-----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, JVyQPNevWSdhKCyUzo7rqr4hCSRbBK3o1VT3igCs/cUzsJxVH0YXwDWsUiVrtm37 iWXmYDY/jQ6qQL7s0guRHw== 0000893220-04-001712.txt : 20040813 0000893220-04-001712.hdr.sgml : 20040813 20040813100019 ACCESSION NUMBER: 0000893220-04-001712 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UGI CORP /PA/ CENTRAL INDEX KEY: 0000884614 STANDARD INDUSTRIAL CLASSIFICATION: GAS & OTHER SERVICES COMBINED [4932] IRS NUMBER: 232668356 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11071 FILM NUMBER: 04972067 BUSINESS ADDRESS: STREET 1: 460 N GULPH RD STREET 2: P O BOX 858 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6103371000 MAIL ADDRESS: STREET 1: 460 NORTH GULPH ROAD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 FORMER COMPANY: FORMER CONFORMED NAME: NEW UGI CORP DATE OF NAME CHANGE: 19600201 10-Q 1 w99159e10vq.txt FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-11071 UGI CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 23-2668356 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) UGI CORPORATION 460 North Gulph Road, King of Prussia, PA (Address of principal executive offices) 19406 (Zip Code) (610) 337-1000 (Registrant's telephone number, including area code) 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 filed such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ___ At July 31, 2004, there were 50,955,146 shares of UGI Corporation Common Stock, without par value, outstanding.
PAGES ----- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2004, September 30, 2003 and June 30, 2003 1 Condensed Consolidated Statements of Income for the three and nine months ended June 30, 2004 and 2003 2 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2004 and 2003 3 Notes to Condensed Consolidated Financial Statements 4 - 21 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 - 36 Item 3. Quantitative and Qualitative Disclosures about Market Risk 36 - 38 Item 4. Controls and Procedures 39 PART II OTHER INFORMATION Item 1. Legal Proceedings 40 Item 6. Exhibits and Reports on Form 8-K 40 - 41 Signatures 42
UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Millions of dollars)
June 30, September 30, June 30, 2004 2003 2003 -------- ------------- -------- ASSETS Current assets: Cash and cash equivalents $ 160.4 $ 142.1 $ 121.7 Short-term investments (at cost, which approximates fair value) 25.0 50.0 50.0 Accounts receivable (less allowances for doubtful accounts of $27.6, $14.8 and $19.6, respectively) 409.5 199.2 240.8 Accrued utility revenues 8.1 7.4 7.9 Inventories 127.4 136.6 97.0 Deferred income taxes 23.1 23.5 33.5 Prepaid expenses and other current assets 30.6 28.6 34.0 -------- ------------- -------- Total current assets 784.1 587.4 584.9 Property, plant and equipment, at cost (less accumulated depreciation and amortization of $880.0, $805.2 and $787.8, respectively) 1,881.2 1,336.8 1,336.9 Goodwill and excess reorganization value 1,174.8 671.5 665.1 Intangible assets (less accumulated amortization of $23.5, $16.4 and $9.5, respectively) 140.5 34.7 38.4 Utility regulatory assets 63.0 60.3 60.1 Other assets 128.8 90.6 86.3 -------- ------------- -------- Total assets $4,172.4 $ 2,781.3 $2,771.7 ======== ============= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 115.4 $ 65.0 $ 124.6 Current maturities of UGI Utilities preferred shares subject to mandatory redemption, without par value 1.0 - - UGI Utilities bank loans 30.1 40.7 2.3 Other bank loans 18.8 15.9 12.6 Accounts payable 270.3 202.5 176.7 Other current liabilities 288.1 246.2 237.3 -------- ------------- -------- Total current liabilities 723.7 570.3 553.5 Long-term debt 1,554.8 1,158.5 1,115.9 Deferred income taxes 390.4 223.1 221.4 UGI Utilities preferred shares subject to mandatory redemption, without par value 19.0 20.0 - Other noncurrent liabilities 353.9 105.4 107.5 -------- ------------- -------- Total liabilities 3,041.8 2,077.3 1,998.3 Commitments and contingencies (note 10) Minority interests 204.9 134.6 167.4 UGI Utilities preferred shares subject to mandatory redemption, without par value - - 20.0 Common stockholders' equity: Common Stock, without par value (authorized - 150,000,000 shares; issued - 57,576,497, 49,798,097, 49,798,097 shares, respectively) 846.9 582.4 577.5 Retained earnings 164.9 90.9 108.7 Accumulated other comprehensive income 15.7 4.7 9.3 Notes receivable from employees (0.3) (0.4) (0.5) -------- ------------- -------- 1,027.2 677.6 695.0 Treasury stock, at cost (101.5) (108.2) (109.0) -------- ------------- -------- Total common stockholders' equity 925.7 569.4 586.0 -------- ------------- -------- Total liabilities and stockholders' equity $4,172.4 $ 2,781.3 $2,771.7 ======== ============= ========
See accompanying notes to condensed consolidated financial statements. - 1 - UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Millions of dollars, except per share amounts)
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- --------------------------- 2004 2003 2004 2003 ------------ ------------ ------------ ------------ Revenues $ 823.4 $ 623.1 $ 3,033.7 $ 2,498.9 Costs and expenses: Cost of sales 531.2 430.1 2,042.6 1,638.1 Operating and administrative expenses 223.0 160.1 569.8 490.9 Utility taxes other than income taxes 3.1 2.8 9.8 9.2 Depreciation and amortization 38.5 26.1 94.3 75.7 Other income, net (6.3) (4.4) (6.6) (15.2) ------------ ------------ ------------ ------------ 789.5 614.7 2,709.9 2,198.7 ------------ ------------ ------------ ------------ Operating income 33.9 8.4 323.8 300.2 Income (loss) from equity investees (0.6) 0.2 12.0 7.1 Loss on extinguishment of debt - - - (3.0) Interest expense (33.5) (26.5) (86.9) (81.8) Minority interests, principally in AmeriGas Partners 14.0 14.1 (64.3) (51.2) ------------ ------------ ------------ ------------ Income (loss) before income taxes and subsidiary preferred stock dividends 13.8 (3.8) 184.6 171.3 Income tax (expense) benefit (5.5) 2.2 (70.4) (65.6) Dividends on UGI Utilities preferred shares subject to mandatory redemption - (0.4) - (1.2) ------------ ------------ ------------ ------------ Net income (loss) $ 8.3 $ (2.0) $ 114.2 $ 104.5 ============ ============ ============ ============ Earnings (loss) per common share: Basic $ 0.16 $ (0.05) $ 2.48 $ 2.49 ============ ============ ============ ============ Diluted $ 0.16 $ (0.05) $ 2.43 $ 2.43 ============ ============ ============ ============ Average common shares outstanding: Basic 50.915 42.451 46.005 42.031 ============ ============ ============ ============ Diluted 51.908 42.451 47.042 43.038 ============ ============ ============ ============ Dividends declared per common share $ 0.3125 $ 0.2850 $ 0.8825 $ 0.8450 ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements. - 2 - UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Millions of dollars)
Nine Months Ended June 30, ------------------- 2004 2003 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 114.2 $ 104.5 Reconcile to net cash provided by operating activities: Depreciation and amortization 94.3 75.7 Provision for uncollectible accounts 15.5 15.6 Minority interests 64.3 51.2 Deferred income taxes, net 2.1 (11.4) Other, net (10.8) 10.3 Net change in: Accounts receivable and accrued utility revenues (49.3) (94.7) Inventories 30.4 14.2 Deferred fuel costs 2.4 35.9 Accounts payable (58.8) 9.0 Other current assets and liabilities (19.5) (5.0) -------- -------- Net cash provided by operating activities 184.8 205.3 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (86.5) (72.5) Net proceeds from disposals of assets 6.0 4.9 Acquisition of additional interest in Conemaugh Station - (51.3) Acquisitions of businesses, net of cash acquired (283.7) (38.3) Short-term investments decrease (increase) 25.0 (50.0) Other, net 0.7 8.4 -------- -------- Net cash used by investing activities (338.5) (198.8) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on UGI Common Stock (40.4) (35.6) Distributions on AmeriGas Partners publicly held Common Units (45.9) (41.1) Issuance of long-term debt 30.1 122.8 Repayment of long-term debt (61.3) (175.1) AmeriGas Propane bank loans decrease - (10.0) UGI Utilities bank loans decrease (10.6) (34.9) Other bank loans increase 0.5 2.4 Issuance of AmeriGas Partners Common Units 51.2 75.0 Issuance of UGI Common Stock 249.0 17.4 -------- -------- Net cash provided (used) by financing activities 172.6 (79.1) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (0.6) - -------- -------- Cash and cash equivalents increase (decrease) $ 18.3 $ (72.6) ======== ======== Cash and cash equivalents: End of period $ 160.4 $ 121.7 Beginning of period 142.1 194.3 -------- -------- Increase (decrease) $ 18.3 $ (72.6) ======== ========
See accompanying notes to condensed consolidated financial statements. - 3 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 1. BASIS OF PRESENTATION UGI Corporation ("UGI") is a holding company that owns and operates natural gas and electric utility, electricity generation, retail propane distribution, energy marketing and related businesses in the United States. Through foreign subsidiaries and a joint-venture affiliate, UGI also distributes liquefied petroleum gases ("LPG") in France, Austria, the Czech Republic, Slovakia and China. Our natural gas and electric distribution utility businesses are conducted through our wholly owned subsidiary, UGI Utilities, Inc. ("UGI Utilities"). UGI Utilities owns and operates a natural gas distribution utility ("Gas Utility") in parts of eastern and southeastern Pennsylvania and an electricity distribution utility ("Electric Utility") in northeastern Pennsylvania. Gas Utility and Electric Utility are subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). We conduct a national propane distribution business through AmeriGas Partners, L.P. ("AmeriGas Partners") and its principal operating subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. UGI's wholly owned second-tier subsidiary AmeriGas Propane, Inc. (the "General Partner") serves as the general partner of AmeriGas Partners and AmeriGas OLP. AmeriGas OLP and Eagle OLP (collectively referred to as "the Operating Partnerships") comprise the largest retail propane distribution business in the United States serving residential, commercial, industrial, motor fuel and agricultural customers from locations in 46 states. We refer to AmeriGas Partners and its subsidiaries together as "the Partnership" and the General Partner and its subsidiaries, including the Partnership, as "AmeriGas Propane." At June 30, 2004, the General Partner and its wholly owned subsidiary Petrolane Incorporated ("Petrolane") collectively held a 1% general partner interest and a 44.6% limited partner interest in AmeriGas Partners, and effective 46.1% and 46.0% ownership interests in AmeriGas OLP and Eagle OLP, respectively. Our limited partnership interest in AmeriGas Partners comprises 24,525,004 Common Units. The remaining 54.4% interest in AmeriGas Partners comprises 29,948,268 publicly held Common Units representing limited partner interests. Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"), conducts an energy marketing business primarily in the Eastern region of the United States through its wholly owned subsidiary, UGI Energy Services, Inc. ("Energy Services"). Energy Services' wholly owned subsidiary UGI Development Company ("UGID"), and UGID's subsidiaries and joint-venture affiliate Hunlock Creek Energy Ventures, own and operate interests in Pennsylvania-based electricity generation assets. Prior to their transfer to Energy Services in June 2003, UGID and its subsidiaries were wholly owned subsidiaries of UGI Utilities. Through other subsidiaries, Enterprises (1) owns and operates LPG distribution businesses in France ("Antargaz") and in Austria, the Czech Republic and Slovakia ("FLAGA"); (2) owns and operates a heating, ventilation, air conditioning and refrigeration service business in the Middle Atlantic states ("HVAC"); and (3) participates in a propane joint-venture business in China. - 4 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Our condensed consolidated financial statements include the accounts of UGI and its controlled subsidiary companies, which, except for the Partnership, are majority owned, and are together referred to as "we" or "the Company." We eliminate all significant intercompany accounts and transactions when we consolidate. We report the public's limited partner interests in the Partnership and the outside ownership interest in a subsidiary of Antargaz as minority interests. Entities in which we own 50 percent or less and in which we exercise significant influence over operating and financial policies are accounted for by the equity method. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2003 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2003 ("Company's 2003 Annual Report"). Due to the seasonal nature of our businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. EARNINGS PER COMMON SHARE. Basic earnings per share reflect the weighted-average number of common shares outstanding. Diluted earnings per share include the effects of dilutive stock options and common stock awards. Shares used in computing basic and diluted earnings per share are as follows:
Three Months Ended Nine Months Ended June 30, June 30, ----------------- ----------------- 2004 2003 2004 2003 ------ ------ ------ ------ Denominator (millions of shares): Average common shares outstanding for basic computation 50.915 42.451 46.005 42.031 Incremental shares issuable for stock options and awards 0.993 - (a) 1.037 1.007 - ------------------------------------------------------------------------------------------- Average common shares outstanding for diluted computation 51.908 42.451 47.042 43.038 - -------------------------------------------------------------------------------------------
(a) As a result of the net loss for the three months ended June 30, 2003, incremental shares issuable for stock options and awards are antidilutive. STOCK-BASED COMPENSATION. As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of stock, stock options, and other equity instruments to employees. We use the intrinsic value method prescribed by APB 25 for our stock-based employee compensation plans. - 5 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) We recognized total stock and unit-based compensation expense of $2.6 million and $9.1 million in the three and nine months ended June 30, 2004, respectively, and $3.1 million and $9.7 million in the three and nine months ended June 30, 2003, respectively. If we had determined stock-based compensation expense under the fair value method prescribed by SFAS 123, net income (loss) and basic and diluted earnings (loss) per share for the three and nine months ended June 30, 2004 and 2003 would have been as follows:
Three Months Ended Nine Months Ended June 30, June 30, ------------------------------------------------- 2004 2003 2004 2003 - --------------------------------------------------------------------------------------------------------- Net income (loss) as reported $ 8.3 $ (2.0) $ 114.2 $ 104.5 Add: Stock and unit-based employee compensation expense included in reported net income, net of related tax effects 1.6 1.8 5.5 5.8 Deduct: Total stock and unit-based employee compensation expense determined under the fair value method for all awards, net of related tax effects (1.9) (2.1) (6.3) (6.5) - --------------------------------------------------------------------------------------------------------- Pro forma net income (loss) $ 8.0 $ (2.3) $ 113.4 $ 103.8 - --------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share: As reported $ 0.16 $ (0.05) $ 2.48 $ 2.49 Pro forma $ 0.16 $ (0.05) $ 2.46 $ 2.47 Diluted earnings (loss) per share: As reported $ 0.16 $ (0.05) $ 2.43 $ 2.43 Pro forma $ 0.15 $ (0.05) $ 2.41 $ 2.41 - ---------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS). The following table presents the components of comprehensive income (loss) for the three and nine months ended June 30, 2004 and 2003.
Three Months Ended Nine Months Ended June 30, June 30, ----------------------- ----------------------- 2004 2003 2004 2003 - ------------------------------------------------------------------------------------- Net income $ 8.3 $ (2.0) $ 114.2 $ 104.5 Other comprehensive income (loss) 4.3 (0.8) 11.0 2.7 - ------------------------------------------------------------------------------------- Comprehensive income (loss) $ 12.6 $ (2.8) $ 125.2 $ 107.2 - -------------------------------------------------------------------------------------
Other comprehensive income (loss) principally comprises (1) changes in the fair value of derivative commodity instruments and interest rate protection agreements qualifying as hedges and (2) foreign currency translation adjustments, net of reclassifications to net income (loss). - 6 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) RECLASSIFICATIONS. We have reclassified certain prior-year period balances to conform to the current-period presentation. USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION. Beginning July 1, 2003, the Company accounts for UGI Utilities preferred shares subject to mandatory redemption in accordance with SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes guidelines on how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 results in the Company presenting UGI Utilities preferred shares subject to mandatory redemption in the liabilities section of the balance sheet and reflecting dividends paid on these shares as a component of interest expense for periods presented after June 30, 2003. Because SFAS 150 specifically prohibits the restatement of financial statements prior to its adoption, prior period amounts have not been reclassified (see Note 12). 2. COMMON STOCK ACTIVITY In March 2004, UGI Corporation sold 7.5 million shares of common stock in an underwritten public offering at a public offering price of $32.10 per share. The proceeds of the public offering totaling $230.2 million were used to fund a portion of the purchase price of the remaining ownership interests in AGZ Holding. During April 2004, the underwriters exercised a portion of their overallotment option for the purchase of an additional 0.3 million shares. 3. ACQUISITIONS On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI Bordeaux Holding (as assignee of UGI France, Inc. ("UGI France")), completed its acquisition of the remaining outstanding 80.5% ownership interests of AGZ Holding, a French corporation and the parent company of Antargaz, a French corporation and a leading distributor of liquefied petroleum gases in France, pursuant to the terms of (i) a Share Purchase Agreement dated as of February 17, 2004, by and among UGI France, UGI, PAI partners, a French corporation ("PAI"), and certain officers, directors and managers of AGZ Holding and Antargaz and their affiliates, and (ii) that certain Medit Joinder Agreement dated February 20, 2004, by and among UGI France, UGI, Medit Mediterranea GPL, S.r.L., a company incorporated under the laws of Italy ("Medit"), and PAI (herein referred to as the "Antargaz Acquisition"). The acquisition of the remaining interests in AGZ Holding is consistent with our growth strategies and core competencies. - 7 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) The purchase price on the Closing Date of 261.8 million euros or $319.2 million (excluding transaction fees and expenses) was subject to post-closing working capital and net debt adjustments. UGI used $230.2 million of cash proceeds from its March 2004 public offering of 7.5 million shares of its common stock and $89.0 million of available cash to fund the purchase price. In accordance with the Share Purchase Agreement, UGI paid an additional 5.8 million euros ($7.1 million) as a result of post-closing adjustments in June 2004. In addition, the preliminary purchase price allocation reflects transaction fees and expenses of $5.9 million. The Antargaz Acquisition has been accounted for as a step acquisition. UGI's initial 19.5% equity investment in AGZ Holding has been allocated to 19.5% of AGZ Holding's assets and liabilities at March 31, 2004. The amount by which the carrying value of UGI's equity investment exceeded the aforementioned allocation has been recorded as goodwill. As of June 30, 2004, the purchase price of the remaining 80.5% of AGZ Holding, including transaction fees and expenses, has been preliminarily allocated to the assets acquired and liabilities assumed, representing a revaluation of the portion that was not previously owned by UGI, as follows: Working capital $ 121.6 Property, plant and equipment 483.5 Goodwill 396.2 Customer relationships (estimated useful life of eleven years) 74.3 Trademark and other intangible assets 18.1 Long-term debt (393.2) Deferred income taxes (148.0) Minority interests (11.1) Other assets and liabilities (209.2) - ------------------------------------------------------------------------- Total $ 332.2 - -------------------------------------------------------------------------
The Company is currently in the process of completing the review and determination of the fair value of the portion of AGZ Holding's assets acquired and liabilities assumed, principally the fair values of property, plant and equipment and identifiable intangible assets. Accordingly, the allocation of the purchase price is subject to revision and due to the size of the Antargaz Acquisition, revisions, if any, could be material to our financial statements. The assets, liabilities and equity of AGZ Holding are included in our Condensed Consolidated Balance Sheet as of June 30, 2004. All of the operating results of AGZ Holding are included in our consolidated results beginning April 1, 2004. Prior to April 1, 2004, our 19.5% equity interest in AGZ Holding is reflected in our condensed consolidated financial statements under the equity method of accounting. - 8 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) The following table presents unaudited pro forma income statement and basic and diluted per share data for the three and nine months ended June 30, 2004, and 2003 as if the acquisition of AGZ Holding had occurred as of the beginning of those periods:
Three Months Ended Nine Months Ended June 30, June 30, ----------------------------- ----------------------------- 2004 2003 2004 2003 - ----------------------------------------------------------------------------------- (as reported) (pro forma) (pro forma) (pro forma) Revenues $ 823.4 $ 738.8 $ 3,538.5 $ 3,142.5 Net income 8.3 0.6 172.1 139.5 Earnings per share: Basic $ 0.16 $ 0.01 $ 3.39 $ 2.80 Diluted $ 0.16 $ 0.01 $ 3.32 $ 2.75 - -----------------------------------------------------------------------------------
The pro forma results of operations reflect AGZ Holding's historical operating results after giving effect to adjustments directly attributable to the transaction that are expected to have a continuing effect. The pro forma amounts are not necessarily indicative of the operating results that would have occurred had the acquisition been completed as of the date indicated, nor are they necessarily indicative of future operating results. The preliminary purchase price allocation was based upon currently available information and is subject to final adjustments. Accordingly, the actual adjustments to be recorded in connection with the final purchase price allocation may differ materially from the preliminary allocation. On October 1, 2003, AmeriGas OLP acquired substantially all of the retail propane distribution assets and business of Horizon Propane LLC ("Horizon Propane") for total cash consideration of $31.0 million. In December 2003, AmeriGas OLP paid Horizon Propane a working capital adjustment of $0.1 million in accordance with the Asset Purchase Agreement. During its fiscal year ended June 30, 2003, Horizon Propane sold over 30 million gallons of propane from ninety locations in twelve states. In addition, AmeriGas OLP completed several smaller acquisitions of retail propane businesses and HVAC acquired a heating, ventilation, air conditioning and refrigeration business during the nine months ended June 30, 2004. The pro forma effect of these transactions is not material. 4. SEGMENT INFORMATION We have organized our business units into five reportable segments generally based upon products sold, geographic location (domestic or international) or regulatory environment. Our reportable segments are: (1) AmeriGas Propane; (2) Gas Utility; (3) Electric Utility; (4) Energy Services (comprising Energy Services' gas marketing business and UGID's electricity generation business); and (5) an international LPG segment comprising Antargaz, FLAGA and our international LPG equity investments ("International Propane"). As discussed in Note 3, the preliminary purchase price allocation of AGZ Holding is included in - 9 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) the balance sheet segment information and all of Antargaz' results of operations are included on a consolidated basis beginning April 1, 2004. Effective October 1, 2003, we realigned our business units in order to expand the energy management services available to our customers and to strengthen our focus on power marketing. As a result of this realignment, the operating results of UGID have been combined with those of Energy Services rather than with UGI Utilities' Electric Utility as previously reported. We have restated our prior-year period segment data to be consistent with the current period presentation. The accounting policies of the five segments disclosed are the same as those described in the Significant Accounting Policies note contained in the Company's 2003 Annual Report. We evaluate AmeriGas Propane's performance principally based upon the Partnership's earnings before interest expense, income taxes, depreciation and amortization ("Partnership EBITDA"). Although we use Partnership EBITDA to evaluate AmeriGas Propane's profitability, it 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 a measure of performance of financial condition under accounting principles generally accepted in the United States of America. The Company's definition of Partnership EBITDA may be different from that used by other companies. We evaluate the performance of our Gas Utility, Electric Utility, Energy Services and International Propane segments principally based upon their income before income taxes. - 10 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 4. SEGMENT INFORMATION (CONTINUED) Three Months Ended June 30, 2004:
Reportable Segments -------------------------------------------------------- AmeriGas Gas Electric Energy International Corporate Total Elims. Propane Utility Utility Services Propane & Other (a) --------- ------- ---------- ------- -------- -------- ------------- ---------- Revenues $ 823.4 $ (0.9) $ 315.1 $ 97.7 $ 21.0 $ 217.3 $ 156.8 $ 16.4 ========= ======= ========== ======= ====== ======== =========== ========== Cost of sales $ 531.2 $ - $ 184.0 $ 65.1 $ 9.6 $ 200.8 $ 62.2 $ 9.5 ========= ======= ========== ======= ====== ======== =========== ========== Segment profit: Operating income (loss) $ 33.9 $ - $ (4.0) $ 6.9 $ 5.5 $ 10.2 $ 14.3 $ 1.0 Income (loss) from equity investees (0.6) - 0.1 - - - (0.7) - Interest expense (33.5) - (20.5) (3.9) (0.6) - (8.3) (0.2) Minority interests in AmeriGas Partners 14.0 - 14.0 - - - - - --------- ------- ---------- ------- ------ -------- ----------- ---------- Income (loss) before income taxes $ 13.8 $ - $ (10.4) $ 3.0 $ 4.9 $ 10.2 $ 5.3 $ 0.8 ========= ======= ========== ======= ====== ======== =========== ========== Depreciation and amortization $ 38.5 $ - $ 20.0 $ 4.9 $ 0.6 $ 1.0 $ 11.8 $ 0.2 Partnership EBITDA (b) $ 16.1 Segment assets (at period end) $ 4,172.4 $(356.3) $ 1,509.7 $ 736.0 $ 88.2 $ 201.8 $ 1,575.7 $ 417.3 ========= ======= ========== ======= ====== ======== =========== ========== Investments in equity investees (at period end) $ 20.1 $ - $ 3.6 $ - $ - $ 9.1 $ 7.4 $ - ========= ======= ========== ======= ====== ======== =========== ========== Goodwill and excess reorganization value (at period end) $ 1,174.8 $ - $ 605.7 $ - $ - $ 2.8 $ 561.0 $ 5.3 ========= ======= ========== ======= ====== ======== =========== ==========
Three Months Ended June 30, 2003:
Reportable Segments -------------------------------------------------------- AmeriGas Gas Electric Energy International Corporate Total Elims. Propane Utility Utility Services Propane & Other (a) --------- ------- ---------- ------- -------- -------- ------------- ---------- Revenues $ 623.1 $ (0.6) $ 287.1 $ 99.7 $ 20.3 $ 191.6 $ 11.6 $ 13.4 ========= ======= ========== ======= ====== ======== =========== ========== Cost of sales $ 430.1 $ - $ 158.0 $ 65.2 $ 9.7 $ 183.5 $ 5.8 $ 7.9 ========= ======= ========== ======= ====== ======== =========== ========== Segment profit: Operating income (loss) $ 8.4 $ - $ (5.8) $ 5.5 $ 4.5 $ 4.3 $ (1.0) $ 0.9 Income (loss) from equity investees 0.2 - (0.6) - - - 0.8 - Interest expense (26.5) - (21.5) (3.5) (0.4) - (1.0) (0.1) Minority interests in AmeriGas Partners 14.1 - 14.1 - - - - - --------- ------- ---------- ------- ------ -------- ----------- ---------- Income (loss) before income taxes $ (3.8) $ - $ (13.8) $ 2.0 $ 4.1 $ 4.3 $ (1.2) $ 0.8 ========= ======= ========== ======= ====== ======== =========== ========== Depreciation and amortization $ 26.1 $ - $ 19.0 $ 4.4 $ 0.8 $ 0.7 $ 1.1 $ 0.1 Partnership EBITDA (b) $ 12.6 Segment assets (at period end) $ 2,771.7 $ (41.1) $ 1,500.9 $ 711.2 $ 85.7 $ 179.1 $ 171.4 $ 164.5 ========= ======= ========== ======= ====== ======== =========== ========== Investments in equity investees (at period end) $ 41.0 $ - $ 2.9 $ - $ - $ 9.9 $ 28.2 $ - ========= ======= ========== ======= ====== ======== =========== ========== Goodwill and excess reorganization value (at period end) $ 665.1 $ - $ 598.8 $ - $ - $ - $ 62.0 $ 4.3 ========= ======= ========== ======= ====== ======== =========== ==========
(a) Corporate & Other results of operations principally comprise UGI Enterprises' HVAC operations, net expenses of UGI's captive general liability insurance company and UGI Corporation's unallocated corporate and general expenses, and interest income. Corporate & Other assets principally comprise cash, short-term investments and an intercompany loan. The intercompany interest associated with the intercompany loan is eliminated in the segment presentation. (b) The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Three months ended June 30, 2004 2003 - --------------------------- -------- -------- Partnership EBITDA $ 16.1 $ 12.6 Depreciation and amortization (i) (20.0) (18.9) Minority interests (ii) - (0.1) (Income) loss from equity investees (0.1) 0.6 Loss on extinguishment of debt - - -------- -------- Operating loss $ (4.0) $ (5.8) ======== ========
(i) Excludes General Partner depreciation and amortization of $0.1 in the three months ended June 30, 2003. (ii) Principally represents the General Partner's 1.01% interest in AmeriGas OLP. - 11 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 4. SEGMENT INFORMATION (CONTINUED) Nine Months Ended June 30, 2004:
Reportable Segments ---------------------------------------------------------- AmeriGas Gas Electric Energy International Corporate Total Elims. Propane Utility Utility Services Propane & Other (a) -------- -------- --------- -------- -------- -------- ------------- ---------- Revenues $3,033.7 $ (2.2) $ 1,463.0 $ 490.5 $ 67.1 $ 779.0 $ 191.2 $ 45.1 ======== ======== ========= ======== ======== ======== ============= ========== Cost of sales $2,042.6 $ - $ 843.7 $ 325.2 $ 31.6 $ 736.8 $ 79.1 $ 26.2 ======== ======== ========= ======== ======== ======== ============= ========== Segment profit: Operating income $ 323.8 $ - $ 188.8 $ 82.8 $ 16.8 $ 24.0 $ 9.8 $ 1.6 Income from equity investees 12.0 - 0.8 - - - 11.2 - Interest expense (86.9) - (62.8) (11.9) (1.6) - (10.2) (0.4) Minority interests in AmeriGas Partners (64.3) - (64.3) - - - - - -------- -------- --------- -------- -------- -------- ------------- ---------- Income before income taxes $ 184.6 $ - $ 62.5 $ 70.9 $ 15.2 $ 24.0 $ 10.8 $ 1.2 ======== ======== ========= ======== ======== ======== ============= ========== Depreciation and amortization $ 94.3 $ - $ 59.5 $ 14.6 $ 2.3 $ 3.0 $ 14.1 $ 0.8 Partnership EBITDA (b) $ 247.3 Segment assets (at period end) $4,172.4 $ (356.3) $ 1,509.7 $ 736.0 $ 88.2 $ 201.8 $ 1,575.7 $ 417.3 ======== ======== ========= ======== ======== ======== ============= ========== Investments in equity investees (at period end) $ 20.1 $ - $ 3.6 $ - $ - $ 9.1 $ 7.4 $ - ======== ======== ========= ======== ======== ======== ============= ========== Goodwill and excess reorganization value (at period end) $1,174.8 $ - $ 605.7 $ - $ - $ 2.8 $ 561.0 $ 5.3 ======== ======== ========= ======== ======== ======== ============= ==========
Nine Months Ended June 30, 2003:
