SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
[Amendment No. __]
Issuer Tender Offer Statement
Pursuant to Section 13(e)(1)
of the
Securities Exchange Act of 1934
PETROLEUM HEAT AND POWER CO., INC.
(Name of Issuer)
PETROLEUM HEAT AND POWER CO., INC.
(Name of Persons Filing Statement)
Class B Common Stock, par value $.10 per share
(Title of Class of Securities)
716 600 200
(CUSIP Number of Class of Securities)
Irik P. Sevin, President
Petroleum Heat and Power Co., Inc.
Clearwater House
2187 Atlantic Street
Stamford, Connecticut 06902
(203) 325-5400
(Name, Address and Telephone Number
of Person Authorized to Receive
Notices and Communications on Behalf
of Person Filing Statement)
Copies to:
Alan Shapiro, Esq.
Phillips, Nizer, Benjamin, Krim & Ballon
31 West 52nd Street
New York, New York 10019
(212) 977-9700
July 20, 1994
(Date Tender Offer First Published
Sent or Given to Security Holders)
<PAGE>
Calculation of Filing Fee
Transaction Valuation: Amount of Filing Fee:
$3,795,767(1) $759.15
------------------------------------------------------------------
(1)The transaction valuation was determined by multiplying 216,901
(the number of outstanding shares of Class B Common Stock for which
the reporting person is making an offer) by $17.50 (the reporting
person's valuation for each share of Class B Common Stock).
Check box if any part of the fee is offset as provided by Rule
[ ]
0-11(a)(2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
Amount Previously Paid: -------------------------------------------
Form or Registration No.: -----------------------------------------
Filing Party: -----------------------------------------------------
Date Filed: -------------------------------------------------------
<PAGE>
This Rule 13e-4 Issuer Tender Offer Statement (the "Tender
Offer Statement") is being filed by Petroleum Heat and Power Co.,
Inc., a Minnesota corporation (the "Company" or "Petro"). In
accordance with an Offer to Purchase dated July 20, 1994 (the
"Offer to Purchase"), included as Exhibit (a) to this Tender Offer
Statement, and the accompanying Letter of Transmittal, the Company
commenced an offer to purchase for cash all of the outstanding
shares of its Class B Common Stock, par value $.10 per share (the
"Class B Common Stock") at $17.50 per share net plus all accrued
and unpaid Special Dividends (as defined) through the Expiration
Date. The Offer to Purchase and the accompanying Letter of
Transmittal together constitute the "Offer."
The Board of Directors of Petro has determined to exercise
Petro's right to terminate the Special Dividends (as defined in the
Offer to Purchase) on the Class B Common Stock, effective the
Expiration Date (as defined in the Offer to Purchase). As a result
of the termination of the Special Dividends, the Company's restated
and amended articles of incorporation provides that holders of
Class B Common Stock have the right to require that Petro purchase
(the "Purchase Obligation") all of the issued and outstanding
shares of Class B Common Stock at a purchase price of $17.50 per
share plus all accrued and unpaid Special Dividends through the
Expiration Date (which dividends would amount to $0.2763 per share
assuming that the Expiration Date is August 31, 1994). The Offer
is being made by Petro in order to satisfy the Purchase Obligation.
The Purchase Obligation and the Offer terminate on the Expiration
Date.
The cross reference sheet below is being supplied pursuant to
Instruction B to the Tender Offer Statement and shows the location
in the Offer to Purchase (which is attached hereto as Exhibit (a))
of the information required to be included in response to the items
of this Tender Offer Statement. The information in the Offer to
Purchase of the Company is hereby expressly incorporated herein by
reference. All references and the responses to individual items
correspond to the parts of the Offer to Purchase so titled.
CROSS REFERENCE SHEET
---------------------
Item in Rule 13e-4 Where Located in the
Tender Offer Offer to Purchase
------------ -----------------
Statement
---------
Item 1(a-b) . . . INTRODUCTION; SPECIAL FACTORS - Interests of
Officers and Directors; Certain Effects of the
Offer; THE OFFER - Certain Information
Concerning the Company
Item 1(c) . . . . INTRODUCTION; THE OFFER - Market Data; Dividends
Item 1(d) . . . . NOT APPLICABLE
Item 2(a) . . . . INTRODUCTION; SPECIAL FACTORS - Financing of the
Transaction
Item 2(b) . . . . NOT APPLICABLE
Item 3 . . . . . **
3
<PAGE>
Item in Rule 13e-4 Where Located in the
Tender Offer Offer to Purchase
------------ -----------------
Statement
---------
Item 3(a) . . . . **
Item 3(b) . . . . **
Item 3(c) . . . . **
Item 3(d) . . . . **
Item 3(e) . . . . INTRODUCTION; SPECIAL FACTORS - The Relative
Rights, Designations and Preferences of the
Class B Common Stock; Background and Purpose of
the Offer; Fairness of the Transaction
Item 3(f) . . . . **
Item 3(g) . . . . **
Item 3(h-j) . . . SPECIAL FACTORS - Certain Effects of the Offer
Item 4 . . . . . **
Item 5 . . . . . NOT APPLICABLE
Item 6 . . . . . THE OFFER - The Depositary; The Information
Agent; Fees and Expenses of the Offer
Item 7(a-b) . . . THE OFFER - Certain Information Concerning the
Company; SCHEDULE II - Selected Historical
Financial Information of Petro
Item 8 . . . . . OFFER TO PURCHASE
Item 9 . . . . . **
________________________
** Such information is being provided in the remaining portion of
this Rule 13e-4 Tender Offer Statement.
4
<PAGE>
Item 1. Security and Issuer
-------------------
(a) Information required by this paragraph of Item 1
is set forth in "INTRODUCTION" and "THE OFFER - Certain
Information Concerning the Company" which sections are hereby
incorporated herein by reference.
(b) Information required by this paragraph of Item 1
is set forth in "INTRODUCTION"; "SPECIAL FACTORS - Interests of
Officers and Directors" and "SPECIAL FACTORS - Certain Effects of
the Offer," which sections are hereby incorporated herein by
reference.
(c) Information required by this paragraph of Item 1
is set forth in "INTRODUCTION" and "THE OFFER - Market Data;
Dividends," which sections are hereby incorporated herein by
reference.
(d) NOT APPLICABLE.
Item 2. Source and Amount of Funds and Other Consideration
--------------------------------------------------
(a) Information required by this paragraph of Item 2
is set forth in "INTRODUCTION" and "SPECIAL FACTORS - Financing
of the Transaction" which sections are hereby incorporated herein
by reference.
(b) NOT APPLICABLE.
Item 3. Purpose of the Tender Offer and Plans or Proposals of
-----------------------------------------------------
the Issuer or Affiliate
-----------------------
The purpose of the tender offer is set forth under
"INTRODUCTION" and "SPECIAL FACTORS - Background and Purpose of
Offer; Fairness of the Transaction," which sections are hereby
incorporated herein by this reference. The shares of Class B
Common Stock received by the Company in the Offer will be
retired.
(a)-(d), (f) and (g) The Company does not have any
plans or proposals which relate to or would result in the
occurrence of any of the matters set forth under these
subparagraphs following the completion of the Offer.
(e) Information required by this paragraph of Item 3
is found in "INTRODUCTION," "SPECIAL FACTORS - The Relative
Rights, Designations and Preferences of the Class B Common Stock"
and "SPECIAL FACTORS - Background and Purpose of the Offer;
Fairness of the Transaction" which sections are hereby
incorporated herein by reference.
(h)-(j) Information required by these paragraphs of
Item 3 is found in "SPECIAL FACTORS - Certain Effects of the
Offer," which section is hereby incorporated herein by reference.
5
<PAGE>
Item 4. Interest in Securities of the Issuer
------------------------------------
There has been no transaction in the Class B Common
Stock by the Company and, to the extent known by the Company,
after reasonable inquiry, there has been no transaction in the
Class B Common Stock effected by any officer or director of the
Company, or by any affiliate or subsidiary of any such person,
during the past 60 days.
Item 5. Contracts, Arrangements or Understandings with Respect
------------------------------------------------------
to the Issuer's Securities
--------------------------
NOT APPLICABLE
Item 6. Persons and Assets Retained, Employed or to Be
----------------------------------------------
Compensated
-----------
The information required by this Item 6 is set forth in
"THE OFFER - The Depositary; The Information Agent" and "THE
OFFER - Fees and Expenses of the Offer," which sections are
hereby incorporated herein by reference.
Item 7. Financial Information
---------------------
(a) The information required by this paragraph of Item
7 is set forth in "THE OFFER - Certain Information Concerning the
Company" and SCHEDULE II - Selected Historical Financial
Information of Petro, which sections are hereby incorporated
herein by reference.
(b) The information required by this paragraph of Item
7 is set forth in "THE OFFER - Certain Information Concerning the
Company" and SCHEDULE II - Selected Historical Financial
Information of Petro which sections are hereby incorporated
herein by reference.
Item 8. Additional Information
----------------------
Additional information concerning the proposed Offer is
set forth in the OFFER TO PURCHASE, which is hereby incorporated
herein in its entirety.
Item 9. Material to be Filed as Exhibits
--------------------------------
(a)(1) Offer to Purchase
(a)(2) Letter of Transmittal
(a)(3) Letter to Shareholders
(b) Not applicable
(d) Not applicable
(e) Offer to Purchase (included in Exhibit (a)(1))
(f) Not applicable
6
<PAGE>
SIGNATURE
---------
After due inquiry and to the best of my knowledge and
belief, the undersigned certifies that the information set forth
in this statement is true, complete and correct.
PETROLEUM HEAT AND POWER CO., INC.
By /s/ Irik P. Sevin
-------------------------------
Irik P. Sevin, President
Dated: July 20, 1994
7
<PAGE>
EXHIBIT INDEX
(a)(1) Offer to Purchase
(a)(2) Letter of Transmittal
(a)(3) Letter to Shareholders
(b) Not applicable
(d) Not applicable
(e) Offer to Purchase (included in Exhibit (a)(1))
(f) Not applicable
Notice of Termination of Special Dividends
and
Offer to Purchase for Cash Any and All Outstanding
Shares of Class B Common Stock
of
Petroleum Heat and Power Co., Inc.
at
$17.50 Net Per Share
Plus Accrued and Unpaid Dividends
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 31, 1994, UNLESS THE OFFER IS
EXTENDED (THE "EXPIRATION DATE"). UNLESS PREVIOUSLY ACCEPTED,
CLASS B COMMON STOCK MAY ALSO BE WITHDRAWN AT ANY TIME AFTER
SEPTEMBER 16, 1994.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
________________
Important
Any shareholder desiring to tender all or any portion of his shares of
Class B Common Stock should either (a) properly complete and sign the
Letter of Transmittal, or a facsimile thereof, in accordance with the
instructions in the Letter of Transmittal and mail or deliver it together
with the certificate(s) representing tendered shares, and any other
required documents, to the Depositary or tender such shares pursuant to the
procedure for book-entry transfer set forth herein in either case prior to
the Expiration Date or (b) request his broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for him prior to
the Expiration Date. A shareholder whose shares of Class B Common Stock
are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if he desires to tender such shares.
A shareholder who desires to tender his shares of Class B Common Stock
and whose certificates representing such shares are not immediately
available or who cannot comply with the procedures for book-entry transfer
on a timely basis on or prior to the Expiration Date may tender such shares
by following the procedures for guaranteed delivery set forth herein.
Questions and requests for assistance may be directed to the
Information Agent at its addresses and telephone numbers set forth on the
back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be obtained from the Information Agent or from
brokers, dealers, commercial banks and trust companies.
________________
The Information Agent for the Offer is:
Morrow & Co., Inc.
July 20, 1994
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
________________
OFFER TO PURCHASE
________________
TABLE OF CONTENTS
Page
----
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Relative Rights, Designations And
Preferences Of The Class B Common Stock . . . . . . . . . . . . . . 2
Background and Purpose of the Offer; Fairness of the Transaction . . 3
Prior Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . 4
Interests of Officers and Directors . . . . . . . . . . . . . . . . 4
Certain Effects of the Offer . . . . . . . . . . . . . . . . . . . . 4
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . 5
Financing of the Transaction . . . . . . . . . . . . . . . . . . . . 7
THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Terms of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . 7
Acceptance for Purchase and Payment for Shares of Class B Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Procedures for Accepting the Offer and Tendering the Shares of Class
B Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 9
Withdrawal Rights; Absence of Appraisal Rights . . . . . . . . . . . 11
Conditions of the Offer . . . . . . . . . . . . . . . . . . . . . . 12
Market Data; Dividends . . . . . . . . . . . . . . . . . . . . . . . 14
Certain Information Concerning the Company . . . . . . . . . . . . . 14
The Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Information Agent . . . . . . . . . . . . . . . . . . . . . . . 17
Fees and Expenses of the Offer . . . . . . . . . . . . . . . . . . . 18
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Available Information . . . . . . . . . . . . . . . . . . . . . . . 18
SCHEDULE I - Directors and Executive Officers of Petro
SCHEDULE II - Selected Historical Financial Information of Petro
<PAGE>
To the Holders of Class B Common Stock of
Petroleum Heat and Power Co., Inc.
INTRODUCTION
Petroleum Heat and Power Co., Inc., a Minnesota corporation (the
"Company" or "Petro"), hereby offers, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the accompanying
Letter of Transmittal, to purchase for cash all of the outstanding shares
of its Class B Common Stock, par value $.10 per share (the "Class B Common
Stock") at $17.50 per share net plus all accrued and unpaid Special
Dividends (as defined) through the Expiration Date. This Offer to Purchase
and the accompanying Letter of Transmittal together constitute the "Offer."
After careful consideration, the Board of Directors of Petro has
determined to exercise Petro's right to terminate the Special Dividends on
the Class B Common Stock, effective the Expiration Date. As a result of
the termination of the Special Dividends, the Company's restated and
amended articles of incorporation provides that holders of Class B Common
Stock have the right to require Petro to purchase for cash (the "Purchase
Obligation") all or a portion of their shares of Class B Common Stock at a
purchase price of $17.50 per share plus all accrued and unpaid Special
Dividends through the Expiration Date (which dividends would amount to
$0.2763 per share assuming that the Expiration Date is August 31, 1994).
The Offer is being made by Petro in order to satisfy the Purchase
Obligation. The Purchase Obligation and the Offer terminate on the
Expiration Date.
After the Expiration Date, no dividends are payable on the Class B
Common Stock until the aggregate amount of dividends paid on all other
classes of stock exceeds the Common Stock Allocation (defined as the
Company's cash flow for each fiscal year after December 31, 1985, on a
cumulative basis, minus all Special Dividends paid or accrued), which
amounted to $100.2 million as of December 31, 1993, after which each share
of Class B Common Stock will participate equally with each share of Class A
Common Stock and Class C Common Stock with respect to all dividends. During
1993, Petro paid an aggregate of $14.2 million in dividends on all other
classes of stock. As a result, it is unlikely that holders of Class B
Common Stock will receive dividends for several years.
In the event of any complete liquidation, dissolution or winding up of
the business of the Company, each share of Class B Common Stock would be
entitled to a liquidation preference equal to $5.70 per share, plus a pro
rata share of the remaining assets of the Company.
The Board of Directors of Petro believes that the termination of the
Special Dividends is in the best interests of Petro as it will help
simplify Petro's capital structure and reduce investor confusion concerning
the different classes of the Company's publicly traded Common Stock. The
Board of Directors reasonably believes the terms of the Offer to be fair
and in the best interests of the Company, its shareholders (including
unaffiliated shareholders) and employees. In light of the fact that it is
unlikely that the holders of the Class B Common Stock will receive
dividends for several years following the Expiration Date, and that,
subject to the number of shares tendered, it is likely that following the
Expiration Date the shares of Class B Common Stock will be delisted from
trading on the American Stock Exchange, the Board recommends that such
holders give serious consideration to tendering their shares of Class B
Common Stock pursuant to the Offer as discussed above. See "SPECIAL
FACTORS - Background and Purpose of the Offer; Fairness of the Transaction
and Certain Effects of the Offer."
At July 15, 1994 there were 216,901 shares of Class B Common Stock
outstanding. The officers and directors of Petro do not own any shares of
Class B Common Stock.
<PAGE>
SPECIAL FACTORS
The Relative Rights, Designations And
Preferences Of The Class B Common Stock
The relative rights, designations and preferences of the Company's
Class B Common Stock are as set forth below:
Dividends . Holders of Class B Common Stock are currently
entitled to receive, as and when declared by
the Board of Directors, special dividends (the
"Special Dividends") per share equal to
.000001666% of the cash flow of the Company (as
defined in the Company's restated and amended
articles of incorporation) for its prior fiscal
year. Special Dividends are payable in
quarterly installments on the first day of
April, July, October and January ("Dividend
Payment Date"). If not paid, Special Dividends
will be cumulative and no dividends may be paid
on any other class of stock, including the
Class A Common Stock, until all Special
Dividends in arrears are declared and paid. No
dividends are payable on the Class B Common
Stock other than the Special Dividends until
the aggregate amount of dividends paid on all
other classes of stock exceeds the Common Stock
Allocation (defined as the Company's cash flow
for each fiscal year after December 31, 1985,
on a cumulative basis, minus all Special
Dividends paid or accrued), which amounted to
$100.2 million as of December 31, 1993, after
which each share of Class B Stock will
participate equally with each share of Class A
Common Stock and Class C Common Stock with
respect to all dividends.
Termination The restated and amended articles of
of . . . . incorporation of the Company provides that the
Special Company may, in its sole discretion, terminate
Dividends; the payment of Special Dividends at any time
Purchase after December 31, 1991 if all Special
Obligation Dividends have then been paid or duly provided
for. In this regard, the Board of Directors
has determined to terminate the Special
Dividends, effective the Expiration Date.
Therefore, each holder of Class B Stock may
elect to require (the "Purchase Obligation")
the Company to purchase for cash all or a
portion of such holder's Class B Stock at a
price of $17.50 per share (regardless of the
then current market price of the Class B Common
Stock), plus all accrued and unpaid Special
Dividends to the date of purchase, or to retain
such holder's Class B Common Stock. The
Purchase Obligation terminates on the
Expiration Date. If a holder elects to retain
his Class B Stock, he will receive no dividends
until dividends in the aggregate equal to the
Common Stock Allocation ($100.2 million at
December 31, 1993) have been paid on the Class
A Common Stock, the Class C Common Stock and
all other classes of capital stock. In 1993,
the Company paid an aggregate of $14.2 million
in dividends on all classes of its capital
stock (other than the Class B Common Stock).
Under these circumstances it is unlikely that
any dividends will be paid on the Class B
Common Stock for several years.
2
<PAGE>
Voting . . Except when required by Minnesota law and in
certain special circumstances described in the
restated and amended articles of incorporation
of the Company, the holders of Class B Common
Stock are not entitled to vote.
Liquidation In the event of any complete liquidation,
Preferences dissolution or winding up of the business of
the Company, each share of Class B Common Stock
would be entitled to a distribution equal to
$5.70 per share, as adjusted, before any
distribution is made with respect to any other
class of stock of the Company. Thereafter,
each share of Class B Common Stock would be
entitled to a pro rata portion of the remaining
assets of the Company.
Background and Purpose of the Offer; Fairness of the Transaction
The Company currently has two classes of publicly traded Common Stock:
Class A with 18,992,579 shares outstanding (traded on the NASDAQ Stock
Market) and Class B with 216,901 shares outstanding (traded on Amex). The
Company believes, based on conversations with investors and brokers, that
the continued existence of two classes of publicly traded Common Stock with
substantially different dividend and liquidation preferences has caused
investor confusion concerning the Company's equity capital structure.
In accordance with the Company's restated and amended articles of
incorporation, which is the governing instrument which established the
terms of the Class B Common Stock at the time of its original sale and
issuance, the Company may, in its sole discretion, terminate the payment of
Special Dividends at any time after December 31, 1991 if all Special
Dividends have then been paid or duly provided for (as is the case). In
such event, each holder of Class B Common Stock may elect to require the
Company to purchase (the "Purchase Obligation") for cash all or a portion
of such holder's Class B Common Stock at a price of $17.50 per share
(regardless of the then current market price of the Class B Common Stock),
plus all accrued and unpaid Special Dividends.
The Board of Directors has determined to exercise the Company's right
to terminate the Special Dividends, effective on the Expiration Date. The
Board believes that the termination of the Special Dividend and the
resulting likely reduction in the number of outstanding shares of Class B
Common Stock will simplify and make more understandable to the investing
public the Company's equity structure.
