this Agreement is terminated by Empire, MAC
shall have up to 18 months (including the 12-months'
notice period) to plan and execute an operational
and transition plan for achieving what is provided
for in preceding subsection (a).
SECTION 9.03 PUTS AND CALLS.
(a) In the event this Agreement is terminated
by Empire, MAC shall have a call right to purchase
Empire's shares of common stock of MAC at a price
equal to 100% of fair market value, determined by
appraisal, and Empire shall have a put right to sell
to MAC Empire's shares of common stock of MAC at a
price equal to 90% of fair market value, determined
by appraisal, provided that, in case of a put by
Empire. MAC has adequate liquidity, as reasonably
determined by its Board, to make such purchase.
(b) In the event this Agreement is terminated
by MAC, MAC shall have a call right to purchase
Empire's shares of common stock of MAC at a price
equal to 110% of fair market value, determined by
appraisal, and Empire shall have a put right to sell
to MAC Empire's shares of common stock of MAC at a
price equal to 100% of fair market value, determined
by appraisal provided that in the case of a put by
Empire, MAC has adequate liquidity, as reasonably
determined by its Board, to make such purchase.
(c) For these purposes, fair market value of
the shares of common stock of MAC to be sold and
purchased shall be determined by an appraiser or
investment banker.
ARTICLE 10: MISCELLANEOUS
SECTION 10.01 NOTICES. All notices and
other communications hereunder shall be in writing and
shall be deemed to have been given (a) when delivered in
person,(b) one business day after deposit with a
nationally recognized overnight courier service, or (c)
the business day on which it is sent and received by
facsimile, as follows:
If to MAC, to: Myers Acquisition Company
c/o Northwestern Public Service Company
33 Third Street, S.E.
Huron SD 57350
Fax No. (605) 353-8286
Attn: Rogene Thaden, Treasurer
and to Myers Acquisition Company
c/o Empire Gas Corporation
1700 South Jefferson Street
Lebanon, MO 65536
Fax No. (417) 532-8529
Attn: Valeria Schall, Vice President
If to NWPS: Northwestern Public Service Company
33 Third Street, S.E.
Huron SD 57350
Fax No. (605) 353-8286
Attn: Daniel K. Newell, Vice President-
Finance
If to Empire: Empire Gas Corporation
PO Box 303
1700 South Jefferson
Lebanon, MO 65536
Fax No. (417) 532-8529
Attn: Paul S. Lindsey, Jr., President
or to such other person or address as any party hereto
shall specify in a notice in writing given to the other
parties hereto.
SECTION 10.02 ASSIGNMENT RESTRICTED;
SUCCESSORS AND ASSIGNS. No party hereto may assign its
interest in this Agreement without first obtaining the
written consent of the other parties hereto, except that
this Agreement may be assigned by MAC, without obtaining
such consents, to (and in connection with the closing of
the acquisition by) an acquirer of substantially all of
the business and assets of MAC, provided that written
notice of such assignment is given to the other parties
hereto, and except further that this Agreement may be
assigned by NWPS to any wholly-owned subsidiary of NWPS,
without obtaining such consents, provided written notice
of such assignment is given to the other parties hereto.
SECTION 10.03 SEVERABILITY. Should any
provision of this Agreement for any reason be declared
invalid or unenforceable, such decision shall not affect
the validity or enforceability of any of the other
provisions of this Agreement, which remaining provisions
shall remain in full force and effect and the application
of such invalid or unenforceable provision to persons or
circumstances other than those as to which it is held
invalid or unenforceable shall be valid and be enforced
to the fullest extent permitted by law.
SECTION 10.04 INTERPRETATION. The article and
section headings contained in this Agreement are solely
for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect
the meaning or interpretation of this Agreement.
SECTION 10.05 ARBITRATION. Any dispute
arising under this Agreement shall be resolved by
arbitration. Each of the parties hereto agrees (a) that
each such arbitration shall be initiated and conducted in
accordance with the rules and procedures of the American
Arbitration Association ("AAA"), (b) to submit all such
disputes to the office of the AAA in charge of
arbitrations conducted in the metropolitan area of the
City of Minneapolis, Minnesota, and (c) to have each such
arbitration proceeding conducted in the metropolitan area
of the City of Minneapolis, Minnesota, and (d) to be
subject to the jurisdiction of the arbitrators in the
City of Minneapolis, Minnesota upon notice given in
accordance with the provisions of this Agreement that a
dispute has been submitted to such office of the AAA.
SECTION 10.06 GOVERNING LAW. This Agreement
shall be governed by the laws of the State of Delaware
(regardless of the laws that in might otherwise under
applicable principles of conflicts of law) as to all
matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
SECTION 10.07 COUNTERPARTS. This Agreement
may be executed in counterparts, each of which shall be
deemed an original, but all of which collectively shall
constitute one and the same agreement.
IN WITNESS HEREOF, the parties hereto have
executed this Agreement as of the date first above
written.
Empire Gas Corporation Myers Acquisition Company
By:/s/ Paul S. Lindsey, Jr. By:/s/ Valeria Schall
________________________ ______________________
Its President Title:
Northwestern Public Service
Company
By:/s/ Daniel K. Newell
________________________
Title:
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
AND AMENDMENT NO. 2 TO SUPPLEMENT A TO
LOAN AND SECURITY AGREEMENT
September 28, 1995
Empire Gas Corporation
1700 South Jefferson Street
Lebanon, Missouri 65536
Attn: Valeria Schall
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement
(as amended and supplemented, the "Loan Agreement"), dated as of
June 29, 1994 among Empire Gas Corporation ("Borrower"), the
Lenders party thereto (the "Lenders") and Bank of America
Illinois, f/k/a Continental Bank, f/k/a Continental Bank N.A., as
a Lender and as Agent for the Lenders ("BAI"). Unless otherwise
defined herein, capitalized terms used herein shall have the
meanings ascribed to such terms in the Loan Agreement.
Borrower has requested that Lenders agree to
retroactively (i) amend Section 5.18(a) of the Loan Agreement to
permit advances to certain employees, which advances will be
reduced to be in compliance with Section 5.18, as amended hereby,
prior to October 31, 1995, (ii) increase the amount of capital
expenditures permitted to be made by Borrower during the 1995
Fiscal Year pursuant to Section 6.2 of Supplement A to the Loan
Agreement ("Supplement A"), and (iii) amend the Interest Coverage
Ratio contained in Section 6.3 of Supplement A. Lenders have
agreed to the foregoing on the terms, and pursuant to the
conditions, contained herein, including, without limitation, the
condition that Borrower agrees to amend the Loan Agreement to
require Borrower to obtain the prior written consent of requisite
Lenders before consummating any Acquisition.
Therefore, the parties hereto agree as follows:
A. Amendment to Loan Agreement. The Loan Agreement is
hereby amended, retroactively effective as of June 30, 1995, as
follows:
(i) Section 5.12. Section 5.12 of the Loan Agreement
is hereby amended to add a new subsection (d) thereto, which
shall be inserted immediately following subsection (c)
therein and immediately prior to the semicolon therein, and
shall read as follows:
"or (d) purchase or otherwise acquire, or agree to
purchase or otherwise acquire, any of the stock, assets
or business of any Person (including, without
limitation, by means of an Acquisition)"
(ii) Section 5.15. Subsection (h) of Section 5.15 of
the Loan Agreement is hereby amended and restated in its
entirety to read as follows:
"(h) 'Acquisition Indebtedness' as that term is defined
in the Senior Loan Documents in the aggregate principal
amount outstanding as of September 28, 1995."