Reportable Segments ---------------------------------------------------------- AmeriGas Gas Electric Energy International Corporate Total Elims. Propane Utility Utility Services Propane & Other (a) -------- -------- --------- -------- -------- -------- ------------- ---------- Revenues $2,498.9 $ (1.8) $ 1,357.7 $ 484.7 $ 66.5 $ 513.7 $ 44.0 $ 34.1 ======== ======== ========= ======== ======== ======== ============= ========== Cost of sales $1,638.1 $ - $ 762.0 $ 312.6 $ 31.3 $ 488.9 $ 24.4 $ 18.9 ======== ======== ========= ======== ======== ======== ============= ========== Segment profit: Operating income $ 300.2 $ - $ 174.0 $ 94.1 $ 16.6 $ 14.1 $ 0.6 $ 0.8 Income (loss) from equity investees 7.1 - (0.5) - - - 7.6 - Loss on extinguishment of debt (3.0) - (3.0) - - - - - Interest expense (81.8) - (66.0) (10.7) (1.7) - (3.1) (0.3) Minority interests in AmeriGas Partners (51.2) - (51.2) - - - - - -------- -------- --------- -------- -------- -------- ------------- ---------- Income before income taxes $ 171.3 $ - $ 53.3 $ 83.4 $ 14.9 $ 14.1 $ 5.1 $ 0.5 ======== ======== ========= ======== ======== ======== ============= ========== Depreciation and amortization $ 75.7 $ - $ 55.0 $ 13.6 $ 2.3 $ 1.2 $ 2.9 $ 0.7 Partnership EBITDA (b) $ 223.8 Segment assets (at period end) $2,771.7 $ (41.1) $ 1,500.9 $ 711.2 $ 85.7 $ 179.1 $ 171.4 $ 164.5 ======== ======== ========= ======= ======= ======= ============= ========== Investments in equity investees (at period end) $ 41.0 $ - $ 2.9 $ - $ - $ 9.9 $ 28.2 $ - ======== ======== ========= ======== ======== ======== ============= ========== Goodwill and excess reorganization value (at period end) $ 665.1 $ - $ 598.8 $ - $ - $ - $ 62.0 $ 4.3 ======== ======== ========= ======== ======== ======== ============= ==========
(a) Corporate & Other results of operations principally comprise UGI Enterprises' HVAC operations, net expenses of UGI's captive general liability insurance company and UGI Corporation's unallocated corporate and general expenses, and interest income. Corporate & Other assets principally comprise cash, short-term investments and an intercompany loan. The intercompany interest associated with the intercompany loan is eliminated in the segment presentation. (b) The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Nine months ended June 30, 2004 2003 - -------------------------- -------- -------- Partnership EBITDA $ 247.3 $ 223.8 Depreciation and amortization (i) (59.4) (54.8) Minority interests (ii) 1.7 1.5 (Income) loss from equity investees (0.8) 0.5 Loss on extinguishment of debt - 3.0 -------- -------- Operating income $ 188.8 $ 174.0 ======== ========
(i) Excludes General Partner depreciation and amortization of $0.1 and $0.2 in the nine months ended June 30, 2004 and 2003, respectively. (ii) Principally represents the General Partner's 1.01% interest in AmeriGas OLP. - 12 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 5. INTANGIBLE ASSETS The Company's intangible assets comprise the following:
June 30, September 30, 2004 2003 - ----------------------------------------------------------- ------------ Not subject to amortization: Goodwill $ 1,081.5 $ 578.2 Excess reorganization value 93.3 93.3 - ----------------------------------------------------------- ------------ $ 1,174.8 $ 671.5 - ----------------------------------------------------------- ------------ Other intangible assets: Customer relationships, noncompete agreements and other $ 142.9 $ 51.1 Trademark (not subject to amortization) 21.1 - - ----------------------------------------------------------- ------------ Gross carrying amount 164.0 51.1 - ----------------------------------------------------------- ------------ Accumulated amortization (23.5) (16.4) - ----------------------------------------------------------- ------------ Net carrying amount $ 140.5 $ 34.7 - ----------------------------------------------------------- ------------
The increase in intangible assets during the nine months ended June 30, 2004 principally reflects the acquisitions of AGZ Holding and Horizon Propane. The allocation of AGZ Holding's purchase price to goodwill, customer list, trademark and other intangible assets is preliminary and is subject to revision. Amortization expense of intangible assets was $3.9 million and $7.1 million for the three and nine months ended June 30, 2004, respectively, and $1.9 million and $4.4 million for the three and nine months ended June 30, 2003, respectively. Our expected aggregate amortization expense of intangible assets for the next five fiscal years is as follows: Fiscal 2004 - $10.2 million; Fiscal 2005 - $13.2 million; Fiscal 2006 - $12.7 million; Fiscal 2007 - $12.1 million; Fiscal 2008 - $11.7 million. 6. ENERGY SERVICES ACCOUNTS RECEIVABLE SECURITIZATION FACILITY Energy Services has a $100 million receivables purchase facility ("Receivables Facility") with an issuer of receivables-backed commercial paper expiring on August 26, 2006, although the Receivables Facility may terminate prior to such date due to the termination of the commitments of the Receivables Facility back-up purchasers. Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn, has sold, and subject to certain conditions, may from time to time sell, an undivided interest in the receivables to a commercial paper conduit of a major bank. The maximum level of funding available at any one time from this facility is $100 million. The proceeds of these sales are less than the face amount of the accounts receivable sold by an amount that approximates the purchaser's financing cost of issuing its own receivables-backed commercial paper. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. - 13 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Energy Services continues to service, administer and collect trade receivables on behalf of the commercial paper issuer and ESFC. During the three and nine months ended June 30, 2004 Energy Services sold trade receivables totaling $219.6 million and $762.7 million, respectively, to ESFC. During the three and nine months ended June 30, 2004, ESFC sold an aggregate $43.0 and $246.0 million, respectively, of undivided interests in its trade receivables to the commercial paper conduit. At June 30, 2004, the outstanding balance of ESFC trade receivables was $72.7 million of which no amount was sold to the commercial paper conduit. In addition, a major bank has committed to issue up to $50 million of standby letters of credit, secured by cash or marketable securities ("LC Facility"). Energy Services expects to fund the collateral requirements with borrowings under its Receivables Facility. The LC Facility expires in April 2005. 7. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). As required by SFAS 132, the Company is providing the following supplemental disclosures regarding its defined benefit pension plans and its postretirement health and life insurance plans. We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan") for employees of UGI, UGI Utilities, and certain of UGI's other wholly owned subsidiaries. In addition, we provide postretirement health care benefits to certain retirees and a limited number of active employees meeting certain age and service requirements, and postretirement life insurance benefits to nearly all domestic active and retired employees. Net periodic expense (income) and other postretirement benefit costs include the following components: - 14 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts)
Other Pension Benefits Postretirement Benefits ------------------- ----------------------- Three Months Ended Three Months Ended June 30, June 30, ------------------- ----------------------- 2004 2003 2004 2003 - ----------------------------------------------------------------------------------------- Service cost $ 1.2 $ 1.1 $ - $ - Interest cost 3.2 3.2 0.4 0.4 Expected return on assets (4.3) (4.5) (0.1) (0.1) Amortization of: Transition (asset) obligation (0.3) (0.4) 0.2 0.2 Prior service cost 0.2 0.2 - - Actuarial loss 0.3 0.1 0.1 - - --------------------------------------------------------------------------------------- Net benefit cost (income) 0.3 (0.3) 0.6 0.5 Change in regulatory assets and liabilities - - 0.3 0.3 - --------------------------------------------------------------------------------------- Net expense (income) $ 0.3 $ (0.3) $ 0.9 $ 0.8 - ---------------------------------------------------------------------------------------
Other Pension Benefits Postretirement Benefits ------------------- --------------------------- Nine Months Ended Nine Months Ended June 30, June 30, ------------------- --------------------------- 2004 2003 2004 2003 - ----------------------------------------------------------------------------------------- Service cost $ 3.7 $ 3.4 $ 0.2 $ 0.1 Interest cost 9.7 9.7 1.3 1.3 Expected return on assets (13.0) (13.5) (0.4) (0.3) Amortization of: Transition (asset) obligation (1.0) (1.2) 0.7 0.7 Prior service cost 0.5 0.5 - - Actuarial loss 0.9 0.2 0.2 0.1 - ----------------------------------------------------------------------------------------- Net benefit cost (income) 0.8 (0.9) 2.0 1.9 Change in regulatory assets and liabilities - - 0.8 0.8 - ----------------------------------------------------------------------------------------- Net expense (income) $ 0.8 $ (0.9) $ 2.8 $ 2.7 - -----------------------------------------------------------------------------------------
UGI Utilities Pension Plan assets are held in trust and consist principally of equity and fixed income mutual funds. The Company does not believe it will be required to make any contributions to the UGI Utilities Pension Plan during the year ended September 30, 2004. Pursuant to orders previously issued by the PUC, UGI Utilities has established a Voluntary Employees' Beneficiary Association ("VEBA") trust to fund the UGI Utilities' postretirement obligations and to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefits costs determined under SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions." The difference between the annual amount calculated and the amount included in UGI Utilities' rates is deferred for future recovery from, or refund to, ratepayers. UGI Utilities expects to contribute approximately $2.3 million to the VEBA during the year ended September 30, 2004, subject to the actuarial impact, if any, of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (as more fully described in Note 11 to Condensed Consolidated Financial Statements). Through June 30, 2004, UGI Utilities has made contributions of approximately $1.8 million to the VEBA. - 15 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) The net benefit cost of our unfunded and non-qualified supplemental executive retirement plans includes the following components:
Three Months Ended Nine Months Ended June 30, June 30, ------------------- ------------------- 2004 2003 2004 2003 - ----------------------------------------------------------------------- Service cost $ 0.1 $ 0.1 $ 0.3 $ 0.2 Interest cost 0.2 0.1 0.5 0.4 Amortization of: Transition obligation - - 0.1 0.1 Actuarial loss 0.1 0.1 0.3 0.2 - ----------------------------------------------------------------------- Net benefit cost $ 0.4 $ 0.3 $ 1.2 $ 0.9 - -----------------------------------------------------------------------
8. LONG-TERM DEBT In conjunction with the Antargaz Acquisition, $445.8 million of long-term debt has been reflected in our Condensed Consolidated Balance Sheet at June 30, 2004. In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, in April 2004, AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes due 2011, at an effective interest rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP. In April 2003, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, in April 2003, AmeriGas Partners issued $32 million face amount of 8.875% Senior Notes due 2011, at an effective interest rate of 7.72%, and contributed the net proceeds of $33.7 million to AmeriGas OLP. On December 3, 2002, AmeriGas Partners issued $88 million face amount of 8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The proceeds, net of underwriters' fees, of $89.1 million were used on January 6, 2003 to redeem prior to maturity AmeriGas Partners' $85 million face amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%, plus accrued interest. The Partnership recognized a loss of $3.0 million in the quarter ended March 31, 2003 related to the redemption premium and other associated costs and expenses. 9. AMERIGAS PARTNERS COMMON UNIT ACTIVITY On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an underwritten public offering at a public offering price of $25.61 per unit. On June 10, 2004, the underwriters exercised a portion of their overallotment option for the purchase of an additional 100,000 Common Units. The net proceeds of the public offering totaling $51.2 million and associated capital contributions from the General Partner totaling $1.0 million, were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit - 16 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) agreement and for general partnership purposes. Concurrent with this sale of Common Units, the Company recorded a gain in the amount of $22.2 million which is reflected in the Company's balance sheet as an increase in common stockholders' equity in accordance with the guidance in SEC Staff Accounting Bulletin No. 51 "Accounting for Sales of Common Stock by a Subsidiary." The gain had no effect on the Company's net income or cash flow. 10. COMMITMENTS AND CONTINGENCIES The Partnership has succeeded to certain lease guarantee obligations of Petrolane relating to Petrolane's divestiture of non-propane operations before its 1989 acquisition by QFB Partners. Future lease payments under these leases total approximately $13 million at June 30, 2004. The leases expire through 2010 and some of them are currently in default. The Partnership has succeeded to the indemnity agreement of Petrolane by which Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane, agreed to indemnify Petrolane against any liabilities arising out of the conduct of businesses that do not relate to, and are not a part of, the propane business, including lease guarantees. In December 1999, Texas Eastern filed for dissolution under the Delaware General Corporation Law. PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder, subsequently assumed all of Texas Eastern's liabilities as of December 20, 2002, to the extent of the value of Texas Eastern's assets transferred to PanEnergy as of that date (which was estimated to exceed $94 million), and to the extent that such liabilities arise within ten years from Texas Eastern's date of dissolution. Notwithstanding the dissolution proceeding, and based on Texas Eastern previously having satisfied directly defaulted lease obligations without the Partnership's having to honor its guarantee, we believe that the probability that the Partnership will be required to directly satisfy the lease obligations subject to the indemnification agreement is remote. On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane distribution businesses of Columbia Energy Group (the "2001 Acquisition") pursuant to the terms of a purchase agreement (the "2001 Acquisition Agreement") by and among Columbia Energy Group ("CEG"), Columbia Propane Corporation ("Columbia Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane and CPLP, the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the General Partner (together with AmeriGas Partners and AmeriGas OLP, the "Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and substantially all of the partnership interests of CPLP. Under the terms of an earlier acquisition agreement (the "1999 Acquisition Agreement"), the Company Parties agreed to indemnify the former general partners of National Propane Partners, L.P. (a predecessor company of the Columbia Propane businesses) and an affiliate (collectively, "National General Partners") against certain income tax and other losses that they may sustain as a result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the "1999 Acquisition") or the operation of the business after the 1999 Acquisition ("National Claims"). At June 30, 2004, the potential amount payable under this indemnity by the Company Parties was approximately $61 million. These indemnity obligations will expire on the date that CPH acquires the remaining outstanding partnership interest of CPLP, which is expected to occur on or after July 19, 2009. - 17 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify the Buyer Parties and the Company Parties against any losses that they sustain under the 1999 Acquisition Agreement and related agreements ("Losses"), including National Claims, to the extent such claims are based on acts or omissions of CEG or the Company Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify CEG against Losses, including National Claims, to the extent such claims are based on acts or omissions of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and the Buyer Parties have agreed to apportion certain losses resulting from National Claims to the extent such losses result from the 2001 Acquisition itself. From the late 1800s through the mid-1900s, UGI Utilities and its former subsidiaries owned and operated a number of manufactured gas plants ("MGPs") prior to the general availability of natural gas. Some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the Superfund Law and may be present on the sites of former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, UGI Utilities divested all of its utility operations other than those which now constitute Gas Utility and Electric Utility. UGI Utilities does not expect its costs for investigation and remediation of hazardous substances at Pennsylvania MGP sites to be material to its results of operations because Gas Utility is currently permitted to include in rates, through future base rate proceedings, prudently incurred remediation costs associated with such sites. UGI Utilities has been notified of several sites outside Pennsylvania on which (1) MGPs were formerly operated by it or owned or operated by its former subsidiaries and (2) either environmental agencies or private parties are investigating the extent of environmental contamination or performing environmental remediation. UGI Utilities is currently litigating three claims against it relating to out-of-state sites. Management believes that under applicable law UGI Utilities should not be liable in those instances in which a former subsidiary owned or operated an MGP. There could be, however, significant future costs of an uncertain amount associated with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that (1) the subsidiary's separate corporate form should be disregarded or (2) UGI Utilities should be considered to have been an operator because of its conduct with respect to its subsidiary's MGP. In April 2003, Citizens Communications Company ("Citizens") served a complaint naming UGI Utilities as a third-party defendant in a civil action pending in United States District Court for the District of Maine. In that action, the plaintiff, City of Bangor, Maine ("City"), sued Citizens to recover environmental response costs associated with MGP wastes generated at a plant allegedly operated by Citizens' predecessors at a site on the Penobscot River. Citizens subsequently joined UGI Utilities and ten other third party defendants alleging that the third-party defendants are responsible for an equitable share of costs - 18 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Citizens may be required to pay to the City for cleaning up tar deposits in the Penobscot River. The City believes that it could cost as much as $50 million to clean up the river. UGI Utilities believes that it has good defenses to the claim and is defending the suit. By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served UGI Utilities with a complaint filed in the United States District Court for the Middle District of Florida in which AGL alleges that UGI Utilities is responsible for 20% of approximately $8 million incurred by AGL in the investigation and remediation of a former MGP site in St. Augustine, Florida. UGI Utilities formerly owned stock of the St. Augustine Gas Company, the owner and operator of the MGP. UGI Utilities believes that it has good defenses to the claim and is defending the suit. AGL previously informed UGI Utilities that it was investigating contamination that appeared to be related to MGP Operations at a site owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities' operated the MGP in the early 1900s. AGL has recently informed UGI Utilities that it has begun remediation of MGP wastes at the site and believes that the total cost of remediation could be as high as $55 million. AGL has stated an intention to make a claim against UGI Utilities for a share of these costs. UGI Utilities believes that it will have good defenses to any action that may arise out of this site. On September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit against UGI Utilities in the United States District Court for the Southern District of New York, seeking contribution from UGI Utilities for an allocated share of response costs associated with investigating and assessing gas plant related contamination at former MGP sites in Westchester County, New York. The complaint alleges that UGI Utilities "owned and operated" the MGPs prior to 1904. The complaint also seeks a declaration that UGI Utilities is responsible for an allocated percentage of future investigative and remedial costs at the sites. ConEd believes that the cost of remediation for all of the sites could exceed $70 million. In November 2003, the court granted UGI Utilities' motion for summary judgment in part, dismissing all claims premised on a disregard of the separate corporate form of UGI Utilities' former subsidiaries and dismissing claims premised on UGI Utilities' operation of three of the MGPs under operating leases with ConEd's predecessors. The courts reserved decision on the remaining theory of liability, that UGI Utilities was a direct operator of the remaining MGPs. In March 2004, the court granted summary judgment on the remaining claims and dismissed ConEd's complaint. ConEd has appealed. By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI Utilities that KeySpan has spent $2.3 million and expects to spend another $11 million to clean up a MGP site it owns in Sag Harbor, New York. KeySpan believes that UGI Utilities is responsible for approximately 50% of these costs as a result of UGI Utilities' alleged direct ownership and operation of the plant from 1885 to 1902. UGI Utilities is in the process of reviewing the information provided by KeySpan and is investigating this claim. By letter dated August 5, 2004, Yankee Gas Services Company and Connecticut Light and Power Company, subsidiaries of Northeast Utilities, (together, the "Northeast Companies"), - 19 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) demanded contribution from UGI Utilities for past and future remediation costs related to MGP operations on thirteen sites owned by the Northeast Companies in nine cities in the State of Connecticut. The Northeast Companies allege that UGI Utilities controlled operations of the plants from 1883 to 1941. According to the letter, investigation and remedial costs at the sites to date total approximately $10 million and complete remediation costs for all sites could total $182 million. The Northeast Companies seek an unspecified fair and equitable allocation of these costs to UGI Utilities. UGI Utilities is in the process of reviewing the information provided by Northeast Companies and is investigating this claim. Antargaz has filed suit against the French tax authorities in connection with the assessment of business tax related to the tax treatment of Antargaz owned tanks at customer locations used to store LPG. Antargaz has recorded a liability for the business tax relating to tanks for the period from January 1, 1997 through June 30, 2004 of approximately 26.8 million euros ($32.7 million). Elf Antar France, now Total France, and Elf Aquitaine, former owners of Antargaz, agreed to indemnify Antargaz for all payments which would have been due from Antargaz in respect of the business tax related to its tanks for the period from January 1, 1997 through December 31, 2000. In March 2004, the local court rendered a decision against Antargaz which resulted in a 1.7 million euros ($2.1 million) assessment by the tax assessor relating to the business tax at certain sites in the pending suit. Antargaz paid this assessment and was fully reimbursed in April 2004 for this assessment pursuant to the indemnity agreement. Antargaz is appealing the assessment. As of June 30, 2004, the indemnity from the former owners represents approximately 9.4 million euros ($11.4 million) of the business tax liability. In addition to these matters, there are other pending claims and legal actions arising in the normal course of our businesses. We cannot predict with certainty the final results of environmental and other matters. However, it is reasonably possible that some of them could be resolved unfavorably to us. Although we currently believe that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position, damages or settlements could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amounts of future operating results and cash flows. 11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interests created or acquired before February 1, 2003, FIN 46 was effective beginning with our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Company has not created or obtained any variable interest entities after January 31, 2003. The adoption of FIN 46 did not have a material effect on the Company's financial position or results of operations. - 20 - UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law. Among other things, the Act provides for a prescription drug benefit to Medicare beneficiaries on a voluntary basis beginning in 2006. To encourage employers to continue to offer retiree prescription drug benefits, the Act provides for a tax-free subsidy to employers who offer a prescription drug benefit that is at least actuarially equivalent to the standard benefit offered under the Act. The Company provides postretirement health care benefits principally to certain of UGI Utilities' retirees and a limited number of active employees meeting certain age and service requirements. These postretirement benefits include certain retiree prescription drug benefits. Pursuant to orders previously issued by the PUC, UGI Utilities has established a VEBA trust to fund UGI Utilities' postretirement benefit obligations and to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefit costs determined under SFAS No. 106, "Employers Accounting for Postretirement Benefits Other than Pensions." The difference between the annual amount calculated and the amount in UGI Utilities' rates is deferred for future recovery from, or refund to, ratepayers. In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is effective for periods beginning after June 15, 2004. Therefore, the Condensed Consolidated Financial Statements and accompanying footnotes do not reflect the effects of the Act. Under the current ratemaking described above, any increases or decreases in postretirement benefit costs resulting from the Act will not affect our reported results. In addition, because of the limited number of participants in the postretirement medical benefits program and the current level of postretirement medical benefits, we do not believe the Act will have a material effect on the Company's cash flows. 12. SUBSEQUENT EVENT - REDEMPTION OF $7.75 UGI UTILITIES SERIES PREFERRED STOCK On July 27, 2004, UGI Utilities' Board of Directors approved the redemption on October 1, 2004 of all 200,000 shares of the $7.75 UGI Utilities Series Preferred Stock at a price of $100 per share together with full cumulative dividends. Currently, we intend to fund the redemption of the $7.75 UGI Utilities Series Preferred Stock with proceeds from the issuance of Medium-Term Notes. - 21 - UGI CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements use forward-looking words such as "believe," "plan," "anticipate," "continue," "estimate," "expect," "may," "will," or other similar words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that actual results almost always vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the following important factors which could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand; (2) price volatility and availability of propane, LPG, oil, electricity, and natural gas and the capacity to transport them to our market areas; (3) changes in domestic and foreign laws and regulations, including safety, tax and accounting matters; (4) competitive pressures from the same and alternative energy sources; (5) failure to acquire new customers thereby reducing or limiting an increase in revenues; (6) liability for environmental claims; (7) customer conservation measures and improvements in energy efficiency and technology resulting in reduced demand; (8) adverse labor relations; (9) large customer, counterparty or supplier defaults; (10) liability for personal injury and property damage arising from explosions and other catastrophic events, including acts of terrorism, resulting from operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas, propane and LPG including liability in excess of insurance coverage; (11) political, regulatory and economic conditions in the United States and in foreign countries; (12) interest rate fluctuations and other capital market conditions, including foreign currency rate fluctuations; (13) reduced distributions from subsidiaries; and (14) the timing and success of the Company's efforts to develop new business opportunities. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events as required by federal securities laws. ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare our results of operations for (1) the three months ended June 30, 2004 ("2004 three-month period") with the three months ended June 30, 2003 ("2003 three-month period") and (2) the nine months ended June 30, 2004 ("2004 nine-month period") with the nine months ended June 30, 2003 ("2003 nine-month period"). Effective October 1, 2003, our Energy Services segment includes the operating results of Energy Services' gas marketing business as well as UGID's electricity generation business. Energy Services' segment presentation for the 2003 three-month period and 2003 nine-month period have been restated to conform to the current period presentation. All of the operating - 22 - UGI CORPORATION AND SUBSIDIARIES results of AGZ Holding are included in our consolidated results beginning April 1, 2004. Prior to April 1, 2004, our 19.5% interest in AGZ Holding is reflected in our consolidated results on the equity method of accounting. Our analyses of results of operations should be read in conjunction with the segment information included in Note 4 to the Condensed Consolidated Financial Statements.
Three Months Ended Nine Months Ended June 30, June 30, ------------------- ------------------- 2004 2003 2004 2003 - ------------------------------------------------------------------------- (Millions of dollars) Net income (loss): AmeriGas Propane (a) $ (7.0) $ (8.3) $ 36.7 $ 32.1 Gas Utility 1.3 1.0 42.1 49.1 Electric Utility 3.2 2.5 9.0 8.7 Energy Services (b) 6.0 2.4 14.0 8.2 International Propane 4.1 (0.4) 11.8 6.2 Corporate & Other 0.7 0.8 0.6 0.2 - ------------------------------------------------------------------------- Total net income (loss) $ 8.3 $ (2.0) $ 114.2 $ 104.5 - -------------------------------------------------------------------------
(a) Amounts are net of minority interests in AmeriGas Partners, L.P. (b) Effective October 1, 2003, the Energy Services segment includes the operating results of Energy Services' gas marketing business as well as UGID's electricity generation business. Energy Services' segment presentation for the 2003 three- and nine-month periods have been restated to conform to the current period presentation. Net income was $8.3 million for the 2004 three-month period compared to a loss of $2.0 million in the 2003 three-month period as a result of the consolidation of Antargaz and improved results across all of our business segments despite the challenges of warmer than normal weather and the high cost of energy products. During the 2004 three-month period average diluted shares were 22% higher reflecting UGI's common share offering used to fund a portion of the purchase price of AGZ Holding. Net income for the 2004 nine-month period was $9.7 million higher than in the 2003 nine-month period primarily reflecting the effects of improved Antargaz results, including the effects of consolidating all of Antargaz' results of operations beginning April 1, 2004, and the effects of recent acquisitions in our other business segments. - 23 - UGI CORPORATION AND SUBSIDIARIES 2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Increase Three months ended June 30, 2004 2003 (Decrease) - --------------------------------------------------------------------------------- (Millions of dollars) AMERIGAS PROPANE: Revenues $ 315.1 $ 287.1 $ 28.0 9.8 % Total margin (a) $ 131.1 $ 129.1 $ 2.0 1.5 % Partnership EBITDA (b) $ 16.1 $ 12.6 $ 3.5 27.8 % Operating loss $ (4.0) $ (5.8) $ 1.8 (31.0)% Retail gallons sold (millions) 175.2 182.4 (7.2) (3.9)% Degree days - % warmer than normal (c) (8.0)% (0.5)% - - GAS UTILITY: Revenues $ 97.7 $ 99.7 $ (2.0) (2.0)% Total margin (a) $ 32.6 $ 34.5 $ (1.9) (5.5)% Operating income $ 6.9 $ 5.5 $ 1.4 25.5% Income before income taxes $ 3.0 $ 2.0 $ 1.0 50.0% System throughput - billions of cubic feet ("bcf") 15.5 15.0 0.5 3.3% Degree days - % (warmer) colder than normal (18.7)% 16.3% - - ELECTRIC UTILITY (d): Revenues $ 21.0 $ 20.3 $ 0.7 3.4% Total margin (a) $ 10.3 $ 9.5 $ 0.8 8.4% Operating income $ 5.5 $ 4.5 $ 1.0 22.2% Income before income taxes $ 4.9 $ 4.1 $ 0.8 19.5% Distribution sales - millions of kilowatt hours ("gwh") 221.5 216.3 5.2 2.4% ENERGY SERVICES (d): Revenues $ 217.3 $ 191.6 $ 25.7 13.4% Total margin (a) $ 16.5 $ 8.1 $ 8.4 103.7% Income before income taxes $ 10.2 $ 4.3 $ 5.9 137.2% INTERNATIONAL PROPANE: Revenues $ 156.8 $ 11.6 $ 145.2 n.m. Total margin (a) $ 94.6 $ 5.8 $ 88.8 n.m. Operating income (loss) $ 14.3 $ (1.0) $ 15.3 n.m. Income (loss) from equity investees $ (0.7) $ 0.8 $ (1.5) n.m. Income (loss) before income taxes $ 5.3 $ (1.2) $ 6.5 n.m.
