-----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, O+T6mUVr2PMQy2ZBvugSR74b/icE5Qf6HKJp/FXcJwYH9QFsBsQhlMIQT7pVERad iWWKTPJ0zOdbiUoh+IELLg== 0000950172-98-000991.txt : 19980929 0000950172-98-000991.hdr.sgml : 19980929 ACCESSION NUMBER: 0000950172-98-000991 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980928 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL STAR GAS CORP CENTRAL INDEX KEY: 0000922404 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 431494323 STATE OF INCORPORATION: MO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-53343 FILM NUMBER: 98716081 BUSINESS ADDRESS: STREET 1: 119 WEST COMMERCIAL ST STREET 2: P O BOX 303 CITY: LEBANON STATE: MO ZIP: 65536 BUSINESS PHONE: 4175323103 MAIL ADDRESS: STREET 1: 119 WEST COMMERCIAL STREET STREET 2: P O BOX 303 CITY: LEBANON STATE: MO ZIP: 65536 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE GAS CORP/NEW DATE OF NAME CHANGE: 19940428 10-K 1 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, 1998 COMMISSION FILE NUMBER 1-6537 ALL STAR GAS CORPORATION (Exact Name of Registrant as Specified in Its Charter) MISSOURI 43-1494323 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer Incorporation or Organization Identification No.) P.O. BOX 303, 119 WEST COMMERCIAL STREET, LEBANON, MISSOURI, 65536 ------------------------------------------------------------------ (Address of Principal Executive Offices and Zip Code) (417) 532-3103 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS ------------------------------------- 12-7/8% Senior Secured Notes Due 2004 9% Subordinated Debentures Due 2007 SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. (X) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ The aggregate market value of the voting stock held by non-affiliates of the Registrant as of close of business on September 24, 1998 is: $116,480. Shares of Common Stock, $0.001 par value, outstanding as of close of business on September 24, 1998: 1,564,050. Upon request, All Star Gas Corporation will furnish a copy of an exhibit listed but not contained herein. A fee of $.05 per page, to cover the Company's costs in furnishing exhibits requested will be charged. Please direct all requests to: Corporate Secretary, 119 W. Commercial Street, Lebanon, Missouri 65536; Telephone (417) 532-3103. PART 1 ITEMS 1 AND 2. BUSINESS AND PROPERTIES INTRODUCTION All Star Gas Corporation ("All Star Gas" or the "Company") was founded in 1963 and through its subsidiaries has been in operation for over 35 years. The Company is engaged primarily in (a) the retail marketing of propane to residential, agricultural, and commercial customers, (b) the retail marketing of propane-related appliances, supplies, and equipment, and (c) the renting of consumer propane storage tanks to residential and commercial customers under various brand names, including All Star, Empiregas, and the names of numerous predecessors. During the fiscal year which ended June 30, 1998, All Star Gas supplied propane to approximately 112,000 customers in 19 states from 127 retail service centers and sold approximately 94 million gallons. Propane, a hydrocarbon with properties similar to natural gas, is separated from natural gas at gas processing plants and refined from crude oil at refineries. It is stored and transported in a liquid state and vaporizes into a clean-burning energy source that is recognized for its transportability and ease of use relative to other forms of stand alone energy. Residential and commercial uses include heating, cooking, water heating, refrigeration, clothes drying, and incineration. Commercial uses also include metal cutting, drying, container pressurization and charring, as well as use as a fuel for internal combustion engines, such as over-the-road vehicles, forklifts, and stationary engines. Agricultural uses include brooder heating, stock tank heating, crop drying, tobacco curing, and weed control, as well as use as a motor fuel for farm equipment and vehicles. Propane is recognized as a clean alternative transportation fuel "ATF" by the Federal and state governments and is the most widely used ATF in the United States. The Federal government has enacted certain mandates for use of ATF's by government and private fleets under the Clean Air Act of 1990 and Energy Policy Act of 1992. Federal and state governments have also provided various economic incentives for use of ATF's which will positively impact propane demand. The retail propane business is a "margin-based" business in which gross profits depend on the excess of sales price over propane supply costs. Sales of propane to residential and commercial customers, which account for the vast majority of the Company's revenue, have provided a relatively stable source of revenue for the Company. Sales to residential customers accounted for approximately 65.6% of the Company's aggregate propane sales revenue and 74.7% of its aggregate gross margin from propane sales in fiscal year 1998. Historically, this market has provided higher margins than other retail propane sales. Based on fiscal year 1998 propane sales revenue, the customer base consisted of 24.5% commercial and 9.9% agricultural and other customers. While commercial propane sales are generally less profitable than residential retail sales, the Company has traditionally relied on this customer base to provide a steady, noncyclical source of revenues. No single customer accounts for more than 1.1% of revenue from sales. On June 30, 1994, the Company engaged in a series of transactions (the "Transaction") including the transfer of all of the shares of common stock of Empire Energy Corporation ("Energy") to the Company's former chairman, Robert W. Plaster, and certain departing directors, officers, and employees. Energy held the common stock of 136 subsidiaries of the Company that carried on the business of the Company in ten states, primarily in the Southeast. As part of the Transaction, the Company also acquired the assets of PSNC Propane Corporation ("PSNC"). Except where noted otherwise, all financial information in this report and the financial statements included with this report include the results of operations of Energy through June 30, 1994, and exclude the results of operations of PSNC, but balance sheet data for June 30, 1994, and all financial information from periods beginning thereafter exclude the assets of Energy and include the assets of PSNC. On August 15, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Corporation, to acquire the assets of Synergy Group Incorporated, the nation's fifth largest LP gas distributor. The Company acquired, for $30,000, 30% of the common stock of SYN, Inc. ("Synergy"), the acquisition entity. The Company entered into a Management Agreement pursuant to which the Company provided all management of the retail facilities and accounting services at the central office. In exchange for those services, the Company received a $500,000 annual base management fee, an incentive management fee, and $3.25 million annual overhead reimbursement (adjusted annually for inflation). Unless specifically referenced, all information contained herein excludes information pertaining to the Synergy operations. On December 7, 1995, the Company entered into a joint venture with Northwestern Growth Corporation, a subsidiary of Northwestern Public Service Company to acquire the stock of Myers Propane Gas Company, a large Ohio LP gas distributor. The Company acquired 49% of the common stock of Myers Acquisition Company (Myers), the acquisition entity. The Company entered into a Management Agreement pursuant to which the Company provided all management and administrative services. In exchange for those services, the Company was entitled to a management fee upon the attainment of certain performance goals. In December, 1996, the Company and Northwestern Growth Corporation (NGC), completed an agreement for the sale of various interests of the Company in Synergy and Myers and the modification and termination of certain agreements between NGC, Synergy and Myers on the one hand and the Company on the other hand. The agreement terminated the management agreements pursuant to which the Company provided management activities for Synergy and Myers effective December, 1996. The agreement resulted in a payment of $18 million to the Company resulting in a gain reflected on the Statement of Operations of $16.9 million which is net of transaction and other costs and fees. The Company may be entitled to an additional amount based on a third party's indemnification obligations to Synergy. Sources of Supply. During 1998, approximately 90% of the Company's propane purchases of its propane supply were on a contractual basis (generally, one year agreements subject to annual renewal). The Company's two largest suppliers provide 15.4% and 14.1% of the total supply purchased by the Company. Supply contracts do not, generally, lock in prices, but rather provide for pricing in accordance with posted prices at the time of delivery or established by current major storage points, such as Mont Belvieu, TX, and Conway, KS. The Company has established relationships with a number of suppliers and believes it would have ample sources of supply under comparable terms to draw upon to meet its propane requirements if it were to discontinue purchasing from its two major suppliers. The Company takes advantage of the spot market as appropriate. The Company has not experienced a shortage that has prevented it from satisfying its customer's needs and does not foresee any significant shortage in the supply of propane. Distribution. The Company purchases propane at refineries, gas processing plants, underground storage facilities, and pipeline terminals and transports the propane by railroad tank cars and tank trailer trucks to the Company's retail service centers, each of which has bulk storage capacity ranging from 16,000 to 180,000 gallons. The Company is a shipper on all major interstate LPG pipeline systems. The retail service centers have an aggregate storage capacity of approximately 8.24 million gallons of propane, and each service center has equipment for transferring the gas into and from the bulk storage tanks. The Company operates 9 over-the-road tractors and 11 transport trailers to deliver propane and consumer tanks to its retail service centers and also relies on common carriers to deliver propane to its retail service centers. Deliveries to customers are made by means of 303 propane delivery trucks owned by the Company. Propane is stored by the customers on their premises in stationary steel tanks generally ranging in capacity from 25 to 1,000 gallons, with large users having tanks with a capacity of up to 30,000 gallons. Most of the propane storage tanks used by the Company's residential and commercial customers are owned by the Company and leased, rented, or loaned to customers. Operations. The Company has organized its operations in a manner that the Company believes enables it to provide excellent service to its customers and to achieve maximum operating efficiencies. Personnel located at the retail service centers in the various regions are primarily responsible for customer service and sales. A number of functions are centralized at the Company's corporate headquarters in order to achieve certain operating efficiencies as well as to enable the personnel located in the retail service centers to focus on customer service and sales. The corporate headquarters and the retail service centers are linked via a computer system. Each of the Company's primary retail service centers is equipped with a computer connected to the central management information system in the Company's corporate headquarters. This computer network system provides retail company personnel with accurate and timely information on pricing, inventory, and customer accounts. In addition, this system enables management to monitor pricing, sales, delivery, and the general operations of its numerous retail service centers and to plan accordingly to improve the operations of the Company. The Company makes centralized purchases of propane through its corporate headquarters for resale to the retail service centers enabling the Company to achieve certain advantages, including price advantages, because of its status as a large volume buyer. The functions of cash management, accounting, taxes, payroll, permits, licensing, asset control, employee benefits, human resources, and strategic planning are also performed on a centralized basis. Factors Influencing Demand. Because a substantial amount of propane is sold for heating purposes, the severity of winter weather and resulting residential and commercial heating usage have an important impact on the Company's earnings. Approximately two-thirds of the Company's retail propane sales usually occur during the five months of November through March. Sales and profits are subject to variation from month to month and from year to year, depending on temperature fluctuations. Competition. The Company encounters competition from a number of other propane distributors in each geographic region in which it operates. The Company competes with these distributors primarily on the basis of service, stability of supply, availability of consumer storage equipment, and price. Propane competes primarily with natural gas, electricity and fuel oil principally on the basis of price, availability and portability. The Company also competes with suppliers of electricity. Generally speaking, the cost of propane compares favorably to electricity allowing the Company to enjoy a competitive advantage due to the higher costs of electricity. Fuel oil does not present a significant competitive threat in the Company's primary service areas due to the following factors: (i) propane is a residue-free, cleaner energy source, (ii) environmental concerns make fuel oil relatively unattractive, and (iii) fuel oil appliances are not as efficient as propane appliances. Although propane is generally more expensive than natural gas on an equivalent BTU basis comparison, propane serves as an alternative to natural gas in rural areas where natural gas is not available. Propane is also utilized by natural gas customers on a stand-by basis during peak demand periods. The costs involved in building or connecting to a natural gas distribution system have tempered natural gas growth in most of the Company's trade territory. Risks of Business. The Company's propane operations are subject to all the operating hazards and risks normally incident to handling, storing, and transporting combustible liquids, such as the risk of personal injury and property damages caused by accident or fire. Effective July 1, 1998, the Company's comprehensive general, auto and excess liability policy provides for losses of up to $101.0 million with a $200,000 self-insured retention for general and excess liability losses. The Company's combined auto and workers' compensation coverage has a $250,000 deductible per occurrence. REGULATION The Company's operations are subject to various federal, state, and local laws governing the transportation, storage and distribution of propane, occupational health and safety, and other matters. All states in which the Company operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. Certain municipalities prohibit the below ground installation of propane furnaces and appliances, and certain states are considering the adoption of similar regulations. The Company cannot predict the extent to which any such regulations might affect the Company, but does not believe that any such effect would be material. It is not anticipated that the Company will be required to expend material amounts by reason of environmental and safety laws and regulations, but inasmuch as such laws and regulations are constantly being changed, the Company is unable to predict the ultimate cost to the Company of complying with environmental and safety laws and regulations. All Star Gas currently meets and exceeds Federal regulations requiring that all persons employed in the handling of propane gas be trained in proper handling and operating procedures. All employees have participated, or will participate within 90 days of their employment date, in hazardous materials training. The Company has established ongoing training programs in all phases of product knowledge and safety including participation in the National Propane Gas Association's ("NPGA") Certified Employee Training Program. EMPLOYEES As of September 15, 1998 the Company had approximately 625 employees, none of whom was represented by unions. The Company has never experienced any significant work stoppage or other significant labor problems and believes it has good relations with its employees. ITEM 3. LEGAL PROCEEDINGS. The Company and its subsidiaries are defendants in various routine litigation incident to its business, none of which is expected to have a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company held its annual shareholder meeting on July 17, 1998. The only matter presented for a vote was the re-election of Jim J. Shoemake as director. Mr. Shoemake was re- elected with 1,547,410 votes cast in favor and no votes cast against, withheld or abstaining. The term of office of the following directors continued after the meeting: Paul S. Lindsey, Jr., Douglas A. Brown, Kristin L. Lindsey, Jim J. Shoemake, and Bruce M. Withers, Jr. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of September 24, 1998, 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 24, 1998, there are outstanding warrants to purchase 175,536 shares of the Company's Common Stock. Each warrant represents the right to purchase one share of the Company's Common Stock for $.01 per warrant. The warrants are exercisable currently and will expire July 15, 2004. No dividends on the Common Stock of the Company were paid during the Company's 1997 or 1998 fiscal years. The indenture relating to the 12 7/8% Senior Secured Notes due 2004 and the terms of the Company's revolving credit facility each contain dividend restrictions that prohibit the Company from paying common stock cash dividends. As a result, the Company has no current intention of paying cash dividends on the Common Stock. ITEM 6. SELECTED FINANCIAL DATA. The following table presents selected consolidated operating and balance sheet data of All Star Gas as of and for each of the years in the five-year period ended June 30, 1998. The financial data of the Company as of and for each of the years in the five-year period ended June 30, 1998 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 does not take into account the effects of the Transaction on the Company, the data for that period is not comparable to the data for the years ended June 30, 1995 - 1998.
