SGU » Topics » Background

This excerpt taken from the SGU 8-K filed Jul 21, 2006.

Background

A. The Company is the general partner of Star Gas Partner’s L.P., a Delaware limited partnership (the “Partnership”).

B. The high cost of obtaining adequate insurance and the uncertainties related to indemnification have increased the difficulty of attracting and retaining highly qualified persons to serve as officers and directors of public companies.

C. The Board of Directors of the Company (the “Board”) has determined that the potential inability to attract and retain such persons is detrimental to the best interests of the securityholders of the Partnership and that such persons should be assured that they will have adequate protection from the risk of claims and actions against them arising out of their services to and activities on behalf of the Company and the Partnership.

D. It is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons to the fullest extent permitted by applicable law so that such persons will serve or continue to serve the Company free from undue concern that they will not be adequately indemnified.

E. In recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner and Indemnitee’s reliance on the protections currently provided by the Company’s Operating Agreement and in part to provide Indemnitee with specific contractual assurance that the protection promised thereby will be available to Indemnitee (regardless of, among other things, any amendment thereto or revocation thereof or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

F. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be indemnified according to the terms of this Agreement.


This excerpt taken from the SGU DEF 14A filed Jan 24, 2006.

Background

 

We are the largest retail distributor of home heating oil in the United States, based on volume as reported by the National Oilheat Research Alliance Organization, March 2003. Our home heating oil operations serve approximately 480,000 customers in the Northeast and Mid-Atlantic regions. For the fiscal year ended September 30, 2005, our home heating oil segment sold 487 million gallons of home heating oil. We were also formerly engaged as a retail distributor of propane until December 17, 2004 when we sold our propane segment.

 

During fiscal 2004, we experienced difficult operating conditions as a result of our inability to pass on the full impact of record wholesale heating oil prices to customers and the effects of unusually high net customer attrition principally related to our heating oil segment’s operational restructuring. Prior to the 2004 winter heating season, our heating oil segment attempted to develop a comprehensive advantage in customer service, and as part of that effort, centralized its heating equipment service dispatch and engaged a centralized call center to fulfill its telephone requirements for the majority of its home heating oil customers. We experienced difficulties in advancing this initiative during the fiscal year ended September 30, 2004, which adversely impacted our customer base, product sales and costs.

 

These conditions led to the suspension of distributions on our senior subordinated units, junior subordinated units and general partner units on July 29, 2004 and to the suspension of distributions on the common units on October 18, 2004.

 

During fiscal 2005, we continued to experience difficult operating conditions. As of September 30, 2005, the average wholesale price of home heating oil, as measured by the closing price on the New York Mercantile Exchange, increased 48% to $2.06 per gallon from $1.39 per gallon, as compared to September 30, 2004. The continuing unprecedented rise and volatility in the price of heating oil has intensified price sensitivity among our customers and price competition among our competitors, which has adversely impacted the heating oil segment’s margins and added to the heating oil segment’s difficulties in reducing customer attrition.

 

We experienced net customer attrition of 7.1% in fiscal 2005, compared to net attrition of 6.4% and 1.5% in fiscal 2004 and 2003, respectively. This rate represents the net of its annual customer loss rate after customer gains. For fiscal 2004 and 2005, gross customer losses were 19.5% and 20%, respectively. We believe that net customer attrition for the fiscal 2005 resulted from (i) a combination of the effect of our premium service/premium price strategy when customer price sensitivity increased due to high energy prices and our refusal, to reduce our retail prices to what we believe are unreasonably low levels in spite of competitors aggressive pricing tactics; (ii) the lag effect of customer attrition related to service and delivery problems experienced by customers in prior fiscal years; (iii) continued customer dissatisfaction with the centralization of customer care; and (iv) tightened customer credit standards.

 

We believe that we have identified the problems associated with the home heating oil segment’s centralization efforts and are taking steps to address these issues. However, we expect that high net attrition rates may continue through fiscal 2006 and perhaps beyond. We note that even to the extent the rate of attrition can be reduced, attrition from prior fiscal years will adversely impact net income in the future. The heating oil segment may not be able to achieve net gains of customers and may continue to experience net customer attrition in the future.