(iii) Section 5.18. Subsection (a) of Section 5.18 of
the Loan Agreement is amended and restated in its entirety
to read as follows:
"(a) advances not exceeding $72,000 to each of Jerry
Mulligan, Daniel Binning and Kenneth DePrinzio which do
not remain outstanding in an amount which exceeds the
limits set forth below after October 31, 1995 (the
"Agreed Loans") and advances to other employees of
Borrower or employees of any of the Subsidiaries for
travel or other ordinary business expenses, provided
that, the aggregate amount of such advances (other than
the Agreed Loans prior to October 31, 1995) outstanding
at any one time shall not exceed $25,000 for any single
employee and $75,000 in the aggregate for all
employees;"
B. Amendment to Supplement A. Supplement A is hereby
amended, retroactively effective as of June 30, 1995, as follows:
(i) Section 6.2. Section 6.2 of Supplement A is
hereby amended and restated in its entirety as follows:
"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 commit to purchase or
otherwise acquire or permit its Subsidiaries 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 Fiscal Year period set forth below,
other than in connection with a startup or an
Acquisition permitted under the Agreement, would exceed
the following amounts during the corresponding periods:
Period Capital Expenditures
1995 Fiscal Year $4,200,000
1996 Fiscal Year 3,000,000
1997 Fiscal Year 3,000,000"
(ii) Section 6.3. The first paragraph of Section 6.3
of Supplement A to the Loan and Security Agreement is hereby
amended and restated in its entirety, as follows:
"6.3 Interest Coverage Ratio. Borrower will not permit
the ratio ("Interest Coverage Ratio") of (a) net
earnings before interest expense, income tax expense,
depreciation and amortization to (b) cash interest
expense in respect of Indebtedness under the Agreement,
in respect of the Senior Notes, in respect of
Subordinated Debt and in respect of Acquisition
Indebtedness, in each case measured on the last day of
any calendar month in any period set forth below,
calculated for the 12 months ending on such date, and
determined for Borrower and its Subsidiaries on a
consolidated basis, and in accordance with GAAP, to be
less than the ratio set forth below opposite such
period:
Interest Coverage
Period Ratio
June 1, 1995 through and 0.8:1.0
including September 30, 1995
October 1, 1995 through and 1.0:1.0
including December 31, 1995
January 1, 1996 through and 1.1:1.0
including February 29, 1996
March 1, 1996 through and
including May 31, 1996 1.2:1.0
June 1, 1996 and thereafter 1.4:1.0
C. Scope. This Amendment No. 1 to Loan and Security
Agreement and Amendment No. 2 to Supplement A to Loan and
Security Agreement ("Amendment") shall have the effect of
amending the Loan Agreement, Supplement A and the Related
Agreements as appropriate to express the agreements contained
herein. In all other respects, the Loan Agreement, Supplement A
and the Related Agreements shall remain in full force and effect
in accordance with their respective terms.
D. Condition to Effectiveness. This Amendment shall
be effective immediately upon (i) receipt by BAI of an amendment
fee of $10,000, which fee is fully earned and payable as of the
date hereof and (ii) the execution of this Amendment by BAI, on
behalf of the Lenders, acceptance hereof by Borrower and each
other Obligor, and delivery hereof to BAI at 231 South LaSalle
Street, Chicago, Illinois 60690, Attention: Mark Cordes, on or
prior to September 28, 1995.
Very truly yours,
BANK OF AMERICA ILLINOIS,
f/k/a CONTINENTAL BANK,
f/k/a CONTINENTAL BANK, N.A.,
ON BEHALF OF THE LENDERS
By /s/ John P. Hesselmann
_________________________
Its Sr. Vice President
Acknowledged and agreed to this
28th day of September, 1995.
EMPIRE GAS CORPORATION
By /s/ Paul S. Lindsey, Jr.
___________________________
Its President
Acknowledgment and Acceptance of Guarantors
Each of the undersigned is a party to the Master
Corporate Guaranty dated June 29, 1994 in favor of BAI, as Agent
for itself and Lenders (the "Guaranty"), pursuant to which each
of the undersigned has guaranteed the Obligations of Borrower
under the Loan Agreement. Each of the undersigned hereby
acknowledges receipt of the foregoing Amendment No. 1 to Loan and
Security Agreement and Amendment No. 2 to Supplement A to Loan
and Security Agreement ("Amendment"), accepts and agrees to be
bound by the terms thereof, ratifies and confirms all of its
obligations under the Guaranty, and agrees that the Guaranty
shall continue in full force and effect as to it, notwithstanding
such Amendment.
Acknowledged and Agreed to this 28th day of
September, 1995.
EACH OF THE SUBSIDIARIES OF EMPIRE GAS
CORPORATION LISTED ON EXHIBIT A ATTACHED
HERETO
By /s/ Valeria Schall
__________________________________
Vice President of each Subsidiary
AGREEMENT AMENDING MANAGEMENT AGREEMENT
THIS AGREEMENT, dated July 31, 1995, is made and
entered into among Empire Gas Corporation, a Missouri corporation
("Empire"), Northwestern Growth Corporation, a South Dakota
corporation ("NGC"), and SYN Inc., a Delaware corporation
("SYN"), to amend the Management Agreement, dated May 17, 1995,
among such parties.
NOW THEREFORE, the parties hereto agree that the above-
mentioned Management Agreement is hereby amended to change the
definition of the term "Stock Agreement" therein to mean the
Amended and Restated Agreement Among Initial Stockholders and SYN
Inc., dated as of May 17, 1995, entered into by Empire, NGC and
SYN.
IN WITNESS HEREOF, the parties hereto have executed
this Agreement as of the date first above written.
Empire Gas Corporation SYN Inc.
By:/s/ Paul S. Lindsey, Jr. By:/s/ Paul S. Lindsey, Jr.
________________________ ________________________
Its President Title:President
Northwestern Growth Corporation
By:/s/ Richard R. Hylland
__________________________
Its President
AGREEMENT AMENDING AND RESTATING
AGREEMENT AMONG INITIAL STOCKHOLDERS AND SYN INC.
THIS AGREEMENT, dated July 31, 1995, is made and entered
into among Empire Gas Corporation, a Missouri corporation
("Empire"), Northwestern Growth Corporation, a South Dakota
corporation ("NGC"), and SYN Inc., a Delaware corporation
("SYN"), with respect to the following facts:
A. The parties hereto previously entered into that
certain agreement, dated May 17, 1995, titled "Agreement Among
Initial Stockholders and SYN Inc."
B. Such parties now desire to amend said Agreement
Among Initial Stockholders and SYN Inc., effective as of its
May 17, 1995 date, so as to make changes therein to
accommodate the use of certain stock of SYN as collateral to
secure financing obtained by or for SYN, and to restate in its
entirety the Agreement Among Initial Stockholders and SYN
Inc., as thus amended.
NOW THEREFORE, the parties hereto agree that said
Agreement Among Initial Stockholders and SYN Inc. is hereby
amended effective as of its original date of May 17, 1995,
and, as thus amended, is restated in its entirety to read as
attached hereto as Exhibit I and that the amended and restated
agreement in such Exhibit I may be treated as the agreement of
the parties thereto without reference to or display of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto have
caused this Agreement to be executed in its name as of the
date first above written.
EMPIRE GAS CORPORATION
By /s/ Paul S. Lindsey, Jr.
__________________________
President
NORTHWESTERN GROWTH CORPORATION
By /s/ Richard R. Hylland
___________________________
President
SYN INC.
By /s/ Paul S. Lindsey, Jr.
___________________________
Title President
EXHIBIT I
AMENDED AND RESTATED AGREEMENT AMONG
INITIAL STOCKHOLDERS AND SYN INC.
THIS AGREEMENT, dated as of May 17, 1995, is made
and entered into among Empire Gas Corporation, a Missouri
corporation ("Empire"), Northwestern Growth Corporation, a
South Dakota corporation ("NGC"), and SYN Inc., a Delaware
corporation ("SYN"), with respect to the following facts:
A. Empire currently is engaged in the business of
distributing and selling at retail liquified petroleum ("LP")
gas and appliances, and has a management experienced in the
operation of such business.
B. NGC is a wholly-owned subsidiary of
Northwestern Public Service Company ("NWPS") and has as one of
its objectives the making of investments that could benefit
NWPS and its stockholders.
C. Empire and NGC, acting together, have made a
successful bid to acquire the LP gas distribution and
appliance business of Synergy Group Incorporated ("Synergy";
such acquisition being hereinafter called the "Synergy
Acquisition"), in what is planned to be the first step in the
proposed development by Empire and NGC, on a team basis, of a
significant position in the LP gas distribution industry.
Empire and NGC have contemplated, in their bidding for the
Synergy Acquisition, that they will rely principally on Empire
for management expertise and on NGC to provide or arrange the
financing for the Synergy Acquisition, and that the success of
the Synergy Acquisition will depend in large measure upon the
cost savings and operating improvements expected to be
achieved by having Empire do the planning and management of
the business of Synergy and its subsidiaries, under the
direction of the Board of Directors of SYN.
D. Empire and NGC have caused SYN to be
incorporated to serve as the vehicle (directly or through
subsidiaries to be created) for making the Synergy
Acquisition.
E. Empire and NGC, on behalf of SYN, are
concluding the negotiation of the definitive agreement (the
"Synergy Acquisition Agreement") for the Synergy Acquisition,
and need to provide for (i) the initial capitalization of SYN,
(ii) certain loan financing for SYN, (iii) the management of
SYN and (iv) for certain matters pertaining to the ownership
of shares of stock of SYN.
