-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NnRa3GvQdnm/nKHIhNNeWeg34XUczq4SrMdMhCOPjL+CjzXKJscuBlOEIjwvgVSO eSIrshuMxJP88IWy5/YV3A== 0001005210-02-000016.txt : 20020813 0001005210-02-000016.hdr.sgml : 20020813 20020813152215 ACCESSION NUMBER: 0001005210-02-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUBURBAN PROPANE PARTNERS LP CENTRAL INDEX KEY: 0001005210 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 223410353 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14222 FILM NUMBER: 02729486 BUSINESS ADDRESS: STREET 1: P O BOX 206 STREET 2: 240 ROUTE 10 WEST CITY: WIPPANY STATE: NJ ZIP: 07981 BUSINESS PHONE: 9738875300 MAIL ADDRESS: STREET 1: ONE SUBURBAN PLZ STREET 2: 240 RTE 10 WEST CITY: WHIPPANY STATE: NJ ZIP: 07981 10-Q 1 sp0602q.txt SUBURBAN PROPANE, L.P. 3RD QTR 10Q ================================================================================ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 29, 2002 Commission File Number: 1-14222 SUBURBAN PROPANE PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 22-3410353 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 240 Route 10 West Whippany, NJ 07981 (973) 887-5300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 9, 2002, 24,631,287 Common Units were outstanding. ================================================================================ ================================================================================ SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES INDEX TO FORM 10-Q PART I PAGE ---- ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets as of June 29, 2002 and September 29, 2001.......................................... 1 Consolidated Statements of Operations for the three months ended June 29, 2002 and June 30, 2001....................... 2 Consolidated Statements of Operations for the nine months ended June 29, 2002 and June 30, 2001....................... 3 Consolidated Statements of Cash Flows for the nine months ended June 29, 2002 and June 30, 2001....................... 4 Consolidated Statement of Partners' Capital for the nine months ended June 29, 2002.................................. 5 Notes to Consolidated Financial Statements.................. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................. 19 PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 21 SIGNATURES........................................................... 22 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS - ----------------------------------------------- THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, RELATING TO THE PARTNERSHIP'S FUTURE BUSINESS EXPECTATIONS AND PREDICTIONS AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SOME OF THESE STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "PROSPECTS," "OUTLOOK," "BELIEVES," "ESTIMATES," "INTENDS," "MAY," "WILL," "SHOULD," "ANTICIPATES," "EXPECTS," OR "PLANS," OR THE NEGATIVE OR OTHER VARIATION OF THESE OR SIMILAR WORDS, OR BY DISCUSSION OF TRENDS AND CONDITIONS, STRATEGY OR RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS"). THE RISKS AND UNCERTAINTIES AND THEIR IMPACT ON THE PARTNERSHIP'S OPERATIONS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING RISKS: o THE IMPACT OF WEATHER CONDITIONS ON THE DEMAND FOR PROPANE; o FLUCTUATIONS IN THE UNIT COST OF PROPANE; o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE AND OTHER ENERGY SOURCES; o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS; o THE IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR PROPANE; o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES; o THE IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS; o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS; o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW LINES OF BUSINESS AND TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE PARTNERSHIP OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS. SOME OF THESE CAUTIONARY STATEMENTS ARE DISCUSSED IN MORE DETAIL IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN THIS QUARTERLY REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING OR CAUTIONARY STATEMENTS, WHICH REFLECT MANAGEMENT'S OPINIONS ONLY AS OF THE DATE HEREOF. THE PARTNERSHIP UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING OR CAUTIONARY STATEMENT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE PARTNERSHIP OR PERSONS ACTING ON BEHALF OF THE PARTNERSHIP ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS QUARTERLY REPORT. READERS ARE ADVISED TO CONSULT ANY FURTHER DISCLOSURE THE COMPANY MAY MAKE ON RELATED SUBJECTS IN SUBSEQUENT 10-Q, 8-K AND 10-K REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED) JUNE 29, SEPTEMBER 29, 2002 2001 ---------- ------------- ASSETS Current assets: Cash and cash equivalents ................................ $ 56,803 $ 36,494 Accounts receivable, less allowance for doubtful accounts of $2,564 and $3,992, respectively .................... 41,219 42,702 Inventories .............................................. 39,215 41,891 Prepaid expenses and other current assets ................ 6,577 3,252 --------- --------- Total current assets ............................. 143,814 124,339 Property, plant and equipment, net ........................... 333,877 344,374 Goodwill, net ................................................ 243,260 243,789 Other intangible assets, net ................................. 1,595 1,990 Other assets ................................................. 7,767 8,514 --------- --------- Total assets .................................... $ 730,313 $ 723,006 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable ......................................... $ 31,985 $ 38,685 Accrued employment and benefit costs ..................... 19,665 29,948 Current portion of long-term borrowings .................. 46,000 42,500 Accrued insurance ........................................ 8,460 7,860 Customer deposits and advances ........................... 13,867 23,217 Accrued interest ......................................... 16,217 8,318 Other current liabilities ................................ 7,094 11,575 --------- --------- Total current liabilities ...................... 143,288 162,103 Long-term borrowings ......................................... 426,332 430,270 Postretirement benefits obligation ........................... 34,216 34,521 Accrued insurance ............................................ 17,168 17,881 Accrued pension liability .................................... 15,768 13,703 Other liabilities ............................................ 5,098 5,579 --------- --------- Total liabilities ............................. 641,870 664,057 --------- --------- Commitments and contingencies Partners' capital: Common Unitholders (24,631 units issued and outstanding) 135,686 105,549 General Partner ........................................ 2,413 1,888 Deferred compensation .................................. (11,567) (11,567) Common Units held in trust, at cost .................... 11,567 11,567 Unearned compensation .................................. (2,312) (1,211) Accumulated other comprehensive (loss) ................. (47,344) (47,277) --------- --------- Total partners' capital ...................... 88,443 58,949 --------- --------- Total liabilities and partners' capital ...... $ 730,313 $ 723,006 ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED) THREE MONTHS ENDED ---------------------- June 29, June 30, 2002 2001 --------- --------- Revenues Propane ................................................... $ 115,571 $ 124,370 Other ..................................................... 22,064 20,700 --------- --------- 137,635 145,070 Costs and expenses Cost of products sold ..................................... 64,444 70,849 Operating ................................................. 60,589 65,167 General and administrative ................................ 8,053 5,119 Depreciation and amortization ............................. 7,377 9,477 --------- --------- 140,463 150,612 (Loss) before interest expense and provision for income taxes (2,828) (5,542) Interest expense, net ....................................... 8,010 8,912 --------- --------- (Loss) before provision for income taxes .................... (10,838) (14,454) Provision for income taxes .................................. 190 105 --------- --------- Net (loss) .................................................. $ (11,028) $ (14,559) ========= ========= General Partner's interest in net (loss) .................... $ (281) $ (275) --------- --------- Limited Partners' interest in net (loss) .................... $ (10,747) $ (14,284) ========= ========= Basic net (loss) per unit ................................... $ (0.44) $ (0.58) --------- --------- Weighted average number of units outstanding - basic ........ 24,631 24,631 --------- --------- Diluted net (loss) per unit ................................. $ (0.44) $ (0.58) --------- --------- Weighted average number of units outstanding - diluted ...... 24,631 24,631 --------- ---------
The accompanying notes are an integral part of these consolidated financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED) NINE MONTHS ENDED ---------------------- June 29, June 30, 2002 2001 --------- --------- Revenues Propane ................................................... $ 482,166 $ 725,556 Other ..................................................... 73,220 70,335 --------- --------- 555,386 795,891 Costs and expenses Cost of products sold ..................................... 241,033 441,136 Operating ................................................. 177,996 198,343 General and administrative ................................ 23,369 22,561 Depreciation and amortization ............................. 22,369 29,082 Gain on sale of storage facility .......................... (6,768) -- --------- --------- 457,999 691,122 Income before interest expense and provision for income taxes 97,387 104,769 Interest expense, net ....................................... 25,383 29,165 --------- --------- Income before provision for income taxes .................... 72,004 75,604 Provision for income taxes .................................. 518 270 --------- --------- Net income .................................................. $ 71,486 $ 75,334 ========= ========= General Partner's interest in net income .................... $ 1,482 $ 1,460 --------- --------- Limited Partners' interest in net income .................... $ 70,004 $ 73,874 ========= ========= Basic net income per unit ................................... $ 2.84 $ 3.02 --------- --------- Weighted average number of units outstanding - basic ........ 24,631 24,475 --------- --------- Diluted net income per unit ................................. $ 2.84 $ 3.02 --------- --------- Weighted average number of units outstanding - diluted ...... 24,665 24,487 --------- ---------
The accompanying notes are an integral part of these consolidated financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED --------------------- June 29, June 30, 2002 2001 --------- --------- Cash flows from operating activities: Net income ............................................... $ 71,486 $ 75,334 Adjustments to reconcile net income to net cash provided by operations: Depreciation ........................................ 21,002 21,411 Amortization ........................................ 1,367 7,671 (Gain) on disposal of property, plant and equipment, net .................................... (213) (3,297) (Gain) on sale of storage facility .................. (6,768) -- Changes in assets and liabilities, net of dispositions: Decrease in accounts receivable ..................... 1,418 4,258 Decrease (increase) in inventories .................. 2,554 (234) (Increase) in prepaid expenses and other current assets .............................. (3,315) (266) (Decrease) in accounts payable ...................... (6,289) (19,817) (Decrease) increase in accrued employment and benefit costs ................................. (9,686) 7,742 Increase in accrued interest ........................ 7,899 8,253 (Decrease) in other accrued liabilities ............. (13,771) (15,807) Net change in other noncurrent assets and liabilities 344 (1,204) -------- -------- Net cash provided by operating activities ...... 66,028 84,044 -------- -------- Cash flows from investing activities: Capital expenditures .................................... (13,161) (16,087) Proceeds from sale of property, plant and equipment, net 9,964 4,029 -------- -------- Net cash (used in) investing activities ........ (3,197) (12,058) -------- -------- Cash flows from financing activities: Long-term debt (repayments), net ........................ -- (44,397) Short-term debt (repayments), net ....................... -- (6,500) Credit agreement expenses ............................... -- (730) Net proceeds from public offering ....................... -- 47,079 Partnership distributions ............................... (42,522) (40,696) -------- -------- Net cash (used in) financing activities ........ (42,522) (45,244) -------- -------- Net increase in cash and cash equivalents ..................... 20,309 26,742 Cash and cash equivalents at beginning of period .............. 36,494 11,645 -------- -------- Cash and cash equivalents at end of period .................... $ 56,803 $ 38,387 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest .................................... $ 17,824 $ 21,010 ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (IN THOUSANDS) (UNAUDITED) Accumulated Common Other Number of Common General Deferred Units in Unearned Comprehensive Common Units Unitholders Partner Compensation Trust Compensation (Loss) ------------ ----------- ------- ------------ -------- ------------ ------------- Balance at September 29, 2001.... 24,631 $ 105,549 $1,888 ($11,567) $11,567 ($1,211) ($47,277) Net income........................ 70,004 1,482 Other comprehensive loss: Net unrealized losses on cash flow hedges................... (67) Comprehensive income.............. Partnership distributions......... (41,565) (957) Grants issued under Restricted Unit Plan, net of forfeitures... 1,698 (1,698) Amortization of Compensation Deferral Plan................... 161 Amortization of Restricted Unit Plan, net of forfeitures... 436 ------------ ----------- ------- ------------ -------- ------------ ------------- Balance at June 29, 2002.......... 24,631 $ 135,686 $2,413 ($11,567) $11,567 ($2,312) ($47,344) ============ =========== ======= ============ ======== ============ ============= Total Partners' Comprehensive Capital Income -------- ------------- Balance at September 29, 2001.... $58,949 Net income........................ 71,486 $71,486 Other comprehensive loss: Net unrealized losses on cash flow hedges................... (67) (67) ------------ Comprehensive income.............. $71,419 ============ Partnership distributions......... (42,522) Grants issued under Restricted Unit Plan, net of forfeitures... - Amortization of Compensation Deferral Plan................... 161 Amortization of Restricted Unit Plan, net of forfeitures... 436 -------- Balance at June 29, 2002.......... $88,443 ========
The accompanying notes are an integral part of these consolidated financial statements. SUBURBAN PROPANE PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS) (UNAUDITED) 1. BASIS OF PRESENTATION --------------------- PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Suburban Propane Partners, L.P. (the "Partnership"), its partners and its indirect subsidiaries. All significant intercompany transactions and accounts have been eliminated. The accompanying consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. They include all adjustments that the Partnership considers necessary for a fair statement of the results for the interim periods presented. Such adjustments consist only of normal recurring items, unless otherwise disclosed. These financial statements should be read in conjunction with the Partnership's Annual Report on Form 10-K for the fiscal year ended September 29, 2001, including management's discussion and analysis of financial condition and results of operations contained therein. Due to the seasonal nature of the Partnership's propane business, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. FISCAL PERIOD. The Partnership's fiscal periods end on the Saturday nearest the end of the quarter. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. The Partnership is exposed to the impact of market fluctuations in the commodity price of propane. The Partnership routinely uses commodity futures, forward and option contracts to hedge its commodity price risk and to ensure supply during periods of high demand. All derivative instruments are reported on the balance sheet, within other current assets or other current liabilities, at their fair values. On the date that futures, forward and option contracts are entered into, the Partnership makes a determination as to whether the derivative instrument qualifies for designation as a hedge. For derivative instruments designated as hedges, the Partnership formally assesses, both at the hedge contract's inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items. Changes in the fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income (loss) ("OCI") to the extent effective and reclassified into cost of products sold during the same period in which the hedged item affects earnings. The mark-to-market gains or losses on ineffective portions of hedges are recognized in cost of products sold immediately. Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period earnings. Prior to March 31, 2002, the beginning of the Partnership's third fiscal quarter, the Partnership determined that its derivative instruments did not qualify as hedges and, as such, the changes in fair values were recorded in income. Beginning with contracts entered into subsequent to March 31, 2002, a portion of the derivative instruments entered into by the Partnership have been designated and qualify as cash flow hedges. For the three months ended June 29, 2002 and June 30, 2001, operating expenses include unrealized losses in the amount of $969 and $5,068, respectively, attributable to the change in fair value of derivative instruments not designated as hedges. Operating expenses for the nine months ended June 29, 2002 include unrealized gains of $5,116 attributable to the mark-to-market adjustment on derivative instruments not designated as hedges, compared to unrealized losses of $3,351 for the nine months ended June 30, 2001. At June 29, 2002, unrealized losses on derivative instruments designated as cash flow hedges in the amount of $67 were included in OCI and are expected to be recognized in earnings during the next 12 months as the hedged transactions occur. However, due to the volatility of the commodities market, the corresponding value in OCI is subject to change prior to its impact on earnings. USE OF 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. Significant estimates have been made by management in the areas of insurance and litigation reserves, as well as the allowance for doubtful accounts. Actual results could differ from those estimates, making it reasonably possible that a change in these estimates could occur in the near term. RECLASSIFICATIONS. Certain prior period amounts have been reclassified to conform with the current period presentation. 2. INVENTORIES ----------- Inventories are stated at the lower of cost or market. Cost is determined using a weighted average method for propane and a standard cost basis for appliances, which approximates average cost. Inventories consist of the following: JUNE 29, SEPTEMBER 29, 2002 2001 ------------- ------------- Propane $30,656 $33,080 Appliances 8,559 8,811 ------------- ------------- $39,215 $41,891 ============= ============= 3. NET (LOSS) INCOME PER UNIT -------------------------- Basic net (loss) income per limited partner unit is computed by dividing net (loss) income, after deducting the General Partner's approximate 2% interest, by the weighted average number of outstanding Common Units. Diluted net (loss) income per limited partner unit is computed by dividing net (loss) income, after deducting the General Partner's approximate 2% interest, by the weighted average number of outstanding Common Units and time vested Restricted Units granted under the 2000 Restricted Unit Plan. In computing diluted net (loss) income per unit, weighted average units outstanding used to compute basic net (loss) income per unit were increased by 33,533 units and 12,164 units for the nine months ended June 29, 2002 and June 30, 2001, respectively, to reflect the potential dilutive effect of the time vested Restricted Units outstanding using the treasury stock method. Diluted net (loss) income for the three months ended June 29, 2002 and June 30, 2001 does not include 36,012 and 15,956 Restricted Units, respectively, as their effect would be anti-dilutive. 4. ADOPTION OF NEW ACCOUNTING STANDARD ----------------------------------- Effective September 30, 2001, the beginning of the Partnership's 2002 fiscal year, the Partnership elected to early adopt the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 modifies the financial accounting and reporting for goodwill and other intangible assets, including the requirement that goodwill and certain intangible assets no longer be amortized. This new standard also requires a transitional impairment review for goodwill, as well as an annual impairment review, to be performed on a reporting unit basis. As a result of the adoption of SFAS 142, amortization expense for the three and nine months ended June 29, 2002 decreased by $1,854 and $5,562, respectively, compared to the three and nine months ended June 30, 2001, respectively, due to the lack of amortization expense related to goodwill. Aside from this change in accounting for goodwill, no other change in accounting for intangible assets was required as a result of the adoption of SFAS 142 based on the nature of the Partnership's intangible assets. In accordance with SFAS 142, the Partnership completed its transitional impairment review and, as the fair values of identified reporting units exceed the respective carrying values, goodwill is not considered impaired as of the date of adoption of SFAS 142. The following table reflects the effect of the adoption of SFAS 142 on net (loss) income and net (loss) income per unit as if SFAS 142 had been in effect for the periods presented:
Three Months Ended Nine Months Ended ------------------------ ------------------------ June 29, June 30, June 29, June 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net (loss) income: As reported ............................. $ (11,028) $ (14,559) $ 71,486 $ 75,334 Goodwill amortization ................... -- 1,854 -- 5,562 ----------- ----------- ----------- ----------- As adjusted ............................. $ (11,028) $(12,705) $ 71,486 $ 80,896 =========== =========== =========== =========== Basic and diluted net (loss) income per unit: As reported ............................. $ (0.44) $ (0.58) $ 2.84 $ 3.02 Goodwill amortization ................... -- 0.07 -- 0.22 ----------- ----------- ----------- ----------- As adjusted ............................. $ (0.44) $ (0.51) $ 2.84 $ 3.24 =========== =========== =========== ===========