n.m. - not meaningful (a) Total margin represents total revenues less total cost of sales and, with respect to Electric Utility, revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $1.1 million in each of the three-month periods ended June 30, 2004 and 2003. For financial statement purposes, revenue-related taxes are included in "Utility taxes other than income taxes" on the Condensed Consolidated Statements of Income. (b) Partnership EBITDA (earnings before interest expense, income taxes and depreciation and amortization) 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 a measure of performance or financial condition under accounting principles generally accepted in the United States of America. Management uses Partnership EBITDA - 24 - UGI CORPORATION AND SUBSIDIARIES as the primary measure of segment profitability for the AmeriGas Propane segment (see Note 4 to the Condensed Consolidated Financial Statements). (c) Deviation from average heating degree days based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska. (d) Effective October 1, 2003, we realigned our business units in order to expand the energy management services available to our customers and strengthen our focus on power marketing. As a result of this realignment, the operating results of UGID's electricity generation business are combined with Energy Services rather than combined with UGI Utilities' Electric Utility (see Note 4 to the Condensed Consolidated Financial Statements). AMERIGAS PROPANE. Weather based upon heating degree days was 8.0% warmer than normal during the 2004 three-month period compared to weather that was essentially normal in the prior-year three-month period. Notwithstanding the beneficial effects of acquisitions, retail propane volumes sold decreased 7.2 million gallons in the 2004 three-month period due primarily to the warmer than normal weather and price related conservation. Low margin wholesale volumes increased 33.3 million gallons primarily reflecting the effects of product cost hedging activities. Retail propane revenues increased $3.7 million reflecting a $13.3 million increase due to higher average selling prices partially offset by a $9.6 million decrease due to the lower retail volumes sold. Wholesale propane revenues increased $21.1 million principally reflecting the higher volumes sold due to product cost hedging activities. Selling prices in the 2004 three-month period were higher than in the prior-year three-month period as the industry continues to experience unusually high propane product costs resulting from, among other things, higher crude oil and natural gas prices. Total cost of sales increased $26.1 million primarily reflecting the previously mentioned increase in wholesale volumes sold and higher propane product costs. Total margin increased $2.0 million principally due to higher average retail propane unit margins partially offset by the lower retail volumes sold. Partnership EBITDA increased $3.5 million in the 2004 three-month period reflecting (1) the previously mentioned increase in total margin, (2) a $1.0 million decrease in operating and administrative expenses and (3) a $0.5 million increase in other income. The decrease in operating and administrative expenses was due to the absence of $3.0 million of expenses associated with initiating the management realignment in June 2003, the continued beneficial effects on operating expenses of the realignment, and lower incentive compensation expenses. These decreases were partially offset by incremental operating and administrative expenses associated with the Horizon Propane and Active Propane acquisitions. Operating loss in the 2004 three-month period improved less than the increase in Partnership EBITDA due to higher depreciation and amortization expense related to recent acquisitions and higher depreciation associated with PPX(R). GAS UTILITY. Weather in Gas Utility's service territory during the 2004 three-month period based upon heating degree days was 18.7% warmer than normal compared with weather that was 16.3% colder than normal in the 2003 three-month period. Notwithstanding the warmer weather, total distribution system throughput increased 0.5 bcf or 3.3% reflecting higher volumes transported for delivery service customers and the volume effects of year-over-year firm- residential, commercial and industrial ("retail core-market") customer growth. The decrease in Gas Utility revenues during the 2004 three-month period principally reflects a $7.9 million decrease in revenues from retail core-market customers as a result of lower retail core-market sales partially offset by an increase in revenues from off-system sales. Retail core-market average purchased gas cost ("PGC") rates were slightly higher during the 2004 three-month period. Gas Utility cost of gas was $65.1 million in the 2004 three-month period compared to $65.2 million in the 2003 three-month period reflecting the effects of the previously mentioned lower - 25 - UGI CORPORATION AND SUBSIDIARIES retail core-market sales substantially offset by the effects of the higher off-system sales and higher average PGC rates. The decline in Gas Utility total margin reflects a $2.2 million decline in retail core-market total margin resulting from the lower volumes sold partially offset by higher commercial and industrial delivery service total margin reflecting greater volumes transported. Gas Utility operating income increased $1.4 million in the 2004 three-month period principally reflecting a $3.8 million decline in operating and administrative expenses partially offset by the previously mentioned decline in total margin. The decrease in operating and administrative expenses is due in large part to the absence of costs related to settling an environmental claim in the prior-year three-month period and, to a lesser extent, lower stock-based incentive compensation costs in the current-year three-month period. The increase in Gas Utility income before income taxes reflects the previously mentioned higher operating income offset by a $0.4 million increase in interest expense in the 2004 three-month period principally as a result of including dividends paid on preferred shares subject to mandatory redemption as a component of interest expense in accordance with Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with the Characteristics of Both Liabilities and Equity" ("SFAS 150"). ELECTRIC UTILITY. Electric Utility's 2004 three-month period kilowatt-hour sales and revenues were slightly higher than in the prior-year period due in large part to greater air conditioning sales partially offset by the adverse effects of warmer spring weather on heating-related sales. Temperatures based upon the number of heating degree days in the 2004 three-month period were approximately 22.9% warmer than in the prior-year period. Electric Utility's cost of sales was essentially equal with the prior-year period. Electric Utility total margin in the 2004 three-month period increased $0.8 million principally as a result of the previously mentioned increased sales. Operating income and income before income taxes were higher in the 2004 three-month period principally reflecting the increase in total margin. ENERGY SERVICES. The increase in Energy Services revenues in the 2004 three-month period resulted primarily from (1) the effects of UGID's June 2003 purchase of an additional 4.9% (83 megawatt) interest in the Conemaugh electricity generation station ("Conemaugh"), and (2) a 6.5% increase in natural gas volumes sold. Total margin from Energy Services' gas marketing business increased $5.2 million in the 2004 three-month period principally a result of higher average unit margins reflecting a greater proportion of annual fixed-price customer contracts and, to a lesser extent, the higher volumes sold. Under these contracts, customers pay an average fixed price for the natural gas they purchase throughout the year. Although the unit margin and the total margin to be earned over the term of these contracts is fixed, margin realization is seasonal because gas costs are generally higher and unit margins lower, during the peak heating season months of late fall and winter, while gas costs are generally lower and unit margins higher, during the late spring and summer months. Total margin from UGID's electricity generation business increased $3.2 million reflecting the additional interest in Conemaugh. The increase in Energy Services income before income taxes principally reflects the previously mentioned increase in total margin partially offset by higher operating expenses resulting from the purchase of the additional interest in Conemaugh. INTERNATIONAL PROPANE. International Propane results of operations in the 2004 three-month period have significantly increased compared to the 2003 three-month period due to the consolidation of all of Antargaz' operations beginning April 1, 2004 which resulted from the acquisition of the remaining - 26 - UGI CORPORATION AND SUBSIDIARIES 80.5% ownership interests in AGZ Holding (the "Antargaz Acquisition"). Antargaz' revenues, margin and operating income during the 2004 three-month period were $144.1 million, $88.6 million and $14.5 million, respectively. Antargaz sold approximately 64 million gallons of LPG while experiencing weather that was 8% warmer than normal during the 2004 three-month period. FLAGA's revenues increased slightly on lower volumes sold. FLAGA's higher revenues primarily reflect the currency translation effects of a stronger euro. The increase in International Propane operating income reflects Antargaz' operating income and to a much lesser extent a lower base-currency FLAGA operating loss in the 2004 three-month period. Income from equity investees declined in the 2004 three-month period due to the absence of our 19.5% equity investment in AGZ Holding and a loss from Antargaz' equity investment, which is accounted for under the equity method of accounting. The increase in income before income taxes reflects the increase in operating income partially offset by greater interest expense as a result of the Antargaz Acquisition. - 27 - UGI CORPORATION AND SUBSIDIARIES 2004 NINE-MONTH PERIOD COMPARED WITH 2003 NINE-MONTH PERIOD
Increase Nine months ended June 30, 2004 2003 (Decrease) - ------------------------------------------------------------------------------ (Millions of dollars) AMERIGAS PROPANE: Revenues $1,463.0 $1,357.7 $ 105.3 7.8% Total margin (a) $ 619.3 $ 595.7 $ 23.6 4.0% Partnership EBITDA $ 247.3 $ 223.8 $ 23.5 10.5% Operating income $ 188.8 $ 174.0 $ 14.8 8.5% Retail gallons sold (millions) 883.6 900.0 (16.4) (1.8)% Degree days - % (warmer) colder than normal (4.6)% 0.9% - - GAS UTILITY: Revenues $ 490.5 $ 484.7 $ 5.8 1.2% Total margin (a) $ 165.3 $ 172.1 $ (6.8) (4.0)% Operating income $ 82.8 $ 94.1 $ (11.3) (12.0)% Income before income taxes $ 70.9 $ 83.4 $ (12.5) (15.0)% System throughput - billions of cubic feet ("bcf") 70.0 70.7 (0.7) (1.0)% Degree days - % (warmer) colder than normal (2.0)% 8.3% - - ELECTRIC UTILITY: Revenues $ 67.1 $ 66.5 $ 0.6 0.9% Total margin (a) $ 31.9 $ 31.6 $ 0.3 0.9% Operating income $ 16.8 $ 16.6 $ 0.2 1.2% Income before income taxes $ 15.2 $ 14.9 $ 0.3 2.0% Distribution sales - millions of kilowatt hours ("gwh") 747.2 741.8 5.4 0.7% ENERGY SERVICES: Revenues $ 779.0 $ 513.7 $ 265.3 51.6% Total margin (a) $ 42.2 $ 24.8 $ 17.4 70.2% Income before income taxes $ 24.0 $ 14.1 $ 9.9 70.2% INTERNATIONAL PROPANE: Revenues $ 191.2 $ 44.0 $ 147.2 n.m. Total margin (a) $ 112.1 $ 19.6 $ 92.5 n.m. Operating income $ 9.8 $ 0.6 $ 9.2 n.m. Income from equity investees $ 11.2 $ 7.6 $ 3.6 n.m. Income before income taxes $ 10.8 $ 5.1 $ 5.7 n.m.
n.m. - not meaningful (a) Total margin represents total revenues less total cost of sales and, with respect to Electric Utility, revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $3.6 million in each of the nine-month periods ended June 30, 2004 and 2003. For financial statement purposes, revenue-related taxes are included in "Utility taxes other than income taxes" on the Condensed Consolidated Statements of Income. AMERIGAS PROPANE. Based upon heating degree day data, temperatures in the 2004 nine-month period were 4.6% warmer than normal compared to temperatures that were 0.9% colder than normal in the prior-year nine-month period. Notwithstanding volume growth from acquisitions, retail propane volumes sold decreased slightly in the 2004 nine-month period due principally to the effects of the - 28 - UGI CORPORATION AND SUBSIDIARIES warmer weather in the 2004 nine-month period. Low margin wholesale volumes increased 11.6 million gallons primarily reflecting the effects of product cost hedging activities. Retail propane revenues increased $71.6 million as a $92.6 million increase due to higher average selling prices was partially offset by a $21.0 million decrease due to the lower retail volumes sold. Wholesale propane revenues increased $24.9 million due to a $17.9 million increase due to higher average selling prices and a $7.0 million increase due to the higher volumes sold relating to product cost hedging activities. Retail and wholesale selling prices were higher during the 2004 nine-month period principally as a result of the continued high propane product costs within the industry. Although total propane volumes decreased slightly, total cost of sales increased $81.7 million reflecting the effects of higher propane product costs, the previously mentioned increase in wholesale volumes sold and, to a lesser extent, greater costs associated with increased non-propane sales and services. Total margin increased $23.6 million as a result of (1) recent acquisitions and higher average retail propane unit margins on reduced gallons sold and (2) a $4.3 million increase in margin from non-propane sales and services. Notwithstanding the previously mentioned increase in propane product costs, retail and wholesale propane unit margins were higher than in the 2003 nine-month period reflecting the effects of higher average selling prices. Partnership EBITDA increased $23.5 million in the 2004 nine-month period reflecting (1) the previously mentioned increase in total margin, (2) a $4.4 million increase in other income, and (3) the absence of a $3.0 million loss on extinguishment of long-term debt in the prior year nine-month period. These increases were partially offset by an $7.3 million increase in operating and administrative expenses principally due to higher compensation and distribution expenses resulting from the impact of Horizon Propane and other recent acquisitions, partially offset by the absence of $3.0 million of expenses associated with initiating the management realignment in June 2003 and the continued beneficial effects on operating expenses of the realignment. Other income in the 2004 nine-month period increased principally due to greater income from finance charges, while other income in the prior-year nine-month period was reduced by a $1.0 million charge due to the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations." Operating income in the 2004 nine-month period increased less than the increase in Partnership EBITDA due to higher depreciation and amortization expense related to recent acquisitions, higher depreciation associated with PPX(R) and the absence of the aforementioned loss on extinguishment of long-term debt. Net income in the 2004 nine-month period increased to $124.7 million from $103.4 million in the 2003 nine-month period due to (1) the increase in operating income, (2) a $3.2 million decrease in interest expense, and (3) the absence of the aforementioned $3.0 million loss on extinguishment of long-term debt in the 2003 nine-month period. Interest expense decreased principally as a result of lower long-term debt outstanding. GAS UTILITY. Weather in Gas Utility's service territory during the 2004 nine-month period was 2.0% warmer than normal compared with weather that was 8.3% colder than normal in the 2003 nine-month period. Total distribution system throughput decreased 0.7 bcf or 1.0% as the adverse effects of the warmer weather on heating-related sales to retail core-market customers were partially offset by greater volumes transported for delivery service customers and the volume effects of year-over-year retail core-market customer growth. The increase in Gas Utility revenues during the 2004 nine-month period includes a $15.6 million increase in revenues from off-system sales partially offset by lower retail core-market and delivery service revenues. The decline in retail core-market revenues reflects the effects of the reduced retail core-market volumes partially offset by higher average PGC rates. Gas Utility cost of gas was $325.2 million in the 2004 nine-month period compared to $312.6 million in the 2003 nine- - 29 - UGI CORPORATION AND SUBSIDIARIES month period reflecting greater cost of gas associated with the higher off-system sales and the higher average PGC rates partially offset by the effects of the lower retail core-market volumes sold. Gas Utility total margin declined $6.8 million principally reflecting a $5.1 million decline in retail core-market margin and also reflecting the effects of lower volumes transported for small weather-sensitive delivery service customers. Gas Utility operating income declined $11.3 million in the 2004 nine-month period principally reflecting the previously mentioned decline in total margin, lower other income, and a $1.0 million increase in depreciation expense partially offset by a decrease in operating and administrative expenses. Other income declined $4.9 million due in large part to a $2.9 million decline in non-tariff service income and costs related to settling a regulatory claim resulting from the discontinuance of natural gas service to certain customers. Operating and administrative expenses decreased $1.4 million due in large part to the absence of costs related to settling an environmental claim recorded in the prior-year nine-month period and lower distribution system maintenance expenses partially offset by increases in provisions for injuries and damages claims and higher compensation and benefits expenses. The decrease in Gas Utility income before income taxes reflects the decline in operating income and higher interest expense in the 2004 nine-month period principally as a result of including dividends paid on preferred shares subject to mandatory redemption as a component of interest expense in accordance with SFAS 150. ELECTRIC UTILITY. Electric Utility's 2004 nine-month period kilowatt-hour sales and revenues were slightly higher than in the prior-year period due in large part to greater air conditioning sales partially offset by the adverse effects of warmer winter weather on heating-related sales. Temperatures based upon heating degree days in the 2004 nine-month period were approximately 7.4% warmer than in the prior-year period. Electric Utility's cost of sales increased $0.4 million reflecting higher purchased power costs. Electric Utility total margin in the 2004 nine-month period increased $0.3 million principally as a result of the previously mentioned increase in sales. Operating income and income before income taxes were higher in the 2004 nine-month period principally reflecting the increase in total margin. ENERGY SERVICES. The increase in Energy Services revenues in the 2004 nine-month period resulted primarily from (1) a more than 35% increase in natural gas volumes sold due in large part to the March 2003 acquisition of the northeastern U.S. gas marketing business of TXU Energy Retail Company, L.P., a subsidiary of TXU Energy (the "TXU Energy Acquisition"), and to a lesser extent customer growth, and (2) the effects of UGID's June 2003 purchase of an additional 4.9% (83 megawatt) interest in Conemaugh. Total margin from Energy Services' gas marketing business increased $6.5 million in the 2004 nine-month period principally due to the higher natural gas volumes sold. Total margin from UGID's electricity generation business increased $10.9 million reflecting the additional interest in Conemaugh and higher unit margins. The increase in Energy Services income before income taxes principally reflects the previously mentioned increase in total margin partially offset by higher operating expenses resulting from our purchase of the additional interest in Conemaugh and the TXU Energy Acquisition. INTERNATIONAL PROPANE. International Propane's revenues increased significantly during the 2004 nine-month period principally due to including all of Antargaz' results of operations on a consolidated basis beginning April 1, 2004. Total margin increased primarily due to the Antargaz Acquisition and a $4.0 million increase in FLAGA's margin. FLAGA's margin increased in the 2004 nine-month period as a result of the effects of a stronger euro on slightly improved base-currency margin. - 30 - UGI CORPORATION AND SUBSIDIARIES The increase in operating income principally reflects the previously mentioned increases in margin partially offset by higher operating expenses as a result of the Antargaz Acquisition. Antargaz' operating income was partially offset by a loss of $9.1 million resulting from the settlement of contracts for the forward purchase of euros. FLAGA's operating income increased during the 2004 nine-month period primarily reflecting lower operating expenses which were partially offset by the effects of a stronger euro. Income from equity investees in the 2004 nine-month period includes equity investee income from our 19.5% ownership interest in AGZ Holding through March 31, 2004. The $3.6 million increase over the 2003 nine-month period primarily reflects higher income from AGZ Holding. The increase in income before income taxes reflects the combined increase in Antargaz results as an equity investee and on a consolidated basis and the previously mentioned increase in FLAGA operating income partially offset by interest expense. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL CONDITION Our cash, cash equivalents and short-term investments totaled $185.4 million at June 30, 2004 compared with $192.1 million at September 30, 2003. These amounts include $34.6 million and $116.3 million at June 30, 2004 and September 30, 2003, respectively, of cash, cash equivalents and short-term investments held by UGI. The decline in cash, cash equivalents and short-term investments held by UGI at June 30, 2004 compared to September 30, 2003 is a result of funding a portion of the Antargaz Acquisition purchase price partially offset by dividends received from subsidiaries including total fiscal 2004 dividends from Antargaz of $53.6 million. See Note 3 to the Condensed Consolidated Financial Statements. The Company's long-term debt outstanding at June 30, 2004 totaled $1,670.2 million (including current maturities of $115.4 million) compared to $1,223.5 million of long-term debt (including current maturities of $65.0 million) at September 30, 2003 (see Note 8 to the Condensed Consolidated Financial Statements). In April 2004, AmeriGas OLP repaid $53.8 million of maturing First Mortgage Notes. In conjunction with this repayment, AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes due 2011, at an effective interest rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas OLP. On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an underwritten public offering at a public offering price of $25.61 per unit. On June 10, 2004, the underwriters partially exercised their overallotment option in the amount of 100,000 Common Units. The net proceeds of the public offering totaling $51.2 million and associated capital contributions from the General Partner totaling $1.0 million, were contributed to AmeriGas OLP and used to reduce indebtedness under its bank credit agreement and for general partnership purposes. Concurrent with this sale of Common Units, the Company recorded a gain in the amount of $22.2 million which is reflected in the Company's balance sheet as an increase in common stockholders' equity in accordance with the guidance in SEC Staff Accounting Bulletin No. 51, "Accounting for Sales of Common Stock by a Subsidiary." The gain had no effect on the Company's net income or cash flow. AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1) a $100 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The Acquisition Facility provides - 31 - UGI CORPORATION AND SUBSIDIARIES AmeriGas OLP with the ability to borrow up to $75 million to finance the purchase of propane businesses or propane business assets or, to the extent it is not so used, may be used for working capital and general purposes. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount available for borrowings, totaled $42.8 million at June 30, 2004. AmeriGas OLP's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating-season months due to the need to fund higher levels of working capital. AmeriGas Partners periodically issues debt and equity securities and expects to continue to do so. It has issued debt securities and common units in underwritten public offerings in each of the last three fiscal years. Most recently, it has issued debt securities in April 2004 and issued common units in an underwritten public offering in May 2004. The Partnership has effective debt and equity shelf registration statements with the SEC under which it may issue up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to $446.2 million of debt or equity securities pursuant to an unallocated shelf registration statement. UGI Utilities has revolving credit commitments under which it may borrow up to a total of $110 million. These agreements expire in June 2006 and 2007. At June 30, 2004, UGI Utilities had $30.1 million in borrowings outstanding under these revolving credit agreements. In addition, UGI Utilities has an uncommitted arrangement with a major bank under which it may borrow up to $20 million. At June 30, 2004, there were no borrowings outstanding under this arrangement. Amounts outstanding under the revolving credit agreements and the uncommitted arrangement are classified as bank loans on the Condensed Consolidated Balance Sheets. UGI Utilities also has a shelf registration statement with the SEC under which it may issue up to an additional $40 million of Medium-Term Notes or other debt securities. On July 27, 2004, UGI Utilities' Board of Directors approved the redemption on October 1, 2004 of all 200,000 shares of the $7.75 UGI Utilities Series Preferred Stock at a price of $100 per share together with full cumulative dividends. Currently, we intend to fund the redemption of the $7.75 UGI Utilities Series Preferred Stock with proceeds from the issuance of Medium-Term Notes. Energy Services has a $100 million receivables purchase facility ("Receivables Facility") with an issuer of receivables-backed commercial paper expiring on August 26, 2006, although the Receivables Facility may terminate prior to such date due to the termination of the commitments of the Receivables Facility back-up purchasers. Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn, has sold, and subject to certain conditions, may from time to time sell, an undivided interest in the receivables to a commercial paper conduit of a major bank. The maximum level of funding available at any one time from this facility is $100 million. The proceeds of these sales are less than the face amount of the accounts receivable sold by an amount that approximates the purchaser's financing cost of issuing its own receivables-backed commercial paper. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Energy Services continues to service, administer and collect trade receivables on behalf of the commercial paper issuer and ESFC. At June 30, 2004, the outstanding balance of ESFC receivables was $72.7 million of which no amount was sold to the commercial paper conduit. In addition, a major bank has committed to Energy Services to issue up to $50 million of standby letters of credit, secured by cash or marketable securities ("LC Facility"). Energy Services expects to fund the - 32 - UGI CORPORATION AND SUBSIDIARIES collateral requirements with borrowings under its Receivables Facility. The LC Facility expires in April 2005. Antargaz has a variable interest rate Senior Facilities Agreement consisting of a 202 million euro ($246.4 million) term loan and a 50 million euro ($61.0 million) revolver which expires June 2008. In May 2004, the Senior Facilities Agreement was amended to eliminate the change of control provision as a result of the Antargaz Acquisition. As of June 30, 2004 there were no borrowings outstanding under the revolver. The Senior Facilities Agreement and the Trust Deed, dated July 23, 2002, among AGZ Finance, a subsidiary of AGZ Holding, as issuer, AGZ Holding, as guarantor, and the Bank of New York, as trustee, ("Trust Deed") relating to 165 million euros principal amount of 10% Senior Notes due 2011 restrict the ability of AGZ Holding to, among other things, incur additional indebtedness, make investments, incur liens, prepay indebtedness, and effect mergers, consolidations and sales of assets. Under these agreements, AGZ Holding is generally permitted to make restricted payments, such as dividends, equal to 50% of consolidated net income, as defined in each respective agreement, for (1) the immediately preceding fiscal year, in the case of the Senior Facilities Agreement, and (2) on a cumulative basis since July 2002, in the case of the Trust Deed, if no event of default exists or would exist upon payment of such restricted payment. CASH FLOWS OPERATING ACTIVITIES. Due to the seasonal nature of the Company's businesses, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for natural gas, propane and electricity consumed during the heating season months. Conversely, operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the Company's investment in working capital, principally inventories and accounts receivable, is generally greatest. The Company's major business units, except for Antargaz, regularly use revolving credit facilities, or in the case of Energy Services its Receivables Facility, to satisfy their seasonal operating cash flow needs. Cash flow from operating activities was $184.8 million in the 2004 nine-month period compared to $205.3 million in the 2003 nine-month period. The decrease in operating cash flow primarily reflects higher cash required to fund changes in operating working capital. Cash flow from operating activities before changes in operating working capital was $279.6 million in the 2004 nine-month period compared with $245.9 million in the prior-year nine-month period. Changes in operating working capital used $94.8 million in the 2004 nine-month period and $40.6 million in the 2003 nine-month period. INVESTING ACTIVITIES. Investing activity cash flow is principally affected by capital expenditures and investments in property, plant and equipment, cash paid for acquisitions of businesses, investments in and distributions from our equity investees, changes in short-term investments and proceeds from sales of assets. Cash flow used in investing activities was $338.5 million in the 2004 nine-month period compared to $198.8 million in the prior-year period. We spent $283.7 million principally reflecting the Antargaz Acquisition and the acquisition of Horizon Propane, net of cash acquired. The cash provided by the decrease in short-term investments was primarily used to fund a portion of the purchase price of the remaining 80.5% interests in AGZ Holding. FINANCING ACTIVITIES. Cash flow provided by financing activities was $172.6 million in the 2004 nine-month period compared with $79.1 million of cash used in the prior-year nine-month period. Financing activity cash flow changes are primarily due to issuances and repayments of long-term debt, net borrowing under revolving credit facilities, dividends and distributions on UGI Common Stock and - 33 - UGI CORPORATION AND SUBSIDIARIES AmeriGas Partners Common Units, and proceeds from public offerings of AmeriGas Partners Common Units and issuances of UGI Common Stock. The proceeds from the issuance of 7.8 million shares of UGI Common Stock totaling approximately $239 million were primarily used to fund the Antargaz Acquisition. We paid cash dividends on UGI Common Stock of $40.4 million and $35.6 million during the nine-months ended June 30, 2004 and 2003, respectively. Also, the Partnership paid the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner units during both of the nine-month periods ended June 30, 2004 and 2003. ANTARGAZ ACQUISITION On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI Bordeaux Holding (as assignee of UGI France, Inc. ("UGI France")), completed its acquisition of the remaining outstanding 80.5% ownership interests of AGZ Holding, a French corporation and the parent company of Antargaz, a French corporation and a leading distributor of liquefied petroleum gases in France, pursuant to the terms of (i) a Share Purchase Agreement dated as of February 17, 2004, by and among UGI France, UGI, PAI partners, a French corporation ("PAI"), and certain officers, directors and managers of AGZ Holding and Antargaz and their affiliates, and (ii) that certain Medit Joinder Agreement dated February 20, 2004, by and among UGI France, UGI, Medit Mediterranea GPA, S.r.L., a company incorporated under the laws of Italy ("Medit"), and PAI (referred to herein as the "Antargaz Acquisition"). The purchase price on the Closing Date of 261.8 million euros or $319.2 million (excluding transaction fees and expenses) was subject to post-closing working capital and net debt adjustments. UGI used $230.2 million of cash proceeds from its public offering of 7.5 million shares of its common stock in March 2004, and $89.0 million of available cash to pay the purchase price. The purchase price was negotiated at arms length by UGI with the other owners of AGZ Holding's issued and outstanding capital stock. In accordance with the Share Purchase Agreement, UGI paid an additional 5.8 million euros ($7.1 million) as a result of post-closing adjustments. In addition, the preliminary purchase price allocation reflects transaction fees and expenses of $5.9 million. The Company is currently in the process of completing the review and determination of the fair value of the portion of AGZ Holding's assets acquired and liabilities assumed, principally the fair values of property, plant and equipment and identifiable intangible assets. Accordingly, the allocation of the purchase price is subject to revision and due to the size of the Antargaz Acquisition, revisions, if any, could be material to our financial statements. The assets, liabilities and equity of AGZ Holding are included in our Condensed Consolidated Balance Sheet as of June 30, 2004. The operating results of all of AGZ Holding are included in our consolidated results beginning April 1, 2004. Prior to April 1, 2004, our 19.5% interest in AGZ Holding is reflected in our Condensed Consolidated Financial Statements on the equity method of accounting. UGI COMMON DIVIDEND On July 27, 2004, UGI's Board of Directors declared a quarterly dividend on UGI Common Stock of $0.3125 per share payable on October 1, 2004 to shareholders of record on August 31, 2004. UGI had previously raised the annual dividend rate to $1.25 per share, or $0.3125 per share on a quarterly basis, from $1.14 per share, or $0.2850 per share on a quarterly basis, effective with the regularly scheduled July 1, 2004 dividend payment. - 34 - UGI CORPORATION AND SUBSIDIARIES UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION Beginning July 1, 2003, the Company accounts for UGI Utilities preferred shares subject to mandatory redemption in accordance with SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes guidelines on how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 results in the Company presenting UGI Utilities preferred shares subject to mandatory redemption in the liabilities section of the balance sheet and reflecting dividends paid on these shares as a component of interest expense for periods presented after June 30, 2003. Because SFAS 150 specifically prohibits the restatement of financial statements prior to its adoption, prior period amounts have not been reclassified. As previously mentioned, on July 27, 2004, UGI Utilities' Board of Directors approved the redemption on October 1, 2004 of all 200,000 shares of the $7.75 UGI Utilities Series Preferred Stock. