-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ld7+ivlqlfwSm3YQsnLfygnVnl/SmRevq7DRVCusZtQQl4A11H8Icm1quBThs5P3 y9lmeqeZtt/PqLuJEyiPhQ== 0000950112-94-001904.txt : 19940721 0000950112-94-001904.hdr.sgml : 19940721 ACCESSION NUMBER: 0000950112-94-001904 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19940720 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PETROLEUM HEAT & POWER CO INC CENTRAL INDEX KEY: 0000736768 STANDARD INDUSTRIAL CLASSIFICATION: 5900 IRS NUMBER: 061183025 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-38228 FILM NUMBER: 94539330 BUSINESS ADDRESS: STREET 1: 2187 ATLANTIC ST CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033255400 MAIL ADDRESS: STREET 2: 2187 ATLANTIC ST CITY: STAMFORD STATE: CT ZIP: 06902 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PETROLEUM HEAT & POWER CO INC CENTRAL INDEX KEY: 0000736768 STANDARD INDUSTRIAL CLASSIFICATION: 5900 IRS NUMBER: 061183025 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 2187 ATLANTIC ST CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033255400 MAIL ADDRESS: STREET 2: 2187 ATLANTIC ST CITY: STAMFORD STATE: CT ZIP: 06902 SC 13E3 1 PETROLEUM HEAT & POWER CO., INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13E-3 [Amendment No. __] Rule 13e-3 Transaction Statement (Pursuant to Section 13(e) of the Securities Exchange Act of 1934) PETROLEUM HEAT AND POWER CO., INC. (Name of Issuer) PETROLEUM HEAT AND POWER CO., INC. (Name of Persons Filing Statement) Class B Common Stock, par value $.10 per share (Title of Class of Securities) 716 600 200 (CUSIP Number of Class of Securities) Irik P. Sevin, President Petroleum Heat and Power Co., Inc. Clearwater House 2187 Atlantic Street Stamford, Connecticut 06902 (203) 325-5400 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person Filing Statement) Copies to: Alan Shapiro, Esq. Phillips, Nizer, Benjamin, Krim & Ballon 31 West 52nd Street New York, New York 10019 (212) 977-9700 This statement is filed in connection with (check the appropriate box): a. [ ] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [X] A tender offer. under the Securities Exchange Act of 1934. d. [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [ ] Calculation of Filing Fee - -------------------------------------------------------------------------------- Transaction Valuation: Amount of Filing Fee: $3,795,767.50 (1) $759.15 ------------- ------- - -------------------------------------------------------------------------------- (1) The transaction valuation was determined by multiplying 216,901 (the number of outstanding shares of Class B Common Stock for which the reporting person is making an offer) by $17.50 (the reporting person's valuation for each share of Class B Common Stock). [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount Previously Paid: $759.15 ------------------------------------------------------ Form or Registration No.: Schedule 13E-4 ------------------------------------------------------ Filing Party: Petroleum Heat and Power Co., Inc. --------------------------------------------------------------- Dated Filed: July 20, 1994 --------------------------------------------------------------- This Rule 13e-3 Issuer Transaction Statement (the "Transaction Statement") is being filed by Petroleum Heat and Power Co., Inc., a Minnesota corporation (the "Company" or "Petro"). In accordance with an Offer to Purchase dated July 20, 1994 (the "Offer to Purchase"), included as Exhibit (d) to this Transaction Statement, and the accompanying Letter of Transmittal, the Company commenced an offer to purchase for cash all of the outstanding shares of its Class B Common Stock, par value $.10 per share (the "Class B Common Stock") at $17.50 per share net plus all accrued and unpaid Special Dividends (as defined) through the Expiration Date. The Offer to Purchase and the accompanying Letter of Transmittal together constitute the "Offer." The Board of Directors of Petro has determined to exercise Petro's right to terminate the Special Dividends (as defined in the Offer to Purchase) on the Class B Common Stock, effective the Expiration Date (as defined in the Offer to Purchase). As a result of the termination of the Special Dividends, the Company's restated and amended articles of incorporation provides that holders of Class B Common Stock have the right to require that Petro purchase (the "Purchase Obligation") all of the issued and outstanding shares of Class B Common Stock at a purchase price of $17.50 per share plus all accrued and unpaid Special Dividends through the Expiration Date (which dividends would amount to $0.2763 per share assuming that the Expiration Date is August 31, 1994). The Offer is being made by Petro in order to satisfy the Purchase Obligation. The Purchase Obligation and the Offer terminate on the Expiration Date. The cross reference sheet below is being supplied pursuant to Instruction F to the Transaction Statement and shows the location in the Offer to Purchase (which is attached hereto as Exhibit (d)) of the information required to be included in response to the items of this Transaction Statement. The information in the Offer to Purchase of the Company is hereby expressly incorporated herein by reference. All references and the responses to individual items correspond to the parts of the Offer to Purchase so titled. CROSS REFERENCE SHEET --------------------- Item in Rule 13e-3 Where located in Transaction the Offer to Statement Purchase ----------- ---------------- Item 1(a-b) . . . INTRODUCTION; SPECIAL FACTORS - Certain Effects of the Offer; THE OFFER - Certain Information Concerning the Company Item 1(c-d) . . . INTRODUCTION; THE OFFER - Market Data; Dividends Item 1(e) . . . . NOT APPLICABLE Item 1(f) . . . . SPECIAL FACTORS - Prior Exchange Offer Item 2(a-d) . . . SCHEDULE I Item 2(e-g) . . . ** Item 3(a) . . . . NOT APPLICABLE Item 3(b) . . . . NOT APPLICABLE 3 Item in Rule 13e-3 Where located in Transaction the Offer to Statement Purchase ----------- ---------------- Item 4(a) . . . . INTRODUCTION; SPECIAL FACTORS -- Background and Purpose of the Offer; Fairness of the Transaction; THE OFFER -Term of the Offer Item 4(b) . . . . NOT APPLICABLE Item 5(a) . . . . ** Item 5(b) . . . . ** Item 5(c) . . . . ** Item 5(d) . . . . INTRODUCTION; SPECIAL FACTORS - The Relative Rights, Designations and Preferences of the Class B Common Stock; Background and Purpose of the Offer; Fairness of the Transaction Item 5(e) . . . . ** Item 5(f) and (g) SPECIAL FACTORS - Certain Effects of the Offer Item 6(a) . . . . INTRODUCTION; SPECIAL FACTORS - Financing of the Transaction Item 6(b) . . . . THE OFFER - Fees and Expenses of the Offer Item 6(c) . . . . NOT APPLICABLE Item 6(d) . . . . NOT APPLICABLE Item 7(a-d) . . . INTRODUCTION; SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction; and Certain Federal Income Tax Consequences. Item 8(a-e) . . . SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction Item 8(f) . . . . ** Item 9(a) . . . . ** Item 9(b) . . . NOT APPLICABLE Item 9(c) . . . . NOT APPLICABLE Item 10(a) . . . ** Item 10(b) . . . ** Item 11 . . . . . NOT APPLICABLE Item 12(a) . . . ** 4 Item in Rule 13e-3 Where located in Transaction the Offer to Statement Purchase ----------- ---------------- Item 12(b) . . . SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction Item 13(a) . . . THE OFFER - Withdrawal Rights; Absence of Appraisal Rights Item 13(b) . . . NOT APPLICABLE Item 13(c) . . . NOT APPLICABLE Item 14(a-b) . . THE OFFER - Certain Information Concerning the Company; SCHEDULE II - Selected Historical Financial Information of Petro Item 15(a) . . . NOT APPLICABLE Item 15(b) . . . THE OFFER - The Depositary; The Information Agent; Fees and Expenses of the Offer Item 16 . . . . . OFFER TO PURCHASE Item 17 . . . . . ** ___________________ ** Such information is being provided in the remaining portion of this Rule 13e-3 Transaction Statement. Item 1. Issuer and Class of Security Subject to the Transaction ------------------------------------------------------- (a) Information required by this paragraph of Item 1 is set forth in "INTRODUCTION;" "THE OFFER - Certain Information Concerning the Company" which sections are hereby incorporated herein by reference. (b) Information required by this paragraph of Item 1 is set forth in "INTRODUCTION;" and "SPECIAL FACTORS - Certain Effects of the Offer," which sections are hereby incorporated herein by reference. (c) Information required by this paragraph of Item 1 is set forth in "INTRODUCTION" and "THE OFFER - Market Data; Dividends," which sections are hereby incorporated herein by reference. (d) Information as to dividends and restrictions on the Company's present or future ability to pay same is set forth in "INTRODUCTION" and "THE OFFER - Market Data; Dividends," which sections are hereby incorporated herein by reference. (e) The Company has not made an underwritten public offering of the Class B Common Stock during the past three years. 5 (f) Information required by this paragraph of Item 1 is set forth in "SPECIAL FACTORS - Prior Exchange Offer", which is hereby incorporated herein by this reference. Item 2. Identity and Background. ----------------------- (a)-(d) This Statement is being filed by the Company, which is the issuer of the class of equity securities which is the subject of the Rule 13e-3 transaction. Information concerning each executive officer, director and controlling person of the Company is set forth in SCHEDULE I of the Offer to Purchase, which Schedule is hereby incorporated herein by reference. (e) and (f) None of the persons with respect to whom information is provided in response to this Item was during the last five years (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgement, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. (g) Information with respect to the state of incorporation of the Company is set forth in "THE OFFER - Certain Information Concerning the Company," which section is hereby incorporated herein by reference. Each of the officers, directors and principal stockholders of the Company is a citizen of the United States, except for Wolfgang Traber and Max M. Warburg who are citizens of Germany and Mr. Richard O'Connell who is a citizen of Spain. Item 3. Past Contacts, Transactions or Negotiations. ------------------------------------------- (a) NOT APPLICABLE. (b) NOT APPLICABLE. Item 4. Terms of the Transaction. ------------------------ (a) The material terms of the Offer are set forth under "INTRODUCTION," "SPECIAL FACTORS -- Background and Purpose of the Offer; Fairness of the Transaction" and "THE OFFER -Term of the Offer," which sections are hereby incorporated herein by reference. (b) NOT APPLICABLE. Item 5. Plans or Proposals of the Issuer or Affiliate. --------------------------------------------- (a)-(c) and (e) The Company does not have any plans or proposals which relate to or would result in the occurrence of any of the matters set forth in these subparagraphs following the completion of the Offer. (d) Information required by this paragraph of Item 5 is found in "INTRODUCTION," "SPECIAL FACTORS - The Relative Rights, Designations and Preferences of the Class B Common Stock" and "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction" which sections are hereby incorporated herein by reference. 6 (f) and (g) Information required by these paragraphs of Item 5 is found in "SPECIAL FACTORS - Certain Effects of the Offer," which section is hereby incorporated herein by reference. Item 6. Source and Amount of Funds or Other Consideration. -------------------------------------------------- (a) The information required by this paragraph of Item 6 is set forth in "INTRODUCTION" and "SPECIAL FACTORS -- Financing of the Transaction," which sections are hereby incorporated herein by reference. (b) The information required by this paragraph of Item 6 is set forth in "THE OFFER - Fees and Expenses of the Offer," which section is hereby incorporated herein by reference. (c) NOT APPLICABLE. (d) NOT APPLICABLE. Item 7. Purpose(s), Alternatives, Reasons and Effects. --------------------------------------------- (a) The information required by this paragraph of Item 7 is set forth in "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. (b) The information required by this paragraph of Item 7 is set forth in "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. (c) The reasons for the structure of the Offer and for undertaking such transaction at this time are described in "INTRODUCTION" and "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction," which sections are hereby incorporated herein by reference. (d) The effects of the Offer on the Company, its affiliates and unaffiliated stockholders, including the federal tax consequences, are described in "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction" and "SPECIAL FACTORS - Certain Federal Income Tax Consequences," which sections are hereby incorporated herein by reference. Item 8. Fairness of the Transaction. --------------------------- (a) The Company reasonably believes that the Offer is fair to unaffiliated stockholders of the Company. No director of the Company dissented to or abstained from voting on the Rule 13e-3 transaction when such transaction was considered by the Board of Directors thereof. In reaching its determination, the Board gave primary consideration to the fact that the termination of the Special Dividends and the Offer are being effected pursuant to the terms and conditions of the Class B Common Stock, established at the time of the issuance of such Stock. Such terms, including the Company's $17.50 repurchase obligation following a termination of Special Dividends were established at the time that such Stock was originally issued, in the Company's restated and amended articles of incorporation. As a result, the Board believes that it is reasonable for the Company to exercise its right to terminate the Special Dividends and the exercise of such right coupled with the Company's compliance with its resulting Purchase Obligation (pursuant to the Offer) is fair to the holders of the Class B Common Stock. 7 See "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. (b) The bases of the beliefs stated in 8(a) above are described in "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. (c) - (e) The information required by these paragraphs on Item 8 is set forth in "SPECIAL FACTORS - Background and Purpose of the Purchase Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. (f) During the preceding 18 months, the Company has not received any offer of the type described in Instruction (viii) to Item 8(b). Item 9. Reports, Opinions, Appraisals and Certain Negotiations. ------------------------------------------------------ (a) The Company has not received any report, opinion (other than an opinion of counsel) or appraisal from an outside party which is materially related to the Rule 13e-3 Transaction. (b) NOT APPLICABLE. (c) NOT APPLICABLE. Item 10. Interest in Securities of the Issuer. ------------------------------------ (a) To the best of the Company's knowledge, after reasonable inquiry, there are no shares of Class B Common Stock beneficially owned by any of those persons enumerated in Item 10(a) of Schedule 13E-3. (b) There has been no transaction in the Class B Common Stock by the Company and, to the extent known by the Company, after reasonable inquiry, there has been no transaction in the Class B Common Stock effected by any officer or director of the Company, or by any affiliate or subsidiary of any such person, during the past 60 days. Item 11. Contracts, Arrangements or Understandings with Respect to the ------------------------------------------------------------- Issuer's Securities. -------- ----------- NOT APPLICABLE 8 Item 12. Present Intention and Recommendation of Certain Persons with ------------------------------------------------------------ Regard to the Transaction. ------------------------- (a) To the best of the Company's knowledge, after reasonable inquiry, there are no shares of Class B Common Stock beneficially owned by any of those persons enumerated in Item 12(a) of Schedule 13E-3. (b) The Board of Directors of the Company has unanimously recommended approval of the Offer for the reasons set forth in "SPECIAL FACTORS - Background and Purpose of the Purchase Offer; Fairness of the Transaction," which section is hereby incorporated herein by reference. Item 13. Other Provisions of the Transaction. ------------------------------------ (a) The information required by this paragraph of Item 13 is set forth in "THE OFFER - Withdrawal Rights; Absence of Appraisal Rights," which section is hereby incorporated herein by this reference. (b) No provision has been made by the Company to allow unaffiliated stockholders to obtain access to the corporate files of the issuer or any affiliate or to obtain counsel or appraisal services at the expense of the Company. (c) No exchange of debt securities is involved. Item 14. Financial Information. ---------------------- (a) The information required by this paragraph of Item 14 is set forth in "THE OFFER - Certain Information Concerning the Company," and SCHEDULE II - Selected Historical Financial Information of Petro, which sections are hereby incorporated herein by reference. (b) The information required by this paragraph of Item 14 is set forth in "THE OFFER - Certain Information Concerning the Company," and SCHEDULE II - Selected Historical Financial Information of Petro, which sections are hereby incorporated herein by reference. Item 15. Persons and Assets Employed, Retained or Utilized. -------------------------------------------------- (a) NOT APPLICABLE. (b) The information required by this paragraph of Item 15 is set forth in "THE OFFER - The Depositary; The Information Agent; Fees and Expenses of the Offer," which sections are hereby incorporated herein by reference. Item 16. Additional Information. ---------------------- Additional information concerning the proposed Offer is set forth in the OFFER PURCHASE, which is hereby incorporated herein in its entirety. 9 Item 17. Material to be Filed as Exhibits. -------------------------------- (a) Not applicable. (b) Not applicable. (c) Not applicable (d)(1) Offer to Purchase. (d)(2) Letter of Transmittal (e) Not applicable. (f) Not applicable. 10 SIGNATURE --------- After due inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. PETROLEUM HEAT AND POWER CO., INC. By /s/ Irik P. Sevin ------------------------------- Irik P. Sevin, President Dated: July 20, 1994 EXHIBIT INDEX (a) Not applicable. (b) Not applicable. (c) Not applicable (d)(1) Offer to Purchase. (d)(2) Letter of Transmittal (e) Not applicable. (f) Not applicable. EX-99.(D)(1) 2 Notice of Termination of Special Dividends and Offer to Purchase for Cash Any and All Outstanding Shares of Class B Common Stock of Petroleum Heat and Power Co., Inc. at $17.50 Net Per Share Plus Accrued and Unpaid Dividends THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 31, 1994, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE"). UNLESS PREVIOUSLY ACCEPTED, CLASS B COMMON STOCK MAY ALSO BE WITHDRAWN AT ANY TIME AFTER SEPTEMBER 16, 1994. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ________________ Important Any shareholder desiring to tender all or any portion of his shares of Class B Common Stock should either (a) properly complete and sign the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with the certificate(s) representing tendered shares, and any other required documents, to the Depositary or tender such shares pursuant to the procedure for book-entry transfer set forth herein in either case prior to the Expiration Date or (b) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him prior to the Expiration Date. A shareholder whose shares of Class B Common Stock are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if he desires to tender such shares. A shareholder who desires to tender his shares of Class B Common Stock and whose certificates representing such shares are not immediately available or who cannot comply with the procedures for book-entry transfer on a timely basis on or prior to the Expiration Date may tender such shares by following the procedures for guaranteed delivery set forth herein. Questions and requests for assistance may be directed to the Information Agent at its addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Information Agent or from brokers, dealers, commercial banks and trust companies. ________________ The Information Agent for the Offer is: Morrow & Co., Inc. July 20, 1994 PETROLEUM HEAT AND POWER CO., INC. ________________ OFFER TO PURCHASE ________________ TABLE OF CONTENTS Page ---- INTRODUCTION 1 SPECIAL FACTORS 2 The Relative Rights, Designations And Preferences Of The Class B Common Stock . . . . . . . . . . . . . . 2 Background and Purpose of the Offer; Fairness of the Transaction . . 3 Prior Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . 4 Interests of Officers and Directors . . . . . . . . . . . . . . . . 4 Certain Effects of the Offer . . . . . . . . . . . . . . . . . . . . 4 Certain Federal Income Tax Consequences . . . . . . . . . . . . . . 5 Financing of the Transaction . . . . . . . . . . . . . . . . . . . . 7 THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Terms of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . 7 Acceptance for Purchase and Payment for Shares of Class B Common Stock 8 Procedures for Accepting the Offer and Tendering the Shares of Class B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Withdrawal Rights; Absence of Appraisal Rights . . . . . . . . . . . 11 Conditions of the Offer . . . . . . . . . . . . . . . . . . . . . . 12 Market Data; Dividends . . . . . . . . . . . . . . . . . . . . . . . 14 Certain Information Concerning the Company . . . . . . . . . . . . . 14 The Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Information Agent . . . . . . . . . . . . . . . . . . . . . . . 17 Fees and Expenses of the Offer . . . . . . . . . . . . . . . . . . . 18 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Available Information . . . . . . . . . . . . . . . . . . . . . . . 