-----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, FSm85jkmFgJhRfUIHuLMxQyysQcggw/nfGVOaGnmZSJSWtWdxxHZf/kUt7QuC4p7 GKnJafBS05BnCgf7rIHp5w== 0000915887-95-000031.txt : 19951004 0000915887-95-000031.hdr.sgml : 19951004 ACCESSION NUMBER: 0000915887-95-000031 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950928 DATE AS OF CHANGE: 19951003 SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMPIRE GAS CORP/NEW CENTRAL INDEX KEY: 0000922404 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11393 FILM NUMBER: 95577178 BUSINESS ADDRESS: STREET 1: 1700 SO JEFFERSON ST STREET 2: P O BOX 303 CITY: LEBANON STATE: MO ZIP: 65536 MAIL ADDRESS: STREET 1: 2445 M ST N W CITY: WASHINGTON STATE: DC ZIP: 20037 10-K 1 FORM 10-K United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended June 30, 1995 Commission file Number 1-6537 EMPIRE GAS CORPORATION (Exact Name of Registrant as Specified in Its Charter) Missouri 43-1494323 ____________________________ _______________________ (State or other jurisdiction of Incorporation (IRS Employer or Organization) Identification No.) P.O. Box 303 1700 South Jefferson Street, Lebanon, Missouri 65536 ________________________________________________ ______________________ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (417) 532-3103 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on which Registered _____________________________ ______________________ 9% Subordinated Debentures due 2007 Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. (X) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of close of business on September 15, 1995 is: $116,480 Shares of Common Stock, $0.001 par value, outstanding as of close of business on September 15, 1995: 1,579,225. Upon request, Empire Gas Corporation will furnish a copy of any exhibit listed but not contained herein. A fee of $.05 per page, to cover the Company's costs in furnishing exhibits requested will be charged. Please direct all requests to: Corporate Secretary, 1700 South Jefferson, Lebanon, Missouri 65536; Telephone (417) 532-3103. 2 of 55 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES. Introduction Prior to June 29, 1994, Empire Gas Corporation ("Empire Gas" or the "Company") was the owner of 100% of the outstanding common stock of Empire Gas Operating Corporation ("EGOC") and had no other assets or operations. Prior to a name change on April 26, 1994, EGOC had been known as Empire Gas Corporation, and filed reports under the Securities Exchange Act of 1934 under that name. On June 29, 1994, EGOC merged with and into the Company, with the Company as the surviving corporation. All references to the Company in this report refer to Empire Gas Corporation and its consolidated subsidiaries, which prior to June 29, 1994 included EGOC. On June 30, 1994, the Company engaged in a series of transactions (the "Transaction") including the transfer of all of the shares of common stock of Empire Energy Corporation ("Energy") to the Company's former chairman, Robert W. Plaster, and certain departing directors, officers and employees. Energy held the common stock of 136 subsidiaries of the Company that carried on the business of the Company in ten states, primarily in the Southeast. As part of the Transaction, the Company also acquired the assets of PSNC Propane Corporation ("PSNC"). Except where noted otherwise, all financial information in this report and the financial statements included with this report include the results of operations of Energy through June 30, 1994 and exclude the results of operations of PSNC, but balance sheet data for June 30, 1994 and all financial information from periods beginning thereafter exclude the assets of Energy and include the assets of PSNC. On August 15, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Corporation, to acquire the assets of Synergy Group Incorporated, the nation's fifth largest LP gas distributor. The Company has acquired for $10,000 10% of the common stock of SYN, Inc., the acquisition entity, and has an option to acquire an additional 20% of the common stock of SYN, Inc. for $20,000. The Company has entered into a Management Agreement pursuant to which the Company manages the joint entity. Under the terms of the Management Agreement, the Company provides all management of the retail facilities and accounting services at the central office. In exchange for those services, the Company receives a $500,000 annual management fee and $3.25 million annual overhead cost reimbursement, both paid on a monthly basis. Unless specifically referenced, all information contained herein excludes information pertaining to the Synergy operations. Propane Operations The Company is engaged in the business of the retail distribution of propane and has been in operation since 1963. In addition, the Company sells related gas-burning appliances and equipment and rents customer storage tanks. The Company's operations consist of 156 retail service centers with 18 additional bulk storage facilities. Since August 15, 1995 the Company has operated an additional 107 service centers pursuant to the Management Agreement relating to SYN, Inc. During the fiscal year ended June 30, 1995, the Company sold approximately 86.7 million gallons of propane to approximately 112,000 customers in 21 states, which (based on retail gallons sold) makes it one of the 11 largest retail distributors of propane in the United States. The Company's operations are geographically 3 of 55 diversified with retail service centers located in the west, the southwest, Colorado, the upper midwest, the Mississippi Valley and the southeast. This diversification reduces the potential impact of fluctuations of weather in a particular region. Propane, a hydrocarbon with properties similar to natural gas, is separated from natural gas at gas processing plants and refined from crude oil at refineries. It is stored and transported in a liquid state and vaporizes into a clean-burning energy source that is used for a variety of residential, commercial, and agricultural purposes. Residential and commercial uses include heating, cooking, water heating, refrigeration, clothes drying, and incineration. Commercial uses also include metal cutting, drying, container pressurization, and charring, as well as use as a fuel for internal combustion engines. Agricultural uses include brooder heating, stock tank heating, crop drying, and weed control, as well as use as a motor fuel for farm equipment and vehicles. Propane is also used for a number of other purposes. Sales of propane to residential and commercial customers, which account for the vast majority of the Company's revenue, have provided a relatively stable source of revenue for the Company. Sales to residential customers accounted for approximately 66.0% of the Company's aggregate propane sales revenue and 70.7% of its aggregate gross margin from propane sales in fiscal year 1995. Historically, this market has provided higher margins than other retail propane sales. Based on fiscal year 1995 propane sales revenue, the customer base consisted of 23.9% commercial and 10.1% agricultural and other customers. While commercial propane sales are generally less profitable than residential retail sales, the Company has traditionally relied on this customer base to provide a steady, noncyclical source of revenues. No single customer accounts for more than 1.1% of revenue from sales. Sources of Supply. Propane is derived from the refining of crude oil or is extracted in the processing of natural gas. The Company obtains its supply of propane primarily from oil refineries and natural gas plants located in the south, west and midwest. Most of the Company's propane inventory is purchased under supply contracts with major oil companies which typically have a one-year term, at the suppliers' daily posted prices or a negotiated discount. During fiscal 1995, contract suppliers sold nearly 73% of the propane purchased by the Company, and the two largest suppliers sold 17.6% and 12%, respectively, of the total volume purchased by Empire Gas. The Company has established relationships with a number of suppliers over the past few years and believes it would have ample sources of supply under comparable terms to draw upon to meet its propane requirements if it were to discontinue purchasing propane from its two largest suppliers. The Company takes advantage of the spot market as appropriate. The Company has not experienced a shortage that has prevented it from satisfying its customer's needs and does not foresee any significant shortage in the supply of propane. Distribution. The Company purchases propane at refineries, gas processing plants, underground storage facilities and pipeline terminals and transports the propane by railroad tank cars and tank trailer trucks to the Company's retail service centers, each of which has bulk storage capacity ranging from 16,000 to 180,000 gallons. The Company has retail service centers with an aggregate storage capacity of approximately 9.0 million gallons of propane, and each service center has equipment for transferring the gas into and from the bulk storage tanks. The Company 4 of 55 operates 13 over-the-road tractors and 18 transport trailers to deliver propane to its retail service centers and also relies on common carriers to deliver propane to its retail service centers. The Company also owns an underground storage facility with a capacity of approximately 1 million barrels. This facility is not currently being used and cannot be used until a new disposal well is constructed, and the system is tested and brought up to industry standards. The Company can meet its storage needs from existing capacity and third-party sources, but is considering making the necessary modifications to provide storage that it may use for its own purposes or lease or sell to third parties. The Company is exploring the possibility of making modifications to its underground storage facility, and has obtained from an engineering and construction company a study of the costs of rehabilitating and opening the facilities, which range from $500,000 to $3,000,000. If the rehabilitation work is not performed and the facilities cannot be sold, then the Company would be required to close the facilities at a cost which the Company believes will not exceed $500,000. Deliveries to customers are made by means of 400 bulk delivery tank trucks owned by the Company. Propane is stored by the customers on their premises in stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons, with large users having tanks with a capacity of up to 30,000 gallons. Most of the propane storage tanks used by the Company's residential and commercial customers are owned by the Company and leased, rented, or loaned to customers. Operations. The Company has organized its operations in a manner that the Company believes enables it to provide superior service to its customers and to achieve maximum operating efficiencies. The Company's retail propane distribution business is organized into eighteen regions, which include 107 service centers managed since August 1995 pursuant to the Management Agreement relating to SYN, Inc. Each region is supervised by a regional manager. The regions are grouped into four divisions, and the regional managers report to their respective divisional vice president or manager. Personnel located at the retail service centers in the various regions are primarily responsible for customer service and sales. A number of functions are centralized at the Company's corporate headquarters in order to achieve certain operating efficiencies as well as to enable the personnel located in the retail service centers to focus on customer service and sales. The Company makes centralized purchases of propane through its corporate headquarters for resale to the retail service centers enabling the Company to achieve certain advantages, including price advantages, because of its status as a large volume buyer. The functions of cash management, accounting, taxes, payroll, permits, licensing, asset control, employee benefits, human resources, and strategic planning are also performed on a centralized basis. The corporate headquarters and the retail service centers are linked via a computer system. Each of the Company's primary retail service centers is equipped with a computer that is connected to a central data processing department in the Company's corporate headquarters. Empire Service Corporation ("Service Corp."), a wholly owned subsidiary of Energy, provides data processing and management information services to the Company pursuant to a services agreement. See "Introduction," above. This computer network system provides retail company personnel with accurate and timely information on pricing, inventory, and customer accounts. In addition, this system enables management to monitor pricing, sales, delivery, and the 5 of 55 general operations of its numerous retail service centers and to plan accordingly to improve the operations of the Company as a whole. Factors Influencing Demand. Because a substantial amount of propane is sold for heating purposes, the severity of winter weather and resulting residential and commercial heating usage have an important impact on the Company's earnings. Approximately two-thirds of the Company's retail propane sales usually occur during the five months of November through March. Sales and profits are subject to variation from month to month and from year to year, depending on temperature fluctuations. Competition. The Company encounters competition from a number of other propane distributors in each geographic region in which it operates. The Company competes with these distributors primarily on the basis of service, stability of supply, availability of consumer storage equipment, and price. The propane distribution industry is composed of two types of participants: larger multi-state marketers, including the Company, and smaller intrastate marketers. Most of the Company's retail service centers face competition from a number of other marketers. Empire Gas also competes with suppliers of other energy sources, including suppliers of electricity for sales to residential and commercial customers. Empire Gas believes growth can be achieved by the conversion to propane of homes that currently use either electricity or fuel oil products. Propane has advantages over electricity and fuel oil. The Company currently enjoys, and historically has enjoyed, a competitive advantage because of the higher cost of electricity. Fuel oil does not present a significant competitive threat in Empire Gas's primary service areas due to the following factors: (i) propane is a residue-free, cleaner energy source, (ii) environmental concerns make fuel oil relatively unattractive, and (iii) fuel oil appliances are not as efficient as propane appliances. Conservation measures or technological advances, including the development of more efficient gas appliances, could slow the growth of demand for propane by retail propane customers. The Company believes that decreases in oil and gas prices in recent years have decreased the incentive to conserve and that the gas appliances used today are already operating at high levels of efficiency. The Company can predict neither the impact of future conservation measures nor the effect that any technological advances might have on the Company's operations. Empire Gas generally does not attempt to sell propane in areas served by natural gas distribution systems, except sales for specialized industrial applications, because the price per equivalent energy unit of propane is, and has historically been, higher than that of natural gas. To use natural gas, however, a retail customer must be connected to a distribution system provided by a local utility. Because of the costs involved in building or connecting to a natural gas distribution system, natural gas does not create significant competition for the Company in areas that are not currently served by natural gas distribution systems. The Company believes the highly fragmented retail propane market presents substantial opportunities for growth through acquisitions. The Company's ability to compete through acquisitions will be limited in certain geographic areas as a result of a non-competition agreement signed in connection with the Transaction, and amended in April 1995. Subject to 6 of 55 an exception for multi-state acquisitions, the non-competition agreement as amended restricts the Company from making acquisitions in certain territories in two states (southeastern Missouri and northern Arkansas) and an area within a 50-mile radius of an Energy operation in any state east of the Mississippi River until June 30, 1997. Reciprocal restrictions apply to Energy under the agreement. Risks of Business. The Company's propane operations are subject to all the operating hazards and risks normally incident to handling, storing, and transporting combustible liquids, such as the risk of personal injury and property damages caused by accident or fire. The Company's current comprehensive general and automobile liability policy provides coverage for losses of up to $101.0 million with a $500,000 deductible per occurrence. The excess coverage for comprehensive general liability provides a loss limitation that limits the Company's aggregate of self-insured losses to $1 million per policy period. During the year ended July 1994, workers compensation coverage had a $500,000 deductible per incident. Since July 1994 (and prior to July 1993) the Company has obtained workers' compensation coverage from carriers and state insurance pools. The deductibles on comprehensive general and automobile liability and for workers' compensation for the year ended July 1994 mean that the Company is effectively self-insured for liability up to these deductibles. Regulation The Company's operations are subject to various federal, state, and local laws governing the transportation, storage and distribution of propane, occupational health and safety, and other matters. All states in which the Company operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. Certain municipalities prohibit the below ground installation of propane furnaces and appliances, and certain states are considering the adoption of similar regulations. The Company cannot predict the extent to which any such regulations might affect the Company, but does not believe that any such effect would be material. It is not anticipated that the Company will be required to expend material amounts by reason of environmental and safety laws and regulations, but inasmuch as such laws and regulations are constantly being changed, the Company is unable to predict the ultimate cost to the Company of complying with environmental and safety laws and regulations. Empire Gas currently meets and exceeds Federal regulations requiring that all persons employed in the handling of propane gas be trained in proper handling and operating procedures. All employees have participated, or will participate within 90 days of their employment date, in hazardous materials training. The Company has established ongoing training programs in all phases of product knowledge and safety including participation in the National Propane Gas Association's ("NPGA") Certified Employee Training Program. Employees As of September 15, 1995, the Company had approximately 600 employees, none of whom was represented by unions. The Company has never experienced any significant work stoppage or other significant labor problems and believes it has good relations with its employees. 7 of 55 ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants in various routine litigation incident to its business, none of which is expected to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its annual shareholder meeting on June 26, 1995. The only matter presented for a vote was the re-election of Jim J. Shoemake as a director. Mr. Shoemake was re-elected with 1,579,225 votes cast in favor and no votes cast against, withheld or abstaining. The term of office of the following directors continued after the meeting: Paul S. Lindsey, Jr., Douglas A. Brown, Kristin L. Lindsey, and Bruce M. Withers, Jr. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of September 15, 1995, the Company's Common Stock was held of record by 9 shareholders. There is currently no active trading market in the Company's Common Stock. As of September 15, 1995, there are outstanding warrants to purchase 175,536 shares of the Company's Common Stock. No dividends on the Common Stock of the Company were paid during the Company's 1994 or 1995 fiscal years. The indenture relating to the 12 7/8% Senior Secured Notes due 2004 and the terms of the Company's revolving credit facility each contain dividend restrictions that prohibit the Company from paying common stock cash dividends. As a result, the Company has no current intention of paying cash dividends on the Common Stock. ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated operating and balance sheet data of Empire Gas as of and for each of the years in the five-year period ended June 30, 1995. The financial data of the Company as of and for each of the years in the five-year period ended June 30, 1995 were derived from the Company's audited consolidated financial statements. The financial and other data set forth below should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, included with this report. Because the operating data for the period ending June 30, 1994 do not take into account the effects of the Transaction on the Company, the data for that period are not comparable to the data for the year ended June 30, 1995. 8 of 55
Year Ended June 30, ___________________________________________________________________________ 1991 1992 1993 1994 1995 ____ ____ ____ ____ ____ (in thousands except ratios and per share amounts) Operating data: Operating revenue $121,758 $112,080 $128,401 $124,522 $74,640 Gross profit 61,787 61,107 68,199 66,632 39,028 Operating expenses 44,772 40,052 41,845 44,966 29,694 Depreciation and amortization 9,552 10,062 10,351 10,150 6,166 Operating income 7,463 10,993 16,003 11,516 3,168 Interest expense: Cash interest 12,038 10,721 9,826 8,542 10,681 Amortization of debt discount and expenses 890 1,006 1,686 2,016 4,889 Total interest expense 12,928 11,727 11,512 10,558 15,570 Net income (loss) before extraordinary items (4,557) (1,474) 2,228 (1,190) (8,726) Other operating data: Capital expenditures 8,813 6,703 4,358 20,015 11,874 Cash from sale of retail service centers and other assets 497 3,062 1,088 366 2,956 EBITDA 17,015 21,055 26,354 21,666 9,334 Income (loss) per share before extraordinary items $(.33) $(.11) $.16 $(0.08) $(5.53) /TABLE 9 of 55
As of June 30, ____________________________________________________________________________ 1991 1992 1993 1994 1995 ____ ____ ____ ____ ____ Balance sheet data: Total assets $158,383 $151,471 $148,020 $104,644 $105,128 Long-term debt (including current maturities) 84,289 78,958 79,249 105,612 115,647 Stockholders' equity (deficit) 26,438 24,901 25,913 (28,220) (36,946) ___________ Represents operating revenue less the cost of products sold. Empire Gas did not declare or pay dividends on its common stock during the five-year period ending June 30, 1995. EBITDA consists of earnings before depreciation, amortization, interest, income taxes, and other non-recurring expenses. EBITDA is presented here because it is a widely accepted financial indicator of a highly leveraged company's ability to service and/or incur indebtedness. However, EBITDA should not be construed as an alternative either (i) to operating income (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating activities (determined in accordance with generally accepted accounting principles).
10 of 55 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of the Company's results of operations, financial condition and liquidity should be read in conjunction with the historical consolidated financial statements of Empire Gas and the notes thereto included in this Report. Results of Operations General Empire Gas' primary source of revenue is retail propane sales, which accounted for approximately 89% of its revenue in fiscal year 1995. Other sources of revenue include sales of gas appliances and rental of customer tanks. The Company's operating revenue is subject to both price and volume fluctuations. Price fluctuations are generally caused by changes in the wholesale cost of propane. The Company is not materially affected by these price fluctuations, inasmuch as it can generally recover any cost increase through a corresponding increase in retail prices. Consequently, the Company's gross profit per retail gallon is relatively stable from year to year within each customer class. Volume fluctuations from year to year are generally caused by variations in the winter weather from year to year. Because a substantial amount of the propane sold by the Company to residential and commercial customers is used for heating, the severity of the weather will affect the volume sold. Volume fluctuations do materially affect the Company's operations because lower volume produces less revenue to cover the Company's fixed costs, including any debt service costs. The Company's expenses consist primarily of cost of products sold, general and administrative expenses and, to a much lesser extent, depreciation and amortization and interest expense. Purchases of propane inventory account for the vast majority of the cost of products sold. The Company's general and administrative expenses consist mainly of salaries and related employee benefits, vehicle expenses, and insurance. The Company's interest expense consists primarily of interest on its existing credit facility and the 12 7/8% Senior Secured Notes due 2004 (the "Senior Secured Notes"). Interest expense increased significantly between 1994 and 1995 as a result of issuance of the Senior Secured Notes at the end of June, 1994. Through 1999 a significant portion of the increase will be non-cash interest expense. Historical financial data for years ended prior to June 30, 1994 do not reflect either the transfer of Energy or the acquisition of the assets of PSNC in the Transaction and therefore historical data for those periods are not comparable to results for the periods subsequent to June 30, 1994. In general, these transactions have resulted in a net reduction in the number of gallons sold, and thus in results (including operating revenue, cost of products sold, gross profit, and provisions for doubtful accounts) that are related to the number of gallons sold. General and administrative expenses have also declined as a result of the elimination of salaries and related expenses of departing officers, the termination of certain agreements between the Company and its former principal shareholder or entities controlled by him, and the elimination of costs related to service centers that are no longer part of the Company. 11 of 55 Fiscal Years Ended June 30, 1995 and June 30, 1994 Operating revenue. Operating revenue decreased $49.9 million to $74.6 million in fiscal year 1995 as compared to $124.5 million in fiscal year 1994. The decrease was primarily due to the disposition of service centers in the Transaction, offset by increases due to the acquisition of service centers from PSNC in the Transaction. Operating revenue from service centers retained in the Transaction and acquired from PSNC was $74.8 million in fiscal year 1994. The decrease of $200,000, or .3%, in fiscal year 1995 was due to a $1.9 million decrease in gas sales offset by increases of $1.0 million in gas systems and appliances, $400,000 in miscellaneous income, and $300,000 in service labor. The decrease in gas sales was due to an approximately $.06 per gallon decrease in the average net sales price of propane created by competitive pressures resulting from decreased demand due to warm weather. The decrease was partially offset by a 3.9 million gallons volume increase due to the addition of retail service centers through five acquisitions and ten new startups during fiscal year 1995. The increase in miscellaneous income was due primarily to the gain on assets sold including six retail service centers. The increase in service labor is due to the increased installations from greater appliance sales and the increased service market created by the acquisitions discussed above. Cost of products sold. Cost of products sold decreased $22.3 million to $35.6 million in fiscal year 1995 as compared to $57.9 million in fiscal year 1994, primarily as a result of the Transaction. Cost of product sold from service centers retained in the Transaction and acquired from PSNC was $35.1 million in fiscal year 1994. The increase of $500,000, or 1.4%, is the result of the 3.9 million gallon volume increase, partially offset by a $.01 reduction in the cost of propane and an increase in gas systems and appliances cost due to the volume of sales. Gross profit. The Company's gross profit for the year decreased $27.6 million to $39.0 million in fiscal year 1995 as compared to $66.6 million in fiscal year 1994, primarily as a result of the Transaction. Gross profit from service centers retained in the Transaction and acquired from PSNC was $39.7 million in fiscal year 1994. The decrease of $700,000, or 1.8%, was caused by the .3% decrease in operating revenue and the 1.4% increase in cost of products sold. The Company's gross profit per gallon decreased from $.43 in 1994 for service centers retained in the Transaction and acquired from PSNC to $.38 in fiscal year 1995, as a result of the decrease in sales price of $.06 per gallon offset by the $.01 reduction in the cost of propane. General and administrative expense. General and administrative expenses decreased $15.4 million to $28.6 million in fiscal year 1995 from $43.9 million in fiscal year 1994, primarily as a result of savings resulting from the reduction of personnel in connection with the Transaction. As a percentage of total revenues, general and administrative expenses increased to 38.3% in fiscal year 1995 from 35.3% in fiscal year 1994. The increase is due primarily to increases as a percent of total revenues of 2.2% in salaries and commissions, .6% in professional fees, .3% in both rent and maintenance and taxes and licenses, and .4% in office expenses. These increases were partially offset by a decrease of .5% in vehicle fuel and maintenance and .4% in insurance and liability claims. Other smaller increases were incurred in miscellaneous expenses and travel and entertainment and advertising. 12 of 55 The increase in salaries and commissions was due to several factors including 1) increased retail salary expense due primarily to additional employees as a result of acquisitions and startups and increased commissions as a result of increased emphasis on new customers and tank sets and 2) increased home office salary expense as a result primarily of additional operational employees due to acquisitions and additional marketing employees as a result of the Company's emphasis on enhanced sales efforts. The increase in professional fees is due to fees related to the formation of a 401k plan, fees resulting from a state income tax audit, and fees for a supply purchase consulting agreement. The increase in rent and maintenance of buildings is primarily due to increased tank painting, building and maintenance in converting certain rental facilities to a new identity in connection with the restructuring and an increase in the rental of facilities primarily related to the six retail service centers acquired in June 1994. The increase in taxes and licenses relates primarily to property taxes paid for six retail service centers acquired in June 1994. The increase in office expenses is primarily due to additional spending required for the change of identity for several retail sites and additional mailings to customers. The decrease in insurance and liability claims is due to a reduction in liability claims expense as a result of reduced claims. The decrease in vehicle fuel and maintenance is due to the replacement of older vehicles occurring at the end of fiscal year 1994 and in early fiscal year 1995 resulting in lower maintenance expenses. Provision for doubtful accounts. The provision for doubtful accounts increased approximately $80,000 to a little over $1.1 million in fiscal year 1995 from a little under $1.1 million in 1994. The increase is due to the final determination of management regarding the aged balances of accounts after substantial collection efforts during fiscal year 1995 offset in part by a reduction in the level of accounts receivable as a result of the transfer of Energy. Depreciation and amortization. Depreciation and amortization costs decreased by $4.0 million to $6.2 million from $10.2 million primarily as a result of the reduction in assets as a result of the Transaction. Depreciation and amortization on assets retained in the Transaction or acquired from PSNC increased by $700,000, or 12.7%, from $5.5 million for the year ended June 30, 1994 due to amortization of noncompete agreements acquired with new service centers and depreciation of the related assets purchased in June 1994 and fiscal 1995. Interest expense. Interest expense increased by approximately $2.4 million, or 25.9%, to $10.7 million in fiscal year 1995 as compared to $8.5 million in 1994, due to the approximately $45 million face value of additional long-term debt outstanding as compared to the same period of the prior year, partially offset by an overall lower rate of interest, principally on the new senior secured notes issued in June 1994, as compared to the higher rates on debt repaid with the June 1994 offering. Fiscal Years Ended June 30, 1994 and June 30, 1993 Operating revenue. Operating revenue decreased $3.8 million or 3.0%, from $128.4 million in fiscal year 1993 to $124.6 million in fiscal year 1994. This decrease was the result of a $4.0 million decrease in propane sales and a $300,000 decrease in other revenue, offset by a $500,000 increase in sales of parts and gas appliances. The decrease in propane sales was caused by a 1.9% decrease in gallons sold and a 1.1% decrease in 13 of 55 the average gross sales price per gallon. The decreased volume reflects the results of slightly warmer winter weather. Cost of products sold. Cost of products sold decreased $2.3 million, or 3.8%, from $60.2 million in fiscal year 1993 to $57.9 million in fiscal year 1994. The decrease resulted from the 1.9% decrease in gallons sold, which reflects the slightly warmer winter weather, and a 3.7% decrease in the wholesale cost of propane. Gross profit. The Company's gross profit for the year decreased $1.6 million, or 2.3%. The decrease was caused by the 3.0% decrease in operating revenue partially offset by the 3.8% decrease in cost of products sold. The Company's gross profit per gallon was relatively constant at $.430 in fiscal year 1994 and $.429 in fiscal year 1993. General and administrative expense. General and administrative expenses increased $3.0 million, or 7.5% from $40.4 million in fiscal year 1993 to $43.5 million in fiscal year 1994. The increase was due primarily to increases of $1.0 million in insurance and liability claims, $800,000 in salaries and commissions, and $400,000 in professional fees. The increase in insurance and liability claims was due primarily to increased claims. The increase in salaries and commissions was due to annual pay increases combined with a slight decrease in the total number of employees. The increase in professional fees was due to increased litigation fees relating to liability claims and increased accounting and other fees related to the Transaction that were not capitalized. Other smaller increases were incurred in transportation, office expenses, taxes and licenses, rent and maintenance, payroll taxes and employee benefits, travel and entertainment, and advertising. Provision for doubtful accounts. The provision for doubtful accounts increased $100,000 from $960,000 in fiscal year 1993 to $1.1 million in fiscal year 1994. This increase was the result of a slightly older aging of accounts receivable at June 30, 1994, compared to June 30, 1993. Depreciation and amortization. Depreciation and amortization remained relatively constant, decreasing by $200,000, or 1.9%, from $10.4 million in fiscal year 1993 to $10.2 million in fiscal year 1994. Interest expense. Cash interest expense decreased by approximately $1.3 million, or 13.1%, from $9.8 million in fiscal year 1993 to $8.5 million in fiscal year 1994. This decrease was the result of lower interest rates and reduced borrowing levels as compared to the prior year. Amortization of debt discount and expense increased $300,000, or 19.6%, from $1.7 million in 1993 to $2.0 million in 1994. This increase related to increased amortization of the discounts on the Company's 1998 9% Subordinated Debentures, 2007 9% Subordinated Debentures, and 12% Senior Subordinated Debentures, as well as amortization of expenses related to the Company's credit facility. Recapitalization costs. During fiscal years 1994 and 1993, the Company incurred $398,000 and $223,000, respectively, in expenses relating to proposed recapitalizations that the Company later decided not to pursue. Income taxes. The effective tax rate for the fiscal year 14 of 55 ended June 30, 1994, was approximately 41.7% compared to 47.8% for the fiscal year ended June 30, 1993. The Company had a positive effective tax rate in 1994 despite its reported loss primarily because of the amortization of the excess of cost over fair value of assets sold and state income taxes imposed on operations that were profitable in individual states. Liquidity and Capital Resources The Company's liquidity requirements have arisen primarily from funding its working capital needs, capital expenditures and debt service obligations. Historically, the Company has met these requirements from cash flows generated by operations and from borrowings under its working capital facility. Cash flow provided from operating activities was $1.4 million in fiscal year 1995 as compared to $12.9 million in fiscal year 1994. This reduction in cash flow resulted from the $8.3 million decrease in operating income which was caused by the Transaction occurring at June 30, 1994 and the negative sales impact of warmer winter weather in fiscal 1995. In addition to the reduction in operating income, cash flow provided by operations was affected by the following factors: (i) inventories and accounts receivable decreased $700,000 in 1995 and (ii) accounts payable and accrued expenses increased by $5.0 million, primarily due to accrued interest on the senior secured notes, offset by (iii) a decrease in checks in process of collection of $1.7 million and (iv) an increase in refundable income taxes and prepaid expenses of $2.3 million. The working capital items noted above that increased cash flow by $1.7 million in 1995 contributed to an increase in cash flow of $3.8 million in 1994. Pursuant to the indenture for the 12 7/8% Senior Secured Notes, the Company was required to make a $4.5 million, semi-annual interest payment on July 15, 1995. (The July 15 payment was not required in 1994 because the Senior Secured Notes were not issued until shortly before that date.) The Company met this interest payment requirement and funding for its acquisition program through operating cash flows, the proceeds of previously planned sales of marginally profitable retail service centers and properties pursuant to its long-range business plan, expanding its customer advance purchase program for future retail propane deliveries and scheduling its payments for equipment purchases in the fall of 1995. After the interest payment was made the Company continued its long-range plan by divesting an additional five marginally profitable retail service centers for approximately $1.6 million. In August 1995, the Company acquired a minority interest in another propane retailer, SYN, Inc. As part of this acquisition, the Company contracted to provide administrative and related services to the retail operations of SYN, Inc. in exchange for an annual management fee payment of $500,000 and overhead cost reimbursement of $3.25 million. The Company's high degree of leverage makes it vulnerable to adverse changes in the weather and could limit its ability to respond to market conditions, to capitalize on business opportunities, and to meet its contractual and financial obligations. Fluctuations in interest rates will affect the Company's financial condition inasmuch as the Company's working capital facility bears interest at a floating rate. The Company believes that, based on current levels of operations and assuming winter weather that is not substantially warmer in the various regions in which it operates than 15 of 55 the historical average of winter temperatures for those regions, it will be able to fund its debt service obligations from funds generated from operations including the additional funds from the SYN, Inc. Management Agreement discussed above, proceeds of potential sales of service centers and funds available under its working capital facility. The seasonal nature of the Company's business will require it to rely on borrowings under its $15.0 million credit facility as well as cash from operations, particularly during the summer and fall months when the Company is building its inventory in preparation for the winter heating season. While approximately two-thirds of the Company's operating revenue is earned in the second and third quarters of its fiscal year, certain expense items such as general and administrative expense are recognized on a more annualized basis. Interest expense also tends to be higher during the summer and fall months because the Company relies in part on increased borrowings on its revolving credit line to finance inventory purchases in preparation for the Company's winter heating season. The Company's capital expenditures consist of routine expenditures for existing operations as well as non-recurring expenditures, purchases of assets for the start-up of new retail service centers, and acquisition costs (including costs of acquiring retail service centers). Routine expenditures usually consist of expenditures relating to the Company's bulk delivery trucks, customer tanks, and costs associated with the installation of new tanks. The Company's capital expenditures in fiscal year 1995, were $11.9 million which decreased approximately $8.1 million from the preceding year. The decrease was due primarily to a decrease of $4.6 million, from $12.3 million in fiscal year 1994 to $7.7 million in fiscal year 1995, in acquisitions of retail service centers resulting from the 1994 purchases of PSNC Propane Corporation and an additional service center in Colorado compared to the 1995 purchases of four service centers and the addition of several new start-ups. The remaining decrease of $3.5 million is due primarily to the reduced size of the Company as a result of the Transaction and the large amount of new transportation equipment purchased in 1994. During fiscal year 1995, the Company raised $3.0 million from the planned sale of marginally profitable service centers, and raised an additional $4.5 million since June 30, 1995. The Company intends to fund its routine capital expenditures and the purchase of assets for new retail service centers with cash from operations, borrowings under its credit facility, or other bank financing. The Company intends to fund acquisitions with seller financing, to the extent feasible, and with cash from operations or bank financing. The Company is exploring the possibility of making modifications to its underground storage facility, and has obtained from an engineering and construction company a study of the costs of rehabilitating and opening the facilities, which range from $500,000 to $3,000,000. The Company is currently exploring options for financing these modifications, and there is no assurance that such financing will be available. If the rehabilitation work is not performed and the facilities cannot be sold, then the Company would be required to close the facilities at a cost which the Company believes will not exceed $500,000. 