AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1994
REGISTRATION NO. 33-72354
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PETROLEUM HEAT AND POWER CO., INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
MINNESOTA 5983 06-1183025
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2187 ATLANTIC STREET
STAMFORD, CONNECTICUT 06902
(203) 325-5400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
IRIK P. SEVIN,
PRESIDENT
PETROLEUM HEAT AND POWER CO., INC.
2187 ATLANTIC STREET
STAMFORD, CONNECTICUT 06902
(203) 325-5400
(Name and address, including zip code and telephone number,
including area code of agent for service)
------------------------
COPIES TO:
ALAN SHAPIRO, ESQ. BETH R. NECKMAN, ESQ.
PHILLIPS, NIZER, BENJAMIN, KRIM & BALLON LATHAM & WATKINS
31 W. 52ND STREET 885 THIRD AVENUE
NEW YORK, NEW YORK 10019-6167 NEW YORK, NEW YORK 10022-4802
(212) 977-9700 (212) 906-1200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE> <CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER DEBENTURE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Subordinated Debentures
Due 2006..................... $75,000,000 100% $75,000,000 $25,863(2)
<FN>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
CROSS REFERENCE SHEET
PURSUANT TO S-K, ITEM 501(B)
<TABLE>
<S> <C> <C>
ITEM OF FORM S-2 PROSPECTUS LOCATION
------------------------------------------------------ ------------------------------------------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus........................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors, Ratio of Earnings
to Fixed Charges...................................... Prospectus Summary; Risk Factors; Selected Financial
and Other Data
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Underwriting
6. Dilution.............................................. Inapplicable
7. Selling Security Holders.............................. Inapplicable
8. Plan of Distribution.................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered............ Description of Debentures
10. Interests of Named Experts and Counsel................ Legal Matters; Experts
11. Information with Respect to the Registrant
(b)(1) Description of Business...................... Prospectus Summary; The Company; Business
(b)(2) Financial Statements......................... Consolidated Financial Statements of Petroleum Heat
and Power Co., Inc. and Subsidiaries
(b)(3) Industry Information......................... Business
(b)(4) Dividends and Related Stockholder Matters.... Inapplicable
(b)(5) Selected Financial Data...................... Selected Financial and Other Data
(b)(6) Supplementary Financial
Information................................. Consolidated Financial Statements of Petroleum Heat
and Power Co., Inc. and Subsidiaries
(b)(7) Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... Management's Discussion and Analysis of Results of
Operations and Financial Condition
(b)(8) Disagreements with Accountants............... Inapplicable
12. Incorporation of Certain Information by Reference..... Incorporation of Documents by Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities......................................... Inapplicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 26, 1994
PROSPECTUS
, 1994
$75,000,000
PETROLEUM HEAT AND POWER CO., INC.
% SUBORDINATED DEBENTURES DUE 2006
The % Subordinated Debentures due 2006 (the "Debentures") are being
offered (the "Offering") by Petroleum Heat and Power Co., Inc. (the "Company").
Interest on the Debentures is payable semi-annually on and of each
year, commencing , 1994. The Debentures are not redeemable prior
to , 1999 . Thereafter, the Debentures are redeemable, in whole or
in part, at the option of the Company, at the redemption prices set forth
herein, together with accrued and unpaid interest to the date of redemption. In
addition, at any time prior to , 1997, the Company may redeem
Debentures with the net proceeds of a public offering of Capital Stock (as
defined) of the Company at a redemption price of % of the principal amount
thereof, together with accrued and unpaid interest to the date of redemption,
provided that at least $50.0 million of the Debentures remain outstanding
immediately following any such redemption. Upon a Change of Control (as
defined), the Company will be obligated to make an offer to purchase all
outstanding Debentures at a price of 101% of the principal amount thereof,
together with accrued and unpaid interest to the date of purchase. See
"Description of Debentures."
The Debentures will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company. As of September 30, 1993, after giving pro forma effect
to the Offering, the use of proceeds therefrom and the Subordinated Debt
Amendments (as defined), Senior Debt of the Company would have been
approximately $42.7 million. In addition, the Debentures will be effectively
subordinated to all indebtedness and other liabilities and commitments of the
Company's subsidiaries which, as of September 30, 1993, totalled approximately
$9.2 million, consisting primarily of trade payables. The Debentures will rank
pari passu with other subordinated indebtedness of the Company, which, after
giving pro forma effect to the Subordinated Debt Amendments, would have
aggregated approximately $92.6 million as of September 30, 1993.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED HEREBY.
THESE SECURITIES HAVE 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 ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE> <CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Debenture...................................... % % %
Total.............................................. $ $ $
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting expenses payable by the Company estimated at $ .
The Debentures are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
various prior conditions, including their right to reject any order in whole or
part. It is expected that delivery of the Debentures will be made in New York on
or about , 1994.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
KIDDER, PEABODY & CO.
INCORPORATED
CHEMICAL SECURITIES INC.
MORGAN SCHIFF & CO., INC.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
WITH RESPECT TO SALES OF THE % SUBORDINATED DEBENTURES DUE 2006 BEING
OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH DEBENTURES MAY BE SOLD ONLY TO THE
FOLLOWING INDIVIDUALS: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH THE
CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL, HAVE
A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY
PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT
NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND
SUBSIDIARIES OF THE FOREGOING OR (3) PERSONS WHO HAVE EITHER: (I) A NET WORTH
(EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES) OF AT LEAST $250,000 AND
AN ANNUAL GROSS INCOME OF AT LEAST $75,000, OR (II) IRRESPECTIVE OF ANNUAL GROSS
INCOME, A NET WORTH OF AT LEAST $500,000 (EXCLUSIVE OF HOME, HOME FURNISHINGS
AND AUTOMOBILES).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
concerning the Company can be inspected without charge 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, proxy
statements and other information will be made available for inspection and
copying at the Commission's public reference facilities at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center,
13th Floor, 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,
reports, proxy statements and other information concerning the Company may be
inspected and copied at the offices of the American Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-2 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the Debentures. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. Statements made in the
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company will furnish to holders of the Debentures annual reports
containing audited financial statements and quarterly reports containing
unaudited summary financial information for the first three quarters of each
fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus and by the information and financial statements
appearing in the documents incorporated by reference herein. See "Risk Factors"
for a discussion of certain factors that should be considered by prospective
purchasers of the Debentures offered hereby. Unless the context otherwise
requires, all references in this Prospectus to the "Company" and "Petro" include
Petroleum Heat and Power Co., Inc. and its subsidiaries.
THE COMPANY
Petroleum Heat and Power Co., Inc. (the "Company" or "Petro") is the
largest retail distributor of home heating oil (#2 fuel oil) in the United
States, with total sales of $548.9 million for the twelve months ended September
30, 1993. Petro served approximately 421,000 customers in 26 markets in the
Northeast as of September 30, 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
twelve months ended September 30, 1993, the Company sold approximately 449.7
million gallons of home heating oil and propane.
The home heating oil business has been relatively stable principally due to
the following fundamental characteristics: (i) home heating oil demand has been
relatively unaffected by general economic conditions due to the
non-discretionary nature of home heating oil purchases, (ii) homeowners have
tended to remain with their traditional distributors and (iii) customer loss to
other energy sources, primarily natural gas, has been low due to the high cost
of conversion. While over short periods of time weather has caused some
variability in financial and operating results, the Company has typically been
able to adjust gross profit margins and operating expenses to partially offset
lower volumes associated with warmer winter temperatures. The Company
historically has been able to pass through wholesale price increases to its
customers and has minimized its exposure to oil price fluctuations by
maintaining an average of no more than a ten day inventory of home heating oil.
In addition, the Company has minimized its exposure to environmental liability
by storing its oil in third party-owned facilities.
Management, which assumed control of the Company in 1979, assesses the
Company's financial performance by, among other measures, operating income
before depreciation and amortization and the amount of non-cash expenses
associated with key employees' deferred compensation plans ("EBITDA") and
consolidated net income (loss) plus depreciation and amortization and the amount
of non-cash expenses associated with key employees' deferred compensation plans,
less accrued preferred stock dividends, excluding net income (loss) derived from
investments accounted for by the equity method, except to the extent of any cash
dividends received by the Company ("NIDA"). Although EBITDA and NIDA should not
be considered a substitute for net income (loss) as an indicator of the
Company's operating performance and NIDA should not be considered a measure of
the Company's liquidity, they are the principal bases upon which the Company
assesses its financial performance. EBITDA increased from $3.6 million in 1980
to $51.3 million in 1992, a compound annual growth rate of 24.8%. During this
same period, NIDA increased from $2.9 million in 1980 to $27.7 million in 1992,
a compound annual growth rate of 20.7%. The volume of home heating oil sold by
the Company has increased from 59.4 million gallons in 1980 to 423.1 million
gallons in 1992, a compound annual growth rate of 17.8%. The growth in EBITDA,
NIDA and volume was primarily the result of the Company's purchase of 135 home
heating oil distributors during this period and its ability to rapidly integrate
these acquisitions while achieving significant economies of scale. On a pro
forma basis, adjusted to give effect as of January 1, 1992 to, among other
things, the nine acquisitions completed during 1992, the nine acquisitions
completed during the nine months ended September 30, 1993 and the probable
acquisition in 1994 of an individually insignificant distributorship, EBITDA and
NIDA would have been $63.6
3
<PAGE>
million and $36.6 million, respectively, for the year ended December 31, 1992.
On a pro forma basis, adjusted to give effect as of January 1, 1992 to, among
other things, the nine acquisitions completed during the nine months ended
September 30, 1993 and the probable acquisition in 1994 of an individually
insignificant distributorship, EBITDA and NIDA would have been $28.5 million and
$8.6 million, respectively, for the nine months ended September 30, 1993. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Overview" and Pro Forma Financial Statements included elsewhere in
this Prospectus.
As a result of abnormally warm winter weather in 1990, the Company's EBITDA
and volume of home heating oil sold decreased by 34.4% and 11.1%, respectively,
as compared to 1989. Although 1991 was also warmer than normal and home heating
oil volume declined 3.4% from 1990, EBITDA increased by 52.2% from 1990
principally due to improvement in gross profit margins and lower operating
expenses. In 1992, the weather returned to more normal levels, and EBITDA
increased by 28.2% to $51.3 million and the volume of home heating oil sold
increased by 9.7%. For the years ended December 31, 1990, 1991 and 1992, the
Company incurred net losses of $29.3 million, $16.6 million and $4.4 million,
respectively. For the nine months ended September 30, 1992 and 1993, the Company
incurred net losses of $9.5 million and $17.4 million, respectively. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." At September 30, 1993, the Company had outstanding an aggregate of
$185.4 million of long-term debt (including current portion), although $20.0
million had been deposited at that time into a cash collateral account for the
repayment of a portion of such debt.
The home heating oil industry is large, highly fragmented and undergoing
consolidation. According to United States Bureau of Census data, there were
approximately 3,800 independently-owned and operated home heating oil
distributors in the Northeast at the end of 1990. The Company's strategy, as the
principal consolidator in the industry, is to grow through the acquisition and
integration of distributors in new and existing markets and to emphasize
customer retention and internal account growth through a variety of regionally
sensitive marketing and customer service initiatives. The Company is
continuously evaluating acquisition opportunities, and believes that the warm
winter weather in 1990 and 1991 has enhanced its potential to make acquisitions.
The Company realizes significant economies of scale from the centralization of
accounting, data processing, fuel oil purchasing, credit and marketing
functions. It operates under 86 trade names in 30 branch offices that maintain
autonomy over oil delivery, heating equipment service and customer relations.
RECENT DEVELOPMENTS
Based upon preliminary unaudited results for the year ended December 31,
1993, Petro expects to report total sales of approximately $538.5 million with a
volume of home heating oil and propane sold of approximately 443.5 million
gallons. EBITDA and NIDA are expected to range from $47.7 million to $48.7
million and $22.5 million to $23.5 million, respectively. In addition, the
Company anticipates a net loss ranging from $8.0 million to $9.0 million.
In December 1993, the Company acquired an approximate 29.5% equity interest
in Star Gas Corporation ("Star Gas") for $16.0 million in cash. Certain other
investors 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 of Star Gas. In
connection with this investment, the Company entered into a management agreement
with Star Gas and acquired options to purchase all of the equity securities of
the other investors.
Star Gas is the tenth largest distributor of propane in the United States,
with sales of $154.2 million, representing over 169 million gallons of propane,
for the year ended September 30, 1993. Star Gas served approximately 200,000
customers in the midwestern, northeastern and southeastern regions of the United
States as of September 30, 1993. See "Risk Factors--Investment in Star Gas" and
"Business--Investment in Star Gas."
4
<PAGE>
THE OFFERING
Securities Offered....... $75.0 million principal amount of % Subordinated
Debentures due 2006 (the "Debentures").
Maturity Date............ , 2006.
Interest Payment Dates... and of each year,
commencing , 1994.
Optional Redemption...... The Debentures will be redeemable at the option of
the Company, in whole or in part, at any time on or
after , 1999, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any time
prior to , 1997, the Company may redeem Debentures
with the net proceeds of a public offering of
Capital Stock of the Company at a redemption price
of % of principal amount, together with accrued
and unpaid interest to the date of redemption,
provided that at least $50.0 million of the
Debentures remain outstanding immediately following
any such redemption.
Change of Control........ Upon a Change of Control, the Company will be
obligated to make an offer to purchase all
outstanding Debentures at a price of 101% of the
principal amount thereof, together with accrued and
unpaid interest to the date of purchase.
Ranking.................. The Debentures will be subordinated in right of
payment to all existing and future Senior Debt of
the Company. As of September 30, 1993, after giving
pro forma effect to the Offering, the use of
proceeds therefrom and the Subordinated Debt
Amendments, Senior Debt of the Company would have
totalled approximately $42.7 million. In addition,
the Debentures will be effectively subordinated to
all indebtedness and other liabilities and
commitments of the Company's subsidiaries which, as
of September 30, 1993, totalled approximately $9.2
million, consisting primarily of trade payables. The
Debentures will rank pari passu with other
subordinated indebtedness of the Company, which
after giving pro forma effect to the Subordinated
Debt Amendments would have aggregated approximately
$92.6 million as of September 30, 1993.
Certain Covenants........ The Indenture relating to the Debentures (the
"Indenture") will restrict, among other things,
dividends and certain other distributions, the
purchase, redemption or retirement of Capital Stock
or indebtedness that is junior to the Debentures,
the incurrence of certain additional indebtedness,
the creation of certain liens, certain transactions
with Affiliates (as defined) and certain mergers and
consolidations.
Use of Proceeds.......... The net proceeds from the sale of the Debentures
will be used (i) to repurchase $50 million in
aggregate principal amount of the Company's senior
9% Notes due June 1, 1994 (the "Maxwhale Notes") at
a purchase price (assuming a repurchase date of
January 31, 1994) equal to 101.33% of the principal
amount thereof, plus accrued but unpaid interest
thereon, and (ii) for general corporate purposes,
including the Company's ongoing acquisition program.
Pending application of the balance of the proceeds
for general corporate purposes, such balance will be
applied to reduce working capital borrowings. See
"Use of Proceeds."
5
<PAGE>
SUMMARY DATA
(IN THOUSANDS, EXCEPT RATIOS)
The following tables present summary consolidated financial and operating
data subsequent to the assumption of control by the Company's current management
in 1979. Management's strategy is to maximize EBITDA and NIDA, rather than net
income. Although EBITDA and NIDA should not be considered a substitute for net
income (loss) as an indicator of the Company's operating performance and NIDA
should not be considered a measure of the Company's liquidity, they are included
in the following tables as they are the principal bases upon which the Company
assesses its financial performance, compensates management and establishes
dividends. In addition, certain covenants in the Company's borrowing
arrangements are tied to similar measures.
OPERATING DATA:
<TABLE> <CAPTION>
DEPRECIATION INTEREST
GROSS AND EXPENSE, NET INCOME RATIO OF EARNINGS
YEAR ENDED DECEMBER 31, NET SALES PROFIT AMORTIZATION(1) NET (LOSS) TO FIXED CHARGES(2)
<S> <C> <C> <C> <C> <C> <C>
1980............................. $ 84,582 $ 11,938 $ 1,542 $ 4 $ 1,407 6.2x
1981............................. 125,946 17,229 1,336 (434) 1,612 7.2x
1982............................. 168,061 28,370 2,595 245 3,690 7.0x
1983............................. 159,794 33,806 3,633 375 4,723 9.3x
1984............................. 245,249 50,323 7,069 3,394 4,165 3.2x
1985............................. 283,493 59,241 11,016 5,053 1,427 1.5x
1986............................. 279,889 81,843 15,131 6,580 4,116 2.1x
1987............................. 354,508 96,444 20,782 9,212 194 1.0x
1988............................. 462,150 133,601 27,151 13,536 1,565 1.2x
1989............................. 541,521 139,343 32,093 17,915 (4,287) -- (3)
1990............................. 567,414 132,383 36,313 20,900 (29,267) -- (3)
1991............................. 523,243 144,471 35,575 20,728 (16,562) -- (3)
1992............................. 512,430 161,489 34,394 18,622 (4,389) -- (3)
TWELVE MONTHS ENDED
SEPTEMBER 30, 1993
Actual........................... 548,922 167,946 35,457 19,742 (12,225) -- (3)
Pro Forma(4)..................... 584,242 177,771 38,005 21,650 (23,262) -- (3)
</TABLE>
OTHER DATA:
<TABLE> <CAPTION>
GALLONS OF HOME RATIO OF EBITDA
HEATING OIL AND TO INTEREST
YEAR ENDED DECEMBER 31, PROPANE SOLD EBITDA(5) NIDA(6) EXPENSE, NET(7)
<S> <C> <C> <C> <C>
1980................................................. 59,399 $ 3,581 $ 2,949 N/A
1981................................................. 72,653 4,351 2,947 N/A
1982................................................. 104,583 9,713 6,285 39.6x
1983................................................. 123,019 13,560 8,357 36.2x
1984................................................. 180,998 19,756 11,234 5.8x
1985................................................. 212,183 19,106 12,443 3.8x
1986................................................. 255,319 30,274 19,247 4.6x
1987................................................. 317,380 30,557 20,976 3.3x
1988................................................. 414,535 44,470 28,717 3.3x
1989................................................. 449,040 40,076 27,573 2.2x
1990................................................. 398,989 26,307 4,639 1.3x
1991................................................. 385,557 40,036 15,744 1.9x
1992................................................. 423,354 51,325 27,721 2.8x
TWELVE MONTHS ENDED SEPTEMBER 30, 1993
Actual............................................... 449,748 46,424 21,743 2.4x
Pro Forma(4)......................................... 483,031 51,553 24,966 2.4x
</TABLE>
6
<PAGE>
<TABLE> <CAPTION>
BALANCE SHEET DATA: AT SEPTEMBER 30, 1993
---------------------------
ACTUAL AS ADJUSTED(8)
<S> <C> <C>
Working capital (deficiency)......................................................... $ (7,489) $ 20,999
Total assets......................................................................... 216,904 240,589
Total long-term debt (before escrow deposit)(9)...................................... 157,819 210,319
Redeemable preferred stock (long-term portion)....................................... 20,833 20,833
Stockholders' equity (deficiency).................................................... (63,295) (64,628)
</TABLE>
- ------------------------------
(1) Depreciation and amortization includes depreciation and amortization of
plant and equipment and amortization of customer lists and deferred charges.
(2) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income (loss) before income taxes, net income (loss)
derived from investments accounted for by the equity method, and
extraordinary items, plus fixed charges and (ii) fixed charges consist of
interest expense, amortization of debt discounts and the interest factor in
rental expense.
(3) Earnings were insufficient to cover fixed charges by $7.4 million, $31.1
million, $16.3 million, $4.0 million and $11.0 million for the years ended
December 31, 1989, 1990, 1991 and 1992 and the twelve months ended September
30, 1993, respectively. On a pro forma basis, earnings were insufficient to
cover fixed charges by $10.3 million for the twelve months ended September
30, 1993. However, if non-cash charges to income consisting of depreciation
and amortization and non-cash expenses associated with key employees'
deferred compensation plans were excluded, the Company's earnings would have
exceeded fixed charges by $24.7 million, $5.2 million, $19.3 million, $32.4
million, $26.7 million and $29.9 million, respectively, for such periods.
(4) The Pro Forma Operating and Other Data for the twelve months ended September
30, 1993 represent the historical data derived from the Company's financial
statements for the twelve months ended September 30, 1993, adjusted to give
effect to the following transactions as if each had occurred on October
1, 1992:
(a) the acquisitions by the Company of fourteen individually
insignificant distributorships during the twelve months ended
September 30, 1993 (the "Twelve Month Acquisitions") and the
probable acquisition in 1994 of an individually insignificant
distributorship (the "1994 Acquisition");
(b) the issuance in March 1993 of approximately $12.8 million of
Subordinated Notes due March 1, 2000 in exchange for an equal
amount of the Company's 1991 Redeemable Preferred Stock (the
"Preferred Stock Exchange");
(c) the repurchase in May 1993 of approximately $12.4 million of 11.40%
Subordinated Notes due July 1, 1993 and approximately $12.5 million
of 14.275% Subordinated Notes due October 1, 1995 (the
"Subordinated Debt Repurchases");
(d) the repurchase of the Maxwhale Notes (the "Maxwhale Notes
Repurchase");
(e) the $16.0 million investment in Star Gas resulting in an approximate
29.5% equity interest in Star Gas, accounted for under the equity
method (the "Star Gas Investment"), and the effect of concurrent
agreements entered into in connection with such investment;
(f) the release of the $20 million cash collateral account which
partially secures the Maxwhale Notes for use as unrestricted cash
(the "Collateral Release");
(g) the issuance in April 1993 (the "10 1/8% Notes Issuance") of $50
million of 10 1/8% Subordinated Notes due 2003 (the "10 1/8%
Notes"); and
(h) the Offering; provided, however, that the pro forma data do not give
effect to approximately $3.1 million of interest expense on, or the
use of, approximately $30.8 million of the Debentures, the proceeds
of which are not required for acquisitions or refinancings.
The historical and pro forma net loss and the historical and pro forma
NIDA for the twelve months ended September 30, 1993 include an
extraordinary loss of approximately $0.9 million representing the premium
paid and deferred charges written off in connection with the Subordinated
Debt Repurchases. Had the Subordinated Debt Repurchases and the Maxwhale
Notes Repurchase occurred on October 1, 1992, the pro forma extraordinary
loss would have been approximately $4.3
(Footnotes continued on following page)
7
<PAGE>
(Footnotes continued from preceding page)
million. The pro forma net loss also includes a loss of approximately $9.8
million, representing the Company's share of a one time charge for the
impairment of Star Gas' long-lived assets. See the Consolidated Financial
Statements of Star Gas and the Pro Forma Financial Statements included
elsewhere in this Prospectus.
(5) EBITDA is defined as operating income before depreciation and amortization
and non-cash expenses associated with key employees' deferred compensation
plans.
(6) 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.
(7) The ratio of EBITDA to interest expense, net is calculated by dividing
EBITDA by interest expense, net for such period. Pursuant to the Indenture,
the Company may incur additional Funded Debt (as defined) only if its ratio
of EBITDA to interest expense, net exceeds 2.0 to 1.0, subject to certain
exceptions. See "Description of Debentures--Certain Covenants--Limitation on
Funded Debt."
(8) As adjusted to give effect to the Offering, the Maxwhale Notes Repurchase,
the Star Gas Investment, the Subordinated Debt Amendments and the 1994
Acquisition; provided, however, that the as adjusted data includes
approximately $18.5 million of working capital and principal amount of the
Debentures, the proceeds of which are not required for the Maxwhale Notes
Repurchase.
(9) The Company has escrowed certain amounts to partially secure the repayment
of the Maxwhale Notes. The amount on deposit was $20.0 million at September
30, 1993, and $0 at September 30, 1993, as adjusted.
FINANCIAL SUMMARY
From 1980 through 1989, as indicated above, the Company's volume and EBITDA
increased at compound annual growth rates of 25.2% and 30.8%, respectively. The
growth in EBITDA and volume was interrupted in 1990 and 1991 by the warmest and
third warmest years of this century in the Northeast. The weather affected
financial and operating results, which, in turn, constrained the Company's
access to capital and limited its acquisition program.
In order to partially offset the impact of the warm winter weather, the
Company adjusted its operating strategy in 1991 and 1992. This adjustment
resulted in the improvement of gross profit margins, the consolidation of 37 of
its branch operations into 28 and the reduction of 12% of its personnel by March
31, 1992 from December 31, 1990. As a result, while volume decreased slightly in
1991 compared to 1990 due to the elimination of a number of low margin
commercial and industrial accounts, EBITDA and NIDA increased 52.2% and 239.4%,
respectively, and the Company's net loss was reduced from $29.3 million in 1990
to $16.6 million in 1991. For the year ended December 31, 1992, EBITDA and NIDA
also increased 28.2% and 76.1%, respectively, over the prior year and the
Company's net loss decreased from $16.6 million in 1991 to $4.4 million in 1992,
as a result of a return to more normal temperatures and the Company's cost
saving programs.
For the twelve months ended September 30, 1993, volume increased 6.2%
compared to the twelve months ended December 31, 1992 due primarily to the
Company's acquisition program. EBITDA and NIDA declined, however, due to lower
than expected home heating oil gross profit margins in the first quarter of
1993, which was reversed in the second and third quarters, and a planned
increase in heating equipment repair and maintenance expenses and marketing
costs designed to improve the Company's customer retention rate. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Although the Company recorded net income from 1980 through 1988, since 1989
the Company has reported net losses in each year and expects to report a net
loss for 1993.
8
<PAGE>
THE COMPANY
The Company is the largest retail distributor of home heating oil in the
United States, with total sales of $548.9 million for the twelve months ended
September 30, 1993. As of September 30, 1993, Petro served approximately 421,000
customers in 26 markets in the Northeast, including the metropolitan areas of
Boston, New York City, Baltimore, Providence and Washington, D.C. For the twelve
months ended September 30, 1993, the Company sold approximately 449.7 million
gallons of home heating oil and propane.
In addition to sales of home heating oil and propane, the Company installs
and repairs heating equipment and, to a limited extent, markets other petroleum
products to commercial customers, 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 directly and through its
subsidiaries in nine states and the District of Columbia.
RISK FACTORS
Investors should carefully consider the factors set forth below as well as
the other information set forth in this Prospectus before purchasing the
Debentures offered hereby.
LEVERAGE; ABILITY TO SERVICE DEBT
At September 30, 1993 (after giving effect to the Offering and the
application of the net proceeds therefrom as described under "Use of Proceeds"),
the Company would have had outstanding an aggregate of $210.4 million of
long-term debt (including the current portion) and stockholders' deficiency of
$64.6 million. Of such outstanding obligations, there are no maturities or
sinking fund requirements for 1994 and 1995 and the 1996 requirement is $2.1
million. Approximately $4.2 million of the Company's 1989 Cumulative Redeemable
Exchangeable Preferred Stock (the "Redeemable Preferred Stock") is subject to
mandatory redemption in each of 1994, 1995 and 1996. Prior to redemption, the
Company has the right to exchange shares of Redeemable Preferred Stock, in whole
or in part, for subordinated notes due August 1, 1999 (the "1999 Notes"),
subject to meeting certain debt incurrence tests. See "Capitalization." In
addition, the Company may incur further indebtedness from time to time to
finance expansion, either through capital expenditures or acquisitions, or for
other general corporate purposes. The degree to which the Company is leveraged
could have important consequences to holders of the Debentures, including the
following: (i) a substantial portion of the Company's cash flow from operations
will be dedicated to the payment of interest, principal and other repayment
obligations, thereby reducing the funds available to the Company for its
operations and future acquisitions, (ii) the Company's ability to obtain
additional financing in the future may be impeded, and (iii) the Company's
degree of leverage may make it vulnerable to a downturn in its business or of
the economy generally. The Company believes that it will be able to meet its
obligations as they come due and will not be required to refinance or
restructure its debt obligations, although it may elect to do so.
The Company's earnings were insufficient to cover fixed charges by $7.4
million, $31.1 million, $16.3 million, $4.0 million and $11.0 million for the
years ended December 31, 1989, 1990, 1991 and 1992 and the twelve months ended
September 30, 1993, respectively. On a pro forma basis, earnings were
insufficient to cover fixed charges by $10.3 million for the twelve months ended
September 30, 1993. However, if non-cash charges to income consisting of
depreciation and amortization and non-cash expenses associated with key
employees' deferred compensation plans were excluded, the Company's earnings
would have exceeded fixed charges by $24.7 million, $5.2 million, $19.3 million,
$32.4 million, $26.7 million and $29.9 million, respectively, for such periods.
See "--Recent Net Losses."
9
<PAGE>
SUBORDINATION
The Debentures will be subordinated to the prior payment of all existing
and future Senior Debt of the Company. In the event of bankruptcy, liquidation
or reorganization of the Company, the assets of the Company will be available to
pay obligations on the Debentures only after all Senior Debt has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Debentures then outstanding. See "Description of
Debentures--Ranking."
SENSITIVITY TO WEATHER; SEASONALITY
Because the Company's business is directly related to heating, weather
patterns during the winter months can have a material effect on the Company's
sales of heating oil. Although temperature levels for the heating season have
been relatively stable over time, variations can occur from time to time, and
warmer than normal winter weather will adversely affect the Company's results.
1990 was the warmest year of this century and, as a result, volume declined for
the first time since 1980. 1991 was the third warmest year of this century.
Average daily temperatures in the Northeast for the year ended December 31, 1992
and for the nine months ended September 30, 1993 returned to more normal levels.
The seasonal nature of the Company's business results in the sale by the
Company of approximately 50% of its volume in the first quarter and 30% in the
fourth quarter of each year. The Company generally realizes positive NIDA in
both of these quarters and negative NIDA during the warmer quarters ending June
and September.
COMPETITION FROM ALTERNATE ENERGY SOURCES
In all of its markets, the Company competes for customers with suppliers of
alternate energy products, principally natural gas and electricity. Over the
past five years, the conversion by the Company's customers from fuel oil to
other sources, primarily natural gas, has averaged approximately 1% per annum of
the homes served by the Company. This rate of conversion is largely a function
of the cost of replacing an oil-fired heating system with one that uses natural
gas and the relative retail prices of fuel oil and natural gas. During 1980 and
1981, when there were government controls on the price of natural gas, and for a
short time in 1990 and 1991, during the Persian Gulf crisis, the Company's
customers converted to gas at approximately a 2% annual rate as oil prices
increased relative to the price of natural gas. See "Business--Fundamental
Characteristics." However, beginning in the spring of 1991, gas conversions by
the Company's customers returned to their approximate 1% historical annual rate
as the prices for the two products returned to parity. As fuel oil is a less
expensive heating source than electricity, the Company believes that an
insignificant number of its customers switch to electric heat from oil heat. See
"Business--Fundamental Characteristics."
COMPETITION FOR NEW RETAIL CUSTOMERS
The Company's business is highly competitive. The Company competes with
fuel oil distributors offering a broad range of services and prices, from full
service distributors, like the Company, to those offering delivery only.
Competition with other companies in the fuel oil industry is based primarily on
customer service and price. Long-standing customer relationships are typical in
the retail home heating oil industry. Many companies in the industry, including
Petro, deliver home heating oil to their customers based upon weather conditions
and historical consumption patterns without the customer having to make an
affirmative purchase decision each time oil is needed. In addition, most
companies, including Petro, provide home heating equipment repair service on a
24-hour per day basis, which tends to build customer loyalty. As a result, the
Company may experience difficulty in acquiring new retail customers due to
existing relationships between potential customers and other home heating oil
distributors. In addition, in certain instances, homeowners have formed buying
cooperatives which seek to purchase fuel oil from distributors at a price lower
than individual customers are otherwise able to obtain. To date, these buying
groups have not had a material impact on the Company's operations.
10
<PAGE>
GROWTH DEPENDENT UPON ACQUISITIONS
In recent years, home heating oil demand has been affected by conservation
efforts and conversions to natural gas. In addition, as the number of new homes
that use oil heat has not been significant, there has been virtually no increase
in the customer base due to housing starts. As a result, the size of the home
heating oil market is likely to be stagnant and may even decline in the future.
The Company's growth in the past decade has been directly tied to the success of
its acquisition program, and its future growth will depend on its ability to
continue to identify and successfully consummate acquisitions. There is no
assurance that the Company will be able to continue to identify new acquisitions
or that it will have the access to capital necessary to consummate such
acquisitions. As occurred in 1990 and 1991, warm winter weather can adversely
affect the Company's operating and financial results which, in turn, may limit
the Company's access to capital and its acquisition activities. In addition, the
Company loses approximately 90% of customers acquired in an acquisition within
the first six years following an acquisition; however, approximately 40% of the
Company's customer losses are as a result of homeowners moving out, in which
cases the Company acquires as new customers approximately 70% of the homeowners
moving in. The Company's actual net loss of customers has averaged approximately
3% per annum over the past five years, as the loss of such purchased customers
has been partially offset by new customers obtained through internal marketing.
However, there can be no assurance that the Company will be able to maintain or
reduce this average customer attrition rate in the future.
RECENT NET LOSSES
The Company incurred net losses in 1989, 1990, 1991, 1992, the twelve
months ended September 30, 1993 and for the nine months ended September 30, 1993
of $4.3 million, $29.3 million, $16.6 million, $4.4 million, $12.2 million and
$17.4 million, respectively, primarily as a result of the amortization expense
associated with the numerous acquisitions consummated since 1980. In connection
with each acquisition, the Company amortizes for book purposes 90% of the amount
allocated to customer lists over a six year period and the balance over a 25
year period. In addition, the Company depreciates fixed assets on average over
an eight year period. The aggregate amortization of customer lists and deferred
charges and depreciation and amortization of property and equipment in 1989,
1990, 1991, 1992, the twelve months ended September 30, 1993 and for the nine
months ended September 30, 1993 amounted to $32.1 million, $36.3 million, $35.6
million, $34.4 million, $35.5 million and $26.7 million, respectively.
Management's strategy is to maximize EBITDA and NIDA, rather than net income,
and net losses may continue in the near term. Continued net losses could
adversely affect the Company. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Overview."
SUPPLY OF HOME HEATING OIL
Home heating oil is available from numerous sources, including integrated
international oil companies, independent refiners and independent wholesalers.
The Company purchases home heating oil from a variety of suppliers pursuant to
supply contracts or on the spot market. While there can be no assurance that
there will be no foreign crude oil disruptions which may adversely affect the
Company's business, past disruptions have affected the price, but not the
availability, of home heating oil to the Company. The Company historically has
been able to pass through wholesale price increases to its customers and has
minimized its exposure to oil price fluctuations by maintaining an average of no
more than a ten day inventory. However, there can be no assurance that the
Company will be able to pass on such increases in the future.
CONSERVATION AND TECHNOLOGY
The national trend toward increased conservation and technological
advances, including installation of improved insulation and the development of
more efficient furnaces and other heating devices, has caused a decline in
demand for home heating oil by retail customers. Although the Company believes
that current oil prices, which are lower than in recent periods, have resulted
in decreased incentive to conserve and that most conservation efforts have
already been implemented, the Company
11
<PAGE>
cannot predict the impact of future conservation measures. The Company is also
unable to predict the effect that any technological advances in heating,
conservation, energy generation or other devices might have on the Company's
operations.
INVESTMENT IN STAR GAS
In December 1993, the Company acquired an approximate 29.5% equity interest
in Star Gas for $16.0 million in cash. Certain other investors invested a total
of $49.0 million of additional equity, 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 of Star Gas (the "Star Gas Recapitalization"). After
giving effect to the Star Gas Recapitalization, on a pro forma basis, as of
September 30, 1993, Star Gas would have had total long-term debt of $70.3
million and stockholders' equity of $51.1 million. In connection with this
investment, the Company entered into a management agreement with Star Gas and
acquired options to purchase all of the equity securities of the other
investors. In addition, each of the other investors 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. This
option may be exercised at any time during the exercise period, including at
times when Star Gas is in poor financial condition or has had poor results of
operations, which may have an adverse affect on the Company. See
"Business--Investment in Star Gas."
The propane industry is highly competitive. For the fiscal years ended
September 30, 1991, 1992 and 1993, Star Gas had net losses of $5.3 million, $7.3
million and $47.1 million (which includes an impairment of long-lived assets
aggregating $33.0 million) and EBITDA of $24.7 million, $22.2 million and $18.6
million, respectively. Continued net losses could adversely affect the Company's
investment in Star Gas. For the fiscal years ended September 30, 1991, 1992 and
1993, Star Gas had a ratio of EBITDA to interest expense of 1.3 to 1.0, 1.3 to
1.0 and 1.1 to 1.0, respectively. After giving effect to the Star Gas
Recapitalization, Star Gas' ratio of EBITDA to interest expense on a pro forma
basis would have been 2.3 to 1.0 for the fiscal year ended September 30, 1993.
See "Business--Investment in Star Gas."
DEPENDENCE ON KEY PERSON
The Company is dependent on the continued services of its President, Irik
P. Sevin, principally in its acquisition program. If Mr. Sevin were no longer to
serve as an employee of the Company, the Company's prospects for future growth
could be adversely affected. The Company does not maintain key man life
insurance with respect to Mr. Sevin.
CONTROL BY PRINCIPAL STOCKHOLDERS
The directors of the Company and certain affiliated parties own 100% of the
Class C Common Stock of the Company. In addition, the directors own 34.5% of the
Class A Common Stock of the Company. Each share of Class A Common Stock is
entitled to one vote per share and each share of Class C Common Stock is
entitled to ten votes per share. The shares of Class C Common Stock owned by the
directors and such affiliated parties represent, in the aggregate, 57.3% of the
voting power of all of the outstanding shares of Common Stock. Consequently, the
directors have the ability to control the business and affairs of the Company by
virtue of their ability to elect a majority of the Company's board of directors
and by virtue of their voting power with respect to other actions requiring
stockholder approval.
ABSENCE OF PUBLIC MARKET
There is no existing market for the Debentures and there can be no
assurance as to the liquidity of any markets that may develop for the
Debentures, the ability of holders of the Debentures to sell their Debentures or
the price at which holders will be able to sell their Debentures. If such a
market were to develop, the Debentures could trade at prices that may be higher
or lower than the initial offering price thereof depending on many factors,
including prevailing interest rates, the Company's operating results
12
<PAGE>
and the markets for similar securities. Donaldson, Lufkin & Jenrette Securities
Corporation, Kidder, Peabody & Co. Incorporated and Chemical Securities Inc.
have advised the Company that they currently intend to make a market in the
Debentures; however, they are not obligated to do so and any market making may
be discontinued at any time without notice. The Company does not intend to apply
for listing of the Debentures on any securities exchange.
USE OF PROCEEDS
The net proceeds from the sale of the Debentures are estimated to be
approximately $72.3 million. The Company intends to use approximately $50.7
million of such net proceeds to repurchase $50 million in aggregate principal
amount of Maxwhale Notes at a purchase price (assuming a repurchase date of
January 31, 1994) equal to 101.33% of the principal amount thereof, plus accrued
but unpaid interest thereon. The Maxwhale Notes bear interest at a rate of 9%
per annum and are due and payable on June 1, 1994. The Company will use the
balance of the net proceeds for general corporate purposes, including the
Company's ongoing acquisition program. While the Company regularly considers and
evaluates acquisitions as part of such acquisition program, the Company does not
have any present agreements or commitments with respect to any acquisitions at
this time. However, the Company is currently negotiating to acquire a
privately-owned heating oil distributor located in New Jersey for a purchase
price of approximately $2.5 million and believes that the completion of such
acquisition is probable. Pending application of the balance of the proceeds for
general corporate purposes, such balance will be applied to reduce working
capital borrowings.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1993 and as adjusted to give effect to the Offering, the Maxwhale
Notes Repurchase and the Subordinated Debt Amendments.
<TABLE> <CAPTION>
AT SEPTEMBER 30, 1993
------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Short-term obligations:
Working capital borrowings(1)........................................................ $ -- $ --
Current maturities of long-term debt................................................. 33 33
Current maturities of Maxwhale Notes(2).............................................. 27,500 --
Current maturities of Redeemable Preferred Stock(3).................................. 4,167 4,167
----------- -----------
Total short-term obligations.................................................... $ 31,700 $ 4,200
----------- -----------
----------- -----------
Long-term debt:
Maxwhale Notes(2).................................................................... $ 22,500 $ --
Other long-term debt................................................................. 55 55
Senior notes(4)...................................................................... -- 42,632
% Subordinated Debentures due 2006................................................ -- 75,000
Subordinated notes payable........................................................... 135,264 92,632
----------- -----------
Total long-term debt............................................................ 157,819 210,319
----------- -----------
Redeemable Preferred Stock:
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(3)........................................................................ 20,833 20,833
----------- -----------
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 1,899
Class B Common Stock; par value $.10 per share; 6,500,000 shares authorized, 216,901
shares outstanding................................................................. 22 22
Class C Common Stock; par value $.10 per share; 5,000,000 shares authorized,
2,545,139 shares outstanding....................................................... 255 255
Additional paid-in capital........................................................... 54,416 54,416
Deficit(5)........................................................................... (118,607) (119,940)
Note receivable from stockholder..................................................... (1,280) (1,280)
----------- -----------
Total stockholders' equity (deficiency)......................................... (63,295) (64,628)
----------- -----------
Total capitalization......................................................... $ 115,357 $ 166,524
----------- -----------
----------- -----------
</TABLE>
- ------------------------------
(1) The Company has available $75 million under an amended and restated credit
agreement dated as of December 31, 1992 (the "Credit Agreement"). No
borrowings were outstanding under the Credit Agreement at September 30,
1993. The seasonal nature of the Company's business results in the sale by
the Company of approximately 50% of its volume in the first quarter and 30%
in the fourth quarter of each year with corresponding increases in working
capital borrowings during these periods.
(2) As of September 30, 1993, $20 million of U.S. Treasury Notes were held in a
cash collateral account to partially secure the Maxwhale Notes. Pursuant to
the Credit Agreement, an additional $7.5 million is scheduled to be escrowed
on May 15, 1994 for this same purpose. Assuming the consummation of the
Offering and the Maxwhale Notes Repurchase, this payment will not have to be
made and the $20 million cash collateral account will be released to the
Company for use as unrestricted funds.
(3) 41,667 shares of Redeemable Preferred Stock are subject to mandatory
redemption in each of 1994 through 1998. Prior to redemption, the Company
has the right to exchange shares of Redeemable Preferred Stock, in whole or
in part, for 1999 Notes, subject to meeting certain debt incurrence tests.
At September 30, 1993, the Company was not able to exchange any shares of
Redeemable Preferred Stock for 1999 Notes pursuant to such tests.
(4) In connection with the Subordinated Debt Amendments, the Company has agreed
to cause approximately $42.6 million in aggregate principal amount of
outstanding subordinated debt to be ranked as Senior Debt. See "Description
of Other Indebtedness and Redeemable Preferred Stock-- Subordinated Debt."
(5) Assuming a repurchase date of September 30, 1993, the Company would have
recorded an approximate $1.3 million extraordinary loss on the early payment
of the Maxwhale Notes.
14
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
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 Prospectus. The financial data at the end
of and for each of the years in the five year period ended December 31, 1992 are
derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick, independent
auditors. The financial data at September 30, 1993 and for the nine month
periods ended September 30, 1992 and September 30, 1993 are derived from the
unaudited consolidated financial statements of the Company but include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data. The pro forma
financial data for the year ended December 31, 1992 and for the nine months
ended September 30, 1993 are derived from the historical consolidated financial
statements of the Company. The Company typically generates net income and NIDA
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 and
NIDA should not be considered a substitute for net income (loss) as an indicator
of the Company's operating performance and NIDA should not be considered 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. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the Pro Forma
Financial Statements included elsewhere in this Prospectus.
<TABLE> <CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------------- ----------------------
PRO
FORMA(1)
1988 1989 1990 1991 1992 1992 1992 1993
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 462,150 $ 541,521 $ 567,414 $ 523,243 $ 512,430 $ 611,374 $ 340,892 $ 377,384
Cost of sales.............. 328,549 402,178 435,031 378,772 350,941 421,273 232,333 262,368
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Gross profit........ 133,601 139,343 132,383 144,471 161,489 190,101 108,559 115,016
Operating expenses......... 89,131 99,267 106,076 104,435 110,165 126,483 77,821 89,180
Amortization of customer
lists.................... 21,646 24,604 25,571 24,840 23,496 29,279 17,470 18,236
Depreciation and
amortization of plant and
equipment................ 4,209 5,127 5,796 5,550 5,534 7,296 4,153 4,368
Amortization of deferred
charges.................. 1,296 2,362 4,946 5,185 5,363 5,953 4,054 4,137
Provision for supplemental
benefit(3)............... -- -- -- -- 1,974 1,974 -- 193
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Operating income (loss).... 17,319 7,983 (10,006) 4,461 14,957 19,116 5,061 (1,098)
Interest expense--net...... 13,536 17,915 20,900 20,728 18,622 22,092 14,027 15,147
Other income
(expense)--net........... (126) 2,568 (228) (45) (324) (314) (339) (29)
Equity in (share of loss
of) Star Gas............. -- -- -- -- -- 167 -- --
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before income
taxes and extraordinary
item..................... 3,657 (7,364) (31,134) (16,312) (3,989) (3,123) (9,305) (16,274)
Income taxes (benefit)..... 1,584 (3,077) (1,867) 250 400 400 218 218
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Income (loss) before
extraordinary item......... 2,073 (4,287) (29,267) (16,562) (4,389) (3,523) (9,523) (16,492)
Extraordinary item......... (508) -- -- -- -- -- -- (867)
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Net income (loss).......... $ 1,565 $ (4,287) $ (29,267) $ (16,562) $ (4,389) $ (3,523) $ (9,523) $ (17,359)
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------- ---------- ----------
Ratio of earnings to fixed
charges(4)............... 1.2x --(5) --(5) --(5) --(5) --(5) --(5) --(5)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
PRO FORMA(2)
1993
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 396,701
Cost of sales.............. 276,412
-----------
Gross profit........ 120,289
Operating expenses......... 91,837
Amortization of customer
lists.................... 19,167
Depreciation and
amortization of plant and
equipment................ 4,588
Amortization of deferred
charges.................. 4,268
Provision for supplemental
benefit(3)............... 193
-----------
Operating income (loss).... 236
Interest expense--net...... 16,298
Other income
(expense)--net........... (29)
Equity in (share of loss
of) Star Gas............. (12,972)
-----------
Income (loss) before income
taxes and extraordinary
item..................... (29,063)
Income taxes (benefit)..... 218
-----------
Income (loss) before
extraordinary item....... (29,281)
Extraordinary item......... --
-----------
Net income (loss).......... $ (29,281)
-----------
-----------
Ratio of earnings to fixed
charges(4)............... --(5)
</TABLE>
15
<PAGE>
<TABLE> <CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------------- ----------------------
PRO
FORMA(1)
1988 1989 1990 1991 1992 1992 1992 1993
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6).................. $ 44,470 $ 40,076 $ 26,307 $ 40,036 $ 51,325 $ 63,618 $ 30,737 $ 25,836
Interest expense, net...... 13,536 17,915 20,900 20,728 18,622 22,092 14,027 15,147
NIDA(7).................... 28,717 27,573 4,639 15,744 27,721 36,555 12,232 6,254
Ratio of EBITDA to interest
expense, net(8).......... 3.3x 2.2x 1.3x 1.9x 2.8x 2.9x 2.2x 1.7x
Gallons of home heating oil
and propane sold......... 414,535 449,040 398,989 385,557 423,354 497,454 280,853 307,247
EBITDA per gallon of home
heating oil and propane
sold..................... $ 0.11 $ 0.09 $ 0.07 $ 0.10 $ 0.12 $ 0.13 $ 0.11 $ 0.08
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
PRO
FORMA(2)
1993
<S> <C>
OTHER DATA:
EBITDA(6).................. $ 28,452
Interest expense, net...... 16,298
NIDA(7).................... 8,586
Ratio of EBITDA to interest
expense, net(8).......... 1.7x
Gallons of home heating oil
and propane sold......... 322,165
EBITDA per gallon of home
heating oil and propane
sold....................... $ 0.09
</TABLE>
<TABLE> <CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30, 1993
---------------------------------------------------------- ----------------------
AS
1988 1989 1990 1991 1992 ACTUAL ADJUSTED(9)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............. $ 12,070 $ 13,544 $ (5,520) $ (12,038) $ (6,744) $ (7,489) $ 20,999
Total assets............................. 231,151 286,435 260,665 220,010 252,783 216,904 240,589
Senior long-term debt and capital lease
obligations (before escrow deposit)
(long-term portion)(10)................ 51,260 51,570 50,847 50,217 50,080 22,555 42,687
Subordinated notes (long-term
portion)............................... 77,376 92,418 95,346 91,613 84,978 135,264 167,632
Redeemable preferred stock (long-term
portion)............................... -- 10,000 25,000 30,023 37,718 20,833 20,833
Stockholders' equity (deficiency)........ 9,448 (3,287) (40,087) (61,444) (33,917) (63,295) (64,628)
</TABLE>
- ------------------------------
(1) The Pro Forma Statement of Operations and Other Data for the year ended
December 31, 1992 represent the historical data derived from the Company's
financial statements for 1992, adjusted to give effect to the following
transactions as if each had occurred as of January 1, 1992:
(a) the acquisitions by the Company of nine individually insignificant
distributorships during 1992 (the "1992 Acquisitions") and nine
individually insignificant distributorships during the nine months
ended September 30, 1993 (the "1993 Acquisitions") and the 1994
Acquisition;
(b) the Preferred Stock Exchange;
(c) the Subordinated Debt Repurchases;
(d) the Maxwhale Notes Repurchase;
(e) the Star Gas Investment and the effect of concurrent agreements
entered into in connection with such investment;
(f) the Collateral Release;
(g) the 10 1/8% Notes Issuance; and
(h) the Offering; provided, however, that the pro forma data do not give
effect to approximately $2.5 million of interest expense on, or the
use of, approximately $25.0 million of the Debentures, the proceeds
of which are not required for acquisitions or refinancings.