YEAR ENDED JUNE 30, ----------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (In thousands except ratios and per share amounts) Operating data: Operating revenue $124,452 $74,090 $82,702 $94,543 $86,510 Gross profit (1) 66,532 38,478 39,384 41,468 44,094 Operating expenses 44,866 29,144 27,987 28,853 29,747 Depreciation & amortization 10,150 6,166 6,770 6,867 9,334 Operating income 11,516 3,168 4,627 5,748 5,013 Interest expense: Cash interest 8,542 10,681 10,657 10,605 11,391 Amortization of debt discount & expenses 2,016 4,889 5,476 6,140 6,796 Total interest expense 10,558 15,570 16,133 16,745 18,187 Net income (loss) before extraordinary items(2) (1,190) (8,726) (7,897) 2,222 (9,954) Other operating data: Capital expenditures 19,979 11,874 8,838 13,340 17,384 Cash from sale of retail service centers and other assets 366 2,956 6,177 5,478 2,821 EBITDA (3) 21,566 8,784 11,002 13,347 14,007 Basic & diluted income (loss) before extraordinary items $ (0.08) $ (5.53) $ (5.00) $ 1.41 $ (6.36) YEAR ENDED JUNE 30, ------------------------------------------------------ 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Balance sheet data: Total assets $104,644 $105,128 $102,002 $107,832 $113,788 Long-term debt (including current maturities) 105,612 115,647 122,858 126,632 142,350 Stockholders' equity (deficit) (28,220) (36,946) (44,843) (42,720) (52,674)
(1) Represents operating revenue less the cost of products sold. (2) All Star Gas did not declare or pay dividends on its common stock during the five-year period ending June 30, 1998. (3) EBITDA consists of earnings before depreciation, amortization, interest, income taxes, and other non-recurring expenses excluding gains/losses on sales of assets. EBITDA is presented here because it is a widely accepted financial indicator of a highly leveraged company's ability to service and/or incur indebtedness. However, EBITDA should not be construed as an alternative either (i) to operating income (determined in accordance with generally accepted accounting principles) or (ii) to cash flows from operating activities (determined in accordance with generally accepted accounting principles). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's results of operations, financial condition and liquidity should be read in conjunction with the historical consolidated financial statements of All Star Gas and the notes thereto included in this Report. RESULTS OF OPERATIONS Fiscal Years Ended June 30, 1998 and June 30, 1997 Operating Revenue. Operating revenue decreased $8.0 million, or 8.5% to $86.5 million in fiscal year 1998 as compared to $94.5 million in fiscal year 1997. The decrease was primarily due to an $8.2 million decrease in propane sales which was the result of 15.3% lower propane sales prices offset by a 10.4% increase in gallons sold. Propane sales prices decreased an average of 14.8(cent) per gallon over fiscal 1997 which was the result of lower wholesale prices which are discussed in the cost of products sold section. Cost of products sold. Cost of products sold decreased $10.7 million, or 20.1%, to $42.4 million in fiscal year 1998 as compared to $53.1 million in fiscal year 1997. This was due to lower average wholesale propane costs of 13.7(cent) per gallon. In fiscal year 1998, the propane industry has experienced higher than historical supply levels in both the domestic and Canadian markets. Combined with warmer winter weather, which has depressed demand, these large supplies have resulted in significantly lower product costs. Lower costs were partially offset by increased volumes from net acquisitions and dispositions of retail service centers. The decrease in cost of propane products sold was partially offset by an increase in cost of gas systems and appliances of $130,000. Gross profit. The Company's gross profit for the year increased $2.6 million to $44.1 million in fiscal year 1998 as compared to $41.5 million in fiscal year 1997. This increase is primarily due to a $2.6 million improvement in propane sales gross profit. Propane sales gross profits increased as margins per gallon remained relatively stable while volumes increased 10.4% in fiscal 1998 as compared to fiscal 1997. Other improvements to gross profit are the result of increased income from rental and leasing activities of $222,000 and increased emphasis of selling value added services through a service labor increase of $123,000. These improvements were partially offset by a decrease in margins on gas systems and appliances of $195,000. General and administrative expense. General and administrative expenses increased $2.1 million to $29.7 million in fiscal 1998 compared to $27.6 million in fiscal 1997. The majority of the increase is due to the elimination of the overhead reimbursement associated with the management of SYN Inc. that was terminated in December 1996. This reimbursement was $1.4 million for the year ending June 30, 1997. Other notable changes include an increase in salaries and employee benefits of $765,000 in fiscal 1998 mainly due to increased personnel associated with the acquisition of retail service centers. Transportation expenses increased $402,000 due to the increased maintenance costs of the Company's aircraft and the improvement and maintenance of its trucks and equipment. Professional expenses decreased $295,000 over fiscal 1997 due to the additional costs in 1997 associated with a proposed restructuring of the company's debt and equity which was abandoned. Provision for doubtful accounts. The provision for doubtful accounts decreased $140,000, or 29.2%, from $483,000 in fiscal 1997 to $342,000 in fiscal 1998. The decrease is a result of the enhanced credit and collection efforts begun in fiscal 1995 as well as a reflection of the upgrade in customers during the same time frame. The Company also tied certain employees' incentive compensation to credit and collection results. Depreciation and amortization. Depreciation and amortization expense increased $2.4 million to $9.3 million in fiscal 1998 from $6.9 million in fiscal 1997. This increase is due primarily to the addition of fixed assets through the acquisition of retail service centers occurring in the 1997 fiscal year and the current period. Depreciation expense on modernization expenditures and other asset purchases also contributed to the increase in fiscal 1998. Interest expense. Interest expense increased approximately $800,000 to $11.4 million in fiscal 1998 from $10.6 million in fiscal 1997 primarily due to the increased mortgage obligation debt service resulting from recent acquisitions. Fiscal Years Ended June 30, 1997 and June 30, 1996 Operating Revenue. Operating revenue increased $11.8 million, or 14.3%, to $94.5 million in fiscal year 1997 as compared to $82.7 million in fiscal year 1996. The increase was primarily due to an $11.8 million increase in propane sales which was the result of 21% higher propane sales prices and a 4.4% reduction in gallons sold. Propane prices increased an average of 18(cent) per gallon over fiscal 1996 which was the result of higher wholesale prices which are discussed in the cost of products sold section. Cost of products sold. Cost of products sold increased $9.8 million, or 22.5%, to $53.1 million in fiscal year 1997 as compared to $43.3 million in fiscal year 1996. This increase was due to the cost of propane increase of $10.2 million due to higher wholesale propane costs of 14(cent) per gallon. The increase in wholesale propane costs were due to low propane inventories, as reported by the major supply points for the United States, compared to the five year historical average. The increase of cost of products was offset by a reduction in refined fuel costs of $200,000 due to the disposal of the locations selling refined fuels and reduction in cost of gas systems and appliances of $200,000. Gross profit. The Company's gross profit for the year increased $2.1 million to $41.5 million in fiscal year 1997 as compared to $39.4 million in fiscal year 1996. This increase is primarily due to a $1.6 million improvement in propane sales gross profit to .427(cent) per gallon in fiscal 1997 as compared to .390(cent) per gallon in fiscal 1996. This increase represents an improvement of .037(cent) per gallon or 9.3% over fiscal 1996, which is primarily due to the company's purchasing, hedging and consumer pricing strategy of improved margins as a result of the changes in geographic mix to higher margin areas and improvement of customer base through the marketing focus of value added products and services. Other improvements to gross profit are the result of increased margins on gas system and appliance sales of $300,000 and increased emphasis of selling value added services through a service labor increase of $200,000. General and administrative expense. General and administrative expenses increased slightly by $100,000 to $27.6 million in fiscal 1997 compared to $27.5 million in fiscal 1996. Although general and administrative expenses were flat from 1996 to 1997, there were reductions in many categories due tro the elimination of activities required for the management of the Synergy properties in December, 1996. The various reductions in the expense categories were offset by the elimination of the reimbursement of overhead expenses from Synergy of $2.4 million. Insurance and related liability claims expense decreased substantially by $900,000 or 36% to $1.7 million in fiscal 1997 as compared to $2.6 million in fiscal 1996. The decrease is due primarily to an improved claims record and the pooling of coverage with Synergy resulting in reduced premiums. Most other categories of general and administrative expenses were reduced in fiscal 1997 from fiscal 1996 as a result of the elimination of Synergy management, as previously discussed, except for salaries which remained fairly stable, decreasing only $200,000, or .9% from $15.8 million in fiscal 1996 to $15.6 million in fiscal 1997, which was offset by certain other staffing related to the elimination of Synergy management. The Company strategically expanded its executive staff and middle management in order to allow for improved succession planning which was offset by the reduction in certain other staffing related to the elimination of Synergy management. Provision for doubtful accounts. The provision for doubtful accounts decreased approximately $400,000, or 46%, from $900,000 in fiscal 1996 to $500,000 in fiscal 1997. The decrease is a result of the enhanced credit and collection efforts established in fiscal 1995 as well as a reflection of the upgrade in customers during the same time frame. The Company has also tied employees' incentive compensation to credit and collection results. Depreciation and Amortization. Depreciation and amortization increased slightly by $100,000 to $6.9 million in fiscal 1997 from $6.8 million in fiscal 1996. The increase is primarily due to fixed assets purchases through acquisitions and capital expenditures during fiscal 1997. Interest Expense. Interest expense was relatively unchanged from fiscal 1996 to 1997. 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 by operating activities was $5.6 million in fiscal year 1998 as compared to the cash flow used in fiscal year 1997, of $1.7 million. This change is due to the Company's increasing certain liabilities and accrued expenses while carrying lower levels of inventory and accounts receivable. Cash flow used in investing activities was $8.4 million as compared to the cash flow provided in fiscal year 1997, of $10.5 million. This change is due primarily to the $18.0 million provided by the Synergy/Myers transaction in fiscal 1997. Cash flow provided by financing activities was $2.7 million as compared to the cash flow used in fiscal year 1997, of $8.7 million. This change is due primarily to a $4.5 million net increase in borrowings in fiscal 1998 compared to a $5.8 net reduction in fiscal 1997 on the Company's working capital facility. Pursuant to the indenture for the 12-7/8% Senior Secured Notes, the Company is required to make a $4.5 million, semi-annual interest payment on each July 15 and January 15. Beginning in fiscal year 2000, the semi-annual cash interest payment on the Notes will increase to $8.2 million. The Company decided to utilize its 30 day grace period for the January 1998 and July 1998 interest payments. The Company experienced a temporary shortage in cash flow due to the unusually warm weather, lower petroleum prices which have caused a decrease in customer demand for pre-paid gas contracts and delays in several asset sale transactions. The Company met the scheduled interest payments through the use of operating cash flows, available borrowings on its working capital facility and loans from a related party. The Company has net working capital and stockholders' equity deficiencies and its working capital borrowing facility is due in full in December 1998. The Company is considering several alternatives for mitigating these conditions during the year which include seeking a long term extension of the existing credit facility and exploring other financing and recapitalization alternatives. In addition, management has undertaken significant reductions in general and administrative expenses during the latter portion of fiscal 1998 which are expected to positively impact fiscal 1999 results. Capital expenditures have been high over the past three fiscal years as the Company has upgraded and improved its trucks and equipment. During the past fiscal year, the Company has also incurred costs related to the change of the Company name on its retail facilities and the renovation of an existing building which was converted into the corporate facilities for the Company allowing the Company to exit an expensive lease agreement. While the Company believes that it will be able to obtain the necessary financing and/or capital to mitigate these conditions, no commitments have been obtained and no assurances can be made that such financing and/or capital will be available to the Company. An inability to obtain financing and/or capital could have a material adverse effect on the Company and its ability to conduct business. The Company's financial statements have been prepared assuming the Company will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. The Company's independent accountants, Baird, Kurtz & Dobson, have stated in their independent accountant's report filed as part of this Annual Report, that the net working capital and stockholders' equity deficiencies as well as the fact that the Company's working capital borrowing facility is due in full in December, 1998, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements set forth in this Annual Report do not include any adjustments that might result from the outcome of this uncertainty. Although not currently planned, realization of assets in other than the ordinary course of business to meet liquidity needs could result in losses not reflected in the financial statements set forth in this Annual Report and could have a material adverse effect on the Company and its ability to conduct business. YEAR 2000 The Year 2000 problem concerns the inability of information systems to recognize and process date-sensitive information properly from and after January 1, 2000. To minimize or eliminate the effect of the year 2000 problem on the Company's information systems and applications, the Company is continually identifying, evaluating, implementing and testing changes to its computer systems, applications and software necessary to achieve Year 2000 compliance. The Company has given an executive officer of the Company responsibility to identify, evaluate and implement a plan to bring all of the Company's critical business systems and applications into Year 2000 compliance prior to December 31, 1999. The year 2000 initiative consists of four phases: (i) identification of all critical business systems subject to Year 2000 risk (the "Identification Phase"); (ii) assessment of such business systems and applications to determine the method of correcting any Year 2000 