NOW THEREFORE, in consideration of the premises and
the agreements exchanged herein, the parties hereto agree as
follows:
ARTICLE 1: INITIAL CAPITALIZATION OF SYN;
STOCK SUBSCRIPTIONS AND RESERVATIONS OF STOCK
SECTION 1.01 INITIAL AUTHORIZED STOCK OF SYN. SYN has
been incorporated by Empire and NGC with an initial authorized
capitalization (as set forth in Article FOURTH of SYN's
Certificate of Incorporation, a true and complete copy of
which is attached hereto as Exhibit A), consisting of 100,000
shares of common stock, par value 1CENT per share (the "Common
Stock"; and the 100,000 shares of Common Stock referred to
herein shall only be increased with the prior written
agreement of Empire and NGC unless such increased number of
shares is to be issued in an arm's length transaction to a
party who is not affiliated with any of the parties to this
Agreement), and 100,000 shares of preferred stock, par value
1CENT per share, issuable in one or more series (the "Preferred
Stock"). Prior to the consummation of the Synergy
Acquisition, SYN shall, and Empire and NGC shall cause SYN to,
take all action necessary to create and authorize the issuance
of a series of the Preferred Stock, namely, the Series A
Cumulative Preferred Stock, consisting of 70,500 shares, the
terms of which shall be as set forth in Exhibit B attached
hereto, with such changes therein as the parties hereto may
approve before such series is created (the "Series A Preferred
Stock").
SECTION 1.02 SUBSCRIPTIONS AND OPTION FOR STOCK. NGC
has previously purchased, and hereby subscribes for, stock of
SYN, and NGC has granted Empire an option to purchase certain
shares of stock from NGC, as follows:
(a) SYN and NGC acknowledge that NGC has purchased
from SYN, and SYN has sold and issued to NGC, 1,000
shares of Common Stock for a cash purchase price of
$1,000.00 which has been paid by NGC to SYN, and that
these shares are the only shares of stock of SYN that are
currently outstanding.
(b) NGC hereby subscribes for, and agrees to
purchase from SYN, and SYN hereby agrees to sell and
issue to NGC, an additional 71,500 shares of Common Stock
for a cash purchase price of $71,500.00 to be paid at the
time of such issuance, with this transaction to be
consummated (the "Subscription Closing") at the First
Closing, as defined in the Synergy Acquisition Agreement,
unless an earlier time for the Subscription Closing is
agreed to by the parties hereto. The obligation of NGC
under its subscription in this paragraph (b) is subject
to the condition (unless waived by NGC) that NGC shall
have been able to obtain the funds from the Permanent
Financing or the Temporary Financing, as those terms are
defined in the Synergy Acquisition Agreement, at or prior
to the time of the Subscription Closing.
(c) NGC hereby subscribes for, and agrees to
purchase, or to cause its parent corporation, NWPS, to
purchase from SYN, and SYN hereby agrees to sell and
issue to NGC or NWPS, as the case may be, 68,000 shares
of Series A Preferred Stock for a cash purchase price of
$1,000 per share ($68,000,000.00 total), with this
transaction to be consummated at the Subscription
Closing. The obligation of NGC under its subscription in
this paragraph (c) is subject to the condition (unless
waived by NGC) that NGC or NWPS shall have been able to
obtain the funds from the Permanent Financing or the
Temporary Financing, as those terms are defined in the
Synergy Acquisition Agreement, at or prior to the time of
the Subscription Closing and that, at the time of the
Subscription Closing, the First Closing (as defined in
the Synergy Acquisition Agreement) is concurrently
occurring or is reasonably assured of being consummated
immediately thereafter.
(d) Empire hereby subscribes for, and agrees to
purchase from SYN, and SYN hereby agrees to issue and
sell to Empire, 10,000 shares of Common Stock (which
shall represent 10% of the issued and outstanding Common
Stock) for a cash purchase price of $10,000 to be paid at
the time of such issuance, with this transaction to be
consummated at the Subscription Closing. The obligation
of Empire under its subscription in this paragraph (d) is
subject to the condition (unless waived by Empire) that
NGC consummates its purchase of shares of Common Stock
under paragraph (b) above in this Section 1.2 at the
Subscription Closing.
(e) NGC hereby grants to Empire an option to
purchase from NGC, at a price of $1.00 per share, up to
20,000 of the shares of Common Stock which shall
represent 20% of the issued and outstanding Common Stock,
subject to NGC acquiring such shares pursuant to
paragraph (b) above in this Section 1.2. Such option may
be exercised at any time after September 30, 1995 and
prior to September 30, 1997, or the Determination Date
(as defined in Section 1.04 herein), whichever is earlier,
by Empire's giving written notice of such exercise to
NGC. After the giving of such notice, NGC shall assign
and deliver to Empire the shares of Common Stock for
which the stock option was exercised, as promptly as
possible, but in any event within seven days, in exchange
for Empire's payment to NGC of the purchase price for
such shares; and the shares so assigned and delivered
shall then be shares owned by Empire and shall be held by
Empire subject to the terms of this Agreement.
SECTION 1.03 RESERVATIONS OF STOCK FOR ISSUANCE. SYN
shall, and Empire and NGC shall cause SYN to, take all action
necessary to reserve for initial issuance, 17,500 shares of
Common Stock and 2,500 shares of Series A Preferred Stock to
be issued to the Stockholders (as defined in the Synergy
Acquisition Agreement) at the Second Closing (also as defined
in the Synergy Acquisition Agreement), pursuant to the Synergy
Acquisition Agreement.
SECTION 1.04 COMMON STOCK RETURN. The following
provisions of this Section 1.04 apply in the event Empire
exercises the stock option granted to it in Section 1.02(e)
herein:
(a) The "Common Stock Return" as that term is used
herein, shall be the number of shares of Common Stock of
SYN which Empire hereby agrees to assign and deliver to
NGC, without cost to NGC, in the event that the common
equity value at a Determination Date (as defined below)
is below levels specified for such date in subparagraph
(iii) in this paragraph (a). The Common Stock Return
shall be set in accordance with the following formula.
(i) The Determination Date shall be the date
on which SYN is sold (meaning a sale of
substantially all of the assets of SYN and its
subsidiaries, the acquisition of SYN by another,
non-affiliated entity by merger or consolidation, or
the sale of partnership units or shares of stock of
SYN which entitle the holder thereof to cast at
least a majority of the votes entitled to be cast in
the general election of directors of SYN or the date
on which the sale of partnership units or shares of
SYN's Common Stock is closed in an underwritten
public offering, for which the partnership units or
shares are registered under the Securities Act of
1933, or the date on which this Agreement expires or
is terminated in accordance with Section 7.02 herein,
whichever of the foregoing first occurs).
(ii) The value of the total outstanding Common
Stock of SYN on the Determination Date (the
"Value"), shall be determined by the parties hereto
on the basis of the sale price for SYN if the sale
of SYN is involved, or based upon the price to SYN
(or the selling stockholders if SYN is not the
seller) in the event an underwritten public offering
of partnership units or Common Stock of SYN is
involved, or on the basis of the fair market value
of the outstanding Common Stock of SYN in every
other event, as determined by an appraisal firm or
an investment banking firm selected by the parties
hereto, with such fair market value to be determined
on the basis of the value of SYN and its
subsidiaries as a whole, if sold as a going concern.
In the event there is a combination of one or more
entities with SYN, the value of SYN will be
determined by either (x) a fair market value
appraisal or (y) in the event there is a public
offering within nine months after such combination,
the value shall be the initial price to the public
of SYN shares of Common Stock or partnership units
in such public offering.
(iii) For these purposes, "deemed outstanding
shares of Common Stock" shall be the total of the
number of shares of Common Stock issued and
outstanding plus the number that would be issued and
outstanding if all outstanding stock options,
warrants, conversion rights and other rights to
acquire shares of Common Stock were exercised,
whether or not exercisable at the time. The number
of shares of Common Stock of SYN constituting the
Common Stock Return shall be the percentage of the
deemed outstanding shares of Common Stock of SYN as
of the Determination Date, determined on the basis
of the following table and paragraph (b) below, if
applicable:
____________________________________________________________________________
Column A Column B Column C
Percentage of Percentage of
deemed outstanding deemed outstanding
shares of Common shares of Common
Stock of SYN shall Stock of SYN shall
be 0% if the Value be 7.5% if the
Fiscal Year of SYN as of the Value as of the
in which Determination Date Determination Date
Determination Date is at least the is less than the
occurs: following amount: following amount:
1996 $24,500,000 $22,250,000
1997 $30,000,000 $24,750,000
1998 $36,750,000 $27,500,000
1999 $45,000,000 $30,600,000
2000 $55,200,000 $34,000,000
After 2000 1.225 times the 1.1125 times the
previous year's previous year's
amount amount
____________________________________________________________________________
(b) If the Value as of the Determination Date is
more than the amount in Column C in Section 1.04(a)(iii)
above, but less than the amount in Column B therein, the
percentage used to determine the Common Stock Return
shall be a figure between 7.5% and 0% which is in
proportion to what the Value is to the amounts in the two
columns for the particular Determination Date.
