PETROLEUM HEAT & POWER CO INC, DEF 14A, 1994-04-18

PETROLEUM HEAT & POWER CO INC
DEF 14A, 1994-04-18
MISCELLANEOUS RETAIL

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SCHEDULE 14A

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )

Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12

PETROLEUM HEAT AND POWER CO., INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

Alan Shapiro, Esq., Phillips, Nizer, Benjamin, Krim & Ballon
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

- ------------------------------------------------------------------------------

2) Aggregate number of securities to which transaction applies:

- ------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11(1):

- ------------------------------------------------------------------------------

4) Proposed maximum aggregate value of transaction:

- ------------------------------------------------------------------------------

(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
--------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-----------------------------
3) Filing Party:
-------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------

<PAGE>

April 29, 1994

Dear Shareholder,

You are invited to attend the 1994 Annual Meeting to be held on June 3,
1994, in New York City.

The Annual Meeting will begin with a report on Company operations, followed
by discussion and voting on the matters set forth in the accompanying Notice of
Annual Meeting and Proxy Statement and on other matters properly brought before
the meeting.

Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by promptly completing, signing, dating and returning
your proxy form in the enclosed envelope.

Cordially,

Irik P. Sevin
Chairman of the Board

EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY FORM

<PAGE>

PETROLEUM HEAT AND POWER CO., INC.

Notice of 1994 Annual Meeting
of Shareholders

------------------------------------------

10:00 a.m., DST, June 3, 1994
Chemical Bank Corporate Headquarters
11th Floor
270 Park Avenue
New York, New York

------------------------------------------

April 29, 1994

To the Shareholders:

Petroleum Heat and Power Co., Inc.'s 1994 Annual Meeting of Shareholders
will be held at Chemical Bank Corporate Headquarters, 11th Floor, 270 Park
Avenue, New York, New York, on Friday, June 3, 1994, at 10:00 a.m., DST.
Following a report on Petro's business operations, the Shareholders will act on
the matters listed below:

(a) Election of Directors for the ensuing year;

(b) Approval of the appointment of Independent Auditors for 1994;

(c) Approval of an amendment to the Company's Restated and Amended
Articles of Incorporation to increase the dividend rate applicable to
the Company's 1989 Preferred Stock, par value $.10 by $2.00 per share
per annum;

(d) Approval of the Senior Executive Incentive Compensation Plan;

(e) Approval of the 1994 Stock Option Plan; and

(f) Consideration of any other matter which may properly come before the
meeting.

Shareholders of record at the close of business on April 26, 1994 will be
entitled to vote at the meeting and any adjournments.

By Order of the Board of Directors

Audrey L. Sevin
Secretary

<PAGE>

PROXY STATEMENT

PETROLEUM HEAT AND POWER CO., INC.

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Petroleum Heat and Power Co.,
Inc. for the 1994 Annual Meeting of Shareholders. This Proxy Statement and a
proxy form are scheduled to be mailed to shareholders beginning on April 29,
1994.

You can ensure that your shares are voted at the meeting by completing,
signing, dating and returning the enclosed proxy form in the envelope provided.
Sending in a signed proxy will not affect your right to attend the meeting and
vote. A Shareholder who gives a proxy may revoke it at any time before it is
exercised by voting in person at the Annual Meeting, by submitting another proxy
bearing a later date or by notifying the Inspectors of Election in writing of
such revocation.

ELECTION OF DIRECTORS

At the 1994 Annual Meeting, seven directors are to be elected to hold
office until the 1995 Annual Meeting and until their successors have been
elected and have qualified. The nominees, listed below with brief biographies,
are all now Petro directors. The Board knows of no reason why any nominee may
be unable to serve as a director. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of such other
person as the Board may recommend.

Recommendation of the Board of Directors Concerning the Election of Directors

The Board of Directors of the Company recommends a vote for Irik P. Sevin,
Audrey L. Sevin, Phillip Ean Cohen, Thomas J. Edelman, Richard O'Connell,
Wolfgang Traber and Max M. Warburg to hold office until the 1995 Annual Meeting
of Shareholders and until their successors are elected and qualified. Proxies
received by the Board of Directors will be so voted unless shareholders specify
in their proxy contrary choices.

Information Relating to Nominees for Directorships

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

<PAGE>

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.

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.

Ownership of Equity Securities in the Company

The following table sets forth as of April 1, 1994 the number of shares
beneficially owned by each director and each of the five most highly compensated
executive officers of the Company, by the directors and officers of the Company
as a group and by each holder of at least 5% of the voting Common Stock, and the
respective percentage ownership of the outstanding Class A Common Stock and
Class C Common Stock held by each such holder and group:

Number of Shares
Beneficially Percentage
Owned Ownership
---------------- ---------

Phillip Ean Cohen
120 Broadway
New York, NY 10271
Class A Common Stock . . . . . . . . . . 679,262 3.58%
Class C Common Stock . . . . . . . . . . 113,423 4.46%

<PAGE>

Thomas J. Edelman
595 Madison Avenue
New York, NY 10022
Class A Common Stock . . . . . . . . . . 593,049(1) 3.12%
Class C Common Stock . . . . . . . . . . 129,019 5.07%

Audrey L. Sevin
P.O. Box 1457
Stamford, CT 06904
Class A Common Stock . . . . . . . . . . 929,985 4.90%
Class C Common Stock . . . . . . . . . . 212,668 8.36%

Irik P. Sevin
P.O. Box 1457
Stamford, Ct 06904
Class A Common Stock . . . . . . . . . . 919,023 4.84%
Class C Common Stock . . . . . . . . . . 201,641 7.92%

Estate of Malvin P. Sevin(2)
P.O. Box 1457
Stamford, CT 06904
Class A Common Stock . . . . . . . . . . 951,755 5.01%
Class C Common Stock . . . . . . . . . . 212,668 8.36%

Wolfgang Traber(3)
450 Park Avenue
New York, NY 10022
Class A Common Stock . . . . . . . . . . 940,289 4.95%
Class C Common Stock . . . . . . . . . . 189,038 7.43%

Richard O'Connell
P.O. Box 1457
Stamford, CT 06904
Class A Common Stock . . . . . . . . . . 1,332,965 7.01%
Class C Common Stock . . . . . . . . . . 302,461 11.88%

Hubertus Langen(3)
Class A Common Stock . . . . . . . . . . 868,938 4.58%
Class C Common Stock . . . . . . . . . . 189,038 7.43%

Barcel Corporation(3)
Class A Common Stock . . . . . . . . . . 695,151 3.66%
Class C Common Stock . . . . . . . . . . 151,231 5.94%

Max Warburg(3)
Class A Common Stock . . . . . . . . . . 174,540 0.92%
Class C Common Stock . . . . . . . . . . 38,481 1.51%

<PAGE>

Fidelity Management & Research Company
82 Devonshire Street
Boston, MA 02109
Class A Common Stock . . . . . . . . . . 1,476,100 7.78%
Class C Common Stock . . . . . . . . . . -- --

The Airlie Group L.P.
201 Main Street
Suite 3200
Fort Worth, TX 76102
Class A Common Stock . . . . . . . . . . 1,052,864 5.54%
Class C Common Stock . . . . . . . . . . -- --

Joseph P. Cavanaugh
Class A Common Stock . . . . . . . . . . 860 --
Class C Common Stock . . . . . . . . . . -- --

All officers and directors as a group
(14 persons)
Class A Common Stock . . . . . . . . . . 6,522,070 34.34%
Class C Common Stock . . . . . . . . . . 1,399,399 54.98%

- -----------------
(1) Includes 100,000 shares owned by Mr. Edelman's wife.

(2) Audrey Sevin is Executrix and the primary beneficiary of the Estate of
Malvin P. Sevin.

(3) These shares are owned of record by Deltec Securities Corp., 535 Madison
Avenue, New York, NY which has the power to vote the shares under
discretionary account arrangements. Such voting power may be revoked at
any time by the beneficial owner.

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. The Company believes
that during the two fiscal years ended December 31, 1993, its officers,
directors and holders of more than 10% of the Company's Common Stock complied
with all Section 16(a) filing requirements.

Based upon the Shareholders' Agreement described below under "Shareholders'
Agreement", all or some of the beneficial owners listed above may be deemed a
"group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.

Messrs. Phillip Ean Cohen, Thomas J. Edelman, Richard O'Connell, Irik P.
Sevin, Wolfgang Traber, Max Warburg and Mrs. Audrey L. Sevin are directors of
the Company and Mr. Irik P. Sevin, and Mrs. Audrey Sevin are officers of the
Company.

Shareholders' Agreement

The shareholders of the Company have entered into a Shareholders' Agreement
which provides that they will vote their shares to elect as directors of the
Company six persons designated by a group consisting of Irik P. Sevin, the
Estate of Malvin P. Sevin, Audrey L. Sevin, Thomas J. Edelman, Phillip Ean Cohen
and Margot Gordon (the "Sevin Group") and three persons designated by certain
other shareholders of the Company (the "Traber Group"). Each group may
designate its directors by action of the holders of a majority of the Common
Stock held by the group. The by-laws of the Company provide for the election of
not less than six and not more than fifteen directors. The Board of Directors
has fixed the number of directors at seven; however, if and whenever Special

<PAGE>

Dividends on the Class B Common Stock are in arrears and not fully paid or
declared and a sum sufficient for the payment thereof set aside for four
Dividend Payment Dates the number of directors shall be increased by two. Of
the present directors, Irik P. Sevin, Audrey L. Sevin, Thomas J. Edelman and
Phillip Ean Cohen have been designated by the Sevin Group and Wolfgang Traber,
Richard O'Connell and Max M. Warburg have been designated by the Traber Group.
All such obligations to vote for directors shall lapse if Irik P. Sevin or
Audrey L. Sevin no longer owns, directly or indirectly, and/or has sole voting
power over at least 51% of the shares of Class C Common Stock held by all
members of the Sevin Group.