18 SCHEDULE I - Directors and Executive Officers of Petro SCHEDULE II - Selected Historical Financial Information of Petro To the Holders of Class B Common Stock of Petroleum Heat and Power Co., Inc. INTRODUCTION Petroleum Heat and Power Co., Inc., a Minnesota corporation (the "Company" or "Petro"), hereby offers, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the accompanying Letter of Transmittal, to purchase for cash all of the outstanding shares of its Class B Common Stock, par value $.10 per share (the "Class B Common Stock") at $17.50 per share net plus all accrued and unpaid Special Dividends (as defined) through the Expiration Date. This Offer to Purchase and the accompanying Letter of Transmittal together constitute the "Offer." After careful consideration, the Board of Directors of Petro has determined to exercise Petro's right to terminate the Special Dividends on the Class B Common Stock, effective the Expiration Date. As a result of the termination of the Special Dividends, the Company's restated and amended articles of incorporation provides that holders of Class B Common Stock have the right to require Petro to purchase for cash (the "Purchase Obligation") all or a portion of their shares of Class B Common Stock at a purchase price of $17.50 per share plus all accrued and unpaid Special Dividends through the Expiration Date (which dividends would amount to $0.2763 per share assuming that the Expiration Date is August 31, 1994). The Offer is being made by Petro in order to satisfy the Purchase Obligation. The Purchase Obligation and the Offer terminate on the Expiration Date. After the Expiration Date, no dividends are payable on the Class B Common Stock until the aggregate amount of dividends paid on all other classes of stock exceeds the Common Stock Allocation (defined as the Company's cash flow for each fiscal year after December 31, 1985, on a cumulative basis, minus all Special Dividends paid or accrued), which amounted to $100.2 million as of December 31, 1993, after which each share of Class B Common Stock will participate equally with each share of Class A Common Stock and Class C Common Stock with respect to all dividends. During 1993, Petro paid an aggregate of $14.2 million in dividends on all other classes of stock. As a result, it is unlikely that holders of Class B Common Stock will receive dividends for several years. In the event of any complete liquidation, dissolution or winding up of the business of the Company, each share of Class B Common Stock would be entitled to a liquidation preference equal to $5.70 per share, plus a pro rata share of the remaining assets of the Company. The Board of Directors of Petro believes that the termination of the Special Dividends is in the best interests of Petro as it will help simplify Petro's capital structure and reduce investor confusion concerning the different classes of the Company's publicly traded Common Stock. The Board of Directors reasonably believes the terms of the Offer to be fair and in the best interests of the Company, its shareholders (including unaffiliated shareholders) and employees. In light of the fact that it is unlikely that the holders of the Class B Common Stock will receive dividends for several years following the Expiration Date, and that, subject to the number of shares tendered, it is likely that following the Expiration Date the shares of Class B Common Stock will be delisted from trading on the American Stock Exchange, the Board recommends that such holders give serious consideration to tendering their shares of Class B Common Stock pursuant to the Offer as discussed above. See "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction and Certain Effects of the Offer." At July 15, 1994 there were 216,901 shares of Class B Common Stock outstanding. The officers and directors of Petro do not own any shares of Class B Common Stock. SPECIAL FACTORS The Relative Rights, Designations And Preferences Of The Class B Common Stock The relative rights, designations and preferences of the Company's Class B Common Stock are as set forth below: Dividends . Holders of Class B Common Stock are currently entitled to receive, as and when declared by the Board of Directors, special dividends (the "Special Dividends") per share equal to .000001666% of the cash flow of the Company (as defined in the Company's restated and amended articles of incorporation) for its prior fiscal year. Special Dividends are payable in quarterly installments on the first day of April, July, October and January ("Dividend Payment Date"). If not paid, Special Dividends will be cumulative and no dividends may be paid on any other class of stock, including the Class A Common Stock, until all Special Dividends in arrears are declared and paid. No dividends are payable on the Class B Common Stock other than the Special Dividends until the aggregate amount of dividends paid on all other classes of stock exceeds the Common Stock Allocation (defined as the Company's cash flow for each fiscal year after December 31, 1985, on a cumulative basis, minus all Special Dividends paid or accrued), which amounted to $100.2 million as of December 31, 1993, after which each share of Class B Stock will participate equally with each share of Class A Common Stock and Class C Common Stock with respect to all dividends. Termination... The restated and amended articles of of Special incorporation of the Company provides that the Dividends; Company may, in its sole discretion, terminate Purchase the payment of Special Dividends at any time Obligation after December 31, 1991 if all Special Dividends have then been paid or duly provided for. In this regard, the Board of Directors has determined to terminate the Special Dividends, effective the Expiration Date. Therefore, each holder of Class B Stock may elect to require (the "Purchase Obligation") the Company to purchase for cash all or a portion of such holder's Class B Stock at a price of $17.50 per share (regardless of the then current market price of the Class B Common Stock), plus all accrued and unpaid Special Dividends to the date of purchase, or to retain such holder's Class B Common Stock. The Purchase Obligation terminates on the Expiration Date. If a holder elects to retain his Class B Stock, he will receive no dividends until dividends in the aggregate equal to the Common Stock Allocation ($100.2 million at December 31, 1993) have been paid on the Class A Common Stock, the Class C Common Stock and all other classes of capital stock. In 1993, the Company paid an aggregate of $14.2 million in dividends on all classes of its capital stock (other than the Class B Common Stock). Under these circumstances it is unlikely that any dividends will be paid on the Class B Common Stock for several years. 2 Voting . . Except when required by Minnesota law and in certain special circumstances described in the restated and amended articles of incorporation of the Company, the holders of Class B Common Stock are not entitled to vote. Liquidation In the event of any complete liquidation, Preferences dissolution or winding up of the business of the Company, each share of Class B Common Stock would be entitled to a distribution equal to $5.70 per share, as adjusted, before any distribution is made with respect to any other class of stock of the Company. Thereafter, each share of Class B Common Stock would be entitled to a pro rata portion of the remaining assets of the Company. Background and Purpose of the Offer; Fairness of the Transaction The Company currently has two classes of publicly traded Common Stock: Class A with 18,992,579 shares outstanding (traded on the NASDAQ Stock Market) and Class B with 216,901 shares outstanding (traded on Amex). The Company believes, based on conversations with investors and brokers, that the continued existence of two classes of publicly traded Common Stock with substantially different dividend and liquidation preferences has caused investor confusion concerning the Company's equity capital structure. In accordance with the Company's restated and amended articles of incorporation, which is the governing instrument which established the terms of the Class B Common Stock at the time of its original sale and issuance, the Company may, in its sole discretion, terminate the payment of Special Dividends at any time after December 31, 1991 if all Special Dividends have then been paid or duly provided for (as is the case). In such event, each holder of Class B Common Stock may elect to require the Company to purchase (the "Purchase Obligation") for cash all or a portion of such holder's Class B Common Stock at a price of $17.50 per share (regardless of the then current market price of the Class B Common Stock), plus all accrued and unpaid Special Dividends. The Board of Directors has determined to exercise the Company's right to terminate the Special Dividends, effective on the Expiration Date. The Board believes that the termination of the Special Dividend and the resulting likely reduction in the number of outstanding shares of Class B Common Stock will simplify and make more understandable to the investing public the Company's equity structure. The Board did not retain an independent advisor to evaluate the fairness of the transaction and did not obtain a report, opinion or appraisal relating to the Offer. Also, a majority of directors who are not employees of the Company did not retain an unaffiliated representative for the purposes of negotiating the terms of the Offer. The Board determined that the potential incremental benefit of obtaining such an independent fairness report or retaining an independent negotiator did not outweigh the significant additional expenses involved therewith. In reaching this determination, the Board gave primary consideration to the fact that the termination of the Special Dividends and the Offer are being effected pursuant to the terms and conditions of the Class B Common Stock, established at the time of the issuance of such Stock. Such terms, including the Company's $17.50 repurchase obligation following a termination of Special Dividends were established, at the time that such Stock was originally issued, in the Company's restated and amended articles of incorporation. As a result, the Board believes that it is reasonable for the Company to exercise its right to terminate the Special Dividends and that the exercise of such right coupled with the 3 Company's compliance with its resulting Purchase Obligation (pursuant to the Offer) is fair to the holders of the Class B Common Stock. In light of the foregoing, the Board of Directors reasonably believe the terms of the Offer to be fair and in the best interests of the Company, its shareholders (including unaffiliated shareholders) and employees. In light of the fact that it is unlikely that the holders of Class B Common Stock will receive dividends for several years following the Expiration Date, and that, subject to the number of shares tendered, it is likely that following the Expiration Date the shares will be delisted from trading on the American Stock Exchange, the Board recommends that such holders give serious consideration to tendering their shares of Class B Common Stock pursuant to the Offer. The Offer does not require the approval of the holders of a majority of the shares of Class B Common Stock held by unaffiliated shareholders. For information concerning the federal income tax consequences to U.S. holders of Class B Common Stock of the Offer, see "Certain Federal Income Tax Consequences." Prior Exchange Offer In September 1992, the Company commenced an offer to exchange (the "Exchange Offer") 1.591 shares of Class A Common Stock, par value $.10 per share (the "Class A Common Stock") for each outstanding share of its Class B Common Stock. For the purpose of the Exchange Offer, the Company valued each share of Class B Common Stock at $17.50 per share. The exchange rate for the Class A Common Stock was based on the initial public offering price ($11.00 per share) of the Class A Common Stock as set forth in the Company's prospectus dated July 29, 1992. The Company completed the Exchange Offer in October 1992. The total number of shares of Class B Common Stock tendered pursuant to the Exchange Offer and accepted by the Company was 2,817,159 shares (93%) of the 3,034,060 shares of Class B Common Stock that were then outstanding. Interests of Officers and Directors The officers and directors of the Company do not own any shares of Class B Common Stock. Certain Effects of the Offer Although dependent upon the actual number of shares of Class B Common Stock tendered and accepted in connection with the Offer, the completion of the Offer will likely result in the Class B Common Stock being delisted from of the American Stock Exchange ("Amex"). Such delisting would likely cause a reduction in the trading volume of such securities, which could, in turn, increase the volatility and depress the market price of the Class B Common Stock. The shares of Class B Common Stock are currently "margin securities" as that term is defined under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit for the purchase of shares of Class B Common Stock, collateralized by such shares. In the event that the shares of Class B Common Stock were delisted from Amex and were not listed on another national securities exchange or on the NASDAQ National Market System, they may not qualify for inclusion on the list of marginable OTC 4 stocks maintained by the Federal Reserve Board. The Company does not have any plans to list the shares of the Class B Common Stock on NASDAQ in the event that such shares are delisted from Amex. The shares of Class B Common Stock are currently registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such registration may be terminated upon application by the Company to the Securities and Exchange Commission at any time at which such shares are not listed on a national securities exchange, and there are fewer than 300 record holders of the shares of Class B Common Stock. As of July 12, 1994, there were 48 holders of record of Class B Common Stock. The Company does not have any current plans to make such application in the event that the completion of the Offer results in the satisfaction of such conditions. Certain Federal Income Tax Consequences Sales of shares of Class B Common Stock by shareholders pursuant to the Offer will be taxable transactions for Federal income tax purposes and may also be taxable transactions under applicable state, local, foreign and other tax laws. The Federal income tax consequences to a shareholder may vary depending upon the shareholder's particular facts and circumstances. Under Section 302 of the Internal Revenue Code of 1986, as amended (the "Code"), a sale of shares of Class B Common Stock pursuant to the Offer will, as a general rule, be treated as a sale or exchange if the receipt of cash upon such sale (a) results in a "complete redemption" of the shareholder's interest in the Company or (b) is "not essentially equivalent to a dividend" with respect to the shareholder. If either of these two tests is satisfied, a tendering shareholder will recognize gain or loss equal to the difference between the amount of cash received by the shareholder pursuant to the Offer and the shareholder's tax basis in the shares of Class B Common Stock sold pursuant to the Offer. Recognized gain or loss will be capital gain or loss, assuming the shares of Class B Common Stock are held as capital assets, which will be long-term capital gain or loss if the shares of Class B Common Stock are held for more than one year. In determining whether any of the tests under Section 302 of the Code is satisfied, shareholders must take into account not only the shares of Class B Common Stock they actually own, but also shares of Class B Common Stock they are deemed to own pursuant to the constructive ownership rules of Section 318 of the Code. Pursuant to those constructive ownership rules, a shareholder is deemed to own the shares of Class B Common Stock actually owned, and in some cases constructively owned, by certain related individuals or entities, and any shares of Class B Common Stock that the shareholder has the right to acquire by exercise of an option or by conversion or exchange of a security. The receipt of cash by a shareholder will result in a "complete redemption" of the shareholder's interest in the Company if both (i) the shareholder does not actually or constructively own shares of Class A or Class C Common Stock, and (ii) either (a) all of the shares of Class B Common Stock actually and constructively owned by the shareholder are sold pursuant to the Offer or (b) all the shares of Class B Common Stock actually owned by the shareholder are sold pursuant to the Offer and the shareholder is eligible to waive and does effectively waive attribution of all shares of Class B Common Stock constructively owned by the shareholder in accordance with Section 302(c) of the Code. Even if the receipt of cash by a shareholder fails to satisfy the "complete redemption" test, such shareholder may nevertheless satisfy the "not essentially equivalent to a dividend" test, if the shareholder's sales of shares of Class B Common Stock pursuant to the Offer results in a "meaningful 5 reduction" in the shareholder's proportionate interest in the Company. Whether the receipt of cash by a shareholder will be "not essentially equivalent to a dividend" will depend upon the individual shareholder's facts and circumstances. In certain circumstances, even a small reduction in a shareholder's proportionate interest may satisfy this test. For example, the Internal Revenue Service has indicated in a published ruling that a 3.3% reduction in the proportionate interest of a small minority (substantially less than 1%) shareholder in a publicly held corporation who exercises no control over corporate affairs constitutes such a "meaningful reduction". Shareholders expecting to rely upon the "not essentially equivalent to a dividend" test should, therefore, consult with tax advisors as to its application in their particular situations. It may be possible for a tendering shareholder to satisfy one of the above two tests by contemporaneously selling or otherwise disposing of all or some of the shares of Class A, B or C Common Stock that are actually or constructively owned by such shareholder but are not purchased pursuant to the Offer. Correspondingly, a tendering shareholder may not be able to satisfy one of the above two tests because of contemporaneous acquisitions of shares of Class A, B or C Common Stock by such shareholder or a related party whose shares of Class A, B or C Common Stock would be attributed to such shareholder. Shareholders should consult their tax advisors regarding the tax consequences of such sales or acquisitions in their particular circumstances. If none of the tests under Section 302 is satisfied and if, as is anticipated, the Company has sufficient earnings and profits, the tendering shareholder will be treated as having received a dividend includible in gross income in an amount equal to the entire amount of cash received by the shareholder pursuant to the Offer (without regard to gain or loss, if any). In the case of a corporate shareholder, if the cash paid is treated as a dividend, the dividend income may be eligible for the 70% dividends- received deduction. The dividends-received deduction is subject to certain limitations, and may not be available if the corporate shareholder does not satisfy certain holding period requirements with respect to the shares of Class A, B or C Common Stock or if the shares of Class A, B or C Common Stock are treated as "debt financed portfolio stock". If a dividends- received deduction is available, it is expected that the dividend will be treated as an "extraordinary dividend" under Section 1059(a) of the Code, in which case such corporate shareholder's tax basis in shares of Class A, B or C Common Stock retained by such shareholder would be reduced, but not below zero, by the amount of the nontaxed portion of the dividend. Any amount of the nontaxed portion of the dividend in excess of the shareholder's basis will generally be subject to tax upon sale or disposition of those shares of Class A, B or C Common Stock. Corporate shareholders are urged to consult their tax advisors as to the effect of Section 1059 of the Code on their tax basis in shares of Class A, B or C Common Stock. A foreign shareholder may be subject to dividend withholding tax at the 30% rate or a lower applicable treaty rate on the gross proceeds of the sale of shares of Class B Common Stock pursuant to the Offer. Foreign shareholders should consult their tax advisors regarding application of these withholding rules. The foregoing discussion may not apply to shares of Class B Common Stock acquired pursuant to certain compensation arrangements with the Company. THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES 6 OF THE TENDERING SHAREHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE OFFER AND THE EFFECT OF THE CONSTRUCTIVE STOCK OWNERSHIP RULES MENTIONED ABOVE. Financing of the Transaction The maximum amount of funds needed by the Company to purchase all of the outstanding shares of Class B Common Stock (including the payment of all accrued and unpaid Special Dividends thereon) and to pay related fees and expenses will be approximately $3,911,000. See "THE OFFER - Fees and Expenses of the Offer." The Company plans to obtain all such funds from its available cash and working capital. THE OFFER Terms of the Offer Upon the terms and subject to the conditions set forth in this Offer, Petro will accept for payment and pay in cash for any and all shares of Class B Common Stock validly tendered for payment on or prior to the Expiration Date (as herein defined) and not withdrawn as permitted below for a purchase price of $17.50 per share net, plus all accrued and unpaid dividends through the Expiration Date. See "SPECIAL FACTORS - Background and Purpose of the Offer; Fairness of the Transaction" and "Withdrawal Rights; Absence of Appraisal Rights." The term "Expiration Date" means 5:00 p.m., New York City time, on August 31, 1994 unless and until Petro, in its sole discretion, shall have extended the period for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by Petro, shall expire. Petro expressly reserves the right (but will not be obligated), at any time or from time to time in its sole discretion, to extend the period during which the Offer is open by giving oral or written notice of such extension to the Depositary and, subject to applicable withdrawal rights, retain all shares of Class B Common Stock tendered for payment until the expiration of the Offer, as extended. Petro expressly reserves the right, subject to Petro's restated and amended articles of incorporation, to (i) terminate the Offer, return all shares of Class B Common Stock tendered for payment to tendering holders and not accept for payment any shares of Class B Common Stock if any of the events set forth below under "Conditions of the Offer" shall have occurred and shall not have been validly waived by Petro, and (ii) amend, at any time or from time to time, the terms of the Offer in a manner deemed by it to be advantageous to Petro or to the holders of the Class B Common Stock. There can be no assurance that Petro will not exercise its right to extend, terminate or amend the Offer. During any such extension, termination or amendment, all shares of Class B Common Stock previously tendered for payment and not accepted or withdrawn will remain subject to the Offer and may be withdrawn by the tendering shareholder or may be accepted for payment by Petro. Any such extension, termination or amendment will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 a.m., New York City 7 time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which Petro may choose to make such public announcement, Petro shall not, unless otherwise required by law, have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If the Company extends the Offer, or if the Company (whether before or after its acceptance for payment of shares) is delayed in its purchase of or payment for shares of Class B Common Stock or is unable to pay for shares of Class B Common Stock pursuant to the Offer for any reason, then, without prejudice to the Company's rights under the Offer, the Depositary may retain tendered shares on behalf of the Company, and such shares may not be withdrawn except to the extent tendering shareholders are entitled to withdrawal rights as described in "Withdrawal Rights; Absence of Appraisal Rights." However, the ability of the Company to delay the payment for shares of Class B Common Stock which the Company has accepted for payment is limited by Rule 13e-4(f)(5) under the Exchange Act, which requires that a bidder either pay the consideration offered or return the securities tendered by or on behalf of the holders of securities, promptly after the termination or withdrawal of such bidder's offer. The Company does not intend to individually advise the remaining holders of Class B Common Stock of the number of remaining shares of Class B Common Stock and the number of remaining holders of such shares following the completion of the Offer. However, such holders may contact the Company to obtain such information at the following address and telephone number: Petroleum Heat and Power Co., Inc., 2187 Atlantic Street, Stamford, Connecticut 06902; Attn: George Leibowitz, Tel. 203-325-5400. Acceptance for Purchase and Payment for Shares of Class B Common Stock Upon the terms and subject to the conditions of the Offer, Petro will, promptly after the Expiration Date, purchase, by accepting for payment, and will pay in cash for any and all shares of Class B Common Stock validly tendered on or prior to the Expiration Date and not withdrawn as permitted by the Offer (including shares of Class B Common Stock validly tendered and not withdrawn during any extension of the Offer, if the Offer is extended, subject to the terms and conditions of such extension). Petro expressly reserves the right, in its sole discretion, subject to the terms of the Company's restated and amended articles of incorporation, to delay the acceptance for payment of, or, subject to the requirements of Rule 13e-4(f)(5), payment for shares of Class B Common Stock in order to comply, in whole or in part, with any applicable law. For purposes of the Offer, Petro will be deemed to have accepted for payment (and thereby purchased) tendered shares of Class B Common Stock if, as and when Petro gives oral or written notice to the Depositary of its acceptance for payment of the tenders of such shares of Class B Common Stock. If certain events occur, Petro may not be obligated to accept the shares of Class B Common Stock pursuant to the Offer. See "Conditions of the Offer." Tendering holders of shares of Class B Common Stock will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the purchase of the shares of Class B Common Stock pursuant to the Offer. If any tendered shares of Class B Common Stock are not purchased and paid for pursuant to the Offer for any reason, such shares of Class B Common Stock will be returned, without expense to the 8 tendering holder (or, in the case of shares of Class B Common Stock tendered by book-entry transfer, such shares of Class B Common Stock will be credited to an account maintained at either The Depository Trust Company ("DTC"), the Midwest Securities Trust Company ("MSTC"), or the Philadelphia Depository Trust Company ("Philadep") (each a "Book-Entry Transfer Facility" and collectively the "Book-Entry Transfer Facilities") as promptly as practicable following the termination of the Offer. Petro does not expect to change the terms of the Offer, but if the consideration offered in the Offer is increased, all tendering holders of the shares of Class B Common Stock will be given the same consideration regardless of when they tender. If Petro decides to increase the consideration offered in the Offer to holders of Class B Common Stock and, at the time the notice of such increase is first published, sent or given to holders of Class B Common Stock in the manner specified above, the Offer is scheduled to expire at any time earlier than the expiration of the period ending on the tenth business day from, and including, the date that such notice is first so published, sent or given, the Offer will be extended until the expiration of such period of 10 business days. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or Federal holiday and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. After the termination of the Offer, Petro may in the future seek to acquire shares of Class B Common Stock by open market purchases, optional redemptions, subsequent tender or exchange offers or otherwise at prices and on terms to be determined by Petro at that time. Procedures for Accepting the Offer and Tendering the Shares of Class B Common Stock The valid tender by a holder of shares of Class B Common Stock of the Offer pursuant to one of the procedures set forth below will constitute an agreement between such holder and Petro in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. In order for shares of Class B Common Stock to be effectively tendered pursuant to the Offer, a properly completed Letter of Transmittal duly executed by the registered holder thereof and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either certificates for such tendered shares of Class B Common Stock must be received by the Depositary at one of such addresses or such shares of Class B Common Stock must be transferred pursuant to the procedures for book-entry transfer described below (and a confirmation of such tender received by the Depositary), in each case on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedure set forth below. Letters of Transmittal or certificates for shares of Class B Common Stock should not be sent to Petro. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, need not be guaranteed if the shares of Class B Common Stock tendered for purchase pursuant thereto are tendered (i) by a registered holder of shares of Class B Common Stock who has not completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal, or (ii) for the account of an Eligible Institution, as defined below. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office in the United States (each an "Eligible Institution"). 9 THE METHOD OF DELIVERY OF SHARES OF CLASS B COMMON STOCK AND OTHER DOCUMENTS TO THE DEPOSITARY IS AT THE ELECTION AND RISK OF THE HOLDER, BUT IF SUCH DELIVERY IS BY MAIL IT IS SUGGESTED THAT THE HOLDER USE PROPERLY IN- SURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE DEPOSITARY ON OR BEFORE THE EXPIRATION DATE. To prevent backup federal income tax withholding with respect to payment of the purchase price of shares of Class B Common Stock sold pursuant to the Offer, a tendering shareholder must provide the Depositary with his correct taxpayer identification number to certify that he is not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. The Depositary will establish accounts with respect to the shares of Class B Common Stock at the Book Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in any of the Book-Entry Transfer Facilities systems may make book-entry delivery of the shares of Class B Common Stock by causing DTC, MSTC or Philadep to transfer such shares of Class B Common Stock into the Depositary's account in accordance with such Book Entry Transfer Facility's procedure for such transfer. However, although delivery of shares of Class B Common Stock may be effected through book-entry at DTC, MSTC or Philadep, the Letter of Transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Depositary at one or more of its addresses set forth on the back cover of this Offer to Purchase on or prior to the Expiration Date, or the guaranteed delivery procedure described below must be complied with. The time of tender shall be upon delivery of such documents to the Depositary. Delivery of documents to a Book Entry Transfer Facility does not constitute delivery to the Depositary. Except as provided below, unless certificates for the shares of Class B Common Stock being tendered for payment are deposited with the Depositary on or prior to the Expiration Date (accompanied by a properly completed and duly executed Letter of Transmittal), Petro may, at its option, reject such tender. Payment for the shares of Class B Common Stock will be made only against deposit of the certificates for the tendered shares of Class B Common Stock. If a holder of the shares of Class B Common Stock desires to tender for payment shares of Class B Common Stock which are not immediately available, or time will not permit such holder's certificates or other required documents to reach the Depositary by the Expiration Date, a tender may nevertheless be effected if all of the following conditions are satisfied: (a) The tender for payment is made by or through an Eligible Institution; (b) On or prior to the Expiration Date, the Depositary receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Petro, setting forth the name and address of the holder of the shares of Class B Common Stock, the description of the shares of Class B Common Stock and the number of shares of Class B Common Stock tendered, stating that the tender is being made thereby and guaranteeing that within five Amex trading days after the date of execution of such Notice of Guaranteed Delivery the Letter of Transmittal together with the certificates representing the 10 shares of Class B Common Stock and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Depositary; and (c) The certificates for the tendered shares of Class B Common Stock (or a confirmation of a book entry transfer of such shares of Class B Common Stock into the Depositary's account at a Book-Entry Transfer Facility as described above), together with a properly completed and duly executed Letter of Transmittal (which may be a facsimile thereof in the case of deliveries made after the Expiration Date), and all other documents required by the Letter of Transmittal, are received by the Depositary within five Amex trading days after the date of execution of such Notice of Guaranteed Delivery. Notwithstanding any other statement herein, in all cases payment for shares of Class B Common Stock tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the certificates for such shares of Class B Common Stock (or a confirmation of a book-entry transfer of such shares of Class B Common Stock into the Depositary's account at a Book Entry Transfer Facility as described above), a properly completed and duly executed Letter of Transmittal and any other required documents. All questions as to the form of documents and the validity, eligibility (including time of receipt), acceptance for payment and withdrawal of tendered shares of Class B Common Stock will be determined by Petro, in its sole discretion, and such determination shall be final and binding. Petro reserves the absolute right to reject any and all tenders of shares of Class B Common Stock determined by it not to be in proper form for acceptance for payment or which, in the opinion of Petro's counsel, may be unlawful. Petro also reserves the right to waive any conditions of the Offer or any defects or irregularities in the tender of the particular shares of Class B Common Stock whether or not similar defects or irregularities are waived in the case of other shares. Petro's interpretation of the terms and conditions of the Offer (including the instructions in the Letter of Transmittal) will be final and binding. Unless waived, any irregularities in connection with the tenders must be cured within such time as Petro shall determine. Neither Petro, the Depositary, nor any other person shall be under any duty to give notification of any defects or irregularities in such tenders or shall incur any liabilities for failure to give such notification. Tenders of such shares of Class B Common Stock will not be deemed to have been made until such irregularities have been cured or waived. Any shares of Class B Common Stock received by the Depositary that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the Depositary to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. Withdrawal Rights; Absence of Appraisal Rights Shares of Class B Common Stock tendered for payment pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment as provided herein, may also be withdrawn at any time after September 16, 1994. If, for any reason whatsoever, acceptance for payment of any shares of Class B Common Stock tendered pursuant to the Offer is delayed, or Petro is unable to accept for payment or pay for shares of Class B Common Stock tendered pursuant to the Offer, then without prejudice to Petro's rights set forth herein, the Depositary may, nevertheless, on behalf of Petro retain tendered shares of Class B Common 11 Stock and such shares may not be withdrawn except to the extent that the tendering shareholder is entitled to and duly exercises withdrawal rights as described herein. Any such delay will be accompanied by an extension of the Offer to the extent required by law. To be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must (i) be timely received by the Depositary at one of its addresses specified on the back cover of this Offer to Purchase before the Depositary receives notice of acceptance from Petro, (ii) specify the name of the person who tendered the shares of Class B Common Stock, (iii) contain the description of the shares of Class B Common Stock to be withdrawn, the certificate numbers shown on the particular certificates evidencing such shares of Class B Common Stock (in the case of physical delivery) and the aggregate number of shares represented by such certificates, and (iv) be signed by the holder of such shares of Class B Common Stock in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to Petro that the person withdrawing the tender has succeeded to the beneficial ownership of the shares of Class B Common Stock. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution unless such shares of Class B Common Stock have been tendered for the account of an Eligible Institution. If certificates for the shares of Class B Common Stock to be withdrawn have been delivered or such shares are otherwise identified to the Depositary, a signed notice of withdrawal is effective immediately upon written, telegraphic, telex or facsimile transmission notice of withdrawal even if physical release is not yet effected. In addition, such notice must specify, in the case of shares of Class B Common Stock tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering holder) and in the case of shares of Class B Common Stock tendered by book-entry transfer, the name and number of the account at one of the Book-Entry Transfer Facilities to be credited with the withdrawn shares of Class B Common Stock. Withdrawals may not be rescinded, and any shares of Class B Common Stock withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, properly withdrawn shares of Class B Common Stock may be retendered by following one of the procedures described in "Procedures for Accepting the Offer and Tendering the Shares of Class B Common Stock" above at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Petro, in its sole discretion, which determination shall be final and binding. Neither Petro, the Depositary, nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liabilities for failure to give any such notification. There are no appraisal or other similar statutory rights available to holders of shares of Class B Common Stock in connection with the Offer. Conditions of the Offer Notwithstanding any other provisions of the Offer, but subject to Petro's amended and restated articles of incorporation, Petro, at its option, may cancel, modify or terminate the Offer or delay or refrain from accepting for payment the shares of Class B Common Stock if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency relating to the Offer; 12 (b) there shall have occurred any change or development, including a change or development involving a prospective change in or affecting the business or financial affairs of Petro which, in the sole judgment of the Board of Directors of Petro, would or might prohibit, restrict or delay consummation of the Offer or materially impair the contemplated benefits of the Offer to Petro or might be material to holders in deciding whether to tender their shares of Class B Common Stock; (c) there exists, in the sole judgment of the Board of Directors of Petro, any other actual or threatened legal impediment (including a default or prospective default under an agreement, indenture or other instrument or obligation to which Petro is a party or by which it is bound) to the acceptance for payment of the tendered shares of Class B Common Stock; (d) a preliminary or permanent injunction or other order by any federal or state court or any governmental agency shall have been issued and remain in effect which restrains or prohibits the making or consummation of the Offer. The foregoing conditions are for the sole benefit of Petro and may be asserted by Petro regardless of the circumstances giving rise to such condition or may be waived by Petro in whole or in part at any time and from time to time in its sole discretion. If any of the foregoing events shall have occurred, Petro may, subject to Petro's restated and amended articles of incorporation, (i) terminate the Offer and return the shares of Class B Common Stock to the holders who tendered them; (ii) extend the Offer and retain all tendered shares of Class B Common Stock until the expiration of such Offer, subject, however, to the rights of holders thereof to withdraw such shares of Class B Common Stock in the manner provided herein (see "Withdrawal Rights; Absence of Appraisal Rights" above); or (iii) waive the unsatisfied conditions with respect to the Offer and accept all shares of Class B Common Stock tendered therein. Petro reserves the right at any time to waive any or all of such conditions. 13 Market Data; Dividends The following table sets forth, for the periods indicated, the high and low prices per share of the Class B Common Stock as reported on Amex and the dividends declared in each quarter of 1992, 1993 and through June 30, 1994.
1992 1993 1994 -------------------------------- --------------------------------- ---------------------------------- Dividends Dividends Dividends Declared per Declared per Declared per Share of Share of Share of Class B Class B Class B Common Common Common Quarter High Low Stock High Low Stock High Low Stock ------- ---- --- ---------- ---- --- -------- ---- --- --------- 1st . . . . . . . $12 1/4 $9 7/8 $.2858 $19 1/4 $15 3/4 $.4700 $30 1/4 $19 3/4 $.4100 2nd . . . . . . . 16 1/4 10 1/4 .2858 22 1/2 17 3/8 .4700 28 18 1/2 .4100 3rd . . . . . . . 17 1/2 14 1/2 .2858 20 3/4 19 3/4 .4700 4th . . . . . . . 17 1/4 15 1/8 .2858 20 1/2 19 1/2 .4700
The Company's Class B Common Stock has been listed on Amex since December 1986 under the symbol "PHP". On June 30, 1994, the last date the stock traded prior to the first public announcement of the proposed termination of Special Dividends, the last sales price per share of Class B Common Stock, as reported on Amex, was $18.50. On July 15, 1994, the last sales price per share of the Class B Common Stock, as reported on Amex, was 17 1/4. Although dependent upon the actual number of shares of Class B Common Stock tendered and accepted in connection with the Offer, it is likely that the shares of the Class B Common Stock will be delisted from Amex following the completion of the Offer. Holders of Class B Common Stock are urged to obtain current market quotations for the Class B Common Stock. See "SPECIAL FACTORS - Certain Effects of the Offer". Certain Information Concerning the Company The Company is the largest retail distributor of home heating oil (#2 fuel oil) in the United States, with sales of $538.5 million for the year ended December 31, 1993. Petro served approximately 415,000 customers in 26 markets in the Northeast, as of December 31, 1993, including the metropolitan areas of Boston, New York City, Baltimore, Providence and Washington, D.C. Despite its leading market position, Petro estimates that its customer base represents approximately 5% of the residential home heating oil customers in the Northeast. For the year ended December 31, 1993, the Company sold approximately 443.5 million gallons of home heating oil and propane. In addition to home heating oil and propane, the Company also installs and repairs heating equipment and markets to commercial customers, to a limited extent, other petroleum products, including #4 fuel oil, #6 fuel oil, diesel fuel, kerosene and gasoline. The Company is a Minnesota corporation. Its principal executive offices are located at 2187 Atlantic Street, Stamford, Connecticut 06902 and its telephone number is (203) 325-5400. The Company operates through its subsidiaries in nine states and the District of Columbia. 14 The following table sets forth selected financial and other data of the Company and should be read in conjunction with the more detailed financial statements included elsewhere in this Offer to Purchase. The financial data at March 31, 1993 and March 31, 1994, and for each of the three month periods then ended are unaudited, but include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such data. The Company typically generates net income and NIDA (as defined in note 2 as follows) in the quarters ending in March and December and experiences net losses and negative NIDA during the non-heating season quarters ending in June and September; thus the results for interim periods are not indicative of the results that may be obtained for the entire fiscal year. Although EBITDA (as defined in note 1 as follows) and NIDA should not be considered as substitutes for net income (loss) as an indicator of the Company's operating performance or for cash flow as a measure of the Company's liquidity, they are included in the following table as they are the bases upon which the Company assesses its financial performance, compensates management and establishes dividends. 15
Year Ended December 31, Three Months Ended March 31 ------------------------- ---------------------------- 1992 1993 1993 1994 ---- ---- ---- ---- (in thousands, except per share data) Income Statement Data: Net Sales . . . . . . $ 512,430 $ 538,526 $ 251,271 $ 266,793 Cost of sales . . . . 350,941 366,809 161,676 163,263 ------- ------- ------- ------- Gross profit . . . . 161,489 171,717 89,595 103,530 Operating expenses . 110,165 123,280 36,195 39,641 Amortization of customer lists . . . . . . . 23,496 23,183 6,397 4,876 Depreciation and amortization of plant and equipment . 5,534 5,933 1,440 1,365 Amortization of deferred charges . . . 5,363 5,548 1,338 1,496 Provision for supplemental benefits. 1,974 264 43 70 ------- ------- -------- -------- Operating income . 14,957 13,509 44,182 56,082 Interest expense-net 18,622 20,508 4,871 5,685 Other income (expense)-net . . . . . (324) (165) (42) 20 --------- - -------- -------- Income (loss) before income taxes, equity interest and extraordinary item . (3,989) (7,164) 39,269 50,417 Income taxes . . . . 400 400 331 601 --------- -------- -------- -------- Income (loss) before equity interest and extraordinary item (4,389) (7,564) 38,938 49,816 Equity in earnings of Star Gas Corporation . . . . . -- -- -- 2,263 ---- ---- ---- ----- Income (loss) before extraordinary item (4389) (7,564) 38,938 52,079 Extraordinary item . -- (867) -- (654) ---- --- --------- --------- Net income (loss) . $(4,389) $(8,431) 38,938 $ 51,425 ======== ======== ======= ======== Net income (loss) applicable to Commong Stock . . $ (8,842) $(11,798) $ 37,112 $ 49,626 Net income (loss) per common share: Class A Common Stock (.81) (.57) 1.72 2.30 Class B Common Stock 1.14 1.88 .47 .41 Class C Common Stock (.81) (.57) 1.72 2.30 Other Data: EBITDA(1) . . . . . . $ 51,325 $ 48,437 $ 53,399 $ 63,889 NIDA(2) . . . . . . . $ 27,721 $ 23,176 $ 47,147 $ 56,113 Cash dividends declared per common share(3): Class A Common Stock $ 0.18 $ 0.525 $ .11 $ .14 Class B Common Stock(4) . . . . . . 1.14 1.88 .47 .41 Class C Common Stock 0.18 0.525 .11 .14 Weighted average number of common shares outstanding: Class A Common Stock 12,854 18,993 18,993 18,993 Class B Common Stock 2,447 217 217 217 Class C Common Stock 2,545 2,545 2,545 2,545 Gallons of home heating oil and propane sold . . . . 423,354 443,487 222,000 241,039 Balance Sheet Data: Working capital (deficiency) . . . . $ (6,744) $ 16,694 $ 71,304 $ 85,949 Total assets . . . . 252,783 256,589 275,454 280,984 Long-term debt and capital lease obligations (before escrow deposit) (long- term portion)(5) . 50,080 50,047 75,072 44,301 Subordinated notes (long-term portion). . 84,978 135,264 110,149 167,632
