Business Context and Reporting Period
This Form 8-K was filed by Lehigh Gas Partners LP on August 2, 2013, reporting events occurring on August 1, 2013. The filing details the entry into a Material Definitive Agreement to acquire a motor fuels and convenience store business in the Knoxville, Tennessee area.
Key Financial Metrics and Transaction Terms
- Transaction Type: Asset Purchase Agreement for 30 motor fuel stations and related assets.
- Immediate Cash Consideration: $10,650,000 payable at closing.
- Real Estate Obligation: The Partnership will initially lease 29 of the 30 stations with an obligation to purchase the real estate assets no earlier than August 1, 2015.
- Future Purchase Price Options:
- Option A: Purchase in whole for $26,250,000 on or about August 1, 2015.
- Option B: Purchase in approximately equal parts over 5 years (beginning 2016) averaging $5,250,000 per year.
- Liquidated Damages: $500,000 payable by the breaching party if the agreement is terminated due to a breach.
- Related Party Transaction: Lehigh Gas-Ohio, LLC (LGO), managed by the Partnership's CEO, is acquiring retail assets (inventory) and will enter into sublease and fuel distribution agreements with the Partnership.
Material Changes and Operational Impact
The filing does not report changes to historical revenue, profit, or cash flow as this is a current report regarding a new agreement. The material change is the expansion of the Partnership's asset base and operational footprint in Tennessee. The transaction involves assuming four motor fuel station leases and seven third-party supply contracts. A subsidiary of the Partnership will enter into a Master Sublease and Purchase Agreement for the real estate assets.
Guidance, Risks, and Contingencies
- Closing Date: Scheduled to occur on or before August 30, 2013, with a provision for a 15-day extension by either party.
- Non-Compete Agreement: Steve H. Kirkham, a key principal of the seller (Rocky Top), has agreed to a 10-year non-compete regarding wholesale fuel distribution and convenience store operations in the area, as well as a restriction on soliciting employees.
- Exclusivity: Sellers agreed not to solicit third-party offers for one year (reduced to 60 days if closing fails due to Partnership control).
- Related Party Fairness: The Conflicts Committee of the General Partner determined the terms and apportionment of consideration between the Partnership and LGO are fair and reasonable.
- Financial Data: The filing text does not provide specific revenue, margin, or liquidity metrics for the Partnership or the acquired assets.
Investor Verification Checklist
- Verify the final closing date and confirmation of the $10.65 million cash payment.
- Review the attached Asset Purchase Agreement (Exhibit 2.1) for specific representations, warranties, and indemnity provisions.
- Confirm the terms of the sublease and fuel distribution agreements between the Partnership and LGO.
- Monitor the decision on the real estate purchase option (lump sum vs. installment) as the August 2015 deadline approaches.
- Assess the impact of the new Tennessee operations on future earnings per unit and cash flow distributions.