The Shareholders' Agreement provides that the consideration per share which
may be received by a holder of Class C Common Stock upon a sale of shares of
Class C Common Stock may not exceed the average of the last reported sales
prices per share of the Class A Common Stock for the 90 trading days preceding
the date of such sale as reported on the NASDAQ National Market System, and that
any premium above such consideration will inure to the benefit of the Company.
In addition, the Shareholders' Agreement provides that the above provisions may
not be modified without the consent of the holders of 80% of the issued and
outstanding shares of Class A Common Stock. The Restated Articles of
Incorporation of the Company provide that any transfer of a share of Class C
Common Stock (i) to any person who is not a signatory to the Shareholders'
Agreement or (ii) to any person after the date on which the Shareholders'
Agreement is for any reason no longer in effect, will automatically result in
the conversion of such share into a share of Class A Common Stock.

The Shareholders' Agreement (as well as the Company's Articles of
Incorporation) provides that certain actions may not be taken without the
affirmative vote of 80% ("super-majority") of the entire Board of Directors
(irrespective of vacancies) including at least one director who has been
designated by the Traber Group. These matters include (i) engaging in any
business other than the fuel oil distribution business, (ii) the merger or
consolidation of the Company with a non-subsidiary corporation, (iii) investment
of Company funds other than in specified securities, (iv) the sale, lease,
transfer or other disposition of a significant portion of the Company's assets
in any fiscal year other than the sale of petroleum products in the ordinary
course of business and those investments permitted in (iii) above, (v) the
liquidation, dissolution or winding up of the business of the Company, (vi)
payment of any compensation to directors, (vii) the incurrence of more than a
specified level of long-term debt, (viii) any issuance of more than a specified
level of long-term debt, (ix) any issuance or repurchase of securities or any
right or option to purchase Common Stock or any security convertible into
capital stock, except in connection with the Company's dividend policy, (x) the
making of, or any commitment for, any capital expenditures or purchase of assets
at more than specified levels and (xi) the termination of Special Dividends.
Action by shareholders on matters involving a merger or consolidation,
liquidation, dissolution or winding up of the business of the Company or any
amendment to the articles of incorporation or by-laws does not require a super-
majority vote; Common Stock against any proposal for such items unless approved
by a vote of at least 85% of the Class A Common Stock owned by them.

Meetings and Compensation of Directors

During fiscal 1993, the Board of Directors met on three occasions. All
Directors attended each of the three meetings with the exception of one director
who was absent from one meeting. The Company pays each of its directors other
than Irik P. Sevin an annual fee of $12,000. Directors are elected annually and
serve until the next annual meeting of shareholders or until their successors
are elected and qualified. There is a Shareholders' Agreement governing the
election of directors. While the Company does not pay any other direct or
indirect compensation to directors in their capacity as directors, it has
entered into certain transactions with persons who are directors, including
Wolfgang Traber and Richard O'Connell, the members of the Compensation

<PAGE>

Committee, and entities controlled by them and Thomas Edelman. These
transactions are described below under "Certain Transactions."

Committees of the Board of Directors

The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The members of each committee are appointed by the Board of
Directors for a term beginning after the first regular meeting of the Board of
Directors following the Annual Meeting of Shareholders and until their
respective successors are elected.

Audit Committee. The Audit Committee recommends to the Board of Directors
the auditing firm to be selected each year as independent auditors of the
Company's financial statements and to perform services related to the completion
of such audit. The members of the Audit Committee are Phillip Ean Cohen,
Richard O'Connell and Wolfgang Traber. The Audit Committee also has
responsibility for (i) reviewing the scope and results of the audit with the
independent auditors, (ii) reviewing the Company's financial condition and
results of operations with management and the independent auditors, (iii)
considering the adequacy of the internal accounting and control procedures of
the Company, and (iv) reviewing any non-audit services and special engagements
to be performed by the independent auditors and considering the effect of such
performance on the auditors' independence. The Audit Committee also reviews, at
least once each year, the terms of all material transactions and arrangements
between the Company and its affiliates. Members of the Audit Committee may not
be employees of the Company. For Fiscal 1993, the Audit Committee held two
meetings; all members were in attendance at such meetings.

Compensation Committee. The Compensation Committee determines the cash and
other incentive compensation, if any, to be paid to the Company's Chief
Executive Officer. During fiscal 1993, the Compensation Committee met in January
1993 to determine the bonus of the Co-Chief Executive Officers for 1992 and in
March 1994 to establish the bonus of the Chief Executive Officer for 1993. Both
members of the Compensation Committee were present at these meetings. See the
Report of the Compensation Committee of the Board of Directors contained herein.

Certain Transactions

Set forth below is information concerning (a) stock options granted by the
Company to its chief executive officer and former co-chief executive officer and
(b) certain transactions between the Company and its directors.

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). 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 further amended in 1992 and in 1993 to
increase the principal amount by an aggregate of $126,986, the amount of
interest due from January 1, 1992 through December 31, 1992 and 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 may 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 an
exchange offer. Upon the repurchase of the shares, the Company has agreed to

<PAGE>

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
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 the Estate of 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 2, 1986, the Company issued stock options to purchase 75,000
shares and 50,000 shares of Class A Common Stock to Irik P. Sevin and Malvin P.
Sevin, respectively. The option price for the shares of Class A Common Stock
was $20 per share. These options are nontransferable and expire November 30,
1994. As a result of stock dividends in the form of Class A Common Stock and
Class B Common Stock declared by the Company in December 1986, the exchange of
Class C for Class A Common Stock in July 1992, and special antidilution
adjustments, the options held by Irik P. Sevin now apply to 224,483 shares of
Class A Common Stock and 56,121 shares of Class C Common Stock and the options
held by the Estate of Malvin P. Sevin now apply to 149,655 shares of Class A
Common Stock and 37,414 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 transferrable 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 non-transferrable. Malvin P. Sevin's options expired unexercised
while Irik P. Sevin's options expire on March 3, 1999.

In December 1992, Malvin P. Sevin passed away. All options previously
owned by him are exercisable by his estate until the stated expiration date of
such options.

In January 1992, the Company renewed lease agreements originally entered
into for delivery trucks with individuals who included Phillip Ean Cohen, Irik
P. Sevin, Thomas J. Edelman, Wolfgang Traber, the Estate of Malvin P. Sevin and
Audrey L. Sevin. These leases are currently on a month to month basis but it is
the Company's intention to extend the leases on terms comparable with leases
from unrelated parties. Annual rent under these leases are approximately
$150,000.

<PAGE>

In December 1993, the Company acquired an approximate 29.5% equity interest
(42.8% voting interest) (the "Star Gas Investment") 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"). 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.

The purpose of the Company's equity investment in Holdings was to provide
Holdings with sufficient equity capital (for income tax purposes) to permit the
remaining $9.0 million of Holdings' funds to be raised through the sale of
convertible debentures. This provided the purchasers of such debentures, who
are primarily foreign persons, with favorable tax treatment with respect to the
interest payable thereon (i.e. no withholdings of interest on the debentures for
federal income tax purposes as compared to withholding on preferred stock
dividends) thereby facilitating the raising of such funds. All of the common
stock of Holdings is owned by Hanseatic Corporation of which Mr. Wolfgang
Traber, a director of Petro, is the Managing Director.

Mr. Traber is one of the two directors of Holdings. In addition, certain
stockholders of the Company (including members of the Traber Group, but
excluding members of the Sevin Group) are holders of convertible debentures of
Holdings. However, the Company does not believe that Holdings may be considered
an "affiliate" of Petro within the meaning of the Securities Act of 1933, as
amended (the "Securities Act") as the Sevin Group which (pursuant to a
shareholders' agreement) has the right to elect a majority of the directors of
the Company, does not have voting or any other control rights with respect to
Holdings.

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 (representing
10% of Star Gas' equity) 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 the 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 (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' 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 investors, 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 (in total) 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 such other investors.

The Company will manage Star Gas' business under a Management Services
Agreement which provides for an annual cash fee of $500,000 and an annual bonus

<PAGE>

equal to 5% of the increase in Star Gas' EBITDA over the 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 will reimburse the Company for
its expenses and the cost of certain Company personnel.

Warwick Energy Advisors, Inc. ("Warwick"), a company controlled by Thomas
Edelman, provided consulting and advisory services to the Company in connection
with the Star Gas Investment for which the Company paid Warwick a consulting fee
of $450,000.

EXECUTIVE OFFICERS

Set forth below is certain information concerning the executive officers of
the Company during 1993, which officers serve at the discretion of the Board of
Directors:

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. 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.).

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).

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 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.).

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).

George Russell has been Senior Vice President - Marketing and Sales since
May 1993. From 1986 to 1993, prior to joining the Company, Mr. Russell was the
Vice President of Marketing and Sales for Harvard Community Health Plan. Form
1981 to 1986, Mr. Russell was a Marketing Manager with the Gillette Company. Mr.
Russell is a graduate of Western New England College (B.S. 1977), St. John's
University (M.B.A. 1979) and Harvard Graduate School of Business (Advanced
Management Program - Marketing 1988).

<PAGE>

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.