Other intangible assets at June 29, 2002 and September 29, 2001 consist primarily of non-compete agreements with a gross carrying amount of $4,290 and $4,540, respectively, and accumulated amortization of $2,695 and $2,550, respectively. These non-compete agreements are amortized under the straight-line method over the periods of the agreements, ending periodically between fiscal years 2002 and 2011. Aggregate amortization expense related to other intangible assets for the three and nine months ended June 29, 2002 was $125 and $377, respectively, and for the three and nine months ended June 30, 2001 was $140 and $433, respectively. Aggregate amortization expense related to other intangible assets for each of the five succeeding fiscal years as of June 29, 2002 is as follows: FISCAL YEAR ----------- Remainder of 2002 $ 120 2003 426 2004 360 2005 303 2006 232 2007 75 For the nine months ended June 29, 2002, the net carrying amount of goodwill decreased by $529 as a result of the sale of certain assets during the period. 5. DISTRIBUTIONS OF AVAILABLE CASH ------------------------------- The Partnership makes distributions to its partners approximately 45 days after the end of each fiscal quarter in an aggregate amount equal to its Available Cash for each respective quarter. Available Cash, as defined in the Second Amended and Restated Partnership Agreement, generally means all cash on hand at the end of the fiscal quarter less the amount of cash reserves established by the Board of Supervisors in its reasonable discretion for future cash requirements of the Partnership. On May 8, 2002, the Partnership declared a quarterly distribution of $.575 per Common Unit, or $2.30 on an annualized basis, for the third quarter of fiscal 2002 payable on August 13, 2002 to holders of record on August 6, 2002. This quarterly distribution represents a $.0125 per Common Unit, or $.05 per Common Unit annualized, increase over the distribution declared and paid in the prior three quarters and includes incentive distribution rights payable to the General Partner to the extent the quarterly distribution exceeds $.55 per Common Unit. 6. LONG-TERM BORROWINGS -------------------- Long-term borrowings consist of the following:
June 29, September 29, 2002 2001 ------------------- ------------------- 7.54% Senior Notes due June 30, 2011 ......... $382,500 $425,000 7.37% Senior Notes due June 30, 2012 ......... 42,500 -- Note payable, 8%, due in annual installments through 2006 ............................ 1,698 2,048 Amounts outstanding under Acquisition Facility of Revolving Credit Agreement ........... 46,000 46,000 Other long-term liabilities .................. 72 129 ------------------- ------------------- 472,770 473,177 Less: current portion ........................ 46,438 42,907 ------------------- ------------------- $426,332 $430,270 =================== ===================
On March 5, 1996, the Operating Partnership, pursuant to a Senior Note Agreement, issued $425,000 of Senior Notes with an annual interest rate of 7.54% (the "1996 Senior Note Agreement"). The Operating Partnership's obligations under the 1996 Senior Note Agreement are unsecured and rank on an equal and ratable basis with the Operating Partnership's obligations under the Revolving Credit Agreement. The Senior Notes will mature June 30, 2011, and require semiannual interest payments which commenced June 30, 1996. Under the terms of the 1996 Senior Note Agreement, the Operating Partnership is obligated to pay the principal on the Senior Notes in equal annual payments of $42,500 starting July 1, 2002. Pursuant to the Partnership's intention to refinance the first annual principal payment of $42,500, the Partnership executed on April 19, 2002 a Note Purchase Agreement for the private placement of 10-year 7.37% Senior Notes due June, 2012 (the "2002 Senior Note Agreement"). On July 1, 2002, the Partnership received $42,500 from the issuance of the Senior Notes under the 2002 Senior Note Agreement and used the funds to pay the first annual principal payment of $42,500 due under the 1996 Senior Note Agreement. The Operating Partnership's obligations under the 2002 Senior Note Agreement are unsecured and rank on an equal and ratable basis with the Operating Partnership's obligations under the 1996 Senior Note Agreement and the Revolving Credit Agreement. The Partnership's Revolving Credit Agreement, as amended on January 29, 2001, provides a $75,000 working capital facility and a $50,000 acquisition facility. Borrowings under the Revolving Credit Agreement bear interest at a rate based upon either LIBOR plus a margin, Wachovia National Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee ranging from .375% to .50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur. As of June 29, 2002 and September 29, 2001, $46,000 was outstanding under the acquisition facility of the Revolving Credit Agreement and there were no borrowings under the working capital facility. The Revolving Credit Agreement matures on May 31, 2003 and, as such, the $46,000 outstanding balance has been classified as a current liability at June 29, 2002. The Partnership has begun initial discussions and negotiations to extend, or otherwise restructure, the Revolving Credit Agreement on a long-term basis which is currently expected to be completed by the third quarter of fiscal 2003. The 1996 Senior Note Agreement, the 2002 Senior Note Agreement and the Revolving Credit Agreement contain various restrictive and affirmative covenants applicable to the Operating Partnership, including (a) maintenance of certain financial tests, (b) restrictions on the incurrence of additional indebtedness, and (c) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. 7. 2000 RESTRICTED UNIT PLAN ------------------------- During fiscal 2002, the Partnership awarded 66,298 Restricted Units under the 2000 Restricted Unit Plan at an aggregate value of $1,765 to employees of the Partnership. Restricted Units issued under the 2000 Restricted Unit Plan vest over time with 25% of the Common Units vesting at the end of each of the third and fourth anniversaries of the issuance date and the remaining 50% of the Common Units vesting at the end of the fifth anniversary of the issuance date. The 2000 Restricted Unit Plan participants are not eligible to receive quarterly distributions or vote their respective Restricted Units until vested. Restrictions also limit the sale or transfer of the Common Units by the award recipients during the restricted periods. The value of the Restricted Unit is established by the market price of the Common Unit at the date of grant. Restricted Units are subject to forfeiture in certain circumstances as defined in the 2000 Restricted Unit Plan. Upon award of Restricted Units, the unamortized unearned compensation value is shown as a reduction to partners' capital. The unearned compensation is amortized ratably to expense over the restricted periods. 8. COMMITMENTS AND CONTINGENCIES ----------------------------- The Partnership is self-insured for general and product, workers' compensation and automobile liabilities up to predetermined amounts above which third party insurance applies. At June 29, 2002 and September 29, 2001, the Partnership had accrued insurance liabilities of $25,628 and $25,741, respectively, representing the total estimated losses under these self-insurance programs. These liabilities represent the gross estimated losses as no claims or lawsuits, individually or in the aggregate, were estimated to exceed the Partnership's deductibles on its insurance policies. The Partnership is also involved in various legal actions that have arisen in the normal course of business, including those relating to commercial transactions and product liability. Management believes, based on the advice of legal counsel, that the ultimate resolution of these matters will not have a material adverse effect on the Partnership's financial position or future results of operations, after considering its self-insurance liability for known and unasserted self-insurance claims. 9. RECENTLY ISSUED ACCOUNTING STANDARDS ------------------------------------ In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. Accretion expense and depreciation expense related to the liability and capitalized asset retirement costs, respectively, would be recorded in subsequent periods. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Partnership is currently in the process of evaluating the impact of SFAS 143 and does not anticipate that adoption of this standard will have a material impact, if any, on its consolidated financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 applies to all long-lived assets, including discontinued operations, and provides guidance on the measurement and recognition of impairment charges for assets to be held and used, assets to be abandoned and assets to be disposed of by sale. SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 is effective for fiscal years beginning after December 15, 2001. The provisions of this standard are to be applied prospectively. The Partnership is currently in the process of evaluating the impact of SFAS 144 and does not anticipate that adoption of this standard will have a material impact on its consolidated financial position, results of operations or cash flows. 10. SALE OF STORAGE FACILITY ------------------------ On January 31, 2002, the Partnership sold its 170 million gallon propane storage facility in Hattiesburg, Mississippi, which was considered a non-strategic asset, for net cash proceeds of approximately $8,000, resulting in a gain on sale of approximately $6,768. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Partnership as of and for the three and nine months ended June 29, 2002. The discussion should be read in conjunction with the historical consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the most recent fiscal year ended September 29, 2001. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS - ----------------------------------------------- THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, RELATING TO THE PARTNERSHIP'S FUTURE BUSINESS EXPECTATIONS AND PREDICTIONS AND FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SOME OF THESE STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "PROSPECTS," "OUTLOOK," "BELIEVES," "ESTIMATES," "INTENDS," "MAY," "WILL," "SHOULD," "ANTICIPATES," "EXPECTS," OR "PLANS," OR THE NEGATIVE OR OTHER VARIATION OF THESE OR SIMILAR WORDS, OR BY DISCUSSION OF TRENDS AND CONDITIONS, STRATEGY OR RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS ("CAUTIONARY STATEMENTS"). THE RISKS AND UNCERTAINTIES AND THEIR IMPACT ON THE PARTNERSHIP'S OPERATIONS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING RISKS: o THE IMPACT OF WEATHER CONDITIONS ON THE DEMAND FOR PROPANE; o FLUCTUATIONS IN THE UNIT COST OF PROPANE; o THE ABILITY OF THE PARTNERSHIP TO COMPETE WITH OTHER SUPPLIERS OF PROPANE AND OTHER ENERGY SOURCES; o THE ABILITY OF THE PARTNERSHIP TO RETAIN CUSTOMERS; o THE IMPACT OF ENERGY EFFICIENCY AND TECHNOLOGY ADVANCES ON THE DEMAND FOR PROPANE; o THE ABILITY OF MANAGEMENT TO CONTINUE TO CONTROL EXPENSES; o THE IMPACT OF REGULATORY DEVELOPMENTS ON THE PARTNERSHIP'S BUSINESS; o THE IMPACT OF LEGAL PROCEEDINGS ON THE PARTNERSHIP'S BUSINESS; o THE PARTNERSHIP'S ABILITY TO IMPLEMENT ITS EXPANSION STRATEGY INTO NEW LINES OF BUSINESS AND TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE PARTNERSHIP OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH CAUTIONARY STATEMENTS. SOME OF THESE CAUTIONARY STATEMENTS ARE DISCUSSED IN MORE DETAIL IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN THIS QUARTERLY REPORT. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING OR CAUTIONARY STATEMENTS, WHICH REFLECT MANAGEMENT'S OPINIONS ONLY AS OF THE DATE HEREOF. THE PARTNERSHIP UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING OR CAUTIONARY STATEMENT. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE PARTNERSHIP OR PERSONS ACTING ON BEHALF OF THE PARTNERSHIP ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS QUARTERLY REPORT. READERS ARE ADVISED TO CONSULT ANY FURTHER DISCLOSURE THE COMPANY MAY MAKE ON RELATED SUBJECTS IN SUBSEQUENT 10-Q, 8-K AND 10-K REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. PRODUCT COSTS The retail propane business is a "margin-based" business where the level of profitability is largely dependent on the difference between retail sales price and product cost. The unit cost of propane is subject to volatile changes as a result of product supply or other market conditions. Propane unit cost changes can occur rapidly over a short period of time and can impact retail margins. There is no assurance that the Partnership will be able to pass on product cost increases fully, particularly when product costs increase rapidly. SEASONALITY The retail propane distribution business is seasonal because of propane's primary use for heating in residential and commercial buildings. Historically, approximately two-thirds of the Partnership's retail propane volume is sold during the six month peak heating season of October through March. Consequently, sales and operating profits are concentrated in the Partnership's first and second fiscal quarters. Cash flows from operations, therefore, are greatest during the second and third fiscal quarters when customers pay for propane purchased during the winter heating season. To the extent necessary, the Partnership will reserve cash from the second and third quarters for distribution to Unitholders in the first and fourth fiscal quarters. WEATHER Weather conditions have a significant impact on the demand for propane for both heating and agricultural purposes. Many customers of the Partnership rely heavily on propane as a heating fuel. Accordingly, the volume of propane sold is directly affected by the severity of the winter weather which can vary substantially from year to year. RESULTS OF OPERATIONS - --------------------- THREE MONTHS ENDED JUNE 29, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 - ----------------------------------------------------------------------------- REVENUES. Revenues decreased 5.2%, or $7.5 million, to $137.6 million for the three months ended June 29, 2002 compared to $145.1 million for the three months ended June 30, 2001. This decrease is principally due to a decrease in average selling prices, coupled with a decrease in retail gallons sold. Average selling prices declined as a result of a significant decline in the commodity price of propane in fiscal 2002 compared to the prior year quarter. Average propane selling prices were approximately 13.1% lower during the three months ended June 29, 2002 as compared to the prior year quarter. The decrease in volume was primarily attributable to the residual effect of record warm weather experienced throughout the peak heating months of October through March, as well as, to a lesser extent, the impact of the prolonged economic recession on customer buying habits. Retail gallons sold decreased 3.8%, or 3.4 million gallons, to 86.7 million gallons, compared to 90.1 million gallons in the prior year quarter. The majority of the shortfall in retail gallons compared to the prior year quarter was experienced in April 2002, the first month of our fiscal third quarter, as a result of the continued unseasonably warm weather in the early spring months. Temperatures nationwide, as reported by the National Oceanic and Atmospheric Administration ("NOAA"), were 11% warmer than normal during the month of April 2002 and 2% warmer than the month of April 2001. Revenue from other sources; including sales of appliances, related parts and services, of $22.1 million for the three months ended June 29, 2002 increased $1.4 million, or 6.8%, compared to other revenue in the prior year quarter of $20.7 million. OPERATING EXPENSES. Operating expenses decreased 7.1%, or $4.6 million, to $60.6 million for the three months ended June 29, 2002 compared to $65.2 million for the three months ended June 30, 2001. Operating expenses in the third quarter of fiscal 2002 include a $1.0 million unrealized loss representing the net change in fair values of derivative instruments during the quarter, compared to a $5.1 million unrealized loss in the prior year quarter (see Item 3 Quantitative and Qualitative Disclosures About Market Risk for information on our policies regarding the accounting for derivative instruments). Excluding the impact of changes in the fair value of derivative instruments on both the current and prior year quarter, operating expenses decreased $0.5 million primarily resulting from lower compensation costs and reduced levels of bad debt. The lower compensation costs were slightly offset by an increase in medical costs compared to the prior year quarter. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $8.1 million for the three months ended June 29, 2002 were $3.0 million, or 58.8%, higher than the prior year quarter of $5.1 million. The increase was primarily attributable to gains realized in the prior year quarter in connection with the sale of certain non-strategic assets, as well as the impact of slightly higher benefit related costs in the current year quarter. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased 22.1%, or $2.1 million, to $7.4 million compared to $9.5 million in the prior year quarter as a result of our decision to early adopt Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") effective September 30, 2001 (the beginning of fiscal 2002), which eliminates the requirement to amortize goodwill and certain intangible assets. If SFAS 142 had been in effect last year, fiscal 2001 third quarter net (loss) would have improved by $1.9 million. Refer to "Adoption of New Accounting Standard" below for further information on the adoption of SFAS 142. (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. (Loss) before interest expense and income taxes improved $2.7 million to $(2.8) million in the three months ended June 29, 2002 compared to $(5.5) million in the prior year quarter. Earnings before interest, taxes, depreciation and amortization ("EBITDA") amounted to $4.5 million in the three months ended June 29, 2002, compared to $3.9 million for the prior year quarter, an increase of $0.6 million, or 15.4%. The improvement in (loss) before interest expense and income taxes and in EBITDA over the prior year quarter includes the impact of lower unrealized losses on derivative instruments and lower operating expenses described above; offset by the 3.8% lower retail volumes sold and the impact on prior year earnings of gains realized on the sale of non-strategic assets. EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with or superior to generally accepted accounting principles, but provides additional information for evaluating our ability to distribute our quarterly distributions. Because EBITDA excludes some, but not all, items that affect net income and this measure may vary among companies, the EBITDA data presented above may not be comparable to similarly titled measures of other companies. INTEREST EXPENSE. Net interest expense decreased $0.9 million, or 10.1%, to $8.0 million for the three months ended June 29, 2002 compared to $8.9 million in the prior year quarter. This decrease is primarily attributable to lower average interest rates on outstanding borrowings under our Revolving Credit Agreement. NINE MONTHS ENDED JUNE 29, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30, 2001 - --------------------------------------------------------------------------- REVENUES. Revenues for the nine months ended June 29, 2002 of $555.4 million decreased $240.5 million compared to $795.9 million for the nine months ended June 30, 2001. This decrease is principally due to a decrease in retail volumes sold as compared to the same period in the prior fiscal year, as well as a decrease in average selling prices. The decrease in volumes is primarily attributable to the significantly warmer weather conditions through the first six months of fiscal 2002 compared to the comparable period in the prior year which carried over into the early part of the third quarter of fiscal 2002. Propane selling prices averaged 20.1% lower during the nine months ended June 29, 2002 compared to the prior year period, as a result of lower costs of propane supply. Retail gallons sold decreased 59.8 million, or 13.6%, to 379.3 million gallons for the nine months ended June 29, 2002, compared to 439.1 million gallons in the prior year period. Temperatures nationwide were 12% warmer than normal during the nine month period as compared to 2% colder than normal in the comparable period in the prior year, or 14% warmer conditions year-over-year, as reported by the NOAA. The wide swing in temperatures was particularly felt during the peak heating months of November 2001 through February 2002 and the residual impact of prolonged warm temperatures was experienced into the early months of spring. Revenue from other sources; including sales of appliances, related parts and services, of $73.2 million for the nine months ended June 29, 2002 increased $2.9 million, or 4.1%, compared to other revenue in the prior year quarter of $70.3 million. OPERATING EXPENSES. Operating expenses decreased 10.2%, or $20.3 million, to $178.0 million for the nine months ended June 29, 2002 compared to $198.3 million for the nine months ended June 30, 2001. Operating expenses in the first nine months of fiscal 2002 include a $5.1 million unrealized gain attributable to the mark-to-market adjustment on derivative instruments, compared to a $3.4 million unrealized loss in the prior year period (see Item 3 Quantitative and Qualitative Disclosures About Market Risk for information on our policies regarding the accounting for derivative instruments). Excluding the impact of the mark-to-market adjustments, the decrease in operating expenses is principally attributable to our ability to reduce costs amidst declining volumes resulting from management's ongoing initiatives to shift costs from fixed to variable, primarily in the areas of employee compensation and benefits. In addition, we experienced lower bad debt expense during fiscal 2002 compared to the prior year period, as well as lower fuel costs for operating our fleet attributable to lower natural gas prices in fiscal 2002. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 3.5%, or $0.8 million, to $23.4 million for the nine months ended June 29, 2002 compared to $22.6 million for the nine months ended June 30, 2001. The increase is primarily attributable to the impact of lower payroll and benefit costs, lower incentive compensation and lower professional services, offset by the impact of higher gains realized on the sale of non-strategic assets in the prior year compared to the current fiscal year-to-date period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased 23.0%, or $6.7 million, to $22.4 million for the nine months ended June 29, 2002 compared to $29.1 million in the prior year period primarily resulting from our decision in fiscal 2002 to early adopt SFAS 142. If SFAS 142 had been in effect last year, net income for the nine months ended June 30, 2001 would have increased by $5.6 million. Refer to "Adoption of New Accounting Standard" below for further information on the adoption of SFAS 142. GAIN ON SALE OF STORAGE FACILITY. On January 31, 2002, we sold our 170 million gallon propane storage facility in Hattiesburg, Mississippi, which was considered a non-strategic asset, for net cash proceeds of $8.0 million, resulting in a gain on sale of approximately $6.8 million. INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES AND EBITDA. Income before interest expense and income taxes decreased $7.4 million to $97.4 million in the nine months ended June 29, 2002 compared to $104.8 million for the prior year period. EBITDA decreased $14.1 million, or 10.5%, to $119.8 million compared to $133.9 million in the prior year period. The declines in income before interest expense and income taxes and in EBITDA are primarily attributable to lower retail volumes sold, partially offset by the impact of lower operating and general and administrative expenses described above, the gain on the sale of our Hattiesburg, Mississippi storage facility and the impact of the mark-to-market adjustment on derivative instruments. EBITDA should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with or superior to generally accepted accounting principles but provides additional information for evaluating our ability to distribute our quarterly distributions. Because EBITDA excludes some, but not all, items that affect net income and this measure may vary among companies, the EBITDA data presented above may not be comparable to similarly titled measures of other companies. INTEREST EXPENSE. Net interest expense decreased $3.8 million, or 13.0%, to $25.4 million for the nine months ended June 29, 2002 compared to $29.2 million in the prior year period. This decrease is primarily attributable to reductions in average amounts outstanding under our Revolving Credit Agreement, as well as lower average interest rates. There were no outstanding borrowings under the working capital facility of the Revolving Credit Agreement during the first six months of fiscal 2002 compared to $26.0 million at the end of the first quarter of fiscal 2001 and $7.3 million at the end of the second quarter of fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES Due to the seasonal nature of the propane business, cash flows from operating activities are greater during the winter and spring seasons as customers pay for propane purchased during the heating season. For the nine months ended June 29, 2002, net cash provided by operating activities was $66.0 million compared to cash provided by operating activities of $84.0 million for the nine months ended June 30, 2001. The decrease of $18.0 million was primarily due to $14.2 million lower net income, after adjusting for non-cash items in both periods (depreciation, amortization and gains on disposal of assets), as well as the impact of unfavorable changes in working capital in comparison to the prior year period, primarily resulting from payments on employee benefits. Net cash used in investing activities during the nine months ended June 29, 2002 consists of net proceeds from the sale of property, plant and equipment of $10.0 million (including net cash proceeds of $8.0 million resulting from the sale of our propane storage facility in Hattiesburg, Mississippi), offset by capital expenditures of $13.2 million (including $9.8 million for maintenance expenditures and $3.4 million to support the growth of operations). Net cash used in investing activities was $12.1 million during the nine months ended June 30, 2001 consisting of capital expenditures of $16.1 million (including $4.5 million for maintenance expenditures and $11.6 million to support the growth of operations), offset by net proceeds from the sale of property, plant and equipment of $4.0 million. Net cash used in financing activities for the nine months ended June 29, 2002 was $42.5 million, reflecting payment of our quarterly distributions of $.5625 per Common Unit during each of the first three quarters of fiscal 2002. Net cash used in financing activities for the nine months ended June 30, 2001 was $45.2 million, reflecting $40.7 million in quarterly distributions and $50.9 million of net repayments of amounts outstanding under the Revolving Credit Agreement, partially offset by $47.1 million in net proceeds received from the public offering of 2.4 million Common Units which was completed in November 2000. On March 5, 1996, pursuant to a Senior Note Agreement, we issued $425.0 million of Senior Notes with an annual interest rate of 7.54% (the "1996 Senior Note Agreement"). Our obligations under the 1996 Senior Note Agreement are unsecured and rank on an equal and ratable basis with our obligations under the Revolving Credit Agreement. The Senior Notes will mature June 30, 2011, and require semiannual interest payments which commenced June 30, 1996. Under the terms of the 1996 Senior Note Agreement, we are obligated to pay the principal on the Senior Notes in equal annual payments of $42.5 million starting July 1, 2002. Pursuant to our intention to refinance the first annual principal payment of $42.5 million, we executed on April 19, 2002 a Note Purchase Agreement for the private placement of 10-year 7.37% Senior Notes due June, 2012 (the "2002 Senior Note Agreement"). On July 1, 2002, we received $42.5 million from the issuance of the Senior Notes under the 2002 Senior Note Agreement and used the funds to pay the first annual principal payment of $42.5 million due under the 1996 Senior Note Agreement. Our obligations under the 2002 Senior Note Agreement are unsecured and rank on an equal and ratable basis with our obligations under the 1996 Senior Note Agreement and the Revolving Credit Agreement. Our Revolving Credit Agreement, as amended on January 29, 2001, provides a $75.0 million working capital facility and a $50.0 million acquisition facility. Borrowings under the Revolving Credit Agreement bear interest at a rate based upon either LIBOR plus a margin, Wachovia National Bank's prime rate or the Federal Funds rate plus 1/2 of 1%. An annual fee ranging from .375% to .50%, based upon certain financial tests, is payable quarterly whether or not borrowings occur. As of June 29, 2002 and September 29, 2001, $46.0 million was outstanding under the acquisition facility of the Revolving Credit Agreement and there were no borrowings under the working capital facility. The Revolving Credit Agreement matures on May 31, 2003 and, as such, the $46.0 million outstanding balance has been classified as a current liability at June 29, 2002. We have begun initial discussions and negotiations to extend, or otherwise restructure, the Revolving Credit Agreement on a long-term basis which is currently expected to be completed by the third quarter of fiscal 2003. The 1996 Senior Note Agreement, the 2002 Senior Note Agreement and the Revolving Credit Agreement contain various restrictive and affirmative covenants applicable to the Operating Partnership, including (a) maintenance of certain financial tests, (b) restrictions on the incurrence of additional indebtedness, and (c) restrictions on certain liens, investments, guarantees, loans, advances, payments, mergers, consolidations, distributions, sales of assets and other transactions. We will make distributions in an amount equal to all of our Available Cash, as defined in the Second Amended and Restated Partnership Agreement, approximately 45 days after the end of each fiscal quarter to holders of record on the applicable record dates. The Board of Supervisors reviews the level of Available Cash on a quarterly basis based upon information provided by management. During each of the first three quarters of fiscal 2002, we made distributions to our Common Unitholders of $.5625 per Common Unit. These quarterly distributions include Incentive Distribution Rights ("IDRs") payable to the General Partner to the extent the quarterly distribution exceeds $.55 per Common Unit. The IDRs represent an incentive for the General Partner (which is owned by the management of the Partnership) to increase the distributions to Common Unitholders in excess of the $.55 per Common Unit. With regard to the first $.55 of the Common Unit distribution paid in each of the first three quarters, 98.11% of the Available Cash was distributed to the Common Unitholders and 1.89% was distributed to the General Partner. With regard to the balance of $.0125 of the Common Unit distribution paid, 85% of the Available Cash was distributed to the Common Unitholders and 15% was distributed to the General Partner. On May 8, 2002, we declared a $.05 annualized increase in our quarterly distribution from $.5625 per Common Unit to $.575 per Common Unit, or $2.30 on an annualized basis, for the third quarter of fiscal 2002 payable on August 13, 2002 to holders of record on August 6, 2002. As discussed above, the results of operations for the first nine months of fiscal 2002 were adversely impacted by unseasonably warm weather nationwide throughout the peak heating season, as weather was 12% warmer than normal and 14% warmer than the prior year period. However, our ability to manage our cost structure, coupled with our success in monetizing the Hattiesburg, Mississippi storage facility during the second quarter of fiscal 2002, which was considered a non-strategic asset, helped mitigate some of the negative impact that warmer weather conditions may have had on our results of operations and cash flow. Even with near record warm temperatures nationwide during the first six months of fiscal 2002 and into the early months of spring, we effectively managed our cash flow during the peak heating season without the need to utilize our working capital facility under the Revolving Credit Agreement. While the remainder of our fiscal year is typically less dependent on weather patterns, the seasonal nature of the propane business is such that lower revenues and lower net income is expected during the period from April through September of each year. Based on our current estimate of our cash position, availability under the Revolving Credit Agreement (unused borrowing capacity under the working capital facility of $75.0 million at June 29, 2002) and expected cash from operating activities, we expect to have sufficient funds to meet our current and future obligations. LONG-TERM DEBT OBLIGATIONS AND OTHER COMMITMENTS Long-term debt obligations and future minimum rental commitments under noncancelable operating lease agreements as of June 29, 2002 are due as follows (amounts in thousands):
REMAINDER FISCAL OF FISCAL FISCAL FISCAL FISCAL 2006 AND 2002 2003 2004 2005 THEREAFTER TOTAL ---------- ---------- ----------- ---------- ---------- ---------- Long-term debt ..................... $ 4 $ 88,941 $ 42,911 $ 42,939 $297,975 $472,770 Operating leases ................... 5,798 20,497 16,272 12,187 21,580 76,334 ---------- ---------- ----------- ---------- ---------- ---------- Total long-term debt obligations and lease commitments ........ $ 5,802 $109,438 $ 59,183 $ 55,126 $319,555 $549,104 ========== ========== =========== ========== ========== ==========
Additionally, we have standby letters of credit in the aggregate amount of $29.8 million, in support of our casualty insurance coverage and certain lease obligations, which expire on March 1, 2003. RELATED PARTY TRANSACTION The Partnership's general partner, Suburban Energy Services Group LLC (the "General Partner"), acquired the general partner interests from a predecessor general partner on May 26, 1999 for $6.0 million (the "GP Loan") which was borrowed under a private placement with Mellon Bank N.A. ("Mellon"). As of June 29, 2002, the balance outstanding under the GP Loan was $0.1 million. Upon the occurrence and continuance of an event of default, as defined in the GP Loan, Mellon has the right to cause the Partnership to purchase the note evidencing the GP Loan (the "GP Note"). The Partnership has agreed to maintain borrowing availability under its Revolving Credit Agreement sufficient to enable the Partnership to repurchase the GP Note in these circumstances. The GP Loan will also cross-default to the obligations of the Partnership under its Revolving Credit Agreement. Upon a GP Loan default, the Partnership also has the right to purchase the GP Note from Mellon. If the Partnership elects or is required to purchase the GP Note from Mellon, the Partnership has the right, exercisable in its sole discretion pursuant to the Compensation Deferral Plan established for the members of the Successor General Partner, to cause up to all of the Common Units deposited in a rabbi trust (amounting to $11.6 million as of June 29, 2002 and September 29, 2001) related to the Compensation Deferral Plan to be forfeited and cancelled (and to cause all of the related distributions to be forfeited), regardless of the amount paid by the Partnership to purchase the GP Note. ADOPTION OF NEW ACCOUNTING STANDARD Effective September 30, 2001, the beginning of our 2002 fiscal year, we elected to early adopt the provisions of SFAS 142. SFAS 142 modifies the financial accounting and reporting for goodwill and other intangible assets, including the requirement that goodwill and certain intangible assets no longer be amortized. This new standard also requires a transitional impairment review for goodwill, as well as an annual impairment review, to be performed on a reporting unit basis. As a result of the adoption of SFAS 142, amortization expense for the three and nine months ended June 29, 2002 decreased by $1.9 million and $5.6 million, respectively, compared to the three and nine months ended June 30, 2001, respectively, as a result of the lack of amortization expense related to goodwill. Aside from this change in accounting for goodwill, no other change in accounting for intangible assets was required as a result of the adoption of SFAS 142 based on the nature of our intangible assets. In accordance with SFAS 142, we completed a transitional impairment review and, as the fair values of identified reporting units exceed the respective carrying values, goodwill is not considered impaired as of the date of adoption of SFAS 142. RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. Accretion expense and depreciation expense related to the liability and capitalized asset retirement costs, respectively, would be recorded in subsequent periods. SFAS 143 is effective for fiscal years beginning after June 15, 2002. We are currently in the process of evaluating the impact of SFAS 143 and do not anticipate that adoption of this standard will have a material impact, if any, on its consolidated financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 applies to all long-lived assets, including discontinued operations, and provides guidance on the measurement and recognition of impairment charges for assets to be held and used, assets to be abandoned and assets to be disposed of by sale. SFAS 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 144 is effective for fiscal years beginning after December 15, 2001. The provisions of this standard are to be applied prospectively. We are currently in the process of evaluating the impact of SFAS 144 and do not anticipate that adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 29, 2002, the Partnership was party to propane forward and option contracts with various third parties and futures traded on the New York Mercantile Exchange (the "NYMEX"). Futures and forward contracts require that the Partnership sell or acquire propane at a fixed price at fixed future dates. An option contract allows, but does not require, its holder to buy or sell propane at a specified price during a specified time period; the writer of an option contract must fulfill the obligation of the option contract, should the holder choose to exercise the option. At expiration, the contracts are settled by the delivery of propane to the respective party or are settled by the payment of a net amount equal to the difference between the then current price of propane and the fixed contract price. The contracts are entered into in anticipation of market movements and to manage and hedge exposure to fluctuating propane prices as well as to help ensure the availability of propane during periods of high demand. Market risks associated with the trading of futures, options and forward contracts are monitored daily for compliance with the Partnership's trading policy which includes volume limits for open positions. Open inventory positions are reviewed and managed daily as to exposures to changing market prices. MARKET RISK The Partnership is subject to commodity price risk to the extent that propane market prices deviate from fixed contract settlement amounts. Futures traded with brokers of the NYMEX require daily cash settlements in margin accounts. Forward and option contracts are generally settled at the expiration of the contract term either by physical delivery or through a net settlement mechanism. CREDIT RISK Futures are guaranteed by the NYMEX and as a result have minimal credit risk. The Partnership is subject to credit risk with forward and option contracts to the extent the counterparties do not perform. The Partnership evaluates the financial condition of each counterparty with which it conducts business and establishes credit limits to reduce exposure to credit risk of non-performance. SENSITIVITY ANALYSIS In an effort to estimate the exposure of unfavorable market price movements, a sensitivity analysis of open positions as of June 29, 2002 was performed. Based on this analysis, a hypothetical 10% adverse change in market prices for each of the future months for which an option, futures and/or forward contract exists indicates a potential loss in future earnings of $1.5 million and $0.8 million as of June 29, 2002 and June 30, 2001, respectively. See also Item 7A of the Partnership's Annual Report on Form 10-K for the fiscal year ended September 29, 2001. The above hypothetical change does not reflect the worst case scenario. Actual results may be significantly different depending on market conditions and the composition of the open position portfolio at any given point in time. DERIVATIVE INSTRUMENTS The Partnership accounts for its derivative instruments in accordance with the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137 and SFAS No. 138. All derivative instruments are reported on the balance sheet, within other current assets or other current liabilities, at their fair values. On the date that futures, forward and option contracts are entered into, we make a determination as to whether the derivative instrument qualifies for designation as a hedge. Prior to March 31, 2002, the beginning of our third fiscal quarter, we determined that our derivative instruments did not qualify as hedges and, as such, the changes in fair values were recorded in income. Beginning with contracts entered into subsequent to March 31, 2002, a portion of the derivative instruments entered into have been designated and qualify as cash flow hedges. For derivative instruments designated as hedges, we formally assess, both at the hedge contract's inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in cash flows of hedged items. Changes in the fair value of derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income (loss) ("OCI") to the extent effective and reclassified into cost of products sold during the same period in which the hedged item affects earnings. The mark-to-market gains or losses on ineffective portions of hedges are recognized in cost of products sold immediately. Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period earnings. Fair values for forward and futures contracts are derived from quoted market prices for similar instruments traded on the NYMEX. At June 29, 2002, the fair value of derivative instruments described above resulted in derivative assets of $0.8 million and derivative liabilities of $0.1 million. For the three months ended June 29, 2002 and June 30, 2001, operating expenses include unrealized losses in the amount of $1.0 million and $5.1 million, respectively, attributable to the change in fair value of derivative instruments not designated as hedges. Operating expenses for the nine months ended June 29, 2002 include unrealized gains of $5.1 million attributable to the mark-to-market adjustment on derivative instruments not designated as hedges, compared to unrealized losses of $3.4 million for the nine months ended June 30, 2001. At June 29, 2002, unrealized losses on derivative instruments designated as cash flow hedges in the amount of $0.1 million were included in OCI and are expected to be recognized in earnings during the next 12 months as the hedged transactions occur. However, due to the volatility of the commodities market, the corresponding value in OCI is subject to change prior to its impact on earnings. PART II ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10(e) Note Purchase Agreement dated April 19, 2002 for the 7.37% Senior Notes due June 30, 2012. 10(f) Subsidiary Guaranty Agreement dated July 1, 2002 provided by certain subsidiaries of Suburban Propane, L.P. 10(g) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K The Partnership furnished a Form 8-K to the Securities and Exchange Commission on July 11, 2002 incorporating a press release announcing the Partnership's Quarterly Earnings Conference Call. Other items under Part II are not applicable. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Suburban Propane Partners, L.P. AUGUST 13, 2002 /S/ ROBERT M. PLANTE - --------------- -------------------- Date Robert M. Plante Vice President - Finance and Treasurer (Principal Financial Officer) AUGUST 13, 2002 /S/ MICHAEL A. STIVALA - --------------- ---------------------- Date Michael A. Stivala Controller (Principal Accounting Officer) EX-10 2 sec906.txt EX-10(G) SECTION 906 CERTIFICATIONS EXHIBIT 10(g) ------------- CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Suburban Propane Partners, L.P. (the "PARTNERSHIP") on Form 10-Q for the period ended June 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), I, Mark A. Alexander, Chief Executive Officer and President of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Mark A. Alexander --------------------- Mark A. Alexander Chief Executive Officer & President August 13, 2002 In connection with the Quarterly Report of Suburban Propane Partners, L.P. (the "PARTNERSHIP") on Form 10-Q for the period ended June 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "REPORT"), I, Robert M. Plante, Vice President, Finance, Treasurer, and Principal Financial Officer of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Robert M. Plante -------------------- Robert M. Plante Vice President, Finance & Treasurer Principal Financial Officer August 13, 2002 EX-10 3 ex10e.txt EX-10(E) NOTE PURCHASE AGREEMENT EXHIBIT 10(e) ------------ EXECUTION COPY ================================================================================ SUBURBAN PROPANE, L.P. $42,500,000 7.37% Senior Notes due June 30, 2012 -------------- NOTE PURCHASE AGREEMENT ------------- Dated as of April 19, 2002 ================================================================================ TABLE OF CONTENTS (Not a part of the Agreement) SECTION HEADING PAGE SECTION 1. AUTHORIZATION OF NOTES.....................................1 SECTION 2. SALE AND PURCHASE OF NOTES.................................1 Section 2.1. Purchase and Sale of Notes.................................1 Section 2.2. Subsidiary Guaranties......................................2 SECTION 3. EXECUTION DATE; CLOSING....................................3 SECTION 4. CONDITIONS TO EXECUTION AND CLOSING........................3 Section 4.1. Representations and Warranties.............................3 Section 4.2. Performance; No Default....................................3 Section 4.3. Compliance Certificates....................................4 Section 4.4. Opinions of Counsel........................................4 Section 4.5. Purchase Permitted By Applicable Law, Etc..................4 Section 4.6. Sale of Other Notes........................................5 Section 4.7. Payment of Special Counsel Fees............................5 Section 4.8. Private Placement Number...................................5 Section 4.9. Changes in Corporate Structure.............................5 Section 4.10. Operative Agreements.......................................5 Section 4.11. Funding Instructions.......................................6 Section 4.12. Proceedings and Documents..................................6 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............6 Section 5.1. Organization; Power and Authority..........................6 Section 5.2. Authorization, Etc.........................................6 Section 5.3. Disclosure.................................................6 Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.................................................7 Section 5.5. Financial Statements.......................................8 Section 5.6. Compliance with Laws, Other Instruments, Etc...............8 Section 5.7. Governmental Authorizations, Etc...........................8 Section 5.8. Litigation; Observance of Agreements, Statutes and Orders.....................................................8 Section 5.9. Taxes......................................................9 Section 5.10. Title to Property; Leases..................................9 Section 5.11. Licenses, Permits, Etc.....................................9 Section 5.12. Compliance with ERISA......................................10 Section 5.13. Private Offering by the Company............................11 Section 5.14. Use of Proceeds: Margin Regulations........................11 -i- Section 5.15. Existing Indebtedness; Future Liens........................11 Section 5.16. Foreign Assets Control Regulations, Etc....................11 Section 5.17. Status under Certain Statutes..............................12 Section 5.18. Notes Rank Pari Passu......................................12 Section 5.19. Environmental Matters......................................12 SECTION 6. REPRESENTATIONS OF THE PURCHASER...........................12 Section 6.1. Purchase for Investment....................................12 