16 of 55 The Company's credit facility and the indenture for the Senior Secured Notes impose restrictions on the Company's ability to incur additional indebtedness. Such restrictions, together with the highly leveraged position of the Company, could restrict the ability of the Company to acquire financing for capital expenditures and other corporate activities. These restrictions permit additional indebtedness of $6 million for the current fiscal year for the purpose of financing acquisitions but allow additional indebtedness to be incurred by subsidiaries formed for the purpose of making acquisitions as long as the Company does not transfer over $3,000,000 (in the aggregate) of assets to such subsidiaries. The credit facility also contains tangible net worth, capital expenditures, interest coverage and debt restrictions. At June 30, 1995, the Company was not in compliance with the original capital expenditures and interest coverage ratio covenants. The bank has amended the covenants, and the company is now in compliance with the amended covenants. The Company's $15.0 million credit facility will mature on or about July, 1997, at which time the Company will have to refinance or replace some portion of the facility and may be required to pay some portion of any outstanding balance. There can be no assurance that the Company will be able to refinance or replace the credit facility, or the terms upon which any such financing may occur. Beginning in fiscal year 1999, the cash interest rate on the Senior Secured Notes will increase to 12 7/8%. The Company believes cash from operations will be sufficient to meet the increased interest payments. Change in Accounting Principle Effective July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). As a result of this change, there was no material effect upon the Company's financial statements. SFAS 109 requires recognition of deferred tax liabilities and assets for the difference between the financial statement and tax basis of assets and liabilities. Under this new standard, a valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. Prior to fiscal year 1994, deferred taxes were determined using the Statement of Financial Accounting Standards No. 96. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements included elsewhere herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 17 of 55 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company are as follows: Name Age Position Held with the Company ____ ___ ______________________________ and Principal Occupation ________________________ Paul S. Lindsey, Jr. 50 Chairman of the Board, Chief Executive Officer, and President since June 1994; previously Vice Chairman of the Board (since February 1987) and Chief Operating Officer (since March 1988); term as director expires 1997 Douglas A. Brown 35 Director since July 1994; member Holding Capital Group, Inc. (since 1989); term as director expires 1997 Kristin L. Lindsey 47 Director/Vice President since June 1994; previously pursued charitable and other personal interests; term as director expires 1996 Bruce M. Withers, Jr. 68 Director since July 1994; Chairman and Chief Executive Officer of Trident NGL Holding, Inc. (since August 1991) and President of the Transmission and Processing Division of Mitchell Energy Corporation (1979 to 1991); term as director expires 1996 Jim J. Shoemake 57 Director since July 1994; partner of Guilfoil, Petzall & Shoemake (since 1970); term as director expires 1998 Valeria Schall 41 Vice President since 1992; Corporate Secretary since 1985 and Assistant to the Chairman (Assistant to the Vice Chairman prior to June 1994) since 1987 Mark Castaneda 31 Vice President Finance and Administration since August 1995; previously Controller of Skelgas Propane since 1991 and an accountant at Deloitte & Touche since 1986. Willis D. Green 58 Controller since 1989 After expiration of the initial terms of directors as set forth above, each director will serve for a term of three years. Officers of the Company are elected by the Board of Directors of the Company and will 18 of 55 serve at the discretion of the Board, except for Mr. Lindsey who is employed pursuant to an employment agreement that expires June 24, 1999 (subject to extension). ITEM 11. EXECUTIVE COMPENSATION. Executive Compensation The following table provides compensation information for each of the years ended June 30, 1995, 1994, and 1993 for (i) the Chief Executive Officer of the Company, (ii) the four other executive officers of the Company who are most highly compensated and whose total compensation exceeded $100,000 for the most recent fiscal year (of which there were none) and (iii) those persons who are no longer executive officers of the Company but were among the four most highly compensated and whose total compensation exceeded $100,000 for the most recent year (of which there were none). Summary Compensation Table Annual Compensation ______________________________________________________ All
Other Other Name and Principal Position Fiscal Annual Compensation At End of Fiscal Year 1995 Year Salary Bonus Compensation ___________________________ ______ ______ _____ ____________ ____ Paul S. Lindsey, Jr. 1995 $350,000 - - - Chief Executive Officer, 1994 300,000 $5,000 - - Chairman of the Board, 1993 230,000 5,000 - $1,648 and President ___________ This amount includes the allocation of a portion of the forfeitures under the Company's profit sharing plan (the "Profit Sharing Plan") to the named officer in the amount of $1,296. This amount also includes the allocation of a portion of the forfeitures under the Company's stock bonus plan (the "Stock Bonus Plan") to the named officer in the amount of $352. The Company made no contributions to either plan in fiscal year 1993. In September 1992, the Company terminated both plans and filed with the Internal Revenue Service ("IRS") for determination that the plans were qualified at termination. The IRS issued favorable determination letters for both plans in December 1992. The Company liquidated the assets of both plans and paid out the plan accounts to participants on March 31, 1993.
Employment Agreements On June 24, 1994, the Company entered into an employment agreement with Mr. Lindsey. The agreement has a five-year term and provides for the payment of an annual salary of $350,000 and reimbursement for reasonable travel and business expenses. The agreement requires Mr. Lindsey to devote substantially all of his time to the Company's business. The agreement is for a term of five years, but is automatically renewed for one year unless either party elects to terminate the agreement at least four 19 of 55 months prior to the end of the term or any extension. The agreement may be terminated by Mr. Lindsey or the Company, but if the agreement is terminated by the Company and without cause, the Company must pay one year's salary as severance pay. Incentive Stock Option Plan There were no options granted to the named officer nor exercised by him during fiscal year 1995 and no unexercised options held by him as of the end of the 1995 fiscal year. Compensation Committee Interlocks and Insider Participation A compensation committee was formed in July 1994, consisting of Messrs. Withers, Shoemake and Brown. Mr. Lindsey makes the initial recommendation concerning executive compensation for the executive officers of the Company, other than recommendations concerning his own and his wife's compensation, which are then approved by the compensation committee. The compensation committee determines the compensation of Mr. Lindsey's wife and, subject to the employment agreement described above, Mr. Lindsey. Director Compensation During the last completed fiscal year, the directors of Empire Gas received an annual fee of $25,000, payable quarterly, for their services. In addition, directors other than Mr. Lindsey and Kristin L. Lindsey received options pursuant to the Company's stock option plan, with Mr. Brown receiving options for 122,830 shares and Messrs. Shoemake and Withers each receiving options for 17,548 shares. Each of the options is exercisable at a price of $7.00 per share, and the options are exercisable until January 23, 2005. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The table below sets forth information with respect to the beneficial ownership of shares of Common Stock of the Company as of September 15, 1995, by persons owning more than five percent of any class, by all directors of the Company, by the individuals named in the Summary Compensation Table owning shares, and by all directors and executive officers of the Company as a group. Number of Shares Name of Beneficial Owner Beneficially Owned Percent ____________________________ __________________ _______ Paul S. Lindsey, Jr. 1,507,610 95.5% Kristin L. Lindsey 753,805 47.7 Douglas A. Brown 122,830 7.2 Bruce M. Withers, Jr. 17,548 1.1 Jim J. Shoemake 17,548 1.1 All directors and executive officers as a group (8 persons) 1,689,939 97.3 20 of 55 _________________ [FN] The address of each of the beneficial owners is c/o Empire Gas Corporation, P. O. Box 303, 1700 South Jefferson Street, Lebanon, Missouri 65536. Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S. Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares owned by the Kristin L. Lindsey Trust established January 24, 1992. Mr. Lindsey has the power to vote and to dispose of the shares held in the Kristin L. Lindsey Trust. Mrs. Lindsey's shares consist of the shares owned by the Kristin L. Lindsey Trust. Mrs. Lindsey disclaims ownership of the shares held by her husband in the Paul S. Lindsey, Jr. Trust. The amounts shown include the shares beneficially owned by Mr. Lindsey and Acreman, and Mrs. Lindsey as set forth above, and 30,132 shares owned by other executive officers. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Mrs. Kristin L. Lindsey, who beneficially owns approximately 47.7% of the Company's outstanding Common Stock and became a director of the Company upon consummation of the Transaction, is the majority stockholder in a company that supplies paint to the Company. The Company's purchases of paint from this company totalled $157,842 in Fiscal year 1995 and $210,400 in fiscal year 1994. The Company has entered into an agreement with each shareholder (all of whom are directors or employees of the Company) providing the Company with a right of first refusal with respect to the sale of any shares by such shareholders. In addition, the Company has the right to purchase from such shareholders all shares they hold at the time of their termination of employment with the Company at the then current fair market value of the shares. The fair market value is determined in the first instance by the Board of Directors and by an independent appraisal (the cost of which is split between the Company and the departing shareholder) if the departing shareholder disputes the board's determination. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(i) Financial Statements Report of Independent Accountants Consolidated Balance Sheets as of June 30, 1995 and 1994 Consolidated Statement of Operations for the Years Ended June 30, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 30, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1994 and 1993 21 of 55 (a)(2) Financial Statement Schedules Schedule II Valuation and qualifying accounts (a)(3) Exhibits Exhibit No. Description ___ ___________ 3.1 Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company, dated April 26, 1994, relating to the change of name (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No. 33- 53343)) 3.3 By-laws of the Company (incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 4.1 Indenture between Empire Gas Corporation and J. Henry Schroder Bank & Trust Company, Trustee, relating to the 9% Subordinated Debentures due December 31, 2007 and the form of 9% Subordinated Debentures due December 31, 2007 (incorporated herein by reference to Exhibit 4(a) to the Empire Incorporated and Exco Acquisition Corp. (Commission File No. 2-83683) Registration Statement on Form S-14 filed with the Commission on May 11, 1983); and First Supplemental Indenture thereto between Empire Gas Corporation (now known as EGOC) and IBJ Schroder Bank & Trust Co., dated as of December 13, 1989 (incorporated herein by reference to Exhibit 4(c) to Empire Gas Corporation (now known as EGOC) Registration Statement on Form 8-B filed with the Commission on February 1, 1990) 4.2 Indenture between the Company and Shawmut Bank Connecticut, National Association, Trustee, relating to the 12 7/8% Senior Secured Notes due 2004, including the 12 7/8% Senior Secured Notes due 2004, the Guarantee and the Pledge Agreement (incorporated herein by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 4.3 Warrant Agreement (incorporated herein by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 10.1 Shareholder Agreement, dated as of October 28, 1988, by and among Empire Gas Acquisition Corporation and Robert W. Plaster Trust, Robert W. Plaster, Trustee; Paul S. Lindsey, Jr.; Stephen R. Plaster Trust, Lynn C. Hoover, Trustee; Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee; 22 of 55 Robert L. Wooldridge; Gwendolyn B. VanDerhoef; Dwight Gilpin; Luther Henry Gill; Valeria Schall; Floyd J. Waterman; Larry W. Bisig; Larry Weis; Robert Heagerty; Murl J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St. John; James E. Acreman; Carolyn S. Rein; Dan Weatherly; Nina Irene Craighead; Joyce Sue Kinnett; Edwin H. McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell Stamper; and Empire Gas Corporation Employee Stock Ownership Plan, Robert W. Plaster, Trustee (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.2 1995 Stock Option Plan of Empire Gas Company 10.3 Credit Agreement between the Company and Continental Bank, as agent (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 10.4 Lease Agreement, dated May 7, 1994, between the Company and Evergreen National Corporation (incorporated herein by reference to Exhibit F of Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.5 Services Agreement, dated May 7, 1994, between the Company and Empire Service Corporation (incorporated herein by reference to Exhibit G of Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.6 Non-Competition Agreement, dated May 7, 1994, by and among the Company, Energy, Robert W. Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit E of Exhibit 10.1 to the Empire Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.7 Employment Agreement between the Company and Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.8 Asset Purchase Agreement by and among the Company, Empire Gas, Inc. of North Carolina, PSNC Propane Corporation, and Public Service Company of North Carolina, Incorporated (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.9 Indemnification Agreement between the Company and Douglas A. Brown (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (No. 33- 53343)) 23 of 55 10.10 Tax Indemnification Agreement between the Company and Energy (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.11 Supply Contract No. 1, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.12 Supply Contract No. 2, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (No. 33-53343)) 10.13 Management Agreement between Empire Gas Company, Northwestern Growth Corporation and SYN, Inc. dated May 17, 1995 10.14 Agreement Among Initial Stockholders and SYN, Inc. dated May 17, 1995 10.15 Waiver Agreement dated April 29, 1995 by and among Empire Gas Corporation, SYN, Inc., Paul S. Lindsey, Jr., Northwestern Growth Corporation, Empire Energy Corporation, Robert W. Plaster and Stephen R. Plaster 10.16+ Propane Sales Agreement dated August 24, 1995 between Empire Gas Corporation and Warren Petroleum Company 10.17+ Supply Contract dated April 27, 1995 between Empire Gas Corporation and Phillips 66 Company 10.18+ Dealer Sale Contract dated January 20, 1995 between Empire Gas Corporation and Conoco Inc. 10.19+ Supply Contract dated April 24, 1995 between Empire Gas Corporation and Enron Gas Liquids, Inc. 10.20 Amendment No. 1 to Supplement A to Loan and Securities Agreement dated June 29, 1995 between Empire Gas Corporation and Bank of America Illinois 21.1 Subsidiaries of the Company 27.1 Financial Data Schedules (b) Reports on Form 8-K None (c) Exhibits See (a)(2) above. 24 of 55 (d) Financial Statements See (a)(2) above. + Confidential treatment has been requested. The copy filed as an exhibit omits the information subject to the confidentially request. 25 of 55 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Empire Gas Corporation By: /s/ Paul S. Lindsey, Jr. _________________________ Paul S. Lindsey, Jr. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity in which Signed Date _________ ________________________ ____ /s/ Paul S. Lindsey, Jr. Chief Executive Officer and September 27, 1995 _____________________________ Chairman of the Board of Paul S. Lindsey, Jr. Empire Gas Corporation (principal executive officer) /s/ Mark Castaneda Vice President Finance and September 27, 1995 _____________________________ Administration Mark Castaneda (principal financial officer) /s/ Willis D. Green Vice President/Controller of September 27, 1995 _____________________________ Empire Gas Corporation Willis D. Green (principal accounting officer) /s/ Douglas A. Brown Director of Empire Gas September 27, 1995 _____________________________ Corporation Douglas A. Brown /s/ Kristin L. Lindsey Director of Empire Gas September 27, 1995 _____________________________ Corporation Kristin L. Lindsey /s/ Bruce M. Withers, Jr. Director of Empire Gas September 27, 1995 _____________________________ Corporation Bruce M. Withers, Jr. /s/ Jim J. Shoemake Director of Empire Gas September 27, 1995 _____________________________ Corporation Jim J. Shoemake
26 of 55 FINANCIAL STATEMENT INDEX _________________________ Empire Gas Corporation - Consolidated Financial Statements for June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . 27 Consolidated Balance Sheets as of June 30, 1995 and 1994. . . . . . . . . 28 Consolidated Statements of Operations - Years Ended June 30, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Consolidated Statements of Stockholder's Equity - Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Statements of Cash Flows - Years Ended June 30, 1995, 1994, and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 36 FINANCIAL STATEMENT SCHEDULE INDEX __________________________________ Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . 54 Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . 55 27 of 55 Independent Accountants' Report _______________________________ Board of Directors and Stockholders Empire Gas Corporation Lebanon, Missouri We have audited the accompanying consolidated balance sheets of EMPIRE GAS CORPORATION as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMPIRE GAS CORPORATION as of June 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. As discussed in Note 5, the Company changed its method of accounting for income taxes in 1994. Baird, Kurtz & Dobson Springfield, Missouri August 25, 1995 28 of 55 CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND 1994 (Dollars In Thousands, Except Per Share Amounts) ASSETS ______
1995 1994 ____ ____ CURRENT ASSETS Cash $ 821 $ 2,927 Trade receivables, less allowance for doubtful accounts; 1995 - $800, 1994 - $1,620 (Note 4) 4,571 5,454 Inventories (Note 4) 5,686 5,179 Prepaid expenses 521 619 Refundable income taxes 1,567 2,254 Deferred income taxes (Note 5) 1,350 631 ______ ______ Total Current Assets 14,516 17,064 PROPERTY AND EQUIPMENT, At Cost (Notes 4 and 12) Land and buildings 9,496 8,732 Storage and consumer service facilities 68,706 68,223 Transportation, office and other equipment 20,015 16,165 ______ ______ 98,217 93,120 Less accumulated depreciation 27,111 25,847 ______ ______ 71,106 67,273 ______ ______ OTHER ASSETS Debt acquisition costs, net of amortization 4,856 5,406 Excess of cost over fair value of net assets acquired, at amortized cost 12,992 14,027 Other 1,658 874 ______ ______ 19,506 20,307 ______ ______ $ 105,128 $ 104,644 _______ _______ _______ _______ See Notes to Consolidated Financial Statements /TABLE 29 of 55 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ______________________________________________
1995 1994 ____ ____ CURRENT LIABILITIES Checks in process of collection $ 1,585 $ 3,262 Current maturities of long-term debt (Note 4) 504 292 Accounts payable 4,252 4,039 Accrued salaries 1,233 1,249 Accrued interest 4,100 500 Accrued expenses 1,206 912 Due to Empire Energy Corporation (Note 2) 497 _____ ___ Total Current Liabilities 12,880 10,751 ______ ______ LONG-TERM DEBT (Note 4) 115,143 105,320 _______ _______ DEFERRED INCOME TAXES (Note 5) 13,140 15,421 ACCRUED SELF-INSURANCE LIABILITY (Note 6) 911 1,372 ___ _____ STOCKHOLDERS' EQUITY (DEFICIT) Common; $.001 par value; authorized 20,000,000 shares; issued June 30, 1995 and 1994 - 14,291,020 shares 14 14 Common stock purchase warrants (Note 8) 1,227 1,227 Additional paid-in capital 27,279 27,279 Retained earnings 22,509 31,235 ______ ______ 51,029 59,755 Treasury stock, at cost June 30, 1995 and 1994 - 12,711,795 shares (87,975) (87,975) ________ ________ (36,946) (28,220) $ 105,128 $ 104,644 _______ _______ _______ _______ See Notes to Consolidated Financial Statements
30 of 55 EMPIRE GAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (In Thousands, Except Per Share Amounts)
1995 1994 1993 ____ ____ ____ OPERATING REVENUE $ 74,640 $ 124,552 $ 128,401 COST OF PRODUCT SOLD 35,612 57,920 60,202 ______ ______ ______ GROSS PROFIT 39,028 66,632 68,199 ______ ______ ______ OPERATING COSTS AND EXPENSES Provision for doubtful accounts 1,136 1,056 958 General and administrative 28,558 43,910 40,887 Depreciation and amortization 6,166 10,150 10,351 ______ ______ ______ 35,860 55,116 52,196 ______ ______ ______ OPERATING INCOME 3,168 11,516 16,003 _____ ______ ______ OTHER EXPENSE Interest expense (10,681) (8,542) (8,877) Interest expense to related party (Note 3) -- -- (949) Amortization of debt discount and expense (4,889) (2,016) (1,686) Restructuring proposal costs (Note 11) -- (398) (223) Reduction in carrying value of underground storage facility (Note 12) (924) (1,400) -- _____ _______ ___________ (16,494) (12,356) (11,735) INCOME (LOSS) BEFORE INCOME TAXES (13,326) (840) 4,268 PROVISION (CREDIT) FOR INCOME TAXES (4,600) 350 2,040 _______ ___ _____ (Note 5) INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (8,726) (1,190) 2,228 EXTRAORDINARY ITEMS (Note 2) Loss on extinguishment of debt, net of income taxes (5,555) -- Excess of fair value over book value of Energy net assets, net of income taxes 37,870 -- ______ __ NET INCOME (LOSS) $ (8,726) $ 31,125 $ 2,228 _______ ______ _____ _______ ______ _____ 31 of 55 See Notes to Consolidated Financial Statements
32 of 55 EMPIRE GAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (In Thousands, Except Per Share Amounts)
1995 1994 1993 ____ ____ ____ INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS PER COMMON SHARE $ (5.53) $ (.08) $ .16 EXTRAORDINARY ITEMS PER COMMON SHARE Loss on extinguishment of debt, net of income taxes -- (.40) -- Excess of fair value over book value of Energy net assets, net of income taxes -- 2.71 -- __ _____ __ NET INCOME (LOSS) PER COMMON SHARE (Note 1) $ (5.53) $ 2.23 $ .16 ______ ____ ___ ______ ____ ___ See Notes to Consolidated Financial Statements
33 of 55 EMPIRE GAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (In Thousands) Common Total Stock Additional Stockholders' Common Purchase Paid-in Retained Treasury Equity Stock Warrants Stock Earnings Stock (Deficit) ______ ________ _________ ________ ________ _____________ BALANCE, JUNE 30, 1992 14 -- 27,133 (2,118) (128) 24,901 STOCK OPTIONS EXERCISED -- -- 225 -- -- 225 NET INCOME -- -- -- 2,228 -- 2,228 SALE OF TREASURY STOCK -- -- (270) -- 270 -- PURCHASE OF TREASURY STOCK -- -- -- -- (1,441) (1,441) __ __ __ __ _______ _______ BALANCE, JUNE 30, 1993 14 -- 27,088 110 (1,299) 25,913 STOCK OPTIONS EXERCISED -- -- 191 -- -- 191 COMMON STOCK PURCHASE WARRANTS -- 1,227 -- -- -- 1,227 PURCHASE OF TREASURY STOCK -- -- -- -- (2,645) (2,645) EXCHANGE OF SUBSIDIARY STOCK FOR COMPANY COMMON STOCK -- -- -- -- (84,031) (84,031) NET INCOME -- -- -- 31,125 -- 31,125 __ __ __ ______ __ ______ BALANCE, JUNE 30, 1994 $ 14 $ 1,227 $ 27,279 $ 31,235 $(87,975) $ (28,220) _____ ______ _______ _______ ________ ________ NET LOSS _____ ______ ______ (8,726) _______ (8,726) BALANCE, JUNE 30, 1995 $ 14 $ 1,227 $ 27,279 $ 22,509 $(87,975) $ (36,946) _____ ______ _______ _______ ________ ________ _____ ______ _______ _______ ________ ________ See Notes to Consolidated Financial Statements /TABLE 34 of 55
EMPIRE GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (In Thousands)
1995 1994 1993 ____ ____ ____ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (8,726) $ 31,125 $ 2,228 Items not requiring (providing) cash: Depreciation 4,971 8,973 9,004 Amortization 6,084 3,193 3,033 (Gain) loss on sale of assets (550) (100) 155 Loss on underground storage facility 924 1,400 -- Extraordinary loss -- 5,555 -- Extraordinary gain -- (37,870) -- Deferred income taxes (3,000) (3,166) (860) Changes in: Checks in process of collection (1,677) 3,262 -- Trade receivables 1,075 (130) (1,691) Inventories (383) 1,170 (1,886) Accounts payable 213 (254) (856) Accrued expenses and self insurance 4,758 1,377 (3,158) Prepaid expenses and other (2,262) (1,617) 272 _______ _______ ___ Net cash provided by operating activities 1,427 12,918 6,241 _____ ______ _____ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of assets 2,956 366 1,088 Acquisition of retail service centers (7,047) (12,923) -- Purchases of property and equipment (4,154) (7,665) (4,358) _______ _______ _______ Net cash used in investing activities (8,245) (20,222) (3,270) _______ ________ _______ See Notes to Consolidated Financial Statements /TABLE 35 of 55 EMPIRE GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (In Thousands)
1995 1994 1993 ____ ____ ____ CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in working capital facility $ 5,058 $ (3,200) $ (1,875) Principal payments on notes payable to related party -- -- (2,996) Principal payments on acquisition credit facility -- -- (13,250) Principal payments on purchase obligation (346) (203) (182) Debenture sinking fund payments -- (2,023) (528) Purchase of debentures from employee benefit plan -- -- (778) Proceeds from issuance of term credit facility -- -- 18,000 Stock options exercised -- -- 173 Purchase of treasury stock -- (2,274) (1,441) Sale of treasury stock -- -- 52 Proceeds from new debt offering -- 96,573 -- Retirement of debt with proceeds of new debt offering -- (77,897) -- Cash distributed with Empire Energy Corporation -- (1,107) -- __ _______ __ Net cash provided by (used in) financing activities 4,712 9,869 (2,825) _____ _______ INCREASE (DECREASE) IN CASH (2,106) 2,565 146 CASH, BEGINNING OF PERIOD 2,927 362 216 _________ _________ ________ CASH, END OF PERIOD $ 821 $ 2,927 $ 362 _________ __________ _________ _________ __________ _________ See Notes to Consolidated Financial Statements
of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business __________________ The Company's principal operations are the sale of LP gas at retail and wholesale. Most of the Company's customers are owners of residential single or multi-family dwellings who make periodic purchases on credit. Such customers are located throughout the United States with the larger number concentrated in the central and western states and along the Pacific coast. At acquisition date, asset and liability values were recorded at their market values with respect to the purchase price. At June 30, 1994, the Company's ownership and management was changed. See Note 2 for a description of this restructuring transaction. Principles of Consolidation ___________________________ The consolidated financial statements include the accounts of Empire Gas Corporation and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Revenue Recognition Policy __________________________ Sales and related cost of product sold are recognized upon delivery of the product or service. Inventories ___________ Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out method for retail operations and specific identification method for wholesale operations. At June 30 the inventories were:
1995 1994 ____ ____ (In Thousands) Gas and other petroleum products $ 2,116 $ 2,385 Gas distribution parts, appliances and equipment 3,570 2,794 _____ _____ $ 5,686 $ 5,179 _____ _____ _____ _____ /TABLE 37 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property and Equipment ______________________ Depreciation is provided on all property and equipment on the straight-line method over estimated useful lives of 5 to 33 years. Income Taxes ____________ Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. Amortization ____________ Debt acquisition costs are being amortized on a straight-line basis over the terms of the debt to which the costs are related as follows: the revolving credit facility and term credit facility costs (originally $525,000) were amortized over an original five-year period ending in fiscal 1994; the 1994 senior secured note costs (originally $5,143,000) are amortized over ten years; and the new revolving credit facility costs (originally $341,000) are amortized over three years. Amortization of discounts on debentures and notes (Note 4) is on the effective interest, bonds outstanding method. The excess of cost over fair value of net assets acquired ($20,750,000) is being amortized on the straight-line basis over 20 years. Income (Loss) Per Common Share ______________________________ Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and, except where anti-dilutive, common share equivalents outstanding, if any. The weighted average number of common shares outstanding used in the computation of earnings per share was 1,579,225, 13,961,520 and 14,055,407 for each of the fiscal years ended June 30, 1995, 1994 and 1993, respectively. 38 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reclassification ________________ Certain reclassifications have been made to the 1994 and 1993 financial statements to conform to the 1995 financial statement presentation. These reclassifications had no effect on net earnings. NOTE 2: RESTRUCTURING TRANSACTION On June 30, 1994, the Company implemented a change in ownership and management by repurchasing 12,004,430 shares of Company common stock from its former principal shareholder (Former Shareholder) and certain other departing officers in exchange for all of the shares of a subsidiary, Empire Energy Corporation (Energy) that owns 133 retail service centers located principally in the Southeast plus certain home office assets and liabilities. Certain departing officers and employees received $7.00 per share net of the stock option exercise price for the remaining 377,865 shares of common stock that they held. The Company retained ownership of 158 retail service centers located in 20 states plus certain home office assets and liabilities. A payable to Energy of $497,031 was recorded at June 30, 1994, to reflect the settlement of this transaction. In connection with the stock purchase, the Former Shareholder terminated his employment with the Company as well as terminated certain lease and use agreements with the Company (see Note 3). Following the stock repurchase, the Company's previous chief operating officer became the Company's president, chairman of the board and principal shareholder (Principal Shareholder). The Company has received a private letter ruling from the Internal Revenue Service which provides that, based on certain representations contained in the ruling, neither income nor gain for federal income tax purposes will be recognized by the Company as a result of the stock purchase. In connection with the stock purchase, the Company issued $127.2 million of new debentures (with proceeds of $100.1 million before expenses of $3.5 million) which was used to retire $77.9 million of existing debt. The remaining net proceeds were used to finance a $12.9 million acquisition of six retail service centers in North Carolina, $2.5 million to repurchase treasury stock and $3.3 million for working capital. The retirement of existing debt (described in Note 4) resulted in an extraordinary loss of $8,655,000, including net unamortized debt acquisition costs of $420,000 related to the debt retired. These amounts were expensed in June 1994 net of $3,100,000 of tax benefit. 39 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 2: RESTRUCTURING TRANSACTION (Continued) The excess of fair value of net assets of Energy ($84,031,000) over book value ($46,111,000) was an extraordinary credit to income ($37,870,000) in June 1994, net of $50,000 of income tax expense. The following table sets forth selected aggregate operating data for the retail service centers of the Company which were retained after the restructuring transaction and for the six retail service centers the Company acquired in North Carolina. This acquisition was consummated June 30, 1994, and was accounted for as a purchase of assets; accordingly, no revenues or expenses related to this acquisition have been included in the statement of operations for the year ended June 30, 1994.