16
Year Ended December 31, Three Months Ended March 31 ------------------------- ---------------------------- 1992 1993 1993 1994 ---- ---- ---- ---- (in thousands, except per share data) Redeemable preferred stock (long-term portion) $ 37,718 $ 20,833 $ 25,000 $ 20,833 Stockholders' equity (deficiency) . . . . (33,917) (61,964) 671 (15,388) Book value (deficiency) per common share(6) . . (1.56) (2.85) .03 (.71)
_________________________ (1) EBITDA is defined as operating income before depreciation and amortization and non-cash expenses associated with key employees' deferred compensation plans. (2) NIDA is defined as the sum of consolidated net income (loss), plus depreciation and amortization of plant and equipment and amortization of customer lists and deferred charges, plus non-cash expenses associated with key employees' deferred compensation plans, less dividends accrued on preferred stock, excluding net income (loss) derived from investments accounted for by the equity method, except to the extent of any cash dividends received by the Company. (3) On July 29, 1992, the holders of Class A Common Stock exchanged 20% of their shares (2,545,139 shares) for an equal number of the newly created Class C Common Stock. All per share amounts for Class A and Class C Common Stock have been retroactively adjusted to reflect such exchange. (4) Holders of Class B Common Stock are entitled to receive, as and when declared by the Board of Directors, quarterly Special Dividends per share equal to .000001666% of the cash flow, as defined for such purposes, of the Company for its prior fiscal year. For purposes of computing the Class B Common Stock dividend, cash flow is defined as the sum of (i) consolidated net income (loss), plus (ii) depreciation and amortization of plant and equipment and (iii) amortization of customer lists and restrictive covenants. The Board of Directors has determined to terminate the Special Dividends, effective the Expiration Date. (5) The Company has escrowed certain amounts to secure the repayment of certain long-term debt. The amounts on deposit at the dates indicated were as follows: $15,000,000 at December 31, 1992, $20,000,000 at December 31, 1993, $15,000,000 at March 31, 1993 and $0 at March 31, 1994. (6) Based on the number of common shares outstanding at the dates indicated. The Depositary The Depositary for the Offer is Chemical Bank. All deliveries, correspondence and questions sent or presented to the Depositary relating to the Offer should be directed to one of the addresses or telephone numbers set forth on the back cover of this Offer to Purchase. The Information Agent The Company has retained Morrow & Co., Inc. to act as Information Agent in connection with the Offer. The Information Agent may contact holders of shares of Class B Common Stock by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners. 17 Requests for information or additional copies of this Offer to Purchase or the Letter of Transmittal should be directed to the Information Agent at the address set forth on the back cover of this Offer to Purchase. Fees and Expenses of the Offer Petro will pay the Information Agent and the Depositary reasonable and customary compensation for their services in connection with the Offer, plus reimbursement for out-of-pocket expenses. Petro will indemnify the Information Agent and the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Brokers, dealers, commercial banks, trust companies and other nominees will be reimbursed by Petro for customary mailing and handling expenses incurred by them in forwarding material to their customers. The estimated costs and fees in connection with the Offer are set forth below. Legal Fees . . . . . . . . $ 20,000.00 Commission Filing Fees . . 759.15 Printing and Mailing 10,000.00 Expenses . . . . . . . . . Depositary Fees . . . . . . 10,000.00 Information Agent Fee . . . 10,000.00 Miscellaneous . . . . . . . 4,240.85 --------- Total . . . . . . . . . $55,000.00 ========== Legal Matters Certain legal matters in connection with the Offer will be passed upon for the Company by Phillips, Nizer, Benjamin, Krim & Ballon, New York, New York. Available Information The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports and other information con- cerning the Company can be inspected and copied at the public reference room maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, upon request, such reports and other information will be made available for inspection and copying at the Commission's public reference facilities at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center, New York, New York 10048. Copies of such material can be ob- tained at prescribed rates upon request from the Public Reference Section of the commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, such material and other information concerning the Company can be inspected and copied at the American Stock Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Securities and Exchange Commission, Washington, D.C., a Rule 13e-1 Issuer Tender Offer Statement on Schedule 13E-4 (the "Schedule 13E-4") and a Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3") with the Securities and Exchange Commission with respect to the Offer. This Offer to Purchase does not contain all the information set forth in the Schedule 13E-4 and the Schedule 13E-3, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. For further 18 information about the Company and the Offer, reference is made to the Schedule 13E-4 and Schedule 13E-3, and to the financial statements, schedules and exhibits filed as a part thereof. The Schedule 13E-4 and Schedule 13E-3, may be inspected without charge at the Commission's principal office in Washington, D.C. and copies of all or any part thereof may be obtained from such office after payment of the fees prescribed by the Commission. 19 SCHEDULE I ---------- DIRECTORS AND EXECUTIVE OFFICERS OF PETRO ----------------------------------------- Set forth below are the names, present principal occupations and five- year employment histories of each director and executive officer of Petro. The address of each such person is c/o Petroleum Heat and Power Co., Inc., 2187 Atlantic Avenue, Stamford, Connecticut 06902. Irik P. Sevin has been a director of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Mr. Sevin has been President of Petro, Inc. since November 1979 and of the Company since 1983 and Chairman of the Board of the Company since January 1993. Mr. Sevin is a director of Star Gas Corporation ("Star Gas"), which is the tenth largest distributor of propane in the United States. Between January 1979 and November 1979, he was Executive Vice President of Petro, Inc. Mr. Sevin was an associate in the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers Kuhn Loeb Incorporated from February 1975 to December 1978. Mr. Sevin is a graduate of the Cornell University School of Industrial and Labor Relations (B.S.), New York University School of Law (J.D.) and the Columbia University School of Business Administration (M.B.A.). Audrey L. Sevin has been a director and Secretary of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Mrs. Sevin is a director of Star Gas. Mrs. Sevin was a director, executive officer and principal shareholder of A.W. Fuel Co., Inc. from 1952 until its purchase by the Company in May 1981. Mrs. Sevin is a graduate of New York University (B.S.). Phillip Ean Cohen has been a director of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Since 1985, Mr. Cohen has been Chairman of Morgan Schiff & Co., Inc., an investment banking firm. Mr. Cohen is presently a director of AmeriHealth, Inc. Thomas J. Edelman has been a director of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Mr. Edelman is the President of Snyder Oil Corporation, a Fort Worth, Texas based independent oil company. Prior to 1981, he was a Vice President of The First Boston Corporation. From 1975 through 1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman is a graduate of Princeton University (B.A.) and the Harvard Graduate School of Business Administration (M.B.A.). Mr. Edelman is also the Chairman of the Board and Chief Executive Officer of Lomak Petroleum, Inc., an Ohio based independent oil company, a director of Total Energy Services Corporation, a Houston based oil service company and a director of Star Gas. Richard O'Connell has been a director of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Mr. O'Connell is a private investor. Wolfgang Traber has been a director of Petro, Inc. since January 1979 and of the Company since its organization in October of 1983. Mr. Traber is Managing Director of Hanseatic Corporation, in Hamburg, Germany, a private investment corporation. Mr. Traber is a director of Deltec Securities Corporation, Blue Ridge Real Estate Company, Hellespont Tankers Ltd., M.M. Warburg & Co. and Star Gas. Max M. Warburg has been a director of the Company since May 1984. Since January 1, 1982, Mr. Warburg has been a partner of M.M. Warburg & Co., a private bank. For the prior four years he was a Managing Director of the same organization. Since March 1988, he has been a member of the board of Holsten Brauerei AG, Hamburg. Since May 1, 1987, he has been a member of the board of Eurokai-Eckelmann Gruppe, Hamburg. Mr. Warburg is a member of the Board of DWS Deutsche Gesellschaft fur Wertpapiersparen GmbH, Frankfurt; DEG Deutsche Finanzierungsgesellschaft fur Beteilingungen in Entwicklungslandern GmbH, Koln; the Hamburg Stock Exchange; and the Hamburg Banking Association. C. Justin McCarthy has been Senior Vice President- Operations of Petro, Inc. since January 1979 and of the Company since its organization in October 1983. Prior to his joining the Company, Mr. McCarthy was General Manager of the New York City operations for Whaleco Fuel Oil Company from 1976 to 1979 and was General Manager of the Long Island Division of Meenan Oil Co., Inc. from 1973 to 1976. Mr. McCarthy is a graduate of Boston College (B.B.A.) and the New York University Graduate School of Business Administration (M.B.A.). Joseph P. Cavanaugh has been Controller of Petro, Inc. since 1973 and of the Company since its organization in 1983. He was elected a Vice President of the Company in October 1983 and a Senior Vice President since January 1993. Mr. Cavanaugh is a graduate of Iona College (B.B.A.) and Pace University (M.S. in Taxation). George Leibowitz has been Senior Vice President of the Company since November 1, 1992. From 1985 to 1992, prior to joining the Company, Mr. Leibowitz was the Chief Financial Officer of Slomin's Inc., a retail heating oil dealer. From 1984 to 1985, Mr. Leibowitz was the President of Lawrence Energy Corp., a consulting and oil trading company. From 1971 to 1984, Mr. Leibowitz was Vice President-Finance and Treasurer of Meenan Oil Co., Inc. Mr. Leibowitz is a Certified Public Accountant and a graduate of Columbia University (B.A. 1957) and the Wharton Graduate Division, University of Pennsylvania (M.B.A. 1958). Alex Szabo has been Senior Vice President--Marketing and Sales since June 1994. From 1989 to 1994, prior to joining the Company, Mr. Szabo was Executive Vice President at Whittle Communications and President of Screenvision Cinema Network. From 1987 to 1989, Mr. Szabo was Executive Vice President--General Manager of Benckiser Consumer Products, Inc. Prior to 1987, Mr. Szabo held executive management positions at Ecolab, Colgate Palmolive and I.B.M. Mr. Szabo is a graduate of Brown University (B.A. 1975) and Columbia University (M.B.A. 1980). Richard F. Ambury has been Assistant Controller of the Company since June 1983 and was elected Vice President - Assistant Controller in December 1992. From 1979 to 1983, Mr. Ambury was employed by a predecessor firm of KPMG Peat Marwick, a public accounting firm. Mr. Ambury graduated from Marist College with a degree in Business Administration in 1979 and has been a Certified Public Accountant since 1981. James J. Bottiglieri has been Assistant Controller of the Company since 1985 and was elected Vice President - Assistant Controller in December 1992. From 1978 to 1984, Mr. Bottiglieri was employed by a predecessor firm of KPMG Peat Marwick, a public accounting firm. Mr. Bottiglieri graduated from Pace University with a degree in Business Administration in 1978 and has been a Certified Public Accountant since 1980. Matthew J. Ryan, who has been employed by the Company since 1987, has been Manager of Supply and Distribution of the Company since 1990 and was elected Vice President--Supply in December 1992. From 1974 to 1987, Mr. Ryan was employed by Whaleco Fuel Corp., a subsidiary of the Company which was acquired in 1987. Mr. Ryan graduated from St. Francis College with a degree in Accounting in 1983 (B.S.). Audrey L. Sevin is the mother of Irik P. Sevin and there are no other familial relationships between any of the directors and executive officers. SCHEDULE II ----------- PETROLEUM HEAT AND POWER CO.INC INDEX TO FINANCIAL STATEMENTS Page ---- AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets at December 31, 1992 and 1993 . . . . . . . F-3 Consolidated Statements of Operations for the years ended December 31, 1991, 1992 and 1993 . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the years ended December 31, 1991, 1992 and 1993 . . F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1991, 1992 and 1993 . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-7 INTERIM FINANCIAL STATEMENTS (UNAUDITED): Consolidated Balance Sheets March 31, 1994 (unaudited) and December 31, 1993 F-31 Consolidated Statements of Operations (unaudited) Three Months ended March 31, 1993 and 1994 . . . . . . . . . . . . . . . . . . . . F-32 Consolidated Statements of Cash Flows (unaudited) Three Months ended March 31, 1993 and 1994 . . . . . . . . . . . . . . . . . . F-33 Notes to Condensed Consolidated Financial Statements (unaudited) . F-35 F-1 Independent Auditors' Report The Stockholders and Board of Directors of Petroleum Heat and Power Co., Inc.: We have audited the accompanying consolidated balance sheets of Petroleum Heat and Power Co., Inc. and subsidiaries as of December 31, 1992 and 1993, and the related consolidated statements of operations, changes in stockholders' equity (deficiency) and cash flows for each of the years in the three-year period ended December 31, 1993. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules 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 Petroleum Heat and Power Co., Inc. and subsidiaries as of December 31, 1992 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in the notes to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standard Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, in 1993. KPMG Peat Marwick New York, New York February 28, 1994 F-2 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Consolidated Balance Sheets
December 31, ----------------------------- Assets 1992 1993 ---- ---- Current assets: Cash $ 3,859,557 $ 4,613,546 U.S. Treasury Notes held in a Cash Collateral Account -- 20,000,000 Accounts receivable (net of allowance of $1,270,754 and $1,026,202) 78,358,514 74,818,503 Inventories 15,729,305 13,992,928 Prepaid expenses 4,623,433 5,230,865 Notes receivable and other current assets 1,680,633 1,715,329 --------- --------- Total current assets 104,251,442 120,371,171 ----------- ----------- Property, plant and equipment 61,092,297 62,643,562 Less accumulated depreciation and amortization 28,342,302 31,103,032 ---------- ---------- 32,749,995 31,540,530 ---------- ---------- Intangible assets (net of accumulated amortization of $188,459,167 and $217,190,143) Customer lists 86,093,145 73,177,198 Deferred charges 14,128,629 13,717,281 Deferred pension costs -- 1,332,616 ---------- --------- 100,221,774 88,227,095 ----------- ---------- Investment in Star Gas Corporation -- 16,000,000 ---------- ---------- U.S. Treasury Notes held in a Cash Collateral Account 15,000,000 -- ---------- ----------- Other assets 560,000 450,000 ---------- ----------- $252,783,211 $256,588,796 =========== =========== Liabilities And Stockholders' Equity (Deficiency) Current liabilities: Working capital borrowings $ 32,000,000 $ 28,000,000 Current maturities of other long-term debt 33,345 33,345 Current installments of capital lease obligations 103,595 -- Current maturities of cumulative redeemable exchangeable preferred stock -- 4,166,667 Subordinated notes payable 12,400,373 -- Accounts payable 15,289,518 16,664,026 Customer credit balances 19,317,863 22,324,023 Unearned service contract revenue 13,180,431 13,018,983 Accrued expenses: Wages and bonuses 5,030,100 6,392,559 Taxes other than income taxes 1,856,074 1,564,822 Pension 2,373,188 1,465,905 Other 9,410,757 10,046,589 --------- ---------- Total current liabilities 110,995,244 103,676,919 ----------- ----------- Long-term notes payable 50,000,000 50,000,000 ---------- ---------- Other long-term debt 80,404 47,059 ---------- ---------- Supplemental benefits payable 1,688,728 1,652,314 ---------- ---------- Pension plan obligation 1,239,250 7,079,494 ---------- ---------- Subordinated notes payable 84,978,349 135,263,663 ---------- ----------- Cumulative redeemable exchangeable preferred stock, par value $.10 per share, 409,722 shares authorized, 408,884 and 250,000 shares outstanding of which 41,667 at December 31, 1993 are reflected as current 37,717,790 20,833,333 ---------- ---------- Commitments and contingencies Stockholders' equity (deficiency): Preferred stock-par value $.10 per share; 5,000,000 shares authorized, none outstanding Class A common stock-par value $.10 per share; 40,000,000 shares authorized, 18,992,579 shares outstanding 1,899,258 1,899,258 Class B common stock-par value $.10 per share; 6,500,000 shares authorized, 216,901 shares outstanding (liquidation preference - $1,236,336) 21,690 21,690 Class C common stock-par value $.10 per share; 5,000,000 shares authorized, 2,545,139 shares outstanding 254,514 254,514 Additional paid-in capital 54,462,132 54,416,259 Deficit (89,274,148) (112,741,672) Minimum pension liability adjustment -- (4,534,035) ---------- ---------- (32,636,554) (60,683,986) Note receivable from stockholder (1,280,000) (1,280,000) ---------- ---------- Total stockholders' equity (deficiency) (33,916,554) (61,963,986) ---------- ---------- $252,783,211 $256,588,796 =========== ===========
See accompanying notes to consolidated financial statements. F-3 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 1991, 1992 and 1993
1991 1992 1993 ---- ---- ---- Net sales $ 523,243,243 $ 512,430,194 $ 538,526,317 Cost of sales 378,771,961 350,941,386 366,809,517 ----------- ----------- ----------- Gross profit 144,471,282 161,488,808 171,716,800 Selling, general and administrative expenses 79,427,873 83,407,680 93,378,666 Direct delivery expense 25,007,204 26,756,585 29,901,565 Amortization of customer lists 24,839,983 23,496,438 23,182,730 Depreciation and amortization of plant and equipment 5,550,381 5,534,205 5,933,100 Amortization of deferred charges 5,185,113 5,363,321 5,548,246 Provision for supplemental benefits -- 1,973,728 263,586 ----------- ----------- ----------- Operating income 4,460,728 14,956,851 13,508,907 Other income (expense): Interest expense (21,916,205) (20,204,808) (22,155,840) Interest income 1,187,676 1,582,885 1,647,435 Gains (losses) on sales of fixed assets (104,911) 8,297 (164,686) Other 60,147 (332,590) -- ----------- ----------- ----------- Loss before income taxes and extraordinary item (16,312,565) (3,989,365) (7,164,184) Income taxes 250,000 400,000 400,000 ----------- ----------- ----------- Loss before extraordinary item (16,562,565) (4,389,365) (7,564,184) ----------- ----------- ----------- Extraordinary item - loss on early extinguishment of debt -- -- (867,110) ----------- ----------- ----------- Net loss $ (16,562,565) $ (4,389,365) $ (8,431,294) ============ =========== =========== Net loss applicable to common stock $ (19,854,648) $ (8,842,105) $ (11,798,320) Income (loss) before extraordinary item per common share: Class A Common Stock $ (1.64) $ (.81) $ (.53) Class B Common Stock .31 1.14 1.88 Class C Common Stock (1.64) (.81) (.53) Extraordinary loss per common share: Class A Common Stock $ -- $ -- $ (.04) Class B Common Stock -- -- -- Class C Common Stock -- -- (.04) Net income (loss) per common share: Class A Common Stock $ (1.64) $ (.81) $ (.57) Class B Common Stock .31 1.14 1.88 Class C Common Stock (1.64) (.81) (.57) Weighted average number of common shares outstanding: Class A Common Stock 10,180,558 12,854,266 18,992,579 Class B Common Stock 3,034,060 2,447,473 216,901 Class C Common Stock 2,545,139 2,545,139 2,545,139
See accompanying notes to consolidated financial statements. F-4 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Deficiency) Years ended December 31, 1991, 1992 and 1993
Minimum Note Common Stock Additional pension receivable ---------------------------- paid-in liability from Class A Class B Class C capital Deficit adjustment stockholder Total ------- ------- ------- ------- ------- ---------- ----------- ----- Balance at December 31, 1990 $1,018,056 $303,406 $254,514 $13,124,567 $ (53,507,701) $ -- $(1,280,000) $ (40,087,158) Net loss (16,562,565) (16,562,565) Cash dividends declared and paid (3,927,446) (3,927,446) Cash dividends payable (292,610) (292,610) Redeemable preferred stock issuance costs (550,962) (550,962) Accretion of redeemable preferred stock (23,083) (23,083) ---------- -------- -------- ----------- ------------- ----------- ----------- ------------- Balance at December 31, 1991 1,018,056 303,406 254,514 12,550,522 (74,290,322) -- (1,280,000) (61,443,824) Net loss (4,389,365) (4,389,365) Cash dividends declared and paid (7,987,026) (7,987,026) Cash dividends payable (2,607,435) (2,607,435) Accretion of redeemable preferred stock (194,740) (194,740) Class A Common Stock issued (4,330,000 shares) 433,000 47,197,000 47,630,000 Class A Common Stock (4,482,021 shares) exchanged for Class B Common Stock (2,817,159 shares) 448,202 (281,716) (166,486) -- Class A Common Stock issuance and exchange offer costs (4,924,164) (4,924,164) ---------- -------- -------- ----------- ------------- ----------- ----------- ------------- Balance at December 31, 1992 1,899,258 21,690 254,514 54,462,132 (89,274,148) -- (1,280,000) (33,916,554) Net loss (8,431,294) (8,431,294) Cash dividends declared and paid (11,972,850) (11,972,850) Cash dividends payable (3,063,380) (3,063,380) Accretion of redeemable preferred stock (45,873) (45,873) Minimum pension liability adjustment (4,534,035) (4,534,035) ---------- -------- -------- ----------- ------------- ----------- ----------- ------------- $1,899,258 $ 21,690 $254,514 $54,416,259 $(112,741,672) $(4,534,035) $(1,280,000) $ (61,963,986) ========== ======== ======== =========== ============= =========== =========== =============
See accompanying notes to consolidated financial statements. F-5 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1991, 1992 and 1993