The Board did not retain an independent advisor to evaluate the
fairness of the transaction and did not obtain a report, opinion or
appraisal relating to the Offer. Also, a majority of directors who are not
employees of the Company did not retain an unaffiliated representative for
the purposes of negotiating the terms of the Offer. The Board determined
that the potential incremental benefit of obtaining such an independent
fairness report or retaining an independent negotiator did not outweigh the
significant additional expenses involved therewith.
In reaching this determination, the Board gave primary consideration
to the fact that the termination of the Special Dividends and the Offer are
being effected pursuant to the terms and conditions of the Class B Common
Stock, established at the time of the issuance of such Stock. Such terms,
including the Company's $17.50 repurchase obligation following a
termination of Special Dividends were established, at the time that such
Stock was originally issued, in the Company's restated and amended articles
of incorporation. As a result, the Board believes that it is reasonable
for the Company to exercise its right to terminate the Special Dividends
and that the exercise of such right coupled with the
3
<PAGE>
Company's compliance with its resulting Purchase Obligation (pursuant to
the Offer) is fair to the holders of the Class B Common Stock.
In light of the foregoing, the Board of Directors reasonably believe
the terms of the Offer to be fair and in the best interests of the Company,
its shareholders (including unaffiliated shareholders) and employees. In
light of the fact that it is unlikely that the holders of Class B Common
Stock will receive dividends for several years following the Expiration
Date, and that, subject to the number of shares tendered, it is likely that
following the Expiration Date the shares will be delisted from trading on
the American Stock Exchange, the Board recommends that such holders give
serious consideration to tendering their shares of Class B Common Stock
pursuant to the Offer.
The Offer does not require the approval of the holders of a majority
of the shares of Class B Common Stock held by unaffiliated shareholders.
For information concerning the federal income tax consequences to U.S.
holders of Class B Common Stock of the Offer, see "Certain Federal Income
Tax Consequences."
Prior Exchange Offer
In September 1992, the Company commenced an offer to exchange (the
"Exchange Offer") 1.591 shares of Class A Common Stock, par value $.10 per
share (the "Class A Common Stock") for each outstanding share of its Class
B Common Stock. For the purpose of the Exchange Offer, the Company valued
each share of Class B Common Stock at $17.50 per share. The exchange rate
for the Class A Common Stock was based on the initial public offering price
($11.00 per share) of the Class A Common Stock as set forth in the
Company's prospectus dated July 29, 1992. The Company completed the
Exchange Offer in October 1992. The total number of shares of Class B
Common Stock tendered pursuant to the Exchange Offer and accepted by the
Company was 2,817,159 shares (93%) of the 3,034,060 shares of Class B
Common Stock that were then outstanding.
Interests of Officers and Directors
The officers and directors of the Company do not own any shares of
Class B Common Stock.
Certain Effects of the Offer
Although dependent upon the actual number of shares of Class B Common
Stock tendered and accepted in connection with the Offer, the completion of
the Offer will likely result in the Class B Common Stock being delisted
from of the American Stock Exchange ("Amex"). Such delisting would likely
cause a reduction in the trading volume of such securities, which could, in
turn, increase the volatility and depress the market price of the Class B
Common Stock.
The shares of Class B Common Stock are currently "margin securities"
as that term is defined under the rules of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), which has the effect,
among other things, of allowing brokers to extend credit for the purchase
of shares of Class B Common Stock, collateralized by such shares. In the
event that the shares of Class B Common Stock were delisted from Amex and
were not listed on another national securities exchange or on the NASDAQ
National Market System, they may not qualify for inclusion on the list of
marginable OTC
4
<PAGE>
stocks maintained by the Federal Reserve Board. The Company does not have
any plans to list the shares of the Class B Common Stock on NASDAQ in the
event that such shares are delisted from Amex.
The shares of Class B Common Stock are currently registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
registration may be terminated upon application by the Company to the
Securities and Exchange Commission at any time at which such shares are not
listed on a national securities exchange, and there are fewer than 300
record holders of the shares of Class B Common Stock. As of July 12, 1994,
there were 48 holders of record of Class B Common Stock. The Company does
not have any current plans to make such application in the event that the
completion of the Offer results in the satisfaction of such conditions.
Certain Federal Income Tax Consequences
Sales of shares of Class B Common Stock by shareholders pursuant to
the Offer will be taxable transactions for Federal income tax purposes and
may also be taxable transactions under applicable state, local, foreign and
other tax laws. The Federal income tax consequences to a shareholder may
vary depending upon the shareholder's particular facts and circumstances.
Under Section 302 of the Internal Revenue Code of 1986, as amended
(the "Code"), a sale of shares of Class B Common Stock pursuant to the
Offer will, as a general rule, be treated as a sale or exchange if the
receipt of cash upon such sale (a) results in a "complete redemption" of
the shareholder's interest in the Company or (b) is "not essentially
equivalent to a dividend" with respect to the shareholder. If either of
these two tests is satisfied, a tendering shareholder will recognize gain
or loss equal to the difference between the amount of cash received by the
shareholder pursuant to the Offer and the shareholder's tax basis in the
shares of Class B Common Stock sold pursuant to the Offer. Recognized gain
or loss will be capital gain or loss, assuming the shares of Class B Common
Stock are held as capital assets, which will be long-term capital gain or
loss if the shares of Class B Common Stock are held for more than one year.
In determining whether any of the tests under Section 302 of the Code
is satisfied, shareholders must take into account not only the shares of
Class B Common Stock they actually own, but also shares of Class B Common
Stock they are deemed to own pursuant to the constructive ownership rules
of Section 318 of the Code. Pursuant to those constructive ownership
rules, a shareholder is deemed to own the shares of Class B Common Stock
actually owned, and in some cases constructively owned, by certain related
individuals or entities, and any shares of Class B Common Stock that the
shareholder has the right to acquire by exercise of an option or by
conversion or exchange of a security.
The receipt of cash by a shareholder will result in a "complete
redemption" of the shareholder's interest in the Company if both (i) the
shareholder does not actually or constructively own shares of Class A or
Class C Common Stock, and (ii) either (a) all of the shares of Class B
Common Stock actually and constructively owned by the shareholder are sold
pursuant to the Offer or (b) all the shares of Class B Common Stock
actually owned by the shareholder are sold pursuant to the Offer and the
shareholder is eligible to waive and does effectively waive attribution of
all shares of Class B Common Stock constructively owned by the shareholder
in accordance with Section 302(c) of the Code.
Even if the receipt of cash by a shareholder fails to satisfy the
"complete redemption" test, such shareholder may nevertheless satisfy the
"not essentially equivalent to a dividend" test, if the shareholder's sales
of shares of Class B Common Stock pursuant to the Offer results in a
"meaningful
5
<PAGE>
reduction" in the shareholder's proportionate interest in the Company.
Whether the receipt of cash by a shareholder will be "not essentially
equivalent to a dividend" will depend upon the individual shareholder's
facts and circumstances. In certain circumstances, even a small reduction
in a shareholder's proportionate interest may satisfy this test. For
example, the Internal Revenue Service has indicated in a published ruling
that a 3.3% reduction in the proportionate interest of a small minority
(substantially less than 1%) shareholder in a publicly held corporation who
exercises no control over corporate affairs constitutes such a "meaningful
reduction". Shareholders expecting to rely upon the "not essentially
equivalent to a dividend" test should, therefore, consult with tax advisors
as to its application in their particular situations.
It may be possible for a tendering shareholder to satisfy one of the
above two tests by contemporaneously selling or otherwise disposing of all
or some of the shares of Class A, B or C Common Stock that are actually or
constructively owned by such shareholder but are not purchased pursuant to
the Offer. Correspondingly, a tendering shareholder may not be able to
satisfy one of the above two tests because of contemporaneous acquisitions
of shares of Class A, B or C Common Stock by such shareholder or a related
party whose shares of Class A, B or C Common Stock would be attributed to
such shareholder. Shareholders should consult their tax advisors regarding
the tax consequences of such sales or acquisitions in their particular
circumstances.
If none of the tests under Section 302 is satisfied and if, as is
anticipated, the Company has sufficient earnings and profits, the tendering
shareholder will be treated as having received a dividend includible in
gross income in an amount equal to the entire amount of cash received by
the shareholder pursuant to the Offer (without regard to gain or loss, if
any).
In the case of a corporate shareholder, if the cash paid is treated as
a dividend, the dividend income may be eligible for the 70% dividends-
received deduction. The dividends-received deduction is subject to certain
limitations, and may not be available if the corporate shareholder does not
satisfy certain holding period requirements with respect to the shares of
Class A, B or C Common Stock or if the shares of Class A, B or C Common
Stock are treated as "debt financed portfolio stock". If a dividends-
received deduction is available, it is expected that the dividend will be
treated as an "extraordinary dividend" under Section 1059(a) of the Code,
in which case such corporate shareholder's tax basis in shares of Class A,
B or C Common Stock retained by such shareholder would be reduced, but not
below zero, by the amount of the nontaxed portion of the dividend. Any
amount of the nontaxed portion of the dividend in excess of the
shareholder's basis will generally be subject to tax upon sale or
disposition of those shares of Class A, B or C Common Stock. Corporate
shareholders are urged to consult their tax advisors as to the effect of
Section 1059 of the Code on their tax basis in shares of Class A, B or C
Common Stock.
A foreign shareholder may be subject to dividend withholding tax at
the 30% rate or a lower applicable treaty rate on the gross proceeds of the
sale of shares of Class B Common Stock pursuant to the Offer. Foreign
shareholders should consult their tax advisors regarding application of
these withholding rules.
The foregoing discussion may not apply to shares of Class B Common
Stock acquired pursuant to certain compensation arrangements with the
Company.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY
DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR
6
<PAGE>
CIRCUMSTANCES OF THE TENDERING SHAREHOLDER. NO INFORMATION IS PROVIDED
HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE
TRANSACTION CONTEMPLATED BY THE OFFER. SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO THE OFFER
AND THE EFFECT OF THE CONSTRUCTIVE STOCK OWNERSHIP RULES MENTIONED ABOVE.
Financing of the Transaction
The maximum amount of funds needed by the Company to purchase all of
the outstanding shares of Class B Common Stock (including the payment of
all accrued and unpaid Special Dividends thereon) and to pay related fees
and expenses will be approximately $3,911,000. See "THE OFFER - Fees and
Expenses of the Offer." The Company plans to obtain all such funds from
its available cash and working capital.
THE OFFER
Terms of the Offer
Upon the terms and subject to the conditions set forth in this Offer,
Petro will accept for payment and pay in cash for any and all shares of
Class B Common Stock validly tendered for payment on or prior to the
Expiration Date (as herein defined) and not withdrawn as permitted below
for a purchase price of $17.50 per share net, plus all accrued and unpaid
dividends through the Expiration Date. See "SPECIAL FACTORS - Background
and Purpose of the Offer; Fairness of the Transaction" and "Withdrawal
Rights; Absence of Appraisal Rights." The term "Expiration Date" means 5:00
p.m., New York City time, on August 31, 1994 unless and until Petro, in its
sole discretion, shall have extended the period for which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time
and date on which the Offer, as so extended by Petro, shall expire.
Petro expressly reserves the right (but will not be obligated), at any
time or from time to time in its sole discretion, to extend the period
during which the Offer is open by giving oral or written notice of such
extension to the Depositary and, subject to applicable withdrawal rights,
retain all shares of Class B Common Stock tendered for payment until the
expiration of the Offer, as extended. Petro expressly reserves the right,
subject to Petro's restated and amended articles of incorporation, to (i)
terminate the Offer, return all shares of Class B Common Stock tendered for
payment to tendering holders and not accept for payment any shares of Class
B Common Stock if any of the events set forth below under "Conditions of
the Offer" shall have occurred and shall not have been validly waived by
Petro, and (ii) amend, at any time or from time to time, the terms of the
Offer in a manner deemed by it to be advantageous to Petro or to the
holders of the Class B Common Stock.
There can be no assurance that Petro will not exercise its right to
extend, terminate or amend the Offer. During any such extension,
termination or amendment, all shares of Class B Common Stock previously
tendered for payment and not accepted or withdrawn will remain subject to
the Offer and may be withdrawn by the tendering shareholder or may be
accepted for payment by Petro. Any such extension, termination or
amendment will be followed as promptly as practicable by public
announcement thereof, such announcement in the case of an extension to be
issued no later than 9:00 a.m., New York
7
<PAGE>
City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which Petro may choose to
make such public announcement, Petro shall not, unless otherwise required
by law, have any obligation to publish, advertise or otherwise communicate
any such public announcement other than by making a release to the Dow
Jones News Service.
If the Company extends the Offer, or if the Company (whether before or
after its acceptance for payment of shares) is delayed in its purchase of
or payment for shares of Class B Common Stock or is unable to pay for
shares of Class B Common Stock pursuant to the Offer for any reason, then,
without prejudice to the Company's rights under the Offer, the Depositary
may retain tendered shares on behalf of the Company, and such shares may
not be withdrawn except to the extent tendering shareholders are entitled
to withdrawal rights as described in "Withdrawal Rights; Absence of
Appraisal Rights." However, the ability of the Company to delay the
payment for shares of Class B Common Stock which the Company has accepted
for payment is limited by Rule 13e-4(f)(5) under the Exchange Act, which
requires that a bidder either pay the consideration offered or return the
securities tendered by or on behalf of the holders of securities, promptly
after the termination or withdrawal of such bidder's offer.
The Company does not intend to individually advise the remaining
holders of Class B Common Stock of the number of remaining shares of Class
B Common Stock and the number of remaining holders of such shares following
the completion of the Offer. However, such holders may contact the Company
to obtain such information at the following address and telephone number:
Petroleum Heat and Power Co., Inc., 2187 Atlantic Street, Stamford,
Connecticut 06902; Attn: George Leibowitz, Tel. 203-325-5400.
Acceptance for Purchase and Payment for Shares of Class B Common Stock
Upon the terms and subject to the conditions of the Offer, Petro will,
promptly after the Expiration Date, purchase, by accepting for payment, and
will pay in cash for any and all shares of Class B Common Stock validly
tendered on or prior to the Expiration Date and not withdrawn as permitted
by the Offer (including shares of Class B Common Stock validly tendered and
not withdrawn during any extension of the Offer, if the Offer is extended,
subject to the terms and conditions of such extension). Petro expressly
reserves the right, in its sole discretion, subject to the terms of the
Company's restated and amended articles of incorporation, to delay the
acceptance for payment of, or, subject to the requirements of Rule
13e-4(f)(5), payment for shares of Class B Common Stock in order to comply,
in whole or in part, with any applicable law.
For purposes of the Offer, Petro will be deemed to have accepted for
payment (and thereby purchased) tendered shares of Class B Common Stock if,
as and when Petro gives oral or written notice to the Depositary of its
acceptance for payment of the tenders of such shares of Class B Common
Stock.
If certain events occur, Petro may not be obligated to accept the
shares of Class B Common Stock pursuant to the Offer. See "Conditions of
the Offer."
Tendering holders of shares of Class B Common Stock will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to
the purchase of the shares of Class B Common Stock pursuant to the Offer.
If any tendered shares of Class B Common Stock are not purchased and
paid for pursuant to the Offer for any reason, such shares of Class B
Common Stock will be returned, without expense to the
8
<PAGE>
tendering holder (or, in the case of shares of Class B Common Stock
tendered by book-entry transfer, such shares of Class B Common Stock will
be credited to an account maintained at either The Depository Trust Company
("DTC"), the Midwest Securities Trust Company ("MSTC"), or the Philadelphia
Depository Trust Company ("Philadep") (each a "Book-Entry Transfer
Facility" and collectively the "Book-Entry Transfer Facilities") as
promptly as practicable following the termination of the Offer.
Petro does not expect to change the terms of the Offer, but if the
consideration offered in the Offer is increased, all tendering holders of
the shares of Class B Common Stock will be given the same consideration
regardless of when they tender. If Petro decides to increase the
consideration offered in the Offer to holders of Class B Common Stock and,
at the time the notice of such increase is first published, sent or given
to holders of Class B Common Stock in the manner specified above, the Offer
is scheduled to expire at any time earlier than the expiration of the
period ending on the tenth business day from, and including, the date that
such notice is first so published, sent or given, the Offer will be
extended until the expiration of such period of 10 business days. For
purposes of the Offer, a "business day" means any day other than a Satur-
day, Sunday or Federal holiday and consists of the time period from 12:01
a.m. through 12:00 Midnight, New York City time.
After the termination of the Offer, Petro may in the future seek to
acquire shares of Class B Common Stock by open market purchases, optional
redemptions, subsequent tender or exchange offers or otherwise at prices
and on terms to be determined by Petro at that time.
Procedures for Accepting the Offer and Tendering the Shares of Class B
Common Stock
The valid tender by a holder of shares of Class B Common Stock of the
Offer pursuant to one of the procedures set forth below will constitute an
agreement between such holder and Petro in accordance with the terms and
subject to the conditions set forth herein and in the Letter of
Transmittal.
In order for shares of Class B Common Stock to be effectively tendered
pursuant to the Offer, a properly completed Letter of Transmittal duly
executed by the registered holder thereof and any other documents required
by the Letter of Transmittal must be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase and
either certificates for such tendered shares of Class B Common Stock must
be received by the Depositary at one of such addresses or such shares of
Class B Common Stock must be transferred pursuant to the procedures for
book-entry transfer described below (and a confirmation of such tender
received by the Depositary), in each case on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedure set forth below. Letters of Transmittal or certificates for
shares of Class B Common Stock should not be sent to Petro.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, need not be guaranteed if the shares of Class B Common
Stock tendered for purchase pursuant thereto are tendered (i) by a
registered holder of shares of Class B Common Stock who has not completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) for
the account of an Eligible Institution, as defined below. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a
firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office in the United States
(each an "Eligible Institution").
9
<PAGE>
THE METHOD OF DELIVERY OF SHARES OF CLASS B COMMON STOCK AND OTHER
DOCUMENTS TO THE DEPOSITARY IS AT THE ELECTION AND RISK OF THE HOLDER, BUT
IF SUCH DELIVERY IS BY MAIL IT IS SUGGESTED THAT THE HOLDER USE PROPERLY
INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE DEPOSITARY ON OR BEFORE THE EXPIRATION DATE.
To prevent backup federal income tax withholding with respect to
payment of the purchase price of shares of Class B Common Stock sold
pursuant to the Offer, a tendering shareholder must provide the Depositary
with his correct taxpayer identification number to certify that he is not
subject to backup federal income tax withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal.
The Depositary will establish accounts with respect to the shares of
Class B Common Stock at the Book Entry Transfer Facilities for purposes of
the Offer within two business days after the date of this Offer to
Purchase, and any financial institution that is a participant in any of the
Book-Entry Transfer Facilities systems may make book-entry delivery of the
shares of Class B Common Stock by causing DTC, MSTC or Philadep to transfer
such shares of Class B Common Stock into the Depositary's account in
accordance with such Book Entry Transfer Facility's procedure for such
transfer. However, although delivery of shares of Class B Common Stock may
be effected through book-entry at DTC, MSTC or Philadep, the Letter of
Transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the
Depositary at one or more of its addresses set forth on the back cover of
this Offer to Purchase on or prior to the Expiration Date, or the
guaranteed delivery procedure described below must be complied with. The
time of tender shall be upon delivery of such documents to the Depositary.
Delivery of documents to a Book Entry Transfer Facility does not constitute
delivery to the Depositary.
Except as provided below, unless certificates for the shares of Class
B Common Stock being tendered for payment are deposited with the Depositary
on or prior to the Expiration Date (accompanied by a properly completed and
duly executed Letter of Transmittal), Petro may, at its option, reject such
tender. Payment for the shares of Class B Common Stock will be made only
against deposit of the certificates for the tendered shares of Class B
Common Stock.