Empire Gas Corporation (after giving effect North to the Restructuring Carolina Transaction) Acquisition Pro Forma ____________ ___________ _________ (Unaudited) (In thousands) June 30, 1994 Operating revenue $ 64,336 $ 10,501 $ 74,837 Cost of product sold 29,891 5,215 35,106 ______ _____ ______ Gross profit $ 34,445 $ 5,286 $ 39,731 ______ _____ ______ ______ _____ ______ June 30, 1993 Operating revenue $ 67,344 $ 9,587 $ 76,931 Cost of product sold 31,045 4,643 35,688 ______ _____ ______ Gross profit $ 36,299 $ 4,944 $ 41,243 ______ _____ ______ ______ _____ ______
40 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 3: RELATED-PARTY TRANSACTIONS During 1995, 1994 and 1993, the Company has purchased $157,842, $210,400, and $68,900, respectively, of paint from a corporation owned by the spouse of the Principal Shareholder of the Company. During fiscal year 1994, the Company paid an investment banking firm affiliated with a director of the Company $400,000 in return for services rendered in connection with the negotiation of the Company's revolving credit facility and with the Restructuring Transaction. Beginning July 1, 1994, the Company entered into a seven-year services agreement with a subsidiary of Energy to provide data processing and management information services. The services agreement provides for payments by the Company to be based on an allocation of the subsidiary's actual costs based on the gallons of LP gas sold by the Company as a percentage of the gallons of LP gas sold by the Company and Energy. For the year ended June 30, 1995, total expenses related to this services agreement were $1.1 million. Beginning July 1, 1994, the Company entered into a new lease agreement with a corporation owned principally by the Former Shareholder to lease its corporate office space. The new lease requires annual rent payments of $75,000 for a period of seven years, with two three-year renewal options. Prior to the Restructuring described in Note 2, the Company had various related party transactions with its Former Shareholder as described below. The Company leased the corporate home office, land, buildings and equipment from a corporation principally owned by the Former Shareholder. The Company paid $200,000 during each of the years ended June 30, 1994 and 1993, related to this lease. This lease was terminated effective June 30, 1994, at no additional expense to the Company. In connection with the stock purchase described in Note 2, the Company repurchased, at face value, $4.7 million principal amount of the Company's 2007 9% Subordinated Debentures from the Former Shareholder and purchased, at face value, $285,000 principal amount of the Company's 2007 9% Subordinated Debentures from certain departing officers and employees of the Company. During 1994 and 1993, the Company provided data processing, office rent and other clerical services to two corporations owned principally by the Former Shareholder and was being reimbursed $7,000 per month for these services. The Company has discontinued providing these services as of June 30, 1994. In 1994 and 1993, the Company leased a jet aircraft and an airport hanger from a corporation owned by the Former Shareholder. The 41 of 55 lease required annual rent payments of $100,000 beginning April 1, 1992. In addition to direct lease payments, the Company was also responsible for the EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 NOTE 3: RELATED-PARTY TRANSACTIONS (Continued) operating costs of the aircraft and the hanger. During the years ended June 30, 1994 and 1993, the Company paid direct rent of $75,000 and $100,000, respectively. This lease was terminated effective June 30, 1994, at no additional expense to the Company. The Company paid $150,000 in each of the years ended June 30, 1994 and 1993, to a corporation owned by the Former Shareholder pursuant to an agreement providing the Company the right to use business guest facilities owned by the corporation. This agreement was terminated effective June 30, 1994, at no additional expense to the Company. The Company borrowed funds from its Former Shareholder and from individuals and corporations related to the Former Shareholder during the year ended June 30, 1994. The maximum amounts borrowed during this period was $3,000,000. The interest rate on this borrowing was equal to or below the rates available through the working capital facility. Interest expense incurred on this related-party borrowing was $200,000. During November 1992 the Former Shareholder loaned under a separate agreement $13.25 million to the Company to repay the acquisition credit facility. Interest expense incurred on this related-party borrowing for the year ended June 30, 1993, was $749,000. In June 1993, all outstanding borrowings from the Former Shareholder were repaid using the proceeds from the term credit facility. NOTE 4: LONG-TERM DEBT
Long-term debt at June 30 consisted of (In Thousands): 1995 1994 ____ ____ Working capital facility (A) $ 5,058 $ -- 12 7/8% Senior Secured Notes, due 2004 (B) 103,019 99,220 9% Subordinated Debentures, due 2007 (C) 5,094 5,003 Purchase contract obligations (D) 2,476 1,389 _____ _____ 115,647 105,612 Less current maturities 504 292 ___ ___ ___ ___ $ 115,143 $ 105,320 _______ _______
42 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 4: LONG-TERM DEBT (Continued) (A) The working capital facility was provided to the Company in June 1994 in conjunction with the offering of the 12 7/8% Senior Secured Notes, due 2004. All of the Company's receivables and inventories are pledged to the agreement,which contains tangible net worth, capital expenditures, interest coverage ratio, debt and certain dividend restrictions. These dividend restrictions prohibit the Company from paying common stock cash dividends. At June 30, 1995, the Company was not in compliance with the original capital expenditures and interest coverage ratio covenants. The bank has amended the covenants, and the Company is in compliance with the amended covenants. The facility provides for borrowings up to $15 million, subject to a sufficient borrowing base. The borrowing base generally limits the Company's total borrowings to 85% of eligible accounts receivable and 55% of eligible inventory. In addition, the Company can borrow an additional $1.5 million during the period July 1, 1995, to January 31, 1996 (overadvance option). The facility bears interest at either 1% over prime or 2.5% over the LIBOR rate. The agreement provides for a commitment fee of .375% per annum of the unadvanced portion of the commitment. The Company's available revolving credit line amounted to $334,000 at June 30, 1995, after considering $1,501,000 of outstanding letters of credit. The letters of credit are principally related to the Company's self-insurance program (Note 6). (B) The notes were issued June 1994 at a discount and bear interest at 7% through July 15, 1999, and at 12 7/8% thereafter. The notes are redeemable at the Company's option. Prior to July 15, 1999, only 35% of the original principal issued may be redeemed, as a whole or in part, at 110% of the principal amount through July 15, 1997, and at declining percentages thereafter. The notes are guaranteed by the subsidiaries of the Company and secured by the common stock of the subsidiaries of the Company. The original principal amount of the notes issued ($127,200,000) was adjusted ($27,980,000) to give effect for the original issue discount and the common stock purchase warrants (effective interest rate of 13.0%). The discount on these notes is being amortized over the remaining life of the notes using the effective interest, bonds outstanding method. The face value of notes outstanding at June 30, 1995 and 1994, is $127,200,000. 43 of 55 The proceeds from this new offering were used to repay existing debt; fund an acquisition; repurchase Company stock and for working capital (Note 2). Separate financial statements of the guarantor subsidiaries are not included because such subsidiaries have jointly and severally guaranteed the notes on a full and unconditional basis, the aggregate assets and liabilities of the guarantor EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 4: LONG-TERM DEBT (Continued) subsidiaries are substantially equivalent to the assets and liabilities of the parent on a consolidated basis and the separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed to be material. The guarantor subsidiaries are restricted from paying dividends to the Company during any periods of default under the respective debt agreements or in periods where the Company has borrowed under the overadvance option described above. (C) The debentures, issued June 1983, are redeemable at the Company's option, as a whole or in part, at par value. A sinking fund payment sufficient to retire $191,000 of principal outstanding is required on December 31, 2005. In June 1994, the Company used proceeds from the issuance of the 12 7/8% Senior Secured Notes, due 2004, to repurchase $16,201,200 face value of these debentures at a discount which resulted in an extraordinary charge (Note 2). The original principal amount of debentures issued ($27,313,000) was adjusted to market at issuance (effective interest rate of 16.5%). The remaining discount on these debentures is being amortized over the remaining life of the debentures using the effective interest, bonds outstanding method. The face value of debentures outstanding at June 30, 1995 and 1994, is $9,745,800. (D) Purchase contract obligations arise from the purchase of operating businesses and are collateralized by the equipment and real estate acquired in the respective acquisitions. At June 30, 1995 and 1994, these obligations carried interest rates from 7% to 10% and are due periodically through 1999. 44 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 4: LONG-TERM DEBT (Continued) Aggregate annual maturities and sinking fund requirements (in thousands) of the long-term debt outstanding at June 30, 1995, are: 1996 $ 504 1997 5,568 1998 658 1999 357 2000 83 Thereafter 108,477 ________ $115,647 ________ ________ NOTE 5: INCOME TAXES Effective July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). As a result of the change, there was no effect on income tax expense, and the effect on current-noncurrent classification of deferred tax assets and liabilities was not material. SFAS 109 requires recognition of deferred tax liabilities and assets for the difference between the financial statement and tax basis of assets and liabilities. Under this new standard, a valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. Prior to July 1, 1993, deferred taxes were determined using the Statement of Financial Accounting Standards No. 96. 45 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 5: INCOME TAXES (Continued) The provision for income taxes includes these components:
1995 1994 1993 ____ ____ ____ (In Thousands) Taxes currently payable (refundable) $ (1,600) $ 2,887 $ 2,900 Deferred income taxes (3,000) (2,537) (860) _______ _______ _____ $ (4,600) $ 350 $ 2,040 _______ ___ _____ _______ ___ _____ The tax effects of temporary differences related to deferred taxes were: June 30, June 30, 1995 1994 ________ ________ (In Thousands) Deferred Tax Assets ___________________ Allowance for doubtful accounts $ 300 $ 566 Accounts receivable advance collections 347 201 Self-insurance liabilities and contingencies 2,168 638 Alternative minimum tax credit 1,300 100 _____ ___ 4,115 1,505 _____ _____ Deferred Tax Liability ______________________ Accumulated depreciation $ (15,905) $ (16,295) ________ ________ and tax cost differences Net deferred tax liability $ (11,790) $ (14,790) ________ ________ ________ ________
46 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 5: INCOME TAXES (Continued) The above net deferred tax asset (liability) is presented on the June 30 balance sheet as follows: 1995 1994 ____ ____ (In Thousands) Deferred Tax Assets ___________________ Deferred tax asset - current $ 1,350 $ 631 Deferred tax liability - long-term (13,140) (15,421) ________ ________ Net deferred tax liability $ (11,790) $ (14,790) ________ ________ A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below:
1995 1994 1993 ____ ____ ____ (In Thousands) Computed at the statutory rate (34%) $ (4,531) $ (285) $ 1,451 Increase (decrease) resulting from: Amortization of excess of cost over fair value of assets acquired 303 393 422 State income taxes - net of federal tax benefit (411) 150 158 Nondeductible travel costs and other expenses 39 56 11 Other -- 36 (2) _______ _____ _____ Actual tax provision $ (4,600) $ 350 $ 2,040 _______ _____ _____ _______ _____ _____
NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES Under the Company's current insurance program, coverage for comprehensive general liability and vehicle liability is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. The Company retains a significant portion of certain expected losses related primarily to comprehensive general and vehicle liability. Under these 47 of 55 current insurance programs, the Company self-insures the first $500,000 of coverage (per incident). Effective July 1994, the Company reduced its EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES (Continued) self-insured retention for vehicle liability to $250,000 per incident. Effective July 1995, the Company returned its self-insured retention for vehicle liability to $500,000 per incident. The Company obtains excess coverage from carriers for these programs on occurrence and claims-made basis policies. The excess coverage for comprehensive general liability provides a loss limitation that limits the Company's aggregate of self- insured losses to $1 million per policy period. The aggregate cost of obtaining this excess coverage from carriers for the years ended June 30, 1995, 1994 and 1993, was $1,237,000, $1,634,000 and $1,441,000, respectively. For the policy periods prior to July 1, 1991, July 1, 1992, through June 30, 1993, and July 1, 1993, through June 30, 1994, the Company has provided for aggregate comprehensive general liability losses through the policies' $1 million loss limit. Additional losses, if any, are insured by the excess carrier and should not result in additional expense to the Company. As of June 30, 1995, the Company estimates losses for the comprehensive general liability policy periods July 1, 1991, through June 30, 1992, and July 1, 1994, through June 30, 1995, will not reach the $1 million loss limits and has provided accordingly. During the year ended June 30, 1993, the Company had obtained workers' compensation coverage from carriers and state insurance pools at an annual cost of $1,743,000. Effective July 1, 1993, the Company changed its policy to self-insure the first $500,000 of workers' compensation coverage (per incident). The Company purchased excess coverage from carriers for workers' compensation claims in excess of the self-insured coverage. Provisions for losses expected under this program were recorded based upon the Company's estimates of the aggregate liability for claims incurred. The Company provided letters of credit aggregating approximately $2.3 million in connection with this program of which $1,141,400 is outstanding at June 30, 1995. Effective July 16, 1994, the Company changed its policy so that it will obtain workers' compensation coverage from carriers and state insurance pools. Provisions for self-insured losses are recorded based upon the Company's estimates of the aggregate self-insured liability for claims incurred. A summary of the self-insurance liability, general, vehicle and workers' compensation liabilities (in thousands) for the years ended June 30, 1995, 1994 and 1993, are: 48 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 6: SELF INSURANCE AND RELATED CONTINGENCIES (Continued)
Beginning Self Ending Self Self Insured Restructuring Self Insurance Insurance Claims Transaction Insurance Liability Expenses Paid (Note 2) Liability _________ ________ ________ ___________ _________ June 30, 1993 $2,666 $1,148 $1,480 $2,334 June 30, 1994 $2,334 $3,709 $2,464 $1,707 $1,872 June 30, 1995 $1,872 $ 668 $1,129 $1,411
The ending accrued liability includes $400,000 for incurred but not reported claims at June 30, 1995, $125,000 at June 30, 1994, and $500,000 at June 30, 1993. The current portion of the ending liability of $500,000, $500,000, and $460,000 at June 30, 1995, 1994 and 1993, respectively, is included in accrued expenses in the consolidated balance sheets. The noncurrent portion at the end of each period is included in accrued self- insurance liability. The Company and its subsidiaries are also defendants in various lawsuits related to the self-insurance program which are not expected to have a material adverse effect on the Company's financial position or results of operations. The Company currently self insures health benefits provided to the employees of the Company and its subsidiaries. Provisions for losses expected under this program are recorded based upon the Company's estimate of the aggregate liability for claims incurred. The aggregate cost of providing the health benefits was $240,000, $979,000 and $873,000 for the years ended June 30, 1995, 1994 and 1993, respectively. In conjunction with the restructuring transaction (Note 2) the Company and Energy have agreed to share on a percentage basis the self-insured liabilities incurred prior to June 30, 1994, including both reported and unreported claims. The self-insured liabilities included under this agreement include general, vehicle, workers' compensation and health insurance liabilities. Under the agreement, the Company assumed 52.3% of the liability with Energy assuming the remaining 47.7%. 49 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 7: LITIGATION CONTINGENCIES The Company's federal income tax returns have been settled through June 30, 1991. The Company has no federal income tax audits in process at June 30, 1995. The Company and its subsidiaries are presently involved in two state income tax audits and are also defendants in other business-related lawsuits which are not expected to have a material adverse effect on the Company's financial position or results of operations. In conjunction with the restructuring transaction (Note 2) the Company and Energy have agreed to share on a percentage basis amounts incurred related to federal and state audits and other business related lawsuits incurred prior to June 30, 1994. The liability recorded at June 30, 1995 and 1994, in the Company's financial statements related to these contingencies represents its 52.3% portion of the total liability as of that date. NOTE 8: STOCK OPTIONS AND WARRANTS Stock Options _____________ The table below summarizes transactions under the Company's stock option plan: Number of Shares Option Price _________ _____________ Balance June 30, 1992 467,929 $ .377 - 1.50 Exercised (338,679) .377 - 1.50 _________ Balance June 30, 1993 129,250 1.12 - 1.50 Exercised (129,250) 1.12 - 1.50 _________ Balance June 30, 1994 -0- Issued 377,926 $ 7.00 _______ Balance June 30, 1995 377,926 _______ _______ 50 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 8: STOCK OPTIONS AND WARRANTS (Continued) At June 30, 1994, all outstanding stock options were exercised in connection with the restructuring transaction (see Note 2). During the year ended June 30, 1995, a new stock option plan was approved resulting in the issuance of additional options. These options consist of 220,000 shares issued to employees, of which one-fifth become exercisable in January 1996 and each year thereafter. The remaining 157,926 shares were issued to directors of the Company and are exercisable at June 30, 1995. Common Stock Purchase Warrants ______________________________ In connection with the Company's restructuring, the Company attached warrants to purchase common stock to the new issuance of 12 7/8% Senior Secured Notes, due 2004. Each warrant represents the right to purchase one share of the Company's common stock for $.01 per warrant. The warrants are exercisable after January 15, 1995, and will expire on July 15, 2004. The table below summarizes warrant activity of the Company: Number of Shares Exercise Price _________ ______________ Issued 175,536 $.01 _______ Balance at June 30, 1995 175,536 $.01 _______ _______ NOTE 9: ADDITIONAL CASH FLOW INFORMATION (In Thousands) 1995 1994 ____ ____ Noncash Investing and Financing Activities __________________________________________ Purchase contract obligations incurred $ 1,433 $ 1,015 Debt acquisition costs in accounts payable -- $ 746 Purchase of treasury stock, net of option exercise price, in accounts payable -- $ 180 51 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 9: ADDITIONAL CASH FLOW INFORMATION (In Thousands) (Continued) Distribution of operating assets other than cash with Empire Energy Corporation: 1994 ____ Current assets 8,185 Fixed assets, net 51,620 Other assets 3,822 Current liabilities (2,697) Long-term liabilities (15,926) ________ $ 45,004 ________ ________ 1995 1994 1993 ____ ____ ____ Additional Cash Payment Information ___________________________________ Interest paid $ 7,196 $ 9,191 $ 12,185 Income taxes paid (net of refunds) $ -- $ 2,620 $ 3,434 NOTE 10: EMPLOYEE BENEFIT PLAN The Company formed in fiscal year 1995 a defined contribution retirement plan eligible to substantially all employees. Employees who elect to participate may contribute a percentage of their salaries to the plan. The Company may make contributions to the plan at the discretion of its Board of Directors. No contributions to the plan were made by the Company during the year ended June 30, 1995. NOTE 11: RESTRUCTURING PROPOSAL COSTS During the years ended June 30, 1994 and 1993, the Company was considering proposals to restructure the debt and equity of the Company. The Company abandoned the proposals and expensed the related costs of $398,000 and $223,000 in 1994 and 1993, respectively. 52 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 12: UNDERGROUND STORAGE FACILITY The Company owns salt cavern LPG underground storage facilities which are not in use and are subject to a consent agreement with the state of Kansas. Under the agreement, the Company was to submit a plan to the state for resuming use of the facilities or permanently closing them. The due date of the plan was initially January 1, 1994. The state has granted a final extension to December 1, 1995. The Company has obtained from an engineering and construction company a study of the costs of rehabilitating and opening the facilities, which range from $500,000 to $3.0 million. Management is presently evaluating several options after rehabilitation of the facility, including use as expanded storage for company inventories, use as leased storage to customers and other distributors and the sale of the facility. If the rehabilitation work is not performed and the facilities cannot be sold, then the Company would be required to close the facilities at a cost which the Company believes will not exceed $500,000. Due to the uncertainties outlined above, the Company has taken a charge of $924,000 and $1.4 million against 1995 and 1994 earnings, respectively, thereby eliminating the carrying value of the facilities. NOTE 13: SUBSEQUENT SALES OF SUBSIDIARIES Subsequent to year end, the Company sold eleven retail service centers for sales prices totaling approximately $4.5 million. Fiscal year 1995 summary data of the facilities sold were as follows: 53 of 55 EMPIRE GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1995 NOTE 13: SUBSEQUENT SALES OF SUBSIDIARIES (Continued) In Thousands ____________ Operating revenue $ 3,268 Cost of sales 1,811 Gross profit $ 1,457 _____ Working capital $ 391 ___ Net property, plant and equipment $ 2,494 _____ _____ NOTE 14: SUBSEQUENT EVENT On August 15, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Corporation, to acquire the assets of Synergy Group Incorporated, the nation's fifth largest LP gas distributor. The Company has acquired for $10,000 10% of the common stock of SYN, Inc., the acquisition entity, and has an option to acquire an additional 20% of the common stock of SYN, Inc. for $20,000. The Company has entered into a Management Agreement pursuant to which the Company manages the joint entity. Under the terms of the Management Agreement, the Company provides all management of the retail facilities and accounting services at the central office. In exchange for those services, the Company receives a $500,000 annual management fee and $3.25 million annual overhead cost reimbursement, both paid on a monthly basis. 54 of 55 Independent Accountants' Report on Financial Statement Schedules ________________________________________________________________ Board of Directors and Stockholders Empire Gas Corporation Lebanon, Missouri In connection with our audit of the financial statements of EMPIRE GAS CORPORATION for each of the three years in the period ended June 30, 1995, we have also audited the following financial statement schedules. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits of the basic financial statements. The schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and are not a required part of the consolidated financial statements. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Baird, Kurtz & Dobson Springfield, Missouri August 25, 1995 55 of 55 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1995, 1994, AND 1993 (In Thousands)
Balance at Charges to Amount Balance at Beginning Costs and Written End of Description of Year Expenses Off Other Year ___________ __________ ___________ _______ _____ __________ Valuation accounts deducted from assets to which they apply - for doubtful accounts receivable: June 30, 1995 $1,620 $1,136 $1,973 $17(C) $800 June 30, 1994 $2,657 $1,056 $520 $(1,684)(A) $1,620 $111(B) June 30, 1993 $2,720 $958 $1,021 $2,657 (A) Related to assets which were distributed in the Restructuring Transaction described in Note 2 of the consolidated financial statements. (B) Allowance for doubtful accounts receivable established with respect to the acquisition described in Note 2 of the consolidated financial statements. (C) Allowance for doubtful accounts receivable established with respect to the acquisition of retail service centers.