1991 1992 1993 ---- ---- ---- Cash flows from operating activities: Net loss $ (16,562,565) $ (4,389,365) $ (8,431,294) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of customer lists 24,839,983 23,496,438 23,182,730 Depreciation and amortization of plant and equipment 5,550,381 5,534,205 5,933,100 Amortization of deferred charges and debt discount 5,223,354 5,394,397 5,548,246 Provision for losses on accounts receivable 2,156,320 2,444,581 1,836,113 Provision for supplemental benefits -- 1,973,728 263,586 Loss (gain) on bond redemptions (60,147) 332,590 867,110 Loss (gain) on sales of fixed assets 104,911 (8,297) 164,686 Amortization of acquired pension plan obligation (23,328) (24,785) (26,407) Decrease (increase) in accounts receivable 8,217,612 (6,994,519) 1,703,898 Decrease (increase) in inventory 12,509,679 (2,438,308) 1,736,377 Decrease in income taxes receivable 668,000 -- -- Decrease (increase) in prepaid expenses, notes receivable and other current assets 279,716 (12,823) (642,128) Decrease (increase) in other assets (100,000) (200,000) 110,000 Increase (decrease) in accounts payable (6,133,548) 2,360,312 1,374,508 Increase (decrease) in customer credit balances 2,378,664 (822,574) 3,006,160 Increase (decrease) in unearned service contract revenue 104,643 823,902 (161,448) Increase (decrease) in accrued expenses 461,857 (756,093) 171,555 ---------- ---------- ---------- Net cash provided by operating activities 39,615,532 26,713,389 36,636,792 ---------- ---------- ---------- Cash flows used in investing activities: Acquisition of customer lists (10,127,482) (33,361,262) (10,266,783) Increase in deferred charges (2,570,234) (1,800,647) (3,581,798) Capital expenditures (4,146,765) (14,509,037) (5,182,335) Net proceeds from sales of fixed assets 261,333 528,376 294,014 Investment in Star Gas Corporation -- -- (16,000,000) ---------- ---------- ---------- Net cash used in investing activities (16,583,148) (49,142,570) (34,736,902) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from issuance of common stock -- 47,630,000 -- Costs of issuing and exchanging common stocks -- (4,924,164) -- Net proceeds from issuance of redeemable exchangeable preferred stock 4,449,055 7,499,950 -- Net proceeds from issuance of subordinated notes 5,700,000 6,800,000 48,067,642 Repurchase of subordinated notes (5,616,508) (6,964,693) (25,368,574) Net reductions of working capital borrowings (19,250,000) (7,750,000) (4,000,000) Increase in Cash Collateral Account (5,000,000) (10,000,000) (5,000,000) Decrease in other obligations (33,345) (33,346) (161,089) Principal payments under capital lease obligations (686,577) (596,833) (103,595) Cash dividends paid (5,216,921) (8,279,636) (14,580,285) ---------- ---------- ---------- Net cash provided by (used in) financing activities (25,654,296) 23,381,278 (1,145,901) ---------- ---------- ---------- Net increase (decrease) in cash (2,621,912) 952,097 753,989 Cash at beginning of year 5,529,372 2,907,460 3,859,557 --------- --------- --------- Cash at end of year $ 2,907,460 $ 3,859,557 $ 4,613,546 ========= ========= =========
See accompanying notes to consolidated financial statements. F-6 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Petroleum Heat and Power Co., Inc. (Petro) and its subsidiaries (the Company), each of which is wholly owned and, like Petro, is engaged in the retail distribution of home heating oil and propane in the Northeast. The Company currently operates in 26 major markets in the Northeast, including the metropolitan areas of Boston, New York City, Baltimore, Providence and Washington, D.C., serving approximately 415,000 customers in those areas. Credit is granted to substantially all of these customers with no individual account comprising a concentrated credit risk. Investment in Star Gas Corporation The Company's investment in Star Gas Corporation (see note 11) is accounted for following the equity method. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out method. The components of inventories were as follows at the dates indicated: December 31, ----------------------- 1992 1993 ---- ---- Fuel oil $ 8,151,053 $ 6,289,676 Parts 7,578,252 7,703,252 --------- --------- $15,729,305 $13,992,928 ========== ========== Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Customer Lists and Deferred Charges Customer lists are recorded at cost less accumulated amortization. Amortization is computed using the straight-line method with 90% of the cost amortized over six years and 10% of the cost amortized over 25 years. Deferred charges include goodwill, acquisition costs and payments related to covenants not to compete. The covenants are amortized using the straight-line method over the terms of the related contracts; acquisition costs are amortized using the straight-line method over a six-year period; while goodwill is amortized using the straight-line method over a twenty-five year period. Also included as deferred charges are the costs associated with the issuance of the Company's subordinated notes. Such costs are being amortized using the interest method over the lives of the notes. (Continued) F-7 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1), Continued The Company assesses the recoverability of intangible assets by comparing the carrying values of such intangibles to market values, where a market exists, supplemented by cash flow analyses to determine that the carrying values are recoverable over the remaining estimated lives of the intangibles through undiscounted future operating cash flows. When an intangible asset is deemed to be impaired, the amount of intangible impairment is measured based on market values, as available, or by projected operating cash flows, using a discount rate reflecting the Company's assumed average cost of funds. Unearned Service Contract Revenue Payments received from customers for burner service contracts are deferred and amortized into income over the terms of the respective service contracts, which generally do not exceed one year. Customer Credit Balances Customer credit balances represent payments received from customers pursuant to a budget payment plan (whereby customers pay their estimated annual fuel charges on a fixed monthly basis) in excess of actual deliveries billed. Income Taxes The Company files a consolidated Federal income tax return with its subsidiaries. When appropriate, deferred income taxes were provided to reflect the tax effects of timing differences between financial and tax reporting. Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) (see note 9). Pensions The Company funds accrued pension costs currently on its pension plans, all of which are noncontributory. Common Stock In July 1992, the holders of Class A Common Stock exchanged 2,545,139 shares of Class A Common Stock for 2,545,139 shares of Class C Common Stock (see note 6). All numbers of Class A and Class C Common Stock and related amounts have been retroactively adjusted in the accompanying consolidated financial statements to reflect such exchange. (Continued) F-8 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (1), Continued Earnings per Common Share Earnings per common share are computed utilizing the three class method based upon the weighted average number of shares of Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding, after adjusting the net loss for preferred dividends declared and the accretion of 1991 Redeemable Preferred Stock, aggregating $3,292,000, $4,452,000, and $3,367,000 for the years ended 1991, 1992 and 1993, respectively. Fully diluted earnings per common share are not presented because the effect is not material or is antidilutive. (2) Property, Plant and Equipment The components of property, plant and equipment and their estimated useful lives were as follows at the indicated dates: December 31, ----------------- Estimated 1992 1993 useful lives ---- ---- ------------ Land $ 1,469,065 $ 1,519,065 Buildings 7,151,142 7,420,171 20-45 years Fleet and other equipment 38,507,056 38,412,619 3-17 years Furniture and fixtures 10,784,419 11,861,514 5-7 years Leasehold improvements 3,180,615 3,430,193 Terms of leases --------- ---------- 61,092,297 62,643,562 Less accumulated depreciation and amortization 28,342,302 31,103,032 ---------- ---------- $32,749,995 $31,540,530 ========== ========== (Continued) F-9 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (3) Notes Payable, Other Long-Term Debt and Working Capital Borrowings Notes payable and other long-term debt, including working capital borrowings and current maturities of long-term debt, consisted of the following at the indicated dates: December 31, ----------------- 1992 1993 ---- ---- Notes payable to banks under working capital borrowing arrangements(a)(c). $32,000,000 $28,000,000 Notes payable in connection with the acquisition of Whale Oil Corp., refinanced on February 3, 1994 and paid on February 4, 1994, with interest at the rate of 9% per annum(b)(c) 50,000,000 50,000,000 Amounts payable in connection with the purchase of a fuel oil dealer, due in monthly installments with interest at 6% per annum, through June 1, 1996 (see note 10) 113,749 80,404 ---------- ---------- 82,113,749 78,080,404 Less current maturities, including working capital borrowings 32,033,345 28,033,345 ---------- ---------- $50,080,404 $50,047,059 ========== ========== ____________ (a) Pursuant to a Credit Agreement dated December 31, 1992, as restated and amended (Credit Agreement), the Company may borrow up to $75 million under a revolving credit facility with a sublimit under a borrowing base established each month. Amounts borrowed under the revolving credit facility are subject to a 45 day clean-up requirement prior to September 30 of each year and the facility terminates on June 30, 1996. As collateral for the financing arrangement, the Company granted to the lenders a security interest in the customer lists trademarks and trade names owned by the Company, including the proceeds therefrom. Under certain circumstances, the Company would have to further secure its obligations under the credit agreement with a lien on accounts receivable and material inventories. Interest on borrowings is payable monthly and is based upon the floating rate selected at the option of the Company of either the Eurodollar Rate (as defined below) or the Alternate Base Rate (as defined below), plus 125 to 175 basis points on Eurodollar Loans or 0 to 50 basis points on Alternative Base Rate Loans, based upon the ratio of Consolidated Operating Profit to Interest Expense (as defined in the Credit Agreement). The Eurodollar Rate is the prevailing rate in the Interbank Eurodollar Market adjusted for reserve requirements. The Alternate Base Rate is the greater of (i) the prime rate or base rate of Chemical Bank in effect or (ii) the Federal Funds Rate in effect plus 1/2 of 1%. At December 31, 1993, the rate on the working capital borrowings was 4.9%. The Company pays a facility fee of 0.375% on the unused portion of the revolving credit facility. Compensating balances equal to 5.0% of the average amount outstanding during the relevant period are also required under the agreement. (Continued) F-10 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (3), Continued (b) On July 22, 1987, Maxwhale Corp. (Maxwhale), a wholly owned subsidiary of Petro, acquired certain assets of Whale Oil Corp. for $50.0 million. The purchase price was paid by the issuance of $50.0 million of 9% notes due June 1, 1994. The notes were nonrecourse to Petro, but were secured by letters of credit issued by certain banks pursuant to the Credit Agreement. Maxwhale paid a fee on these letters of credit, calculated at a range of 1.75% to 2.25% on $50.0 million less the balance maintained in a Cash Collateral Account, plus 0.25% on the Cash Collateral Account balance. Petro had fully guaranteed these letters of credit. The Maxwhale customer list was pledged pursuant to a security agreement in favor of the banks. On February 4, 1994, the Company repaid the $50.0 million of Maxwhale notes at a purchase price of 101.33% of the principal amount thereof, with a portion of the proceeds of its $75.0 million 9-3/8% public subordinated debenture offering completed on February 3, 1994 (see note 5). The Company will record an extraordinary loss in 1994 of approximately $0.7 million as a result of the early payment on such debt. Since the Maxwhale notes were refinanced with the proceeds of new long term debt, such notes have been classified as long term at December 31, 1993. Under the Credit Agreement, the Company was required to make annual deposits into a Cash Collateral Account to secure the outstanding letters of credit. The first such deposit of $5 million was made on June 15, 1991 with additional deposits of $10 million occurring on April 1, 1992 and $5 million on May 15, 1993. As a result of the repayment of the Maxwhale notes, the $20 million in the cash collateral account was released for general corporate purposes on February 4, 1994. (c) The customer lists, trademarks and trade names pledged to the banks under the Credit Agreement are carried on the December 31, 1993 balance sheet at $73,177,198. Under the terms of the Credit Agreement, the Company is required, among other things, to maintain certain minimum levels of cash flow, as well as certain ratios on consolidated debt. In the event of noncompliance with certain of the covenants, the banks have the right to declare all amounts outstanding under the loans to be due and payable immediately. With the refinancing of the Maxwhale notes with a portion of the Company's 9-3/8% subordinated debentures, there are no other annual maturities of long-term debt for each of the next five years as of December 31, 1993, except for the required repayments of the acquisition related payable of approximately $80,000 due in equal monthly installments of approximately $3,300 through June 30, 1996. (Continued) F-11 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (4) Leases and Capital Lease Obligations The Company is obligated under various capital leases entered into during 1988 and 1989 for service vans. The leases expired in 1993 and were renewed on a month to month basis thereafter. The gross amounts of fleet and other equipment and related accumulated amortization recorded under the capital leases were as follows at the dates indicated: December 31, ------------------ 1992 1993 ---- ---- Fleet and other equipment $2,701,658 2,701,658 Less accumulated amortization 2,598,063 2,701,658 ---------- --------- $ 103,595 -- ========== ========= Amortization of assets held under capital leases is included with depreciation expense. The Company also leases real property and equipment under noncancelable operating leases which expire at various times through 2008. Certain of the real property leases contain renewal options and require the Company to pay property taxes. Future minimum lease payments for all operating leases (with initial or remaining terms in excess of one year) are as follows: Year ending Operating December 31, leases ------------ ------ 1994 $ 3,260,000 1995 2,974,000 1996 2,128,000 1997 1,507,000 1998 1,392,000 Thereafter 5,046,000 --------- Total minimum lease payments $16,307,000 ========== Rental expense under operating leases for the years ended December 31, 1991, 1992 and 1993 was $4,916,000, $4,448,000, and $5,346,000, respectively. (Continued) F-12 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5) Subordinated Notes Payable Subordinated notes payable, net of unamortized original discounts, at the dates indicated, consisted of: December 31, --------------------- 1992 1993 ---- ---- 11.40% Subordinated Notes due July 1, 1993(a)(b) $12,400,373 $ -- 14.275% Subordinated Notes due October 1, 1995(b) 12,478,349 -- 11.85%, 12.17%, and 12.18% Subordinated Notes due October 1, 1998(c) 60,000,000 60,000,000 14.10% Subordinated Notes due January 15, 2001(d) 12,500,000 12,500,000 Subordinated Notes due March 1, 2000(e) -- 12,763,663 10-1/8% Subordinated Notes due April 1, 2003(f) -- 50,000,000 ---------- ----------- 97,378,722 135,263,663 Less current maturities 12,400,373 -- ---------- ---------- $84,978,349 $135,263,663 ========== =========== (a) On July 2, 1984, the Company sold $20,000,000 of subordinated notes at an original discount of approximately $150,000. These notes (11.40% Notes) bore interest at 11.40% and were redeemable at the Company's option in whole, at any time, or in part, from time to time, at a redemption price of 101.5% of principal amount through June 30, 1993. Interest was payable quarterly. (b) On October 8, 1985, the Company sold $25,000,000 of subordinated fixed rate notes at an original discount of approximately $330,000. These notes (14.275% Notes) bore interest at 14.275% and were redeemable at the option of the Company, in whole or in part, from time to time, upon payment of a premium rate of approximately 3.7%, which declined on October 1, 1992 to approximately 2.0% until October 1, 1993, when the 14.275% Notes were redeemable at par. In April 1991, the Company purchased $5,519,000 and $376,000 face value of its 11.40% Notes and 14.275% Notes, respectively, for an aggregate of $5,617,000. Unamortized deferred charges and bond discounts of $218,000 associated with the issuances of the 11.40% Notes and the 14.275% Notes were written off upon the repurchase of the debt. The Company included a gain of $60,000 in 1991 on these repurchases and included such gain in other income. In March 1992, the Company purchased $2,445,000 of the 14.275% notes at par. Unamortized deferred charges and bond discounts of $62,000 associated with the issuance of these notes were written off on the repurchase of the debt in March 1992. On May 15, 1992, the Company purchased $4,355,000 of the 14.275% Notes at a premium of 3.7%. (Continued) F-13 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5), Continued (b), continued Unamortized deferred charges and bond discounts of $106,000 associated with the issuance of these notes were written off on the repurchase of the debt in May 1992. The Company included a loss of $333,000 in 1992 on these repurchases and included such loss in other expenses. In May 1993, the Company repurchased the remaining outstanding amounts of its 11.40% Subordinated Notes due July 1, 1993 having a face amount of $12,430,000, at a redemption price of 101.5% of face value, for an aggregate of approximately $12.6 million and its outstanding 14.275% Subordinated Notes due October 1, 1995, having a face amount of $12,524,000, at a redemption price of 102.0% of face value, for an aggregate of approximately $12.8 million. Unamortized deferred charges and bond discounts of $447,000 associated with the issuance of these Notes were written off on the repurchase of the debt in May 1993. The Company recorded an extraordinary loss of $867,000 as a result of the early retirement of these notes. (c) On September 1, 1988, the Company authorized the issuance of $60,000,000 of Subordinated Notes due October 1, 1998 bearing interest payable semiannually on the first day of April and October. The Company issued $40,000,000 of such notes on October 14, 1988 bearing interest at the rate of 11.85% per annum, $15,000,000 of such notes on March 31, 1989 bearing interest at the rate of 12.17% per annum and $5,000,000 of such notes on May 1, 1990 bearing interest at the rate of 12.18% per annum. All such notes are redeemable at the option of the Company, in whole or in part, from time to time, upon payment of a premium rate as defined. (d) On January 15, 1991, the Company authorized the issuance of $12,500,000 of 14.10% Subordinated Notes due January 15, 2001 bearing interest payable quarterly on the fifteenth day of January, April, July and October. The Company issued $5,700,000 of such notes in April 1991 and $6,800,000 in March 1992. The notes are redeemable at the option of the Company, in whole or in part, from time to time, upon payment of a premium rate as defined. On each January 15, commencing in 1996 and ending on January 15, 2000, the Company is required to repay $2,100,000 of the Notes. The remaining principal of $2,000,000 is due on January 15, 2001. No premium is payable in connection with these required payments. (e) In March 1993, the Company issued $12,764,000 of Subordinated Notes due March 1, 2000 in exchange for an equal amount of 1991 Redeemable Preferred Stock (see note 7). The Company issued the 1991 Redeemable Preferred Stock under an agreement which required the Company to redeem the 1991 Redeemable Preferred Stock as soon as, and to the extent that, it was permitted to incur Funded Debt. Under the applicable provisions of the Company's debt agreements, the Company was allowed to incur Funded Debt in the first quarter of 1993, and as such, was required to enter into the exchange. These notes call for interest payable monthly based on the sum of LIBOR plus 9.28%. At December 31, 1993, LIBOR was 3.25%. (Continued) F-14 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5), Continued (f) On April 6, 1993, the Company issued $50.0 million of 10-1/8% Subordinated Notes due April 1, 2003. These Notes are redeemable at the Company's option, in whole or in part, at any time on or after April 1, 1998 upon payment of a premium rate as defined. Interest is payable semiannually on the first day of April and October. Expenses connected with the above six offerings, and amendments thereto, amounted to approximately $8,057,000. At December 31, 1992 and 1993, the unamortized balances relating to notes still outstanding amounted to approximately $1,675,000 and $2,762,000, respectively, and such balances are included in deferred charges. Aggregate annual maturities for each of the next five years, are as follows as of December 31, 1993: Year ended December 31, ------------ 1994 $ -- 1995 -- 1996 2,100,000 1997 2,100,000 1998 62,100,000 On February 3, 1994, the Company issued $75.0 million of 9-3/8% public subordinated debentures due February 1, 2006. These debentures are redeemable at the Company's option, in whole or in part, at any time on or after February 1, 1997 upon payment of a premium rate as defined. Interest is payable semiannually on the first day of February and August. In connection with the offering of its 9-3/8% subordinated debentures, the Company solicited and received consents of the holders of at least a majority in aggregate principal amount of each class of subordinated debt and redeemable preferred stock (see note 7) to certain amendments to the respective agreements under which the subordinated debt and the redeemable preferred stock were issued. In consideration for the consents, the Company paid to the holders of the subordinated debt due in 1998, 2000 and 2003 a cash payment aggregating $0.6 million and caused approximately $42.6 million of the aggregate principal amount of such subordinated debt to be ranked as senior debt. In addition, the Company has agreed to increase dividends on the redeemable preferred stock by $2.00 per share per annum. The Company also paid approximately $1.5 million in fees and expenses to obtain such consents (see Note 7). (Continued) F-15 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) Common Stock and Common Stock Dividends The Company's outstanding Common Stock consists of Class A Common Stock, Class B Common Stock and Class C Common Stock, each with various designations, rights and preferences. In 1992, the Company restated and amended its Articles of Incorporation increasing the authorized shares of Class A Common Stock to 40,000,000 and authorizing 5,000,000 shares of Class C Common Stock, $.10 par value. On July 29, 1992, the holders of Class A Common Stock exchanged, pro rata, 2,545,139 shares of Class A Common Stock for 2,545,139 shares of Class C Common Stock. The financial statements, as well as the table on the following page, give retroactive effect to this exchange. Holders of Class A Common Stock and Class C Common Stock have identical