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the Financial Accounting Standards Board ("FASB") revised Financial Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was originally issued in January 2003 and clarifies Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interests created or acquired before February 1, 2003, FIN 46 was effective beginning with our interim period ended March 31, 2004. If certain conditions are met, FIN 46 requires the primary beneficiary to consolidate certain variable interest entities. The Company has not created or obtained any variable interest entities after January 31, 2003. The adoption of FIN 46, as revised, did not have a material effect on the Company's financial position or results of operations. On December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law. Among other things, the Act provides for a prescription drug benefit to Medicare beneficiaries on a voluntary basis beginning in 2006. To encourage employers to continue to offer retiree prescription drug benefits, the Act provides for a tax-free subsidy to employers who offer a prescription drug benefit that is at least actuarially equivalent to the standard benefit offered under the Act. The Company provides postretirement health care benefits principally to certain of UGI Utilities' retirees and a limited number of active employees meeting certain age and service requirements. These postretirement benefits include certain retiree prescription drug benefits. Pursuant to orders previously issued by the Pennsylvania Public Utility Commission ("PUC"), UGI Utilities has established a Voluntary Employees' Beneficiary Association ("VEBA") trust to fund the UGI Utilities' postretirement benefit obligations and to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefit costs determined under SFAS No. 106, "Employers Accounting for Postretirement Benefits Other than Pensions." The difference between the annual amount calculated and the amount in UGI Utilities' rates is deferred for future recovery from, or refund to, ratepayers. In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is effective for periods beginning after June 15, 2004. Therefore, the Condensed Consolidated Financial Statements and accompanying footnotes do not reflect the effects of the Act. However, under the current ratemaking described above, any increases or decreases in postretirement benefit costs resulting from the Act will not affect our reported results. In addition, - 35 - UGI CORPORATION AND SUBSIDIARIES because of the limited number of participants in the postretirement medical benefits program and the current level of postretirement medical benefits, we do not believe the Act will have a material effect on the Company's cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary market risk exposures are (1) market prices for propane, natural gas and electricity; (2) changes in interest rates; and (3) foreign currency exchange rates. The risk associated with fluctuations in the prices the Partnership pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. The Partnership's profitability is sensitive to changes in propane supply costs, and the Partnership generally attempts to pass on increases in such costs to customers. The Partnership may not, however, always be able to pass through product cost increases fully, particularly when product costs rise rapidly. In order to reduce the volatility of the Partnership's propane market price risk, it uses contracts for the forward purchase or sale of propane, propane fixed-price supply agreements, and over-the-counter derivative commodity instruments including swap and option contracts. International Propane's profitability is also sensitive to changes in supply costs. The risk associated with fluctuations in the prices our International Propane operations pay for LPG is principally a result of market forces reflecting changes in supply and demand for LPG and other energy commodities. International Propane's profitability is sensitive to changes in LPG supply costs, and International Propane generally attempts to pass on increases in such costs to customers. International Propane may not, however, always be able to pass through product cost increases fully, particularly when product costs rise rapidly. FLAGA uses derivative commodity instruments to reduce market risk associated with a portion of its propane purchases. Over-the-counter derivative commodity instruments utilized by the Partnership and FLAGA to hedge forecasted purchases of propane are generally settled at expiration of the contract. In order to minimize credit risk associated with its derivative commodity contracts, the Partnership monitors established credit limits with the contract counterparties. Although we use derivative financial and commodity instruments to reduce market price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. Gas Utility's tariffs contain clauses that permit recovery of substantially all of the prudently incurred costs of natural gas it sells to its customers. The recovery clauses provide for a periodic adjustment for the difference between the total amounts actually collected from customers through PGC rates and the recoverable costs incurred. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Gas Utility operations. Gas Utility uses exchange-traded natural gas call option contracts to reduce volatility in the cost of gas it purchases for its retail core-market customers. The cost of these call option contracts net of associated gains, if any, is included in Gas Utility's PGC recovery mechanism. Electric Utility purchases its electric power needs from third-party electricity suppliers under fixed-price energy and capacity contracts and, to a much lesser extent, on the spot market. Prices for electricity can be volatile especially during periods of high demand or tight supply. In accordance with Provider of Last Resort ("POLR") settlements approved by the PUC, Electric Utility may increase its POLR rates up to certain limits through December 31, 2006. In accordance with these settlements, effective January 1, 2005 and January 1, 2006, POLR generation rates for all metered customers may increase up to 4.5% and 7.5%, respectively, of total rates in effect on December 31, 2004. Electric Utility's fixed-price contracts with electricity suppliers mitigate most risks associated with the POLR service rate limits in effect through December 31, 2006. However, should any of the suppliers under these contracts fail to provide electric power under the terms of the power and capacity contracts, any increases in the cost of - 36 - UGI CORPORATION AND SUBSIDIARIES replacement power or capacity could negatively impact Electric Utility results. In order to reduce this non-performance risk, Electric Utility has diversified its purchases across several suppliers and entered into bilateral collateral arrangements with certain of them. In order to manage market price risk relating to substantially all of Energy Services' forecasted fixed-price sales of natural gas, Energy Services purchases exchange-traded natural gas futures contracts or enters into fixed-price supply arrangements. Exchange-traded natural gas futures contracts are guaranteed by the New York Mercantile Exchange ("NYMEX") and have nominal credit risk. An adverse change in market value of these contracts may require daily cash deposits in margin accounts with brokers. Although Energy Services' fixed-price supply arrangements mitigate most risks associated with its fixed-price sales contracts, should any of the natural gas suppliers under these arrangements fail to perform, increases, if any, in the cost of replacement natural gas would adversely impact Energy Services' results. In order to reduce this risk of supplier nonperformance, Energy Services has diversified its purchases across a number of suppliers. UGID has entered into fixed-price sales agreements for a portion of the electricity expected to be generated by its interests in electricity generating assets. In the event that these generation assets would not be able to produce all of the electricity needed to supply electricity under these agreements, UGID would be required to purchase such electricity on the spot market or under contract with other electricity suppliers. Accordingly, increases in the cost of replacement power could negatively impact the Company's results. We have both fixed-rate and variable-rate debt. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact its fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows. Our variable-rate debt includes borrowings under AmeriGas OLP's Credit Agreement, borrowings under UGI Utilities' revolving credit agreements and the uncommitted arrangement with a major bank, and a substantial portion of AGZ Holding's and FLAGA's debt. These debt agreements have interest rates that are generally indexed to short-term market interest rates. AGZ Holding has effectively fixed the interest rates on a portion of their variable-rate debt through the use of interest rate swaps. At June 30, 2004, combined borrowings outstanding under these agreements, excluding the effectively fixed portion of AGZ Holding's variable-rate debt, totaled $158.0 million. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratios. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt. In order to reduce interest rate risk associated with near-term forecasted issuances of fixed-rate debt, from time to time we enter into interest rate protection agreements. The following table summarizes the fair values of unsettled market risk sensitive derivative instruments held at June 30, 2004. Fair values reflect the estimated amounts that we would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts at June 30, 2004. The table also includes the changes in fair value that would result if there were a ten percent adverse change in (1) the market price of propane; (2) the market price of natural gas; (3) the market price of electricity; and (4) interest rates on ten-year U.S. treasury notes. - 37 - UGI CORPORATION AND SUBSIDIARIES
Change in Fair Value Fair Value - ------------------------------------------------------------ (Millions of dollars) June 30, 2004: Propane commodity price risk $ 2.7 $ (6.5) Natural gas commodity price risk 1.0 (1.4) Electricity commodity price risk 1.7 (0.9) Interest rate risk 3.1 (6.3) - ------------------------------------------------------------
Gas Utility's exchange-traded natural gas call option contracts are excluded from the table above because any associated net gains or losses are included in Gas Utility's PGC recovery mechanism. Because the Company's derivative instruments generally qualify as hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133"), we expect that changes in the fair value of derivative instruments used to manage commodity or interest rate market risk would be substantially offset by gains or losses on the associated anticipated transactions. The primary currency for which the Company has exchange rate risk is the U.S. dollar versus the euro. The U.S. dollar value of our foreign-denominated assets and liabilities will fluctuate with changes in the associated foreign currency exchange rates. With respect to FLAGA, the net effect of changes in foreign currency exchange rates on their U.S. dollar denominated assets and liabilities would not be material because FLAGA's U.S. dollar denominated financial instrument assets and liabilities are not materially different in amount. With respect to our net investments in FLAGA and Antargaz, a 10% decline in the value of the euro versus the U.S. dollar would reduce their aggregate net book value by approximately $43.3 million, which amount would be reflected in other comprehensive income. In March 2004, the Company entered into a foreign currency swap agreement to hedge a portion of its net investment in foreign operations. This foreign currency swap agreement has been designated as a net investment hedge in a foreign subsidiary and qualifies for hedge accounting. Therefore, any changes in fair value are recorded in other comprehensive income. Upon settlement of the foreign currency swap agreement, any realized gain or loss will remain in other comprehensive income until such foreign operations have been liquidated. As of June 30, 2004, the fair value of our foreign currency swap was a loss of $0.1 million and an adverse change in the value of the euro versus the dollar by 10% would result in a $4.9 million decrease in fair value. The foreign currency swap was settled in July 2004 at a loss of $1.0 million. From time to time, the Company may use derivative instruments to hedge additional portions of its net investments in foreign subsidiaries. - 38 - UGI CORPORATION AND SUBSIDIARIES ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company's internal control over financial reporting. As described in Note 3 to the Condensed Consolidated Financial Statements included in this report, on March 31, 2004, the Company acquired the remaining outstanding 80.5% ownership in AGZ Holding that it did not already own. The internal control over financial reporting of AGZ Holding and its subsidiaries ("Antargaz") is being aligned with that of the Company as part of the post-acquisition financial integration process. As a result of this continuing integration process, we have extended internal control procedures over quarterly financial reporting to include Antargaz. - 39 - UGI CORPORATION AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Sag Harbor, New York. By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI Utilities, Inc. ("Utilities") that KeySpan has spent $2.3 million and expects to spend another $11 million to clean up a manufactured gas plant site it owns in Sag Harbor, New York. KeySpan believes that Utilities is responsible for approximately 50% of these costs as a result of Utilities' alleged direct ownership and operation of the plant from 1885 to 1902. Utilities is in the process of reviewing the information provided by KeySpan and is investigating this claim. Connecticut Gas Plants. By letter dated August 5, 2004, Yankee Gas Services Company and Connecticut Light and Power Company, subsidiaries of Northeast Utilities, (together the "Northeast Companies"), demanded contribution from Utilities for past and future remediation costs related to manufactured gas plant operations on thirteen sites owned by the Northeast Companies in nine cities in the State of Connecticut. The Northeast Companies allege that Utilities controlled operations of the plants from 1883 to 1941. According to the letter, investigation and remedial costs at the sites to date total approximately $10 million and complete remediation costs for all sites could total $182 million. The Northeast Companies seek an unspecified fair and equitable allocation of these costs to Utilities. Utilities is in the process of reviewing the information provided by Northeast Companies and is investigating this claim. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.1 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of January 1, 2004 (Incorporated by reference to Exhibit 99.1 of UGI Corporation's Registration Statement No. 333-118147). 10.2 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of December 16, 2003. 10.3 UGI Corporation Senior Executive Employee Severance Pay Plan, as amended December 16, 2003. 10.4 UGI Corporation Severance Plan for Exempt Employees in Salary Grades 70-75 and Salary Grades 57-60, as amended December 16, 2003. 10.5 Amendment Agreement dated June 18, 2004, relating to the Senior Facilities Agreement dated June 26, 2003, as Amended and Restated, between AGZ Holding, as Parent, Antargaz, the Senior Lenders, (as defined therein) and Calyon, as Mandated Lead Arranger, Facility Agent and Security Agent. 10.6 Creditor Accession Agreement dated June 18, 2004, between UGI Bordeaux Holding, as the New Investor, and Calyon, as Security Agent. 10.7 Letter of Undertakings dated June 18, 2004, by UGI Bordeaux Holding to AGZ Holding, the Parent of Antargaz, and Calyon, the Facility Agent, acting on behalf of the Lenders, (as defined within the Senior Facilities Agreement). - 40 - UGI CORPORATION AND SUBSIDIARIES 10.8 Tax Consolidation Agreement, dated June 18, 2004, entered into by UGI Bordeaux Holding and its Subsidiaries named therein. 31.1 Certification by the Chief Executive Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The Company furnished and filed information in a Current Report on Form 8-K during the third quarter of fiscal year 2004 as follows:
DATE ITEM NUMBER(S) CONTENT - ---- -------------- ------- April 28, 2004 12 Press Release reporting financial results for the fiscal quarter ended March 31, 2004. April 30, 2004 4, 7 Change in Certifying Accountant for UGI HVAC Enterprises, Inc., UGI Utilities, Inc. and AmeriGas Propane, Inc. Savings Plans.
- -------- * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. - 41 - UGI CORPORATION AND SUBSIDIARIES 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. UGI Corporation --------------- (Registrant) Date: August 13, 2004 By: /s/ Anthony J. Mendicino ------------------------------------ Anthony J. Mendicino Senior Vice President-Finance and Chief Financial Officer Date: August 13, 2004 By: /s/ Michael J. Cuzzolina ------------------------------------ Michael J. Cuzzolina Vice President-Accounting and Financial Control and Chief Risk Officer - 42 - UGI CORPORATION AND SUBSIDIARIES EXHIBIT INDEX 10.1 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of January 1, 2004 (Incorporated by reference to Exhibit 99.1 of UGI Corporation's Registration Statement No. 333-118147). 10.2 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of December 16, 2003. 10.3 UGI Corporation Senior Executive Employee Severance Pay Plan, as amended December 16, 2003. 10.4 UGI Corporation Severance Plan for Exempt Employees in Salary Grades 70-75 and Salary Grades 57-60, as amended December 16, 2003. 10.5 Amendment Agreement dated June 18, 2004, relating to the Senior Facilities Agreement dated June 26, 2003, as Amended and Restated, between AGZ Holding, as Parent, Antargaz, the Senior Lenders, (as defined therein) and Calyon, as Mandated Lead Arranger, Facility Agent and Security Agent. 10.6 Creditor Accession Agreement dated June 18, 2004, between UGI Bordeaux Holding, as the New Investor, and Calyon, as Security Agent. 10.7 Letter of Undertakings dated June 18, 2004, by UGI Bordeaux Holding, to AGZ Holding, the Parent of Antargaz, and Calyon, the Facility Agent, acting on behalf of the Lenders, (as defined within the Senior Facilities Agreement). 10.8 Tax Consolidation Agreement dated June 18, 2004, entered into by UGI Bordeaux Holding and its Subsidiaries named therein. 31.1 Certification by the Chief Executive Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - -------- * This Exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing. EX-10.2 2 w99159exv10w2.txt 2000 STOCK INCENTIVE PLAN AMENDED AND RESTATED EXHIBIT 10.2 UGI CORPORATION 2000 STOCK INCENTIVE PLAN AMENDED AND RESTATED AS OF DECEMBER 16, 2003 TABLE OF CONTENTS
PAGE 1. Purpose and Design................................................................. 1 2. Definitions........................................................................ 1 3. Maximum Number of Shares Available for Options and Restricted Stock Grants......... 3 4. Duration of the Plan............................................................... 4 5. Administration..................................................................... 4 6. Eligibility........................................................................ 4 7. Options............................................................................ 4 8. Restricted Stock................................................................... 7 9. Dividend Equivalents and Restricted Stock Dividend Equivalents..................... 8 10. Requirements for Performance Goals and Performance Periods......................... 11 11. Non-Transferability................................................................ 12 12. Consequences of a Change of Control................................................ 12 13. Adjustment of Number and Price of Shares, Etc...................................... 13 14. Limitation of Rights............................................................... 13 15. Amendment or Termination of Plan................................................... 13 16. Tax Withholding.................................................................... 14 17. Governmental Approval.............................................................. 14 18. Effective Date of Plan............................................................. 14 19. Successors......................................................................... 14 20. Headings and Captions.............................................................. 14 21. Governing Law...................................................................... 15 Exhibit A................................................................................... 1
(i) UGI CORPORATION 2000 STOCK INCENTIVE PLAN AMENDED AND RESTATED AS OF DECEMBER 16, 2003 1. PURPOSE AND DESIGN The purpose of this Plan is to assist the Company in securing and retaining key corporate executives of outstanding ability, who are in a position to significantly participate in the development and implementation of the Company's strategic plans and thereby contribute materially to the long-term growth, development and profitability of the Company, by affording them an opportunity to purchase its Stock under options or an opportunity to acquire stock by the achievement of specific performance goals. The Plan is designed to align directly long-term executive compensation with tangible, direct and identifiable benefits realized by the Company's shareholders. 2. DEFINITIONS Whenever used in this Plan, the following terms will have the respective meanings set forth below: 2.1 "Account" means a bookkeeping account established on the records of the Company to record a Participant's interests under the Plan. 2.2 "Administrative Committee" means the committee of employees of the Company appointed by the Committee to perform ministerial and other assigned functions. 2.3 "Board" means UGI's Board of Directors as constituted from time to time. 2.4 "Change of Control" means a change of control as defined in the attached Exhibit A, as amended from time to time pursuant to Section 15. 2.5 "Committee" means the Compensation and Management Development Committee of the Board or its successor. 2.6 "Company" means UGI Corporation, a Pennsylvania corporation, any successor thereto and any Subsidiary. 2.7 "Comparison Group" means the group determined by the Committee (no later than ninety (90) days after the commencement of a Performance Period) consisting of the Company and such other companies deemed by the Committee (in its sole discretion) to be reasonably comparable to the Company. 2.8 "Date of Grant" means the effective date of an Option or Restricted Stock grant; provided, however, that no retroactive grants will be made. 1 2.9 "Dividend Equivalent" means an amount determined by multiplying the number of shares of Stock subject to an Option granted in conjunction with the Dividend Equivalent (whether or not the Option is ever exercised with respect to any or all shares of Stock subject thereto), subject to any adjustment under Section 13, by the per-share cash dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date that falls within the relevant Performance Period. See also "Restricted Stock Dividend Equivalent." 2.10 "Employee" means a regular full-time salaried employee (including officers and directors who are also employees) of the Company. 2.11 "Fair Market Value" of Stock means the average, rounded to one cent ($0.01), of the highest and lowest sales prices thereof on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the Composite Tape for transactions on the New York Stock Exchange. In the event that there are no Stock transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Stock transactions on that exchange. Notwithstanding the foregoing, in the case of a cashless exercise pursuant to Section 7.4(iv), the Fair Market Value will be the actual sale price of the shares issued upon exercise of the Option. 2.12 "Grant Letter" means the written instrument that sets forth the terms and conditions of a grant under the Plan, including all amendments thereto. 2.13 "Option" means the right to purchase Stock pursuant to the relevant provisions of this Plan at the Option Price for a specified period of time, not to exceed ten years from the Date of Grant, which period of time will be subject to earlier termination prior to exercise in accordance with Section 7.3(b) of this Plan. 2.14 "Option Price" means an amount per share of Stock purchasable under an Option designated by the Committee on the Date of Grant of an Option to be payable upon exercise of such Option. The Option Price will not be less than 100% of the Fair Market Value of the Stock determined on the Date of Grant. 2.15 "Participant" means an Employee designated by the Committee to participate in the Plan. 2.16 "Performance Goal" means the goal or goals and other requirements that must be met in order for Dividend Equivalents and Restricted Stock Dividend Equivalents, if any, to be paid and restrictions on Restricted Stock to lapse. All Performance Goals must meet the requirements of Section 10. 2.17 "Performance Period" means the performance period during which performance will be measured, as specified by the Committee. Performance Periods must meet the requirements of Section 10. 2.18 "Plan" means this 2000 Stock Incentive Plan. 2 2.19 "Restricted Stock" means shares of Stock that are subject to restrictions as determined by the Committee. 2.20 "Restriction Period" means the period of time during which Restricted Stock shall be subject to restrictions or conditions, including the Performance Period and any other period specified in the Grant Letter. 2.21 "Severance Plan" means any severance plan maintained by the Company that is applicable to the Employee. 2.22 "Restricted Stock Dividend Equivalent" means an amount determined by multiplying the number of shares of Restricted Stock granted in conjunction with the Restricted Stock Dividend Equivalent, subject to any adjustment under Section 13, by the per-share cash dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date that falls within the relevant period specified in the Grant Letter. 2.23 "Stock" means the Common Stock of UGI or such other securities of UGI as may be substituted for Stock or such other securities pursuant to Section 13. 2.24 "Subsidiary" means any corporation or partnership, at least 20% of the outstanding voting stock, voting power or partnership interest of which is owned respectively, directly or indirectly, by the Company. 2.25 "Termination without Cause" means termination for the convenience of the Company for any reason other than (i) misappropriation of funds, (ii) habitual insobriety or substance abuse, (iii) conviction of a crime involving moral turpitude, or (iv) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company. The Committee will have the sole discretion to determine whether a significant reduction in the duties and responsibilities of a Participant will constitute a Termination without Cause. 2.26 "UGI" means UGI Corporation, a Pennsylvania corporation or any successor thereto. 3. MAXIMUM NUMBER OF SHARES AVAILABLE FOR OPTIONS AND RESTRICTED STOCK GRANTS The number of shares of Stock which may be made the subject of Options and the number of shares of Restricted Stock that may be granted under this Plan may not exceed 1,650,000 in the aggregate (after giving retroactive effect to the 3-for-2 Stock split distributed April 1, 2003), subject, however, to the adjustment provisions of Section 13 below, and provided that the maximum number of Restricted Shares issued hereunder is 750,000. With regard to grants to any one individual in a calendar year: (i) the number of shares of Restricted Stock that may be issued will not exceed 150,000, and (ii) the number of shares of Restricted Stock together with the number of shares of Stock which may be the subject of grants of Options will not exceed 750,000. If any Option expires or terminates for any reason without having been exercised in full or if Restricted Stock is forfeited, the unpurchased shares subject to the Option or the forfeited shares of Restricted Stock will again be available for the purposes of the Plan. 3 Shares of Restricted Stock and shares which are the subject of Options may be previously issued and outstanding shares of Stock reacquired by the Company and held in its treasury, or may be authorized but unissued shares of Stock, or may be a combination of both. 4. DURATION OF THE PLAN The Plan will remain in effect until all Stock subject to it has been transferred to Participants or all Options have terminated or been exercised and all shares of Restricted Stock have been vested or forfeited. Notwithstanding the foregoing, Options and Restricted Stock may not be granted after December 31, 2009. 5. ADMINISTRATION The Plan will be administered by the Committee. Subject to the express provisions of the Plan, the Committee will have authority, in its complete discretion, to determine the Employees to whom, and the time or times at which grants will be made. In making such determinations, the Committee may take into account the nature of the services rendered by an Employee, the present and potential contributions of the Employee to the Company's success and such other factors as the Committee in its discretion deems relevant. Awards under a particular Section of the Plan need not be uniform as among Participants. Subject to the express provisions of the Plan, the Committee will also have authority to construe and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective stock option agreements required by Section 7.2 of the Plan and the terms and provisions of the restrictions relating to Restricted Stock (none of which need be identical), and to make all other determinations (including factual determinations) necessary or advisable for the orderly administration of the Plan. All ministerial functions, in addition to those specifically delegated elsewhere in the Plan, shall be performed by the Administrative Committee. The Grant Letter shall set forth the terms of each grant under the Plan. Each Participant's receipt of a Grant Letter shall constitute that Participant's acknowledgement and acceptance of the terms of the Plan and the grant and the Committee's authority and discretion. 6. ELIGIBILITY Grants hereunder may be made only to Employees (including directors who are also Employees of the Company) who, in the sole judgment of the Committee, are individuals who are in a position to significantly participate in the development and implementation of the Company's strategic plans and thereby contribute materially to the continued growth and development of the Company and to its future financial success. 7. OPTIONS 7.1 Grant of Options. Subject to the provisions of Sections 2.11 and 3: (i) Options may be granted to Participants at any time and from time to time as may be determined by the Committee; and (ii) the Committee will have complete discretion in determining the Options to be granted, the number of shares of Stock to be subject to each Option, the Option Price to be paid for the shares upon the exercise of each Option, the period within which each Option may be exercised, the vesting schedule associated with the Option, and whether the Option will include Dividend Equivalents. 4 7.2 Option Agreement. As determined by the Committee on the Date of Grant, each Option will be evidenced by a stock option agreement that will, among other things, specify the Date of Grant, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, the Option's vesting schedule, and whether the Option will include Dividend Equivalents. 7.3 Exercise and Vesting. (a) Except as otherwise specified by the Committee in the stock option agreement, the Option shall become exercisable in equal one-third (1/3) installments on the first, second and third anniversaries of the Date of Grant. Notwithstanding the foregoing, in the event that any such Options are not by their terms immediately exercisable, the Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. No Option will be exercisable on or after the tenth anniversary of the Date of Grant. (b) Except as otherwise specified by the Committee, in the event that a Participant holding an Option ceases to be an Employee, the Options held by such Participant will terminate on the date such Participant ceases to be an Employee. The Committee will have authority to determine whether an authorized leave of absence or absence on military or governmental service will constitute a termination of employment for the purposes of this Plan. However, if a Participant holding an Option ceases to be an Employee by reason of (i) Termination without Cause, (ii) retirement, (iii) disability, or (iv) death, the Option held by any such Participant will thereafter become exercisable pursuant to the following: (i) Termination Without Cause. If a Participant terminates employment on account of a Termination without Cause, the Option held by such Participant will thereafter be exercisable only with respect to that number of shares of Stock with respect to which it is already exercisable on the date such Participant ceases to be an Employee; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of the 13 month period commencing on the date such Participant ceases to be an Employee. (ii) Retirement. If a Participant terminates employment on account of a retirement under the Company's retirement plan applicable to that Participant, the Option held by such Participant will thereafter become exercisable as if such Participant had remained employed by the Company for 36 months after the date of such retirement; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of such 36 month period. Retirement for Employees of AmeriGas Propane, Inc. ("API") means termination of employment with API after attaining age 55 with ten or more years of service with API and its affiliates. (iii) Disability. If a Participant is determined to be "disabled" (as defined under the Company's long-term disability plan), the Option held by such Participant will thereafter become exercisable as if such Participant had remained employed by the Company for 36 months after the date of such disability; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of such 36 month period. 5 (iv) Death. In the event of the death of a Participant while employed by the Company, the Option theretofore granted to such Participant will be fully and immediately exercisable (to the extent not otherwise exercisable by its terms) at any time prior to the earlier of the expiration date of the Option or the expiration of the 12 month period following the Participant's death. Death of a Participant after such Participant has ceased to be employed by the Company will not affect the otherwise applicable period for exercise of the Option determined pursuant to Sections 7.3(b)(i), 7.3(b)(ii) or 7.3(b)(iii). Such Option may be exercised by the estate of the Participant, by any person to whom the Participant may have bequeathed the Option, any person the Participant may have designated to exercise the same under the Participant's last will, or by the Participant's personal representatives if the Participant has died intestate. (c) Notwithstanding anything contained in this Section 7.3, with respect to the number of shares of Stock subject to an Option with respect to which such Option is or is to become exercisable, no Option, to the extent that it has not previously been exercised, will be exercisable after it has terminated, including without limitation, after any termination of such Option pursuant to Section 7.3(b) hereof. 7.4 Payment. The Option Price upon exercise of any Option will be payable to the Company in full (i) in cash or its equivalent, (ii) by tendering shares of previously acquired Stock already beneficially owned by the Participant for more than one year and having a Fair Market Value at the time of exercise equal to the Option Price being paid thereby, (iii) by applying Dividend Equivalents payable to the Participant in accordance with Section 8 of the Plan in an amount equal to the total Option Price, (iv) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, (v) by such other method as the Committee may approve, or (vi) by a combination of (i), (ii), (iii), (iv) and/or (v). The cash proceeds from such payment will be added to the general funds of the Company and will be used for its general corporate purposes. 7.5 Written Notice. A Participant wishing to exercise an Option must give irrevocable written notice to the Company in the form and manner prescribed by the Administrative Committee, indicating the date of award, the number of shares as to which the Option is being exercised, and such other information as may be required by the Administrative Committee. Full payment for the shares pursuant to the Option must be received by the time specified by the Committee depending on the type of payment being made but, in all cases, prior to the issuance of the Stock. Except as provided in Section 7.3(b), no Option may be exercised at any time unless the Participant is then an Employee of the Company. 7.6 Issuance of Stock. As soon as practicable after the receipt of irrevocable written notice and payment, the Company will, without stock transfer taxes to the Participant or to any other person entitled to exercise an Option pursuant to this Plan, deliver to, or credit electronically on behalf of, the Participant, the Participant's designee or such other person the requisite number of shares of Stock. 7.7 Privileges of a Shareholder. A Participant or any other person entitled to exercise an Option under this Plan will have no rights as a shareholder with respect to any Stock covered by the Option until the due exercise of the Option and issuance of such Stock. 6 7.8 Partial Exercise. An Option granted under this Plan may be exercised as to any lesser number of shares than the full amount for which it could be exercised. Such a partial exercise of an Option will not affect the right to exercise the Option from time to time in accordance with this Plan as to the remaining shares subject to the Option. 8. RESTRICTED STOCK 8.1 Grant of Restricted Stock. Subject to the provisions of Section 3, shares of Restricted Stock may be granted to Participants at any time and from time to time as may be determined by the Committee. Shares of Restricted Stock may be granted with or without Restricted Stock Dividend Equivalents as determined by the Committee. Shares issued or transferred pursuant to Restricted Stock awards may be issued or transferred for consideration or for no consideration, and will be subject to Performance Goals meeting the requirements of Section 10, including all requirements set forth in the Grant Letter. 