EX-10.2 2 1994 Stock Option Plan of Empire Gas Corporation 2 of 15 1994 Stock Option Plan of Empire Gas Corporation I. General Provisions 1.1 Purposes of the Plan Under this 1994 Stock Option Plan of Empire Gas Corporation (the "Plan"), Empire Gas Corporation (the "Corporation") will grant options to eligible employees, consultants, and outside directors to purchase shares of the capital stock of the Corporation. The Plan is designed to enable the Corporation and certain related companies to attract, retain, and motivate their employees and other service providers by providing for or increasing their proprietary interests in the Corporation. The options issued pursuant to the Plan are intended to be either Incentive Stock Options or Nonqualified Stock Options as determined by the Administrator and specified in the recipient's option agreement. 1.2 Definitions (a) "Administrator" means the Board, or, if the Board delegates responsibility for any matter to the Committee, the Committee. (b) "Board" means the Board of Directors of Empire Gas Corporation. (c) "Code" means the Internal Revenue Code of 1986, as amended. (d) "Committee" means the Compensation Committee of the Board, or such other committee as the Board may appoint to administer all or a part of this Plan. (e) "Common Stock" means the common stock, one-tenth of a cent per share par value, of Empire Gas Corporation (f) "Corporation" means Empire Gas Corporation, a Missouri corporation (or any successor corporation). (g) "Date of Exercise" means the date the Optionee delivers to the Secretary of the Corporation or his office the notice specified in Section 2.7(a)(i). (h) "Date of Grant" means the date as of which the Administrator awards an Option to an Optionee, as specified in the minutes of the Administrator. 3 of 15 (i) "Employee" means any regular full-time common law employee, including any who are also officers or directors, of the Group or any successor thereto. Solely for purposes of determining eligibility of persons to be recipients of Nonqualified Stock Option grants, the term "Employee" shall also include independent contractors and outside directors of and consultants to the Group. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Exercise Price" means the value of the consideration required under an Option Agreement to be provided in exchange for one share of Common Stock. (l) "Fair Market Value" of a share of Common Stock as of a given date means (1) the closing price of a share of Common Stock on the principal exchange on which Common Stock is then trading, if any, on the trading day before such date, or, if no shares were traded on the trading day before such date, then on the next preceding trading day during which a sale occurred; or (2) if such stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (A) the last sales price (if the stock is then listed as a National Market Issue under the NASD National Market System) or (B) the mean between the closing representative bid and asked prices (in all other cases) for the stock on the trading day before such date as reported by NASDAQ or such successor quotation system; or (3) if such stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the stock on the trading day before such date, as determined in good faith by the Administrator; or (4) if Common Stock is not publicly traded, the fair market value established by the Administrator acting in good faith. (m) "Group" means the Corporation and its Subsidiaries. (n) "Incentive Stock Option" means an Option that is an "incentive stock option" within the meaning of Section 422 of the Code. Only officers and other employees of the Group may be granted Incentive Stock Options under this plan. (o) "Nonqualified Stock Option" means an Option that does not quality as an incentive stock option under Section 422 of the Code. (p) "Option" means a right to purchase Common Stock granted under the Plan. (q) "Option Agreement" means a written agreement executed by the Optionee and the Corporation that contains the terms and conditions provided in Article II and such additional terms and conditions, consistent with the Plan, as the Administrator may decide. 4 of 15 (r) "Optionee" means any Employee selected to receive Options pursuant to Section 2.1 or, where the context requires, a person described in Section 2.5. (s) "Plan" means the Corporation's 1994 Stock Option Plan as set forth herein, as amended from time to time. (t) "Rule 16b-3" means Rule 16b-3 promulgated under Section 16 of the Exchange Act. (u) "Subsidiary" means a subsidiary corporation of the Corporation within the meaning of Section 424(f) of the Code. (v) "Termination of Employment" shall mean the time when the employer-employee or other service-providing relationship between the Employee and the Corporation ends for any reason, including death, disability, or retirement. Notwithstanding the foregoing and unless otherwise provided in the Option Agreement, "Termination of Employment" for purposes of Nonqualified Stock Options shall not include instances in which the Corporation immediately rehires a common law employee as an independent contractor or an independent contractor as an employee. The Administrator, in its sole discretion, shall determine all questions of whether particular terminations or leaves of absence are Terminations of Employment. 1.3 Shares of Common Stock Subject to the Plan (a) Subject to the provisions of Sections 1.3(c) and 3.1 (concerning corporate changes), the aggregate number of shares of Common Stock that may be issued pursuant to Options may not exceed 500,000 shares. The number of shares of Common Stock subject to any particular exercise of an Option shall be subtracted from that total, with no adjustment for the number of shares, if any, an Optionee delivers or relinquishes in satisfaction of tax withholding obligations or delivers in payment for exercise of an Option. (b) At the discretion of the Board or the Committee, the Common Stock to be issued pursuant to Options under the Plan will be made available either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Corporation, including shares purchased on the open market. (c) If any Option expires, is canceled, or terminates for any reason, the shares of Common Stock available under such Option shall again be available for the granting of Options to the extent consistent with Rule 16b-3 if then applicable. 1.4 Administration of the Plan 5 of 15 (a) The Board shall administer the Plan unless and to the extent that it provides for administration by the Committee. If the Committee administers the Plan, the Committee will consist of two or more members of the Board who are appointed by the Board. With respect to grants made after the Common Stock is registered under Section 12 of the Exchange Act, the members of the Committee shall be "disinterested persons" within the meaning of Rule 16b-3 and "outside directors" for purposes of Section 162(m) of the Code. No members of the Committee shall be eligible to receive Options under Section 2.1 while serving on the Committee. (b) Subject to the express provisions of the Plan, the Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. (c) The Administrator has the authority to interpret the Plan, to make all other determinations necessary or advisable for the administration of the Plan, and to prescribe, amend, and rescind reasonable rules and regulations relating to the Plan. All Administrator interpretations, determinations, and actions will be final, conclusive, and binding upon all parties. The Administrator shall take all actions in connection with the administration of the Plan pursuant to a majority vote or by the unanimous written consent of its members. (d) No member of the Board, the Committee, or the agents thereof shall be liable for any action, inaction, or determination made in good faith with respect to the Plan or any transaction arising under the Plan. II. Option Terms and Conditions 2.1 Authority to Grant Options (a) The Administrator shall, in its sole discretion, select the Employees who receive Options and determine the terms of such Options, including the number of shares of Common Stock subject to an Option, the schedule for exercisability (including any requirements for satisfying performance criteria with respect to the Group and/or the Optionee), the time and conditions for expiration of the Option, and the form of payment due upon exercise. (In determining the type of payment that may be used, the Administrator shall consider whether the acceptance of that form of payment will likely benefit the Corporation.) The Administrator's determinations under the Plan need not be uniform and may be made by it selectively among persons who receive or are eligible to receive grants under the Plan, whether or not such persons are similarly situated. The Administrator may grant more than one Option to an Employee, provided the Employee is eligible under the terms of the Plan at the time of each succeeding grant. In its discretion, the Administrator may condition the granting of Options upon the Employee's cancellation of all or part of a previously granted Option. The Administrator may set the Exercise Price of the Options without regard to any existing Options. 6 of 15 (b) No more than 120,000 shares of Common Stock may be subject to Options granted to a single Employee under this Plan within a one calendar year period. If a portion of an Option is repriced, the number of shares subject to that portion shall be counted against the foregoing individual limit. Canceled options shall be counted against the limit for the period during which they were granted. (c) No Options shall be granted more than ten (10) years after the date on which the Board adopts this Plan. 2.2 Conditions of Grant The Administrator, in its sole discretion, may, as a condition to the grant of an Option, require an Employee who is the recipient of such Option to enter into one or more of the following agreements with the Corporation and/or the Group on or before the Date of Grant of such Option: (a) A covenant not to compete with the Corporation and the Group, which shall become effective on Termination of Employment and which shall contain such terms and conditions as the Administrator shall specify; or (b) An agreement to cancel any employment agreement, fringe benefit, or compensation arrangement in effect between the Employee and the Corporation or the Group. 2.3 Option Agreement The terms of each Option shall be contained in an Option Agreement, signed by the Optionee, that includes such terms and conditions consistent with the Plan and Rule 16b-3 as the Administrator may in its discretion determine necessary or advisable. 2.4 Exercise Price The Administrator shall determine the Exercise Price under each Option, but the Exercise Price may not be less than one hundred percent (100%) of the Fair Market Value on the Date of Grant for a Nonqualified Stock Option nor less than 100 percent (100%) of the Fair Market Value on the Date of Grant for an Incentive Stock Option. If an Option intended to be an Incentive Stock Option is granted to any Employee who, at the Date of Grant, owns Common Stock possessing more than 10 percent (10%) of the total combined voting power of all classes of the Corporation's stock (or the stock of any "subsidiary" or "parent" of the Corporation as those terms are defined in Section 424 of the Code), the Exercise Price shall be no less than 110 percent (110%) of the Fair Market Value on the Date of Grant. 7 of 15 2.5 Person who may Exercise Options During the lifetime of the Optionee and except as provided in Section 3.5, only the Optionee or his duly appointed guardian or personal representative may exercise the Options. After his death, any exercisable portion of an Option may, before such portion becomes unexercisable under the Plan or the applicable Option Agreement, be exercised by the personal representative of the Optionee or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 2.6 Exercisability (a) Options granted pursuant to this Plan shall be exercisable at such times and under such conditions as the Administrator shall determine; provided, however, that no portion of an Option shall be exercisable after the expiration of ten (10) years from its Date of Grant and that no portion of an Incentive Stock Option granted to any Employee who, at the Date of Grant, owns stock possessing more than 10 percent (10%) of the total combined voting power for all classes of the Corporation's stock (or the stock of any "subsidiary" or "parent" of the Corporation as those terms are defined in Section 424 of the Code) shall be exercisable after the expiration of five (5) years from the Date of Grant. (b) Subject to the provision of Section 3.7 (relating to shareholder approval), Options shall become exercisable at such times and in such manner as the Option Agreement may provide; provided, however, that by a resolution adopted after an Option Agreement is entered into, the Administrator may, on such terms and conditions as it determines appropriate, and subject to Section 3.7, accelerate the time at which the Optionee may exercise any portion of an Option. (c) No portion of an Option that is unexercisable by reason of Termination of Employment shall thereafter become exercisable, unless the Option Agreement provides otherwise, either initially or by amendment thereto. (d) The Corporation will not issue fractional shares pursuant to the exercise of an Option, but the Administrator may, in its discretion, direct the Corporation to make a cash payment instead of issuing fractional shares. (e) Notwithstanding any other provision of this Plan or of an Option Agreement, if an Employee's Termination of Employment is for "cause" or if the Board makes a determination that the Employee (i) has engaged in any type of disloyalty to the Group, including without limitation, fraud, embezzlement, theft, or dishonesty in the course of his employment or his provision of service to the Group, (ii) has been convicted of a felony, (iii) has disclosed trade secrets or confidential information of the Group, or (iv) has breached any agreement with any member of the Group in respect of confidentiality, non-disclosure, or non-competition, all 8 of 15 of the Employee's unexercised Options shall terminate upon the earlier of the date of Termination of Employment for "cause" or the date of such a finding. In the event of such a finding, in addition to immediate termination of all of the Employee's unexercised Options, the Optionee shall forfeit all Shares for which the Corporation has not yet delivered share certificates to the Optionee and the Corporation shall refund to the Optionee the Exercise Price paid to it. Moreover, the Corporation may withhold delivery of share certificates pending the resolution of any inquiry that could lead to a finding resulting in forfeiture. 2.7 Exercise of Options (a) An Optionee shall exercise any portion of an Option by delivering the notice described in Paragraph (1) below to the Secretary of the Corporation or his office on or before the date such portion of the Option becomes unexercisable under the applicable Option Agreement or the Plan and making payment as provided in Paragraph (2) within three (3) business days after such delivery: (1) A written notice of exercise, in a form complying with any rules the Administrator may issue, signed by the Optionee, and specifying the number of shares of Common Stock underlying the portion of the Option being exercised; and (2) Full payment by cashier's or certified check of the Exercise Price for the shares of Common Stock with respect to which the Option is being exercised. To the extent provided in the applicable Option Agreement, payment may also be made in one of the following alternative forms: (A) Full payment in shares of Common Stock having a Fair Market Value on the Date of Exercise equal to the Exercise Price; (B) A combination of shares of Common Stock valued at Fair Market Value on the Date of Exercise and cash or cash equivalents, equal in the aggregate to the Exercise Price; or (C) By delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Corporation the sale or loan proceeds to pay the Exercise Price. The Optionee may deliver shares of Common Stock in payment only if he has previously held those shares for at least six months, unless the Administrator waives that holding requirement after due consideration of the effect on the Corporation's financial statements. Moreover, unless the applicable Option Agreement provides otherwise, the alternative methods of payment are available only if and when the Common Stock is publicly traded. 9 of 15 (b) The Optionee shall also deliver to the Administrator such representations and documents as the Administrator, in its sole discretion, may consider necessary or advisable to comply with applicable provisions of the Securities Act of 1933 and any other Federal or state securities or other laws or regulations. The Administrator may, in its sole discretion, take whatever additional actions it deems appropriate to so comply including, without limitation, placing legends on certificates and issuing stop-transfer orders to transfer agents and registrars. (c) If someone other than the Employee exercises any portion of an Option pursuant to Section 2.5, the Administrator may request such proof as it may consider necessary or appropriate of the person's right to exercise the Option. (d) No adjustment will be made for a dividend or other right for which the record date precedes the Date of Exercise, except as provided in Section 3.1(a). 2.8 Tax Withholding The Corporation's obligation to deliver stock certificates upon the exercise of any Option shall be subject to the Optionee's satisfaction of all applicable Federal, State, and local income and employment tax withholding requirements. If such certificates have been delivered before the time a withholding obligation arises, the Corporation shall have the right to require the Employee to remit to the Corporation an amount sufficient to satisfy all Federal, state, or local withholding tax requirements at the time such obligation arises and to withhold from other amounts payable to the Optionee, as compensation or otherwise, as necessary. The Administrator may, in its discretion, and subject to such rules as it may prescribe in its discretion, permit an Optionee to satisfy applicable tax withholding obligations by any of the following means or by a combination of such means: (a) tendering a cash payment; (b) authorizing the Corporation to withhold from the Common Stock otherwise issuable to the Optionee as the result of the exercise of an Option, a number of shares having a Fair Market Value, as of the date the withholding tax obligation arises, less than or equal to the amount of the withholding tax obligation; or (c) delivering to the Corporation already owned and unencumbered shares of Common Stock having a Fair Market Value, as of the date the withholding tax obligation arises, less than or equal to the amount of the withholding tax obligation. An Optionee may use shares of the Corporation's Common Stock issuable to the Optionee upon exercise of the Option to satisfy the tax withholding consequences of such exercise only after the Common Stock is publicly-traded and then only (a) during the period beginning on the third business day following the date of release of the quarterly or annual summary statement of sales and earnings of the Corporation and ending on the twelfth business day following such date or (b) pursuant to the Optionee's irrevocable written election to use such shares of the Corporation's Common Stock to pay all or part of the withholding taxes made at least six months before the payment of such withholding taxes. In the absence of one of the foregoing methods, the Optionee must deliver to the Corporation the payment by cashier's or certified check to the Corporation of all amounts that the 10 of 15 Corporation must withhold under Federal, state, or local law in connection with the exercise of the Option if the Corporation cannot, or decides not to, satisfy withholding obligations through additional withholding on salary or wages. Payment of withholding obligations is due for Nonqualified Stock Options at the same time as is payment of the Exercise Price and is due for Incentive Stock Options as of the date, if any, at which a withholding obligation relating thereto arises. 2.9 Expiration of Options (a) No one may exercise an Option after the expiration of ten (10) years from the Date of Grant or, if earlier for an Incentive Stock Option, the first to occur of the following events: (1) Except in the case of any Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code) or dies, the Optionee's Termination of Employment; (2) In the case of an Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the earlier of the expiration of six months from the date of the Optionee' s Termination of Employment for any reason other than such Optionee's death or 30 days after the Administrator determines that the Optionee is disabled, unless the Optionee dies before the earlier of those dates; or (3) The expiration of 90 days from the date of the Optionee's death. The Administrator may, but need not, use the foregoing standards for early expiration of a Nonqualified Stock Option. (b) Subject to the provisions of Section 2.8(a), the Administrator may provide in the terms of an Option Agreement that any portion of the Option, whether then exercisable or not, expires immediately upon a Termination of Employment or that any portion of the Option shall become exercisable in the event of a Termination of Employment because of the Optionee's retirement, death, or disability. In the event that exercise is permitted after Termination of Employment, the Option shall nevertheless expire as of the date that such former Employee violates (as determined by the Board) any covenant not to compete in effect between any member of the Group and the former Employee. 2.10 $100,000 Limit for Incentive Stock Options No portion of an Option granted to an Optionee shall be treated as an Incentive Stock Option to the extent such portion of an Option would cause the aggregate Fair Market Value of all shares with respect to which Incentive Stock Options are exercisable by such Optionee for the first 11 of 15 time during any calendar year to exceed $100,000. That portion of the Option shall instead be treated as a Nonqualified Stock Option. For purposes of determining whether an Incentive Stock Option would cause such aggregate Fair Market Value to exceed the $100,000 limitation, all such Incentive Stock Options shall be taken into account in the order granted and the Fair Market Value for each share under an option shall be determined as of that option's date of grant. For purposes of this section, Incentive Stock Options include all incentive stock options under all plans of the Corporation that are "incentive stock option plans" within the meaning of Section 422 of the Code. 2.11 No Exercise of Out-of-the-Money Options If Rule 16b-3 is then applicable to the Option, an Optionee may not exercise any portion of an Option while that portion of the Option is out-of-the-money, i.e., while the Exercise Price for a share of Common Stock underlying that portion of the Option exceeds the Fair Market Value of a share of Common Stock. III. Other Provisions 3.1 Adjustment Provisions (a) Subject to any required action by the Corporation (which it shall promptly take) or its shareholders, and subject to the provisions of the General and Business Corporation Law of Missouri, if, after the Date of Grant of an Option, the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of security by reason of any recapitalization, reclassification, stock split, reverse stock split, combination of shares, exchange of shares, stock dividend, or other distribution payable in capital stock, or other increase or decrease in such Common Stock is effected without the Corporation's receiving consideration, a proportionate and appropriate adjustment shall be made in the number of shares of Common Stock underlying the Option, so that the proportionate interest of the Optionee immediately following such event shall, to the extent practicable, be the same as immediately before such event. A commensurate change will be made in the maximum number and kind of shares provided in Section 1.3(a) and 2.1(b). Any such adjustment in an Option shall not change the total price with respect to shares of Common Stock underlying the unexercised portion of the Option but shall include a corresponding proportionate adjustment in the Option's Exercise Price. (b) In addition to the adjustments covered under Section 3.1(a) above, any Option grant may contain provisions to the effect that upon the occurrence of certain events, including a change in control of the Corporation (as defined by the Administrator in the Optionee's Option Agreement), any outstanding Options not theretofore exercisable or free from restrictions, as the case may be, shall either immediately, or upon a further determination made by the Administrator at the time of the event, become fully exercisable or free from restrictions. 12 of 15 (c) The Administrator will make adjustments and determinations under Sections 3.1(a) and 3.1(b), and its determination will be final, binding, and conclusive. (d) Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger, or consolidation of the Corporation as a result of which the outstanding securities of the class of securities then subject to the Options are changed into or exchanged for cash or property or securities not of the Corporation's issue, or any combination thereof, or upon a sale of substantially all the property of the Corporation to, or the acquisition of shares of Common Stock representing more than eighty percent (80%) of the voting power of the shares of Common Stock then outstanding by, another corporation or person, the Options shall terminate, unless provision be made in writing in connection with such transaction for the assumption of Options theretofore granted under the Plan, or the substitution for such options of any options covering the stock or securities of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares of stock and prices, in which event the Options shall continue in the manner and under the terms so provided. If an Option would otherwise terminate pursuant to the preceding sentence, the Optionee shall have the right, at such time before the consummation of the transaction causing such termination as the Corporation shall reasonably designate, to exercise the unexercised portions of the Option, including the portions thereof that would, but for this subsection, not yet be exercisable. 3.2 Continuation of Employment or Service Nothing in the Plan or in any instrument executed pursuant to the Plan will confer upon any Optionee any right to continue in the employ or service of the Corporation or affect the right of the Corporation to terminate the employment or service of any Optionee at any time with or without cause, subject to any contrary terms in a written employment agreement or contract for services with the Optionee. 3.3 Compliance with Government Regulations No shares of Common Stock will be issued pursuant to an Option until all applicable requirements imposed by Federal and state securities and other laws, rules, and regulations, and by any regulatory agencies having jurisdiction, and by any stock exchanges upon which the Common Stock may be listed have been fully met. As a condition precedent to the issuance of shares of Common Stock pursuant to an Option, the Corporation may require the Optionee to take any reasonable action to comply with such requirements. No provision in the Plan or action taken pursuant thereto shall authorize any action that is otherwise prohibited by Federal or State laws. 13 of 15 3.4 Privileges of Stock Ownership No Optionee and no beneficiary or other person claiming under or through such Optionee will have any right, title, or interest in or to any shares of Common Stock allocated or reserved under the Plan or subject to any Option except as to such shares of Common Stock, if any, that have been issued to such Optionee. 3.5 Restrictions on Transferability of Options and Common Stock Unless the Administrator otherwise approves in writing, an Option may not be assigned, transferred, pledged, hypothecated, or disposed of in any way, whether by operation of law or otherwise or through any legal or equitable proceedings (including bankruptcy), to any person by the Optionee, except by will or by operation of applicable laws of descent and distribution. Unless the Administrator otherwise approves in advance in writing, the Optionee may not sell, assign, pledge, encumber, or otherwise transfer shares of Common Stock acquired upon exercise of an Option until at least six (6) months have elapsed from (but excluding) the Grant Date, where the Grant Date occurs upon the later of the Date of Grant as defined in Section 1.2(h) or the date on which the shareholders approve the Plan as provided in Section 3.7 hereof. The Administrator, in its sole discretion, may impose such other restrictions on the transferability of Options or shares purchasable upon the exercise of an Option, as it deems appropriate. The Option Agreement shall set forth any such other restrictions, and the certificates evidencing such shares of Common Stock may refer to such restrictions. Notwithstanding the preceding paragraph, an Optionee may, at any time before his death, assign all or any portion of his Nonqualified Stock Option to the trustee of a trust for the primary benefit of himself, his spouse, or his lineal descendant. In such event, the trustee will be entitled to all of the rights of the Optionee with respect to the assigned portion of such Option, and such portion of the Option will continue to be subject to all of the terms, conditions, and restrictions applicable to the Option, as set forth herein and in the related Option Agreement, immediately before the date of the assignment. Any such assignment will be permitted only if (i) the Optionee does not receive any consideration therefore, and (ii) the assignment is expressly permitted by the Option Agreement, as approved by the Administrator. Any such assignment shall be evidenced by an appropriate written document executed by the Optionee, and a copy thereof shall be delivered to the Secretary of the Corporation or his office on or before the effective date of the assignment. 3.6 Amendment and Termination of Plan; Amendment of Option (a) The Board will have the power, in its sole discretion, to amend, suspend, or terminate the Plan at any time; provided, however, that the Board may not amend the Plan without approval of the shareholders of the Corporation if Rule 16b-3 requires such approval. The Board is specifically authorized to adopt any amendment to this Plan the Board deems necessary or advisable to ensure that the Incentive Stock 14 of 15 Options or Nonqualified Stock Options available under the Plan continue to be treated as such, respectively, under all applicable laws. (b) Except as otherwise provided by the applicable Option Agreement or by Section 1.4, 3.1, or 3.8, the Administrator may not, without the Optionee's consent, make modifications in the terms and conditions of an Option that adversely affect the Optionee. No Incentive Stock Option may be modified, extended, or renewed, without the Optionee's consent, if such action would cause it to cease to be an incentive stock option within the meaning of Section 422 of the Code. (c) No amendment, suspension, or termination of the Plan will, without the consent of the Optionee, alter, terminate, impair, or adversely affect any right or obligations under any Option previously granted under the Plan. 3.7 Approval of Plan by Stockholders The Corporation will submit this Plan for the approval of the Corporation's shareholders. The Administrator may grant Options before such shareholder approval, but the Optionee cannot exercise Options before the shareholders approve the Plan. Moreover, if the shareholders do not approve the Plan within 12 months after the Board's initial adoption of the Plan, all Options previously granted under the Plan shall thereupon be canceled and become void. The Corporation shall take such actions regarding the Plan as may be necessary to satisfy the requirements of Rule 16b-3(b), when and if it becomes applicable. 3.8 Conformity to Securities Law The Plan is intended to conform to the extent necessary with all provisions of the Securities Act of 1933 and the Exchange Act and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3 to the extent applicable. Notwithstanding anything herein to the contrary, the Administrator shall administer the Plan, and Options shall be granted and may be exercised, only in a way that conforms to such laws, rules, and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules, and regulations. To the extent any provision of the Plan or action by the Administrator fails to comply with Rule 16b-3 (as in effect with respect to the Plan on the date such action is taken), the provision or action shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator. 3.9 Purchase for Investment and Other Restrictions The issuance of Shares on the exercise of an Option shall be conditioned on obtaining such appropriate representations, warranties, restrictions, and agreements of the Optionee as set forth in the applicable Option Agreement and any Stock Purchase Agreement. Among other 15 of 15 representations, warranties, restrictions, and agreements, the Optionee shall represent and agree that the purchase of Shares under the applicable Option Agreement shall be for investment, and not with a view to the public resale or distribution thereof, unless the Shares subject to the Option are registered under the Securities Act and the transfer or sale of such Shares complies with all other laws, rules, and regulations applicable thereto. Unless the Shares are registered under the Securities Act, the Optionee shall acknowledge that the Shares purchased on exercise of the Option are not registered under the Securities Act and may not be sold or otherwise transferred unless the Shares have been registered under the Securities Act in connection with the sale or transfer thereof, or that counsel satisfactory to the Corporation has issued an opinion satisfactory to the Corporation that the sale or other transfer of such Shares is exempt from registration under the Securities Act, and unless said sale or transfer complies with all other applicable laws, rules, and regulations, including all applicable Federal and state securities laws, rules, and regulations. Additionally, the Shares, when issued upon the exercise of an Option, shall be subject to other transfer restrictions, rights of first refusal, and rights of repurchase as set forth in or incorporated by reference into the applicable Stock Purchase Agreement. The certificates representing the Shares shall contain a legend substantially similar to the following: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE (EXCEPT AS PROVIDED IN SECTION 3.5 OF THE PLAN), OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO EMPIRE GAS CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES LAWS. MOREOVER, THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND RESTRICTED BY THE PROVISIONS OF A CERTAIN STOCK PURCHASE AGREEMENT BETWEEN EMPIRE GAS CORPORATION AND THE STOCKHOLDER, A COPY OF WHICH AGREEMENT WILL BE FURNISHED BY EMPIRE GAS CORPORATION UPON WRITTEN REQUEST AND WITHOUT CHARGE, AND ALL OF THE PROVISIONS OF SUCH AGREEMENT ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. 