The historical and pro forma net loss and the historical and pro forma
NIDA for the year ended December 31, 1992 do not include any extraordinary
losses. Had the Subordinated Debt Repurchases and the Maxwhale Notes
Repurchase occurred on January 1, 1992, the pro forma extraordinary loss
would have been approximately $6.2 million.
(2) The Pro Forma Statement of Operations and Other Data for the nine months
ended September 30, 1993 represent the historical data derived from the
Company's financial statements for the nine months ended September 30,
1993, adjusted to give effect to the following transactions as if each had
occurred as of January 1, 1992:
(a) the 1993 Acquisitions and the 1994 Acquisition;
(b) the Preferred Stock Exchange;
(c) the Subordinated Debt Repurchases;
(Footnotes continued on following page)
16
<PAGE>
(Footnotes continued from preceding page)
(d) the Maxwhale Notes Repurchase;
(e) the Star Gas Investment and the effect of concurrent agreements
entered into in connection with such investment;
(f) the Collateral Release;
(g) the 10 1/8% Notes Issuance; and
(h) the Offering; provided, however, that the pro forma data do not give
effect to approximately $2.6 million of interest expense on, or the
use of, approximately $34.4 million of the Debentures, the proceeds
of which are not required for acquisitions or refinancings.
The historical net loss and the historical NIDA for the nine months ended
September 30, 1993 include an extraordinary loss of approximately $0.9
million representing the premium paid in connection with the Subordinated
Debt Repurchases. Had the Subordinated Debt Repurchases and the Maxwhale
Notes Repurchase occurred on January 1, 1992, the pro forma extraordinary
loss would have been approximately $6.2 million. The pro forma net loss
includes a loss of approximately $9.8 million, representing the Company's
share of a one time charge for the impairment of Star Gas' long-lived
assets.
(3) Represents the present value of supplemental retirement benefits.
(4) For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of income (loss) before income taxes, net income (loss)
derived from investments accounted for by the equity method, and
extraordinary items, plus fixed charges and (ii) fixed charges consist of
interest expense, amortization of debt discount and the interest factor in
rental expense.
(5) Earnings were insufficient to cover fixed charges by $7.4 million, $31.1
million, $16.3 million, $4.0 million, $9.3 million and $16.3 million for
the years ended December 31, 1989, 1990, 1991 and 1992 and the nine months
ended September 30, 1992 and 1993, respectively. On a pro forma basis,
earnings were insufficient to cover fixed charges by $3.3 million and $16.1
million for the year ended December 31, 1992 and the nine months ended
September 30, 1993, respectively. However, if non-cash charges to income
consisting of depreciation and amortization and non-cash expenses
associated with key employees' deferred compensation plans were excluded,
the Company's earnings would have exceeded fixed charges by $24.7 million,
$5.2 million, $19.3 million, $32.4 million, $16.4 million, $10.7 million,
$41.2million and $12.1 million, respectively, for such periods.
(6) EBITDA is defined as operating income before depreciation and amortization
and non-cash expenses associated with key employees' deferred compensation
plans.
(7) 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.
(8) The ratio of EBITDA to interest expense, net is calculated by dividing
EBITDA by interest expense, net for such period. Pursuant to the Indenture,
the Company may incur additional Funded Debt (as defined) only if its ratio
of EBITDA to interest expense, net exceeds 2.0 to 1.0, subject to certain
exceptions. See "Description of Debentures--Certain Covenants--Limitation
on Funded Debt."
(9) As adjusted to give effect to the Offering, the Maxwhale Notes Repurchase,
the Star Gas Investment, the Subordinated Debt Amendments and the 1994
Acquisition; provided, however, that the as adjusted data includes
approximately $18.5 million of working capital and principal amount of the
Debentures, the proceeds of which are not required for the Maxwhale Notes
Repurchase.
(10) The Company has escrowed certain amounts to partially secure the repayment
of the Maxwhale Notes. The amounts on deposit at the dates indicated were
as follows: $11.5 million at December 31, 1988, $0 at December 31, 1989, $0
at December 31, 1990, $5.0 million at December 31, 1991, $15.0 million at
September 30, 1992, $15.0 million at December 31, 1992, $20.0 million at
September 30, 1993 and $0 at September 30, 1993, as adjusted.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
In analyzing the Company's results, investors should consider the Company's
active acquisition program, the rapid rate of amortization of customer lists
purchased in acquisitions, the seasonal nature of the heating oil business and
the general ability of heating oil distributors to pass on variations in
wholesale heating oil costs to their customers. Therefore, although a company's
net income (loss) calculated in accordance with generally accepted accounting
principles is generally considered by investors to be an indicator of a
company's operating performance, management believes that in evaluating the
Company's results, two additional measures should be considered to supplement
the net income (loss) analysis. The first such measure is operating income
before depreciation and amortization and non-cash expenses associated with key
employees' deferred compensation plans (referred to herein as EBITDA) and the
second such measure is 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 from the
Company (referred to herein as NIDA). Although EBITDA and NIDA should not be
considered a substitute for net income (loss) as an indicator of the Company's
operating performance and NIDA should not be considered a measure of the
Company's liquidity, it is important for an investor to understand these
concepts since management's strategy is to maximize EBITDA and NIDA, rather than
net income. The computations of EBITDA and NIDA are derived from the Company's
financial statements as a supplement to the Company's traditional financial
statements. Because of management's acquisition and other strategies, it
believes that EBITDA is an important indicator as a measure of earnings derived
from operations before non-cash expenses and non-operating expenses, such as
other expenses and income taxes. The following expands on the above and
enumerates other factors that investors should consider.
First, the financial results of a given year do not reflect the full impact
of that year's acquisitions. Most acquisitions are made during the non-heating
season because many sellers desire to retain winter profits but avoid summer
losses. Therefore, the effect of acquisitions made after the heating season are
not fully reflected in the Company's sales volume and operating and financial
results until the following calendar year.
Second, as stated above, the Company's objective is to maximize NIDA and
EBITDA, rather than net income. The large disparity between NIDA and net income
(loss) is primarily attributable to the substantial amortization of customer
lists and other intangibles in connection with acquisitions. Customer lists and
other intangibles acquired in connection with acquisitions represent the
allocation of acquisition costs which are amortized over the future periods
benefitted by such acquisitions. In general, costs are allocated to assets based
upon the fair market value of the assets purchased, as determined by arms'
length negotiations between the Company and the seller. Substantially all
purchased intangibles are comprised of customer lists and covenants not to
compete. Amortization of customer lists is a non-cash expense which represents
the write-off of the amount paid for customers acquired in connection with
acquisitions who later terminate their relationship with the Company. Based on
the Company's analysis of historical purchased customer attrition rates, these
lists are amortized 90% over a six-year period (on average, 15% per annum) and
the balance over a 25-year period. However, the Company's net loss of customers
has only averaged approximately 3% per annum over the past five years, as the
loss of purchased accounts has been partially offset by new customers obtained
through internal marketing. See "Business--Customers and Sales." The covenants
not to compete are amortized over the lives of the covenants, which generally
range from five to seven years.
18
<PAGE>
Third, the seasonal nature of the Company's business results in the sale by
the Company of approximately 50% of its volume in the first quarter and 30% in
the fourth quarter of each year. The Company generally realizes positive NIDA in
both of these quarters and negative NIDA during the warmer quarters ending June
and September. As a result, acquisitions made during the spring and summer
months generally have a negative effect on earnings and a limited impact on NIDA
in the calendar year in which they are made. Most of the costs associated with
an acquired distributor are incurred evenly throughout the remainder of the
year, whereas a smaller percentage of the purchased company's annual volume and
gross profit is realized during the same period.
Finally, changes in total dollar sales do not necessarily affect the
Company's gross profit, EBITDA, net income or NIDA. Since the Company adds a per
gallon margin onto its wholesale costs, variability in wholesale oil prices will
affect net sales but generally do not affect EBITDA, net income, NIDA or any
other measure of earnings. As a result, the Company's margins are most
meaningfully measured on a per gallon basis and not as a percentage of sales.
While fluctuations in wholesale prices have not significantly affected demand to
date, it is possible that significant wholesale price increases over an extended
period of time could have the effect of encouraging conservation. If demand were
reduced and the Company was unable to increase its gross profit margin or reduce
its operating expenses, the effect of the decrease in volume would be to reduce
EBITDA, net income, NIDA and any other measure of earnings.
Given the Company's operating strategy to maximize EBITDA and NIDA as
described above, an investor should also be aware of certain risks that are
inherent in such a strategy. Although an increased level of acquisitions (which
in turn adds to the Company's plant and equipment and customer lists) is
expected to have a positive impact on the long term viability of the business,
the near term effect of acquisitions would be to increase EBITDA and NIDA by a
significantly greater amount than would be the increase, if any, of net income
because of the substantial impact of depreciation and amortization expense,
items which generally do not impact EBITDA or NIDA, but which do materially
impact net income. A reduced level of acquisitions, which would be expected to
have an adverse impact on the long term growth of the business, could lead to
decreased EBITDA and NIDA, while possibly increasing net income.
In the year of an acquisition, depending on the month it is consummated, it
is possible that EBITDA and NIDA would not be affected, while net income could
be negatively impacted.
To the extent future acquisitions are financed with debt, the interest
expense associated with such debt would not impact EBITDA, but would reduce NIDA
and net income. If the Company were to finance future acquisitions by issuing
new preferred stock, the preferred stock dividends associated with the new
preferred stock would not affect EBITDA or net income, but would reduce NIDA and
increase the Company's stockholders' deficiency.
Since EBITDA and NIDA are not affected by depreciation and amortization,
the Company's failure to replace long-lived assets or its decision to delay
needed capital expenditures could have the short term effect of improving net
income (by minimizing depreciation and amortization expense), but could have a
negative impact on the long-term viability of the business. Because management
is concerned with the Company's long-term viability, and measures its operating
performance by EBITDA and NIDA, it intends to continue making capital
improvements as required.
Factors that impact the Company's ability to continue following its current
operating strategy in the foreseeable future include its ability to continue to
grow through acquisitions, while continuing to replace lost customers through
internal marketing.
19
<PAGE>
RESULTS OF OPERATIONS AND OTHER DATA
Nine Months Ended September 30, 1993 Compared to Nine Months Ended September
30, 1992
Net sales increased for the first nine months of 1993 to $377.4 million
from $340.9 million in the same period in 1992. The $36.5 million increase was
attributable primarily to volume growth associated with acquisitions ($40.3
million or 11.8%) and, to a lesser extent, to higher home heating oil prices
($6.2 million or 1.8%), offset by attrition in the Company's customer base and
slightly warmer weather, which was 2.3% warmer than in the prior period.
During the first nine months of 1993, home heating oil volume, including
propane, increased to 307.2 million gallons, 9.4% greater than the number of
gallons delivered in the nine months ended September 30, 1992, due to the impact
of the nine acquisitions completed in 1992 whose nine month volume was fully
reflected for the first time in 1993, and to a lesser extent, the nine
acquisitions completed in the nine months ended September 30, 1993. However,
seven of the current period's acquisitions were completed in the spring and
summer months and provided no meaningful impact on volume growth compared to the
prior year. The positive impact of the acquisitions was offset by slightly
warmer temperatures and by attrition in the Company's customer base. The Company
continues to focus its marketing efforts on smaller, service-sensitive
residential accounts and has reduced its customer attrition rate by
approximately 25% from a year ago.
Gross profit increased $6.5 million (5.9%), a 3.4% decrease on a per gallon
basis, from $108.6 million (38.7 cents per gallon) for the nine months ended
1992 to $115.0 million (37.4 cents per gallon) for the nine months ended 1993.
While home heating oil margins increased 0.5 cents per gallon, which was less
than historically experienced, this increase was more than offset by the higher
net cost of providing heating equipment repair and maintenance service to a
larger customer base and utilizing this service as part of the Company's
internal marketing program. The lower than historically experienced increases
in home heating oil margins was due to lower than expected home heating oil
margins in the first quarter of 1993 which was reversed in the second and third
quarters of 1993.
Operating expenses increased $11.4 million (14.6%) from $77.8 million in
the first nine months of 1992 to $89.2 million for the first nine months of
1993. On a per gallon basis, these expenses increased 4.7% from 27.7 cents per
gallon for the first nine months of 1992 to 29.0 cents for the comparable
period in 1993. This increase was attributable to the expansion of the
Company's marketing program, which has resulted in a significant reduction in
the Company's rate of account attrition, and the severe weather conditions
experienced in March 1993 that temporarily increased operating costs,
primarily delivery expenses, during that month.
Provision for supplemental benefit for the nine months ended September 30,
1993 represents the present value of supplemental retirement benefits ($0.2
million).
Amortization of customer lists and deferred charges increased 3.9%, or $0.8
million, to $22.4 million. These non-cash expenses increased less than volume
growth as certain customer lists and capitalized expenses became fully
amortized. Depreciation and amortization of plant and equipment increased 5.2%,
or $0.2 million, to $4.4 million for the nine months ended September 30, 1993
due to the acquisitions.
The operating loss for the first nine months of 1993 was $1.1 million as
compared to operating income of $5.1 million for the same period of 1992, as the
9.4% increase in volume and the slight increase in home heating oil margins were
offset by higher residential service related costs, increased delivery and
marketing expenses and higher non-cash expenses.
Net interest expense for the nine months ended September 30, 1993 increased
$1.1 million, 8.0%, to $15.1 million. A reduction in the average borrowing rate
was offset by a $28.6 million increase in long-term borrowings from $148.9
million, at an average interest rate of 11.9%, to $177.5 million, at an
20
<PAGE>
average interest rate of 11.4%. This increase in long-term borrowing was due to
the conversion in March 1993 of $12.8 million of Redeemable Preferred Stock into
Subordinated Notes due in 2000 and the issuance in April 1993 of $50 million of
10 1/8% Notes due in 2003. The proceeds of this public issue were used to repay
$25.0 million of long-term obligations maturing in 1993 and 1995 with the
balance being used to fund, in part, the Company's acquisition program.
Offsetting the increase in long-term borrowings was a decline in short-term
borrowings from $22.1 million, at an average interest rate of 5.8%, for the
first nine months of 1992 to $11.8 million, at an average interest rate of 5.1%,
for the comparable period of 1993. In addition, the Company reduced bank fees
and generated interest income on higher cash balances in 1993 compared to 1992.
The loss before income taxes and extraordinary items increased 75%, or $7.0
million, to $16.3 million due to the reduction in operating income and the
increase in interest expense. Income taxes of $0.2 million were the same for
both periods and represent certain state income taxes applicable to profitable
subsidiaries that are not included in consolidated state returns. The Company
had losses for federal income tax purposes in each of these periods.
In May 1993, the Company recorded an extraordinary charge against earnings
of $0.9 million. This represented the cash premium paid of $0.4 million to
retire $25.0 million of the Company's long-term obligations maturing in 1993 and
1995 and the write-off of $0.5 million in debt discount and deferred charges
associated with these obligations.
The net loss increased from $9.5 million for the first nine months of 1992
to $17.4 million for the comparable period of 1993 due to the increase in the
operating loss, higher interest expense and the extraordinary charge. EBITDA
decreased from $30.7 million for the nine months ended September 30, 1992 to
$25.8 million for the comparable period in 1993 as the 9.4% increase in volume
and the slight increase in home heating oil margins were offset by higher
residential service related costs and increased marketing expenses.
1992 Compared to 1991
Net sales decreased in 1992 to $512.4 million from $523.2 million in 1991.
This $10.8 million decrease was due to lower home heating oil prices ($37.9
million or 7.2%) as a result of lower per gallon wholesale costs, as well as to
reductions in sales of products other than home heating oil to commercial
accounts ($17.0 million or 3.3%), which were partially offset by an increase in
home heating oil volume ($41.0 million or 7.8%). The average price of home
heating oil in 1992 was approximately 14.8% below the 1991 levels, when prices
were affected by the Persian Gulf crisis.
In 1992, home heating oil volume increased to 423.4 million gallons, 9.7%
greater than the 385.6 million gallons delivered in 1991 due to colder
temperatures (45.3 million gallons) and the impact of the nine acquisitions
completed in 1991 whose full annual volume was realized for the first time in
1992 and from a portion of the annual volume associated with the nine additional
acquisitions completed in 1992 (19.2 million gallons). The impact of the
acquisitions was offset in part by attrition in the Company's customer base, as
well as the loss of certain of its high volume, low margin commercial accounts,
as the Company continued to focus its marketing efforts on smaller, higher
margin, more service-sensitive residential customers.
Gross profit increased $17.0 million (11.8%), or 1.9% per gallon, from
$144.5 million in 1991 (37.5 cents per gallon) to $161.5 million in 1992 (38.2
cents per gallon). This increase exceeded the percentage increase in home
heating oil volume due to improved per gallon gross profit margins
attributable to the Company's ability to add an increasing gross margin onto
its wholesale costs, designed to offset the impact of inflation, account
attrition and weather.
Operating expenses increased 5.5% compared to the 9.7% increase in volume
and declined 3.9% on a per gallon basis from 27.1 cents in 1991 to 26.1 cents
in 1992. The per gallon reduction in operating expenses
21
<PAGE>
reflects the savings from the Company's cost reduction program which was begun
in April 1991 and economies of scale realized from the Company's acquisition
program.
Amortization of customer lists declined 5.4%, or $1.3 million, to $23.5
million in 1992 as certain customer lists became fully amortized and a greater
portion of the purchase price in more recent acquisitions was allocated to
restrictive covenants and included in deferred charges. As a result of this
allocation, amortization of deferred charges increased 3.5% to $5.4 million in
1992. On a combined basis, amortization of customer lists and deferred charges
declined 3.9% as the annual amortization associated with assets that became
fully amortized was greater than the amount associated with the limited number
of acquisitions in 1991 and the impact of the 1992 acquisitions was not fully
realized in the current year.
Depreciation and amortization of plant and equipment was $5.5 million for
1992, approximately the same as in 1991, as reductions related to assets that
became fully depreciated were offset by increases associated with assets
purchased in 1991 and 1992.
Provision for supplemental benefit in 1992 represents the present value of
a supplemental retirement benefit ($2.0 million) which is being paid over 10
years.
Operating income increased to $15.0 million from $4.5 million in 1991. This
improvement was due to an increase in home heating oil volume and an improvement
in per gallon operating income associated with higher gross profit margins,
lower per gallon operating expenses and the decline in non-cash expenses,
partially offset by the provision for the supplemental benefit in 1992.
Net interest expense in 1992 decreased $2.1 million, 10.2% below 1991, due
to a decline in average outstanding borrowings from 1991 to 1992 of $15.6
million, which caused a reduction of $1.7 million in interest expense and to an
increase in interest income ($0.4 million), generated primarily by a higher
average balance in U.S. Treasury Notes held in the cash collateral account. The
Company's average borrowing rate increased from 11.2% in 1991 to 11.3% in 1992.
Average working capital borrowings dropped from $35.0 million in 1991 at an
average interest rate of 8.2% to $17.9 million in 1992 at an average interest
rate of 5.9%. Average fixed rate borrowings increased from $147.0 million in
1991 to $148.5 million in 1992 with an average interest rate of 11.9% for both
years.
Pretax loss decreased $12.3 million in 1992 from 1991 due to the increase
in operating income and the reduction in interest expense, partially offset by
the increase in other expenses. Taxes increased from $0.3 million in 1991 to
$0.4 million in 1992. Despite the pretax loss, the Company was required to pay
certain state income taxes in 1992 on profitable subsidiaries that are not
included in consolidated state returns. The 1992 loss, while not providing any
Federal tax benefits in 1992, will increase the Company's tax loss carryforwards
to approximately $43.0 million as of December 31, 1992.
Net loss decreased to $4.4 million in 1992, a $12.2 million improvement
over the $16.6 million net loss in 1991.
EBITDA increased 28.2% to $51.3 million in 1992 from $40.0 million in 1991.
This improvement was primarily the result of the 9.7% home heating oil volume
increase and a 1.7 cents per gallon EBITDA margin improvement.
1991 Compared to 1990
Net sales decreased in 1991 to $523.2 million from $567.4 million in 1990.
This $44.2 million decrease was due to lower home heating oil prices ($25.1
million or 4.4%), which reflected lower wholesale cost and lower volume ($19.1
million or 3.4%). Total home heating oil volume declined in 1991 to 385.6
million gallons, despite an increase in gallonage sold to residential customers,
as the Company eliminated a number of low margin commercial and industrial
accounts. Home heating oil volume sold to residential homeowners increased in
1991 due primarily to the incremental 18 million gallon impact of 12
acquisitions in 1990, the entire annual volume of which was fully realized in
1991,
22
<PAGE>
and from a portion of the volume associated with nine acquisitions in 1991. The
volume increase associated with the acquisitions was less than historically
experienced, due to the limited number of acquisitions made in 1990 and 1991.
While 1991 was the third warmest year of this century in the Northeast, it
was 3.8% colder than in 1990. This had a positive effect on 1991's sales volume
compared with the prior year. Offsetting the acquisition and weather impact on
the year-to-year comparison was the fact that the volume in 1990 was inflated by
certain sales attributable to December 1989 (the second coldest December in the
century) which could not be delivered in that month, but which were ultimately
sold in January 1990.
1991 home heating oil volume was also negatively affected by attrition in
the Company's customer base. This rate increased from historical levels due, in
part, to gas conversions increasing from a normal 1.0% to 1.4% per annum, caused
by the temporary but significant price advantage of natural gas over home
heating oil during the Persian Gulf crisis. With the return to normal market
conditions, the two products are again at parity and conversions have returned
to their historical 1% annual rate. Also affecting this attrition rate was an
increase from 1.2% to 1.9% of customers who did not meet the Company's credit
criteria, due partially to poor economic conditions in the Northeast. While
application of these standards increased the number of canceled accounts, it
enabled the Company to maintain a bad debt rate of only 0.3% of sales.
Gross profit increased 9.1% from $132.4 million (33.2 cents per gallon)
for 1990 to $144.5 million (37.5 cents per gallon) in 1991, attributable
primarily to the Company's ability to increase per gallon gross profit margins
to offset the impact the warmer than normal winter weather had on volume and
per gallon operating costs.
Operating expenses decreased 1.6% to $104.4 million from the prior year but
increased on a per gallon basis from 26.6 cents in 1990 to 27.1 cents in 1991,
which increase was less than the rate of inflation for 1991. While these
expenses declined in total in 1991, due primarily to the Company's cost
reduction program, on a per gallon basis they were higher than the prior year
as costs could not be further reduced in the short term to offset the decline
in volume resulting from the warmer than normal weather.
Amortization of customer lists declined 2.9%, or $0.7 million, to $24.8
million, as certain customer lists became fully amortized in 1991 and 1990 and
as a greater portion of the purchase price in more recent acquisitions was
allocated to restrictive covenants and included in deferred charges. Primarily
as a result of this allocation, amortization of deferred charges increased by
$0.2 million, or 4.8%, to $5.2 million. On a combined basis, amortization of
customer lists and deferred charges declined 1.6% as the value of assets that
became fully amortized was greater than the amount associated with new
acquisitions.
Depreciation and amortization of plant and equipment declined 4.2% from
$5.8 million in 1990 to $5.6 million in 1991. Depreciation expense decreased
more significantly than volume as certain assets became fully depreciated in
1990.
Operating income increased $14.5 million from a loss of $10.0 million in
1990 to a profit of $4.5 million in 1991, due to the $12.1 million increase in
gross profit and the reduction in operating and non-cash expenses.
Net interest expense in 1991 declined $0.2 million due to a decrease in the
Company's average working capital borrowings which declined from $36.9 million
in 1990 at an average interest rate of 9.4% to $35.0 million in 1991 at an
average interest rate of 8.2%. In addition, interest income rose as earnings
were generated on an escrow deposit made into the cash collateral account in
April 1991. The Company's average fixed rate borrowings decreased from $148.0
million in 1990 at an average interest rate of 11.6% to $147.0 million in 1991
at an average interest rate of 11.9%.
23
<PAGE>
Pretax loss decreased $14.8 million in 1991 from 1990 due to improved gross
profit margins and lower operating expenses, depreciation and amortization,
interest and other expenses. The Company incurred a pretax loss of $16.3 million
due to the $35.6 million of non-cash charges. Taxes increased from a $1.9
million benefit in 1990 to a $0.3 million expense in 1991. Despite the pretax
loss, the Company was required to pay certain state income taxes in 1991. Unlike
1990, none of the 1991 losses could be carried back for Federal income tax
purposes. The $16.3 million pretax loss, while not providing any Federal tax
benefits in 1991, increased the Company's tax loss carryforward.
Net loss decreased to $16.6 million in 1991, a 43.4% improvement as
compared to 1990.
EBITDA increased 52.2% to $40.0 million in 1991 from $26.3 million in 1990
as a result of the improvement in gross profit margins and lower operating
expenses, which offset the impact of the volume decline.
LIQUIDITY AND FINANCIAL CONDITION
The Company has financed its growth through a combination of internally
generated capital, the sale of common stock, and the issuance of Redeemable
Preferred Stock and debt. As indicated in the table below, the Company has
financed acquisitions and other asset requirements made from January 1, 1988 to
December 31, 1992, 62.6% with internally generated cash and funds from a 1992
offering of 4.3 million shares of Class A Common Stock, 20.0% with Redeemable
Preferred Stock and 17.4% with long-term debt and working capital. As a result,
for the year ended December 31, 1992, EBITDA was 2.8 times net interest expense.
<TABLE> <CAPTION>
FUNDING SOURCES
-------------------------------------------------------------------
ACQUISITIONS INTERNALLY GENERATED REDEEMABLE PREFERRED LONG-TERM DEBT AND
AND FIXED ASSET FUNDS AND ADDITIONAL NET
YEAR PURCHASES EQUITY(1) STOCK WORKING CAPITAL(2)
- ------------------------- --------------- ---------------------- -------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1988..................... $ 39,403 $ 14,392 36.5% $ -- --% $ 25,011 63.5%
1989..................... 42,900 20,643 48.1 9,140 21.3 13,117 30.6
1990..................... 33,077 (544) (1.6) 15,000 45.3 18,621 56.3
1991..................... 16,399 13,834 84.4 4,449 27.1 (1,884) (11.5)
1992..................... 48,478 64,431 132.9 7,500 15.5 (23,453) (48.4)
--------------- ----------- --------- ----------
Total.................... $ 180,257 $ 112,756 62.6% $ 36,089 20.0% $ 31,412 17.4%
--------------- ----------- --------- ----------
--------------- ----------- --------- ----------
</TABLE>
- -----------------------------
(1) Internally generated funds consist of net income plus depreciation and
amortization less dividends. Additional equity consisted of $42.7 million
from the sale of Class A Common Stock in 1992.
(2) Net working capital was used for purposes other than acquisitions and
long-term requirements. This column reflects only that portion of net
working capital utilized to make acquisitions and purchase fixed assets.
The Company's cash flow from operations, as well as its ability to access
long-term debt and equity in both the public and private markets, has provided
sufficient capital to fund the Company's acquisition program. In April 1993, the
Company realized net proceeds of $48.1 million from an offering of its 10 1/8%
Notes and it is estimated that the net proceeds of the Offering will be $72.3
million. To the extent that internally generated funds are insufficient to fund
the Company's acquisition program, it may use such net proceeds for
acquisitions. As the Company continues to expand or the opportunity to refinance
existing debt arises because of interest rate considerations or maturity, the
Company will utilize both the public and private markets to raise capital when
it deems appropriate.
Net cash provided by operating activities of $47.2 million for the nine
months ended September 30, 1993, net of repayments of working capital borrowings
of $32.0 million, along with the $48.1 million of net proceeds from the April
1993 public offering of the 10 1/8% Notes amounted to $63.3 million. These
24
<PAGE>
funds were utilized in investing activities for acquisitions and the purchase of
fixed assets of $17.4 million and in financing activities to pay dividends of
$11.5 million, to repurchase subordinated debt, including premium, of $25.4
million, to deposit $5.0 million into a cash collateral account to partially
secure the Maxwhale Notes, and to make principal payments on other long-term
obligations of $0.4 million.
Net cash provided by operating activities of $26.7 million for the year
ended December 31, 1992, net of repayments of working capital borrowings of $7.8
million, amounted to $18.9 million. These funds, along with $42.7 million of net
proceeds from the sale of common stock, the $6.8 million of proceeds from the
sale of subordinated notes and the $7.5 million of proceeds from the sale of
Redeemable Preferred Stock, were utilized in investing activities for
acquisitions, the purchase of fixed assets of $49.1 million and in financing
activities to retire $6.8 million of subordinated notes, to deposit $10.0
million into a cash collateral account to partially secure the Maxwhale Notes,
to pay cash dividends of $8.3 million and to make principal payments on other
long term obligations of $0.6 million.
A consortium of banks has historically provided the Company with credit
facilities, currently consisting of a $75 million credit line pursuant to the
Credit Agreement. As of December 31, 1992, $32 million of borrowings were
outstanding, but as of September 30, 1993, due in part to the seasonal nature of
the Company's business, the Company did not require any working capital
borrowings.
The Company's working capital deficiency at September 30, 1993 of
approximately $7.5 million was generated primarily by the inclusion of $27.5
million of the Maxwhale Notes as a current liability, offset in part by the
inclusion of $20 million that has been deposited in a cash collateral account as
a current asset. Adjusted to give effect to the Offering, the Maxwhale Notes
Repurchase, the Star Gas Investment, the Subordinated Debt Amendments and the
1994 Acquisition, the Company's working capital would have been approximately
$21.0 million at September 30, 1993.
For the remainder of 1993, the Company's financing obligations included
making its investment of $16.0 million in Star Gas, principal payments on other
long-term obligations of $0.1 million and paying common stock dividends of
approximately $3.1 million. For 1994, after giving effect to the completion of
the Offering and the application of the net proceeds therefrom, the Company's
financing obligations include redeeming $4.2 million of Redeemable Preferred
Stock and paying $2.8 million in dividends for such stock. In addition, the
Company anticipates paying $12.0 million in Common Stock dividends. Based on the
Company's current cash position, bank credit availability and expected net cash
to be provided by operating activities for the remainder of 1993 and for 1994,
the Company expects to be able to meet all of the above mentioned obligations in
1993 and 1994, as well as meet all of its other current obligations as they
become due.
TAX MATTERS
Federal tax legislation, passed on August 10, 1993, will affect the manner
in which the Company amortizes intangible assets, primarily customer lists and
restrictive covenants associated with acquisitions for Federal income tax
purposes. For financial reporting purposes, the Company historically has
amortized 90% of acquired customer lists over a six year period and the balance
over a 25 year period, and has followed substantially the same policy for
Federal income tax reporting purposes.
The new tax legislation will require amortization of all intangible assets
on a straight line basis over 15 years for Federal income tax reporting
purposes, beginning with acquisitions made after the date of enactment. The
legislation has no effect on the Company's historic results for financial
reporting or for Federal income tax reporting purposes. For financial reporting
purposes, the Company periodically reviews the appropriate allocation of
purchase price among the assets acquired. No changes are currently contemplated
in the various amortization lives for the intangible assets acquired; however
the Company periodically reviews such periods from time to time. The legislation
will reduce the Company's annual Federal income tax deduction attributable to
future acquisitions by requiring the
25
<PAGE>
amortization of such intangibles for Federal income tax purposes over a longer
period than the Company currently utilizes. This could cause the Company to pay
income taxes in advance of recording financial statement income in the future
after utilization of the Company's available net operating loss carryforwards.
NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standard No. 106 ("SFAS No. 106"), "Employers' Accounting
for Post Retirement Benefits Other Than Pensions." This statement requires that
the expected cost of post retirement 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 post-retirement benefits,
other than pensions, the adoption of the new statement did not have any material
effect on the Company's financial condition or results of operations.
During the first quarter of 1993, the Company also adopted Statement of
Financial Accounting Standard 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 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 tax asset set up as a result of applying SFAS No. 109 has been
fully reserved.
26
<PAGE>
BUSINESS
The Company is the largest retail distributor of home heating oil in the
United States, with total sales of $548.9 million for the twelve months ended
September 30, 1993. As of September 30, 1993, Petro served approximately 421,000
customers in 26 markets in the Northeast, including the metropolitan areas of
Boston, New York City, Baltimore, Providence and Washington, D.C. Despite its
market position, the Company's customer base is estimated to represent
approximately 5% of the residential home heating oil customers in the Northeast.
For the twelve months ended September 30, 1993, the Company sold approximately
449.7 million gallons of home heating oil and propane.
In addition to sales of home heating oil and propane, the Company installs
and repairs heating equipment and, to a limited extent, markets other petroleum
products to commercial customers, including #4 fuel oil, #6 fuel oil, diesel
fuel, kerosene and gasoline.
Installation and repair of heating equipment is provided as a service by
the Company to its heating oil customers, and has represented approximately 11%
per year of the Company's net sales for the last three fiscal years. The Company
considers the provision of service and installation services to be an integral
part of its basic fuel oil business. Accordingly, the Company regularly provides
various service incentives to obtain and retain fuel oil customers and such
services are not designed to generate profits. Except in isolated instances, the
Company does not provide service to any person who is not a heating oil
customer.
For the years ended December 31, 1990, 1991 and 1992, and for the nine
months ended September 30, 1992 and 1993, sales of home heating oil and propane
(not including related installation and service) constituted approximately 78%,
80%, 83%, 82% and 83%, respectively, of the Company's net sales.
FUNDAMENTAL CHARACTERISTICS
Unaffected by General Economy
The Company's business is relatively unaffected by business cycles. As home
heating oil is such a basic necessity, variations in the amount purchased as a
result of general economic conditions have been limited.
Customer Stability
The Company has a relatively stable customer base due to the tendency of
homeowners to remain with their traditional distributors and a majority of
homebuyers tending to remain with the previous homeowner's distributor. As a
result, the Company's customer base each year includes approximately 90% of the
prior year's customers and homebuyers who have purchased their homes from prior
Petro customers. In an acquisition, while the Company loses approximately 90% of
the acquired customers within the first six years, the retention of a majority
of the homes underlying such customers make the homes included in the customer
list similar to the prior year.
Like many other companies in its industry, the Company delivers home
heating oil to each of its customers an average of approximately six times
during the year, depending upon weather conditions and historical consumption
patterns, without the customer having to make an affirmative purchase decision
each time oil is needed. Approximately 85% of the Company's customers receive
their fuel oil pursuant to an automatic delivery system. In addition, the
Company provides home heating equipment repair service on a seven days a week,
52 weeks a year basis, generally within four hours of request. Each customer
requires such service an average of twice a year.
Weather Stability
Average temperatures over time have varied to a very limited extent
notwithstanding the warm winter weather experienced in 1990 and 1991.
27
<PAGE>
The following table presents the average daily temperature (in degrees
Fahrenheit) in the metropolitan New York City area for January through March and
October through December of the year indicated (which are considered to be the
heating season months):
AVERAGE
YEAR TEMPERATURE
1960................ 40.4
1961................ 41.9
1962................ 40.0
1963................ 41.1
1964................ 42.1
1965................ 41.5
1966................ 41.9
1967................ 40.5
1968................ 40.2
1969................ 40.4
1970................ 39.8
1971................ 41.9
1972................ 40.5
1973................ 43.8
1974................ 41.9
1975................ 43.5
1976................ 39.3
1977................ 40.1
1978................ 39.5
1979................ 43.0
1980................ 39.8
1981................ 41.1
1982................ 42.6
1983................ 42.9
1984................ 43.4
1985................ 42.5
1986................ 42.5
1987................ 42.1
1988................ 41.1
1989................ 40.8
1990................ 47.0
1991................ 44.3
1992................ 41.9
- ------------------------------
Source: National Oceanic and Atmospheric Administration
Based upon the average temperatures experienced since 1960, the Company
does not believe that the 1990 and 1991 weather is necessarily indicative that
higher than normal winter temperatures will prevail in the future. This belief
is based in part on the fact that the weather in 1992 and for the nine months
ended September 30, 1993 has returned to relatively normal levels and that the
four warmest years in this century other than 1990 and 1991 occurred in 1953,
1949, 1946 and 1913.
Insulation from Oil Price Volatility
The Company has been insulated from the volatility of wholesale oil prices
due to its policy of maintaining on average no more than a ten day inventory of
home heating oil and by limiting its activities to the retail distribution of
home heating oil. Although the price of crude oil has been volatile, this has
not materially affected the Company's performance. As a retailer, the Company
has been able to add an increasing gross margin onto its wholesale costs,
whatever their level, designed to offset the impact of inflation, account
attrition and weather.
Oil Supply
Petro's policy of contracting for a majority of its oil supply with a
diverse group of domestic sources minimizes the potential impact of foreign
supply disruptions. This diversity, along with purchasing a certain portion of
its needs on the spot market, enables the Company to obtain supplies at the
lowest possible cost without jeopardizing product security. In addition, given
the low proportion of crude oil that is refined into fuel oil and the importance
of home heating oil during cold periods, the Company believes that, in the event
of foreign oil supply disruptions, the level of production of home heating oil
will generally continue unaffected compared to other oil products.
Conversions to Natural Gas
The rate of conversion from the use of home heating oil to natural gas is
primarily affected by the relative prices of the two products and the cost of
replacing an oil-fired heating system with one that uses natural gas. The
Company believes that approximately 1% of its customer base annually converts
from home heating oil to natural gas. Even when natural gas had a significant
price advantage over home heating oil, such as in 1980 and 1981 when there were
government controls on natural gas prices or, for a short time in 1990 and 1991,
during the Persian Gulf crisis, the Company's customers converted to natural gas
at only a 2% annual rate. During the latter part of 1991 and through 1992,
28
<PAGE>
natural gas conversions have returned to their approximate 1% historical annual
rate as the prices for the two products have been at parity.
In 1992, the Iroquois natural gas pipeline, which extends from Canada to
Long Island, New York commenced operations. This pipeline serves the Northeast
and has the capacity for transporting more than 600 million cubic feet of
natural gas per day.
The following table presents the percentage of the Company's customers that
have converted to natural gas annually from 1982-1992:
NATURAL GAS CONVERSIONS
<TABLE>
YEAR PERCENT
<S> <C>
1982................................................................................ 1.3%
1983................................................................................ 0.5
1984................................................................................ 0.6
1985................................................................................ 0.7
1986................................................................................ 0.8
1987................................................................................ 0.9
1988................................................................................ 1.0
1989................................................................................ 1.0
1990................................................................................ 1.5
1991................................................................................ 1.4
1992................................................................................ 1.1
</TABLE>
Environmental Matters
Petro has not incurred any significant environmental compliance costs. This
is primarily due to the Company's general policy of not owning or operating fuel
oil terminals and of closely monitoring its compliance with all environmental
laws. While Petro has received notifications for three sites under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
two claims against the Company were voluntarily dismissed and the third was
closed for $20,000.
INDUSTRY OVERVIEW
Since the 1930s, oil has been a primary source of home heat in the
Northeast. The Northeast accounts for approximately two-thirds of the demand for
home heating oil in the United States and, during 1991, approximately 7.7
million homes, or approximately 40% of all homes in the Northeast, were heated
by oil. In recent years, demand has been affected by conservation efforts and
conversions to natural gas. In addition, as the number of new homes that use oil
heat has not been significant, there has been virtually no increase in the
customer base due to housing starts. As a result, home heating oil consumption
in the Northeast has declined from approximately 5.9 billion gallons in 1981 to
approximately 4.4 billion gallons in 1991. The Company does not expect
consumption to decline materially as a result of further conservation efforts
and conversions to natural gas because, unless worldwide oil shortages develop,
consumers have little incentive to take additional conservation measures beyond
what they have already implemented. In addition, losses of customers to gas heat
as an alternate energy source are presently insignificant due to the recent
stabilization of retail oil prices relative to retail natural gas prices and the
cost of conversion. See "Business--Fundamental Characteristics--Conversions to
Natural Gas."
The home heating oil distribution business is highly fragmented and
characterized by numerous local fuel oil distributors, most of which have fewer
than 20 employees and operate within a 25-mile radius from their distribution
facility. According to the United States Bureau of Census, there were
approximately 3,800 independently-owned and operated, home heating oil
distributors in the Northeast at the end of 1990. Generally, these companies
were established in the late 1940s and early 1950s in
29
<PAGE>
response to the post-World War II, suburban housing boom. Now, 45 years later,
many of the proprietors of these businesses are considering retirement and
selling their operations.
BUSINESS STRATEGY
Current management assumed control of the Company in 1979 and restructured
the Company by consolidating operating branches and focusing primarily on the
retail sale of home heating oil. In addition, corporate overhead was
significantly reduced, primarily through a reduction in the number of employees
and related expenses. After this reorganization, management perceived an
opportunity to achieve substantial growth and increased profitability by
acquiring fuel oil distributors in new and existing markets.
Acquisition Strategy
The Company's strategy is to continue to grow through the acquisition and
integration of additional distributors in existing and new markets.
The Company acquires two types of distributors. The first type are
relatively small and easily integrated into the Company's branch system,
resulting in significant economies of scale through the centralization of the
purchasing, marketing, credit, data processing and other administrative
functions of the acquired distributor. The second type are larger, stand-alone
businesses that are not integratable, but are usually in new markets.
Acquisitions of these businesses not only provide attractive investment returns,
but also provide hubs for future expansion.
From January 1, 1980 through September 30, 1993, the Company made 144
acquisitions of fuel oil distributors, of which 18 resulted in the Company's
expansion into new markets and the remaining were located in existing markets.
After an initial start-up period, the Company's acquisitions have been made at a
relatively steady pace, with the Company acquiring an average of 14 companies
annually from 1984 through 1989, which, excluding one large acquisition in 1987,
averaged 3.4 million gallons annually per acquisition, and cost an average of
$1.6 million per acquisition. While the Company continued to acquire
distributors in 1990 and 1991, it did so at a reduced pace, despite an increase
in opportunities, since the warm winter weather in those years limited the
Company's internally-generated capital and access to attractively priced
external capital. The Company completed nine acquisitions in 1992 with an annual
volume of 65.6 million gallons and completed nine acquisitions during the nine
months ended September 30, 1993 with an annual volume of 25.6 million gallons.
On December 22, 1992 the Company acquired a fuel oil distribution business
from Agway Energy Products. This acquired business, which has distributors in
eight locations, sold, in the aggregate, approximately 15.5 million gallons of
home heating oil and 10.0 million gallons of other petroleum products in 1992.
Four of the distributors are also engaged in the distribution of propane,
primarily for home heating. These four distributors sold approximately 5.5
million gallons of propane during 1992. The Company believes that the propane
delivery business is a natural extension of its home heating oil delivery
business, and it has integrated these four propane distributors into its
existing operations. In December 1993, Petro acquired an approximate 29.5%
equity interest in another propane distributor, Star Gas, for $16 million. Star
Gas has a right of first refusal with respect to future acquisition
opportunities in the propane industry that are offered to the Company. There can
be no assurance that the investment will be profitable. The Company intends to
explore the acquisition of other distributors in the propane industry. See "Risk
Factors--Investment in Star Gas" and "--Investment in Star Gas."
30
<PAGE>
The following table sets forth the number of acquisitions made by the
Company during the 1979 to 1992 period, including the approximate number of
customers acquired and the gallons which such customers purchased from the
acquired distributors in the year preceding such acquisition:
<TABLE> <CAPTION>
NUMBER OF
NUMBERS OF NUMBER OF GALLONS ACQUIRED
YEAR ACQUISITIONS CUSTOMERS ACQUIRED (IN THOUSANDS)
<S> <C> <C> <C>
1979.............................................. 1 800 900
1980.............................................. 3 6,950 8,910
1981.............................................. 6 50,800 49,050
1982.............................................. 4 19,900 23,600
1983.............................................. 5 40,000 65,151
1984.............................................. 13 51,300 62,420
1985.............................................. 10 49,900 61,934
1986.............................................. 16 46,800 53,375
1987.............................................. 12 76,300 114,527
1988.............................................. 20 47,300 53,287
1989.............................................. 16 34,400 51,569
1990.............................................. 12 35,600 42,859
1991.............................................. 9 15,300 18,220
1992.............................................. 9 65,200 65,618
</TABLE>
The Company's active acquisition program is designed to capitalize on the
highly fragmented nature of the home heating oil industry, Petro's acquisition
expertise, as well as what management believes to be an absence of competitors
with acquisition experience, reputation and access to capital equivalent to that
of Petro. In the Northeast, there are approximately 3,800 independently-owned
and operated, home heating oil distributors. Many of the proprietors of these
businesses are of retirement age and may be receptive to selling their
operations. Another source of acquisitions are companies that are owned by
individual entrepreneurs who find expansion within the heating oil industry
difficult, either operationally or financially, or who have other investment
opportunities. Recently, acquisition opportunities have increased due to the
effect of an increasingly difficult business environment on these
independently-owned and operated businesses, especially as a result of the warm
1990 and 1991 heating seasons. In addition, the retail home heating oil
divisions of major oil companies, which strategically desire to concentrate
their capital and management in other segments of the petroleum industry, have
also become available.
The Company has an acquisition staff whose responsibility it is to develop
leads, analyze potential purchases, negotiate purchase prices and contracts and
oversee the integration process. This has resulted in acquisitions generally
requiring only three to four weeks from the time an understanding is reached to
the consummation of the transaction and the integration of the acquired
distributor into Petro's operations. In August 1993, the Company added two
senior managers to its acquisition staff in order to enhance the Company's
ability to actively identify new acquisition opportunities.
The two principal criteria the Company uses to evaluate a potential
acquisition are return on investment and operational fit. The Company determines
the earnings potential of a possible acquisition using its historical home
heating oil volume and gross profit margin and the Company's anticipated cost of
operating the acquired distributor. Based on the anticipated earnings, the
Company determines the price it will offer for the distributor to be acquired
which is calculated to provide the appropriate return on investment. The Company
seeks an annual EBITDA return of 25% to 30% on its capital investments. The
determination of operational fit is based on the Company's evaluation of such
distributor's customer profile, including annual home heating oil gallons sold,
the number of customers on automatic delivery, types of service plans, customer
payment patterns and other operating matters such as fleet and supply
requirements and compliance with environmental and other laws.
31
<PAGE>
Recognizing the service nature of the home heating oil business, Petro has
attempted to retain the local identity of companies it purchases. In addition,
while economies of scale are sought with each acquisition, the Company tries to
minimize changes that could adversely affect customer or employee relations. By
paying close attention to the operational, as well as financial, characteristics
of an acquisition, the Company has avoided significant problems relating to its
acquisitions over the past 13 years. This policy has not only reduced the
potential monetary risks associated with an acquisition but has also enabled
senior management to focus on new purchases rather than on post-acquisition
matters.
Petro is the largest retail distributor of home heating oil in the United
States and management believes there is no home heating oil distributor
comparable to Petro in its access to capital. Petro is the only distributor
operating in as many as 26 markets, and the Company believes that it sells
approximately 3.5 times as many gallons of retail home heating oil as the next
largest distributor. While in each of Petro's markets there are a limited number
of distributors that from time to time compete for acquisitions, these are
generally small enterprises that have limited capital resources and lack
structured acquisition programs. In addition, after 145 acquisitions, there is
an awareness throughout the home heating oil industry of Petro's interest in and
ability to consummate transactions. This high profile within the industry,
combined with the Company's reputation among potential sellers, results in Petro
having the opportunity to review many of the acquisition opportunities in the
Northeast. Several acquisition opportunities are currently being evaluated.
Operating Strategy
The Company currently operates from 30 branch locations and a corporate
office in Stamford, Connecticut. The accounting, data processing, purchasing and
credit functions are centralized, while branch offices maintain autonomy over
oil delivery, heating equipment service and customer relations. The Company
obtains its fuel oil in either barge or truckload quantities. When purchasing in
barge quantities, the Company hires independent barging companies on an as
needed basis to transport the Company's oil from refineries and other bulk
storage facilities to third-party storage terminals. The Company has contracted
with approximately 71 third party storage terminals for the right to temporarily
store its fuel oil at their facilities. The fuel oil is then transported by the
Company's fleet of approximately 725 delivery trucks to its customers.
Approximately 85% of the Company's customers receive their fuel oil
pursuant to an automatic delivery system in which individual deliveries are
scheduled by computer based upon each customer's historical consumption patterns
and prevailing weather conditions. The Company delivers home heating oil
approximately six times during the year to the average customer. The Company's
practice is to bill customers promptly after delivery. In addition,
approximately 30% of the Company's customers are on the Company's budget payment
plan whereby their estimated annual oil purchases and service contract is paid
for in a series of equal monthly payments over an 11 or 12 month period.
SUPPLIERS
The Company obtains home heating oil from numerous sources, including
integrated international oil companies, independent refiners and independent
wholesalers, many of which have been suppliers to the Company for over 10 years.