If a holder of the shares of Class B Common Stock desires to tender
for payment shares of Class B Common Stock which are not immediately
available, or time will not permit such holder's certificates or other
required documents to reach the Depositary by the Expiration Date, a tender
may nevertheless be effected if all of the following conditions are
satisfied:
(a) The tender for payment is made by or through an Eligible
Institution;
(b) On or prior to the Expiration Date, the Depositary receives from
such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made
available by Petro, setting forth the name and address of the holder
of the shares of Class B Common Stock, the description of the shares
of Class B Common Stock and the number of shares of Class B Common
Stock tendered, stating that the tender is being made thereby and
guaranteeing that within five Amex trading days after the date of
execution of such Notice of Guaranteed Delivery the Letter of
Transmittal together with the certificates representing the
10
<PAGE>
shares of Class B Common Stock and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution
with the Depositary; and
(c) The certificates for the tendered shares of Class B Common Stock
(or a confirmation of a book entry transfer of such shares of Class B
Common Stock into the Depositary's account at a Book-Entry Transfer
Facility as described above), together with a properly completed and
duly executed Letter of Transmittal (which may be a facsimile thereof
in the case of deliveries made after the Expiration Date), and all
other documents required by the Letter of Transmittal, are received by
the Depositary within five Amex trading days after the date of
execution of such Notice of Guaranteed Delivery.
Notwithstanding any other statement herein, in all cases payment for
shares of Class B Common Stock tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of
the certificates for such shares of Class B Common Stock (or a confirmation
of a book-entry transfer of such shares of Class B Common Stock into the
Depositary's account at a Book Entry Transfer Facility as described above),
a properly completed and duly executed Letter of Transmittal and any other
required documents.
All questions as to the form of documents and the validity,
eligibility (including time of receipt), acceptance for payment and
withdrawal of tendered shares of Class B Common Stock will be determined by
Petro, in its sole discretion, and such determination shall be final and
binding. Petro reserves the absolute right to reject any and all tenders
of shares of Class B Common Stock determined by it not to be in proper form
for acceptance for payment or which, in the opinion of Petro's counsel, may
be unlawful.
Petro also reserves the right to waive any conditions of the Offer or
any defects or irregularities in the tender of the particular shares of
Class B Common Stock whether or not similar defects or irregularities are
waived in the case of other shares. Petro's interpretation of the terms and
conditions of the Offer (including the instructions in the Letter of
Transmittal) will be final and binding. Unless waived, any irregularities
in connection with the tenders must be cured within such time as Petro
shall determine. Neither Petro, the Depositary, nor any other person shall
be under any duty to give notification of any defects or irregularities in
such tenders or shall incur any liabilities for failure to give such
notification. Tenders of such shares of Class B Common Stock will not be
deemed to have been made until such irregularities have been cured or
waived. Any shares of Class B Common Stock received by the Depositary that
are not properly tendered and as to which the irregularities have not been
cured or waived will be returned by the Depositary to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
Withdrawal Rights; Absence of Appraisal Rights
Shares of Class B Common Stock tendered for payment pursuant to the
Offer may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment as provided herein, may also be withdrawn
at any time after September 16, 1994.
If, for any reason whatsoever, acceptance for payment of any shares of
Class B Common Stock tendered pursuant to the Offer is delayed, or Petro is
unable to accept for payment or pay for shares of Class B Common Stock
tendered pursuant to the Offer, then without prejudice to Petro's rights
set forth herein, the Depositary may, nevertheless, on behalf of Petro
retain tendered shares of Class B Common
11
<PAGE>
Stock and such shares may not be withdrawn except to the extent that the
tendering shareholder is entitled to and duly exercises withdrawal rights
as described herein. Any such delay will be accompanied by an extension of
the Offer to the extent required by law.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must (i) be timely received by the
Depositary at one of its addresses specified on the back cover of this
Offer to Purchase before the Depositary receives notice of acceptance from
Petro, (ii) specify the name of the person who tendered the shares of Class
B Common Stock, (iii) contain the description of the shares of Class B
Common Stock to be withdrawn, the certificate numbers shown on the
particular certificates evidencing such shares of Class B Common Stock (in
the case of physical delivery) and the aggregate number of shares
represented by such certificates, and (iv) be signed by the holder of such
shares of Class B Common Stock in the same manner as the original signature
on the Letter of Transmittal (including any required signature guarantees)
or be accompanied by evidence satisfactory to Petro that the person with-
drawing the tender has succeeded to the beneficial ownership of the shares
of Class B Common Stock. The signature(s) on the notice of withdrawal must
be guaranteed by an Eligible Institution unless such shares of Class B
Common Stock have been tendered for the account of an Eligible Institution.
If certificates for the shares of Class B Common Stock to be withdrawn
have been delivered or such shares are otherwise identified to the
Depositary, a signed notice of withdrawal is effective immediately upon
written, telegraphic, telex or facsimile transmission notice of withdrawal
even if physical release is not yet effected. In addition, such notice must
specify, in the case of shares of Class B Common Stock tendered by delivery
of certificates, the name of the registered holder (if different from that
of the tendering holder) and in the case of shares of Class B Common Stock
tendered by book-entry transfer, the name and number of the account at one
of the Book-Entry Transfer Facilities to be credited with the withdrawn
shares of Class B Common Stock. Withdrawals may not be rescinded, and any
shares of Class B Common Stock withdrawn will thereafter be deemed not
validly tendered for purposes of the Offer. However, properly withdrawn
shares of Class B Common Stock may be retendered by following one of the
procedures described in "Procedures for Accepting the Offer and Tendering
the Shares of Class B Common Stock" above at any time on or prior to the
Expiration Date.
All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by Petro, in its sole
discretion, which determination shall be final and binding. Neither Petro,
the Depositary, nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal
or incur any liabilities for failure to give any such notification.
There are no appraisal or other similar statutory rights available to
holders of shares of Class B Common Stock in connection with the Offer.
Conditions of the Offer
Notwithstanding any other provisions of the Offer, but subject to
Petro's amended and restated articles of incorporation, Petro, at its
option, may cancel, modify or terminate the Offer or delay or refrain from
accepting for payment the shares of Class B Common Stock if:
(a) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency relating to the Offer;
12
<PAGE>
(b) there shall have occurred any change or development,
including a change or development involving a prospective change in or
affecting the business or financial affairs of Petro which, in the
sole judgment of the Board of Directors of Petro, would or might
prohibit, restrict or delay consummation of the Offer or materially
impair the contemplated benefits of the Offer to Petro or might be
material to holders in deciding whether to tender their shares of
Class B Common Stock;
(c) there exists, in the sole judgment of the Board of Directors
of Petro, any other actual or threatened legal impediment (including a
default or prospective default under an agreement, indenture or other
instrument or obligation to which Petro is a party or by which it is
bound) to the acceptance for payment of the tendered shares of Class B
Common Stock;
(d) a preliminary or permanent injunction or other order by any
federal or state court or any governmental agency shall have been
issued and remain in effect which restrains or prohibits the making or
consummation of the Offer.
The foregoing conditions are for the sole benefit of Petro and may be
asserted by Petro regardless of the circumstances giving rise to such
condition or may be waived by Petro in whole or in part at any time and
from time to time in its sole discretion. If any of the foregoing events
shall have occurred, Petro may, subject to Petro's restated and amended
articles of incorporation, (i) terminate the Offer and return the shares of
Class B Common Stock to the holders who tendered them; (ii) extend the
Offer and retain all tendered shares of Class B Common Stock until the
expiration of such Offer, subject, however, to the rights of holders
thereof to withdraw such shares of Class B Common Stock in the manner
provided herein (see "Withdrawal Rights; Absence of Appraisal Rights"
above); or (iii) waive the unsatisfied conditions with respect to the Offer
and accept all shares of Class B Common Stock tendered therein. Petro
reserves the right at any time to waive any or all of such conditions.
13
<PAGE>
Market Data; Dividends
The following table sets forth, for the periods indicated, the high
and low prices per share of the Class B Common Stock as reported on Amex
and the dividends declared in each quarter of 1992, 1993 and through June
30, 1994.
<TABLE> <CAPTION>
1992 1993 1994
------------------------- ----------------------------- -----------------------------
Dividends Dividends Dividends
Declared Declared Declared
per Share per Share per Share
of Class B of Class of Class
Common B Common B Common
Quarter High Low Stock High Low Stock High Low Stock
------- ---- --- -------- ---- ----- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st . . . . . . . $12 1/4 $9 7/8 $.2858 $19 1/4 $15 3/4 $.4700 $30 1/4 $19 3/4 $.4100
2nd . . . . . . . 16 1/4 10 1/4 .2858 22 1/2 17 3/8 .4700 28 18 1/2 .4100
3rd . . . . . . . 17 1/2 14 1/2 .2858 20 3/4 19 3/4 .4700
4th . . . . . . . 17 1/4 15 1/8 .2858 20 1/2 19 1/2 .4700
</TABLE>
The Company's Class B Common Stock has been listed on Amex since
December 1986 under the symbol "PHP". On June 30, 1994, the last date the
stock traded prior to the first public announcement of the proposed
termination of Special Dividends, the last sales price per share of Class B
Common Stock, as reported on Amex, was $18.50. On July 15, 1994, the last
sales price per share of the Class B Common Stock, as reported on Amex, was
17 1/4. Although dependent upon the actual number of shares of Class B Common
Stock tendered and accepted in connection with the Offer, it is likely that
the shares of the Class B Common Stock will be delisted from Amex following
the completion of the Offer. Holders of Class B Common Stock are urged to
obtain current market quotations for the Class B Common Stock. See
"SPECIAL FACTORS - Certain Effects of the Offer".
Certain Information Concerning the Company
The Company is the largest retail distributor of home heating oil (#2
fuel oil) in the United States, with sales of $538.5 million for the year
ended December 31, 1993. Petro served approximately 415,000 customers in
26 markets in the Northeast, as of December 31, 1993, including the
metropolitan areas of Boston, New York City, Baltimore, Providence and
Washington, D.C. Despite its leading market position, Petro estimates that
its customer base represents approximately 5% of the residential home
heating oil customers in the Northeast. For the year ended December 31,
1993, the Company sold approximately 443.5 million gallons of home heating
oil and propane.
In addition to home heating oil and propane, the Company also installs
and repairs heating equipment and markets to commercial customers, to a
limited extent, other petroleum products, including #4 fuel oil, #6 fuel
oil, diesel fuel, kerosene and gasoline.
The Company is a Minnesota corporation. Its principal executive
offices are located at 2187 Atlantic Street, Stamford, Connecticut 06902
and its telephone number is (203) 325-5400. The Company operates through
its subsidiaries in nine states and the District of Columbia.
14
<PAGE>
The following table sets forth selected financial and other data of
the Company and should be read in conjunction with the more detailed
financial statements included elsewhere in this Offer to Purchase. The
financial data at March 31, 1993 and March 31, 1994, and for each of the
three month periods then ended are unaudited, but include, in the opinion
of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. The Company
typically generates net income and NIDA (as defined in note 2 as follows)
in the quarters ending in March and December and experiences net losses and
negative NIDA during the non-heating season quarters ending in June and
September; thus the results for interim periods are not indicative of the
results that may be obtained for the entire fiscal year. Although EBITDA
(as defined in note 1 as follows) and NIDA should not be considered as
substitutes for net income (loss) as an indicator of the Company's
operating performance or for cash flow as a measure of the Company's
liquidity, they are included in the following table as they are the bases
upon which the Company assesses its financial performance, compensates
management and establishes dividends.
15
<PAGE>
<TABLE> <CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------- ----------------------------
1992 1993 1993 1994
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Income Statement Data:
Net Sales . . . . . . $ 512,430 $ 538,526 $ 251,271 $ 266,793
Cost of sales . . . . 350,941 366,809 161,676 163,263
------- ------- ------- -------
Gross profit . . . . 161,489 171,717 89,595 103,530
Operating expenses . 110,165 123,280 36,195 39,641
Amortization of
customer lists . . . 23,496 23,183 6,397 4,876
Depreciation and
amortization of plant
and equipment . . . . 5,534 5,933 1,440 1,365
Amortization of
deferred charges . . 5,363 5,548 1,338 1,496
Provision for
supplemental benefits . 1,974 264 43 70
------- ------- -------- --------
Operating income . 14,957 13,509 44,182 56,082
Interest expense-net 18,622 20,508 4,871 5,685
Other income
(expense)-net . . . . . (324) (165) (42) 20
--------- ----- -------- --------
Income (loss) before
income taxes, equity
interest and
extraordinary item . (3,989) (7,164) 39,269 50,417
Income taxes . . . . 400 400 331 601
--------- -------- -------- --------
Income (loss) before
equity interest and
extraordinary item (4,389) (7,564) 38,938 49,816
Equity in earnings
of Star Gas
Corporation . . . . . -- -- -- 2,263
--------- -------- -------- --------
Income (loss) before
extraordinary item (4389) (7,564) 38,938 52,079
Extraordinary item . -- (867) -- (654)
--------- -------- -------- --------
Net income (loss) . $(4,389) $(8,431) 38,938 $ 51,425
======== ======== ======== ========
Net income (loss)
applicable
to Common Stock . . $ (8,842) $(11,798) $ 37,112 $ 49,626
Net income (loss) per
common share:
Class A Common Stock (.81) (.57) 1.72 2.30
Class B Common Stock 1.14 1.88 .47 .41
Class C Common Stock (.81) (.57) 1.72 2.30
Other Data:
EBITDA(1) . . . . . . $ 51,325 $ 48,437 $ 53,399 $ 63,889
NIDA(2) . . . . . . . $ 27,721 $ 23,176 $ 47,147 $ 56,113
Cash dividends
declared per
common share(3):
Class A Common Stock $ 0.18 $ 0.525 $ .11 $ .14
Class B Common
Stock(4) . . . . . . 1.14 1.88 .47 .41
Class C Common Stock 0.18 0.525 .11 .14
Weighted average
number of
common shares
outstanding:
Class A Common Stock 12,854 18,993 18,993 18,993
Class B Common Stock 2,447 217 217 217
Class C Common Stock 2,545 2,545 2,545 2,545
Gallons of home
heating oil
and propane sold . . 423,354 443,487 222,000 241,039
Balance Sheet Data:
Working capital
(deficiency) . . . . $ (6,744) $ 16,694 $ 71,304 $ 85,949
Total assets . . . . 252,783 256,589 275,454 280,984
Long-term debt and
capital lease
obligations (before
escrow deposit) (long-
term portion)(5) . 50,080 50,047 75,072 44,301
Subordinated notes
(long-term
portion) . . . . . 84,978 135,264 110,149 167,632
</TABLE>
16
<PAGE>
<TABLE> <CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------- ----------------------------
1992 1993 1993 1994
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Redeemable preferred
stock (long-
term portion) $ 37,718 $ 20,833 $ 25,000 $ 20,833
Stockholders' equity
(deficiency) . . . . (33,917) (61,964) 671 (15,388)
Book value
(deficiency) per
common share(6) . . (1.56) (2.85) .03 (.71)
</TABLE>
_________________________
(1) EBITDA is defined as operating income before depreciation
and amortization and non-cash expenses associated with key
employees' deferred compensation plans.
(2) NIDA is defined as the sum of consolidated net income
(loss), plus depreciation and amortization of plant and
equipment and amortization of customer lists and deferred
charges, plus non-cash expenses associated with key
employees' deferred compensation plans, less dividends
accrued on preferred stock, excluding net income (loss)
derived from investments accounted for by the equity method,
except to the extent of any cash dividends received by the
Company.
(3) On July 29, 1992, the holders of Class A Common Stock
exchanged 20% of their shares (2,545,139 shares) for an
equal number of the newly created Class C Common Stock. All
per share amounts for Class A and Class C Common Stock have
been retroactively adjusted to reflect such exchange.
(4) Holders of Class B Common Stock are entitled to receive, as
and when declared by the Board of Directors, quarterly
Special Dividends per share equal to .000001666% of the cash
flow, as defined for such purposes, of the Company for its
prior fiscal year. For purposes of computing the Class B
Common Stock dividend, cash flow is defined as the sum of
(i) consolidated net income (loss), plus (ii) depreciation
and amortization of plant and equipment and (iii)
amortization of customer lists and restrictive covenants.
The Board of Directors has determined to terminate the
Special Dividends, effective the Expiration Date.
(5) The Company has escrowed certain amounts to secure the
repayment of certain long-term debt. The amounts on deposit
at the dates indicated were as follows: $15,000,000 at
December 31, 1992, $20,000,000 at December 31, 1993,
$15,000,000 at March 31, 1993 and $0 at March 31, 1994.
(6) Based on the number of common shares outstanding at the
dates indicated.
The Depositary
The Depositary for the Offer is Chemical Bank. All deliveries,
correspondence and questions sent or presented to the Depositary
relating to the Offer should be directed to one of the addresses
or telephone numbers set forth on the back cover of this Offer to
Purchase.
The Information Agent
The Company has retained Morrow & Co., Inc. to act as
Information Agent in connection with the Offer. The Information
Agent may contact holders of shares of Class B Common Stock by
mail, telephone, telex, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to
forward materials relating to the Offer to beneficial owners.
17
<PAGE>
Requests for information or additional copies of this Offer to
Purchase or the Letter of Transmittal should be directed to the
Information Agent at the address set forth on the back cover of
this Offer to Purchase.
Fees and Expenses of the Offer
Petro will pay the Information Agent and the Depositary
reasonable and customary compensation for their services in
connection with the Offer, plus reimbursement for out-of-pocket
expenses. Petro will indemnify the Information Agent and the
Depositary against certain liabilities and expenses in connection
therewith, including liabilities under the federal securities
laws.
Brokers, dealers, commercial banks, trust companies and other
nominees will be reimbursed by Petro for customary mailing and
handling expenses incurred by them in forwarding material to
their customers.
The estimated costs and fees in connection with the Offer are
set forth below.
Legal Fees . . . . . . . . $ 20,000.00
Commission Filing Fees . . 759.15
Printing and Mailing 10,000.00
Expenses . . . . . . . . .
Depositary Fees . . . . . . 10,000.00
Information Agent Fee . . . 10,000.00
Miscellaneous . . . . . . . 4,240.85
---------
Total . . . . . . . . . $55,000.00
==========
Legal Matters
Certain legal matters in connection with the Offer will be
passed upon for the Company by Phillips, Nizer, Benjamin, Krim &
Ballon, New York, New York.
Available Information
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports
and other information concerning the Company can be inspected and
copied at the public reference room maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In
addition, upon request, such reports and other information will
be made available for inspection and copying at the Commission's
public reference facilities at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at
Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained at prescribed rates upon request
from the Public Reference Section of the commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, such material
and other information concerning the Company can be inspected and
copied at the American Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company has filed with the Securities and Exchange
Commission, Washington, D.C., a Rule 13e-1 Issuer Tender Offer
Statement on Schedule 13E-4 (the "Schedule 13E-4") and a Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-
3") with the Securities and Exchange Commission with respect to
the Offer. This Offer to Purchase does not contain all the
information set forth in the Schedule 13E-4 and the Schedule 13E-
3, certain parts of which are omitted in accordance with the
rules and regulations of the Commission, and to which reference
is hereby made. For further
18
<PAGE>
information about the Company and the Offer, reference is made to
the Schedule 13E-4 and Schedule 13E-3, and to the financial
statements, schedules and exhibits filed as a part thereof. The
Schedule 13E-4 and Schedule 13E-3, may be inspected without
charge at the Commission's principal office in Washington, D.C.
and copies of all or any part thereof may be obtained from such
office after payment of the fees prescribed by the Commission.
19
<PAGE>
SCHEDULE I
----------
DIRECTORS AND EXECUTIVE OFFICERS OF PETRO
-----------------------------------------
Set forth below are the names, present principal occupations
and five-year employment histories of each director and executive
officer of Petro. The address of each such person is c/o
Petroleum Heat and Power Co., Inc., 2187 Atlantic Avenue,
Stamford, Connecticut 06902.
Irik P. Sevin has been a director of Petro, Inc. since
January 1979 and of the Company since its organization in October
1983. Mr. Sevin has been President of Petro, Inc. since November
1979 and of the Company since 1983 and Chairman of the Board of
the Company since January 1993. Mr. Sevin is a director of Star
Gas Corporation ("Star Gas"), which is the tenth largest
distributor of propane in the United States. Between January
1979 and November 1979, he was Executive Vice President of Petro,
Inc. Mr. Sevin was an associate in the investment banking
division of Kuhn Loeb & Co. and then Lehman Brothers Kuhn Loeb
Incorporated from February 1975 to December 1978. Mr. Sevin is a
graduate of the Cornell University School of Industrial and Labor
Relations (B.S.), New York University School of Law (J.D.) and
the Columbia University School of Business Administration
(M.B.A.).
Audrey L. Sevin has been a director and Secretary of Petro,
Inc. since January 1979 and of the Company since its organization
in October 1983. Mrs. Sevin is a director of Star Gas. Mrs.