3.10 Applicable Law This Plan shall be governed by and construed in accordance with the laws of the State of Missouri. IV. Duration of Plan Unless sooner terminated by the Board, the Plan will terminate on October 24, 2004. EX-10.13 3 MANAGEMENT AGREEMENT THIS AGREEMENT, dated May 17, 1995, is made and entered into among Empire Gas Corporation, a Missouri corporation ("Empire"), Northwestern Growth Corporation, a South Dakota corporation ("NGC"), and SYN Inc., a Delaware corporation ("SYN"), with respect to the following facts: A. Empire, NGC and SYN have entered into that certain Agreement Among Initial Stockholders and SYN Inc., dated May 17, 1995 (the "Stock Agreement"), which, among other things, requires this Agreement to be made for the reasons recited in the Stock Agreement (such recitals being incorporated herein by this reference). B. SYN and NGC, immediately following the execution of this Agreement, will be entering into that certain Purchase and Sale Agreement, dated as of May 17, 1995, with Sherman C. Vogel, Stephen A. Vogel, Jeffrey K. Vogel, John M. Vogel, Jeanette Vogel, Synergy Group Incorporated (with its subsidiaries, "Synergy"), and S&J Investments (the "Synergy Acquisition Agreement"), providing for the acquisition by SYN of Synergy (the "Synergy Acquisition"). C. This Agreement is essential to the ability of SYN to finance and consummate the Synergy Acquisition, and to manage the assets and business to be acquired by the Synergy Acquisition. NOW, THEREFORE, in consideration of the premises and the agreements exchanged herein, the parties hereto agree as follows: ARTICLE 1: ENGAGEMENT TO PLAN AND MANAGE SYN, on behalf of itself and its subsidiaries, and for the benefit of its stockholders (of which NGC is a principal one), hereby engages Empire to perform the planning and management of the assets and business operations of SYN and its subsidiaries (the "Management Services"), and Empire hereby accepts such engagement and agrees to perform the Management Services, subject to the direction of the Board of Directors of SYN (the "Board") and in accordance with the terms of this Agreement. ARTICLE 2: BUSINESS PLAN; BUDGET Section 2.01 Initial Business Plan. The parties hereto have developed a business plan, a copy of which is attached as Exhibit A to this Agreement ("Initial Plan"), for the conduct of business operations of SYN and its subsidiaries after the completion of the Synergy Acquisition (the "SYN Operations"), showing: (a) The general longer-term objectives (to be accomplished in a three to five year period of time); (b) The preliminary detailed plans for conducting the SYN Operations through the end of SYN's fiscal year ending June 30, 1996 ("fiscal 1996"), including the plant, facilities and equipment (at various locations), and the personnel staffing at the locations, needed to carry on the SYN Operations for the balance of fiscal 1996 following the Synergy Acquisition and during the longer term of the plan; and 2 of 14 (c) Capitalized reserves for (i) transition costs including such items as costs of meetings with personnel at the outlets and branches acquired in the Synergy Acquisition, retail mailings and other items, not to exceed $500,000 in the aggregate, and (ii) costs of shutting down Synergy's facility at Farmingdale, New York, offering severance to Synergy employees and incorporating Synergy's operations into Empire's facilities in Lebanon, Missouri. Section 2.02 Initial Budget. The parties hereto have developed a budget ("Initial Budget") for the conduct of the SYN Operations for the balance of fiscal 1996 following the Synergy Acquisition in accordance with the Initial Plan. A copy of the Initial Budget is attached as Exhibit B to this Agreement. Section 2.03 Updated and Amended Business Plans and Budgets. At least 30 days prior to June 30, 1996 and at least 30 days prior to each June 30 thereafter until the term of this Agreement expires or is terminated (hereinafter sometimes referred to as the "end of the term of this Agreement"), Empire will develop, in consultation with NGC, and obtain the approval of the Board of: (a) An updated version of the Initial Plan (or of the most recent previously updated version thereof) to provide a detailed business plan for the SYN Operations for the 18 months following such June 30 and a longer-term business plan for the three- to five-year period following such June 30 (the Initial Plan or updated version thereof in effect at a given time, including all amendments thereto up to such time, is hereinafter referred to as the "Applicable Plan"); and (b) An updated version of the Initial Budget (or of the most recent previously updated version thereof) to provide a budget for the conduct of the SYN Operations for the 18 months following such June 30, (the Initial Budget or updated version thereof in effect at a given time for a particular period, including all amendments thereto up to such time, is hereafter referred to as the "Applicable Budget"). Empire may amend an Applicable Plan or an Applicable Budget, or both, at any time and from time to time by preparing such amendment, submitting the same to the Board with such supporting information as the Board may require, and obtaining the Board's approval thereof, but no such amendment shall be effective unless and until approved by the Board. Section 2.04 Acting within Applicable Plan and Budget. Empire shall manage the SYN Operations, commencing with the Synergy Acquisition and continuing thereafter until the end of the term of this Agreement, in accordance with the Applicable Plan and within the Applicable Budget, without obtaining approval of the Board of the details of such management, but subject to approvals by the Board required by law and to the requirements for approval by the Board specified in Article 9 herein. Notwithstanding the foregoing: (a) Empire may take such management action with respect to the SYN Operations as it may deem advisable to respond to, and attempt to curtail or avoid material adverse 3 of 14 consequences resulting from material unplanned adverse developments when (reasonably) there is adequate time in which to secure advance approval of such action by the Board, but in such event the situation and action taken shall be submitted with reasonable promptness to the Board for such further action as the Board may then deem advisable; (b) In addition to action taken pursuant to preceding paragraph (a), Empire may cause SYN to make maintenance capital expenditures which individually exceed the Applicable Budget for such expenditures or category of expenditures by not more than $10,000, but only if the Board is notified prior to, or at, the time of such expenditures, while such expenditures in excess of such $10,000 limit may not be made or committed to unless authorized in advance by the Board; and (c) If Empire becomes aware that aggregate operating or administrative expenses likely will be 1% or more in excess of what is provided for in the then Applicable Budget, Empire shall promptly notify the Board of such expected excess. Section 2.05 Other Action. Any action that needs to be taken in the performance of the Management Services that is not provided for in an Applicable Plan or Applicable Budget or otherwise provided for in this Agreement shall be taken in accordance with Empire's good faith judgment as to what is in the best interests of SYN and its subsidiaries. ARTICLE 3: EMPIRE'S SERVICES; KEY MAN INSURANCE Section 3.01 Effort Required. Empire, under the management of Paul S. Lindsey, Jr. ("Lindsey") as the chief executive officer of Empire, shall devote sufficient time and resources to reasonably assure successful performance by Empire for SYN of the Management Services in accordance with this Agreement. Section 3.02 Key Man Insurance. To compensate SYN for the loss of services that would occur in the event of Lindsey's death, at all times while this Agreement is in effect SYN may maintain in effect (at SYN's expense) insurance on the life of Lindsey in an amount not less than $10,000,000, payable to SYN, and Lindsey will cooperate by providing personal information and taking physical examinations as required by the insurance carrier for issuing and maintaining such insurance coverage. The cost of such insurance shall not be charged, directly or indirectly, in any way to Empire or to any of the compensation due Empire under this Agreement. At the end of the term of this Agreement, or at such earlier time as the Board determines that SYN no longer needs the insurance coverage provided for in this Section, Lindsey will have the option to purchase ownership of such insurance policies from SYN for a price equal to any cash surrender value of the insurance. 4 of 14 ARTICLE 4: COMPENSATION OF EMPIRE Section 4.01 Compensation Entitlement. As compensation in full for Empire's services under this Agreement, SYN shall pay Empire a Fixed Fee (as defined in Section 4.02 hereof) per annum and a Management Fee (as defined in Section 4.03 hereof). Section 4.02 Fixed Fee. The Fixed Fee (the amount of which for each fiscal year of SYN, or part thereof, will be included in the Applicable Budget for such period), is intended to cover Empire's operating overhead in performing its services under this Agreement. The Fixed Fee shall be paid by SYN to Empire in equal monthly installments in advance, upon commencement of Empire's services and thereafter on the first day of each month, and shall be at the initial annual rate of $3,250,000 for the period commencing with the commencement of Empire's services under this Agreement and ending June 30, 1996, and for each 12-month period or portion thereof thereafter until the end of the term of this Agreement the annual rate of the Fixed Fee shall increase by the percentage increase in the Consumer Price Index. All Items For All Urban Consumers, U.S. City Average (1982-84 = 100), as of the start of such period as determined by the index number for the month most recently published by the U.S. Department of Labor or any successor governmental agency handling such publication, as of the start of the period, compared to 151.4 (which is such index figure for the month of March, 1995), but no reduction in the annual rates of the Fixed Fee shall be made if a decrease in such Consumer Price Index figure shall occur. In addition to the foregoing adjustments in the Fixed Fee related to changes in such Consumer Price Index, the Fixed Fee shall be adjusted in an amount approved by the Board to reflect Empire's increased fixed operating overhead reasonably attributable to increases in SYN's business resulting from acquisitions and start-ups of business locations after the Synergy Acquisition is completed. In the event of changes in the basis for such Consumer Price Index, or such index is discontinued, the parties shall amend this Section 4.02 to provide as closely as possible for the same adjustment mechanism, using the changed basis or a different published index, as appropriate. Section 403. Management Fee. The Management Fee, an estimate of which for each fiscal year shall be included n the Applicable Budget for such period, shall be at the annual rate of $500,000 per annum payable by SYN to Empire in equal monthly installments in advance upon commencement of Empire's services and thereafter on the first day of each month, plus a sum (the "Additional Amount") equal to 10% of the amount by which the EBITDA for SYN and its subsidiaries, on a consolidated basis, exceeds the amount shown below for each period indicated, with the Additional Amount for each such period to be paid by SYN to Empire within 90 days after the end of such period or at such earlier time as the final calculation of the Additional Amount for such period is completed: $17,500,000 for the period ending June 30, 1996; $18,000,000 for the 12 months ending June 30, 1997; $18,300,000 for the 12 months ending June 30, 1998; $18,600,000 for the 12 months ending June 30, 1999; and $18,900,000 for the 12 months ending June 30, 2000; 5 of 14 For purposes of this Agreement, "EBITDA" means earnings before interest, taxes, depreciation and amortization for a specified period for the specified corporation, or the specified group of corporations on a consolidated basis, or the specified business locations, determined from financial statements for such corporation or corporations or business locations prepared on the basis of generally accepted accounting principles, consistently applied. ARTICLE 5: COMPETITION BETWEEN EMPIRE AND SYN Section 5.01 Overlapping Market Areas. As promptly as is reasonably possible, Empire and SYN shall use their best efforts to exchange those outlets of Empire and SYN that are designated in Exhibit C attached to this Agreement as having overlapping, competing market areas, by having some of the SYN outlets listed on such Exhibit C transferred to Empire and some of the Empire outlets listed on such Exhibit C transferred to SYN, such that upon completion of these transfers, the SYN outlets transferred to Empire will have EBITDA (as defined in Section 4.03 herein) and assets equivalent (with immaterial exceptions) in value to the Empire outlets transferred to SYN, and the overlapping, competing nature of the market areas shown on Exhibit C will be eliminated by such transfers. Any shortfall of EBITDA or asset value to either party from such transfers shall be compensated by either a transfer of assets or a cash payment, the amount of which is to be negotiated between NGC and SYN, as one party, and Empire, as the other party. Section 5.02 Non-Competition; Acquisitions. (a) While this Agreement is in effect and for a period one year thereafter, Empire and SYN will not solicit customers and employees from each other. (b) Until the end of the term of this Agreement and for a period of two years thereafter, Empire and SYN shall not compete in each others area of interest for new customers within such area. Regarding individual acquisitions of retail propane businesses greater than $7,500,000 which any party hereto desires to make before the end of the term of this Agreement, such acquisitions shall e owned jointly by Empire and SYN in relation to the capital provided for such acquisition or such other arrangements as can be negotiated by such parties on a case by case basis, but acquisitions less than $7,500,000 shall be pursued first by the individual entity with operations closest to the acquired property, or if not successfully pursued by such party, then jointly by Empire and SYN together, based on capital provided, and if not successfully pursued by those two parties, then by whichever (Empire or SYN) was not such first party. 6 of 14 ARTICLE 6: ACCOUNTING SYSTEM; ACCOUNTANTS Section 6.01 Accounting System. At all times until the end of term of this Agreement, Empire will: (a) Cause SYN and its subsidiaries to implement and maintain a system of accounting for the assets, liabilities, operations and cash flows of SYN and its subsidiaries, and internal controls over accounting and financial matters for SYN and its subsidiaries, similar to the system and controls maintained by Empire for itself, or, if requested by the Board, as the Board shall reasonably require; and in connection with the foregoing, Empire shall cause SYN to provide NGC with such financial statements and reports with respect to assets, liabilities, operations and developments affecting the business or assets of SYN and its subsidiaries, as NGC may require (taking into account the accounting and reporting requirements of NGC's parent corporation, Northwestern Public Service Company); and (b) Cause SYN to engage a so-called "Big Six" firm of independent public accountants (or whatever, at the time, is the equivalent of the present Big Six) approved by the Board to make quarterly reviews and annual audits of SYN and its subsidiaries; but to the most efficient extent possible, Empire shall cause SYN to engage Baird, Kurtz & Dobson ("BK&D") to perform detailed compliance work to assist the designated firm of independent accountants in completing the quarterly reviews and annual audits. Section 6.02 Audit or Review. At all times until the end of the term of this Agreement, Empire will allow the Board and its authorized representatives, upon at least seven-days' prior notice to, and in coordination with, the President and Chief Executive Officer of SYN, to audit or review the books of account and records of all kinds kept for SYN, inspect SYN's properties, consult with SYN's personnel and with Empire's personnel involved in Empire's performance of services under this Agreement, and generally to observe and monitor the operation, management and accounting for SYN's business and assets; provided, however, that such review and/or audit shall not last longer than five business days unless Empire is in default under this Agreement. Such reviews shall be restricted to no more than once a month at the home office of SYN, as maintained by Empire, through June 30, 1996 and quarterly thereafter, and unrestricted at all of SYN's retail locations. All reports resulting from these audits or reviews shall be promptly furnished to the Board. ARTICLE 7: INSURANCE FOR SYN In addition to the key man insurance which SYN may maintain pursuant to Section 3.02 herein, at all times while this Agreement is in effect insurance covering liability exposures of SYN and its Board, with types and amounts of coverages as shall be approved by the Board, shall be obtained and maintained for SYN and its subsidiaries (at SYN's expense, and at no cost to Empire) by Empire as part of the Management Services. Empire shall be named as a co-insured under such coverages. The cost of such insurance shall be included in each Applicable Budget. 7 of 14 ARTICLE 8: ATTENDANCE OF EMPIRE'S BOARD MEETINGS At all times while this Agreement is in effect, NGC will designate a representative who may, as invited, be allowed to attend quarterly meetings of Empire's Board of Directors and to receive copies of all information supplied by Empire to the members of its Board of Directors for such meetings. ARTICLE 9: SYN BOARD APPROVAL REQUIRED The assets and business of SYN and its subsidiaries shall be managed as provided herein by Empire while this Agreement remains in effect, subject to the overall direction and supervision by the Board. However, Empire shall not take for SYN (such term at all times in this Article 9 includes SYN's subsidiaries), or cause SYN to take, any of the following actions without having obtained the prior approval of the Board: (a) Sell, lease, transfer or otherwise dispose of, or enter into any agreement or arrangement for any sale, lease, transfer or other disposition of assets of SYN, except for (i) a sale, lease, transfer or other disposition specifically provided for in the Applicable Budget, or (ii) the sale of services to customers and the sale or lease of products in the ordinary course of business of SYN; (b) Purchase any goods or services from, or sell any goods or services to, or enter into or amend any agreement or other transaction with, Empire or any affiliate of Empire that is not on an arm's-length basis; (c) Cause SYN to incur any indebtedness for borrowed money (including, without limitation, any capitalized lease obligations) or to enter into an agreement for such borrowing (or leasing) with the exception of seller financing of the purchase of particular assets; (d) Mortgage or otherwise grant a lien upon or security interest in any assets of SYN except liens upon acquired assets to secure seller financing for the acquisition of such assets; (e) Cause SYN to become a surety or guarantor of, or an accommodation party to, or otherwise become or be contingently liable for any indebtedness or obligations of any other party, other than as a result of endorsing to negotiate payment of instruments received from customers in payment for goods and services in the ordinary course of business in amounts less than $50,000; (f) Cause SYN to enter into any joint venture or similar relationship or acquire any stock, debt obligations or other securities of, or loan to or make any investment in or capital contribution to any other party which is not a wholly-owned subsidiary of SYN; 8 of 14 (g) Institute, defend, or settle any legal proceeding on behalf of SYN, except legal proceedings against SYN shall be defended and if the matter is partially or wholly covered by insurance, it may be settled if the settlement payment to be made by SYN is an amount not exceeding the deductible under such insurance coverage for such matter and all other matters not partially or wholly covered by insurance may be settled if the settlement payment to be made by SYN is an amount not exceeding $50,000 per matter; (h) Enter into any new contract for the leasing, as lessee, of any real or personal property, other than operating leases entered into in the ordinary course of business involving a term of not more than one year total or rental of not more than $50,000, and other than retail location operating leases; (i) File or consent to any petition in bankruptcy, reorganization, liquidation or similar proceeding with respect to SYN, or seek, consent to or acquiesce in the appointment of a trustee, receiver or liquidator of SYN, or of all or any part of the assets of SYN, or make an assignment for the benefit of SYN's creditors; (j) Confess a judgment against SYN greater than $50,000; (k) Amend, modify, supplement or waive any provision of any contract, the making of which was approved or required to be approved by the Board; (l) Make any employment, severance, consulting or similar agreement, including any agreement with a labor union, or amend the same, for SYN with any other party involving payments by SYN greater than $50,000, or adopt any employee benefit plan for employees of SYN; (m) Open or close a primary office, plant or other business location for SYN, or make an agreement or commitment of any kind to do so unless it results from the merger or consolidation with another SYN plant, office or other business location; or (n) Take any action in contravention of this Agreement. ARTICLE 10: DIRECTORS AND OFFICERS Section 10.01 Directors and Officers of SYN. During the term of this Agreement, the provisions of Section 5.02 of the Stock Agreement (which are hereby incorporated herein by this reference) shall be carried out by Empire and NGC even if the Stock Agreement ceases to be in effect for any reason. Section 10.02 Directors and Officers of Subsidiaries. The directors and officers of subsidiaries of SYN shall be designated by Empire to enable Empire to achieve an efficient management and administration of the business and affairs of the subsidiaries. 9 of 14 ARTICLE 11: TERM; TERMINATION Section 11.01 Term of This Agreement; Termination. The term of this Agreement shall be in effect until it expires on June 30, 2000, or at the end of any fiscal year thereafter if preceded by at least six- months' written notice by SYN or one-year's written notice by Empire of its desire to terminate as of such date, unless sooner terminated at the election of the Board, and upon giving notice to Empire of such election, on any earlier date in the event of any of the following: (a) Upon default by Empire under this Agreement which remains uncured after 30 days written notice of such default has been given to Empire by SYN or NGC; (b) Upon any change in ownership of Empire which results in Lindsey having less than voting control (as a stockholder) of Empire; (c) Upon the filing or consent to any petition in bankruptcy, reorganization, liquidation or similar proceeding with respect to Empire, or the appointment of a trustee, receiver or liquidator for Empire for all or a substantial part of its assets, or the making of an assignment by Empire for the benefit of its creditors; (d) Upon the failure of SYN and its subsidiaries to achieve the following cumulative (consolidated) EBITDA results for the periods beginning with the Synergy Acquisition and ending on the dates indicated below, as follows: (i) for the period ended June 30, 1996, cumulative EBITDA of at least $14 million; (ii) for the period ended June 30, 1997, cumulative EBITDA of at least $29 million; (iii) for the period ended June 30, 1998, cumulative EBITDA of at least $45 million; (iv) for the period ended June 30, 1999, cumulative EBITDA of at least $62 million; (v) for the period ended June 30, 2000, cumulative EBITDA of at least $80 million; and (vi) for periods (if any) subsequent to June 30, 2000, cumulative EBITDA at the end of each fiscal year of SYN shall be at least $20,000,000 higher than at the end of the pervious fiscal year; (e) If SYN at any time is in default with respect to more than $1,000,000 of its borrowings; (f) If Empire at any time is in default with respect to its outstanding publicly-held bonds; (g) By mutual agreement of the parties or when required 10 of 14 by final court order or final award of arbitrators; or (h) If the stock of SYN, or stock entitling the holder or holders thereof to cast a majority of the votes in the general election of directors of SYN, or substantially all of the assets of SYN, is sold, directly or by merger or consolidation. The term of this Agreement also may be terminated at the election of Empire and upon giving notice to NGC and SYN of such election in the event of any of the following: (i) Upon default by SYN resulting from non-payment of the Fixed Fee or the Management Fee to Empire which remains uncured after 30 days written notice of such default has been given by Empire to SYN or NGC; or (ii) If the stock of SYN, or stock entitling the holder or holders thereof to cast a majority of the votes in the general election of directors of SYN, or substantially all of the assets of SYN is sold, directly or by merger or consolidation; or (iii) If any of the terms of this Agreement are changed without the consent of Empire. Section 11.02 Transition Upon Termination. (a) Upon expiration or earlier termination of this Agreement, the parties hereto will cooperate to the fullest extent possible to facilitate the creation of a staff of management personnel, and the establishment of facilities owned or leased by SYN or otherwise available for use by SYN on terms acceptable to SYN, to enable SYN to plan and manage its business operations and assets without the services that would have been provided by Empire under this Agreement had this Agreement remained in effect; and until that is accomplished (and the parties hereto shall make a good faith effort to accomplish it promptly), SYN shall have the use of the personnel and facilities of Empire that had been devoted in whole or in part to such planning and management at a cost not to exceed the amount most recently budgeted therefor in the last Applicable Budget, or at Empire's cost in the absence of such budgeted amount. (b) Notwithstanding the foregoing, in the event this Agreement is terminated by Empire, SYN shall have up to 18 months (including the 12-months' notice period) to plan and execute an operational and transition plan for achieving what is provided for in preceding subsection (a). 11 of 14 Section 11.03 Puts and Calls (a) In the event this Agreement is terminated by Empire, SYN shall have a call right to purchase Empire's shares of common stock of SYN at a price equal to 100% of fair market value, determined by appraisal, and Empire shall have a put right to sell to SYN Empire's shares of common stock of SYN at a price equal to 90% of fair market value, determined by appraisal, provided that, in case of a put by Empire, SYN has adequate liquidity, as reasonably determined by its Board, to make such purchase. (b) In the event this Agreement is terminated by SYN, SYN shall have a call right to purchase Empire's shares of common stock of SYN at a price equal to 110% of fair market value, determined by appraisal, and Empire shall have a put right to sell to SYN Empire's shares of common stock of SYN at a price equal to 100% of fair market value, determined by appraisal, provided that in the case of a put by Empire, SYN has adequate liquidity, as reasonably determined by its Board, to make such purchase. (c) For these purposes, fair market value of the shares of common stock of SYN to be sold and purchased shall be determined by an appraiser or investment banker selected as provided in Section 1.04(a)(ii) of the Stock Agreement, with the appraisal made in accordance with such Section. ARTICLE 12: RIGHT OF FIRST REFUSAL So long as this Agreement is in effect, Empire will require Lindsey not to sell or otherwise dispose of the shares of stock of Empire which he owns (other than to an affiliated entity or related party or to Empire management personnel, provided that Lindsey retains voting control of Empire), and Empire will not sell or otherwise dispose of all or substantially all of its business and assets, whether such transactions are to be done directly or indirectly by means of a merger or consolidation of Empire with the acquiring entity, without first offering the same for sale to NGC, on the same terms as are offered by the other party (with full disclosure of such terms to NGC), and allowing not less than 30 days after its receipt of the offer for NGC to accept the offer, and if such offer is accepted by NGC, NGC shall have 90 days in which to complete the purchase on such terms. ARTICLE 13: MISCELLANEOUS Section 13.01 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered in person, (b) one business day after deposit with a nationally recognized overnight courier service, (c) two business days after being deposited in the United States mail, postage prepaid, first class, registered or certified mail, or (d) the business day on which it is sent and received by facsimile, as follows: 12 of 14 If to SYN, to: SYN Inc. c/o Northwestern Growth Corporation 33 Third Street, S.E. Huron SD 57350 Fax No. (605) 353-8286 Attn: Richard R. Hylland, President and Chief Operating Officer and to SYN Inc. c/o Empire Gas Corporation 1700 South Jefferson Street Lebanon, MO 65536 Fax No. (417) 532-8529 Attn: Paul S. Lindsey, Jr., Chief Executive Officer If to NGC: Northwestern Growth Corporation 33 Third Street, S.E. Huron SD 57350 Fax No. (605) 353-8286 Attn: Richard R. Hylland, President If to Empire: Empire Gas Corporation PO Box 303 1700 South Jefferson Lebanon MO 65536 Fax No. (417) 532-8529 Attn: Paul S. Lindsey, Jr., President or to such other person or address as any party hereto shall specify in notice in writing given to the other parties hereto. Section 13.02 Assignment Restricted; Successors and Assigns. No party hereto may assign its interest in this Agreement without first obtaining the written consent of the other parties hereto, except that this Agreement may be assigned by SYN, without obtaining such consents, to (and in connection with the closing of the acquisition by) an acquirer of substantially all of the business and assets of SYN and its subsidiaries, provided that written notice of such assignment is given to the other parties hereto, and except further that this Agreement may be assigned by NGC (in connection with the assignment of NGC's shares of common stock of SYN) to NWPS, or any wholly-owned subsidiary of NWPS, without obtaining such consents, provided written notice of such assignment is given to the other parties hereto. Section 13.03 Severability. Should any provision of this Agreement for any reason be declared invalid or unenforceable, such decision shall not affect the validity or enforceability of any of the other provisions of this Agreement, which remaining provisions shall remain in full force and effect and the application of such invalid or unenforceable provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent permitted by law. 13 of 14 Section 13.04 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. Section 13.05 Arbitration. Any dispute arising under this Agreement shall be resolved by arbitration. Each of the parties hereto agrees (a) that each such arbitration shall be initiated and conducted in accordance with the rules and procedures of the American Arbitration Association ("AAA"), (b) to submit all such disputes to the office of the AAA in charge of arbitrations conducted in the metropolitan area of the City of Minneapolis, Minnesota, and (c) to have each such arbitration proceeding conducted in the metropolitan area of the City of Minneapolis, Minnesota, and (d) to be subject to the jurisdiction of the arbitrators in the City of Minneapolis, Minnesota upon notice given in accordance with the provisions of this Agreement that a dispute has been submitted to such office of the AAA. Section 13.06 Governing Law. This Agreement shall be governed by the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of law) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Section 13.07 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which collectively shall constitute one and the same agreement. IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the date first above written. Empire Gas Corporation SYN Inc. By: /s/ Paul S. Lindsey, Jr. By: /s/ Paul S. Lindsey, Jr. ________________________ ____________________________ Its President Title: _________________ Northwestern Growth Corporation By: /s/ Richard R. Hylland ______________________ Its President 14 of 14 Exhibits to Management Agreement Exhibit A Initial Business Plan (Sec. 2.01) Exhibit B Initial Budget (Sec. 2.02) Exhibit C Listing of overlapping market areas of SYN (Synergy) and Empire EX-10.14 4 AGREEMENT AMONG INITIAL STOCKHOLDERS AND SYN INC. THIS AGREEMENT, dated May 17, 1995, is made and entered into among Empire Gas Corporation, a Missouri corporation ("Empire"), Northwestern Growth Corporation, a South Dakota corporation ("NGC"), and SYN Inc., a Delaware corporation ("SYN~), with respect to the following facts: A. Empire currently is engaged in the business of distributing and selling at retail liquified petroleum ("LP") gas and appliances, and has a management experienced in the operation of such business. B. NGC is a wholly-owned subsidiary of Northwestern Public Service Company ("NWPS") and has as one of its objectives the making of investments that could benefit NWPS and its stockholders. C. Empire and NGC, acting together, have made a successful bid to acquire the LP gas distribution and appliance business of Synergy Group Incorporated ("Synergy"; such acquisition being hereinafter called the "Synergy Acquisition"), in what is planned to be the first Step in the proposed development by Empire and NGC, on a team basis, of a significant position in the LP gas distribution industry. Empire and NGC have contemplated, in their bidding for the Synergy Acquisition, that they will rely principally on Empire for management expertise and on NGC to provide or arrange the financing for the Synergy Acquisition, and that the success of the Synergy Acquisition will depend in large measure upon the cost savings and operating improvements expected to be achieved by having Empire do the planning and management of the business of Synergy and its subsidiaries, under the direction of the Board of Director of SYN. D. Empire and NGC have caused SYN to be incorporated to serve as the vehicle (directly or through subsidiaries to be created) for making the Synergy Acquisition. E. Empire and NGC, on behalf of SYN, are concluding the negotiation of the definitive agreement (the "Synergy Acquisition Agreement") for the Synergy Acquisition, and need to provide for (i) the initial capitalization of SYN, (ii) certain loan financing for SYN, (iii) the management of SYN and (iv) for certain matters pertaining to the ownership of shares of stock of SYN. NOW THEREFORE, in consideration of the premises and the agreements, exchanged herein, the parties hereto agree as follows: ARTICLE 1: INITIAL CAPITALIZATION OF SYN; STOCK SUBSCRIPTIONS AND RESERVATIONS OF STOCK Section 1.01 Initial Authorized Stock of SYN. SYN has been incorporated by Empire and NGC with an initial authorized capitalization (as set forth in Article FOURTH of SYN's Certificate of Incorporation, a true and complete copy of which is attached hereto as Exhibit A), consisting of 100,000 shares of common stock, par value 1 cents per share (the "Common Stock"; and the 100,000 shares of Common Stock referred to herein shall only be increased with the prior written agreement of Empire and NGC unless such increased number of shares is to be issued in an arm's length transaction to a party who is not affiliated with any of the parties to this Agreement), 2 of 12 and 100,000 shares of preferred stock, par value 1 cent per share, issuable