Section 6.2. Source of Funds............................................13 SECTION 7. INFORMATION AS TO THE COMPANY..............................14 Section 7.1. Financial and Business Information.........................14 Section 7.2. Officer's Certificate......................................17 Section 7.3. Inspection.................................................17 SECTION 8. PREPAYMENT OF THE NOTES....................................18 Section 8.1. Required Prepayments.......................................18 Section 8.2. Optional Prepayments with Make-Whole Amount................18 Section 8.3. Change in Ownership........................................18 Section 8.4. Allocation of Partial Prepayments..........................20 Section 8.5. Maturity; Surrender, Etc...................................20 Section 8.6. Purchase of Notes..........................................21 Section 8.7. Make-Whole Amount..........................................21 SECTION 9. AFFIRMATIVE COVENANTS......................................22 Section 9.1. Compliance with Law........................................22 Section 9.2. Insurance..................................................23 Section 9.3. Maintenance of Properties..................................23 Section 9.4. Payment of Taxes and Claims................................23 Section 9.5. Partnership or Corporate Existence, Etc....................23 Section 9.6. Nature of Business.........................................24 Section 9.7. Notes to Rank Pari Passu...................................24 Section 9.8. Guaranty by Subsidiaries...................................24 Section 9.9. Designations with Respect to Subsidiaries..................25 Section 9.10. Covenant to Secure Notes Equally...........................26 SECTION 10. NEGATIVE COVENANTS.........................................26 Section 10.1. Ratio of Consolidated Total Indebtedness to EBITDA.........26 Section 10.2. Limitations on Indebtedness................................26 Section 10.3. Limitation on Liens........................................28 Section 10.4. Priority Debt..............................................30 Section 10.5. Restricted Payments........................................30 Section 10.6. Mergers, Consolidations, Etc...............................31 Section 10.7. Sale of Assets.............................................32 -ii- Section 10.8. Transactions with Affiliates...............................33 Section 10.9. Material Agreements; Tax Status............................33 SECTION 11. EVENTS OF DEFAULT..........................................33 SECTION 12. REMEDIES ON DEFAULT, ETC...................................36 Section 12.1. Acceleration...............................................36 Section 12.2. Other Remedies.............................................36 Section 12.3. Rescission.................................................36 Section 12.4. No Waivers or Election of Remedies, Expenses, Etc..........37 Section 12.5. Recourse Only to the Company and the Subsidiary Guarantors; Non-Recourse to the General Partner and Associated Persons.........................................37 SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..............37 Section 13.1. Registration of Notes......................................37 Section 13.2. Transfer and Exchange of Notes.............................38 Section 13.3. Replacement of Notes.......................................38 SECTION 14. PAYMENTS ON NOTES..........................................38 Section 14.1. Place of Payment...........................................38 Section 14.2. Home Office Payment........................................39 SECTION 15. EXPENSES, ETC..............................................39 Section 15.1. Transaction Expenses.......................................39 Section 15.2. Survival...................................................39 SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..................................................40 SECTION 17. AMENDMENT AND WAIVER.......................................40 Section 17.1. Requirements...............................................40 Section 17.2. Solicitation of Holders of Notes...........................40 Section 17.3. Binding Effect, Etc........................................41 Section 17.4. Notes Held by Company, Etc.................................41 SECTION 18. NOTICES....................................................41 SECTION 19. REPRODUCTION OF DOCUMENTS..................................42 SECTION 20. CONFIDENTIAL INFORMATION...................................42 -iii- SECTION 21. SUBSTITUTION OF PURCHASER..................................43 SECTION 22. MISCELLANEOUS..............................................43 Section 22.1. Successors and Assigns.....................................43 Section 22.2. Payments Due on Non-Business Days..........................43 Section 22.3. Severability...............................................43 Section 22.4. Construction...............................................44 Section 22.5. Counterparts...............................................44 Section 22.6. Governing Law..............................................44 Signature....................................................................45 -iv- SCHEDULE A -- INFORMATION RELATING TO PURCHASERS SCHEDULE B -- DEFINED TERMS SCHEDULE 2.2 -- Subsidiary Guarantors SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Equity Interests SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Patents, etc. SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Indebtedness ANNEX A -- Indebtedness EXHIBIT 1 -- Form of 7.37% Senior Note due June 30, 2012 EXHIBIT 2.2(a) -- Form of Subsidiary Guaranty EXHIBIT 2.2(b) -- Form of Intercreditor Agreement EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers -v- EXHIBIT 4.4(b) (to Note Purchase Agreement) SUBURBAN PROPANE, L.P. One Suburban Plaza, 240 Route 10 West Whippany, New Jersey 07981-0206 7.37% Senior Notes due June 30, 2012 Dated as of April 19, 2002 TO THE PURCHASER LISTED IN THE ATTACHED SCHEDULE A WHO IS A SIGNATORY HERETO: Ladies and Gentlemen: SUBURBAN PROPANE, L.P., a Delaware limited partnership (the "Company"), agrees with you as follows: SECTION 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $42,500,000 aggregate principal amount of its 7.37% Senior Notes due June 30, 2012 (the "NOTES", such term to include any such notes issued in substitution therefor pursuant to SECTION 13 of this Agreement or the Other Agreements (as hereinafter defined)). The Notes shall be substantially in the form set out in EXHIBIT 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in SCHEDULE B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. SECTION 2. SALE AND PURCHASE OF NOTES. SECTION 2.1. PURCHASE AND SALE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in SECTION 3, Notes in the principal amount specified opposite your name in SCHEDULE A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS") identical with this Agreement with each of the other purchasers named in SCHEDULE A (the "OTHER PURCHASERS"), providing for the sale at such Closing to each of the Other Purchasers of Notes in the principal amount specified opposite its name in SCHEDULE A. Your obligation hereunder, and the obligations of the Other Purchasers under the Other Agreements, are several and not joint obligations, and you shall have no obligation under any Other Agreement and no liability to any Person for the performance or nonperformance by any Other Purchaser thereunder. SECTION 2.2. SUBSIDIARY GUARANTIES. (a) The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under this Agreement and the Other Agreements will be absolutely and unconditionally guaranteed by the entities identified on SCHEDULE 2.2 (together with any additional Subsidiary who delivers a guaranty pursuant to SECTION 9.8, the "SUBSIDIARY GUARANTORS") pursuant to the guaranty agreement substantially in the form of EXHIBIT 2.2(a) attached hereto and made a part hereof (as the same may be amended, modified, extended or renewed, the "SUBSIDIARY GUARANTY"). (b) The enforcement of the rights and benefits in respect of the Subsidiary Guaranty and the allocation of proceeds thereof shall be subject to an intercreditor agreement substantially in the form of EXHIBIT 2.2(b) attached hereto and made a part hereof (as the same may be amended, modified, extended or renewed, the "INTERCREDITOR AGREEMENT"). (c) The holders of the Notes acknowledge and agree that such holders will discharge and release any Subsidiary Guarantor from the Subsidiary Guaranty pursuant to the written request of the Company, PROVIDED that (i) such Subsidiary Guarantor has been released and discharged as an obligor and guarantor under and in respect of all Indebtedness of the Company, (ii) any such release and discharge shall be expressly conditioned upon receipt by the holders of the Notes of a written agreement executed by the Subsidiary Guarantor to be released pursuant to which such Subsidiary Guarantor shall agree that if, for any reason whatsoever, it thereafter becomes an obligor or guarantor under and in respect of any Indebtedness of the Company, then such Subsidiary Guarantor shall contemporaneously provide written notice thereof to the holders of the Notes accompanied by either (1) an executed Subsidiary Guaranty of such Subsidiary Guarantor or (2) a certificate of the Company certifying to the holders of the Notes that the liability of such Subsidiary Guarantor as an obligor or guarantor under or in respect of such Indebtedness of the Company is incurred within the limitations of SECTIONS 10.2 and 10.4, which certificate shall also include information in reasonable detail to show compliance with SECTIONS 10.2 and 10.4, and (iii) at the time of such release and discharge, the Company shall deliver a certificate of a Responsible Officer to the holders of the Notes to the effect that no Default or Event of Default exists. (d) The holders of the Notes further acknowledge and agree that, concurrently with any release described in paragraph (c) above, such holders will terminate any arrangements among the creditors of the Company set forth in the Intercreditor Agreement as they relate to any Subsidiary Guarantor released pursuant to the terms of paragraph (c) above. (e) The Company agrees that it will not, nor will it permit any Subsidiary or Affiliate to, directly or indirectly, pay or cause to be paid any consideration or remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any creditor of the Company or of any Subsidiary Guarantor as consideration for or as an inducement to the entering into by any such creditor of any release or discharge of any Subsidiary Guarantor with respect to any liability of such Subsidiary Guarantor as an obligor or guarantor under or in respect of Indebtedness of the Company, unless such consideration or remuneration is concurrently paid, on the same terms, ratably to the Noteholders of all of the Notes then outstanding. SECTION 3. EXECUTION DATE; CLOSING. The execution and delivery of this Agreement and the Other Agreements will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603 on April 19, 2002 (the "EXECUTION DATE"). The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, at 10:00 A.M. Chicago time, at a closing (the "CLOSING") on July 1, 2002 or on such other Business Day thereafter on or prior to July 30, 2002 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $1,000,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to JPMorgan Chase Bank, ABA#: 021000021, Account Title: Suburban Propane, L.P., Account Number: 323204554. If at the Closing the Company shall fail to tender such Notes to you as provided above in this SECTION 3, or any of the conditions specified in SECTION 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. SECTION 4. CONDITIONS TO EXECUTION AND CLOSING. Your obligation to execute and deliver this Agreement on the Execution Date and to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, on the Execution Date and/or at the Closing, as the case may be, of the following conditions: SECTION 4.1. REPRESENTATIONS AND WARRANTIES. (a) The representations and warranties of the Company in this Agreement shall be correct when made and on the Execution Date and at the time of the Closing. (b) The representations and warranties of each Subsidiary Guarantor in the Subsidiary Guaranty shall be correct when made and at the time of the Closing. SECTION 4.2. PERFORMANCE; NO DEFAULT. (a) The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or on the Execution Date and at the time of the Closing, and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by SCHEDULE 5.14), no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by SECTION 10 hereof had such SECTION applied since such date. (b) Each Subsidiary Guarantor shall have performed and complied with all agreements and conditions contained in the Subsidiary Guaranty required to be performed and complied with by it prior to or at the Closing, and after giving effect to the issue and sale of Notes (and the application of the proceeds thereof as contemplated by SCHEDULE 5.14), no Default or Event of Default shall have occurred and be continuing. SECTION 4.3. COMPLIANCE CERTIFICATES. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the Execution Date and the date of the Closing, as the case may be, certifying that the conditions specified in SECTIONS 4.1(a), 4.2(a) and 4.9 have been fulfilled. (b) Subsidiary Guarantor Officer's Certificate. Each Subsidiary Guarantor shall have delivered to you a certificate of an authorized officer, dated the date of the Closing, certifying that the conditions set forth in SECTION 4.1(b), 4.2(b) and 4.9 have been fulfilled. (c) Secretary's Certificate. The Company shall have delivered to you a certificate, dated the Execution Date and the date of the Closing, as the case may be, certifying as to the resolutions attached thereto and other partnership proceedings relating to the authorization, execution and delivery of the Notes and the Agreements. (d) Subsidiary Guarantor Secretary's Certificate. Each Subsidiary Guarantor shall have delivered to you a certificate, dated the date of the Closing, certifying as to the resolutions attached thereto and other partnership or corporate proceedings relating to the authorization, execution and delivery of the Subsidiary Guaranty. SECTION 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from (1) Weil, Gotshal & Manges LLP, special counsel for the Company and the Subsidiary Guarantors and (2) General Counsel for the Company and the Subsidiary Guarantors, collectively covering the matters set forth in EXHIBIT 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Chapman and Cutler, your special counsel in connection with such transactions, substantially in the form set forth in EXHIBIT 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. SECTION 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as SECTION 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. SECTION 4.6. SALE OF OTHER NOTES. Contemporaneously with the Closing, the Company shall sell to the Other Purchasers, and the Other Purchasers shall purchase, the Notes to be purchased by them at the Closing as specified in SCHEDULE A. SECTION 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of SECTION 15.1, the Company shall have paid on or before the Execution Date and the date of the Closing the fees, charges and disbursements of your special counsel referred to in SECTION 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. SECTION 4.8. PRIVATE PLACEMENT NUMBER. On or before the date of the Closing, a Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. SECTION 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in SCHEDULE 4.9, the Company and the Subsidiary Guarantors shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in SCHEDULE 5.5. SECTION 4.10. OPERATIVE AGREEMENTS. (a) Each of the Partnership Documents shall have been duly authorized, executed and delivered by the respective parties thereto, shall be in full force and effect, and shall constitute the legal, valid and binding obligations of the respective parties thereto, and no default or accrued right of termination on the part of any of the parties thereto shall exist thereunder as of the date of the Closing, and you and the Other Purchasers shall have received a fully executed original, or a true and correct copy, of each Partnership Document. (b) The Subsidiary Guaranty and the Intercreditor Agreement shall have been duly authorized, executed and delivered by the respective parties thereto, shall be in full force and effect, and shall constitute the legal, valid and binding obligations of the respective parties thereto, and no default or accrued right of termination on the part of any of the parties thereto shall exist thereunder as of the date of the Closing, and you and the Other Purchasers shall have received a fully executed original, or a true and correct copy, of the Subsidiary Guaranty and the Intercreditor Agreement. (c) On the Execution Date, the Company shall have delivered to you and the Other Purchasers a true and complete copy of the Credit Agreement, as fully executed and delivered, and the Credit Agreement shall be in full force and effect and in form and substance satisfactory to each Purchaser. (d) On the Execution Date, the Company shall have delivered to you and the Other Purchasers a true and complete copy of the 1996 Note Agreements, as amended and as fully executed and delivered, and the 1996 Note Agreements shall be in full force and effect and in form and substance satisfactory to each Purchaser. SECTION 4.11. Funding Instructions. At least three Business Days prior to the date of the Closing, you shall have received written instructions executed by a Responsible Officer of the Company directing the manner of the payment of funds and setting forth (a) the name and address of the transferee bank, (b) such transferee bank's ABA number, (c) the account name and number into which the purchase price for the Notes is to be deposited, and (d) the name and telephone number of the account representative responsible for verifying receipt of such funds. SECTION 4.12. Proceedings and Documents. All partnership, corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you on the Execution Date and the date of the Closing that: SECTION 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified as a foreign limited partnership and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the partnership power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreements and the Notes and to perform the provisions hereof and thereof. SECTION 5.2. AUTHORIZATION, ETC. This Agreement, the Other Agreements and the Notes have been duly authorized by all necessary partnership action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.3. DISCLOSURE. The Company, through its agent, First Union Securities, Inc., has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated January 2002 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. This Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in SCHEDULE 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Since September 30, 2001, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. SECTION 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) SCHEDULE 5.4(a) contains (except as noted therein) complete and correct lists (i) of the Company's Restricted Subsidiaries, showing, as to each Restricted Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Restricted Subsidiary, (ii) of the Company's Subsidiaries, other than Restricted Subsidiaries, and (iii) of the Company's directors and senior officers (which shall be vice presidents and officers senior thereto). (b) PARTNERSHIP INTERESTS. The sole general partner of the Company is the General Partner, which owns a 1.0101% general partnership interest in the Company. The only limited partner of the Company is the Partnership, which owns a 98.9899% limited partnership interest in the Company. The Company does not have any partners other than the General Partner and the Partnership. The Company does not have any Subsidiaries other than as set forth on SCHEDULE 5.4(a) or any Investments in a Person other than as set forth on SCHEDULE 5.4(b). (c) Each Restricted Subsidiary identified in SCHEDULE 5.4(a) is a partnership, corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign partnership, corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Restricted Subsidiary has the partnership, corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Restricted Subsidiary is a party to, or otherwise subject to, any legal restriction or any agreement (other than this Agreement, the agreements listed on SCHEDULE 5.4(d) and customary limitations imposed by partnership or corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Restricted Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Restricted Subsidiary. (e) There are no pre-emptive rights to which a holder of a minority interest in any Restricted Subsidiary of the Company is entitled. SECTION 5.5. FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on SCHEDULE 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such financial statements and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). SECTION 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Restricted Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, partnership agreement or any other agreement or instrument to which the Company or any Restricted Subsidiary is bound or by which the Company or any Restricted Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Restricted Subsidiary or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. SECTION 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. SECTION 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) Except as disclosed in SCHEDULE 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Restricted Subsidiary or any property of the Company or any Restricted Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Restricted Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. SECTION 5.9. TAXES. The Company and its Restricted Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Restricted Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities, if any, of the Company and its Restricted Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 2000. Without limiting the foregoing, the Company is a limited partnership not subject to taxation with respect to its income or gross receipts under applicable state (other than Hawaii, Illinois, Michigan, New Hampshire and Tennessee) laws and is treated as a pass-through entity for U.S. federal income tax purposes. SECTION 5.10. TITLE TO PROPERTY; LEASES. The Company and its Restricted Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in SECTION 5.5 or purported to have been acquired by the Company or any Restricted Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. SECTION 5.11. LICENSES, PERMITS, ETC. Except as disclosed in SCHEDULE 5.11, (a) the Company and its Restricted Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company infringes in any Material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Restricted Subsidiaries. SECTION 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each employee benefit plan (as defined in SECTION 3 of ERISA) in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in SECTION 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to SECTION 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of the Company's most recent fiscal year ended September 29, 2001 on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, does not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by an amount greater than $30,000,000. The term "benefit liabilities" has the meaning specified in SECTION 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under SECTION 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected post-retirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Statement of Financial Accounting Standards Board No. 106, without regard to liabilities attributable to continuation coverage mandated by SECTION 4980B of the Code) of the Company and its Subsidiaries is not expected to be greater than $40,000,000. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of SECTION 406 of ERISA or in connection with which a tax could be imposed pursuant to SECTION 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this SECTION 5.12(e) is made in reliance upon and subject to the accuracy of your representation in SECTION 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. SECTION 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you, the Other Purchasers and not more than 55 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of SECTION 5 of the Securities Act. SECTION 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes as set forth in SCHEDULE 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation U. SECTION 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS. (a) SCHEDULE 5.15 sets forth a complete and correct list of all outstanding Indebtedness and any Liens secured thereby of the Company and its Restricted Subsidiaries as of the Execution Date. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Restricted Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Restricted Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. ANNEX A to be attached hereto on the date of the Closing will correctly describe all outstanding Indebtedness and any Liens secured thereby of the Company and its Restricted Subsidiaries on the date of the Closing. Since the Execution Date, there shall have been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Restricted Subsidiaries listed on SCHEDULE 5.15. (b) Except as disclosed in SCHEDULE 5.15, neither the Company nor any Restricted Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by SECTION 10.3. SECTION 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Without limiting the foregoing, neither the Company nor any of its Restricted Subsidiaries (a) is or will become a person whose property or interests in property are blocked pursuant to SECTION 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such person. SECTION 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company or the Partnership nor any Restricted Subsidiary is an "investment company" registered or required to be registered subject to regulation under the Investment Company Act of 1940, as amended, or is subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended. SECTION 5.18. NOTES RANK PARI PASSU. The obligations of the Company under this Agreement and the Notes rank at least pari passu in right of payment with all other unsecured Senior Indebtedness (actual or contingent) including, without limitation, all unsecured Senior Indebtedness described in SCHEDULE 5.15 hereto. SECTION 5.19. ENVIRONMENTAL MATTERS. Neither the Company nor any Restricted Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Restricted Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing: (a) neither the Company nor any Restricted Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Restricted Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them or has disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Restricted Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. SECTION 6. REPRESENTATIONS OF THE PURCHASER. SECTION 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof; PROVIDED that the disposition of your or their property shall at all times be within your or their control. In addition, you represent that you are an Accredited Investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. SECTION 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "SOURCE") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (b) the Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan, treating as a single plan, all plans maintained by the same employer or employee organization, with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such plan, exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with your state of domicile; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of SECTION V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part l(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a Person controlling or controlled by the QPAM (applying the definition of "control" in SECTION V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source is a governmental plan; or (f) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (f); or (g) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this SECTION 6.2, the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in SECTION 3 of ERISA. SECTION 7. INFORMATION AS TO THE COMPANY. SECTION 7.1. FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) QUARTERLY STATEMENTS -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of: (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments; PROVIDED that delivery within the time period specified above of copies of the Partnership's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this SECTION 7.1(a); (b) ANNUAL STATEMENTS - within 105 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by: (1) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (2) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), PROVIDED that the delivery within the time period specified above of the Partnership's Annual Report on Form 10-K for such fiscal year (together with the Partnership's annual report to partners, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (2) above, shall be deemed to satisfy the requirements of this SECTION 7.1(b); (c) SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Partnership, the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Partnership, the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Partnership, the Company or any Subsidiary to the public concerning developments that are Material; (d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in SECTION 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in SECTION 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under SECTION 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) RESTRICTED SUBSIDIARIES -- Within the respective periods provided in paragraphs (a) and (b) above, consolidated financial statements of the character and for the dates and periods as provided in said paragraphs (a) and (b) (except that such consolidated financial statements to be provided pursuant to this paragraph (f) shall not be audited), covering the Company and its Restricted Subsidiaries if Unrestricted Subsidiaries constitute in the aggregate more than 10% of Consolidated Total Assets or contribute in the aggregate more than 10% of Consolidated Net Income in any fiscal period; (g) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (h) REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes, including without limitation, such information as is required by SEC Rule 144A under the Securities Act to be delivered to the prospective transferee of the Notes. SECTION 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to SECTION 7.1(a) or SECTION 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of SECTION 10.1 through SECTION 10.7 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. SECTION 7.3. INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Restricted Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Restricted Subsidiaries), all at such times and as often as may be requested. SECTION 8. PREPAYMENT OF THE NOTES. SECTION 8.1. REQUIRED PREPAYMENTS. No regularly scheduled prepayment of the principal of the Notes is required prior to the final maturity date thereof. SECTION 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, together with interest accrued thereon to the date of such prepayment, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this SECTION 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with SECTION 8.4), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. SECTION 8.3. CHANGE IN OWNERSHIP. (a) NOTICE OF CHANGE IN OWNERSHIP OR CONTROL EVENT. The Company will, within five Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Ownership or Control Event, give written notice of such Change in Ownership or Control Event to each holder of Notes unless notice in respect of such Change in Ownership (or the Change in Ownership contemplated by such Control Event) shall have been given pursuant to subparagraph (b) of this SECTION 8.3. If a Change in Ownership has occurred, such notice shall contain and constitute an offer to prepay Notes as described in subparagraph (c) of this SECTION 8.3 and shall be accompanied by the certificate described in subparagraph (g) of this SECTION 8.3. (b) CONDITION TO COMPANY ACTION. The Company will not take any action that consummates or finalizes a Change in Ownership unless (i) at least 30 days prior to such action it shall have given to each holder of Notes written notice containing and constituting an offer to prepay Notes as described in subparagraph (c) of this SECTION 8.3, accompanied by the certificate described in subparagraph (g) of this SECTION 8.3, and (ii) contemporaneously with such action, it prepays all Notes required to be prepaid in accordance with this SECTION 8.3. (c) OFFER TO PREPAY NOTEs. The offer to prepay Notes contemplated by subparagraphs (a) and (b) of this SECTION 8.3 shall be an offer to prepay, in accordance with and subject to this SECTION 8.3, all, but not less than all, the Notes held by each holder (in this case only, "HOLDER" in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the "PROPOSED PREPAYMENT DATE"). If such Proposed Prepayment Date is in connection with an offer contemplated by subparagraph (a) of this SECTION 8.3, such date shall be not less than 30 days and not more than 120 days after the date of such offer (if the Proposed Prepayment Date shall not be specified in such offer, the Proposed Prepayment Date shall be the first Business Day after the 45th day after the date of such offer). (d) REJECTION. A holder of Notes may accept the offer to prepay made pursuant to this SECTION 8.3 by causing a notice of such acceptance to be delivered to the Company not later than 15 days after receipt by such holder of the most recent offer of prepayment. A failure by a holder of Notes to respond to an offer to prepay made pursuant to this SECTION 8.3 shall be deemed to constitute a rejection of such offer by such holder. (e) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to this SECTION 8.3 shall be at 100% of the principal amount of such Notes, together with interest on such Notes accrued to the date of prepayment, but without Make-Whole Amount or other premium. The prepayment shall be made on the Proposed Prepayment Date except as provided in subparagraph (f) of this SECTION 8.3. (f) DEFERRAL PENDING CHANGE IN OWNERSHIP. The obligation of the Company to prepay Notes pursuant to the offers required by subparagraph (c) and accepted in accordance with subparagraph (d) of this SECTION 8.3 is subject to the occurrence of the Change in Ownership in respect of which such offers and acceptances shall have been made. In the event that such Change in Ownership has not occurred on the Proposed Prepayment Date in respect thereof, the prepayment shall be deferred until, and shall be made on, the date on which such Change in Ownership occurs. The Company shall keep each holder of Notes reasonably and timely informed of (i) any such deferral of the date of prepayment, (ii) the date on which such Change in Ownership and the prepayment are expected to occur, and (iii) any determination by the Company that efforts to effect such Change in Ownership have ceased or been abandoned (in which case the offers and acceptances made pursuant to this SECTION 8.3 in respect of such Change in Ownership shall be deemed rescinded). (g) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant to this SECTION 8.3 shall be accompanied by a certificate, executed by a Senior Financial Officer of the Company and dated the date of such offer, specifying: (i) the Proposed Prepayment Date; (ii) that such offer is made pursuant to this SECTION 8.3; (iii) the principal amount of each Note offered to be prepaid; (iv) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date; (v) that the conditions of this SECTION have been fulfilled; and (vi) in reasonable detail, the nature and date or proposed date of the Change in Ownership. (h) CERTAIN DEFINITIONS. "CHANGE IN OWNERSHIP" means a "Change in Ownership" within the meaning of that term as set forth in the Credit Agreement as from time to time in effect or any change of control or similar event creating a default or repurchase obligation in respect of any other Parity Debt (the provisions of all of which, as they shall be amended from time to time, shall be deemed to be incorporated herein as it fully set forth at this place with such changes MUTATIS MUTANDIS to make such provisions applicable to this Agreement and the Notes). "CONTROL EVENT" means: (i) the execution by the Partnership, the Company or any of its Restricted Subsidiaries or Affiliates of any agreement or letter of intent with respect to any proposed transaction or event or series of transactions or events which, individually or in the aggregate, may reasonably be expected to result in a Change in Ownership, (ii) the execution of any written agreement which, when fully performed by the parties thereto, would result in a Change in Ownership, or (iii) the making of any written offer by any person (as such term is used in SECTION 13(d) and SECTION 14(d)(2) of the Exchange Act as in effect on the date of the Closing) or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date of the Closing) to the holders of the partnership interests in the Partnership, the Company, which offer, if accepted by the requisite number of holders, would result in a Change in Ownership. (i) All calculations contemplated in this SECTION 8.3 involving the capital stock of any Person shall be made with the assumption that all convertible Securities of such Person then outstanding and all convertible Securities issuable upon the exercise of any warrants, options and other rights outstanding at such time were converted at such time and that all options, warrants and similar rights to acquire shares of capital stock of such Person were exercised at such time. SECTION 8.4. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes pursuant to SECTION 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. All partial prepayments made pursuant to SECTION 8.3 shall be applied only to the Notes of the holders who have elected to participate in such prepayment. SECTION 8.5. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this SECTION 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. SECTION 8.6. PURCHASE OF NOTES. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 10 Business Days. If the holders of more than 25% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least 5 Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. SECTION 8.7. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal; PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to SECTION 8.2 or has become or is declared to be immediately due and payable pursuant to SECTION 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, .50% over the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page PX-1" of the Bloomberg Financial Markets Services Screen (or, if not available, any other national recognized trading screen reporting on-line intraday trading in the U.S. Treasury securities) for actively traded on-the-run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded on-the-run U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (i) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between (1) the actively traded on-the-run U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded on-the-run U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to SECTION 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to SECTION 8.2 or has become or is declared to be immediately due and payable pursuant to SECTION 12.1, as the context requires. SECTION 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: SECTION 9.1. COMPLIANCE WITH LAW. The Company will, and will cause each of its Restricted Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, ERISA and all Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 9.2. INSURANCE. The Company will, and will cause each of its Restricted Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. SECTION 9.3. MAINTENANCE OF PROPERTIES. The Company will, and will cause each of its Restricted Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times; PROVIDED that this SECTION 9.3 shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each of its Restricted Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, governmental charges or levies have become due and payable and before they have become delinquent and each claim for which sums have become due and payable that has or might become a Lien on properties or assets of the Company or any Restricted Subsidiary; PROVIDED that neither the Company nor any Restricted Subsidiary need pay any such tax, assessment, governmental charge, levy or claim if (a) the amount, applicability or validity thereof is contested by the Company or such Restricted Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Restricted Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (b) the nonpayment of all such taxes, assessments, governmental charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect. SECTION 9.5. PARTNERSHIP OR CORPORATE EXISTENCE, ETC.. The Company will at all times preserve and keep in full force and effect its partnership existence and its status as a partnership not taxable as a corporation for U.S. Federal Income Tax purposes. Subject to SECTIONS 10.6 and 10.7, the Company will at all times preserve and keep in full force and effect the partnership or corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such partnership or corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. SECTION 9.6. NATURE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to engage in any line of business if as a result thereof the Company and its Restricted Subsidiaries would not be principally engaged in the business of retail and wholesale propane sales and purchases of inventory, operation of related propane distribution networks and storage facilities and the acquisition, operation and maintenance of such facilities and related general and administrative operations, as more fully described in the Memorandum. SECTION 9.7. NOTES TO RANK PARI PASSU. The Notes and all other obligations under this Agreement of the Company are and at all times shall rank at least PARI PASSU in right of payment with all other present and future unsecured Senior Indebtedness (actual or contingent). SECTION 9.8. GUARANTY BY SUBSIDIARIES. The Company will cause each Subsidiary which delivers a Guaranty to the holders of the 1996 Notes or any of the holders of the Indebtedness issued and outstanding under the Credit Agreement to concurrently enter into a Subsidiary Guaranty, and within three Business Days thereafter will deliver to each of the holders of the Notes the following items: (a) an executed counterpart of such Subsidiary Guaranty or joinder agreement in respect of an existing Subsidiary Guaranty, as appropriate; (b) a certificate signed by the President, a Vice President or another authorized Responsible Officer of such Subsidiary making representations and warranties to the effect of those contained in SECTIONS 5.1, 5.2, 5.6 and 5.7, but with respect to such Subsidiary and such Subsidiary Guaranty, as applicable; (c) such documents and evidence with respect to such Subsidiary as any holder of the Notes may reasonably request in order to establish the existence and good standing of such Subsidiary and the authorization of the transactions contemplated by such Subsidiary Guaranty; (d) an opinion of internal counsel to the Company satisfactory to the Required Holders to the effect that such Subsidiary Guaranty has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such Subsidiary enforceable in accordance with its terms, except as an enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles; and (e) subject to SECTION 2.2(c), an executed counterpart of an accession or joinder to the Intercreditor Agreement executed by each such Person to which a Subsidiary is then delivering a Guaranty giving rise to the requirements of this SECTION 9.8, if such Person is not then a party to the Intercreditor Agreement. SECTION 9.9. DESIGNATIONS WITH RESPECT TO SUBSIDIARIES. (a) Upon not less than 30 days' prior written notice (the "DESIGNATION NOTICE") given to each holder of Notes, the Board of Supervisors of the Company may at any time and from time to time designate (i) any Restricted Subsidiary that has not theretofore been an Unrestricted Subsidiary or any newly acquired or formed Subsidiary as an Unrestricted Subsidiary or (ii) any Unrestricted Subsidiary that has not theretofore been a Restricted Subsidiary as a Restricted Subsidiary, in each case subject to satisfaction of the following conditions: (1) immediately before and after such designation and after giving effect to such designation, no Default or Event of Default shall exist; (2) after giving effect to such designation, the Company would be permitted to incur at least $1 of additional Indebtedness in accordance with the provisions of SECTIONS 10.1 and 10.2(a)(v)(1) and (2); and (3) in the case of a designation of a Restricted Subsidiary or a newly acquired or formed Subsidiary as an Unrestricted Subsidiary, the conditions set forth in SECTION 10.7(c)(1) (the "SALE CONDITION") would be satisfied, assuming for this purpose that such designation (and all prior designations of Restricted Subsidiaries or newly acquired or formed Subsidiaries as Unrestricted Subsidiaries during the current fiscal year) constitutes a sale by the Company of (in the case of the Sale Condition) all the assets of the Subsidiary so designated, in each case for an amount equal to (x) the net book value of such assets in the case of a Restricted Subsidiary and (y) the cost of acquisition or formation in the case of a newly acquired or formed Subsidiary (such amounts being herein referred to as "DESIGNATION AMOUNTS" and deemed to constitute Net Proceeds for the purposes of the Sale Condition). (b) Simultaneously with any Designation Notice, the Company shall deliver to each holder of Notes a certificate executed by the chief financial officer of the Company stating (i) the effective date of such designation, (ii) that the foregoing conditions contained in this SECTION 9.9 have been satisfied and (iii) the name of each Subsidiary which has or will become a Restricted Subsidiary as a result of such designation. Such certificate shall be accompanied by a schedule setting forth in reasonable detail the calculations demonstrating compliance with such conditions, where appropriate. (c) All Investments, Indebtedness, Liens, Guaranties and other obligations that an Unrestricted Subsidiary (the "DESIGNEE") has at the time of being designated a Restricted Subsidiary hereunder shall be deemed to have been acquired, made or incurred, as the case may be, at the time of such designation and in anticipation of such Designee becoming a Restricted Subsidiary and of acquiring its assets (except as otherwise specifically provided in SECTION 10.2(a)(vi)). SECTION 9.10. COVENANT TO SECURE NOTES EQUALLY. If the Company or any of its Subsidiaries shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of SECTIONS 10.3 and 10.4 (unless prior written consent to the creation or assumption thereof shall have been obtained pursuant to SECTION 17.1), the Company will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Indebtedness thereby secured so long as any such other Indebtedness shall be so secured (including, without limitation, the provision of any financial accommodations extended to the holders of such other Indebtedness in connection with the release of such Lien and/or the sale of any property subject thereto), it being understood that the provision of such equal and ratable security shall not constitute a cure or waiver of any related Event of Default. SECTION 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: SECTION 10.1. RATIO OF CONSOLIDATED TOTAL INDEBTEDNESS TO EBITDA. The Company will not permit Consolidated Total Indebtedness at the end of any fiscal quarter to exceed 5.25 TIMES Consolidated EBITDA for the