Sevin was a director, executive officer and principal shareholder
of A.W. Fuel Co., Inc. from 1952 until its purchase by the
Company in May 1981. Mrs. Sevin is a graduate of New York
University (B.S.).
Phillip Ean Cohen has been a director of Petro, Inc. since
January 1979 and of the Company since its organization in October
1983. Since 1985, Mr. Cohen has been Chairman of Morgan Schiff &
Co., Inc., an investment banking firm. Mr. Cohen is presently a
director of AmeriHealth, Inc.
Thomas J. Edelman has been a director of Petro, Inc. since
January 1979 and of the Company since its organization in October
1983. Mr. Edelman is the President of Snyder Oil Corporation, a
Fort Worth, Texas based independent oil company. Prior to 1981,
he was a Vice President of The First Boston Corporation. From
1975 through 1980, Mr. Edelman was with Lehman Brothers Kuhn Loeb
Incorporated. Mr. Edelman is a graduate of Princeton University
(B.A.) and the Harvard Graduate School of Business Administration
(M.B.A.). Mr. Edelman is also the Chairman of the Board and
Chief Executive Officer of Lomak Petroleum, Inc., an Ohio based
independent oil company, a director of Total Energy Services
Corporation, a Houston based oil service company and a director
of Star Gas.
Richard O'Connell has been a director of Petro, Inc. since
January 1979 and of the Company since its organization in October
1983. Mr. O'Connell is a private investor.
Wolfgang Traber has been a director of Petro, Inc. since
January 1979 and of the Company since its organization in October
of 1983. Mr. Traber is Managing Director of Hanseatic
Corporation, in Hamburg, Germany, a private investment
corporation. Mr. Traber is a director of Deltec Securities
Corporation, Blue Ridge Real Estate Company, Hellespont Tankers
Ltd., M.M. Warburg & Co. and Star Gas.
Max M. Warburg has been a director of the Company since May
1984. Since January 1, 1982, Mr. Warburg has been a partner of
M.M. Warburg & Co., a private bank. For the prior four years he
was a Managing Director of the same organization. Since March
1988, he has been a member of the board of Holsten Brauerei AG,
Hamburg. Since May 1, 1987, he has been a member of the board of
Eurokai-Eckelmann Gruppe, Hamburg. Mr. Warburg is a member of
the Board of DWS Deutsche Gesellschaft fur Wertpapiersparen GmbH,
Frankfurt; DEG Deutsche Finanzierungsgesellschaft fur
<PAGE>
Beteilingungen in Entwicklungslandern GmbH, Koln; the Hamburg
Stock Exchange; and the Hamburg Banking Association.
C. Justin McCarthy has been Senior Vice President-
Operations of Petro, Inc. since January 1979 and of the Company
since its organization in October 1983. Prior to his joining the
Company, Mr. McCarthy was General Manager of the New York City
operations for Whaleco Fuel Oil Company from 1976 to 1979 and was
General Manager of the Long Island Division of Meenan Oil Co.,
Inc. from 1973 to 1976. Mr. McCarthy is a graduate of Boston
College (B.B.A.) and the New York University Graduate School of
Business Administration (M.B.A.).
Joseph P. Cavanaugh has been Controller of Petro, Inc. since
1973 and of the Company since its organization in 1983. He was
elected a Vice President of the Company in October 1983 and a
Senior Vice President since January 1993. Mr. Cavanaugh is a
graduate of Iona College (B.B.A.) and Pace University (M.S. in
Taxation).
George Leibowitz has been Senior Vice President of the
Company since November 1, 1992. From 1985 to 1992, prior to
joining the Company, Mr. Leibowitz was the Chief Financial
Officer of Slomin's Inc., a retail heating oil dealer. From 1984
to 1985, Mr. Leibowitz was the President of Lawrence Energy
Corp., a consulting and oil trading company. From 1971 to 1984,
Mr. Leibowitz was Vice President-Finance and Treasurer of Meenan
Oil Co., Inc. Mr. Leibowitz is a Certified Public Accountant and
a graduate of Columbia University (B.A. 1957) and the Wharton
Graduate Division, University of Pennsylvania (M.B.A. 1958).
Alex Szabo has been Senior Vice President--Marketing and
Sales since June 1994. From 1989 to 1994, prior to joining the
Company, Mr. Szabo was Executive Vice President at Whittle
Communications and President of Screenvision Cinema Network.
From 1987 to 1989, Mr. Szabo was Executive Vice President--
General Manager of Benckiser Consumer Products, Inc. Prior to
1987, Mr. Szabo held executive management positions at Ecolab,
Colgate Palmolive and I.B.M. Mr. Szabo is a graduate of Brown
University (B.A. 1975) and Columbia University (M.B.A. 1980).
Richard F. Ambury has been Assistant Controller of the
Company since June 1983 and was elected Vice President -
Assistant Controller in December 1992. From 1979 to 1983, Mr.
Ambury was employed by a predecessor firm of KPMG Peat Marwick, a
public accounting firm. Mr. Ambury graduated from Marist College
with a degree in Business Administration in 1979 and has been a
Certified Public Accountant since 1981.
James J. Bottiglieri has been Assistant Controller of the
Company since 1985 and was elected Vice President - Assistant
Controller in December 1992. From 1978 to 1984, Mr. Bottiglieri
was employed by a predecessor firm of KPMG Peat Marwick, a public
accounting firm. Mr. Bottiglieri graduated from Pace University
with a degree in Business Administration in 1978 and has been a
Certified Public Accountant since 1980.
Matthew J. Ryan, who has been employed by the Company since
1987, has been Manager of Supply and Distribution of the Company
since 1990 and was elected Vice President--Supply in December
1992. From 1974 to 1987, Mr. Ryan was employed by Whaleco Fuel
Corp., a subsidiary of the Company which was acquired in 1987.
Mr. Ryan graduated from St. Francis College with a degree in
Accounting in 1983 (B.S.).
Audrey L. Sevin is the mother of Irik P. Sevin and there are
no other familial relationships between any of the directors and
executive officers.
<PAGE>
SCHEDULE II
-----------
PETROLEUM HEAT AND POWER CO.INC
INDEX TO FINANCIAL STATEMENTS
Page
----
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1992 and 1993 . F-3
Consolidated Statements of Operations for the years ended
December 31, 1991, 1992 and 1993 . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the years ended
December 31, 1991, 1992 and 1993 . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1991, 1992 and 1993 . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheets March 31, 1994 (unaudited) and
December 31, 1993 . . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Operations (unaudited) Three
Months ended March 31, 1993 and 1994 . . . . . . . . . F-32
Consolidated Statements of Cash Flows (unaudited) Three
Months ended March 31, 1993 and 1994 . . . . . . . . . F-33
Notes to Condensed Consolidated Financial
Statements (unaudited) . . . . . . . . . . . . . . . . F-35
F-1
<PAGE>
Independent Auditors' Report
The Stockholders and Board of Directors of
Petroleum Heat and Power Co., Inc.:
We have audited the accompanying consolidated balance sheets of
Petroleum Heat and Power Co., Inc. and subsidiaries as of
December 31, 1992 and 1993, and the related consolidated
statements of operations, changes in stockholders' equity
(deficiency) and cash flows for each of the years in the
three-year period ended December 31, 1993. In connection with
our audit of the consolidated financial statements, we also have
audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Petroleum Heat and Power Co., Inc. and subsidiaries
as of December 31, 1992 and 1993, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with
generally accepted accounting principles. Also in our opinion,
the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in the notes to the consolidated financial
statements, the Company adopted the provisions of the Financial
Accounting Standard Board's Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, in 1993.
KPMG Peat Marwick
New York, New York
February 28, 1994
F-2
<PAGE>
<TABLE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
-----------------------------
Assets 1992 1993
---- ----
<S> <C> <C>
Current assets:
Cash $ 3,859,557 $ 4,613,546
U.S. Treasury Notes held in a Cash Collateral Account -- 20,000,000
Accounts receivable (net of allowance of $1,270,754 and $1,026,202) 78,358,514 74,818,503
Inventories 15,729,305 13,992,928
Prepaid expenses 4,623,433 5,230,865
Notes receivable and other current assets 1,680,633 1,715,329
--------- ---------
Total current assets 104,251,442 120,371,171
----------- -----------
Property, plant and equipment 61,092,297 62,643,562
Less accumulated depreciation and amortization 28,342,302 31,103,032
---------- ----------
32,749,995 31,540,530
---------- ----------
Intangible assets (net of accumulated amortization of $188,459,167 and $217,190,143)
Customer lists 86,093,145 73,177,198
Deferred charges 14,128,629 13,717,281
Deferred pension costs -- 1,332,616
---------- ---------
100,221,774 88,227,095
----------- ----------
Investment in Star Gas Corporation -- 16,000,000
---------- ----------
U.S. Treasury Notes held in a Cash Collateral Account 15,000,000 --
---------- -----------
Other assets 560,000 450,000
---------- -----------
$252,783,211 $256,588,796
=========== ===========
Liabilities And Stockholders' Equity (Deficiency)
Current liabilities:
Working capital borrowings $ 32,000,000 $ 28,000,000
Current maturities of other long-term debt 33,345 33,345
Current installments of capital lease obligations 103,595 --
Current maturities of cumulative redeemable exchangeable preferred stock -- 4,166,667
Subordinated notes payable 12,400,373 --
Accounts payable 15,289,518 16,664,026
Customer credit balances 19,317,863 22,324,023
Unearned service contract revenue 13,180,431 13,018,983
Accrued expenses:
Wages and bonuses 5,030,100 6,392,559
Taxes other than income taxes 1,856,074 1,564,822
Pension 2,373,188 1,465,905
Other 9,410,757 10,046,589
--------- ----------
Total current liabilities 110,995,244 103,676,919
----------- -----------
Long-term notes payable 50,000,000 50,000,000
---------- ----------
Other long-term debt 80,404 47,059
---------- ----------
Supplemental benefits payable 1,688,728 1,652,314
---------- ----------
Pension plan obligation 1,239,250 7,079,494
---------- ----------
Subordinated notes payable 84,978,349 135,263,663
---------- -----------
Cumulative redeemable exchangeable preferred stock, par value $.10 per share,
409,722 shares authorized, 408,884 and 250,000 shares outstanding of which
41,667 at December 31, 1993 are reflected as current 37,717,790 20,833,333
---------- ----------
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock-par value $.10 per share; 5,000,000 shares authorized,
none outstanding
Class A common stock-par value $.10 per share; 40,000,000 shares authorized,
18,992,579 shares outstanding 1,899,258 1,899,258
Class B common stock-par value $.10 per share; 6,500,000 shares authorized,
216,901 shares outstanding (liquidation preference - $1,236,336) 21,690 21,690
Class C common stock-par value $.10 per share; 5,000,000 shares authorized,
2,545,139 shares outstanding 254,514 254,514
Additional paid-in capital 54,462,132 54,416,259
Deficit (89,274,148) (112,741,672)
Minimum pension liability adjustment -- (4,534,035)
---------- ----------
(32,636,554) (60,683,986)
Note receivable from stockholder (1,280,000) (1,280,000)
---------- ----------
Total stockholders' equity (deficiency) (33,916,554) (61,963,986)
---------- ----------
$252,783,211 $256,588,796
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1991, 1992 and 1993
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 523,243,243 $ 512,430,194 $ 538,526,317
Cost of sales 378,771,961 350,941,386 366,809,517
----------- ----------- -----------
Gross profit 144,471,282 161,488,808 171,716,800
Selling, general and administrative expenses 79,427,873 83,407,680 93,378,666
Direct delivery expense 25,007,204 26,756,585 29,901,565
Amortization of customer lists 24,839,983 23,496,438 23,182,730
Depreciation and amortization of
plant and equipment 5,550,381 5,534,205 5,933,100
Amortization of deferred charges 5,185,113 5,363,321 5,548,246
Provision for supplemental benefits -- 1,973,728 263,586
----------- ----------- -----------
Operating income 4,460,728 14,956,851 13,508,907
Other income (expense):
Interest expense (21,916,205) (20,204,808) (22,155,840)
Interest income 1,187,676 1,582,885 1,647,435
Gains (losses) on sales of fixed assets (104,911) 8,297 (164,686)
Other 60,147 (332,590) --
----------- ----------- -----------
Loss before income taxes and
extraordinary item (16,312,565) (3,989,365) (7,164,184)
Income taxes 250,000 400,000 400,000
----------- ----------- -----------
Loss before extraordinary item (16,562,565) (4,389,365) (7,564,184)
----------- ----------- -----------
Extraordinary item - loss on early
extinguishment of debt -- -- (867,110)
----------- ----------- -----------
Net loss $ (16,562,565) $ (4,389,365) $ (8,431,294)
============ =========== ===========
Net loss applicable to common stock $ (19,854,648) $ (8,842,105) $ (11,798,320)
Income (loss) before extraordinary item per common share:
Class A Common Stock $ (1.64) $ (.81) $ (.53)
Class B Common Stock .31 1.14 1.88
Class C Common Stock (1.64) (.81) (.53)
Extraordinary loss per common share:
Class A Common Stock $ -- $ -- $ (.04)
Class B Common Stock -- -- --
Class C Common Stock -- -- (.04)
Net income (loss) per common share:
Class A Common Stock $ (1.64) $ (.81) $ (.57)
Class B Common Stock .31 1.14 1.88
Class C Common Stock (1.64) (.81) (.57)
Weighted average number of
common shares outstanding:
Class A Common Stock 10,180,558 12,854,266 18,992,579
Class B Common Stock 3,034,060 2,447,473 216,901
Class C Common Stock 2,545,139 2,545,139 2,545,139
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
Years ended December 31, 1991, 1992 and 1993
<CAPTION>
Minimum Note
Common Stock Additional pension receivable
---------------------------- paid-in liability from
Class A Class B Class C capital Deficit adjustment stockholder Total
------- ------- ------- ------- ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1990 $1,018,056 $303,406 $254,514 $13,124,567 $ (53,507,701) $ -- $(1,280,000) $ (40,087,158)
Net loss (16,562,565) (16,562,565)
Cash dividends declared
and paid (3,927,446) (3,927,446)
Cash dividends payable (292,610) (292,610)
Redeemable preferred stock
issuance costs (550,962) (550,962)
Accretion of redeemable
preferred stock (23,083) (23,083)
---------- -------- -------- ----------- ------------- ----------- ----------- -------------
Balance at December 31,
1991 1,018,056 303,406 254,514 12,550,522 (74,290,322) -- (1,280,000) (61,443,824)
Net loss (4,389,365) (4,389,365)
Cash dividends declared
and paid (7,987,026) (7,987,026)
Cash dividends payable (2,607,435) (2,607,435)
Accretion of redeemable
preferred stock (194,740) (194,740)
Class A Common Stock
issued (4,330,000 shares) 433,000 47,197,000 47,630,000
Class A Common Stock
(4,482,021 shares)
exchanged for Class B
Common Stock
(2,817,159 shares) 448,202 (281,716) (166,486) --
Class A Common Stock
issuance and exchange
offer costs (4,924,164) (4,924,164)
---------- -------- -------- ----------- ------------- ----------- ----------- -------------
Balance at December 31,
1992 1,899,258 21,690 254,514 54,462,132 (89,274,148) -- (1,280,000) (33,916,554)
Net loss (8,431,294) (8,431,294)
Cash dividends declared
and paid (11,972,850) (11,972,850)
Cash dividends payable (3,063,380) (3,063,380)
Accretion of redeemable
preferred stock (45,873) (45,873)
Minimum pension liability
adjustment (4,534,035) (4,534,035)
---------- -------- -------- ----------- ------------- ----------- ----------- -------------
$1,899,258 $ 21,690 $254,514 $54,416,259 $(112,741,672) $(4,534,035) $(1,280,000) $ (61,963,986)
========== ======== ======== =========== ============= =========== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1991, 1992 and 1993
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (16,562,565) $ (4,389,365) $ (8,431,294)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Amortization of customer lists 24,839,983 23,496,438 23,182,730
Depreciation and amortization of
plant and equipment 5,550,381 5,534,205 5,933,100
Amortization of deferred charges
and debt discount 5,223,354 5,394,397 5,548,246
Provision for losses on accounts receivable 2,156,320 2,444,581 1,836,113
Provision for supplemental benefits -- 1,973,728 263,586
Loss (gain) on bond redemptions (60,147) 332,590 867,110
Loss (gain) on sales of fixed assets 104,911 (8,297) 164,686
Amortization of acquired pension
plan obligation (23,328) (24,785) (26,407)
Decrease (increase) in accounts receivable 8,217,612 (6,994,519) 1,703,898
Decrease (increase) in inventory 12,509,679 (2,438,308) 1,736,377
Decrease in income taxes receivable 668,000 -- --
Decrease (increase) in prepaid expenses,
notes receivable and other current assets 279,716 (12,823) (642,128)
Decrease (increase) in other assets (100,000) (200,000) 110,000
Increase (decrease) in accounts payable (6,133,548) 2,360,312 1,374,508
Increase (decrease) in customer
credit balances 2,378,664 (822,574) 3,006,160
Increase (decrease) in unearned service contract
revenue 104,643 823,902 (161,448)
Increase (decrease) in accrued expenses 461,857 (756,093) 171,555
---------- ---------- ----------
Net cash provided by operating activities 39,615,532 26,713,389 36,636,792
---------- ---------- ----------
Cash flows used in investing activities:
Acquisition of customer lists (10,127,482) (33,361,262) (10,266,783)
Increase in deferred charges (2,570,234) (1,800,647) (3,581,798)
Capital expenditures (4,146,765) (14,509,037) (5,182,335)
Net proceeds from sales of fixed assets 261,333 528,376 294,014
Investment in Star Gas Corporation -- -- (16,000,000)
---------- ---------- ----------
Net cash used in investing activities (16,583,148) (49,142,570) (34,736,902)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 47,630,000 --
Costs of issuing and exchanging common stocks -- (4,924,164) --
Net proceeds from issuance of redeemable exchangeable
preferred stock 4,449,055 7,499,950 --
Net proceeds from issuance of subordinated notes 5,700,000 6,800,000 48,067,642
Repurchase of subordinated notes (5,616,508) (6,964,693) (25,368,574)
Net reductions of working capital borrowings (19,250,000) (7,750,000) (4,000,000)
Increase in Cash Collateral Account (5,000,000) (10,000,000) (5,000,000)
Decrease in other obligations (33,345) (33,346) (161,089)
Principal payments under capital lease obligations (686,577) (596,833) (103,595)
Cash dividends paid (5,216,921) (8,279,636) (14,580,285)
---------- ---------- ----------
Net cash provided by (used in) financing activities (25,654,296) 23,381,278 (1,145,901)
---------- ---------- ----------
Net increase (decrease) in cash (2,621,912) 952,097 753,989
Cash at beginning of year 5,529,372 2,907,460 3,859,557
--------- --------- ---------
Cash at end of year $ 2,907,460 $ 3,859,557 $ 4,613,546
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Petroleum Heat and Power Co., Inc. (Petro) and its
subsidiaries (the Company), each of which is wholly owned
and, like Petro, is engaged in the retail distribution of
home heating oil and propane in the Northeast. The Company
currently operates in 26 major markets in the Northeast,
including the metropolitan areas of Boston, New York City,
Baltimore, Providence and Washington, D.C., serving
approximately 415,000 customers in those areas. Credit is
granted to substantially all of these customers with no
individual account comprising a concentrated credit risk.
Investment in Star Gas Corporation
The Company's investment in Star Gas Corporation (see note
11) is accounted for following the equity method.
Inventories
Inventories are stated at the lower of cost or market using
the first-in, first-out method. The components of
inventories were as follows at the dates indicated:
December 31,
-----------------------
1992 1993
---- ----
Fuel oil $ 8,151,053 $ 6,289,676
Parts 7,578,252 7,703,252
--------- ---------
$15,729,305 $13,992,928
========== ==========
Property, Plant and Equipment
Property, plant and equipment are carried at cost.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets.
Customer Lists and Deferred Charges
Customer lists are recorded at cost less accumulated
amortization. Amortization is computed using the
straight-line method with 90% of the cost amortized over six
years and 10% of the cost amortized over 25 years.
Deferred charges include goodwill, acquisition costs and
payments related to covenants not to compete. The covenants
are amortized using the straight-line method over the terms
of the related contracts; acquisition costs are amortized
using the straight-line method over a six-year period; while
goodwill is amortized using the straight-line method over a
twenty-five year period. Also included as deferred charges
are the costs associated with the issuance of the Company's
subordinated notes. Such costs are being amortized using the
interest method over the lives of the notes.