in one or more series (the "Preferred Stock"). Prior to the consummation of the Synergy Acquisition, SYN shall, and Empire and NGC shall cause SYN to, take all action necessary to create and authorize the issuance of a series of the Preferred Stock, namely, the Series A Cumulative Preferred Stock, consisting of 70,500 shares, the terms of which shall be as set forth in Exhibit B attached hereto, with such changes therein as the parties hereto may approve before such series is created (the "Series A Preferred Stock"). Section 1.02 Subscriptions and Option for Stock. NGC has previously purchased, and hereby subscribes for, stock of SYN, and NGC has granted Empire an option to purchase certain shares of stock from NGC, as follows: (a) SYN and NGC acknowledge that NGC has purchased from SYN, and SYN has sold and issued to NGC, 1,000 shares of Common Stock for a cash purchase price of $1,000.00 which has been paid by NGC to SYN, and that these shares are the only shares of stock of SYN that are currently outstanding. (b) NGC hereby subscribes for, and agrees to purchase from SYN, and SYN hereby agrees to sell and issue to NGC, an additional 71,500 shares of Common Stock for a cash purchase price of $71,500.00 to be paid at the time of such issuance, with this transaction to be consummated (the "Subscription Closing") at the First Closing, as defined in the Synergy Acquisition Agreement, unless an earlier time for the Subscription Closing is agreed to by the parties hereto. The obligation of NGC under its subscription in this paragraph (b) is subject to the condition (unless waived by NGC) that NGC shall have been able to obtain the funds from the Permanent Financing or the Temporary Financing, as those terms are defined in the Synergy Acquisition Agreement, at or prior to the time of the Subscription Closing. (c) NGC hereby subscribes for, and agrees to purchase from SYN, and SYN hereby agrees to sell and issue to NGC, 68,000 shares of Series A Preferred Stock for a cash purchase price of $1,000 per share ($68,000,000.00 total), with this transaction to be consummated at the Subscription Closing. The obligation of NGC under its subscription in this paragraph (c) is subject to the condition (unless waived by NGC) that NGC shall have been able to obtain the funds from the Permanent Financing or the Temporary Financing, as those terms are defined in the Synergy Acquisition Agreement, at or prior to the time of the Subscription Closing and that, at the time of the Subscription Closing, the First Closing (as defined in the Synergy Acquisition Agreement) is concurrently occurring or is reasonably assured of being consummated immediately thereafter. (d) Empire hereby subscribes for, and agrees to purchase from SYN, and SYN hereby agrees to issue and sell to Empire, 10,000 shares of Common Stock (which shall 3 of 12 represent 10% of the issued and outstanding Common Stock) for a cash purchase price of $10,000 to be paid at the time of such issuance, with this transaction to be consummated at the Subscription Closing. The obligation of Empire under its subscription in this paragraph (d) is subject to the condition (unless waived by Empire) that NGC consummates its purchase of shares of Common Stock under paragraph (b) above in this Section 1.02 at the Subscription Closing. (e) NGC hereby grants to Empire an option to purchase from NGC, at a price of $1.00 per share, up to 20,000 of the shares of Common Stock which shall represent 20% of the issued and outstanding Common Stock, subject to NGC acquiring such shares pursuant to paragraph (b) above in this Section 1.02. Such option may be exercised at any time after September 30, 1995 and prior to September 30, 1997, or the Determination Date (as defined in Section 1.04 herein), whichever is earlier, by Empire's giving written notice of such exercise to NGC. After the giving of such notice, NGC shall assign and deliver to Empire the shares of Common Stock for which the stock option was exercised, as promptly as possible, but in any event within seven days, in exchange for Empire's payment to NGC of the purchase price for such shares; and the shares so assigned and delivered shall then be shares owned by Empire and shall be held by Empire subject to the terms of this Agreement. Section 1.03 Reservations of Stock for Issuance. SYN shall, and Empire and NGC shall cause SYN to, take all action necessary to reserve for initial issuance, 17,500 shares of Common Stock and 2,500 shares of Series A Preferred Stock to be issued to the Stockholders (as defined in the Synergy Acquisition Agreement) at the Second Closing (also as defined in the Synergy Acquisition Agreement), pursuant to the Synergy Acquisition Agreement. Section 1.04 Common Stock Returns. The following provisions of this Section 1.04 apply in the event Empire exercises the stock option granted to it in Section 1.02(d) herein: (a) The "Common Stock Return," as that term is used herein, shall be the number of shares of Common Stock of SYN which Empire hereby agrees to assign and deliver to NGC, without cost to NGC, in the event that the common equity value at a Determination Date (as defined below) is below levels specified for such date in subparagraph (iii) in this paragraph (a). The Common Stock Return shall be set in accordance with the following formula: (i) The Determination Date shall be the date on which SYN is sold (meaning a sale of substantially all of the assets of SYN and its subsidiaries, the acquisition of SYN by another, non-affiliated entity by merger or consolidation, or the sale of partnership units or shares of stock of SYN which entitle the holder thereof to cast at least a majority of the votes entitled to be cast 4 of 12 in the general election of directors of SYN or the date on which the sale of partnership units or shares of SYN's Common Stock is closed in an underwritten public offering, for which the partnership units or shares are registered under the Securities Act of 1933, or the date on which this Agreement expires or is terminated in accordance with Section 7.02 herein, whichever of the foregoing first occurs). (ii) The value of the total outstanding Common Stock of SYN on the Determination Date (the "Value"), shall be determined by the parties hereto on the basis of the sale price for SYN if the sale of SYN is involved, or based upon the price to SYN (or the selling stockholders if SYN is not the seller) in the event an underwritten public offering of partnership units or Common Stock of SYN is involved, or on the basis of the fair market value of the outstanding Common Stock of SYN in every other event, as determined by an appraisal firm or an investment banking firm selected by the parties hereto, with such fair market value to be determined on the basis of the value of SYN and its subsidiaries as a whole, if sold as a going concern. In the event there is a combination of one or more entities with SYN, the value of SYN will be determined by either (x) a fair market value appraisal or (y) in the event there is a public offering within nine months after such combination, the value shall be the initial price to the public of the SYN shares of Common Stock or partnership units in such public offering. (iii) For these purposes, "deemed outstanding shares of Common Stock" shall be the total of the number of shares of Common Stock issued and outstanding, plus the number that would be issued and outstanding if all outstanding stock options, warrants, conversion rights and other rights to acquire shares of Common Stock were exercised, whether or not exercisable at the time. The number of shares of Common Stock of SYN constituting the Common Stock Return shall be the percentage of the deemed outstanding shares of Common Stock of SYN as of the Determination Date, determined on the basis of the following table and paragraph (b) below, if applicable: 5 of 12 Column A Column B Column C Percentage of deemed Percentage of deemed outstanding shares of outstanding shares of Common Stock of SYN Common Stock of SYN shall be 0% if the shall be 7.5% if the Fiscal Year of Value as of the Value as of the SYN in which Determination Date is Determination Date is Determination at least the following less than the following Date occurs: amount: amount: ______________ ______________________ _______________________ 1996 $24,500,000 $22,250,000 1997 $30,000,000 $24,750,000 1998 $36,750,000 $27,500,000 1999 $45,000,000 $30,600,000 2000 $55,200,000 $34,000,000 After 2000 1.225 times the 1.1125 times the previous year's previous year's amount amount (b) If the Value as of the Determination Date is more than the amount in Column C in Section 1.04(a)(iii) above, but less than the amount in Column B therein, the percentage used to determine the Common Stock Return shall be a figure between 7.5% and 0% which is in proportion to what the Value is to the amounts in the two columns for the particular Determination Date. Section 1.05 Acquisition for Investment. Empire and NGC each represent and warrant to the other, and to SYN, as follows: It has (through its management personnel) such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of securities of SYN as provided for in this Agreement; it is acquiring such securities, and will acquire them, for investment and not with a view toward, or with any intention of, distributing or selling any of the securities and it will not sell or offer to sell or otherwise transfer any of the securities in violation of the Securities Act of 1933, as amended. ARTICLE 2: LOAN FINANCING FOR SYN NGC shall make a commercially reasonable effort to arrange for SYN, or provide SYN with, loan financing for SYN, on a fully secured basis, of up to $70,000,000 principal amount needed by SYN for the Synergy Acquisition. ARTICLE 3: LIMIT TO FINANCING OBLIGATIONS Neither Empire nor NGC, nor any of their affiliates, shall have any obligation to provide, or arrange, financing for SYN other than as expressly provided for in Articles 1 and 2 herein. 6 of 12 ARTICLE 4: SYNERGY ACQUISITION Each of the parties hereto will make a commercially reasonable effort in cooperation with the other parties hereto, to do those things within its control to consummate the Synergy Acquisition in accordance with the terms of, and subject to the conditions in, the Synergy Acquisition Agreement. Nothing in this Agreement or otherwise shall be construed to give anyone who is not a party to this Agreement, whether under a third party beneficiary legal doctrine or otherwise, a right to enforce the provisions of this Article or to obtain relief for any failure to perform in accordance with the requirements of this Article. ARTICLE 5: MANAGEMENT OF SYN Section 5.01 At or before the First Closing (as defined in the Synergy Acquisition Agreement), the parties hereto will enter into a management agreement in substantially the form attached hereto as Exhibit C, or with such changes therein as the parties hereto hereafter agree upon (the "Management Agreement"), pursuant to which the planning and management of the business of SYN subsequent to the Second Closing (as defined in the Synergy Acquisition Agreement) will be conducted by Empire under the direction of the Board of Directors of SYN, as provided therein. Section 5.02 Directors and Officers of SYN. (a) For purposes of this Agreement, "Control Period" means the period of time commencing on the date of this Agreement and continuing either (i) until this Agreement is terminated pursuant to Section 7.02 herein because of the termination of the Synergy Acquisition Agreement without the Synergy Acquisition having been completed or (ii) until a time after the First Closing, as defined in the Synergy Acquisition Agreement, when (A) the Control Period is terminated by agreement of the parties hereto, (B) NGC no longer owns a majority of the shares of Common Stock of SYN deemed to be outstanding (determined as provided in Section 1.04 herein), (C) Empire no longer owns at least 20% of the shares of Common Stock of SYN deemed to be outstanding or has an option to acquire at least that amount of shares, or (D) when SYN consummates an underwritten public offering of partnership units or shares of its Common Stock, registered under the Securities Act of 1933, whichever of (A), (B), (C) or (D) first occurs. (b) Throughout the Control Period, NGC and Empire shall vote their voting shares of stock of SYN that are capable of being voted, and will otherwise use their respective commercially reasonable efforts, to carry out the following: (i) the Board of Directors of SYN shall consist of five members, three of whom shall be nominees of NGC (the "NGC Positions") and two of whom shall be nominees of Empire (the "Empire Positions"); and any vacancies occurring in the NGC Positions will be promptly filled with nominees of NGC and any vacancies occurring in the Empire Positions will be promptly filled with nominees of Empire. 7 of 12 (ii) The officers of SYN shall include at all times a Chairman of the Board and a Vice Chairman of the Board, who will be persons nominated by NGC, and a President and Chief Executive Officer, who will be Paul S. Lindsey, Jr., and a Secretary, who will be a person nominated by Empire. The authority and duties of such officers shall be as set forth in the by-laws of SYN, a true and complete copy of which as in effect on the date hereof is attached hereto as Exhibit D. (c) To initiate compliance with preceding paragraph (b), Empire and NGC have caused the following persons to be elected to the positions with SYN indicated by their names, to serve for the period provided in the by-laws of SYN: Chairman of the Board and director - Merle D. Lewis (an NGC nominee for such positions); Vice Chairman of the Board and director Richard R. Hylland (an NGC nominee for such positions); President and Chief Executive Officer and director - Paul S. Lindsey, Jr. (an Empire nominee as to the position of director); Secretary and director - Douglas A. Brown (an Empire nominee for such positions); with the fifth member of the Board of Directors of SYN (one of the NGC Positions) to be nominated by NGC, and elected, at a future time when NGC has selected the nominee for such position. ARTICLE 6: DISPOSITION OF SYN STOCK BY EMPIRE OR NGC Section 6.01 Permitted Dispositions. (a) NGC may at any time or from time to time transfer any of the securities issued by SYN which NGC may own at any time to NWPS or any wholly-owned subsidiary of NWPS, provided that notice of such transfer is given to the other parties to this Agreement and that the transferee becomes a party to this Agreement with respect to the securities so transferred, but all of such transferees and NGC shall collectively act, and be treated, as a single entity with NGC acting as their representative for purposes of this Agreement. (b) Empire may at any time and from time to time transfer any of the securities issued by SYN which 8 of 12 Empire may own at any time to any affiliated party, provided that notice of such transfer is given to the other parties to this Agreement and the transferee becomes a party to this Agreement with respect to the securities so transferred, but all such transferees and Empire shall collectively act, and be treated, as a single entity with Empire acting as their representative for purposes of this Agreement. Section 6.02 Rights of First Refusal (a) Except as permitted by Section 1.04 and Section 6.01(b) herein, so long as the Management Agreement is in effect, Empire will not sell or otherwise dispose of any shares of Common Stock of SYN, or any other securities convertible into such shares, to any party without first offering the same for sale to NGC in writing on the same terms as are offered to or by the other party (with full disclosure of such terms to NGC) and allowing not less than 30 days after its receipt of the offer for NGC to accept the offer; and if such offer is accepted by NGC, NGC shall have 90 days in which to complete the purchase on such terms. (b) Except as permitted by Section 1.02(e) and Section 6.01(a) herein, so long as the Management Agreement is in effect, NGC will not sell or otherwise dispose of any shares of Common Stock of SYN, or any other securities convertible into such shares, to any party without first offering the same for sale to Empire in writing on the same terms as are offered to or by the other party (with full disclosure of such terms to Empire) and allowing Empire not less than 30 days after its receipt of the offer for Empire to accept the offer, and if such offer is accepted by Empire, Empire shall have 90 days in which to complete the purchase on such terms, but if Empire declines such offer, then Empire shall have the right to participate on a pro rata basis in the sale of such shares by NGC. ARTICLE 7: MISCELLANEOUS Section 7.01 Restrictive Legend. Each certificate issued by SYN to evidence shares of Common Stock, or securities convertible into such shares, owned by either Empire or NGC shall be endorsed with the following legend: "The shares represented by this certificate are subject to the Agreement among the Corporation and its Initial Stockholders, dated as of May 17, 1995, as the same may be amended, on file with the issuing Corporation at its principal business office and may be transferred or otherwise disposed of only in accordance therewith." Section 7.02 Term of this Agreement. This Agreement, if not sooner terminated by agreement of the parties hereto or pursuant to the next sentence, shall terminate when the Control Period terminates. In the event the Synergy Acquisition Agreement is terminated without the Synergy 9 of 12 Action having been completed, the parties hereto will liquidate and dissolve SYN as promptly as possible when all obligations of SYN under, or with respect to, the Synergy Acquisition Agreement have been discharged or provided for; and this Agreement shall then automatically terminate. Section 7.03 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered in person (b) one business day after deposit with a nationally recognized overnight courier service (c) two business days after being deposited in the United States mail, postage prepaid, first class, registered or certified mail, or (d) the business day on which it is sent and received by facsimile as follows: (i) If to SYN, to: SYN Inc. c/o Northwestern Growth Corporation 33 Third Street, S.E. Huron, South Dakota 57350 Fax No. (605) 353-8286 Attention: Richard R. Hylland, President with a copy to Empire, addressed and sent to it at the place required under this Agreement for giving notice to Empire (ii) If to Empire, to: Empire Gas Corporation P.O. Box 303 1700 South Jefferson Lebanon, Missouri 65536 Fax No. (417) 532-8529 Attention: Paul S Lindsey, Jr., President (iii) If to NGC, to: Northwestern Growth Corporation 33 Third Street, S.E. Huron, South Dakota 57350 Fax No. (605) 353-8286 Attention: Richard R. Hylland, President Section 7.04 Section 351 of the Code. Each of the parties hereto agrees to comply with the requirements of Section 6.28 of the Synergy Acquisition Agreement, both with respect to the transaction referred to therein and with respect to any transaction under this Agreement to the extent necessary to assure the result under Section 351 of the Internal Revenue Code of 1986, as amended, for the transaction referred to in such Section 6.28. Section 7.05 Captions. The captions in this Agreement are included for convenience of reference only and shall be ignored in the construction and interpretation of this Agreement. 10 of 12 Section 7.06 Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Delaware without regard to the choice of law principles thereof. Section 7.07 Counterparts. Execution of separate copies of this Agreement by each or some of the several parties hereto shall have the same force and effect as though all such parties had executed the original of this Agreement. Further, the parties hereto may execute several counterparts of this Agreement, all of which shall constitute but one and the same agreement. 11 of 12 IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be executed in its name as of the date first above written. EMPIRE GAS CORPORATION By /s/ Paul S. Lindsey, Jr. ________________________ President NORTHWESTERN GROWTH CORPORATION By /s/ Richard R. Hylland ______________________ President SYN INC. By /s/ Paul S. Lindsey, Jr. ________________________ Title: _____________________ 12 of 12 Exhibit Document _______ ________ A Syn Inc. Certificate of Incorporation B Series A Preferred Stock C Management Agreement D Syn Inc. By-laws EX-10.15 5 WAIVER AGREEMENT THIS AGREEMENT made this 29th day of April, 1995, by and among EMPIRE GAS CORPORATION, a Missouri corporation ("Empire"), SYN, INC., a corporation to be formed under the laws of Delaware (such corporation and its subsidiaries are referred to collectively as "SYN") and PAUL S. LINDSEY, JR. ("Lindsey") (Empire, Lindsey, the affiliates of either of them, and SYN are collectively referred to herein as the "Empire Group"); NORTHWESTERN GROWTH CORPORATION, a South Dakota corporation ("NGC"); and EMPIRE ENERGY CORPORATION, a Tennessee corporation ("Energy"), ROBERT W. PLASTER ("Plaster") and STEPHEN R. PLASTER ("S. Plaster") (Energy, Plaster and S. Plaster are collectively referred to herein as the "Plaster Group"). WHEREAS, the Plaster Group and certain members of the Empire Group are parties to a Non-Competition Agreement dated May 7, 1994 and effective as of June 30, 1994 ("NCA") wherein the parties agreed, inter alia, that for the period of three years from the effective date of the NCA, such members of the Empire Group would not compete with the business of Energy in the marketing territory of Energy as set forth in the NCA. WHEREAS, Empire and NGC are contemplating entering into a transaction whereby, through SYN, (i) they will acquire an interest in the stock and/or assets of Synergy Group, Incorporated, a Delaware corporation, and certain of its affiliates and subsidiaries (collectively, "Synergy"), which is in the same business as Energy and which has certain of its operations located in the marketing territory of Energy as set forth in the NCA; and (ii) after such acquisition Empire will manage the business and assets so acquired by SYN for the benefit of SYN and its investors, of which NGC will be the major investor. Such transaction is hereafter referred to as the "Synergy Transaction." WHEREAS, the Empire Group and NGC desire to obtain a waiver of certain provisions of the NCA in order to consummate the proposed Synergy Transaction, and in consideration of such waiver are willing to cause SYN to grant Energy an option to purchase certain of the retail propane locations to be acquired as part of the Synergy Transaction. NOW THEREFORE, in consideration of the premises and of the mutual covenants and undertakings contained herein, the parties agree as follows: 1. In connection with and conditioned upon the closing of the Synergy Transaction, the Plaster Group hereby waives Sections 2(b)(2) and 2(b)(3) of the NCA (as amended pursuant to paragraph 9 of this Agreement) as they might apply to the Empire Group's acquisition and subsequent operation of the retail propane outlets located in Energy's marketing territory that are listed on Schedules A and B hereto (the retail propane outlets listed on Schedule A are referred to as the "Optioned Outlets," those listed on Schedule B are referred to as the "Retained Outlets," and the Optioned Outlets and the Retained Outlets are referred to jointly as the "Outlets"); and the Exchanged Outlets, as defined in Schedule C hereto. 2. In connection with and conditioned upon the closing of the Synergy Transaction, the Plaster Group agrees and covenants that no member of the Plaster Group shall file any action or lawsuit seeking to enforce or to obtain damages with respect to (i) Sections 2(b)(2) and 2(b)(3) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) 2 of 5 against the Empire Group or any member thereof based upon the Empire Group's acquisition or subsequent operation of any of the Outlets or the Exchanged Outlets; (ii) Section 2(a) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) against SYN for any alleged breach thereof by any member of the Empire Group; or (iii) Section 2(d) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) against SYN for any alleged breach thereof by any member of the Empire Group that does not arise from the solicitation or other inducement of Employees (as defined in the NCA) of the Plaster Group to become Employees of SYN or any of its affiliates; provided, however that, if SYN becomes the successor in interest to Empire, the agreements and covenants set forth in subsections (ii) and (iii) of this paragraph 2 shall become null and void. 3. Except as provided in paragraphs 1 and 2 above and as amended pursuant to Paragraph 9 below, the terms of the NCA shall remain in full force and effect. Specifically, nothing in this Agreement is intended or shall be construed to waive or prevent any member of the Plaster Group from seeking to enforce or obtain damages (i) with respect to Sections 2(b)(2) and 2(b)(3) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) other than in connection with the Empire Group's acquisition and subsequent operation of the Outlets and the Exchanged Outlets; (ii) with respect to Section 2(a) or 2(d) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) against any member of the Empire Group other than SYN; or (iii) with respect to any other provision of the NCA (as amended pursuant to Paragraph 9 of this Agreement) against any member of the Empire Group; provided, however, that no member of the Empire Group shall be deemed to be in violation of Section 2(a) of the NCA (as amended pursuant to Paragraph 9 of this Agreement) as a result of having provided information about the Exchanged Outlets to SYN. 4. In consideration of the Plaster Group's waiver of the provisions of the NCA with respect to the Synergy Transaction as specified in Paragraphs 1 and 2 of this Agreement (the "Waiver"), the Empire Group and NGC shall cause Energy to be granted, at the time the purchase agreement providing for the Synergy Transaction (the "Synergy Purchase Agreement") is executed and delivered, an exclusive option (the "Option") to purchase the assets associated with the Optioned Outlets on substantially the terms and conditions described in the Purchase Agreement attached hereto as Schedule D (the "Definitive Agreement"). The Option shall be assignable by Energy to any of its affiliates. The holder of the Option is hereinafter referred to as the "Optionee." 5. The parties acknowledge that (i) the Definitive Agreement has been negotiated in light of the information about the Outlets and the Synergy Transaction that has been provided to the Plaster Group as of the date of this Agreement; (ii) neither the Plaster Group nor the Empire Group nor NGC has had an opportunity to complete its due diligence with respect to the Outlets as of the date of this Agreement; (iii) the form of the Definitive Agreement is based upon the current form of the Synergy Purchase Agreement; (iv) the Synergy Purchase Agreement will not be executed until after the Empire Group and NGC have completed their due diligence; and (v) the form of the Synergy Purchase Agreement and the terms of the Synergy Transaction may change as a result of due diligence conducted by the Empire Group and NGC and other events occurring after the date of this Agreement. Accordingly, (x) the Empire Group and NGC agree to conduct such reasonable due diligence with respect to the Optioned Outlets as the Plaster Group may reasonably request and is permissible under the terms of the Synergy Transaction, and promptly to make available to the Plaster Group all 3 of 5 material information obtained as a result of such due diligence; and (y) if the Option is exercised, the parties agree to negotiate in good faith to make such modifications to the Definitive Agreement as may be necessary to take account of changes in the terms of the Synergy Transaction and the Synergy Purchase Agreement that occur after the date of this Agreement. 6. The Option may be exercised by delivering written notice to Empire and SYN no later than 5:00 p.m. Central Time on the later of the fifteenth day before the scheduled second closing of the Synergy Transaction or the fifth (5th) business day after Optionee has received written notice of the date of the scheduled second closing of the Synergy Transaction. If the Option is exercised, the Empire Group and NGC shall cause SYN to sell the Optioned Outlets to Optionee on the terms and conditions set forth in the Definitive Agreement (with such modifications as may be required pursuant to Paragraph 5 of this Agreement). Closing of the Optionee's purchase of the Optioned Outlets shall take place in escrow, which will be established on the same day as, and immediately following, the first closing of the Synergy Transaction. The escrowed purchase price and closing documents pertaining to the Optionee's purchase of the Optioned Outlets shall be released from escrow on the same day as, and immediately following, the second closing of the Synergy Transaction. If the second closing of the Synergy Transaction fails to occur, the escrowed purchase price and closing documents shall be returned to the parties that deposited them in escrow and the Empire Group and NGC shall pay or reimburse the Plaster Group for all fees, charges and expenses incurred by the Plaster Group in connection with placing the above-referenced funds and closing documents in escrow. 7. The Waiver shall remain in full effect notwithstanding the failure or inability of the Optionee to exercise and close on the Option; provided, however, that nothing in this paragraph is intended or shall be construed to relieve any member of the Empire Group or NGC of liability for breach of this Agreement, the Option, or the Definitive Agreement. 8. The parties hereto each acknowledge and agree that, in the event of any breach of this Agreement or the Definitive Agreement to be entered into if the Optionee exercises the Option, the non-breaching party would be irreparably harmed and could not be made whole by monetary damages alone. Accordingly, the parties hereby agree that such non- breaching party shall be entitled to compel specific performance of this Agreement and the Definitive Agreement to be entered into if the Optionee exercises the Option. 9. Subject to Paragraphs 4, 5 and 6 of this Agreement, upon the second closing of the Synergy Transaction, the parties to the NCA shall execute and deliver an amendment to the NCA to provide as follows: (i) From and after the effective date of such amendment, any member of the Energy Group (as defined in the NCA) or any member of the Empire Group (as defined in the NCA) may, directly or indirectly, own, manage, operate, control, or participate in the ownership, management, operation or control of, or be connected as a partner, representative, shareholder, consultant, agent, broker, dealer with, or have any direct or indirect financial 4 of 5 interest in, or directly or indirectly finance, aid or assist in any way in any LP gas or appliance business located east of the Mississippi River provided that the operating area of such business (which shall be deemed to include all areas within a 50-mile radius of the location of such business) does not overlap with the operating area (which shall be deemed to include all areas within a 50-mile radius) of any LP gas or appliance business in which any member of the other Group then has a direct or indirect interest. (ii) From and after the effective date of such amendment, the Energy Group shall have a non-exclusive perpetual royalty-free license to use the trademarks, service marks and logos of the Empire Group listed on Schedule E hereto in connection with the Energy Group's retail operations in areas east of the Mississippi River. The remaining provisions of the NCA, including provisions relating to LP gas or appliance businesses located west of the Mississippi River, shall not be affected by such amendment unless the parties otherwise agree. 10. Subject to Paragraphs 4, 5 and 6 of this Agreement, if the Optionee exercises the Option and purchases the Optioned Outlets from SYN, and if a member of the Empire Group subsequently purchases all of the stock and/or assets of Energy and such subsequent purchase transaction closes within 180 days after the date of this Agreement, the portion of the purchase price to be paid in such subsequent purchase transaction that is attributable to the Optioned Outlets shall be equal to the sum of (a) the total purchase price paid to SYN by the Optionee for such Optioned Outlets, including both the Optioned Outlets Cash Price and the value of the Exchanged Outlets (as defined in Schedule D) plus (b) the aggregate amount of all capital expenditures made by the Optionee with respect to the Optioned Outlets after closing of the Optionee's purchase of the Optioned Outlets. Nothing in this Agreement shall be construed to give any member of the Empire Group an option, right of first refusal or other right to purchase any stock and/or assets of Energy; to require any member of the Plaster Group to negotiate with any member of the Empire Group with respect to the purchase and sale of any stock or assets of Energy; or to prevent any member of the Plaster Group from negotiating with and consummating any transaction with any third party with respect to the purchase and sale of any stock or assets of Energy. 11. The Empire Group and NGC shall cause SYN to execute and deliver this Agreement to all other parties promptly after SYN is incorporated, thereby making SYN a party to this Agreement, and prior to that happening this Agreement shall be the binding agreement of all of the other parties hereto. 12. This Agreement shall be governed by the laws of the State of Missouri without regard to the choice of law provisions thereof. 13. This Agreement will not become effective until it has been executed by all parties other than SYN. This Agreement will terminate and be null and void in the event that the second closing of the Synergy Transaction has not occurred by September 30, 1995. 5 of 5 IN WITNESS WHEREOF, the parties have entered into this Agreement as of this ____ day of April 1995, except that SYN has entered into this Agreement as of the date set forth opposite its name below. WITNESS: _____________________________ By: /s/ Robert W. Plaster _____________________ Robert W. Plaster WITNESS: _____________________________ By: /s/ Stephen R. Plaster ______________________ Stephen R. Plaster EMPIRE ENERGY CORPORATION WITNESS: _____________________________ By: /s/ Stephen R. Plaster ______________________ Stephen R. Plaster President WITNESS: _____________________________ By: /s/ Paul S. Lindsey, Jr. ________________________ Paul S. Lindsey, Jr. EMPIRE GAS CORPORATION WITNESS: _____________________________ By: /s/ Paul S. Lindsey, Jr. ________________________ Paul S. Lindsey, Jr. President Dated: ___________________, 1995 SYN, INC. WITNESS: _____________________________ By: _______________________ Name: _______________________ Title: _______________________ NORTHWESTERN GROWTH CORPORATION WITNESS: _____________________________ By: _______________________ Name: _______________________ Title: _______________________ EX-10.16 6 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS ARE MARKED BY AN ASTERISK (*). CHEVRON Warren Petroleum Company PROPANE SALES AGREEMENT A Division of Chevron U.S.A. Inc. P.O. Box 1589, Tulsa, OK 74102 * Phone (918) 560-4000 Prepare in original and five copies. Purchaser Confirming Arrangements Made With Empire Gas Corporation Marty Lerum Address Arrangements Made By Date P.O. Box 303 R.E. Siedell August 24, 1995 City, State, Zip Warren No. Purchaser No. Lebanon, MO 65536 25077 1. Term: Warren will sell the following during period from September 01, 1995 __ Expires on __________ _X_ Until April 30, 1996 and continuing year to year thereafter unless and until canceled at the end of any contract year by either party giving the other not less than 60 days written notice prior to the proposed termination date.