<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid by the Company
and its subsidiaries for services during fiscal 1991, 1992 and 1993 to each of
the Company's five most highly compensated executive officers:

SUMMARY COMPENSATION TABLE

Long Term
Compensation
Annual Compensation Awards
-------------------------------------- -------------
All
Other Other
Annual Compen-
Name and Compen- sation
Principal Position Year Salary Bonus sation Options (1)
------------------ ---- ------ ----- ------ ------- ------

Irik P. Sevin 1993 $350,000 $800,000
Chairman, President 1992 350,000 800,000
Chief Executive Officer 1991 350,000 311,000

Justin McCarthy 1993 200,000 112,500 13,035
Senior Vice President 1992 175,000 75,000 12,649
Operations 1991 175,000

Joseph P. Cavanaugh 1993 211,000 5,000 13,035
Senior Vice President 1992 201,000 10,000 12,649
Administration 1991 201,000

George Leibowitz 1993 200,000 25,000(2)
Senior Vice President- 1992 29,107 170,000 25,000(2)
Finance and Corporate
Development

George Russell 1993 133,333 $45,905(3)
Senior Vice President-
Marketing and Sales
____________________

(1) Other compensation consists of amounts paid in connection with the
Company's non-qualified alternative savings plan.

(2) The options are exercisable to purchase shares of Class A Common Stock of
the Company.

(3) Amounts represent reimbursement by the Company of moving expenses incurred
by Mr. Russell in connection with his relocation to Stamford, Connecticut at the
Company's request.

<PAGE>

The following table presents the value of unexercised options held by the
named executives at December 31, 1993:

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
---------------------------------

Number of Unexercised Value of
Options at December 31, 1993 In the Money Options at
Name Exercisable (E)/Unexercisable (U) December 31, 1993(1)
- ---- ---------------------------------- -----------------------

Irik P. Sevin
Class A .................. 410,277(E) $1,491,388
Class C .................. 102,569(E) $ 372,846

George Leibowitz
Class A .................. 5,000(E)
.......................... 45,000(U)

_____________
(1) Values are calculated by deducting the exercise price from the fair market
value of the stock as of December 31, 1993.

Options Granted In Last Fiscal Year
-----------------------------------

The following table sets forth certain information concerning Options
granted during 1993 to the named executives:

<TABLE> <CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------------- ---------------------------
% of Total
Options Market
Granted to Exercise Price On
Options Employees Price the Date Expiration
Name Granted (#) in 1993 ($ Share) of Grant Date 0% 5% 10%
- ---------------- ----------- ---------- --------- -------- ----------- ----- ----- -----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
George Leibowitz 25,000(1) 100% $11.00 $8 3/8 9/30/98 - - $62,250
</TABLE>

- ----------
(1) Twenty percent of the options become exercisable on each of next five
anniversary dates of the grant (June 30, 1993). In the event of termination of
employment prior to the expiration date, the option may be exercised (to the
extent then exercisable) at any time within 60 days after termination; however,
if such termination shall have been for cause or voluntarily without the consent
of the Company, the option to the extent not exercised shall lapse.

Pension Plans

The Company maintains various retirement plans for substantially all non-
union employees. The executive officers of the Company are eligible to
participate in a qualified benefit pension plan (the "Pension Plan") which the
Company maintains for its non-union employees.

<PAGE>

The Pension Plan covers non-union employees who complete one year of
service. The Pension Plan generally provides to each participant who retires at
age 65 an annual benefit equal to 1.25% of the participant's average annual
compensation (defined as the average of such participant's highest five year
earnings out of the prior ten years before retirement) multiplied by the number
of such participant's benefit years of service. A participant who has attained
age 55 and has completed 5 years of service may retire early and receive an
actuarial reduced benefit.

For the purposes of the Pension Plan, the following are the benefit years
of service through December 31, 1993 and the covered compensation for the
calendar year ended December 31, 1993 for each individual named in the preceding
compensation table:

Benefit Covered
Name Years Compensation
---- ------- ------------

Irik P. Sevin . . . . . . . . 15 $235,840
C. Justin McCarthy . . . . . . 15 235,840
Joseph P. Cavanaugh . . . . . 24 216,000
George Leibowitz . . . . . . . 1 200,000
George Russell . . . . . . . . 0 133,333

The following table shows estimated annual benefits which are not offset by
Social Security or any other reductions, payable in the form of a straight life
annuity under the Pension Plan to participants in the specified covered
compensation and benefit years of service classifications who retire having
reached their normal retirement dates.

PENSION PLAN TABLE

Remuneration Years of Service
- ------------ --------------------------------------------------------------
10 15 20 25 30 35

$ 100,000 ... $ 12,500 $ 18,750 $ 25,000 $ 31,250 $ 37,500 $ 43,750
200,000 ... 25,000 37,500 50,000 62,500 75,000 87,500
300,000*... 37,500 56,250 75,000 93,750 112,500 131,250**
400,000*... 50,000 75,000 100,000 125,000** 150,000** 175,000**
500,000*... 62,500 93,750 125,000** 156,250** 187,500** 218,750**
600,000*... 75,000 112,500 150,000** 187,500** 225,000** 262,500**
700,000*... 87,500 131,250** 175,000** 218,750** 262,500** 306,250**
800,000*... 100,000 150,000** 200,000** 250,000** 300,000** 350,000**
900,000*... 112,500 168,750** 225,000** 281,250** 337,500** 393,750**
1,000,000*... 125,000** 187,500** 250,000** 312,500** 375,000** 437,500**
1,100,000*... 137,500** 206,250** 275,000** 343,750** 412,500** 481,250**
1,200,000*... 150,000** 225,000** 300,000** 375,000** 450,000** 525,000**
1,300,000*... 162,500** 243,750** 325,000** 406,250** 487,500** 568,750**
1,400,000*... 175,000** 262,500** 350,000** 437,500** 525,000** 612,500**
1,500,000*... 180,000** 270,000** 360,000** 450,000** 540,000** 630,000**

*Exceeds Maximum Covered Compensation considered under the Plan of $235,840.

**Exceeds Maximum Benefit Payable under the Plan of $118,800.

<PAGE>

The Company has adopted a non-qualified supplemental retirement plan which
benefits 15 employees and retirees, including Irik P. Sevin, C. Justin McCarthy
and Joseph P. Cavanaugh. Under the Pension Plan, the projected normal
retirement pension benefits of Messrs. Sevin, Cavanaugh and McCarthy are $8,312,
$6,889 and $7,493 per month, respectively. Under the supplemental retirement
plan, Mr. Sevin's normal retirement benefit would be increased by $736 per
month, Mr. Cavanaugh's normal retirement benefit would be increased by $1,320
per month and Mr. McCarthy's normal retirement benefit would be increased by
$942 per month. No other named Executive Officer participated in the
supplemental retirement plan.

Report of Compensation Committee of the Board of Directors

The Compensation Committee's executive compensation philosophy (which is
intended to apply to all Company management) is to assure competitive levels of
compensation, integrate management's pay with the achievement of the Company's
annual and long-term performance goals, reward above average corporate
performance, recognize individual initiative and achievement, and assist the
Company in attracting and retaining qualified management. Management
compensation is intended to be set at levels that the Compensation Committee
believes is consistent with others in the Company's industry, with senior
management's compensation packages being weighted more heavily toward programs
contingent upon the Company's level of performance. The current executive
compensation structure consists of base salary and annual cash incentive
bonuses. The Company assesses compensation levels in comparison with those of
competitors in the retail fuel oil industry. Since no competitor is subject to
the reporting requirements of the Securities Exchange Act of 1934 or otherwise
publishes information concerning executive compensation, the Company largely
derives its information from companies acquired in its acquisition program. In
evaluating this information, the Committee took into account the fact that such
companies are generally substantially smaller than the Company with mature
businesses that evidence little or no growth. In contrast, the Company's
volume, EBITDA and NIDA have increased at compounded annual growth rates of
16.7%, 22.2% and 17.2%, respectively, from 1980 through 1993.

With respect to the Chief Executive Officer (who also serves as Chief
Financial Officer), the Company also considers the compensation structure
applicable to the investment banking industry due to Mr. Sevin's substantial
expertise in and contribution to the Company in the fields of acquisitions and
corporate finance. Under the leadership of the Chief Executive Officer, the
Company has successfully maintained an active acquisition program which is the
primary reason its volume, EBITDA and NIDA have increased at the compounded
annual growth rates discussed above. To finance this expansion, Mr. Sevin, in
his capacity as Chief Financial Officer, has guided the Company through public
and private debt and equity offerings, including four public and three private
debt offerings and one private and two public equity offerings.

It is the responsibility of the Compensation Committee to establish the
base salary, bonus and other incentive compensation of the Chief Executive
Officer and to review the levels of compensation established by the Chief
Executive Officer for the other executive officers of the Company. Consistent
with its philosophy, the Compensation Committee has established the base salary
of the Chief Executive Officer at $350,000 which level has been maintained for
several years and approves a cash bonus each year based on the Company's
performance, principally NIDA (defined below), although the Compensation
Committee also considers other factors which reflect on the performance of the
Chief Executive Officer, including steps taken to position the Company for
future growth, the accomplishment of specific tasks and the undertaking of added
responsibilities (aside from acquisition activities) and the introduction and
implementation of programs and policies which are believed to promote long term
stability and growth.

<PAGE>

In March 1994, the Committee awarded Mr. Sevin a cash bonus of $800,000
(the same as 1992) for fiscal 1993. In addition, in March 1994 the Committee
awarded Mr. Sevin ten-year options to acquire 100,000 shares of Class A Common
Stock at an exercise price equal to the fair market value on the date of grant.
In determining the size of the bonus and the award of options, the Committee
considered the Company's financial performance on both a short-term and long-
term basis. Although NIDA decreased in 1993 from 1992, the Committee believes
that this was more than offset by a number of factors, including his
contributions in 1993 in positioning the Company for future expansion and his
continued importance in ensuring the continuation of the Company's historically
favorable growth rates.

