Draft 5/20/98
PROPOSAL TO
THE SPECIAL COMMITTEE
STAR GAS PARTNERS, L.P.
Subject to further diligence and assuming no material adverse changes in
Star or Petro, or in market conditions, A.G. Edwards proposes:
(A) Increase Common Unit Distribution Payments. Simultaneous with the
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closing date, the quarterly distribution for common unitholders shall
be raised from $2.20 per annum to $2.30 per annum.
(B) Star Partnership Agreement. Appropriate steps should be initiated to
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amend the Star Partnership Agreement as of the closing date (assumed
to be September 30, 1998) in order to:
(B-1) authorize the creation of new classes of senior subordinated
units and deferred partnership units, which shall be junior to
all present and future common units, but senior to the present
subordinated units;
(B-2) prohibit the payment of any distributions to senior
subordinated unitholders and to subordinated unitholders except
from net distributable cash flow available for such period
after first paying MQD to the common unitholders for such
period plus any cumulative common unit arrearages; and
(B-3) provide a surplus available for common unit distributions
equal to $ 1.10 per new common unit, as part of the Refinancing
Transaction, described below.
(C) Definitive Transaction Agreement. A draft of the definitive
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transaction agreement should be prepared by Petro for The Special
Committee's careful consideration (and for future submission to the
Board of Directors and common unitholders of Star and to the Board of
Directors and shareholders of Petro for approval) setting forth the
following steps:
(C-1) At closing of the Transaction, Star shall be obligated to pay
to Petro's common shareholders, subject to the Revision Amount
as defined in (C-4) below, the following:
(A) 2,718 senior subordinated units of Star;
(B) 524 subordinated units of Star; the balance must be
delivered to Star free and clear for retirement;
(C) 289 GP units of Star; and
(D) 909 deferred partnership units of Star, convertible into
senior subordinated units with a trigger relating to the
financial performance of Petro only.
(C-2) The Closing shall be contingent upon the successful completion
of the following (collectively, the "Refinancing Transaction"):
(A) The issuance of 6,588 new common units at a gross spread of
no greater than 5.0%, and
(B) The issuance of $125,000 new debt at a gross spread of no
greater than 3.0%
The use of proceeds of the Refinancing Transaction shall be
solely to refinance certain of the outstanding indebtedness
assumed from Petro.
(C-3) Prior to the closing of the Transaction, Petro shall represent,
warrant and agree that:
(A) Prior to the Refinancing Transaction, Petro shall have a
balance of debt and preferred stock (at redemption value),
less any cash balance in excess of such amounts required in
(C-3)(B) below, of no more than $331,367.
(B) Petro shall have a minimum cash balance of $500,000, a
positive working capital balance, and a total common
shareholders' deficit on its balance sheet of no greater
than [$___ million], all as of the closing.
(C) Petro shall set up appropriate reserves and fund all of the
following transactions costs: financial advisory fees and
fairness opinions for Petro and Star; legal, accounting and
printing fees for Petro and Star; all exchange and
solicitation fees related to the retirement or redemption
of Petro's debt and preferred stock; all appraisals and
environmental reports; all rating agencies and bank fees;
and all other out-of-pocket costs and expenses associated
with the Transaction.
(D) Petro shall not declare or distribute any cash dividends to
its common shareholders.
(C-4) In the event Petro is unable or unwilling to represent and
warrant each of the matters set forth in (C-3), then a Revision
Amount (defined below) will be established. The Revision Amount
shall reduce, on a dollar-for-dollar basis, the amount to be
paid to the Petro common shareholders as set forth in (C-1).
The Revision Amount shall be calculated as follows:
(A) If the cumulative amount of all revisions, taken as a
whole, is less than zero, then the Revision Amount will be
equal to zero dollars, and any cash balance remaining at
Petro shall be transferred to Star.
(B) If the cumulative amount of all revisions, taken as a
whole, is greater than zero, then the Revision Amount will
be equal to the cumulative amount of all revisions, taken
as a whole.