rights, except that holders of Class A Common Stock are entitled to one vote per share and holders of Class C Common Stock are entitled to ten votes per share. Holders of Class B Common Stock do not have voting rights, except as required by law, or in certain limited circumstances. Holders of Class B Common Stock are entitled to receive, as and when declared by the Board of Directors, Special Dividends equal to .000001666% per share per quarter of the Company's Cash Flow, as defined, for its prior fiscal year. For purposes of computing Special Dividends, Cash Flow represents the sum of (i) consolidated net income, plus (ii) depreciation and amortization of plant and equipment, and (iii) amortization of customer lists and restrictive covenants, (iv) excluding net income (loss) derived from investments accounted for by the equity method, except to the extent of any cash dividends received by the Company. Special Dividends are cumulative and are payable quarterly. If not paid, dividends on any other class of stock may not be paid until all Special Dividends in arrears are declared and paid. The Company may, in its sole discretion, terminate the payment of the Special Dividends if all Special Dividends have then been paid or duly provided for. If the Company exercises its right to terminate the Special Dividends, it must give notice to the holders of Class B Common Stock not less than 30 days nor more than 60 days prior to the date fixed for termination. In such event, the Special Dividends will terminate on the date specified in the notice (the Parity Date). Each holder of Class B Common Stock will then have a period of 60 days from the date of the notice to elect to require the Company to purchase all or part of such holder's Class B Common Stock at a price of $17.50 per share, as adjusted for stock splits, reclassifications and the like, plus all accrued and unpaid Special Dividends to the date of purchase, or to elect to retain such holder's Class B Common Stock. After the Parity Date, no dividends will be paid to the holders of Class B Common Stock until the holders of Class A Common Stock and Class C Common Stock receive dividends equal to the Common Stock Allocation, as defined. (Continued) F-16 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (6), Continued On July 29, 1992 and September 2, 1992, the Company sold an aggregate of 4,330,000 shares of its Class A Common Stock in a Public Offering (the "Offering") at an initial offering price of $11.00 per share. On September 17, 1992 the Company commenced an Exchange Offer (Exchange Offer) for all of the outstanding shares of its Class B Common Stock pursuant to which each holder of Class B Common Stock who validly tendered a share of Class B Common Stock for exchange was entitled to receive 1.591 shares of Class A Common Stock. The Exchange Offer expired on October 16, 1992 and, as a result, 2,817,159 shares of Class B Common Stock (92.8% of the total then outstanding) were exchanged for 4,482,021 shares of Class A Common Stock. The following table summarizes the cash dividends declared on Common Stock and the cash dividends declared per common share for the years indicated: Year Ended December 31, ------------------------------ 1991 1992 1993 ---- ---- ---- Cash dividends declared Class A $ -- $ 3,157,000 $ 9,971,000 Class B 952,000 2,715,000 408,000 Class C -- 465,000 1,336,000 Cash dividends declared per share Class A $ -- $ 0.18 $ 0.525 Class B 0.31 1.14 1.88 Class C -- 0.18 0.525 Under the Company's most restrictive dividend limitation, $7.1 million was available at December 31, 1993 for the payment of dividends on all classes of Common Stock. The amount available for dividends is increased each quarter by 50% of the cash flow, as defined, for the previous fiscal quarter. In the event of liquidation of the Company, each outstanding share of Class B Common Stock would be entitled to a distribution equal to its share of all accrued and unpaid Special Dividends, without interest, plus $5.70 per share, before any distribution is made with respect to the Class A or Class C Common Stock. Thereafter, each share of Class B Common Stock and each share of Class A and Class C Common Stock would participate equally in all liquidating distributions, subject to the rights of the holders of the Cumulative Redeemable Exchangeable Preferred Stock. The aggregate liquidation preference on the Class B Common Stock at December 31, 1993 amounted to an aggregate of $1,236,336. (Continued) F-17 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7) Cumulative Redeemable Exchangeable Preferred Stock The Company entered into agreements dated as of August 1, 1989 with John Hancock Mutual Life Insurance Company and Northwestern Mutual Life Insurance Company to sell up to 250,000 shares of its Redeemable Preferred Stock, par value $. 10 per share, at a price of $100 per share, which shares are exchangeable into Subordinated Notes due August 1, 1999 (1999 Notes). The Company sold 50,000 shares of the Redeemable Preferred Stock in August 1989, 50,000 shares in December 1989 and 150,000 shares in May 1990. The Redeemable Preferred Stock issued in August 1989 calls for dividends of $12 per share, while the stock issued in December 1989 and May 1990 calls for dividends of $11.84 and $12.61 per share, respectively. In connection with receiving the consents in 1994 to modify certain covenants under which the Redeemable Preferred Stock was issued, the Company has agreed to increase dividends on the Redeemable Preferred Stock by $2.00 per share per annum beginning February 1994. The shares of the Redeemable Preferred Stock are exchangeable in whole, or in part, at the option of the Company, for 1999 Notes of the Company. On August 1, 1994, and on August 1 of each year thereafter, so long as any of the shares of Redeemable Preferred Stock remain outstanding, one-sixth of the number of originally issued shares of each series of Redeemable Preferred Stock outstanding less the number of shares of such series previously exchanged for 1999 Notes, are to be redeemed, with the final redemption of remaining outstanding shares occurring on August 1, 1999. The redemption price is $100 per share plus all accrued and unpaid dividends to such August 1. The Company entered into an agreement dated September 1, 1991 with United States Leasing International Inc. to sell up to 159,722 shares of its 1991 Redeemable Preferred Stock, par value $.10 per share, at an initial price of $78.261 per share, which shares were exchangeable into Subordinated Notes due March 1, 2000 (2000 Notes). The Company sold 63,889 shares of the Redeemable Preferred Stock in September 1991 at $78.261 per share and 94,995 shares in March 1992 at $78.951 per share, the accreted value of the initial price. The holders of the shares of 1991 Preferred Stock were entitled to receive monthly dividends based on the annual rate of the sum of LIBOR plus 4.7%. The Company issued the 1991 Redeemable Preferred Stock under an agreement which required the Company to redeem the 1991 Redeemable Preferred Stock as soon as, and to the extent that it was permitted to incur Funded Debt. Under the applicable provisions of the Company's debt agreements, the Company was allowed to incur Funded Debt in the first quarter of 1993 and as such, was required to enter into the exchange. In March 1993, the Company issued $12,763,663 of 2000 Notes in exchange for all of the 1991 Redeemable Preferred Stock (see note 5). Preferred dividends of $3,269,000, $4,258,000 and $3,321,000 were declared on all classes of preferred stock in 1991, 1992 and 1993, respectively. (Continued) F-18 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (7), Continued Aggregate annual maturities of Redeemable Preferred Stock are as follows as of December 31, 1993: Year ended December 31, ------------ 1994 $ 4,167,000 1995 4,166,000 1996 4,167,000 1997 4,167,000 1998 4,167,000 1999 4,166,000 --------- $ 25,000,000 ========== (8) Pension Plans The Company has several noncontributory defined contribution and defined benefit pension plans covering substantially all of its nonunion employees. Benefits under the defined benefit plans are generally based on years of service and each employee's compensation, while benefits under the defined contribution plans are based solely on compensation. Pension expense under all plans for the years ended December 31, 1991, 1992 and 1993 was $2,774,000, $2,447,000 and $3,342,000, respectively, net of amortization of the pension obligation acquired. The following table sets forth the defined benefit plans' funded status and amounts recognized in the Company's balance sheets at the indicated dates: December 31, -------------------------- 1992 1993 ---- ---- Actuarial present value of benefit obligations: Accumulated benefit obligations including vested benefits of $18,409,871 and $23,566,465 $ 18,790,759 $ 23,848,149 ========== ========== Projected benefit obligation $(21,715,790) $(26,458,728) Plan assets at fair value (primarily listed stocks and bonds) 16,581,099 17,252,490 ---------- ---------- Projected benefit obligation in excess of plan assets (5,134,691) (9,206,238) Unrecognized net loss from past experience different from the assumed and effects of changes in assumptions 3,645,967 7,538,164 Unrecognized net transitional obligation 606,394 546,784 Unrecognized prior service cost due to plan amendments 674,044 785,832 Additional liability (2,133,731) (6,260,201) ---------- ---------- Accrued pension cost for defined benefit plans $(2,342,017) $(6,595,659) ========== ========== (Continued) F-19 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8), Continued Net pension cost for defined benefit plans for the periods indicated included the following components: Year Ended December 31, ------------------------------------- 1991 1992 1993 ---- ---- ---- Service cost-benefits earned during the period $ 1,154,607 $ 1,162,736 $1,391,564 Interest cost on projected benefit obligation 1,665,229 1,781,444 1,778,401 Actual return on assets (2,515,808) (1,248,604) (994,937) Net amortization and deferral of gains and losses 1,471,819 (71,885) 207,465 --------- --------- --------- Net periodic pension cost for defined benefit plans $ 1,775,847 $ 1,623,691 $2,382,493 ========= ========= ========= Assumptions used in the above accounting were: Discount rate 8.5% 8.5% 7.0% Rates of increase in compensation level 6.0% 6.0% 4.0% Expected long-term rate of return on assets 10.0% 10.0% 8.5% In addition to the above, the Company made contributions to union-administered pension plans during the years ended December 31, 1991, 1992 and 1993 of $2,365,000, $2,442,000 and $2,867,000, respectively. The Company has recorded an additional minimum pension liability for underfunded plans of $5,866,651 at December 31, 1993, representing the excess of unfunded accumulated benefit obligations over plan assets. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed the related unrecognized prior service costs and net transition obligation, in which case the increase in liabilities is charged as a reduction of stockholders' equity. The Company has recorded intangible assets of $1,332,616 and a reduction in stockholders' equity of $4,534,035 as of December 31, 1993. In connection with the purchase of shares of a predecessor company as of January 1, 1979 by a majority of the Company's present holders of Class C Common Stock, the Company assumed a pension liability in the aggregate amount of $1,512,000, as adjusted, representing the excess of the actuarially computed present value of accumulated vested plan benefits over the net assets available for such benefits. Such liability, which amounted to $1,212,843 at December 31, 1993, is being amortized over 40 years. Under a 1992 supplemental benefit agreement, Malvin P. Sevin, the Company's chairman and co-chief executive officer, was entitled to receive $25,000 per month for a period of 120 months following his retirement. In the event of his death, his designated beneficiary is entitled to receive such benefit. The expense related to this benefit was being accrued over the estimated remaining period of Mr. Sevin's employment. Mr. Sevin passed away in (Continued) F-20 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8), Continued December 1992, prior to his retirement. The accrual for such benefit payable was accelerated at December 31, 1992 to $1,973,000, the present value (using a discount rate of 9%) of the payments now payable to his beneficiary, which payments commenced in January 1993. During the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 106 (SFAS No. 106) "Employers' Accounting for Post Retirement Benefits Other Than Pensions." This Statement requires that the expected cost of postretirement benefits be fully accrued by the first date of full benefit eligibility, rather than expensing the benefit when payment is made. As the Company generally does not provide for postretirement benefits, other than pensions, the adoption of the new Statement did not have any material effect on the Company's consolidated financial condition or results of operations. (9) Income Taxes Income tax expense was comprised of the following for the indicated years: Year Ended December 31, ------------------------ 1991 1992 1993 ---- ---- ---- Current: Federal $ -- $ -- $ -- State 250,000 400,000 400,000 ------- ------- ------- $250,000 $400,000 $400,000 ======= ======= ======= Deferred income tax expense results from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effects of each were as follows: Year Ended December 31, ---------------------------- 1991 1992 1993 ---- ---- ---- Excess of tax over book (book over tax) depreciation $(114,000) $ (11,000) $ 242,000 Excess of book over tax vacation expense (223,000) (3,000) (93,000) (Excess of book over tax) tax over book bad debt expense (74,000) (165,000) 92,000 (Excess of book over tax) tax over book supplemental benefit expense -- (671,000) 12,000 Deferred service contracts 66,000 66,000 18,000 Other, net 36,000 50,000 (60,000) Recognition of tax benefit of net operating loss to the extent of current and previously recognized temporary differences -- -- (211,000) Deferred tax assets not recognized 309,000 734,000 -- ------- ------- ------- $ -- $ -- $ -- ======= ======= ======= (Continued) F-21 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (9), Continued As of December 31, 1993, the Company has for Federal tax reporting purposes, a net operating loss (NOL) carryforward of approximately $51.3 million. Total income tax expense amounted to $250,000 for 1991, $400,000 for 1992, and $400,000 for 1993. The following reconciles the effective tax rates to the "expected" statutory rates for the years indicated: Year Ended December 31, ---------------------- 1991 1992 1993 ---- ---- ---- Computed "expected" tax (benefit) rate (34.0)% (34.0)% (34.0)% Reduction of income tax benefit resulting from: Net operating loss carryback limitation 34.0 34.0 34.0 State income taxes, net of Federal income tax benefit 1.5 10.0 5.6 ---- ---- ---- 1.5% 10.0% 5.6% === ==== ==== During the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). 'This Statement requires that deferred income taxes be recorded following the liability method of accounting and adjusted periodically when income tax rates change. Adoption of the new Statement did not have any effect on the Company's consolidated financial condition or results of operations since the Company did not carry any deferred tax accounts on its balance sheet at December 31, 1992 and any net deferred assets set up as a result of applying SFAS 109 have been fully reserved. Under SFAS No. 109, as of January 1, 1993, the Company had net deferred tax assets of approximately $14.1 million subject to a valuation allowance of approximately $14.1 million. The components of and changes in the net deferred tax assets and the changes in the related valuation allowance for 1993 using current rates were as follows (in thousands):
Deferred January 1, Expense December 31, 1993 (Benefit) 1993 ---- --------- ---- Federal book net operating loss carryforwards $ 14,389 $ 2,606 $ 16,995 Excess of tax over book depreciation (2,472) (242) (2,714) Excess of book over tax vacation expense 1,042 93 1,135 Excess of book over tax (tax over book) supplemental benefit expense 671 (12) 659 Excess of book over tax (tax over book) bad debt expense 440 (92) 348 Other, net 76 42 118 -------- ------- ------- 14,146 2,395 16,541 Valuation allowance (14,146) (2,395) (16,541) -------- ------- ------- $ -- $ -- $ -- ======== ======= =======
(Continued) F-22 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (9), Continued A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The Company has determined, based on the Company's recent history of annual net losses, that a full valuation allowance is appropriate. At December 31, 1993, the Company had the following income tax carryforwards for Federal income tax reporting purposes (in thousands): Expiration Date Amount ---- ------ 2005 $26,651 2006 15,012 2007 1,367 2008 8,286 ------- $51,316 ====== (10) Related Party Transactions In connection with the acquisition of customer lists, equipment and other assets of previously unaffiliated fuel oil businesses, the Company entered into lease agreements covering certain vehicles with individuals, including certain stockholders, directors and executive officers. These leases are currently on a month-to-month basis, on terms comparable with leases from unrelated parties. Annual rentals under these leases are approximately $150,000. During 1981, the Company acquired the customer list, equipment and accounts receivable of a fuel oil business from two individuals, one of whom is, and the other of whom was, prior to his death, stockholders, directors and executive officers of the Company. The purchase price was approximately $1,233,000, of which $733,000 was paid at the closing and the balance was financed through the issuance of a $500,000, 6%, 15-year term note secured by property of the Company. The unpaid balance of this note at December 31, 1993 was $80,404 (see note 3). On November 6, 1985, the Company sold a building to certain related parties for $660,000, the same price the Company originally paid for the property in June 1984 and which was also the facility's independently appraised fair market value. The parties then leased the facility back to the Company pursuant to a ten-year agreement providing for rentals of $90,000 per annum plus escalation and taxes. (Continued) F-23 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10), Continued Until 1985, the Company occupied a certain building under a lease agreement with an unaffiliated lessor. The lease was accounted for as a capital lease and, as such, the capitalized leased asset and obligation were included on the Company's balance sheet. In November 1985, pursuant to a competitive bidding process, the Company purchased the building from the landlord for $1,500,000. The building was resold for $1,500,000 in December 1985 to certain related parties, some of whom are stockholders, directors and executive officers of the Company. These related parties are leasing the building to the Company under a lease agreement which calls for rentals of $315,000 per annum (which was the independently appraised lease rental) plus escalations and which expires in 1995. In October 1986, Irik P. Sevin purchased 161,313 shares of Class A Common Stock and 40,328 shares of Class C Common Stock (after giving retroactive effect to the exchange of Class C Common Stock for Class A Common Stock in July 1992) of the Company for $1,280,000 (which was the fair market value as established by the Pricing Committee pursuant to the Stockholders' Agreement described below). The purchase price was financed by a note originally due December 31, 1989, but which has been extended to December 31, 1994. The note was amended in 1991 to increase the principal amount by $152,841, the amount of interest due from October 22, 1990 through December 31, 1991 and to change the interest rate on the note effective January 1, 1992 from 10% per annum to the LIBOR rate in effect for each month plus 0.75%. The note was amended again in 1992 to increase the principal amount by $66,537, the amount of interest due from January 1, 1992 through December 31, 1992. The note was amended in 1993 to increase the principal amount by $60,449, the amount of interest due from January 1, 1993 through December 31, 1993. At any time prior to the due date of the note, Mr. Sevin has the right to require the Company to repurchase all or any of these shares (as adjusted for stock splits, dividends and the like) for $6.35 per share (the Put Price), provided, however, that Mr. Sevin retain all shares of Class B Common Stock issued as stock dividends on the shares without adjustments to the Put Price. In December 1986, 50,410 shares of Class B Common Stock were issued as a stock dividend with respect to these shares, which shares were exchanged in October 1992 for 80,202 Class A Common Shares pursuant to the Exchange Offer discussed in Note 6. Upon the repurchase of the shares, the Company has agreed to issue an eight-year option to Mr. Sevin to purchase a like number of shares at the Put Price. Mr. Sevin has entered into an agreement with the Company that he will not sell or otherwise transfer to a third party any of the shares of Class A Common Stock or Class C Common Stock received pursuant to this transaction until the note has been paid in full. In November 1986, the Company issued stock options to purchase 30,000 shares and 20,000 shares, of the Class A Common Stock of the Company to Irik P. Sevin and Malvin P. Sevin, respectively, subject to adjustment for stock splits, stock dividends, and the like, upon the successful completion of a public offering of at least 10% of the common stock of the Company. Such a public offering was completed in December 1986. The option price for the shares of Class A Common Stock was $20 per share. The options, which expire on November 30, 1994, are nontransferable. As a result of stock dividends in the form of Class A Common Stock and Class B Common Stock declared by the Company in (Continued) F-24 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10), Continued December 1986, the exchange of Class C Common Stock for Class A Common Stock in July 1992, and special antidilution adjustments, the options held by Irik P. Sevin now apply to 89,794 shares of Class A Common Stock and 22,448 shares of Class C Common Stock and the options held by Malvin P. Sevin now apply to 59,862 shares of Class A Common Stock and 14,966 shares of Class C Common Stock. The adjusted option price for each such share is $4.10. On December 28, 1987, the Company issued stock options to purchase 24,000 shares of Class A Common Stock and 6,000 shares of Class C Common Stock (after giving retroactive effect to the exchange of' Class C Common Stock for Class A Common Stock in July, 1992) to Irik P. Sevin. The option price for each such share is $7.50. These options are not transferable and expire on January 1, 1996. On March 3, 1989, the Company issued stock options to purchase 72,000 shares of Class A Common Stock and 18,000 shares of Class C Common Stock (after giving retroactive effect to the exchange of Class C Common Stock for Class A Common Stock in July 1992) to Irik P. Sevin and 48,000 shares of Class A Common Stock and 12,000 shares of Class C Common Stock (after giving retroactive effect to the exchange of Class C Common Stock for Class A Common Stock in July 1992) to Malvin P. Sevin. The option price for each such share is $11.25. These options are