The Company's purchases are made pursuant to supply contracts or on the spot
market. The Company has market price-based contracts for substantially all of
its petroleum requirements with 14 different suppliers, all of which have
significant domestic sources for their product. The Company's current suppliers
are (in alphabetical order): Amerada Hess Corporation; Bayway Refining Co.;
Citgo Petroleum Corp.; Coastal New England and New York; Crown Central
Petroleum; Exxon Company USA; Global Petroleum Corp.; Kerr McGee Refining Corp.;
MG Refining and Marketing Co.; Mobil Oil Corporation; Northeast Petroleum, a
division of Cargill, Inc.; S&S Hartwell and Co., Inc., a division of Sprague
Energy Group; Stuart Petroleum Company; and Sun Oil Company. The Company's
supply contracts each have terms of 12 months and typically expire in May or
June of each year. All of the supply contracts provide for maximum quantities,
but do not establish in
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advance the price at which fuel oil is sold, which, like the Company's price to
its customers, is established from time to time. The Company believes that its
policy of contracting for substantially all its supply needs with diverse and
reliable sources will enable it to obtain sufficient product should unforeseen
shortages develop in the worldwide supply of crude oil. The Company further
believes that relations with its current suppliers are satisfactory.
CUSTOMERS AND SALES
As of September 30, 1993, the Company served approximately 421,000
customers in the following 26 markets through a sales force of 193 individuals
based primarily in the Company's branch offices:
NEW YORK
Bronx, Queens and Kings Counties
Eastern Long Island
Staten Island
Western Long Island
CONNECTICUT
Bridgeport--New Haven
Hartford (Metropolitan)
Litchfield County
Southern Fairfield County
PENNSYLVANIA
Allentown
Berks County (Centered in Reading)
Lebanon County (Centered in Palmyra)
MASSACHUSETTS
Boston (Metropolitan)
Northeastern Massachusetts
(Centered in Lawrence)
Springfield
Worcester
MARYLAND/VIRGINIA/D.C.
Baltimore (Metropolitan)
Washington, D.C. (Metropolitan)
NEW JERSEY
Camden
Neptune
Newark (Metropolitan)
North Brunswick
Rockaway
Trenton
NEW HAMPSHIRE
Milford
Portsmouth
RHODE ISLAND
Providence
Approximately 85% of the Company's sales of home heating oil are made to
homeowners with the balance to industrial, commercial and institutional
customers. Historically, the Company has lost a portion of its customer base
each year for various reasons, including customer relocation, price competition
and conversions to natural gas.
To generate leads for new customers, the Company utilizes a variety of
techniques such as telemarketing and monitoring real estate turnover. The
Company has implemented various sales incentives designed to attract new
customers and reduce account losses. The Company has instituted an ongoing
customer service training and sensitivity program in an effort to provide
superior service to its existing customers.
COMPETITION
The Company's business is highly competitive. The Company competes with
fuel oil distributors offering a broad range of services and prices, from full
service distributors, like the Company, to those offering delivery only.
Competition with other companies in the fuel oil industry is based primarily on
customer service and price. Long-standing customer relationships are typical in
the retail home heating oil industry. Many companies in the industry, including
Petro, deliver home heating oil to their customers based upon weather conditions
and historical consumption patterns without the customer having to make an
affirmative purchase decision each time oil is needed. In addition, most
companies, including Petro, provide home heating equipment repair service on a
24-hour a day basis, which tends to build customer loyalty.
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<PAGE>
EMPLOYEES
As of September 30, 1993, the Company had 2,071 employees, of whom 634 were
office, clerical and customer service personnel, 723 were heating equipment
repairmen, 324 were oil truck drivers and mechanics, 197 were management and
staff and 193 were employed in sales. Approximately 62 of those employees are
seasonal, and management expects to rehire the majority of them for the next
heating season. Approximately 726 full-time employees and 32 seasonal employees
are represented by 18 different local chapters of labor unions. Management
believes that its relations with both its union and non-union employees are
satisfactory.
LITIGATION
The Company is not party to any litigation which individually or in the
aggregate could reasonably be expected to have a material adverse effect on the
results of operations or the financial condition of the Company.
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 corporation formed
in connection with the Star Gas Recapitalization. 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 the 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.
The purpose of the Company's equity investment in Holdings was to provide
Holdings with sufficient equity capital (for tax purposes) to permit the
remaining $9.0 million of Holdings' funds to be raised through the sale of
convertible debentures. This provided the purchasers of such debentures, who are
primarily foreign persons, with favorable tax treatment with respect to the
interest payable thereon (i.e. no withholding of interest on the debentures for
federal income tax purposes as compared to withholding on preferred stock
dividends) thereby facilitating the raising of such funds. All of the common
stock of Holdings is owned by Hanseatic Corporation of which Mr. Wolfgang
Traber, a director of Petro, is the Managing Director.
Mr. Traber is one of the two directors of Holdings. In addition, certain
stockholders of the Company (including members of the Traber Group, but
excluding members of the Sevin Group) are holders of convertible debentures of
Holdings. However, the Company does not believe that Holdings may be considered
an "affiliate" of Petro within the meaning of the Securities Act as the Sevin
Group, which (pursuant to a shareholders agreement) has the right to elect a
majority of the directors of the Company, does not have voting or any other
control rights with respect to Holdings.
Star Gas has granted to the Company an option, exercisable through December
20, 1998, to purchase 500,000 shares of common stock of Star Gas (representing
10% of Star Gas' equity) for an aggregate purchase price of approximately $5.0
million. In addition, each of the other investors in Star Gas (including each
such investor whose investment is held through Holdings) has granted to the
Company an option, exercisable for the period beginning on the date that Star
Gas' audited financial statements for the year ended September 30, 1994 are
first delivered to such investors and ending on December 31, 1998, to purchase
such investor's interest in Star Gas (or, in the case of Holdings, to purchase
such investor's interest in Holdings). In addition, each such investor has an
unconditional option, exercisable beginning January 1, 1999 and ending on
December 31, 1999, to require the
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<PAGE>
Company to purchase such investor's interest in Star Gas (or Holdings). The
purchase prices upon exercise of any such options are calculated based upon
specified multiples of Star Gas' EBITDA, subject to certain minimum prices, and
are payable in cash or Class A common stock of the Company or, in the case of
the Holdings 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. For additional information regarding the Star Gas Recapitalization, see
Note 2 of Notes to Consolidated Financial Statements of Star Gas.
The Company's decision whether or not to exercise any of its options will
be based, among other things, upon Star Gas' results of operations and the
availability of financing to the Company. As a result, the exercise of any such
option cannot be considered probable at this time.
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 such other investors.
The Company will manage Star Gas' business under a Management Services
Agreement which provides for an annual cash fee of $500,000 and an annual bonus
equal to 5% of the increase in Star Gas' EBITDA over the year ended September
30, 1993, payable in common stock of Star Gas pursuant to a formula set forth in
the Management Services Agreement. Star Gas also will reimburse the Company for
its expenses and the cost of certain Company personnel.
After giving effect to the Star Gas Recapitalization on a pro forma basis
as of September 30, 1993, Star Gas would have had total long-term debt of $70.3
million and stockholders' equity of $51.1 million. The Company is not
contingently liable for any indebtedness of Star Gas.
Star Gas is the tenth largest distributor of propane in the United States,
with sales of $154.2 million, representing over 169 million gallons of propane,
for the year ended September 30, 1993. Star Gas served approximately 200,000
customers in the midwestern, northeastern and southeastern regions of the United
States as of September 30, 1993.
Star Gas distributes propane primarily for home heating as well as for
commercial uses from 89 locations employing a fleet of over 300 delivery trucks.
Star Gas acquires propane from approximately 30 sources, including Ashland
Petroleum Company, Amoco Canada Marathon Corp., Enron Gas Liquids, Inc. and
Texaco Exploration and Production, Inc. Star Gas owns a storage facility in the
Midwest in which it is able to store approximately 22 million gallons of propane
in an underground cavern located approximately 400 feet below the surface. The
Company believes that there is little risk associated with the storage facility
due to its depth and location and that there is no significant environmental
risk due to the nature of the product stored.
The propane industry is highly competitive. For the fiscal years ended
September 30, 1991, 1992 and 1993, Star Gas had net losses of $5.3 million, $7.3
million and $47.1 million and EBITDA of $24.7 million, $22.2 million and $18.6
million, respectively. See the Consolidated Financial Statements of Star Gas
which appear elsewhere in this Prospectus. For the fiscal years ended September
30, 1991, 1992 and 1993, Star Gas had a ratio of EBITDA to interest expense of
1.3 to 1.0, 1.3 to 1.0, and 1.1 to 1.0, respectively. After giving effect to the
Star Gas Recapitalization, the ratio of EBITDA to interest expense on a pro
forma basis would have been 2.3 to 1.0 for the fiscal year ended September 30,
1993.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the
Company is set forth below:
<TABLE> <CAPTION>
NAME AGE OFFICE
<S> <C> <C>
Irik P. Sevin...................... 46 Chief Executive Officer, Chairman of the Board, President and Director
C. Justin McCarthy................. 49 Senior Vice President--Operations
Joseph P. Cavanaugh................ 56 Senior Vice President--Administration--Controller
Audrey L. Sevin.................... 67 Secretary and Director
George Leibowitz................... 56 Senior Vice President--Finance and Corporate Development
George P. Russell.................. 38 Senior Vice President--Marketing and Sales
Richard F. Ambury.................. 36 Vice President and Assistant Controller
James J. Bottiglieri............... 37 Vice President and Assistant Controller
Matthew J. Ryan.................... 36 Vice President--Supply
Phillip Ean Cohen(1)............... 46 Director
Thomas J. Edelman.................. 42 Director
Richard O'Connell(1)(2)............ 47 Director
Wolfgang Traber(1)(2).............. 49 Director
Max M. Warburg..................... 45 Director
</TABLE>
- -----------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Irik P. Sevin has been a director of Petro, Inc. since January 1979 and of
the Company since its organization in October 1983. Mr. Sevin has been President
of Petro, Inc. since November 1979 and of the Company since 1983 and Chairman of
the Board of the Company since January 1993. Between January 1979 and November
1979, he was Executive Vice President of Petro, Inc. Mr. Sevin was an associate
in the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers
Kuhn Loeb Incorporated from February 1975 to December 1978. Mr. Sevin is a
graduate of the Cornell University School of Industrial and Labor Relations
(B.S.), New York University School of Law (J.D.) and the Columbia University
School of Business Administration (M.B.A.).
C. Justin McCarthy has been Senior Vice President--Operations of Petro,
Inc. since January 1979 and of the Company since its organization in October
1983. Prior to his joining the Company, Mr. McCarthy was General Manager of the
New York City operations for Whaleco Fuel Oil Company from 1976 to 1979 and was
General Manager of the Long Island Division of Meenan Oil Co., Inc. from 1973 to
1976. Mr. McCarthy is a graduate of Boston College (B.B.A.) and the New York
University Graduate School of Business Administration (M.B.A.).
Joseph P. Cavanaugh has been Controller of Petro, Inc. since 1973 and of
the Company since its organization in 1983. He was elected a Vice President of
the Company in October 1983 and a Senior Vice President since January 1993. Mr.
Cavanaugh is a graduate of Iona College (B.B.A.) and Pace University (M.S. in
Taxation).
Audrey L. Sevin has been a director and Secretary of Petro, Inc. since
January 1979 and of the Company since its organization in October 1983. Mrs.
Sevin was a director, executive officer and principal shareholder of A.W. Fuel
Co., Inc. from 1952 until its purchase by the Company in May 1981. Mrs. Sevin is
a graduate of New York University (B.S.).
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<PAGE>
George Leibowitz has been Senior Vice President of the Company since
November 1, 1992. From 1985 to 1992, prior to joining the Company, Mr. Leibowitz
was the Chief Financial Officer of Slomin's Inc., a retail heating oil dealer.
From 1984 to 1985, Mr. Leibowitz was the President of Lawrence Energy Corp., a
consulting and oil trading company. From 1971 to 1984, Mr. Leibowitz was Vice
President--Finance and Treasurer of Meenan Oil Co., Inc. Mr. Leibowitz is a
Certified Public Accountant and a graduate of Columbia University (B.A. 1957)
and the Wharton Graduate Division, University of Pennsylvania (M.B.A. 1958).
George P. Russell has been Senior Vice President--Marketing and Sales since
May 1993. From 1986 to 1993, prior to joining the Company, Mr. Russell was the
Vice President of Marketing and Sales for Harvard Community Health Plan. From
1981 to 1986, Mr. Russell was a Marketing Manager with The Gillette Company. Mr.
Russell is a graduate of Western New England College (B.S. 1977), St. John's
University (M.B.A. 1979) and Harvard Graduate School of Business (Advanced
Management Program--Marketing 1988).
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.).
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 and a director 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 of Lomak Petroleum, Inc., an Ohio-based,
independent oil company and a director of Total Energy Services Corporation, a
Houston-based oil service company.
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
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Hamburg, Germany, a private investment corporation. Mr. Traber is a director of
Deltec Securities Corporation, Blue Ridge Real Estate Company, Hellespont
Tankers Ltd. and M.M. Warburg & Co.
Max M. Warburg has been a director of the Company since May 1984. Since
January 1, 1982, Mr. Warburg has been a partner of M.M. Warburg & Co., a private
bank. For the prior four years he was a Managing Director of the same
organization. Since March 1988, he has been a member of the board of Holsten
Brauerei AG, Hamburg. Since May 1, 1987, he has been a member of the board of
Eurokai-Eckelmann Gruppe, Hamburg. Mr. Warburg is a member of the Board of DWS
Deutsche Gesellschaft fur Wertpapiersparen GmbH, Frankfurt; DEG Deutsche
Finanzierungsgesellschaft fur Beteilingungen in Entwicklungslandern GmbH, Koln;
the Hamburg Stock Exchange; and the Hamburg Banking Association.
Audrey L. Sevin is the mother of Irik P. Sevin. There are no other familial
relationships between any of the directors and executive officers.
The Company pays each of its directors other than Irik P. Sevin an annual
fee of $12,000. Directors are elected annually and serve until the next annual
meeting of shareholders and until their successors are elected and qualified.
Officers serve at the discretion of the Board.
Certain holders of the Class A and Class C Common Stock have entered into a
shareholders' agreement (the "Shareholders' Agreement") which provides that they
will vote their shares of Class A Common Stock and Class C Common Stock to elect
as directors of the Company five persons designated by a group consisting of the
Estate of Malvin P. Sevin, Irik P. Sevin, Audrey L. Sevin, Thomas J. Edelman,
Phillip Ean Cohen and Margot Gordon (the "Sevin Group") and three persons
designated by certain other shareholders of the Company (the "Traber Group").
Each group may designate its nominees by action of the holders of a majority of
the Class C Common Stock held by the group.
At present, there are seven directors serving and one vacancy on the Board.
Of the present directors, Irik P. Sevin, Audrey L. Sevin, Thomas J. Edelman and
Phillip Ean Cohen have been designated by the Sevin Group and Wolfgang Traber,
Richard O'Connell and Max A. Warburg have been designated by the Traber Group.
All such obligations to vote for directors shall lapse if the Estate of Malvin
P. Sevin, Irik P. Sevin or Audrey L. Sevin, no longer owns, directly or
indirectly, or has sole voting power over shares having at least 51% of the
voting power of all shares of Class C Common Stock held by the Sevin Group.
The Shareholders' Agreement (as well as the Company's Restated Articles of
Incorporation) provides that certain actions may not be taken without the
affirmative vote of 80% of the entire Board of Directors (irrespective of
vacancies) including at least one director who has been designated by the Traber
Group. 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.
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<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be issued pursuant to an Indenture, to be dated as of
, 1994, between the Company and Chemical Bank, as trustee (the
"Trustee"). The terms of the Debentures include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The Debentures are subject to all such terms,
and holders of the Debentures are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete. A copy of the
proposed form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Definitions of certain terms used
in this section appear at the end of this section under "Certain Definitions."
GENERAL
The Indenture authorizes the issuance of an aggregate principal amount of
$75 million of Debentures. The Debentures will mature on , 2006.
The Debentures will be general unsecured obligations of the Company and will
bear interest at the rate per annum shown on the cover page of this Prospectus,
payable semi-annually in arrears on and in each year
to the holders of record at the close of business on the and
next preceding such interest payment date. Interest will initially
accrue from the date of issuance, and the first interest payment date will be
, 1994. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Debentures will be issued in fully registered form
only in denominations of $1,000 and integral multiples thereof.
As indicated under "Ranking" below, the Debentures will be subordinated in
right of payment to all Senior Debt of the Company.
Principal, premium, if any, and interest will be payable, and the
Debentures may be presented for redemption, repurchase, exchange or transfer, at
the office of the Trustee in the Borough of Manhattan, City of New York and at
any other office or agency maintained by the Company for such purpose. The
registrar and paying agent will be Chemical Bank. The Company may change the
registrar or paying agent without prior notice to holders and the Company or any
Subsidiary may act in such capacity.
OPTIONAL REDEMPTION
The Debentures will be redeemable for cash on or after , 1999
at the option of the Company, in whole or from time to time in part, at the
redemption prices set forth herein, together with interest accrued to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date). The
redemption prices (expressed as percentages of principal amount) are as follows
for Debentures redeemed during the twelve-month period beginning
of the years indicated:
<TABLE> <CAPTION>
YEAR PERCENTAGE
<S> <C>
1999............................................................................. %
2000.............................................................................
2001.............................................................................
2002.............................................................................
2003 and thereafter.............................................................. 100.000
</TABLE>
In addition, at any time prior to , 1997, the Company may redeem
up to $25 million in principal amount of the Debentures with the net proceeds of
a public offering of Capital Stock (other than Redeemable Stock) at a redemption
price of % of the principal amount thereof, plus accrued and unpaid interest
thereon, provided that at least $50 million in aggregate principal amount of the
Debentures remain outstanding immediately following any such redemption.
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<PAGE>
SINKING FUND
There will be no mandatory sinking fund payments for the Debentures.
SELECTION OF DEBENTURES TO BE REDEEMED AND NOTICE OF REDEMPTION
In the event of optional redemption, as described above, of less than all
of the Debentures, the Trustee will select the Debentures for redemption pro
rata or by lot or by a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee considers fair and
appropriate and in accordance with methods generally used at the time of
selection by fiduciaries in similar circumstances.
Notice of redemption will be mailed at least 30 but not more than 60 days
before the redemption date to each holder of Debentures to be redeemed at such
holder's registered address. The notice of redemption will identify the
Debentures to be redeemed and will state the redemption date; the redemption
price; the name and address of the paying agent; that Debentures called for
redemption must be surrendered to the paying agent to collect the redemption
price plus accrued interest; that, unless the Company defaults in making such
redemption payment or the paying agent is prohibited from making such payment
pursuant to the terms of the Indenture, interest on Debentures called for
redemption ceases to accrue on and after the redemption date; the paragraph of
the Debentures pursuant to which the Debentures called for redemption are being
redeemed; and that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Debentures.
Prior to the redemption date, the Company will deposit with the paying
agent (or, if the Company or a Subsidiary is the paying agent, will segregate
and hold in trust) money sufficient to pay the redemption price of and accrued
interest on all Debentures to be redeemed on that date other than Debentures or
portions of Debentures called for redemption which have been delivered by the
Company to the Trustee for cancellation.
RANKING
The payment of the principal of, premium (if any) and interest on the
Debentures is subordinated in right of payment, as set forth in the Indenture,
to the payment when due of all Senior Debt of the Company. However, payment from
the money or the proceeds of U.S. Government Obligations held in any defeasance
trust described under "Defeasance" below is not subordinate to any Senior Debt
or subject to the restrictions described herein. At September 30, 1993, after
giving pro forma effect to the Offering, application of the net proceeds
therefrom as described under "Use of Proceeds" and the Subordinated Debt
Amendments, the outstanding Senior Debt of the Company would have been
approximately $42.7 million. The Indenture contains limitations on the amount of
additional Funded Debt that the Company may incur; however, under certain
circumstances the amount of such Funded Debt could be substantial. The Indenture
does not contain limitations on the amount of Indebtedness that is not Funded
Debt that the Company may incur. In addition, any Indebtedness that the Company
may incur may be Senior Debt. See "--Certain Covenants--Limitation on Funded
Debt." A portion of the operations of the Company is conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, secured creditors and creditors holding guarantees issued by such
Subsidiaries, and claims of preferred stockholders (if any) of such
Subsidiaries, generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Company,
including holders of the Debentures, even though such obligations do not
constitute Senior Debt. The Debentures, therefore, will be effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of Subsidiaries of the Company. At September 30, 1993, such
Subsidiaries had outstanding Indebtedness (other than guarantees of the
Company's Indebtedness under the Credit Agreement) and trade credit of
approximately $9.2 million, consisting primarily of trade credit. The Debentures
will rank pari passu with other subordinated indebtedness of the
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<PAGE>
Company, which, after giving pro forma effect to the Subordinated Debt
Amendments would have aggregated approximately $92.6 million as of September 30,
1993.
Although the Indenture limits the incurrence of Indebtedness and the
issuance of preferred stock by the Company's Subsidiaries, such limitation is
subject to a number of significant qualifications. See "Limitation on Subsidiary
Indebtedness and Preferred Stock."
"Senior Debt" means the following obligations, whether outstanding on the
date of the Indenture or thereafter issued:
(i) all obligations consisting of the Bank Debt;
(ii) all obligations consisting of the principal of and premium, if
any, and accrued and unpaid interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization
relating to the Company to the extent post-filing interest is allowed in
such proceeding) in respect of (A) indebtedness of the Company for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which the Company is
responsible or liable;
(iii) all Capital Lease Obligations of the Company;
(iv) all obligations of the Company (A) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (B) under interest rate swaps, caps, collars, options and
similar arrangements and foreign currency hedges entered into in respect of
any obligations described in clauses (i), (ii) and (iii) or (C) issued or
assumed as the deferred purchase price of property and all conditional sale
obligations of the Company and all obligations of the Company under any
title retention agreement;
(v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the
payment of which, in any case, the Company is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including
guarantees of such obligations and dividends; and
(vi) all obligations of the Company consisting of modifications,
renewals, extensions, replacements and refundings of any obligations
described in clauses (i), (ii), (iii), (iv) or (v);
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Debentures; provided, however, that Senior Debt will
not include (1) any obligation of the Company to any Subsidiary or other
Affiliate of the Company, (2) any liability for federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities) or (4) that
portion of any Indebtedness that was incurred in violation of the Indenture.
The Company may not pay principal of, premium (if any) or interest on, the
Debentures or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any
Debentures if (i) any Designated Senior Debt is not paid when due or (ii) any
other default on Designated Senior Debt occurs and the maturity of such
Designated Senior Debt is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived, any such acceleration has
been rescinded or such Designated Senior Debt has been paid in full. However,
the Company may pay the Debentures without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of each issue of Designated Senior Debt with respect to which any
such default relates. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Debt pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration)
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or the expiration of any applicable grace periods, the Company may not pay the
Debentures for a period (a "Payment Blockage Period") commencing upon the
receipt by the Company and the Trustee of written notice of such default from
the Representative of the holders of any such Designated Senior Debt specifying
an election to effect such prohibition (a "Payment Blockage Notice") and ending
179 days thereafter (or earlier if such Payment Blockage Period is terminated
(i) by written notice to the Trustee and the Company from the Representative
that gave such Payment Blockage Notice, (ii) by repayment in full of such
Designated Senior Debt or (iii) because such default is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first two sentences of this
paragraph), unless the holders of such Designated Senior Debt or the
Representative of such holders have accelerated the maturity of such Designated
Senior Debt, the Company may resume payments on the Debentures after the end of
such Payment Blockage Period. Not more than one Payment Blockage Notice may be
given in any consecutive 360-day period, irrespective of the number of defaults
with respect to Designated Senior Debt during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Debt will be
entitled to receive payment in full before the holders of the Debentures are
entitled to receive any payment.
If payment of the Debentures is accelerated because of an Event of Default,
the Company or the Trustee will promptly notify the holders of the Designated
Senior Debt or their Representatives of the acceleration.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior Debt
may recover more, ratably, than the holders of the Debentures, and creditors of
the Company who are not holders of Senior Debt (including the Debentures) may
recover less, ratably, than holders of Senior Debt.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Debentures will
have the right to require the Company to repurchase all or any part of such
holder's Debentures at a repurchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date). A "Change of
Control" will be deemed to occur if (i) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than the
members of the Sevin Group and the Traber Group, becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to be the beneficial owner of all shares that such person
has the right to acquire, regardless of whether such right is exercisable
immediately or after the passage of time), directly or indirectly, of 50% or
more of the total voting power of all classes of the Voting Stock of the Company
and the members of the Sevin Group and the Traber Group cease to have the right
to appoint at least a majority of the members of the Board of Directors of the
Company, (ii) the holders of the 10 1/8% Notes have the right to require the
Company to purchase any such 10 1/8% Notes pursuant to Section 4.08 of the
Indenture, dated as of April 1, 1993, between the Company and Chemical Bank, as
trustee, relating thereto, (iii) any holder of the 11.85% Notes, the 12.17%
Notes or the 12.18% Notes exercises its right to declare any such notes to be
due and payable pursuant to Section 2.1 of the Note Agreement, dated as of
September 1, 1988, relating thereto (the "1988 Note Agreement"), (iv) any holder
of the 14.10% Notes exercises its right to declare any such notes to be due and
payable pursuant to Section 5.2(A) of the Note Agreement, dated as of January
15, 1991, relating thereto (the "1991 Note Agreement") and any holder of the
2000 Notes exercises its right to declare any such notes to be due and payable
pursuant to Section 5.2(A) of the Purchase Agreement, dated as of September 1,
1991, relating thereto (the "1991 Purchase
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Agreement") or (v) any holder of 11.85% Notes, 12.17% Notes, 12.18% Notes,
14.10% Notes or 2000 Notes shall have received any consideration (whether in the
form of cash, a change in the rate of interest relating to such notes, a change
in any other provision of the terms of such notes, or otherwise) to amend,
modify, waive or otherwise give up its right to declare any such notes to be due
and payable upon a "Change of Ownership," as defined in the 1988 Note Agreement,
the 1991 Note Agreement or the 1991 Purchase Agreement, as the case may be;
provided, however, that an amendment to or waiver or other modification of
Section 2.1 of the 1988 Note Agreement, Section 5.2(A) of the 1991 Note
Agreement or 5.2(A) of the 1991 Purchase Agreement shall not, in the absence of
any consideration, constitute a Change of Control under the Indenture.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating (i) that a Change of Control has occurred and that
such holder has the right to require the Company to purchase such holder's
Debentures at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); (ii) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (iii) the
purchase date (which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed); and (iv) the instructions, determined by the
Company consistent with the Indenture, that a holder must follow in order to
have its Debentures repurchased.
If, at the time of a Change of Control, the Company is prohibited by the
terms of the Bank Debt from purchasing Debentures that may be tendered by
holders at the purchase price described above as a result of such Change of
Control, then prior to the mailing of the notice to holders described in the
preceding paragraph but in any event within 30 days following any Change of
Control, the Company must (i) repay in full all Bank Debt or offer to repay in
full all Bank Debt and repay the Bank Debt of each lender who has accepted such
offer or (ii) obtain the requisite consent under the Bank Debt to permit the
purchase of the Debentures as described above. The Company must first comply
with the covenant described in the preceding sentence before it will be required
to purchase Debentures in the event of a Change of Control, provided that the
Company's failure to comply with the covenant described in the preceding
sentence will constitute a Default described in clause (iii) under "Defaults"
below. As a result of the foregoing, a holder of the Debentures may not be able
to compel the Company to purchase the Debentures unless the Company is able at
the time to refinance the Bank Debt.
The Change of Control purchase feature of the Debentures may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. Management has no present intention
to engage in a transaction involving a Change of Control, although it is
possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The Company's existing subordinated indebtedness contains provisions that
require the Company to repurchase such Indebtedness upon the occurrence of
certain events which are substantially similar to the event constituting a
Change of Control. The Credit Agreement limits the amount of the Company's cash
that may be used to repurchase indebtedness of the Company. In addition, the
Company's ability to pay cash to the holders of Debentures upon a repurchase may
be limited by the Company's then existing financial resources.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with any offer
required to be made by the Company to purchase the Debentures as a result of a
Change of Control.
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CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
SEC Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Debentures are outstanding, the Company will furnish
to the holders of Debentures all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information with the Commission for public availability and
make such information available to investors who request it in writing. The
Company also will comply with the provisions of Sec. 314(a) of the Trust
Indenture Act.
Limitation on Funded Debt. The Company will not, directly or indirectly,
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to (collectively, "incur") any Funded Debt
unless, after giving effect thereto, the Company's Consolidated EBITDA Coverage
Ratio exceeds 2.0 to 1.
Notwithstanding the foregoing paragraph, the Company may incur the
following Funded Debt: (i) Funded Debt owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Funded Debt (other
than to a Wholly Owned Subsidiary) will be deemed, in each case, to constitute
the incurrence of such Funded Debt by the Company; (ii) the Debentures and
Funded Debt issued in exchange for, or the proceeds of which are used to refund
or refinance, any Funded Debt permitted by this clause (ii); provided, however,
that (1) the principal amount of the Funded Debt so incurred will not exceed the
principal amount of the Funded Debt so exchanged, refunded or refinanced and (2)
the Funded Debt so incurred (A) will not mature prior to the Stated Maturity of
the Funded Debt so exchanged, refunded or refinanced and (B) will have an
Average Life equal to or greater than the remaining Average Life of the Funded
Debt so exchanged, refunded or refinanced; (iii) Funded Debt (other than Funded
Debt described in clause (i) or (ii) of this paragraph) outstanding on the date
of the Indenture and Funded Debt issued in exchange for, or the proceeds of
which are used to refund or refinance, any Funded Debt permitted by this clause
(iii) or by the first paragraph of this covenant; provided, however, that (1)
the principal amount of the Funded Debt so incurred will not exceed the
principal amount of the Funded Debt so exchanged, refunded or refinanced, (2)
the Funded Debt so incurred (A) will not mature prior to the Stated Maturity of
the Funded Debt so exchanged, refunded or refinanced and (B) will have an
Average Life equal to or greater than the remaining Average Life of the Funded
Debt so exchanged, refunded or refinanced and (3) if the Funded Debt so
exchanged, refunded or refinanced is a Subordinated Obligation, the Funded Debt
so incurred will be subordinated to the Debentures; and (iv) additional Funded
Debt in an aggregate amount not to exceed $50 million at any one time
outstanding; provided, however, that at any time and to the extent the Company
is permitted to incur Funded Debt pursuant to the Consolidated EBITDA Coverage
Ratio test contained in the immediately preceding paragraph, the Company may
elect that amounts of Funded Debt incurred pursuant to this clause (iv) be
deemed to have been incurred pursuant to the immediately preceding paragraph and
be deemed not to have been incurred pursuant to this clause (iv).
In addition, the Company will not create, incur, assume or permit to exist
any Lien (other than Permitted Liens) upon or with respect to any of the
property of the Company or any Subsidiary to secure Funded Debt that is not
Senior Debt unless contemporaneously therewith effective provision is made to
secure the Debentures equally and ratably with such Funded Debt for so long as
such Funded Debt is secured by a Lien.
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Limitation on Indebtedness and Preferred Stock of Subsidiaries. The Company
will not permit any Subsidiary to incur any Indebtedness or issue any Preferred
Stock except: (i) Indebtedness or Preferred Stock issued to and held by the
Company or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
such Indebtedness or Preferred Stock (other than to the Company or a Wholly
Owned Subsidiary) will be deemed, in each case, to constitute the incurrence of
such Indebtedness or the issuance of such Preferred Stock, as the case may be,
by the issuer thereof; (ii) Indebtedness incurred or Preferred Stock of a
Subsidiary issued and outstanding on or prior to the date on which such
Subsidiary was acquired by the Company (other than Indebtedness incurred or
Preferred Stock issued in contemplation of, as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Subsidiary
became a Subsidiary or was acquired by the Company), provided that at the time
such Subsidiary is acquired by the Company, after giving effect to such
Indebtedness or Preferred Stock of such Subsidiary, the Company's Consolidated
EBITDA Coverage Ratio exceeds 2.0 to 1; (iii) Indebtedness or Preferred Stock
(other than Indebtedness or Preferred Stock described in clause (i), (ii), (iv)
or (vi) of this covenant) incurred or issued and outstanding on or prior to the
date of the Indenture; (iv) Indebtedness of a Subsidiary consisting of
guarantees issued by such Subsidiary and outstanding on the date of the
Indenture and Indebtedness of a Subsidiary consisting of guarantees issued
subsequent to the date of the Indenture, in each case, to the extent such
guarantee guarantees Bank Debt; (v) Indebtedness of a Subsidiary (other than
Indebtedness described in clause (iv) above) consisting of guarantees of Funded
Debt of the Company permitted by the first paragraph of "Limitation on Funded
Debt," provided that contemporaneously with the incurrence of such Indebtedness
by such Subsidiary, such Subsidiary issues a guarantee for the pro rata benefit
of the holders of the Debentures that is subordinated to such Indebtedness of
such Subsidiary to the same extent as the Debentures are subordinated to such
Funded Debt of the Company; and (vi) Indebtedness or Preferred Stock issued in
exchange for, or the proceeds of which are used to refund or refinance,
Indebtedness or Preferred Stock referred to in the foregoing clause (ii) or
(iii); provided, however, that (1) the principal amount of such Indebtedness or
Preferred Stock so incurred or issued will not exceed the principal amount of
the Indebtedness or Preferred Stock so exchanged or refinanced and (2) the
Indebtedness or Preferred Stock so incurred or issued will (A) have a Stated
Maturity later than the Stated Maturity of the Indebtedness or Preferred Stock
being exchanged or refinanced and (B) will have an Average Life equal to or
greater than the remaining Average Life of the Indebtedness or Preferred Stock
so exchanged, refunded or refinanced.
Limitation on Restricted Payments. The Company will not, and will not
permit any Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) or to the direct or indirect holders of its Capital Stock (except
(x) dividends or distributions payable solely in its Non-Convertible Capital
Stock or in options, warrants or other rights to purchase its Non-Convertible
Capital Stock and (y) dividends or distributions payable to the Company or a
Subsidiary, and, if a Subsidiary is not wholly owned, to the other shareholders
of such Subsidiary on a pro rata basis in accordance with their ownership
interest in such Subsidiary), (ii) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company or of any direct or indirect
parent of the Company, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) make any Restricted Investment (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition or retirement,
or any such Restricted Investment, being herein referred to as a "Restricted
Payment") if at the time the Company or such Subsidiary makes such Restricted
Payment: (1) a Default will have occurred and be continuing (or would result
therefrom); or (2) the aggregate amount
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of such Restricted Payment and all other Restricted Payments subsequent to
December 31, 1993 would exceed the sum of: (A) 50% of the Cash Flow of the
Company and its Subsidiaries accrued during the period (treated as one
accounting period) subsequent to December 31, 1993, to the end of the most
recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Cash Flow will be a deficit, minus 100% of
such deficit); (B) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock subsequent to December 31, 1993 (other
than an issuance or sale to a Subsidiary or Unrestricted Subsidiary of the
Company or an employee stock ownership plan or other trust established by the
Company or any Subsidiary or Unrestricted Subsidiary of the Company); (C) the
amount by which indebtedness of the Company is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to
December 31, 1993, of any Indebtedness of the Company convertible or
exchangeable for Capital Stock of the Company (less the amount of any cash, or
other property, distributed by the Company upon such conversion or exchange);
and (D) $20 million.
The provisions of the foregoing paragraph will not prohibit: (i) any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Capital Stock
issued or sold to a Subsidiary or an employee stock ownership plan or other
trust established by the Company or any Subsidiary); provided, however, that (A)
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale will be
excluded from clause (2)(B) of the foregoing paragraph; (ii) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with this covenant; provided,
however, that at the time of payment of such dividend, no other Default will
have occurred and be continuing (or result therefrom); provided further,
however, that such dividend will be included in the calculation of the amount of
Restricted Payments; (iii) dividends declared and paid in respect of the
Company's Class B Common Stock outstanding on the date of the Indenture in an
amount in respect of any fiscal year not to exceed 1.5% of the Company's Class B
Cash Flow for the immediately preceding fiscal year (provided that no dividend
will theretofore have been declared on the Class A Common Stock or Class C
Common Stock in the same fiscal year); provided, however, that at the time of
such dividend, redemption or exchange, no Default will have occurred or be
continuing; provided further, however, that any such dividends, redemptions and
exchanges will be included in the calculation of Restricted Payments; (iv)
dividends on, and mandatory redemptions and exchanges of, the 1989 Preferred
Stock outstanding on the date of the Indenture; provided, however, that at the
time of such dividend, redemption or exchange, no Default will have occurred or
be continuing; provided further, however, that any such dividends, redemptions
and exchanges will be excluded in the calculation of Restricted Payments; or (v)
Restricted Investments in an aggregate amount not to exceed the sum of (A) $25
million, plus (B) $5 million on each anniversary of the date of the Indenture,
plus (C) the amount of all dividends or other distributions received in cash by
the Company or any of its Wholly Owned Subsidiaries from, and the amount of any
Net Cash Proceeds to the Company or any of its Wholly Owned Subsidiaries from
the sale of Capital Stock (other than a sale of Capital Stock to the Company, a
Subsidiary or Unrestricted Subsidiary of the Company or an employee stock
ownership plan or other trust established by the Company or any Subsidiary or
Unrestricted Subsidiary of the Company) of, an Unrestricted Subsidiary of the
Company, to the extent that the aggregate amount of such dividends,
distributions and Net Cash Proceeds referred to in this clause (C) do not exceed
the aggregate amount of Restricted Investments made by the Company in such
Unrestricted Subsidiary since the date of the Indenture; provided, however,that
Restricted Investments permitted by this clause (v) will be excluded in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Subsidiaries. The Company
will not, and will not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary to: (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness owed to the Company,
(ii) make any
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loans or advances to the Company or (iii) transfer any of its property or assets
to the Company, except: (1) any encumbrance or restriction pursuant to an
agreement in effect on the date of the Indenture; (2) any encumbrance or
restriction with respect to a Subsidiary pursuant to an agreement relating to
any Indebtedness issued by such Subsidiary on or prior to the date on which such
Subsidiary was acquired by the Company (other than Indebtedness issued in
contemplation of, as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Subsidiary became a Subsidiary or
was acquired by the Company) and outstanding on such date; (3) any encumbrance
or restriction pursuant to an agreement effecting a refinancing of Indebtedness
issued pursuant to an agreement referred to in the foregoing clause (1) or (2)
or contained in any amendment to an agreement referred to in the foregoing
clause (1) or (2); provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment are no less favorable
to holders of the Debentures than the encumbrances and restrictions contained in
such agreements; (4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease; (5) in the case of clause
(iii) above, restrictions contained in security agreements securing Indebtedness
of a Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements; and (6) any restriction with
respect to a Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Subsidiary pending the closing of such sale or disposition.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Subsidiary to, conduct any business or enter into any transaction
or series of similar transactions in an aggregate amount in excess of $100,000
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company or any legal or
beneficial owner of 5% or more of any class of Capital Stock of the Company or
with an Affiliate of any such owner (any such business, transaction or series of
similar transactions, an "Affiliate Transaction") unless the terms of such
Affiliate Transaction are: (i) set forth in writing, (ii) fair to the Company
and its Subsidiaries from a financial point of view, (iii) in the case of any
Affiliate Transaction (other than an Affiliate Transaction with an Unrestricted
Subsidiary of the Company) in an aggregate amount in excess of $500,000, the
disinterested members of the Board of Directors have determined in good faith
that the criteria set forth in clause (ii) are satisfied and (iv) in the case of
any Affiliate Transaction involving an Unrestricted Subsidiary of the Company in
an aggregate amount in excess of $2.0 million, the members of the Board of
Directors have determined in good faith that the criteria set forth in clause
(ii) are satisfied. This covenant will not prohibit: (i) any Restricted Payment
permitted under "Limitation on Restricted Payments," (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) loans or advances to
employees in the ordinary course of business; (iv) the payment of reasonable
fees to directors of the Company and its subsidiaries who are not employees of
the Company or its subsidiaries, (v) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries or (vi) the
Investment represented by the Sevin Note.
Limitation on Liens on Subsidiary Stock. The Company will not directly or
indirectly create, assume or suffer to exist, any Lien on any Capital Stock of
any of its Subsidiaries.
Except for the limitations on dividends and redemptions of capital stock
and the limitations on the incurrence of Indebtedness, the Indenture will not
contain any covenants or provisions that may afford holders of the Debentures
protection in the event of a highly leveraged transaction.
SUCCESSOR COMPANY
The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any person unless: (i)
the resulting, surviving or transferee person (if not the Company) is organized
and existing under the laws of the United States of America or any State
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thereof or the District of Columbia and such entity expressly assumes by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Indenture and the Debentures; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
resulting, surviving or transferee person or any Subsidiary as a result of such
transaction as having been issued by such person or such Subsidiary at the time
of such transaction), no Default has happened and is continuing; (iii)
immediately after giving effect to such transaction, the resulting, surviving or
transferee person would be able to issue an additional $1.00 of Funded Debt
pursuant to the first paragraph of "Limitation on Funded Debt"; and (iv) the
Company delivers to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The resulting,
surviving or transferee person will be the successor company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Debentures when due, continued for 30 days, whether
or not such payment is prohibited by the provisions described under "Ranking"
above, (ii)(A) a default in the payment of principal of any Debenture when due
at its Stated Maturity, upon redemption, upon declaration or otherwise, whether
or not such payment is prohibited by the provisions described under "Ranking"
above or (B) the failure by the Company to redeem or purchase Debentures when
required pursuant to the Indenture or the Debentures, whether or not such
redemption or purchase will be prohibited by the provisions described under
"Ranking" above, (iii) the failure by the Company to comply for 30 days after
notice with its agreements contained in the Debentures or the Indenture (other
than those referred to in clauses (i) and (ii) above) (the "covenant default
provision"), (iv) Indebtedness of the Company or any Significant Subsidiary is
not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $1 million or its foreign
currency equivalent (the "cross acceleration provision"), (v) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions") or (vi) any judgment or decree for the
payment of money in excess of $1 million is rendered against the Company or a
Significant Subsidiary and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree or
(B) there is a period of 60 days following such judgment or decree during which
such judgment or decree is not discharged, waived or the execution thereof
stayed, and, in the case of (B), such default continues for 10 days after notice
(the "judgment default provision").
If an Event of Default (other than an Event of Default specified in clause
(v) above with respect to the Company) occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the Debentures may declare
the principal of and accrued but unpaid interest on all the Debentures to be due
and payable. Upon such a declaration, such principal and interest will be due
and payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization with respect to the Company occurs and
is continuing, the principal of and interest on all the Debentures will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holders of the Debentures. Under certain
circumstances, the holders of a majority in principal amount of the Debentures
may rescind any such acceleration with respect to the Debentures and its
consequences. If payment of the Debentures is accelerated because of an Event of
Default, the Company or the Trustee must promptly notify the holders of
Designated Senior Debt of the acceleration.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Debentures
unless such holders have offered to the Trustee indemnification satisfactory to
it in its sole discretion against all
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such losses and expenses caused by taking or not taking any such action. No
holder of a Debenture may pursue any remedy with respect to the Indenture or the
Debentures unless (i) such holder has previously given the Trustee notice that
an Event of Default is continuing, (ii) holders of at least 25% in principal
amount of the Debentures have requested the Trustee to pursue the remedy, (iii)
such holders have offered the Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt thereof and the offer of security or
indemnity and (v) the holders of a majority in principal amount of the
Debentures have not given the Trustee a direction inconsistent with such request
within such 60-day period. Subject to certain restrictions, the holders of a
majority in principal amount of the Debentures are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or, subject to the provisions of the Indenture relating to the
duties of the Trustee, that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Debenture or that would involve the Trustee in
personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Debentures
notice of the Default within 90 days after it occurs; provided, however, that,
except in the case of a Default in the payment of principal of or interest on
any Debenture, the Trustee may withhold notice if and so long as a committee of
its Trust Officers determines that withholding notice is in the interest of the
holders of the Debentures. The Company also is required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Company is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Except as described below and except for amendments or waivers of the
Change of Control provisions (including the related definitions) of the
Indenture (which require the consent of the holders at least 66 2/3% in
principal amount of the Debentures), the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Debentures then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the holders of a majority in principal amount of the
Debentures then outstanding. However, without the consent of each holder of
Debentures affected, no amendment may, among other things, (i) reduce the amount
of Debentures whose holders must consent to an amendment, (ii) reduce the rate
of or extend the time for payment of interest on any Debenture, (iii) reduce the
principal of or extend the Stated Maturity of any Debenture, (iv) reduce the
premium payable upon the redemption of any Debenture or change the time at which
any Debenture may or will be redeemed as described under "Optional Redemption"
above, (v) make any Debenture payable in money other than that stated in the
Debenture, (vi) impair the right of any holder of the Debentures to receive
payment of principal of and interest on such holder's Debentures on or after the
due dates therefor or to institute suit for the enforcement of any payment on or
with respect to such holder's Debentures, (vii) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any holder or (viii) make any change in the amendment provisions which require
each holder's consent or in the waiver provisions.
Without the consent of any holder of the Debentures, the Company and the
Trustee may amend or supplement the Indenture to cure any ambiguity, omission,
defect or inconsistency, to provide for the assumption by a successor
corporation of the obligations of the Company under the Indenture, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures (provided that the uncertificated Debentures are issued in registered
form for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Debentures are described in Section 163(f)(2)(B) of the Code), to
make any change to the subordination provisions of the Indenture that adversely
affects the
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rights of any holder of Senior Debt (or Representatives therefor), to add
guarantees with respect to the Debentures, to secure the Debentures, to add to
the covenants of the Company for the benefit of the holders of the Debentures or
to surrender any right or power conferred upon the Company, to make any change
that does not adversely affect the rights of any holder of the Debentures or to
comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act. However, no
amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or any group or representative thereof
authorized to give a consent) consent to such change.
The consent of the holders of the Debentures is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Debentures a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Debentures, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The Debentures will be issued in registered form and will be transferable
only upon the surrender of the Debentures being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the
Debentures and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Debentures, to replace mutilated,
destroyed, lost or stolen Debentures and to maintain a registrar and paying
agent in respect of the Debentures. The Company at any time may terminate its
obligations under the covenants described under "Certain Covenants" (other than
under "SEC Reports") and "Change of Control," the operation of the covenant
default provision, the cross acceleration provision, the bankruptcy provisions
which respect to Significant Subsidiaries and the judgment default provision
described under "Defaults" above and the limitations contained in clause (iii)
described under "Successor Company" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Debentures may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Debentures may not be accelerated
because of an Event of Default specified in clause (iii), (iv), (v) (with
respect only to Significant Subsidiaries) or (vi) under "Defaults" above or
because of the failure of the Company to comply with the covenants described
under "Certain Covenants" (other than the covenant described under "SEC Reports"
and certain other covenants not described above) above or "Change of Control"
above or with clause (iii) under "Successor Company" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Debentures to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivering to the Trustee an Opinion of
Counsel to the effect that holders of the Debentures will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been in the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
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CONCERNING THE TRUSTEE
Chemical Bank is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Debentures.
GOVERNING LAW
The Indenture provides that it and the Debentures will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Affiliate" of any person specified means (i) any person directly or
indirectly controlling or under direct or indirect common control with such
specified person, (ii) any spouse, immediate family member or other relative who
has the same principal residence as any person described in clause (i) above,
(iii) any trust in which any persons described in clause (i) or (ii) above has a
beneficial interest and (iv) in the case of the Company, any Unrestricted
Subsidiary of the Company. For the purposes of this definition, "control," when
used with respect to any person, means the power to direct the management and
policies of such person, directly or indirectly, whether through the ownership
of voting securities, a contract or otherwise, and the terms "controlling" and
"controlled" have meaning correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
Capital Stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition") by the Company or any of its Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of property or
assets at fair market value in the ordinary course of business or (iii) a
disposition of obsolete assets in the ordinary course of business.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as of the time of determination, the present value (discounted at the
interest rate borne by the Debentures, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Debt" means any and all amounts payable under or in respect of the
Credit Agreement, as amended from time to time, any Refinancing Agreement, any
Working Capital Financing Agreement, or any other loan agreement with a bank,
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization relating
to the Company to the extent a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"Banks" has the meaning specified in the Credit Agreement.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
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"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such person prepared in accordance with generally accepted
accounting principles; the amount of such obligation will be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; and the Stated Maturity thereof will be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any Preferred
Stock, but excluding any debt securities convertible into or exchangeable for
such equity.
"Cash Flow" of a person for any fiscal year, means the sum of (i) the
Consolidated Net Income of such person for such fiscal year, plus (ii) to the
extent deducted in the calculation of such Consolidated Net Income, the
amortization of customer lists and other deferred charges and the amortization
and depreciation of capital assets, plus (iii) to the extent not included in
Consolidated Net Income, the amount of all dividends or other distributions
received in cash by the Company or any of its Wholly Owned Subsidiaries from,
and the amount of any Net Cash Proceeds to the Company or any of its Wholly
Owned Subsidiaries from the sale of Capital Stock of, an Unrestricted Subsidiary
of the Company; provided, however, that any amounts included in clause (v)(C) of
the second paragraph under "Limitations on Restricted Payments" shall be
excluded from Cash Flow of the Company.