In this regard, the Committee considered that the Company's growth in the
past decade has been directly tied to the success of its acquisition program and
its future growth will depend on its ability to identify and successfully
consummate acquisitions. The Compensation Committee believes that Mr. Sevin has
been the single key person in the conceptualization and implementation of this
acquisition program, having successfully completed 145 acquisitions from 1979
through 1993, including nine acquisitions in 1993. The Committee believes that
Mr. Sevin will continue to play a key role in the Company's acquisition program
and that it is in the Company's best interest to compensate Mr. Sevin at a level
which recognizes his continued importance. In addition, the Committee
considered that during 1993 Mr. Sevin has broadened the Company's strategic
focus by structuring, negotiating and completing the Star Gas investment which
the Compensation Committee believes has afforded the Company an opportunity to
grow significantly in a related industry which is larger than the fuel oil
industry.

In addition to Mr. Sevin's contributions to the future growth of the
Company, the Committee considered that during 1993 Mr. Sevin performed by
himself the duties of chairman and chief executive officer (in addition to his
positions as president and chief financial officer) that he previously shared
with Malvin P. Sevin prior to Malvin Sevin's demise in 1992. This resulted in a
significant reduction in the executive compensation expenses payable by the
Company in 1993.

NIDA is defined as consolidated net income (loss) plus depreciation and
amortization and the amount of non-cash expenses associated with key employees'
deferred compensation plans, less accrued preferred stock dividends, 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.

The Chief Executive Officer establishes the base salary and bonuses for the
other executive officers which is reviewed annually by the Compensation
Committee. Numerous objective and subjective factors are considered in
establishing compensation for other executive officers including an overall
assessment of their importance to the Company, their ability to achieve
objectives on programs managed by them, including adherence to the Company's
annual budget, the contribution of areas managed by them to NIDA and their
future potential.

The Omnibus Budget Reconciliation Act of 1993 imposes a limit, with certain
exceptions, on the amount that a publicly held corporation may deduct in any
year for the compensation paid or accrued with respect to its five most highly
compensated officers. While the Committee cannot predict with certainty how the
Company's compensation might be affected, the Committee intends to try to
preserve the tax deductibility of all executive compensation while maintaining
the Company's compensation philosophy as described in this report. In this
regard, see the Proposal to Approve the Senior Executive Incentive Compensation
Plan described below.

Wolfgang Traber
Richard O'Connell

<PAGE>

Compensation Committee Interlocks and Insider Participation

Messrs. Wolfgang Traber and Richard O'Connell, both of whom are directors
of the Company, served as the members of the Compensation Committee during 1993.

Mr. Traber is one of the two directors of Holdings and is the Managing
Director of Hanseatic Corporation which owns all of the issued and outstanding
shares of common stock of Holdings. In connection with the Star Gas Investment,
the Company purchased $2,000,000 of Holdings' preferred stock. See "Certain
Transactions."

Employment Contracts and Change of Control Arrangements

The Company has no employment agreements with its executive officers, other
than one with George Leibowitz. In November, 1992, the Company entered into an
employment agreement with Mr. Leibowitz which continues for an indefinite period
of time, but is cancelable by either Mr. Leibowitz or the Company upon 30 days'
written notice. The employment agreement provided for a signing bonus of
$170,000, provided that if Mr. Leibowitz voluntarily terminates his employment
with the Company without the written consent of the Company or if his employment
is terminated by the Company with cause, he is required to repay to the Company
a portion of his signing bonus. During the term of his employment, Mr.
Leibowitz will receive a base salary of $200,000, subject to increases and
bonuses as may be determined by the Board of Directors. If Mr. Leibowitz'
employment is terminated by the Company, other than for cause, or if Irik Sevin
and Audrey Sevin no longer own directly or indirectly, or have sole voting power
over, at least 51% of the shares of the Class C Common Stock of the Company
("Change in Control") and his employment is terminated voluntarily within six
months after such change of control, then Mr. Leibowitz will continue to receive
his then current salary for a period of 36 months after termination.

Simultaneously with the execution of the agreement, the Company issued to
Mr. Leibowitz an option to purchase 25,000 shares of the Company's Class A
Common Stock at $11 per share. On June 30, 1993, the Company issued an
identical option to purchase 25,000 shares of Class A Common Stock at $11 per
share. Twenty percent of the options become exercisable on each of the next
five anniversary dates of the grants.

In March 1993, the Company entered into an agreement with Justin McCarthy
which provides that if his employment is terminated prior to July 12, 1999 for
any reason he will receive severance pay equal to his prior year's salary and
bonus; provided, however, that if his employment is terminated (a) without cause
by the Company, (b) for any reason during the period of six months following a
Change in Control, he will receive severance pay equal to the aggregate of his
salary and bonuses or (c) if after July 12, 1999 for any reason, he will receive
severance pay equal to the aggregate of his salaries and bonuses for the
immediately preceding three fiscal years.

<PAGE>

[PERFORMANCE GRAPH]
[Filed in paper format under cover of Form SE]

<PAGE>

APPOINTMENT OF INDEPENDENT AUDITORS

KPMG Peat Marwick have been recommended by the Audit Committee of the Board
for reappointment as the Independent Auditors for the Company. KPMG Peat
Marwick were the auditors for the Company for the year ended December 31, 1993
and the Firm is a member of the SEC Practice Section of the American Institute
of Certified Public Accountants. Subject to shareholder approval, the Board of
Directors has appointed this firm as the Company's Independent Auditors for the
year 1994.

Representatives of the Firm are expected to attend the 1994 Annual Meeting.
They will have an opportunity to make a statement if they desire to do so and
will be available to respond to Shareholder questions.

The following proposal will be presented to the meeting:

"Resolved that the appointment by the Board of Directors of the Firm of
KPMG Peat Marwick, 345 Park Avenue, New York, NY 10154, as Independent Auditors
for the year 1994 is hereby approved."

The Board of Directors recommends a vote FOR this proposal.

AMENDMENT TO RESTATED AND AMENDED ARTICLES
OF INCORPORATION TO INCREASE THE DIVIDEND
RATE APPLICABLE TO THE 1989 PREFERRED STOCK

The Board of Directors has approved and proposed for submission for
Shareholders' approval an amendment to the Company's Restated and Amended
Articles of Incorporation to increase the dividend rate applicable to each class
of the Company's 1989 Preferred Stock, par value $.10 per share (the "1989
Preferred Stock") by $2.00 per share per annum.

At present there are 250,000 shares of 1989 Preferred Stock outstanding
divided into 50,000 shares of Class A 1989 Preferred Stock, which pays annual
dividends at the rate of $12.00 per share; 50,000 shares of Class B 1989
Preferred Stock which pays annual dividends at the rate of $11.84 per share; and
150,000 shares of Class C Preferred Stock which pays annual dividends at the
rate of $12.61 per share. Dividends are payable on February 1 and August 1.

In January 1994, the Company solicited consents from the holders of its
publicly traded 10 1/8% Subordinated Notes due 2003 ("Public Notes") and from
certain institutional holders of private notes ("Private Notes") and 1989
Preferred Stock to amend certain provisions of the respective agreements
pursuant to which the Public Notes, Private Notes and 1989 Preferred Stock were
issued. These amendments were required in order to permit the sale by the
Company of $75,000,000 in principal amount of its 9 3/8% Subordinated Debentures
due 2006 in February 1994. In connection with such solicitation the Company
paid certain consideration to the holders of its Public Notes and Private Notes
and agreed to take such actions as shall be required to increase the dividend
rate applicable to the 1989 Preferred Stock to a rate which would be $2.00 above
the rate otherwise provided in the Company's Restated and Amended Articles of
Incorporation. Until such increase is effective the Company is contractually
bound to pay an amount equal to the increase to the holders of the 1989
Preferred Stock.

The Company has already made a payment of $257,000 in lieu of the increased
dividends for the period January 26, 1994 through July 31, 1994. The proposed
amendment to the Restated and Amended Articles would increase the annual
dividend rate on each series of the 1989 Preferred Stock by $2.00 per share
beginning with the dividend payable on February 1, 1995.

The Board of Directors recommends a Vote FOR the proposed amendment.

<PAGE>

PROPOSAL TO APPROVE THE
SENIOR EXECUTIVE INCENTIVE
COMPENSATION PLAN

The Board of Directors has approved and proposed for submission for
Shareholders' approval the Senior Executive Incentive Compensation Plan (the
"Plan"). The purpose of the Plan is to permit the Company to continue to
provide the Company's Chief Executive Officer with annual cash incentive
compensation awards based on meeting certain performance goals (as described
under "The Compensation Committee Report") while preserving the deductibility of
such amounts for Federal income tax purposes.

The Omnibus Budget Reconciliation Act (the "Act") of 1993 places new
restrictions that begin to apply in 1994 on the deductibility for Federal income
tax purposes of executive compensation paid by public companies. Under these
new restrictions the Company will not be able to deduct compensation paid to its
five most highly paid executive officers in excess of $1,000,000 (per officer)
unless the compensation meets the definition of "performance based compensation"
set forth in the Act and the regulations promulgated thereunder, including a
requirement that compensation be awarded pursuant to a plan that is approved by
the shareholders of the Company. Non-deductibility would result in additional
costs to the Company with respect to such compensation.

The Plan provides that commencing with fiscal 1994, the Company's Chief
Executive Officer shall be entitled to receive an annual cash incentive bonus
equal to his bonus for fiscal 1993 which shall be subject to increase or
decrease, as the case may be, in direct proportion to the increase or decrease,
if any, in Adjusted NIDA per share (as defined) in the bonus year as compared to
1993.

Adjusted NIDA per share means the sum of (i) NIDA of the Company plus (ii)
NIDA of Star Gas (without duplication) divided by the weighted average number of
shares of the Company's Common Stock outstanding during such fiscal year. NIDA
of Star Gas means Star Gas' NIDA multiplied by the Company's weighted average
equity ownership in Star Gas for the fiscal year.

If approved by Shareholders, the Board of Directors may thereafter amend,
alter or discontinue the Plan at any time, except as to those terms required by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") to
be approved by the Shareholders. The Plan shall be administered by the
Compensation Committee of the Board of Directors. The composition of such
Committee will be intended to satisfy the requirements of Section 162(m) of the
Code and the regulations promulgated thereunder.