period of the four most recent fiscal quarters ending on or prior to the date of determination. Notwithstanding any of the provisions of this Agreement, the Company will not, and will not permit any Restricted Subsidiary to, enter any transaction pursuant to SECTIONS 9.9, 10.2, 10.3(g) and (h), 10.5, 10.6(b) and (c), 10.7(c) and 10.8, if the consummation of any such transaction would result in a violation of this SECTION 10.1, calculated for such purpose as of the date on which transaction were to be consummated both immediately before and after giving effect to the consummation of such transaction. All such calculations shall be made on a PRO FORMA basis in accordance with GAAP after giving effect to any such transaction, with the ratio recomputed as at the last day of the most recently ended fiscal quarter of the Company as if such transaction had occurred on the first day of the relevant four quarter period. SECTION 10.2. LIMITATIONS ON INDEBTEDNESS. (a) The Company will not, and will not permit any Restricted Subsidiary to, create, issue, assume, guarantee or otherwise incur or in any manner become liable in respect of any Indebtedness, except: (i) Indebtedness evidenced by the Notes; (ii) Indebtedness of the Company and its Restricted Subsidiaries outstanding as of the date of the Closing and described on SCHEDULE 5.15 hereto, as supplemented by ANNEX A hereto, including, without limitation, the Indebtedness outstanding pursuant to the Credit Agreement; (iii) Indebtedness of a Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary. (iv) the Company may become and remain liable with respect to unsecured subordinated Indebtedness of the Company owing to the General Partner or an Affiliate of the General Partner, PROVIDED that (1) the aggregate principal amount of such Indebtedness outstanding at any time shall not be in excess of $50,000,000 and (2) such Indebtedness is created and is outstanding under an agreement or instrument pursuant to which such Indebtedness is subordinated to the Notes on terms satisfactory to the Required Holders; (v) the Company and any Restricted Subsidiary may become and remain liable with respect to Indebtedness, in addition to that otherwise permitted by the other clauses of this SECTION 10.2, if on the date the Company or any Restricted Subsidiary becomes liable with respect to any such additional Indebtedness and immediately after giving effect thereto and to the substantially concurrent repayment of any other Indebtedness (1) the ratio of Consolidated Cash Flow for the period of the four most recent fiscal quarters ending on or prior to the date of determination ("MEASUREMENT CASH FLOW") to Consolidated Debt Service is equal to or greater than 2.50 to 1.0, (2) the ratio of Measurement Cash Flow to Consolidated Pro Forma Maximum Debt Service is equal to or greater than 1.25 to 1.0 and (3) no Default or Event of Default would exist; (vi) the Company and any Restricted Subsidiary may become and remain liable with respect to Indebtedness relating to any business, property or assets acquired by or contributed to the Company or such Restricted Subsidiary or which is secured by a loan on any property or assets acquired by or contributed to the Company or such Restricted Subsidiary to the extent such Indebtedness existed at the time such business, property or assets were so acquired or contributed, and if such Indebtedness is secured by such property or assets, such security interest does not extend to or cover any other property of the Company or any of the Restricted Subsidiaries; PROVIDED that (1) immediately after giving effect to such acquisition or contribution, (A) the Company could incur at least $1.00 of additional Indebtedness pursuant to SECTIONS 10.2(a)(v)(1) and (2) and (B) no Default or Event of Default would exist, and (2) such Indebtedness was not incurred in anticipation of such acquisition or contribution; (vii) the Company and any Restricted Subsidiary may become and remain liable with respect to Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, PROVIDED that such Indebtedness is extinguished within two Business Days of its incurrence; (viii) any Restricted Subsidiary may become and remain liable with respect to its Subsidiary Guarantee and any Permitted Restricted Subsidiary Indebtedness; (ix) any Person that after the date of the Closing becomes a Restricted Subsidiary may become and remain liable with respect to any Indebtedness to the extent such Indebtedness existed at the time such Person became a Subsidiary; PROVIDED that (1) immediately after giving effect to such Person becoming a Restricted Subsidiary, (A) the Company could incur at least $1 of additional Indebtedness in compliance with SECTIONS 10.2(a)(v)(1) and (2) and (B) no Default or Event of Default would exist, and (2) such Indebtedness was not incurred in anticipation of such Person becoming a Subsidiary; (x) the Company and any Restricted Subsidiary may become and remain liable with respect to Indebtedness owed to any Person providing worker's compensation, health, disability or other employee benefits or property, casualty or liability insurance to the Company or any Restricted Subsidiary, pursuant to reimbursement or indemnification obligations to such Person; and (xi) the Company and any Restricted Subsidiary may become and remain liable with respect to Indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the ordinary course of business, including those incurred to secure health, safety and environmental obligations in the ordinary course of business, and any extension, renewal or refinancing thereof to the extent not provided to secure the repayment of other Indebtedness and to the extent that the amount of refinancing Indebtedness is not greater than the amount of Indebtedness being refinanced. (b) Indebtedness existing within the limitations of SECTION 10.2(a)(ii) may be renewed, extended, refinanced, replaced or refunded without regard to the limitations of SECTION 10.2(a)(v); PROVIDED that there shall be no increase in the outstanding principal amount of such Indebtedness in connection with any such renewal, extension, refinancing, replacement or refunding, excepting only that the aggregate amount of Indebtedness which may be issued and outstanding pursuant to the Credit Agreement may be increased from $125,000,000 to an amount not to exceed the sum of $175,000,000 PLUS an amount equal to the aggregate net proceeds received by the Company as consideration for the issuance by the Company of additional partnership interests or as a capital contribution. (c) Any Person which becomes a Restricted Subsidiary after the date hereof shall for all purposes of this SECTION 10.2 be deemed to have created, assumed or incurred at the time it becomes a Restricted Subsidiary all Indebtedness of such Person existing immediately after it becomes a Restricted Subsidiary. SECTION 10.3. LIMITATION ON LIENS. The Company will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their property or assets, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any property or assets upon conditional sales agreements or other title retention devices, except: (a) Liens for taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen; PROVIDED that payment thereof is not at the time required by SECTION 9.4; (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Restricted Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; (c) Liens incidental to the conduct of business or the ownership of properties and assets (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature, in any such case incurred in the ordinary course of business and not in connection with the borrowing of money; PROVIDED in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; (d) survey exceptions or minor encumbrances, leases or subleases granted to others, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real properties, which are necessary for the conduct of the activities of the Company and its Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Company and its Restricted Subsidiaries; (e) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to another Wholly-owned Restricted Subsidiary; (f) Liens existing as of the date of the Closing and described on SCHEDULE 5.15 hereto, as supplemented by ANNEX A hereto; (g) Liens created or incurred after the date of the Closing given to secure the payment of the purchase price incurred in connection with the acquisition or purchase or the cost of construction of property or of assets useful and intended to be used in carrying on the business of the Company or a Restricted Subsidiary, including Liens existing on such property or assets at the time of acquisition thereof or at the time of completion of construction, as the case may be, whether or not such existing Liens were given to secure the payment of the acquisition or purchase price or cost of construction, as the case may be, of the property or assets to which they attach; PROVIDED that (i) the Lien shall attach solely to the property or assets acquired, purchased or constructed, (ii) such Lien shall have been created or incurred within 120 days of the date of acquisition or purchase or completion of construction, as the case may be, (iii) at the time of acquisition or purchase or of completion of construction of such property or assets, the aggregate amount remaining unpaid on all Indebtedness secured by Liens on such property or assets, whether or not assumed by the Company or a Restricted Subsidiary, shall not exceed an amount equal to 100% of the lesser of the total purchase price or fair market value at the time of acquisition or purchase (as determined in good faith by the Board of Directors of the Company) or the cost of construction on the date of completion thereof, (iv) Indebtedness secured by any such Lien shall have been created or incurred within the limitations provided in SECTIONS 10.2(a)(v) (1) and (2), and (v) at the time of creation, issuance, assumption, guarantee or incurrence of the Indebtedness secured by such Lien and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist; (h) any Lien existing on property or assets of a Person at the time such Person is consolidated with or merged into the Company or a Restricted Subsidiary or its becoming a Restricted Subsidiary, or any Lien existing on any property or assets acquired by the Company or any Restricted Subsidiary at the time such property or assets are so acquired (whether or not the Indebtedness secured thereby shall have been assumed), PROVIDED that (i) each such Lien shall extend solely to the property or assets so acquired, (ii) any Indebtedness secured by any such Lien shall have been created or incurred within the limitations provided in SECTION 10.2(a)(vi); (i) Liens created or incurred after the date of the Closing given to secure Indebtedness of the Company or any Restricted Subsidiary in addition to the Liens permitted by the preceding clauses (a) through (g) hereof; PROVIDED that (i) all Indebtedness secured by such Liens shall have been incurred within the limitations provided in SECTIONS 10.2(a)(v)((1), (2) and (3) and (ii) at the time of creation, issuance, assumption, guarantee or incurrence of the Indebtedness secured by such Lien and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist; and (j) any extension, renewal or refunding of any Lien permitted by the preceding clause (f) of this SECTION 10.3 in respect of the same property theretofore subject to such Lien in connection with the extension, renewal or refunding of the Indebtedness secured thereby; PROVIDED that (i) such extension, renewal or refunding of Indebtedness shall be without increase in the principal amount remaining unpaid as of the date of such extension, renewal or refunding, (ii) such Lien shall attach solely to the same such property, and (iii) at the time of such extension, renewal or refunding and after giving effect thereto, no Default or Event of Default would exist. Notwithstanding the foregoing, the Company will not, and will not permit any Restricted Subsidiary to, create, assume or incur any Lien upon or with respect to any of its proprietary software developed by or on behalf of the Company or its Affiliates necessary and useful for the conduct of business of the Company and its Restricted Subsidiaries as described in SECTION 9.6. SECTION 10.4. PRIORITY DEBT. The Company will not permit Priority Debt at any time to exceed 25% of the Consolidated Net Worth of the Company and its Restricted Subsidiaries. SECTION 10.5. RESTRICTED PAYMENTS. The Company will not directly or indirectly declare, order, pay, make or set a part any sum for any Restricted Payment, except that the Company may declare or order and make, pay or set a part, once during each fiscal quarter a Restricted Payment if (i) such Restricted Payment is in an amount not exceeding Available Cash for the immediately preceding quarter, and (ii) no Default or Event of Default exists before or immediately after any such proposed action. SECTION 10.6. MERGERS, CONSOLIDATIONS, ETC. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or be a party to a merger with any other Person, or sell, lease or otherwise dispose of all or substantially all of its assets; PROVIDED that: (a) any Restricted Subsidiary may merge or consolidate with or into the Company or any Wholly-owned Restricted Subsidiary so long as in (i) any merger or Person involving the Company, the Company shall be the surviving or continuing Person and (ii) in any merger or consolidation involving a Wholly-owned Restricted Subsidiary (and not the Company), the Wholly-owned Restricted Subsidiary shall be the surviving or continuing Person; (b) the Company may consolidate or merge with or into any other Person if (i) the Person which results from such consolidation or merger (the "SURVIVING PERSON") is a solvent limited partnership or corporation organized under the laws of any state of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes, according to their tenor, and the due and punctual performance and observation of all of the covenants in the Notes and this Agreement to be performed or observed by the Company are expressly assumed in writing by the surviving Person and the surviving Person shall furnish to the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the surviving Person enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, (iii) each Subsidiary Guarantor shall have affirmed in writing its obligations under the Subsidiary Guaranty, and (iv) at the time of such consolidation or merger and immediately after giving effect thereto, (1) no Default or Event of Default would exist and (2) the surviving Person would be permitted by the provisions of SECTIONS 10.2(a)(v)(1) and (2) to incur at least $1.00 of additional Indebtedness; (c) the Company may sell or otherwise dispose of all or substantially all of its assets (other than as provided in SECTION 10.7(b) and (c)) to any Person for consideration which represents the fair market value of such assets (as determined in good faith by the Board of Directors of the Company) at the time of such sale or other disposition if (i) the acquiring Person is a solvent limited partnership or corporation organized under the laws of any state of the United States or the District of Columbia, (ii) the due and punctual payment of the principal of and premium, if any, and interest on all the Notes, according to their tenor, and the due and punctual performance and observance of all of the covenants in the Notes and in this Agreement to be performed or observed by the Company are expressly assumed in writing by the acquiring Person and the acquiring Person shall furnish to the holders of the Notes an opinion of counsel satisfactory to such holders to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of such acquiring Person enforceable in accordance with its terms, except as enforcement of such terms may be limited by bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by general equitable principles, (iii) each Subsidiary Guarantor shall have affirmed in writing its obligations under the Subsidiary Guaranty, and (iv) at the time of such sale or disposition and immediately after giving effect thereto, (1) no Default or Event of Default would exist and (2) the acquiring Person would be permitted by the provisions of SECTION 10.2(a)(v)(1) and (2) to incur at least $1.00 of additional Indebtedness. SECTION 10.7. SALE OF ASSETS. The Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer, abandon or otherwise dispose of assets (except assets sold in the ordinary course of business for fair market value and except as provided in SECTION 10.6(c)); PROVIDED that the foregoing restrictions do not apply to: (a) the sale, lease, transfer or other disposition of assets of a Restricted Subsidiary to the Company or a Wholly-owned Restricted Subsidiary; or (b) the sale of accounts or notes receivable: (1) without recourse, which are seriously past due and which have been substantially written-off as uncollectable or collectable only after extended delays or (2) made in connection with the sale of a business, but only with respect to the receivables directly generated by the business so sold; or (c) the sale of assets for cash or other property to a Person or Persons other than an Affiliate if all of the following conditions are met: (1) such assets (valued at net book value) do not, together with all other assets of the Company and its Restricted Subsidiaries previously disposed of during the same fiscal year (other than in the ordinary course of business), exceed 15% of Consolidated Total Assets determined as of the end of the immediately preceding fiscal year; (2) in the opinion of the Company's Board of Directors, the sale is for fair value and is in the best interests of the Company; and (3) immediately after the consummation of the transaction and after giving effect thereto, no Default or Event of Default would exist; PROVIDED, HOWEVER, that for purposes of the foregoing calculation, there shall not be included any assets the proceeds of which were or are applied within twelve months of the date of sale of such assets to either (A) the acquisition of assets useful and intended to be used in the operation of the business of the Company and its Restricted Subsidiaries as described in SECTION 9.6 and having a fair market value (as determined in good faith by the Board of Directors of the Company) at least equal to that of the assets so disposed of or (B) the prepayment at any applicable prepayment premium, on a PRO RATA basis, of Senior Indebtedness of the Company. It is understood and agreed by the Company that any such proceeds paid and applied to the prepayment of the Notes as hereinabove provided shall be prepaid as and to the extent provided in SECTION 8.2. SECTION 10.8. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate; PROVIDED that this SECTION 10.8 shall not apply to (a) Restricted Payments permitted under SECTION 10.5, (b) indemnification of and contribution to all Persons entitled to indemnification or contribution under SECTION 7.14 of the Company Partnership Agreement (as in effect on the date of the Closing) to the extent such indemnification or contribution arises from business or activities in connection with the business of the Company and the Restricted Subsidiaries as described in SECTION 9.6 (including Securities issuances in connection with the funding of such business) or (c) transactions between the Company and any Wholly-owned domestic Subsidiary, or between Wholly-owned domestic Subsidiaries or between Wholly-owned foreign Subsidiaries. SECTION 10.9. MATERIAL AGREEMENTS; TAX STATUS. The Company will not: (a) amend or modify in any manner adverse to the holders of the Notes, or grant any waiver or release under (if such action shall be adverse to the holders of the Notes), any Partnership Document or terminate in any manner any Partnership Document; or (b) permit the Partnership or the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes. SECTION 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in SECTIONS 10.1 through 10.7; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this SECTION 11) and such default is not remedied within 45 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of SECTION 11); or (e) any representation or warranty made in writing by or on behalf of the Company or a Subsidiary Guarantor or by any officer of the Company or a Subsidiary Guarantor in this Agreement or the Subsidiary Guaranty or in any writing furnished in connection with the transactions contemplated hereby or thereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto; or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment; or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (1) the Company or any Restricted Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000, or (2) one or more Persons have the right to require the Company or any Restricted Subsidiary so to purchase or repay such Indebtedness; or (iv) any event of default shall occur and be continuing under the 1996 Note Agreement; or (g) the Company or any Significant Subsidiary Group (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes limited partnership or corporate action for the purpose of any of the foregoing; or (h) a court or Governmental Authority of competent jurisdiction enters an order appointing, without consent by the Company or any Significant Subsidiary Group, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Significant Subsidiary Group, or any such petition shall be filed against the Company or any Significant Subsidiary Group and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 (excluding for purposes of such determination such amount of any insurance proceeds paid by or on behalf of the Company or any Significant Subsidiary Group in respect of such judgment or judgments or unconditionally acknowledged in writing to be payable by the insurance carrier that issued the related insurance policy) are rendered against one or more of the Company and any Significant Subsidiary Group and which judgments are not, within 45 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 45 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA SECTION 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of SECTION 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $60,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Restricted Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Restricted Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or (k) any Subsidiary Guaranty shall cease to be in full force and effect for any reason whatsoever (other than pursuant to SECTION 2.2(c) or a transaction permitted by SECTION 10.6(a), 10.7(a) or 10.7(c)), including, without limitation, a determination by any Governmental Authority that such Subsidiary Guaranty is invalid, void or unenforceable or any Subsidiary Guarantor which is a party to such Subsidiary Guaranty shall contest or deny in writing the validity or enforceability of any of its obligations under such Subsidiary Guaranty. As used in SECTION 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in SECTION 3 of ERISA. SECTION 12. REMEDIES ON DEFAULT, ETC. SECTION 12.1. ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of SECTION 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 50.1% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of SECTION 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Note's becoming due and payable under this SECTION 12.1, whether automatically or by declaration, such Note will forthwith mature and the entire unpaid principal amount of such Note, plus (i) all accrued and unpaid interest thereon and (ii) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for), and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. SECTION 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under SECTION 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. SECTION 12.3. RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of SECTION 12.1, the holders of not less than 55% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to SECTION 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this SECTION 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. SECTION 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under SECTION 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this SECTION 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. SECTION 12.5. RECOURSE ONLY TO THE COMPANY AND THE SUBSIDIARY GUARANTORS; NON-RECOURSE TO THE GENERAL PARTNER AND ASSOCIATED PERSONS. Each holder of the Notes agrees on behalf of itself and its successors, assigns and legal representatives that neither the General Partner nor any Person which is a partner, shareholder, unitholder, member, owner, officer, director, supervisor, trustee or other principal (collectively, "ASSOCIATED PERSONS") of the Company, the General Partner or any of their respective successors or assigns shall have any personal liability for the payment or performance of any of the Company's obligations hereunder or under any of the Notes and no monetary or other judgment shall be sought or enforced against the General Partner or any of the Associated Persons of the Company, the General Partner or any of their respective successors or assigns. Notwithstanding the foregoing, no holder of the Notes shall be deemed barred from asserting (by waiver or otherwise) any claim against any Person based upon an allegation of fraud or misrepresentation. SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. SECTION 13.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. SECTION 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of EXHIBIT 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $1,000,000; PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $1,000,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in SECTION 6.2. SECTION 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (PROVIDED that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $25,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. SECTION 14. PAYMENTS ON NOTES. SECTION 14.1. PLACE OF PAYMENT. Subject to SECTION 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of JPMorgan Chase Bank in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. SECTION 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in SECTION 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in SCHEDULE A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to SECTION 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to SECTION 13.2. The Company will afford the benefits of this SECTION 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this SECTION 14.2. SECTION 15. EXPENSES, ETC. SECTION 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement, the Notes, the Subsidiary Guaranty or the Intercreditor Agreement (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes, the Subsidiary Guaranty or the Intercreditor Agreement or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes, the Subsidiary Guaranty or the Intercreditor Agreement, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes, the Subsidiary Guaranty and the Intercreditor Agreement. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those retained by you). SECTION 15.2. SURVIVAL. The obligations of the Company under this SECTION 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or in the Subsidiary Guaranty shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company or any Subsidiary Guarantor pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement, the Notes, the Subsidiary Guaranty and the Intercreditor Agreement embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. SECTION 17. AMENDMENT AND WAIVER. SECTION 17.1. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of SECTION 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of SECTION 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of SECTION 8, 11(a), 11(b), 12, 17 or 20. The Subsidiary Guaranty and the Intercreditor Agreement may be amended and the observance of any term thereof may be waived pursuant to the terms thereof. SECTION 17.2. SOLICITATION OF HOLDERS OF NOTES. (a) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this SECTION 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. SECTION 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this SECTION 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. SECTION 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. SECTION 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in SCHEDULE A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Vice President, Finance and Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this SECTION 18 will be deemed given only when actually received. SECTION 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This SECTION 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. SECTION 20. CONFIDENTIAL INFORMATION. For the purposes of this SECTION 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Restricted Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified in writing when received by you as being confidential information of the Company or such Restricted Subsidiary; PROVIDED that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any Person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Restricted Subsidiary or (d) constitutes financial statements delivered to you under SECTION 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you; PROVIDED that you may deliver or disclose Confidential Information to (i) your directors, trustees, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this SECTION 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this SECTION 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this SECTION 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this SECTION 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this SECTION 20. SECTION 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in SECTION 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this SECTION 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this SECTION 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. SECTION 22. MISCELLANEOUS. SECTION 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. SECTION 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall be included in the computation of the interest payable on such Business Day. SECTION 22.3. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 22.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made by the Company for the purposes of this Agreement, the same shall be done by the Company in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. SECTION 22.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. SECTION 22.6. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. * * * * * If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, SUBURBAN PROPANE, L.P. By /s/ Mark A. Alexander --------------------- Mark A. Alexander President and Chief Executive Officer Accepted as of . --------------------- [VARIATION] By ---------------------------------------- Its ------------------------------------- EX-10 4 ex10f.txt EX-10(F) SUBSIDIARY GUARANTY AGREEMENT EXHIBIT 10(f) ------------- ================================================================================ SUBSIDIARY GUARANTY AGREEMENT Dated as of July 1, 2002 Re: $42,500,000 7.37% Senior Notes due June 30, 2012 of Suburban Propane, L.P. ================================================================================ TABLE OF CONTENTS (Not a part of the Agreement) SECTION HEADING PAGE Parties....................................................................1 Recitals...................................................................1 SECTION 1. DEFINITIONS..................................................2 SECTION 2. GUARANTY OF NOTES AND NOTE PURCHASE AGREEMENTS...............2 SECTION 3. GUARANTY OF PAYMENT AND PERFORMANCE..........................2 SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY..................3 SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS.............8 SECTION 6. GUARANTOR COVENANTS..........................................9 SECTION 7. PAYMENTS FREE AND CLEAR OF TAXES.............................9 SECTION 8. GOVERNING LAW................................................10 SECTION 9. JUDGMENTS....................................................10 SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS.............................11 SECTION 11. NOTICES......................................................12 SECTION 12. MISCELLANEOUS................................................12 SECTION 13. INDEMNITY....................................................13 Signature..................................................................14 -i- SUBSIDIARY GUARANTY AGREEMENT Re: $42,500,000 7.37% Senior Notes due June 30, 2012 This SUBSIDIARY GUARANTY AGREEMENT dated as of July 1, 2002 (the or this "GUARANTY") is entered into on a joint and several basis by each of the undersigned, together with any entity which may become a party hereto by execution and delivery of a Subsidiary Guaranty Supplement in substantially the form set forth as EXHIBIT A hereto (a "GUARANTY SUPPLEMENT") (which parties are hereinafter referred to individually as a "GUARANTOR" and collectively as the "GUARANTORS"). RECITALS A. Each Guarantor is a subsidiary of SUBURBAN PROPANE, L.P., a Delaware limited partnership (the "COMPANY"). B. In order to refinance certain Indebtedness, the Company has entered into those certain Note Purchase Agreements dated as of April 19, 2002 (the "NOTE PURCHASE AGREEMENTS") between the Company and each of the purchasers named on Schedule A thereto (the "INITIAL NOTE PURCHASERS"; the Initial Note Purchasers, together with their successors, assigns or any other future holder of the Notes (as defined below), the "HOLDERS"), providing for, INTER ALIA, the issue and sale by the Company to the Initial Note Purchasers of $42,500,000 7.37% Senior Notes due June 30, 2012 (the "NOTES"). C. The Initial Note Purchasers have required as a condition to their purchase of the Notes that the Company cause each of the undersigned to enter into this Guaranty and to cause each Subsidiary (as defined in the Note Purchase Agreements) that after the date hereof delivers a guaranty pursuant to the Bank Credit Agreement (as defined in the Note Purchase Agreements) to enter into a Guaranty Supplement, in each case as security for the Notes, and the Company has agreed to cause each of the undersigned to execute this Guaranty and to cause such Subsidiaries to execute a Guaranty Supplement, in each case in order to induce the Initial Note Purchasers to purchase the Notes and thereby benefit the Company and its Subsidiaries by providing funds to finance acquisitions and for general corporate purposes. D. Each of the Guarantors will derive substantial direct and indirect benefit from the sale of the Notes to the Initial Note Purchasers. NOW, THEREFORE, as required by Section 4.10 of the Note Purchase Agreements and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, each Guarantor does hereby covenant and agree, jointly and severally, as follows: SECTION 1. DEFINITIONS. Capitalized terms used herein shall have the meanings set forth in the Note Purchase Agreements unless herein defined or the context shall otherwise require. SECTION 2. GUARANTY OF NOTES AND NOTE PURCHASE AGREEMENTS. (a) Each Guarantor jointly and severally does hereby irrevocably, absolutely and unconditionally guarantee unto the Holders: (1) the full and prompt payment of the principal of, premium, if any, and interest on the Notes from time to time outstanding, as and when such payments shall become due and payable whether by lapse of time, upon redemption or prepayment, by extension or by acceleration or declaration or otherwise (including (to the extent legally enforceable) interest due on overdue payments of principal, premium, if any, or interest at the rate set forth in the Notes) in Federal or other immediately available funds of the United States of America which at the time of payment or demand therefor shall be legal tender for the payment of public and private debts, (2) the full and prompt performance and observance by the Company of each and all of the obligations, covenants and agreements required to be performed or owed by the Company under the terms of the Notes and the Note Purchase Agreements and (3) the full and prompt payment, upon demand by any Holder of all costs and expenses, legal or otherwise (including reasonable attorneys' fees), if any, as shall have been expended or incurred in the enforcement of any rights, privileges or liabilities in favor of the Holders under or in respect of the Notes, the Note Purchase Agreements or under this Guaranty or in any consultation or action in connection therewith or herewith. (b) The liability of each Guarantor under this Guaranty shall not exceed an amount equal to a maximum amount as will, after giving effect to such maximum amount and all other liabilities of such Guarantor, contingent or otherwise, result in the obligations of such Guarantor hereunder not constituting a fraudulent transfer, obligation or conveyance. SECTION 3. GUARANTY OF PAYMENT AND PERFORMANCE. This is a guarantee of payment and performance and each Guarantor hereby waives, to the fullest extent permitted by law, any right to require that any action on or in respect of any Note or the Note Purchase Agreements be brought against the Company or any other Person or that resort be had to any direct or indirect security for the Notes or for this Guaranty or any other remedy. Any Holder may, at its option, proceed hereunder against any Guarantor in the first instance to collect monies when due, the payment of which is guaranteed hereby, without first proceeding against the Company or any other Person and without first resorting to any direct or indirect security for the Notes or for this Guaranty or any other remedy. The liability of each Guarantor hereunder shall in no way be affected or impaired by any acceptance by any Holder of any direct or indirect security for, or other guaranties of, any Indebtedness, liability or obligation of the Company or any other Person to any Holder or by any failure, delay, neglect or omission by any Holder to realize upon or protect any such guarantees, Indebtedness, liability or obligation or any notes or other instruments evidencing the same or any direct or indirect security therefor or by any approval, consent, waiver, or other action taken, or omitted to be taken by any such Holder. The covenants and agreements on the part of the Guarantors herein contained shall take effect as joint and several covenants and agreements, and references to the Guarantors shall take effect as references to each of them and none of them shall be released from liability hereunder by reason of the guarantee ceasing to be binding as a continuing security on any other of them. SECTION 4. GENERAL PROVISIONS RELATING TO THE GUARANTY. (a) Each Guarantor hereby consents and agrees that any Holder or Holders from time to time, with or without any further notice to or assent from any other Guarantor may, without in any manner affecting the liability of any Guarantor under this Guaranty, and upon such terms and conditions as any such Holder or Holders may deem advisable: (1) extend in whole or in part (by renewal or otherwise), modify, change, compromise, release or extend the duration of the time for the performance or payment of any Indebtedness, liability or obligation of the Company or of any other Person secondarily or otherwise liable for any Indebtedness, liability or obligations of the Company on the Notes, or waive any Default with respect thereto, or waive, modify, amend or change any provision of any other agreement or waive this Guaranty; or (2) sell, release, surrender, modify, impair, exchange or substitute any and all property, of any nature and from whomsoever received, held by, or for the benefit of, any such Holder as direct or indirect security for the payment or performance of any Indebtedness, liability or obligation of the Company or of any other Person secondarily or otherwise liable for any Indebtedness, liability or obligation of the Company on the Notes; or (3) settle, adjust or compromise any claim of the Company against any other Person secondarily or otherwise liable for any Indebtedness, liability or obligation of the Company on the Notes. Each Guarantor hereby ratifies and confirms any such extension, renewal, change, sale, release, waiver, surrender, exchange, modification, amendment, impairment, substitution, settlement, adjustment or compromise and that the same shall be binding upon it, and hereby waives, to the fullest extent permitted by law, any and all defenses, counterclaims or offsets which it might or could have by reason thereof, it being understood that such Guarantor shall at all times be bound by this Guaranty and remain liable hereunder. (b) Each Guarantor hereby waives, to the fullest extent permitted by law: (1) notice of acceptance of this Guaranty by the Holders or of the creation, renewal or accrual of any liability of the Company, present or future, or of the reliance of such Holders upon this Guaranty (it being understood that every Indebtedness, liability and obligation described in SECTION 2 hereof shall conclusively be presumed to have been created, contracted or incurred in reliance upon the execution of this Guaranty); (2) demand of payment by any Holder from the Company or any other Person indebted in any manner on or for any of the Indebtedness, liabilities or obligations hereby guaranteed; and (3) presentment for the payment by any Holder or any other Person of the Notes or any other instrument, protest thereof and notice of its dishonor to any party thereto and to such Guarantor. The obligations of each Guarantor under this Guaranty and the rights of any Holder to enforce such obligations by any proceedings, whether by action at law, suit in equity or otherwise, shall not be subject to any reduction, limitation, impairment or termination, whether by reason of any claim of any character whatsoever or otherwise and shall not be subject to any defense, set-off, counterclaim (other than any compulsory counterclaim), recoupment or termination whatsoever. (c) The obligations of the Guarantors hereunder shall be binding upon the Guarantors and their successors and assigns, and shall remain in full force and effect irrespective of: (1) the genuineness, validity, regularity or enforceability of the Notes, the Note Purchase Agreements or any other agreement or any of the terms of any thereof, the continuance of any obligation on the part of the Company or any other Person on or in respect of the Notes or under the Note Purchase Agreements or any other agreement or the power or authority or the lack of power or authority of the Company to issue the Notes or the Company to execute and deliver the Note Purchase Agreements or any other agreement or of any Guarantor to execute and deliver this Guaranty or to perform any of its obligations hereunder or the existence or continuance of the Company or any other Person as a legal entity; or (2) any default, failure or delay, willful or otherwise, in the performance by the Company, any Guarantor or any other Person of any obligations of any kind or character whatsoever under the Notes, the Note Purchase Agreements, this Guaranty or any other agreement; or (3) any creditors' rights, bankruptcy, receivership or other insolvency proceeding of the Company, any Guarantor or any other Person or in respect of the property of the Company, any Guarantor or any other Person or any merger, consolidation, reorganization, dissolution, liquidation, the sale of all or substantially all of the assets of or winding up of the Company, any Guarantor or any other Person; or (4) impossibility or illegality of performance on the part of the Company, any Guarantor or any other Person of its obligations under the Notes, the Note Purchase Agreements, this Guaranty or any other agreements; or (5) in respect of the Company or any other Person, any change of circumstances, whether or not foreseen or foreseeable, whether or not imputable to the Company or any other Person, or other impossibility of performance through fire, explosion, accident, labor disturbance, floods, droughts, embargoes, wars (whether or not declared), civil commotion, acts of God or the public enemy, delays or failure of suppliers or carriers, inability to obtain materials, action of any Federal or state regulatory body or agency, change of law or any other causes affecting performance, or any other FORCE MAJEURE, whether or not beyond the control of the Company or any other Person and whether or not of the kind hereinbefore specified; or (6) any attachment, claim, demand, charge, Lien, order, process, encumbrance or any other happening or event or reason, similar or dissimilar to the foregoing, or any withholding or diminution at the source, by reason of any taxes, assessments, expenses, Indebtedness, obligations or liabilities of any character, foreseen or unforeseen, and whether or not valid, incurred by or against the Company, any Guarantor or any other Person or any claims, demands, charges or Liens of any nature, foreseen or unforeseen, incurred by the Company, any Guarantor or any other Person, or against any sums payable in respect of the Notes or under the Note Purchase Agreements or this Guaranty, so that such sums would be rendered inadequate or would be unavailable to make the payments herein provided; or (7) any order, judgment, decree, ruling or regulation (whether or not valid) of any court of any nation or of any political subdivision thereof or any body, agency, department, official or administrative or regulatory agency of any thereof or any other action, happening, event or reason whatsoever which shall delay, interfere with, hinder or prevent, or in any way adversely affect, the performance by the Company, any Guarantor or any other Person of its respective obligations under or in respect of the Notes, the Note Purchase Agreements, this Guaranty or any other agreement; or (8) the failure of any Guarantor to receive any benefit from or as a result of its execution, delivery and performance of this Guaranty; or (9) any failure or lack of diligence in collection or protection, failure in presentment or demand for payment, protest, notice of protest, notice of default and of nonpayment, any failure to give notice to any Guarantor of failure of the Company, any Guarantor or any other Person to keep and perform any obligation, covenant or agreement under the terms of the Notes, the Note Purchase Agreements, this Guaranty or any other agreement or failure to resort for payment to the Company, any Guarantor or to any other Person or to any other guaranty or to any property, security, Liens or other rights or remedies; or (10) the acceptance of any additional security or other guaranty, the advance of additional money to the Company or any other Person, the renewal or extension of the Notes or amendments, modifications, consents or waivers with respect to the Notes, the Note Purchase Agreements or any other agreement, or the sale, release, substitution or exchange of any security for the Notes; or (11) any merger or consolidation of the Company, any Guarantor or any other Person into or with any other Person or any sale, lease, transfer or other disposition of any of the assets of the Company, any Guarantor or any other Person to any other Person, or any change in the ownership of any shares of the Company, any Guarantor or any other Person; or (12) any defense whatsoever that: (i) the Company or any other Person might have to the payment of the Notes (principal, premium, if any, or interest), other than payment thereof in Federal or other immediately available funds, or (ii) the Company or any other Person might have to the performance or observance of any of the provisions of the Notes, the Note Purchase Agreements or any other agreement, whether through the satisfaction or purported satisfaction by the Company or any other Person of its debts due to any cause such as bankruptcy, insolvency, receivership, merger, consolidation, reorganization, dissolution, liquidation, winding-up or otherwise, other than the defense of indefeasible payment in full in cash of the Notes; or (13) any act or failure to act with regard to the Notes, the Note Purchase Agreements, this Guaranty or any other agreement or anything which might vary the risk of any Guarantor or any other Person; or (14) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Guarantor or any other