8.2 Requirement of Employment or Service. The restrictions on a Participant's Restricted Stock shall lapse, and the Restricted Stock shall be payable, at the end of the Restriction Period according to the terms set forth in the Grant Letter. If the Participant ceases to be employed by, or provide service to, the Company before the end of the Restriction Period, the Restricted Stock award will terminate as to all shares covered by the grant as to which the restrictions have not lapsed, and those shares of Stock must be immediately returned to the Company. However, if a Participant holding Restricted Stock ceases to be an Employee by reason of (i) retirement, (ii) disability, or (iii) death, the restrictions on Restricted Stock held by any such Participant will lapse pursuant to the following: (a) Retirement. If a Participant terminates employment on account of a retirement under the Company's retirement plan applicable to that Participant, the restrictions on such Participant's Restricted Stock will lapse with regard to any Performance Period that ends within 36 months after the date of such retirement; provided that the Performance Goals associated with such Performance Period are achieved within that 36 month period. Retirement for Employees of AmeriGas Propane, Inc. ("API") means termination of employment with API after attaining age 55 with ten or more years of service with API and its affiliates. (b) Disability. If a Participant is determined to be "disabled" (as defined under the Company's long-term disability plan), the restrictions on such Participant's Restricted Stock will lapse with regard to any Performance Period that ends within 36 months after the date of such disability; provided that the Performance Goals associated with such Performance Period are achieved within that 36 month period. (c) Death. In the event of the death of a Participant while employed by the Company, the restrictions on such Participant's Restricted Stock will lapse at the end of the Performance Period associated with such Restricted Stock upon the achievement of the related Performance Goals. (d) Time of Payment. In the event of retirement, disability or death, the Participant's Restricted Stock shall be paid at the date specified for payment of the Restricted Stock in the Grant Letter, or at an earlier date determined by the Committee. 7 (e) Coordination with Severance Plan. Notwithstanding anything in this Plan to the contrary, if a Participant receives severance benefits under a Severance Plan, the terms of which require that severance compensation payable under the Severance Plan be reduced by benefits payable under this Plan, any amount payable to the Participant under Restricted Stock and Restricted Stock Dividend Equivalents after the Participant's termination of employment shall be reduced by the amount of severance compensation paid to the Participant under the Severance Plan, as required by, and according to the terms of, the Severance Plan. 8.3 Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period set forth in the Grant Letter, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of Restricted Stock or rights to Restricted Stock Dividend Equivalents, if any. Any certificate for a share of a Restricted Stock will contain a legend giving appropriate notice of the restrictions in the grant. The Participant will be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Administrative Committee may determine that the Company will not issue certificates for Restricted Stock until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Restricted Stock until all restrictions on such shares have lapsed. 8.4 Privileges of a Shareholder. Unless the Committee determines otherwise, during the Restriction Period, a Participant who has been issued certificates under Section 8.3 will have the right to vote shares of Restricted Stock and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee. 8.5 Form of Payment for Restricted Stock. The Committee will have the sole discretion to determine whether the Company's obligation in respect of payment of Restricted Stock awards for a Participant who is not issued certificates under Section 8.3 will be paid in Stock, solely in cash or partly in Stock and partly in cash. 9. DIVIDEND EQUIVALENTS AND RESTRICTED STOCK DIVIDEND EQUIVALENTS (a) Amount of Dividend Equivalents Credited. If the Committee so specifies, as of the Date of Grant in the stock option agreement, from the Date of Grant of an Option to a Participant (or, in the case of an Option granted after the date of commencement of a Performance Period to a new Participant or to a Participant with changed responsibilities, in which event, from such date not earlier than the date of commencement of the Performance Period as is designated by the Committee) until the earlier of (i) the end of the applicable Performance Period or (ii) the date of disability, death or termination of employment for any reason (including retirement), of a Participant, the Company will keep records for such Participant ("Account") and will credit on each payment date for the payment of a dividend made by UGI on its Stock an amount equal to the Dividend Equivalent associated with such Option. Notwithstanding the foregoing, a Participant may not accrue during any calendar year Dividend Equivalents in excess of $1,000,000. Except as set forth in Section 9.5 below, no interest will be credited to any such Account. (b) Amount of Restricted Stock Dividend Equivalents Credited. If the Committee so specifies when granting Restricted Stock, from the Date of Grant of Restricted 8 Stock to a Participant (or, in the case of Restricted Stock granted after the date of commencement of a Performance Period to a new Participant or to a Participant with changed responsibilities, in which event, from such date not earlier than the date of commencement of the Performance Period as is designated by the Committee) until the earlier of (i) the end of the applicable Restriction Period or (ii) the date of disability, death or termination of employment for any reason (including retirement), of a Participant, the Company will maintain an Account for each Participant and will credit on each payment date for the payment of a dividend made by UGI on its Stock an amount equal to the Restricted Stock Dividend Equivalent associated with such Restricted Stock. Notwithstanding the foregoing, a Participant may not accrue during any calendar year Restricted Stock Dividend Equivalents in excess of $1,000,000. No interest will be credited to any such Account. 9.2 Payment of Credited Dividend Equivalents and Restricted Stock Dividend Equivalents. Payment of Dividend Equivalents and Restricted Stock Dividend Equivalents will be made only upon the determination by the Committee that all requirements of the Performance Goals associated with such Dividend Equivalents and Restricted Stock Dividend Equivalents have been achieved as prescribed in accordance with Section 10. 9.3 Timing of Payment of Dividend Equivalents and Restricted Stock Dividend Equivalents. (a) Except as otherwise determined by the Committee, in the event of the (i) termination of an Option prior to exercise pursuant to Section 7.3(b) hereof, or (ii) acceleration of the exercise date of an Option pursuant to Section 7.3(a) hereof, in either case prior to the end of the applicable Performance Period, no payments of Dividend Equivalents associated with any Option will be made (A) prior to the end of the applicable Performance Period and (B) to any Participant whose employment by the Company terminates prior to the end of the applicable Performance Period for any reason other than retirement under the Company's retirement plan, death, disability or Termination without Cause. As soon as practicable after the end of such Performance Period, the Committee will certify and announce the results for each Performance Period prior to any payment of Dividend Equivalents and unless a Participant will have made an election under Section 9.6 to defer receipt of any portion of such amount, a Participant will receive the aggregate amount of Dividend Equivalents payable to that Participant in the form specified by the Committee. (b) Except as otherwise determined by the Committee, in the event of the termination of a grant of Restricted Stock pursuant to Section 8.2 hereof, no payments of Restricted Stock Dividend Equivalents associated with Restricted Stock will be made (A) prior to the end of the applicable Restriction Period and (B) to any Participant whose employment by the Company terminates prior to the end of the applicable Restriction Period for any reason other than retirement under the Company's retirement plan, death or disability. As soon as practicable after the end of a Performance Period, the Committee will certify and announce the results for the Performance Period prior to any payment of Restricted Stock Dividend Equivalents. Unless a Participant will have made an election under Section 9.6 to defer receipt of any portion of such amount, a Participant will receive the aggregate amount of Restricted Stock Dividend Equivalents payable to that Participant in cash at the end of the applicable Restriction Period. 9 (c) Notwithstanding anything to the contrary in this Section 9.3, unless a payment of Dividend Equivalents associated with an Option is being made upon full exercise or termination of such Option, no Dividend Equivalents will be paid (either at the end of the applicable Performance Period or on a date such Dividend Equivalents are scheduled to be paid pursuant to a deferral election) if the average Fair Market Value of Stock for a period of thirty (30) consecutive business days immediately preceding the end of the applicable Performance Period or the date such deferred payment is scheduled to be made (as the case may be) is less than the exercise price of the Option to which such Dividend Equivalents were associated, and such payment will instead be made at the earlier of (i) such time as the average Fair Market Value of Stock over a period of ninety (90) consecutive business days thereafter exceeds the exercise price of such Option, or (ii) the termination or expiration date of such Option. 9.4 Form of Payment for Dividend Equivalents. The Committee will have the sole discretion to determine whether the Company's obligation in respect of payment of Dividend Equivalents will be paid solely in credits to be applied toward payment of the Option Price, solely in cash or partly in such credits and partly in cash. 9.5 Interest on Dividend Equivalents. From a date which is thirty (30) days after the end of the applicable Performance Period until the date that all Dividend Equivalents associated with such Option and payable to a Participant are paid to such Participant, the Account maintained by the Company in its books and records with respect to such Dividend Equivalents will be credited with interest at a market rate determined by the Administrative Committee. The interest rate will be no higher than the prime interest rate as quoted in the Wall Street Journal on the last day of the month preceding the end of the Performance Period, or the preceding business day if the last day of the month is not a business day. 9.6 Deferral of Dividend Equivalents and Restricted Stock Dividend Equivalents. A Participant will have the right to defer receipt of any Dividend Equivalent or Restricted Stock Dividend Equivalent payments associated with an Option or Restricted Stock if the Participant elects to do so on or prior to December 31 of the year preceding the beginning of the last full year of the applicable Performance Period (or such other time as the Administrative Committee will determine is appropriate to make such deferral effective under the applicable requirements of federal tax laws). The terms and conditions of any such deferral (including the period of time thereof) will be subject to approval by the Administrative Committee and all deferrals will be made on a form provided a Participant for this purpose. 10 10. REQUIREMENTS FOR PERFORMANCE GOALS AND PERFORMANCE PERIODS 10.1 Designation as Qualified Performance-Based Compensation. Grants of Restricted Stock, Restricted Stock Dividend Equivalents and Dividend Equivalents will qualify as "qualified performance-based compensation" under Section 162(m) of the Internal Revenue Code ("Code"), including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the Performance Goals have been met. The Committee will not have discretion to increase the amount of compensation that is payable upon achievement of the designated Performance Goals, but may, in its sole discretion, reduce the amount of compensation that is payable upon achievement of the designated Performance Goals. 10.2 Requirements for Performance Goals. When Restricted Stock, Restricted Stock Dividend Equivalents and Dividend Equivalents are granted, the Committee will establish in writing Performance Goals either before the beginning of the Performance Period or during a period ending no later than the earlier of (i) 90 days after the beginning of the Performance Period or (ii) the date on which 25% of the Performance Period has elapsed, or such other date as may be required or permitted under applicable regulations under Section 162(m) of the Code. The Performance Goal must specify (A) the objective Performance Goal(s) that must be met in order for restrictions on the Restricted Stock to lapse or the Restricted Stock Dividend Equivalents or Dividend Equivalents to be paid, (B) the Performance Period during which performance will be measured, (C) the maximum amounts that may be paid if the Performance Goals are met, and (D) any other conditions that the Committee deems appropriate and consistent with the Plan and the requirements of Section 162(m) of the Code for qualified performance based compensation, including any Restriction Period, the time of payment and other requirements. 10.3 Criteria Used for Performance Goals. The Committee will use objectively determinable business criteria for the Performance Goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in assets, unit volume, sales, cash flow, market share, relative performance to a Comparison Group, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures. The Performance Goals may relate to the Participant's business unit or the performance of the Company and its subsidiaries as a whole, or any combination of the foregoing. Performance Goals need not be uniform as among Participants. 10.4 Announcement of Performance; Forfeitures. The Committee will certify and announce the results for each Performance Period to all Participants as promptly as practicable following the completion of the Performance Period. If and to the extent that all requirements of the Performance Goals and the Grant Letter are not met, grants of Restricted Stock, Restricted Stock Dividend Equivalents or Dividend Equivalents will be forfeited. 11 11. NON-TRANSFERABILITY No Option, shares of Restricted Stock, rights to Restricted Stock Dividend Equivalents, Dividend Equivalents or other rights granted under the Plan will be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised, during the lifetime of the Participant, only by the Participant. 12. CONSEQUENCES OF A CHANGE OF CONTROL 12.1 Notice and Acceleration. Upon a Change of Control, unless the Committee determines otherwise, (i) the Company will provide each Participant with outstanding grants written notice of such Change of Control, (ii) all outstanding Options will automatically accelerate and become fully exercisable, (iii) the restrictions and conditions on all outstanding Restricted Stock grants will immediately lapse, and (iv) Dividend Equivalents and Restricted Stock Dividend Equivalents will become payable in cash in such amounts as the Committee may determine. 12.2 Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation (or a parent of the surviving corporation), and other outstanding grants will be converted to similar grants of the surviving corporation (or a parent of the surviving corporation). 12.3 Other Alternatives. Notwithstanding the foregoing, subject to Section 12.4 below, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all outstanding Options: the Committee may (i) require that Participants surrender their outstanding Options in exchange for a payment by the Company, in cash or Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Stock subject to the Participant's unexercised Options exceeds the Option Price of the Options, as applicable, or (ii) after giving Participants an opportunity to exercise their outstanding Options, terminate any or all unexercised Options at such time as the Committee deems appropriate. Such surrender, termination or settlement will take place as of the date of the Change of Control or such other date as the Committee may specify. 12.4 Committee. The Committee making the determinations under this Section 12 following a Change of Control must be comprised of the same members as those on the Committee immediately before the Change of Control. If the Committee members do not meet this requirement, the automatic provisions of Sections 12.1 and 12.2 will apply, and the Committee will not have discretion to vary them. 12.5 Limitations. Notwithstanding anything in the Plan to the contrary, in the event of a Change of Control, the Committee will not have the right to take any actions described in the Plan (including without limitation actions described in this Section 12) that would make the Change of Control ineligible for pooling of interests accounting treatment or that would make the Change of Control ineligible for desired accounting treatment if, in the absence of such right, the 12 Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. 13. ADJUSTMENT OF NUMBER AND PRICE OF SHARES, ETC. Notwithstanding anything to the contrary in this Plan, in the event any recapitalization, reorganization, merger, consolidation, spin-off, combination, repurchase, exchange of shares or other securities of UGI, stock split or reverse split, extraordinary dividend, liquidation, dissolution, significant corporate transaction (whether relating to assets or stock) involving UGI, or other extraordinary transaction or event affects Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of Participants' rights under the Plan, then the Committee may, in a manner that is equitable, adjust (i) any or all of the number or kind of shares of Stock reserved for issuance under the Plan, (ii) the maximum number of shares of Stock which may be the subject of grants to any one individual in any calendar year, (iii) the number or kind of shares of Stock to be subject to grants of Restricted Stock and Options thereafter granted under the Plan, (iv) the number and kind of shares of Stock issuable upon exercise of outstanding Options, (v) the Option Price per share thereof, (vi) the number of shares of Restricted Stock, (vii) the terms and conditions applicable to Restricted Stock, and/or (viii) the terms and conditions applicable to Dividend Equivalents and Restricted Stock Dividend Equivalents, provided that the number of Restricted Shares and the number of shares subject to any Option will always be a whole number. Any such determination of adjustments by the Committee will be conclusive for all purposes of the Plan and of each Option and grant of Restricted Stock, whether a stock option agreement or grant letter with respect to a particular Option or grant of Restricted Stock has been theretofore or is thereafter executed. 14. LIMITATION OF RIGHTS Nothing contained in this Plan will be construed to give an Employee any right to a grant hereunder except as may be authorized in the discretion of the Committee. A grant under this Plan will not constitute or be evidence of any agreement or understanding, expressed or implied, that the Company will employ a Participant for any specified period of time, in any specific position or at any particular rate of remuneration. 15. AMENDMENT OR TERMINATION OF PLAN Subject to Board approval, the Committee may at any time, and from time to time, alter, amend, suspend or terminate this Plan without the consent of the Company's shareholders or Participants, except that any such alteration, amendment, suspension or termination will be subject to the approval of the Company's shareholders within one year after such Committee and Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock is then listed or quoted, or if the Committee in its discretion determines that obtaining such shareholder approval is for any reason advisable. No termination or amendment of this Plan may, without the consent of the Participant to whom any Option or Restricted Share has previously been granted, adversely affect the rights of such Participant under such Option or Restricted Share, including any associated Dividend Equivalents or Restricted Stock Dividend Equivalents. Notwithstanding the foregoing, the Administrative Committee may make minor amendments to this Plan which 13 do not materially affect the rights of Participants or significantly increase the cost to the Company. 16. TAX WITHHOLDING Upon the lapse of restrictions on Restricted Stock and upon exercise of any Option under this Plan, the Company will require the recipient of the Stock to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements. However, to the extent authorized by rules and regulations of the Administrative Committee, the Company may withhold or receive Stock and make cash payments in respect thereof in satisfaction of a recipient's tax obligations in an amount that does not exceed the recipient's minimum applicable withholding tax obligations. In the event the Company receives Stock in satisfaction of a recipient's minimum applicable withholding tax obligations, the Stock must have been held by the recipient for more than six months. 17. GOVERNMENTAL APPROVAL Each share of Restricted Stock and each Option will be subject to the requirement that if at any time the listing, registration or qualification of the shares covered thereby upon any securities exchange, or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Restricted Share or Option or the purchase of shares thereunder, no such Option may be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Board. 18. EFFECTIVE DATE OF PLAN 18.1 Effective Date. This Plan will become effective as of January 1, 2000, subject to ratification by the Company's shareholders prior to March 31, 2000. The amendment and restatement of the Plan is effective as of December 16, 2003. 18.2 Shareholder Approval for "Qualified Performance-Based Compensation." This Plan must be reapproved by the shareholders of UGI no later than the first shareholders meeting that occurs in the fifth year following the year in which the shareholders previously approved the provisions of Section 10, if required by section 162(m) of the Code or the regulations thereunder. 19. SUCCESSORS This Plan will be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his heirs, executors, administrators and legal representatives. 20. HEADINGS AND CAPTIONS The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 14 21. GOVERNING LAW The validity, construction, interpretation and effect of the Plan and option agreements issued under the Plan will be governed exclusively by and determined in accordance with the law of the Commonwealth of Pennsylvania. The 2000 Stock Incentive Plan was approved by the shareholders of UGI Corporation on February 29, 2000. 15 UGI CORPORATION 2000 STOCK INCENTIVE PLAN EXHIBIT A For purposes of this Plan, the term "Change of Control," and defined terms used in the definition of "Change of Control," shall have the following meanings: (1) "Change of Control" shall mean: (i) Any Person (except UGI, any UGI Subsidiary, any employee benefit plan of UGI or of any UGI Subsidiary, or any Person or entity organized, appointed or established by UGI for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner in the aggregate of 20% or more of either (i) the then outstanding shares of common stock of UGI (the "Outstanding UGI Common Stock") or (ii) the combined voting power of the then outstanding voting securities of UGI entitled to vote generally in the election of directors (the "UGI Voting Securities"); or (ii) Individuals who, as of the beginning of any 24-month period, constitute the UGI Board of Directors (the "Incumbent UGI Board") cease for any reason to constitute at least a majority of the Incumbent UGI Board, provided that any individual becoming a director of UGI subsequent to the beginning of such period whose election or nomination for election by the UGI shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent UGI Board shall be considered as though such individual were a member of the Incumbent UGI Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of UGI (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Consummation by UGI of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Outstanding UGI Common Stock and UGI Voting Securities immediately prior to such Business Combination do not, following such Business Combination, Beneficially Own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding UGI Common Stock and UGI Voting Securities, as the case may be; or (iv) Consummation of (a) a complete liquidation or dissolution of UGI or (b) a sale or other disposition of all or substantially all of the assets of UGI other than to a corporation with respect to which, following such sale or disposition, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting A-1 power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding UGI Common Stock and UGI Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding UGI Common Stock and UGI Voting Securities, as the case may be, immediately prior to such sale or disposition. (2) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. (3) A Person shall be deemed the "Beneficial Owner" of any securities: (i) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange; (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of any security under this clause (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to clause (ii) above) or disposing of any securities; provided, however, that nothing in this Section 1(c) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of forty (40) days after the date of such acquisition. (4) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (5) "Person" shall mean an individual or a corporation, partnership, trust, unincorporated organization, association, or other entity. A-2 (6) "UGI Subsidiary" shall mean any corporation in which UGI directly or indirectly, owns at least a fifty percent (50%) interest or an unincorporated entity of which UGI, as applicable, directly or indirectly, owns at least fifty percent (50%) of the profits or capital interests. A-3 EX-10.3 3 w99159exv10w3.txt SENIOR EXECUTIVE EMPLOYEE SEVERANCE PAY PLAN EXHIBIT 10.3 UGI CORPORATION SENIOR EXECUTIVE EMPLOYEE SEVERANCE PAY PLAN AS IN EFFECT AS OF DECEMBER 16, 2003 UGI CORPORATION SENIOR EXECUTIVE EMPLOYEE SEVERANCE PAY PLAN TABLE OF CONTENTS
PAGE Article I Background, Purpose and Term of Plan............................... 1 Article II Definitions........................................................ 2 Article III Participation and Eligibility for Benefits......................... 4 Article IV Benefits........................................................... 5 Article V Method and Duration of Benefit Payments............................ 8 Article VI Administration..................................................... 9 Article VII Amendment and Termination.......................................... 11 Article VIII Duties of the Company.............................................. 12 Article IX Claims Procedures.................................................. 13 Article X Miscellaneous...................................................... 15 Appendix A Change of Control................................................ 1 Appendix B Release............................................................ 1
i ARTICLE I BACKGROUND, PURPOSE AND TERM OF PLAN Section 1.01 Background. This Plan was amended and restated in its entirety on April 30, 1993 to reflect sponsorship by a new entity following the April 10, 1992 reorganization of UGI Utilities, Inc. (formerly, UGI Corporation) and was again amended and restated as of January 1, 1997, and has been amended and restated in its entirety as of December 16, 2003, with all changes effective as of that date. The terms and conditions of this Plan apply to the designated senior executive employees of UGI Corporation and its subsidiary, UGI Utilities, Inc., but not to employees of AmeriGas Propane, Inc. Section 1.02 Purpose of the Plan. The Plan is intended to alleviate, in part or in full, financial hardships which may be experienced by certain of those employees of the Company whose employment is terminated without fault in recognition of their past service to the Company. In essence, benefits under the Plan are intended to be additional compensation for past services or for the continuation of specified fringe benefits for a transitional period. The amount or kind of benefit to be provided is to be based on the Participant's Compensation, and the fringe benefit programs applicable to him or her, at his or her Employment Termination Date. The Plan is not intended to be included in the definitions of "employee pension benefit plan" and "pension plan" set forth under Section 3(2)(B)(i) of ERISA. Rather, this Plan is intended to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation and no employee shall have a vested right to such benefits. In addition, the Plan has been drafted to give the Company broad discretion in designating individuals who are eligible for benefits and the amount of such benefits. All actions taken by the Company shall be in its role as the plan sponsor and not as a fiduciary. Section 1.03 Term of the Plan. This amendment and restatement is a continuation of the Company's existing Plan. The Plan will continue until such time as UGI Corporation, acting in its sole discretion, elects to modify, supersede or terminate it in accordance with the further provisions hereof. ARTICLE II DEFINITIONS Section 2.01 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. Section 2.02 "Benefit" or "Benefits" shall mean any or all of the benefits that a Participant is entitled to receive pursuant to Article IV of the Plan. Section 2.03 "Board of Directors" shall mean the Board of Directors of UGI Corporation, or any successor thereto. Section 2.04 "Chairman of the Board" shall mean the individual serving as the Chairman of the Board of Directors of UGI Corporation as of the date of reference. Section 2.05 "Change of Control" shall mean a change of control as defined in the attached Appendix A, as amended from time to time by the Committee, in its discretion. Section 2.06 "Chief Executive Officer" shall mean the individual serving as the Chief Executive Officer of UGI Corporation as of the date of reference. Section 2.07 "Committee" shall mean the administrative committee designated pursuant to Article VI of the Plan to administer the Plan in accordance with its terms, or its delegate. Section 2.08 "Company" shall mean UGI Corporation, a Pennsylvania corporation and its subsidiaries and Affiliates, including UGI Utilities, Inc., but excluding AmeriGas Propane, Inc. The term "Company" shall include any successor to UGI Corporation or any subsidiary or Affiliate, exclusive of AmeriGas Propane, Inc., or a corporation succeeding to the business of UGI Corporation by merger, consolidation or liquidation or purchase of assets or stock or similar transaction. Section 2.09 "Compensation" shall mean the Participant's annual base salary and applicable target annual bonus amount (if any) in effect on the first day of the calendar quarter immediately preceding the Participant's Employment Termination Date. Section 2.10 "Employment Commencement Date" shall mean the most recent day on which a Participant became an employee of the Company, any Affiliate of the Company, or any entity whose business or assets have been acquired by the Company, its Affiliates or by any predecessor of such entities, unless the Committee determines to give credit for prior service, if any. Section 2.11 "Employment Termination Date" shall mean the date on which the employment relationship between the Participant and the Company is terminated. Section 2.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 2 Section 2.13 "Executive Employee" shall mean an employee of the Company who is classified as Grade 76 or above at the employee's Employment Termination Date. Section 2.14 "Executive Equity Plan" shall mean the UGI Corporation 2000 Stock Incentive Plan, the UGI Corporation 1997 Stock Option and Dividend Equivalent Plan, the UGI Corporation 2004 Omnibus Equity Compensation Plan (or its successor, as designated by the Committee) and the AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan (or its successor, as designated by the Committee). Section 2.15 "Just Cause" shall mean dismissal due to misappropriation of funds, substance abuse, habitual insobriety, conviction of a crime involving moral turpitude, or gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company and its subsidiaries and Affiliates taken as a whole. Disputes with respect to whether Just Cause exists shall be resolved in accordance with Article IX. Section 2.16 "Participant" shall mean any Executive Employee of the Company who has been designated by the Company as a participant in this Plan. Section 2.17 "Plan" shall mean the UGI Corporation Senior Executive Employee Severance Pay Plan, as set forth herein, and as the same may from time to time be amended. Section 2.18 "Plan Year" shall mean each fiscal year of the Company during which this Plan is in effect. Section 2.19 "Release" shall mean a release of employment-related claims in such form as may be proscribed by the Company, acting as an employer and not as a fiduciary, from time to time and with such modifications as the Company deems appropriate for the Participant's particular situation. A copy of the current form is attached as Appendix B. Section 2.20 "Restricted Awards" shall mean restricted stock, stock units, performance units, restricted units and dividend equivalents and distribution equivalents with respect to any of the foregoing that are granted to a Participant under an Executive Equity Plan as determined by the Committee. The term "Restricted Awards" shall not include stock options. Section 2.21 "Salary Continuation Period" shall equal one business day for each month which is included in the Participant's Years of Service plus the number of months of paid notice under Section 4.01(c), to a maximum of fifteen (15) months (thirty (30) months in the case of the Chief Executive Officer). Section 2.22 "Year of Service" shall mean each twelve-month period (or part thereof) beginning on the Participant's Employment Commencement Date and ending on each anniversary thereof. Additional Years of Service based on earlier employment with the Company, any Affiliate of the Company or any entity whose business or assets have been acquired by the Company, its Affiliates or by any predecessor of such entities, shall be counted only if permitted by the Committee. 3 ARTICLE III PARTICIPATION AND ELIGIBILITY FOR BENEFITS Section 3.01 General Eligibility Requirement. In its sole discretion, the Company may grant a Benefit under this Plan to any Executive Employee whom the Company designates as a Participant and whose employment is terminated by the Company other than for Just Cause, death, or continuous illness, injury or incapacity for a period of six consecutive months. Notwithstanding anything herein to the contrary, an Executive Employee will not be considered to have incurred a termination by the Company for purposes of this Plan if his or her employment is discontinued due to voluntary resignation or the expiration of a leave of absence. In addition, the Participant must meet the requirements of Section 3.03 in order to receive a Benefit under this Plan. Section 3.02 Substantially Comparable Employment. In the absence of a Change of Control, notwithstanding anything herein to the contrary, no Benefits shall be due hereunder to a Participant in connection with the disposition of a business or division or Affiliate by the Company or an Affiliate if substantially comparable terms of employment, as determined by the Committee, have been offered to the Participant by the transferee; provided, however, that the Committee, in such situation, may determine that the Company will provide some or all of the Benefits to a Participant whose employment with the Company is terminated as described in Section 3.01. This Section 3.02 shall not apply at or after a Change of Control. Section 3.03 Conditions to Entitlement to Benefits. As further conditions to entitlement to Benefits under the Plan, all Participants must, prior to the payment of any Benefits due hereunder, (i) sign and not rescind or contest the enforceability of a Release; (ii) return to the Company any and all Company property held by the Participant, including, but not limited to, all reports, manuals memoranda, computer disks, tapes and data made available to the Participant during the performance of the Participant's duties, including all copies; (iii) hold confidential any and all information concerning the Company, whether with respect to its business, subscribers, providers, customers, operations, finances, employees, contractors, or otherwise; and (iv) cooperate fully with the Company to complete the transition of matters with which the Participant is familiar or responsible to other employees and make himself or herself available to answer questions or assist in matters which may require attention after the Participant's Employment Termination Date. If the Company determines, in its sole discretion, that the Participant has violated one or more of the above conditions to entitlement to Benefits, the Committee may determine that it will not pay the Benefits or may discontinue the payment of Benefits under the Plan. Any remedy under this Section 3.03 shall be in addition to, and not in place of, any other remedy the Company may have, at law or otherwise. 