SECTION 1.05 ACQUISITION FOR INVESTMENT. Empire and NGC
each represent and warrant to the other, and to SYN, as
follows: It has (through its management personnel) such
knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of its
purchase of securities of SYN as provided for in this
Agreement; it is acquiring such securities, and will acquire
them, for investment and not with a view toward, or with any
intention of, distributing or selling any of the securities
and it will not sell or offer to sell or otherwise transfer
any of the securities in violation of the Securities Act of
1933, as amended.
ARTICLE 2: LOAN FINANCING FOR SYN
NGC shall make a commercially reasonable effort to
arrange for SYN, or provide SYN with, loan financing for SYN,
on a fully secured basis, of up to $70,000,000 principal
amount needed by SYN for the Synergy Acquisition.
ARTICLE 3: LIMIT TO FINANCING OBLIGATIONS
Neither Empire nor NGC, nor any of their affiliates,
shall have any obligation to provide, or arrange, financing
for SYN other than as expressly provided for in Articles 1 and
2 herein.
ARTICLE 4: SYNERGY ACQUISITION
Each of the parties hereto will make a commercially
reasonable effort in cooperation with the other parties
hereto, to do those things within its control to consummate
the Synergy Acquisition in accordance with the terms of, and
subject to the conditions in, the Synergy Acquisition
Agreement. Nothing in this Agreement or otherwise shall be
construed to give anyone who is not a party to this Agreement,
whether under a third party beneficiary legal doctrine or
otherwise, a right to enforce the provisions of this Article
or to obtain relief for any failure to perform in accordance
with the requirements of this Article.
ARTICLE 5: MANAGEMENT OF SYN
SECTION 5.01 At or before the First Closing (as defined
in the Synergy Acquisition Agreement), the parties hereto will
enter into a management agreement in substantially the form
attached hereto as Exhibit C, or with such changes therein as
the parties hereto hereafter agree upon (the "Management
Agreement"), pursuant to which the planning and management of
the business of SYN subsequent to the Second Closing (as
defined in the Synergy Acquisition Agreement) will be
conducted by Empire under the direction of the Board of
Directors of SYN, as provided therein.
SECTION 5.02 DIRECTORS AND OFFICERS OF SYN.
(a) For purposes of this Agreement, "Control
Period" means the period of time commencing on the date
of this Agreement and continuing either (i) until this
Agreement is terminated pursuant to Section 7.02 herein
because of the termination of the Synergy Acquisition
Agreement without the Synergy Acquisition having been
completed or (ii) until a time after the First Closing,
as defined in the Synergy Acquisition Agreement, when (A)
the Control Period is terminated by agreement of the
parties hereto, (B) NGC no longer owns a majority of the
shares of Common Stock of SYN deemed to be outstanding
(determined as provided in Section 1.4 herein), (C)
Empire no longer owns at least 20% of the shares of
Common Stock of SYN deemed to be outstanding or has an
option to acquire at least that amount of shares, or (D)
when SYN consummates an underwritten public offering of
partnership units or shares of its Common Stock,
registered under the Securities Act of 1933, whichever of
(A), (B), (C) or (D) first occurs.
(b) Throughout the Control Period, NGC and Empire
shall vote their voting shares of stock of SYN that are
capable of being voting in a general election of
directors of SYN (i.e., not including the Series A
Preferred Stock or other classes or series of stock which
vote only for a limited number of directors if and when a
prescribed default in the payments of dividends thereon
has continued for a prescribed period of time), and will
otherwise use their respective commercially reasonable
efforts, to carry out the following:
(i) the Board of Directors of SYN shall
consist of five members, three of whom shall be
nominees of NGC (the "NGC Positions") and two of
whom shall be nominees of Empire (the "Empire
Positions"); and any vacancies occurring in the NGC
Positions will be promptly filled with nominees of
NGC and any vacancies occurring in the Empire
Positions will be promptly filled with nominees of
Empire.
(ii) The officers of SYN shall include at all
times a Chairman of the Board and a Vice Chairman of
the Board, who will be persons nominated by NGC, and
a President and Chief Executive Officer, who will be
Paul S. Lindsey, Jr., and a Secretary, who will be a
person nominated by Empire. The authority and
duties of such officers shall be as set forth in the
by-laws of SYN, a true and complete copy of which as
in effect on the date hereof is attached hereto as
Exhibit D.
(c) To initiate compliance with preceding
paragraph (b), Empire and NGC have caused the following
persons to be elected to the positions with SYN indicated
by their names, to serve for the period provided in the
by-laws of SYN:
* Chairman of the Board and director - Merle
D. Lewis (an NGC nominee for such
positions);
* Vice Chairman of the Board and director -
Richard R. Hylland (an NGC nominee for
such positions);
* President and Chief Executive Officer and
director -- Paul S. Lindsey, Jr. (an
Empire nominee as to the position of
director);
* Secretary and director -- Douglas A. Brown
(an Empire nominee for such positions);
with the fifth member of the Board of Directors of SYN
(one of the NGC Positions) to be nominated by NGC, and
elected, at a future time when NGC has selected the
nominee for such position.
ARTICLE 6: DISPOSITION OF SYN STOCK BY EMPIRE OR NGC
SECTION 6.01 PERMITTED DISPOSITIONS.
(a) NGC may at any time or from time to time
transfer any of the securities issued by SYN which NGC
may own at any time to NWPS or any wholly-owned
subsidiary of NWPS, provided that notice of such transfer
is given to the other parties to this Agreement and that
the transferee becomes a party to this Agreement with
respect to the securities so transferred, but all of such
transferees and NGC shall collectively act, and be
treated, as a single entity with NGC acting as their
representative for purposes of this Agreement.
(b) Empire may at any time and from time to time
transfer any of the securities issued by SYN which Empire
may own at any time to any affiliated party, provided
that notice of such transfer is given to the other
parties to this Agreement and the transferee becomes a
party to this Agreement with respect to the securities so
transferred, but all such transferees and Empire shall
collectively act, and be treated, as a single entity with
Empire acting as their representative for purposes of
this Agreement.
SECTION 6.02 RIGHTS OF FIRST REFUSAL.
(a) Except as permitted by Section 1.04 and Section
6.01(b) herein, so long as the Management Agreement is in
effect, Empire will not sell or otherwise dispose of any
shares of Common Stock of SYN, or any other securities
convertible into such shares, to any party without first
offering the same for sale to NGC in writing on the same
terms as are offered to or by the other party (with full
disclosure of such terms to NGC) and allowing not less
than 30 days after its receipt of the offer for NGC to
accept the offer; and if such offer is accepted by NGC,
NGC shall have 90 days in which to complete the purchase
on such terms.
(b) Except as permitted by Section 1.02(e) and
Section 6.01(a) herein, so long as the Management
Agreement is in effect, NGC will not sell or otherwise
dispose of any shares of Common Stock of SYN, or any
other securities convertible into such shares, to any
party without first offering the same for sale to Empire
in writing on the same terms as are offered to or by the
other party (with full disclosure of such terms to
Empire) and allowing Empire not less than 30 days after
its receipt of the offer for Empire to accept the offer,
and if such offer is accepted by Empire, Empire shall
have 90 days in which to complete the purchase on such
terms, but if Empire declines such offer, then Empire
shall have the right to participate on a pro rata basis
in the sale of such shares by NGC; provided, however,
that the preceding provisions of this paragraph (b) shall
not apply to any pledge or granting of a security
interest in any shares of Common Stock of SYN, or any
other securities convertible into such shares, by NGC to
secure loan financing obtained by NWPS, NGC or SYN, or
guaranties of such loan financing, or any sale thereof by
foreclosure of such pledge or security interest, or any
sale thereof in lieu of such foreclosure.
ARTICLE 7: MISCELLANEOUS
SECTION 7.01 RESTRICTIVE LEGEND. Each certificate
issued by SYN to evidence shares of Common Stock, or
securities convertible into such shares, owned by either
Empire or NGC shall be endorsed with the following legend:
"The shares represented by this certificate are
subject to the Amended and Restated Agreement among
the Corporation and its Initial Stockholders, dated
as of May 17, 1995, as the same may be amended, on
file with the issuing Corporation at its principal
business office and may be transferred or otherwise
disposed of only in accordance therewith."
SECTION 7.02 TERM OF THIS AGREEMENT. This Agreement, if
not sooner terminated by agreement of the parties hereto or
pursuant to the next sentence, shall terminate when the
Control Period terminates. In the event the Synergy
Acquisition Agreement is terminated without the Synergy
Acquisition having been completed, the parties hereto will
liquidate and dissolve SYN as promptly as possible when all
obligations of SYN under, or with respect to, the Synergy
Acquisition Agreement have been discharged or provided for;
and this Agreement shall then automatically terminate.