"Class B Cash Flow" for any fiscal year means the sum of (i) net income of
the Company and its consolidated subsidiaries for such fiscal year determined in
accordance with generally accepted accounting principles, plus (ii) depreciation
and amortization of plant and equipment and amortization of customer lists and
restrictive covenants of the Company and its consolidated subsidiaries for such
fiscal year determined in accordance with generally accepted accounting
principles; provided, however, that (a) the net income of any person other than
a consolidated subsidiary in which the Company or any subsidiary has an interest
shall be included only to the extent of the amount of dividends or other
distributions paid to the Company or a consolidated subsidiary, (b) the net
income of any person acquired in a pooling transaction shall be excluded for any
period prior to the date of acquisition and (c) Class B Cash Flow with respect
to a fiscal year shall never be less than zero.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated EBITDA Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if the Company or any Subsidiary
has incurred any Indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio is an incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period will be calculated
after giving effect on a pro forma basis to (A) such Indebtedness as if such
Indebtedness had been incurred on the first day of such period, (B) the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, and (C) the interest income realized
by the Company and its Subsidiaries on the proceeds of such Indebtedness, to the
extent not yet applied at the date of determination, assuming such proceeds
earned interest at the Treasury Rate from the date such proceeds were received
through such date of determination, (2) if since the beginning of such period
the Company or any Subsidiary
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will have made any Asset Disposition, EBITDA for such period will be reduced by
an amount equal to EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to EBITDA (if negative), directly attributable thereto for such
period and Consolidated Interest Expense for such period will be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable for the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (3) if since the beginning of such period the
Company or any Subsidiary (by merger or otherwise) will have made an Investment
in any Subsidiary (or any person which becomes a Subsidiary) or an acquisition
of assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all or
substantially all an operating unit of a business, EBITDA and Consolidated
Interest Expense for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Indebtedness incurred in
connection therewith, the pro forma calculations will be determined in good
faith by a responsible financial or accounting Officer of the Company; provided,
however, that such Officer shall assume (i) the historical sales and gross
profit margins associated with such assets for any consecutive 12-month period
ended prior to the date of purchase (provided that the first month of such
period will be no more than 18 months prior to such date of purchase), less
estimated post-acquisition loss of customers (not to be less than 3%) and (ii)
other expenses as if such assets had been owned by the Company since the first
day of such period. If any Indebtedness bears a floating rate of interest and is
being given pro forma effect, the interest on such Indebtedness will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Subsidiaries, determined on a consolidated basis,
including (i) interest expense attributable to capital leases, (ii) amortization
of debt discount, (iii) capitalized interest, (iv) non-cash interest expense,
(v) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, (vi) interest actually paid
by the Company or any such Subsidiary under any guarantee of Indebtedness or
other obligation of any other Person, (vii) net costs associated with Hedging
Obligations (including amortization of fees), (viii) Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries held by persons other than the
Company or a Wholly Owned Subsidiary, (ix) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan to pay interest or fees to any person (other than the
Company) in connection with loans incurred by such plan or trust to purchase
newly issued or treasury shares of the Company (but excluding interest expense
associated with the accretion of principal on non-interest bearing or other
discount security) and (x) to the extent not already included in Consolidated
Interest Expense, the interest expense attributable to Indebtedness of another
person that is guaranteed by the Company or any of its Subsidiaries, less
interest income (exclusive of deferred financing fees) of the Company and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Net Income" of a person, for any period, means the aggregate
of the Net Income of such person and its Subsidiaries for such period,
determined on a consolidated basis in accordance with generally accepted
accounting principles, provided that (i) the Net Income of any other person
(other than a Subsidiary) in which such person has an interest will be included
only to the extent of the amount of dividends or distributions paid to such
person, (ii) the Net Income of any person acquired by such person in a pooling
of interests transaction for any period prior to the date of such acquisition
will be
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excluded, (iii) any Net Income of any Subsidiary will be excluded if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Subsidiary, directly or
indirectly, to such person, except that (A) such person's equity in the Net
Income of any such Subsidiary for such period will be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Subsidiary during such period to such person as a dividend or other
distribution (subject, in the case of a dividend or other distribution to
another subsidiary, to the limitation contained in this clause) and (B) such
person's equity in a net loss of any such Subsidiary for such period will be
included in determining such Consolidated Net Income, and (iv) the cumulative
effect of a change in accounting principles will be excluded.
"Credit Agreement" means the Second Amended and Restated Credit Agreement
dated as of December 31, 1992, between the Company and Chemical Bank, as agent,
as amended from time to time.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means (i) the Bank Debt and (ii) any other Senior
Debt which, at the date of determination, has an aggregate principal amount
outstanding of, or commitments to lend up to, at least $10 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Debt as "Designated Senior Debt" for purposes of the Indenture.
"EBITDA" for any period means the Consolidated Net Income for such period
(but without giving effect to adjustments, accruals, deductions or entries
resulting from purchase accounting, extraordinary losses or gains and any gains
or losses from any Asset Dispositions), plus the following to the extent
deducted in calculating such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash expenses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Stock" means any Capital Stock which is exchangeable or
convertible into another security (other than Capital Stock of the Company which
is neither Exchangeable Stock nor Redeemable Stock).
"Funded Debt" as applied to any person means, without duplication, (a) any
Indebtedness with a Stated Maturity of more than one year from the date of
incurrence, (b) any Indebtedness, regardless of its term, if such Indebtedness
is renewable or extendable at the option of the obligor of such Indebtedness
pursuant to the terms thereof to a date more than one year from the date of
incurrence; and (c) any Indebtedness, regardless of its term, that by its terms
or by the terms of the agreement pursuant to which it is issued, may be paid
with the proceeds of other Indebtedness that may be incurred pursuant to the
terms of such first-mentioned Indebtedness or by the terms of such agreement,
which other Indebtedness has a Stated Maturity of more than one year from the
date of incurrence of such first-mentioned Indebtedness; provided, however, that
Working Capital Borrowings shall be excluded from Funded Debt except to the
extent that Working Capital Borrowings exceed an amount equal to (i) 100% of the
current assets (excluding cash) of such person and its Subsidiaries, less (ii)
the excess, if any, of current liabilities over current assets of such person
and its Subsidiaries, in each case determined on a consolidated basis in
accordance with generally accepted accounting principles.
"guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other person and any obligation, direct or indirect, contingent or otherwise, of
such person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other
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obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"guarantee" will not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any person means the obligations of such person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement designed to protect such person against changes
in interest rates or foreign exchange rates.
"Indebtedness" of any person means, without duplication,
(i) the principal of (A) indebtedness of such person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such person is
responsible or liable;
(ii) all Capital Lease Obligations of such person and all Attributable
Indebtedness in respect of Sale/Leaseback Transactions entered into by such
person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such person
and all obligations of such person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through (iii)
above) entered into in the ordinary course of business of such person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such person of a demand for reimbursement
following payment on the letter of credit);
(v) all obligations of the type referred to in clauses (i) through
(iv) of other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including any guarantees of
such obligations and dividends, including by means of any agreement which
has the economic effect of a guarantee; and
(vi) all obligations of the type referred to in clauses (i) through
(v) of other persons secured by any Lien on any property or asset of such
person (whether or not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
"Investment" in any person means any loan or advance to, any guarantee of,
any acquisition of any Capital Stock, equity interest, obligation or other
security of, or capital contribution or other investment in, such person.
Investments will exclude advances to customers and suppliers in the ordinary
course of business.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement
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agents' fees, discounts or commissions and brokerage, consultant and other fees
actually incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Net Income" of any person means the net income (loss) of such person,
determined in accordance with generally accepted accounting principles;
excluding, however, from the determination of Net Income any gain (but not loss)
realized upon the sale or other disposition (including, without limitation,
dispositions pursuant to leaseback transactions) of any real property or
equipment of such person, which is not sold or otherwise disposed of in the
ordinary course of business, or of any capital stock of the Company or a
Subsidiary owned by such person.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock will not
include any Redeemable Stock or Exchangeable Stock.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Liens" means (i) Liens existing on the date of the Indenture and
renewals, extensions and refinancings thereof; (ii) rights of banks to set off
deposits against debts owed to said banks; (iii) Purchase Money Indebtedness;
(iv) Liens on the property of any entity existing at the time such property is
acquired by the Company or any of its Subsidiaries and renewals, extensions and
refinancings thereof, whether by merger, consolidation, purchase of assets or
otherwise; provided, however,that in the case of this clause (iv) that such
Liens (x) are not created, incurred or assumed in contemplation of such assets
being acquired by the Company and (y) do not extend to any other assets of the
Company or any of its Subsidiaries; and (v) Liens for taxes not yet due.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation; provided, however, that Preferred Stock will not include the
Company's Class B Common Stock.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligation
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Subsidiary of such asset, including
additions and improvements; provided, however, that any Lien arising in
connection with any such Indebtedness will be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed on or prior to the first anniversary of the Stated
Maturity of the Debentures or is redeemable at the option of the holder thereof
at any time on or prior to the first anniversary of the Stated Maturity of the
Debentures.
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<PAGE>
"Refinancing Agreement" means any credit agreement or other agreement
between the Company and bank lenders pursuant to which the Company refinances
borrowings under the Credit Agreement or another Refinancing Agreement.
"Representative" means the holder, trustee, agent or representative (if
any) for an issue of Senior Debt.
"Restricted Investment" means any Investment in an Unrestricted Subsidiary.
At the time any Subsidiary of the Company is designated by the Board of
Directors of the Company as an Unrestricted Subsidiary, the Company shall be
deemed to have made a Restricted Investment in an amount equal to the fair
market value as of such time of the Company's interest in such Unrestricted
Subsidiary, as determined in good faith by the Board of Directors and set forth
in a Board Resolution.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Subsidiary transfers such
property to a person and the Company or a Subsidiary leases it from such person.
"Sevin Group" means the Estate of Malvin P. Sevin and trusts created
thereunder, Audrey L. Sevin, Irik P. Sevin, Thomas J. Edelman, Margot Gordon and
Phillip Ean Cohen and any trust over which such persons have sole voting power.
"Sevin Note" means the promissory note, dated December 31, 1993, of Irik P.
Sevin to the Company in a principal amount of $1,559,827 and due on December 31,
1994, as the same may be extended (but not otherwise amended) on a year-by-year
basis in accordance with the Company's past practices and the principal amount
of which may not be increased in any one year by more than the amount of accrued
and unpaid interest during the immediately preceding year.
"Significant Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination either (A) had assets which, as of the date of the
Company's most recent quarterly consolidated balance sheet, constituted at least
3% of the Company's total assets on a consolidated basis as of such date, or (B)
had revenues for the 12-month period ending on the date of the Company's most
recent quarterly consolidated statement of income which constituted at least 3%
of the Company's total revenues on a consolidated basis for such period, or (ii)
any Subsidiary of the Company which, if merged with all Defaulting Subsidiaries
of the Company, would at the time of determination either (A) have had assets
which, as of the date of the Company's most recent quarterly consolidated
balance sheet, would have constituted at least 10% of the Company's total assets
on a consolidated basis as of such date or (B) have had revenues for the
12-month period ending on the date of the Company's most recent quarterly
consolidated statement of income which would have constituted at least 10% of
the Company's total revenues on a consolidated basis for such period (each such
determination be ing made in accordance with generally accepted accounting
principles). "Defaulting Subsidiary" means any Subsidiary of the Company with
respect to which an event described under clause (iv), (v) or (vi) under
"Defaults" above has occurred and is continuing unless such contingency has
occurred.
"Stated Maturity" means, with respect to any Indebtedness, the date
specified in such Indebtedness, or in any agreement pursuant to which such
Indebtedness was incurred, as the fixed date on which the principal of such
Indebtedness is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
Indebtedness at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligations" means any Indebtedness of the Company (whether
outstanding on the date hereof or hereafter incurred) which is subordinate or
junior in right of payment to the Debentures.
"Subsidiary" means a corporation of which a majority of the Capital Stock
having voting power under ordinary circumstances to elect a majority of the
board of directors is owned by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries; provided, however,that an
Unrestricted Subsidiary shall be deemed not to be a Subsidiary (except as used
in the definition thereof).
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"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sec.Sec.
77aaa-77bbbb) as in effect on the date of the Indenture.
"Traber Group" means (i) all the holders of Class C Common Stock as of the
date of the Indenture who are not members of the Sevin Group, (ii) any person
who receives shares from persons described in clause (i) without such transfer
of shares being subject to the first refusal right referred to in the
shareholders agreement among the holders of Class C Common Stock dated November
25, 1986, as amended through the date of the Indenture, and (iii) any trust over
which persons described in clause (i) or (ii) have sole voting power.
"Treasury Rate" as of any date of determination means the yield to maturity
at the time of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent federal Reserve
Statistical Release H.15(519) which has become publicly available at least two
business days prior to such date of determination (or, if such Statistical
Release is no longer published, any publicly available source of similar market
data)) of five years.
"Trust Officer" means the chairman or vice-chairman of the board of
directors, the chairman or vice-chairman of the executive committee of the board
of directors, the president, any vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Unrestricted Subsidiary" means a Subsidiary of the Company, and each
Subsidiary of such Subsidiary, designated by the Board of Directors of the
Company as an Unrestricted Subsidiary pursuant to a Board Resolution set forth
in an Officers' Certificate and delivered to the Trustee, (a) no portion of the
Indebtedness or any other obligations (contingent or otherwise) of which (i) is
guaranteed by the Company or any other Subsidiary of the Company, (ii) is
recourse to or obligates the Company or any other Subsidiary of the Company in
any way or (iii) subjects any property or asset of the Company or any other
Subsidiary of the Company, directly or indirectly, contingently or otherwise, to
the satisfaction thereof and (b) with which neither the Company nor any other
Subsidiary of the Company has any obligation (i) to subscribe for additional
shares of Capital Stock or other equity interests therein or (ii) to maintain or
preserve such Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results. An Unrestricted Subsidiary may be
designated a Subsidiary, provided that (A) no Default or Event of Default shall
have occurred and be continuing and (B) immediately after giving effect to such
designation, the Company would be able to issue an additional $1.00 of Funded
Debt pursuant to the first paragraph of "Limitation on Funded Debt."
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares) is owned by the Company or another
Wholly Owned Subsidiary.
"Working Capital Borrowings" means, on any date of determination, all
Indebtedness of the Company and its Subsidiaries on a consolidated basis
incurred to finance current assets.
"Working Capital Financing Agreement" means any agreement entered into
after the date of the Indenture by the Company and bank lenders pursuant to
which the Company issues Working Capital Borrowings.
"1989 Preferred Stock" means the preference stock of the Company designated
as "1989 Preferred Stock, Par Value $.10."
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<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS AND REDEEMABLE PREFERRED STOCK
CREDIT AGREEMENT
The Company has entered into the Credit Agreement with Chemical Bank as
agent. A copy of the Credit Agreement has been incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Credit Agreement does not purport
to be complete and is subject to, and is qualified by reference to, all of the
provisions of the Credit Agreement.
The Credit Agreement provides for maximum aggregate advances of $75 million
to finance working capital requirements of the Company ("Revolving Credit
Loans") with a sublimit under a borrowing base established each month. Amounts
borrowed under the Revolving Credit Loans are subject to a 45-day clean-up
requirement prior to September 30 of each year and the revolving credit portion
of the facility terminates on June 30, 1996. At September 30, 1993 no Revolving
Credit Loans were outstanding.
The Company has previously issued the Maxwhale Notes aggregating $50
million due June 1, 1994 in connection with the purchase of a fuel oil
distributor, which are secured by letters of credit issued by certain of the
banks which are parties to the Credit Agreement. The Credit Agreement requires
deposits by the Company into a cash collateral account to partially secure the
Company's obligation to the banks under such letters of credit. As of September
30, 1993, $20.0 million had been deposited and an additional $7.5 million is
required to be deposited on May 15, 1994. At the maturity of the Maxwhale Notes,
the banks are committed under the Credit Agreement to make term loans ("Term
Loans") to the Company to refund the balance due on the Maxwhale Notes in excess
of the cash collateral account. The Company will repay the Maxwhale Notes from
the proceeds of the Offering and the amount in the cash collateral account will
be released to the Company.
Interest on the Revolving Credit Loans and the Term Loans is payable
monthly and is based upon a floating rate selected by the Company of either the
Eurodollar Rate (as defined below) or the Alternate Base Rate (as defined
below), plus 0 to 50 basis points on Alternate Base Rate Loans which are
Revolving Credit Loans or 25 to 75 basis points on Alternate Base Rate Loans
which are Term Loans and 125 to 175 basis points on Eurodollar Loans which are
Revolving Credit Loans or 225 to 275 basis points on Eurodollar Loans which are
Term Loans, based upon the ratio of Consolidated Operating Profit to Interest
Expense (as defined in the Credit Agreement). Eurodollar Rate means the
prevailing rate in the interbank Eurodollar market adjusted for reserve
requirements. Alternate Base Rate means the greater of (i) the prime or base
rate of Chemical Bank in effect or (ii) the Federal funds rate in effect rate
plus 1/2 of 1%. In addition, the Company is required to pay certain fees for
balance deficiencies, if any, and unused commitments.
The Company's obligations under the Credit Agreement are secured by all of
its and its subsidiaries' customer lists, tradenames and trademarks. 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.
The Credit Agreement contains significant financial and other covenants.
Under the Credit Agreement, the Company and its subsidiaries may not:
(i) incur any indebtedness, whether recourse or non-recourse and
whether senior or junior, except subordinated debt and certain other
indebtedness as specifically authorized by the Credit Agreement;
(ii) create or permit any lien on any of its assets or properties,
except for identified permitted encumbrances; and
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<PAGE>
(iii) sell, transfer or convey customer lists, except, among other
exceptions, a sale of from which a portion of the net cash proceeds, if not
reinvested in customer lists, are used to prepay the Revolving Credit Loans
and Term Loans.
The Credit Agreement also provides that the Company must meet the following
financial ratios and tests:
(i) for any fiscal year, the Company may not permit the ratio of
Adjusted Net Income to Consolidated Net Lease Obligations (as those terms
are defined in the Credit Agreement) to be less than 4.0 to 1.0;
(ii) the Company may not permit Consolidated Cash Flow (as defined in
the Credit Agreement) for any period of four consecutive fiscal quarters to
be less than $25.0 million prior to December 31, 1994; $27.5 million from
December 31, 1994 to March 30, 1995; $30.0 million from March 31, 1995 to
March 30, 1996 and $35.0 million thereafter.
(iii) for any fiscal year, Company may not permit the excess of 6
times Consolidated Operating Profit over Consolidated Funded Debt (other
than Subordinated Debt) (as those terms are defined in the Credit
Agreement) to be less than $125.0 million;
(iv) the Company may not incur Funded Debt if after giving effect
thereto to the ratio of Consolidated EBITDA to Consolidated Interest
Expense (as those terms are defined in the Credit Agreement) exceeds 2.0 to
1.0 through December 31, 1995, increasing to 2.1 to 1.0 to December 31,
1996 and 2.2 to 1.0 through December 31, 1997.
(v) the Company may not permit at any time Consolidated Cash Uses (as
defined in the Credit Agreement), which include dividends and stock
redemptions, for the period from March 31, 1992 to such time to exceed
$57.4 million plus the sum of (a) net proceeds received from the issuance
of capital stock and Funded Debt after March 31, 1992 and (b) the positive
or negative amount of annual Cash Flow, in each annual period ending on
March 31 subsequent to March 31, 1992 (as those terms are defined in the
Credit Agreement).
The Credit Agreement contains various events of default customary for such
types of agreements, including breaches of the covenants described above. If an
Event of Default occurs and is occurring, the lenders may, without notice,
terminate the Revolving Credit Loans and the Term Loans and/or declare all
obligations under the Credit Agreement immediately due and payable, except that
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all such obligations shall become due and payable without
declaration, notice or demand.
SUBORDINATED DEBT
On September 1, 1988, the Company authorized the issuance of $60.0 million
of Subordinated Notes due October 1, 1998. The Company issued $40.0 million of
such notes on October 14, 1988 bearing interest at the rate of 11.85% per annum
(the "11.85% Notes"), $15.0 million of such notes on March 31, 1989 bearing
interest at the rate of 12.17% per annum (the "12.17% Notes") and $5.0 million
of such notes on May 1, 1990 bearing interest at the rate of 12.18% per annum
(the "12.18% Notes"). On January 15, 1991, the Company authorized the issuance
of $12.5 million of Subordinated Notes due January 15, 2001 bearing interest at
the rate of 14.10% per annum (the "14.10% Notes"). The Company issued $5.7
million of such notes in April 1991 and $6.8 million in March 1992. In March
1993, the Company issued $12.764 million of Subordinated Notes due March 1, 2000
(the "2000 Notes") in exchange for an equal amount of 1991 Redeemable Preferred
Stock. 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 (as defined).
The 2000 Notes pay interest monthly based on the sum of LIBOR plus 9.28%. On
April 6, 1993, the Company issued $50.0 million of 10 1/8 Notes. The 11.85%
Notes, 12.17% Notes,
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12.18% Notes, 14.10% Notes, 2000 Notes and 10 1/8% Notes are collectively
referred to herein as the "Subordinated Debt."
The Debentures will rank pari passu with the Subordinated Debt which, after
giving pro forma effect to the Subordinated Debt Amendments, would have
aggregated approximately $92.6 million as of September 30, 1993. The agreements
pursuant to which the Company has issued the Subordinated Debt contain various
financial and other covenants relating to the maintenance of corporate
existence, timely payment of taxes, preservation of the Company's assets and
engaging in other businesses. Such agreements also contain covenants relating to
limitations on funded debt, restricted payments, mergers, consolidations and
sale of assets and transactions with affiliates which (except as described
below) are generally comparable to those contained in the Indenture.
In connection with the Offering, the Company solicited (the "Debt
Solicitations") consents of holders of at least a majority in aggregate
principal amount of each class of Subordinated Debt and the Redeemable Preferred
Stock described below to certain amendments (the "Subordinated Debt Amendments")
to the respective agreements under which the Subordinated Debt and the
Redeemable Preferred Stock were issued (the "Old Agreements"). The Company has
received the requisite consents from the holders of Subordinated Debt and the
Redeemable Preferred Stock. The Old Agreements provided that the Company shall
not issue Funded Debt (as defined) unless, after giving effect thereto, (x) the
ratio of Consolidated Funded Debt (as defined) of the Company and its
subsidiaries to Consolidated Operating Cash Flow (as defined) for the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date such Funded Debt is issued, does not exceed 5.0 to 1.0, and (y) (in the
case of the 10 1/8% Notes) the Consolidated EBITDA Coverage Ratio (as defined)
exceeds 1.5 to 1.0. The Subordinated Debt Amendments eliminated this limitation
and substituted in its place the Consolidated EBITDA Coverage Ratio of 2.0 to
1.0 (which is subject to increase in subsequent years to a maximum of 2.5 to
1.0) which is contained in the Indenture for the Debentures and also made
certain conforming changes in the language of the Old Agreements. See
"Capitalization" and "Description of Debentures."
In consideration for the consents to the Subordinated Debt Amendments, the
Company paid to the holders of the Subordinated Debt (other than holders who
also own Redeemable Preferred Stock), a cash payment aggregating $0.6 million
and caused approximately $42.6 million of the aggregate principal amount of the
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.
REDEEMABLE PREFERRED STOCK
The Company has outstanding 250,000 shares of Redeemable Preferred Stock,
of which 50,000 shares are classified as Series A, 50,000 shares are classified
as Series B and 150,000 shares are classified as Series C. The holders of the
Series A, Series B and Series C Redeemable Preferred Stock are entitled to
receive, as and when declared by the Board of Directors, annual dividends at the
rate of $12, $11.84 and $12.61 per share, respectively. The shares of Redeemable
Preferred Stock are exchangeable, in whole or in part, at the option of the
Company, for 1999 Notes, subject to meeting certain debt incurrence tests. 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, 1/6 of the number of
originally issued shares of each series of Redeemable Preferred Stock, less the
number of shares of such series previously exchanged for 1999 Notes, must be
redeemed in cash, with the final redemption of the remaining outstanding shares
on August 1, 1999. The redemption price of the Redeemable Preferred Stock is
$100 per share plus all accrued and unpaid dividends to the redemption date.
Except for dividends on the Company's Class B Common Stock, no dividends may be
declared or paid on any other capital stock of the Company during any fiscal
year until the Company has paid or declared and set apart all dividends and
satisfied the mandatory redemption requirements on all outstanding shares of
Redeemable Preferred Stock. The Redeemable Preferred Stock has no voting rights,
except as may be provided by law. The terms of the agreement pursuant to which
the Redeemable Preferred Stock was issued has been amended pursuant to the
Subordinated Debt Amendments. See "--Subordinated Debt."
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") among the Company, Donaldson, Lufkin & Jenrette
Securities Corporation, Kidder, Peabody & Co. Incorporated, Chemical Securities
Inc. and Morgan Schiff & Co., Inc. (together, the "Underwriters"), the
Underwriters have agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the respective amount of Debentures set
forth in the table below:
<TABLE> <CAPTION>
<S> <C>
PRINCIPAL AMOUNT
UNDERWRITER OF DEBENTURES
Donaldson, Lufkin & Jenrette Securities Corporation............................................ $
Kidder, Peabody & Co. Incorporated.............................................................
Chemical Securities Inc........................................................................
Morgan Schiff & Co., Inc.......................................................................
-----------------
Total................................................................................... $ 75,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters and
their controlling persons against certain liabilities and expenses, including
liabilities under the Securities Act or contribute to payments the Underwriters
may be required to make in respect thereof. The nature of the Underwriters'
obligations under the Underwriting Agreement is such that they are required to
purchase all of the Debentures if any of the Debentures are purchased.
The Underwriters propose to offer the Debentures directly to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of % of the
principal amount. The Underwriters may allow and such dealers may reallow, a
concession not in excess of % of the principal amount. After the initial
public offering of the Debentures, the offering price and other selling terms
may be changed by the Underwriters.
The Debentures are a new issue of securities, have no established trading
market and may not be widely distributed. The Company has been informed by
Donaldson, Lufkin & Jenrette Securities Corporation, Kidder, Peabody & Co.
Incorporated and Chemical Securities Inc. that they currently intend to make a
market in the Debentures; however, they are not obligated to do so and may
discontinue market making at any time without notice. Accordingly, no assurance
can be given as to the liquidity of, or trading market for, the Debentures.
Chemical Securities Inc. is an affiliate of Chemical Bank, which is the
agent bank and a lender under the Credit Agreement and certain standby and
support letters of credit and is acting as Trustee under the Indenture. The
Company plans to use a portion of the proceeds from the Offering to pay the
outstanding amount under the Credit Agreement and will terminate the standby
letter of credit supporting the Maxwhale Notes. In addition, Chemical Bank, or
its affiliates, participates on a regular basis in various general financing and
banking transactions for the Company and certain of its affiliates.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), if more than 10% of the net proceeds of a public
offering of debt securities are to be paid to members of the NASD that are
participating in the offering, or affiliated or associated persons, the yield at
which the debt securities are distributed to the public must be no lower than
that recommended by a "qualified independent underwriter," as defined in
Schedule E to the Bylaws of the NASD. Because Chemical Bank, an affiliate of
Chemical Securities Inc., will receive more than 10% of the net proceeds of the
Offering as a result of the repayment of certain amounts under the Credit
Agreement, Donaldson, Lufkin & Jenrette Securities Corporation will act as a
qualified independent underwriter in connection with the Offering.
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Pursuant to an engagement letter dated December 16, 1993, the Underwriters
have been engaged by the Company to assist in the Debt Solicitations, for which
they will receive customary fees and reimbursement of expenses.
Mr. Phillip Ean Cohen, who is chairman and sole stockholder of Morgan
Schiff & Co., Inc., is a member of the Board of Directors of the Company.
LEGAL MATTERS
The validity of the Debentures offered hereby will be passed upon for the
Company by Phillips, Nizer, Benjamin, Krim & Ballon, New York, New York.
Phillips, Nizer, Benjamin, Krim & Ballon will rely upon Dorsey & Whitney,
Minneapolis, Minnesota with respect to certain matters concerning Minnesota law.
Certain legal matters with respect to the Debentures will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The audited financial statements and schedules of the Company included in
this Prospectus or appearing in the Company's Annual Report on Form 10-K, have
been examined by KPMG Peat Marwick, independent certified public accountants, to
the extent and for the periods set forth in their reports appearing herein and
in the Company's Annual Report on Form 10-K and have been included and
incorporated by reference herein in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.
The audited consolidated financial statement of Star Gas Corporation and
Subsidiaries, included in this Prospectus and Registration Statement, have been
audited by KPMG Peat Marwick, independent certified public accountants, as of
September 30, 1993 and for the year then ended and by Ernst & Young, independent
auditors, as of September 30, 1992 and for each of the two years in the period
ended September 30, 1992, as set forth in their respective reports thereon
appearing elsewhere herein, and has been so included in reliance upon the
reports of KPMG Peat Marwick and Ernst & Young given upon the authority of such
firms as experts in accounting and auditing.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1992 and Amendment No. 1 thereto filed under cover of Form 8, its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, June 30, and
September 30, 1993 and its Current Report on Form 8-K filed on January 4, 1994
are incorporated in this Prospectus by reference. All documents filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the effective date of the
Registration Statement shall be deemed incorporated by reference into this
Prospectus from the date of filing of such documents. Any statement contained
herein or in a document, all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon the request of such person, a
copy of the foregoing documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are incorporated by reference
in such document). Requests shall be directed to the attention of Richard
Ambury, Vice President and Assistant Controller, Petroleum Heat and Power Co.,
Inc., 2187 Atlantic Street, Stamford, CT 06902 (telephone (203) 325-5400).
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INDEX TO FINANCIAL STATEMENTS
PAGE
Consolidated Financial Statements of Petroleum Heat and Power
Co., Inc. and Subsidiaries:
Independent Auditors' Report................................... F-2
Consolidated Balance Sheets.................................... F-3
Consolidated Statements of Operations.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency)..................................................... F-5
Consolidated Statements of Cash Flows.......................... F-6
Notes to Consolidated Financial Statements..................... F-7
Consolidated Financial Statements of Star Gas Corporation and
Subsidiaries:
Independent Auditors' Reports.................................. F-25
Consolidated Balance Sheets.................................... F-27
Consolidated Statements of Operations.......................... F-28
Consolidated Statements of Shareholders' Equity................ F-29
Consolidated Statements of Cash Flows.......................... F-30
Notes to Consolidated Financial Statements..................... F-31
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, 1991 and 1992, 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, 1992. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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, 1991 and 1992, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1992 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
New York, New York
February 26, 1993
F-2
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER
-------------------------- 30,
1991 1992 1993
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................................. $ 2,907,460 $ 3,859,557 $ 7,436,907
Accounts receivable (net of allowance of $809,714, $1,270,754 and $2,459,983).... 73,808,576 78,358,514 43,186,509
Inventories...................................................................... 13,290,997 15,729,305 12,788,059
Prepaid expenses................................................................. 4,620,048 4,623,433 6,301,317
Notes receivable and other current assets........................................ 1,671,195 1,680,633 1,468,739
U.S. Treasury Notes held in a Cash Collateral Account............................ -- -- 20,000,000
------------ ------------ ------------
Total current assets....................................................... 96,298,276 104,251,442 91,181,531
------------ ------------ ------------
Property, plant and equipment...................................................... 51,620,915 61,092,297 63,966,168
Less accumulated depreciation and amortization................................... 27,325,673 28,342,302 31,432,958
------------ ------------ ------------
24,295,242 32,749,995 32,533,210
------------ ------------ ------------
Intangible assets (net of accumulated amortization of $159,599,408, $188,459,167
and $210,831,831)
Customer lists................................................................. 76,228,321 86,093,145 78,056,098
Deferred charges............................................................... 17,828,621 14,128,629 14,583,437
------------ ------------ ------------
94,056,942 100,221,774 92,639,535
------------ ------------ ------------
U.S. Treasury Notes held in a Cash Collateral Account.............................. 5,000,000 15,000,000 --
------------ ------------ ------------
Other assets....................................................................... 360,000 560,000 550,000
------------ ------------ ------------
$220,010,460 $252,783,211 $216,904,276
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Working capital borrowings....................................................... $ 39,750,000 $ 32,000,000 $ --
Current maturities of other long-term debt....................................... 33,345 33,345 33,345
Current installments of capital lease obligations................................ 596,833 103,595 --
Current maturities of Maxwhale Notes............................................. -- -- 27,500,000
Current maturities of cumulative redeemable preferred stock...................... -- -- 4,166,667
Subordinated notes payable....................................................... 5,704,000 12,400,373 --
Accounts payable................................................................. 12,929,206 15,289,518 9,173,905
Customer credit balances......................................................... 20,140,437 19,317,863 26,486,378
Unearned service contract revenue................................................ 12,356,529 13,180,431 12,334,492
Accrued expenses:
Wages and bonuses.............................................................. 5,622,354 5,030,100 5,335,366
Taxes other than income taxes.................................................. 2,127,655 1,856,074 686,493
Pension........................................................................ 2,664,637 2,373,188 663,983
Other.......................................................................... 6,411,741 9,410,757 12,289,552
------------ ------------ ------------
Total current liabilities.................................................. 108,336,737 110,995,244 98,670,181
------------ ------------ ------------
Maxwhale Notes Payable............................................................. 50,000,000 50,000,000 22,500,000
------------ ------------ ------------
Other long-term debt............................................................... 113,750 80,404 55,395
------------ ------------ ------------
Capital lease obligations.......................................................... 103,595 -- --
------------ ------------ ------------
Supplemental benefits payable...................................................... -- 1,688,728 1,656,850
------------ ------------ ------------
Pension plan obligation acquired................................................... 1,264,035 1,239,250 1,219,431
------------ ------------ ------------
Subordinated notes payable......................................................... 91,613,067 84,978,349 135,263,663
------------ ------------ ------------
Cumulative redeemable exchangeable preferred stock, par value $.10 per share,
409,722 shares authorized, 313,889, 408,884 and 250,000 shares outstanding of
which 41,667 at September 30, 1993 are reflected as current...................... 30,023,100 37,717,790 20,833,333
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock--par value $.10 per share; 1,590,278, 5,000,000 and 5,000,000
shares authorized, none outstanding............................................
Class A common stock--par value $.10 per share; 15,500,000, 40,000,000 and
40,000,000 shares authorized, 10,180,558, 18,992,579 and 18,992,579 shares
outstanding.................................................................... 1,018,056 1,899,258 1,899,258
Class B common stock--par value $.10 per share; 6,500,000 shares authorized,
3,034,060, 216,901and 216,901 shares outstanding (liquidation
preference--$12,826,630, $1,236,336 and $1,236,336)............................ 303,406 21,690 21,690
Class C common stock--par value $.10 per share; 5,000,000 shares authorized,
2,545,139 shares outstanding................................................... 254,514 254,514 254,514
Additional paid-in capital....................................................... 12,550,522 54,462,132 54,416,259
Deficit.......................................................................... (74,290,322) (89,274,148) (118,606,298)
------------ ------------ ------------
(60,163,824) (32,636,554) (62,014,577)
Note receivable from stockholder................................................. (1,280,000) (1,280,000) (1,280,000)
------------ ------------ ------------
Total stockholders' equity (deficiency).................................... (61,443,824) (33,916,554) (63,294,577)
------------ ------------ ------------
$220,010,460 $252,783,211 $216,904,276
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE> <CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
---------------------------------------------- ------------------------------
1990 1991 1992 1992 1993
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 567,414,067 $ 523,243,243 $ 512,430,194 $ 340,892,396 $ 377,383,609
Cost of sales.......................... 435,030,967 378,771,961 350,941,386 232,333,611 262,367,466
-------------- -------------- -------------- -------------- --------------
Gross profit.................... 132,383,100 144,471,282 161,488,808 108,558,785 115,016,143
Selling, general and administrative
expenses............................. 80,596,935 79,427,873 83,407,680 59,768,363 68,270,664
Direct delivery expense................ 25,479,485 25,007,204 26,756,585 18,053,267 20,909,602
Amortization of customer lists......... 25,570,792 24,839,983 23,496,438 17,469,592 18,236,229
Depreciation and amortization of plant
and equipment........................ 5,795,654 5,550,381 5,534,205 4,152,623 4,368,314
Amortization of deferred charges....... 4,946,043 5,185,113 5,363,321 4,054,427 4,136,435
Provision for supplemental benefit..... -- -- 1,973,728 -- 193,122
-------------- -------------- -------------- -------------- --------------
Operating income (loss)......... (10,005,809) 4,460,728 14,956,851 5,060,513 (1,098,223)
Other income (expense):
Interest expense..................... (21,925,775) (21,916,205) (20,204,808) (15,343,869) (16,501,218)
Interest income...................... 1,024,871 1,187,676 1,582,885 1,316,376 1,354,068
Gains (losses) on sales of fixed
assets............................. (154,824) (104,911) 8,297 (5,379) (28,817)
Other................................ (72,914) 60,147 (332,590) (332,590) --
-------------- -------------- -------------- -------------- --------------
Loss before income taxes........ (31,134,451) (16,312,565) (3,989,365) (9,304,949) (16,274,190)
Income taxes (benefit)................. (1,867,000) 250,000 400,000 218,000 218,000
-------------- -------------- -------------- -------------- --------------
Loss before extraordinary
item.......................... (29,267,451) (16,562,565) (4,389,365) (9,522,949) (16,492,190)
Extraordinary item--loss on early
extinguishment of debt............... -- -- -- -- (867,110)
-------------- -------------- -------------- -------------- --------------
Net loss............................. $ (29,267,451) $ (16,562,565) $ (4,389,365) $ (9,522,949) $ (17,359,300)
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Net loss applicable to common stock.... $ (30,624,451) $ (19,854,648) $ (8,842,105) $ (13,579,607) $ (20,726,296)
Income (loss) before extraordinary item
per common share
Class A Common Stock................. $(2.81) $(1.64) $(.81) $(1.19) $(.94)
Class B Common Stock................. 1.70 .31 1.14 .86 1.41
Class C Common Stock................. (2.81) (1.64) (.81) (1.19) (.94)
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................. $(2.81) $(1.64) $(.81) $(1.19) $(.98)
Class B Common Stock................. 1.70 .31 1.14 .86 1.41
Class C Common Stock................. (2.81) (1.64) (.81) (1.19) (.98)
Weighted average number of common
shares outstanding:
Class A Common Stock................. 10,180,558 10,180,558 12,854,266 11,050,778 18,992,579
Class B Common Stock................. 3,034,060 3,034,060 2,447,473 3,034,060 216,901
Class C Common Stock................. 2,545,139 2,545,139 2,545,139 2,545,139 2,545,139
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1990, 1991 AND 1992 AND NINE MONTHS ENDED SEPTEMBER 30,
1993 (UNAUDITED)
<TABLE> <CAPTION>
COMMON STOCK
----------------------------------------------------------------------
CLASS A CLASS B CLASS C NOTE
------------------------ --------------------- --------------------- ADDITIONAL RECEIVABLE
NO. OF NO. OF NO. OF PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDER
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1989, as
previously
reported......... 12,725,697 $ 1,272,570 3,034,060 $ 303,406 -- $ -- $13,124,567 $ (16,707,679) $(1,280,000)
Effect of exchange
of Class C Common
Stock for Class A
Common Stock..... (2,545,139) (254,514) 2,545,139 254,514
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
Balance at December
31, 1989, as
adjusted......... 10,180,558 1,018,056 3,034,060 303,406 2,545,139 254,514 13,124,567 (16,707,679) (1,280,000)
Net loss........... (29,267,451)
Cash dividends
declared and paid (6,243,096)
Cash dividends
payable.......... (1,289,475)
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
Balance at December
31, 1990......... 10,180,558 1,018,056 3,034,060 303,406 2,545,139 254,514 13,124,567 (53,507,701) (1,280,000)
Net loss........... (16,562,565)
Cash dividends
declared and paid (3,927,446)
Cash dividends
payable.......... (292,610)
Redeemable
preferred stock
issuance costs... (550,962)
Accretion of
redeemable
preferred stock.. (23,083)
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
Balance at December
31, 1991......... 10,180,558 1,018,056 3,034,060 303,406 2,545,139 254,514 12,550,522 (74,290,322) (1,280,000)
Net loss........... (4,389,365)
Cash dividends
declared and paid (7,987,026)
Cash dividends
payable.......... (2,607,435)
Accretion of
redeemable
preferred stock.. (194,740)
Class A Common
Stock issued..... 4,330,000 433,000 47,197,000
Class A Common
Stock exchanged
for Class B
Common Stock..... 4,482,021 448,202 (2,817,159) (281,716) (166,486)
Class A Common
Stock issuance
and exchange
offer costs...... (4,924,164)
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
Balance at December
31, 1992......... 18,992,579 1,899,258 216,901 21,690 2,545,139 254,514 54,462,132 (89,274,148) (1,280,000)
Net loss........... (17,359,300)
Cash dividends
declared and paid (8,909,470)
Cash dividends
payable.......... (3,063,380)
Accretion of
redeemable
preferred stock.. (45,873)
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
Balance at
September 30,
1993............. 18,992,579 $ 1,899,258 216,901 $ 21,690 2,545,139 $ 254,514 $54,416,259 $(118,606,298) $(1,280,000)
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
----------- ----------- ---------- --------- ---------- --------- ----------- ------------- -----------
<CAPTION>
TOTAL
------------
<S> <C>
Balance at December
31, 1989, as
previously
reported......... $ (3,287,136)
Effect of exchange
of Class C Common
Stock for Class A
Common Stock.....
------------
Balance at December
31, 1989, as
adjusted......... (3,287,136)
Net loss........... (29,267,451)
Cash dividends
declared and paid (6,243,096)
Cash dividends
payable.......... (1,289,475)
------------
Balance at December
31, 1990......... (40,087,158)
Net loss........... (16,562,565)
Cash dividends
declared and paid (3,927,446)
Cash dividends
payable.......... (292,610)
Redeemable
preferred stock
issuance costs... (550,962)
Accretion of
redeemable
preferred stock.. (23,083)
------------
Balance at December
31, 1991......... (61,443,824)
Net loss........... (4,389,365)
Cash dividends
declared and paid (7,987,026)
Cash dividends
payable.......... (2,607,435)
Accretion of
redeemable
preferred stock.. (194,740)
Class A Common
Stock issued....... 47,630,000
Class A Common
Stock exchanged
for Class B
Common Stock..... --
Class A Common
Stock issuance
and exchange
offer costs...... (4,924,164)
------------
Balance at December
31, 1992......... (33,916,554)
Net loss........... (17,359,300)
Cash dividends
declared and paid (8,909,470)
Cash dividends
payable.......... (3,063,380)
Accretion of
redeemable
preferred stock.. (45,873)
------------
Balance at
September 30,
1993............. $(63,294,577)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> <CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------- ----------------------------
1990 1991 1992 1992 1993
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (29,267,451) $ (16,562,565) $ (4,389,365) $ (9,522,949) $ (17,359,300)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of customer lists.............. 25,570,792 24,839,983 23,496,438 17,469,592 18,236,229
Depreciation and amortization of plant and
equipment................................. 5,795,654 5,550,381 5,534,205 4,152,623 4,368,314
Amortization of deferred charges and debt
discount.................................. 4,988,415 5,223,354 5,394,397 4,078,537 4,148,045
Provision for losses on accounts
receivable................................ 1,953,691 2,156,320 2,444,581 1,723,912 1,649,988
Provision for supplemental benefit.......... -- -- 1,973,728 -- 193,122
(Gain) loss on bond redemptions............. -- (60,147) 332,590 332,590 867,110
(Gain) loss on sales of fixed assets........ 154,824 104,911 (8,297) 5,379 28,817
Amortization of acquired pension plan
obligation................................ (21,712) (23,328) (24,785) (18,497) (19,819)
Decrease (increase) in accounts
receivable................................ 12,036,996 8,217,612 (6,994,519) 32,662,403 33,522,017
Decrease (increase) in inventory............ 7,398,733 12,509,679 (2,438,308) 519,311 2,941,246
Decrease in income taxes receivable......... 3,078,781 668,000 -- -- --
Decrease (increase) in prepaid expenses,
notes receivable and other current assets. (514,729) 279,716 (12,823) (147,400) (1,465,990)
Decrease (increase) in other assets......... (35,000) (100,000) (200,000) (175,000) 10,000
Increase (decrease) in accounts payable..... (12,147,594) (6,133,548) 2,360,312 (5,995,795) (6,115,613)
Increase (decrease) in customer credit
balances.................................. 6,209,289 2,378,664 (822,574) 6,428,953 7,168,515
Increase (decrease) in unearned service
contract revenue.......................... 938,660 104,643 823,902 (701,399) (845,939)
Decrease in deferred taxes.................. (1,520,000) -- -- -- --
Increase (decrease) in accrued expenses..... (227,157) 461,857 (756,093) (3,143,508) (150,670)
------------- ------------- ------------- ------------- -------------
Net cash provided by operating
activities........................... 24,392,192 39,615,532 26,713,389 47,668,752 47,176,072
------------- ------------- ------------- ------------- -------------
Cash flows used in investing activities:
Acquisition of customer lists................. (18,536,065) (10,127,482) (33,361,262) (18,416,935) (10,199,182)
Increase in deferred charges.................. (8,958,281) (2,570,234) (1,800,647) (1,045,225) (3,047,753)
Capital expenditures.......................... (6,486,285) (4,146,765) (14,509,037) (5,377,188) (4,309,984)
Proceeds from sales of fixed assets........... 651,840 261,333 528,376 145,014 129,638
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities........................... (33,328,791) (16,583,148) (49,142,570) (24,694,334) (17,427,281)
------------- ------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock........ -- -- 47,630,000 47,630,000 --
Costs of issuing and exchanging common
stock....................................... -- -- (4,924,164) (4,134,100) --
Net proceeds from issuance of redeemable
exchangeable preferred stock................ 15,000,000 4,449,055 7,499,950 7,499,950 --
Net proceeds from issuance of subordinated
notes....................................... 5,000,000 5,700,000 6,800,000 6,800,000 48,067,642
Repurchase of subordinated notes.............. -- (5,616,508) (6,964,693) (6,964,693) (25,368,574)
Net borrowings (reductions) under financing
arrangement................................. 2,500,000 (19,250,000) (7,750,000) (39,750,000) (32,000,000)
Increase in Cash Collateral Account........... -- (5,000,000) (10,000,000) (10,000,000) (5,000,000)
Decrease in other debt........................ (2,924,188) (33,345) (33,346) (25,009) (250,009)
Principal payments under capital lease
obligations................................. (688,794) (686,577) (596,833) (497,115) (103,595)
Cash dividends paid........................... (7,631,158) (5,216,921) (8,279,636) (5,840,187) (11,516,905)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
financing activities................. 11,255,860 (25,654,296) 23,381,278 (5,281,154) (26,171,441)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash........ 2,319,261 (2,621,912) 952,097 17,693,264 3,577,350
Cash at beginning of year....................... 3,210,111 5,529,372 2,907,460 2,907,460 3,859,557
------------- ------------- ------------- ------------- -------------
Cash at end of year............................. $ 5,529,372 $ 2,907,460 $ 3,859,557 $ 20,600,724 $ 7,436,907
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(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
421,000 customers in those areas. Credit is granted to substantially all of
these customers with no individual account comprising a concentrated credit
risk.
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:
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------
1991 1992 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Fuel oil.................................... $ 6,447,306 $ 8,151,053 $ 4,919,040
Parts....................................... 6,843,691 7,578,252 7,869,019
-------------- -------------- --------------
$ 13,290,997 $ 15,729,305 $ 12,788,059
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
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 straight
line method over the lives of the notes.
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.
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.
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.
F-7
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-- (CONTINUED)
Income Taxes
The Company files a consolidated Federal income tax return with its
subsidiaries. When appropriate, deferred income taxes are 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
Standard 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 financial statements to
reflect such exchange.
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 $1,357,000, $3,292,000, $4,452,000, $4,057,000 and
$3,367,000 for the years ended 1990, 1991, 1992, and for the nine months ended
September 30, 1992 and 1993, respectively. Fully diluted earnings per common
share are not presented because the effect is not material or is antidilutive.
Interim Financial Information
The financial information as of September 30, 1993 and for the nine-month
periods ended September 30, 1992 and September 30, 1993 is unaudited; however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of the financial position, results of operations and changes in cash
flows for the interim periods. Because of the seasonality of the business, the
results for the nine months ended September 30, 1993 are not indicative of the
results to be expected for the full year.
(2) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment and their estimated useful
lives were as follows at the indicated dates:
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------- ESTIMATED
1991 1992 1993 USEFUL LIVES
-------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Land........................................ $ 1,404,565 $ 1,469,065 $ 1,519,065
Buildings................................... 6,442,729 7,151,142 7,482,228 20-45 years
Fleet and other equipment................... 31,931,137 38,507,056 39,248,389 3-17 years
Furniture and fixtures...................... 8,927,844 10,784,419 12,332,105 5-7 years
Leasehold improvements...................... 2,914,640 3,180,615 3,384,381 Terms of leases
-------------- -------------- --------------
51,620,915 61,092,297 63,966,168
Less accumulated depreciation
and amortization.......................... 27,325,673 28,342,302 31,432,958
-------------- -------------- --------------
$ 24,295,242 $ 32,749,995 $ 32,533,210
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-8
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(3) NOTES PAYABLE AND OTHER LONG-TERM DEBT
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:
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------
1991 1992 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable to banks under working capital borrowing
arrangements(a)(c)............................................. $ 39,750,000 $ 32,000,000 $ --
Notes payable in connection with the acquisition
of Whale Oil Corp., due on June 1, 1994 with interest at the
rate of 9% per annum(b)(c)..................................... 50,000,000 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, maturing June 1, 1996
(see note 10).................................................. 147,095 113,749 88,740
-------------- -------------- --------------
89,897,095 82,113,749 50,088,740
Less current maturities, including working capital borrowings.... 39,783,345 32,033,345 27,533,345
-------------- -------------- --------------
$ 50,113,750 $ 50,080,404 $ 22,555,395
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
- -----------------------------
(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
revolver portion of the facility terminates on June 30, 1996. The credit
agreement includes a letter of credit facility, which expires on October 20,
1994 pursuant to which the Company may open letters of credit in the
aggregate amount of $20 million to support the Company's obligation to
redeem equity securities issued in acquisitions. No such letters of credit
are currently outstanding. The Company's ability to incur revolving credit
loans is reduced to the extent that the amount of such letters of credit
exceed $10 million. 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.