Person in respect of the obligations of any Guarantor or other Person under this Guaranty or any other agreement, other than the defense of indefeasible payment in full in cash of the Notes; PROVIDED that the specific enumeration of the above-mentioned acts, failures or omissions shall not be deemed to exclude any other acts, failures or omissions, though not specifically mentioned above, it being the purpose and intent of this Guaranty and the parties hereto that the obligations of each Guarantor shall be absolute and unconditional and shall not be discharged, impaired or varied except by the payment of the principal of, premium, if any, and interest on the Notes in accordance with their respective terms whenever the same shall become due and payable as in the Notes provided, at the place specified in and all in the manner and with the effect provided in the Notes and the Note Purchase Agreements, as each may be amended or modified from time to time. Without limiting the foregoing, it is understood that repeated and successive demands may be made and recoveries may be had hereunder as and when, from time to time, the Company shall default under or in respect of the terms of the Notes or the Note Purchase Agreements and that notwithstanding recovery hereunder for or in respect of any given default or defaults by the Company under the Notes or the Note Purchase Agreements, this Guaranty shall remain in full force and effect and shall apply to each and every subsequent default. (d) All rights of any Holder may be transferred or assigned at any time and shall be considered to be transferred or assigned at any time or from time to time upon the transfer of such Note whether with or without the consent of or notice to the Guarantors under this Guaranty or to the Company. (e) To the extent of any payments made under this Guaranty, the Guarantors shall be subrogated to the rights of the Holder or Holders upon whose Notes such payment was made, but each Guarantor covenants and agrees that such right of subrogation shall be junior and subordinate in right of payment to the prior indefeasible final payment in cash in full of all amounts due and owing by the Company with respect to the Notes and the Note Purchase Agreements and by the Guarantors under this Guaranty, and the Guarantors shall not take any action to enforce such right of subrogation, and the Guarantors shall not accept any payment in respect of such right of subrogation, until all amounts due and owing by the Company under or in respect of the Notes and the Note Purchase Agreements and all amounts due and owing by the Guarantors hereunder have indefeasibly been finally paid in cash in full. If any amount shall be paid to any Guarantor in violation of the preceding sentence at any time prior to the indefeasible payment in cash in full of the Notes and all other amounts payable under the Notes, the Note Purchase Agreements and this Guaranty, such amount shall be held in trust for the benefit of the Holders and shall forthwith be paid to the Holders to be credited and applied to the amounts due or to become due with respect to the Notes and all other amounts payable under the Note Purchase Agreements and this Guaranty, whether matured or unmatured. (f) To the extent of any payments made under this Guaranty, each Guarantor making such payment shall have a right of contribution from the other Guarantors, but such Guarantor covenants and agrees that such right of contribution shall be subordinate in right of payment to the rights of the Holders for which full payment has not been made or provided for and, to that end, such Guarantor agrees not to claim or enforce any such right of contribution unless and until all of the Notes and all other sums due and payable under the Note Purchase Agreements have been fully and irrevocably paid and discharged. (g) Each Guarantor agrees that to the extent the Company or any other Person makes any payment on any Note, which payment or any part thereof is subsequently invalidated, voided, declared to be fraudulent or preferential, set aside, recovered, rescinded or is required to be retained by or repaid to a trustee, receiver, or any other Person under any bankruptcy code, common law, or equitable cause, then and to the extent of such payment, the obligation or the part thereof intended to be satisfied shall be revived and continued in full force and effect with respect to the Guarantors' obligations hereunder, as if said payment had not been made. The liability of the Guarantors hereunder shall not be reduced or discharged, in whole or in part, by any payment to any Holder from any source that is thereafter paid, returned or refunded in whole or in part by reason of the assertion of a claim of any kind relating thereto, including, but not limited to, any claim for breach of contract, breach of warranty, preference, illegality, invalidity, or fraud asserted by any account debtor or by any other Person. (h) No Holder shall be under any obligation: (1) to marshal any assets in favor of the Guarantors or in payment of any or all of the liabilities of the Company under or in respect of the Notes or the obligations of the Guarantors hereunder or (2) to pursue any other remedy that the Guarantors may or may not be able to pursue themselves and that may lighten the Guarantors' burden, any right to which each Guarantor hereby expressly waives. SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS. Each Guarantor represents and warrants to each Holder that: (a) Such Guarantor is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on (1) the business, operations, affairs, financial condition, assets or properties of such Guarantor and its subsidiaries, taken as a whole, or (2) the ability of such Guarantor to perform its obligations under this Guaranty, or (3) the validity or enforceability of this Guaranty (herein in this SECTION 5, a "MATERIAL ADVERSE EFFECT"). Such Guarantor has the power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Guaranty and to perform the provisions hereof. (b) This Guaranty has been duly authorized by all necessary action on the part of such Guarantor, and this Guaranty constitutes a legal, valid and binding obligation of such Guarantor enforceable against such Guarantor in accordance with its terms, except as such enforceability may be limited by (1) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (2) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) The execution, delivery and performance by such Guarantor of this Guaranty will not (1) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Guarantor or any of its subsidiaries under any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, charter document or by-law, or any other agreement or instrument to which such Guarantor or any of its subsidiaries is bound or by which such Guarantor or any of its subsidiaries or any of their respective properties may be bound or affected, (2) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Guarantor or any of its subsidiaries or (3) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the such Guarantor or any of its subsidiaries. (d) No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by such Guarantor of this Guaranty. (e) Such Guarantor is solvent, has capital not unreasonably small in relation to its business or any contemplated or undertaken transaction and has assets having a value both at fair valuation and at present fair salable value greater than the amount required to pay its debts as they become due and greater than the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured. Such Guarantor does not intend to incur, or believe or should have believed that it will incur, debts beyond its ability to pay such debts as they become due. Such Guarantor will not be rendered insolvent by the execution and delivery of, and performance of its obligations under, this Guaranty. Such Guarantor does not intend to hinder, delay or defraud its creditors by or through the execution and delivery of, or performance of its obligations under, this Guaranty. SECTION 6. GUARANTOR COVENANTS. From and after the date of issuance of the Notes by the Company and continuing so long as any amount remains unpaid thereon each Guarantor agrees to comply with the terms and provisions of Sections 9.1, 9.2, 9.3, 9.4 and 9.5 of the Note Purchase Agreements, insofar as such provisions apply to such Guarantor, as if said Sections were set forth herein in full. SECTION 7. PAYMENTS FREE AND CLEAR OF TAXES. Each payment by any Guarantor shall be made, under all circumstances, without setoff, counterclaim or reduction for, and free from and clear of, and without deduction for or because of, any and all present or future taxes, levies, imposts, duties, fees, charges, deductions, withholding, restrictions or conditions of any nature whatsoever (hereinafter called "RELEVANT TAXES") imposed, levied, collected, assessed, deducted or withheld by the government of any country or jurisdiction (or any authority therein or thereof) other than the United States of America from or through which payments hereunder or on or in respect of the Notes are actually made (each a "TAXING JURISDICTION"), unless such imposition, levy, collection, assessment, deduction, withholding or other restriction or condition is required by law. If a Guarantor is required by law to make any payment under this Guaranty subject to such deduction, withholding or other restriction or condition, then such Guarantor shall forthwith (i) pay over to the government or taxing authority imposing such tax the full amount required to be deducted, withheld from or otherwise paid by such Guarantor (including the full amount required to be deducted or withheld from or otherwise paid by such Guarantor in respect of the Tax Indemnity Amounts (as defined below)); (ii) pay each Holder such additional amounts ("TAX INDEMNITY AMOUNTS") as may be necessary in order that the net amount of every payment made to each Holder, after provision for payment of such Relevant Taxes (including any required deduction, withholding or other payment of tax on or with respect to such Tax Indemnity Amounts), shall be equal to the amount which such holder would have received had there been no imposition, levy, collection, assessment, deduction, withholding or other restriction or condition. Notwithstanding the provisions of this SECTION 7, no such Tax Indemnity Amounts shall be payable for or on account of any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure of the Holder to complete, execute and deliver to such Guarantor any form or document to the extent applicable to such Holder that may be required by law or by reason of administration of such law and which is reasonably requested in writing to be delivered by such Guarantor in order to enable such Guarantor to make payments pursuant to this SECTION 7 without deduction or withholding for taxes, assessments or governmental charges, or with deduction or withholding of such lesser amount, which form or document shall be delivered within one hundred twenty days of a written request therefor by such Guarantor. If in connection with the payment of any such Tax Indemnity Amounts, any Holder that is a United States person within the meaning of the Code or a foreign person engaged in a trade or business within the United States of America, incurs taxes imposed by the United States of America or any political subdivision or taxing authority therein ("UNITED STATES TAXES") on such Tax Indemnity Amounts, such Guarantor shall pay to such Holder such further amount as will insure that the net amount actually received by that Holder (taking into account any withholding or deduction in respect of any such further amount) is equal to the amount which such Holder would have received after all United States Taxes on such Tax Indemnity Amounts and on any further amount had such withholding or deduction not been made. SECTION 8. GOVERNING LAW. (A) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE THEREIN. (b) Each Guarantor hereby (i) irrevocably submits and consents to the jurisdiction of the federal court located within the County of New York, State of New York (or if such court lacks jurisdiction, the State courts located therein), and irrevocably agrees that all actions or proceedings relating to this Guaranty may be litigated in such courts, and (ii) waives any objection which it may have based on improper venue or FORUM NON CONVENIENS to the conduct of any proceeding in any such court and waives personal service of any and all process upon it, and (iii) consents that all such service of process be made by delivery to it at the address of such Person set forth in SECTION 11 below and that service so made shall be deemed to be completed upon actual receipt. Nothing contained in this section shall affect the right of any Holder to serve legal process in any other manner permitted by law or to bring any action or proceeding in the courts of any jurisdiction against a Guarantor or to enforce a judgment obtained in the courts of any other jurisdiction. (c) The parties hereto waive any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise, between them arising out of, connected with, related to or incidental to the relationship established between them in connection with this Guaranty, any financing agreement, any loan party document or any other instrument, document or agreement executed or delivered in connection herewith or the transactions related hereto. The parties hereto hereby agree and consent that any such claim, demand, action or cause of action shall be decided by court trial without a jury and that any of them may file an original counterpart or a copy of this Guaranty with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury. SECTION 9. JUDGMENTS. Any payment made by a Guarantor to any Holder for the account of any such holder in respect of any amount payable by such Guarantor shall be made in the lawful currency of the United States of America ("U.S. DOLLARS"). Any amount received or recovered by such holder other than in U.S. Dollars (whether as a result of, or of the enforcement of, a judgment or order of any court, or in the liquidation or dissolution of such Guarantor or otherwise) in respect of any such sum expressed to be due hereunder or under the Notes shall constitute a discharge of such Guarantor only to the extent of the amount of U.S. Dollars which such Holder is able, in accordance with normal banking procedures, to purchase with the amount so received or recovered in that other currency on the date of the receipt or recovery (or, if it is not practicable to make that purchase on such date, on the first date on which it is practicable to do so). If the amount of U.S. Dollars so purchased is less than the amount of U.S. Dollars expressed to be due hereunder or under the Notes, the Company shall indemnify such Holder against any loss sustained by such holder as a result, and in any event, such Guarantor shall indemnify such holder against the cost of making any such purchase. These indemnities shall constitute a separate and independent obligation from the other obligations herein, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any such holder, shall continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any such sum due hereunder or any judgment or order and shall survive the payment of the Notes and the termination of this Guaranty. SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS. (a) This Guaranty may be amended, and the observance of any term hereof may be waived (either retroactively or prospectively), with (and only with) the written consent of each Guarantor and the Required Holders. (b) The Guarantors will provide each Holder (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such Holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof. The Guarantors will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this SECTION 10 to each Holder promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite Holders. (c) The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of fee or otherwise, or grant any security, to any Holder as consideration for or as an inducement to the entering into by any Holder of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each Holder even if such Holder did not consent to such waiver or amendment. (d) Any amendment or waiver consented to as provided in this SECTION 10 applies equally to all Holders and is binding upon them and upon each future holder and upon the Guarantors. No such amendment or waiver will extend to or affect any obligation, covenant or agreement not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Guarantors and any Holder nor any delay in exercising any rights hereunder shall operate as a waiver of any rights of any Holder. As used herein, the term "this Guaranty" and references thereto shall mean this Guaranty as it may from time to time be amended or supplemented. (e) Solely for the purpose of determining whether the Holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Guaranty, Notes directly or indirectly owned by any Guarantor, the Company or any of their respective subsidiaries or Affiliates shall be deemed not to be outstanding. SECTION 11. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (1) if to an Initial Note Purchaser or such Initial Note Purchaser's nominee, to such Initial Note Purchaser or such Initial Note Purchaser's nominee at the address specified for such communications in Schedule A to the Note Purchase Agreements, or at such other address as such Initial Note Purchaser or such Initial Note Purchaser's nominee shall have specified to any Guarantor or the Company in writing, (2) if to any other Holder, to such Holder at such address as such Holder shall have specified to any Guarantor or the Company in writing, or (3) if to any Guarantor, to such Guarantor c/o the Company at its address set forth at the beginning of the Note Purchase Agreements to the attention of Chief Financial Officer, or at such other address as such Guarantor shall have specified to the Holders in writing. Notices under this SECTION 11 will be deemed given only when actually received. SECTION 12. MISCELLANEOUS. (a) No remedy herein conferred upon or reserved to any Holder is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Guaranty now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle any Holder to exercise any remedy reserved to it under the Guaranty, it shall not be necessary for such Holder to physically produce its Note in any proceedings instituted by it or to give any notice, other than such notice as may be herein expressly required. (b) The Guarantors will pay all sums becoming due under this Guaranty by the method and at the address specified in the Note Purchase Agreements, or by such other method or at such other address as any Holder shall have from time to time specified to the Guarantors in writing for such purpose, without the presentation or surrender of this Guaranty or any Note. (c) Any provision of this Guaranty that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. (d) If the whole or any part of this Guaranty shall be now or hereafter become unenforceable against any one or more of the Guarantors for any reason whatsoever or if it is not executed by any one or more of the Guarantors, this Guaranty shall nevertheless be and remain fully binding upon and enforceable against each other Guarantor as if it had been made and delivered only by such other Guarantors. (e) This Guaranty shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of each Holder and its successors and assigns so long as its Notes remain outstanding and unpaid. (f) This Guaranty may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. SECTION 13. INDEMNITY To the fullest extent of applicable law, each Guarantor shall indemnify and save each Holder harmless from and against any losses which may arise by virtue of any of the obligations hereby guaranteed being or becoming for any reason whatsoever in whole or in part void, voidable, contrary to law, invalid, ineffective or otherwise unenforceable by the Holder or any of them in accordance with its terms (all of the foregoing collectively, an "INDEMNIFIABLE CIRCUMSTANCE"). For greater certainty, these losses shall include without limitation all obligations hereby guaranteed which would have been payable by the Company but for the existence of an Indemnifiable Circumstance, net of any withholding or deduction of or on account of any Relevant Tax in accordance with SECTION 7 hereof; PROVIDED, HOWEVER, that the extent of the Guarantor's aggregate liability under this SECTION 13 shall not at any time exceed the amount (but for any Indemnifiable Circumstance) otherwise guaranteed pursuant to SECTION 2. [Intentionally Blank] IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly executed by an authorized representative as of this 1st day of July, 2002. PLATEAU, INC. PARGAS, INC. SUBURBAN PROPANE GAS CORPORATION VANGAS, INC. GAS CONNECTION, INC. SUBURBAN @ HOME, INC. SUBURBAN HOLDINGS, INC. SUBURBAN FRANCHISING, INC. SUBURBAN @ HOME HOLDINGS, INC. SUBURBAN PLUMBING NEW JERSEY LLC By: /S/ MARK A. ALEXANDER --------------------- Name: Mark A. Alexander Title: Chief Executive Officer Accepted and Agreed: SUBURBAN PROPANE, L.P. By: /S/ MARK A. ALEXANDER --------------------- Name: Mark A. Alexander Title: President and Chief Executive Officer SUBSIDIARY GUARANTY SUPPLEMENT To the Holders of the Notes (as hereinafter defined) of SUBURBAN PROPANE, L.P. (the "COMPANY") Ladies and Gentlemen: WHEREAS, in order to refinance certain debt and for general partnership purposes, the Company issued $42,500,000 7.37% Senior Notes due June 30, 2012 (the "NOTES") pursuant to those certain Note Purchase Agreements dated as of April 19, 2002 (the "NOTE PURCHASE AGREEMENTS") between the Company and each of the purchasers named on Schedule A thereto (the "INITIAL NOTE PURCHASERS"). WHEREAS, as a condition precedent to their purchase of the Notes, the Initial Note Purchasers required that certain subsidiaries of the Company enter into a Subsidiary Guaranty Agreement as security for the Notes (the "SUBSIDIARY GUARANTY"). Pursuant to Section 9.8 of the Note Purchase Agreements, the Company has agreed to cause the undersigned, ______________, a ______________ organized under the laws of _______________ (the "ADDITIONAL GUARANTOR"), to join in the Subsidiary Guaranty. In accordance with the requirements of the Subsidiary Guaranty, the Additional Guarantor desires to amend the definition of Guarantor (as the same may have been heretofore amended) set forth in the Subsidiary Guaranty attached hereto so that at all times from and after the date hereof, the Additional Guarantor shall be jointly and severally liable as set forth in the Subsidiary Guaranty for the obligations of the Company under the Note Purchase Agreements and Notes to the extent and in the manner set forth in the Subsidiary Guaranty. The undersigned is the duly elected ______________ of the Additional Guarantor, a subsidiary of the Company, and is duly authorized to execute and deliver this Guaranty Supplement to each of you. The execution by the undersigned of this Guaranty Supplement shall evidence its consent to and acknowledgment and approval of the terms set forth herein and in the Subsidiary Guaranty and by such execution the Additional Guarantor shall be deemed to have made in favor of the Holders the representations and warranties set forth in Section 5 of the Subsidiary Guaranty. Upon execution of this Subsidiary Guaranty Supplement, the Subsidiary Guaranty shall be deemed to be amended as set forth above. Except as amended herein, the terms and provisions of the Subsidiary Guaranty are hereby ratified, confirmed and approved in all respects. EXHIBIT A (to Subsidiary Guaranty Agreement) Any and all notices, requests, certificates and other instruments (including the Notes) may refer to the Subsidiary Guaranty without making specific reference to this Subsidiary Guaranty Supplement, but nevertheless all such references shall be deemed to include this Subsidiary Guaranty Supplement unless the context shall otherwise require. Dated: _________________, _____. [NAME OF ADDITIONAL GUARANTOR] By ---------------------------- Its ------------------------- -----END PRIVACY-ENHANCED MESSAGE-----