The Company anticipates that amounts paid pursuant to the Plan to the Chief
Executive Officer will be fully deductible for Federal income tax purposes.

The Board of Directors recommends a Vote FOR approval of the Plan.

PROPOSAL TO APPROVE THE
1994 STOCK OPTION PLAN

The Board of Directors has adopted and proposed for submission for
Shareholders' approval the 1994 Stock Option Plan of the Company (the "Stock
Option Plan"). The Board believes that the Stock Option Plan is desirable to
attract and retain executives and other key employees of outstanding ability.
Approximately 25 persons, including 9 executive officers are expected to be
eligible to participate in the Stock Option Plan.

The Stock Option Plan is set forth as Exhibit A to the Proxy Statement and
the following description is qualified in its entirety by reference thereto. A
maximum of 1,000,000 shares of Class A Common Stock (subject to adjustment

<PAGE>

described below) have been reserved for issuance by the Company pursuant to
options to be granted under the Stock Option Plan.

The Stock Option Plan will be administered by the Company's Board of
Directors unless and until the Board of Directors shall appoint the members of
the Stock Option Committee (the "Committee") who may also be the members of the
Compensation Committee. The composition of such Committee will be intended to
satisfy the provisions of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended, as well as the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder. During the 10-year period ending in 2004,
the Committee will have authority, subject to the terms of the Stock Option
Plan, to determine when and to whom to make grants under the plan, the number of
shares to be covered by the grants, the types and terms of options and SARs to
be granted and the exercise prices of options and SARs, to interpret and
implement the Plan, and to prescribe, amend and rescind rules and regulations
relating to the Stock Option Plan. The Committee's determinations under the
Stock Option Plan need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the Stock Option
Plan (whether or not such persons are similarly situated).

The Company's Board of Directors may amend, suspend or discontinue the
Stock Option Plan at any time except that, unless an amendment is approved (at a
meeting held within 12 months before or after the date of such amendment) by the
holders of a majority of the issued and outstanding shares of Common Stock
entitled to vote, no such amendment may (i) materially increase the maximum
number of shares as to which awards may be granted under the Stock Option Plan,
except for adjustments to reflect stock dividends or other recapitalizations
affecting the number or kind of outstanding shares, (ii) materially increase the
benefits accruing to Stock Option Plan participants, or (iii) materially change
the requirements as to eligibility for participation in the Stock Option Plan.

Under the terms of the Stock Option Plan, "incentive stock options"
("ISOs") within the meaning of section 422 of the Internal Revenue Code of 1986
(the "Code"), "nonqualified stock options" ("NQSOs") and SARs may be granted to
officers, key employees and consultants of the Company and any of its
subsidiaries (as defined in the Stock Option Plan), except that ISOs may be
granted only to employees of the Company and its subsidiaries. The Stock Option
Plan contains no limitations upon the number of shares with respect to which
options or SARs may be granted to an individual over the term of the Stock
Option Plan.

To the extent that the aggregate fair market value (as defined in the Stock
Option Plan), determined as of the date of grant of an ISO, of Class A Common
Stock with respect to which ISOs granted under the Stock Option Plan and all
other option plans of the Company or its subsidiaries exercisable for the first
time by an individual during any calendar year exceeds $100,000, such options
shall be treated as options which are not ISOs. The foregoing limitation does
not apply to NQSOs.

Initially, each ISO will be exercisable over a period, determined by the
Committee in its discretion, but not to exceed 10 years from the date of grant,
as required by the Code. In addition, in the case of an ISO granted to an
individual who, at the time such ISO is granted, owns shares possessing 10% or
more of the total combined voting power of all classes of stock of the Company
or its subsidiary corporations (a "10% Stockholder"), the exercise period for an
ISO may not exceed five years from the date of grant. In the case of NQSOs, the
exercise period, not to exceed 10 years from the date of grant, shall in all
cases be determined by the Committee. Options may be exercisable during the
option period at such times, in such amounts, in accordance with such terms and
conditions, and subject to such restrictions, as are set forth in the option
agreement evidencing the grant of such options. The Committee may, in its
discretion, with the grantee's consent, cancel any award of options or SARs and
issue a new award in substitution therefor or accelerate the exercisability of

<PAGE>

any award granted under the Stock Option Plan or extend the scheduled expiration
of an award.

The exercise price of an ISO or an NQSO (the "Option Price") may not be
less than the fair market value of the shares of Class A Common Stock on the
date of grant, except that, in the case of an ISO granted to a 10% Stockholder,
the Option Price may not be less than 110% of such fair market value. The
Option Price of, and the number of shares covered by, each option will not
change during the life of the option, except for adjustments to reflect stock
dividends, splits, other recapitalization or reclassifications or changes
affecting the number or kind of outstanding shares.

The shares purchased upon the exercise of an option are to be paid for in
cash or, with the Committee's consent, in its discretion, by delivery of the
optionee's promissory note, upon such terms and conditions as the Committee may
prescribe, or, if so provided in the applicable option agreement, by delivery of
previously acquired shares of Class A Common Stock with a fair market value
equal to the total Option Price, or in a combination of such methods.

Options and stock appreciation rights ("SARs") may be transferred by an
optionee or grantee only by will or by the laws of descent and distribution, and
may be exercised only by the optionee or grantee during his lifetime. Except as
otherwise provided in the applicable plan agreement, all of an optionee's or a
grantee's outstanding awards shall terminate upon his termination of employment
or service for any reason.

The Committee may grant SARs in conjunction with all or part of an option.
Upon the exercise of a SAR, a holder will generally be entitled, without payment
to the Company, to receive cash, shares of Common Stock or any combination
thereof, as determined by the Committee, in an amount equal to the excess of the
fair market value of one share of Class A Common Stock on the exercise date over
the exercise price of the related option, multiplied by the number of shares in
respect of which the SAR is exercised.

Tax Aspects of the Stock Option Plan. The following are the principal
Federal income tax consequences generally applicable to awards granted under the
Stock Option Plan. The grant of an option or SAR will create no Federal income
tax consequences for the recipient or the Company or a subsidiary employing the
recipient ("employer"). The holder of an ISO will have no taxable income upon
exercising an ISO (except that the holder may have income for alternative
minimum tax purposes), and the employer generally will receive no deduction when
an ISO is exercised. In general, upon exercising a stock option other than an
ISO, the optionee must recognize ordinary income equal to the excess of the fair
market value of the stock acquired on the date of exercise over the option
price, and the employer will then be entitled to a deduction for the same
amount. In general, upon exercising an SAR, the amount of any cash received and
the fair market value on the exercise date of any shares or other property
received are taxable to the recipient as ordinary income and deductible by the
employer. The tax treatment to an optionee of a disposition of shares acquired
through the exercise of an option will depend on how long the shares have been
held and on whether such shares were acquired by exercising an ISO, an SAR or an
option other than an ISO. Generally, there will be no Federal income tax
consequences to the employer in connection with a disposition of shares acquired
under an option except that the employer may be entitled to a deduction in the
case of a disposition of shares acquired under an ISO before the applicable ISO
holding periods have been satisfied.

With respect to awards granted under the Stock Option Plan that are settled
either in cash or in stock or other property that is either transferable or not
subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the excess of (a) the cash or the fair market value of
the shares received (determined as of the date of settlement) over (b) any
amount paid for such shares by the holder of the award; and the employer will be
entitled to a deduction at the same time and for the same amount. With respect

<PAGE>

to awards that are settled in stock or other property that is restricted as to
transferability and subject to substantial risk of forfeiture, the participant
must recognize ordinary income equal to the excess of (a) the fair market value
of the shares or other property received determined at the first time the shares
or other property becomes transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier over (b) any amount paid for such shares or
other property by the participant; the employer will be entitled to a deduction
for the same amount at the time that the employee recognizes the income.
Different tax rules may apply with respect to participants who are subject to
Section 16 of the Securities Exchange Act of 1934, as amended.

On April 13, 1994, the last sales price of the Class A Common Stock as
reported by NASDAQ was $7 7/8.

The Board of Directors recommends a Vote FOR approval of the Stock Option
Plan.

OTHER MATTERS

Vote Required for Approval

All shares represented by duly executed proxies will be voted FOR the
election of the nominees named above as directors unless authority to vote for
the proposed slate of directors or any individual director has been withheld. If
for any unforeseen reason any of such nominees should not be available as a
candidate for director, the proxies will be voted in accordance with the
authority conferred in the proxy for such other candidate or candidates as may
be nominated by the Board of Directors.

With respect to the proposals to (i) approve the appointment of KPMG Peat
Marwick as the Company's Independent Auditors, (ii) approve the amendment to the
Company's Restated and Amended Articles of Incorporation to increase the
dividend rate applicable to the 1989 Preferred Stock; (iii) approve the Senior
Executive Incentive Compensation Plan; and (iv) approve the Stock Option Plan,
all such shares will be voted for or against, or not voted, as specified on each
proxy. If no choice is indicated, a proxy will be voted FOR such proposals.

An affirmative vote of a majority of the shares present and entitled to
vote at the meeting is required for approval of all matters presented to
shareholders for their consideration. Any shares not voted by abstention have
the effect of a negative vote. Broker non-votes do not have any impact on the
vote. In addition, the affirmative vote of the holders of a majority of the
issued and outstanding shares of the 1989 Preferred Stock, voting separately as
a class, is required to approve the amendment to the Company's Restated and
Amended Articles of Incorporation to increase the dividend rate applicable to
the 1989 Preferred Stock.