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, 1992, the rate
on the working capital borrowings was 5.4%. 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.
(b) On July 22, 1987, Maxwhale Corp. (Maxwhale), a wholly owned subsidiary of
Petro, acquired certain assets of Whale Oil Corp. for $50 million. The
purchase price was paid by the issuance of $50 million of 9% notes due June
1, 1994. The notes are nonrecourse to Petro, but are secured by letters of
credit issued by certain banks pursuant to the Credit Agreement. Maxwhale
pays a fee on
(Footnotes continued on following page)
F-9
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(3) NOTES PAYABLE AND OTHER LONG-TERM DEBT-- (CONTINUED)
(Footnotes continued from preceding page)
these letters of credit, calculated at a range of 1.75% to 2.25% on $50
million less the balance maintained in a Cash Collateral Account, plus 0.25%
on the Cash Collateral Account balance. Petro has fully guaranteed these
letters of credit. The Maxwhale customer list is pledged pursuant to a
security agreement in favor of the banks.
Under the Credit Agreement, the Company is 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. An additional deposit of $7.5 million is required to be
made on May 15, 1994. A term loan commitment is available under the Credit
Agreement to refinance the balance due on the Maxwhale Note in excess of the
Cash Collateral Account. Interest on the term loan, if the commitment is
exercised, will be calculated either at the Alternate Base Rate, plus 25 to
75 basis points or the Eurodollar Rate plus 225 to 275 basis points, based
upon the ratio of Consolidated Operating Profit to Interest Expense (as
defined in the Credit Agreement). However, the Company's intention is to
repay the Maxwhale Notes from the proceeds of the Offering, allowing the
$20.0 million in the Cash Collateral Account to become unrestricted.
(c) The customer lists, trademarks and tradenames pledged to the banks under the
Credit Agreement are carried on the September 30, 1993 balance sheet at
$78,056,096. 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.
Aggregate annual maturities of the long-term debt outstanding at December
31, 1992, including working capital borrowings, but excluding Cash Collateral
Account requirements, and assuming the term loan commitment as mentioned in the
last paragraph of (b) above is exercised, are as follows:
<TABLE> <CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------------------------------------------------------------
<S> <C>
1993............................................................ $ 32,033,000
1994............................................................ 27,533,000
1995............................................................ 7,533,000
1996............................................................ 7,515,000
1997............................................................ 7,500,000
</TABLE>
(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:
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------
1991 1992 1993
------------- ------------- -------------
<S> <C> <C> <C>
Fleet and other equipment................................ $ 2,701,658 $ 2,701,658 $ 2,701,658
Less accumulated amortization............................ 2,001,230 2,598,063 2,701,658
------------- ------------- -------------
$ 700,428 $ 103,595 $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
F-10
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(4) LEASES AND CAPITAL LEASE OBLIGATIONS-- (CONTINUED)
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), and the present value of future minimum
capital lease obligations as of December 31, 1992, are as follows:
<TABLE> <CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- -------------------------------------------------------------------------- ----------- --------------
<S> <C> <C>
1993.................................................................... $ 109,594 $ 3,126,000
1994.................................................................... -- 2,831,000
1995.................................................................... -- 2,491,000
1996.................................................................... -- 1,659,000
1997.................................................................... -- 1,083,000
Thereafter.............................................................. -- 4,426,000
----------- --------------
Total minimum lease payments....................................... 109,594 $ 15,616,000
--------------
--------------
Less amount representing interest (at rates ranging from 9.50% to
10.75%)............................................................... 5,999
-----------
Present value of net minimum capital lease obligations............... $ 103,595
-----------
-----------
</TABLE>
Rental expense under operating leases for the years ended December 31,
1990, 1991, and 1992 was $4,787,000, $4,916,000, and $4,448,000 respectively,
and for the nine months ended September 30, 1992 and 1993 was $3,314,000 and
$3,877,000, respectively.
(5) SUBORDINATED NOTES PAYABLE
Subordinated notes payable, net of unamortized original discounts, at the
dates indicated, consisted of:
<TABLE> <CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------- ----------------
1991 1992 1993
-------------- ---------------- ----------------
<S> <C> <C> <C>
11.40% Subordinated Notes due July 1, 1993(a)(b).................. $ 12,389,105 $ 12,400,373 $ --
14.275% Subordinated Notes due October 1, 1995(b)................. 19,227,962 12,478,349 --
11.85%, 12.17%, and 12.18% Subordinated Notes due October 1,
1998(c)......................................................... 60,000,000 60,000,000 60,000,000
14.10% Subordinated Notes due January 15, 2001(d)................. 5,700,000 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
-------------- ---------------- ----------------
97,317,067 97,378,722 135,263,663
Less current maturities..........................................] 5,704,000 12,400,373 --
-------------- ---------------- ----------------
$ 91,613,067 $ 84,978,349 $ 135,263,663
-------------- ---------------- ----------------
-------------- ---------------- ----------------
</TABLE>
- -----------------------------
(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.
(Footnotes continued on following page)
F-11
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(5) SUBORDINATED NOTES PAYABLE-- (CONTINUED)
(Footnotes continued from preceding page)
(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%. 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 all of its outstanding
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 repurchased all of 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
this debt.
(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 April, July, October and January. 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 1996 and ending January 15, 2000, the Company is
required to prepay $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. 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 September 30, 1993,
LIBOR was 3.1875%
(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, 1991, 1992 and September
30, 1993, the unamortized balances
F-12
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(5) SUBORDINATED NOTES PAYABLE-- (CONTINUED)
relating to notes then outstanding amounted to approximately $2,350,000,
$1,675,000 and $3,172,000, respectively, and such balances are included in
deferred charges.
With the repurchase in 1993 of the $24.9 million outstanding 14.275% and
11.40% Notes with a portion of the proceeds of the 10 1/8% Subordinated Notes,
there are no other annual maturities for each of the next five years as of
December 31, 1992 except for the required prepayments of $2,100,000 in 1996 and
1997 for the 14.10% Subordinated Notes.
(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 below, 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. 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.
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 at an initial
offering price of $11.00 per share. The Class A Common Stock is listed on the
Nasdaq National Market under the symbol "HEAT".
F-13
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(6) COMMON STOCK AND COMMON STOCK DIVIDENDS-- (CONTINUED)
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 periods indicated:
<TABLE> <CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, END SEPTEMBER 30,
------------------------------------------- ----------------------------
1990 1991 1992 1992 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash dividends declared
Class A................................ $ 814,000 $ -- $ 3,157,000 $ 1,020,000 $ 7,360,000
Class B................................ 5,157,000 952,000 2,715,000 2,601,000 306,000
Class C................................ 204,000 -- 465,000 179,000 986,000
Cash dividends declared per share
Class A................................ $ 0.08 $ -- $ 0.18 $ 0.07 $ 0.39
Class B................................ 1.70 0.31 1.14 0.86 1.41
Class C................................ 0.08 -- 0.18 0.07 0.39
</TABLE>
Under the Company's most restrictive dividend limitation, $14.2 million was
available at December 31, 1992 for the payment of dividends on all classes of
Common Stock.
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, 1992 amounted to an aggregate of $1,236,336.
(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. The shares of the Redeemable
Preferred Stock are exchangeable in whole, or in part, at the option of the
Company, for 1999 Notes.
F-14
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(7) CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK-- (CONTINUED)
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 are 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%.
In March 1993, the Company issued $12,763,663 of 2000 Notes in exchange for
all of the 1991 Redeemable Preferred Stock (see Note No. 5). 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.
Preferred dividends of $1,357,000 in the aggregate were declared in 1990 on
the Redeemable Preferred Stock. Preferred dividends of $3,269,000 were declared
on all classes of preferred stock in 1991, while preferred dividends of
$4,258,000 were declared on all classes of preferred stock in 1992. For the nine
months ended September 30, 1992 and 1993, Preferred Dividends of $3,922,000 and
$3,321,000 respectively, were declared on all classes of preferred stock.
Aggregate annual maturities for all classes of Redeemable Preferred Stock
for each of the next five years, are as follows as of December 31, 1992:
<TABLE>
<S> <C>
1993.......................................................................... $ --
1994.......................................................................... 4,167,000
1995.......................................................................... 4,167,000
1996.......................................................................... 4,167,000
1997.......................................................................... 4,167,000
</TABLE>
(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, 1990, 1991 and 1992 was $2,964,000, $2,774,000 and
$2,447,000, respectively, net of amortization of the pension obligation
acquired.
F-15
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(8) PENSION PLANS-- (CONTINUED)
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Company's balance sheets at the indicated dates:
<TABLE> <CAPTION>
DECEMBER 31,
--------------------------------
1991 1992
--------------- ---------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including vested benefits of $16,768,633 and
$18,409,871.................................................................. $ 17,122,268 $ 18,790,759
--------------- ---------------
--------------- ---------------
Projected benefit obligation................................................... $ (20,079,225) $ (21,715,790)
Plan assets at fair value (primarily listed stocks and bonds).................. 16,097,127 16,581,099
--------------- ---------------
Projected benefit obligation in excess of plan assets (3,982,098) (5,134,691)
Unrecognized net loss from past experience different from the assumed and
effects of changes in assumptions............................................ 2,192,311 3,645,967
Unrecognized net transitional obligation....................................... 666,004 606,394
Unrecognized prior service cost due to plan amendments......................... 748,706 674,044
Additional liability........................................................... (1,060,942) (2,133,731)
--------------- ---------------
Accrued pension cost for defined benefit plans included in accrued
expenses--pension............................................................ $ (1,436,019) $ (2,342,017)
--------------- ---------------
--------------- ---------------
</TABLE>
Net pension cost for defined benefit plans for the periods indicated
included the following components:
<TABLE> <CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1990 1991 1992
------------- ------------- --------------
<S> <C> <C> <C>
Service cost-benefits earned during the period...................... $ 1,109,837 $ 1,154,607 $ 1,162,736
Interest cost on projected benefit obligation....................... 1,598,584 1,665,229 1,781,444
Actual return on assets............................................. (325,861) (2,515,808) (1,248,604)
Net amortization and deferral of gains and losses................... (896,750) 1,471,819 (71,885)
------------- ------------- --------------
Net periodic pension cost for defined benefit plans............ $ 1,485,810 $ 1,775,847 $ 1,623,691
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Assumptions used in the above accounting were:
<TABLE> <CAPTION>
<S> <C>
Discount rate..................................................................... 8.5%
Rates of increase in compensation levels.......................................... 6%
Expected long-term rate of return on assets....................................... 10%
</TABLE>
In addition to the above, the Company made contributions to
union-administered pension plans during the years ended December 31, 1990, 1991
and 1992 of $2,418,000, $2,365,000 and $2,442,000, respectively.
F-16
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(8) PENSION PLANS-- (CONTINUED)
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 $1,239,250 at December 31,
1992, 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 December 1992, prior
to his retirement. The accrual for such benefit payable was accelerated at
December 31, 1992 to $1,974,000, 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 Standard No. 106 ("SFAS No. 106"), "Employers' Accounting
for Post Retirement Benefits Other Than Pensions." This statement requires that
the expected cost of post retirement 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 post retirement benefits,
other than pensions, the adoption of the new statement did not have any material
effect on the Company's financial condition or results of operations.
(9) INCOME TAXES
Income tax expense (benefit) was comprised of the following for the
indicated years:
<TABLE> <CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ------------------------
1990 1991 1992 1992 1993
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current:
Federal.................................... $ (668,000) $ -- $ -- $ -- $ --
State...................................... 321,000 250,000 400,000 218,000 218,000
Deferred................................... (1,520,000) -- -- -- --
-------------- ----------- ----------- ----------- -----------
$ (1,867,000) $ 250,000 $ 400,000 $ 218,000 $ 218,000
-------------- ----------- ----------- ----------- -----------
-------------- ----------- ----------- ----------- -----------
</TABLE>
F-17
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(9) INCOME TAXES-- (CONTINUED)
Deferred income tax expense results from timing 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:
<TABLE> <CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1990 1991 1992
-------------- ------------ ------------
<S> <C> <C> <C>
Excess of tax over book (book over tax) depreciation.................. $ 377,000 $ (114,000) $ (11,000)
Excess of book over tax vacation expense.............................. (223,000) (223,000) (3,000)
Excess of book over tax bad debt expense.............................. (3,000) (74,000) (165,000)
Excess of book over tax supplemental benefit expense.................. -- -- (671,000)
Deferred service contracts............................................ 66,000 66,000 66,000
Other, net............................................................ (97,000) 36,000 50,000
Recognition of tax benefit of net operating loss to the extent of
current and previously recognized timing differences................ (1,640,000) -- --
Deferred tax assets not recognized.................................... -- 309,000 734,000
-------------- ------------ ------------
$ (1,520,000) $ -- $ --
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
For Federal income tax reporting purposes, the Company carried back its
1990 loss to prior years to recover taxes previously paid in the amount of
$668,000. Total income tax expense (benefit) amounted to ($1,867,000) for 1990,
$250,000 for 1991, and $400,000 for 1992. The Company's federal income tax
returns have been examined by the Internal Revenue Service through the year
ended December 31, 1990. The following reconciles the effective tax (benefit)
rates to the "expected" statutory rates for the years indicated:
<TABLE> <CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1990 1991 1992
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax (benefit) rate......................................... (34.0)% (34.0)% (34.0)%
Reduction (increase) of income tax benefit resulting from:
Net operating loss carryback limitation................................... 27.0 34.0 34.0
State income taxes, net of Federal income tax benefit..................... 0.9 1.5 10.0
Other..................................................................... 0.1 -- --
--------- --------- ---------
(6.0)% 1.5% 10.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standard 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 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 FAS No. 109 have been
fully reserved.
Under SFAS No. 109, as of January 1, 1993, the Company had net deferred tax
assets of approximately $14.6 million subject to a valuation allowance of
approximately $14.6 million. The
F-18
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(9) INCOME TAXES-- (CONTINUED)
components of and changes in the net deferred tax assets and the changes in the
related valuation allowance for the first nine months of 1993 using current
rates were as follows (in thousands):
<TABLE> <CAPTION>
DEFERRED
JANUARY 1, EXPENSE SEPTEMBER 30,
1993 (BENEFIT) 1993
---------- --------- -------------
<S> <C> <C> <C>
Federal book net operating loss carryforwards.............................. $ 14,873 $ 5,902 $ 20,775
Excess of tax over book depreciation....................................... (2,472) (120) (2,592)
Excess of book over tax vacation expense................................... 1,042 15 1,057
Excess of book over tax supplemental benefit expense....................... 671 (20) 651
Excess of book over tax bad debt expense................................... 440 (50) 390
Other, net................................................................. 76 (30) 46
---------- --------- -------------
14,630 5,697 20,327
Valuation allowance........................................................ (14,630) (5,697) (20,327)
---------- --------- -------------
$ -- $ -- $ --
---------- --------- -------------
---------- --------- -------------
</TABLE>
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, 1992, the Company had the following income tax
carryforwards for federal tax reporting purposes (in thousands):
<TABLE> <CAPTION>
EXPIRATION
DATE AMOUNT
- ------------------------------------------------------------------- ---------
<S> <C>
2005............................................................... $ 26,651
2006............................................................... 15,012
2007............................................................... 1,367
---------
$ 43,030
---------
---------
</TABLE>
(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 September 30, 1993 was $88,740 (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.
F-19
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(10) RELATED PARTY TRANSACTIONS-- (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, 1993. 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. At any time prior to the due date of the note, Mr.
Sevin has the right to require the Company to repurchase all or any of these
shares (as adjusted for stock splits, dividends and the like) for $6.35 per
share (the Put Price), provided, however, that Mr. Sevin may retain all shares
of Class B Common Stock issued as stock dividends on the shares without
adjustments to the Put Price. In December 1986, 50,410 shares of Class B Common
Stock were issued as a stock dividend with respect to these shares, which shares
were exchanged in October 1992 for 80,202 Class A Common Shares pursuant to 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 nontransferrable. As a result of stock dividends in the form of
Class A Common Stock and Class B Common Stock declared by the Company in
December 1986, the exchange of Class C Common Stock for Class A Common Stock in
July 1992, and special antidilution adjustments, the options held by Irik P.
Sevin now apply to 89,794 shares of Class A Common Stock and 22,448 shares of
Class C Common Stock and the options held by Malvin P. Sevin now apply to 59,862
shares of Class A Common Stock and 14,966 shares of Class C Common Stock. The
adjusted option price for each such share is $4.10.
On December 2, 1986, the Company issued stock options to purchase 75,000
shares and 50,000 shares of Class A Common Stock to Irik P. Sevin and Malvin P.
Sevin, respectively. The option price for the shares of Class A Common Stock was
$20 per share. These options are nontransferrable and expire
F-20
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(10) RELATED PARTY TRANSACTIONS-- (CONTINUED)
November 30, 1994. As a result of stock dividends in the form of Class A Common
Stock and Class B Common Stock declared by the Company in December 1986, the
exchange of Class C for Class A Common Stock in July 1992, and special
antidilution adjustments, the options held by Irik P. Sevin now apply to 224,483
shares of Class A Common Stock and 56,121 shares of Class C Common Stock and the
options held by Malvin P. Sevin now apply to 149,655 shares of Class A Common
Stock and 37,414 shares of Class C Common Stock. The adjusted option price for
each such share became $4.10.
On December 28, 1987, the Company issued stock options to purchase 24,000
shares of Class A Common Stock and 6,000 shares of Class C Common Stock (after
giving retroactive effect to the exchange of Class C Common Stock for Class A
Common Stock in July 1992) to Irik P. Sevin. The option price for each such
share is $7.50. These options are not transferrable and expire on January 1,
1996.
On March 3, 1989, the Company issued stock options to purchase 72,000
shares of Class A Common Stock and 18,000 shares of Class C Common Stock (after
giving retroactive effect to the exchange of Class C Common Stock for Class A
Common Stock in July 1992) to Irik P. Sevin and 48,000 shares of Class A Common
Stock and 12,000 shares of Class C Common Stock (after giving retroactive effect
to the exchange of Class C Common Stock for Class A Common Stock in July 1992)
to Malvin P. Sevin. The option price for each such share is $11.25. These
options are nontransferrable and expire in March 1994.
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 for a period of one year from his date of
death.
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 year ended December 31, 1992 was $50,000.
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
was cancelled.
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
F-21
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(10) RELATED PARTY TRANSACTIONS-- (CONTINUED)
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 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) ACQUISITIONS
During 1990, the Company acquired the customer lists and equipment of 12
unaffiliated fuel oil dealers. The aggregate consideration for these
acquisitions, accounted for by the purchase method, was approximately
$28,000,000.
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.
Sales and net income of the acquired companies are included in the
consolidated statements of operations from the respective dates of acquisition.
Unaudited pro forma data giving effect to the purchased businesses as if
they had been acquired in the year preceding the year of purchase, with
adjustments, primarily for amortization of intangibles, are as follows:
<TABLE> <CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1990 1991 1992
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales....................................................... $ 612,537 $ 593,876 $ 573,970
----------- ----------- -----------
----------- ----------- -----------
Net loss........................................................ $ (27,303) $ (15,547) $ (1,995)
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss) per common share
Class A Common Stock.......................................... $ (2.70) $ (1.62) $ (.74)
Class B Common Stock.......................................... 1.87 .57 1.77
Class C Common Stock.......................................... (2.70) (1.62) (.74)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During the nine months ended September 30, 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 $13,800,000.
The Company has previously announced the signing of a letter of intent to
purchase an approximate 29.5% interest in Star Gas Corporation. The Company's
investment, currently estimated to be approximately $16 million, will be
financed out of cash flow from its operations. Final consummation of
F-22
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(11) ACQUISITIONS-- (CONTINUED)
the transaction is subject to the execution of a definitive agreement and
various consents and is anticipated to take place before December 31, 1993.
(12) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE> <CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ------------------------------
1990 1991 1992 1992 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash paid during the
year for:
Interest..................... $ 21,773,525 $ 21,928,724 $ 20,238,486 $ 13,130,279 $ 13,062,177
Income taxes................. 320,601 202,650 319,487 240,900 280,655
</TABLE>
(13) 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:
<TABLE> <CAPTION>
AT DECEMBER 31, 1992
----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
--------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Long-term debt...................................................... $ 50,114 $ 50,106
Subordinated notes payable.......................................... 97,379 104,943
Cumulative Redeemable Exchangeable Preferred Stock.................. 37,718 39,350
</TABLE>
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.
F-23
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-- (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 IS
UNAUDITED)
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE> <CAPTION>
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1991 1991 1991 1991 TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $ 250,069 $ 71,348 $ 48,146 $ 153,680 $ 523,243
Gross profit....................................... 78,073 16,034 7,007 43,357 144,471
Income (loss) before taxes......................... 32,090 (21,404) (28,592) 1,593 (16,313)
Net income (loss).................................. 31,759 (21,374) (28,509) 1,561 (16,563)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share
Class A Common Stock............................. $ 2.35 $ (1.70) $ (2.38) $ .09 $ (1.64)
Class B Common Stock............................. .08 .08 .08 .08 .31
Class C Common Stock............................. 2.35 (1.70) (2.38) .09 (1.64)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
THREE MONTHS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1992 1992 1992 1992 TOTAL
---------- ---------- ---------- ---------- ----------
Net sales.......................................... $ 219,975 $ 74,006 $ 46,912 $ 171,537 $ 512,430
Gross profit....................................... 84,098 17,660 6,800 52,931 161,489
Income (loss) before taxes......................... 39,268 (20,020) (28,553) 5,316 (3,989)
Net income (loss).................................. 38,937 (19,990) (28,470) 5,134 (4,389)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share
Class A Common Stock............................. $ 2.86 $ (1.67) $ (2.04) $ .22 $ (.81)
Class B Common Stock............................. .29 .29 .29 .29 1.14
Class C Common Stock............................. 2.86 (1.67) (2.04) .22 (.81)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
THREE MONTHS ENDED
----------------------------------
MARCH 31, JUNE 30, SEPT. 30,
1993 1993 1993 TOTAL
---------- ---------- ---------- ----------
Net sales.......................................... $ 251,271 $ 71,978 $ 54,135 $ 377,384
Gross profit....................................... 89,595 15,817 9,604 115,016
Income (loss) before taxes......................... 39,269 (25,972) (29,571) (16,274)
Net income (loss).................................. 38,938 (26,809) (29,488) (17,359)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per common share
Class A Common Stock............................. $ 1.72 $ (1.25) $ (1.45) $ (.98)
Class B Common Stock............................. .47 .47 .47 1.41
Class C Common Stock............................. 1.72 (1.25) (1.45) (.98)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
STAR GAS CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheet of Star Gas
Corporation and subsidiaries as of September 30, 1993 and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides 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 Star Gas
Corporation and subsidiaries at September 30, 1993 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK
New York, New York
December 28, 1993
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Star Gas Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Star Gas
Corporation and subsidiaries as of September 30, 1992 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended September 30, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Star Gas
Corporation and subsidiaries at September 30, 1992, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended September 30, 1992 in conformity with generally accepted accounting
principles.
ERNST & YOUNG
New York, New York
December 3, 1992,
except for Notes 5 and 9, as to which the date is
April 1, 1993
F-26
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE> <CAPTION>
SEPTEMBER 30,
---------------------------
1993 1992
------------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash.............................................................................. $ 730,256 1,301,882
Receivables:
Trade........................................................................... 9,408,107 13,336,058
Other........................................................................... 342,886 394,969
Allowance for doubtful accounts................................................. (716,105) (700,000)
Inventories:
Propane......................................................................... 4,982,284 6,986,544
Appliances and equipment........................................................ 1,463,009 2,264,347
Prepaid expenses.................................................................. 1,005,002 1,189,419
Other current assets.............................................................. 591,455 1,195,726
Assets held for sale (note 1)..................................................... 7,378,126 --
------------- ------------
Total current assets....................................................... 25,185,020 25,968,945
------------- ------------
Property, plant and equipment, at cost:
Land.............................................................................. 3,329,314 4,732,441
Buildings......................................................................... 6,589,431 7,823,785
Customer equipment and machinery.................................................. 128,056,431 146,928,612
Construction in progress.......................................................... -- 36,617
------------- ------------
137,975,176 159,521,455
Less accumulated depreciation.............................................. 30,306,574 26,803,620
------------- ------------
107,668,602 132,717,835
------------- ------------
Other assets:
Excess of cost over net assets acquired, net of accumulated amortization of
$3,527,340 and $1,862,456........................................................... 5,496,847 18,317,613
Other intangible assets:
Covenants not to compete and capitalized consulting costs, net of accumulated
amortization of $17,301,712 and $13,723,866................................... 1,166,089 8,567,108
Customer contracts and lists, net of accumulated amortization of $10,526,491 and
$8,429,154.................................................................... 10,629,476 12,919,084
Deferred charges.................................................................. 1,154,357 1,652,362
Other............................................................................. 1,083,204 1,955,891
------------- ------------
19,529,973 43,412,058
------------- ------------
Total assets............................................................... $ 152,383,595 202,098,838
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt and working capital borrowings (note 5)...... $ 7,485,774 6,077,873
Accounts payable.................................................................. 9,433,402 9,684,768
Accrued interest.................................................................. 7,833,308 6,000,014
Other accrued expenses............................................................ 2,720,074 2,286,988
Customer credit balances.......................................................... 2,733,000 1,280,000
Other current liabilities (note 9)................................................ 880,478 3,941,644
------------- ------------
Total current liabilities.................................................. 31,086,036 29,271,287
------------- ------------
Long-term debt and obligations under capital leases (notes 5 and 8)................. 118,425,184 124,570,257
Other long-term liabilities (note 9)................................................ 6,162,343 5,865,557
Deferred income taxes (note 6)...................................................... 221,400 235,100
------------- ------------
Total long-term liabilities................................................ 124,808,927 130,670,914
------------- ------------
Shareholders' equity (deficiency) (notes 1, 2, 5 and 9):
Common stock, $1 par value--20,000 shares authorized; 266.43 shares issued........ 266 266
Series A Preferred stock, no par value--48,000 and 300,000 shares authorized in
1993 and 1992, respectively; 40,309.5 shares issued............................. 40,309 40,309
Preferred stock--8% cumulative convertible, no par value--1,420 shares authorized;
1,420 shares issued at September 30, 1993....................................... 1,420 --
Capital in excess of par value.................................................... 58,471,501 57,052,921
Deficit........................................................................... (59,836,948) (12,748,943)
Treasury stock, at cost (15.12 common shares)..................................... (2,187,916) (2,187,916)
------------- ------------
Total shareholders' equity (deficiency).................................... (3,511,368) 42,156,637
------------- ------------
Total liabilities and shareholders' equity................................. $ 152,383,595 202,098,838
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE> <CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1993 1992 1991
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Net sales................................................. $ 132,194,740 117,877,556 127,688,470
Hauling revenue........................................... 16,220,657 16,225,561 14,190,015
Other revenue, net........................................ 5,780,581 6,636,627 6,101,663
---------------- ---------------- ----------------
154,195,978 140,739,744 147,980,148
---------------- ---------------- ----------------
Costs and expenses:
Cost of sales............................................. 74,716,501 63,452,403 71,076,004
Operating................................................. 57,063,237 52,044,642 49,599,117
Depreciation and amortization............................. 16,092,452 14,128,104 13,576,609
General and administrative................................ 3,772,546 3,002,555 2,623,264
---------------- ---------------- ----------------
151,644,736 132,627,704 136,874,994
---------------- ---------------- ----------------
Impairment of long-lived assets (note 10) 33,047,065 -- --
---------------- ---------------- ----------------
Income (loss) before interest expense and income taxes...... (30,495,823) 8,112,040 11,105,154
Interest expense............................................ 16,335,155 16,665,525 18,056,685
---------------- ---------------- ----------------
Loss before income taxes............................... (46,830,978) (8,553,485) (6,951,531)
Income tax expense (benefit)................................ 257,027 (1,294,003) (1,603,012)
---------------- ---------------- ----------------
Net loss............................................... $ (47,088,005) (7,259,482) (5,348,519)
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE> <CAPTION>
8%
CUMULATIVE
SERIES A CONVERTIBLE CAPITAL IN
COMMON PREFERRED PREFERRED EXCESS OF TREASURY
STOCK STOCK STOCK PAR VALUE DEFICIT STOCK
----------- ----------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance as of September 30, 1990............. $ 225 31,191 -- 41,069,581 (140,942) (2,187,916)
Conversion of subordinated debt into
preferred stock............................ -- 3,992 -- 3,988,507 -- --
Issuance of common stock..................... 31 -- -- 4,873,869 -- --
Issuance of Series A preferred stock......... -- 5,126 -- 5,120,974 -- --
Net loss..................................... -- -- -- -- (5,348,519) --
----- ----------- ------ ----------- ------------ -----------
Balance as of September 30, 1991............. 256 40,309 -- 55,052,931 (5,489,461) (2,187,916)
Issuance of common stock..................... 10 -- -- 1,999,990 -- --
Net loss..................................... -- -- -- -- (7,259,482) --
----- ----------- ------ ----------- ------------ -----------
Balance as of September 30, 1992............. 266 40,309 -- 57,052,921 (12,748,943) (2,187,916)
Conversion of junior subordinated debt into
preferred stock............................ -- -- 1,420 1,418,580 -- --
Net loss..................................... -- -- -- -- (47,088,005) --
----- ----------- ------ ----------- ------------ -----------
Balance as of September 30, 1993............. $ 266 40,309 1,420 58,471,501 (59,836,948) (2,187,916)
----- ----------- ------ ----------- ------------ -----------
----- ----------- ------ ----------- ------------ -----------
<CAPTION>
SHAREHOLDERS'
EQUITY
(DEFICIENCY)
------------
<S> <C>
Balance as of September 30, 1990............. 38,772,139
Conversion of subordinated debt into
preferred stock............................ 3,992,499
Issuance of common stock..................... 4,873,900
Issuance of Series A preferred stock......... 5,126,100
Net loss..................................... (5,348,519)
------------
Balance as of September 30, 1991............. 47,416,119
Issuance of common stock..................... 2,000,000
Net loss..................................... (7,259,482)
------------
Balance as of September 30, 1992............. 42,156,637
Conversion of junior subordinated debt into
preferred stock............................ 1,420,000
Net loss..................................... (47,088,005)
------------
Balance as of September 30, 1993............. (3,511,368)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> <CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1993 1992 1991
--------------- ------------ --------------
<S> <C> <C> <C>
Operating activities:
Net loss........................................................ $ (47,088,005) (7,259,482) (5,348,519)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Impairment of long-lived assets............................ 33,047,065 -- --
Depreciation and amortization.............................. 16,092,452 14,128,104 13,576,609
Deferred income taxes...................................... (13,700) (1,497,840) (1,813,291)
Loss on sale of fixed assets............................... -- -- 514,590
Amortization of accrued pension costs...................... -- (2,300) (27,600)
Changes in operating assets and liabilities:
Decrease in receivables, net.................................. 2,439,982 1,545,617 2,296,277
Decrease (increase) in inventories............................ 2,170,477 (770,937) 1,295,444
Decrease (increase) in other current and prepaid assets....... 205,475 1,197,019 (1,832,701)
Increase in other long-term assets............................ (199,610) (743,085) (1,261,870)
Increase (decrease) in accounts payable....................... 131,132 (105,714) 1,667,450
Increase (decrease) in accrued interest and other accrued
expenses.................................................... 2,524,004 3,074,016 (1,857,965)
Increase (decrease)in other current and long-term
liabilities................................................. 482,931 (1,330,070) (3,374,412)
--------------- ------------ --------------
Net cash provided by operating activities................ 9,792,203 8,235,328 3,834,012
--------------- ------------ --------------
Investing activities:
Purchase of companies, net of cash acquired:
Net working capital........................................... (2,035) (155,771) (147,812)
Noncurrent tangible assets.................................... (58,474) (984,852) (1,546,120)
Intangible assets............................................. (600) (66,058) (198,749)
Acquisition of property, plant and equipment.................... (4,787,637) (6,730,179) (3,682,230)
Disposals of fixed assets....................................... 937,575 901,774 534,061
--------------- ------------ --------------
Net cash used in investing activities.................... (3,911,171) (7,035,086) (5,040,850)
--------------- ------------ --------------
Financing activities:
Proceeds from issuance of debt.................................. 123,955,184 37,124,588 84,279,454
Repayment of debt and liability obligations..................... (130,407,842) (50,484,387) (84,095,969)
Proceeds from issuance of common stock.......................... -- 6,873,900 --
Proceeds from issuance of preferred stock....................... -- 5,126,100 --
--------------- ------------ --------------
Net cash (used in) provided by financing activities...... (6,452,658) (1,359,799) 183,485
--------------- ------------ --------------
Net decrease in cash..................................... (571,626) (159,557) (1,023,353)
Cash at beginning of year......................................... 1,301,882 1,461,439 2,484,792
--------------- ------------ --------------
Cash at end of year............................................... $ 730,256 1,301,882 1,461,439
--------------- ------------ --------------
--------------- ------------ --------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes.................................................. $ 296,372 276,097 159,968
--------------- ------------ --------------
--------------- ------------ --------------
Interest...................................................... $ 15,145,124 14,257,459 18,896,319
--------------- ------------ --------------
--------------- ------------ --------------
Other non-cash transactions:
Conversion of subordinated debt into preferred stock.......... $ 1,420,000 -- 3,992,499
--------------- ------------ --------------
--------------- ------------ --------------
Reclassification to assets held for sale:
Property, plant and equipment, net......................... $ 4,399,914 -- --
Net operating assets....................................... 2,978,212 -- --
--------------- ------------ --------------
$ 7,378,126 -- --
--------------- ------------ --------------
--------------- ------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Star Gas Corporation (the "Company") primarily sells and distributes
propane gas and related appliances to retail and wholesale customers through its
branch offices located principally in the Northeastern, Southeastern and
Midwestern United States. The Company had been owned 45% by Star Energy Inc.,
("SEI"), a wholly owned subsidiary of The Brooklyn Union Gas Company, and 55% by
a group of limited partnerships--American Gas and Oil Investors, AmGO II, AmGO
III, and First Reserve Secured Energy Assets Fund, L.P. These limited
partnerships are managed by the First Reserve Corporation (and are collectively
referred to herein as "FRC").
In September 1989, the Company purchased 15.12 shares of common stock owned
by an officer for a 10% Junior Subordinated Promissory Note in the amount of
$2,187,916 (see note 5). These shares were held in treasury at September 30,
1993 and 1992.
In June 1991, the Company converted $1,796,500 and $2,196,000 of Junior
Subordinated Debt owed to SEI and FRC into 1,796.5 shares and 2,196 shares of
Series A Preferred Stock, respectively. The conversion rate was one share of
Series A Preferred Stock for every $1,000 of Junior Subordinated Debt.
In September 1991, the Company sold 13.77 shares of common stock to SEI and
16.83 shares of common stock to FRC for $2,193,300 and $2,680,600, respectively,
and sold 2,306.7 shares of Series A Preferred Stock to SEI and 2,819.4 shares of
Series A Preferred Stock to FRC for $2,306,700 and $2,819,400, respectively.
In August 1992, the Company sold 4.81 shares of common stock to SEI and
5.88 shares of common stock to FRC for $900,000 and $1,100,000, respectively.
In March 1993, the Company and the shareholders signed a Cancellation of
Indebtedness and Deferral Agreement (the "Cancellation Agreement"). Under the
terms of the Cancellation Agreement, SEI and FRC agreed to cancel $639,000 and
$781,000, respectively, of long-term liabilities acquired from a third party
(see note 9) in consideration of 639 and 781 shares, respectively, of newly
issued 8% Cumulative Convertible Preferred Stock.
As a result of the above mentioned transactions, SEI and FRC continued to
own 45% and 55%, respectively, of the common, Series A Preferred and 8%
Cumulative Convertible Preferred Stock of the Company at September 30, 1993 and
1992.
On December 2, 1993, the Company sold the branches of its wholly owned
subsidiary, Federal Petroleum Company ("Federal"), for $1,650,000 in cash and a
note receivable of $500,000. At September 30, 1993, the Company adjusted the
carrying value of the net assets sold to equal the sales price, $2,150,000. The
Company is also negotiating to sell the branches of its wholly owned subsidiary,
Highway Pipeline Trucking Co. ("Highway"), and has adjusted the carrying value
of Highway's net assets to equal the value of a recent offer received,
$5,228,126. The net assets of Federal and Highway have been reflected in the
1993 Consolidated Balance Sheet as assets held for sale in the aggregate amount
of $7,378,126. (See note 10)
On December 23, 1993, the Company was recapitalized and, as a part of the
recapitalization, issued 269,750 shares of 8% Cumulative Convertible Preferred
Stock (see note 2) for $26,975,000 in the indicated amounts to the following
investors: Petroleum Heat and Power Co., Inc. ("Petro") ($14,000,000), FRC
($1,975,000) and Star Gas Holdings Inc. ("Holdings") ($11, 000,000). Holdings is
a corporation recently formed for the purpose of investing in the Company.
Holdings was formed by a group of investors, including Petro who contributed
$2,000,000 of the $11,000,000 invested by
F-31
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND BUSINESS--(CONTINUED)
Holdings. The cash proceeds received by the Company from the issuance of the
preferred stock were used to repay $14,325,000 of its outstanding 11.56% Senior
Notes, to repay $2,800,000 of its outstanding Term Loan, and to pay interest in
arrears of $7,957,000. The Company estimates that the expenses relating to the
recapitalization will approximate $1 million. Also on that date, the Company
issued 250,000 shares of its 8% Cumulative Convertible Preferred Stock and
75,000 shares of its 12.625% Cumulative Redeemable Preferred Stock to The
Prudential Insurance Company of America ("Prudential") in exchange for
$32,500,000 of its 12.625% Senior Subordinated Participating Notes. (See note 5)
The Company simultaneously entered into a management services agreement
with Petro under which Petro will provide executive, financial, and managerial
oversight services to the Company. In full consideration and compensation for
its services, Petro will receive $500,000 per year plus expenses, plus an annual
bonus fee to be paid in the Company's Class A Common Stock equal in value to 5%
of the increase in operating income before depreciation and amortization, as
defined, over the amount generated for the year ended September 30, 1993.
Petro has an option to buy all of the shares of common stock and the 8%
Cumulative Convertible Preferred Stock owned by FRC, Prudential, and Holdings.
This option commences after the receipt of the audited financial statements for
the year ended September 30, 1994 and ends on December 31, 1998. In addition,
FRC, Prudential and Holdings have the option, beginning on January 1, 1999 and
ending on December 31, 1999, to require Petro to purchase all of their shares of
the Company's common stock and 8% Cumulative Convertible Preferred Stock. Under
the terms of the put/call agreements with FRC and Prudential, Petro has the
right to purchase these shares with either cash or shares of Petro's Class A
Common Stock. Under the terms of the put/call agreement with Holdings, Petro has
the right to purchase these shares for cash, notes or Petro preferred stock.
In addition, Petro and FRC have each been granted an option to purchase
500,000 shares of the Company's Class A Common Stock for $9.9031 and $14.8546
per share, respectively. These options expire on December 20, 1998.
(2) RECAPITALIZATION
On December 21, 1993, the Company amended its Articles of Incorporation and
authorized the issuance of three new classes of common stock, Class A, Class B,
and Class C, each with identical rights and preferences, except that Class A has
one vote per share, Class B is nonvoting and Class C has 10 votes per share, and
two new classes of preferred stock, a new 8% Cumulative Convertible Preferred
Stock and a 12.625% Cumulative Redeemable Preferred Stock.
The Company is authorized to issue the indicated number of shares in the
following classes of its common stock:
<TABLE> <CAPTION>
AUTHORIZED
NO. OF SHARES
-------------
<S> <C>
Class A Common Stock.......................................................... 30,000,000
Class B Common Stock.......................................................... 5,000,000
Class C Common Stock.......................................................... 3,000,000
-------------
Total.................................................................. 38,000,000
-------------
-------------
</TABLE>
F-32
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) RECAPITALIZATION--(CONTINUED)
The Company is authorized to issue the indicated number of shares in the
following series of its 8% Cumulative Convertible Preferred Stock:
<TABLE> <CAPTION>
AUTHORIZED
NO. OF SHARES
-------------
<S> <C>
Series A...................................................................... 530,000
Series B...................................................................... 300,000
Series C...................................................................... 160,000
Series D...................................................................... 500,000
Series E...................................................................... 10,000
-------------
Total 1,500,000
-------------
-------------
</TABLE>
The Company is authorized to issue the indicated number of shares in the
following series of its 12.625% Cumulative Redeemable Preferred Stock:
<TABLE> <CAPTION>
AUTHORIZED
NO. OF SHARES
-------------
<S> <C>
Series A...................................................................... 30,000
Series B...................................................................... 120,000
-------------
Total.................................................................. 150,000
-------------
-------------
</TABLE>
All dividends on the Series A, B, D and E 8% Cumulative Convertible
Preferred Stock and on the Series A and B 12.625% Cumulative Redeemable
Preferred Stock are to be paid in additional shares of the same preferred stock
series. The holders of the Series C 8% Cumulative Convertible Preferred Stock
have the option, upon delivering proper notice, to be paid in cash or in
additional shares of Series C 8% Cumulative Convertible Preferred Stock.
Each share of Series A, C and E 8% Cumulative Convertible Preferred Stock
is convertible into 9.2278 shares of Class A Common Stock and the shareholders
are entitled to one vote for each as-if-converted common share. Each share of
Series B 8% Cumulative Convertible Preferred Stock is convertible into 7.0746
shares of nonvoting Class B Common Stock and each share of Series D 8%
Cumulative Convertible Preferred Stock is convertible into 9.2278 shares of
nonvoting Class B Common Stock.
The holders of Series A, C and E 8% Cumulative Convertible Preferred Stock
are entitled to vote together, with the holders of shares of common stock, as a
single class, with each as-if-converted common share of such 8% Cumulative
Convertible Preferred Stock entitled to one vote. The holders of shares of the
Series B and D 8% Cumulative Convertible Preferred Stock and the Series A and B
12.625% Cumulative Redeemable Preferred Stock are not entitled to vote on any
matters, except as required by law or as specified in the Company's Articles of
Incorporation.
Upon the occurrence of any liquidating event, each holder of shares of
Series A, B, C and D 8% Cumulative Convertible Preferred Stock and Series A
12.625% Cumulative Redeemable Preferred Stock is entitled, before any
distribution or payment is made upon any shares of common stock or any other
junior security, to a pro rata amount of each series' liquidation value per
share. In the event of liquidation, the remaining order of liquidation is as
follows: Series B 12.625% Cumulative Redeemable Preferred Stock, Series E 8%
Cumulative Convertible Preferred Stock and finally, the common stock of the
Company, with each share of Class A, B, and C Common Stock sharing ratably.
F-33
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) RECAPITALIZATION--(CONTINUED)
As part of the recapitalization, the Company issued the following shares of
8% Cumulative Convertible Preferred Stock for $100 per share, $26,975,000 in the
aggregate:
8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
<TABLE>
<S> <C>
Series A.......................................................................... 179,750
Series C.......................................................................... 90,000
---------
269,750
---------
---------
</TABLE>
In addition, the Company exchanged $32,500,000 of its 12.625% Senior
Subordinated Participating Notes held by Prudential for the following shares of
preferred stock at $100 per share:
8% CUMULATIVE CONVERTIBLE PREFERRED STOCK
<TABLE>
<S> <C>
Series B.......................................................................... 150,000
Series D.......................................................................... 100,000
---------
250,000
---------
---------
12.625% CUMULATIVE REDEEMABLE PREFERRED STOCK
Series A.......................................................................... 15,000
Series B.......................................................................... 60,000
---------
75,000
---------
---------
</TABLE>
The Company, simultaneously with the issuance of the 8% Cumulative
Convertible Preferred Stock and the 12.625% Cumulative Redeemable Preferred
Stock, redeemed $4,080,000 plus accrued interest in certain notes held by FRC,
$1,420,000 in previously outstanding 8% Cumulative Convertible Preferred Stock,
the previously outstanding Series A Preferred Stock and all previously
outstanding shares of common stock in exchange for 5,000 shares of Series E 8%
Cumulative Convertible Preferred Stock and 480,695 shares of Class A Common
Stock. In addition, prior to the recapitalization, all shares previously held by
SEI were acquired by FRC.
Upon the sale of Highway and Federal, the Company is required to apply the
net proceeds from the sales to repurchase, at $100 per share plus an additional
amount sufficient to generate a yield equal to 12.625% compounded semiannually
from December 21, 1993, the Series D 8% Cumulative Convertible Preferred Stock
from Prudential. The Company also has an option, which expires on December 31,
1995, to repurchase the balance of the Series D shares at the same formula
price. As the Company redeems shares of its Series D 8% Cumulative Convertible
Preferred Stock, FRC has agreed to return, as a contribution to the capital of
the Company, a number of shares of Class A Common Stock of the Company owned by
FRC, determined by multiplying 48,569 by a fraction, the numerator of which is
the face value of the Series D 8% Cumulative Convertible Preferred Stock
redeemed and the denominator of which is $10 million. On December 2, 1993, the
Company sold Federal for an aggregate price of $2.15 million, consisting of
$1.65 million in cash and a $500,000 note. The cash from the sale was held in
escrow until the recapitalization was completed. On December 23, 1993, such cash
was used to repurchase a portion of the Series D 8% Cumulative Convertible
Preferred Stock as described above. The Company is currently negotiating to sell
Highway. (See note 1).
F-34
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) RECAPITALIZATION--(CONTINUED)
The 12.625% Cumulative Redeemable Preferred Stock must be exchanged into
subordinated notes once the Company meets certain financial ratios; to the
extent not previously exchanged, the Company is required to apply up to $2
million on January 10, 2000 to redeem 12.625% Cumulative Redeemable Preferred
Stock plus an amount sufficient to redeem any 12.625% Cumulative Redeemable
Preferred Stock received as dividends thereon, and to the extent shares still
remain outstanding, the Company is required to redeem the remaining shares on
January 10, 2001.
As of December 23, 1993, after giving effect to the recapitalization of the
Company, assuming conversion of all of the 8% Cumulative Convertible Preferred
Stock into common stock and assuming no issuance of any option shares, the
investors would have the following equity interests and voting percentages on
most matters, except for certain voting rights for the Series B and D 8%
Cumulative Convertible Preferred Stock and the Series A and B 12.625% Cumulative
Redeemable Preferred Stock designated by law or as specified in the Company's
Articles of Incorporation:
<TABLE> <CAPTION>
EQUITY VOTING
PERCENTAGE PERCENTAGE
----------- -----------
<S> <C> <C>
Petro............................................................... 25.8% 42.8%
Holdings............................................................ 20.3 33.7
FRC................................................................. 14.2 23.5
Prudential.......................................................... 39.7 --
----------- -----------
100.0% 100.0%
----------- -----------
----------- -----------
</TABLE>
Combining Petro's interest with its ownership interest in Holdings, Petro's
equity interest would increase to 29.5%, but its voting interest would remain at
42.8%.
Assuming further that the Series D 8% Cumulative Convertible Preferred
Stock is repurchased from Prudential and FRC contributes the full 48,569 common
shares back to the Company, the investors would then have the following
interests:
<TABLE> <CAPTION>
EQUITY VOTING
PERCENTAGE PERCENTAGE
----------- -----------
<S> <C> <C>
Petro............................................................... 32.1% 43.5%
Holdings............................................................ 25.2 34.2
FRC................................................................. 16.4 22.3
Prudential.......................................................... 26.3 --
----------- -----------
100.0% 100.0%
----------- -----------
----------- -----------
</TABLE>
Combining Petro's interest with its ownership interest in Holdings, Petro's
equity interest would increase to 36.7%, but its voting interest would remain at
43.5%.
F-35
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) RECAPITALIZATION--(CONTINUED)
The following represents the capitalization of the Company as of September
30, 1993 and as adjusted to give effect to the recapitalization as discussed
above, as if such recapitalization had occurred on September 30, 1993:
<TABLE> <CAPTION>
SEPTEMBER 30, 1993
----------------------------------
AS ADJUSTED HISTORICAL
---------------- ----------------
<S> <C> <C>
Long-term debt and working capital borrowings (including current portion) (see
note 5)..................................................................... $ 76,285,958 125,910,958
---------------- ----------------
Obligations under consulting and covenant not-to-compete contracts (including
current portion) (see note 9)............................................... 2,232,322 6,278,259
---------------- ----------------
Preferred stock--12.625% Cumulative Redeemable................................ 7,500,000 --
---------------- ----------------
Shareholders' equity (deficiency):
Common stock--266 shares, $1 par value...................................... -- 266
Class A Common Stock--480,695 shares, $.10 par value........................ 48,070 --
Class B Common Stock........................................................ -- --
Class C Common Stock........................................................ -- --
Series A Preferred Stock.................................................... -- 40,309
Preferred Stock--8% Cumulative Convertible--No par.......................... -- 1,420
Preferred Stock--8% Cumulative Convertible--$1 par value
Series A--179,750 shares.................................................... 179,750 --
Series B--150,000 shares.................................................... 150,000 --
Series C-- 90,000 shares.................................................... 90,000 --
Series D--100,000 shares.................................................... 100,000 --
Series E-- 5,000 shares.................................................... 5,000 --
Capital in excess of par value.............................................. 110,403,205 58,471,501
Deficit..................................................................... (59,836,948) (59,836,948)
Treasury stock.............................................................. -- (2,187,916)
---------------- ----------------
Total shareholders' equity (deficiency)................................ 51,139,077 (3,511,368)
---------------- ----------------
Total capitalization................................................... $ 137,157,357 128,677,849
---------------- ----------------
---------------- ----------------
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market following the moving
weighted average method, which approximates first-in, first-out cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the depreciable assets (generally thirty
years for buildings and seven to thirty years for equipment) using the
straight-line method. Gain or loss on property retired, sold or otherwise
disposed
F-36
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of is included in operations. Expenditures for renewals and improvements are
capitalized, while maintenance and repairs are expensed.