nontransferable, Malvin P. Sevin's option expired unexercised while Irik P. Sevin's options expire on March 3, 1999. On November 1, 1992, the Company issued stock options to an officer of the Company to purchase 25,000 shares of Class A Common Stock and issued another 25,000 stock options to this officer in June 1993. The option price for each such share is $11.00. Twenty percent of the options become exercisable on each of the next five anniversary dates of the grants. In December 1992, Malvin P. Sevin passed away. All options previously owned by him are exercisable by his estate up until the original expiration date of such options. During the first quarter of 1991, the Company contemplated the acquisition of a business engaged in the distribution of packaged industrial gases for other than heating purposes ("Packaged Industrial Gas Business"). As the Company was prohibited from making this acquisition because of restrictions under the Credit Agreement from which the Company was unable to obtain a waiver, the acquisition was consummated by certain of the principal holders of the Class C Common Stock. The Company entered into an agreement with the Packaged Industrial Gas Business to provide management services on request for a fee equal to the allocable cost of Company personnel devoted to the business with a minimum fee of $50,000 per annum plus an incentive bonus equal to 10% of the cash flow above budget. The fee received under such management contract for the seven months ended December 31, 1991 was $29,000 and for the years ended December 31, 1992 and 1993 was $50,000 and $4,000, respectively. Simultaneously with this acquisition, the Company entered into an option agreement expiring May 31, 1996 pursuant to which the Company had the right, exercisable at any time, to acquire the Packaged Industrial Gas Business for its fair market value, as determined by an independent appraisal. In January 1993, the Packaged Industrial Gas Business was sold by its owners to an unrelated third party and the Company's option agreement and management services agreement were cancelled. (Continued) F-25 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10), Continued On August 1, 1991, the Company agreed to purchase certain assets of a fuel oil distributor for approximately $17 million, however, certain restrictions under the Company's lending arrangements made the cost of the acquisition unduly burdensome. Accordingly, in October 1991, certain shareholders of the Company, owning approximately 9% of the Class C Common Stock and certain unaffiliated investors, organized RAC Fuel Oil Corp. (RAC) to acquire such business, but gave Petro a five year option, which Petro was required to exercise when permitted by its lending arrangements, to purchase RAC for the same price, as adjusted for operations while the business was owned by RAC. Pending exercise of its option, the Company had been managing RAC's business at an annual fee of $161,000, which was designed to compensate the Company for its estimated costs and for supplying fuel oil to RAC at the Company's cost. In August 1992, the Company was able to and did exercise its option to buy RAC. The acquisition price was approximately $17 million. The existing holders of Class C Common Stock of the Company have entered into a Shareholders' Agreement which provides that, in accordance with certain agreed-upon procedures, each will vote his shares to elect certain designated directors. The Shareholders' Agreement also provides for first refusal rights to the Company if a holder of Class C Common Stock receives a bona fide written offer from a third party to buy such holder's Class C Common Stock. (11) Investment in Star Gas In December 1993, the Company acquired an approximate 29.5% equity interest (42.8% voting interest) in Star Gas for $16.0 million in cash. Of such $16.0 million investment, $14.0 million was invested directly in Star Gas through the purchase of Series A 8% pay-in-kind Cumulative Convertible Preferred Stock of Star Gas, which is convertible into common stock of Star Gas, and $2.0 million was invested through Star Gas Holdings, Inc. ("Holdings"), a newly formed corporation. Certain other investors (including Holdings) invested a total of $49.0 million of additional equity in Star Gas, of which $11.0 million was in the form of cash and $38.0 million resulted from the conversion of long-term debt and preferred stock into equity. As a result of redemptions of a portion of the equity in Star Gas held by certain of the other investors that the Company expects will occur in connection with a Star Gas recapitalization, the Company expects that its direct and indirect equity interest in Star Gas will increase to 36.7% without any additional investment by the Company. Star Gas has granted to the Company an option, exercisable through December 20, 1998, to purchase 500,000 shares of common stock of Star Gas for an aggregate purchase price of approximately $5.0 million. In addition, each of the other investors in Star Gas (including each such investor whose investment is held through Holdings) has granted to the Company an option, exercisable for the period beginning on the date that Star Gas' audited financial statements for its fiscal year ended September 30, 1994 are first delivered to such investors and ending on December 31, 1998, to purchase such investor's interest in Star Gas (Continued) F-26 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (11), Continued (or, in the case of Holdings, to purchase such investor's interest in Holdings). In addition, each such investor has an unconditional option, exercisable beginning January 1, 1999 and ending on December 31, 1999, to require the Company to purchase such investor's interest in Star Gas (or Holdings). The purchase prices upon exercise of any such options are calculated based upon specified multiples of Star Gas' earnings before interest, taxes, depreciation and amortization (EBITDA), subject to certain minimum prices, and are payable in cash or Class A common stock of the Company or, in the case of the Holdings' options, in cash, subordinated debt of the Company or, if the Company is not then permitted to issue such debt, preferred stock of the Company. The investors in Star Gas have entered into a shareholders' agreement, which provides that the Company is entitled to nominate for election up to three persons to serve as directors of Star Gas, Holdings is entitled to nominate up to two persons, and the other investors (as a group) are entitled to nominate up to three persons. In addition, the shareholders' agreement provides that each investor in Star Gas, prior to selling any of its equity interests in Star Gas to any purchaser other than another investor in Star Gas, must first offer to sell such equity interests to Star Gas and then to the other investors. The Company is managing Star Gas' business under a Management Services Agreement which provides for an annual cash fee of $500,000 and an annual bonus equal to 5% of the increase in Star Gas' EBITDA over the fiscal year ended September 30, 1993, payable in common stock of Star Gas pursuant to a formula set forth in the Management Services Agreement. Star Gas also reimburses the Company for its expenses and the cost of certain Company personnel. (12) Acquisitions During 1991, the Company acquired the customer lists and equipment of nine unaffiliated fuel oil dealers. The aggregate consideration for these acquisitions, accounted for by the purchase method, was approximately $12,500,000. During 1992, the Company acquired the customer lists and equipment of nine unaffiliated fuel oil dealers. The aggregate consideration for these acquisitions, accounted for by the purchase method, was approximately $41,500,000. During 1993, the Company acquired the customer lists and equipment of nine unaffiliated fuel oil dealers. The aggregate consideration for these acquisitions, accounted for by the purchase method, was approximately $13,600,000. In addition, during 1993, the Company acquired a 29.5% interest in Star Gas Corporation for $16,000,000. Sales and net income of the acquired companies are included in the consolidated statements of operations from the respective dates of acquisition. Star Gas will be accounted for following the equity method of accounting beginning January 1994. (Continued) F-27 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (12), Continued Unaudited pro forma data giving effect to the purchased businesses and to the Star Gas investment as if they had been acquired on January 1 of the year preceding the year of purchase, with adjustments, primarily for amortization of intangibles, are as follows: Year Ended December 31, ----------------------- 1991 1992 1993 ---- ---- ---- (in thousands, except per share data) Net sales $ 593,876 $604,491 $557,843 ========= ======== ======== Equity in (share of loss of) Star Gas Corporation -- 167 (11,923) ========= ======== ======== Net loss (15,547) (3,012) (19,570) ========= ======== ======== Earnings (loss) per common share: Class A Common Stock $ (1.62) $ (.81) $ (1.09) Class B Common Stock .57 1.77 2.47 Class C Common Stock (1.62) (.81) (1.09) ========= ======== ======== (13) Supplemental Disclosure of Cash Flow Information Year Ended December 31, ---------------------- 1991 1992 1993 ---- ---- ---- Cash paid during the year for: Interest $ 21,928,724 $20,238,486 $21,705,736 Income taxes 202,650 319,487 495,739 Noncash financing activities: Redemption of preferred stock -- -- (12,763,663) Issuance of subordinated notes payable -- -- 12,763,663 Minimum pension liability -- -- 5,866,651 Deferred pension costs -- -- (1,332,616) Minimum pension liability adjustment -- -- (4,534,035) (Continued) F-28 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (14) Disclosures About the Fair Value of Financial Instruments Cash, Accounts Receivable, Notes Receivable and Other Current Assets, U.S. Treasury Notes held in a Cash Collateral Account, Working Capital Borrowings, Accounts Payable and Accrued Expenses The carrying amount approximates fair value because of the short maturity of these instruments. Long-Term Debt, Subordinated Notes Payable and Cumulative Redeemable Exchangeable Preferred Stock The fair values of each of the Company's long-term financing instruments, including current maturities, are based on the amount of future cash flows associated with each instrument, discounted using the Company's current borrowing rate for similar instruments of comparable maturity. The estimated fair value of the Company's financial instruments are summarized as follows: At December 31, 1993 -------------------- Carrying Estimated Amount Fair Value ------ ---------- (amounts in thousands) Long-term debt $ 50,080 $ 50,076 Subordinated notes payable 135,264 148,644 Cumulative Redeemable Exchangeable Preferred Stock 25,000 27,170 Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (Continued) F-29 PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (15) Selected Quarterly Financial Data (Unaudited) (in thousands, except per share data)
Three Months Ended --------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31 1992 1992 1992 1992 Total ---- ---- ---- ----- ----- Net sales $ 219,975 $ 74,006 $ 46,912 $ 171,537 $ 512,430 Gross profit 84,098 17,660 6,800 52,931 161,489 Income (loss) before taxes 39,268 (20,020) (28,553) 5,316 (3,989) Net income (loss) $ 38,937 $ (19,990) $(28,470) $ 5,134 $ (4,389) =========== ========= ======== ========= ========= Earnings (loss) per common share Class A Common Stock $ 2.86 $ (1.67) $ (2.04) $ .22 $ (.81) Class B Common Stock .29 .29 .29 .29 1.14 Class C Common Stock $ 2.86 $ (1.67) $ (2.04) $ .22 $ (.81) =========== ========= ======== ========= =========
Three Months Ended --------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31 1993 1993 1993 1993 Total ---- ---- ---- ----- ----- Net sales $ 251,271 $ 71,978 $ 54,135 $ 161,142 $ 538,526 Gross profit 89,595 15,817 9,604 56,701 171,717 Income (loss) before taxes and extraordinary item 39,269 (25,972) (29,571) 9,110 (7,164) Net income (loss) $ 38,938 $ (26,809) $(29,488) $ 8,928 $ (8,431) =========== ========= ======== ========= ========= Earnings (loss) per common share Class A Common Stock $ 1.72 $ (1.25) $ (1.45) $ .41 $ (.57) Class B Common Stock .47 .47 .47 .47 1.88 Class C Common Stock $ 1.72 $ (1.25) $ (1.45) $ .41 $ (.57) =========== ========= ======== ========= =========
F-30 Petroleum Heat and Power Co., Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) Assets ------
March 31, December 31, 1994 1993 ------------ ------------ Current assets: Cash $ 17,490,259 $ 4,613,546 U.S. Treasury Notes held in a Cash Collateral Account - 20,000,000 Accounts receivable (net of allowance of $1,785,538 and $1,026,202) 103,598,807 74,818,503 Inventories 12,555,933 13,992,928 Prepaid expenses 5,575,472 5,230,865 Notes receivable and other current assets 1,614,647 1,715,329 ------------ ------------ Total current assets 140,835,118 120,371,171 ------------ ------------ Property, plant and equipment 62,910,326 62,643,562 Less accumulated depreciation and amortization 32,273,957 31,103,032 ------------ ------------ 30,636,369 31,540,530 ------------ ------------ Intangible assets (net of accumulated amortization of $223,562,010 and $217,190,143) Customer lists 69,902,330 73,177,198 Deferred charges 17,916,577 13,717,281 Deferred pension costs 1,332,616 1,332,616 ------------ ------------ 89,151,523 88,227,095 ------------ ------------ Investment in Star Gas Corporation 18,263,000 16,000,000 ------------ ------------ Restricted cash 1,663,000 - ------------ ------------ Other assets 435,000 450,000 ------------ ------------ $280,984,010 $256,588,796 ============ ============ Liabilities and Stockholders' Equity (Deficiency) ------------------------------------------------- Current liabilities: Working, capital borrowings $ - $ 28,000,000 Current maturities of other long-term debt 33,345 33,345 Current maturities of cumulative redeemable exchangeable preferred stock 4,166,667 4,166,667 Accounts payable 10,967,121 16,664,026 Customer credit balances 6,376,131 22,324,023 Unearned service contract revenue 10,544,186 13,018,983 Accrued expenses 22,799,028 19,469,875 ------------ ------------ Total current liabilities 54,886,478 103,676,919 ------------ ------------ Long-term notes payable 42,631,832 50,000,000 ------------ ------------ Other long-term debt 1,668,723 47,059 ------------ ------------ Supplemental benefits payable 1,647,182 1,652,314 ------------ ------------ Pension plan obligation 7,072,906 7,079,494 ------------ ------------ Subordinated notes payable 167,631,831 135,263,663 ------------ ------------ Cumulative redeemable exchangeable preferred stock, par value $.10 per share; 409,722 shares authorized, 250,000 shares outstanding of which 41,667 are reflected as current 20,833,333 20,833,333 ---------- ---------- Stockholders' equity (deficiency): Preferred stock - par value $.10 per share; 5,000,000 shares authorized, none outstanding Class A common stock - par value $.10 per share; 40,000,000 shares authorized, 18,992,579 shares outstanding 1,899,258 1,899,258 Class B common stock - par value $.10 per share; 6,500,000 shares authorized, 216,901 shares outstanding 21,690 21,690 Class C common stock - par value $.10 per share; 5,000,000 shares authorized, 2,545,139 shares outstanding 254,514 254,514 Additional paid-in capital 54,416,259 54,416,259 Deficit (66,165,961) (112,741,672) Minimum pension liability adjustment (4,534,035) (4,534,035) ------------ ------------ (14,108,275) (60,683,986) Note receivable from stockholder (1,280,000) (1,280,000) ------------ ------------ Total stockholders' equity (deficiency) (15,388,275) (61,963,986) ------------ ------------ $280,984,010 $256,588,796 ============ =============
See accompanying notes to condensed consolidated financial statements. F-31 Petroleum Heat and Power Co., Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, ---------------------------------- 1994 1993 ------------ ------------ Net sales $266,792,921 $251,271,152 Cost of sales 163,262,806 161,676,022 ------------ ------------ Gross profit 103,530,115 89,595,130 Selling, general and administrative expenses 24,926,522 23,877,814 Direct delivery expense 14,714,579 12,317,978 Amortization of customer lists 4,876,051 6,397,188 Depreciation and amortization of plant and equipment 1,365,190 1,439,563 Amortization of deferred charges 1,495,816 1,337,816 Provision for supplemental benefits 69,867 43,061 ------------ ------------- Operating income 56,082,090 44,181,710 Other income (expense): Interest expense (5,999,989) (5,247,561) Interest income 314,855 376,230 Gain (loss) on sales of fixed assets 20,317 (41,644) ------------ ------------- Income before income taxes, equity interest and extraordinary item 50,417,273 39,268,735 Income taxes 601,000 331,000 ------------ ------------- Income before equity interest and extraordinary item 49,816,273 38,937,735 Equity in earnings of Star Gas Corporation 2,263,000 - ------------ ------------- Income before extraordinary item 52,079,273 38,937,735 Extraordinary item - loss on early extinguishment of debt (654,500) - ------------ ------------- Net Income $ 51,424,773 $ 38,937,735 ------------ ------------- ============ ============= Net income applicable to common stock $ 49,626,077 $ 37,112,459 Income before extraordinary item per common share Class A Common Stock $ 2.33 $ 1.72 Class B Common Stock .41 .47 Class C Common Stock 2.33 1.72 Extraordinary loss per common share Class A Common Stock $ (.03) $ - Class B Common Stock - - Class C Common Stock (.03) - Net income per common share Class A Common Stock $ 2.30 $ 1.72 Class B Common Stock .41 .47 Class C Common Stock 2.30 1.72 Cash dividends declared per common stock Class A Common Stock $ .14 $ .11 Class B Common Stock .41 .47 Class C Common Stock .14 .11 Weighted average number of common stock outstanding Class A Common Stock 18,992,579 18,992,579 Class B Common Stock 216,901 216,901 Class C Common Stock 2,545,139 2,545,139
See accompanying notes to condensed consolidated financial statements. F-32 Petroleum Heat and Power Co., Inc. and Subsidiaries Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31, ---------------------------------- 1994 1993 ------------ ------------ Cash flows from operating activities: Net income $ 51,424,773 $ 38,937,735 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of customer lists 4,876,051 6,397,188 Equity in earnings of Star Gas Corporation (2,263,000) - Depreciation and amortization of plant and equipment 1,365,190 1,439,563 Amortization of deferred charges and debt discount 1,495,816 1,344,782 Provision for losses on accounts receivable 486,618 535,955 Provision for supplemental benefits 69,867 43,061 Loss on early extinguishment of debt 654,500 - Loss (gain) on sales of fixed assets (20,317) 41,644 Amortization of pension plan obligation (6,588) (6,643) Increase in accounts receivable (29,266,922) (28,385,548) Decrease in inventory 1,436,995 626,126 Increase in prepaid expenses, notes receivable and other current assets (243,925) (288,765) Decrease in other assets 15,000 15,000 Increase (decrease) in accounts payable (5,696,905) 1,502,724 Decrease in customer credit balances (15,947,892) (12,847,576) Decrease in unearned service contract revenue (2,474,797) (2,513,444) Increase in accrued expenses 3,342,167 1,069,980) ------------ ------------ Net cash provided by operating activities 9,246,631 7,911,782 ------------ ------------ Cash flows from (used for) investing activities: Acquisition of customer lists (142,383) (1,414,535) Capital expenditures (484,943) (928,573) Increase in deferred charges (1,611,412) (872,998) Proceeds from sales of fixed assets 44,231 39,238 ------------ ------------ Net cash used for investing activities (2,194,507) (3,176,868) ------------ ------------
F-33 Petroleum Heat and Power Co., Inc. and Subsidiaries Consolidated Statement of Cash Flows (Continued)
Three Months Ended March 31, ---------------------------------- 1994 1993 ------------ ------------ Cash flows from (used for) financing activities: Net reductions in working capital borrowings $(28,000,000) $(24,000,000) Proceeds from issuance of notes payable - 25,000,000 Net proceeds from issuance of subordinated notes 71,087,500 - Repayment of notes payable (50,654,500) Release of Cash Collateral Account 20,000,000 - Restricted cash held as collateral for payment of a long-term note payable (1,663,000) - Decrease in other debt and supplemental benefits (83,335) (83,336) Cash dividends paid (4,862,076) (4,386,838) Principal payments under capital lease obligation - (51,999) ------------ Net cash from (used for) financing activities 5,824,589 (3,522,173) ------------ ------------ Net increase in cash 12,876,713 1,212,741 Cash at beginning of year 4,613,546 3,859,557 ------------ ------------ Cash at the end of period $ 17,490,259 $ 5,072,298 ------------ ------------ ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 2,693,946 $ 3,006,986 Income taxes 67,894 71,600 Non-cash investing activity: Acquisition of customer lists and deferred charges (1,630,000) - Non-cash financing activity: Issuance of note payable 1,630,000 -
See accompanying notes to condensed consolidated financial statements. F-34 Petroleum Heat and Power Co., Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1- Basis of Presentation --------------------- The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of results for the interim periods. The results of operations for the three months ended March 31, 1994 are not necessarily indicative of the results to be expected for the full year. 2- Per Share Data -------------- Earnings per common shares are computed utilizing the three class method based upon the weighted average number of shares of Class A Common Stock, Class B Common Stock and Class C Common Stock outstanding after adjusting net income for preferred dividends declared and preferred stock accretion aggregating $1,799,000 and $1,825,000 for the three months ended March 31, 1994 and 1993, respectively. Fully diluted earnings per common shares are not presented because the effect is not material. 3- Acquisitions ------------ During the three month period ending March 31, 1994, the company acquired the customer lists and equipment of two unaffiliated fuel oil dealers. The aggregate consideration for these acquisitions, accounted for by the purchase method, was approximately $1.9 million. Sales and net income of the acquired companies is included in the consolidated statement of income from the respective dates of acquisition. Had these acquisitions occurred at the beginning of the period, the pro forma estimated unaudited results of operations for the three months ended March 31, 1994 would have been as follows:
(Thousands, Except Per Share) ----------------------------- Net Sales $268,122 Net Income $ 51,629 Earnings Per Common Share: Class A Common Stock $2.31 Class B Common Stock $ .41 Class C Common Stock $2.31