problems (the "Assessment Phase"); (iii) implementing the corrective measures (the "Implementation Phase"); and (iv) testing and maintaining system compliance (the "Testing Phase"). The Company has substantially completed the Identification, Assessment and Implementation Phases and has identified and assessed four areas of risk: (i) third party vendor software, such as business applications and operating systems; (ii) computer hardware components; (iii) electronic data transfer systems between the Company and its suppliers and customers; and (iv) embedded systems, such as phone switches. Although no assurances can be made, the Company believes that it has identified substantially all of its systems, applications and related software that are subject to Year 2000 compliance risk and has either implemented or initiated the implementation of a plan to correct such systems that are not Year 2000 compliant. The Company does not anticipate completion of the Testing Phase until sometime prior to December 1999. The Company relies on third party service providers for services such as telecommunications, internet service, utilities and other key services as well as other third parties such as customers and suppliers. Interruption of those services and business due to Year 2000 issues could affect the Company's operations. The Company has developed a course of action to determine the status of such third party service providers, customers and suppliers to determine alternative and contingency requirements. While approaches to reducing risks of interruption of business operations vary, options include identification of alternative service providers, customers and suppliers available to provide such service and business if such third party fails to become Year 2000 compliant within an acceptable time frame prior to December 31, 1999. Since the Company has recently updated its information systems (which have been certified to be Year 2000 compliant) in the ordinary course of business, there has not been any additional cost incurred by the Company in connection with its Year 2000 compliance plan other than as would have been incurred in the ordinary course. The Company has been expensing and capitalizing the costs of updating its information systems and therefore its Year 2000 compliance plan in accordance with appropriate accounting policies. The Company does not believe that it will incur significant future costs for remediation in connection with Year 2000 compliance. In the event the Year 2000 modifications and conversions are not adequate, the Year 2000 problem could have a material impact on the operations and financial condition of the Company. THE ESTIMATES AND CONCLUSIONS HEREIN ARE FORWARD-LOOKING STATEMENTS AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS OF COMPLETING THE PLAN INCLUDE THE AVAILABILITY OF RESOURCES, THE ABILITY TO DISCOVER AND CORRECT THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH COULD HAVE A SERIOUS IMPACT ON CERTAIN OPERATIONS AND THE ABILITY OF THE COMPANY'S SERVICE PROVIDERS, CUSTOMERS AND SUPPLIERS TO BRING THEIR SYSTEMS INTO YEAR 2000 COMPLIANCE. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See the Consolidated Financial Statements included elsewhere herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company are as follows: POSITION HELD WITH THE COMPANY NAME AGE AND PRINCIPAL OCCUPATION ---- --- ------------------------------ Paul S. Lindsey, Jr. 53 Chairman of the Board, Chief Executive Officer, and President since June 1994; previously Vice Chairman of the Board (1982 to 1994) and Chief Operating Officer (1988 to 1994); term as director expires 2000 Douglas A. Brown 38 Director since June 1994; Partner ZS Fund since 4/97; previously member Holding Capital Group, Inc. (since 1989); term as director expires 2000 Kristin L. Lindsey 50 Director/Executive Vice President since Oct. 1996; previously Director/Vice President to June 1994; previously pursued charitable and other personal interest; term as director expires 1999 Bruce M. Withers, Jr. 71 Director since June 1994; previously Chairman and Chief Executive Officer of Trident NGL Holding, Inc. (since August 1991) and President of the Transmission and Processing Division of Mitchell Energy Corporation (1979 to 1991); term as director expires 1999 Jim J. Shoemake 60 Director since June 1994; partner of Guilfoil, Petzall & Shoemake (since 1970); term as director expires 2001 Valeria Schall 44 Executive Vice President since October, 1996, previously Vice President since 1992; Corporate Secretary since 1985 and Assistant to the Chairman since 1987 James M. Trickett 48 Chief Operating Officer since 1997, Sr. Vice President since September 1997; previously Divisional Manager since June 1996, and Regional Manager since August 1995. Divisional Manager with Synergy Gas Corporation since 1990. Robert C. Heagerty 51 Sr. Vice President since September 1997, previously Divisional Vice President since June 1993; previously Regional Manager since December 1986. J. Greg House, Sr. 41 Vice President - Management Information Systems since June, 1996; previously Director-MIS since September 1994 and Manager-MIS Paul Mueller Co. since 1987. Each director will serve for a term of three years. Officers of the Company are elected by the Board of Directors of the Company and will serve at the discretion of the Board, except for Mr. Lindsey who is employed pursuant to an employment agreement that expires June 24, 1999 (subject to extension). ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION The following table provides compensation information for each of the years ended June 30, 1998, 1997, and 1996 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 was only two) 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
Name and Principal Position at End of Fiscal Other Annual All Other Fiscal Year 1998 Year Salary Bonus Compensation Compensation - ------------------ ---- ------ ----- ------------ ------------ Paul S. Lindsey, Jr. 1998 $400,000 ----- ----- ----- Chief Executive Officer, 1997 $350,000 $750,000 ----- ----- Chairman of the Board 1996 $350,000 ----- ----- ----- and President Valeria Schall 1998 $100,000 $35,000 ----- ----- Executive Vice 1997 $73,500 $32,500 ----- ----- President 1996 $64,000 $27,500 ----- ----- Kristin L. Lindsey 1998 $100,000 $35,000 ----- ----- Executive Vice 1997 $73,500 $32,500 ----- ----- President and Director 1996 $64,000 ----- ----- -----
EMPLOYMENT AGREEMENT On June 24, 1994, the Company entered into an employment agreement with Mr. Lindsey. The agreement has a five-year term and provides for the payment of an annual salary of $400,000 and reimbursement for reasonable travel and business expenses. The agreement requires Mr. Lindsey to devote substantially all of his time to the Company's business. The agreement is for a term of five years, but is automatically renewed for one year unless either party elects to terminate the agreement at least four months prior to the end of the term or any extension. The agreement may be terminated by Mr. Lindsey or the Company, but if the agreement is terminated by the Company and without cause, the Company must pay one year's salary as severance pay. INCENTIVE STOCK OPTION PLAN There were no options granted to the named officer nor exercised by him during fiscal year 1998 and no unexercised options held by him as of the end of the 1998 fiscal year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION A compensation committee was formed in July 1994, consisting of Messrs. Withers, Shoemake, and Brown. Mr. Lindsey makes the initial recommendation concerning executive compensation for the executive officers of the Company, other than recommendations concerning his own and his wife's compensation, which are then approved by the compensation committee. The compensation committee determines the compensation of Mr. Lindsey's wife and, subject to the employment agreement described above, Mr. Lindsey. DIRECTOR COMPENSATION During the last completed fiscal year, the directors of All Star Gas received an annual fee of $25,000, payable quarterly, for their services. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table below sets forth information with respect to the beneficial ownership of shares of Common Stock of the Company as of September 24, 1998, by persons owning more than five percent of any class, by all directors of the Company, by the individuals named in the Summary Compensation Table owning shares, and by all directors and executive officers of the Company as a group. Number of Shares Name of Beneficial Owner(1) Beneficially Owned Percent - ---------------------------- ------------------ ------- Paul S. Lindsey, Jr.(2) 1,507,610 67.02 Kristin L. Lindsey(2) 753,805 33.51 Douglas A. Brown 144,530 6.4 Valeria Schall 79,603 3.5 Bruce M. Withers, Jr. 39,248 1.74 Jim J. Shoemake 39,248 1.74 All directors and executive 1,947,559 86.58 officers as a group (9 persons)(3) - ----------------- (1) The address of each of the beneficial owners is c/o All Star Gas Corporation, P.O. Box 303, 119 W. Commercial Street, Lebanon, Missouri 65536. (2) Mr. Lindsey's shares consist of 753,805 shares owned by the Paul S. Lindsey, Jr. Trust established January 24, 1992 and 753,805 shares owned by the Kristin L. Lindsey Trust established January 24, 1992. Mr. Lindsey has the power to vote and to dispose of the shares held in the Kristin L. Lindsey Trust. Mrs. Lindsey's shares consist of the shares owned by the Kristin L. Lindsey Trust. Mrs. Lindsey disclaims ownership of the shares held by her husband in the Paul S. Lindsey, Jr. Trust. (3) The amounts shown include the shares beneficially owned by Mr. Lindsey and Mrs. Lindsey as set forth above, and 216,932 shares owned by other executive officers. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Mrs. Kristin L. Lindsey, who beneficially owns approximately 33.51% of the Company's outstanding Common Stock and is a Director of the Company, is the majority stockholder in a company that supplies paint and labels to the Company. The Company's purchases of paint and labels from this company totaled $188,804 in fiscal year 1998 and $285,637 in fiscal year 1997. 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. The Company entered into an operating lease with its Chief Executive Officer to lease a turbo prop aircraft for use in Company travel. The lease requires $94,800 in annual payments for a term of 3 years beginning in January, 1998, and had a requirement for a $87,500 deposit. Over the past fiscal year the Company received advances bearing interest at a rate of 12% from its Chief Executive Officer in an amount of $1.8 million which has a remaining balance at September 24, 1998 of $326,000. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements Report of Independent Accountants Consolidated Balance Sheets as of June 30, 1998 and 1997 Consolidated Statement of Operations for the Years Ended June 30, 1998, 1997, and 1996 Consolidated Statements of the Stockholders' Equity (Deficit) for the Years Ended June 30, 1998, 1997, and 1996 Consolidated Statements of Cash Flows for the Years Ended June 30, 1998, 1997, and 1996 (a)(2) Financial Statement Schedules Schedule II Valuation and qualifying accounts (a)(3) Exhibits EXHIBIT NO. Description - ------- ----------- 3.1 Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-53343) 3.2 Certificate of Amendment of the Certificate of Incorporation of the Company, dated April 26, 1994, relating to the change of name (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No. 33-53343) 3.3 By-laws of the Company (incorporated herein by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 (No. 33-53343) 4.1 Indenture between All Star Gas Corporation and J. Henry Schroder Bank & Trust Company, Trustee, relating to the 9% Subordinated Debentures due December 31, 2007, and the form of 9% Subordinated Debentures due December 31, 2007, (incorporated herein by reference to Exhibit 4(a) to the All Star Incorporated and Exco Acquisition Corp. (Commission File No. 2-83683) Registration Statement on Form S-14 with the Commission on May 11, 1983); and First Supplemental Indenture thereto between All Star Gas Corporation (now known as EGOC) and IBJ Schroder Bank & Trust Co., dated as of December 13, 1989, (incorporated herein by reference to Exhibit 4(c) to All Star Gas Corporation (now known as EGOC) Registration Statement on Form 8-B filed with the Commission on February 1, 1990) 4.2 Indenture between the Company and Shawmut Bank Connecticut, National Association, Trustee, relating to the 12-7/8% Senior Secured Notes due 2004, including the 12-7/8% Senior Secured Notes due 2004, the Guarantee and the Pledge Agreement (incorporated herein by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 4.3 Warrant Agreement (incorporated herein by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 10.1 Shareholder Agreement, dated as of October 28, 1988, by and among All Star Gas wAcquisition Corporation and Robert W. Plaster Trust, Robert W. Plaster, Trustee; Paul S. Lindsey, Jr.; Stephen R. Plaster Trust, Lynn C. Hoover, Trustee; Cheryl Plaster Schaefer Trust, Lynn C. Hoover, Trustee; Robert L. Wooldridge; Gwendolyn B. VanDerhoef; Dwight Gilpin; Luther Henry Gill; Valeria Schall; Floyd J. Waterman; Larry W. Bisig; Larry Weis; Robert Heagerty; Murl J. Waterman; Earl L. Noe; Thomas Flak; Michael Kent St. John; James E. Acreman; Carolyn Rein; Dan Weatherly; Nina Irene Craighead; Joyce Sue Kinnett; Edwin H. McMahon; Paul Stahlman; Ralph Wilson; Alan Simer; Ferrell Stamper; and All Star Gas Corporation Employee Stock Ownership Plan, Robert W. Plaster, Trustee (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.2 1995 Stock Option Plan of All Star Gas Company (incorporated herein by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1995) 10.3 Credit Agreement between the Company and Continental Bank, as agent (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994) 10.4 Lease Agreement, dated May 7, 1994, between the Company and Evergreen National Corporation (incorporated herein by reference to Exhibit F of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.5 Services Agreement, dated May 7, 1994, between the Company and All Star Service Corporation (incorporated herein by reference to Exhibit G of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.6 Non-Competition Agreement, dated May 7, 1994, by and among the Company, Energy, Robert W. Plaster, Stephen R. Plaster, Joseph L. Schaefer, Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit E of Exhibit 10.1 to the All Star Gas Operating Corporation (Commission File No. 1-6537-3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994) 10.7 Employment Agreement between the Company and Paul S. Lindsey, Jr. (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.8 Asset Purchase Agreement by and among the Company, All Star Gas, Inc. of North Carolina, PSNC Propane Corporation, and Public Service Company of North Carolina, Incorporated (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1 (No. 33-533343) 10.9 Indemnification Agreement between the Company and Douglas A. Brown (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.10 Tax Indemnification Agreement between the Company and Energy (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.11 Supply Contract No. 1, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.12 Supply Contract No. 2, dated June 1, 1993, between EGOC and Warren Petroleum Company (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33-53343) 10.13 Management Agreement between All Star Gas Company, Northwestern Growth Corporation and SYN, Inc. dated May 17, 1995 (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.14 Agreement Among Initial Stockholders and SYN, Inc. dated May 17, 1995 (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.15 Waiver Agreement dated April 29, 1995 by and among All Star Gas Corporation, SYN, Inc., Paul S. Lindsey, Jr. Northwestern Growth Corporation, All Star Energy Corporation, Robert W. Plaster, and Stephen R. Plaster (incorporated herein by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1995) 10.16+ Propane Sales Agreement dated August 24, 1995, between All Star Gas Corporation and Warren Petroleum Company (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995) 10.17+ Supply Contract dated April 27, 1995, between All Star Gas Corporation and Phillips 66 Company (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995) 10.18+ Dealer Sale Contract dated January 20, 1995, between All Star Gas Corporation and Conoco Inc. (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995) 10.19+ Supply Contract dated April 24, 1995 between All Star Gas Corporation and Enron Gas Liquids, Inc. (incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995) 10.20+ Amendment No. 1 to Supplement A to Loan and Securities Agreement dated June 29, 1995 between All Star Gas Corporation and Bank of America Illinois (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995) 10.21 9/9/96 Waiver, Amendment No. 2 to Loan and Security Agreement and Amendment No. 4 to Supplement A to Loan and Security Agreement with Bank of America Illinois (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.22 7/1/96 Agreement Amending Amended and Restated Agreement Among Initial Stockholders and Syn Inc. (incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.23 5/15/96 Waiver between Bank of America Illinois and All Star Gas Corporation (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.24 2/13/96 Amendment No. 3 to Supplement A to Loan and Security Agreement with Bank of America Illinois (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.25 11/3/95 Agreement Among Initial Stockholders and Mac Inc.(incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.26 11/3/95 Management Agreement between NWPS, Myers Acquisition Company and Empire (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.27 9/28/95 Amendment No. 1 to Loan and Security Agreement and Amendment No. 2 to Supplement A to Loan and Security Agreement with Bank of America Illinois (incorporated by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.28 7/31/95 Agreement Amending Management Agreement (incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.29 7/31/95 Agreement Amending and Reinstating Agreement Among Initial Stockholders and Syn Inc. (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.30+ Propane Sales Agreement dated April 9, 1996, between All Star Gas Corporation and Warren Petroleum Company (incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.31+ Amendment to Supply Contract dated August 15, 1994, between All Star Gas Corporation and Phillips 66 Company (incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.32+ Supply Contract dated April 1, 1996, between All Star Gas Corporation and Conoco, Inc.(incorporated by reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.33 June 1, 1996, Lease of Aircraft between Paul S. Lindsey, Limited Liability Company and All Star Gas Corporation (incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996) 10.34+ Liquified Petroleum Gas Contract dated July 1, 1996 between All Star Gas Corporation and Shell Anacortes Refining Company (incorporated by reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.35+ Liquified Petroleum Gas Contract dated July 1, 1996 between All Star Gas Corporation and Shell Oil Company (incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.36+ Propane Sales Agreements between All Star Gas Corporation and Warren Petroleum Company (incorporated by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.37+ Liquified Petroleum Gas Contract dated June 1, 1996 between All Star Gas Corporation and Shell Oil Company (incorporated by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.38 Amendment #3 dated 10/29/96 to Loan and Security Agreement and Amendment #6 to Supplement A to Loan and Security Agreement (incorporated by reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.39 Amendment #4 to Loan and Security Agreement (incorporated by reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997) 10.40 Amendment No. 5 to Loan and Security Agreement and Amendment No. 7 to Supplement A to Loan and Security Agreement dated February 20, 1997 10.41 Amendment No. 6 to Loan and Security Agreement and Amendment No. 8 to Supplement A to Loan and Security Agreement dated June 29, 1998 10.42 Waiver dated February 12, 1998 10.43 December 31, 1997, Lease of Aircraft Agreement between Paul S. Lindsey, LLC, and All Star Gas Corporation 21.1 Subsidiaries of the Company 27.1 Financial Data Schedules + Confidential treatment has been requested. The copy filed as an exhibit omits the information subject to the confidentiality request. (b) Reports on Form 8-K July 15, 1998 (c) Exhibits See (a)(3) above. (d) Financial Statements See (a)(1) above. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. All Star Gas Corporation By: /s/ Paul S. Lindsey, Jr. --------------------------- Paul S. Lindsey, Jr. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY IN WHICH SIGNED DATE --------- ------------------------ ---- /s/ Paul S. Lindsey, Jr. Chief Executive Officer September 24, 1998 - -------------------------- and Chairman of the Paul S. Lindsey, Jr. Board of All Star Gas Corporation (principal executive officer) /s/ Willis D. Green Controller September 24, 1998 - -------------------------- (principal financial/ Willis D. Green accounting officer) /s/ Douglas A. Brown Director of All Star September 24, 1998 - -------------------------- Gas Corporation Douglas A. Brown /s/ Kristin L. Lindsey Director of All Star September 24, 1998 - -------------------------- Gas Corporation Kristin L. Lindsey /s/ Bruce M. Withers, Jr. Director of All Star September 24, 1998 - -------------------------- Gas Corporation Bruce M. Withers, Jr. /s/ Jim J. Shoemake Director of All Star September 24, 1998 - ------------------------- Gas Corporation Jim J. Shoemake Independent Accountants' Report Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri We have audited the accompanying consolidated balance sheets of ALL STAR GAS CORPORATION as of June 30, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ALL STAR GAS CORPORATION as of June 30, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2, the Company has net working capital and stockholders' equity deficiencies at June 30, 1998, and its working capital borrowing facility is due in full in December 1998. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Baird, Kurtz & Dobson Springfield, Missouri August 28, 1998, except for Note 4 as to which the date is September 23, 1998 ALL STAR GAS CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS 1998 1997 CURRENT ASSETS ---- ---- Cash $ 897 $ 965 Trade receivables, less allowance for doubtful accounts; 1998 - $844, 1997 - $899 4,526 5,101 Inventories 6,985 6,924 Prepaid expenses 615 401 Due from related parties -- 98 Refundable income taxes 1,135 630 Deferred income taxes 312 -- --------- --------- Total Current Assets 14,470 14,119 --------- --------- PROPERTY AND EQUIPMENT, AT COST Land and buildings 11,233 9,887 Storage and consumer service facilities 77,732 70,984 Transportation, office and other equipment 29,348 24,473 --------- --------- 118,313 105,344 Less accumulated depreciation 37,323 32,118 --------- --------- 80,990 73,226 --------- --------- OTHER ASSETS Debt acquisition costs, net of amortization 3,086 3,605 Excess of cost over fair value of net assets acquired, at amortized cost 13,202 14,101 Notes receivable - related parties 676 1,022 Other 1,364 1,759 --------- --------- 18,328 20,487 --------- --------- $ 113,788 $ 107,832 ========= ========= See Notes to Consolidated Financial Statements LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1998 1997 ---- ---- CURRENT LIABILITIES Checks in process of collection $ 1,682 $ 1,366 Current maturities of long-term debt 7,824 2,385 Accounts payable 2,141 2,477 Accrued salaries 1,403 1,517 Accrued interest 4,174 4,081 Accrued expenses 854 841 Due to related parties 280 Customer prepayments 8,343 6,050 --------- --------- Total Current Liabilities 26,701 18,717 --------- --------- LONG-TERM DEBT 134,526 124,247 --------- --------- DEFERRED INCOME TAXES 4,905 7,190 --------- --------- ACCRUED SELF-INSURANCE LIABILITY 330 398 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) Common; $.001 par value; authorized 20,000,000 shares; issued June 30, 1998 and 1997, 14,291,020 shares 14 14 Common stock purchase warrants 1,227 1,227 Additional paid-in capital 27,279 27,279 Retained earnings 6,880 16,834 --------- --------- 35,400 45,354 Treasury stock, at cost; 12,726,970 shares (88,074) (88,074) --------- --------- (52,674) (42,720) --------- --------- $ 113,788 $ 107,832 ========= ========= ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 ---- ---- ---- OPERATING REVENUE $ 86,510 $ 94,543 $ 82,702 COST OF PRODUCT SOLD 42,416 53,075 43,318 -------- -------- --------- GROSS PROFIT 44,094 41,468 39,384 -------- -------- --------- OPERATING COSTS AND EXPENSES Provision for doubtful accounts 342 483 889 General and administrative 29,745 27,638 27,493 Depreciation and amortization 9,334 6,867 6,770 (Gain) loss on sale of assets (340) 732 (395) -------- -------- --------- 39,081 35,720 34,757 -------- -------- --------- OPERATING INCOME 5,013 5,748 4,627 -------- -------- --------- OTHER INCOME (EXPENSE) Interest expense (11,391) (10,605) (10,657) Amortization of debt discount and expense (6,796) (6,140) (5,476) Gain on SYN/Myers Transaction -- 16,922 -- Restructuring proposal costs (910) (1,903) -- Write off of carrying value of underground storage facility and closing costs -- -- (200) -------- -------- --------- (19,097) (1,726) (16,333) -------- -------- --------- INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF AFFILIATES (14,084) 4,022 (11,706) EQUITY IN NET INCOME OF AFFILIATES -- -- 59 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (14,084) 4,022 (11,647) PROVISION (CREDIT) FOR INCOME TAXES (4,130) 1,800 (3,750) -------- -------- --------- NET INCOME (LOSS) $ (9,954) $ 2,222 $ (7,897) ======== ======== ========= BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (6.36) $ 1.41 $ (5.00) ======== ======== ========= See Notes to Consolidated Financial Statements ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (IN THOUSANDS)
Common Total Stock Additional Stockholders' Common Purchase Paid-In Retained Treasury Equity Stock Warrants Capital Earnings Stock (Deficit) -------- -------- ---------- -------- --------- ------------- BALANCE, JUNE 30, 1995 $ 14 $ 1,227 $ 27,279 $ 22,509 $(87,975) $(36,946) NET LOSS -- -- -- (7,897) -- (7,897) -------- -------- -------- -------- -------- -------- BALANCE, JUNE 30, 1996 14 1,227 27,279 14,612 (87,975) (44,843) TREASURY STOCK PURCHASE -- -- -- -- (99) (99) NET INCOME -- -- -- 2,222 -- 2,222 -------- -------- -------- -------- -------- -------- BALANCE, JUNE 30, 1997 14 1,227 27,279 16,834 (88,074) (42,720) NET LOSS -- -- -- (9,954) -- (9,954) -------- -------- -------- -------- -------- -------- BALANCE, JUNE 30, 1998 $ 14 $ 1,227 $ 27,279 $ 6,880 $(88,074) $(52,674) ======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (9,954) $ 2,222 $ (7,897) Items not requiring (providing) cash: Depreciation 7,384 5,467 5,427 Amortization 8,746 7,540 6,819 Gain on sale of assets and SYN/Myers transaction (340) (16,190) (395) Loss on underground storage facility -- -- 200 Undistributed earnings of affiliate -- -- (59) Deferred income taxes (2,597) (750) (3,850) Changes in: Trade receivables 91 (982) 191 Inventories 372 (905) (896) Prepaid expenses and other 937 (644) (375) Due from related parties -- 1,163 (599) Accounts payable and customer prepayments 1,584 2,392 508 Accrued expenses and self-insurance (581) (1,015) 1,243 -------- -------- -------- Net cash provided by (used in) operating activities 5,642 (1,702) 317 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of retail service centers and other assets 2,821 2,476 6,177 Receipts on sales of retail outlets previously accrued -- 3,002 -- Proceeds from SYN/Myers transaction -- 18,000 -- Acquisition of retail service centers (4,435) (5,248) (1,087) Purchases of property and equipment (7,187) (7,733) (7,033) Advances from related parties 378 -- -- -------- -------- -------- Net cash provided by (used in) investing activities (8,423) 10,497 (1,943) -------- -------- --------
See Notes to Consolidated Financial Statements ALL STAR GAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 t 1996 ---- ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in working capital facility $ 4,500 $ (5,839) $ 1,331 Principal payments on purchase obligations (2,355) (1,362) (837) Proceeds on long-term debt obligations 252 Increase (decrease) in checks in process of collection 316 (1,428) 1,209 Purchase of treasury stock -- (99) -- -------- -------- -------- Net cash provided by (used in) financing activities 2,713 (8,728) 1,703 -------- -------- -------- INCREASE (DECREASE) IN CASH (68) 67 77 CASH, BEGINNING OF YEAR 965 898 821 -------- -------- -------- CASH, END OF YEAR $ 897 $ 965 $ 898 ======== ======== ========
See Notes to Consolidated Financial Statements ALL STAR GAS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND 1997 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS The Company's principal operation is the sale of wholesale and retail liquified propane (LP) gas. Most of the Company's customers are owners of residential single or multi-family dwellings who make periodic purchases on unsecured 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. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of All Star Gas Corporation and its wholly-owned 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: 1998 1997 ---- ---- (In Thousands) Gas and other petroleum products $ 3,495 $ 3,551 Gas distribution parts, appliances and equipment $ 3,490 $ 3,373 ------- ------- $ 6,985 $ 6,924 ======= ======= PROPERTY AND EQUIPMENT Depreciation is provided on all property and equipment on the straight-line method over estimated useful lives of 3 to 33 years. INCOME TAXES Deferred tax liabilities and assets are recognized for the tax effects of differences between the financial statement and tax bases of assets and liabilities. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. AMORTIZATION Debt acquisition costs are being amortized on a straight-line basis over the terms of the debt to which the costs are related as follows: the 1994 senior secured note costs (originally $5,143,000) are amortized over ten years; and the revolving credit facility costs (originally $341,000) are amortized over three years. Amortization of discounts on debentures and notes (Note 4) is on the effective interest, bonds outstanding method. The majority of the excess of cost over fair value of net assets acquired relates to a transaction originating prior to July 1, 1994 and is being amortized on the straight-line basis over 25 years. Excess of cost over fair value of net assets on subsequent acquisitions is amortized on the straight-line basis over 5 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 1,564,050, 1,572,902 and 1,579,225 for each of the periods ended June 30, 1998, 1997 and 1996, respectively. FUTURES CONTRACTS AND PURCHASE COMMITMENTS The Company uses commodity futures contracts to reduce the risk of future price fluctuations for LP gas inventories and contracts. Gains and losses on futures contracts purchased as hedges are deferred and recognized in cost of sales as a component of the product cost for the related hedged transaction. In the statement of cash flows, cash flows from qualifying hedges are classified in the same category as the cash flows from the items being hedged. The Company also routinely makes purchase commitments for the delivery of LP gas inventories, particularly during its peak winter selling season. At June 30, 1998, the Company had approximately $9.0 million in outstanding commitments to purchase LP gas for inventory. As of June 30, 1998 and 1997, the Company's open positions on futures contracts are immaterial. RECLASSIFICATION Certain reclassifications have been made to the 1997 and 1996 financial statements to conform to the 1998 financial statement presentation. These reclassifications had no effect on net earnings. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) recently adopted Statement of Financial Accounting Standards (SFAS) 130, Reporting Comprehensive Income. This Statement establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. It does not address issues of recognition or measurement. SFAS 130 is effective for fiscal years beginning after December 15, 1997. The adoption of SFAS 130 is not expected to have a material impact on the Company's financial statements. The FASB recently adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. This Statement establishes standards for the way that public business enterprises report information about operating segments. The Statement also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS 131 is effective for years beginning after December 15, 1997. SFAS 131, which the Company will initially adopt for fiscal year 1999, is not expected to have a material impact on the Company's financial statements. The FASB recently adopted SFAS 133, Accounting for Derivative Financial Instruments and Hedging Activities. This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, may be adopted early for periods beginning after issuance of the Statement and may not be applied retroactively. The effects of adoption of SFAS 133 on the Company's financial statements are not determinable currently. The Company expects to initially adopt SFAS 133 for fiscal year 2000. NOTE 2: MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS The Company has net working capital and stockholders' equity deficiencies and its working capital borrowing facility (Note 4) is due in full in December 1998. The financial statements have been prepared assuming the Company will continue as a going concern, realizing assets and liquidating liabilities in the ordinary course of business. Management is considering several alternatives for mitigating these conditions during the next year. These include seeking a long-term extension of the existing credit facility and exploring other financing and recapitalization alternatives. Management is also seeking operational improvements and economies, such as those the Company expects to realize from reductions in general and administrative expenses undertaken in the latter part of fiscal 1998. While management believes the Company will be able to obtain the necessary financing and/or capital, no commitments have been obtained. Although not currently planned, realization of assets in other than the ordinary course of business to meet liquidity needs could incur losses not reflected in these financial statements. NOTE 3: RELATED-PARTY TRANSACTIONS During 1998, 1997 and 1996, the Company has purchased $189,000, $286,000 and $203,000, respectively, of paint from a corporation owned by the spouse of the principal shareholder of the Company. Beginning July 1, 1994, the Company entered into a seven-year services agreement with a subsidiary of a related party to provide data processing and management information services to the Company. The services agreement, prior to cancellation in fiscal year 1997, provided 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 Empire Energy Corporation. For the years ended June 30, 1997 and 1996, total expenses related to this services agreement were $500,000 and $600,000, respectively. On August 15, 1995, the Company entered into a joint venture with Northwestern Growth Corporation (NGC), a subsidiary of Northwestern Public Service Corporation, to acquire the assets of Synergy Group, Incorporated ("Synergy"), the nation's fifth largest LP gas distributor at that time. The Company acquired 30% of the common stock of SYN Inc., the acquisition entity, and entered into a Management Agreement pursuant to which the Company provided management services for SYN Inc. During 1996, the Company acquired 49% of the common stock of Myers Acquisition Company (Myers) through another joint venture with NGC. Myers acquired the stock of a retail LP distributor in Ohio. In December 1996, the Company and NGC completed an agreement for the sale of the Company's interest in SYN Inc. and Myers and the modification and termination of certain agreements between NGC, SYN Inc. and Myers on the one hand and the Company on the other hand. The agreement resulted in the termination of the Management Agreement and a payment of $18 million to the Company resulting in a gain reflected in the statement of operations of $16.9 million, which is net of transaction and other costs and fees. The Company received payments of $1.7 million related to management fees and overhead reimbursement from SYN Inc. for the year ended June 30, 1997. During the year ended June 30, 1997, the Company purchased $20.8 million of LP gas on behalf of SYN Inc. and Myers that was transferred at cost. In December 1996, the Company acquired a 10% ownership interest in Propane Resources Transportation, Inc. (PRT). In December 1996, the Company issued a long-term mortgage obligation of $1.1 million for the purchase of certain transport equipment from SYN Inc. This equipment was then sold to PRT for a $1.1 million long-term note receivable. The balance of this note receivable was $676,000 and $1.0 million at June 30, 1998 and 1997, respectively. PRT provided transport services for a portion of the Company's propane delivery needs resulting in freight charges paid to PRT during 1998 and 1997 of $768,000 and $1.4 million, respectively. During the year ended June 30, 1997, the Company acquired a 39% interest in Propane Resources Supply and Marketing, LLC (PRSM) for $263,000. The Company's investment is stated at amortized cost plus equity in the affiliate's undistributed net income since acquisition. The Company sells LP gas to PRSM on a regular basis. The Company paid consulting fees of $200,000 and $117,000 to PRSM during 1998 and 1997, respectively. In October 1997, the Company acquired Red Top Gas, a retail LP distributor owned by a party related to the principal shareholder, for $6,333,000. Prior to the acquisition, the Company sold LP gas to this party. At June 30, 1997, the amount due from this related party was $113,000. At June 30, 1998, the Company has invested $134,000 along with certain key employees in real estate partnerships as special limited partners for tax credit allocation purposes. In 1998, the Company entered into an operating lease with the principal shareholder for an aircraft. The lease requires $95,000 in annual payments for a term of three years beginning in January 1998. In 1996, the Company entered into an operating lease with the principal shareholder for a jet aircraft. The lease required $283,000 in annual payments for a term of three years beginning in June 1996. The lease also required a $200,000 deposit which was paid in June 1996. The Company also leased from the principal shareholder certain real estate property at an annual cost of $18,000. Both of these leases were cancelled during 1998 at no further obligation to the Company. In 1998, the principal shareholder loaned the Company amounts totalling $1.8 million with terms ranging from 7 days to 6 months. At June 30, 1998, the balances of these obligations were $280,000. NOTE 4: LONG-TERM DEBT Long-term debt at June 30 consisted of (In Thousands): 1998 1997 ---- ---- Working capital facility (A) $ 5,050 $ 550 127/8% Senior Secured Notes, due 2004 (B) 127,200 127,200 9% Subordinated Debentures, due 2007 (C) 9,746 9,746 Purchase contract obligations and capital leases (D) 12,552 7,609 --------- --------- 154,548 145,105 Less unamortized discounts 12,198 18,473 --------- --------- 142,350 126,632 Less current maturities 7,824 2,385 --------- --------- $ 134,526 $ 124,247 ========= ========= (A) The working capital facility was provided to the Company in June 1994 in conjunction with the offering of the 127/8% 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, 1998, the Company was not in compliance with the facility's acquisition availability covenant. The Company has received a waiver of this covenant. The facility provides for borrowings up to $15 million, subject to a sufficient borrowing base. The borrowing base generally limits the Company's total borrowings to 85% of eligible accounts receivable and 52% of eligible inventory. The facility bears interest at either 1.5% over prime or 3.0% over the LIBOR rate. The agreement provides for a commitment fee of .375% per annum of the unadvanced portion of the commitment. The Company's available revolving credit line amounted to $771,000 at June 30, 1998, after considering $981,000 of outstanding letters of credit. The letters of credit are principally related to the Company's self-insurance program (Note 6). The working capital facility was due on September 29, 1998, and has been extended to December 29, 1998, bearing interest at 1.5% over prime with the previous LIBOR rate option eliminated. The extension provides for a commitment fee of .50% per annum of the unadvanced portion of the commitment. (B) The notes were issued June 1994 at a discount and require interest payments at 7% through July 15, 1999, and at 127/8% 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 restricted 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. Separate financial statements of the guarantor subsidiaries are not included because such subsidiaries have jointly and severally guaranteed the notes on a full and unconditional basis; the aggregate assets and liabilities of the guarantor subsidiaries are substantially equivalent to the assets and liabilities of the parent on a consolidated basis; and the separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed to be material. The guarantor subsidiaries are restricted from paying dividends to the Company during any periods of default under the respective debt agreements. (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 127/8% Senior Secured Notes, due 2004, to repurchase $16,201,000 face value of these debentures at a discount which resulted in an extraordinary charge. 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, 1998, is $20,483,000 of which $10,737,000 are registered in the name of the Company. (D) Purchase contract obligations arise from the purchase of operating businesses and are collateralized by the equipment and real estate acquired in the respective acquisitions. Capital leases include leases covering data processing equipment expiring in 1998. At June 30, 1998 and 1997, these obligations carried interest rates from 7% to 11% and are due periodically through 2006. Aggregate annual debt service requirements (in thousands) of the long-term debt outstanding at June 30, 1998, are: Total Principal Interest Debt Service 1999 $ 7,824 $ 10,684 $ 18,508 2000 2,381 17,954 20,335 2001 2,312 17,764 20,076 2002 1,434 17,625 19,059 2003 1,232 17,519 18,751 Thereafter 139,365 20,079 159,444 --------- ---------- --------- $ 154,548 $ 101,625 $ 256,173 ========= ========== ========= NOTE 5: INCOME TAXES The provision for income taxes includes these components. 1998 1997 1996 ---- ---- ---- (In Thousands) Taxes currently payable (refundable) $ (1,533) $ 2,550 $ 100 Deferred income taxes (2,597) (750) (3,850) -------- ------- -------- $ (4,130) $ 1,800 $ (3,750) ======== ======= ======== The tax effects of temporary differences at June 30, 1998 and 1997, related to deferred taxes were: 1998 1997 ---- ---- (In Thousands) Deferred Tax Assets Allowance for doubtful accounts $ 274 $ 330 Accounts receivable advance collections 11 29 Self-insurance liabilities and contingencies 930 601 Original issue discount 7,497 5,252 Net operating loss carryforwards 381 -- Alternative minimum tax credit carryforwards 3,000 1,803 -------- -------- 12,093 8,015 Deferred Tax Liability Accumulated depreciation and tax cost differences (16,686) (15,205) -------- -------- Net deferred tax liability $ (4,593) $ (7,190) ======== ======== The above net deferred tax liability is presented on the June 30 balance sheets as follows: 1998 1997 ---- ---- (In Thousands) Deferred Tax Assets (Liabilities) Deferred tax asset - current $ 312 $ -- Deferred tax liability - long-term (4,905) (7,190) --------- -------- Net deferred tax liability $ (4,593) $ (7,190) ======== ======== A reconciliation of income tax expense at the statutory rate to the Company's actual income tax expense is shown below:
1998 1997 1996 (In Thousands) Computed at the statutory rate (34%) $ (4,789) $ 1,367 $ (3,960) Increase (decrease) resulting from: Amortization of excess of cost over fair value of net assets acquired 386 268 279 State income taxes - net of federal tax benefit (96) 90 (347) Nondeductible travel costs and other expenses 28 87 112 Other 31 (12) (84) Additional accruals 310 -- 250 -------- ---------- -------- Actual tax provision $ (4,130) $ 1,800.00 $ (3,750) ======== ========== ========
At June 30, 1998, the Company had approximately $3.0 million of alternative minimum tax credits available to offset future federal income taxes. The credits have no expiration date. The Company also has unused operating loss carryforwards of $1.1 million, which expire in the year 2018. NOTE 6: SELF-INSURANCE AND RELATED CONTINGENCIES Under the Company's current insurance program, coverage for comprehensive general liability, workers' compensation and vehicle liability is obtained for catastrophic exposures as well as those risks required to be insured by law or contract. The Company retains a portion of certain expected losses related primarily to comprehensive general and vehicle liability. The Company self insures the first $200,000 for each and every general liability incident, which is reduced from $250,000 per incident in the prior year. Above this retention is a corridor deductible of $750,000 per occurrence, $1.25 million in aggregate compared to $1 million for the Company in the prior year. For the vehicle and workers' compensation programs, the Company has a $250,000 deductible per occurrence with a $1 million aggregate stop loss. The Company obtains excess coverage on occurrence basis policies. Provisions for self-insured losses are recorded based upon the Company's estimates of the aggregate self-insured liability for claims incurred, resulting in a retention for a portion of these expected losses. The ending accrued liability includes $150,000 for incurred but not reported claims at June 30, 1998 and 1997. The current portion of the ending liability of $500,000 at June 30, 1998 and 1997, is included in accrued expenses in the consolidated balance sheets. The noncurrent portion at the end of each period is included in accrued self-insurance liability. The Company and its subsidiaries are also defendants in various lawsuits related to the self-insurance program and other business related lawsuits which are not expected to have a material adverse effect on the Company's financial position or results of operations. The Company currently self-insures health benefits provided to the employees of the Company and its subsidiaries subject to a $75,000 cap per claim. 