Intangible Assets
Beginning on October 1, 1992, the excess of cost over the fair value of net
assets acquired is being amortized using the straight-line method over 10 years.
Prior to October 1, 1992, such assets were being amortized over 40 years. The
effect of the change in 1993 was to increase amortization expense by $1,160,000.
Other intangible assets, principally covenants not to compete, capitalized
consulting costs and customer contracts and lists are being amortized over their
estimated useful lives, ranging from one to ten years. Deferred charges,
representing costs associated with the issuance of the Company's debt, are being
amortized over the lives of the related debt.
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. Where an intangible asset is deemed to
be impaired, the amount of intangible impairment, is measured based on market
values, as available, or by projected cash flows.
Customer Credit Balances
Customer credit balances represent payments received from customers
pursuant to a budget payment plan (whereby customers pay their estimated annual
propane gas charges on a fixed monthly basis) in excess of actual deliveries
billed.
Cash Equivalents
For the purpose of determining cash equivalents used in the preparation of
the Statements of Cash Flows, the Company considers all highly liquid
investments with a maturity of three months or less when purchased, to be cash
equivalents.
Basis of Presentation
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 presentation.
(4) ACQUISITIONS
The Company expanded its operations in the retail and wholesale propane gas
businesses by making several acquisitions during the fiscal years ended
September 30, 1991, 1992 and 1993 as described below. The acquisitions were
accounted for under the purchase method of accounting and, therefore, the
purchase prices have been allocated to the assets and liabilities acquired based
on their respective fair market values at the dates of acquisition. The purchase
prices in excess of the fair values of net assets acquired were classified as
excess of cost over net assets acquired in the Consolidated Balance Sheets. The
results of operations of the respective acquired companies have been included in
the Consolidated Statements of Operations from the dates of acquisition.
During fiscal 1991, the Company acquired certain assets of six unaffiliated
liquified petroleum gas businesses. The aggregate consideration for these
acquisitions, accounted for by the purchase method, was approximately
$1,420,000.
F-37
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACQUISITIONS--(CONTINUED)
During fiscal 1991, the Company also entered into an operating lease for
certain assets of a water treatment company. Annual payments on the lease are
$47,760 per year for three years. The Company has an irrevocable option at the
end of the lease to purchase these assets for $60,000.
During fiscal 1992, the Company acquired certain assets of five
unaffiliated liquified petroleum gas businesses. The aggregate consideration for
these acquisitions, accounted for by the purchase method, was approximately
$1,047,000.
During fiscal 1993, the Company acquired certain assets of one unaffiliated
liquified petroleum gas business. The aggregate consideration for this
acquisition, accounted for by the purchase method, was approximately $60,000.
(5) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases consist of the
following:
<TABLE> <CAPTION>
SEPTEMBER 30, 1993* SEPTEMBER 30,
-------------------- ------------------------------
(AS ADJUSTED) 1993 1992
-------------- --------------
<S> <C> <C> <C>
Revolving and line of credit loans payable to bank(a)...... $ 6,808,704 6,808,704 5,227,996
11.56% Senior Notes (b).................................... 30,675,000 45,000,000 45,000,000
12.625% Senior Subordinated Participating Notes (b)........ 7,500,000 40,000,000 40,000,000
11.77% Senior Reset Term Notes (c)......................... 20,000,000 20,000,000 20,000,000
Term loan agreement (d).................................... 9,325,000 12,125,000 15,625,000
10% Junior Subordinated Promissory Note payable to former
shareholder, prepaid in 1993(e)............................ -- -- 1,593,090
Senior subordinated promissory notes, net of discount of
$8,934, $8,934 and $17,641................................. 701,535 701,535 1,507,197
11% Note payable in $60,000 annual installments to 2004,
net of discount of $48,200, $48,200 and $55,300.......... 611,800 611,800 664,700
Other debt, net of discount $0, $0 and $4,658.............. 20,585 20,585 76,513
Obligations under capital leases (see note 8).............. 643,334 643,334 953,634
-------------------- -------------- --------------
76,285,958 125,910,958 130,648,130
Less current maturities.......................... 7,485,774 7,485,774 6,077,873
-------------------- -------------- --------------
$ 68,800,184 118,425,184 124,570,257
-------------------- -------------- --------------
-------------------- -------------- --------------
</TABLE>
- ---------------
* As adjusted gives effect to the recapitalization discussed in notes 1 and 2
and in (b) and (d) below, as if such recapitalization had occurred on
September 30, 1993.
(a) On July 2, 1993, the Company entered into a $20,000,000 Amended and
Restated Revolving Credit Agreement (the "Credit Agreement") with The
First National Bank of Boston. The Credit Agreement matured on October 15,
1993, was renewed to December 22, 1993, and bore interest at the higher of
the annual rate of interest announced as the base rate of the bank making
the loan plus 2% or 2.5% above the overnight federal funds rate.
(Footnotes continued on following page)
F-38
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
(Footnotes continued from preceding page)
As of September 30, 1993 and 1992, outstanding revolving loans and letters
of credit aggregated $9,457,520 (including $2,648,816 for letters of
credit), and $9,257,522 (including $4,029,526 for letters of credit),
respectively.
The Credit Agreement was again restated and amended as of December 21,
1993. Under the terms of the restated and amended Credit Agreement, the
Company may borrow up to $25 million to finance working capital needs
under a revolving credit facility which expires on June 30, 1996. Amounts
borrowed under the revolving credit facility are subject to a 30 day clean
up requirement each year. Interest on borrowings is payable monthly and is
based upon either the Eurodollar Rate (as defined below) or the Alternate
Base Rate (as defined below), plus 2 1/4% on Eurodollar loans or 1/4% on
Alternative Base Rate Loans, at the Company's option. The Eurodollar Rate
is the prevailing rate in the Interbank Eurodollar Market adjusted for
reserve requirements, if any. The Alternate Base Rate is the higher of
(i) the prime rate or base rate of The First National Bank of Boston in
effect or (ii) the Federal Funds Rate in effect plus 1/2%.
The Credit Agreement also provides for a revolving credit acquisition
facility under which the Company may borrow up to $20 million to fund
acquisitions of propane companies. This acquisition facility expires on
June 30, 1996 and the Company has the option to convert this facility
into a term loan, payable in 36 consecutive monthly installments
commencing on July 1, 1996. Interest on the borrowings is payable monthly
and is based upon either the Eurodollar Rate plus 2 1/2% on loans made
before the acquisition loan conversion date and 3% after the acquisition
loan conversion date or the Alternate Base Rate plus 1/2% on loans made
before the acquisition loan conversion date and 1% on loans made after
the acquisition loan conversion date, at the Company's option.
The Company pays a commitment fee equal to 1/2% of the unused portion of
the bank facilities with a reduction, through June 30, 1994, on the
Acquisition Facility to 1/4% annually if it is not used through that
date.
Under the terms of the Credit Agreement, as amended, the Company is
restricted as to the declaration and distribution of dividends and is
also required to maintain certain financial and operational ratios. The
amounts borrowed under the Credit Agreement are secured by substantially
all of the Company's assets.
(b) On January 10, 1989, the Company issued $85,000,000 of notes (the "Note
Agreements") to Prudential for cash. The Note Agreements consisted of
$45,000,000 of 11.56% Senior Notes due in six consecutive annual
installments of $7,500,000 commencing January 10, 1994; $30,000,000 of
12.625% Senior Subordinated Participating Notes, Series A, due in six
consecutive annual installments of $4,250,000 commencing January 10, 1995,
with a final installment of $4,500,000 due on January 10, 2001; and
$10,000,000 of 12.625% Senior Subordinated Participating Notes, Series B,
due in six consecutive annual installments of $1,500,000 commencing
January 10, 1995, with a final installment of $1,000,000 due on January
10, 2001.
The Series A and Series B Senior Subordinated Participating Notes bore
additional interest aggregating to the greater of (a) $487,500 or 2.5% of
the first $33,500,000 of the Company's operating profit (as defined) for
each of the fiscal years ended September 30, 1991 through 1999 and (b)
$622,400 or 3.19% of the first $33,500,000 of the Company's operating
profit (as defined) for the fiscal year ended September 30, 2000.
(Footnotes continued on following page)
F-39
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
(Footnotes continued from preceding page)
As part of the recapitalization (see notes 1 and 2), the Company exchanged
in direct order of maturity, $15,000,000 of Series A 12.625% Senior
Subordinated Participating Notes for 150,000 shares of Series B 8%
Cumulative Convertible Preferred Stock, the entire $10,000,000 of Series
B 12.625% Senior Subordinated Participating Notes for 100,000 shares of
Series D 8% Cumulative Convertible Preferred Stock, and in inverse order
of maturity, $1,500,000 of Series A 12.625% Senior Subordinated
Participating Notes for 15,000 shares of Series A 12.625% Cumulative
Redeemable Preferred Stock and $6,000,000 of Series A 12.625% Senior
Subordinated Participating Notes for 60,000 shares of Series B 12.625%
Cumulative Redeemable Preferred Stock. In addition, the participating
interest feature on the Series A and B 12.625% Senior Subordinated
Participating Notes was eliminated.
Additionally, the Company was also allowed to prepay $14,325,000 of the
11.56% Senior Notes in direct order of their maturity. The remaining 1995
payment of $675,000 and part of the 1996 payment of $1,325,000 were
deferred such that the 1997, 1998 and 1999 payments were increased from
$7,500,000 per year to $8,166,667 per year.
Under the terms of the Note Agreements, as amended at various dates
through December 23, 1993, the Company is restricted as to the declaration
and distribution of dividends and is also required to maintain certain
financial and operational ratios. The amounts borrowed under the 11.56%
Senior Notes and the 12.625% Senior Subordinated Participating Notes are
secured by substantially all of the Company's assets.
(c) On February 28, 1991, the Company issued $20,000,000 in Senior Reset Term
Notes (the "Notes") to Prudential for cash. The Notes were due in
consecutive semi-annual installments of $2,500,000 commencing August 28,
1994. The Notes bore interest at 10.72% until February 28, 1994.
Thereafter, until maturity, the Notes would have borne interest at the
2.25 year Treasury Rate on February 28, 1994 plus 3.75%.
The Company amended the Notes at various dates through November 30, 1993.
The required prepayments under the amended terms of the Notes are
$2,500,000 on August 28, 1999, $5,000,000 on each of February 28, 2000,
August 28, 2000 and February 28, 2001 and $2,500,000 on August 28, 2001.
As part of the recapitalization, the Notes were amended such that the
interest rate on the Notes became the 6.5 year Treasury Rate plus 3.3%.
Under the terms of the Notes, as amended, the Company is restricted as to
the declaration and distribution of dividends and is also required to
maintain certain financial and operational ratios. The amounts outstanding
under the Notes are secured by substantially all of the Company's assets.
(d) On March 7, 1991, the Company entered into a Term Loan Agreement (the
"Term Loan") with PruSupply, Inc. which provided a $20,000,000 facility.
The Company amended the Term Loan at various dates through November 30,
1993. The Term Loan was to be repaid in nineteen consecutive quarterly
installments of $875,000, which commenced in May 1991, with a final
payment of $3,375,000 due at maturity in February 1996. The Term Loan
bears interest at the one month London Interbank Offered Rate ("LIBOR")
plus 2.7%.
As part of the recapitalization, the Term Loan was amended to allow for
the prepayment of $1,925,000 on December 23, 1993. In addition, the
Company paid $875,000 that had been deferred. This agreement was further
amended such that the required payments on these notes will be $4,325,000
in 1996 and $5,000,000 in 1997.
Under the terms of the Term Loan, as amended, the Company is restricted as
to the declaration and distribution of dividends and is also required to
maintain certain financial and operational ratios. The amounts outstanding
under the Term Loan are secured by substantially all of the Company's
assets.
(Footnotes continued on following page)
F-40
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES--(CONTINUED)
(Footnotes continued from preceding page)
(e) On March 30, 1993, the Company and a former shareholder reached an
agreement whereby the former shareholder received payments in settlement
of all amounts owed under a 10% Junior Subordinated Promissory Note and a
Consulting Agreement. The Company recognized a gain of $178,415 on the
settlement. (See note 9)
As of September 30, 1993, the Company was not in compliance with certain
financial covenants contained in the Credit Agreement, the Note Agreements, the
Notes and the Term Loan. All appropriate covenants have been amended or waivers
have been obtained, where necessary.
As of September 30, 1993, annual maturities of long-term debt and
obligations under capital leases, after giving effect to the recapitalization,
are set forth in the following table:
<TABLE>
<S> <C>
1994.............................................. $ 7,485,774
1995.............................................. 209,852
1996.............................................. 10,708,138
1997.............................................. 13,270,354
1998.............................................. 10,253,745
Remaining......................................... 34,358,095
--------------
$ 76,285,958
--------------
--------------
</TABLE>
(6) INCOME TAXES
The income tax provision (benefit) shown in the accompanying Consolidated
Statements of Operations consists of the components set forth below:
<TABLE> <CAPTION>
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Federal:
Deferred..................................... $ -- (1,489,055) (1,748,266)
State:
Current...................................... 270,727 203,837 210,279
Deferred..................................... (13,700) (8,785) (65,025)
----------- ------------ ------------
257,027 195,052 145,254
----------- ------------ ------------
$ 257,027 (1,294,003) (1,603,012)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-41
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES--(CONTINUED)
The following is a reconciliation between reported income tax (benefit)
expense and tax (benefit) expense computed at the statutory rate:
<TABLE> <CAPTION>
1993 1992 1991
--------------- ------------ ------------
<S> <C> <C> <C>
Computed at Federal statutory rate (fiscal 1993, 1992 and
1991--34%)....................................................... $ (15,922,533) (2,908,185) (2,363,521)
Tax effect of:
Losses for which no tax benefit was recognized................... 15,435,673 909,532 --
Depreciation on excess of book cost over tax basis of plant and
equipment and amortization of excess of cost over net assets
acquired...................................................... 434,080 476,192 495,863
Gain on sale of equipment resulting from book cost over tax basis
of equipment.................................................. 118,039 76,155 130,036
State income taxes, net of Federal benefit....................... 169,638 128,734 95,868
Other............................................................ 22,130 23,569 38,742
--------------- ------------ ------------
$ 257,027 (1,294,003) (1,603,012)
--------------- ------------ ------------
--------------- ------------ ------------
</TABLE>
The (benefit) provision for income taxes is based upon pretax book income.
Deferred income taxes result primarily from the difference in depreciation
expense as a result of the use of accelerated methods in determining
depreciation for income tax purposes in excess of the straight-line basis used
for financial statement purposes.
At September 30, 1993, the Company had approximately $84,000,000 of Federal
and state net operating loss (NOL) carryforwards available to offset future
taxable income. Such NOLs expire in the years 2004 through 2008.
Effective with the recapitalization on December 23, 1993 (see note 2), the
Company's NOL's were substantially limited for purposes of general carryforward
availability and otherwise limited for specified carryforward purposes since the
recapitalization constitutes a change in control for income tax reporting
purposes.
In February 1992, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FASB 109"). The Company is not required to adopt the new method of
accounting for income taxes until fiscal 1994. Because the Company was not
carrying substantial deferred taxes on its Consolidated Balance Sheet,
management believes that the adoption of FASB 109 will not have a material
effect on financial position or results of operations. However, as a result of
the recapitalization and change in control, the Company is in the process of
determining what effect, if any, the limitation on the use of the NOLs will have
on financial position and results of operations, and what tax planning
strategies are available to retain the maximum benefit thereof.
(7) EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan which provides benefits for all eligible
employees except those covered by union plans and employees of Highway. Subject
to IRS limitations, the 401(k) plan provides for employees to contribute from 1%
to 15% of compensation with the Company contributing a matching amount of the
employees' contribution up to a maximum of 3% of compensation. The Company may
also contribute an additional amount on behalf of each employee in an amount
equal to
F-42
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) EMPLOYEE BENEFIT PLANS--(CONTINUED)
3% of each employee's compensation. Effective, March 1, 1992, an amendment to
the plan eliminated the ability to make this additional contribution.
Aggregate Company contributions made to the 401(k) plan during 1993, 1992
and 1991 were $313,652, $537,703 and $627,447, respectively.
The Company makes monthly contributions to a union defined benefit pension
plan for all union employees. The amount charged to expense was $198,206,
$202,545 and $186,871 in fiscal 1993, 1992 and 1991, respectively.
(8) LEASE COMMITMENTS
The Company has entered into noncancellable capital lease agreements with
former owners of acquired businesses for certain premises and related equipment.
All leases contain bargain purchase options, exercisable on the lease
termination dates.
The premises and equipment under capital leases are carried at $828,725 and
$2,023,660 on the Consolidated Balance Sheets with accumulated depreciation of
$79,234 and $141,426 at September 30, 1993 and 1992, respectively. Depreciation
of premises and equipment under capital leases is included in depreciation
expense.
The Company has entered into operating leases for office space, trucks and
other equipment. The future minimum rental commitments at September 30, 1993
under leases having an initial or remaining noncancellable term of one year or
more are as follows:
<TABLE> <CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------- -------------
<S> <C> <C>
1994........................................................ $ 157,476 $ 2,700,000
1995........................................................ 157,476 2,400,000
1996........................................................ 144,726 1,600,000
1997........................................................ 80,976 900,000
1998........................................................ 80,976 200,000
Thereafter.................................................. 506,097 100,000
------------- -------------
Total minimum lease payments................................ 1,127,727 $ 7,900,000
-------------
-------------
Less amount representing interest........................... 484,393
-------------
Present value of net minimum rentals........................ $ 643,334
-------------
-------------
</TABLE>
The Company incurred rent expense of $4,150,765, $3,586,450 and $3,437,423
in 1993, 1992 and 1991, respectively.
(9) OTHER CURRENT AND LONG-TERM LIABILITIES
As a result of various acquisition agreements, the Company was required to
pay an aggregate of $6,278,259 and $9,268,487 (net of discounts of $406,596 and
$1,155,492), as of September 30, 1993 and 1992, respectively, pursuant to
certain consulting and covenant not-to-compete agreements. These obligations are
included in other current liabilities and long-term liabilities in the amounts
of $712,179 and $3,812,670 and $5,566,080 and $5,455,817 as of September 30,
1993 and 1992, respectively.
On December 4, 1992, the Company and its shareholders entered into a
Purchase Agreement with a third party for the shareholders to purchase from the
third party $5,500,000 of consulting and non-competition payments (the
"Purchased Payments") owed to the third party by the Company. This
F-43
<PAGE>
STAR GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) OTHER CURRENT AND LONG-TERM LIABILITIES--(CONTINUED)
amount due was $2,750,000 on November 17, 1992 and $2,750,000 on November 17,
1993. The shareholders deferred the $2,750,000 installment payment (the
"Deferred Amount") due on November 17, 1992 under the original agreement to June
1, 1993. This Deferred Amount bore interest at 13.76% per annum.
On March 30, 1993, the Company and its shareholders signed a Cancellation
of Indebtedness and Deferral Agreement (the "Cancellation Agreement"). Under the
terms of the Cancellation Agreement, the shareholders agreed to cancel
$1,420,000 of the Deferred Amount in consideration of 1,420 of newly issued
shares of 8% Cumulative Convertible Preferred Shares of the Company. The balance
of the Deferred Amount, after giving effect to such cancellation, plus interest
accrued through March 30, 1993, aggregated $1,470,848 (the "New Deferred
Amount"). The shareholders agreed to the deferral of the New Deferred Amount to
December 31, 1994 and to the deferral of the remainder of the Purchased Payments
from November 17, 1993 to December 31, 1994. The New Deferred Amount bore
interest at the rate of 13.75% per annum from March 30, 1993. The remainder of
the Purchased Payments bore interest at the rate of 13.76% per annum from
November 17, 1993 (See note 1).
On December 23, 1993, as part of the recapitalization (see note 2), the
Company exchanged the 1,420 8% Cumulative Convertible Preferred Shares plus the
New Deferred Amount and the balance of the Purchased Payments plus accrued
interest for 5,000 shares of Series E 8% Cumulative Convertible Preferred Stock
and 230,695 shares of Class A Common Stock.
On March 30, 1993, the Company and a former shareholder reached an
agreement whereby the former shareholder received payments in settlement of all
amounts owed to him under a 10% Junior Subordinated Promissory Note and a
Consulting Agreement. The Company recognized a gain of $178,415 on the
settlement (See note 5).
At September 30, 1993, annual maturities of amounts payable in connection
with certain covenants not to compete and consulting agreements, after giving
effect to the recapitalization, are as follows:
1994................................................. $ 712,179
1995................................................. 637,346
1996................................................. 412,994
1997................................................. 379,504
1998................................................. 90,299
(10) IMPAIRMENT OF LONG-LIVED ASSETS
During fiscal 1993, in connection with the recapitalization (see note 2)
and the sale of certain of the Company's branches (see note 1), the Company
reviewed the carrying values of its long-lived assets and identifiable
intangible assets for possible impairment. The Company determined, based on
expected future cash flows and the estimated fair values of certain branches,
that it would not be able to recover the carrying values of some of these
assets. Accordingly, as of September 30, 1993 the Company recorded a write-off
of approximately $33 million representing the estimated impairment to its long
lived assets.
F-44
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Financial Statements for the year ended December
31, 1992 are derived from the Company's audited consolidated financial
statements for the year ended December 31, 1992. The Pro Forma Financial
Statements at and for the nine and twelve months ended September 30, 1993 are
derived from the unaudited financial statements of the Company at and for the
nine and twelve months ended September 30, 1993, which include all adjustments
(consisting of only normal recurring accruals) that, in the opinion of
management, are necessary for a fair presentation of such data. The Pro Forma
Financial Statements do not purport to represent what the Company's financial
position or results of operations would have been if the events described
therein had occurred on the dates specified, nor are they intended to project
the Company's financial position or results of operations for any future period.
The Pro Forma Financial Statements should be read in conjunction with the
Consolidated Financial Statements, and the Notes thereto, appearing elsewhere
herein.
P-1
<PAGE>
PRO FORMA BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1993
(IN THOUSANDS)
The following pro forma balance sheet at September 30, 1993 gives effect to
(a) the offering by the Company (the "Offering") of $75.0 million of %
Subordinated Debentures due 2006 (the "Debentures"), (b) the repurchase (the
"Maxwhale Notes Repurchase") of the Company's senior 9% Notes due June 1, 1994
(the "Maxwhale Notes"), (c) the $16.0 million investment in Star Gas Corporation
("Star Gas") resulting in an approximate 29.5% interest in Star Gas, accounted
for under the equity method (the "Star Gas Investment"), (d) the release (the
"Collateral Release") of the $20 million cash collateral account partially
securing the Maxwhale Notes (the "Maxwhale Collateral"), (e) the Subordinated
Debt Amendments, and (f) the Company's intention to purchase in March 1994 an
additional unaffiliated fuel oil dealer (the "1994 Acquisition") as if each such
transaction had occurred on September 30, 1993.
<TABLE> <CAPTION>
PETROLEUM HEAT PRO FORMA
AND POWER CO., INC. ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 7,437 $ 72,300(1) $ 27,927
(51,333)(2)
(16,000)(3)
20,000(4)
(2,000)(5)
(2,477)(6)
Accounts receivable........................................................... 43,187 440(6) 43,627
Inventories................................................................... 12,788 75(6) 12,863
Other current assets.......................................................... 7,770 7,770
Cash collateral account....................................................... 20,000 (20,000)(4) --
---------- ------------ -----------
Total current assets........................................................ 91,182 1,005 92,187
Property plant and equipment--net............................................... 32,533 387(6) 32,920
Intangibles--net................................................................ 92,639 2,700(1) 98,932
2,000(5)
1,593(6)
Other assets.................................................................... 550 550
Investment in Star Gas Corporation.............................................. -- 16,000(3) 16,000
---------- ------------ -----------
$ 216,904 $ 23,685 $ 240,589
---------- ------------ -----------
---------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................... $ 33 $ 33
Current maturities of Maxwhale Notes.......................................... 27,500 $ (27,500)(2) --
Current maturities of preferred stock......................................... 4,167 4,167
Accounts payable.............................................................. 9,174 9,174
Customer credit balances...................................................... 26,486 26,486
Unearned service contract revenue............................................. 12,335 18(6) 12,353
Accrued expenses.............................................................. 18,975 18,975
---------- ------------ -----------
Total current liabilities................................................... 98,670 (27,482) 71,188
Long-term debt.................................................................. 22,555 (22,500)(2) 42,687
42,632(7)
Supplemental benefits payable................................................... 1,657 1,657
Pension plan obligation acquired................................................ 1,220 1,220
Subordinated notes payable...................................................... 135,264 75,000(1) 167,632
(42,632)(7)
---------- ------------ -----------
Total liabilities........................................................... 259,366 25,018 284,384
---------- ------------ -----------
Cumulative redeemable exchangeable preferred stock.............................. 20,833 20,833
---------- -----------
Stockholders' equity (deficiency):..............................................
Common stock.................................................................. 2,176 2,176
Additional paid in capital.................................................... 54,416 54,416
Deficit....................................................................... (118,607) (1,333)(2) (119,940)
Note receivable from stockholder.............................................. (1,280) (1,280)
---------- ------------ -----------
Total stockholders' equity (deficiency)..................................... (63,295) (1,333) (64,628)
---------- ------------ -----------
$ 216,904 $ 23,685 $ 240,589
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
- -----------------------------
(1) Reflects the Offering, net of estimated offering costs of $2.7 million, with
net proceeds to the Company of $72.3 million. Such amounts include
approximately $18.5 million in cash and principal amount of Debentures, the
proceeds of which are not required for the Maxwhale Notes Repurchase.
(2) Reflects the Maxwhale Notes Repurchase and the related extraordinary loss
representing the premium paid on the early retirement of the Maxwhale Notes.
If such repurchase had occurred on September 30, 1993, such extraordinary
loss would have been approximately $1.3 million.
(3) Reflects a cash payment of $16.0 million for the Star Gas Investment.
(4) Reflects the Collateral Release.
(5) Reflects the estimated consideration and expenses to be paid in connection
with the Subordinated Debt Amendments and the related amendments to the
Credit Agreement.
(6) The Company intends to acquire the assets of an unaffiliated fuel oil
distributorship in March 1994. Adjustment reflects anticipated purchase
price allocation.
(7) Reflects the reclassification of subordinated debt to senior debt in
connection with the Subordinated Debt Amendments.
P-2
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
The following pro forma statement of operations for the year ended December
31, 1992 is derived from the Company's financial statements for the year ended
December 31, 1992, adjusted to give effect to the following transactions, as if
each such transaction had occurred on January 1, 1992:
(a) the acquisitions by the Company of nine individually insignificant
distributorships during 1992 (the "1992 Acquisitions") and nine
individually insignificant distributorships during the nine months ended
September 30, 1993 (the "1993 Acquisitions") and the 1994 Acquisition;
(b) the issuance in March 1993 of approximately $12.8 million of
Subordinated Notes due March 1, 2000 in exchange for an equal amount of the
Company's 1991 Redeemable Preferred Stock (the "Preferred Stock Exchange");
(c) the repurchase in May 1993 of approximately $12.4 million of
11.40% Subordinated Notes due July 1, 1993 and approximately $12.5 million
of 14.275% Subordinated Notes due October 1, 1995 (the "Subordinated Debt
Repurchases");
(d) the Maxwhale Notes Repurchase;
(e) the Star Gas Investment and the effect of concurrent agreements
entered into in connection with such investment;
(f) the issuance in April 1993 (the "10 1/8% Notes Issuance") of $50
million of 10 1/8% Subordinated Notes due 2003 (the "10 1/8% Notes");
(g) the Collateral Release; and
(h) the Offering, at an assumed interest rate of 10%; provided,
however, that the pro forma data do not give effect to approximately $2.5
million of interest expense on, or the use of, approximately $25.0 million
of the Debentures, the proceeds of which are not required for acquisitions
or refinancings. A change in the interest rate on the Debentures by 0.25%
would result in an increase in pro forma interest expense of approximately
$0.1 million.
The results of operations of the acquired distributors are based on their
individual fiscal year ends. The combination of the acquired distributors on
their individual fiscal year bases, rather than the Company's fiscal year, does
not produce a materially different effect. The acquisitions have been accounted
for as purchases. The unaudited statements of operations of the individually
insignificant distributorships for the year ended December 31, 1992 include all
adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary for a fair presentation of the results of
operations.
P-3
<PAGE>
<TABLE> <CAPTION>
PETROLEUM
HEAT AND
POWER CO., DISTRIBUTORSHIPS PRO FORMA PRO FORMA
INC. ACQUIRED(1) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales................................................ $ 512,430 $ 98,944 $ 611,374
Cost of sales............................................ 350,941 70,332 421,273
-------------- -------------- -----------
Gross profit........................................... 161,489 28,612 190,101
Operating expenses....................................... 110,165 21,331 $ (4,513)(2) 126,483
(500)(3)
Amortization of customer lists........................... 23,496 1,958 3,825(4) 29,279
Depreciation and amortization of plant and equipment..... 5,534 1,639 123(4) 7,296
Amortization of deferred charges......................... 5,363 -- 590(4) 5,953
Provision for supplemental benefit....................... 1,974 -- 1,974
-------------- -------------- -----------
Operating Income....................................... 14,957 3,684 19,116
Interest expense--net.................................... (1,498)(5)
18,622 1,552 3,416(6) 22,092
Other income (expenses).................................. (324) 10 (314)
Share of loss of Star Gas................................ -- -- (1,434)(7) 167
1,601(8)
-------------- -------------- -----------
Income (loss) before income taxes...................... (3,989) 2,142 (3,123)
Income taxes............................................. 400 -- 400
-------------- -------------- -----------
Net income (loss)........................................ $ (4,389) $ 2,142 $ (3,523)
-------------- -------------- -----------
-------------- -------------- -----------
</TABLE>
- ------------------------------
(1) Represents the results of the 1992 Acquisitions from January 1, 1992 to
their dates of acquisition by the Company. Results from the dates of
acquisition to December 31, 1992 are included in the Company's December 31,
1992 consolidated results. The results of the 1993 Acquisitions and the 1994
Acquisition are also included in their entirety in this column for 1992.
(2) Elimination of general and administrative expenses of the acquired
distributorships which do not have a continuing impact on income from
continuing operations as follows:
<TABLE>
<S> <C>
Salaries and related costs............................................................ $ 3,670
Other................................................................................. 843
---------
$ 4,513
---------
---------
</TABLE>
The above costs represent the salaries and related costs of employees of
certain distributorships acquired during 1992 and 1993 and in connection
with the 1994 Acquisition. These employees were not employed by the Company
when the distributorships were acquired, (or, in the case of the 1994
Acquisition, are not intended to be employed by the Company at the time
that such acquisition is consummated) and the Company was able to integrate
the businesses without incurring any incremental costs.
(3) Reflects a management agreement pursuant to which the Company will be paid
$0.5 million per year by Star Gas. The Company does not anticipate having to
hire any additional personnel to perform its obligations under the
management agreement. Rather, it plans to deploy responsibilities within its
own organization to provide the needed services to Star Gas.
(4) Adjustment of amortization of customer lists, depreciation and amortization
of plant and equipment and amortization of deferred charges, as applicable,
to reflect an annual charge in accordance with the Company's accounting
policies.
(5) Elimination of interest expense on debt incurred by the previous owners of
two of the distributorships acquired during 1992. The debt was incurred by
such previous owners to purchase the distributorships and such debt was not
assumed by the Company in its acquisitions.
(6) Reflects (a) increased interest expense as a result of (i) the Preferred
Stock Exchange, (ii) the 10 1/8% Notes Issuance, (iii) a portion of the
Debentures issued in the Offering, the proceeds of which are required for
acquisitions or refinancings and (iv) the elimination of interest income on
the Maxwhale Collateral and (b) decreased interest expense as a result of
(i) the Subordinated Debt Repurchases and (ii) the Maxwhale Notes
Repurchase. If the Subordinated Debt Repurchases and the Maxwhale Notes
Repurchase had occurred on January 1, 1992, the Company would have recorded
a $6.2 million extraordinary loss as the result of the early retirement of
such debt.
(7) Represents the Company's share of the net loss of Star Gas based on Star
Gas' operating results for the twelve months ended December 31, 1992.
(8) Reflects the Company's share of decreased interest expense of Star Gas as a
result of the repayment of debt with a portion of the capital infusion in
Star Gas and the conversion of debt and preferred stock of Star Gas to
equity of Star Gas by certain of Star Gas' investors (the "Star Gas
Recapitalization") and the Company's share of Star Gas' cost for the Petro
management agreement. (See note 3)
P-4
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS)
The following pro forma statement of operations for the nine months ended
September 30, 1993 is derived from the Company's financial statements for the
nine months ended September 30, 1993, adjusted to give effect to the following
transactions, as if each such transaction had occurred on January 1, 1992:
(a) the 1993 Acquisitions and the 1994 Acquisition;
(b) the Preferred Stock Exchange;
(c) the Subordinated Debt Repurchase;
(d) the Maxwhale Notes Repurchase;
(e) the Star Gas Investment and the effect of concurrent agreements
entered into in connection with such investment;
(f) the 10 1/8% Notes Issuance;
(g) the Collateral Release; and
(h) the Offering, at an assumed interest rate of 10%; provided,
however, that the pro forma data do not give effect to approximately $2.4
million of interest expense on, or the use of, approximately $32.0 million
in principal amount of the Debentures, the proceeds of which are not
required for acquisitions or refinancings. A change in the interest rate on
the Debentures by 0.25% would result in an increase in pro forma interest
expense of less than $0.1 million.
The unaudited statements of operations of the Company and the individually
insignificant distributorships for the nine months ended September 30, 1993
include all adjustments (consisting of only normal recurring adjustments) which,
in the opinion of management, are necessary for a fair presentation of the
results of operations. Because of the seasonality of the home heating oil and
propane businesses, nine-month results are not indicative of the results to be
expected for a full year.
P-5
<PAGE>
<TABLE> <CAPTION>
PETROLEUM
HEAT AND DISTRIBUTORSHIPS PRO FORMA PRO FORMA
POWER CO. INC. ACQUIRED(1) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales............................................ $ 377,384 $ 19,317 $ 396,701
Cost of sales........................................ 262,368 14,044 276,412
-------------- --------------- -----------
Gross profit....................................... 115,016 5,273 120,289
$ (401)(2)
Operating expenses................................... 89,180 3,433 (375)(3) 91,837
Amortization of customer lists....................... 18,236 325 606(4) 19,167
Depreciation and amortization of plant and
equipment.......................................... 4,368 147 73(4) 4,588
Amortization of deferred charges..................... 4,137 -- 131(4) 4,268
Provision for supplemental benefit................... 193 -- 193
-------------- --------------- -----------
Operating Income................................... (1,098) 1,368 236
Interest expense--net................................ 15,147 (19) 1,170(5) 16,298
Other income (expenses).............................. (29) -- (29)
(14,617)(6)
Equity in (share of loss of) Star Gas................ -- -- 1,645(7) (12,972)
-------------- --------------- -----------
Income (loss) before income taxes and extraordinary
item............................................. (16,274) 1,387 (29,063)
Income taxes......................................... 218 -- 218
-------------- --------------- -----------
Income (loss) before extraordinary item............ $ (16,492) $ 1,387 $ (29,281)
-------------- --------------- -----------
-------------- --------------- -----------
</TABLE>
- ------------------------------
(1) Represents the results of the 1993 Acquisitions from January 1, 1993 to
their dates of acquisition by the Company. Results from the dates of
acquisition to September 30, 1993 are included in the Company's September
30, 1993 consolidated results. The results of the 1994 Acquisition are also
included in their entirety.
(2) Elimination of general and administrative expenses of the acquired
distributorships which do not have a continuing impact on income from
continuing operations as follows:
<TABLE>
<S> <C>
Salaries and related cost.................................................. $ 288
Other...................................................................... 113
---------
$ 401
---------
---------
</TABLE>
The above costs represent the salaries and related costs of employees of
certain distributorships acquired during 1993 and in connection with the
1994 Acquisition. These employees were not employed by the Company when the
distributorships were acquired (or, in the case of the 1994 Acquisition, are
not intended to be employed by the Company at the time that such acquisition
is consummated), and the Company was able to integrate the businesses
without incurring any incremental costs.
(3) Reflects a management agreement pursuant to which the Company will be paid
$0.5 million per year by Star Gas. The Company does not anticipate having to
hire any additional personnel to perform its obligations under the
management agreement. Rather, it plans to deploy responsibilities within its
own organization to provide the needed services to Star Gas.
(4) Adjustment of amortization of customer lists, depreciation and amortization
of plant and equipment and amortization of deferred charges, as applicable,
to reflect an annual charge in accordance with the Company's accounting
policies.
(5) Reflects (a) increased interest expense as a result of (i) the Preferred
Stock Exchange, (ii) the 10 1/8% Notes Issuance, (iii) a portion of the
Debentures issued in the Offering, the proceeds of which are required for
acquisitions or refinancings and (iv) the elimination of interest income on
the Maxwhale Collateral and (b) decreased interest expense as a result of
(i) the Subordinated Debt Repurchases and (ii) the Maxwhale Notes
Repurchase. If the Subordinated Debt Repurchases and the Maxwhale Notes
Repurchase had occurred on January 1, 1992, the Company would have recorded
a $6.2 million extraordinary loss as the result of the early retirement of
such debt.
(6) Represents the Company's share of the net loss of Star Gas based on Star
Gas' operating results for the nine months ended September 30, 1993,
including a loss of $9.8 million, the Company's share of Star Gas' one time
$33.0 million charge for the impairment of long-lived assets.
(7) Reflects the Company's share of decreased interest expense as a result of
the Star Gas Recapitalization and the Company's share of Star Gas cost for
the Petro management agreement. (See note 3).
P-6
<PAGE>
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
TWELVE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS)
The following pro forma statement of operations for the twelve months ended
September 30, 1993 is derived from the Company's financial statements for the
twelve months ended September 30, 1993, adjusted to give effect to the following
transactions, as if each such transaction had occurred on October 1, 1992:
(a) the acquisitions by the Company of fourteen individually
insignificant distributorships during the twelve months ended September 30,
1993 (the "Twelve Month Acquisitions") and the 1994 Acquisition;
(b) the Preferred Stock Exchange;
(c) the Subordinated Debt Repurchases;
(d) the Maxwhale Notes Repurchase;
(e) the Star Gas Investment and the effect of concurrent agreements
enetered into in connection with such investments;
(f) the 10 1/8% Notes Issuance;
(g) the Collateral Release; and
(h) the Offering, at an assumed interest rate of 10%; provided,
however, that the pro forma data do not give effect to approximately $3.1
million of interest expense on, or the use of, approximately $30.8 million
of the Debentures, the proceeds of which are not required for acquisitions
or refinancings. A change in the interest rate on the Debentures by 0.25%
would result in an increase in pro forma interest expense of approximately
$0.1 million.
The unaudited statements of operations of the Company and the individually
insignificant distributorships for the twelve months ended September 30, 1993
include all adjustments (consisting of only normal recurring adjustments) which,
in the opinion of management, are necessary for a fair presentation of the
results of operations.
P-7
<PAGE>
<TABLE> <CAPTION>
PETROLEUM
HEAT AND DISTRIBUTORSHIPS PRO FORMA PRO FORMA
POWER CO., INC. ACQUIRED(1) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales............................................. $ 548,922 $ 35,320 $ 584,242
Cost of sales......................................... 380,976 25,495 406,471
--------------- --------------- ------------
Gross profit........................................ 167,946 9,825 177,771
Operating expenses.................................... 121,524 5,918 $ (724)(2) 126,218
(500)(3)
Amortization of customer lists........................ 24,262 400 1,368(4) 26,030
Depreciation and amortization of plant and
equipment........................................... 5,749 211 325(4) 6,285
Amortization of deferred charges...................... 5,446 -- 244(4) 5,690
Provision for supplemental benefit.................... 2,167 -- 2,167
--------------- --------------- ------------
Operating income.................................... 8,798 3,296 11,381
Interest expense--net................................. 19,742 (20) 1,928(5) 21,650
Other income (expenses)............................... (14) -- (14)
Share of loss in Star Gas............................. -- -- (13,905)(6) (11,712)
2,193(7)
--------------- --------------- ------------
Income (loss) before income taxes and extraordinary
item.............................................. (10,958) 3,316 (21,995)
Income taxes.......................................... 400 -- 400
--------------- --------------- ------------
Income (loss) before extraordinary item............. $ (11,358) $ 3,316 $ (22,395)
--------------- --------------- ------------
--------------- --------------- ------------
</TABLE>
- ------------------------------
(1) Represents the results of the Twelve Month Acquisitions from October 1, 1992
to their dates of acquisition by the Company. Results from the dates of
acquisition to September 30, 1993 are included in the Company's twelve
months ended September 30, 1993 consolidated results. The results of the
1994 Acquisition are also included in their entirety.
(2) Elimination of general and administrative expenses of the acquired
distributorships which do not have a continuing impact on income from
continuing operations as follows:
<TABLE>
<S> <C>
Salaries and related cost......................................................... $ 574
Other............................................................................. 150
---------
$ 724
---------
---------
</TABLE>
The above costs represent the salaries and related costs of employees of
certain distributorships acquired during the twelve months ended September
30, 1993 and in connection with the 1994 Acquisition. These employees were
not employed by the Company when the distributorships were acquired (or, in
the case of the 1994 Acquisition, are not intended to be employed by the
Company at the time that such acquisition is consummated), and the Company
was able to integrate the businesses without incurring any incremental
costs.
(3) Reflects a management agreement pursuant to which the Company will be paid
$0.5 million per year by Star Gas. The Company does not anticipate having to
hire any additional personnel to perform its obligations under the
management agreement. Rather, it plans to deploy responsibilities within its
own organization to provide the needed services to Star Gas.
(4) Adjustment of amortization of customer lists, depreciation and amortization
of plant and equipment and amortization of deferred charges, as applicable,
to reflect an annual charge in accordance with the Company's accounting
policies.
(5) Reflects (a) increased interest expense as a result of (i) the Preferred
Stock Exchange, (ii) the 10 1/8% Notes Issuance, (iii) a portion of the
Debentures issued in the Offering, the proceeds of which are required for
acquisitions or refinancings and (iv) the elimination of interest income on
the Maxwhale Collateral and (b) decreased interest expense as a result of
(i) the Subordinated Debt Repurchases and (ii) the Maxwhale Notes
Repurchase. If the Subordinated Debt Repurchases and the Maxwhale Notes
Repurchase had occurred on October 1, 1992, the Company would have recorded
a $4.3 million extraordinary loss as the result of the early retirement of
such debt.
(6) Represents the Company's share of the net loss of Star Gas based on Star
Gas' operating results for the twelve months ended September 30, 1993,
including a loss of $9.8 million, the Company's share of Star Gas' one time
$33.0 million charge for the impairment of long-lived assets.
(7) Reflects the Company's share of decreased interest expense as a result of
the Star Gas Recapitalization and the Company's share of Star Gas' cost for
the Petro management agreement (see note 3).
P-8
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE DEBENTURES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE DEBENTURES TO
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
PAGE
Available Information....................... 2
Prospectus Summary.......................... 3
The Company................................. 9
Risk Factors................................ 9
Use of Proceeds............................. 13
Capitalization.............................. 14
Selected Financial and Other Data........... 15
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................. 18
Business.................................... 27
Management.................................. 36
Description of Debentures................... 39
Description of Other Indebtedness and
Redeemable Preferred Stock................ 59
Underwriting................................ 62
Legal Matters............................... 63
Experts..................................... 63
Incorporation of Documents by Reference..... 63
Index to Financial Statements............... F-1
Pro Forma Financial Statements.............. P-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$75,000,000
["PETRO" logo]
PETROLEUM HEAT
AND POWER CO., INC.
% SUBORDINATED DEBENTURES
DUE 2006
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
KIDDER, PEABODY & CO.
INCORPORATED
CHEMICAL SECURITIES INC.
MORGAN SCHIFF & CO., INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee............................................................ $25,863
NASD filing fee................................................................. 8,000
Printing and engraving.......................................................... 100,000
Accountants' fees and expenses.................................................. 100,000
Legal fees and expenses......................................................... 125,000
Trustee's fees and expenses..................................................... 15,000
Blue Sky fees and expenses...................................................... 30,000
Miscellaneous................................................................... 46,137
-----------
Total................................................................. $450,000
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Business Corporation Act (the "MBCA")
provides mandatory and exclusive standards for indemnification, although the
Articles of Incorporation or by-laws of a corporation can specifically limit the
statutory indemnification. Minnesota law generally provides that a corporation
shall indemnify a person made or threatened to be made a party to a proceeding
by reason of such person's official capacity as an officer, director or employee
of the corporation, against judgments, penalties, fines, including, without
limitation, excise taxes assessed against such person with respect to an
employee benefit plan, settlements, and reasonable expenses, including
attorney's fees and disbursements, incurred by that person in connection with
the proceeding, if such person (a) has not been indemnified by another entity
for the same proceedings and in connection with the same acts or omission; (b)
acted in good faith; (c) received no improper personal benefit; (d) in the case
of a criminal proceeding, had no reason to believe such person's conduct was
unlawful; and (e) in connection with the acts or omissions in question, the
person reasonably believed that such person's conduct was in the best interests
of the corporation (or, in the case of a question of improper personal benefit,
believed that the conduct was not opposed to the best interests of the
corporation; or in the case of an employee benefit plan, believed that the
conduct was in the best interests of the participants or beneficiaries of the
employee benefit plan).
Section 302A.521 of the MBCA further provides that if an officer, director
or employee is made or threatened to be made a party to a proceeding in such
person's official capacity, such person is entitled, upon written request to the
corporation, to payment or reimbursement by the corporation of reasonable
expenses incurred by such person in advance of the final disposition of the
proceeding (a) upon receipt by the corporation of a written confirmation by such
person of such person's good faith belief that the criteria for indemnification
set forth under Minnesota law have been satisfied, an undertaking by such person
to repay all amounts paid or reimbursed by the corporation if it is ultimately
determined that the criteria for indemnification have not been satisfied, and
(b) after a determination that the facts then known to those making the
determination would not preclude indemnification under Minnesota law.
Finally, Section 302A.521 of the MBCA provides that a corporation's
Articles of Incorporation or by-laws may prohibit indemnification or advances or
may impose conditions on such indemnification or advance, as long as those
conditions apply equally to all persons or to all persons with a given class.
II-1
<PAGE>
Registrant's Restated Articles of Incorporation, as amended, contains the
limitation of liability provision set forth below:
"ARTICLE VIII--A director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section
302A.559 of the Minnesota Business Corporation Act or Section 80A.23 of the
Minnesota Securities law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Minnesota Business
Corporation Act is hereafter amended to authorize any further limitation of
the liability of a director, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted
by the Minnesota Business Corporation Act, as amended. No amendment to or
repeal of this Article VIII shall apply to or have any effect on the
liability or alleged liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to
such amendment or repeal."
Registrant's by-laws, as amended, contains the indemnification provision
set forth below:
"Section 8.01. The corporation shall indemnify all officers and
directors of the corporation, for such expenses and liabilities, in such
manner, under such circumstances, and to such extent as permitted by
Minnesota Statutes Section 302A.521, as now enacted or hereafter amended.
Unless otherwise approved by the Board of Directors, the corporation shall
not indemnify or advance expenses to any employee of the corporation who is
not otherwise entitled to indemnification pursuant to the prior sentence of
this Section 8.01."