(Continued)
F-7
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1), Continued
The Company assesses the recoverability of intangible assets
by comparing the carrying values of such intangibles to
market values, where a market exists, supplemented by cash
flow analyses to determine that the carrying values are
recoverable over the remaining estimated lives of the
intangibles through undiscounted future operating cash flows.
When an intangible asset is deemed to be impaired, the amount
of intangible impairment is measured based on market values,
as available, or by projected operating cash flows, using a
discount rate reflecting the Company's assumed average cost
of funds.
Unearned Service Contract Revenue
Payments received from customers for burner service contracts
are deferred and amortized into income over the terms of the
respective service contracts, which generally do not exceed
one year.
Customer Credit Balances
Customer credit balances represent payments received from
customers pursuant to a budget payment plan (whereby
customers pay their estimated annual fuel charges on a fixed
monthly basis) in excess of actual deliveries billed.
Income Taxes
The Company files a consolidated Federal income tax return
with its subsidiaries. When appropriate, deferred income
taxes were provided to reflect the tax effects of timing
differences between financial and tax reporting. Effective
January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109) (see note 9).
Pensions
The Company funds accrued pension costs currently on its
pension plans, all of which are noncontributory.
Common Stock
In July 1992, the holders of Class A Common Stock exchanged
2,545,139 shares of Class A Common Stock for 2,545,139 shares
of Class C Common Stock (see note 6). All numbers of Class A
and Class C Common Stock and related amounts have been
retroactively adjusted in the accompanying consolidated
financial statements to reflect such exchange.
(Continued)
F-8
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1), Continued
Earnings per Common Share
Earnings per common share are computed utilizing the three
class method based upon the weighted average number of shares
of Class A Common Stock, Class B Common Stock and Class C
Common Stock outstanding, after adjusting the net loss for
preferred dividends declared and the accretion of 1991
Redeemable Preferred Stock, aggregating $3,292,000,
$4,452,000, and $3,367,000 for the years ended 1991, 1992 and
1993, respectively. Fully diluted earnings per common share
are not presented because the effect is not material or is
antidilutive.
(2) Property, Plant and Equipment
The components of property, plant and equipment and their
estimated useful lives were as follows at the indicated
dates:
December 31,
----------------- Estimated
1992 1993 useful lives
---- ---- ------------
Land $ 1,469,065 $ 1,519,065
Buildings 7,151,142 7,420,171 20-45 years
Fleet and other equipment 38,507,056 38,412,619 3-17 years
Furniture and fixtures 10,784,419 11,861,514 5-7 years
Leasehold improvements 3,180,615 3,430,193 Terms of leases
--------- ----------
61,092,297 62,643,562
Less accumulated depreciation
and amortization 28,342,302 31,103,032
---------- ----------
$32,749,995 $31,540,530
========== ==========
(Continued)
F-9
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Notes Payable, Other Long-Term Debt and Working Capital
Borrowings
Notes payable and other long-term debt, including working
capital borrowings and current maturities of long-term debt,
consisted of the following at the indicated dates:
December 31,
-----------------
1992 1993
---- ----
Notes payable to banks under working capital
borrowing arrangements(a)(c). $32,000,000 $28,000,000
Notes payable in connection with the
acquisition of Whale Oil Corp., refinanced
on February 3, 1994 and paid on February 4,
1994, with interest at the rate of 9% per
annum(b)(c) 50,000,000 50,000,000
Amounts payable in connection with the
purchase of a fuel oil dealer, due in
monthly installments with interest at 6% per
annum, through June 1, 1996 (see note 10) 113,749 80,404
---------- ----------
82,113,749 78,080,404
Less current maturities, including working
capital borrowings 32,033,345 28,033,345
---------- ----------
$50,080,404 $50,047,059
========== ==========
____________
(a) Pursuant to a Credit Agreement dated December 31, 1992,
as restated and amended (Credit Agreement), the Company
may borrow up to $75 million under a revolving credit
facility with a sublimit under a borrowing base
established each month. Amounts borrowed under the
revolving credit facility are subject to a 45 day
clean-up requirement prior to September 30 of each year
and the facility terminates on June 30, 1996. As
collateral for the financing arrangement, the Company
granted to the lenders a security interest in the
customer lists trademarks and trade names owned by the
Company, including the proceeds therefrom. Under certain
circumstances, the Company would have to further secure
its obligations under the credit agreement with a lien on
accounts receivable and material inventories.
Interest on borrowings is payable monthly and is based
upon the floating rate selected at the option of the
Company of either the Eurodollar Rate (as defined below)
or the Alternate Base Rate (as defined below), plus 125
to 175 basis points on Eurodollar Loans or 0 to 50 basis
points on Alternative Base Rate Loans, based upon the
ratio of Consolidated Operating Profit to Interest
Expense (as defined in the Credit Agreement). The
Eurodollar Rate is the prevailing rate in the Interbank
Eurodollar Market adjusted for reserve requirements. The
Alternate Base Rate is the greater of (i) the prime rate
or base rate of Chemical Bank in effect or (ii) the
Federal Funds Rate in effect plus 1/2 of 1%. At
December 31, 1993, the rate on the working capital
borrowings was 4.9%. The Company pays a facility fee of
0.375% on the unused portion of the revolving credit
facility. Compensating balances equal to 5.0% of the
average amount outstanding during the relevant period are
also required under the agreement.
(Continued)
F-10
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3), Continued
(b) On July 22, 1987, Maxwhale Corp. (Maxwhale), a wholly
owned subsidiary of Petro, acquired certain assets of
Whale Oil Corp. for $50.0 million. The purchase price was
paid by the issuance of $50.0 million of 9% notes due June
1, 1994. The notes were nonrecourse to Petro, but were
secured by letters of credit issued by certain banks
pursuant to the Credit Agreement. Maxwhale paid a fee on
these letters of credit, calculated at a range of 1.75%
to 2.25% on $50.0 million less the balance maintained in a
Cash Collateral Account, plus 0.25% on the Cash
Collateral Account balance. Petro had fully guaranteed
these letters of credit. The Maxwhale customer list was
pledged pursuant to a security agreement in favor of the
banks.
On February 4, 1994, the Company repaid the $50.0 million
of Maxwhale notes at a purchase price of 101.33% of the
principal amount thereof, with a portion of the proceeds
of its $75.0 million 9-3/8% public subordinated debenture
offering completed on February 3, 1994 (see note 5). The
Company will record an extraordinary loss in 1994 of
approximately $0.7 million as a result of the early
payment on such debt. Since the Maxwhale notes were
refinanced with the proceeds of new long term debt, such
notes have been classified as long term at December 31,
1993.
Under the Credit Agreement, the Company was required to
make annual deposits into a Cash Collateral Account to
secure the outstanding letters of credit. The first such
deposit of $5 million was made on June 15, 1991 with
additional deposits of $10 million occurring on April 1,
1992 and $5 million on May 15, 1993. As a result of the
repayment of the Maxwhale notes, the $20 million in the
cash collateral account was released for general
corporate purposes on February 4, 1994.
(c) The customer lists, trademarks and trade names pledged
to the banks under the Credit Agreement are carried on
the December 31, 1993 balance sheet at $73,177,198.
Under the terms of the Credit Agreement, the Company is
required, among other things, to maintain certain minimum
levels of cash flow, as well as certain ratios on
consolidated debt. In the event of noncompliance with
certain of the covenants, the banks have the right to
declare all amounts outstanding under the loans to be due
and payable immediately.
With the refinancing of the Maxwhale notes with a portion
of the Company's 9-3/8% subordinated debentures, there
are no other annual maturities of long-term debt for each
of the next five years as of December 31, 1993, except
for the required repayments of the acquisition related
payable of approximately $80,000 due in equal monthly
installments of approximately $3,300 through June 30,
1996.
(Continued)
F-11
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Leases and Capital Lease Obligations
The Company is obligated under various capital leases entered
into during 1988 and 1989 for service vans. The leases
expired in 1993 and were renewed on a month to month basis
thereafter. The gross amounts of fleet and other equipment
and related accumulated amortization recorded under the
capital leases were as follows at the dates indicated:
December 31,
------------------
1992 1993
---- ----
Fleet and other equipment $2,701,658 2,701,658
Less accumulated amortization 2,598,063 2,701,658
---------- ---------
$ 103,595 --
========== =========
Amortization of assets held under capital leases is included
with depreciation expense.
The Company also leases real property and equipment under
noncancelable operating leases which expire at various times
through 2008. Certain of the real property leases contain
renewal options and require the Company to pay property
taxes.
Future minimum lease payments for all operating leases (with
initial or remaining terms in excess of one year) are as
follows:
Year ending Operating
December 31, leases
------------ ------
1994 $ 3,260,000
1995 2,974,000
1996 2,128,000
1997 1,507,000
1998 1,392,000
Thereafter 5,046,000
---------
Total minimum lease payments $16,307,000
==========
Rental expense under operating leases for the years ended
December 31, 1991, 1992 and 1993 was $4,916,000, $4,448,000,
and $5,346,000, respectively.
(Continued)
F-12
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Subordinated Notes Payable
Subordinated notes payable, net of unamortized original
discounts, at the dates indicated, consisted of:
December 31,
---------------------
1992 1993
---- ----
11.40% Subordinated Notes due July 1,
1993(a)(b) $12,400,373 $ --
14.275% Subordinated Notes due October
1, 1995(b) 12,478,349 --
11.85%, 12.17%, and 12.18% Subordinated
Notes due October 1, 1998(c) 60,000,000 60,000,000
14.10% Subordinated Notes due January
15, 2001(d) 12,500,000 12,500,000
Subordinated Notes due March 1, 2000(e) -- 12,763,663
10-1/8% Subordinated Notes due April 1,
2003(f) -- 50,000,000
---------- -----------
97,378,722 135,263,663
Less current maturities 12,400,373 --
---------- ----------
$84,978,349 $135,263,663
========== ===========
(a) On July 2, 1984, the Company sold $20,000,000 of
subordinated notes at an original discount of
approximately $150,000. These notes (11.40% Notes) bore
interest at 11.40% and were redeemable at the Company's
option in whole, at any time, or in part, from time to
time, at a redemption price of 101.5% of principal amount
through June 30, 1993. Interest was payable quarterly.
(b) On October 8, 1985, the Company sold $25,000,000 of
subordinated fixed rate notes at an original discount of
approximately $330,000. These notes (14.275% Notes) bore
interest at 14.275% and were redeemable at the option of
the Company, in whole or in part, from time to time, upon
payment of a premium rate of approximately 3.7%, which
declined on October 1, 1992 to approximately 2.0% until
October 1, 1993, when the 14.275% Notes were redeemable
at par.
In April 1991, the Company purchased $5,519,000 and
$376,000 face value of its 11.40% Notes and 14.275%
Notes, respectively, for an aggregate of $5,617,000.
Unamortized deferred charges and bond discounts of
$218,000 associated with the issuances of the 11.40%
Notes and the 14.275% Notes were written off upon the
repurchase of the debt. The Company included a gain of
$60,000 in 1991 on these repurchases and included such
gain in other income. In March 1992, the Company
purchased $2,445,000 of the 14.275% notes at par.
Unamortized deferred charges and bond discounts of
$62,000 associated with the issuance of these notes were
written off on the repurchase of the debt in March 1992.
On May 15, 1992, the Company purchased $4,355,000 of the
14.275% Notes at a premium of 3.7%.
(Continued)
F-13
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5), Continued
(b), continued
Unamortized deferred charges and bond discounts of
$106,000 associated with the issuance of these notes were
written off on the repurchase of the debt in May 1992.
The Company included a loss of $333,000 in 1992 on these
repurchases and included such loss in other expenses. In
May 1993, the Company repurchased the remaining
outstanding amounts of its 11.40% Subordinated Notes due
July 1, 1993 having a face amount of $12,430,000, at a
redemption price of 101.5% of face value, for an
aggregate of approximately $12.6 million and its
outstanding 14.275% Subordinated Notes due October 1,
1995, having a face amount of $12,524,000, at a
redemption price of 102.0% of face value, for an
aggregate of approximately $12.8 million. Unamortized
deferred charges and bond discounts of $447,000
associated with the issuance of these Notes were written
off on the repurchase of the debt in May 1993. The
Company recorded an extraordinary loss of $867,000 as a
result of the early retirement of these notes.
(c) On September 1, 1988, the Company authorized the
issuance of $60,000,000 of Subordinated Notes due
October 1, 1998 bearing interest payable semiannually on
the first day of April and October. The Company issued
$40,000,000 of such notes on October 14, 1988 bearing
interest at the rate of 11.85% per annum, $15,000,000 of
such notes on March 31, 1989 bearing interest at the rate
of 12.17% per annum and $5,000,000 of such notes on
May 1, 1990 bearing interest at the rate of 12.18% per
annum. All such notes are redeemable at the option of
the Company, in whole or in part, from time to time, upon
payment of a premium rate as defined.
(d) On January 15, 1991, the Company authorized the
issuance of $12,500,000 of 14.10% Subordinated Notes due
January 15, 2001 bearing interest payable quarterly on
the fifteenth day of January, April, July and October.
The Company issued $5,700,000 of such notes in April 1991
and $6,800,000 in March 1992. The notes are redeemable
at the option of the Company, in whole or in part, from
time to time, upon payment of a premium rate as defined.
On each January 15, commencing in 1996 and ending on
January 15, 2000, the Company is required to repay
$2,100,000 of the Notes. The remaining principal of
$2,000,000 is due on January 15, 2001. No premium is
payable in connection with these required payments.
(e) In March 1993, the Company issued $12,764,000 of
Subordinated Notes due March 1, 2000 in exchange for an
equal amount of 1991 Redeemable Preferred Stock (see note
7). The Company issued the 1991 Redeemable Preferred
Stock under an agreement which required the Company to
redeem the 1991 Redeemable Preferred Stock as soon as,
and to the extent that, it was permitted to incur Funded
Debt. Under the applicable provisions of the Company's
debt agreements, the Company was allowed to incur Funded
Debt in the first quarter of 1993, and as such, was
required to enter into the exchange. These notes call
for interest payable monthly based on the sum of LIBOR
plus 9.28%. At December 31, 1993, LIBOR was 3.25%.
(Continued)
F-14
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5), Continued
(f) On April 6, 1993, the Company issued $50.0 million of
10-1/8% Subordinated Notes due April 1, 2003. These
Notes are redeemable at the Company's option, in whole or
in part, at any time on or after April 1, 1998 upon
payment of a premium rate as defined. Interest is
payable semiannually on the first day of April and
October.
Expenses connected with the above six offerings, and
amendments thereto, amounted to approximately $8,057,000. At
December 31, 1992 and 1993, the unamortized balances
relating to notes still outstanding amounted to approximately
$1,675,000 and $2,762,000, respectively, and such balances
are included in deferred charges.
Aggregate annual maturities for each of the next five years,
are as follows as of December 31, 1993:
Year ended
December 31,
------------
1994 $ --
1995 --
1996 2,100,000
1997 2,100,000
1998 62,100,000
On February 3, 1994, the Company issued $75.0 million of
9-3/8% public subordinated debentures due February 1, 2006.
These debentures are redeemable at the Company's option, in
whole or in part, at any time on or after February 1, 1997
upon payment of a premium rate as defined. Interest is
payable semiannually on the first day of February and August.
In connection with the offering of its 9-3/8% subordinated
debentures, the Company solicited and received consents of
the holders of at least a majority in aggregate principal
amount of each class of subordinated debt and redeemable
preferred stock (see note 7) to certain amendments to the
respective agreements under which the subordinated debt and
the redeemable preferred stock were issued. In consideration
for the consents, the Company paid to the holders of the
subordinated debt due in 1998, 2000 and 2003 a cash payment
aggregating $0.6 million and caused approximately $42.6 million
of the aggregate principal amount of such subordinated debt to
be ranked as senior debt. In addition, the Company has agreed
to increase dividends on the redeemable preferred stock by
$2.00 per share per annum. The Company also paid approximately
$1.5 million in fees and expenses to obtain such consents (see
Note 7).
(Continued)
F-15
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Common Stock and Common Stock Dividends
The Company's outstanding Common Stock consists of Class A
Common Stock, Class B Common Stock and Class C Common Stock,
each with various designations, rights and preferences. In
1992, the Company restated and amended its Articles of
Incorporation increasing the authorized shares of Class A
Common Stock to 40,000,000 and authorizing 5,000,000 shares
of Class C Common Stock, $.10 par value. On July 29, 1992,
the holders of Class A Common Stock exchanged, pro rata,
2,545,139 shares of Class A Common Stock for 2,545,139 shares
of Class C Common Stock. The financial statements, as well
as the table on the following page, give retroactive effect
to this exchange.
Holders of Class A Common Stock and Class C Common Stock have
identical rights, except that holders of Class A Common Stock
are entitled to one vote per share and holders of Class C
Common Stock are entitled to ten votes per share. Holders of
Class B Common Stock do not have voting rights, except as
required by law, or in certain limited circumstances.
Holders of Class B Common Stock are entitled to receive, as
and when declared by the Board of Directors, Special
Dividends equal to .000001666% per share per quarter of the
Company's Cash Flow, as defined, for its prior fiscal year.
For purposes of computing Special Dividends, Cash Flow
represents the sum of (i) consolidated net income, plus (ii)
depreciation and amortization of plant and equipment, and
(iii) amortization of customer lists and restrictive
covenants, (iv) excluding net income (loss) derived from
investments accounted for by the equity method, except to the
extent of any cash dividends received by the Company.
Special Dividends are cumulative and are payable quarterly.
If not paid, dividends on any other class of stock may not be
paid until all Special Dividends in arrears are declared and
paid.
The Company may, in its sole discretion, terminate the
payment of the Special Dividends if all Special Dividends
have then been paid or duly provided for. If the Company
exercises its right to terminate the Special Dividends, it
must give notice to the holders of Class B Common Stock not
less than 30 days nor more than 60 days prior to the date
fixed for termination. In such event, the Special Dividends
will terminate on the date specified in the notice (the
Parity Date). Each holder of Class B Common Stock will then
have a period of 60 days from the date of the notice to elect
to require the Company to purchase all or part of such
holder's Class B Common Stock at a price of $17.50 per share,
as adjusted for stock splits, reclassifications and the like,
plus all accrued and unpaid Special Dividends to the date of
purchase, or to elect to retain such holder's Class B Common
Stock. After the Parity Date, no dividends will be paid to
the holders of Class B Common Stock until the holders of
Class A Common Stock and Class C Common Stock receive
dividends equal to the Common Stock Allocation, as defined.
(Continued)
F-16
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6), Continued
On July 29, 1992 and September 2, 1992, the Company sold an
aggregate of 4,330,000 shares of its Class A Common Stock in
a Public Offering (the "Offering") at an initial offering
price of $11.00 per share.
On September 17, 1992 the Company commenced an Exchange Offer
(Exchange Offer) for all of the outstanding shares of its
Class B Common Stock pursuant to which each holder of Class B
Common Stock who validly tendered a share of Class B Common
Stock for exchange was entitled to receive 1.591 shares of
Class A Common Stock. The Exchange Offer expired on October
16, 1992 and, as a result, 2,817,159 shares of Class B Common
Stock (92.8% of the total then outstanding) were exchanged
for 4,482,021 shares of Class A Common Stock.
The following table summarizes the cash dividends declared on
Common Stock and the cash dividends declared per common share
for the years indicated:
Year Ended December 31,
------------------------------
1991 1992 1993
---- ---- ----
Cash dividends declared
Class A $ -- $ 3,157,000 $ 9,971,000
Class B 952,000 2,715,000 408,000
Class C -- 465,000 1,336,000
Cash dividends declared per share
Class A $ -- $ 0.18 $ 0.525
Class B 0.31 1.14 1.88
Class C -- 0.18 0.525
Under the Company's most restrictive dividend limitation,
$7.1 million was available at December 31, 1993 for the
payment of dividends on all classes of Common Stock. The
amount available for dividends is increased each quarter by
50% of the cash flow, as defined, for the previous fiscal
quarter.