4 ARTICLE IV BENEFITS Section 4.01 Amount of Immediate Cash Benefit. Subject to the provisions of Article VII, the Company, acting in its role as the plan sponsor and not as a fiduciary, shall determine which Executive Employees shall be awarded a Benefit hereunder and the amount of any such Benefit. The Company may take into account any factors it determines to be relevant in deciding which Executive Employees shall be awarded Benefits and the amount of such Benefits, and need not apply its determinations in a uniform manner to terminated Executive Employees similarly situated. All such decisions shall be final, binding and conclusive with respect to the Participant. The cash amount to be paid to a Participant eligible to receive Benefits under Section 3.01 hereof shall be paid in a lump sum as provided in Section 5.01 hereof and shall equal the sum of the amounts described in subsections (a) through (d), less the amount described in subsection (e), except that any payment under paragraph (b) below that is based on annual financial performance will be excluded from the lump sum payment and paid separately as provided below: (a) An amount equal to the Participant's earned and accrued vacation entitlement, including banked vacation time, and personal holidays through the end of the Participant's Salary Continuation Period. (b) An amount equal to the Participant's annual target bonus amount under the applicable annual bonus plan (or its successor) for the current Plan Year multiplied by the number of months elapsed in the current Plan Year to his or her Employment Termination Date and divided by twelve (12), together with any amounts previously deferred by the Participant under such plan (with interest thereon at the rate prescribed by such plan) as well as any amounts due from the prior year under such plan but not yet paid, provided, however, that if the Employment Termination Date occurs in the last two (2) months of the fiscal year, the amount of the current Plan Year target bonus to be paid pursuant to this paragraph (b) shall be determined and paid after the end of the fiscal year in accordance with the terms and conditions of the applicable annual bonus plan as though the Participant were still an Employee, except that the weighting to be applied to the Participant's business/financial performance goals under the annual bonus plan will be deemed to be 100%; provided further, however, that the Chief Executive Officer may, in his sole discretion, determine that the amount payable pursuant to this paragraph (b) for Employment Termination Dates occurring in the last two (2) months of the fiscal year may be computed in the same manner as that provided for Employment Termination Dates occurring during the first ten (10) months of the fiscal year. (c) In the case of the Chief Executive Officer, an amount of paid notice equal to eighteen (18) times a fraction, the numerator of which is his or her Compensation and the denominator of which is twelve (12), and in the case of all other Participants, an amount of paid notice equal to sixty-five (65) times a fraction the numerator of which is the Participant's Compensation and the denominator of which is two-hundred sixty (260). (d) An amount equal to the number of the Participant's Years of Service multiplied by twelve (12) times a fraction, the numerator of which is the Participant's 5 Compensation and the denominator of which is two-hundred sixty (260); provided, however, that such amount shall not exceed 100% of the Participant's Compensation. (e) If the Participant's employment with the Company terminates before a Change of Control, the cash amount computed in subsections (a) through (d) above shall be reduced by the amount of cash and the fair market value of any stock, partnership units or other property that is payable to the Participant under Restricted Awards after the Participant's termination of employment, as determined by the Committee. The Committee may determine that payment of a portion of the Benefit under this Plan will be delayed pending calculation of the amount payable under Restricted Awards, or the Committee may decide to pay the amounts described in subsections (a) through (d) above immediately and offset amounts payable under the Restricted Awards by the amount of the Benefit previously paid under this Plan. In no event shall a Participant be required to return to the Company any amounts previously paid under this Plan as a result of a decline in the value of Restricted Awards. (f) The offset described in subsection (e) shall not apply if the Participant's employment with the Company terminates at or after a Change of Control. In addition, the offset described in subsection (e) shall not apply to any Restricted Awards for which all requirements for payment have been met before the Participant's Employment Termination Date (for example, if the restriction period for a Restricted Award ends on December 31, 2003, the Restricted Award is payable on February 1, 2004 and the Participant's employment is terminated on January 15, 2004, Benefits under this Plan shall not be offset by the Restricted Award). Section 4.02 Executive Benefits. The Participant shall continue to be entitled, through the end of the Participant's Salary Continuation Period, to those employee benefits and executive perquisites listed below (but only if they are in effect from time to time during the Salary Continuation Period) based upon the amount of coverage or benefit provided at the Participant's Employment Termination Date: (a) Basic Life Insurance; (b) Supplemental Life Insurance; and (c) Medical Plan and Dental Assistance Plan, including COBRA continuation coverage; and (d) Executive Retirement Plan In each case, when contributions are required of all Executive Employees at the time of the Participant's Employment Termination Date, or thereafter, if required of all other Executive Employees, the Participant shall be responsible for making the required contributions, on an after-tax basis only, during the Salary Continuation Period in order to be eligible for the coverage. In lieu of any or all of the coverages provided under any of clauses (a) through (c) above, the Company may pay to the Participant, at the time payment is otherwise to be made of cash Benefits pursuant to Section 5.01 hereof, a single lump sum payment equal to the then present value of the cost of such coverages. Notwithstanding anything herein to the contrary, 6 any such coverages shall be discontinued if, and at the time, the Participant obtains other employment and becomes eligible to participate in the plan of, or is provided similar coverage by, a new employer; provided, however, that the Participant shall not be required to refund any sum to the Company should a lump sum have been paid pursuant to the preceding sentence. Any applicable conversion rights shall be provided to the Participant at the time coverage ceases. The Committee shall determine to what extent, if any, any other perquisites or benefit coverage such as tax preparation services, etc. shall continue to be provided during the Salary Continuation Period and whether the Participant shall be entitled to outplacement services or to receive title to the Participant's Company-supplied automobile, if any, in which case the value of the Participant's cash Benefit under Section 4.01 hereof shall be increased accordingly. The Participant shall be responsible for the payment of sales tax on such automobile, if any. Section 4.03 Retirement Plans. This Plan shall not govern and shall in no way affect the Participant's interest in, or entitlement to benefits under, any of the Company's "qualified" retirement plans and any payments received under any such plan shall not affect a Participant's right to any Benefit hereunder. Section 4.04 Effect on Other Benefits. There shall not be drawn from the continued provision by the Company of any of the aforementioned Benefits any implication of continued employment or of continued right to accrual of benefits under the Company's "qualified" retirement plans or an Executive Equity Plan, and a terminated employee shall not, except as provided in Section 4.01(a) hereof, accrue vacation days, paid holidays, paid sick days or other similar benefits normally associated with employment for any part of the Salary Continuation Period during which benefits are payable under this Plan. The benefits payable under this Plan shall be in addition to and not in lieu of any payments or benefits due to the Participant under any other plan, policy, or program of the Company. Notwithstanding anything herein to the contrary, as determined by the Committee, the Benefits payable under this Plan to any Participant may be reduced by any and all payments required to be made by the Company under federal, state and local law, including, the Worker Adjustment and Retraining Notification Act, 29 U.S.C. Section 2101 et. seq. or under any employment agreement or special severance arrangement. 7 ARTICLE V METHOD AND DURATION OF BENEFIT PAYMENTS Section 5.01 Method of Payment. The cash Benefits to which a Participant is entitled, as determined pursuant to Article IV hereof, shall be paid in a lump sum. Payment shall be made by mailing to the last address provided by the Participant to the Company. Payment shall be made within thirty (30) days after the Participant's Employment Termination Date, except as otherwise provided in Section 4.01(b), and after the execution of the Release required under Section 3.03 and the expiration of the required revocation period specified in the Release. All payments under the Plan are subject to applicable federal, state and local taxes. Section 5.02 Payments to Beneficiaries. Each Participant shall designate one or more beneficiaries to receive any Benefits due hereunder in the event of the Participant's death prior to the receipt of all such Benefits. Such beneficiary designation shall be made in the manner, and at the time, prescribed by the Committee in its sole discretion. In the absence of an effective beneficiary designation hereunder, the Participant's estate shall be deemed to be the Participant's designated beneficiary. 8 ARTICLE VI ADMINISTRATION Section 6.01 Appointment. The Committee shall consist of one (1) or more persons appointed by the Chairman of the Board. Committee members may be, but need not be, employees of the Company, including the Chairman of the Board and the Chief Executive Officer, whether or not they are one and the same person. Section 6.02 Tenure. Committee members shall serve at the pleasure of the Chairman of the Board. Committee members may resign at any time on ten (10) days' written notice, and Committee members may be discharged, with or without cause, at any time by the Chairman of the Board. Section 6.03 Authority and Duties. It shall be the duty of the Committee, on the basis of information supplied to it by the Company, to determine the eligibility of each Participant for Benefits under the Plan, to determine the amount of Benefit to which each such Participant may be entitled, and to determine the manner and time of payment of the Benefit consistent with the provisions hereof. The Company shall make such payments as are certified to it by the Committee to be due to Participants. The Committee shall have the full power and discretionary authority to construe, interpret and administer the Plan, to correct deficiencies therein, and to supply omissions. All decisions, actions, and interpretations of the Committee shall be final, binding, and conclusive upon the parties. The Committee may delegate ministerial and other responsibilities to one or more Company employees. Section 6.04 Action by the Committee. A majority of the members of the Committee shall constitute a quorum for the transaction of business at a meeting of the Committee. Any action of the Committee may be taken upon the affirmative vote of a majority of the members of the Committee at a meeting, or at the direction of the Chairperson, without a meeting, by mail, telegraph, telephone, or electronic communication device; provided that all of the members of the Committee are informed of their right to vote on the matter before the Committee and of the outcome of the vote thereon. Section 6.05 Officers of the Committee. The Chairman of the Board shall designate one of the members of the Committee to serve as Chairperson thereof. The Chairman of the Board shall also designate a person to serve as Secretary of the Committee, which person may be, but need not be, a member of the Committee. Section 6.06 Compensation of the Committee. Members of the Committee shall receive no compensation for their services as such. However, all reasonable expenses of the Committee shall be paid or reimbursed by the Company upon proper documentation. The Company shall indemnify members of the Committee against personal liability for actions taken in good faith in the discharge of their respective duties as members of the Committee. Section 6.07 Records, Reporting, and Disclosure. The Committee shall keep all individual and group records relating to Participants and former Participants and all other records necessary for the proper operation of the Plan. Such records shall be made available to the Company and to each Participant for examination during business hours except that a Participant 9 shall examine only such records as pertain exclusively to the examining Participant and to the Plan. The Committee shall prepare and shall file as required by law or regulation all reports, forms, documents and other items required by ERISA, the Internal Revenue Code, and every other relevant statute, each as amended, and all regulations thereunder (except that UGI Corporation, as payor of the Benefits, shall prepare and distribute to the proper recipients all forms relating to withholding of income or wage taxes, Social Security taxes, and other amounts which may be similarly reportable). Section 6.08 Actions of the Committee. Whenever a determination is required of the Committee under the Plan, such determination shall be made solely at the discretion of the Committee. In addition, the exercise of discretion by the Committee need not be uniformly applied to similarly situated Participants and shall be final and binding on each Participant or beneficiary(ies) to whom the determination is directed. Section 6.09 Benefits of the Chief Executive Officer. Whenever a determination is required with respect to the Chief Executive Officer under the Plan, the individual then serving as the Chairman of the Compensation and Management Development Committee of the Board of Directors shall make all determinations with respect to the Chief Executive Officer as to any matter that directly pertains to, or affects, the Chief Executive Officer. Section 6.10 Bonding. The Committee shall arrange any bonding that may be required by law, but no amount in excess of the amount required by law (if any) shall be required by the Plan. 10 ARTICLE VII AMENDMENT AND TERMINATION Section 7.01 Amendment, Suspension and Termination. UGI, by action of its Board of Directors or its Compensation Committee, retains the right, at any time and from time to time, to amend, suspend or terminate the Plan in whole or in part, for any reason, and without either the consent of or the prior notification to any Participant. No such amendment shall give the Company the right to recover any amount paid to a Participant prior to the date of such amendment or to cause the cessation and discontinuance of payments of Benefits to any person or persons under the Plan already receiving Benefits. 11 ARTICLE VIII DUTIES OF THE COMPANY Section 8.01 Records. The Company shall supply to the Committee all records and information necessary to the performance of the Committee's duties. Section 8.02 Payment. UGI Corporation shall make payments from its general assets to Participants in accordance with the terms of the Plan, as directed by the Committee. Section 8.03 Discretion. Any decisions, actions or interpretations to be made under the Plan by the Company shall be made in its sole discretion, not in any fiduciary capacity and need not be uniformly applied to similarly situated individuals, and such decisions, actions or interpretations shall be final, binding and conclusive upon all parties. 12 ARTICLE IX CLAIMS PROCEDURES Section 9.01 Application for Benefits. Participants who believe they are eligible for benefits under this Plan may apply for such benefits by completing and filing with the Committee an application for benefits on a form supplied by the Committee. Before the date on which benefit payments commence, each such application must be supported by such information as the Committee deems relevant and appropriate. Section 9.02 Claim. A terminated employee may contest his or her eligibility for the amount of benefit awarded by completing and filing with the Committee a written request for review in the manner specified by the Committee. Each such application must be supported by such information as the Committee deems relevant and appropriate. The Committee will review the claim and provide notice to the terminated employee, in writing, within 90 days after the claim is filed unless special circumstances require an extension of time for processing the claim. In no event shall the extension exceed a period of 90 days from the end of the initial period. In the event that any claim for benefits is denied in whole or in part, the terminated employee whose claim has been so denied shall be notified of such denial in writing by the Committee. The notice advising of the denial shall be written in a manner calculated to be understood by the terminated employee and shall set forth: (i) specific references to the pertinent Plan provisions on which the denial is based; (ii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation as to why such information is necessary; and (iii) an explanation of the Plan's claim procedure and the time limits applicable for such procedures, including a statement of the claimant's right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on appeal. Section 9.03 Appeals of Denied Claims for Benefits. All appeals shall be made by the following procedure: (a) The terminated Employee whose claim has been denied shall file with the Committee a notice of appeal of the denial. Such notice shall be filed within sixty (60) days of notification by the Committee of the claim denial, shall be made in writing, and shall set forth all of the facts upon which the appeal is based. Appeals not timely filed shall be barred. (b) The claimant or his duly authorized representative may: (i) request a review upon written notice to the Committee; (ii) examine the Plan and obtain, upon request and without charge, copies of all information relevant to the claimant's appeal; and (iii) submit issues and comments in writing. (c) The Named Appeals Fiduciary (as described in Section 9.04) shall issue a decision no later than 60 days after receipt of a request for review unless special circumstances, such as the need to hold a hearing, require a longer period of time, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the terminated Employee's notice of appeal. 13 (d) The Named Appeals Fiduciary shall consider the merits of the claimant's written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Named Appeals Fiduciary shall deem relevant. (e) The Named Appeals Fiduciary shall render a determination upon the appealed claim which determination shall be accompanied by a written statement setting forth shall set forth: (i) specific reasons for the decision, written in a manner calculated to be understood by the claimant; (ii) specific references to the pertinent Plan provisions on which the decision is based; (iii) the claimant's right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits; and (iv) the claimant's right to bring a civil action under section 502(a) of ERISA. Section 9.04 Appointment of the Named Appeals Fiduciary. The Named Appeals Fiduciary shall be the person or persons named as such by the Board of Directors, or, if no such person or persons be named, then the person or persons named by the Committee as the Named Appeals Fiduciary. Named Appeals Fiduciaries may at any time be removed by the Board of Directors, and any Named Appeals Fiduciary named by the Committee may be removed by the Committee. All such removals may be with or without cause and shall be effective on the date stated in the notice of removal. The Named Appeals Fiduciary shall be a "Named Fiduciary" within the meaning of ERISA, and unless appointed to other fiduciary responsibilities, shall have no authority, responsibility, or liability with respect to any matter other than the proper discharge of the functions of the Named Appeals Fiduciary as set forth herein. 14 ARTICLE X MISCELLANEOUS Section 10.01 Nonalienation of Benefits. None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which the Participant may expect to receive, contingently or otherwise, under this Plan. Section 10.02 No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant, or any person whosoever, the right to be retained in the service of the Company, and all Participants shall remain subject to discharge to the same extent as if the Plan had never been adopted. Section 10.03 Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. Section 10.04 Successors, Heirs, Assigns, and Personal Representatives. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future. Unless the Committee directs otherwise, UGI Corporation shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of UGI Corporation, or a division or Affiliate thereof, (i) to acknowledge expressly that this Plan is binding upon and enforceable against such successor in accordance with the terms hereof, (ii) to become jointly and severally obligated with UGI Corporation, to perform the obligations under this Plan, and (iii) to agree not to amend or terminate the Plan for a period of three (3) years after the date of succession without the consent of the affected Participant. Section 10.05 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. Section 10.06 Gender and Number. Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. Section 10.07 Unfunded Plan. The Plan shall not be funded. The Company may, but shall not be required to, set aside or designate an amount necessary to provide the Benefits specified herein (including the establishment of trusts). In any event, no Participant shall have any right to, or interest in, any assets of the Company which may be applied by the Company to the payment of Benefits. 15 Section 10.08 Payments to Incompetent Persons, Etc. Any benefit payable to or for the benefit of a minor, an incompetent person, or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, the Committee and all other parties with respect thereto. Section 10.09 Lost Payees. A benefit shall be deemed forfeited if the Committee is unable to locate a Participant to whom a Benefit is due. Such Benefit shall be reinstated if application is made by the Participant for the forfeited Benefit while this Plan is in operation. Section 10.10 Controlling Law. This Plan shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania, to the extent not preempted by Federal law, without giving effect to any Pennsylvania choice of law provisions. IN WITNESS WHEREOF, UGI Corporation has caused the Plan to be executed by its duly authorized officer and its corporate seal to be affixed hereto as of the ____ day of _______________________, ____. UGI CORPORATION Attest: _________________________ By: _______________________________ Secretary Vice President & General Counsel 16 APPENDIX A CHANGE OF CONTROL For purposes of the Plan, the term "Change of Control" shall have the meaning set forth below and the defined terms used in the definition of "Change of Control" shall have the meanings set forth below. 1. "Change of Control" shall mean: (a) Any Person (except the Participant, his Affiliates and Associates, UGI, any Subsidiary of UGI, any employee benefit plan of UGI or of any Subsidiary of UGI, or any Person or entity organized, appointed or established by UGI for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner in the aggregate of 20% or more of either (i) the then outstanding shares of common stock of UGI (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of UGI entitled to vote generally in the election of directors (the "Company Voting Securities"), in either case unless the members of UGI's Executive Committee in office immediately prior to such acquisition determine within five business days of the receipt of actual notice of such acquisition that the circumstances do not warrant the implementation of the Change of Control provisions of this Plan; or (b) Individuals who, as of the beginning of any twenty-four month period, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the beginning of such period whose election or nomination for election by UGI's stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of UGI (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (c) Completion by UGI of a reorganization, merger or consolidation (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the respective Beneficial Owners of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such Business Combination do not, following such Business Combination, Beneficially Own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Company Voting A-1 Securities, as the case may be, in any such case unless the members of UGI's Executive Committee in office immediately prior to such Business Combination determine at the time of such Business Combination that the circumstances do not warrant the implementation of the Change of Control provisions of this Plan; or (d) Completion of (i) a complete liquidation or dissolution of UGI or (ii) sale or other disposition of all or substantially all of the assets of UGI other than to a corporation with respect to which, following such sale or disposition, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the Beneficial Owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the Outstanding Company Common Stock and Company Voting Securities, as the case may be, immediately prior to such sale or disposition, in any such case unless the members of UGI's Executive Committee in office immediately prior to such sale or disposition determine at the time of such sale or disposition that the circumstances do not warrant the implementation of the Change of Control provisions of this Plan. 2. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3. A Person shall be deemed the "Beneficial Owner" of any securities: (i) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the "Beneficial Owner" of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for payment, purchase or exchange; (ii) that such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange Act), including without limitation pursuant to any agreement, arrangement or understanding, whether or not in writing; provided, however, that a Person shall not be deemed the "Beneficial Owner" of any security under this clause (ii) as a result of an oral or written agreement, arrangement or understanding to vote such security if such agreement, arrangement or understanding (A) arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable provisions of the General Rules and Regulations under the Exchange Act, and (B) is not then reportable by such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) that are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates or Associates) has A-2 any agreement, arrangement or understanding (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to clause (ii) above) or disposing of any voting securities of UGI; provided, however, that nothing in this Section 1(c) shall cause a Person engaged in business as an underwriter of securities to be the "Beneficial Owner" of any securities acquired through such Person's participation in good faith in a firm commitment underwriting until the expiration of 40 days after the date of such acquisition. 4. "Board" shall mean the Board of Directors of UGI. 5. "Person" shall mean an individual or a corporation, partnership, trust, unincorporated organization, association, or other entity. 6. "Subsidiary" shall mean any corporation in which UGI, directly or indirectly, owns at least a 50% interest or an unincorporated entity of which UGI, directly or indirectly, owns at least 50% of the profits or capital interests. A-3 APPENDIX B RELEASE B-1 EX-10.4 4 w99159exv10w4.txt SEVERANCE PLAN FOR EXEMPT EMPLOYEES EXHIBIT 10.4 UGI CORPORATION SEVERANCE PLAN FOR EXEMPT EMPLOYEES IN SALARY GRADES 70 - 75 AND SALARY GRADES 57 - 60 AS IN EFFECT AS OF DECEMBER 16, 2003 TABLE OF CONTENTS
PAGE Article 1 Introduction.......................................... 1 Article 2 Definitions........................................... 2 Article 3 Eligibility for Benefits.............................. 5 Article 4 Benefits.............................................. 7 Article 5 Method and Duration of Benefit Payments............... 10 Article 6 The Plan Administrator................................ 11 Article 7 Amendment, Suspension and Termination................. 12 Article 8 Duties of the Employer................................ 13 Article 9 Claims Procedures..................................... 14 Article 10 Miscellaneous Provisions.............................. 16
i ARTICLE 1 INTRODUCTION 1.1 Background. This Plan was adopted for certain employees in Salary Grades 70 - 75 and 57 - 60, and has been amended and restated in its entirety as of December 16, 2003, with all changes effective as of that date. This Severance Pay Plan will supersede any and all prior practices and plans. 1.2 Purpose of Plan. The purpose of the UGI Corporation Severance Plan for exempt employees in Salary Grades 70 - 75 and 57 - 60 is to alleviate in part or in full financial hardships which may be experienced by certain Employees of the Employer whose employment is terminated involuntarily, other than for cause, due to (i) the elimination of their position or a reduction in work force, as determined by the Employer; or (ii) such other circumstances as the Employer, acting in its role as the employer and not as a fiduciary, may determine. In essence, benefits under the Plan are intended to be supplemental unemployment benefits which will assist a designated individual during the transition period until other employment is found. The benefits provided under the Plan also are intended to serve as consideration for the Employee's execution of a general release as required hereunder. The Plan is not intended to be included in the definitions of "employee pension benefit plan" and "pension plan" set forth under Section 3(2)(B)(i) of ERISA. Rather, this Plan is intended to meet the descriptive requirements of a plan constituting a "severance pay plan" within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation and no employee shall have a vested right to such benefits. In addition, the Plan has been drafted to give the Employer broad discretion in designating individuals who are eligible for benefits and the amount of such benefits. All actions taken by the Employer shall be in its role as the plan sponsor and not as a fiduciary. 1.3 Term of Plan. The Plan will continue until such time as the Employer, acting in its sole discretion, elects to amend, modify, supersede or terminate the Plan for any reason and at any time. 1 ARTICLE 2 DEFINITIONS 2.1 "Benefit" means the amount that a Participant is entitled to receive pursuant to Section 4.1. 2.2 "Compensation" means an Employee's annual base salary and applicable target annual bonus amount, if any, in effect on the first day of the calendar quarter immediately preceding the Employee's Employment Termination Date. 2.3 "Committee" means the administrative committee designated pursuant to Article VI of the Plan to administer the Plan in accordance with its terms, or its delegate. 2.4 "Daily Cash Compensation" means Compensation divided by 260. 2.5 "Effective Date" means December 16, 2003. 2.6 "Employee" means any employee in Salary Grades 70 - 75 and 57 - 60 who is classified by the Employer as a full-time, active employee; provided, however, that "Employee" does not include any exempt employee in an executive employment category, as determined by the Employer, who is covered by the UGI Corporation Senior Executive Employee Severance Pay Plan or any employee whose wages and conditions of employment are the subject of a collective bargaining agreement between the Employer and a collective bargaining agent unless the applicable agreement specifically provides for the participation herein of such employee. 2.7 "Employer" means UGI Corporation and any successor thereto which adopts the Plan. 2.8 "Employment Termination Date" shall mean the date on which the current employment relationship between the Participant and the Employer is terminated. 2.9 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.10 "Executive Equity Plan" means the UGI Corporation 2000 Stock Incentive Plan, the UGI Corporation 1997 Stock Option and Dividend Equivalent Plan, the UGI Corporation 2004 Omnibus Equity Compensation Plan (or its successor, as designated by the Committee) and the AmeriGas Propane, Inc. 2000 Long-Term Incentive Plan (or its successor, as designated by the Committee). 2.11 "For Cause" means any reason for dismissing an Employee from employment with the Employer which the Employer, acting in its role as the employer and not as a fiduciary, determines, in its sole discretion, would constitute grounds for denying payment of Benefits under the Plan upon the Employee's dismissal. The term "For Cause" shall include, but shall not be limited to, dismissal due to breach of trust, unacceptable behavior or performance, excessive absenteeism or tardiness, unsatisfactory performance, or insubordination. 2 2.12 "Named Fiduciary" means the Employer, Plan Administrator, and the Named Appeals Fiduciary within the meaning of Section 9.4. Each Named Fiduciary shall have only those particular fiduciary powers, duties, responsibilities and obligations as are specifically given it under this Plan. Any Named Fiduciary, if so appointed, may perform in more than one fiduciary capacity. 2.13 "Paid Notice" means (i) for Grades 57-60, one month and (ii) for Grades 70-75, two months. 2.14 "Paid Notice Period" shall mean the time period, which may vary depending upon a Participant's grade level at the time of a Qualifying Termination for which the Employee: (a) is paid salary continuation under Section 4.1(d) of the Plan; and (b) is provided with the continuation of certain benefits under Section 4.2 of the Plan. 2.15 "Participant" means any Employee of the Employer who has been designated by the Employer as a participant in this Plan. 2.16 "Plan" means the UGI Corporation Severance Plan for Exempt Employees in Salary Grades 70 - 75 and 57 - 60, as set forth herein, and as the same may from time-to-time be amended, modified, superseded or terminated in the sole discretion of the Employer for any reason and at any time. 2.17 "Plan Administrator" means an individual or a committee of two or more individuals appointed by the Employer to serve as such, or in the absence of such appointment, the Employer, acting through its officers, or its delegate. 2.18 "Plan Year" means the initial period from the Effective Date through September 30, 1999 and the twelve month period commencing on each October 1 thereafter and ending on the following September 30. 2.19 "Qualifying Termination" means, subject to Section 3.2 which enumerates certain exclusions, an involuntary termination of employment by the Employer, for reasons other than For Cause, occurring as a result of one of the following events, but only if the Employer determines, in its sole discretion and solely with respect to such event, that such event shall create an entitlement to Benefits hereunder: (i) the sale or discontinuance of operations (other than a discontinuance of operations and a termination of employment which the Employer determines is of a temporary nature) of the Employer facility in which the Employee has been employed, (ii) the occurrence of any other special event as determined by the Employer which gives rise to job eliminations, or (iii) such other circumstances as the Employer, acting in its role as the employer and not as a fiduciary, may determine. 2.20 "Release" shall mean a release of employment-related claims in such form as may be proscribed by the Employer, acting as an employer and not as a fiduciary, from time to time 3 and with such modifications as the Employer deems appropriate for the Participant's particular situation. A copy of the current form is attached as Appendix A. 2.21 "Restricted Awards" means restricted stock, stock units, performance units, restricted units and dividend equivalents and distribution equivalents with respect to any of the foregoing that are granted to a Participant under an Executive Equity Plan as determined by the Committee. The term "Restricted Awards" shall not include stock options. 2.22 "Subsequent Employer" means another person or entity who becomes the Employee's employer and who purchases some or all of the assets or stock or continues the operation of a former facility of the Employer or one of its affiliates at which the Employee performed significant functions while an employee of UGI Corporation or one of its affiliates. 2.23 "Termination Date" means the date of a "Qualifying Termination." 4 ARTICLE 3 ELIGIBILITY FOR BENEFITS 3.1 Benefit Eligibility. In its sole discretion, the Employer may grant a Benefit under this Plan to any Employee whom the Employer designates as a Participant and whose employment has been terminated by reason of a Qualifying Termination. In addition, the Participant must meet the requirements of Section 3.3 in order to receive a Benefit under this Plan. 3.2 Exclusions. Notwithstanding the provisions of Section 3.1, an Employee will not be deemed to have had a Qualifying Termination and, accordingly, will not be eligible for Benefits, if any of the following circumstances apply: (a) The Employee has completed less than three months of continuous service with the Employer; (b) The Employee's termination from employment is due to a voluntary termination or retirement (with or without notice), death, military service, or a disability entitling the Employee to benefits under any sick pay or disability income plan or policy sponsored by the Employer (including workers compensation); (c) The Employee was hired for a definite term or task (e.g., temporary employees); (d) The Employee receives an offer of employment with the Employer or one of its affiliates with a geographic location of under 50 air miles from the Employee's present work location; (e) The Employee (i) is employed after such termination of employment by a Subsequent Employer, or (ii) receives an offer (either stated or implicit) of employment with a Subsequent Employer in a position the duties of which are substantially comparable to the Employee's employment duties immediately prior to such termination of employment, without regard to whether the pay or other terms and conditions of employment are comparable; or (f) The Employee is terminated due to the expiration of a leave of absence. 