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 $700,000, $492,000 and $547,000 for the years ended June 30, 1998, 1997 and 1996, respectively. In conjunction with a restructuring transaction involving the Company and Empire Energy Corporation, the parties agreed to share on a percentage basis the self-insured liabilities and other business related lawsuits incurred prior to June 30, 1994, including both reported and unreported claims. The self-insured liabilities included under this agreement include general, vehicle, workers' compensation and health insurance liabilities. Under the agreement, the Company assumed 52.3% of the liability with Empire Energy Corporation assuming the remaining 47.7%. NOTE 7: CONTINGENCIES The state of Missouri has assessed the Company approximately $1,400,000 for additional state income tax for the years ended June 30, 1992 and 1993. An amount approximating one-half of the above assessment could be at issue for the year ended June 30, 1994. The Company has protested these assessments and is currently waiting for a response from the Missouri Department of Revenue. It is likely that this matter will have to be settled in litigation. The Company believes that it has a strong position on this matter and intends to vigorously contest the assessment. In conjunction with the restructuring transaction, the Company and Energy agreed to share on a percentage basis amounts incurred related to federal and state tax audits for fiscal years June 30, 1994, and prior. The Company and its subsidiaries are presently involved in other various state tax audits which are not expected to have a material adverse effect on the Company's financial position or results of operations. NOTE 8: STOCK OPTIONS AND WARRANTS STOCK OPTIONS The Company has established a Stock Option Plan for the benefit of its employees, consultants and directors. Stock options may be either incentive stock options or nonqualified stock options, with an option price no less than the fair value of the Company's common stock on the date of the grant. Options are granted for no more than a ten-year term and are exercisable based on a written agreement between the administrator and optionee. The table below summarizes transactions under the Company's stock option plan: Number of Shares ---------------- Balance, June 30, 1995 and 1996 416,926 Granted ($7.00 per share) 276,200 Forfeited (21,000) ---------- Balance, June 30, 1997 672,126 Granted ($7.00 per share) 104,000 Forfeited (192,100) ---------- Balance, June 30, 1998 584,026 ========== Options outstanding at June 30, 1998, have a weighted-average remaining contractual life of approximately 7 years with 212,336 options currently exercisable at a price of $7.00 per share. In 1996, the FASB adopted SFAS 123, Accounting for Stock-Based Compensation. This Statement establishes an alternative fair value-based method of accounting for stock-based compensation plans. The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for the plan, and no compensation cost has been recognized. No fair value disclosures with respect to stock options are presented because, in the opinion of management, such values do not have a material effect. COMMON STOCK PURCHASE WARRANTS In connection with the Company's restructuring, the Company attached warrants to purchase common stock to the new issuance of 127/8% 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 currently and will expire on July 15, 2004. The table below summarizes warrant activity of the Company: Number Exercise of Shares Price --------- -------- Issued 175,536 $.01 --------- Balance at June 30, 1998 and 1997 175,536 $.01 ========= NOTE 9: ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS) 1998 1997 1996 NONCASH INVESTING AND FINANCING ACTIVITIES Related party receivable from sale of retail service center -- -- $ 662 Note receivable from sale of retail service center -- -- $148 Receivable from sale of retail service centers -- -- 2,390 Purchase contract obligations incurred for business acquisitions $(7,115) $(5,463) $(1,111) Capital lease obligations incurred for property and equipment $ (328) -- $ (757) ADDITIONAL CASH PAYMENT INFORMATION Interest paid $11,406 $11,156 $10,216 Income taxes paid (refunded), net $ (842) $ 3,361 $(1,647) NOTE 10: EMPLOYEE BENEFIT PLAN The Company has a defined contribution retirement plan covering substantially all employees. Employees who elect to participate may contribute a percentage of their salaries to the plan. The Company may make contributions to the plan at the discretion of its Board of Directors. No contributions to the plan were made by the Company during the years ended June 30, 1998, 1997 or 1996. NOTE 11: OPERATING LEASES Noncancellable operating leases, which cover office space and various equipment, expire in various years through 2004. These leases generally contain renewal options for periods ranging from 1 to 5 years and require the Company to pay all executory costs (property taxes, maintenance and insurance). Future minimum lease payments (in thousands) at June 30, 1998, were: 1999 $ 721 2000 428 2001 307 2002 152 2003 106 Thereafter 62 -------- Future minimum lease payments $ 1,776 ======== NOTE 12: RESTRUCTURING PROPOSAL COSTS During the year ended June 30, 1997, the Company was considering a proposal to restructure its debt and equity. The Company abandoned the proposal and has expensed the related costs of $910,000 and $1.9 million during the years ended June 30, 1998 and 1997, respectively. NOTE 13: SIGNIFICANT ESTIMATES AND CONCENTRATIONS Generally accepted accounting principles require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following: ESTIMATES Significant estimates related to self-insurance, goodwill amortization, litigation, collectibility of receivables and income tax assessments are discussed in Notes 1, 6 and 7. Actual losses related to these items could vary materially in the near-term from amounts reflected in the financial statements. NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS At June 30, 1998 and 1997, the Company's financial instruments consist of cash, trade receivables and payables, receivables from related parties and long-term debt. The following methods were used to estimate the fair value of financial instruments: RECEIVABLES FROM RELATED PARTIES It was not practicable to estimate the fair value of receivables from related parties. The amounts reflected in the balance sheet at June 30, 1998 and 1997, are short-term receivables generated from transactions between the Company and various related parties. LONG-TERM DEBT Fair value of long-term debt is estimated based on the trading prices of the Company's primary debt issuance. The fair value of the other debt approximates carrying value as other debt consists of multiple mortgage obligations and debentures with interest rates approximating rates currently available to the Company. LONG-TERM DEBT (CONTINUED) The carrying amounts and fair values of these financial instruments at June 30 are as follows (in thousands): 1998 1997 ------------------- ------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- Financial Assets: Cash $ 897 $ 897 $ 965 $ 965 Financial Liabilities: Senior Secured Notes due 2004 $119,248 $109,392 $113,139 $121,476 Other long-term debt $ 22,573 $ 22,573 $ 12,835 $ 12,835 NOTE 15: BUSINESS ACQUISITIONS During the year ended June 30, 1998, the Company acquired four LP gas operations through two asset purchase and two stock purchase transactions for a total of $12.1 million, of which $5.1 million was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. During the year ended June 30, 1997, the Company acquired six LP gas operations through five asset purchase transactions and one stock purchase transaction for a total of $9.5 million, of which $5.1 million was paid in cash with the remainder in mortgage obligations and the assumption of certain liabilities. Each of these acquisitions has been accounted for as a purchase by recording the assets acquired and the liabilities assumed at their estimated fair values at the acquisition date. Amounts paid above these fair values are recorded as excess of cost over fair value of net assets acquired. The consolidated operations of the Company include the operations of the acquirees from the acquisition dates. Unaudited pro forma consolidated operations assuming the purchases were made at the beginning of the previous and current years are shown below: 1998 1997 (In Millions) Net sales $ 87.2 $ 108.7 Net income (loss) $ (9.9) $ 2.7 The pro forma results are not necessarily indicative of what would have occurred had the acquisitions been on those dates, nor are they necessarily indicative of future operations. Independent Accountants' Report on Financial Statement Schedules Board of Directors and Stockholders All Star Gas Corporation Lebanon, Missouri In connection with our audit of the consolidated financial statements of ALL STAR GAS CORPORATION for each of the three years in the period ended June 30, 1998, 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 consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ BAIRD, KURTZ & DOBSON Springfield, Missouri August 28, 1998 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 (IN THOUSANDS) Balance at Charges to Amount Balance Beginning Costs and Written at End Description of Year Expenses Off Other of Year - ----------- ---------- ---------- ------- ----- ------- Valuation accounts deducted from assets to which they apply - for doubtful accounts receivable: June 30, 1998 $899 $342 $475 $96(A) $844 $(18)(B) June 30, 1997 $722 $483 $369 $83(A) $899 $(20)(B) June 30, 1996 $800 $889 $820 $(147)(B) $722 (A) Allowance for doubtful accounts receivable established with respect to the acquisition of retail service centers. (B) Related to accounts receivable which were sold in conjunction with the disposition of retail service centers. EX-10 2 EXHIBIT 10.40 Exhibit 10.40 AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT AND AMENDMENT NO. 7 TO SUPPLEMENT A TO LOAN AND SECURITY AGREEMENT February 20, 1997 All Star Gas Corporation, f/k/a Empire Gas Corporation 1700 South Jefferson Street Lebanon, Missouri 65536 Attention: Ms. Valeria Schall Ladies and Gentlemen: Reference is made to the Loan and Security Agreement dated as of June 29, 1994 among All Star Gas Corporation, f/k/a Empire Gas Corporation ("Borrower"), the Lenders party thereto ("Lenders") and Bank of America Illinois, f/k/a Continental Bank, f/k/a Continental Bank N.A., as a Lender and as Agent for the Lenders ("BAI"), as amended through the date hereof (the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement. Borrower has requested that Requisite Lenders agree to amend the Loan Agreement in order (i) to increase the maximum amount of aggregate cash consideration that may be paid in any twelve month period in connection with Permitted Acquisitions, (ii) permit certain stock repurchase transactions, (iii) lower the applicable interest rates and Letter of Credit fees and (iv) delete the capital expenditure limitation. Requisite Lenders have agreed to do so, on the terms and conditions contained herein. Therefore, the parties hereto agree as follows: 1. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows: (a) Section 1.1 (i) The formula contained in the term "LIBOR Rate" contained in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety, as follows: LIBOR Base Rate "LIBOR Rate=2.50% plus --------------------------- 1-Eurocurrency Requirement" (ii) The definitions of the terms "Applicable LIBOR Margin" and "Applicable Reference Margin" are hereby deleted in their entirety. (iii) Clause (b) of the definition of the term "Permitted Acquisition" contained in Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety, as follows: "(b) total cash consideration paid for such Acquisition, together with the cash consideration paid for all other Permitted Acquisitions consummated in the immediately preceding twelve month period, does not exceed $15,000,000 in the aggregate, minus the aggregate amount of Investments made by Borrower in its Subsidiaries during the period commencing on the Closing Date and ending on the date of such Acquisition;" (b) Section 2.2. The third sentence of subsection (b) of Section 2.2 of the Loan Agreement is hereby amended by deleting therefrom the words "one and one-half percent (1.5%)" contained herein and inserting in their place the words "one percent (1.0%)". (c) Section 5.13. Clause (a) of Section 5.13 of the Loan Agreement is hereby amended and restated in its entirety, as follows: "(a) purchase or redeem any shares of its stock or any options or warrants therefor, other than (i) a repurchase of the Warrants upon the occurrence of a merger constituting a Repurchase Event to which Agent has consented and (ii) repurchases of stock of Borrower so long as no Event of Default or Unmatured Event of Default is then in existence or would be caused thereby; provided, that the consideration paid by Borrower in such stock repurchases shall not exceed $250,000 for any single transaction or $1,000,000 in the aggregate for all such stockrepurchases during the period commencing on February 15, 1997 and ending on the Termination Date;" 2. Amendments to Supplement A. Supplement A is hereby amended as follows: (a) Section 3.1.1. Subsection (a) of Section 3.1.1 of Supplement A is hereby amended by deleting the phrase "Applicable Reference Margin" contained therein and inserting in its place the percentage "1.00%". (b) Section 6.2. Section 6.2 of Supplement A is hereby deleted in its entirety. 3. Scope. This Amendment No. 5 to Loan and Security Agreement and Amendment No. 7 to Supplement A to Loan and Security Agreement (the "Amendment") shall have the effect of amending the Loan Agreement, Supplement A and the Related Agreements as appropriate to express the agreements contained herein. In all other respects, the Loan Agreement, Supplement A and the Restated Agreements shall remain in full force and effect in accordance with their respective terms. 4. Conditions to Effectiveness. This Amendment shall be effective on February 28, 1997, upon the execution of this Amendment BAI, on behalf of the Requisite Lenders, acceptance hereby by Borrower and each other Obligor, and delivery hereof to BAI at 231 South LaSalle Street, Chicago, Illinois 60697, Attention: Mr. Mark Cordes, on or prior to February 28, 1997. Very truly yours, BANK OF AMERICA ILLINOIS, f/k/a CONTINENTAL BANK, f/k/a CONTINENTAL BANK N.A., AS AGENT ON BEHALF OF REQUISITE LENDERS By ___________________________________ Its Senior Vice President Acknowledged and agreed to 24th day of February, 1997. ALL STAR GAS CORPORATION, f/k/a EMPIRE GAS CORPORATION By /s/ Mark Castaneda _____________________________ Its V.P. Finance Acknowledgment and Acceptance of Guarantors Each of the undersigned is a party to the Master Corporate Guaranty dated June 29, 1994 in favor of BAI, as Agent for itself and Lenders (the "Guaranty"), pursuant to which each of the undersigned has guaranteed the Obligations of Borrower under the Loan Agreement. Each of the undersigned hereby acknowledges receipt of the foregoing Amendment, accepts and agrees to be bound by the terms thereof, ratifies and confirms all of its obligations under the Guaranty, and agrees that the Guaranty shall continue in full force and effect as to it, notwithstanding such Amendment. Acknowledged and Agreed to this 24th day of February, 1997. EACH OF THE SUBSIDIARIES OF ALL STAR GAS CORPORATION, f/k/a EMPIRE GAS CORPORATION, LISTED ON EXHIBIT A ATTACHED HERETO By Valeria Schall ---------------------------------- Vice President of each Subsidiary EXHIBIT A List of Subsidiaries EX-10 3 EXHIBIT 10.41 Exhibit 10.41 AMENDMENT NO. 6 TO LOAN AND SECURITY AGREEMENT AND AMENDMENT NO. 8 TO SUPPLEMENT A TO LOAN AND SECURITY AGREEMENT June 29, 1998 All Star Gas Corporation, f/k/a Empire Gas Corporation 1700 South Jefferson Street Lebanon, Missouri 65536 Attention: Ms. Valeria Schall Ladies and Gentlemen: Reference is made to the Loan and Security Agreement dated as of June 29, 1994 among All Star Gas Corporation, f/k/a Empire Gas Corporation ("Borrower"), the Lenders party thereto ("Lenders") and Bank of America National Trust and Savings Bank, successor by merger to 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 ("BOA"), as amended through the date hereof (the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement. Borrower has requested that the Requisite Lenders agree to amend the Loan Agreement and Supplement A thereto (a) to extend the maturity date thereof through September 29, 1998 and (b) in various other respects. The Requisite Lenders have agreed to the foregoing, on the terms and conditions contained herein. Therefore, the parties hereto agree as follows: 1. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows: (a) Section 1.1. Section 1.1 of the Loan Agreement is hereby amended as follows: (i) The definition of the term "LIBOR Rate" is hereby amended by deleting the percentage "2.50%" contained therein and inserting in its place the percentage "3.00%". (ii) The definition of the term "Permitted Acquisition" is amended and restated in its entirety as follows: "'Permitted Acquisition' means any Acquisition that is expressly consented to in writing by Requisite Lenders." (iii) The definition of the term "Termination Date" is hereby amended by deleting the date "June 29, 1998" contained therein and inserting in its place the date "September 29, 1998." (b) Section 2.5(c). Section 2.5(c) of the Loan Agreement is hereby amended by deleting the phrase "first Banking Day of each month for the preceding month" and replacing it with the phrase "first Banking Day on or after the first and fifteenth calendar days of each month for the preceding period". (c) Section 5.28. A new Section 5.28 is hereby added to the Loan Agreement as follows: "Banking Relationships. Maintain, and cause each of its Subsidiaries to maintain, its principal business, cash management, operating, and administrative deposit accounts at Bank of America National Trust and Savings Association." (d) Section 3.2(d) of the Loan Agreement is hereby amended by inserting the following at the end thereof: "On or before July 15, 1998, Borrower shall establish at Bank of America National Trust and Savings Association a blocked account for receipt of the proceeds of Accounts Receivable and other Collateral of Borrower and its Subsidiaries, on terms and pursuant to documents in form and substance acceptable to Agent." 2. Amendments to Supplement A. Supplement A is hereby amended as follows: (a) Section 2.2. Section 2.2 of Supplement A is hereby amended as follows: (i) Subsection (ii) thereof is hereby amended and restated in its entirety as follows: "(ii) an amount equal to the least of (a) $8,000,000, (b) 150% of Account Receivable Availability and (c) up to 52% (after deduction of such reserves and allowances as Agent deems proper and necessary in its reasonable judgment) of Eligible Inventory." (ii) Subsection (iii) is hereby deleted in its entirety. (b) Section 3.1.1(a). Section 3.1.1(a) of Supplement A is hereby amended by deleting the percentage "1.00%" contained therein and inserting in its place the percentage "1.50%". 3. Representations and Warranties. The Borrower confirms that all of the representations and warranties set forth in the Loan Agreement are true and correct in all material respects as of the date of execution hereof. In particular, the list of Borrower's Subsidiaries and their business locations attached hereto as Annex 1 is true and correct in all respects. 4. Scope. This Amendment No. 6 to Loan and Security Agreement and Amendment No. 8 to Supplement A to Loan and Security Agreement (the "Amendment") shall have the effect of amending the Loan Agreement, Supplement A and the Related Agreements as appropriate to express the agreements contained herein. In all other respects, the Loan Agreement, Supplement A and the Related Agreements shall remain in full force and effect in accordance with their respective terms. 5. Conditions to Effectiveness. This Amendment shall be effective upon: (a) the execution of this Amendment by BOA, on behalf of the Requisite Lenders, acceptance hereof by Borrower and each other Obligor, and delivery hereof to BOA at 231 South LaSalle Street, Chicago, Illinois 60697, Attention: Mr. Steven Standbridge, on or prior to June 29, 1998; and (b) the payment to BOA of a renewal fee of $15,000 in consideration of this Amendment, which fee may be charged by BOA to the Loan Account and shall be fully earned upon the execution of this Amendment. Very truly yours, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, SUCCESSOR BY MERGER TO BANK OF AMERICA ILLINOIS, f/k/a CONTINENTAL BANK, f/k/a CONTINENTAL BANK N.A., AS AGENT ON BEHALF OF REQUISITE LENDERS By:_____________________________ Its:_____________________________ Acknowledged and agreed to 29th day of June, 1998. ALL STAR GAS CORPORATION, f/k/a EMPIRE GAS CORPORATION By: /s/ Valeria Schall Its: Executive Vice President Acknowledgment and Acceptance of Guarantors Each of the undersigned is either (a) a party to the Master Corporate Guaranty dated June 29, 1994 in favor of BOA, as Agent for itself and Lenders (the "Guaranty"), pursuant to which each of the undersigned has guaranteed the Obligations of Borrower under the Loan Agreement, (b) has previously acquired to become a party to the Guaranty or (c) is agreeing by its signature below to become a party to the Guaranty. Each of the undersigned hereby acknowledges receipt of the foregoing Amendment, accepts and agrees to be bound by the terms thereof, ratifies and confirms all of its obligations under the Guaranty, and agrees that the Guaranty shall continue in full force and effect as to it, notwithstanding such Amendment. Acknowledged and Agreed to this 29th day of June, 1998. EACH OF THE SUBSIDIARIES OF ALL STAR GAS CORPORATION, f/k/a EMPIRE GAS CORPORATION, LISTED ON EXHIBIT A ATTACHED HERETO By: /s/ Valeria Schall --------------------------------------- Vice President of each Subsidiary EXHIBIT A List of Subsidiaries
CORPORATE REPORT JUNE 18, 1998 AUTHORIZED TO CORPORATION INCORPORATED DO BUSINESS OFFICERS DIRECTORS All Star Gas Corporation Missouri None President Paul S. Lindsey Paul S. Lindsey Exec. VP Kristin L. Lindsey Kristin L. Lindsey Exec. VP Valeria Schall Douglas A. Brown COO Marty Trickett Jim Shoemake Sr. VP Robert C. Heagerty Bruce L. Withers Sr. VP Dan Binning VP/MIS J. Greg House All Star Gas Inc. of Arizona None President Dan Binning Valeria Schall Arizona Vice President Jon Brotz Robert L. Mathews All Star - Globe VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Camp Verde VP/Asst. Corp. Robert L. Mathews All Star - Flagstaff Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Arkansas Oklahoma President Robert Heagerty Valeria Schall Arkansas Vice President Steve Swillum Robert L. Mathews All Star - Greenwood VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Lincoln VP/Asst. Corp. Robert L. Mathews All Star - Siloam Sec. Robby E. Roberts Springs VP/Treasurer Summer's Butane All Star Gas Inc. of California None President Dan Binning Valeria Schall California Vice President Jon Brotz Robert L. Mathews All Star - Needles Vice President Steve Mackinder Robby E. Roberts VP/Corp. Sec. Valeria Schall O.C. Propane VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of California None President Dan Binning Valeria Schall Elsinore Vice President Jon Brotz Robert L. Mathews VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of California None President Dan Binning Valeria Schall Sacramento Vice President Steve Mackinder Robert L. Mathews VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of California None President Dan Binning Valeria Schall Susanville Vice President Steve Mackinder Robert L. Mathews VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Yucca California None President Dan Binning Valeria Schall Valley Vice President Jon Brotz Robert L. Mathews VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Colorado Colorado President Dan Binning Valeria Schall Colorado Vice President Gregg Marken Robert L. Mathews All Star - Gunnison VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Boulder VP/Asst. Corp. Robert L. Mathews All Star - Canon City Sec. Robby E. Roberts All Star - Castle VP/Treasurer Rock All Star - Colorado Springs All Star - Denver All Star - Evergreen All Star - Fairplay All Star - Fort Collins All Star - Delta All Star - Grand Junction All Star - Loveland All Star - Monte Vista All Star - Pueblo All Star - Woodland Park All Star Gas Inc. of Michigan None President Marty Trickett Valeria Schall Michigan Vice President Tim Miller Robert L. Mathews All Star - Big Rapids VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Newaygo VP/Asst. Corp. Robert L. Mathews All Star - Charlotte Sec. Robby E. Roberts All Star - Coleman VP/Treasurer All Star - Chassell All Star - Jackson All Star - Kalamazoo All Star - Marquette All Star - Munising All Star - Vassar All Star - Oakley All Star Gas Inc. of Delaware Missouri President Robert Heagerty Valeria Schall Missouri Vice President Jerry Mulligan Robert L. Mathews All Star - Bolivar Steve Swillum Robby E. Roberts All Star - Buffalo VP/Corp. Sec. Valeria Schall All Star - Carrolton VP/Asst. Corp. Robert L. Mathews All Star - Clinton Sec. Robby E. Roberts All Star - Cole Camp VP/Treasurer All Star - Humansville All Star - Kansas City All Star - Lebanon All Star - Marshall All Star - Mt. Vernon All Star - Warsaw All Star - Camdenton All Star - Cuba All Star - Elsberry All Star - Lake Ozark All Star - Laurie All Star - Mid-Mo All Star - Morgan County All Star Gas Inc. of No. No. Carolina None President Marty Trickett Valeria Schall Carolina Vice President J.D. Deitz Robert L. Mathews All Star - Denver VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Gastonia VP/Asst. Corp. Robert L. Mathews All Star - Sec. Robby E. Roberts Hendersonville VP/Treasurer All Star - Waynesville All Star - Wilmington All Star - Apex All Star - Ayden All Star - Carthage All Star - Creedmoor All Star - Durham All Star - Warrenton All Star - Washington All Star - Wilson All Star - Zebulon All Star Gas Inc. of Ohio Ohio None President Marty Trickett Valeria Schall All Star - Columbiana Vice President Tim Miller Robert L. Mathews All Star - Dover VP/Corp. Sec. Valeria Schall Robby E. Roberts All Star - Mt. Vernon VP/Asst. Corp. Robert L. Mathews All Star - Toledo Sec. Robby E. Roberts All Star - Johnstown VP/Treasurer All Star Gas of Oklahoma, Oklahoma None President Valeria Schall Valeria Schall Inc. Vice President Vacant Robert L. Mathews VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Marketing Oklahoma Iowa President Valeria Schall Valeria Schall Corporation Missouri Vice President Vacant Robert L. Mathews Florida VP/Corp. Sec. Valeria Schall Robby E. Roberts Kentucky VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Wyoming None President Dan Binning Valeria Schall Wyoming Vice President Gregg Marken Robert L. Mathews Big Horn VP/Corp. Sec. Valeria Schall Robby E. Roberts Ron's LP Gas VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer Empire Gas Corp. formerly California None President Valeria Schall Valeria Schall Empiregas Equip. Vice President Vacant Robert L. Mathews Corp. VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Indiana None President Marty Trickett Valeria Schall Indiana Vice President Tim Miller Robert L. Mathews Orland LP Gas VP/Corp. Sec. Valeria Schall Robby E. Roberts VP/Asst. Corp. Robert L. Mathews Sec. Robby E. Roberts VP/Treasurer All Star Gas Inc. of Nevada Nevada None President Dan Binning Valeria Schall All Star - Sparks Vice President Steve Mackinder Robert L. Mathews Tippin - Winnemucca VP/Corp. Sec. Valeria Schall Robby E. Roberts Tippin - Fallon VP/Asst. Corp. Robert L. Mathews Tippin - Hawthorne Sec. Robby E. Roberts VP/Treasurer
ANNEX I List of Subsidiaries and Locations EX-10 4 EXHIBIT 10.42 Exhibit 10.42 February 12, 1998 VIA FACSIMILE AND FEDERAL EXPRESS All Star Gas Corporation, f/k/a Empire Gas Corporation 1700 South Jefferson Street Lebanon, Missouri 65536 RE: LOANS BY BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, F/K/A BANK OF AMERICA ILLINOIS, TO ALL STAR GAS CORPORATION, F/K/A EMPIRE GAS CORPORATION Ladies and Gentlemen: Reference is made to the Loan and Security Agreement dated as of June 29, 1994 among All Star Gas Corporation, f/k/a Empire Gas Corporation ("Borrower"), the Lenders party thereto ("Lenders") and Bank of America National Trust and Savings Association, f/k/a 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 ("Agent"), as amended through the date hereof (the "Loan Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Loan Agreement. Borrower has informed Agent that Borrower has breached Section 6.4 of Supplement A to the Loan Agreement by permitting Acquisition Availability on December 31, 1997 to be less than the minimum required amount for the 12 month period ended on such date. The occurrence of such breach and the continuance thereof for a period exceeding 10 days after the occurrence thereof constitutes an Event of Default under Section 6.1(h) of the Loan Agreement (the "Existing Default"). Borrower has informed Agent that the Existing Default remains in existence as of the date hereof. Consequently, Borrower has requested that Requisite Lenders agree to waive the Existing Default. Requisite Lenders have agreed to do so, on the condition set forth herein. Subject to the last paragraph hereof, Requisite Lenders hereby waive the Existing Default and any and all rights and remedies that Agent and Lenders may have under the Loan Agreement, the Related Agreements and applicable law in respect thereof. Other than as expressly set forth herein, the foregoing waiver shall not constitute a waiver of any Events of Default or Unmatured Events of Default that are now in existence or that may hereafter occur or any rights or remedies that Agent or any Lender may have under the Loan Agreement, the Related Agreements or applicable law with respect thereto, all of which rights and remedies Agent and Lenders hereby specifically reserve. The effectiveness of the foregoing waiver is conditioned upon Borrower's agreement, as evidenced by its signed acknowledgment of this letter below, that notwithstanding anything contained in Section 5.12(d) of the Loan Agreement to the contrary, no Permitted Acquisition may be consummated by Borrower without the prior written consent of Requisite Lenders in their sole discretion. Very truly yours, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, f/k/a Bank of America Illinois, as Agent for the Lenders By____________________________________ Its__________________________________ Acknowledged and agreed to this 12th day of February, 1998. ALL STAR GAS CORPORATION, f/k/a Empire Gas Corporation By /s/ Paul S. Lindsey _________________________ Its President _____________________ EX-10 5 EXHIBIT 10.43 Exhibit 10.43 LEASE OF AIRCRAFT Paul S. Lindsey Limited Liability Company, a Delaware limited liability company (hereinafter called "Lessor") enters into the following lease with All Star Gas Corporation, a Missouri corporation (hereinafter called "Lessee"). 6. Lease of Airplane, Term, Rental. Lessor leases to Lessee, subject to the terms and conditions, and for the consideration herein set out, the following described airplane, 1978 Piper Model PA31T S/N 31T-7820061 (Serial No.), complete with the manufacturer's specified equipment and the following optional equipment: (see attached) for a term of 120 months, commencing on the date of the delivery of the airplane to Lessee. In consideration for the lease of said airplane, Lessee shall pay to Lessor in 36 monthly installments of $7,900.00 per month, with a final monthly installment of remaining principal rental balance plus interest. The parties shall have the option to renew the lease for an additional 36 month period. All payments shall be due and payable at the office of the Lessor on the 1st day of the month, beginning January 1, 1998, a payment default shall occur if any monthly payment is not received by lessor on the first day of each month. 7. Security Deposit. Lessee has this day delivered to Lessor the sum of $20,000.00 as an initial security deposit to be held by the Lessor as security for the faithful performance of all terms, conditions and agreements of this lease. Lessee acknowledges that Lessor may require an additional security deposit to Lessor upon requests. Said sum, if not applied toward payment of back rent or toward payment of damages suffered by Lessor by reason of any breach hereunder by Lessee, may at Lessor's option, be applied to the final payment due under this lease, or will be returned to Lessee upon the Lessee's full and complete compliance with all terms, conditions and agreements of this lease. In the event of any retaking or repossession of said airplane by Lessor due to Lessee's default hereunder. Lessor may apply the said security upon all damages suffered as a result of said default, and may retain said security to apply on such damages as may be suffered or which accrue thereafter by reason of said default and breach. 