SPECIAL COMMITTEE DRAFT 7/28/98
STAR GAS PARTNERS, L.P.
REVISED PROPOSAL
Subject to further due diligence, and assuming no material adverse changes
in Star, Petro or market conditions, the Special Committee of Star proposes that
an acquisition of Petro by Star contain the following:
(A) Star Partnership Agreement. Appropriate steps should be initiated to
--------------------------
amend the Star Partnership Agreements as of the closing date in order
to include, as a minimum:
(A-1) authorizing the creation of a new class of senior subordinated
units, which shall be junior to all present and future common
units;
(A-2) subordinating the GP units in terms of their distribution
rights to equal those of the subordinated units, which in turn
shall be junior to all present and future common and senior
subordinated units;
(A-3) increasing the MQD and actual distribution to $2.30 per unit on
an annualized basis;
(A-4) prohibiting the payment of any distributions to senior
subordinated, subordinated and GP units from anything but
Adjusted Operating Surplus (i.e. what is "earned") over the
latest twelve months after first paying the MQD per unit to the
common unitholders for such period plus any cumulative common
units arrearages from prior period(s); and
(A-5) an increase in the Operating Surplus basket equal to:
$6.0 million New common units
------------
Common units issued in the
Outstanding as of Refinancing
7/27/98 x Transaction
(B) Definitive Transaction Agreement. A draft of the definitive
--------------------------------
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 at
least the following steps:
(B-1) At closing of the transaction, Star shall be obligated to deliver
to Petro's common shareholders the following:
(a) 2,809,000 new senior subordinated units of Star;
(b) 537,000 subordinated units of Star; the balance must be
delivered to Star free and clear for retirement;
(c) GP units of Star equaling no greater than 2% of the total
units outstanding at closing, and
(d) special distribution rights limited to an aggregate of
909,000 senior subordinated units. A special distribution of
303,000 senior subordinated units will be granted to the
senior subordinated, subordinated and GP unitholders each
time Petro Accretion (to be subsequently defined) exceeds
$0.50 per unit for the latest twelve months. The first test
will be twelve months after the closing, and such tests will
not be more often than once every twelve months. If the
tests are not met within four years after the closing, then
the right to earn the special distribution will lapse.
(B-2) The closing shall be contingent upon the successful completion of
the following (collectively, the "Refinancing Transaction"):
(a) the issuance of no more than an aggregate of $140 million of
new common and/or subordinated units, excluding any
overallotment option of no greater than 15% associated with
a common unit offering, with a gross spread of no greater
than 5.0%; and
(b) the issuance of no more than $120 million of new debt with 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.
Further, the cost of capital from the equity and debt raised in
the Refinancing Transaction may not exceed $27.5 million on an
annual basis. "The cost of capital from the equity and debt
raised in the Refinancing Transaction on an annual basis" shall
be calculated as follows: (A) the number of new units issued in
(B-2)(a) multiplied by $2.30 per unit, plus (B) the amount of new
debt issued in (B-2)(b) multiplied by the offering yield of such
new debt.
(B-3) Prior to the closing of the transaction, Petro shall represent,
warrant and agree that:
(a) Prior to the Refinancing Transaction, the sum of the pro forma
principal amount of Petro debt which is restructured plus the
redemption/repurchase price of all debt and preferred stock
redeemed in the transaction (including the value of Petro stock
issued in connection with the redemption option), less any cash
balance in excess of such amounts required in (B-3) (b) below,
shall be no greater than $331,367,000.
(b) Petro shall have a minium cash balance of $500,000, a positive
working capital balance, and a total stockholders' defict on its
balance sheet on closing if no greater than Maximum Stockholders'
Deficit (to be subsequently defined based on updated projections
and anticipated closing dates).
(c) Petro shall set up appropriate reserves and fund all of the
following transactions costs: the gross spread on the issuance of
the new debt referred to in (B-2) (b); 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.
(B-4) Prior to the closing of the transaction, Petro shall not declare
or distribute any cash dividends to it common shareholders.