3.3 Conditions to Entitlement to Benefits. As further conditions to entitlement to Benefits under the Plan, all Participants must, prior to the payment of any Benefits due hereunder (i) sign and not rescind or contest the enforceability of a Release; (ii) return to the Employer any and all Employer property held by the Participant, including, but not limited to, all reports, manuals, memoranda, computer disks, tapes and data made available to the Participant during the performance of the Participant's duties, including all copies; (iii) hold confidential any and all information concerning the Employer, whether with respect to its business, subscribers, providers, customers, operations, finances, employees, contractors, or otherwise; and (iv) cooperate fully with the Employer to complete the transition of matters with which the Participant is familiar or responsible to other employees and make himself or herself available to 5 answer questions or assist in matters which may require attention after the Participant's Employment Termination Date. If the Employer determines, in its sole discretion, that the Participant has violated one or more of the above conditions to entitlement to Benefits, the Committee may determine that it will not pay the Benefits or may discontinue the payment of Benefits under the Plan. Any remedy under this Section 3.3 shall be in addition to, and not in place of, any other remedy the Employer may have, at law or otherwise. 6 ARTICLE 4 BENEFITS 4.1 Employer Determinations. Subject to the provisions of Section 7.1, the Employer, in its sole discretion, acting in its role as the employer and not as a fiduciary, shall determine which Employees shall be awarded a Benefit hereunder and the amount of any such Benefit. The Employer may take into account any factors it determines to be relevant in deciding which Employees shall be awarded Benefits and the amount of such Benefits, and need not apply its determinations in a uniform manner to terminated Employees similarly situated. All such decisions shall be final, binding and conclusive. 4.2 Amount of Immediate Cash Benefit. The cash amount to be paid to a Participant eligible to receive Benefits under the Plan shall be paid in a lump sum as provided in Section 5.1 and shall equal the sum of the amounts described in subsections (a) through (d), less the amount described in subsection (e), except that any payment under paragraph (c) below that is based on annual financial performance will be excluded from the lump sum payment and paid separately as provided below: (a) An amount equal to a minimum of five (5) times the Daily Cash Compensation per year of continuous service to a maximum of twelve (12) times the Daily Cash Compensation per year of continuous service. The minimum Benefit paid to any Participant shall be an amount equal to a Participant's Compensation for two (2) weeks (10 days) and the maximum Benefit paid to any Participant under this formula will be an amount equal to a Participant's Compensation for one (1) year. A "year of continuous service" shall be measured from the Participant's employment commencement date to his or her Employment Termination Date. (b) An amount equal to the vacation that the Participant would earn from the Employment Termination Date to the conclusion of the Participant's applicable Paid Notice Period. (c) An amount equal to the Participant's target annual bonus amount, under the applicable annual bonus plan (or its successor), if any, for the current Plan Year multiplied by the number of months elapsed in the current Plan Year to the Participant's Employment Termination Date and divided by twelve (12); provided, however, that if the Employment Termination Date occurs in the last two (2) months of the Plan Year, in lieu of the payment described above, the amount to be paid pursuant to this clause (c) shall be determined and paid after the end of the Plan Year in accordance with the terms and conditions of the applicable annual bonus plan, if any, as though the Participant were still an Employee, except that the weighting to be applied to the Participant's business/financial performance goals under the annual bonus plan will be deemed to be 100%; provided further, however, that in the discretion of the Chief Executive Officer, the amount payable pursuant to this paragraph (c) for Employment Termination Dates occurring in the last two (2) months of the fiscal year may be computed in the same manner as that provided for Employment Termination Dates occurring during the first ten (10) months of the fiscal year. 7 (d) An amount of salary continuation during the Paid Notice Period which will equal Compensation divided by twelve (12) and multiplied by the number of months of Paid Notice. (e) An amount equal to the Participant's earned and accrued vacation through the Participant's Employment Termination Date. (f) If the Participant's employment with the Employer terminates before a Change of Control (as defined in the UGI Corporation 2004 Omnibus Equity Compensation Plan, or a successor plan as designated by the Committee) of UGI Corporation, the cash amount computed in subsections (a) through (d) above shall be reduced by the amount of cash and the fair market value of any stock, partnership units or other property that is payable to the Participant under Restricted Awards after the Participant's termination of employment, as determined by the Committee. The Committee may determine that payment of a portion of the Benefit under this Plan will be delayed pending calculation of the amount payable under Restricted Awards, or the Committee may decide to pay the amounts described in subsections (a) through (d) immediately and offset amounts payable under the Restricted Awards by the amount of the Benefit previously paid under this Plan. In no event shall a Participant be required to return to the Employer any amounts previously paid under this Plan as a result of a decline in the value of Restricted Awards. (g) The offset described in subsection (f) shall not apply if the Participant's employment with the Employer terminates at or after a Change of Control. In addition, the offset described in subsection (f) shall not apply to any Restricted Awards for which all requirements for payment have been met before the Participant's Employment Termination Date (for example, if the restriction period for a Restricted Award ends on December 31, 2003, the Restricted Award is payable February 1, 2004 and the Participant's employment is terminated January 15, 2004, Benefits under this Plan shall not be offset by the Restricted Award). 4.3 Other Benefits. A Participant shall continue to be entitled, through the end of the Participant's applicable Paid Notice Period as set forth above, to those employee benefits listed below, as in effect from time-to-time during the applicable Paid Notice Period based upon the amount of coverage or benefit provided at the Termination Date: (a) Basic Life Insurance; (b) Supplemental Life Insurance; (c) Medical Plan and Dental Assistance Plan; and (d) For Salary Grades 70 - 75, UGI Corporation Supplemental Executive Retirement Plan. Contributions for these coverages will be deducted from the Employee's lump sum payment on an after-tax basis. 8 4.4 Effect on Retirement and Other Benefit Plans or Payments. (a) This Plan shall not govern and shall in no way affect the Participant's interest in, or entitlement to benefits under any of the Employer's qualified retirement plans, and any payments received under any such plan shall not affect a Participant's right to any benefit hereunder. (b) A Participant who has been awarded Benefits under Sections 4.1 through 4.3 may continue to receive health benefits after the Employment Termination Date or any applicable Paid Notice Period under the applicable health plan maintained by the Employer for such period of time as may be required by applicable federal or state law. (c) There shall not be drawn from the provision by the Employer of any Benefits under this Article 4, any implication of continued employment or of continued right to accrual of retirement plan benefits under the Employer's qualified retirement plans or Executive Equity Plan, nor shall a Participant, except as provided in Section 4.2(b), accrue vacation days, paid holidays, paid sick days or other similar benefits normally associated with employment for any period after the Employment Termination Date or any applicable Paid Notice Period. (d) The Benefits payable under this Plan shall be reduced by any and all separation payments or other similar payment required to be made by the Employer under federal, state and local laws including, but not limited to, the Worker Adjustment and Retraining Notification Act. 9 ARTICLE 5 METHOD AND DURATION OF BENEFIT PAYMENTS 5.1 Method of Payment. Except as provided in Section 4.2(c), the Benefit to which a Participant is entitled shall be paid in a single lump sum, unless the Employer, in its sole discretion, acting in its role as employer and not as a fiduciary, determines otherwise. Payment shall be made by mailing to the last address provided to the Employer by the Participant or, at the election of the Participant and subject to the consent of the Employer, by depositing in accordance with any direct deposit instructions received from the Participant. In general, payment shall be made as promptly as practicable after (a) the Participant's Qualifying Termination; and (b) after the execution by the Participant of the Release required under Section 3.3; and (c) the expiration of the required revocation period specified in the Release. All payments under the Plan are subject to withholding for applicable federal, state and local taxes. 5.2 Termination of Entitlement to Benefits. A Participant shall cease to participate in the Plan, and any Benefits to any Participant shall cease, upon the occurrence of the earliest of: (a) the termination of the Plan or the adoption of an amendment to the Plan which would result in the cessation of Benefit payments hereunder; (b) completion of the Paid Notice Period as defined at Section 2.12 (c) the death of the Employee; or (d) the discovery that the Participant's termination from employment with the Employer was For Cause, whether or not such discovery occurs before the Employee's Termination Date. In the event that the circumstances described in Section 5.2(d) occur after a Participant has received Benefits, the Participant will forfeit any and all entitlement to Benefits and will be required to return to the Employer immediately the full amount of any such Benefit. The Employer, in its sole discretion, acting in its role as employer and not as a fiduciary, may waive application of this provision with regard to the occurrence of any of the foregoing events or circumstances. 5.3 Effect of Reemployment. In the event a Participant who qualifies for Benefits hereunder is rehired as a full-time employee of the Employer, or hired as a full-time employee of any affiliate of the Employer, the Employer has the right to cease payment of Benefits and/or require the repayment of all or a portion of the benefit amount paid as a precondition to reemployment. 10 ARTICLE 6 THE PLAN ADMINISTRATOR 6.1 Authority and Duties. It shall be the duty of the Plan Administrator, on the basis of information supplied to it by the Employer, to determine the eligibility of each Participant to participate in the Plan. The Employer, in its role as the employer and not as a fiduciary, shall determine the amount of Benefit to which each Participant may be entitled and the manner and time of payment of the Benefit. The Plan Administrator shall have the full power and authority to construe, interpret and administer the Plan, to correct deficiencies therein, and to supply omissions. All decisions, actions and interpretations of the Plan Administrator shall be final, binding and conclusive upon the parties, subject only to determinations by the Named Appeals Fiduciary with respect to denied claims for Benefits. Any decisions, actions or interpretations to be made under the Plan by the Employer, in its role as an employer and not as a fiduciary, shall be made in its sole discretion and need not be uniformly applied to similarly situated individuals and shall also be final, binding and conclusive upon the parties. The Plan Administrator may delegate ministerial and other responsibilities to one or more employees of the Employer. 6.2 Records, Reporting and Disclosure. The Plan Administrator shall keep all individual and group records relating to Participants and former Participants and all other records necessary for the proper operation of the Plan. The Plan Administrator shall prepare and shall file as required by law or regulation all reports, forms, documents and other items required by ERISA, the Internal Revenue Code, and every other relevant statute, each as amended, and all regulations thereunder, except that the Employer, as payor of the Benefits, shall prepare and distribute to the proper recipients all forms relating to withholding of income or wage taxes, Social Security taxes, and other amounts which may be similarly reportable. 6.3 Compensation, Expenses and Indemnification of the Plan Administrator. Individuals serving (either alone or as a committee) as the Plan Administrator who are full time employees of the Employer shall receive no additional compensation for their services as Plan Administrator. However, all reasonable expenses of the Plan Administrator shall be paid or reimbursed by the Employer upon proper documentation. Individuals serving (either alone or as a committee) as the Plan Administrator shall be indemnified by the Employer against personal liability and defense costs for actions taken in good faith in the discharge of their duties as the Plan Administrator. 6.4 Bonding. The Plan Administrator shall arrange any bonding that may be required by law, but no amount in excess of the amount required by law (if any) shall be required by the Plan. 11 ARTICLE 7 AMENDMENT, SUSPENSION AND TERMINATION 7.1 Amendment, Suspension and Termination. The Employer reserves the right, in its role as employer and not as a fiduciary, at any time and from time to time, to amend, modify, suspend or terminate the Plan in whole or in part, for any reason and at any time, and without either the consent of, or the prior notification to, any Participant, Employee or other individual. No such amendment, modification, suspension or termination shall give the Employer the right to recover any amount paid to a Participant prior to the date of such amendment, modification, suspension or termination. However, any such amendment, modification, suspension or termination may cause the discontinuance of payments of Benefits, or the cessation of the obligation to pay any Benefit, to any person or persons under the Plan. The Employer shall have the right to delegate its authority and powers hereunder, or any portion thereof, to a committee, an affiliated company or any other individual or entity. 12 ARTICLE 8 DUTIES OF THE EMPLOYER 8.1 Records. The Employer shall supply to the Plan Administrator all records and information necessary to the performance of the Plan Administrator's duties. 8.2 Payment. The Employer shall make payments from its general assets to Participants in accordance with the terms of the Plan. 8.3 Discretion. Any decisions, actions or interpretations to be made under the Plan by the Employer shall be made in its sole discretion, not in any fiduciary capacity and need not be uniformly applied to similarly-situated individuals, and such decisions, actions or interpretations shall be final, binding and conclusive upon all parties. 13 ARTICLE 9 CLAIMS PROCEDURES 9.1 Application for Benefits. Each Employee believing himself or herself to be entitled to Benefits under this Plan may apply for such Benefits within 30 days of his or her termination of employment on a form supplied by the Plan Administrator. Before the date on which Benefits are paid or payments commence, each such application must be supported by such information as the Plan Administrator deems relevant and appropriate. 9.2 Claim. A terminated Employee may contest his or her eligibility for the amount of benefit awarded by completing and filing with the Plan Administrator a written request for review in the manner specified by the Plan Administrator. Each such application must be supported by such information as the Plan Administrator deems relevant and appropriate. The Plan Administrator will review the claim and provide notice to the terminated Employee, in writing, within 90 days after the claim is filed unless special circumstances require an extension of time for processing the claim. In no event shall the extension exceed a period of 90 days from the end of the initial period. In the event that any claim for benefits is denied in whole or in part, the terminated Employee whose claim has been so denied shall be notified of such denial in writing by the Plan Administrator. The notice advising of the denial shall be written in a manner calculated to be understood by the terminated Employee and shall set forth: (i) specific references to the pertinent Plan provisions on which the denial is based; (ii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation as to why such information is necessary; and (iii) an explanation of the Plan's claim procedures and time limits applicable for such procedures, including a statement of the claimant's right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on appeal. 9.3 Appeals of Denied Claims for Benefits. All appeals shall be made by the following procedure: (a) The terminated Employee whose claim has been denied shall file with the Plan Administrator a notice of appeal of the denial. Such notice must be filed within sixty (60) days of notification of the claim denial, be made in writing, and set forth all of the facts upon which the appeal is based. Appeals not timely filed in writing shall be barred. (b) The claimant or his duly authorized representative may: (i) request a review upon written notice to the Committee; (ii) examine the Plan and obtain, upon request and without charge, copies of all information relevant to the claimant's appeal; and (iii) submit issues and comments in writing. (c) The Named Appeals Fiduciary (as described in Section 9.4) shall issue a decision no later than 60 days after receipt of a request for review unless special circumstances, 14 such as the need to hold a hearing, require a longer period of time, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the terminated Employee's notice of appeal. (d) The Named Appeals Fiduciary shall consider the merits of the claimant's written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Named Appeals Fiduciary shall deem relevant. (e) The Named Appeals Fiduciary shall render a determination upon the appealed claim, which determination shall be accompanied by a written statement setting forth the following: (i) specific reasons for the decision, written in a manner calculated to be understood by the claimant; (ii) specific references to the pertinent Plan provisions on which the decision is based; (iii) the claimant's right to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim for benefits; and (iv) the claimant's right to bring a civil action under section 502(a) of ERISA. 9.4 Appointment of the Named Appeals Fiduciary. The Named Appeals Fiduciary shall be the person or persons named as such by the Board of Directors, or, if no such person or persons be named, then the person or persons named by the Committee as the Named Appeals Fiduciary. The Named Appeals Fiduciaries may at any time be removed by the Board of Directors, and any Named Appeals Fiduciary named by the Committee may be removed by the Committee. All such removals may be with or without cause and shall be effective on the date stated in the notice of removal. The Named Appeals Fiduciary shall be a "Named Fiduciary" within the meaning of ERISA, and unless appointed other fiduciary responsibilities, shall have no authority, responsibility, or liability with respect to any matter other than the proper discharge of the functions of the Named Appeals Fiduciary as set forth herein. 15 ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 Nonalienation of Benefits. None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under this Plan. 10.2 No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Employee, or any person whosoever, the right to be retained in the service of the Employer, and all Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted. 10.3 Severability of Provisions. Except for those provisions contained in Section 3.3 which go to the essence of this Plan and require the execution of a Release as a condition precedent to eligibility, if any other provision of this Plan shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provision had not been included. 10.4 Heirs, Assigns and Personal Representatives. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future (except that no successor to the Employer shall be considered a Plan sponsor unless that successor adopts this Plan). 10.5 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 10.6 Gender and Number. Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. 10.7 Unfunded Plan. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of the Employer which may be applied by the Employer to the payment of Benefits. 10.8 Payments to Incompetent Persons, Etc. Any Benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receiving therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably 16 appearing to provide for the care of such person, and such payment shall fully discharge the Employer, the Plan Administrator and all other parties with respect thereto. 10.9 Appendices. From time to time, the Employer may elect to append provisions of limited duration to this Plan to govern what the Employer determines to be special circumstances governing certain Employees. Each such Appendix, during the period stipulated therein, shall be deemed a part of this Plan. Except as otherwise stated in any such Appendix applicable to any Employee or Participant, the rights of such Employee or Participant as stated in such Appendix shall supersede the rights provided under this Plan; the Benefits provided under such Appendix shall be in lieu of comparable or stipulated Benefits provided under this Plan, and there shall be no duplication of Benefits. 10.10 Lost Payees. A Benefit shall be deemed forfeited if the Plan Administrator is unable to locate a Participant to whom a Benefit is due. At the sole discretion of the Employer, acting in its role as an employer and not as a fiduciary, such Benefit may be reinstated if application is made by the Participant for the forfeited Benefit while this Plan is in operation. 10.11 Controlling Law. This Plan shall be construed and enforced according to Pennsylvania law except to the extent superseded by federal law. IN WITNESS WHEREOF, the Employer has caused this Plan to be executed in its name and behalf this __________ day of January, 2004, by its officers thereunto duly authorized. UGI CORPORATION Attest: By:_________________________________ By:________________________________ 17 APPENDIX A RELEASE A-1 EX-10.5 5 w99159exv10w5.txt AMENDED AGREEMENT RELATING TO THE SENIOR FACILITIES EXHIBIT 10.5 Dated 18 June 2004 AGZ HOLDING as Parent ANTARGAZ THE ENTITIES NAMED HEREIN as Lenders CALYON as Mandated Lead Arranger CALYON as Facility Agent CALYON as Security Agent AMENDMENT AGREEMENT RELATING TO A SENIOR FACILITIES AGREEMENT DATED 26 JUNE 2003 AS AMENDED AND RESTATED Shearman & Sterling LLP Paris [SHEARMAN AND STERLING LLP LOGO] CONTENTS
CLAUSE PAGE 1. INTERPRETATION.............................................. 3 2. AMENDMENTS TO THE FACILITIES AGREEMENT...................... 3 3. EFFECTIVENESS - CONDITIONS PRECEDENT........................ 5 4. STATUS OF DOCUMENTS......................................... 6 4.1 FACILITIES AGREEMENT.............................. 6 4.2 FINANCE DOCUMENT.................................. 6 5. REPRESENTATIONS AND WARRANTIES.............................. 6 5.1 RELIANCE.......................................... 6 5.2 POWERS AND CAPACITY............................... 7 5.3 AUTHORISATION..................................... 7 5.4 NO CONTRAVENTION.................................. 7 5.5 OBLIGATIONS BINDING............................... 7 5.6 CONSENTS.......................................... 7 5.7 NO DEFAULT........................................ 7 6. INVALIDITY OF ANY PROVISION................................. 8 7. GOVERNING LAW AND SUBMISSION TO JURISDICTION................ 8 7.1 GOVERNING LAW..................................... 8 7.2 SUBMISSION TO JURISDICTION........................ 8 SCHEDULE 1...................................................... 9
ii THIS AMENDMENT AGREEMENT is made on 18 June 2004 BETWEEN: (1) AGZ HOLDING (a company incorporated in France as a societe anonyme with registered number 413 765108 RCS Nanterre) (the "PARENT"); (2) ANTARGAZ (a company incorporated in France as a societe anonyme with registered number 572 126 043 RCS Nanterre) ("ANTARGAZ"); (3) CALYON (a company incorporated in France as a societe anonyme with registered number 304 187 701 RCS Nanterre) as mandated lead arranger (the "ARRANGER"); (4) THE FINANCIAL INSTITUTIONS listed in schedule 1 as Lenders; (5) CALYON as a in its capacity as facility agent for the Lenders under the Senior Finance Documents (the "FACILITY AGENT"); and (6) CALYON in its capacity as agent for the Finance Parties under the Security Documents (the "SECURITY AGENT"). WHEREAS: (A) The parties to this agreement are parties to a senior facilities agreement dated 26 June 2003 as amended and restated by (i) an amendment and restatement agreement dated 2 July 2003, (ii) an amendment agreement dated 1 August 2003 and (iii) an amendment agreement dated 15 January 2004, pursuant to which the Lenders agreed to make available to the Parent a (euro)220,000,000 term facility and to the Borrowers a (euro)50,000,000 revolving facility (the "FACILITIES AGREEMENT"). (B) The parties to this agreement have agreed to enter into this agreement in order to amend the terms of the Facilities Agreement in the manner set out below. NOW IT IS HEREBY AGREED: 1. INTERPRETATION In this agreement: (a) words and expressions defined in the Facilities Agreement shall, unless otherwise defined herein or save to the extent the context otherwise requires, have the same meaning when used herein; (b) the provisions of Clauses 1.2 (Construction) and 1.3 (Other References) of the Facilities Agreement will be deemed to be set out in full in this agreement, but as if references in those clauses to the Facilities Agreement were references to this agreement. 2. AMENDMENTS TO THE FACILITIES AGREEMENT 2.1 The parties to this amendment agreement hereby agree for themselves and for their successors, transferees and assigns pursuant to the Facilities Agreement that the Facilities Agreement shall be amended as follows with effect from the Date of Effect (as such term is defined in Clause 3 below). (a) The definition of "Financial Year" in Clause 1.1 (Definitions) shall read as follows: ""FINANCIAL YEAR" means (i) until 31 March 2004, the period of 12 months ending on March 31 in each year, (ii) the period of 6 months ending on 30 September 2004 and (iii) thereafter, the period of 12 months ending on 30 September in each year;" (b) After the definition of "UGI" in Clause 1.1 (Definitions), the definition of "UGI Bordeaux" is added as follows: ""UGI BORDEAUX" means UGI Bordeaux Holding, a French societe par actions simplifiee, with a share capital of (euro)85,568,435, having its registered office at 3 place de Saverne, Immeuble Les Renardieres, 92400 Courbevoie, registered under number 452 431 232 RCS Nanterre;". (c) After the definition of "UGI Bordeaux" in Clause 1.1 (Definitions), the definition of "UGI Bordeaux Letter of Undertakings" is added as follows: ""UGI BORDEAUX LETTER OF UNDERTAKINGS" means the letter dated 18 June 2004 (which constitutes a Senior Finance Document) by UGI Bordeaux Holding to the Parent and the Facility Agent, acting on behalf of the Lenders, whereby UGI Bordeaux undertakes to make certain payments to the Parent in connection with the Tax Consolidation Agreement;". (d) After the definition of "Taxes" in Clause 1.1 (Definitions), the definition of "Tax Consolidation Agreement" is added as follows: ""TAX CONSOLIDATION AGREEMENT" means the tax consolidation agreement in French language called convention d'integration fiscale dated 18 June 2004 and as amended from time to time, between UGI Bordeaux and its Subsidiaries;" 2.3 PREPAYMENT AND CANCELLATION (a) In the last paragraph (b)(i) of Clause 11.3 (Sale, Change of Control and Listing), the words "any of the provisions of paragraph (B)(1) or (3)" are replaced by "the provisions of paragraph (B)(3)". (b) Paragraph (b)(iii)(B)(1) of Clause 11.3 (Sale, Change of Control and Listing) is removed. 2.4 UNDERTAKINGS (a) The first paragraph (ii) of Clause 19.9(c) (Restriction on payment of dividends) shall read as follows: "(ii) Notwithstanding the provisions of paragraph (i) of this clause 19.9(c), the provisions of clause 19.9(b) (Redemption and acquisition of own shares) and the provisions of clause 19.9(d) (Shareholder payments), the Parent may (x) redeem, purchase, retire or otherwise acquire any shares or warrants issued by it or otherwise reduce its capital or (y) declare or pay any dividend or make any other distribution or pay any interest or other amounts, whether in cash or otherwise, on or in respect of its share capital or any class of its share capital or set apart any sum for any such purpose or (z) make any repayment of principal of, or payment of interest on, or any other payment with respect to any shareholder investment by way of indebtedness in the Parent or (zz) reimburse subsidies (subventions) paid by UGI Bordeaux to the Parent in connection with the Tax Consolidation Agreement (each such transaction described in (x), (y), (z) and (zz) above being referred to as a "RESTRICTED PAYMENT") if at the time the Parent makes any such Restricted Payment:" (b) The following paragraph (iii) is added after paragraph (ii) of Clause 19.9(c) (Restriction on payment of dividends): "(iii) By exception to the provision of paragraph (ii)(B) above of this clause 19.9(c), but without prejudice to the other conditions set forth in paragraph (ii) of this clause 19.9(c), Restricted Payments may be made up to an aggregate amount not exceeding(euro)44,000,000 during the Financial Year ending on 30 September 2004, provided that the Parent shall have delivered to the 4 Facility Agent, prior to any such Restricted Payment is made, (i) a certificate of the Parent's auditors confirming that the aggregate Consolidated Net Income for the Financial Years ending on 31 March 2003 and 31 March 2004 is at least equal to(euro)88,000,000 and that (ii) annual audited consolidated accounts as of 31 March 2004 confirming that the amount of EBITDA for the Financial Year ending on 31 March 2004 is at least equal to(euro)147,000,000 and the Cash as at 31 March 2004 is at least equal to(euro)66,000,000." (c) Paragraph (ii)(D) of Clause 19.9(c) (Restriction on payment of dividends) is removed. (d) The term "; and" is added at the end of paragraph (ii)(C) of Clause 19.9(c) (Restriction on payment of dividends) and paragraph (ii)(E) of Clause 19.9(c) (Restriction on payment of dividends) is renumbered as paragraph (ii)(D). (e) Paragraph (g)(ii) of Clause 19.10 (Information and Accounting Undertakings) shall read as follows: "(ii) Each Obligor undertakes to procure that the consolidated tax group status (integration fiscale) of UGI Bordeaux, the Parent and each of the Parent's Subsidiaries which fulfils the conditions for inclusion in the consolidated tax group of UGI Bordeaux will continue for so long as any Obligor has any obligation under any Senior Finance Document. Notwithstanding any provision to the contrary in this Agreement, the Parent and its Subsidiaries shall be authorised to make payments to UGI Bordeaux under the Tax Consolidation Agreement (such payments being equal to the income tax that would be due by the Parent and its Subsidiaries in the absence of the tax consolidation regime) provided (x) that UGI Bordeaux will, in accordance with the Tax Consolidation Agreement and the UGI Bordeaux Letter of Undertakings, reallocate part of such payments to the Parent and (y) that the Parent shall exercise and enforce all its rights to obtain such reallocation in accordance with the Tax Consolidation Agreement." 2.5 EVENTS OF DEFAULT (a) Clause 20.1(u) (Tax consolidation) shall read as follows: "(u) TAX CONSOLIDATION (i) The Group loses, for whatever reason (including as a result of any change of law or interpretation in law) the benefit of the tax consolidation regime (integration fiscale) for the Group and UGI Bordeaux, unless, within 30 days of the occurrence of the relevant event causing the loss of the tax consolidation regime, the Parent has provided written details to the Facility Agent of a solution to that loss which is satisfactory to the Majority Lenders (acting reasonably). (ii) An amendment or waiver is made to the Tax Consolidation Agreement without the prior consent of the Majority Lenders, which could reasonably be expected to prejudice the interests of the Finance Parties under the Senior Finance Documents or of the Parent." (b) The following paragraph is added after Clause 20.1(u) (Tax consolidation) as a new Clause 20.1(uu): "(u) UGI BORDEAUX UGI Bordeaux fails to comply with any of its obligations under the UGI Bordeaux Letter of Undertakings or under the Intercreditor Agreement." 3. EFFECTIVENESS - CONDITIONS PRECEDENT The amendments set forth in Clause 2 of this amendment agreement shall become effective on the date on which all the following documents have been received in form and substance satisfactory to the Facility Agent (the "DATE OF EFFECT"): 5 (a) Tax Memorandum by Landwell & Associes; (b) Tax Consolidation Agreement; (c) a certified copy of the updated extrait K-bis of UGI Bordeaux; (d) a certified copy of the updated statuts of UGI Bordeaux; (e) a certified copy of the resolutions of the relevant corporate bodies of UGI Bordeaux, (f) the UGI Bordeaux Letter of Undertakings duly signed by UGI Bordeaux, (g) a Creditor Accession Agreement (as defined in the Intercreditor Agreement) duly signed by UGI Bordeaux; The effectiveness of the amendments set forth in clause 2 of this amendment agreement (other than the amendments provided in clauses 2.4 (b), 2.4 (c) and 2.4 (d) hereof) is subject to the additional condition precedent of the payment by the Parent to the Facility Agent of a fee of 0.25 % of the Commitments (including the Revolving Commitments) of those Lenders who have given their consent to such amendments. The effectiveness of the amendments set forth in clauses 2.4 (b), 2.4 (c) and 2.4 (d) of this amendment agreement is subject to the additional condition precedent of the payment by the Parent to the Facility Agent of a fee of 0.25 % of the Commitments (including the Revolving Commitments) of those Lenders who have given their consent to such amendments. The fees referred to in the two preceding paragraphs shall be paid only to those Lenders that have given their consent to the amendments referred to in such paragraphs. As of the date hereof the Total Commitments amount to (euro)252,000,000, including Total Revolving Commitments of (euro)50,000,000. 4. STATUS OF DOCUMENTS 4.1 FACILITIES AGREEMENT Except as varied by the terms of this agreement, the Facilities Agreement will remain in full force and effect and any reference in the Facilities Agreement to "this Agreement", "herein", "Senior Facilities Agreement" and similar references or to any provision of the Facilities Agreement will be construed as a reference to the Facilities Agreement, or that provision, as amended by this agreement. 4.2 FINANCE DOCUMENT This agreement will constitute a Senior Finance Document for the purposes of the Facilities Agreement. 5. REPRESENTATIONS AND WARRANTIES 5.1 RELIANCE Each Obligor represents and warrants as set out in the following provisions of this clause 5 and acknowledges that each Finance Party has entered into this agreement and has agreed to the amendment and other matters effected by this agreement in full reliance on those representations and warranties. 6 5.2 POWERS AND CAPACITY Each Obligor has the power and capacity to enter into and comply with its obligations under this agreement. 5.3 AUTHORISATION Each Obligor has taken (or will take within any requisite time period) all necessary action: (a) to authorise the entry into of and compliance with its obligations under this agreement; (b) to ensure that its obligations under this agreement are valid, legally binding and enforceable in accordance with their terms; (c) to make this agreement admissible in evidence in the courts of France (other than a certified translation of this agreement into French). 