ITEM 16. EXHIBITS
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----- -----------------------------------------------------------------------
1 --Form of Underwriting Agreement. (10)
3.1 --Restated and Amended Articles of Incorporation, as amended, and
Articles of Amendment thereto. (2)
3.2 --Restated By-Laws of the Registrant. (2)
4.1 --Indenture, dated as of April 1, 1993, between the Company and
Chemical Bank, as trustee, including Form of Notes. (8)
4.2 --Indenture, dated as of October 1, 1985 between the Company and
Manufacturers Hanover Trust Company, as trustee, including Form of
Notes. (3)
4.3 --Restated and Amended Articles of Incorporation and Articles of
Amendment thereto. (2)
4.4 --Certificate of Designation creating a series of preferred stock
designated as Cumulative Redeemable Exchangeable 1991 Preferred Stock
and Certificate of Amendment relating thereto. (6)
4.5 --Certificate of Designation creating a series of preferred stock
designated as Cumulative Redeemable 1991 Preferred Stock. (6)
4.6 --Form of Indenture between the Company and Chemical Bank, as trustee,
including Form of Debentures. (10)
4.7 --Certificate of Designation creating a series of Preferred Stock
designated as Cumulative Redeemable Exchangeable 1993 Preferred
Stock. (10)
5 --Opinion of Phillips, Nizer, Benjamin, Krim & Ballon. (10)
7 --Opinion of Dorsey & Whitney re: liquidation preference. (10)
9.1 --Shareholders' Agreement dated as of July 1992, among the Company and
certain of its stockholders. (2)
II-2
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----- -----------------------------------------------------------------------
10.1 --Amended and Restated Credit Agreement dated as of December 31, 1992
among the Company, Maxwhale Corp., certain banks party thereto and
Chemical Bank. (8)
10.2 --Pension Plan, as amended, of Petroleum Heat and Power Co., Inc. (2)
10.3 --Savings Plan, as amended of Petroleum Heat and Power Co., Inc. (2)
10.4 --Supplemental Executive Retirement Plan of Petroleum Heat and Power
Co., Inc. (2)
10.5 --Lease dated July 15, 1981 with respect to offices and garage located
at 477 West John Street and 5 Alpha Plaza, Hicksville, New York. (4)
10.6 --Lease dated February 15, 1982,(4) First Amendment dated February 14,
1986, and Second Amendment dated July 1, 1989, with respect to
offices, garage and terminal located at 818 Michigan Avenue, N.E.,
Washington, D.C. (2)
10.7 --Lease dated June 26, 1989 with respect to offices and garage located
at 40 Lee Burbank Highway, Revere, Massachusetts. (2)
10.8 --Lease dated December 1, 1985 with respect to office and garage
located at 3600-3620 19th Avenue, Astoria, New York. (3)
10.9 --Lease dated November 1, 1985 with respect to office and garage
located at 522 Grand Blvd., Westbury, New York. (5)
10.10 --Lease dated June 5, 1986 with respect to office and garage located at
2541 Richmond Terrace Co., Staten Island, New York. (5)
10.11 --Lease dated July 31, 1986 with respect to office and garage located
at 71 Day Street, Norwalk, Connecticut. (5)
10.12 --Lease dated July 9, 1984 with respect to office located at 1245
Westfield Avenue, Clark, New Jersey. (5)
10.13 --Lease dated April 5, 1991 with respect to office and garage located
at 10 Spring Street, New Milford, Connecticut. (2)
10.14 --Lease dated October 26, 1990 with respect to office and garage
located at 1 Coffey Street, Brooklyn, New York. (2)
10.15 --Lease dated February 6, 1990 with respect to office and garage
located at 62 Oakland Avenue and 64 Oakland Avenue, East Hartford,
Connecticut. (2)
10.16 --Lease dated July 29, 1988 and Addendum to lease dated August 1, 1988
with respect to office, garage and terminal located at 224 North Main
Street, Southampton, New York. (2)
10.17 --Lease dated April 1, 1988 with respect to office and garage located
at 171 Ames Court, Plainview, New York. (2)
10.18 --Lease dated August 12, 1988 with respect to office and garage located
at 326 South Second Street, Emmaus, Pennsylvania. (2)
10.19 --Lease dated July 15, 1990, Addendum to lease dated July 27, 1990 and
Second Addendum to lease dated November 30, 1990, with respect to
office and garage located at 212 Elm Street, North Haven,
Connecticut. (2)
10.20 --Lease dated August 14, 1989 with respect to office and garage located
at foot of South Street, Oyster Bay, New York. (2)
10.21 --Lease and Addendum to lease dated September 26, 1990 with respect to
office and garage located at 930 Park Avenue, Lakewood, New Jersey.
(2)
10.22 --Lease dated December 1, 1990 with respect to garage located at 10
Coffey Street, Brooklyn, New York. (2)
10.23 --Lease dated May 9, 1991 with respect to office and garage located at
260 Route 10 East, Whippany, New Jersey. (2)
10.24 --Lease dated June 1, 1987 with respect to garage located at 817
Pennsylvania Avenue, Linden, New Jersey. (2)
10.25 --Lease dated June 1, 1989 with respect to office and garage located at
2 Selleck Street, Stamford, Connecticut. (2)
II-3
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----- -----------------------------------------------------------------------
10.26 --Lease dated April 28, 1992 with respect to office and garage located
at 8087-8107 Parston Drive, Forestville, Maryland. (8)
10.27 --Demand Promissory Notes of Thomas J. Edelman in favor of Petro, Inc.
in the amounts of $500,000 and $100,000 dated April 15, 1985 and May
17, 1985, respectively, and Pledge and Security Agreement, as
amended, made by Thomas J. Edelman in favor of Petro, Inc. dated
April 15, 1986. (5)
10.28 --Letter dated June 5, 1985 with respect to redemption of 55,250 shares
of common stock of Petroleum Heat and Power Co., Inc. from Thomas J.
Edelman and promissory note of Petroleum Heat and Power Co., Inc. in
the amount of $884,000 in favor of Thomas J. Edelman, dated June 6,
1985. (3)
10.29 --Option dated October 18, 1984 granted to Irik P. Sevin to purchase
64,000 shares of common stock of Petroleum Heat and Power Co., Inc.
(3)
10.30 --Form of Equipment Lease and related documentation dated as of October
21, 1983 relating to vehicle leasing transaction between Atlas Oil
Corporation and various equipment lessors. (3)
10.31 --Form of Equipment Lease and related documentation dated as of March
2, 1985 relating to vehicle leasing transaction between Petro, Inc.
and various equipment lessors. (3)
10.32 --Agreement dated October 22, 1986 relating to purchase of 64,000
shares of Class A Common Stock by Irik P. Sevin. (5)
10.33 --Agreement dated December 2, 1986 relating to stock options granted to
Malvin P. Sevin. (5)
10.34 --Agreement dated December 2, 1986 relating to stock options granted to
Irik P. Sevin. (5)
10.35 --Agreements dated December 28, 1987 and March 6, 1989 relating to
stock options granted to Irik P. Sevin and Malvin P. Sevin. (2)
10.36 --Form of Note dated December 31, 1992, in the amount of $1,499,378,
due December 31, 1993, from Irik P. Sevin to the Company. (8)
10.37 --Subordinated Note Agreement relating to $60 million Subordinated
Notes due October 1, 1998 issued to John Hancock Mutual Life
Insurance Company and other Investors (the "Hancock Note Agreement").
(2)
10.38 --Note Agreement, dated as of January 15, 1991, relating to $12.5
million Subordinated Notes due January 15, 2001, between the Company
and Connecticut General Life Insurance Company (the "Connecticut
General Note Agreement").(2)
10.39 --Purchase Agreement, dated as of September 1, 1991, between the
Company and United States Leasing International, relating to purchase
of 159,722 shares of the 1991 Preferred Stock (the "US Leasing
Purchase Agreement"). (2)
10.40 --Purchase Agreement, dated as of August 1, 1989, between the Company
and John Hancock Mutual Life Insurance Company and The Northwestern
Mutual Life Insurance Company, relating to the purchase of the 1989
Preferred Stock (the "Hancock/Northwestern Purchase Agreement"). (2)
10.41 --Agreement dated as of November 1, 1992 relating to stock options
granted to George Leibowitz. (8)
10.42 --Letter Agreement dated March 15, 1993 relating to the Credit
Agreement. (8)
10.43 --Lease dated June 17, 1993 with respect to office facilities located
at 2187 Atlantic Street in Stamford Connecticut. (10)
10.44 --Form of Note dated December 31, 1993, in the amount of $1,559,827,
due December 31, 1994, from Irik P. Sevin to the Company. (1)
10.45 --Agreement dated December 1993 relating to stock options granted to
Malvin P. Sevin. (1)
10.46 --Purchase Agreement, dated as of December 21, 1993, among Star Gas
Holdings, Inc., First Reserve Secured Energy Assets Fund, L.P.
American Gas & Oil Investors, AmGo II, AmGo III, FRC Star Gas, Inc.,
Star Gas and the Company. (11)
10.47 --Option from Star Gas to the Company, dated as of December 21, 1993.
(11)
10.48 --Shareholder Put/Call Agreement, dated as of December 21, 1993, among
the Company, the Other Investors and Prudential. (11)
II-4
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----- -----------------------------------------------------------------------
10.49 --Shareholders' Agreement, dated as of December 21, 1993, among the
Company, the Other Investors and Prudential. (11)
10.50 --Management Services Agreement, dated as of December 21, 1993, between
the Company and Star Gas. (11)
10.51 --First Amendment to the Company's 10 1/8% Subordinated Notes Indenture
dated as of January 12, 1994. (1)
10.52 --Form of First Amendment to the US Leasing Purchase Agreement. (1)
10.53 --Form of Third Amendment to the Connecticut General Note Agreement.
(1)
10.54 --Form of Second Amendment to the Hancock Note Agreement. (1)
10.55 --Form of First Amendment to the Hancock/Northwestern Purchase
Agreement. (1)
10.56 --Form of Fourth Amendment dated January 21, 1994 to the Second Amended
and Restated Credit Agreement. (1)
11.0 --Computation of Per Share Earnings. (10)
12.0 --Computation of Ratio of Earnings to Fixed Charges. (10)
22.1 --Subsidiaries of Registrant. (10)
24.1 --Consent of KPMG Peat Marwick (1).
24.2 --Consent of Ernst & Young. (1)
24.3 --Consent of Phillips, Nizer, Benjamin, Krim & Ballon (included in
Exhibit 5).
24.4 --Consent of Dorsey & Whitney (included in Exhibit 7).
25.0 --Power of Attorney.(included on page II-7 hereof)
26.0 --Statement of Eligibility of Trustee on Form T-1 of Chemical
Bank.(separately bound)(10)
- ---------------
(1) Filed herewith.
(2) Filed as Exhibits to Registration Statement on Form S-1, File No. 33-48051,
and incorporated herein by reference.
(3) Filed as Exhibits to Registration Statement on Form S-1, File No. 2-99794,
and incorporated herein by reference.
(4) Filed as Exhibits to Registration Statement on Form S-1, File No. 2-88526,
and incorporated herein by reference.
(5) Filed as Exhibits to Registration Statement on Form S-1, File No. 33-9088,
and incorporated herein by reference.
(6) Filed as Exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991, File No. 2-88526, and incorporated herein by
reference.
(7) Filed as Exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 2-88526, and incorporated herein by
reference.
(8) Filed as Exhibits to the Company's Registration Statement on Form S-2, File
No. 33-58034, and incorporated herein by reference.
(9) To be filed by Amendment.
(10) Previously filed.
(11) Filed as Exhibits to the Company's Periodic Report on Form 8-K filed on
January 4, 1994, File No. 2-88526, and incorporated herein by reference.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefor unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction, the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized in the City of New York, State of New York,
on the 26th day of January, 1994.
PETROLEUM HEAT AND POWER CO., INC.
By: /s/ IRIK P. SEVIN
..................................
Irik P. Sevin
President, Chairman of the Board
Chief Executive Officer and Chief
Financial and Accounting Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints IRIK P. SEVIN, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place or stead, in any and all capacities, to sign the
within Registration Statement relating to the offering of $75,000,000 of
Subordinated Notes of Petroleum Heat and Power Co., Inc. and any and all
amendments to said Registration Statement, and to file the same, with all
exhibits thereto, and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ IRIK P. SEVIN President, Chairman of the Board, January 26, 1994
.................................... Chief Executive Officer, Financial
Irik P. Sevin and Accounting Officer and Director
/s/ AUDREY L. SEVIN Secretary and Director January 26, 1994
....................................
Audrey L. Sevin
/s/ PHILLIP E. COHEN Director January 26, 1994
....................................
Phillip E. Cohen
/s/ THOMAS J. EDELMAN Director January 26, 1994
....................................
Thomas J. Edelman
Director January , 1994
....................................
Wolfgang Traber
Director January , 1994
....................................
Richard O'Connell
Director January , 1994
....................................
Max Warburg
</TABLE>
II-7
AMENDED
-------
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
$1,559,827 New York, New York
December 31, 1993
FOR VALUE RECEIVED, IRIK P. SEVIN (the "Debtor"),
residing at 4 East 72nd Street, New York, New York hereby promises
to pay to PETROLEUM HEAT AND POWER CO., INC., a Minnesota
corporation (the "Payee"), at its offices located at 2187 Atlantic
Street, Stamford, Connecticut 06904 or at such other place as the
Payee may from time to time designate, the principal sum of One
Million Five Hundred Fifty-Nine Thousand Eight Hundred Twenty-Seven
($1,559,827) lawful money of the United States on December 31, 1994
and to pay interest in like money at said office or such other
place as the Payee may from time to time designate from the date
hereof on the unpaid principal balance at the average of the LIBOR
rate in effect for each month during the 12 months preceding the
interest payment date plus .75% per annum, payable annually on
December 31 of each year until the principal has been paid in full.
In no event shall the interest charged hereunder exceed the maximum
permitted under the laws of the State of New York.
LIBOR shall mean with respect to each month the "one
month" quoted rate per annum (as published on the first business
day of each month by the Wall Street Journal), at which United
States dollar deposits are offered to leading banks in the
interbank Eurodollar market two working days prior to the first day
of such month for delivery on the first day of such month, for the
number of days in such month. "Working Day" means any day on which
dealings in foreign currencies and exchanges between banks may be
carried on in London and New York.
The Debtor hereby waives diligence, demand, presentment,
protest and notice of any kind. None of the Payee's rights or
remedies shall be waived or diminished by any failure or delay in
the exercise thereon and all rights and remedies shall be
cumulative and may be exercised in whatever manner and order payee
chooses.
This Note may be prepaid in whole or in part from time to
time without penalty or premium; provided, that interest at the
rate provided herein shall be paid on all amounts so prepaid to the
date of prepayment.
This Note is an amendment to, and a restatement of, a
note dated December 31, 1992 in the principal amount of $1,499,378.
<PAGE>
The principal amount has been increased by $60,449 to capitalize
interest due from January 1, 1993 through December 31, 1993.
This Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the party to
be charged.
__________________________
Irik P. Sevin
Audrey Sevin
850 Park Avenue
New York, NY
December 20, 1993
Petroleum Heat and Power Co., Inc.
2187 Atlantic Street
Stamford, CT 06902
Gentlemen:
I am writing this letter as executrix of the Estate of
Malvin P. Sevin. As you know, in this capacity I have the right to
exercise certain options originally issued to Malvin P. Sevin,
within a period of one year from the date of his death. Without
any extension of the exercise date, I believe that it is in the
best interest of the Estate to exercise the option and sell the
shares. On the other hand, I would be willing not to exercise the
option and sell the shares at the present time if you would be
willing to extend the period within which the Estate may exercise
the option to the end of the option itself, which is in November,
1994.
If you agree to extend the time of the Estate to exercise
the option until the expiration date of the option, please sign in
the space indicated below.
Sincerely yours,
Audrey Sevin
ACCEPTED AND AGREED:
PETROLEUM HEAT AND POWER CO., INC.
By________________________________
Max Warburg, Director
By________________________________
Wolfgang Traber, Director
By________________________________
Richard O'Connell, Director
By________________________________
Thomas J. Edelman, Director
By________________________________
Phillip Ean Cohen, Director
THIS FIRST AMENDMENT TO INDENTURE, dated as of January 12, 1994, is entered
into between PETROLEUM HEAT AND POWER CO., INC., a Minnesota corporation (the
"Company"), and CHEMICAL BANK, a New York corporation (the "Trustee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and the Trustee have entered into that certain
Indenture dated as of April 1, 1993 (the "Indenture"), for the equal and ratable
benefit of the Holders of the Company's 10 1/8% Subordinated Notes Due 2003 (the
"Securities"); and
WHEREAS, in accordance with Section 9.02 of the Indenture the Company has
obtained the written consent of the Holders of at least a majority in principal
amount of the Securities to an amendment to the Indenture.
NOW, THEREFORE, for the purpose of memorializing the amendment to the
Indenture so consented to by Holders of the Securities, the parties hereto do
hereby agree as follows:
SECTION 1. Definitions and Terms.
---------------------
Unless otherwise defined herein, all initially capitalized terms used
herein shall have the meanings assigned to such terms in the Indenture.
SECTION 2. Amendment to Indenture.
-----------------------
A. Section 4.03 of the Indenture is amended to read in its entirety as
follows:
(a) The Company shall not, directly or indirectly, create, incur,
issue, assume, guaranty or otherwise become directly or indirectly liable with
respect to (collectively, "incur") any Funded Debt unless, after giving effect
thereto, the Company's Consolidated EBITDA Coverage Ratio exceeds 2.0 to 1.0.
(b) Notwithstanding Section 4.03(a), the Company may incur the
following Funded Debt: (1) Funded Debt owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Funded Debt (other
than to a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the incurrence of such Funded Debt by the Company; (2) the Securities and Funded
Debt issued in exchange for, or the proceeds of which are used to refund or
refinance, any Funded Debt permitted by this clause (2); provided, however, that
(i) the principal amount of the Funded Debt so incurred shall not exceed the
principal amount of the Funded Debt so exchanged, refunded or refinanced and
(ii) the Funded Debt so incurred (A) shall not mature prior to the Stated
Maturity of the Funded Debt so exchanged, refunded or refinanced and (B) shall
have an Average Life equal to or greater than the remaining Average Life of the
Funded Debt so exchanged, refunded or refinanced; (3) Funded Debt (other than
Funded Debt described in clause (1) or (2) of this paragraph) outstanding on the
date of this Indenture and Funded Debt issued in exchange for, or the proceeds
of which are used to refund or refinance, any Funded Debt permitted by this
<PAGE>
clause (3) or by Section 4.03(a); provided, however, that (i) the principal
amount of the Funded Debt so incurred shall not exceed the principal amount of
the Funded Debt so exchanged, refunded or refinanced, (ii) the Funded Debt so
incurred (A) shall not mature prior to the Stated Maturity of the Funded Debt so
exchanged, refunded or refinanced and (B) shall have an Average Life equal to or
greater than the remaining Average Life of the Funded Debt so exchanged,
refunded or refinanced and (iii) if the Funded Debt so exchanged, refunded or
refinanced is a Subordinated Obligation, the Funded Debt so incurred will be
subordinated to the Securities and (4) additional Funded Debt in an aggregate
amount not to exceed $50 million at any one time outstanding.
B. Section 4.04 of the Indenture is amended to read in its entirety as
follows:
Limitation on Debt and Preferred Stock of Subsidiaries. The Company
shall not permit any Subsidiary to incur any Debt or issue any Preferred Stock
except: (1) Debt or Preferred Stock issued to and held by the Company or a
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Debt
or Preferred Stock (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the incurrence of such Debt or the
issuance of such Preferred Stock, as the case may be, by the issuer thereof; (2)
Debt incurred or Preferred Stock of a Subsidiary issued and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company (other
than Debt incurred or Preferred Stock issued in contemplation of, as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by the Company), provided that at the time such Subsidiary is acquired
by the Company, after giving effect to such Debt or Preferred Stock of such
Subsidiary, the Company's Consolidated EBITDA Coverage Ratio exceeds 2.0 to 1;
(3) Debt or Preferred Stock (other than Debt or Preferred Stock described in
clause (1), (2), (4) or (6) of this Section) incurred or issued and outstanding
on or prior to the date of this Indenture; (iv) Debt of a Subsidiary consisting
of guarantees issued by such Subsidiary and outstanding on the date of this
Indenture and Debt of a Subsidiary consisting of guarantees issued subsequent to
the date of this Indenture, in each case, to the extent such guarantee
guarantees Bank Debt; (5) Debt of a Subsidiary (other than Debt described in
clause (4) above) consisting of guarantees of Funded Debt of the Company
permitted by Section 4.03(a), provided that contemporaneously with the
incurrence of such Debt by such Subsidiary, such Subsidiary issues a guarantee
for the pro rata benefit of the holders of the Securities that is subordinated
to such Debt of such Subsidiary to the same extent as the Securities are
subordinated to such Funded Debt of the Company; and (6) Debt or Preferred Stock
issued in exchange for, or the proceeds of which are used to refund or
refinance, Debt or Preferred Stock referred to in the foregoing clause (2) or
(3); provided, however, that (i) the principal amount of such Debt or Preferred
Stock so incurred or issued will not exceed the principal amount of the Debt or
Preferred Stock so exchanged or refinanced and (ii) the Debt or Preferred Stock
so incurred or issued shall (A) have a Stated Maturity later than the Stated
Maturity of the Debt or Preferred Stock being exchanged or refinanced and (B)
2
<PAGE>
have an Average Life equal to or greater than the remaining Average Life of the
Debt or Preferred Stock so exchanged, refunded or refinanced.
C. Section 1.01 of the Indenture is amended, effective as of the date
first above written, by deleting the definitions of "Consolidated EBITDA
Coverage Ratio", "Consolidated Interest Expense" and "Funded Debt" therein in
their entirety and by substituting the following in lieu thereof:
"Consolidated EBITDA Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if the Company or any Subsidiary
has incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated EBITDA Coverage Ratio is an incurrence of Debt, or both, EBITDA and
Consolidated Interest Expense for such period will be calculated after giving
effect on a pro forma basis to (A) such Debt as if such Debt had been incurred
on the first day of such period, (B) the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, and (C) the
interest income realized by the Company and its Subsidiaries on the proceeds of
such Debt, to the extent not yet applied at the date of determination, assuming
such proceeds earned interest at the Treasury Rate from the date such proceeds
were received through such date of determination, (2) if since the beginning of
such period the Company or any Subsidiary shall have made any Asset Disposition,
EBITDA for such period shall be reduced by an amount equal to EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of the Company
or any Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Subsidiaries in connection with such
Asset Dispositions for such period (or, if the Capital Stock of any Subsidiary
is sold, the Consolidated Interest Expense for such period directly attributable
to the Debt of such Subsidiary to the extent the Company and its continuing
Subsidiaries are no longer liable for such Debt after such sale) and (3) if
since the beginning of such period the Company or any Subsidiary (by merger or
otherwise) shall have made an Investment in any Subsidiary (or any person which
becomes a Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the incurrence of
any Debt) as if such Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Debt incurred in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company; provided, however, that such Officer shall assume (i) the historical
3
<PAGE>
sales and gross profit margins associated with such assets for any consecutive
12-month period ended prior to the date of purchase (provided that the first
month of such period shall be no more than 18 months prior to such date of
purchase), less estimated post-acquisition loss of customers (not to be less
than 3%) and (ii) other expenses as if such assets had been owned by the Company
since the first day of such period. If any Debt bears a floating rate of
interest and is being given pro forma effect, the interest on such Debt will be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its Subsidiaries, determined on a
consolidated basis, including (i) interest expense attributable to capital
leases, (ii) amortization of debt discount, (iii) capitalized interest, (iv)
non-cash interest expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing, (vi)
interest actually paid by the Company or any such Subsidiary under any guarantee
of Debt or other obligation of any other Person, (vii) net costs associated with
Hedging Obligations (including amortization of fees), (viii) Preferred Stock
dividends in respect of all Preferred Stock of Subsidiaries held by persons
other than the Company or a Wholly Owned Subsidiary, (ix) the cash contributions
to any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan to pay interest or fees to any person (other
than the Company) in connection with loans incurred by such plan or trust to
purchase newly issued or treasury shares of the Company (but excluding interest
expense associated with the accretion of principal on a non-interest bearing or
other discount security) and (x) to the extent not already included in
Consolidated Interest Expense, the interest expense attributable to Debt of
another person that is guaranteed by the Company or any of its Subsidiaries,
less interest income (exclusive of deferred financing fees) of the Company and
its Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Funded Debt" as applied to any person, means, without duplication,
(a) any Debt with a Stated Maturity of more than one year from the date of
incurrence, (b) any Debt, regardless of its term, if such Debt is renewable or
extendable at the option of the obligor of such Debt pursuant to the terms
thereof to a date more than one year from the date of incurrence; and (c) any
Debt, regardless of its term, that by its terms or the agreement pursuant to
which it is issued may be paid with the proceeds of other Debt that may be
incurred pursuant to the terms of such first-mentioned Debt or by the terms of
such agreement, which other Debt has a stated maturity of more than one year
from the date of incurrence of such first mentioned Debt; provided, however,
that Working Capital Borrowings shall be excluded from Funded Debt except to the
extent that Working Capital Borrowings exceed an amount equal to (i) 100% of the
current assets (excluding cash) of such person and its consolidated subsidiaries
less (ii) the excess, if any, of consolidated current liabilities over current
assets on such date.
4
<PAGE>
SECTION 3. Ratification of Indenture, as Amended.
-------------------------------------
The Indenture, as amended hereby, is hereby ratified and confirmed and
continues in full force and effect.
SECTION 4. Effectiveness.
-------------
This First Amendment to Indenture shall become effective upon the execution
hereof by the Company and the Trustee, the Company having delivered to the
Trustee evidence of consent from the Holders of at least a majority in principal
amount of the Securities then outstanding.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Indenture to be duly executed as of the date first above written.
PETROLEUM HEAT AND POWER CO., INC.
By:
-------------------------------
Name: George Leibowitz
Title: Senior Vice President
Finance and Corporate
Development
CHEMICAL BANK, TRUSTEE
By:
-------------------------------
Name: Glenn Booth
Title: Assistant Vice President
5
PETROLEUM HEAT AND POWER CO., INC.
FIRST AMENDMENT
Dated as of January 24, 1994
Re:
Purchase Agreement Dated as of September 1, 1991
and
$12,763,663 Subordinated Notes
Due March 1, 2000
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
FIRST AMENDMENT
Re:
Purchase Agreement Dated as of September 1, 1991
and
$12,763,663 Subordinated Notes
Due March 1, 2000
Dated as of
January 24, 1994
United States Leasing International, Inc.
733 Front Street
Mail Stop 220
San Francisco, CA 94111
Gentlemen:
Reference is made to the Purchase Agreement dated as of
September 1, 1991, between Petroleum Heat and Power Co., Inc., a
Minnesota corporation (the "Company"), and you (the "Purchase
Agreement"). Capitalized terms used herein and not otherwise
defined shall have the same meanings as in the Purchase Agreement.
You are hereinafter sometimes referred to as the "Holder."
In consideration of the sum of Sixty-Three Thousand Eight
Hundred and Eighteen ($63,818) Dollars lawful money of the United
States of America and for other good and valuable consideration,
receipt whereof is hereby acknowledged by the Holder, the Company
requests the amendment of the terms of the Purchase Agreement as
hereinafter provided.
<PAGE>
Upon your acceptance hereof and upon satisfaction of the
conditions hereof, the First Amendment to the Purchase Agreement
(this "First Amendment") shall constitute a contract between us
amending the Purchase Agreement in the respects, but only in the
respects, hereinafter set forth:
SECTION 1. AMENDMENTS TO NOTE AGREEMENT
- ---------- ----------------------------
1.1 Definition of Notes. Notwithstanding any provision
-------------------
to the contrary, the term "Notes" means collectively, $6,381,831.50
aggregate principal amount of the Company's Series A Subordinated
Notes due March 1, 2000 ("Series A Notes") and $6,381,831.50
aggregate principal amount of the Company's Series B Senior Notes
due March 1, 2000 ("Series B Notes").
1.2 Amendment to Section 5.5. Section 5.5 is hereby
------------------------
amended by deleting the existing provisions and by substituting
therefor the following provisions:
5.5 Nature of Business. Neither the Company nor
------------------
any Subsidiary will engage in any business if, giving
effect thereto, less than 80% of the Consolidated
Operating Cash Flow of the Company for the 12 months
ended with its most recently ended fiscal quarter would
be attributable to the distribution of home heating oil
(#2 fuel oil), propane and related products (including
the distribution of other petroleum products which were
distributed by the Company during its fiscal year ending
December 31, 1990), all as determined in accordance with
generally accepted accounting principles. Schedule VI
attached hereto lists all petroleum products which were
distributed by the Company or its Subsidiaries during the
fiscal year ended December 31, 1990. Each Officer's
Certificate to be delivered pursuant to Sec.5.19(h) hereof
shall set forth in detail the percent of the Consolidated
Operating Cash Flow of the Company, for the 12 months
ended with the fiscal quarter or fiscal year, as the case
may be, to which such Officer's Certificate relates,
attributable to the distribution by the Company or its
Subsidiaries of home heating oil (#2 fuel oil) propane
3
<PAGE>
and all other petroleum products which were distributed
by the Company during its fiscal year ending December 31,
1990.
1.3 Amendment to Section 5.6. Section 5.6 is hereby
------------------------
amended by deleting the existing provisions of subsection (a) and
(b) and (c) and by substituting therefor the following provisions:
"Neither the Company nor any of its Subsidiaries
will incur, create, assume, guarantee or otherwise become
liable for any additional Funded Debt unless, after
giving effect thereto, the Company's Consolidated EBITDA
Coverage Ratio exceeds 2.0 to 1 from January 1, 1994
through December 31, 1995; 2.1 to 1 from January 1, 1996
through December 31, 1996; 2.2 to 1 from January 1, 1997
through December 31, 1997; 2.3 to 1 from January 1, 1998
through December 31, 1998; 2.4 to 1 from January 1, 1999
through December 31, 1999 and 2.5 to 1 on and after
January 1, 2000 (each such ratio for each such period, a
"Minimum Consolidated EBITDA Coverage Ratio").
The foregoing restriction on additional Funded Debt
shall not be applicable to (i) Funded Debt incurred to
refund, extend or renew up to an equal amount of
outstanding Funded Debt; provided that: (1) the
principal amount of the Funded Debt so incurred will not
exceed the principal amount of the Funded Debt so
exchanged, refunded or refinanced and (2) the Funded Debt
so incurred (A) will not mature prior to the Stated
Maturity of the Funded Debt so exchanged, refunded or
refinanced and (B) will have an Average Life equal to or
greater than the remaining Average Life of the Funded
Debt so exchanged, refunded or refinanced and (3) if the
Funded Debt so exchanged is a subordinated obligation to
either the Series A or Series B Notes, the Funded Debt so
incurred will be subordinated to such Series A or Series
B Notes as the case may be, and (ii) additional Funded
Debt in an aggregate amount not to exceed $25 million at
any one time outstanding; provided, however, that Funded
Debt incurred pursuant to this subsection (ii) shall be
deemed not to be outstanding for purposes of this
subsection (ii) if at the end of any period of four
consecutive fiscal quarters, the Company's Consolidated
EBITDA Coverage Ratio exceeds the then applicable Minimum
Consolidated EBITDA Coverage Ratio.
In addition, the Company will not create, incur,
assume or permit to exist any Lien (other than Permitted
Liens) upon or with respect to any of the property of the
Company or any Subsidiary to secure Funded Debt that is
4
<PAGE>
not Senior Debt unless contemporaneously therewith
effective provision is made to secure the Notes equally
and ratably with such Funded Debt for so long as such
Funded Debt is secured by a Lien."
1.4 Section 6.1 is hereby amended by deleting the first
sentence of the last paragraph of Section 6.1 and substituting the
following sentence:
"All prepayments of the Notes pursuant to this
Section 6.1 shall be made by the payment of an
amount equal to 101% of the aggregate principal
amount remaining unpaid on such Notes as of the date
of prepayment together with all accrued but unpaid
interest thereon to the date of such prepayment, but
without additional premium."
1.5 Section 8.1 is hereby amended by inserting the term
"Series A" before the term "Notes" in each instance it appears and
by amending the caption of the Section to read as follows:
"Section 8.5 Subordination of the Series A Notes".
1.6 Section 10.1 is hereby amended by deleting the
existing provisions and substituting the following:
"10.1 Consent Required. Any term, covenant,
----------------
agreement or condition of this Agreement may, with
the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a
particular instance and either retroactively or
prospectively), if the Company shall have obtained
the consent in writing of the holders of at least 66
2/3% of the then outstanding shares of the 1991
Preferred Stock and at least 66 2/3% in aggregate
principal amount of the then outstanding Series A
Notes and 66 2/3% in aggregate principal amount of
the then outstanding Series B Notes; provided that
without the written consent of the holders of all of
the 1991 Preferred Stock and the Notes then
outstanding, no such waiver, modification,
alteration or amendment shall be effective (a) which
will change the time of payment or redemption
(including any prepayment or redemption required by
Sec.6) of the principal of, or the interest on, any
Note or change the principal amount thereof or
change the rate of interest thereon, or (b) which
will change any of the provisions with respect to
5
<PAGE>
optional prepayments, or (c) which will change the
percentage of holders of the 1991 Preferred Stock or
the Notes required to consent to any such amendment,
alteration or modification of any of the provisions
of Sec.8, Sec.9 or this Sec.10. Each and every holder of the
1991 Preferred Stock or the Notes, by acceptance
thereof, shall undertake and agree to consider and
respond to any request made by the Company with
respect to this Sec.10 without unreasonable delay."
1.7 Amendment to Section 11.1. (a) Section 11.1 is
-------------------------
hereby amended to add the following definitions:
"Asset Disposition" means any sale, lease, transfer
or other disposition (or series of related sales, leases,
transfers or dispositions) of shares of Capital Stock of
a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the
purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any
disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of property or assets at fair market value in
the ordinary course of business or (iii) a disposition of
obsolete assets in the ordinary course of business.
"Attributable Indebtedness" in respect of a
Sale/Leaseback Transaction means, as of the time of
determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of
the total obligations of the lessee for rental payments
during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of
determination, with respect to any Indebtedness or
Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the
date of determination to the dates of each successive
scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment
by (ii) the sum of all such payments.
"Consolidated EBITDA Coverage Ratio" as of any date
of determination means the ratio of (i) the aggregate
amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior
6
<PAGE>
to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Subsidiary has
incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an incurrence of Indebtedness,
or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a
pro forma basis to (A) such Indebtedness as if such
Indebtedness had been incurred on the first day of such
period, (B) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company and
its Subsidiaries on the proceeds of such Indebtedness, to
the extent not yet applied at the date of determination,
assuming such proceeds earned interest at the Treasury
Rate from the date such proceeds were received through
such date of determination, (2) if since the beginning of
such period the Company or any Subsidiary will have made
any Asset Disposition, EBITDA for such period will be
reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased
by an amount equal to EBITDA (if negative), directly
attributable thereto for such period and Consolidated
Interest Expense for such period will be reduced by an
amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company
or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its
continuing Subsidiaries in connection with such Asset
Dispositions for such period (or, if the Capital Stock of
any Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness
of such Subsidiary to the extent the Company and its
continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (3) if since the
beginning of such period the Company or any Subsidiary
(by merger or otherwise) will have made an Investment in
any Subsidiary (or any person which becomes a Subsidiary)
or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all
or substantially all of the assets of an operating unit
of a business, EBITDA and Consolidated Interest Expense
for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any
Indebtedness) as if such Investment or acquisition
occurred on the first day of such period. For purposes
7
<PAGE>
of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income
or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any
Indebtedness incurred in connection therewith the pro
forma calculations will be determined in good faith by a
responsible financial or accounting Officer of the
Company; provided, however, that such Officer shall
assume (i) the historical sales and gross profit margins
associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that
the first month of such period will be no more than 18
months prior to such date of purchase), less estimated
post-acquisition loss of customers (not to be less than
3%) and (ii) other expenses as if such assets had been
owned by the Company since the first day of such period.
If any Indebtedness bears a floating rate of interest and
is being given pro forma effect, the interest on such
Indebtedness will be calculated as if the rate in effect
on the date of determination had been the applicable rate
for the entire period.
"Consolidated Interest Expense" means, for any
period, the total interest expense of the Company and its
Subsidiaries, determined on a consolidated basis,
including (i) interest expense attributable to capital
leases, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually
paid by the Company or any such Subsidiary under any
guarantee of Indebtedness or other obligation of any
other Person, (vii) net costs associated with Hedging
Obligations (including amortization of fees),
(viii) Preferred Stock dividends in respect of all
Preferred Stock of Subsidiaries held by persons other
than the Company or a Wholly Owned Subsidiary, (ix) the
cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are
used by such plan to pay interest or fees to any person
(other than the Company) in connection with loans
incurred by such plan or trust to purchase newly issued
or treasury shares of the Company (but excluding interest
expense associated with the accretion of principal on a
non-interest bearing or other discount security) and
(x) to the extent not already included in Consolidated
Interest Expense, the interest expense attributable to
Indebtedness of another person that is guaranteed by the
Company or any of its Subsidiaries, less interest income
(exclusive of deferred financing fees) of the Company and
8
<PAGE>
its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
"EBITDA" for any period means the Consolidated Net
Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting
from purchase accounting, extraordinary losses or gains
and any gains or losses from any Asset Dispositions),
plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) all other non-
cash expenses.
"Hedging Obligations" of any person means the
obligations of such person pursuant to any interest rate
swap agreement, foreign currency exchange agreement,
interest rate collar agreement, option or futures
contract or other similar agreement or arrangement
designed to protect such person against changes in
interest rates or foreign exchange rates.
"Indebtedness" of any person means, without
duplication,
(i) the principal of (A) indebtedness of such
person for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments
for the payment of which such person is responsible or
liable;
(ii) all Capital Lease Obligations of such person
and all Attributable Indebtedness in respect of
Sale/Leaseback Transactions entered into by such person;
(iii) all obligations of such person issued or
assumed as the deferred purchase price of property, all
conditional sale obligations of such person and all
obligations of such person under any title retention
agreement (but excluding trade accounts payable arising
in the ordinary course of business);
(iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit
securing obligations (other than obligations described in
(i) through (iii) above) entered into in the ordinary
course of business of such person to the extent such
letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later
than the third Business Day following receipt by such
9
<PAGE>
person of a demand for reimbursement following payment on
the letter of credit);
(v) all obligations of the type referred to in
clauses (i) through (iv) of other persons and all
dividends of other persons for the payment of which, in
either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or
otherwise, including any guarantees of such obligations
and dividends, including by means of any agreement which
has the economic effect of a guarantee; and
(vi) all obligations of the type referred to in
clauses (i) through (v) of other persons secured by any
Lien on any property or asset of such person (whether or
not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser
of the value of such property or assets or the amount of
the obligation so secured.
"Lien" means any mortgage, pledge, security
interest, conditional sale or other title retention
agreement or other similar lien.
"Permitted Liens" means, (i) Liens existing on the
Closing Date and renewals, extensions and refinancings
thereof; (ii) rights of banks to set off deposits against
debts owed to said banks; (iii) Purchase Money
Indebtedness; (iv) Liens on the property of any entity
existing at the time such property is acquired by the
Company or any of its Subsidiaries and renewals,
extensions and refinancings thereof, whether by merger,
consolidation, purchase of assets or otherwise; provided,
however, that in the case of this clause (iv) that such
Liens (x) are not created, incurred or assumed in
contemplation of such assets being acquired by the
Company and (y) do not extend to any other assets of the
Company or any of its Subsidiaries; and (v) Liens for
taxes not yet due.
"Preferred Stock," as applied to the Capital Stock
of any corporation, means Capital Stock of any class or
classes (however designated) which is preferred as to the
payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital
Stock of any other class of such corporation; provided,
however, that Preferred Stock will not include the
Company's Class B Common Stock.
"Purchase Money Indebtedness" means Indebtedness (i)
consisting of the deferred purchase price of property,
10
<PAGE>
conditional sale obligations, obligation under any title
retention agreement and other purchase money obligations,
in each case where the maturity of such Indebtedness does
not exceed the anticipated useful life of the asset being
financed, and (ii) incurred to finance the acquisition by
the Company or a Subsidiary of such asset, including
additions and improvements; provided, however, that any
Lien arising in connection with any such Indebtedness
will be limited to the specified asset being financed or,
in the case of real property or fixtures, including
additions and improvements, the real property on which
such asset is attached.
"Sale/Leaseback Transaction" means an arrangement
relating to property now owned or hereafter acquired
whereby the Company or a Subsidiary transfers such
property to a person and the Company or a Subsidiary
leases it from such person.
"Stated Maturity" means, with respect to any
Indebtedness, the date specified in such Indebtedness, or
in any agreement pursuant to which such Indebtedness was
incurred, as the fixed date on which the principal of
such Indebtedness is due and payable, including pursuant
to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such
Indebtedness at the option of the holder thereof upon the
happening of any contingency unless such contingency has
occurred).
"Treasury Rate" as of any date of determination
means the yield to maturity at the time of computation of
United States Treasury securities with a constant
maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has
become publicly available at least two business days
prior to such date of determination (or, if such
Statistical Release is no longer published, any publicly
available source of similar market date)) of one year.
(b) (i) The definition of "Indebtedness" presently
in the Purchase Agreement is deleted and replaced by the new
definition set forth in subsection (a).
(ii) The definition of "Consolidated Net
Income" is revised to add after the words "shall be excluded" in
the ninth line of such definition:
11
<PAGE>
", (iii) any Net Income of any Subsidiary will
be excluded if such Subsidiary is subject to
restrictions, directly or indirectly, on the
payment of dividends or the making of
distributions by such Subsidiary, directly or
indirectly, to such person, except that (A)
such person's equity in the Net Income of any
such Subsidiary for such period will be
included in such Consolidated Net Income up to
the aggregate amount of cash actually
distributed by such Subsidiary during such
period to such person as a dividend or other
distribution (subject, in the case of a
dividend or other distribution to another
subsidiary, to the limitation contained in this
clause) and (B) such person's equity in a net
loss of any such Subsidiary for such period
will be included in determining such
Consolidated Net Income, and (iv) the
cumulative effect of a change in accounting
principles will be excluded.
(iii) The definition of "Funded Debt" is
revised to add the following at the end:
"except to the extent that Working Capital
Borrowings exceed an amount equal to (i) 100% of the
current assets (excluding cash) of such person and its
subsidiaries less (ii) the excess, if any, of current
liabilities over current assets of such person and its
subsidiaries in each case to be determined in accordance
with generally accepted accounting principles"
(c) The definition of "Sevin Group" contained in
Section 9.1 is hereby amended by deleting "Malvin P. Sevin" and
inserting "the Estate of Malvin P. Sevin."
1.8 Section 12.4 is hereby amended by inserting the
following sentence at the end of the section:
"Notwithstanding the foregoing, Series A Notes may be
exchanged or replaced only for other Series A Notes and
Series B Notes may be exchanged or replaced only for
other Series B Notes."
12
<PAGE>
SECTION 2. MISCELLANEOUS
- ---------- -------------
2.1 Effectiveness. This First Amendment shall become
-------------
effective upon compliance by the Company with the following
conditions precedent:
"(a) Closing Certificates. You shall have received
--------------------
certificates dated the date hereof and the Closing Date,
signed by the President or a Vice President of the
Company, the truth and accuracy of which shall be a
condition to your obligation to exchange $12,763,663
aggregate principal amount of the Company's Subordinated
Notes due March 1, 2000 represented by Certificate No. R-
1 (the "Old Notes") and execute this First Amendment and
to the effect that (i) the representations and warranties
of the Company set forth in Exhibit A hereto are true and
correct on the date hereof and on the Closing Date (as
defined below), (ii) the Company has performed all of its
obligations hereunder which are to be performed on or
prior to the Closing Date, and (iii) no Default or Event
of Default has occurred and is continuing or will occur
or be continuing after the issuance and exchange of the
Notes.
(b) Legal Opinions. You shall have received from
--------------
Phillips, Nizer, Benjamin, Krim & Ballon, counsel for the
Company, its opinion dated the Closing Date, in form and
substance satisfactory to you, and covering the matters
set forth in Exhibit B.
(c) The Company shall have tendered to you the
Series A and Series B Notes substantially in the form
attached hereto as Exhibits C-1 and C-2, respectively,
and you shall have delivered to the Company the Old Notes
on a date designated by the Company on two business days
notice to you which date shall occur on or before January
31, 1994 (the "Closing Date").
(d) Satisfactory Proceedings. All proceedings
------------------------
taken in connection with the transactions contemplated by
this First Amendment, and all documents necessary to the
consummation thereof, shall be satisfactory in form and
substance to you, and you shall have received a copy
(executed or certified as may be appropriate) of all
legal documents or proceedings taken in connection with
the consummation of said transactions."
13
<PAGE>
2.2 Agreement to Amend the Purchase Agreement. As soon
-----------------------------------------
as practicable following the consummation of the public offering of
the Company's Subordinated Debentures due 2006 (the "New
Debentures"), the Company shall provide you with a copy of all
instruments reflecting the New Debentures and all agreements and
other documents entered into or executed by the Company in
connection with the issuance or sale of the New Debentures. If the
Indebtedness represented by the New Debentures contains any term,
right or covenant that is more favorable to the holder or holders
of the New Debentures than you, as the holder of the Notes, enjoys
under the Purchase Agreement (collectively, "more favorable
covenants and other agreements"), then within 45 days following the
receipt of such documents, you shall have the privilege to require
the Company to amend the Purchase Agreement and/or the Notes to
contain any or all of the more favorable covenants and other
agreements.
2.3 Continuing Effect of Agreements. The First
-------------------------------
Amendment shall not constitute a waiver or amendment or any other
provision of the Purchase Agreement not expressly referred to
herein. Except as expressly amended hereby, the terms and
provisions of the Purchase Agreement is and shall remain in full
force and effect.
2.4 Counterparts. This First Amendment may be executed
------------
by the parties thereto in any number of counterparts, and all of
14
<PAGE>
such counterparts taken together shall be deemed to constitute one
and the same instrument.
2.5 Governing Law. This First Amendment shall be
-------------
governed by and construed and interpreted in accordance with the
laws of the State of New York.
15
<PAGE>
2.6 Successors and Assigns. This First Amendment shall
----------------------
be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereunder.
PETROLEUM HEAT AND POWER CO., INC.
By:_______________________________
George Leibowitz
Senior Vice President
The foregoing First Amendment is hereby accepted and
agreed to as of the date aforesaid.
UNITED STATES LEASING
INTERNATIONAL, INC.
By_______________________________
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you, as of the date hereof
and as of the Closing Date, as follows:
1. Corporate Organization and Authority. Each of the
Company, and its Subsidiaries:
(a) is a corporation duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of
incorporation;
(b) has all requisite power and authority and all
necessary licenses and permits to own and operate its
properties and to carry on its business as now conducted and
as presently proposed to be conducted; and
(c) is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction wherein
the nature of the business transacted by it or the nature of
the property owned or leased by it makes such licensing or
qualification necessary.
2. Issuance and Exchange of Notes; Execution, Delivery and
Performance of First Amendment.
(a) The issuance of each of the Series A Notes and the
Series B Notes, the exchange of the Old Notes for the Series A
Notes and the Series B Notes, and the execution, delivery and
performance by the Company of the First Amendment:
(i) are within the corporate powers of the
Company;
(ii) will not violate any provisions of any law or
any order of any court or governmental authority or agency and
will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default
under the Restated Articles of Incorporation or By-laws of the
Company or any indenture or other agreement or instrument to
which the Company is a party or by which it may be bound or
result in the imposition of any liens or encumbrances on any
property of the Company; and
(iii) have been duly authorized by proper corporate
action on the part of the Company (no action by the
stockholders of the Company being required by law, by the
Restated Articles of Incorporation or By-laws of the Company
or otherwise).
EXHIBIT A
(to First Amendment)
<PAGE>
(b) The First Amendment has been duly executed and
delivered by the Company, and each of the First Amendment and
the Notes constitutes the legal, valid and binding obligation,
contract and agreement of the Company enforceable in
accordance with its terms.
(c) The Series B Notes constitute and are entitled to
the benefits of "Senior Debt" as such term is defined in the
indenture dated as of April 1, 1993 between the Company and
Chemical Bank governing the Company's $50,000,000 10 1/8%
Subordinated Notes due 2003 and will constitute "Senior Debt"
as such term is defined in the indenture which will govern the
Company's Subordinated Debentures proposed to be issued
pursuant to Registration Statement No. 33-72354 on Form S-2 as
filed with the Securities and Exchange Commission; "Senior
Indebtedness" as such term is defined in the Note Agreements
dated as of September 1, 1988 governing the Company's
$60,000,000 11.85%, 12.17% and 12.18% Subordinated Notes due
October 1, 1998; and "Subordinated Indebtedness" as such term
is defined in the Note Agreement governing the Company's
$12,500,000 14.10% Subordinated Notes due January 15, 2001.
3. No Defaults. No Default or Event of Default has
occurred and is continuing and after the execution and delivery of
the First Amendment, the issuance of the Notes and the exchange of
the Old Notes for the Notes, no Default or Event of Default will
occur or be continuing. Neither the Company nor any Subsidiary is
in default in the payment of principal or interest on any Funded
Debt or Current Debt or is in default under any instrument or
instruments or agreements under and subject to which any Funded
Debt or Current Debt has been issued, and no event has occurred and
is continuing under the provisions of any such instrument or
agreement which with the lapse of time or the giving of notice, or
both, would constitute an event of default thereunder.
4. Governmental Consent. No approval, consent or
withholding of objection on the part of any regulatory body, state,
Federal or local, is necessary in connection with (i) the
execution, delivery and performance by the Company of the First
Amendment, (ii) the issuance of the Notes or (iii) the exchange of
the Old Notes for the Notes.
5. No Material Misstatement. None of the information set
forth in the Petroleum Heat and Power Co., Inc. Amendment Request
dated November 1993 provided to you contains any untrue statement
of a material fact or omits to state any material fact necessary to
make the statements or facts contained therein not misleading.