In the event of liquidation of the Company, each outstanding
share of Class B Common Stock would be entitled to a
distribution equal to its share of all accrued and unpaid
Special Dividends, without interest, plus $5.70 per share,
before any distribution is made with respect to the Class A
or Class C Common Stock. Thereafter, each share of Class B
Common Stock and each share of Class A and Class C Common
Stock would participate equally in all liquidating
distributions, subject to the rights of the holders of the
Cumulative Redeemable Exchangeable Preferred Stock. The
aggregate liquidation preference on the Class B Common Stock
at December 31, 1993 amounted to an aggregate of $1,236,336.
(Continued)
F-17
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Cumulative Redeemable Exchangeable Preferred Stock
The Company entered into agreements dated as of August 1,
1989 with John Hancock Mutual Life Insurance Company and
Northwestern Mutual Life Insurance Company to sell up to
250,000 shares of its Redeemable Preferred Stock, par value
$. 10 per share, at a price of $100 per share, which shares
are exchangeable into Subordinated Notes due August 1, 1999
(1999 Notes). The Company sold 50,000 shares of the
Redeemable Preferred Stock in August 1989, 50,000 shares in
December 1989 and 150,000 shares in May 1990. The Redeemable
Preferred Stock issued in August 1989 calls for dividends of
$12 per share, while the stock issued in December 1989 and
May 1990 calls for dividends of $11.84 and $12.61 per share,
respectively. In connection with receiving the consents in
1994 to modify certain covenants under which the Redeemable
Preferred Stock was issued, the Company has agreed to
increase dividends on the Redeemable Preferred Stock by $2.00
per share per annum beginning February 1994. The shares of
the Redeemable Preferred Stock are exchangeable in whole, or
in part, at the option of the Company, for 1999 Notes of the
Company.
On August 1, 1994, and on August 1 of each year thereafter,
so long as any of the shares of Redeemable Preferred Stock
remain outstanding, one-sixth of the number of originally
issued shares of each series of Redeemable Preferred Stock
outstanding less the number of shares of such series
previously exchanged for 1999 Notes, are to be redeemed, with
the final redemption of remaining outstanding shares
occurring on August 1, 1999. The redemption price is $100
per share plus all accrued and unpaid dividends to such
August 1.
The Company entered into an agreement dated September 1, 1991
with United States Leasing International Inc. to sell up to
159,722 shares of its 1991 Redeemable Preferred Stock, par
value $.10 per share, at an initial price of $78.261 per
share, which shares were exchangeable into Subordinated Notes
due March 1, 2000 (2000 Notes). The Company sold 63,889
shares of the Redeemable Preferred Stock in September 1991 at
$78.261 per share and 94,995 shares in March 1992 at $78.951
per share, the accreted value of the initial price. The
holders of the shares of 1991 Preferred Stock were entitled
to receive monthly dividends based on the annual rate of the
sum of LIBOR plus 4.7%.
The Company issued the 1991 Redeemable Preferred Stock under
an agreement which required the Company to redeem the 1991
Redeemable Preferred Stock as soon as, and to the extent that
it was permitted to incur Funded Debt. Under the applicable
provisions of the Company's debt agreements, the Company was
allowed to incur Funded Debt in the first quarter of 1993 and
as such, was required to enter into the exchange. In March
1993, the Company issued $12,763,663 of 2000 Notes in
exchange for all of the 1991 Redeemable Preferred Stock (see
note 5).
Preferred dividends of $3,269,000, $4,258,000 and $3,321,000
were declared on all classes of preferred stock in 1991, 1992
and 1993, respectively.
(Continued)
F-18
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7), Continued
Aggregate annual maturities of Redeemable Preferred Stock are
as follows as of December 31, 1993:
Year ended
December 31,
------------
1994 $ 4,167,000
1995 4,166,000
1996 4,167,000
1997 4,167,000
1998 4,167,000
1999 4,166,000
---------
$ 25,000,000
==========
(8) Pension Plans
The Company has several noncontributory defined contribution
and defined benefit pension plans covering substantially all
of its nonunion employees. Benefits under the defined
benefit plans are generally based on years of service and
each employee's compensation, while benefits under the
defined contribution plans are based solely on compensation.
Pension expense under all plans for the years ended December
31, 1991, 1992 and 1993 was $2,774,000, $2,447,000 and
$3,342,000, respectively, net of amortization of the pension
obligation acquired.
The following table sets forth the defined benefit plans'
funded status and amounts recognized in the Company's balance
sheets at the indicated dates:
December 31,
--------------------------
1992 1993
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligations including
vested benefits of $18,409,871 and
$23,566,465 $ 18,790,759 $ 23,848,149
========== ==========
Projected benefit obligation $(21,715,790) $(26,458,728)
Plan assets at fair value (primarily listed
stocks and bonds) 16,581,099 17,252,490
---------- ----------
Projected benefit obligation in excess of
plan assets (5,134,691) (9,206,238)
Unrecognized net loss from past experience
different from the assumed and effects of
changes in assumptions 3,645,967 7,538,164
Unrecognized net transitional obligation 606,394 546,784
Unrecognized prior service cost due to plan
amendments 674,044 785,832
Additional liability (2,133,731) (6,260,201)
---------- ----------
Accrued pension cost for defined benefit plans $(2,342,017) $(6,595,659)
========== ==========
(Continued)
F-19
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8), Continued
Net pension cost for defined benefit plans for the periods
indicated included the following components:
Year Ended December 31,
-------------------------------------
1991 1992 1993
---- ---- ----
Service cost-benefits earned during
the period $ 1,154,607 $ 1,162,736 $1,391,564
Interest cost on projected benefit
obligation 1,665,229 1,781,444 1,778,401
Actual return on assets (2,515,808) (1,248,604) (994,937)
Net amortization and deferral of
gains and losses 1,471,819 (71,885) 207,465
--------- --------- ---------
Net periodic pension cost
for defined benefit plans $ 1,775,847 $ 1,623,691 $2,382,493
========= ========= =========
Assumptions used in the above accounting were:
Discount rate 8.5% 8.5% 7.0%
Rates of increase in compensation level 6.0% 6.0% 4.0%
Expected long-term rate of return on
assets 10.0% 10.0% 8.5%
In addition to the above, the Company made contributions to
union-administered pension plans during the years ended
December 31, 1991, 1992 and 1993 of $2,365,000, $2,442,000
and $2,867,000, respectively.
The Company has recorded an additional minimum pension
liability for underfunded plans of $5,866,651 at December 31,
1993, representing the excess of unfunded accumulated benefit
obligations over plan assets. A corresponding amount is
recognized as an intangible asset except to the extent that
these additional liabilities exceed the related unrecognized
prior service costs and net transition obligation, in which
case the increase in liabilities is charged as a reduction of
stockholders' equity. The Company has recorded intangible
assets of $1,332,616 and a reduction in stockholders' equity
of $4,534,035 as of December 31, 1993.
In connection with the purchase of shares of a predecessor
company as of January 1, 1979 by a majority of the Company's
present holders of Class C Common Stock, the Company assumed
a pension liability in the aggregate amount of $1,512,000, as
adjusted, representing the excess of the actuarially computed
present value of accumulated vested plan benefits over the
net assets available for such benefits. Such liability,
which amounted to $1,212,843 at December 31, 1993, is being
amortized over 40 years.
Under a 1992 supplemental benefit agreement, Malvin P. Sevin,
the Company's chairman and co-chief executive officer, was
entitled to receive $25,000 per month for a period of 120
months following his retirement. In the event of his death,
his designated beneficiary is entitled to receive such
benefit. The expense related to this benefit was being
accrued over the estimated remaining period of Mr. Sevin's
employment. Mr. Sevin passed away in
(Continued)
F-20
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8), Continued
December 1992, prior to his retirement. The accrual for such
benefit payable was accelerated at December 31, 1992 to
$1,973,000, the present value (using a discount rate of 9%)
of the payments now payable to his beneficiary, which
payments commenced in January 1993.
During the first quarter of 1993, the Company adopted
Statement of Financial Accounting Standards No. 106 (SFAS
No. 106) "Employers' Accounting for Post Retirement Benefits
Other Than Pensions." This Statement requires that the
expected cost of postretirement benefits be fully accrued by
the first date of full benefit eligibility, rather than
expensing the benefit when payment is made. As the Company
generally does not provide for postretirement benefits, other
than pensions, the adoption of the new Statement did not have
any material effect on the Company's consolidated financial
condition or results of operations.
(9) Income Taxes
Income tax expense was comprised of the following for the
indicated years:
Year Ended December 31,
------------------------
1991 1992 1993
---- ---- ----
Current:
Federal $ -- $ -- $ --
State 250,000 400,000 400,000
------- ------- -------
$250,000 $400,000 $400,000
======= ======= =======
Deferred income tax expense results from temporary
differences in the recognition of revenue and expense for tax
and financial statement purposes. The sources of these
differences and the tax effects of each were as follows:
Year Ended December 31,
----------------------------
1991 1992 1993
---- ---- ----
Excess of tax over book (book over tax)
depreciation $(114,000) $ (11,000) $ 242,000
Excess of book over tax vacation expense (223,000) (3,000) (93,000)
(Excess of book over tax) tax over book
bad debt expense (74,000) (165,000) 92,000
(Excess of book over tax) tax over book
supplemental benefit expense -- (671,000) 12,000
Deferred service contracts 66,000 66,000 18,000
Other, net 36,000 50,000 (60,000)
Recognition of tax benefit of net
operating loss to the extent of
current and previously recognized
temporary differences -- -- (211,000)
Deferred tax assets not recognized 309,000 734,000 --
------- ------- -------
$ -- $ -- $ --
======= ======= =======
(Continued)
F-21
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9), Continued
As of December 31, 1993, the Company has for Federal tax
reporting purposes, a net operating loss (NOL) carryforward
of approximately $51.3 million. Total income tax expense
amounted to $250,000 for 1991, $400,000 for 1992, and
$400,000 for 1993. The following reconciles the effective
tax rates to the "expected" statutory rates for the years
indicated:
Year Ended December 31,
----------------------
1991 1992 1993
---- ---- ----
Computed "expected" tax (benefit) rate (34.0)% (34.0)% (34.0)%
Reduction of income tax benefit resulting from:
Net operating loss carryback limitation 34.0 34.0 34.0
State income taxes, net of Federal income tax
benefit 1.5 10.0 5.6
---- ---- ----
1.5% 10.0% 5.6%
=== ==== ====
During the first quarter of 1993, the Company adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). 'This
Statement requires that deferred income taxes be recorded
following the liability method of accounting and adjusted
periodically when income tax rates change. Adoption of the
new Statement did not have any effect on the Company's
consolidated financial condition or results of operations
since the Company did not carry any deferred tax accounts on
its balance sheet at December 31, 1992 and any net deferred
assets set up as a result of applying SFAS 109 have been
fully reserved.
Under SFAS No. 109, as of January 1, 1993, the Company had
net deferred tax assets of approximately $14.1 million
subject to a valuation allowance of approximately $14.1
million. The components of and changes in the net deferred
tax assets and the changes in the related valuation allowance
for 1993 using current rates were as follows (in thousands):
<TABLE><CAPTION>
Deferred
January 1, Expense December 31,
1993 (Benefit) 1993
---- --------- ----
<S> <C> <C> <C>
Federal book net operating loss carryforwards $ 14,389 $ 2,606 $ 16,995
Excess of tax over book depreciation (2,472) (242) (2,714)
Excess of book over tax vacation expense 1,042 93 1,135
Excess of book over tax (tax over book)
supplemental benefit expense 671 (12) 659
Excess of book over tax (tax over book)
bad debt expense 440 (92) 348
Other, net 76 42 118
-------- ------- -------
14,146 2,395 16,541
Valuation allowance (14,146) (2,395) (16,541)
-------- ------- -------
$ -- $ -- $ --
======== ======= =======
</TABLE>
(Continued)
F-22
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9), Continued
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on the Company's
recent history of annual net losses, that a full valuation
allowance is appropriate.
At December 31, 1993, the Company had the following income
tax carryforwards for Federal income tax reporting purposes
(in thousands):
Expiration
Date Amount
---- ------
2005 $26,651
2006 15,012
2007 1,367
2008 8,286
-------
$51,316
======
(10) Related Party Transactions
In connection with the acquisition of customer lists,
equipment and other assets of previously unaffiliated fuel
oil businesses, the Company entered into lease agreements
covering certain vehicles with individuals, including certain
stockholders, directors and executive officers. These leases
are currently on a month-to-month basis, on terms comparable
with leases from unrelated parties. Annual rentals under
these leases are approximately $150,000.
During 1981, the Company acquired the customer list,
equipment and accounts receivable of a fuel oil business from
two individuals, one of whom is, and the other of whom was,
prior to his death, stockholders, directors and executive
officers of the Company. The purchase price was
approximately $1,233,000, of which $733,000 was paid at the
closing and the balance was financed through the issuance of
a $500,000, 6%, 15-year term note secured by property of the
Company. The unpaid balance of this note at December 31,
1993 was $80,404 (see note 3).
On November 6, 1985, the Company sold a building to certain
related parties for $660,000, the same price the Company
originally paid for the property in June 1984 and which was
also the facility's independently appraised fair market
value. The parties then leased the facility back to the
Company pursuant to a ten-year agreement providing for
rentals of $90,000 per annum plus escalation and taxes.
(Continued)
F-23
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10), Continued
Until 1985, the Company occupied a certain building under a
lease agreement with an unaffiliated lessor. The lease was
accounted for as a capital lease and, as such, the
capitalized leased asset and obligation were included on the
Company's balance sheet. In November 1985, pursuant to a
competitive bidding process, the Company purchased the
building from the landlord for $1,500,000. The building was
resold for $1,500,000 in December 1985 to certain related
parties, some of whom are stockholders, directors and
executive officers of the Company. These related parties are
leasing the building to the Company under a lease agreement
which calls for rentals of $315,000 per annum (which was the
independently appraised lease rental) plus escalations and
which expires in 1995.
In October 1986, Irik P. Sevin purchased 161,313 shares of
Class A Common Stock and 40,328 shares of Class C Common
Stock (after giving retroactive effect to the exchange of
Class C Common Stock for Class A Common Stock in July 1992)
of the Company for $1,280,000 (which was the fair market
value as established by the Pricing Committee pursuant to the
Stockholders' Agreement described below). The purchase price
was financed by a note originally due December 31, 1989, but
which has been extended to December 31, 1994. The note was
amended in 1991 to increase the principal amount by $152,841,
the amount of interest due from October 22, 1990 through
December 31, 1991 and to change the interest rate on the note
effective January 1, 1992 from 10% per annum to the LIBOR
rate in effect for each month plus 0.75%. The note was
amended again in 1992 to increase the principal amount by
$66,537, the amount of interest due from January 1, 1992
through December 31, 1992. The note was amended in 1993 to
increase the principal amount by $60,449, the amount of
interest due from January 1, 1993 through December 31, 1993.
At any time prior to the due date of the note, Mr. Sevin has
the right to require the Company to repurchase all or any of
these shares (as adjusted for stock splits, dividends and the
like) for $6.35 per share (the Put Price), provided, however,
that Mr. Sevin retain all shares of Class B Common Stock
issued as stock dividends on the shares without adjustments
to the Put Price. In December 1986, 50,410 shares of Class B
Common Stock were issued as a stock dividend with respect to
these shares, which shares were exchanged in October 1992 for
80,202 Class A Common Shares pursuant to the Exchange Offer
discussed in Note 6. Upon the repurchase of the shares, the
Company has agreed to issue an eight-year option to Mr. Sevin
to purchase a like number of shares at the Put Price. Mr.
Sevin has entered into an agreement with the Company that he
will not sell or otherwise transfer to a third party any of
the shares of Class A Common Stock or Class C Common Stock
received pursuant to this transaction until the note has been
paid in full.
In November 1986, the Company issued stock options to
purchase 30,000 shares and 20,000 shares, of the Class A
Common Stock of the Company to Irik P. Sevin and Malvin P.
Sevin, respectively, subject to adjustment for stock splits,
stock dividends, and the like, upon the successful completion
of a public offering of at least 10% of the common stock of
the Company. Such a public offering was completed in
December 1986. The option price for the shares of Class A
Common Stock was $20 per share. The options, which expire on
November 30, 1994, are nontransferable. As a result of stock
dividends in the form of Class A Common Stock and Class B
Common Stock declared by the Company in
(Continued)
F-24
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10), Continued
December 1986, the exchange of Class C Common Stock for Class
A Common Stock in July 1992, and special antidilution
adjustments, the options held by Irik P. Sevin now apply to
89,794 shares of Class A Common Stock and 22,448 shares of
Class C Common Stock and the options held by Malvin P. Sevin
now apply to 59,862 shares of Class A Common Stock and 14,966
shares of Class C Common Stock. The adjusted option price
for each such share is $4.10.
On December 28, 1987, the Company issued stock options to
purchase 24,000 shares of Class A Common Stock and 6,000
shares of Class C Common Stock (after giving retroactive
effect to the exchange of' Class C Common Stock for Class A
Common Stock in July, 1992) to Irik P. Sevin. The option
price for each such share is $7.50. These options are not
transferable and expire on January 1, 1996.
On March 3, 1989, the Company issued stock options to
purchase 72,000 shares of Class A Common Stock and 18,000
shares of Class C Common Stock (after giving retroactive
effect to the exchange of Class C Common Stock for Class A
Common Stock in July 1992) to Irik P. Sevin and 48,000 shares
of Class A Common Stock and 12,000 shares of Class C Common
Stock (after giving retroactive effect to the exchange of
Class C Common Stock for Class A Common Stock in July 1992)
to Malvin P. Sevin. The option price for each such share is
$11.25. These options are nontransferable, Malvin P. Sevin's
option expired unexercised while Irik P. Sevin's options
expire on March 3, 1999.
On November 1, 1992, the Company issued stock options to an
officer of the Company to purchase 25,000 shares of Class A
Common Stock and issued another 25,000 stock options to this
officer in June 1993. The option price for each such share
is $11.00. Twenty percent of the options become exercisable
on each of the next five anniversary dates of the grants.
In December 1992, Malvin P. Sevin passed away. All options
previously owned by him are exercisable by his estate up
until the original expiration date of such options.
During the first quarter of 1991, the Company contemplated
the acquisition of a business engaged in the distribution of
packaged industrial gases for other than heating purposes
("Packaged Industrial Gas Business"). As the Company was
prohibited from making this acquisition because of
restrictions under the Credit Agreement from which the
Company was unable to obtain a waiver, the acquisition was
consummated by certain of the principal holders of the Class
C Common Stock. The Company entered into an agreement with
the Packaged Industrial Gas Business to provide management
services on request for a fee equal to the allocable cost of
Company personnel devoted to the business with a minimum fee
of $50,000 per annum plus an incentive bonus equal to 10% of
the cash flow above budget. The fee received under such
management contract for the seven months ended December 31,
1991 was $29,000 and for the years ended December 31, 1992
and 1993 was $50,000 and $4,000, respectively.
Simultaneously with this acquisition, the Company entered
into an option agreement expiring May 31, 1996 pursuant to
which the Company had the right, exercisable at any time, to
acquire the Packaged Industrial Gas Business for its fair
market value, as determined by an independent appraisal. In
January 1993, the Packaged Industrial Gas Business was sold
by its owners to an unrelated third party and the Company's
option agreement and management services agreement were
cancelled.
(Continued)
F-25
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10), Continued
On August 1, 1991, the Company agreed to purchase certain
assets of a fuel oil distributor for approximately $17
million, however, certain restrictions under the Company's
lending arrangements made the cost of the acquisition unduly
burdensome. Accordingly, in October 1991, certain
shareholders of the Company, owning approximately 9% of the
Class C Common Stock and certain unaffiliated investors,
organized RAC Fuel Oil Corp. (RAC) to acquire such business,
but gave Petro a five year option, which Petro was required
to exercise when permitted by its lending arrangements, to
purchase RAC for the same price, as adjusted for operations
while the business was owned by RAC. Pending exercise of its
option, the Company had been managing RAC's business at an
annual fee of $161,000, which was designed to compensate the
Company for its estimated costs and for supplying fuel oil to
RAC at the Company's cost. In August 1992, the Company was
able to and did exercise its option to buy RAC. The
acquisition price was approximately $17 million.
The existing holders of Class C Common Stock of the Company
have entered into a Shareholders' Agreement which provides
that, in accordance with certain agreed-upon procedures, each
will vote his shares to elect certain designated directors.
The Shareholders' Agreement also provides for first refusal
rights to the Company if a holder of Class C Common Stock
receives a bona fide written offer from a third party to buy
such holder's Class C Common Stock.