8. Location of Airplane. The Lessee and Lessor agree that the said airplane shall be permanently based at Floyd Jones Airport, in Lebanon, MO 65536. The Lessee shall not make any change in such permanent base without first notifying the Lessor in writing of said change and receiving the Lessor's approval. 9. Default. In the event that Lessee defaults in any of the provisions or in any of the terms, conditions and covenants to be performed hereunder upon the part of the Lessee, or in the event that Lessee should be the subject of any bankruptcy proceeding or become insolvent, or make an assignment for the benefit of creditors, or consent to the appointment of a receiver or trustee, or if a trustee or receiver is appointed for the Lessee without his consent, or if bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings are instituted by or against the Lessee, then in such event, Lessor, at its option, may declare this lease as terminated and take immediate possession of the airplane or declare that Lessee has exercised its option to purchase the airplane. Lessee hereby waives all rights under all exemption laws. 10. Right of Repossession. In the event Lessee defaults under this lease, Lessor may take immediate possession of the airplane without the necessity of legal action to recover possession of same, and Lessor is hereby authorized to enter upon the premises where said aircraft may be found without liability for trespassing for so entering, and Lessee shall be liable to Lessor for the payment due upon termination as herein set out as liquidated damages and not as a penalty. 11. Condition of Airplane, Title, Control. Lessee acknowledges receipt of the said airplane in good, safe and serviceable condition, and that it is fit for use. It is understood and agreed between the parties that title to the airplane remains with the Lessor, but that the Lessor shall have no control over the operation of the airplane; however, nothing stated herein shall authorize the Lessee or any other person to operate the airplane or to incur any liability or obligation on behalf of the Lessor. Lessor warrants that it is the absolute owner of the said airplane and that it has the full right to lease the airplane to the Lessee. 12. Return of Airplane. Lessee agrees that upon the termination of this lease, Lessee will return said airplane to Lessor in the same and as good a condition as when received by Lessee, normal wear and tear excepted. In the event the Lessee does not return the airplane in such condition, the Lessor may make any repairs necessary to restore the airplane to such condition, and the Lessee agrees to reimburse the Lessor for any expense involved for said restoration. 13. License Fees, Taxes. Lessee agrees to pay when due, all license fees and other fees and assessments necessary for the securing of licenses, certificates of title and other similar permits for the operation of said airplane, such certificates showing title in the Lessor, and further agrees to pay when due, all taxes now or hereafter imposed by any state, federal or local government upon said airplane, or upon the leasing, use or operation thereof whether assessed to Lessor or Lessee. Upon the payment of fees, assessments and taxes, Lessee will immediately deliver the receipt for such payment to Lessor. 14. Insurance. Lessee assigns and shall secure and maintain in effect throughout the lease term such insurance policies covering said airplane as follows: Full Hull Coverage, including all risk, both in flight and not in flight in an amount not less than $1,950,000. In the event that repairs are made for damage, Lessee agrees to pay the deductible amount as provided in the policy. Liability Insurance will be obtained by the Lessee and written in the name of the Lessee, the Lessor and the Members of the Lessor. Copies of all insurance policies or certificates are attached to each copy of the lease or will be provided upon request. 15. Loss of or Damage to Airplane. In the event of any loss or damage to the airplane, the Lessee shall immediately report said loss or damage to the Lessor, the insurance company and to any and all applicable governmental agencies, both federal and state, and shall furnish such information and execute such documents as may be required and necessary to collect the proceeds from any insurance policies. In this event, the rights, liabilities and obligations of the parties hereto shall be as follows: (a) In the event that the airplane is lost or is damaged beyond repair, the proceeds of said insurance policy or policies shall be payable to Lessor. If the proceeds of insurance are not sufficient to cover the loss or damage to the airplane, except by reason of the Lessee's failure to procure the amount of insurance specified above, any difference between the proceeds of insurance and the sum remaining to be paid under this lease, shall be the responsibility of the Lessee, and Lessee shall pay said difference to the Lessor. Then and in that event this lease shall terminate. (b) In the event that the airplane is partially damaged, then this lease shall remain in full force and effect. The Lessee shall, at its cost and expense, fully repair the airplane in order that the airplane shall be placed in as good as the same condition as it was in prior to the damage. Upon the damage being repaired and the airplane being in the same condition as prior to the damage, the Lessor shall reimburse Lessee out of any proceeds of insurance covering such damage received Lessor, this payment to be contingent upon the Lessee furnishing to Lessor the necessary information and documents required for the recovery of said insurance proceeds. The payment of this amount is further contingent upon the approval by the Lessor of the repairs made by the Lessee, including the cost thereof, and the airplane placed as nearly as possible in the same condition as before said damage occurred. Any and all risk of loss or damage shall be borne by the Lessee. 16. Restrictions on Use. During the term of this lease, the Lessee shall have complete use of the airplane; however, such use shall be restricted to the ordinary purposes of Lessee's business and pleasure. Lessee will not use, operate, maintain or store the airplane improperly, carelessly or in violation of this lease, or of any applicable law or regulation, federal or state, or any instructions furnished therefor by the Lessor. Lessee shall not operate said airplane for hire. Lessee shall not operate said airplane beyond the geographical limits as defined in the attached insurance policies; nor use the airplane for any purpose other than that stipulated in the insurance policies, unless it first notifies the Lessor in time for the Lessor to approve of said operation and obtain proper insurance coverage for the intended trip. The cost of any additional insurance shall be borne by Lessee. 17. Maintenance, Repairs, Inspection. Lessee agrees at all times to keep the airplane in a fully operative condition and completely airworthy; and further to keep said airplane in mechanical condition adequate to comply with regulations as set forth by the Department of Transportation and the Federal Aviation Administration and any other regulations as set forth by any federal, state or local governing body, domestic or foreign, having power to regulate or supervise the airplane or the Lessee's maintenance, use or operation of said airplane. Lessee agrees that it will make no structural modifications on said airplane without first having been granted written permission to do so by the Lessor. The Lessor or its agent shall have the right at any reasonable times to fully inspect the said airplane and any parts thereof to determine their condition and to further determine whether or not the Lessee is performing according to the covenants and conditions herein contained relative to the proper care and maintenance of said airplane. 18. Operation of Airplane. The Lessee agrees that the subject airplane will at all times during the term of this lease be operated by safe, careful and duly qualified pilots employed and paid or contracted for by the Lessee. The Lessee further agrees that the Lessor may demand the removal of any pilot operating the said airplane provided said demand is based upon sufficient cause. Lessee warrants that each of the pilots who will pilot said airplane shall be a duly qualified pilot whose license is in good standing and who meets the requirements established and specified by the insurance policies attached to and made a part of this lease. Lessee further agrees that the pilots operating said airplane must meet the minimum requirements established by the insurance carrier chosen by Lessee and approved by Lessor. 19. Indemnity of Lessor. The Lessee agrees, as part consideration of this lease, to forever unconditionally indemnify and save harmless the Lessor and its members, agents, representatives, managers, employees, successors and assigns, from and against any and all loss, damage, injury or death claims, demands and liability of every nature at any time and from time to time (including, without limitation, claims involving strict or absolute liability in tort), including all costs and reasonable attorneys' fees, arising directly or indirectly from or in connection with the possession, maintenance, use or operation of the subject airplane. The Lessee further unconditionally agrees to hold Lessor and its successors and assigns harmless from any and all liability arising at any time and from time to time from Lessee's loss of use of said airplane. 20. Indemnity of Members of Lessor. The Lessee agrees, as part consideration of this lease, to forever unconditionally indemnify and save harmless the Members of Lessor and their agents, representatives, employees, successors and assigns, from and against any and all loss, damage, injury or death claims, demands and liability of every nature at any time and from time to time (including, without limitation, claims involving strict or absolute liability in tort), including all costs and reasonable attorney's fees, arising directly or indirectly from or in connection with the possession, maintenance, use or operation of the subject airplane. The Lessee further unconditionally agrees to hold the Members of Lessor and their agents, representatives, employees, successors and assigns harmless from any liability arising from Lessee's loss of use of said airplane. 21. Assignment of Lessee. Lessee agrees not to assign this lease or any interest therein without the prior written consent of Lessor, or to sublet said airplane or to part with the possession of same, either by voluntary act, operation of law or otherwise. In the event that the Lessee sublets or attempts to sublet same, or voluntarily or involuntarily parts with possession of same, or attempts to move said airplane from the airport where it is required to be kept, except while being in the ordinary business of Lessee or for its pleasure, or in any manner violates any of the terms hereof, then in either or any of these events this lease shall be the option of the Lessor immediately terminate and Lessor shall be entitled to immediate possession of said airplane. Lessee agrees to pay all attorney's fees, collection charges or other expenses, occasioned by Lessee's failure to abide by any of the provisions hereof. 22. Assignment of Lessor. It is understood by the parties hereto that the Lessor may assign this lease and said airplane, and that such assignee may also assign the same. All rights of Lessor hereunder shall be succeeded to by the assignee under any such assignment, and said assignee's title to this lease, to the rental herein provided for and to the said airplane shall be free from all defenses, setoffs or counterclaims which Lessee may be entitled to assess against Lessor; it being understood and agreed that any such assignee does not assume any obligations of the Lessor herein named, and that Lessee may separately claim against Lessor as to any matters which Lessee may be entitled to assert against the Lessor. 23. Entire Agreement, Severability, Successors. Lessee and Lessor hereby agree that no representation, statement or agreement other than those set forth herein shall be binding upon either of the parties hereto unless specified in writing, signed by each and purporting to be an express modification of this lease. Should any provisions of this lease be held invalid, such provisions shall be deemed to be eliminated insofar as it is declared invalid and the balance of the lease shall in no wise be affected thereby. Subject to the terms hereof, the covenants and conditions of this lease shall inure to the benefits of and be binding upon the heirs, executors, administrators, personal representatives, trustees, successors or assigns of the parties hereto. 24. Controlling Law and Jurisdiction. The validity, interpretation and performance of this lease shall be subject to and construed under the laws of Missouri, without regard to principles of conflicts of law. 25. Waiver of Conflict of Interest. Paul S. Lindsey, Limited Company and All Star Gas Corporation have both been represented in the drafting of this lease by the law firm of Watson & Marshall L.C. Paul S. Lindsey, Limited Company and All Star Gas Corporation each hereby agree to the dual representation of them by Watson & Marshall L.C. and each of them waives any present or future claim of conflict of interest. IN WITNESS WHEREOF, the parties hereto have placed their hands and seals on this 31st day of December, 1998. All Star Gas Corporation, a Missouri corporation By: /s/ Paul S. Lindsey ___________________________________________ Paul S. Lindsey, President ATTEST: /s/ Valeria Schall ________________________ Secretary Paul S. Lindsey, Limited Liability Company A Delaware Limited Liability Company /s/ Valeria Schall _______________________________________________ Valeria Schall, Manager - --------------------------------------------------------------------------- YEAR MFG. MANUFACTURER OF AIRCRAFT MODEL NO. SERIAL NO. - --------------------------------------------------------------------------- 1978 Piper PA31T 31T-7820061 - --------------------------------------------------------------------------- MFG. OF ENGINE MODEL ENGINE SERIAL FAA NO. HOME AIRPORT ENGINE(S) NO.(S) NO(S) - --------------------------------------------------------------------------- Pratt & Whitney P&W PT6A-28 N303KL Floyd W. Jones P&W PT6A-28 - --------------------------------------------------------------------------- DESCRIBE EXTRA EQUIPMENT: Bendix radar, 11 Morrow Fly Buddy GPS w/datacard, King Gold Crown - standard package. - --------------------------------------------------------------------------- EX-21 6 EXHIBIT 21.1 Exhibit 21.1 ALL STAR GAS CORPORATION LISTING OF SUBSIDIARIES September 15, 1998 All Star Gas Inc. of Arizona All Star Gas Inc. of Arkansas All Star Gas Inc. of California All Star Gas Inc. of Colorado All Star Gas Inc. of Idaho All Star Gas Inc. of Jacksonville All Star Gas Inc. of Arma Empire Underground Storage, Inc. All Star Gas Inc. of Louisiana All Star Gas Inc. of Michigan All Star Gas Inc. of Missouri Utility Collection Corporation All Star Gas Field Services Corp All Star Airlines, Inc. All Star Gas Inc. of North Carolina All Star Gas Inc. of Ohio All Star Gas Inc. of Oklahoma All Star Gas Inc. of Oregon All Star Gas Inc. of South Carolina All Star Gas Inc. of Texas All Star Gas Inc. of Washington All Star Gas Inc. of Wyoming Empire Gas Corporation All Star Gas Inc. of Indiana All Star Gas Inc. of Nevada All Star Acquisition Co. Red Top Gas Inc. All Star Development Corporation All Star Transports, Inc. - Oregon EX-27 7 EXHIBIT 27 - FINANCIAL DATA SCHEDULE
5 12-mos Jun-30-1998 Jun-30-1998 897 0 5,370 844 6,985 14,470 118,313 37,323 113,788 26,701 134,526 14 0 0 (52,688) 113,788 82,277 86,510 42,416 42,416 0 342 18,187 (14,084) (4,130) (9,954) 0 0 0 (9,954) (6.36) (6.36)
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