Voting Securities

Shareholders of record at the close of business on April 26, 1994, will be
eligible to vote at the meeting. The voting securities of Petro consist of its
$.10 par value Class A Common Stock, of which 18,992,579 shares were outstanding
on April 26, 1994 and $.10 par value Class C Common Stock of which 2,545,139
shares were outstanding on April 26, 1994. Each share of Class A Common Stock
outstanding on the record date will be entitled to one vote and each share of
Class C Common Stock outstanding on the record date will be entitled to ten
votes.

Individual votes of shareholders are kept private, except as appropriate to
meet legal requirements. Access to proxies and other individual shareholder
voting records is limited to the Independent Inspectors of Election and certain

<PAGE>

Petro employees who must acknowledge in writing their responsibility to comply
with this policy of confidentiality.

Shareholder Proposals for 1995 Annual Meeting

From time to time the shareholders of the Company submit proposals which
they believe should be voted upon by the shareholders. The Commission has
adopted regulations which govern the inclusion of such proposals in the
Company's annual proxy materials. All such proposals must be submitted to the
Secretary of the Company no later than December 27, 1994 in order to be
considered for inclusion in the Company's 1995 proxy materials.

Matters Not Determined at the time of Solicitation

The Board is not aware of any matters to come before the meeting other than
the election of directors, the proposal to approve the appointment of KPMG Peat
Marwick as the Company's Independent Auditors for the succeeding year, the
approval of an Amendment to the Restated and Amended Articles of Incorporation
to increase the dividend rate applicable to the 1989 Preferred Stock, the
approval of the Senior Executive Incentive Compensation Plan and the approval of
the Stock Option Plan. If any other matter should come before the meeting, then
the persons named in the enclosed form of proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgment.

Audrey L. Sevin
Secretary

Stamford, CT
April 29, 1994

The Annual Report to Shareholders of the Company for the fiscal year ended
December 31, 1993 which includes financial statements has been mailed to
Shareholders. The Annual Report does not form any part of the material for the
solicitation of proxies.

<PAGE>
Exhibit A

PETROLEUM HEAT AND POWER CO., INC.
1994 STOCK OPTION PLAN

1. Purpose of the 1994 Stock Option Plan.

Petroleum Heat and Power Co., Inc. (the "Corporation")
desires to attract and retain the best available talent and to
encourage the highest level of performance. The 1994 Stock
Option Plan (the "Stock Option Plan") is intended to contribute
significantly to the attainment of these objectives, by (i)
providing long-term incentives and rewards to all key employees
of the Corporation (including officers who are key employees of
the Corporation and also including key employees of any
subsidiary of the Corporation which may include officers or
directors of any subsidiary of the Corporation who are also key
employees of said subsidiary), and those directors (of
subsidiaries only) and officers, consultants, advisers, agents or
independent representatives of the Corporation or of any
subsidiary (together, "Eligible Individuals"), who are
contributing or in a position to contribute to the long-term
success and growth of the Corporation or of any subsidiary, (ii)
assisting the Corporation and any subsidiary in attracting and
retaining Eligible Individuals with experience and ability, and
(iii) associating more closely the interests of such Eligible
Individuals with those of the Corporation's stockholders.
Persons who are directors of the Corporation shall not be
Eligible Individuals under the Stock Option Plan.

2. Scope and Duration of the Stock Option Plan.

Under the Stock Option Plan, options ("Options") to purchase
Shares of Class A common stock, par value $.10 per share ("Common
Stock"), may be granted to Eligible Individuals. Options granted
to employees (including officers and directors who are employees)
of the Corporation or a subsidiary corporation thereof, may, at
the time of grant, be designated by the Corporation's Board of
Directors either as incentive stock options ("ISOs"), with the
attendant tax benefits as provided for under Sections 421 and 422
of the Internal Revenue Code of 1986, as amended (the "Code") or
as nonqualified stock options. Stock appreciation rights (the
"Rights") may be granted in association with Options. The
aggregate number of shares of Common Stock reserved for grant
from time to time under the Stock Option Plan is 1,000,000 shares
of Common Stock which shares of Common Stock may be authorized
but unissued shares of Common Stock or shares of Common Stock,
which shall have been or which may be reacquired by the
Corporation, as the Board of Directors of the Corporation shall
from time to time determine. Such aggregate numbers shall be
subject to adjustment as provided in Paragraph 12. If an Option
shall expire or terminate for any reason without having been
exercised in full or surrendered in full in connection with the
exercise of a Right, the shares of Common Stock represented by
the portion thereof not so exercised or surrendered shall (unless

<PAGE>

the Stock Option Plan shall have been terminated) become
available for other options under the Stock Option Plan. Subject
to Paragraph 14, no Option or Right shall be granted under the
Stock Option Plan after ________________, 2004. The grant of an
Option and/or a Right is sometimes referred to herein as an Award
thereof.

3. Administration of the Stock Option Plan.

This Stock Option Plan will be administered by the Board of
Directors of the Corporation (the "Board of Directors"). The
Board of Directors, in its discretion, may designate an option
committee (the "Option Committee" or "Committee") composed of at
least two members of the Board of Directors to administer this
Stock Option Plan who may also be the members of the Compensation
Committee of the Board of Directors. Members of the Stock Option
Committee shall be independent non-employee directors of the
Corporation and shall meet such other qualifications as the Board
of Directors may determine. Subject to the express provisions of
this Plan, the Board of Directors or the Committee (hereinafter,
the terms "Option Committee" or "Committee" shall mean the Board
of Directors whenever no such Option Committee has been
designated) shall have authority in its discretion, subject to
and not inconsistent with the express provisions of this Stock
Option Plan, to direct the grant of Options, to determine the
purchase price of the Common Stock covered by each Option, the
Eligible Individuals to whom, and the time or times at which,
Options shall be granted and subject to the maximum set forth in
Paragraph 4 hereof, the number of shares of Common Stock to be
covered by each Option; to designate Options as ISOs; to direct
the grant of Rights in connection with any Option; to interpret
the Stock Option Plan; to determine the time or times at which
Options may be exercised; to prescribe, amend and rescind rules
and regulations relating to the Stock Option Plan, including,
without limitation, such rules and regulations as it shall deem
advisable, so that transactions involving Options may qualify for
exemption under such rules and regulations as the Securities and
Exchange Commission may promulgate from time to time exempting
transactions from Section 16(b) of the Securities and Exchange
Act of 1934; to determine the terms and provisions of and to
cause the Corporation to enter into agreements with Eligible
Individuals in connection with Options (Awards) granted under the
Stock Option Plan (the "Agreements"), which Agreements may vary
from one another as the Committee shall deem appropriate; and to
make all other determinations it may deem necessary or advisable
for the administration of the Stock Option Plan.

<PAGE>

Members of the Committee shall serve at the pleasure of
the Board of Directors. The Committee shall have and may exer-
cise all of the powers of the Board of Directors under the Stock
Option Plan, other than the power to appoint a director to com-
mittee membership. A majority of the Committee shall constitute
a quorum, and acts of a majority of the members present at any
meeting at which a quorum is present shall be deemed the acts of
the Committee. The Committee may also act by instrument signed
by a majority of the members of the Committee.

Every action, decision, interpretation or determination
by the Committee with respect to the application or administra-
tion of this Stock Option Plan shall be final and binding upon
the Corporation and each person holding any Option granted under
this Stock Option Plan.

4. Eligibility: Factors to be Considered in Granting Options
and Designating ISOs (Awards).

(a) Options may be granted only to (i) key employees
(including officers and directors who are employees) of the
Corporation or any subsidiary corporation thereof on the date of
grant (Options so granted may be designated as ISOs), and (ii)
directors or officers of the Corporation or a subsidiary
corporation thereof on the date of grant, without regard to
whether they are employees, and (iii) consultants or advisers to
or agents or independent representatives of the Corporation or a
subsidiary thereof. In determining the persons to whom Options
(Awards) shall be granted and the number of shares of Common
Stock to be covered by each Award, the Committee shall take into
account the nature of the duties of the respective persons, their
present and potential contributions to the Corporation's
(including subsidiaries) successful operation and such other
factors as the Board of Directors in its discretion shall deem
relevant. Subject to the provisions of Paragraph 2, an Eligible
Individual may receive Options (Awards) on more than one occasion
under the Stock Option Plan. No person shall be eligible for an
Option grant if he shall have filed with the Secretary of the
Corporation an instrument waiving such eligibility; provided that
any such waiver may be revoked by filing with the Secretary of
the Corporation an instrument of evocation, which revocation will
be effective upon such filing.

(b) In the case of each ISO granted to an employee, the
aggregate fair market value (determined at the time the ISO is
granted) of the Common Stock with respect to which the ISO is
exercisable for the first time by such employee during any
calendar year (under all plans of the Corporation and any
subsidiary corporation thereof) may not exceed $100,000.

<PAGE>

(c) In no event shall any Eligible Individual be granted
options to purchase more than 200,000 shares of Common Stock
pursuant to this Stock Option Plan.

5. Option Price.

(a) The purchase price per share of the Common Stock
covered by each Option shall be established by the Committee, but
in no event shall it be less than the fair market value of a
share of the Common Stock on the date the Option is granted. If,
at the time an Option is granted, the Common Stock is publicly
traded, such fair market value shall be the closing price (or the
mean of the latest bid and asked prices) of a share of Common
Stock on such date as reported in The Wall Street Journal (or a
publication or reporting service deemed equivalent to The Wall
Street Journal for such purpose by the Board of Directors) for
any national securities exchange or other securities market which
at the time is included in the stock price quotations of such
publication. In the event that the Committee shall determine
such stock price quotation is not representative of fair market
value by reason of the lack of a significant number of recent
transactions or otherwise, the Committee may determine fair
market value in such a manner as it shall deem appropriate under
the circumstances. If, at the time an Option is granted, the
Common Stock is not publicly traded, the Committee shall make a
good faith attempt to determine such fair market value.