SECTION 7.03 NOTICES. All notices and other
communications hereunder shall be in writing and shall be
deemed to have been given (a) when delivered in person, (b)
one business day after deposit with a nationally recognized
overnight courier service (c) two business days after being
deposited in the United States mail, postage prepaid, first
class, registered or certified mail, or (d) the business day
on which it is sent and received by facsimile, as follows:
(i) If to SYN, to
SYN Inc.
c/o Northwestern Growth Corporation
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Richard R. Hylland, President
with a copy to Empire, addressed and sent to it at
the place required under this Agreement for giving
notice to Empire.
(ii) If to Empire, to:
Empire Gas Corporation
P.O. Box 303
1700 South Jefferson
Lebanon, Missouri 65536
Fax No. (417) 532-8529
Attention: Paul S. Lindsey, Jr., President
(iii) If the NGC, to:
Northwestern Growth Corporation
33 Third Street, S.E.
Huron, South Dakota 57350
Fax No. (605) 353-8286
Attention: Richard R. Hylland, President
SECTION 7.04 SECTION 351 OF THE CODE. Each of the
parties hereto agrees to comply with the requirements of
Section 6.28 of the Synergy Acquisition Agreement, both with
respect to the transaction referred to therein and with
respect to any transaction under this Agreement to the extent
necessary to assure the result under Section 351 of the
Internal Revenue Code of 1986, as amended, for the transaction
referred to in such Section 6.28.
SECTION 7.05 CAPTIONS. The captions in this Agreement
are included for convenience of reference only and shall be
ignored in the construction and interpretation of this
Agreement.
SECTION 7.06 GOVERNING LAW. This Agreement shall be
construed in accordance with and governed by the internal laws
of the State of Delaware without regard to the choice of law
principles thereof.
SECTION 7.07 COUNTERPARTS. Execution of separate copies
of this Agreement by each or some of the several parties
hereto shall have the same force and effect as though all such
parties had executed the original of this Agreement. Further,
the parties hereto may execute several counterparts of this
Agreement, all of which shall constitute but one and the same
agreement.
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed in its name as of the
date first above written.
EMPIRE GAS CORPORATION
By /s/ Paul S. Lindsey, Jr.
____________________________
President
NORTHWESTERN GROWTH CORPORATION
By /s/ Richard R. Hylland
____________________________
President
SYN INC.
By /s/ Paul S. Lindsey, Jr.
____________________________
Title President
[Warren Petroleum Company Letterhead]
April 09, 1996
Warren Petroleum Company
3900 Lakeland Drive, Suite 502
Jackson, MS 39208-8854
Domestic & Industrial Sales
South Central District
R.E. (Bob) Siedell, Manager
601-939-0761
Fax: 601-932-2033
Ms. Kris Lindsey
Empire Gas Corporation
P.O. Box 303
Lebanon, MO 65536
Dear Kris:
RE: PSA 25077 - EMPIRE GAS CORPORATION - REVISION 1
By virtue of this letter, PSA 25077 for Empire Gas
Corporation dated August 24, 1995, and expiring April 30,
1996, for Hattiesburg is hereby revised as follows:
1. The expiration date is extended to April 30,
1997.
2. Volumes on Attachment A are revised per the
enclosed attachment.
All other terms and conditions remain the same.
ACCEPTED
/s/ Kris Lindsey /s/ R.E. Siedell
_______________________ _______________________
EMPIRE GAS CORPORATION WARREN PETROLEUM COMPANY
DISTRICT MANAGER
Enclosures
/ed
ATTACHMENT A TO
PROPANE SALES AGREEMENT NO. 25077
1. TRADEMARK. Buyer acknowledges that the CHEVRON and WARRENGAS
Trademarks are valuable property rights belonging to Chevron
Corporation and its subsidiaries, including Chevron U.S.A.
Inc. and that any use thereof by Buyer in connection with
this agreement is solely for the purposes of advertising
products obtained from such subsidiaries. Upon termination
of this agreement, Buyer agrees that it will make no further
use of such trademarks or any other mark, name or designs
confusingly similar therewith.
2. QUANTITY. During the term hereof, Buyer agrees to buy the
product herein specified in monthly quantities of not less
than the minimum set forth below and Warren agrees to sell
said quantities to Buyer. Buyer shall purchase such
quantities as evenly as possible during each month. If
during any period of this agreement the quantity of product
Warren is obligated to deliver to Buyer is prescribed for
such period and Buyer agrees to buy and Warren agrees to
sell such quantity.
VOLUME (IN THOUSANDS OF GALLONS)
VOLUMES VOLUMES
April 1300 ________ October 2000 __________
May 650 ________ November 2000 __________
June 500 ________ December 2900 __________
July 650 ________ January 2800 __________
August 800 ________ February 2400 __________
September 1200 ________ March 2100 __________
For the purpose of determining compliance with the above
quantity schedule, purchase of product shall be allocated to
the month in which shipment is made. Should either party
fail to comply in any amount with the above schedule, the
other party may elect to terminate this agreement by mailing
notice of such termination on or before the 20th day of the
succeeding month. If the Buyer fails to purchase 100% of
the above specified minimum monthly quantities during any
month or months and Warren does not elect to terminate this
agreement, Warren shall not be obligated hereunder to sell
to Buyer in any of the succeeding six months more than one
and one half times the average monthly quantity which Buyer
actually purchased during the preceding six-month period.
When delivery is into tank trucks furnished by Buyer, the
delivery ticket showing the quantity delivered shall be
signed by the loader as the agent of Warren and by the truck
driver as the agent of the Buyer; such quantities shall be
conclusively presumed to have been delivered to Buyer.
On or before the 1st day of each month Buyer shall inform
Warren of quantities required during such month, delivery
dates, and when applicable, destinations of each shipment.
Warren shall not be obligated to ship less than a tank car
or tank truck load.
3. METHOD OF DELIVERY: _______ By tank trucks furnished by Buyer.
See Storage Agreement 7184 _______ By tank trucks furnished by Warren.
_______ By tank cars furnished by with a
capacity of _________ gallons each.
PRICE INFORMATION
Prices in effect as of ____________, 19__
Sales based on (X) Shipping point price of ( ) Destination price
Shipping or Price in
Pricing Points Destinations Product Cents/Gallons Freight Charges
[PHILLIPS 66 COMPANY LETTERHEAD]
A DIVISION OF PHILLIPS PETROLEUM COMPANY
REFINING, MARKETING & TRANSPORTATION
SALES CONFIRMATION
756 Adams Building
Bartlesville, OK 74004
Expire Gas Corp. DATE Aug. 15, 1994
P.O. Box 303 PHILLIPS' SALES CONFIRMATION NO. B-94-0045
Lebanon, MO 65536 CUSTOMER'S PURCHASE CONFIRMATION NO_________
ATTENTION Kris Lindsey
THIS CONSTITUTES A CONTRACT BETWEEN OUR RESPECTIVE COMPANIES WHEREBY BOTH
PARTIES HAVE AGREED TO THE FOLLOWING TERMS AND CONDITIONS OF THIS SALE.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
1. PERIOD: August 1, 1994, through July 31, 1995, and year to year
subject to 30-day written notice of cancellation
during any summer month (April-September)
2. PRODUCTS: HD-5 Propane
3. QUANTITY: Per Attachment A at Paola, KS; Jeff City, MO; E. St. Louis,
Decatur & Kankakee, IL.
4. PRICE: National Accounts Posting on date of loading.
5. F.O.B.: Wire transfer, .5% (one-half percent) 5 days
6. TERMS: EFT 1/2% 5 Days
7. SHIPPING INSTRUCTIONS: ( ) TANK CAR (X) TANK TRUCK ( ) OTHER
8. MATERIAL (X) STENCHED ( ) UNSTENCHED
9. SPECIAL INSTRUCTIONS:
During periods of terminal allocation at Phillips Pipe Line Co.
terminals, allocation earnings shall be the lesser of: (a) monthly
contract volume, (b) total summer deliveries multiplied by three (3)
and divided by six (6), (c) a proportionate share of the terminal
capacity calculated as a percent (%) of your forecast volume to the
total forecast volume for all customers at the terminal.
<TABLE>
<S> <C> <C>
PHILLIPS INVOICES SHOULD BE CUSTOMER INVOICES SHOULD PLEASE FORWARD BILLS OF
MAILED TO THE FOLLOWING ADDRESS: BE MAILED TO: LADING TO:
______________________________ ________________________ _______________________
______________________________ ________________________ _______________________
______________________________ ________________________ _______________________
__________________________________________________________________________________________
THE GENERAL PROVISIONS AND WARNING APPEARING ON THE REVERSE SIDE HEREOF ARE
A PART OF THIS CONTRACT. PLEASE INDICATE YOUR ACCEPTANCE OF THIS AGREEMENT
IN THE SPACE PROVIDED BELOW AND RETURN ONE COPY FOR OUR FILES.