(11) Investment in Star Gas
In December 1993, the Company acquired an approximate 29.5%
equity interest (42.8% voting interest) in Star Gas for $16.0
million in cash. Of such $16.0 million investment, $14.0
million was invested directly in Star Gas through the
purchase of Series A 8% pay-in-kind Cumulative Convertible
Preferred Stock of Star Gas, which is convertible into common
stock of Star Gas, and $2.0 million was invested through Star
Gas Holdings, Inc. ("Holdings"), a newly formed corporation.
Certain other investors (including Holdings) invested a total
of $49.0 million of additional equity in Star Gas, of which
$11.0 million was in the form of cash and $38.0 million
resulted from the conversion of long-term debt and preferred
stock into equity. As a result of redemptions of a portion
of the equity in Star Gas held by certain of the other
investors that the Company expects will occur in connection
with a Star Gas recapitalization, the Company expects that
its direct and indirect equity interest in Star Gas will
increase to 36.7% without any additional investment by the
Company.
Star Gas has granted to the Company an option, exercisable
through December 20, 1998, to purchase 500,000 shares of
common stock of Star Gas for an aggregate purchase price of
approximately $5.0 million. In addition, each of the other
investors in Star Gas (including each such investor whose
investment is held through Holdings) has granted to the
Company an option, exercisable for the period beginning on
the date that Star Gas' audited financial statements for its
fiscal year ended September 30, 1994 are first delivered to
such investors and ending on December 31, 1998, to purchase
such investor's interest in Star Gas
(Continued)
F-26
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11), Continued
(or, in the case of Holdings, to purchase such investor's
interest in Holdings). In addition, each such investor has
an unconditional option, exercisable beginning January 1,
1999 and ending on December 31, 1999, to require the Company
to purchase such investor's interest in Star Gas (or
Holdings). The purchase prices upon exercise of any such
options are calculated based upon specified multiples of Star
Gas' earnings before interest, taxes, depreciation and
amortization (EBITDA), subject to certain minimum prices, and
are payable in cash or Class A common stock of the Company
or, in the case of the Holdings' options, in cash,
subordinated debt of the Company or, if the Company is not
then permitted to issue such debt, preferred stock of the
Company.
The investors in Star Gas have entered into a shareholders'
agreement, which provides that the Company is entitled to
nominate for election up to three persons to serve as
directors of Star Gas, Holdings is entitled to nominate up to
two persons, and the other investors (as a group) are
entitled to nominate up to three persons. In addition, the
shareholders' agreement provides that each investor in Star
Gas, prior to selling any of its equity interests in Star Gas
to any purchaser other than another investor in Star Gas,
must first offer to sell such equity interests to Star Gas
and then to the other investors.
The Company is managing Star Gas' business under a Management
Services Agreement which provides for an annual cash fee of
$500,000 and an annual bonus equal to 5% of the increase in
Star Gas' EBITDA over the fiscal year ended September 30,
1993, payable in common stock of Star Gas pursuant to a
formula set forth in the Management Services Agreement. Star
Gas also reimburses the Company for its expenses and the cost
of certain Company personnel.
(12) Acquisitions
During 1991, the Company acquired the customer lists and
equipment of nine unaffiliated fuel oil dealers. The
aggregate consideration for these acquisitions, accounted for
by the purchase method, was approximately $12,500,000.
During 1992, the Company acquired the customer lists and
equipment of nine unaffiliated fuel oil dealers. The
aggregate consideration for these acquisitions, accounted for
by the purchase method, was approximately $41,500,000.
During 1993, the Company acquired the customer lists and
equipment of nine unaffiliated fuel oil dealers. The
aggregate consideration for these acquisitions, accounted for
by the purchase method, was approximately $13,600,000. In
addition, during 1993, the Company acquired a 29.5% interest
in Star Gas Corporation for $16,000,000.
Sales and net income of the acquired companies are included
in the consolidated statements of operations from the
respective dates of acquisition. Star Gas will be accounted
for following the equity method of accounting beginning
January 1994.
(Continued)
F-27
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12), Continued
Unaudited pro forma data giving effect to the purchased
businesses and to the Star Gas investment as if they had been
acquired on January 1 of the year preceding the year of
purchase, with adjustments, primarily for amortization of
intangibles, are as follows:
Year Ended December 31,
-----------------------
1991 1992 1993
---- ---- ----
(in thousands, except per share data)
Net sales $ 593,876 $604,491 $557,843
========= ======== ========
Equity in (share of loss of)
Star Gas Corporation -- 167 (11,923)
========= ======== ========
Net loss (15,547) (3,012) (19,570)
========= ======== ========
Earnings (loss) per common share:
Class A Common Stock $ (1.62) $ (.81) $ (1.09)
Class B Common Stock .57 1.77 2.47
Class C Common Stock (1.62) (.81) (1.09)
========= ======== ========
(13) Supplemental Disclosure of Cash Flow Information
Year Ended December 31,
----------------------
1991 1992 1993
---- ---- ----
Cash paid during the year for:
Interest $ 21,928,724 $20,238,486 $21,705,736
Income taxes 202,650 319,487 495,739
Noncash financing activities:
Redemption of preferred stock -- -- (12,763,663)
Issuance of subordinated notes
payable -- -- 12,763,663
Minimum pension liability -- -- 5,866,651
Deferred pension costs -- -- (1,332,616)
Minimum pension liability
adjustment -- -- (4,534,035)
(Continued)
F-28
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Disclosures About the Fair Value of Financial Instruments
Cash, Accounts Receivable, Notes Receivable and Other Current
Assets, U.S. Treasury Notes held in a Cash Collateral
Account, Working Capital Borrowings, Accounts Payable and
Accrued Expenses
The carrying amount approximates fair value because of the
short maturity of these instruments.
Long-Term Debt, Subordinated Notes Payable and Cumulative
Redeemable Exchangeable Preferred Stock
The fair values of each of the Company's long-term financing
instruments, including current maturities, are based on the
amount of future cash flows associated with each instrument,
discounted using the Company's current borrowing rate for
similar instruments of comparable maturity.
The estimated fair value of the Company's financial
instruments are summarized as follows:
At December 31, 1993
--------------------
Carrying Estimated
Amount Fair Value
------ ----------
(amounts in thousands)
Long-term debt $ 50,080 $ 50,076
Subordinated notes payable 135,264 148,644
Cumulative Redeemable Exchangeable
Preferred Stock 25,000 27,170
Limitations
Fair value estimates are made at a specific point in time,
based on relevant market information and information about
the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the
estimates.
(Continued)
F-29
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Selected Quarterly Financial Data (Unaudited)
(in thousands, except per share data)
<TABLE><CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31
1992 1992 1992 1992 Total
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 219,975 $ 74,006 $ 46,912 $ 171,537 $ 512,430
Gross profit 84,098 17,660 6,800 52,931 161,489
Income (loss)
before taxes 39,268 (20,020) (28,553) 5,316 (3,989)
Net income (loss) $ 38,937 $ (19,990) $(28,470) $ 5,134 $ (4,389)
=========== ========= ======== ========= =========
Earnings (loss) per
common share
Class A Common Stock $ 2.86 $ (1.67) $ (2.04) $ .22 $ (.81)
Class B Common Stock .29 .29 .29 .29 1.14
Class C Common Stock $ 2.86 $ (1.67) $ (2.04) $ .22 $ (.81)
=========== ========= ======== ========= =========
</TABLE>
<TABLE><CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31
1993 1993 1993 1993 Total
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 251,271 $ 71,978 $ 54,135 $ 161,142 $ 538,526
Gross profit 89,595 15,817 9,604 56,701 171,717
Income (loss)
before taxes and
extraordinary item 39,269 (25,972) (29,571) 9,110 (7,164)
Net income (loss) $ 38,938 $ (26,809) $(29,488) $ 8,928 $ (8,431)
=========== ========= ======== ========= =========
Earnings (loss) per
common share
Class A Common Stock $ 1.72 $ (1.25) $ (1.45) $ .41 $ (.57)
Class B Common Stock .47 .47 .47 .47 1.88
Class C Common Stock $ 1.72 $ (1.25) $ (1.45) $ .41 $ (.57)
=========== ========= ======== ========= =========
</TABLE>
F-30
<PAGE>
Petroleum Heat and Power Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
Assets
------
<TABLE><CAPTION>
March 31, December 31,
1994 1993
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 17,490,259 $ 4,613,546
U.S. Treasury Notes held in a Cash Collateral Account - 20,000,000
Accounts receivable (net of allowance of $1,785,538
and $1,026,202) 103,598,807 74,818,503
Inventories 12,555,933 13,992,928
Prepaid expenses 5,575,472 5,230,865
Notes receivable and other current assets 1,614,647 1,715,329
------------ ------------
Total current assets 140,835,118 120,371,171
------------ ------------
Property, plant and equipment 62,910,326 62,643,562
Less accumulated depreciation and amortization 32,273,957 31,103,032
------------ ------------
30,636,369 31,540,530
------------ ------------
Intangible assets (net of accumulated amortization
of $223,562,010 and $217,190,143)
Customer lists 69,902,330 73,177,198
Deferred charges 17,916,577 13,717,281
Deferred pension costs 1,332,616 1,332,616
------------ ------------
89,151,523 88,227,095
------------ ------------
Investment in Star Gas Corporation 18,263,000 16,000,000
------------ ------------
Restricted cash 1,663,000 -
------------ ------------
Other assets 435,000 450,000
------------ ------------
$280,984,010 $256,588,796
============ ============
Liabilities and Stockholders' Equity (Deficiency)
-------------------------------------------------
Current liabilities:
Working, capital borrowings $ - $ 28,000,000
Current maturities of other long-term debt 33,345 33,345
Current maturities of cumulative redeemable exchangeable
preferred stock 4,166,667 4,166,667
Accounts payable 10,967,121 16,664,026
Customer credit balances 6,376,131 22,324,023
Unearned service contract revenue 10,544,186 13,018,983
Accrued expenses 22,799,028 19,469,875
------------ ------------
Total current liabilities 54,886,478 103,676,919
------------ ------------
Long-term notes payable 42,631,832 50,000,000
------------ ------------
Other long-term debt 1,668,723 47,059
------------ ------------
Supplemental benefits payable 1,647,182 1,652,314
------------ ------------
Pension plan obligation 7,072,906 7,079,494
------------ ------------
Subordinated notes payable 167,631,831 135,263,663
------------ ------------
Cumulative redeemable exchangeable preferred stock, par value
$.10 per share; 409,722 shares authorized, 250,000 shares
outstanding of which 41,667 are reflected as current 20,833,333 20,833,333
---------- ----------
Stockholders' equity (deficiency):
Preferred stock - par value $.10 per share; 5,000,000 shares
authorized, none outstanding
Class A common stock - par value $.10 per share; 40,000,000
shares authorized, 18,992,579 shares outstanding 1,899,258 1,899,258
Class B common stock - par value $.10 per share; 6,500,000
shares authorized, 216,901 shares outstanding 21,690 21,690
Class C common stock - par value $.10 per share; 5,000,000
shares authorized, 2,545,139 shares outstanding 254,514 254,514
Additional paid-in capital 54,416,259 54,416,259
Deficit (66,165,961) (112,741,672)
Minimum pension liability adjustment (4,534,035) (4,534,035)
------------ ------------
(14,108,275) (60,683,986)
Note receivable from stockholder (1,280,000) (1,280,000)
------------ ------------
Total stockholders' equity (deficiency) (15,388,275) (61,963,986)
------------ ------------
$280,984,010 $256,588,796
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE>
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
March 31,
----------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Net sales $266,792,921 $251,271,152
Cost of sales 163,262,806 161,676,022
------------ ------------
Gross profit 103,530,115 89,595,130
Selling, general and administrative expenses 24,926,522 23,877,814
Direct delivery expense 14,714,579 12,317,978
Amortization of customer lists 4,876,051 6,397,188
Depreciation and amortization of plant and equipment 1,365,190 1,439,563
Amortization of deferred charges 1,495,816 1,337,816
Provision for supplemental benefits 69,867 43,061
------------ -------------
Operating income 56,082,090 44,181,710
Other income (expense):
Interest expense (5,999,989) (5,247,561)
Interest income 314,855 376,230
Gain (loss) on sales of fixed assets 20,317 (41,644)
------------ -------------
Income before income taxes, equity interest
and extraordinary item 50,417,273 39,268,735
Income taxes 601,000 331,000
------------ -------------
Income before equity interest and extraordinary item 49,816,273 38,937,735
Equity in earnings of Star Gas Corporation 2,263,000 -
------------ -------------
Income before extraordinary item 52,079,273 38,937,735
Extraordinary item - loss on early extinguishment of debt (654,500) -
------------ -------------
Net Income $ 51,424,773 $ 38,937,735
------------ -------------
============ =============
Net income applicable to common stock $ 49,626,077 $ 37,112,459
Income before extraordinary item per common share
Class A Common Stock $ 2.33 $ 1.72
Class B Common Stock .41 .47
Class C Common Stock 2.33 1.72
Extraordinary loss per common share
Class A Common Stock $ (.03) $ -
Class B Common Stock - -
Class C Common Stock (.03) -
Net income per common share
Class A Common Stock $ 2.30 $ 1.72
Class B Common Stock .41 .47
Class C Common Stock 2.30 1.72
Cash dividends declared per common stock
Class A Common Stock $ .14 $ .11
Class B Common Stock .41 .47
Class C Common Stock .14 .11
Weighted average number of common stock outstanding
Class A Common Stock 18,992,579 18,992,579
Class B Common Stock 216,901 216,901
Class C Common Stock 2,545,139 2,545,139
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE>
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE><CAPTION>
Three Months Ended
March 31,
----------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 51,424,773 $ 38,937,735
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of customer lists 4,876,051 6,397,188
Equity in earnings of Star Gas Corporation (2,263,000) -
Depreciation and amortization of
plant and equipment 1,365,190 1,439,563
Amortization of deferred charges
and debt discount 1,495,816 1,344,782
Provision for losses on accounts
receivable 486,618 535,955
Provision for supplemental benefits 69,867 43,061
Loss on early extinguishment of debt 654,500 -
Loss (gain) on sales of fixed assets (20,317) 41,644
Amortization of pension plan obligation (6,588) (6,643)
Increase in accounts receivable (29,266,922) (28,385,548)
Decrease in inventory 1,436,995 626,126
Increase in prepaid expenses, notes
receivable and other current assets (243,925) (288,765)
Decrease in other assets 15,000 15,000
Increase (decrease) in accounts payable (5,696,905) 1,502,724
Decrease in customer credit balances (15,947,892) (12,847,576)
Decrease in unearned service contract
revenue (2,474,797) (2,513,444)
Increase in accrued expenses 3,342,167 1,069,980)
------------ ------------
Net cash provided by
operating activities 9,246,631 7,911,782
------------ ------------
Cash flows from (used for) investing
activities:
Acquisition of customer lists (142,383) (1,414,535)
Capital expenditures (484,943) (928,573)
Increase in deferred charges (1,611,412) (872,998)
Proceeds from sales of fixed assets 44,231 39,238
------------ ------------
Net cash used for investing
activities (2,194,507) (3,176,868)
------------ ------------
</TABLE>
F-33
<PAGE>
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Consolidated Statement of Cash Flows
(Continued)
<TABLE><CAPTION>
Three Months Ended
March 31,
----------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from (used for) financing
activities:
Net reductions in working capital
borrowings $(28,000,000) $(24,000,000)
Proceeds from issuance of notes payable - 25,000,000
Net proceeds from issuance of
subordinated notes 71,087,500 -
Repayment of notes payable (50,654,500)
Release of Cash Collateral Account 20,000,000 -
Restricted cash held as collateral for
payment of a long-term note payable (1,663,000) -
Decrease in other debt and
supplemental benefits (83,335) (83,336)
Cash dividends paid (4,862,076) (4,386,838)
Principal payments under capital
lease obligation - (51,999)
------------
Net cash from (used for)
financing activities 5,824,589 (3,522,173)
------------ ------------
Net increase in cash 12,876,713 1,212,741
Cash at beginning of year 4,613,546 3,859,557
------------ ------------
Cash at the end of period $ 17,490,259 $ 5,072,298
------------ ------------
============ ============
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 2,693,946 $ 3,006,986
Income taxes 67,894 71,600
Non-cash investing activity:
Acquisition of customer lists and
deferred charges (1,630,000) -
Non-cash financing activity:
Issuance of note payable 1,630,000 -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE>
Petroleum Heat and Power Co., Inc.
and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1- Basis of Presentation
---------------------
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for the fair statement of results for the interim periods.
The results of operations for the three months ended March 31,
1994 are not necessarily indicative of the results to be expected for
the full year.
2- Per Share Data
--------------
Earnings per common shares are computed utilizing the three
class method based upon the weighted average number of shares of Class A
Common Stock, Class B Common Stock and Class C Common Stock outstanding
after adjusting net income for preferred dividends declared and
preferred stock accretion aggregating $1,799,000 and $1,825,000 for the
three months ended March 31, 1994 and 1993, respectively. Fully diluted
earnings per common shares are not presented because the effect is not
material.
3- Acquisitions
------------
During the three month period ending March 31, 1994, the company
acquired the customer lists and equipment of two unaffiliated fuel oil
dealers. The aggregate consideration for these acquisitions, accounted
for by the purchase method, was approximately $1.9 million.
Sales and net income of the acquired companies is included in
the consolidated statement of income from the respective dates of
acquisition.
Had these acquisitions occurred at the beginning of the period,
the pro forma estimated unaudited results of operations for the three
months ended March 31, 1994 would have been as follows:
<TABLE><CAPTION>
(Thousands, Except Per Share)
-----------------------------
<S> <C>
Net Sales $268,122
Net Income $ 51,629
Earnings Per Common Share:
Class A Common Stock $2.31
Class B Common Stock $ .41
Class C Common Stock $2.31
</TABLE>
F-35
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
IMPORTANT
Holders of shares of Class B Common Stock who wish to accept
the Offer should either (a) request their broker, dealer,
commercial bank, trust company or nominee to effect the
transaction for them, or (b) complete and sign the applicable
Letter of Transmittal or a facsimile thereof, having their
signatures thereon guaranteed if required by the Instructions of
the Letter of Transmittal, and forward such Letter of
Transmittal, together with the certificates for the shares of
Class B Common Stock and all other required documents, to the
Depositary.
The Depositary
CHEMICAL BANK
By Mail: Facsimile By Hand:
Transmission:
Reorganization Bank Window
Department (212) 629-8015 55 Water Street
P.O. Box 1916 2nd Floor, Room
GPO Station Confirm Facsimile 234
New York, New York at: New York, NY 10041
10116
(212) 613-7137
The Information Agent:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022
(800) 662-5200 (Toll Free)
ADDITIONAL COPIES
Requests for additional copies of this Offer to Purchase and
the Letters of Transmittal should be directed to the Information
Agent. You may also contact the Depositary, your local broker,
commercial bank or trust company for assistance concerning the
Offer.
Petroleum Heat and Power Co., Inc.
LETTER OF TRANSMITTAL
To Tender Shares of Class B Common Stock Pursuant to Offer to Purchase
Dated July 20, 1994
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 31, 1994,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN AT ANY
TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE, AND,
UNLESS PREVIOUSLY ACCEPTED BY THE COMPANY, AT ANY TIME AFTER 12:00
MIDNIGHT, NEW YORK CITY TIME, ON SEPTEMBER 16, 1994.
To: CHEMICAL BANK, DEPOSITARY
By Mail or Overnight By Facsimile: By Hand:
Courier: (212) 629-8015 Bank Window
Reorganization 55 Water Street
Department Confirm Facsimile at: 2nd Floor, Room 234
P.O. Box 1916 (212) 613-7137 New York, New York 10041
G.P.O. Station
New York, NY 10116
Delivery of this instrument to an address, or transmission of instructions
via a facsimile number, other than as set forth above, does not constitute a
valid delivery.
The undersigned acknowledges that the undersigned has received and
reviewed the Notice of Termination of Special Dividends and Offer to
Purchase, dated July 20, 1994 (the "Offer to Purchase"), of Petroleum Heat
and Power Co., Inc. (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Offer") to
purchase for cash any and all of the issued and outstanding shares of its
Class B Common Stock, par value $.10 per share (the "Class B Common Stock")
for a purchase price equal to $17.50 per share net plus all accrued and
unpaid Special Dividends (as defined) through the Expiration Date (which
would amount to $0.2763 per share assuming that the Expiration Date is August
31, 1994). The Offer is being made in connection with the termination of the
Special Dividends of the Class B Common Stock in accordance with the terms of
the Company's restated and amended articles of incorporation.