Approx. Vol. Unit of Meas. Basis Del. Method Product Price (net at 60F) Measure (see 2) Location (see 2) Cents/Gallon Propane GPA Specifications See Attch. Gallons Other Hattiesburg, MS 0 See Item 6.2 A
2. Measurement/Delivery Method (see above) V - Volumetric per API Tables 23 and 24 or 23A and 24A or 5A and 6A T. Trucks Other Inventory Transfer M - Mass per GPA 8182 C. Tank Cars ________________________ O - Origin D - Destination 3. Product: Stenched _X_ Unstenched into storage WARNING It is important that you periodically remind your customers and employees that even though ethyl mercaptan has been recognized as the best available odorant for propane, no odorant is effective 100% of the time. The odor of the gas may, under some circumstances, be reduced or lost if put into a tank that is new or that has been exposed to the air for extended periods. Electronic gas detectors (that emit a shrill sound in the presence of gas) 2 of 8 should be recommended to your customers as an additional safety measure for detecting leaks. Your customers should be familiar with the smell of the odorant and their ability to smell it. Inform them that colds, allergies, smoking, alcohol, age, competing odors and simply "getting used to" the odor can cause them not to detect escaping gas. Familiarize yourself, your employees and your customers with the potential limitations of the odorant and the alleged phenomenon of "odor fade". Warren's Odorization Bulletins, Safety Guide and other safety materials are available to help with this familiarization. If you need additional information or materials to properly educate your employees and customers, please contact the NPGA, your state organization, or Warren Petroleum Company. 4. Seller send statements, invoices and shipping documentation to: Ms. Gwen Hogan Empire Gas Corporation P.O. Box 303 Lebanon, MO 65536 5. Terms of Payment: EFT 14 days. 6. Special Provisions: 1. This contract replaces Synergy PSA-49952 dated October 07, 1993. 2. Price will be the Mont Belvieu OPIS non-TET average * per gallon on the 1st and 15th of each month or the next working day if no price is quoted. 50% Of each month's volume will be priced on the 1st and 50% on the 15th. 3. Product to be delivered into Storage Agreement 7184 for further handling. 7. In addition to the above terms and conditions, the General Provisions of this Product Sales Agreement and all Attachments are incorporated herein by reference and made a part of this Agreement. If you are in agreement with the foregoing terms and conditions including the indemnity provision, please so indicate by signing below and returning one copy of the Agreement to Warren. Accepted and Agreed to: Warren Petroleum Company Empire Gas Corporation A Division of Chevron U.S.A. Inc. By /s/ Kris Lindsey By /s/ R.E. Siedell ___________________ ___________________ Kris Lindsey R.E. Siedell Title V.P. Date 09/05/95 Title District Manager * Confidential material deleted. ______________________________ 3 of 8 GENERAL PROVISIONS PROPANE SALES 1. DELIVERIES A. When delivery is point of origin, delivery shall be deemed to have been completed: 1. To tank trucks when the product has actually been delivered into the truck; 2. To tank cars when the carrier accepts the same for shipment; 3. To pipelines upon metering of the product: B. When delivery is point of destination, delivery shall be deemed to have been completed: 1. From tank trucks when truck has been placed at buyer's facilities for unloading; 2. From tank cars when carrier delivers same at the destination; C. Seller shall not be liable to Buyer for quantity or quality of product, after completion of delivery. Buyer agrees that the handling, care or use of product shall thereafter be at Buyer's sole risk and expense. 2. MEASUREMENT - Measurement shall be done in the manner customarily utilized at the point of delivery in accordance with one of the following alternatives. A. On all deliveries into/out of tank cars, the quantity shall be determined by official tank car capacity tables, meters with no vapor return, or by weighing, in accordance with GPA Publication 8162, 8173 and all revisions thereof. B. On all deliveries into/out of transport and tank trunk equipment, quantities shall be determined by meter with no vapor return, slip tube, rotary gauging device or weighing, in accordance with GPA Publication 8162, all appropriate GPA and API standards and all revisions thereof. C. On all deliveries into/out of pipelines, quantity shall be determined by turbine or positive displacement pipeline meter in accordance with API Manual of Petroleum Measurement Standards. D. All quantities shall be corrected to 60 degrees Fahrenheit and equilibrium vapor pressure at 60 degrees Fahrenheit. E. Volume and compressibility correction factors shall be determined from referenced API tables or computer programs used to generate these tables. 3. PASSAGES OF TITLE AND WARRANTY OF TITLE - Title to the product and risk of loss shall pass to Buyer upon delivery. Seller warrants to Buyer that it has title to the product(s) delivered by it hereunder and the right to deliver same, and agrees to indemnify, defend and hold the Buyer harmless from and against any loss, claim or demand by reason of any failure of such title or breach of this warranty. SELLER MAKES NO OTHER WARRANTY WITH RESPECT TO THE PRODUCT OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. 4. TAXES - Any tax, fee, or other exaction, now or hereafter, levied or assessed by any governmental authority upon, or as a result of the transaction herein provided for, or the goods or source materials thereof which are the subject matter of this Agreement, shall, if payable by Seller, be paid by Buyer or demand by Seller. Any personal property taxes levied or assessed by any governmental authority upon the products covered by this Agreement shall be paid by the party having title thereto at the time of such assessment. Buyer shall 4 of 8 furnish Seller proper exemption certificate where tax exemption is claimed on any product(s) delivered hereunder. 5. GOVERNMENT REGULATIONS & LAW - Seller warrants that the product it delivers hereunder will be produced and delivered in full compliance will all applicable federal and state laws and regulations and all Presidential proclamations which may be applicable. This agreement shall be subject to jurisdiction of, governed by and construed in accordance with the laws of the State of Oklahoma including the Uniform Commercial Code. Seller agrees to comply with the provisions contained in Exhibit "A" if attached hereto, to the extent that such provisions are legally applicable to Seller. 6. FORCE MAJEURE - If either party is rendered unable, wholly or in part, to perform its obligations under this Agreement (other than to make payments due hereunder) due to force majeure, defined herein as any cause or causes beyond its control, then in any such event, it is agreed that the affected party shall give prompt notice and full particulars of such force majeure to the other party. The obligations of the affected party shall be suspended for the duration of such inability to perform but for no longer period and such cause shall, so far as possible, be remedied with all reasonable dispatch. 7. ASSIGNMENT - This Agreement shall extend to and be binding upon the parties hereto, their heirs, successors and assigns; but it is expressly agreed that neither party shall voluntarily assign this Agreement without the prior written consent of the other. 8. NOTICE - Any notice hereunder shall be in writing and shall be delivered personally, by mail, by fax, by telex, or by telegram to the address set forth on the attached agreement, unless changed by notice. Such notice shall be deemed to have been given on the date of the delivery thereof. 9. WAIVER - The waiver by either party of the breach of any provision hereof by the other party shall not be deemed to be a waiver of the breach of any other provision or provisions hereof or of any subsequent or continuing breach of such provision or provisions. 10. ALTERATIONS - No oral promises, agreements or warranties shall be deemed a part hereof, nor shall any alteration or amendment of this Agreement, or waiver of any of its provisions, be binding upon either party hereto unless the same be in writing, signed by the party charged. 11. INVOICES AND TERMS OF PAYMENT - Invoices will be prepared by Seller and transmitted to the Buyer from time to time during the month. Unless otherwise specified, payment is due within ten (10) days after receipt of invoice. If payment is not made within the time allowed under this Agreement, then Seller may charge interest on the unpaid balance at the lesser of 1 1/2% per month or the highest rate permitted by Oklahoma law and Seller shall be entitled to recover its reasonable costs of collection, including attorney's fee. 5 OF 8 12. FINANCIAL RESPONSIBILITY - If in the judgment of Seller the financial responsibility of Buyer becomes impaired or unsatisfactory, advance cash payments or acceptable security (including, but not limited to a letter of credit from a financial institution acceptable to Seller) may be required by Seller, and if Buyer fails to provide such, Seller may without waiving any rights or remedies, withhold further deliveries until such payment or security is received. Buyer's duty to provide the hereinabove credit assurance shall be a condition precedent to Seller's obligation to perform under this agreement. 13. CONFLICTS OF INTEREST - No director, employee or agent of either party shall give or receive any commission, fee, rebate, gift or entertainment of significant cost or value in connection with this Agreement. Any representative(s) authorized by either party may audit the applicable records of the other party solely for the purpose of determining whether there has been compliance with this paragraph. 14. AUDIT - Each party and its authorized representatives shall have access to the accounting records and other documents maintained by the other party which relate to the product being sold to the other party under this Agreement and shall have the right to audit such records once a year at any reasonable time or times during the term of this Agreement and for two years after the year in which this Agreement terminates. Neither party shall make claim on the other for any adjustment after said two-year period. 15. TANK CARS - If Seller's tank cars are used and they are not unloaded and returned to railroad, Buyer shall be liable to Seller for rental at the rate of $50.00 for each day or fraction thereof in excess of 7 days. Tank cars shall not be diverted without Seller's written consent. 16. QUALITY - All products delivered under this Agreement shall meet the latest GPA specifications for that product and contain no deleterious substances. Product delivered under this agreement shall not contain concentrations of any contaminants that may make it or its components commercially unacceptable in general industry application. Any requirements of buyer pertaining to potential contaminants and/or specific hydrocarbon composition not listed in the product specification must be identified by buyer and allowable concentrations agreed to in writing by both parties prior to delivery. 17. SHORTAGE OF PRODUCTS - Due to uncertainties in the supply/demand situation, Warren may not have sufficient supplies of product to be delivered hereunder to meet the full requirements of all of its customers, contract or otherwise. Whenever that situation exists, Warren shall have, in addition to any other rights Warren may have under this Agreement, the right to reduce deliveries of such product on any basis which in Warren's opinion is equitable, allowing for such priorities to such classes of customers as Warren deems appropriate. If any such reduction occurs, Buyer shall have the option to terminate this Agreement as to any or all products by fifteen (15) day's notice, given within thirty (30) days of the notice of reduction. 6 OF 8 18. BRAND NAMES - Unless otherwise specifically agreed, Buyer shall not represent or permit any other person to represent, that the product delivered hereunder is the product of Warren. All products delivered to Buyer hereunder shall be used or sold under Buyer's own brand names or under brand names approved by Warren, and Buyer shall not authorize or permit said product to be used or sold under any other brand names. 19. CONDUCT OF BUYER'S BUSINESS - Buyer in the performance of this Agreement is engaged in an independent business and nothing herein contained shall be construed as giving Warren any right to control Buyer in any way in its performance of its business. Warren has no right to exercise control over any of Buyer's employees. All employees of Buyer shall be entirely under the control and direction of Buyer who shall be responsible for their actions and omissions. 20. INDEMNITY - If Warren provides adequate documentation of the odorization required by this contract, buyer agrees to defend and hold Warren harmless from all expenses (including attorney's fees) or liability arising from any claims of whatever kind due to injuries or damages which occur after delivery to Buyer in connection with the transportation, use or handling of product covered hereunder. BUYER'S INDEMNITY OBLIGATION SHALL BE APPLICABLE EVEN IF SUCH DAMAGES ARE DETERMINED TO HAVE BEEN PARTLY CAUSED BY THE FAULT OF SELLER OR IF LIABILITY WITHOUT FAULT IS IMPOSED ON SELLER, THE ONLY EXCEPTION TO SUCH OBLIGATION BEING WHERE THE FAULT OF SELLER IS DETERMINED TO BE THE SOLE CAUSE OF SUCH DAMAGES. 21. PRICES - Prices hereunder may be changed at any time by Warren upon notice given either electronically (i.e. fax, DTN or phone) or by U.S. Mail, effective when sent. If any such notice shall increase Warren's price to Buyer at any shipping point or destination above Warren's highest price for such product or freight in effect during the elapsed portion of the calendar year in which Warren's notice is effective, Buyer may by written notice to Warren given and effective within fifteen (15) days from the date of Warren's notice, terminate this contract with respect to such shipping point or destination. 22. ODORIZATION - Unless otherwise specifically agreed in writing, Buyer hereby requests that the propane sold hereunder be odorized with not less than 1.0 lb. of ethyl mercaptan per 10,000 gallons. Buyer warrants that compliance with its request will satisfy all applicable legal requirements. 23. PRODUCT HAZARDS - Buyer acknowledges receipt of Warren's Safety Bulletin for odorized propane and is knowledgeable of the hazards or risks in handling or using the product. Buyer agrees that Buyer shall inform its employees, contractors and customers of any hazards or risks associated with the product. Warren will make available to Buyer Warning Decals that are intended to be placed on consumers tanks or equipment and copies of its Safety Guide. Buyer agrees to supply its customers with these materials or other reasonably equivalent safety material to warn them of the potential hazards or risks in using odorized propane. 7 OF 8 24. INCIDENT - Buyer shall notify Warren as soon as possible after it becomes aware of any fires or explosions occurring at locations propane purchased hereunder is used. Buyer will inform Warren if said product is involved and will fully cooperate with Warren in obtaining a propane sample and any other investigation Warren deems necessary. ATTACHMENT A TO PROPANE SALES AGREEMENT NO. 25077 1. Trademark. Buyer acknowledges that the CHEVRON and WARRENGAS Trademarks are valuable property rights belonging to Chevron Corporation and its subsidiaries, including Chevron U.S.A. Inc. and that any use thereof by Buyer in connection with this agreement is solely for the purposes of advertising products obtained from such subsidiaries. Upon termination of this agreement, Buyer agrees that it will make no further use of such trademarks or any other mark, name or designs confusingly similar therewith. 2. Quantity. During the term hereof, Buyer agrees to buy the product herein specified in monthly quantities of not less than the minimum set forth below and Warren agrees to sell said quantities to Buyer. Buyer shall purchase such quantities as evenly as possibly during each month. If during any period of this agreement the quantity of product Warren is obligated to deliver to Buyer is prescribed by government rules, regulations or orders, then the quantity of product covered by this agreement shall be the quantity so prescribed for such period and Buyer agrees to buy and Warren agrees to sell such quantity. Volume (in Thousands of Gallons)
Volume Volume April 1300 ________ October -0- ________ May -0- ________ November -0- ________ June -0- ________ December -0- ________ July -0- ________ January -0- ________ August -0- ________ February -0- ________ September -0- ________ March -1- ________
See Attachment A of Storage Agreement 7184 for estimated tank car volumes. For the purpose of determining compliance with the above quantity schedule, purchase or product shall be allocated to the month in which shipment is made. Should either party fail to comply in any amount with the above schedule, the other party may elect to terminate this agreement by mailing notice of such termination on or before the 20th day of the succeeding month. If the Buyer fails to purchase 100% of the above specified minimum monthly quantities during any month or months and Warren does not elect to terminate this agreement, Warren shall not be obligated hereunder to sell to 8 OF 8 Buyer in any of the succeeding six months more than one and one half times the average monthly quantity which Buyer actually purchased during the preceding six-month period. When delivery is into tank trucks furnished by Buyer, the delivery ticket showing the quantity delivered shall be signed by the loader as the agent of Warren and by the truck driver as the agent of the Buyer; such quantities shall be conclusively presumed to have been delivered to Buyer. On or before the 1st day of each month Buyer shall inform Warren of quantities required during such month, delivery dates, and when applicable, destinations of each shipment. Warren shall not be obligated to ship less than a tank car or tank truck load. 3. Method of Delivery: ________ By tank trucks furnished by Buyer. See Storage Agreement 7184 ________ By tank trucks furnished by Warren. ________ By tank cars furnished by _______ with a capacity of _______ gallons each. PRICE INFORMATION _________________ Prices in effect as of , 19 ____ Sales based on _X_ Shipping point price or Destination price Shipping or Price in Freight Pricing Points Destinations Product Cents/Gallons Charges ______________ ____________ _______ _____________ ________ EX-10.17 7 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS ARE MARKED BY AN ASTERISK (*). MAY 01, 1995 PHILLIPS 66 COMPANY A Division of Phillips Petroleum Company Bartlesville, Oklahoma 74004 918-661-6600 Marketing Division April 27, 1995 Kris Lindsey Empire Gas Corp. P. O. Box 303 Lebanon, MO 65536 Dear Kris: Volumes for the 1995-1996 contract year as agreed to are attached for your review. In addition, the pricing at Denver and LaJunta shall be as follows: April 1995 through September 1995 - *. October 1995 - Conway O.P.I.S. average *, 15 day pricing and invoicing. November 1995, December 1995, January 1996, February 1996 - Conway O.P.I.S. average *, 15 day pricing and invoicing. March 1996 - Conway O.P.I.S. average *, 15 day pricing and invoicing. With the exception of the pricing for Denver and LaJunta detailed above, all terms and conditions of the sales contracts B-94-0045, dated August 15, 1994, and B-94-0044, dated August 15, 1994, remain in effect. Please indicate your acceptance of this agreement in the space provided below and return one copy for our files. Sincerely, /s/ J.R. FOUTS ______________ J. R. FOUTS Accepted and agreed to this 24th day of May, 1995, by /s/ Kris Lindsey ________________ Title Vice President ______________ JRF:sks Attachments * Confidential material deleted. 2 of 4 MAY 17, 1995 PHILLIPS 66 COMPANY A Division of Phillips Petroleum Company Bartlesville, Oklahoma 74004 918 661-6600 Marketing Division May 9, 1995 Kris Lindsey Empire Gas Corp. P. O. Box 303 Lebanon, MO 65536 Dear Kris: Corrected volumes at Denver and LaJunta for the 1995-1996 season are attached. In addition, the volume for the month of March 1996 has been corrected at Paola to 170,000 gallons. We sincerely appreciate your business and look forward to supplying your propane requirements wherever possible. Sincerely, /s/ J.R. FOUTS ______________ J.R. Fouts Director, Wholesale Sales JRF:sks Attachment 3 of 4 EMPIRE GAS CORP. 1995-1996 ATTACHMENT A (Thousands of Gallons) Forecast: APR MAY JUN JUL AUG SEP Paola L388 96 52 52 33 90 154 ___ Jeff City L350 381 263 184 156 341 613 ___ E St. Ls L330 45 22 18 18 51 67 ___ Decatur L240 9 6 9 9 12 20 ___ Forecast: OCT NOV DEC JAN FEB MAR TOTAL Paola L388 149 203 276 322 239 170 1,836 ___ Jeff City L350 675 855 1220 1385 993 669 7,735 ___ E St. Ls L330 77 75 110 130 112 90 815 ___ Decatur L240 32 34 35 44 32 19 261 ___ 4 of 4 EMPIRE GAS CORP. ATTACHMENT B 1995 - 1996 (Thousands of Gallons) Sales Forecast: APR MAY JUN JUL AUG SEP Denver L 322 220 178 86 99 173 226 ___ ___ ___ __ __ ___ ___ LaJunta L 362 116 97 87 85 110 137 ___ ___ __ __ __ ___ ___ Sales Forecast: OCT NOV DEC JAN FEB MAR TOTAL Denver L 322 347 445 610 560 512 466 3,922 ___ ___ ___ ___ ___ ___ ___ _____ LaJunta L 362 205 294 351 343 315 234 2,374 ___ ___ ___ ___ ___ ___ ___ _____ EX-10.18 8 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS ARE MARKED BY AN ASTERISK (*). Dealer Sale Contract CONOCO FEB. 06, 1995 _______ We hereby confirm SALE PROPANE to: Empire Gas Corporation DATE: January 20, 1995 P.O. Box 303 CONOCO NO.: 30-9013694-0000-A10 Lebanon, MO 65536 SYSTEM CODE: 15 Attention: Kris Lindsey ACCOUNT CODE: 407 Per conversations between Kris Lindsey and our Lewis Bradshaw PRODUCT: Propane (Stenched) meeting GPA specifications PRICE: See Remarks TERMS of PAYMENT: 1% 10 Days/Net 11 Days From Date of Invoice F.O.B. ORIGIN POINT DESTINATION - - ------------------------------------ ---------------------------------- Cherokee Pipeline - Wood River, IL 30-9009636-0000 Missouri, Various Cherokee Pipeline - Belle, MO 30-9013694-0000 Illinois, Various Cherokee Pipeline - Mt. Vernon, MO Conoco/Medford Plant - Medford, OK Conoco/Ponca City Refinery - Ponca City,