ACCEPTED AND AGREED TO THIS 22ND PHILLIPS 66 COMPANY
DAY OF AUGUST, 1994 A DIVISION OF PHILLIPS PETROLEUM COMPANY
BY /s/ Kris Lindsey BY /s/ J. R. Fouts
__________________________ ____________________________
TITLE V.P TITLE: WHOLESALE SALES DIRECTOR
</TABLE>
EMPIRE GAS CORP.
Contract Volume Amendment
1996-1997
(Thousands of Gallons)
Sales Forecast APR MAY JUN JUL AUG SEP
Paola L388 214 147 0 0 186 841
Jeff City L350 376 310 229 280 487 841
E. St. Louis L330 46 48 15 22 49 95
Denver L322 35 27 18 21 30 30
La Junta L362 76 74 63 60 78 95
Sales Forecast: OCT NOV DEC JAN FEB MAR TOTAL
Paola L388 290 387 638 653 508 250 3,549
Jeff City L350 853 1062 1544 1712 1218 824 9,736
E. St. Louis L330 98 111 140 193 174 101 1,092
Denver L322 160 289 343 306 290 220 1,769
La Junta L362 205 294 351 343 315 234 2,188
[CONOCO LETTERHEAD]
DEALER SALE CONTRACT
We hereby confirm SALE to:
Empire Gas Corporation DATE: April 1, 1996
Attn: Kris Lindsey CONOCO NO.: 30-9009636-0000-A12
P.O. Box 303 SYSTEM CODE: 15
LEBANON, MO 65536 ACCOUNT CODE: 407
Attention: Kristin Lindsey
Per conversations between Kristin Lindsey and our Lewis Bradshaw
PRODUCT: Propane (Stenched) meeting GPA specifications
PRICE: See Remarks
TERMS OF PAYMENT: 1% 10 Days/Net 11 Days From Date of Invoice
F.O.B. ORIGIN POINT DESTINATION
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cherokee Pipeline/Wood River - Wood River 30-9014489-0000 Various, Arkansas
Cherokee Pipeline/Belle - Bell, MO 30-9009636-0000 Various, Missouri
Cherokee Pipeline/Mt. Vernon - Mt. Vernon 30-9035796-0000 Various, Kansas
Conoco/Medford Plant - Medford, OK 30-9014489-0000 Various, Arkansas
Conoco/Ponca City Refinery - Ponca City, 30-9035796-0000 Various, Oklahoma
Williams Pipeline/Carthage Terminal - Car
FREIGHT: Origin Collect
METHOD OF TRANSPORTATION: Common Carrier and/or Customer Truck
TERM OF AGREEMENT: January 21, 1992 through June 30, 1993 and year to
year thereafter.
QUANTITY: Subject to the terms and conditions on the reverse hereof, seller
agrees to sell and deliver, and buyer agrees to purchase and
receive the following volumes of product: (000) Gallons
MIN MAX MIN MAX MIN MAX MIN MAX
JAN 1318 1976 APRIL 386 580 JULY 194 292 OCT 614 920
FEB 1169 1753 MAY 247 371 AUG 378 568 NOV 828 1242
MAR 654 982 JUN 193 289 SEP 662 994 DEC 1195 1793
Q1 3141 4711 Q2 826 1240 Q3 1234 1854 Q4 2637 3955
Year Total 7838 11760
REMARKS: PRICE: Contract amended effective 4/1/96
Contract amended on 1/20/95 to revise contract volumes and to establish
Kris Lindsey as Empire Gas contact.
Contract amended on 9/1/95 to revise contract volumes and add Carthage as
supply point, and Oklahoma, Kansas, and Arkansas as various destination
points.
Contract amended 4/1/96 to revise volumes.
Conoco Inc. invoices Mail Customer
should be mailed to invoices to: Mail contracts and
the following address: correspondence to:
Expire Gas Corporation Conoco Inc. Conoco Inc.
Attn: Gwen Hogan Gas Products Accounting Gas Products Division
P.O. Box 303 3rd Floor North Tower Humber Building - 1021
Lebanon, MO 65536 P.O. Box 1267 P.O. Box 2197
Ponca City, OK 74602-1267 Houston, TX 77252
1-800-423-4636
("Buyer") ("Seller")
Subject to terms and conditions on reverse side
Accepted May 26, 1996 By: /s/ David L. Lugar
Empire Gas Corporation ________________________
David L. Lugar
Managing-Marketing, Supply & Trading
By: /s/ Kris Lindsey
____________________
Kris Lindsey
Vice President
Please sign and return one copy and retain one copy for your files
1-800-423-4636
LEASE OF AIRCRAFT
Paul S. Lindsey Limited Liability Company, a
Delaware limited liability company (hereinafter called
"Lessor") enters into the following lease with Empire Gas
Corporation, a Missouri corporation (hereinafter called
"Lessee").
1. Lease of Airplane, Term, Rental. Lessor leases to
Lessee, subject to the terms and conditions, and for the
consideration herein set out, the following described airplane
1983 Dassault Model 10 S/N 187 FAA N 81 TJ (Serial No.),
complete with the manufacturer's specified equipment and the
following optional equipment: (see attached) for a term of
120 months, commencing on the date of the delivery of the
airplane to Lessee. In consideration for the lease of said
airplane, Lessee shall pay to Lessor in 36 monthly
installments of $23,581.73 per month, with a final monthly
installment of remaining principal rental balance rental
balance plus interest. The parties shall have the option to
renew the lease for an additional 36 month period. ALl
payments shall be due and payable at the office of the Lessor
on the 1st day of the month, beginning June 1, 1996. A
payment default shall occur if any monthly payment is not
received by lessor on the first day of each month.
2. Security Deposit. Lessee has this day delivered to
Lessor the sum of $200,000 as an initial security deposit to
be held by the Lessor as security for the faithful performance
of all terms, conditions and agreements of this lease. Lessee
acknowledges that Lessor may require an additional $80,000
security deposit during the term of the lease and, if Lessor
so requests, Lessee shall pay said security deposit to Lessor
upon requests. Said sum, if not applied toward payment of
back rent or toward payment of damages suffered by Lessor by
reason of any breach hereunder by Lessee, may at Lessor's
option, be applied to the final payment due under this lease,
or will be returned to Lessee upon the Lessee's full and
complete compliance with all terms, conditions and agreements
of this lease. In the event of any retaking or repossession
of said airplane by Lessor due to Lessee's default hereunder,
Lessor may apply the said security upon all damages suffered
as a result of said default, and may retain said security to
apply on such damages as may be suffered or which accrue
thereafter by reason of said default and breach.
3. Location of Airplane. The Lessee and lessor agree
that the said airplane shall be permanently based at Floyd
Jones Airport, in Lebanon, MO 65536. The Lessee shall not
make any change in such permanent base without first notifying
the Lessor in writing of said change and receiving the
Lessor's approval.
4. Default. In the event that Lessee defaults in any
of the provisions or in any of the terms, conditions and
covenants to be performed hereunder upon the part of the
Lessee, or in the event that Lessee should be the subject of
any bankruptcy proceeding or become insolvent, or make an
assignment for the benefit of creditors, or consent to the
appointment of a receiver or trustee, or if a trustee or
receiver is appointed for the Lessee without his consent, or
if bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings are instituted by or against the
Lessee, then in such event, Lessor, at its option, may declare
this lease as terminated and take immediate possession of the
airplane or declare that Lessee has exercised its option to
purchase the airplane. Lessee hereby waives all rights under
all exemption laws.
5. Right of Repossession. In the event Lessee defaults
under this lease, Lessor may take immediate possession of the
airplane without the necessity of legal action to recover
possession of same, and Lessor is hereby authorized to enter
upon the premises where said aircraft may be found without
liability for trespassing for so entering, and Lessee shall be
liable to Lessor for the payment due upon termination as
herein set out as liquidated damages and not as a penalty.
6. Condition of Airplane, Title, Control. Lessee
acknowledges receipt of the said airplane in good, safe and
serviceable condition, and that it is fit for use. It is
understood and agreed between the parties that title to the
airplane remains with the Lessor, but that the Lessor shall
have no control over the operation of the airplane; however,
nothing stated herein shall authorize the Lessee or any other
person to operate the airplane or to incur any liability or
obligation on behalf of the Lessor. Lessor warrants that it
is the absolute owner of the said airplane and that it has the
full right to lease the airplane to the Lessee.
7. Return of Airplane. Lessee agrees that upon the
termination of this Lease, Lessee will return said airplane to
Lessor in the same and as good a condition as when received by
Lessee, normal wear and tear excepted. In the event the
Lessee does not return the airplane in such condition, the
Lessor may make any repairs necessary to restore the airplane
to such condition, and the Lessee agrees to reimburse the
Lessor for any expense involved for said restoration.