(b) In the case of an employee who at the time an ISO is
granted owns stock possessing more than 10% of the total combined
voting power of all classes of the stock of the employer
corporation or of its parent or a subsidiary corporation thereof
(a "10% Holder"), the purchase price of the Common Stock covered
by any ISO shall in no event be less than 110% of the fair market
value of the Common Stock at the time the ISO is granted.

6. Term of Options.

The term of each Option shall be fixed by the Committee, but
in no event shall it be exercisable more than 10 years from the
date of grant, subject to earlier termination as provided in
Paragraphs 10 and 11. An ISO granted to a 10% Holder shall not
be exercisable more than 5 years from the date of grant.

7. Exercise of Options.

(a) Subject to the provisions of the Stock Option Plan, an
Option granted to an employee under the Stock Option Plan shall
become fully exercisable at the earlier of (A) employee's actual
retirement date, unless such retirement is without the consent of
the Board of Directors and is prior to the employee's normal
retirement date as determined under any qualified retirement plan
maintained by the Corporation at such time or, if no such plan is

<PAGE>

than in effect, age 65 (but in no event prior to the first
anniversary of the date of grant), or (B) at such time or times
as the Committee in its sole discretion shall determine at the
time of the granting of the Option, except that in no event shall
any such Option be exercisable earlier than six months or later
than 10 years after its grant. Notwithstanding anything in this
Stock Option Plan to the contrary, Options that are not desig-
nated as ISOs may be exercised in such manner and at such time or
times as the Committee in its sole discretion shall determine,
except that in no event shall any such Option be exercisable
earlier than six months or later than 10 years after its grant.

(b) An Option may be exercised as to any or all full shares
of Common Stock as to which the Option is then exercisable.

(c) The purchase price of the shares of Common Stock as to
which an Option is exercised shall be paid in full in cash at the
time of exercise; provided that, if permitted by the related
Option Agreement or by the Committee, the purchase price may be
paid, in whole or in part, by surrender or delivery to the
Corporation of securities of the Corporation having a fair market
value on the date of the exercise equal to the portion of the
purchase price being so paid. Fair market value shall be
determined as provided in Paragraph 5 for the determination of
such value on the date of the grant. In addition, the holder
shall, upon notification of the amount due and prior to or
concurrently with delivery to the holder of a certificate
representing such shares of Common Stock, pay promptly any amount
necessary to satisfy applicable federal, state or local tax
requirements.

(d) Except as provided in Paragraphs 10 and 11, no Option
may be exercised unless the original grantee thereof is then an
Eligible Individual.

(e) The Option holder shall have the rights of a
stockholder with respect to shares of Common Stock covered by an
Option only upon becoming the holder of record of such shares of
Common Stock.

(f) Notwithstanding any other provision of this Stock
Option Plan, the Corporation shall not be required to issue or
deliver any share of stock upon the exercise of an Option prior
to the admission of such share to listing on any stock exchange
or automated quotation system on which the Corporation's Common
Stock may then be listed.

8. Award and Exercise of Rights.

(a) A Right may be awarded by the Committee in association
with any Option either at the time such Option is granted or at

<PAGE>

any time prior to the exercise, termination or expiration of such
Option. Each such Right shall be subject to the same terms and
conditions as the related Option and shall be exercisable only to
the extent such Option is exercisable, and the Right Value, as
hereinafter defined, is a positive amount.

(b) A Right shall entitle the holder to surrender to the
Corporation unexercised the related Option (or any portion or
portions thereof which the holder from time to time shall
determine to surrender for this purpose) and to receive in
exchange therefor, subject to the provisions of the Stock Option
Plan and such rules and regulations as from time to time may be
established by the Committee, a payment having an aggregate value
equal to the product of (A) the Right Value of one share of
Common Stock, as hereinafter defined, and (B) the number of
shares of Common Stock called for by the Option, or portion
thereof, which is surrendered. For purposes of the Stock Option
Plan: the Right Value of one share of Common Stock shall be the
excess of (i) the fair market value of one share of Common Stock
on the date on which the Right is exercised, over (ii) the
purchase price per share of the Common Stock covered by the
surrendered Option. The date on which the Committee shall receive
notice from the holder of the exercise of a Right shall be
considered the date on which the Right is exercised.

Upon exercise of a Right, a holder shall indicate to the
Committee what portion of the payment he desires to receive in
cash and what portion in shares of Common Stock of the
Corporation; provided, that the Board of Directors shall have
sole discretion to determine in any case or cases that payment
will be made in the form of all cash, all shares of Common Stock,
or any combination thereof. If the holder is to receive a portion
of such payment in shares of Common Stock, the number of shares
of Common Stock shall be determined by dividing the amount of
such portion by the fair market value of one share of Common
Stock on the date on which the Right is exercised. The number of
shares of Common Stock which may be received pursuant to the
exercise of a Right may not exceed the number of shares of Common
Stock covered by the related Option, or portion thereof, which is
surrendered. No fractional shares of Common Stock will be issued,
but instead cash will be paid for any such fractional share of
Common Stock.

No payment will be required from the holder upon exercise of
a Right, except that the holder shall, upon notification of the
amount due and prior to or concurrently with delivery to the
holder of cash or a certificate representing shares of Common
Stock, pay promptly any amount necessary to satisfy applicable
federal, state or local tax requirements, and the Corporation
shall have the right to deduct from any payment any taxes
required by law to be withheld by the Corporation with respect to
such payment.

<PAGE>

(c) The fair market value of one share of Common Stock for
the date on which a Right is exercised shall be determined as
provided in Paragraph 5 for the determination of such value on
the date of grant.

(d) Upon exercise of a Right, the number of shares of
Common Stock subject to exercise under the related Option shall
automatically be reduced by the number of shares of Common Stock
represented by the Option, or portion thereof, which is
surrendered. Shares of Common Stock subject to Options, or
portions thereof, which are surrendered in connection with the
exercise of Rights shall not be available for subsequent Option
grants under the Stock Option Plan.

(e) Whether payments upon exercise of Rights are made in
cash, shares of Common Stock or a combination thereof, the
Committee shall have the sole discretion as to the timing of the
payments, including whether payment shall be made in a lump sum
or installments, but payments may not be deferred beyond the
first business day of the twenty-fifth calendar month next
following the month of exercise of a Right. Deferred payments may
bear interest at a rate determined by the Committee, provided
that such rate of interest shall not be less than the lowest rate
which avoids imputation of interest at a higher rate under the
Code. The Board of Directors may make such further provisions and
adopt such rules and regulations as it shall deem appropriate,
not inconsistent with the Stock Option Plan, related to the
timing of the exercise of a Right and the determination of the
form and timing of payment to the holder upon such exercise.

9. Non-transferability of Options.

No Options or Rights granted under the Stock Option Plan
shall be transferable other than by will or by the laws of
descent and distribution ("Permitted Transferee"). With respect
to ISOs, Options may be exercised, during the lifetime of the
holder, only by the holder, or by his guardian or legal
representative.

10. Termination of Relationship to the Corporation.

(a) In the event that any original grantee shall cease to
be an Eligible Individual of the Corporation (or any subsidiary
thereof), except as set forth in Paragraph 11, such Option may
(subject to the provisions of the Stock Option Plan) be exercised
(to the extent that the original grantee was entitled to exercise
such Option at the termination of his employment or service as a
director, officer, consultant, adviser, agent or independent
representative, as the case may be) at any time within three
months after such termination, but not more than 10 years (five
years in the case of a 10% Holder) after the date on which such

<PAGE>

Option was granted or the expiration of the Option, if earlier.
Notwithstanding the foregoing, if the position of an original
grantee shall be terminated by the Corporation or any subsidiary
thereof for cause or if the original grantee terminates his
employment or position voluntarily and without the written
consent of the Corporation or any subsidiary corporation thereof,
as the case may be (which consent shall be presumed in the case
of normal retirement), the Options granted to such person,
whether held by such person or by a Permitted Transferee shall,
to the extent not theretofore exercised, forthwith terminate
immediately upon such termination. The holder of any ISO may not
exercise such Option unless at all times during the period
beginning with the date of grant of the ISO and ending on the
three months before the date of exercise he is an employee of the
Corporation granting such Option, a subsidiary thereof, or a
corporation or a subsidiary corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code
applies.

(b) Other than as provided in Paragraph 10(a), Options
granted under the Stock Option Plan shall not be affected by any
change of duties or position so long as the holder remains an
Eligible Individual.

(c) Any Option Agreement may contain such provisions as the
Committee shall approve with reference to the determination of
the date employment terminates or the date other positions or
relationships terminate for purposes of the Stock Option Plan and
the effect of leaves of absence, which provisions may vary from
one another.

(d) Nothing in the Stock Option Plan or in any Option
granted pursuant to the Stock Option Plan shall confer upon any
Eligible Individual or other person any right to continue in the
employ of the Corporation or any subsidiary corporation (or the
right to be retained by, or have any continued relationship with
the Corporation or any subsidiary corporation thereof), or affect
the right of the Corporation or any such subsidiary corporation,
as the case may be, to terminate his employment, retention or
relationship at any time. The grant of any option pursuant to
the Stock Option Plan shall be entirely in the discretion of the
Committee and nothing in the Stock Option Plan shall be construed
to confer on any Eligible Individual any right to receive any
Option under the Stock Option Plan.

11. Death or Disability of Holder.

(a) If a person to whom an Option has been granted under
the Stock Option Plan shall die (and the conditions in sub-
paragraph (b) below are met) or become permanently and totally
disabled (as such term is defined below) while serving as an
Eligible Individual and if the Option was otherwise exercisable

<PAGE>

immediately prior to the happening of such event, then the period
for exercise provided in Paragraph 10 shall be extended to one
year after the date of death of the original grantee, or in the
case of the permanent and total disability of the original
grantee, to one year after the date of permanent and total
disability of the original grantee, but, in either case, not more
than 10 years (five years in the case of a 10% Holder) after the
date such Option was granted, or the expiration of the Option, if
earlier, as shall be prescribed in the original grantee's Option
Agreement. An Option may be exercised as set forth herein in the
event of the original grantee's death, by a Permitted Transferee
or the person or persons to whom the holder's rights under the
Option pass by will or applicable law, or if no such person has
the right, by his executors or administrators; or in the event of
the original grantee's permanent and total disability, by the
holder or his guardian.