The undersigned, by completing the box entitled "Description of Class B
Common Stock" below and signing this Letter, will be deemed to have tendered
the Class B Common Stock as set forth in such box below.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX BELOW
This Letter may be used either if certificates for Class B Common Stock are
to be forwarded herewith or if tenders are to be made by book-entry transfer
to the account maintained by the Depositary at The Depository Trust Company,
Midwest Securities Trust Company or Philadelphia Depository Trust Company
(each a "Book Entry Transfer Facility"). Delivery of documents to a Book
Entry Transfer Facility does not constitute delivery to the Depositary.
Your bank or broker can assist you in completing this form. The Instructions
included with this Letter must be followed. Questions and requests for
assistance or for additional copies of the Offer to Purchase and this Letter
may be directed to the Information Agent, as indicated in Instruction 10.
List below the Class B Common Stock to which this Letter relates. If the
space provided below is inadequate, the certificate numbers and shares
outstanding should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF CLASS B COMMON STOCK
- --------------------------------------------------------------------------------
Number of
Shares Number of
Name(s) and Address(es) of Certificate Represented by Shares
Registered Holder(s) Number(s)* Certificate Tendered**
(Please fill in if blank)
- --------------------------------------------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Total
================================================================================
* Need not be completed by Book-Entry Securityholders (see
below).
** Unless otherwise indicated in this column, a holder will be
deemed to have tendered the aggregate number of shares
represented by the number of shares of Class B Common Stock
indicated in the third column. See Instruction 2.
<PAGE>
/ / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE ENCLOSED
HEREWITH.
/ / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY
WITH A BOOK ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-------------------------------------------
Name of Book Entry Transfer Facility
(The Depository Trust Company,
Midwest Securities Trust Company or
Philadelphia Depository Trust Company):
-------------------------------
Book Entry Transfer Facility Account Number:
-----------------------------
Transaction Code Number:
-------------------------------------------------
/ / CHECK HERE IF TENDERED SHARES OF CLASS B COMMON STOCK ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING
(SEE INSTRUCTION 1):
Name of Registered Owner(s):
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------
Name of Eligible Institution which guaranteed delivery:
------------------
Book Entry Transfer Facility Account Number
(if delivered by book-entry transfer):
-----------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Upon the terms and subject to the conditions of the Offer, the undersigned
hereby tenders to the Company the number of shares of Class B Common Stock
indicated above. Subject to, and effective upon, the acceptance for payment
of the Class B Common Stock tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such shares of Class B Common Stock as are being
tendered hereby. The undersigned hereby irrevocably constitutes and appoints
the Depositary the true and lawful agent and attorney-in-fact of the
undersigned (with full knowledge that said Depositary also acts as the agent
of the Company) with respect to such Class B Common Stock with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to: (a)(i) deliver such shares of Class B Common
Stock or transfer ownership of such shares of Class B Common Stock on the
account books maintained by either The Depository Trust Company, the Midwest
Securities Trust Company or the Philadelphia Depository Trust Company, and
(ii) present such shares of Class B Common Stock for transfer on the books of
the Company; and (b) receive all benefits, and otherwise exercise all rights
of beneficial ownership of, such shares of Class B Common Stock, all in
accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the shares of
Class B Common Stock tendered hereby and that the Company will acquire good
and unencumbered title thereof, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim when the same
are accepted by the Company. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Depositary or the Company to
be necessary or desirable to complete the sale, assignment and transfer of
the shares of Class B Common Stock tendered hereby. All authority conferred
or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives
of the undersigned and shall not be affected by, and shall survive, the death
or incapacity of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in the Instructions contained in
this Letter.
The undersigned understands that the undersigned will receive accrued and
unpaid Special Dividends through the Expiration Date on all shares of Class B
Common Stock that are tendered by the undersigned (which would amount to
$0.2763 per share assuming that the Expiration Date is August 31, 1994).
Unless otherwise indicated under the boxes entitled "Special Issuance
Instructions" or "Special Delivery Instructions" below, please issue a check
for payment of the purchase price for the shares of Class B Common Stock
being tendered herewith plus all accrued dividends (and, if applicable,
substitute Class B Common Stock certificates for any shares of Class B Common
Stock not exchanged) in the name of the undersigned and send them to the
undersigned at the address shown below the signature of the undersigned. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any shares of Class B Common Stock from the name of the registered
holder thereof if the Company does not accept for exchange any of the shares
of Class B Common Stock so tendered.
2
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
- --------------------------------------- ----------------------------------
To be completed ONLY if To be completed ONLY if
certificates for shares of Class B certificates for shares of Class
Common Stock outstanding not B Common Stock outstanding not
exchanged and the checks for the exchanged and the checks for the
purchase price and accrued purchase price and accrued
dividends are to be issued in the dividends issued in the name of
name of and sent to someone other the person whose signature
than the person whose signature appears on the fact of this
appears on the face of this Letter. Letter are to be sent to someone
other than such person or to such
Issue and mail the checks or Class person at an address other than
B Common Stock to: that shown in the box entitled
"Description of Class B Common
Name(s) . . . . . . . . . . Stock" on the face of this
(Please Print) Letter.
. . . . . . . . . . . . . .
(Please Print) Issue and mail the checks or
Class B Common Stock to:
Address . . . . . . . . . .
Name(s) . . . . . . . . . .
. . . . . . . . . . . . . . (Please Print)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Zip Code) (Please Print)
. . . . . . . . . . . . . . Address . . . . . . . . . .
(Employer Identification or Social
Security No.) . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
(Zip Code)
- --------------------------------------- ----------------------------------
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
(To be Completed by All Tendering Securityholders)
(See Instructions 1 and 3 and the following paragraph)
X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures(s) of Owner(s)
Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . .
Area Code and Tel. No.: . . . . . . . . . . . . . . . . . . .
Must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for Class B Common Stock or on
a security position listing or by person(s) authorized to
become registered holder(s) by endorsements and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s): . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Please Print)
Capacity: . . . . . . . . . . . . . . . . . . . . . . . . . .
Address: . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Include Zip Code)
SIGNATURE GUARANTEE
Signature(s) Guaranteed by an Eligible Institution:
(If Required by Instruction 3)
Authorized Signature . . . . . . . . . . . . . . . . . . . .
Title . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Name of Firm . . . . . . . . . . . . . . . . . . . . . . . .
Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . .
IMPORTANT: THIS LETTER OR FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR CLASS B COMMON STOCK OR CONFIRMATION OF BOOK-
ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A FORM OF
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- -------------------------------------------------------------------------------
See Substitute Form W-9, and Instructions on Reverse Side
3
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Offer
1.Delivery of this Letter and Certificates. This Letter is to be used either
if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for book-entry transfer set forth in the Offer to
Purchase under the caption "THE OFFER - Procedures for Accepting the Offer
and Tendering the Shares of Class B Common Stock." Certificates for Class B
Common Stock, or any book-entry transfer into the Depositary's account at a
Book Entry Transfer Facility of Class B Common Stock tendered electronically,
as well as a properly completed and duly executed copy of this Letter or a
facsimile hereof, and any other documents required by this Letter, must be
received by the Depositary at one of its addresses set forth herein or (in
the case of tenders by book-entry transfer) confirmed to the Depositary prior
to 5:00 P.M., New York City time, on the Expiration Date. The method of
delivery of the Class B Common Stock, this Letter and any other required
documents is at the election and risk of the Tendering Securityholder, but,
except as otherwise provided below, the delivery will be deemed made only
when actually received or confirmed by the Depositary. If delivery is by
mail, it is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Depositary before 5:00 P.M. New
York City time, on the Expiration Date.
Tendering Securityholders whose certificates representing their Class B
Common Stock are not immediately available or who cannot deliver their
certificates or other required documents to the Depositary before 5:00 P.M.,
New York City time on the Expiration Date may tender their Class B Common
Stock pursuant to the guaranteed delivery procedures set forth in the Offer
to Purchase under the caption "THE OFFER - Procedures for Accepting the Offer
and Tendering the Shares of Class B Common Stock." Pursuant to such
procedure (i) such tender must be made by or through a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office in the United States (each an "Eligible
Institution"); (ii) prior to 5:00 P.M., New York City time, on the Expiration
Date, the Depositary must have received from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by
telegram, facsimile transmission, mail or hand delivery) setting forth the
name and address of the Tendering Securityholder, the description of the
shares of Class B Common Stock and the number of shares of Class B Common
Stock tendered thereby, stating that the tender is being made thereby and
guaranteeing that, within five American Stock Exchange ("Amex") trading days
after the date of execution of such Notice of Guaranteed Delivery, this
Letter (or facsimile hereof), together with certificate(s) representing the
Class B Common Stock and any other documents required by this Letter, will be
deposited by the Eligible Institution with the Depositary; and (iii) the
certificate(s) for all Class B Common Stock or a confirmation of a book-entry
transfer of such Class B Common Stock into the Depositary's account at a Book
Entry Transfer Facility as described above, as well as this Letter and all
other documents required by this Letter, must be received by the Depositary
within five Amex trading days after the date of execution of such Notice of
Guaranteed Delivery.
This Letter of Transmittal and the certificates for the shares of Class B
Common Stock should not be sent to the Company. THE CERTIFICATES FOR THE
SHARES OF CLASS B COMMON STOCK TOGETHER WITH THIS LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO THE DEPOSITARY ONLY.
2. Partial Tenders; Withdrawals. If less than the entire number of shares
of Class B Common Stock evidenced by a submitted certificate is to be
tendered, the Tendering Securityholder should fill in the number of shares to
be tendered in the box entitled "Number of Shares Tendered" above. Reissued
shares of Class B Common Stock for the number of shares not exchanged will be
sent to such Tendering Securityholder, unless otherwise provided in the
appropriate box on this Letter, as soon as practicable after the Expiration
Date. The aggregate number of shares of all Class B Common Stock delivered
to the Depositary will be deemed to have been tendered unless otherwise
indicated.
Tenders of Class B Common Stock may be withdrawn by delivering written
notice of withdrawal to the Depositary at any time prior to 5:00 P.M., New
York City time, on the Expiration Date, and, unless previously accepted by
the Company at any time after 12:00 Midnight, New York City time on September
16, 1994. To be effective, a notice of withdrawal must indicate the
certificate number(s) or number of shares of Class B Common Stock to which it
relates (or, if the tender was by book-entry transfer, information sufficient
to enable the Depositary to identify the Class B Common Stock so tendered)
and the aggregate number of shares represented by such Class B Common Stock
and (i) be signed by the holder in the same manner as the original signature
on this Letter or (ii) be accompanied by evidence satisfactory to the Company
that the holder withdrawing such tender has succeeded to beneficial ownership
of such Class B Common Stock.
3. Signatures on this Letter; Stock Powers and Endorsements; Guarantee of
Signatures. If this Letter is signed by the registered holder of the Class B
Common Stock tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change
whatsoever.
If any of the shares of Class B Common Stock tendered hereby are owned of
record by two or more joint owners, all such owners must sign this Letter.
4
<PAGE>
If any tendered shares of Class B Common Stock are registered in different
names on several certificates, it will be necessary to complete, sign and
submit as many separate copies of this Letter as there are different
registrations of certificates.
When this Letter is signed by the registered holder or holders of Class B
Common Stock listed and tendered hereby, no endorsement of certificates or
separate stock powers are required. If, however,
certificates for any untendered shares of Class B Common Stock are to be
reissued, to a person other than the registered holder, then endorsements of
any certificates transmitted hereby or separate stock powers are required.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) listed, such certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holder or holders appear on the
certificate(s).
If this Letter or the Notice of Guaranteed Delivery or any certificates or
stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing,
and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority so to act must be submitted.
Endorsements on certificates for Class B Common Stock or signatures on
stock powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless the shares of Class B Common Stock are tendered (i) by a registered
holder of such Class B Common Stock (which term, for purposes of this Letter,
shall include any participant in a Book Entry Transfer Facility whose name
appears on a security position listing as the owner of Class B Common Stock
who has not completed either the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions"; or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions. Tendering Securityholders
should indicate in the applicable box the name and address to which the check
for the purchase price and all accrued dividends and/or substitute
certificates evidencing Class B Common Stock for the number of shares not
tendered are to be issued or sent, if different from the name and address of
the person signing this Letter. In the case of issuance in a different name,
the employer identification or social security number of the person named
must also be indicated. If no such instructions are given, such Class B
Common Stock not exchanged will be returned by crediting the account at a
Book Entry Transfer Facility designated below the box entitled "Description
of Class B Common Stock."
5. Tax Identification Number. Federal income tax law requires that a
Tendering Securityholder whose tendered shares of Class B Common Stock are
accepted for payment must provide the Company (as payor) with his or her
correct taxpayer identification number ("TIN"), which, in the case of an
Tendering Securityholder who isan individual, is his social security number.
If the Company is not provided with the correct TIN or an adequate basis for
exemption, the Tendering Securityholder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, delivery to such
Tendering Securityholder of any cash payments may be subject to backup
withholding in an amount equal to 31% of the gross proceeds resulting from
the Offer. If withholding results in an overpayment of taxes, a refund may
be obtained.
Exempt Tendering Securityholders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 (the
"Guidelines") for additional instructions.
To prevent backup withholding, each Tendering Securityholder must provide
his or her correct TIN by completing the "Substitute Form W-9" set forth
herein, certifying that the TIN provided is correct (or that such Tendering
Securityholder is awaiting a TIN) and that (a) the Tendering Securityholder
has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of failure to report all interest
or dividends or (b) the Internal Revenue Service has notified the Tendering
Securityholder that such holder is no longer subject to backup withholding.
In order to satisfy the Depositary that a foreign individual qualifies as an
exempt recipient, such Tendering Securityholder must submit a statement
signed under penalty of perjury attesting to such exempt status. Such
statements may be obtained from the Depositary. If the shares of Class B
Common Stock are in more than one name or are not in the name of the actual
owner, consult the Guidelines for information on which TIN to report. If you
do not have a TIN, consult the Guidelines for instructions on applying for a
TIN, check the box in Part 2 of the Substitute Form W-9, and write "applied
for" in lieu of your TIN. If you do not provide your TIN to the payor within
60 days, backup withholding will begin and continue until you furnish your
TIN to the payor.
6. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the transfer and sale of Class B Common Stock to it or its
order pursuant to the Offer. If, however, substitute certificates for Class
B Common Stock for the number of shares of Class B Common Stock not tendered
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Class B Common Stock tendered
hereby, or if tendered certificates are registered in the name of any person
other than the person signing this Letter, or if a transfer tax is imposed
for any reason other than the transfer and sale of Class B Common Stock to
the Company or its order pursuant to the Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the Tendering
5
<PAGE>
Securityholder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such Tendering Securityholder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) LISTED IN THIS
LETTER.
7. Waiver of Conditions. Consummation of the Offer is subject to the
satisfaction of certain customary conditions and the Company reserves the
right at any time to waive satisfaction of any condition enumerated in the
Offer to Purchase.
8. No conditional offers. No alternative, conditional, irregular or
contingent tenders will be accepted. All Tendering Securityholders, by
execution of this Letter (or a facsimile hereof), shall waive any right to
receive notice of the acceptance of their shares of Class B Common Stock for
exchange.
Neither the Company, Depositary or any other person is obligated to give
notice of defects or irregularities in any tender, nor shall any of them
incur any liability for failure to give any such notice.
9. Mutilated, Lost, Stolen or Destroyed ClassB Common Stock Certificates.
Any holder whose Class B Common Stock have been mutilated, lost, stolen or
destroyed should contact the Depositary at the address indicated above for
further instructions.
10. Requests for Assistance or Additional Copies. Questions relating to
the procedure for tendering may be directed to Morrow & Co., Inc., the
Information Agent, at telephone number (800) 662-5200 (Toll Free).
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 5)
PAYER'S NAME: CHEMICAL BANK
SUBSTITUTE Part 1--Please Social Security
Provide Your TIN in Number or Employer
Form W-9 the Box at Right and Identification Number
Certify by Signing _____________________
and Dating Below.
Department of CERTIFICATION--Under Part 2--
the Treasury the penalties of
Internal perjury, I certify that Awaiting TIN / /
Revenue Service (1) the number shown on
this form is my correct
Payor's Request taxpayer identification
for Taxpayer number (or I am waiting
Identification for a number to be
Number (TIN) issued to me), (2) I am
not subject to backup
withholding either
because I have not been
notified that I am
subject to backup
withholding as a result
of failure to report
all interest or
dividends, or the
Internal Revenue
Service has notified me
that I am no longer
subject to backup
withholding and (3) any
other information
provided on this form
is true and correct.
SIGNATURE ________________ DATE ____________
- -------------------------------------------------------------------------------
You must cross out item (2) above if you have been notified by
the Internal Revenue Service that you are subject to backup
withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS
that you were subject to backup withholding, do not cross out
item (2). (Also see the enclosed Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9).
- -------------------------------------------------------------------------------
All other questions relating to the Offer, as well as requests for
assistance or additional copies of the Offer to Purchase and this Letter may
be directed to Morrow & Co., Inc., the Information Agent, 909 Third Avenue,
New York, New York 10022, telephone number (800) 662-5200.
The Information Agent for the Exchange Offer is:
MORROW & CO., INC.
909 Third Avenue
New York, New York 10022
(800) 662-5200 (Toll Free)
6
Petroleum Heat and Power Co., Inc.
OFFER TO PURCHASE
Shares of Class B Common Stock
at
$17.50 Net Per Share
Plus Accrued and Unpaid Special Dividends
July 20, 1994
To Our Clients:
Enclosed for your consideration is a Notice of Termination of Special
Dividends and Offer to Purchase, dated July 20, 1994 (the "Offer to
Purchase"), and a Letter of Transmittal (the "Transmittal Letter") relating
to the offer (the "Offer") by Petroleum Heat and Power Co., Inc., a Minnesota
corporation (the "Company") to purchase for cash any and all of the issued
and outstanding shares of its Class B Common Stock, par value $.10 per share
(the "Class B Common Stock"), at a purchase price of $17.50 per share net
plus accrued and unpaid Special Dividends (as defined) through the Expiration
Date (as defined). The Offer is being made in connection with the
termination of the Special Dividends of the Class B Common Stock in
accordance with the terms of the Company's restated and amended articles of
incorporation.
This material is being forwarded to you as the beneficial owner of
shares of Class B Common Stock, carried by us in your account but not
registered in your name. A tender of such shares of Class B Common Stock may
only be made by us as the holder of record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to tender
any or all such shares of Class B Common Stock held by us for your account,
pursuant to the terms and conditions set forth in the enclosed Offer to
Purchase and Transmittal Letter. We urge you to read the Offer to Purchase
and the Transmittal Letter carefully before instructing us to tender your
shares of Class B Common Stock.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender shares of Class B Common Stock on your behalf in
accordance with the provisions of the Offer. The Offer will expire at 5:00
p.m., New York City time, on August 31, 1994, unless extended (the
"Expiration Date"). All tenders of the shares of Class B Common Stock may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any of the shares of Class B Common Stock also may be
withdrawn at any time after 12:00 midnight New York City time, on September
16, 1994, unless previously accepted by the Company.
If you wish to have us tender any or all of your shares of Class B
Common Stock, please so instruct us by completing, executing, detaching and
returning to us the attached instruction form. The accompanying Transmittal
Letter is furnished to you for your information only and may not be used by
you to tender the shares of Class B Common Stock.
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Offer by Petroleum Heat and
Power Co., Inc. to acquire the shares of Class B Common Stock. (Please check
the appropriate box below).
____________________
This will instruct you to tender the number of shares of Class B Common
Stock indicated below held by you for the account of the undersigned,
pursuant to the terms and conditions set forth in the Offer to Purchase and
the Transmittal Letter.
Box 1 / / Please TENDER . . . . . . shares of Class B Common Stock held
by you for my account.
Box 2 / / Please DO NOT TENDER any shares of Class B Common Stock held
by you for my account.
Date:
.............................................
.............................................
Signature(s)
.............................................
.............................................
Please print name(s) here
Unless a specific contrary instruction is given in the spaces provided, your
signature(s) hereon shall constitute an instruction to us to tender all your
shares of Class B Common Stock applicable pursuant to the terms and
conditions set forth in the Offer to Purchase and the Transmittal Letter.
2