8. License Fees, Taxes. Lessee agrees to pay when due,
all license fees and other fees and assessments necessary for
the securing of licenses, certificates of title and other
similar permits for the operation of said airplane, such
certificates showing title in the Lessor, and further agrees
to pay when due, all taxes now or hereafter imposed by any
state, federal or local government upon said airplane, or upon
the leasing, use or operation thereof whether assessed to
Lessor or Lessee. Upon the payment of fees, assessments and
taxes, Lessee will immediately deliver the receipt for such
payment to Lessor.
9. Insurance. Lessee assigns and shall secure and
maintain in effect throughout the lease term such insurance
policies covering said airplane as follows:
Full Hull Coverage, including all risk, both in
flight and not in flight in an amount not less than
$1,950,000. In the event that repairs are made for
damage, Lessee agrees to pay the deductible amount
as provided in the policy.
Liability Insurance will be obtained by the Lessee
and written in the name of the Lessee, the Lessor
and the Members of the Lessor. Copies of all
insurance policies or certificates are attached to
each copy of the lease or will be provided upon
request.
10. Loss of or Damage to Airplane. In the event of any
loss or damage to the airplane, the Lessee shall immediately
report said loss or damage to the Lessor, the insurance
company and to any and all applicable governmental agencies,
both federal and state, and shall furnish such information and
execute such documents as may be required and necessary to
collect the proceeds from any insurance policies. In this
event, the rights, liabilities and obligations of the parties
hereto shall be as follows:
(a) In the event that the airplane is lost or is
damaged beyond repair, the proceeds of said insurance policy
or policies shall be payable to Lessor. If the proceeds of
insurance are not sufficient to cover the loss or damage to
the airplane, except by reason of the Lessee's failure to
procure the amount of insurance specified above, any
difference between the proceeds of insurance and the sum
remaining to be paid under this lease, shall be the
responsibility of the Lessee, and Lessee shall pay said
difference to the Lessor. Then and in that event this lease
shall terminate.
(b) In the event that the airplane is partially
damaged, then this lease shall remain in full force and
effect. The Lessee shall, at its cost and expense, fully
repair the airplane in order that the airplane shall be placed
in as good as the same condition as it was in prior to the
damage. Upon the damage being repaired and the airplane being
in the same condition as prior to the damage, the Lessor shall
reimburse Lessee out of any proceeds of insurance covering
such damage received Lessor, this payment to be contingent
upon the Lessee furnishing to Lessor the necessary information
and documents required for the recovery of said insurance
proceeds. The payment of this amount is further contingent
upon the approval by the Lessor of the repairs made by the
Lessee, including the cost thereof, and the airplane placed as
nearly as possible in the same condition as before said damage
occurred. Any and all risk of loss or damage shall be borne
by the Lessee.
11. Restrictions on Use. During the term of this lease,
the Lessee shall have complete use of the airplane; however,
such use shall be restricted to the ordinary purposes of
Lessee's business and pleasure. Lessee will not use, operate,
maintain or store the airplane improperly, carelessly or in
violation of this lease, or of any applicable law or
regulation, federal or state, or any instructions furnished
therefor by the Lessor. Lessor shall not operate said
airplane for hire. Lessee shall not operate said airplane
beyond the geographical limits as defined in the attached
insurance policies; nor use the airplane for any purpose other
than that stipulated in the insurance policies, unless it
first notifies the Lessor in time for the Lessor to approve of
said operation and obtain proper insurance coverage for the
intended trip. The cost of any additional insurance shall be
borne by Lessee.
12. Maintenance, Repairs, Inspection. Lessee agrees at
all times to keep the airplane in a fully operative condition
and completely airworthy; and further to keep said airplane in
mechanical condition adequate to comply with regulations as
set forth by the Department of Transportation and the Federal
Aviation Administration and any other regulations as set forth
by any federal, state or local governing body, domestic or
foreign, having power to regulate or supervise the airplane or
the Lessee's maintenance, use or operation of said airplane.
Lessee agrees that it will make no structural modifications on
said airplane without first having been granted written
permission to do so by the Lessor. The Lessor or its agent
shall have the right at any reasonable times to fully inspect
the said airplane and any parts thereof to determine their
condition and to further determine whether or not the Lessee
is performing according to the covenants and conditions herein
contained relative to the proper care and maintenance of said
airplane. The parties agree and understand that the
manufacturer's warranty is fully applicable to this airplane
and that the dealer who will supply any warranty labor under
the terms of said warranty is Tyler Jet, Tyler Texas.
13. Operation of Airplane. The Lessee agrees that the
subject airplane will at all times during the term of this
lease be operated by safe, careful and duly qualified pilots
employed and paid or contracted for by the Lessee. The Lessee
further agrees that the Lessor may demand the removal of any
pilot operating the said airplane provided said demand is
based upon sufficient cause. Lessee warrants that each of the
pilots who will pilot said airplane shall be a duly qualified
pilot whose license is in good standing and who meets the
requirements established and specified by the insurance
policies attached to and made a part of this lease. Lessee
further agrees that the pilots operating said airplane must
meet the minimum requirements established by the insurance
carrier chosen by Lessee and approved by Lessor.
14. Indemnity of Lessor. The Lessee agrees, as part
consideration of this lease, to forever unconditionally
indemnify and save harmless the Lessor and its members,
agents, representatives, managers, employees, successors and
assigns, from and against any and all loss, damage, injury or
death claims, demands and liability of every nature at any
time and from time to time (including, without limitation,
claims involving strict or absolute liability in tort),
including all costs and reasonable attorneys' fees, arising
directly or indirectly from or in connection with the
possession, maintenance, use or operation of the subject
airplane. The Lessee further unconditionally agrees to hold
Lessor and its successors and assigns harmless from any and
all liability arising at any time and from time to time from
Lessee's loss of use of said airplane.
15. Indemnity of Members of Lessor. The Lessee agrees,
as part consideration of this lease, to forever
unconditionally indemnify and save harmless the Members of
Lessor and their agents, representatives, employees,
successors and assigns, from and against any and all loss,
damage, injury or death claims, demands and liability of every
nature at any time and from time to time (including, without
limitation, claims involving strict or absolute liability in
tort), including all costs and reasonable attorney's fees,
arising directly or indirectly from or in connection with the
possession, maintenance, use or operation of the subject
airplane. The Lessee further unconditionally agrees to hold
the Members of Lessor and their agents, representatives,
employees, successors and assigns harmless from any liability
arising from Lessee's loss of use of said airplane.
16. Assignment by Lessee. Lessee agrees not to assign
this lease or any interest therein without the prior written
consent of Lessor, or to sublet said airplane or to part with
the possession of same, either by voluntary act, operation of
law or otherwise. In the event that the Lessee sublets or
attempts to sublet same, or voluntarily or involuntarily parts
with possession of same, or attempts to move said airplane
from the airport where it is required to be kept, except while
being in the ordinary business of Lessee or for its pleasure,
or in any manner violates any of the terms hereof, then in
either or any of these events this lease shall at the option
of the Lessor immediately terminate and Lessor shall be
entitled to immediate possession of said airplane. Lessee
agrees to pay all attorneys' fees, collection charges or other
expenses, occasioned by Lessee's failure to abide by any of
the provisions hereof.
17. Assignment by Lessor. It is understood by the
parties hereto that the Lessor may assign this lease and said
airplane, and that such assignee may also assign the same.
All rights of Lessor hereunder shall be succeeded to by the
assignee under any such assignment, and said assignee's title
to this lease, to the rental herein provided for and to the
said airplane shall be free from all defenses, setoffs or
counterclaims which Lessee may be entitled to assess against
Lessor; it being understood and agreed that any such assignee
does not assume any obligations of the Lessor herein named,
and that Lessee may separately claim against Lessor as to any
matters which Lessee may be entitled to assert against the
Lessor.
18. Entire Agreement, Severability, Successors. Lessee
and Lessor hereby agree that no representation, statement or
agreement other than those set forth herein shall be binding
upon either of the parties hereto unless specified in writing,
signed by each and purporting to be an express modification of
this lease. Should any provisions of this lease be held
invalid, such provisions shall be deemed to be eliminated
insofar as it is declared invalid and the balance of the lease
shall in no wise be affected thereby. Subject to the terms
hereof, the covenants and conditions of this lease shall inure
to the benefits of and be binding upon the heirs, executors,
administrators, personal representatives, trustees, successors
or assigns of the parties hereto.
19. Controlling Law and Jurisdiction. The validity,
interpretation and performance of this lease shall be subject
to and construed under the laws of Missouri, without regard to
principles of conflicts of law.