FREIGHT: Origin Collect METHOD OF TRANSPORTATION: Common Carrier and/or Customer Truck TERM OF AGREEMENT: January 21, 1992 through June 30, 1993 and year to year thereafter. QUANTITY: Subject to the terms and conditions on the reverse hereof, seller agrees to sell and deliver, and buyer agrees to purchase and receive the following volumes of product: (000) Gallons MIN MAX MIN MAX MIN MAX MIN MAX ---- ---- ---- ---- ---- ---- ---- ---- JAN 1363 2045 APR 474 712 JUL 242 364 OCT 634 952 FEB 1119 1679 MAY 274 410 AUG 540 810 NOV 831 1247 MAR 903 1355 JUN 225 337 SEP 674 1010 DEC 1240 1860 ---- ---- ---- ---- ---- ---- ---- ---- Q1 3385 5079 Q2 973 1459 Q3 1456 2184 Q4 2705 4059 Year Total 8519 12781 REMARKS: CONVERSION OPTION: Shall be negotiated on an annual basis prior to converting volumes for the subsequent heating season. (Continued on attached page) 2 of 7 Conoco Inc. invoices should be mailed to the following address: Empire Gas Corporation P. O. Box 303 Lebanon, MO 65536 ("Buyer") Subject to terms and conditions on reverse side Accepted February 7, 1995 _______________________________ /S/ KRIS LINDSEY, _______________________________ By KRIS LINDSEY, VICE PRESIDENT _______________________________ Please sign and return one copy and retain one copy for your files. Mail customer invoices to: Conoco Inc. Gas Products Accounting 3rd Floor North Tower P. O. Box 1267 Ponca City, OK 74602-1267 ("Seller") Mail contracts and correspondence to: Conoco Inc. Gas Products Division Humber Building - 1021 P.O. Box 2197 Houston, TX 77252 1-800-423-4636 By /S/ DAVID L. LUGAR __________________________ David L. Lugar Manager, Propane Marketing 3 of 7 Terms and Conditions Dealer Sale Contract 1. Specifications. All Products delivered hereunder will conform to applicable NGPA and individual pipeline specifications in effect at time of delivery unless mutually agreed otherwise and specified elsewhere in this Agreement. Seller guarantees specifications at delivery point. 2. Measurement. Quantities of Products delivered will be determined in tank cars or trucks at delivery point by means of slip tube, rotary gauge, or other mutually acceptable gauging method or device. Volumes of LP-gas Products will be corrected for temperature to 60 degrees F using "Standard Factors for Volume Correction and Specific Gravity Conversion of Liquified Petroleum Gases and Volatile Gasolines," NGPA Publication No. 2142-57 or latest revision thereof. Volumes of Natural Gasoline will be corrected for temperatures to 60 degrees F, using ASTM-IP Petroleum Measurement Tables, American Addition, ASTM designation D 1250, abridged Table No. 7. A barrel will consist of 42 U.S. gallons, and a gallon will contain 231 cubic inches. 3. Deliveries. Seller's tank cars must be unloaded and returned to railroad within the 48-hour period beginning at 7 a.m. on the day following notice of arrival at destination. Demurrage charges at destination will be borne by Buyer. Seller's tank cars and transport trucks will not be diverted except with written consent from Seller. If delivery is made by Seller, in Seller-owned equipment, there will be added to the invoice a separate freight charge equal to the lowest published applicable transportation charge, as determined by Seller, from Supplier's terminal to Buyer's destination(s). Seller will furnish, or cause to be furnished, Buyer with copies of bills of lading and other shipping papers. 4. Title. Seller represents that it has title to the Products delivered and has the right to deliver same. Title to Products delivered will pass to Buyer upon completion of loading the same into tank trucks and/or tank cars furnished by Buyer, upon delivery of Products in a tank car to carrier, upon delivery thereof in a tank truck or tank car furnished by Seller alongside Buyer's storage facilities at destination, or as stipulated on the face hereof, as the case may be. Thereafter, Buyer will bear all risk of and be solely liable for any loss or damage caused by or attributable to said Products, or to their transportation, care, handling, resale, or use. Title to Products delivered via pipeline will pass to Buyer at the FOB point. 5. Taxes. In addition to the delivered price, Buyer will pay all applicable federal, state, and local sales or other excise taxes required to be paid or collected by Seller by reason of the manufacture, sale, or delivery of Products. Buyer agrees to furnish Seller with satisfactory tax exemption certificate where exemption from applicable taxes is claimed. 6. Dispute. In the event the Buyer disputes an item billed, the Buyer shall, within 10 days date of invoice, notify Seller of the item in dispute, specifying Buyer's complaint, and payment of that item shall be withheld by Buyer without interest until resolution of the dispute. The undisputed amount, however, shall be paid without delay. 7. Payment Requirements. Payment for all Product delivered under this Agreement will be paid to Seller at the place of payment designated on the invoice. Invoices not paid pursuant to the "Terms of Payment" section on the face of this Agreement will be considered delinquent. Seller may charge interest at the lesser of the maximum legal interest or 18 percent per annum 4 of 7 on all unpaid amounts on any delinquent accounts. Cash discounts, if any, will not apply to freight charges prepaid by Seller. 8. Credit. If Buyer's credit becomes impaired or unsatisfactory to Seller or if Buyer fails to make any payment due to Seller or if Buyer defaults in performance of any of Buyer's obligations hereunder, Seller may, at its discretion and without prejudice to its other legal remedies, suspend deliveries to Buyer, or cancel this Agreement or ship hereunder only on a COD or other basis satisfactory to Seller. In event of suspension of deliveries, Seller reserves the right to adjust scheduled volumes. 9. Malodorant. Unless otherwise expressly directed in writing or on the face hereof, LPG Products delivered will contain malodorant at the rate of 1 1/2 pounds of ethyl mercaptan, or its equivalent, per 10,000 gallons; the kind and quantity of malodorant added will be indicated on the bill of lading or the invoice relating to each delivery. 10. Claims. Seller will have no liability to Buyer for any defect in quality or shortage in quantity of Products sold and delivered hereunder, unless Buyer gives Seller notice of Buyer's claim by telegraph and Seller is given an opportunity to inspect the Products in question prior to unloading or, in case of any latent defect in quality, Buyer gives Seller notice thereof within 48 hours after Buyer's discovery of such defect. Seller will have no liability for any defect in any Product which has been commingled in any way with a similar Product obtained elsewhere or with a different Product, regardless of where obtained. Every notice of claim will set forth fully the facts upon which the claim is based. It is agreed that any claim of any kind by Buyer based upon or arising out of this Agreement or otherwise will be barred unless asserted by Buyer by the commencement of an action within 12 months after the delivery of the Product or other event, action, or inaction to which such claim relates, provided, however, Seller will not be liable for prospective profits or special, indirect, or consequential damages. This provision will survive any termination of this Agreement, however arising. 11. Purchase Requirement. If maximum, minimum volumes are specified on the face of this Agreement, then Buyer will use its best effort to purchase and accept delivery of the scheduled volumes indicated on the face of the Agreement each month as scheduled. Buyer will not exceed the specified maximum volumes during any month without prior consent of Seller. Buyer may order and take delivery of volumes less than the scheduled minimum volumes during any month, provided, however, that Buyer must purchase and accept delivery of the minimum cumulative volumes for each calendar quarter. Should Buyer fail to purchase and accept delivery of the minimum cumulative volumes for any calendar quarter, Seller may at its option cancel this Agreement, except as provided for in paragraph 14. 12. Trademark and Trade Name. If Conoco is the Seller hereunder, Conoco hereby grants Buyer, during the term of this Agreement, the right and license to use and display, in a manner specified by Conoco, and at Buyer's expense, Conoco's trademarks, trade name, advertising, and other indicia of Conoco in the advertisement, sale, or distribution of the Product, provided, however, that the right and license hereby granted will terminate when this Agreement ceases to be in force and effect or may be cancelled at any time upon 30 days' prior written notice from Conoco to Buyer. Upon the effective date of such notice or upon the termination of such right and license, Buyer 5 of 7 will forthwith remove such trademark, trade name, advertising, and the indicia from Buyer's Delivery Points, other places of business, and quipment. At no time will Buyer apply Conoco's trademark, trade name, advertising, or other indicia to any Product other than Products sold and purchased under this Agreement. 13. Set-Off. In the event Buyer fails to make timely payment of any monies due and owing to Seller, Seller may offset any deliveries or payments due under this or any other agreement between the parties. 14. Force Majeure. Neither party will be liable to the other for any delay or failure in performance under this Agreement other than the obligation to make payments in the event and to the extent that such delay or failure in performance is caused or prevented by any cause reasonably beyond its control, including, but not limited to, acts of God, perils of navigation, public enemies, war, riots, insurrection, acts or orders of governmental authorities, fire, flood, explosion, accident, strike, or other difference with workmen, embargo, inability to obtain fuel, power, labor, transportation facilities, or raw materials upon which their performance of this Agreement is dependent, accident, breakage of machinery or apparatus, or national defense requirements, provided; however, that performance will be resumed within a reasonable time after such cause has been removed and provided, further, that neither party will be required to settle any labor dispute against its will. Any deliveries suspended as a result of this paragraph 14 will be cancelled without prejudice or penalty, but this Agreement will otherwise remain unaffected. If, because of any of the foregoing circumstances, Seller is unable to supply its requirements for and its contractual obligations for one or more of the Products, then Seller will allocate the available supply of such Product among its contract customers and itself on an equitable pro rata basis. In the event Seller, during a period of allocation pursuant to the provisions of this paragraph 14, delivers to Buyer a quantity of Product less than the minimum quantity Buyer is required to purchase during such period as provided on the face of this Agreement, then neither Seller nor Buyer will have any obligation to sell or purchase the difference between the amount so delivered and such minimum quantity during such period. 15. Miscellaneous. (a) Except as provided for in paragraph 14, should either party fail to comply with any of the terms and conditions of this Agreement, the other party, by notice in writing, may request the noncomplying party to correct such noncompliance within 10 days from the date of such notice. If such noncompliance is not corrected before the expiration of said 10-day period, the other party, at its option, may terminate this Agreement forthwith, but failure of either party to notify the other party of such noncompliance will not be regarded, in the event of any future similar noncompliance, as a waiver of the right to terminate this Agreement in accordance with the foregoing provision. (b) This Agreement sets forth the entire agreement between parties respecting the sale and purchase of the Products, but neither it nor any amendment will be binding upon either party until it is executed by both parties. (c) This Agreement will insure to the benefit of and be binding upon the parties, their heirs, personal representatives, successors, and assigns, but no assignment of all or any portion of this Agreement by Buyer will be valid without the written consent of Seller. 6 of 7 (d) This Agreement is subject to and may be overridden by all applicable federal, state, and local laws, rules, regulations, and orders. Invoices must bear a certification that these Products were produced and handled in compliance with applicable requirements of the Fair Labor Standards Act, as amended, and the regulations and orders of the U.S. Labor Department issued pursuant thereto. (e) Unless otherwise provided for herein, all notices will be in writing and considered given when deposited in the United States mail, postage prepaid, addressed to the appropriate party at the address shown above. (f) Seller will indemnify, defend, and hold Buyer harmless from the acts or omissions of Seller, and Buyer will indemnify, defend, and hold Seller harmless from the acts or omissions of Buyer. 16. Audit. No commissions or fees will be paid nor any payments or rebates be made to any employee or officer of Conoco, nor will anyone favor any employee or officer of Conoco with gifts or entertainment of significant cost or value, or enter into any business arrangements with any employees or officers of Conoco other than as representatives of Conoco. The parties hereto will maintain a true and correct set of records pertaining to this Agreement and all transactions related thereto and will retain such records for a period of 2 years after termination of this Agreement. Prior to the expiration of such 2-year period, either party will have access to all of such records and information, including all books, papers, documents, agreements, and any other information that may have any bearing on or pertain to this Agreement or any business conducted between the parties, and either party will have the right to audit all such records and information at reasonable times and places during normal working hours. The parties hereto will also have the right to obtain statements from any personnel of the other party in order to conduct or complete such audit. The other party will cooperate fully in any such audit. All audits will be conducted in accordance with generally accepted auditing standards. 17. Warning. The Material Safety Data Sheets and labels for Products, delivered hereunder contain information regarding health risks and recommendations for the safe use and handling of such Products. Buyer acknowledges and represents that it has read and understands the Material Safety Data Sheets, the labels, or warnings regarding such Products. Buyer will exercise the degree of care necessary to protect all persons and property from all hazards disclosed in such Material Safety Data Sheets, labels, or warnings. Buyers obligations in this regard will include but not be limited to (1) warning the employees of Buyer and of its affiliates who may become exposed to such Products or their hazards; (2) taking measures to assure that such employees have appropriate safety equipment which is adequately maintained and properly used and that all precautions contained in Material Safety Data Sheets, labels, and other warnings are followed; and (3) warning third parties, including but not limited to Buyer's customers, who may use or be exposed to such Products of their hazards, and requiring that the precautions contained in such Material Safety Data Sheets, labels, and other warnings are followed. If Buyer does not so protect all persons and property from all hazards disclosed in such Material Safety Data Sheets, labels, or warnings, Buyer will indemnify and hold Seller harmless from any claims, causes of action, liabilities, losses, or expenses on account of injury or death of persons and/or damage to property arising directly or indirectly out of Buyer's failure to fulfill its obligations under this paragraph 17. 7 of 7 CONTRACT ATTACHMENT January 20, 1995 30-9013694-0000-A10 Page 2 PRICE: Contract amended effective 4/1/91 until the end of the contract term - - -- price shall be Conoco's established price on the date of delivery * per gallon. This * shall only apply to purchases on Conoco's established posting. Contract amended on 1/20/95 to revise contract volumes and to establish Kris Lindsey as Empire Gas contact. * Confidential material deleted. ______________________________ EX-10.19 9 PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED PORTIONS ARE MARKED BY AN ASTERISK (*). CONTRACT AMENDMENT ENRON GAS LIQUIDS, INC. PO Box 1188 Part I Houston TX 77251-1188 Contract Amendment with Attn: Kris Lindsey Amendment Date: July 21, 1995 Empire Gas Corporation EGL Contract No.: SM 091395-S PO Box 303 Contract Date: 04/24/95 Lebanon, MO 65536 Counterparty's Contract No.: Confirms conversation between: Marty Lerum and Kris Lindsey of Empire Gas Corporation and Bard Black The Subject Contract will be amended as follows, effective: April 24, 1995 PRODUCT: Propane *QUANTITY: The Contract Quantity is 126,000 barrels. Monthly Quantities are as follows: June 95 7,000 barrels December 95 14,000 barrels July 95 7,000 barrels January 96 14,000 barrels August 95 7,000 barrels February 96 14,000 barrels September 95 7,000 barrels March 96 14,000 barrels October 95 14,000 barrels April 96 7,000 barrels November 95 14,000 barrels May 96 7,000 barrels *CONTRACT PRICE: The price per gallon shall be calculated monthly based upon the average of the weekly high and low Hattiesburg, Mississippi spot prices for propane as reported by Oil Price Information Service's Petroscan (OPIS) for the calendar month of delivery, and using such average prices to calculate an arithmetic average price for the relevant month. A fee of * per gallon shall be * from this figure. The result of this calculation shall be rounded to three (3) decimal places, using cents per gallon. Buyer shall take or pay for a minimum of 100% of the quantity of Product as stated above under "Quantity." All Product not lifted by the end of each calendar month will be billed based on the above calculation on the day immediately following the last day of the relevant calendar month. Seller shall have no obligation to deliver product to Buyer after May 31, 1996. For purposes of this Contract Price paragraph only, the delivery date shall be defined as the Meter ticket date. (see Special Provisions) In the event that the monthly calculated Hattiesburg, Mississippi OPIS price * the calculated monthly Mont Belvieu TET OPIS average spot price by * per gallon, the Buyer's Contract Price shall be the monthly Mont 2 of 2 Belvieu TET OPIS spot price * per gallon for Quantities of Product that are delivered FOB Egan, Louisiana only. FOB Egan, Louisiana (or such other point(s) as the parties may agree to) Remarks: "*" Denotes Change in Quantity to delete the language referencing the 80% minimum. Please insert your company's contract number in the space provided in the upper right hand section of this Amendment. All other terms and conditions of the subject contract, including prior Amendments, shall remain the same and the parties hereby ratify said Agreement as amended herein. Accepted and agreed to this second day of August, 1995. EMPIRE GAS CORPORATION ENRON GAS LIQUIDS, INC. /s/ Kris Lindsey /s/ Keith Hillegonds _________________________ ______________________________ BY Kris Lindsey BY KEITH HILLEGONDS _________________ TITLE: Vice President TITLE: DIRECTOR, MKTG. CENTRAL REGION _________________ * Confidential material deleted. ______________________________ EX-10.20 10 AMENDMENT NO. 1 TO SUPPLEMENT A TO LOAN AND SECURITY AGREEMENT June 29, 1995 Empire Gas Corporation 1700 South Jefferson Street Lebannon, Missouri 65536 Attn: Valeria Schall Ladies and Gentlemen: Reference is made to the Loan and Security Agreement (the "Loan Agreement"), dated as of June 29, 1994 among Empire Gas Corporation ("Borrower"), the Lenders party thereto (the "Lenders") and Bank of America Illinois, f/k/a Continental Bank, f/k/a Continental Bank N.A., as a Lender and as Agent for the Lenders ("BAI"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement. Borrower has requested that Lenders agree to amend Supplement A to the Loan Agreement ("Supplement A") in order to amend the Interest Coverage Ratio contained therein. Lenders have agreed to do so, on the terms and pursuant to the conditions provided herein. Therefore, the parties hereto agree as follows: 1. Amendment. The first paragraph of Section 6.3 of Supplement A to the Loan and Security Agreement is hereby amended and restated in its entirety, as follows: "6.3 Interest Coverage Ratio. Borrower will not permit the ratio ("Interest Coverage Ratio") of (a) net earnings before interest expense, income tax expense, depreciation and amortization to (b) cash interest expense in respect of Indebtedness under the Agreement, in respect of the Senior Notes, in respect of Subordinated Debt and in respect of Acquisition Indebtedness, in each case on the last day of any calendar month in any period set forth below, calculated for the 12 months ending on such date, and determined for Borrower and its Subsidiaries on a consolidated basis, and in accordance with GAAP, to be less than the ratio set forth below opposite such period: 2 of 2 Interest Coverage Period Ratio ______ _____ June 1, 1995 through and including 1.0:1.0 October 31, 1995 November 1, 1995 through and including 1.1:1.0 December 31, 1995 January 1, 1996 and thereafter 1.2:1.0 2. Scope. This Amendment No. 1 to Supplement A to Loan and Security Agreement shall have the effect of amending the Loan Agreement and the Related Agreements as appropriate to express the agreements contained herein. In all other respects, the Loan Agreement and the Related Agreements shall remain in full force and effect in accordance with their respective terms. 3. Condition to Effectiveness. This Amendment No. 1 to Supplement A to Loan and Security Agreement shall be effective immediately upon the execution of this Amendment No. 1 to Supplement A to Loan and Security Agreement by BAI, on behalf of the Lenders, and acceptance hereof by Borrower and each other Obligor, and delivery hereof to BAI at 231 South LaSalle Street, Chicago, Illinois 60690, Attention: Mark Cordes, on or prior to July 5, 1995: Very truly yours, BANK OF AMERICA ILLINOIS, f/k/a CONTINENTAL BANK f/k/a CONTINENTAL BANK, N.A., ON BEHALF OF THE LENDERS By /s/ John P. Kessel ____________________ Its _____________________ Acknowledged and agreed to this 29th day of June, 1995. EMPIRE GAS CORPORATION By Paul S. Lindsey, Jr. _________________________ Its _____________________ EX-21.1 11 State in Which Subsidiary is Organized ______________ EMPIRE GAS CORPORATION EMPIREGAS FIELD SERVICE CORPORATION EMPIREGAS EQUIPMENT CORPORATION DE EMPIRE UNDERGROUND STORAGE, INC. DE EMPIRE MARKETING CORPORATION DE UTILITY COLLECTION CORPORATION DE EMPIREGAS TRANSPORTS, INC. (MO) DE EMPIRE AVIATION CORPORATION DE EMPIREGAS TRANSPORTS, INC.-OREGON DE EMPIREGAS INC. OF GLOBE AZ EMPIREGAS INC. OF ELSINORE CA EMPIREGAS INC. OF ESCONDIDO CA EMPIREGAS INC. OF LOS ANGELES CA EMPIREGAS INC. OF MODESTO CA EMPIREGAS INC. OF PLACERVILLE CA EMPIREGAS INC. OF POMONA CA EMPIREGAS INC. OF SACRAMENTO CA EMPIREGAS INC. OF SUSANVILLE CA EMPIREGAS INC. OF YUCCA VALLEY CA EMPIREGAS INC. OF BOISE ID EMPIREGAS INC. OF ALBANY OR EMPIREGAS INC. OF HERMISTON OR EMPIREGAS INC. OF MEDFORD OR EMPIREGAS INC. OF NORTH BEND OR EMPIREGAS INC. OF SANDY OR EMPIREGAS INC. OF THE DALLES OR EMPIREGAS INC. OF AUBURN WA EMPIREGAS INC. OF CHEHALIS WA EMPIREGAS INC. OF SUNNYSIDE WA EMPIREGAS INC. OF WENATCHEE WA EMPIREGAS INC. OF YAKIMA WA EMPIREGAS INC. OF BREMERTON ID ALL STAR GAS INC. OF COEUR D'ALENE CO EMPIREGAS INC. OF COLORADO CO GINCO GAS COMPANY INC. CO ALL STAR GAS INC. OF GREELEY CO ALL STAR GAS INC. OF SALIDA CO RON'S L.P. GAS, INC. WY ALL STAR GAS INC. OF GUNNISON CO EMPIREGAS INC. OF CANTON TX EMPIREGAS INC. OF PADUCAH TX EMPIREGAS INC. OF WILLS POINT TX EMPIREGAS INC. OF WACO TX EMPIREGAS INC. OF PARIS, TX TX EMPIREGAS INC. OF DALLAS, TX TX EMPIREGAS INC. OF KEMP TX EMPIREGAS INC. OF SAN ANTONIO TX EMPIREGAS INC. OF BRISTOW, INC. OK 2 of 3 EMPIREGAS INC. OF GROVE, INC. OK EMPIREGAS INC. OF HITICHITA, INC. OK EMPIREGAS INC. OF STIGLER, INC. OK EMPIREGAS INC. OF VINITA, INC. OK EMPIREGAS INC. OF ARNAUDVILLE LA EMPIREGAS INC. OF EUNICE LA EMPIREGAS INC. OF LAFAYETTE LA EMPIREGAS INC. OF LAKE CHARLES LA EMPIREGAS INC. OF GALVESTON TX EMPIREGAS INC. OF ORANGE COUNTY TX EMPIREGAS INC. OF OAK GROVE LA EMPIREGAS INC. OF WARREN AR ALL STAR GAS INC. OF LINCOLN AR ALL STAR GAS INC. OF SILOAM SPRINGS AR ALL STAR GAS INC. OF GREENWOOD DE EMPIREGAS INC. OF MISSOURI DE EMPIREGAS INC. OF ARMA, INC. KS ALL STAR GAS INC. OF CARTHAGE DE ALL STAR GAS INC. OF MT. VERNON DE ALL STAR GAS INC. OF CLINTON IL ALL STAR GAS INC. OF BUFFALO DE ALL STAR GAS OF EL DORADO SPRINGS, INC. DE ALL STAR GAS INC. OF HERMITAGE DE ALL STAR GAS INC. OF HUMANSVILLE DE ALL STAR GAS INC. OF BOLIVAR DE ALL STAR GAS INC. OF CAMDENTON DE ALL STAR GAS INC. OF LAURIE DE ALL STAR GAS INC. OF BLACKWATER DE ALL STAR GAS INC. OF PALMYRA DE ALL STAR GAS INC. OF RICHLAND DE ALL STAR GAS INC. OF WENTZVILLE DE ALL STAR GAS INC. OF MORGAN COUNTY DE ALL STAR GAS INC. OF LAKE OZARK DE ALL STAR GAS INC. OF CARROLLTON DE ALL STAR GAS INC. OF PARIS, MO DE ALL STAR GAS INC. OF MID-MISSOURI DE ALL STAR GAS INC. OF HIGGENSVILLE DE ALL STAR GAS INC. OF MARSHALL DE EMPIREGAS INC. OF MISSOURI DE ALL STAR GAS INC. OF BOWLING GREEN DE ALL STAR GAS INC. OF ELSBERRY DE ALL STAR GAS INC. OF WAYNESVILLE, MO DE ALL STAR GAS INC. OF CUBA DE ALL STAR GAS INC. OF ROLLA DE EMPIREGAS INC. OF JACKSONVILLE IL ALL STAR GAS INC. ZUMBRO FALLS, INC. MN ALL STAR GAS INC. OF TOLEDO OH EMPIREGAS INC. OF DOVER OH EMPIREGAS INC. OF MOUNT VERNON OH EMPIREGAS INC. OF COLUMBIANA OH ALL STAR GAS INC. OF DURAND MI ALL STAR GAS INC. OF GAYLORD MI EMPIREGAS INC. OF CHASSEL MI EMPIREGAS INC. OF MARQUETTE MI EMPIREGAS INC. OF MUNISING MI ALL STAR GAS INC. OF BIG RAPIDS MI EMPIREGAS INC. OF CHARLOTTE MI EMPIREGAS INC. OF COLEMAN MI 3 of 3 EMPIREGAS INC. OF JACKSON MI EMPIREGAS INC. OF KALAMAZOO MI EMPIREGAS INC. OF TRAVERSE CITY MI EMPIREGAS INC. OF VASSAR MI ALL STAR GAS INC. OF GREENVILLE MI EMPIRE GAS INC. OF NEW YORK NY ALL STAR GAS INC. OF NORTH CAROLINA NC ALL STAR GAS INC. OF ROCKY MOUNT NC ALL STAR GAS INC. OF WASHINGTON NC ALL STAR GAS INC. OF WILMINGTON NC ALL STAR GAS INC. OF WILSON NC ALL STAR GAS INC. OF ZEBULON NC ALL STAR GAS INC. OF SOUTH CAROLINA SC ALL STAR GAS INC. OF WAYNESVILLE, NC NC ALL STAR GAS INC. OF WILKESBORO NC ALL STAR GAS INC. OF NORTH CAROLINA NC EX-27.1 12
5 0000922404 EMPIRE GAS CORPORATION 1,000 12-MOS JUN-30-1995 JUN-30-1995 821 0 5,371 800 5,686 14,516 98,217 27,111 105,128 12,880 115,143 14 0 0 (36,960) 105,128 70,292 74,640 35,612 35,612 0 1,136 15,570 (13,326) (4,600) (8,726) 0 0 0 (8,726) (5.53) (5.53)
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