5.4 NO CONTRAVENTION The entry into by the Obligors, the exercise of its rights under and the compliance with its obligations under this agreement do not: (a) contravene any law, regulation, judgment or order to which any Group Company is subject; (b) conflict with its constitutional documents; or (c) breach any agreement or the terms of any consent binding upon any Group Company or any assets of any Group Company. 5.5 OBLIGATIONS BINDING The obligations expressed to be assumed by the Obligors under this agreement constitute or when executed will constitute its valid and legally binding obligations and are enforceable in accordance with their terms (subject to any applicable insolvency, bankruptcy or similar laws affecting creditors' rights generally). 5.6 CONSENTS All consents and filings required for the entry into of this agreement and the performance by the Obligors of their obligations hereunder have been obtained (or, where applicable, will be obtained within the required time period) and are in full force and effect. 5.7 NO DEFAULT (a) No Default has occurred and is continuing. (b) No event is continuing which constitutes a default under any agreement or document to which any Group Company is party, the consequence of which could reasonably be expected to have a Material Adverse Effect. 7 6. INVALIDITY OF ANY PROVISION If any provision of this agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired in any way. 7. GOVERNING LAW AND SUBMISSION TO JURISDICTION 7.1 GOVERNING LAW This agreement (and any dispute, controversy, proceedings or claim of whatever nature arising out of or in any way relating to this agreement) shall be governed by, and construed in accordance with, French law. 7.2 SUBMISSION TO JURISDICTION For the benefit of each Finance Party, each Obligor irrevocably submits to the jurisdiction of the Commercial Courts of Paris (Tribunal de Commerce de Paris) for the purpose of hearing and determining any dispute arising out of this agreement and for the purpose of enforcement of any judgement against its assets. Executed on the date first written above, in six (6) original copies. THE PARENT AGZ HOLDING By: ------------------------ ANTARGAZ By: ------------------------ ARRANGER, LENDER, FACILITY AGENT AND SECURITY AGENT - --------------------------------------------------- CALYON By: ------------------------ 8 SCHEDULE 1 LENDERS Calyon BNPParibas Credit Industriel et Commercial ING Bank (France) SA Sumitomo Mitsui Banking Corporation, Paris Branch Allied Irish Bank plc Deutsche Bank AG London West LB AG, Paris Branch Credit du Nord Compagnie Financiere du Credit Mutuel Lloyds TSB Bank PLC CDC Finance - CDC IXIS IKB Deutsche Industriebank AG, Paris Branch Credit Agricole d'Ile de France Bank of Scotland, Paris Branch 9 EX-10.6 6 w99159exv10w6.txt CREDITOR ACCESSION AGREEMENT EXHIBIT 10.6 CREDITOR ACCESSION AGREEMENT THIS AGREEMENT is made on 18 June 2004 BETWEEN: (1) UGI Bordeaux Holding (the "NEW INVESTOR"); and (2) Calyon in its capacity as Security Agent under the Intercreditor Agreement. RECITALS: (A) This agreement is supplemental to an intercreditor agreement dated 7 July 2003, (the "INTERCREDITOR AGREEMENT") between, among others, AGZ Holding and the entities named therein as Senior Lenders, High Yield Issuer and Investors. (B) This agreement has been entered into to record the accession of the New Investor as an Investor under the Intercreditor Agreement. IT IS AGREED as follows: 1. DEFINITIONS Words and expressions defined in the Intercreditor Agreement have the same meanings when used in this agreement. 2. ACCESSION OF NEW CREDITOR 2.1 The New Investor agrees to become, with immediate effect, a party to, and agrees to be bound by the terms of, the Intercreditor Agreement as if it had originally been party to the Intercreditor Agreement as an Investor. 2.2 The New Investor confirms that its address details for notices in relation to clause 18 (Notices) are as follows: Address: Immeuble Les Renardieres, 3 place de Saverne, 92400 Courbevoie Facsimile: +33 (0)1 41 88 73 13 Attention of: President 2.3 The Security Agent for itself and the other parties to this agreement other than the New Investor confirms the acceptance of the New Investor as an Investor for the purposes of the Intercreditor Agreement. 3. LAW 3.1 This agreement (and any dispute, controversy, proceedings or claim of whatever nature arising out of or in any way relating to this deed) shall be governed by and construed in accordance with French law. 3.2 For the benefit of each Financial Party, each of the parties hereto irrevocably submits to the exclusive jurisdiction of the Commercial Court of Paris (Tribunal de Commerce de Paris) for the purpose of hearing and determining at first instance any dispute arising out of this agreement. SIGNATORIES TO THE CREDITOR ACCESSION AGREEMENT THE NEW INVESTOR Executed by: THE SECURITY AGENT Executed by: 2 EX-10.7 7 w99159exv10w7.txt LETTER OF UNDERTAKINGS EXHIBIT 10.7 UGI BORDEAUX HOLDING Societe par Actions Simplifiee Au capital de 85.568.435 euros Siege Social : Immeuble les Renardieres, 3, place de Saverne, 92400 Courbevoie 452 431 232 RCS Nanterre 18 June 2004 AGZ HOLDING Immeuble Les Renardieres 3 place de Saverne 92400 Courbevoie CALYON (as Facility Agent on behalf of the Lenders) Financements d'Acquisition 81 rue de Richelieu 75002 Paris Dear Sirs, SENIOR FACILITIES AGREEMENT DATED 26 JUNE 2003 BETWEEN AMONG OTHERS AGZ HOLDING AS PARENT, THE COMPANIES NAMED THEREIN AS BORROWERS AND GUARANTORS, CALYON AS MANDATED LEAD ARRANGER, FACILITY AGENT AND SECURITY AGENT AND THE LENDERS NAMED THEREIN (AS AMENDED FROM TIME TO TIME, THE "FACILITIES AGREEMENT") We refer to the Facilities Agreement and to a 4th amendment thereto dated the date hereof (the "AMENDMENT"). Unless otherwise defined in this letter, words and expressions defined in the Facilities Agreement and in the Amendment have the same meaning when used in this letter. This is the UGI Bordeaux Letter of Undertakings referred to in the Amendment. In consideration of your agreement to UGI Bordeaux becoming the tax consolidating company of the Group, UGI Bordeaux undertakes to Calyon, acting for itself and as Facility Agent on behalf of the Lenders, that it will fully comply with the terms of the Tax Consolidation Agreement and, in particular, that it will pay and reallocate, on the due date for payments as provided under the Tax Consolidation Agreement, the tax savings that the Parent would have retained had the initial tax consolidated group remained in place. UGI Bordeaux further undertakes that if such payments were made to the Parent in the form of subsidies, the rights of UGI Bordeaux to the reimbursement of such subsidies shall be fully subordinated to the rights of the Finance Parties under the Senior Finance Documents in accordance with the provisions of the Intercreditor Agreement (to which UGI Bordeaux shall accede as of the date hereof) and that such subsidies shall be considered as Investor Debt for the purposes of the Intercreditor Agreement. This letter constitutes a Senior Finance Document. This letter shall be governed by and construed in accordance with French law and Clause 30 (Governing law and submission to jurisdiction) of the Facilities Agreement shall apply mutatis mutandis to this letter. If you agree with the terms of this letter, please execute a copy thereof. Yours faithfully, UGI BORDEAUX HOLDING ____________________________________________ Name: Title: AGZ HOLDING ____________________________________________ Name: Title: CALYON FOR ITSELF AND AS FACILITY AGENT ON BEHALF AND FOR THE ACCOUNT OF THE LENDERS ____________________________________________ Name: Title: 2 EX-10.8 8 w99159exv10w8.txt TAX CONSOLIDATION AGREEMENT EXHIBIT 10.8 Translated from French version June 18, 2004 TAX CONSOLIDATION AGREEMENT Among UGI BORDEAUX HOLDING and The companies belonging to its group TAX CONSOLIDATION AGREEMENT AMONG : (1) UGI BORDEAUX HOLDING, a simplified stock corporation with a stated capital of 85,568,435 euros, having its registered office located Immeuble Les Renardieres, 3 place de Saverne, 92400 Courbevoie, identified under number 452 431 232 RCS Nanterre, represented for purposes hereof by its President, Mr. Francois Varagne, (Hereinafter referred to as the "PARENT COMPANY"), firstly, AND (2) AGZ HOLDING, a stock corporation with a stated capital of 35,126,800 euros, having its registered office located Immeuble Les Renardieres, 3 place de Saverne, 92400 Courbevoie, identified under number 413 765 108 RCS Nanterre, represented for purposes hereof by its Chairman, Mr. Francois Varagne. (Hereinafter referred to as the "AGZ HOLDING"), secondly, AND (3) ANTARGAZ, a stock corporation with a stated capital of 3,935,349 euros, having its registered office located at Immeuble les Renardieres, 3 place de Saverne, 92400 Courbevoie, identified under number 572 126 043 RCS Nanterre, represented for purposes hereof by its Chairman, Mr. Francois Varagne, (Hereinafter referred to as the "ANTARGAZ"), thirdly, AND (4) WOGEGAL S.A., a stock corporation with a stated capital of 596.600,28 euros, having its registered office located at Lieu Dit Les Mottais-19 bis rue du Champ Martin,35770 Vern sur Seiche identified under number 310 095 658 RCS Tours, represented for purposes hereof by its Chairman, Mr. Alain Duprez, (Hereinafter referred to as the "WOGEGAL S.A."), fourthly, 2 AND (5) GAZ EST DISTRIBUTION, a stock corporation with a stated capital of 152,400 euros, having its registered office located at 109, boulevard d'Haussonville, 54000 Nancy, identified under number 421 283 615 RCS Nancy, represented for purposes hereof by its Chairman, Mr. Augustin Sarragallet, (Hereinafter referred to as the "GAZ EST DISTRIBUTION"), fifthly, AND (6) NORD GPL SA, a stock corporation with a stated capital of euros, having its registered office located at Le Marais d'Epinoy - Parc d'Activites du Chateau - Rue Gay Lussac, 62220 Carvin, identified under number 422 265 504 RCS Bethune, represented for purposes hereof by its Chairman, Mr Eric Jagerschmidt, (Hereinafter referred to as the "NORD GPL SA"), sixthly, AND (7) RHONE MEDITERRANEE GAZ, a stock corporation with a stated capital of 151.758,24 euros, having its registered office located at Centre d'activites du Chateau de l'Ile - 6 rue leon Blum, 69320 Feyzin, identified under number 382 151 272 RCS Lyon, represented for purposes hereof by its, Mr Georges Sciberras, (Hereinafter referred to as the "RHONE MEDITERRANEE GAZ"), seventhly, AND (8) AQUITAINE PYRENEES GAZ, a stock corporation with a stated capital of 135.163,56 euros, having its registered office located at 2 rue Aristide Berges, 82000 Montauban, identified under number 410 963 770 RCS Montauban, represented for purposes hereof by its Chairman, Mr. Alain Duprez (Hereinafter referred to as the "AQUITAINE PYRENEES GAZ"), eigthly, 3 (AGZ Holding, Antargaz, Wobegal S.A., Gaz Est Distribution, Nord GPL SA, Rhone Mediterranee Gaz and Aquitaine Pyrenees Gaz are also hereinafter referred to as the "CONSOLIDATED COMPANIES" and, each individually, a "CONSOLIDATED COMPANY"). "Group" means all the companies within the perimeter of this tax consolidation agreement. WHEREAS: [A] The Parent Company holds: - directly and indirectly through Financiere AGZ a simplified stock corporation 99.9%-held by the Parent Company, 35,126,795 out of the 35,126,800 shares constituting the share capital of AGZ Holding, i.e., 99.9 % of the rights to dividends and voting rights; - AGZ Holding holds 516,444 out of the 516,450 shares constituting the share capital of Antargaz, i.e., 99.9 % of the rights to dividends and voting rights; - Antargaz holds : - 26,092 out of the 26,098 shares constituting the share capital of Wogegal S.A., i.e., 99.9 % of the rights to dividends and voting rights; - 9,994 out of the 10,000 shares constituting the share capital of Gaz Est Distribution, i.e., 99.9 % of the rights to dividends and voting rights; - 19,994 out of the 20,000 shares constituting the share capital of Nord GPL SA, i.e., 99.9 % of the rights to dividends and voting rights; - 2,923 out of the 2,928 shares (directly and indirectly) constituting the share capital of Rhone Mediterranee Gaz, i.e 99.9 % of the rights to dividends and voting rights; - Wogegal S.A. holds itself 8,863 out of the 8,869 shares constituting the share capital of Aquitaine Pyrenees Gaz, i.e., 99.9 % of the rights to dividends and voting rights; [B] Further to the acquisition on March 31, 2004 by the Parent Company, which is a subsidiary of UGI Corporation Group, of all the shares of AGZ Holding not yet held by UGI Corporation and its subsidiaries, and further to the creation of a new tax consolidation between the Parent Company, AGZ Holding and its subsidiaries pursuant to Section 223 L-6-d of the French General Tax Code (hereinafter referred to as "GTC", it has been agreed to replace the tax consolidation agreement made between AGZ Holding and its subsidiaries on March 28, 2001 with a new tax consolidation agreement between the French Parent Company, and the Consolidated Companies. 4 The Parent Company has opted for the tax regime applicable to certain groups of French companies (hereinafter referred to as the "GROUP REGIME") provided by Sections 223 A and subs.. of the GTC, for a term of five fiscal years, tacitly renewable, as from April 1, 2004 (hereinafter referred to as the "CONSOLIDATION PERIOD" or the "OPTION PERIOD"), by way of registered letter with return receipt requested dated June 18, 2004. The Consolidated Companies granted their consent to the creation of the Group by registered letter with return receipt requested dated June 18, 2004. This Tax Consolidation Agreement replaces, nullifies and is in lieu of any other tax consolidation agreement, which may have been entered into by the companies parties hereto. This Tax Consolidation Agreement shall become effective as from April 1, 2004. The terms and conditions of this Agreement were approved by decisions of the Boards of Directors of each of the Consolidated Companies. Consequently, and in accordance with the provisions of Section 223 A paragraph 7 of the GTC, each Consolidated Company shall be jointly and severally liable for the payment of Corporate Income Tax (hereinafter referred to as "CIT"), of additional taxes complementing corporate income tax that are in effect on the date of execution hereof or which are to become effective during the Consolidation Period, of the minimum annual corporation tax ("imposition forfaitaire annuelle des societes") referred to in Section 223 septies of the GTC (hereinafter referred to as "IFA"), of the equalization tax ("precompte mobilier") referred to in Section 223 sexies of the GTC (hereinafter referred to as "PRECOMPTE"), of the special 25% tax on any distribution of profits made in 2005, as set forth by Article 95 of the French Finance Bill for 2004, and, as the case may be, of late interest, tax increases, penalties and related fines, for the payment of which the Parent Company is or may be liable. This joint and several obligation shall be limited to the amount of taxes and penalties that would be due by this Consolidated Company had it not been a member of the Group. The purpose of the Agreement is to set the terms and conditions of sharing of CIT, of additional taxes complementing corporate income tax, of the Precompte, of the special 25% tax on distribution of profits made in 2005, of IFA, resulting from the Group Regime and the consequences of a Consolidated Company's exiting the Group. The CIT, the additional contribution complementing the CIT, the Precompte, the special 25% tax on distribution of profits made in 2005 and the IFA are hereinafter referred to as "TAX". The parties' mutual intent is that the application of the Group Regime results in harming neither the Consolidated Companies nor their shareholders, nor the Parent Company, in contemplation of what their situation would have been like, absent any Group Regime. Notably, pursuant to the Agreement each Consolidated Company shall bear a tax burden equal to that it would have borne had it not been a member of the Group. Besides, potential tax savings resulting from the application of the Group Regime shall remain allocated to the Parent Company except as provided in article 1.6 of this Agreement. 5 PARTIES HAVE AGREED AS FOLLOWS: ARTICLE 1 DETERMINATION OF THE CONTRIBUTION PAID BY EACH CONSOLIDATED COMPANY TO THE PARENT COMPANY FOR THE IT 1.1 Each Consolidated Company which generates a net taxable profit, a long term capital gain, or both, during a fiscal year ended within the Option Period, shall pay the Parent Company, as contribution to the payment of CIT and of any additional taxes complementing CIT due by the Parent Company, an amount equal to the CIT and to the additional taxes which the aforementioned net taxable profit and/or capital gain would be subject to if the Group Regime was not applied (hereinafter referred to as the "CONTRIBUTION"). Therefore, for the purposes of determining such Contribution, the items which the Consolidated Company would be entitled to deduct absent any Group Regime will be deducted. In particular, the Consolidated Company shall be entitled to deduct its potential loss carry forwards. If a Consolidated Company generates a tax loss during the Option Period, it will not be entitled to any refund by the Parent Company in relation with such situation, even if the latter has opted for the carrying-back of Group losses and is consequently entitled to a tax refund by the French Tax Authorities. 1.2 For the purposes of this article, the IT rates applicable to the profits generated shall be, depending on the nature of the income: - the normal rate, its temporary or permanent increases which may be decided by law; and - the rate(s) applicable to long-term capital gains depending on their category, including any increases as referred to hereabove. The rates for additional taxes of any kind complementing CIT shall be those that would have applied to the Consolidated Company absent any Group Regime. 1.3 Each Consolidated Company shall pay its Contribution to the Parent Company at least ten days prior to the deadlines binding the Parent Company for the payment of the Group CIT and additional taxes to the Tax Authorities. 1.4 Each Consolidated Company shall record the tax burden that it should have assumed, had said company been taxed separately. Such burden shall correspond to the tax calculated on the profit indicated in tax form 2058-A-bis and 2058-B-bis, reduced by the prior losses of the Consolidated Company, tax credits, withholding taxes, research or training tax credits, which may be deducted from CIT. 6 1.5 In the event that a Consolidated Company were in a situation where, absent any tax consolidation, it would have been reimbursed a tax credit by the Tax Authorities, including: - research tax credit generated during the consolidation, and/or - training tax credit generated during the consolidation, which may not be deducted from said Consolidated Company's CIT, the amount which the Consolidated Company may have received in this regard shall be paid by the Parent Company to the said Consolidated Company. 1.6 Notwithstanding the foregoing, and for purposes of application of article 20.1 of the Senior Facilities Agreement dated June 26, 2003 between AGZ Holding and Calyon (as assignee of Credit Lyonnais) as amended from time to time (the "SENIOR FACILITIES AGREEMENT", the Parent Company undertakes, for each fiscal year included in the Consolidation Period, to repay to AGZ Holding an amount equal to the tax saving which AGZ Holding would have recorded in its financial statements in its capacity as parent company in the tax consolidation of AGZ Holding group, had it remained parent company of such group and had it applied the tax consolidation agreement previously effective between AGZ Holding and its subsidiaries. It is understood that this reallocation shall not result in placing AGZ Holding in a less favorable or more favorable position that it would have been in had it remained the head of the tax consolidation group. This repayment shall be implemented as follows: AGZ Holding, within fifteen (15) days following the annual approval of its financial statements by its general shareholders' meeting (i) shall calculate the amount of the accounting profit related to the tax saving which would have been generated by the application of the tax consolidation agreement previously effective between AGZ Holding and its subsidiaries and (ii) shall notify such amount to the Parent Company. The Parent Company, within fifteen (15) days from the receipt of this information, shall pay said amount to AGZ Holding by way of bank wire. From a legal standpoint, this payment may, at the Parent Company's election, be effected by way of subsidy or of capital increase. There shall be not interest charged by the Parent Company to AGZ Holding on any payment made by the Parent Company to AGZ Holding pursuant to this Section. In case of payment by way of subsidy, the Parent Company and AGZ Holding agree that said subsidy shall not be taken into account for determining the taxable profit on which is based the Contribution owed by AGZ Holding to the Parent Company. In addition, within thirty days from the annual approval by its general shareholders' meeting of the financial statements relating to the fiscal year when said subsidy shall be paid, AGZ Holding undertakes to repay the Parent Company an equivalent amount, if: - AGZ Holding is authorized to make such repayment under the conditions set forth in the Senior Facilities Agreement and in the Trust Deed of July 23, 2002, as amended from time to time, relating to the high yield notes issued by AGZ Finance, a Luxembourg subsidiary of AGZ Holding, (the "TRUST DEED"); 7 - AGZ Holding is not in default with respect to the provisions of the Senior Facilities Agreement and the Trust Deed; - AGZ Holding has the necessary cash in order to effect this payment without resorting to a loan. These conditions shall be appreciated at the date of the relevant repayment. Should these conditions not be satisfied, the amount which may not be reimbursed to the Parent Company shall be rolled over and shall be payable during the following fiscal year, subject to the satisfaction of the conditions listed hereabove. The provisions of this Section 1.6 shall cease to apply immediately when all the amounts due to the Lenders under the Senior Facilities Agreement shall have been repaid. ARTICLE 2 IFA 2.1 Each Consolidated Company shall pay the Parent Company, at the latest ten days prior to the legal deadline, an amount corresponding to the amount of the IFA that it would have paid, had it not opted for the Group Regime. 2.2 As an exception, for the fiscal year opening April 1, 2004, AGZ Holding shall be substituted to the other Consolidated Companies for the payment of IFA and shall continue to pay, for the period in question, such amounts on behalf of the said companies. ARTICLE 3 CIT INSTALLMENTS 3.1 For the fiscal year opening April 1, 2004 on the one hand, and for the first CIT installment of the fiscal year opening April 1st, 2005, AGZ Holding shall be substituted to the other Consolidated Subsidiaries for the payment of IT installments and shall continue to pay, for the period in question, said amounts on behalf of the said companies. 3.2 As from the fiscal year opening April 1, 2004, and except for the first CIT installment of such fiscal year, each Consolidated Company shall pay the Parent Company four installments calculated by applying the rate provided by Section 360 to Appendix III to the GTC, to the base defined at article 3.3 below. 3.3 The first installment of each fiscal year of application of the Group Regime payable to the Parent Company shall be based on the taxable profit that was used for the determination of the Contribution paid by the Consolidated Company for the fiscal year preceding the latest fiscal year ended. The three other installments for each fiscal year are based on the taxable profit that was used for the determination of the Contribution paid by the Consolidated Company for the latest fiscal year ended. 8 3.4 The Consolidated Company shall pay to the Parent company the amount of the CIT installments at the latest ten days prior to the legal deadline for paying the installments, as defined by Section 360 of Appendix III to the GTC. 3.5 As the case may be, the CIT installments surplus shall be reimbursed by the Parent Company to a Consolidated Company within thirty days following the deadline for the CIT balance payment. ARTICLE 4 AVOIR FISCAUX AND TAX CREDITS 4.1 Each Consolidated Company shall transfer to the Parent Company the avoirs fiscaux and tax credit certificates attached to gains and income received, within thirty days from their receipt. 4.2 Avoirs fiscaux and tax credits attached to gains and income benefiting from the parent-subsidiary tax regime defined in Sections 145 and 216 of the GTC may be deducted from the gross amount of the Precompte or of the special 25% tax on distribution of profits made in 2005 due by the Parent Company in case of distribution. ARTICLE 5 TRANSMISSION OF TAX RETURNS TO THE PARENT COMPANY 5.1 Each Consolidated Company shall transmit to the Parent Company its tax return and information necessary for the determination of consolidated result, as well as a statement of waived receivables and of direct and indirect subsidies granted between the Consolidated Company and another Consolidated Company, at least thirty days prior to the deadline for the Parent Company to file the consolidated result tax return. 5.2 Each Consolidated Company shall reimburse the Parent Company for the total amounts of interest, penalties and IT increases owed by the Parent Company for absence or delay in the filing of the consolidated result, if such lack or delay was caused by the late transmission to the Parent Company by the Consolidated Company of the returns and of the information indicated in the paragraph hereabove. 5.3 Each Consolidated Company shall reimburse the Parent Company for the fine provided at Section 1734 bis of the GTC, which may be due by the Parent Company for failing to mention, in the statement referred to at Section 223 B of the GTC, the waivers of receivables or the direct or indirect subsidies that the Consolidated Company itself failed to mention to the Parent Company on the statement provided at paragraph 5.1 hereabove, as long the Parent Company was not a party to said waivers of receivables and direct and indirect subsidies. ARTICLE 6 PRECOMPTE/SPECIAL TAX ON PROFITS DISTRIBUTION 6.1 Dividend distributions made by the Parent Company to its shareholders shall not be included within the scope of the relationships among Consolidated Companies. Accordingly, the Agreement's purpose shall not consist in dealing with the treatment of possible implications of Precompte on the distributions made by the Parent Company to its shareholders. 9 6.2 When the Precompte is payable by reason of a distribution made by a Consolidated Company of dividends that are not derived from the profit and/or a long-term capital gain made during the Option Period, the Precompte is borne by the Consolidated Company, which shall pay the corresponding amount to the Parent Company ten days before the legal due date of the Precompte, less the tax credits that would be offset against such Precompte in the absence of Group Regime. 6.3 The Consolidated Companies shall not withhold any amount corresponding to the Precompte due on the portion of the dividends derived from a profit and/or a long-term gain capital made during the Option Period, and paid to a shareholder other than the Parent Company. The Parent Company shall bear by itself the burden of the corresponding Precompte. 6.4 These provisions relating to the Precompte shall apply to the distributions of dividends made by the Consolidated Company until December 31, 2004 included. Distributions of dividends, and more generally any distribution of profits made as from January 1st, 2005 will not be subject to the Precompte but to the special 25% tax set forth by the 2004 Finance Act. SPECIAL TAX ON THE DISTRIBUTION OF PROFITS 6.5 The special 25% tax due by the Consolidated Company by reason of its own distributions of profits shall be paid by the Parent Company to the Treasury and then reimbursed by the Consolidated Company to the Parent Company in the same conditions as those applicable to the Precompte (paragraph 5.1). 6.6 However, any special tax paid to the Treasury by the Parent Company shall create, to the benefit of the latter, a claim on the Treasury equal to the paid tax. Such claim shall be offset by equal portions on the CIT due by the Parent Company over the three following fiscal years. 6.7 Consequently, the amount of special tax paid by the Consolidated Company to the Parent Company by reason of a distribution made as from January 1st, 2005 by the Consolidated Company, shall constitute, for the Consolidated Company a claim on the Parent Company. The Parent Company shall reimburse the Consolidated Company the total amount of special tax paid by the latter in similar conditions to those that would have been applicable to the Consolidated Company should this company had not been consolidated, for the concerned fiscal years. ARTICLE 7 SANCTIONS APPLICABLE TO LATE PAYMENTS MADE BY A CONSOLIDATED COMPANY TO THE PARENT COMPANY 7.1 When a Consolidated Company has not made a payment to the Parent Company at a date where the corresponding amount should have been paid pursuant to the provisions of the Agreement, it shall pay the Parent Company a surcharge based on the annual rate of the legal interest (hereinafter referred to as the "SURCHARGE"). 7.2 Furthermore, if, by reason of the late payment of the Consolidated Company, the Parent Company is liable for default interest payment, penalties or tax surcharge superior to the 10 Surcharge, the Consolidated Company shall reimburse the Parent Company all of the excess (i) of interest payment, penalties and tax surcharge due by the Parent Company by reason of the late payment of the Consolidated Company on (ii) the amount of Surcharge that the latter has already paid. ARTICLE 8 EXIT OF A CONSOLIDATED COMPANY DURING THE OPTION PERIOD AND TERMINATION OF THE GROUP REGIME 8.1 A Consolidated Company can exit the Group (hereinafter referred as the "EXIT") providing that it gives the other Consolidated Companies a written notice at least six months prior to the end of a fiscal year, the Exit taking necessarily place the first day of the following fiscal year. The Parent Company undertakes to fulfill the formalities required for the implementation of the Exit. 8.2 The Exit of a Consolidated Company from the Group may also occur if one of the conditions required for the creation of a tax consolidation is no longer fulfilled, and especially, if the Parent Company holds directly or indirectly less than 95% of its stated capital. 8.3 Moreover, the three following situations will result in the termination of the Group Regime : - the Parent Company breaks the option at the end of the Option Period; - the Parent Company is the only member of the Group ; - the Group does not meet one of the conditions stated in Article 223 A of the GTC. 8.4 The Exit of a Consolidated Company shall not result in the termination of this Agreement, which shall continue to apply among the other Consolidated Companies. 8.5 Consequences of the Exit of a Consolidated Company from the Group or of the termination of the Group Regime : 8.5.1 Increase of the consolidated result The Parent Company shall owe the additional tax that it will possibly have to pay in case of Exit from the Group by a Consolidated Company. 8.5.2 CIT installments The provisions of Article 223 N.2 of the GTC, pursuant to which he Parent Company bears the payment of CIT installments for the leaving Consolidated Company for the 12-month period starting at the beginning of the fiscal year during which it leaves the Group, create a claim on the leaving Consolidated Company at the benefit of the Parent Company, on each of the installments due date. The corresponding claim shall be reimbursed by the Consolidated Company on the date of the Exit, at the latest, for the installments already paid, and for the others, ten days prior to their legal due date. The Consolidated Company shall 11 grant the Parent Company, in guarantee for the payment of such amounts, any security that the latter could reasonably request. 8.5.3 Consolidation termination agreement The Parent Company and the exiting company shall agree on the drafting of a consolidation termination agreement. ARTICLE 9 TAX ADJUSTMENTS 9.1 The Parent Company, as the unique person liable for tax, shall bear towards the tax administration the consequences of the adjustments made on the tax profits of each of the Consolidated Company for the fiscal years during which the Group Regime applies. 9.2 Consequently, if the profits of a Consolidated Company, for a fiscal year during which the Group Regime applies, are subject to adjustments (hereinafter referred as the "ADJUSTMENTS"), the Consolidated Company that has suffered the Adjustments shall pay the Parent Company a sum corresponding to the additional taxations and to the interest and penalties paid pursuant to the Adjustments and calculated in accordance with the provisions of this Agreement, ten days prior to the due dates. 9.3 The Consolidated Company shall assume the responsibility of challenging the Adjustments. It may choose any counsel to do so. The Consolidated Company shall bear the costs and fees relating to the challenging of the Adjustment. The strategy and defenses to be used shall be determined by the Consolidated Company with prior consent of the Parent Company on the said strategy as well as on any other contemplated compromise or transaction. 9.4 The Parent Company shall have access to any document that is in possession of the Consolidated Company and that would be necessary for the challenging of the Adjustments. 9.5 The provisions of Sections 9.2, 9.3 et 9.4 above shall apply similarly during or after the Option Period and before or after the Exit. If the examination of the accounts of a Consolidated Company for a fiscal year belonging to the Option Period takes place after the Option Period or after the Exit, the Parent Company shall communicate to the Consolidated Company and the Consolidated Company shall communicate to the Parent Company within 8 days from the receipt of a copy of all notice of examination of accounts, or notice of adjustments, or objections or document relating, directly or indirectly, to the examination of accounts procedure. 9.6 The Parent Company shall return to the Consolidated Company any tax relief and payment of late interest that the latter is entitled to upon the granting of a refund, in the limit of what it would have received from the tax administration should it have not been a member of the Group. 12 ARTICLE 10 TERM This Agreement is concluded for a term of five fiscal years, as from April 1st, 2004. It will be automatically renewed, for the same term, at each renewal of the option by the Parent Company. The term of 5 years as provided in paragraph 1 hereabove shall not apply in cases of Exit from the Group by a Company or of termination of the Group. In these cases, the parties shall stay bound by their obligations, by reason of their membership to the Group, until they effectively fulfill these obligations. That will be specially the case when a tax control, taking place after the Exit from the Group by a Company or at the termination of the Group, concerns a fiscal year during which the Group Regime did apply. ARTICLE 11 CONSOLIDATION OF NEW SUBSIDIARIES This Agreement with all its provisions shall continue to apply in case of consolidation of new subsidiaries by the Parent Company. Upon their joining the Group, these new subsidiaries shall enter this Agreement by signing an amendment with all the parties to the Agreement. ARTICLE 12 JURISDICTION Any difficulty relating to the validity, the interpretation or the execution of this Agreement shall be submitted to the jurisdiction of the Commerce Tribunal of Nanterre. In Courbevoie, June 18, 2004 Made in 8 originals UGI BORDEAUX HOLDING Represented by Mr. Francois Varagne AGZ HOLDING Represented by Mr. Francois Varagne ANTARGAZ Represented by Mr. Francois Varagne WOGEGAL S.A. Represented by Mr. Alain Duprez 13 GAZ EST DISTRIBUTION Represented by Mr. Augustin Sarragallet NORD GPL SA Represented by Mr. Eric Jagerschmidt RHONE MEDITERRANEE GAZ Represented by Mr. Georges Sciberras AQUITAINE PYRENEES GAZ Represented by Mr. Alain Duprez 14 EX-31.1 9 w99159exv31w1.txt CEO CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lon R. Greenberg, certify that: 1. I have reviewed this interim report on Form 10-Q of UGI Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and EXHIBIT 31.1 (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Lon R. Greenberg ------------------------------------- Lon R. Greenberg Chairman, President and Chief Executive Officer of UGI Corporation EX-31.2 10 w99159exv31w2.txt CFO CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Anthony J. Mendicino, certify that: 1. I have reviewed this interim report on Form 10-Q of UGI Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and EXHIBIT 31.2 (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Anthony J. Mendicino ----------------------------------------- Anthony J. Mendicino Senior Vice President - Finance and Chief Financial Officer of UGI Corporation EX-32 11 w99159exv32.txt CEO AND CFO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER RELATING TO A PERIODIC REPORT CONTAINING FINANCIAL STATEMENTS I, Lon R. Greenberg, Chief Executive Officer, and I, Anthony J. Mendicino, Chief Financial Officer, of UGI Corporation, a Pennsylvania corporation (the "Company"), hereby certify that to our knowledge: (1) The Company's periodic report on Form 10-Q for the period ended June 30, 2004 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER /s/ Lon R. Greenberg /s/ Anthony J. Mendicino - ------------------------------------ ---------------------------------- Lon R. Greenberg Anthony J. Mendicino Date: August 13, 2004 Date: August 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----