(b) In the case of death of a person to whom an Option was
originally granted, the provisions of subparagraph (a) apply if
such person dies (i) while in the employ of the Corporation or a
subsidiary corporation thereof or while serving as an Eligible
Individual of the Corporation or a subsidiary corporation thereof
or (ii) within three months after the termination of such
position other than termination for cause, or voluntarily on the
original grantee's part and without the consent of the
Corporation or a subsidiary corporation thereof, which consent
shall be presumed in the case of normal retirement.

(c) The term "permanent and total disability" as used above
shall have the meaning set forth in Section 22(e)(3) of the Code.

12. Adjustments upon Changes in Capitalization.

Notwithstanding any other provision of the Stock Option
Plan, each Agreement may contain such provisions as the Committee
shall determine to be appropriate for the adjustment of the
number and class of shares of Common Stock covered by such
Option, the Option prices and the number of shares of Common
Stock as to which Options shall be exercisable at any time, in
the event of changes in the outstanding Common Stock of the
Corporation by reason of stock dividends, split-ups, split-downs,
reverse splits, recapitalizations, mergers, consolidations,
combinations or exchanges of shares, spin-offs, reorganizations,
liquidations and the like. In the event of any such change in
the outstanding Common Stock of the Corporation, the aggregate
number of shares of Common Stock as to which Options may be
granted under the Stock Option Plan to any Eligible Individual
shall be appropriately adjusted by the Committee whose determina-
tion shall be conclusive. In the event of (i) the dissolution,
liquidation, merger or consolidation of the Corporation or a sale
of all or substantially all of the assets of the Corporation, or
(ii) the disposition by the Corporation of substantially all of

<PAGE>

the assets or stock of a subsidiary of which the original grantee
is then an employee, officer or director, consultant, adviser,
agent or independent representative or (iii) a change in control
(as hereinafter defined) of the Corporation has occurred or is
about to occur, then, if the Committee shall so determine, each
Option under the Stock Option Plan, if such event shall occur
with respect to the Corporation, or each Option granted to an
employee, officer, director, consultant, adviser, agent or
independent representative of a subsidiary respecting which such
event shall occur, shall (x) become immediately and fully
exercisable or (y) terminate simultaneously with the happening of
such event, and the Corporation shall pay the optionee in lieu
thereof an amount equal to (a) the excess of the fair market
value over the exercise price of one share on the date on which
such event occurs, multiplied by (b) the number of shares subject
to the Option, without regard to whether the Option is then
otherwise exercisable.

13. Effectiveness of the Stock Option Plan.

Options may be granted under the Stock Option Plan, subject
to its authorization and adoption by stockholders of the
Corporation, at any time or from time to time after its adoption
by the Committee, but no Option shall be exercised under the
Stock Option Plan until the Stock Option Plan shall have been
authorized and adopted by a majority of the votes properly cast
thereon at a meeting of stockholders of the Corporation duly
called and held within 12 months from the date of adoption of the
Stock Option Plan by the Board of Directors. If so adopted, the
Stock Option Plan shall become effective as of the date of its
adoption by the Board of Directors. The exercise of the Options
shall also be expressly subject to the condition that at the time
of exercise a registration statement under the Securities Act of
1933, as amended (the "Act") shall be effective, or other
provisions satisfactory to the Committee shall have been made to
ensure that such exercise will not result in a violation of such
Act, and such other qualification under any state or federal law,
rule or regulation as the Corporation shall determine to be
necessary or advisable shall have been effected. If the shares
of Common Stock issuable upon exercise of an Option are not
registered under such Act, and if the Committee shall deem it
advisable, the Optionee may be required to represent and agree in
writing (i) that any shares of Common Stock acquired pursuant to
the Stock Option Plan will not be sold except pursuant to an
effective registration statement under such Act or an exemption
from the registration provisions of the Act and (ii) that such
Optionee will be acquiring such shares of Common Stock for his
own account and not with a view to the distribution thereof and
(iii) that the holder accepts such restrictions on transfer of
such shares, including, without limitation, the affixing to any
certificate representing such shares of an appropriate legend
restricting transfer as the Corporation may reasonably impose.

<PAGE>

14. Termination and Amendment of the Stock Option Plan.

The Board of Directors of the Corporation may, at any time
prior to the termination of the Stock Option Plan, suspend,
terminate, modify or amend the Stock Option Plan; provided that
any increase in the aggregate number of shares of Common Stock
reserved for issue upon the exercise of Options, any amendment
which would materially increase the benefits accruing to
participants under the Stock Option Plan, or any material
modification in the requirements as to eligibility for
participation in the Stock Option Plan, shall be subject to the
approval of stockholders in the manner provided in Paragraph 13,
except that any such increase, amendment or change that may
result from adjustments authorized by Paragraph 12 or adjustments
based on revisions to the Code or regulations promulgated
thereunder (to the extent permitted by such authorities) shall
not require such approval. No suspension, termination,
modification or amendment of the Stock Option Plan may, without
the express written consent of the Eligible Individual (or his
Permitted Transferee) to whom an Option shall theretofore have
been granted, adversely affect the rights of such Eligible
Individual (or his Permitted Transferee) under such Option.

15. Severability.

In the event that any one or more provisions of the Stock
Option Plan or any Agreement, or any action taken pursuant to the
Stock Option Plan or such Agreement, should, for any reason, be
unenforceable or invalid in any respect under the laws of the
United States, any state or the United States or any other
government, such unenforceability or invalidity shall not affect
any other provision of the Stock Option Plan or of such or any
other Agreement, but in such particular jurisdiction and instance
the Stock Option Plan and the affected Agreement shall be
construed as if such unenforceable or invalid provision had not
been contained therein or if the action in question had not been
taken thereunder.

16. Applicable Law.

The Stock Option Plan shall be governed and interpreted,
construed and applied in accordance with the laws of the State of
Minnesota.

17. Withholding.

A holder shall, upon notification of the amount due and
prior to or concurrently with delivery to such holder of a
certificate representing such shares of Common Stock, pay
promptly any amount necessary to satisfy applicable federal,
state, local or other tax requirements.

<PAGE>

18. Miscellaneous.

1. The terms "parent," "subsidiary" and "subsidiary
corporation" shall have the meanings set forth in Sections 424(e)
and (f) of the Code, respectively.

2. The term "terminated for cause" shall mean termination
by the Corporation (or a subsidiary thereof) of the employment of
or other relationship with, the original grantee by reason of the
grantee's (i) willful refusal to perform his obligations to the
Corporation (or a subsidiary thereof), (ii) willful misconduct,
contrary to the interests of the Corporation (or a subsidiary
thereof), or (iii) commission of a serious criminal act, whether
denominated a felony, misdemeanor or otherwise. In the event of
any dispute regarding whether a termination for cause has
occurred, the Board of Directors may by resolution resolve such
dispute and such resolution shall be final and conclusive on all
parties.

3. The term "change in control" shall mean an event or
series of events that would be required to be described as a
change in control of the Corporation in a proxy or information
statement distributed by the Corporation pursuant to Section 14
of the Securities Exchange Act of 1934 in response to Item 6(e)
of Schedule 14A promulgated thereunder, or any substitute
provision which may hereafter be promulgated thereunder or
otherwise adopted. The determination of whether and when a
change in control has occurred or is about to occur shall be made
by the Board of Directors in office immediately prior to the
occurrence of the event or series of events constituting such
change in control.

<PAGE>

PROXY

PETROLEUM HEAT AND POWER CO., INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Irik P. Sevin and Audrey L. Sevin, and each
of them, each with full power to act without the other, and with full power of
substitution, the attorneys and proxies of the undersigned and hereby authorizes
them to represent and to vote, all the shares of Class A Common Stock and Class
C Common Stock of Petroleum Heat and Power Co., Inc. that the undersigned would
be entitled to vote, if personally present, at the Annual Meeting of
Shareholders to be held on June 3, 1994 or any adjournment thereof, upon such
business as may properly come before the meeting, including the items set forth
on the reverse side.

(Continued, and to be marked, dated and signed, on the other side)

<PAGE>

Please mark
[X] your vote
as this
-------------- --------------
CLASS A COMMON CLASS C COMMON

FOR all nominees below WITHHOLD AUTHORITY
(except as marked to to vote for
the contrary below) all nominees below
1. ELECTION OF
DIRECTORS [ ] [ ]

NOMINEES: Irik P. Sevin, Audrey L. Sevin, Phillip Ean Cohen, Thomas J.
Edelman, Richard O'Connell, Wolfgang Traber and Max M. Warburg.

INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.

---------------------------------------------------------------

FOR AGAINST ABSTAIN
2. Approval of appointment of KPMG Peat Marwick as the
Independent Auditors of the Corporation. [ ] [ ] [ ]

3. Approval of Amendment to Restated and Amended
Articles of Incorporation to increase the dividend
rate applicable to the 1989 Preferred Stock. [ ] [ ] [ ]

4. Approval of Senior Executive Incentive Compensation [ ] [ ] [ ]
Plan.

5. Approval of the 1994 Stock Option Plan. [ ] [ ] [ ]

6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4 AND 5.

(PLEASE SIGN, DATE, AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.)

(Signature) Dated , 1994
------------------------------------------ ------------
(Signature if held jointly) Dated , 1994
-------------------------- ------------
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.