20. Waiver of Conflict of Interest. Paul S. Lindsey,
Limited Company and Empire Gas Corporation have both been
represented in the drafting of this lease by the law firm of
Watson & Marshall L.C. Paul S. Lindsey, Limited Company and
Empire Gas Corporation each hereby agree to the dual
representation of them by Watson & Marshall L.C. and each of
them waives any present or future claim of conflict of
interest.
IN WITNESS WHEREOF, the parties hereto have placed their
hands and seals on this 1st day of June, 1996.
Empire Gas Corporation, a Missouri corporation
[SEAL]
By:/s/ Paul S. Lindsey, Jr.
____________________________
Paul S. Lindsey, President
ATTEST:
/s/ Valeria Schall
____________________
Secretary
Paul S. Lindsey Limited Liability Company,
a Delaware Limited Liability Company
/s/ Valeria Schall
__________________________________________
Valeria Schall, Manager
_________________________________________________________________________
YEAR MANUFACTURER OF MODEL NO. SERIAL NO.
MFG. AIRCRAFT
_________________________________________________________________________
1983 Dassault 10 187
_________________________________________________________________________
MFG. OF ENGINE MODEL ENGINE SERIAL FAA HOME
ENGINE(S) NO.(S) NO.(s) NO. AIRPORT
_________________________________________________________________________
Garrett TFE-731-2-1C P73353C & P73342C N81TJ
_________________________________________________________________________
DESCRIBE EXTRA EQUIPMENT: Collins APS-80 Autopilot; Dual
Collins FDS-85 Flight Directors; Dual Collins VHF-20 Cons; Dual
Collins VIR-30 AGH Navs; Collins ADF-60A ADF; Dual Collins TDR-
90 Transponders; Dual RMIs; ALT-50 Radar Altimeter; Sperry
Primus 400 Color Radar; Global GNS-500 V VLF; GA-100 CVR Dual
Sperry C-14 Compass Systems; Flitefone IV.
_________________________________________________________________________
EMPIRE GAS CORPORATION SUBSIDIARIES
September 17, 1996
ALL STAR GAS CORPORATION
SYN INC.
ALL STAR FIELD SERVICE CORPORATION MO
EMPIRE GAS CORPORATION MO
EMPIRE UNDERGROUND STORAGE, INC. KS
EMPIRE MARKETING CORPORATION MO
UTILITY COLLECTION CORPORATION MO
ALL STAR AIRLINES, INCORPORATED MO
EMPIREGAS TRANSPORTS, INC. - OREGON OR
ALL STAR GAS INC. OF ARIZONA
CAMP VERDE AZ
FLAGSTAFF AZ
EMPIREGAS INC. OF GLOBE AZ
ALL STAR GAS INC. OF CALIFORNIA CA
NEEDLES CA
EMPIREGAS INC. OF ELSINORE CA
EMPIREGAS INC. OF ESCONDIDO CA
EMPIREGAS INC. OF LOS ANGELES CA
EMPIREGAS INC. OF MODESTO CA
EMPIREGAS INC. OF PLACERVILLE CA
EMPIREGAS INC. OF POMONA CA
EMPIREGAS INC. OF SACRAMENTO CA
EMPIREGAS INC. OF SUSANVILLE CA
EMPIREGAS INC. OF YUCCA VALLEY CA
EMPIREGAS INC. OF BOISE ID
EMPIREGAS INC. OF OREGON OR
ALBANY OR
HERMISTON OR
MEDFORD OR
NORTH BEND OR
SANDY OR
THE DALLES OR
EMPIREGAS INC. OF WASHINGTON WA
AUBURN WA
CHEHALIS WA
SUNNYSIDE WA
WENATCHEE WA
YAKIMA WA
BREMERTON WA
ALL STAR GAS INC. OF COLORADO CO
GUNNISON CO
EMPIREGAS INC. OF COLORADO CO
BOULDER CO
CANON CITY CO
CASTLE ROCK CO
COLORADO SPRINGS CO
DENVER CO
EVERGREEN CO
FAIRPLAY CO
FORT COLLINS CO
GRAND JUNCTION CO
LOVELAND CO
MONTE VISTA CO
PUEBLO CO
WOODLAND PARK CO
GINCO GAS COMPANY, INC. CO
RON'S L.P. GAS, INC. WY
EMPIREGAS INC. OF TEXAS TX
CANTON TX
WILLS POINT TX
WACO TX
DALLAS TX
KEMP TX
SAN ANTONIO TX
EMPIREGAS OF OKLAHOMA, INC. OK
GROVE OK
HITCHITA OK
STIGLER OK
ALL STAR GAS INC. OK
BRISTOW OK
ALL STAR GAS INC. OF ARKANSAS AR
GREENWOOD AR
LINCOLN AR
SILOAM SPRINGS AR
EMPIREGAS INC. OF LOUISIANA LA
EUNICE LA
LAFAYETTE LA
LAKE CHARLES LA
EMPIREGAS INC. OF TEXAS TX
GALVESTON TX
ORANGE COUNTY TX
EMPIREGAS INC. OF LOUISIANA LA
OAK GROVE LA
ALL STAR GAS INC. OF TOLEDO OH
EMPIREGAS INC. OF OHIO OH
DOVER OH
MOUNT VERNON OH
MYERS PROPANE GAS COMPANY OH
ALL STAR GAS INC. OF MICHIGAN MI
GAYLORD MI
BIG RAPIDS MI
GREENVILLE MI
EMPIREGAS INC. OF MICHIGAN MI
CHASSELL MI
MARQUETTE MI
MUNSING MI
CHARLOTTE MI
COLEMAN MI
JACKSON (MICHIGAN) MI
KALAMAZOO MI
TRAVERSE CITY MI
VASSAR MI
LSC GAS INC. MI
ALL STAR GAS INC. OF MISSOURI MO
COLE CAMP MO
WARSAW MO
EMPIREGAS OF ARMA, INC. KS
ALL STAR GAS INC. OF MISSOURI MO
KANSAS CITY MO
MT. VERNON MO
CLINTON MO
BUFFALO MO
HUMANSVILLE MO
BOLIVAR MO
ALL STAR GAS INC. OF WHEATLAND MO
MARSHALL MO
CARROLTON MO
ALL STAR GAS INC. OF MISSOURI MO
CAMDENTON MO
CUBA MO
ELSBERRY MO
LAURIE MO
PALMYRA MO
RICHLAND MO
ROLLA MO
WAYNESVILLE MO
WENTZVILLE MO
MORGAN COUNTY MO
LAKE OZARK MO
PARIS MO
MID-MISSOURI MO
EMPIREGAS INC. OF JACKSONVILLE IL
EMPIREGAS INC. OF MISSOURI MO
OWENSVILLE MO
POTOSI MO
ALL STAR GAS INC. OF FLORIDA FL
DELRAY FL
FT MYERS FL
FORT PIERCE FL
MIAMI FL
ORLANDO FL
PALMETTO FL
POMPANO BEACH FL
SOUTH BAY FL
WEST PALM BEACH FL
ALL STAR GAS INC. OF SOUTH CAROLINA SC
AIKEN SC
N. MYRTLE BEACH SC
QUEEN LP SC
ALL STAR GAS INC. OF NORTH CAROLINA NC
DENVER NC
GASTONIA NC
HENDERSONVILLE NC
WILMINGTON NC
WILKESBORO NC
ALL STAR GAS INC. OF WAYNESVILLE NC
ALL STAR GAS INC. OF NORTH CAROLINA NC
APEX NC
AYDEN NC
CARTHAGE NC
CREEDMOOR NC
DURHAM NC
WARRENTON NC
WASHINGTON NC
WILSON NC
ZEBULON NC
ALL STAR GAS INC. OF VERMONT VT
BENNINGTON VT
BRATTLEBORO VT
MIDDLEBURY VT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 898,000
<SECURITIES> 0
<RECEIVABLES> 5,030,000
<ALLOWANCES> 722,000
<INVENTORY> 6,039,000
<CURRENT-ASSETS> 16,167,000
<PP&E> 97,407,000
<DEPRECIATION> 29,497,000
<TOTAL-ASSETS> 102,002,000
<CURRENT-LIABILITIES> 21,870,000
<BONDS> 115,500,000
<COMMON> 14,000
0
0
<OTHER-SE> (44,857,000)
<TOTAL-LIABILITY-AND-EQUITY> 102,002,000
<SALES> 78,997,000
<TOTAL-REVENUES> 82,702,000
<CGS> 43,318,000
<TOTAL-COSTS> 43,318,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 889,000
<INTEREST-EXPENSE> 16,133,000
<INCOME-PRETAX> (11,647,000)
<INCOME-TAX> (3,750,000)
<INCOME-CONTINUING> (7,897,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,897,000)
<EPS-PRIMARY> (5)
<EPS-DILUTED> (5)
</TABLE>