 

Traditionally, we have sought to offset the effects of net customer attrition through our acquisition program. However, under the heating oil segment’s current revolving credit facility, the heating oil segment was restricted from making any acquisitions through June 17, 2005 and thereafter individual acquisitions may not exceed $10 million or an aggregate of $25 million in any fiscal year, subject to meeting certain availability requirements. These restrictions severely limit our ability to make acquisitions. We did not make any acquisitions during fiscal 2005.

 

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Table of Contents

On December 17, 2004, we completed the sale of our propane segment for a purchase price of $481.3 million, without assumption of the propane segment’s indebtedness for borrowed money at the time of sale. Pursuant to the terms of the indenture relating to our senior notes, we were permitted, within 360 days of the sale, to apply the net proceeds of the sale of the propane segment either to reduce our indebtedness or the indebtedness of a restricted subsidiary, or to make an investment in assets or capital expenditures useful to our or any subsidiary’s business. To the extent any net proceeds that were not so applied exceed $10 million (referred to in this proxy statement as excess proceeds), the indenture requires us to make an offer to all holders of notes to purchase for cash that number of notes that may be purchased with excess proceeds at a purchase price equal to 100% of the principal amount of notes plus accrued and unpaid interest to the date of purchase.

 

After repayment of certain debt and transaction expenses, the net proceeds from the propane segment sale were approximately $156.3 million. As of the closing of the propane sale and application of the proceeds, the amount of net proceeds not applied in excess of $10 million was $146.3 million. As of September 30, 2005, the heating oil segment had utilized $53.1 million of the proceeds to invest in working capital assets, purchase capital assets and repay long-term debt, which reduced the amount available to repurchase notes to $93.2 million. As of December 2, 2005, the heating oil segment had used all of the remaining excess proceeds.

 

Our board of directors and management considered, based on informal communications with certain noteholders and their counsel, that certain noteholders might take the position that the use of net proceeds to invest in working capital assets was not a permitted use under the indenture. Based on the advice of counsel, we disagreed with this position. However, we recognized that if we were unsuccessful in defending our position, this would constitute an event of default if declared by either of the holders of 25% in principal amount of the senior notes or by the trustee and in such event all amounts due under the senior notes would become immediately due and payable. An acceleration of our senior notes would have a material adverse effect on our ability to continue as a going concern. The report of our independent registered public accounting firm on our consolidated financial statements as of September 30, 2005 and 2004, and for the three years ended September 30, 2005, includes an explanatory paragraph with respect to the impact of this matter on our ability to continue as a going concern if this matter is resolved adversely to us. We have reached an agreement with the holders of 94% in aggregate principal amount of the senior notes to resolve this matter, which is subject to our completing the proposed recapitalization, of which there can be no assurance.

 

This excerpt taken from the SGU 8-K filed Sep 12, 2005.

Background

 

A. Recently highly competent persons have become more reluctant to serve publicly-held companies as directors, officers, or in other capacities, unless they are provided with better protection from the risk of claims and actions against them arising out of their service to and activities on behalf of such corporations.

 

B. The high cost of obtaining adequate insurance and the uncertainties related to indemnification have increased the difficulty of attracting and retaining such persons.

 

C. The Board of Directors of the Company (the “Board”) has determined that the potential inability to attract and retain such persons is detrimental to the best interests of the Company’s securityholders and that such persons should be assured that they will have better protection in the future.

 

D. It is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons to the fullest extent permitted by applicable law so that such persons will serve or continue to serve the Company free from undue concern that they will not be adequately indemnified.

 

E. In recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner and Indemnitee’s reliance on the protections currently provided by the Company’s Operating Agreement and in part to provide Indemnitee with specific contractual assurance that the protection promised thereby will be available to Indemnitee (regardless of, among other things, any amendment thereto or revocation thereof or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

 

F. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be indemnified according to the terms of this Agreement.


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