F-35 PETROLEUM HEAT AND POWER CO., INC. IMPORTANT Holders of shares of Class B Common Stock who wish to accept the Offer should either (a) request their broker, dealer, commercial bank, trust company or nominee to effect the transaction for them, or (b) complete and sign the applicable Letter of Transmittal or a facsimile thereof, having their signatures thereon guaranteed if required by the Instructions of the Letter of Transmittal, and forward such Letter of Transmittal, together with the certificates for the shares of Class B Common Stock and all other required documents, to the Depositary. The Depositary CHEMICAL BANK By Mail: Facsimile By Hand: Transmission: Reorganization Bank Window Department (212) 629-8015 55 Water Street P.O. Box 1916 2nd Floor, Room GPO Station Confirm Facsimile 234 New York, New York at: New York, NY 10041 10116 (212) 613-7137 The Information Agent: MORROW & CO., INC. 909 Third Avenue New York, New York 10022 (800) 662-5200 (Toll Free) ADDITIONAL COPIES Requests for additional copies of this Offer to Purchase and the Letters of Transmittal should be directed to the Information Agent. You may also contact the Depositary, your local broker, commercial bank or trust company for assistance concerning the Offer. EX-99.(D)(2) 3 Petroleum Heat and Power Co., Inc. LETTER OF TRANSMITTAL To Tender Shares of Class B Common Stock Pursuant to Offer to Purchase Dated July 20, 1994 THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 31, 1994, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE, AND, UNLESS PREVIOUSLY ACCEPTED BY THE COMPANY, AT ANY TIME AFTER 12:00 MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 16, 1994. To: CHEMICAL BANK, DEPOSITARY By Mail or Overnight By Facsimile: By Hand: Courier: (212) 629-8015 Bank Window Reorganization 55 Water Street Department Confirm Facsimile at: 2nd Floor, Room 234 P.O. Box 1916 (212) 613-7137 New York, New York 10041 G.P.O. Station New York, NY 10116 Delivery of this instrument to an address, or transmission of instructions via a facsimile number, other than as set forth above, does not constitute a valid delivery. The undersigned acknowledges that the undersigned has received and reviewed the Notice of Termination of Special Dividends and Offer to Purchase, dated July 20, 1994 (the "Offer to Purchase"), of Petroleum Heat and Power Co., Inc. (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Offer") to purchase for cash any and all of the issued and outstanding shares of its Class B Common Stock, par value $.10 per share (the "Class B Common Stock") for a purchase price equal to $17.50 per share net plus all accrued and unpaid Special Dividends (as defined) through the Expiration Date (which would amount to $0.2763 per share assuming that the Expiration Date is August 31, 1994). The Offer is being made in connection with the termination of the Special Dividends of the Class B Common Stock in accordance with the terms of the Company's restated and amended articles of incorporation. The undersigned, by completing the box entitled "Description of Class B Common Stock" below and signing this Letter, will be deemed to have tendered the Class B Common Stock as set forth in such box below. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW This Letter may be used either if certificates for Class B Common Stock are to be forwarded herewith or if tenders are to be made by book-entry transfer to the account maintained by the Depositary at The Depository Trust Company, Midwest Securities Trust Company or Philadelphia Depository Trust Company (each a "Book Entry Transfer Facility"). Delivery of documents to a Book Entry Transfer Facility does not constitute delivery to the Depositary. Your bank or broker can assist you in completing this form. The Instructions included with this Letter must be followed. Questions and requests for assistance or for additional copies of the Offer to Purchase and this Letter may be directed to the Information Agent, as indicated in Instruction 10. List below the Class B Common Stock to which this Letter relates. If the space provided below is inadequate, the certificate numbers and shares outstanding should be listed on a separate signed schedule affixed hereto. - -------------------------------------------------------------------------------- DESCRIPTION OF CLASS B COMMON STOCK - -------------------------------------------------------------------------------- Number of Shares Number of Name(s) and Address(es) of Certificate Represented by Shares Registered Holder(s) Number(s)* Certificate Tendered** (Please fill in if blank) - -------------------------------------------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- -------------------------------------------- Total ================================================================================ * Need not be completed by Book-Entry Securityholders (see below). ** Unless otherwise indicated in this column, a holder will be deemed to have tendered the aggregate number of shares represented by the number of shares of Class B Common Stock indicated in the third column. See Instruction 2. / / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE ENCLOSED HEREWITH. / / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ------------------------------------------- Name of Book Entry Transfer Facility (The Depository Trust Company, Midwest Securities Trust Company or Philadelphia Depository Trust Company): ------------------------------- Book Entry Transfer Facility Account Number: ----------------------------- Transaction Code Number: ------------------------------------------------- / / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING (SEE INSTRUCTION 1): Name of Registered Owner(s): --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ---------------------- Name of Eligible Institution which guaranteed delivery: ------------------ Book Entry Transfer Facility Account Number (if delivered by book-entry transfer): ----------------------------------- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Upon the terms and subject to the conditions of the Offer, the undersigned hereby tenders to the Company the number of shares of Class B Common Stock indicated above. Subject to, and effective upon, the acceptance for payment of the Class B Common Stock tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such shares of Class B Common Stock as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Depositary also acts as the agent of the Company) with respect to such Class B Common Stock with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to: (a)(i) deliver such shares of Class B Common Stock or transfer ownership of such shares of Class B Common Stock on the account books maintained by either The Depository Trust Company, the Midwest Securities Trust Company or the Philadelphia Depository Trust Company, and (ii) present such shares of Class B Common Stock for transfer on the books of the Company; and (b) receive all benefits, and otherwise exercise all rights of beneficial ownership of, such shares of Class B Common Stock, all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the shares of Class B Common Stock tendered hereby and that the Company will acquire good and unencumbered title thereof, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Company to be necessary or desirable to complete the sale, assignment and transfer of the shares of Class B Common Stock tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. The undersigned understands that the undersigned will receive accrued and unpaid Special Dividends through the Expiration Date on all shares of Class B Common Stock that are tendered by the undersigned (which would amount to $0.2763 per share assuming that the Expiration Date is August 31, 1994). Unless otherwise indicated under the boxes entitled "Special Issuance Instructions" or "Special Delivery Instructions" below, please issue a check for payment of the purchase price for the shares of Class B Common Stock being tendered herewith plus all accrued dividends (and, if applicable, substitute Class B Common Stock certificates for any shares of Class B Common Stock not exchanged) in the name of the undersigned and send them to the undersigned at the address shown below the signature of the undersigned. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any shares of Class B Common Stock from the name of the registered holder thereof if the Company does not accept for exchange any of the shares of Class B Common Stock so tendered. 2 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4) (See Instructions 3 and 4) - --------------------------------------- ---------------------------------- To be completed ONLY if To be completed ONLY if certificates for shares of Class B certificates for shares of Class Common Stock outstanding not B Common Stock outstanding not exchanged and the checks for the exchanged and the checks for the purchase price and accrued purchase price and accrued dividends are to be issued in the dividends issued in the name of name of and sent to someone other the person whose signature than the person whose signature appears on the fact of this appears on the face of this Letter. Letter are to be sent to someone other than such person or to such Issue and mail the checks or Class person at an address other than B Common Stock to: that shown in the box entitled "Description of Class B Common Name(s) . . . . . . . . . . Stock" on the face of this (Please Print) Letter. . . . . . . . . . . . . . . (Please Print) Issue and mail the checks or Class B Common Stock to: Address . . . . . . . . . . Name(s) . . . . . . . . . . . . . . . . . . . . . . . . (Please Print) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Zip Code) (Please Print) . . . . . . . . . . . . . . Address . . . . . . . . . . (Employer Identification or Social Security No.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Zip Code) - --------------------------------------- ---------------------------------- - ------------------------------------------------------------------------------- PLEASE SIGN HERE (To be Completed by All Tendering Securityholders) (See Instructions 1 and 3 and the following paragraph) X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Signatures(s) of Owner(s) Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . Area Code and Tel. No.: . . . . . . . . . . . . . . . . . . . Must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for Class B Common Stock or on a security position listing or by person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print) Capacity: . . . . . . . . . . . . . . . . . . . . . . . . . . Address: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Include Zip Code) SIGNATURE GUARANTEE Signature(s) Guaranteed by an Eligible Institution: (If Required by Instruction 3) Authorized Signature . . . . . . . . . . . . . . . . . . . . Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . Name of Firm . . . . . . . . . . . . . . . . . . . . . . . . Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . IMPORTANT: THIS LETTER OR FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR CLASS B COMMON STOCK OR CONFIRMATION OF BOOK- ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A FORM OF NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - ------------------------------------------------------------------------------- See Substitute Form W-9, and Instructions on Reverse Side 3 INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1.Delivery of this Letter and Certificates. This Letter is to be used either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for book-entry transfer set forth in the Offer to Purchase under the caption "THE OFFER - Procedures for Accepting the Offer and Tendering the Shares of Class B Common Stock." Certificates for Class B Common Stock, or any book-entry transfer into the Depositary's account at a Book Entry Transfer Facility of Class B Common Stock tendered electronically, as well as a properly completed and duly executed copy of this Letter or a facsimile hereof, and any other documents required by this Letter, must be received by the Depositary at one of its addresses set forth herein or (in the case of tenders by book-entry transfer) confirmed to the Depositary prior to 5:00 P.M., New York City time, on the Expiration Date. The method of delivery of the Class B Common Stock, this Letter and any other required documents is at the election and risk of the Tendering Securityholder, but, except as otherwise provided below, the delivery will be deemed made only when actually received or confirmed by the Depositary. If delivery is by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Depositary before 5:00 P.M. New York City time, on the Expiration Date. Tendering Securityholders whose certificates representing their Class B Common Stock are not immediately available or who cannot deliver their certificates or other required documents to the Depositary before 5:00 P.M., New York City time on the Expiration Date may tender their Class B Common Stock pursuant to the guaranteed delivery procedures set forth in the Offer to Purchase under the caption "THE OFFER - Procedures for Accepting the Offer and Tendering the Shares of Class B Common Stock." Pursuant to such procedure (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office in the United States (each an "Eligible Institution"); (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the Depositary must have received from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery) setting forth the name and address of the Tendering Securityholder, the description of the shares of Class B Common Stock and the number of shares of Class B Common Stock tendered thereby, stating that the tender is being made thereby and guaranteeing that, within five American Stock Exchange ("Amex") trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter (or facsimile hereof), together with certificate(s) representing the Class B Common Stock and any other documents required by this Letter, will be deposited by the Eligible Institution with the Depositary; and (iii) the certificate(s) for all Class B Common Stock or a confirmation of a book-entry transfer of such Class B Common Stock into the Depositary's account at a Book Entry Transfer Facility as described above, as well as this Letter and all other documents required by this Letter, must be received by the Depositary within five Amex trading days after the date of execution of such Notice of Guaranteed Delivery. This Letter of Transmittal and the certificates for the shares of Class B Common Stock should not be sent to the Company. THE CERTIFICATES FOR THE SHARES OF CLASS B COMMON STOCK TOGETHER WITH THIS LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO THE DEPOSITARY ONLY. 2. Partial Tenders; Withdrawals. If less than the entire number of shares of Class B Common Stock evidenced by a submitted certificate is to be tendered, the Tendering Securityholder should fill in the number of shares to be tendered in the box entitled "Number of Shares Tendered" above. Reissued shares of Class B Common Stock for the number of shares not exchanged will be sent to such Tendering Securityholder, unless otherwise provided in the appropriate box on this Letter, as soon as practicable after the Expiration Date. The aggregate number of shares of all Class B Common Stock delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. Tenders of Class B Common Stock may be withdrawn by delivering written notice of withdrawal to the Depositary at any time prior to 5:00 P.M., New York City time, on the Expiration Date, and, unless previously accepted by the Company at any time after 12:00 Midnight, New York City time on September 16, 1994. To be effective, a notice of withdrawal must indicate the certificate number(s) or number of shares of Class B Common Stock to which it relates (or, if the tender was by book-entry transfer, information sufficient to enable the Depositary to identify the Class B Common Stock so tendered) and the aggregate number of shares represented by such Class B Common Stock and (i) be signed by the holder in the same manner as the original signature on this Letter or (ii) be accompanied by evidence satisfactory to the Company that the holder withdrawing such tender has succeeded to beneficial ownership of such Class B Common Stock. 3. Signatures on this Letter; Stock Powers and Endorsements; Guarantee of Signatures. If this Letter is signed by the registered holder of the Class B Common Stock tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any of the shares of Class B Common Stock tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter. 4 If any tendered shares of Class B Common Stock are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. When this Letter is signed by the registered holder or holders of Class B Common Stock listed and tendered hereby, no endorsement of certificates or separate stock powers are required. If, however, certificates for any untendered shares of Class B Common Stock are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate stock powers are required. If this Letter is signed by a person other than the registered holder or holders of any certificate(s) listed, such certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificate(s). If this Letter or the Notice of Guaranteed Delivery or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. Endorsements on certificates for Class B Common Stock or signatures on stock powers required by this Instruction 3 must be guaranteed by an Eligible Institution. Signatures on this Letter must be guaranteed by an Eligible Institution, unless the shares of Class B Common Stock are tendered (i) by a registered holder of such Class B Common Stock (which term, for purposes of this Letter, shall include any participant in a Book Entry Transfer Facility whose name appears on a security position listing as the owner of Class B Common Stock who has not completed either the box entitled "Special Issuance Instructions" or "Special Delivery Instructions"; or (ii) for the account of an Eligible Institution. 4. Special Issuance and Delivery Instructions. Tendering Securityholders should indicate in the applicable box the name and address to which the check for the purchase price and all accrued dividends and/or substitute certificates evidencing Class B Common Stock for the number of shares not tendered are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. If no such instructions are given, such Class B Common Stock not exchanged will be returned by crediting the account at a Book Entry Transfer Facility designated below the box entitled "Description of Class B Common Stock." 5. Tax Identification Number. Federal income tax law requires that a Tendering Securityholder whose tendered shares of Class B Common Stock are accepted for payment must provide the Company (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of an Tendering Securityholder who isan individual, is his social security number. If the Company is not provided with the correct TIN or an adequate basis for exemption, the Tendering Securityholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to such Tendering Securityholder of any cash payments may be subject to backup withholding in an amount equal to 31% of the gross proceeds resulting from the Offer. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt Tendering Securityholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "Guidelines") for additional instructions. To prevent backup withholding, each Tendering Securityholder must provide his or her correct TIN by completing the "Substitute Form W-9" set forth herein, certifying that the TIN provided is correct (or that such Tendering Securityholder is awaiting a TIN) and that (a) the Tendering Securityholder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (b) the Internal Revenue Service has notified the Tendering Securityholder that such holder is no longer subject to backup withholding. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such Tendering Securityholder must submit a statement signed under penalty of perjury attesting to such exempt status. Such statements may be obtained from the Depositary. If the shares of Class B Common Stock are in more than one name or are not in the name of the actual owner, consult the Guidelines for information on which TIN to report. If you do not have a TIN, consult the Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9, and write "applied for" in lieu of your TIN. If you do not provide your TIN to the payor within 60 days, backup withholding will begin and continue until you furnish your TIN to the payor. 6. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the transfer and sale of Class B Common Stock to it or its order pursuant to the Offer. If, however, substitute certificates for Class B Common Stock for the number of shares of Class B Common Stock not tendered are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Class B Common Stock tendered hereby, or if tendered certificates are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer and sale of Class B Common Stock to the Company or its order pursuant to the Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the Tendering 5 Securityholder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such Tendering Securityholder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS LETTER. 7. Waiver of Conditions. Consummation of the Offer is subject to the satisfaction of certain customary conditions and the Company reserves the right at any time to waive satisfaction of any condition enumerated in the Offer to Purchase. 8. No conditional offers. No alternative, conditional, irregular or contingent tenders will be accepted. All Tendering Securityholders, by execution of this Letter (or a facsimile hereof), shall waive any right to receive notice of the acceptance of their shares of Class B Common Stock for exchange. Neither the Company, Depositary or any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 9. Mutilated, Lost, Stolen or Destroyed ClassB Common Stock Certificates. Any holder whose Class B Common Stock have been mutilated, lost, stolen or destroyed should contact the Depositary at the address indicated above for further instructions. 10. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering may be directed to Morrow & Co., Inc., the Information Agent, at telephone number (800) 662-5200 (Toll Free). TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS (See Instruction 5) PAYER'S NAME: CHEMICAL BANK SUBSTITUTE Part 1--Please Social Security Provide Your TIN in Number or Employer Form W-9 the Box at Right and Identification Number Certify by Signing _____________________ and Dating Below. Department of CERTIFICATION--Under Part 2-- the Treasury the penalties of Internal perjury, I certify that Awaiting TIN / / Revenue Service (1) the number shown on this form is my correct Payor's Request taxpayer identification for Taxpayer number (or I am waiting Identification for a number to be Number (TIN) issued to me), (2) I am not subject to backup withholding either because I have not been notified that I am subject to backup withholding as a result of failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer subject to backup withholding and (3) any other information provided on this form is true and correct. SIGNATURE ________________ DATE ____________ - ------------------------------------------------------------------------------- You must cross out item (2) above if you have been notified by the Internal Revenue Service that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, do not cross out item (2). (Also see the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9). - ------------------------------------------------------------------------------- All other questions relating to the Offer, as well as requests for assistance or additional copies of the Offer to Purchase and this Letter may be directed to Morrow & Co., Inc., the Information Agent, 909 Third Avenue, New York, New York 10022, telephone number (800) 662-5200. The Information Agent for the Exchange Offer is: MORROW & CO., INC. 909 Third Avenue New York, New York 10022 (800) 662-5200 (Toll Free) 6 -----END PRIVACY-ENHANCED MESSAGE-----