EXHIBIT A
(to First Amendment)
<PAGE>
EXHIBIT B
January 26, 1994
USL Capital Corporation
733 Front Street
Mail Stop 220
San Francisco, California 94111
Ladies and Gentlemen:
We are counsel to Petroleum Heat and Power Co., Inc., a
Minnesota corporation (the "Company"), and have acted in that
capacity in connection with the execution and delivery by the
Company of the First Amendment (the "First Amendment") dated as of
January 21, 1994 to the Purchase Agreement dated as of September 1,
1991 among the Company and you (the "Purchase Agreement") and the
issuance to you of $6,381,831.50, aggregate principal amount of the
Company's Series A Subordinated Notes due March 1, 2000 ("Series A
Notes") and $6,381,831.50 aggregate principal amount of the
Company's Series B Senior Notes due March 1, 2000 (the "Series B
Notes"; and together with the Series A Notes, the "Notes") in
exchange for $12,763,663 aggregate principal amount of the
Company's Subordinated Notes due March 1, 2000 (the "Old Notes")
previously issued to you pursuant to the Purchase Agreement.
Capitalized terms not otherwise defined herein are defined as set
forth in the First Amendment and the Purchase Agreement.
We have examined, among other things, the First
Amendment, the originals or copies certified or otherwise
identified to our satisfaction of the Restated and Amended Articles
of Incorporation (the "Restated Articles") and the By-Laws, each as
amended to date, of the Company, records of the corporate
proceedings relating to the First Amendment, certificates of public
officials and such other documents, records and legal matters as we
have deemed necessary or relevant for purposes of the opinion
hereinafter expressed. In all such examinations, we have assumed
the genuineness of all signatures other than signatures of officers
of the Company, the authenticity of documents submitted to us as
originals and the conformity to the originals of all documents
submitted to us as copies. In addition, we have assumed, without
investigation, that the First Amendment (and all collateral
<PAGE>
USL Capital Corporation -2- January 26, 1994
documents relating thereto) is valid and binding on, and
enforceable against, you.
Our opinion as to the existence and good standing of the
Company is based solely upon a good standing certificate dated
January 11, 1994.
Based upon the foregoing and in reliance on statements of
fact contained in the documents we have examined, we are of the
opinion that:
1. The Company is a corporation duly organized and
existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to
enter into and perform the First Amendment and to execute, issue
and deliver the Notes.
2. The Company has the full corporate power and
authority and is authorized to conduct the activities in which it
is now engaged, and is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction in which the
character of the properties owned or leased by it or the nature of
the business transacted by it makes such licensing or qualification
necessary, except to the extent that failure so to qualify could
not, in the aggregate, have a material adverse effect upon the
business or financial condition of the Company.
3. The First Amendment has been duly authorized,
executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except (a) as such terms may
be limited by bankruptcy, insolvency or similar laws and legal and
equitable principles affecting or limiting the enforcement of
creditors' rights generally, and (b) no opinion is expressed as to
the availability of the remedy of specific performance.
4. The Notes have been duly authorized, executed and
delivered by proper corporate action on the part of the Company and
are valid and binding obligations of the Company enforceable
against the Company in accordance with their terms except (a) as
such terms may be limited by bankruptcy, insolvency or similar laws
and legal and equitable principles affecting or limiting the
enforcement of creditors' rights generally, and (b) no opinion is
expressed as to the availability of the remedy of specific
performance.
<PAGE>
USL Capital Corporation -3- January 26, 1994
5. The issuance and delivery of the Notes under the
circumstances contemplated by the First Amendment is an exempt
transaction under the Securities Act of 1933, as amended, and does
not under existing law require the registration of the Notes under
the Securities Act of 1933, as amended.
6. The issuance and delivery of the Notes in exchange
for Old Notes and the execution, delivery and performance by the
Company of the First Amendment do not and will not conflict with or
result in any breach of any of the provisions of or constitute a
default under (with the passage of time or otherwise) or result in
the creation or imposition of any lien or encumbrance upon any of
the property of the Company pursuant to the provision of the
Restated Articles or By-Laws of the Company or any agreement or
other instrument known to us after due investigation to which the
Company is a party or by which the Company may be bound or violate
any statute, law, or regulation to which the Company or any
subsidiary of the Company or any of their respective properties may
be subject or any judgment, decree, or order, known to us, of any
court or governmental agency or authority entered in any proceeding
to which the Company or any subsidiary was or is now a party or by
which it is bound.
7. All legally required corporate proceedings in
connection with the authorization and issuance of the Notes in
exchange for the Old Notes have been taken and no approval, consent
or withholding of objection on the part of, or filing, registration
or qualification with, any party to any contract under which the
Company is bound or any governmental body, federal, state or local,
is necessary in connection with the execution, delivery and
performance of the First Amendment and the execution, delivery,
issuance and performance of the Notes, except for blue sky and
securities laws of any jurisdiction as to which we express no
opinion.
8. The Series B Notes constitute, and are entitled to
the benefits of "Senior Debt" as such term is defined in the
indenture dated as of April 1, 1993 between the Company and
Chemical Bank governing the Company's $50,000,000 10 1/8%
Subordinated Notes due 2003 and constitute "Senior Debt" as such
term is defined in the indenture which will govern the Company's
Subordinated Debentures proposed to be issued pursuant to
Registration Statement No. 33-72354 on Form S-2 as filed with the
Securities and Exchange Commission as of the date hereof; "Senior
Indebtedness" as such term is defined in the Note Agreements dated
as of September 1, 1988 governing the Company's $60,000,000 11.85%,
12.17% and 12.18% Subordinated Notes due October 1, 1998; and
"Senior Indebtedness" as such term is defined in the Note Agreement
<PAGE>
USL Capital Corporation -4- January 26, 1994
governing the Company's $12,500,000 14.10% Subordinated Notes due
January 15, 2001.
We are experts only as to the laws of the State of New
York and the Federal laws of the United States of America. We have
made no special inquiry as to, and are not experts in, the laws of
any other relevant jurisdiction.
This letter is being furnished to you solely for your
benefit and for the benefit of your successors and assigns. This
letter may not be circulated, quoted or otherwise referred to by
you, and may not be relied upon by you for any other purpose
without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT C-1
PETROLEUM HEAT AND POWER CO., INC.
Series A Subordinated Note
Due March 1, 2000
No. R- January , 1994
PETROLEUM HEAT AND POWER CO., INC., a Minnesota
corporation (the "Company") for value received, hereby promises to
pay to
USL CAPITAL CORPORATION
or registered assigns,
on the 1st day of March 2000
the principal amount of
Six Million Three Hundred Eighty-One Thousand Eight Hundred Thirty-
One and 50/100 DOLLARS ($6,381,831.50) and to pay interest on the
principal amount thereof from time to time remaining unpaid hereon
as follows:
(a) Rate of Interest. This Series A Note shall bear
----------------
interest on the unpaid principal amount thereof from the date on
which this Series A Note is issued at the initial rate per annum
rate equal to LIBOR plus 9.28% (the "Initial Interest Rate").
----
All interest on this Series A Note shall be payable on
the first Business Day of each month (each an "Interest Payment
Date"), commencing on the first such day following the issuance of
this Series A Note and shall accrue until the principal of this
Series A Note, and all accrued interest thereon, shall have been
paid in full. All interest accrued on this Series A Note at any
time shall be payable in arrears (i) upon the payment or prepayment
thereof, in whole or in part, on the portion so paid or prepaid and
(ii) at maturity (whether by acceleration or otherwise). All
interest payable on this Series A Note shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which it is payable;
provided, that if this Series A Note is prepaid on the same day on
which it is issued, one day's interest shall be paid on this Series
A Note.
(b) Adjusted Interest Rate. Subject to the provisions
----------------------
of paragraph (c) below, on each Interest Payment Date on which the
following two conditions are satisfied the interest payable on this
Series A Note, for all periods following such Interest Payment Date
through and until the interest rate payable on this Series A Note
<PAGE>
is reset to the Initial Interest Rate pursuant to paragraph (c)
below, shall equal a rate per annum equal to LIBOR plus 6.93% (the
----
"Adjusted Interest Rate"):
(i) there are no outstanding shares of the 1991
Preferred Stock; and
(ii) the Company's Interest Coverage Ratio with
respect to the 12-month period ending with the last day of the
quarterly fiscal period immediately preceding such Interest Payment
Date is greater than,
Ratio Year
----- ----
2.47 with respect to any Interest Payment Date in 1992,
2.57 with respect to any Interest Payment Date in 1993,
2.76 with respect to any Interest Payment Date in 1994,
2.90 with respect to any Interest Payment Date in 1995, and
3.04 with respect to any Interest Payment Date in 1996 and
thereafter
(c) Reinstatement of Initial Interest Rate.
--------------------------------------
(i) If the Adjusted Interest Rate is in effect and
if on or prior to September 1, 1993, (A) the Company has not
---
refinanced, or obtained an irrevocable commitment from a bona fide
lender to refinance, the 9% Maxwhale Notes with any Indebtedness
having a maturity date of no earlier than June 1, 1995 (the
"Intermediate Debt") or (B) the Company has not defeased the 9%
---
Maxwhale Notes, then (1) the Company shall pay to each holder of
any Series A Notes an amount equal to the Interest Makewhole
Payment, (2) the Company shall pay to each holder of any Series A
Notes an amount equal to the Compensatory Fee and (3) if as of
September 1, 1993 the Adjusted Interest Rate is in effect as a
result of paragraph (b) above, the interest rate payable on this
Series A Note shall be reset as of September 1, 1993 and thereafter
to equal the Initial Interest Rate, and if the Adjusted Interest
Rate is not in effect on September 1, 1993, the interest rate
payable on this Series A Note as of September 1, 1993 and
thereafter shall remain equal to the Initial Interest Rate, and in
each case, subject only to paragraphs (c)(ii) and (c)(iv) below,
the interest rate payable on this Series A Note shall be and remain
equal to the Initial Interest Rate for all periods after September
1, 1993 notwithstanding that the conditions in paragraph (b) above
are at such time or any time thereafter satisfied. All such
payments of the Interest Makewhole Payment and the Compensatory Fee
shall be made to the holders of this Series A Note, ratably in
accordance with the unpaid principal amounts thereof, in
immediately available funds within 10 days after September 1, 1993.
2
<PAGE>
(ii) In the event (A) on or prior to September 1,
1993 the Company has not refinanced or obtained an irrevocable
---
commitment from a bona fide lender to refinance, the 9% Maxwhale
Notes with Intermediate Debt, or has not defeased the 9% Maxwhale
Notes, and (B) on or prior to June 1, 1995, the Company has
refinanced, or obtained an irrevocable commitment from a bona fide
lender to refinance, the 9% Maxwhale Notes with any Indebtedness
having a Weighted Average Life to Maturity greater than this Series
A Note or has defeased the 9% Maxwhale Notes and (C) the interest
rate payable on this Series A Note, as of the date (the
"Refinancing Date") on which the Company has refinanced, or
obtained an irrevocable commitment from a bona fide lender to
refinance , or has defeased, the 9% Maxwhale Notes, is equal to the
Initial Interest Rate as a result of paragraph (c)(i) above, then,
subject to paragraph (c)(v) below, the interest rate payable on
this Series A Note may as of any Interest Payment Date on or
following the Refinancing Date be reset pursuant to the provisions
of paragraph (b) above to equal the Adjusted Interest Rate.
(iii) In the event (A) the Company has on or prior
to September 1, 1993 refinanced, or obtained an irrevocable
commitment from a bona fide lender to refinance the 9% Maxwhale
Notes with Intermediate Debt or has defeased the 9% Maxwhale Notes,
and (B) the interest rate payable on this Series A Note as of June
1, 1995 is equal to the Adjusted Interest Rate as a result of
paragraph (b) above, and (C) on or prior to June 1, 1995, the
Company has not refinanced, or obtained an irrevocable commitment
---
from a bona fide lender to refinance, the Intermediate Debt with
any Indebtedness having a Weighted Average Life to Maturity greater
than this Series A Note, or has not defeased the 9% Maxwhale Notes,
then (1) the Company shall pay to the holders of this Series A Note
the Interest Makewhole Payment, (2) the Company shall pay to the
holders of this Series A Note the Compensatory Fee and (3) the
interest rate payable on this Series A Note shall be reset
effective as of June 1, 1995 and for all periods thereafter to
equal the Initial Interest Rate, and shall be and remain equal to
the Initial Interest Rate, subject only to paragraph (c) (iv)
below, for all periods after June 1, 1995 notwithstanding that the
conditions in paragraph (b) above are at such time or any time
thereafter satisfied. All such payments of the Interest Makewhole
Payment and Compensatory Fee shall be made to the holders of this
Series A Note, ratably in accordance with the unpaid principal
amounts thereof, in immediately available funds within 10 days
after June 1, 1995.
(iv) in the event (A) the Company has on or prior to
September 1, 1993 refinanced, or obtained an irrevocable commitment
from a bona fide lender to refinance, the 9% Maxwhale Notes with
Intermediate Debt or has defeased the 9% Maxwhale Notes, and (B) on
or prior to June 1, 1995, the Company has not refinanced, or
---
obtained an irrevocable commitment from a bona fide lender to
refinance, the Intermediate Debt with any Indebtedness having a
3
<PAGE>
Weighted Average Life to Maturity greater than this Series A Note,
or has not defeased the 9% Maxwhale Notes, and (C) the interest
rate payable on this Series A Note has been reset pursuant to
paragraph (c)(iii) above to equal the Initial Interest Rate
effective as of June 1, 1995, and (D) on or after June 1, 1995 the
Company has refinanced the 9% Maxwhale Notes with any Indebtedness
having a Weighted Average Life to Maturity greater than this Series
A Note, or defeased the 9% Maxwhale Notes, then, subject to
paragraph (c)(v) below, the interest rate payable on this Series A
Note as of any Interest Payment Date on or following the date on or
after June 1, 1995 on which the 9% Maxwhale Notes were so
refinanced (or such an irrevocable commitment obtained) or
defeased, may be reset pursuant to the provisions of paragraph (b)
above to equal the Adjusted Interest Rate.
(v) If at any time during which the Adjusted
Interest Rate is in effect pursuant to this Sec.5.21, the Company's
Interest Coverage Ratio with respect to the 12-month period ending
with the last day of the quarterly fiscal period immediately
preceding any Interest Payment Date is less than that required with
respect to such Interest Payment Date pursuant to paragraph (b)(ii)
above, the interest rate payable on this Series A Note as of such
Interest Payment Date shall be reset and equal to the Initial
Interest Rate, which shall remain in effect until such time as the
interest rate may be reset to the Adjusted Interest Rate pursuant
to paragraph (b) above without violation of any other provision of
this Sec.5.21.
The principal hereof and interest hereon and premium, if
any, are payable at the principal office of the Company in
Stamford, Connecticut in coin or currency of the United States of
America which at the time of payment shall be legal tender for the
payment of public and private debts.
This Series A Note is one of the Series A Subordinated
Notes due March 1, 2000 (the "Series A Notes") of the Company in
the aggregate principal amount not to exceed $6,381,831.50 issued
or to be issued under and pursuant to the terms and provisions of
that certain Purchase Agreement dated as of September 1, 1991, as
amended by the First Amendment dated as of January 21, 1994 (the
"Purchase Agreement"), entered into by the Company with the
original purchaser therein referred to. The Series A Notes,
together with the Company's Series B Senior Notes due March 1, 2000
in aggregate principal amount not to exceed $6,381,831.50 issued
pursuant to the Purchase Agreement, are sometimes collectively
referred to as the "Notes" and this Series A Note and the holder
hereof are entitled equally and ratably with the holders of all
other Notes outstanding under the Purchase Agreement to all the
benefits provided for thereby or referred to therein, to which
Purchase Agreement reference is hereby made for the statement
thereof. Capitalized terms used but not otherwise defined herein
4
<PAGE>
have the respective meanings assigned to them under the Purchase
Agreement.
This Series A Note and the other Notes outstanding under
the Purchase Agreement may be declared due prior to their expressed
maturity dates, all in the events, on the terms and in the manner
and amounts as provided in the Purchase Agreement.
This Series A Note is not subject to prepayment or
redemption at the option of the Company prior to their expressed
maturity dates except on the terms and conditions and in the
amounts and with the premium, if any, set forth in Section 6 of the
Purchase Agreement.
This Series A Note and the indebtedness evidenced hereby
is and shall at all times be and remain junior and subordinate in
right of payment to any and all Senior Indebtedness of the Company
as defined in the Purchase Agreement, all to the extent set forth
in the Purchase Agreement.
Payment of this Series A Note is subject to certain home
office payment agreements contained in the Purchase Agreement
pursuant to which this Series A Note was issued and any transferee
of this Series A Note must verify with the Company the principal
amount of this Series A Note, the date to which interest has been
paid thereon and the amount of all redemption payments previously
made in respect thereof.
This Series A Note is registered on the books of the
Company and is transferable only by surrender thereof at the
principal office of the Company duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered
holder of this Series A Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any,
and interest on this Series A Note shall be made only to or upon
the order in writing of the registered holder.
This Series A Note and the Purchase Agreement shall be
5
<PAGE>
governed and construed in accordance with New York law, without
regard to the conflicts of law provisions thereof.
PETROLEUM HEAT AND POWER CO., INC.
a Minnesota corporation
By________________________________
George Leibowitz
Senior Vice President
6
<PAGE>
EXHIBIT C-2
PETROLEUM HEAT AND POWER CO., INC.
Series B Senior Note
Due March 1, 2000
No. R- January , 1994
PETROLEUM HEAT AND POWER CO., INC., a Minnesota
corporation (the "Company") for value received, hereby promises to
pay to
USL CAPITAL CORPORATION
or registered assigns,
on the 1st day of March 2000
the principal amount of
Six Million Three Hundred Eighty-One Thousand Eight Hundred Thirty-
One and 50/100 DOLLARS ($6,381,831.50) and to pay interest on the
principal amount thereof from time to time remaining unpaid hereon
as follows:
(a) Rate of Interest. This Series B Note shall bear
----------------
interest on the unpaid principal amount thereof from the date on
which this Series B Note is issued at the initial rate per annum
rate equal to LIBOR plus 9.28% (the "Initial Interest Rate").
----
All interest on this Series B Note shall be payable on
the first Business Day of each month (each an "Interest Payment
Date"), commencing on the first such day following the issuance of
this Series B Note and shall accrue until the principal of this
Series B Note, and all accrued interest thereon, shall have been
paid in full. All interest accrued on this Series B Note at any
time shall be payable in arrears (i) upon the payment or prepayment
thereof, in whole or in part, on the portion so paid or prepaid and
(ii) at maturity (whether by acceleration or otherwise). All
interest payable on this Series B Note shall be computed on the
basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed in the period for which it is payable;
provided, that if this Series B Note is prepaid on the same day on
which it is issued, one day's interest shall be paid on this Series
B Note.
(b) Adjusted Interest Rate. Subject to the provisions
----------------------
of paragraph (c) below, on each Interest Payment Date on which the
following two conditions are satisfied the interest payable on this
Series B Note, for all periods following such Interest Payment Date
through and until the interest rate payable on this Series B Note
<PAGE>
is reset to the Initial Interest Rate pursuant to paragraph (c)
below, shall equal a rate per annum equal to LIBOR plus 6.93% (the
----
"Adjusted Interest Rate"):
(i) there are no outstanding shares of the 1991
Preferred Stock; and
(ii) the Company's Interest Coverage Ratio with
respect to the 12-month period ending with the last day of the
quarterly fiscal period immediately preceding such Interest Payment
Date is greater than,
Ratio Year
----- ----
2.47 with respect to any Interest Payment Date in 1992,
2.57 with respect to any Interest Payment Date in 1993,
2.76 with respect to any Interest Payment Date in 1994,
2.90 with respect to any Interest Payment Date in 1995, and
3.04 with respect to any Interest Payment Date in 1996 and
thereafter
(c) Reinstatement of Initial Interest Rate.
--------------------------------------
(i) If the Adjusted Interest Rate is in effect and
if on or prior to September 1, 1993, (A) the Company has not
---
refinanced, or obtained an irrevocable commitment from a bona fide
lender to refinance, the 9% Maxwhale Notes with any Indebtedness
having a maturity date of no earlier than June 1, 1995 (the
"Intermediate Debt") or (B) the Company has not defeased the 9%
---
Maxwhale Notes, then (1) the Company shall pay to each holder of
any Series B Notes an amount equal to the Interest Makewhole
Payment, (2) the Company shall pay to each holder of any Series B
Notes an amount equal to the Compensatory Fee and (3) if as of
September 1, 1993 the Adjusted Interest Rate is in effect as a
result of paragraph (b) above, the interest rate payable on this
Series B Note shall be reset as of September 1, 1993 and thereafter
to equal the Initial Interest Rate, and if the Adjusted Interest
Rate is not in effect on September 1, 1993, the interest rate
payable on this Series B Note as of September 1, 1993 and
thereafter shall remain equal to the Initial Interest Rate, and in
each case, subject only to paragraphs (c)(ii) and (c)(iv) below,
the interest rate payable on this Series B Note shall be and remain
equal to the Initial Interest Rate for all periods after September
1, 1993 notwithstanding that the conditions in paragraph (b) above
are at such time or any time thereafter satisfied. All such
payments of the Interest Makewhole Payment and the Compensatory Fee
shall be made to the holders of this Series B Note, ratably in
accordance with the unpaid principal amounts thereof, in
immediately available funds within 10 days after September 1, 1993.
2
<PAGE>
(ii) In the event (A) on or prior to September 1,
1993 the Company has not refinanced, or obtained an irrevocable
---
commitment from a bona fide lender to refinance, the 9% Maxwhale
Notes with Intermediate Debt, or has not defeased the 9% Maxwhale
Notes, and (B) on or prior to June 1, 1995, the Company has
refinanced, or obtained an irrevocable commitment from a bona fide
lender to refinance, the 9% Maxwhale Notes with any Indebtedness
having a Weighted Average Life to Maturity greater than this Series
B Note or has defeased the 9% Maxwhale Notes and (C) the interest
rate payable on this Series B Note, as of the date (the
"Refinancing Date") on which the Company has refinanced, or
obtained an irrevocable commitment from a bona fide lender to
refinance , or has defeased, the 9% Maxwhale Notes, is equal to the
Initial Interest Rate as a result of paragraph (c)(i) above, then,
subject to paragraph (c)(v) below, the interest rate payable on
this Series B Note may as of any Interest Payment Date on or
following the Refinancing Date be reset pursuant to the provisions
of paragraph (b) above to equal the Adjusted Interest Rate.
(iii) In the event (A) the Company has on or
prior to September 1, 1993 refinanced, or obtained an irrevocable
commitment from a bona fide lender to refinance, the 9% Maxwhale
Notes with Intermediate Debt or has defeased the 9% Maxwhale Notes,
and (B) the interest rate payable on this Series B Note as of June
1, 1995 is equal to the Adjusted Interest Rate as a result of
paragraph (b) above, and (C) on or prior to June 1, 1995, the
Company has not refinanced, or obtained an irrevocable commitment
---
from a bona fide lender to refinance, the Intermediate Debt with
any Indebtedness having a Weighted Average Life to Maturity greater
than this Series B Note, or has not defeased the 9% Maxwhale Notes,
then (1) the Company shall pay to the holders of this Series B Note
the Interest Makewhole Payment, (2) the Company shall pay to the
holders of this Series B Note the Compensatory Fee and (3) the
interest rate payable on this Series B Note shall be reset
effective as of June 1, 1995 and for all periods thereafter to
equal the Initial Interest Rate, and shall be and remain equal to
the Initial Interest Rate, subject only to paragraph (c) (iv)
below, for all periods after June 1, 1995 notwithstanding that the
conditions in paragraph (b) above are at such time or any time
thereafter satisfied. All such payments of the Interest Makewhole
Payment and Compensatory Fee shall be made to the holders of this
Series B Note, ratably in accordance with the unpaid principal
amounts thereof, in immediately available funds within 10 days
after June 1, 1995.
(iv) in the event (A) the Company has on or prior to
September 1, 1993 refinanced, or obtained an irrevocable commitment
from a bona fide lender to refinance, the 9% Maxwhale Notes with
Intermediate Debt or has defeased the 9% Maxwhale Notes, and (B) on
or prior to June 1, 1995, the Company has not refinanced, or
---
obtained an irrevocable commitment from a bona fide lender to
refinance, the Intermediate Debt with any Indebtedness having a
3
<PAGE>
Weighted Average Life to Maturity greater than this Series B Note,
or has not defeased the 9% Maxwhale Notes, and (C) the interest
rate payable on this Series B Note has been reset pursuant to
paragraph (c)(iii) above to equal the Initial Interest Rate
effective as of June 1, 1995, and (D) on or after June 1, 1995 the
Company has refinanced the 9% Maxwhale Notes with any Indebtedness
having a Weighted Average Life to Maturity greater than this Series
B Note, or defeased the 9% Maxwhale Notes, then, subject to
paragraph (c)(v) below, the interest rate payable on this Series B
Note as of any Interest Payment Date on or following the date on or
after June 1, 1995 on which the 9% Maxwhale Notes were so
refinanced (or such an irrevocable commitment obtained) or
defeased, may be reset pursuant to the provisions of paragraph (b)
above to equal the Adjusted Interest Rate.
(v) If at any time during which the Adjusted
Interest Rate is in effect pursuant to this Sec.5.21, the Company's
Interest Coverage Ratio with respect to the 12-month period ending
with the last day of the quarterly fiscal period immediately
preceding any Interest Payment Date is less than that required with
respect to such Interest Payment Date pursuant to paragraph (b)(ii)
above, the interest rate payable on this Series B Note as of such
Interest Payment Date shall be reset and equal to the Initial
Interest Rate, which shall remain in effect until such time as the
interest rate may be reset to the Adjusted Interest Rate pursuant
to paragraph (b) above without violation of any other provision of
this Sec.5.21.
The principal hereof and interest hereon and premium, if
any, are payable at the principal office of the Company in
Stamford, Connecticut in coin or currency of the United States of
America which at the time of payment shall be legal tender for the
payment of public and private debts.
This Series B Note is one of the Series B Senior Notes
due March 1, 2000 (the "Series B Notes") of the Company in the
aggregate principal amount not to exceed $6,381,831.50 issued or to
be issued under and pursuant to the terms and provisions of that
certain Purchase Agreement dated as of September 1, 1991, as
amended by the First Amendment dated as of January 21, 1994 (the
"Purchase Agreement"), entered into by the Company with the
original purchaser therein referred to. The Series B Notes,
together with the Company's Series A Subordinated Notes due March
1, 2000 in aggregate principal amount not to exceed $6,381,831.50
issued pursuant to the Purchase Agreement, are sometimes
collectively referred to as the "Notes" and this Series B Note and
the holder hereof are entitled equally and ratably with the holders
of all other Notes outstanding under the Purchase Agreement to all
the benefits provided for thereby or referred to therein, to which
Purchase Agreement reference is hereby made for the statement
thereof. Capitalized terms used but not otherwise defined herein
4
<PAGE>
have the respective meanings assigned to them under the Purchase
Agreement.
This Series B Note and the other Notes outstanding under
the Purchase Agreement may be declared due prior to their expressed
maturity dates, all in the events, on the terms and in the manner
and amounts as provided in the Purchase Agreement.
This Series B Note is not subject to prepayment or
redemption at the option of the Company prior to their expressed
maturity dates except on the terms and conditions and in the
amounts and with the premium, if any, set forth in Section 6 of the
Purchase Agreement.
Payment of this Series B Note is subject to certain home
office payment agreements contained in the Purchase Agreement
pursuant to which this Series B Note was issued and any transferee
of this Series B Note must verify with the Company the principal
amount of this Series B Note, the date to which interest has been
paid thereon and the amount of all redemption payments previously
made in respect thereof.
This Series B Note is registered on the books of the
Company and is transferable only by surrender thereof at the
principal office of the Company duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered
holder of this Series B Note or its attorney duly authorized in
writing. Payment of or on account of principal, premium, if any,
and interest on this Series B Note shall be made only to or upon
the order in writing of the registered holder.
This Series B Note and the Purchase Agreement shall be
governed and construed in accordance with New York law, without
regard to the conflicts of law provisions thereof.
PETROLEUM HEAT AND POWER CO., INC.
a Minnesota corporation
By________________________________
George Leibowitz
Senior Vice President
5
PETROLEUM HEAT AND POWER CO., INC.
THIRD AMENDMENT
Dated as of January 24, 1994
Re:
Note Agreement Dated as of January 15, 1991
and
$12,500,000 14.10% Subordinated Notes
Due January 15, 2001
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
THIRD AMENDMENT
Re:
Note Agreement Dated as of January 15, 1991
and
$12,500,000 14.10% Subordinated Notes
Due January 15, 2001
Dated as of
January 24, 1994
Connecticut General Life
Insurance Company
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Gentlemen:
Reference is made to the separate Note Agreement dated as of
January 15, 1991, as amended (the "Existing Note Agreement"), between
Petroleum Heat and Power Co., Inc., a Minnesota corporation (the
"Company"), and you. Capitalized terms used herein and not otherwise
defined shall have the same meanings as in the Existing Note Agreement.
You are hereinafter sometimes referred to as the "Holder."
In consideration of the sum of Sixty Two Thousand Five Hundred
Dollars ($62,500) lawful money of the United States of America (the
"Exchange Fee"), and for other good and valuable consideration, the Company
requests the amendment of the terms of the Existing Note Agreement as
hereinafter provided.
<PAGE>
Upon your acceptance hereof and upon satisfaction of the
conditions hereof, the Third Amendment to the Note Agreement (this "Third
Amendment") shall constitute a contract between us amending the Existing
Note Agreement in the respects, but only in the respects, hereinafter set
forth:
SECTION 1. AMENDMENTS TO NOTE AGREEMENT
- ---------- ----------------------------
1.1 Definition of Notes. Notwithstanding any provision to the
-------------------
contrary, the term "Notes" means $6,250,000 of the Company's Series A
Subordinated Notes due January 15, 2001 ("Series A Notes") and $6,250,000
of the Company's Series B Senior Notes due January 15, 2001 ("Series B
Notes").
1.2 Amendment to Section 4.5. Section 4.5 is hereby amended by
------------------------
deleting the existing provisions and by substituting therefor the following
provisions:
4.5 Nature of Business. Neither the Company nor any
------------------
Subsidiary will engage in any business if, giving effect thereto,
less than 80% of the Consolidated Operating Cash Flow of the
Company for the 12 months ended with its most recently ended
fiscal quarter would be attributable to the distribution of the
home heating oil (#2 fuel oil), propane and related products
(including the distribution of other petroleum products which
were distributed by the Company during its fiscal year ending
December 31, 1990), all as determined in accordance with
generally accepted accounting principles.
1.3 Amendment to Section 4.6. Section 4.6 is hereby amended by
------------------------
deleting the existing provisions and by substituting therefor the following
provisions:
Neither the Company nor any of its Subsidiaries will incur,
create, assume, guarantee or otherwise become liable for any
additional Funded Debt unless, after giving effect thereto, the
Company's Consolidated EBITDA Coverage Ratio exceeds 2.0 to 1
through December 31, 1995; 2.1 to 1 from January 1, 1996 through
December 31, 1996; 2.2 to 1 from January 1, 1997 through December
3
<PAGE>
31, 1997; 2.3 to 1 from January 1, 1998 through December 31,
1998; 2.4 to 1 from January 1, 1999 through December 31, 1999 and
2.5 to 1 on and after January 1, 2000 (each such ratio for each
such period, a "Minimum Consolidated EBITDA Coverage Ratio").
The foregoing restriction on additional Funded Debt shall
not be applicable to (i) Funded Debt incurred to refund, extend
or renew up to an equal amount of outstanding Funded Debt;
provided, that, if any Funded Debt is incurred for the purpose of
refunding, extending or renewing any Indebtedness which is
subordinate to the Notes, such Funded Debt must be subordinated
to the Notes, to the extent such Indebtedness is so subordinated,
and provided, further, that, if any Funded Debt is incurred for
the purpose of refunding, extending or renewing any Indebtedness
which is of equal rank with the Notes, such Funded Debt may not
be Senior Indebtedness and (ii) additional Funded Debt in an
aggregate amount not to exceed $25 million at any one time
outstanding; provided, however, that Funded Debt incurred
pursuant to this subsection (ii) shall be deemed not to be
outstanding for purposes of this subsection (ii) if at any later
determination date, the Company's Consolidated EBITDA Coverage
Ratio exceeds the then applicable Minimum Consolidated EBITDA
Coverage Ratio.
1.4 Amendment to Section 5.1. Section 5.1 is hereby amended by
------------------------
deleting the first sentence and by substituting therefor the following
provisions:
"The Company agrees that on January 15 in each year commencing
January 15, 1996 and ending January 15, 2000, both inclusive, it
will repay and apply and there shall become due and payable an
amount equal to $1,050,000 on the principal indebtedness
evidenced by the Series A Notes and $1,050,000 on the principal
indebtedness evidenced by the Series B Notes.
1.5 Section 6 is hereby amended by inserting the term "Series A"
before the term "Note" or "Notes" in each instance they appear and by
amending the caption of the Section to read as follows: "Section 6.
SUBORDINATION OF SERIES A NOTES.
1.6 Amendment to Section 9.1. (a) Section 9.1 is hereby amended
------------------------
to add the following definitions:
4
<PAGE>
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or
dispositions) of shares of Capital Stock of a Subsidiary (other
than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a
"disposition") by the Company or any of its Subsidiaries
(including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Subsidiary
to the Company or by the Company or a Subsidiary to a Wholly
Owned Subsidiary, (ii) a disposition of property or assets at
fair market value in the ordinary course of business or (iii) a
disposition of obsolete assets in the ordinary course of
business.
"Capital Stock" of any person means any and all shares,
interests, rights to purchase, warrants, options, participations
or other equivalents of or interests in (however designated)
equity of such person, including any Preferred Stock, but
excluding any debt securities convertible into or exchangeable
for such equity.
"Consolidated EBITDA Coverage Ratio" as of any date of
determination means the ratio of (i) the aggregate amount of
EBITDA for the period of the most recent four consecutive fiscal
quarters ending at least 45 days prior to the date of such
determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (1) if the Company or
any Subsidiary has incurred any Indebtedness since the beginning
of such period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated EBITDA
Coverage Ratio is an incurrence of Indebtedness, or both, EBITDA
and Consolidated Interest Expense for such period will be
calculated after giving effect on a pro forma basis to (A) such
Indebtedness as if such Indebtedness had been incurred on the
first day of such period, (B) the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, and
(C) the interest income realized by the Company and its
Subsidiaries on the proceeds of such Indebtedness, to the extent
not yet applied at the date of determination, assuming such
proceeds earned interest at the Treasury Rate from the date such
proceeds were received through such date of determination, (2) if
since the beginning of such period the Company or any Subsidiary
will have made any Asset Disposition, EBITDA for such period will
be reduced by an amount equal to EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to
EBITDA (if negative), directly attributable thereto for such
period and Consolidated Interest Expense for such period will be
reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any
5
<PAGE>
Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Subsidiaries in
connection with such Asset Dispositions for such period (or, if
the Capital Stock of any Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the
Indebtedness of such Subsidiary to the extent the Company and its
continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (3) if since the beginning of
such period the Company or any Subsidiary (by merger or
otherwise) will have made an Investment in any Subsidiary (or any
person which becomes a Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with
a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of the assets of an
operating unit of a business, EBITDA and Consolidated Interest
Expense for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any Indebtedness) as
if such Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of
income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith the pro forma calculations will
be determined in good faith by a responsible financial or
accounting Officer of the Company; provided, however, that such
Officer shall assume (i) the historical sales and gross profit
margins associated with such assets for any consecutive 12-month
period ended prior to the date of purchase (provided that the
first month of such period will be no more than 18 months prior
to such date of purchase), less estimated post-acquisition loss
of customers (not to be less than 3%) and (ii) other expenses as
if such assets had been owned by the Company since the first day
of such period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on
such Indebtedness will be calculated as if the rate in effect on
the date of determination had been the applicable rate for the
entire period.
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Subsidiaries,
determined on a consolidated basis, including (i) interest
expense attributable to capital leases, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by the Company or any such
Subsidiary under any guarantee of Indebtedness or other
obligation of any other Person, (vii) net costs associated with
Hedging Obligations (including amortization of fees),
(viii) Preferred Stock dividends in respect of all Preferred
Stock of Subsidiaries held by persons other than the Company or a
Wholly Owned Subsidiary, (ix) the cash contributions to any
6
<PAGE>
employee stock ownership plan or similar trust to the extent such
contributions are used by such plan to pay interest or fees to
any person (other than the Company) in connection with loans
incurred by such plan or trust to purchase newly issued or
treasury shares of the Company (but excluding interest expense
associated with the accretion of principal on a non-interest
bearing or other discount security) and (x) to the extent not
already included in Consolidated Interest Expense, the interest
expense attributable to Indebtedness of another person that is
guaranteed by the Company or any of its Subsidiaries, less
interest income (exclusive of deferred financing fees) of the
Company and its Subsidiaries determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Consolidated Net Income" of a person, for any period, means
the aggregate of the Net Income of such person and its
Subsidiaries for such period, determined on a consolidated basis
in accordance with generally accepted accounting principles,
provided that (i) the Net Income of any other person (other than
a Subsidiary) in which such person has an interest will be
included only to the extent of the amount of dividends or
distributions paid to such person, (ii) the Net Income of any
person acquired by such person in a pooling of interests
transaction for any period prior to the date of such acquisition
will be excluded, (iii) any Net Income of any Subsidiary will be
excluded if such Subsidiary is subject to restrictions, directly
or indirectly, on the payment of dividends or the making of
distributions by such Subsidiary, directly or indirectly, to such
person, except that (A) such person's equity in the Net Income of
any such Subsidiary for such period will be included in such
Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Subsidiary during such period to
such person as a dividend or other distribution (subject, in the
case of a dividend or other distribution to another subsidiary,
to the limitation contained in this clause) and (B) such person's
equity in a net loss of any such Subsidiary for such period will
be included in determining such Consolidated Net Income, and (iv)
the cumulative effect of a change in accounting principles will
be excluded.
"EBITDA" for any period means the Consolidated Net Income
for such period (but without giving effect to adjustments,
accruals, deductions or entries resulting from purchase
accounting, extraordinary losses or gains and any gains or losses
from any Asset Dispositions), plus the following to the extent
7
<PAGE>
deducted in calculating such Consolidated Net Income: (i) income
tax expense, (ii) Consolidated Interest Expense,
(iii) depreciation expense, (iv) amortization expense and (v) all
other non-cash expenses.
"Hedging Obligations" of any person means the obligations of
such person pursuant to any interest rate swap agreement, foreign
currency exchange agreement, interest rate collar agreement,
option or futures contract or other similar agreement or
arrangement designed to protect such person against changes in
interest rates or foreign exchange rates.
"Investment" in any person means any loan or advance to, any
guarantee of, any acquisition of any Capital Stock, equity
interest, obligation or other security of, or capital
contribution or other investment in, such person. Investments
will exclude advances to customers and suppliers in the ordinary
course of business.
"Officer" means the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Preferred Stock," as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends, or
as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation;
provided, however, that Preferred Stock will not include the
Company's Class B Common Stock.
"Treasury Rate" as of any date of determination means the
yield to maturity at the time of computation of United States
Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two
business days prior to such date of determination (or, if such
Statistical Release is no longer published, any publicly
available source of similar market date)) of one year.
(b) The definition of "Indebtedness" contained in Section
9.1 is hereby amended by deleting the last sentence thereof.
8
<PAGE>
(c) The definition of "Sevin Group" contained in Section
9.1 is amended by deleting "Malvin P. Sevin" and inserting "The Estate of
Malvin P. Sevin."
1.7 Section 10.3 is hereby amended by inserting the following
sentence at the end of the section:
"Notwithstanding the foregoing, Series A Notes may be exchanged
only for other Series A Notes and Series B Notes may be exchanged
only for other Series B Notes."
1.8 Section 10.4 is hereby amended by inserting the following
sentence at the end of the section:
"Notwithstanding the foregoing, Series A Notes will be replaced
only by Series A Notes and Series B Notes will be replaced only
by other Series B Notes."
9
<PAGE>
SECTION 2. MISCELLANEOUS
- ---------- -------------
2.1 Effectiveness. This Third Amendment shall become effective
-------------
upon compliance by the Company with the following conditions precedent:
"(a) Closing Certificate. You shall have received
-------------------
certificate dated the Closing Date, signed by the President or a
Vice President of the Company, the truth and accuracy of which
shall be a condition to your obligation to exchange any Notes and
execute this Third Amendment and to the effect that (i) the
representations and warranties of the Company set forth in
Exhibit A hereto are true and correct on and with respect to the
Closing Date, (ii) the Company has performed all of its
obligations hereunder which are to be performed on or prior to
the Closing Date, and (iii) no Default or Event of Default has
occurred and is continuing.
(b) Legal Opinions. You shall have received from Phillips,
--------------
Nizer, Benjamin, Krim & Ballon, counsel for the Company, its
opinion dated the Closing Date, in form and substance
satisfactory to you, and covering the matters set forth in
Exhibit B.
(c) The Company shall have tendered to you the Series A and
Series B Notes described on Exhibit C-1 and you shall have
delivered to the Company the Note described on Exhibit C-2 on a
date designated by the Company on at least two business days
notice to you ("Closing Date"). The Series A Note shall be in
the form of Exhibit D-1 and the Series B Note shall be in the
form of Exhibit D-2.
(d) The Company shall have paid the Exchange Fee to the
Holder.
(e) Satisfactory Proceedings. All proceedings taken in
------------------------
connection with the transactions contemplated by this Third
Amendment, and all documents necessary to the consummation
thereof, shall be satisfactory in form and substance to you, and
you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in
connection with the consummation of said transactions."
2.2 Agreement to Amend the Purchase Agreement As soon as
-----------------------------------------
practicable following the consummation of the public offering of the
Company's Subordinated Debentures due 2006 (the "New Debentures"), the
Company shall provide you with a copy of all instruments reflecting the New
Debentures and all agreements and other documents entered into or executed
by the Company in connection with the issuance or sale of the New
Debentures. If the Indebtedness represented by the New Debentures contains
any term, right or covenant that is more favorable to the holder or holders
of the New Debentures than you, as the holder of the Notes, enjoys under
10
<PAGE>
the Note Agreement (collectively, "more favorable covenants and other
agreements"), then within 45 days following the receipt of such documents,
you shall have the privilege to require the Company to amend the Note
Agreement and/or the Notes to contain any or all of the more favorable
covenants and other agreements.
2.3 Continuing Effect of Agreements. The Third Amendment shall
-------------------------------
not constitute a waiver or amendment or any other provision of the Existing
Note Agreement not expressly referred to herein. Except as expressly
amended hereby, the terms and provisions of the Existing Note Agreement is
and shall remain in full force and effect.
2.4 Counterparts. This Third Amendment may be executed by the
------------
parties thereto in any number of counterparts, and all of such counterparts
taken together shall be deemed to constitute one and the same instrument.
2.5 Governing Law. This Third Amendment shall be governed by
-------------
and construed and interpreted in accordance with the laws of the State of
New York.
11
<PAGE>
2.6 Successors and Assigns. This Third Amendment shall be
----------------------
binding upon and inure to the benefit of the respective successors and
assigns of the parties hereunder.
PETROLEUM HEAT AND POWER CO., INC.
By:_________________________________
George Leibowitz
Senior Vice President
The foregoing Third Amendment is hereby accepted and agreed to as
of the date aforesaid.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
_______________________________________
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Corporate Organization and Authority. The Company, and each
Subsidiary,
(a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on
its business as now conducted and as presently proposed to be
conducted; and
(c) is duly licensed or qualified and is in good standing as a
foreign corporation in each jurisdiction wherein the nature of the
business transacted by it or the nature of the property owned or
leased by it makes such licensing or qualification necessary.
2. Exchange is Legal and Authorized. The exchange of the existing
Notes for Series A and Series B Notes and compliance by the Company with
all of the provisions of the Third Amendment
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any order of
any court or governmental authority or agency and will not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under the Restated Articles of
Incorporation or By-laws of the Company or any indenture or other
agreement or instrument to which the Company is a party or by which it
may be bound or result in the imposition of any liens or encumbrances
on any property of the Company; and
(c) have been duly authorized by proper corporate action on the
part of the Company (no action by the stockholders of the Company
being required by law, by the Restated Articles of Incorporation or
By-laws of the Company or otherwise), executed and delivered by the
Company and the Third Amendment, the Series A Notes, and the Series B
Notes constitutes the legal, valid and binding obligation, contract
and agreement of the Company enforceable in accordance with its terms.
3. No Defaults. Both before and after the execution and delivery of
the Third Amendment and the issuance and delivery of the Notes, no Default
or Event of Default has occurred and is continuing. Neither the Company
nor any Subsidiary is in default in the payment of principal or interest on
any Funded Debt or Current Debt or is in default under any instrument or
instruments or agreements under and subject to which any Funded Debt or
Current Debt has been issued, and no event has occurred and is continuing
under the provisions of any such instrument or agreement which with the
EXHIBIT A
(to Third Amendment)
<PAGE>
lapse of time or the giving of notice, or both, would constitute an event
of default thereunder.
4. Governmental Consent. No approval, consent or withholding of
objection on the part of any regulatory body, state, Federal or local, is
necessary in connection with the execution and delivery by the Company of
the Third Amendment or the Notes or compliance by the Company with any of
the provisions of the Third Amendment or the Notes.
EXHIBIT A
(to Third Amendment)
<PAGE>
January 26, 1994
To the Holders Named on
Schedule I Hereto
Ladies and Gentlemen:
We are counsel to Petroleum Heat and Power Co., Inc., a Minnesota
corporation (the "Company"), and have acted in that capacity in connection
with the execution and delivery by the Company of the Third Amendment dated
as of January 24, 1994 (the "Third Amendment") to the Note Agreement dated
as of January 15, 1991 among the Company and you, respectively, and the
issuance and delivery of the Series A Notes and the Series B Notes.
Capitalized terms not otherwise defined herein are defined as set forth in
the Third Amendment.
We have examined, among other things, the Third Amendment, the
Series A Notes, the Series B Notes, originals or copies certified or
otherwise identified to our satisfaction of the Restated and Amended
Articles of Incorporation (the "Restated Articles") and the By-Laws, each
as amended to date, of the Company, records of the corporate proceedings
relating to the Third Amendment, the Series A Notes, the Series B Notes,
certificates of public officials and such other documents, records and
legal matters as we have deemed necessary or relevant for purposes of the
opinion hereinafter expressed. In all such examinations, we have assumed
the genuineness of all signatures other than signatures of officers of the
Company, the authenticity of documents submitted to us as originals and the
conformity to the originals of all documents submitted to us as copies. In
addition, we have assumed, without investigation, that the Third Amendment
(and all collateral documents relating thereto) is valid and binding on,
and enforceable against, you.
EXHIBIT B
<PAGE>
-2- January 26, 1994
Our opinion as to the existence and good standing of the Company
is based solely upon a good standing certificate dated January 11, 1994,
certified by the Secretary of State of the State of Minnesota.
Based upon the foregoing and in reliance on statements of fact
contained in the documents we have examined, we are of the opinion that:
i. The Company is a corporation duly organized and existing and
in good standing under the laws of the Sate of Minnesota and has all
requisite corporate power and authority to enter into and perform the Third
Amendment and to execute and deliver the Notes.
ii. The Third Amendment has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, except (a) as such terms may be limited by bankruptcy,
insolvency or similar laws and legal and equitable principles affecting or
limiting the enforcement of creditors' rights generally, and (b) no opinion
is expressed as to the availability of the remedy of specific performance.
iii. The Notes have been duly authorized by proper corporate
action on the part of the Company and are legal, valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms except (a) as such terms maybe limited by bankruptcy,
insolvency or similar laws and legal and equitable principles affecting or
limiting the enforcement of creditors' rights generally, and (b) no opinion
is expressed as to the availability of the remedy of specific performance.
iv. The issuance and delivery of the Notes under the
circumstances contemplated by the Third Amendment is an exempt transaction
under the Securities Act of 1933, as amended, and does not under existing
law require the registration of the Notes under the Securities Act of 1933,
as amended;
v. The issuance and delivery of the Notes on the Closing Date
and the execution, delivery and performance by the Company of the Third
Amendment do not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the creation or
imposition of any lien or encumbrance upon any of the property of the
Company pursuant to the provisions of the Restated Articles of
Incorporation or By-Laws of the Company or any agreement or other
instrument known to us after due investigation to which the Company is a
party or by which the Company may be bound;
<PAGE>
-3- January 26, 1994
We are experts only as to the laws of the State of New York and
the Federal laws of the United States of America. We have made no special
inquiry as to, and are not experts in, the laws of any other relevant
jurisdiction.
This letter is being furnished to you solely for your benefit and
for the benefit of your successors and assigns and any transferee of the
Notes. This letter may not be circulated, quoted or otherwise referred to
by you, and may not be relied upon by you for any other purpose without our
prior written consent.
Very truly yours,
/pg
<PAGE>
EXHIBIT C-1
Series A Subordinated Note - $6,250,000
Series B Senior Note - $6,250,000
EXHIBIT C-2
Subordinated Note - $12,500,000
<PAGE>
D - 1
PETROLEUM HEAT AND POWER CO., INC.
14.10% Series A Subordinated Note
Due January 15, 2001
No. R- ___________, 199_
PETROLEUM HEAT AND POWER CO., INC., a Minnesota corporation (the
"Company"), for value received, hereby promises to pay to
or registered assigns,
on the fifteenth day of January 2001
the principal amount of
DOLLARS ($___________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-
day months) on the principal amount from time to time remaining unpaid
hereon at the rate of 14.10% per annum from the date hereof until maturity,
payable quarterly on the fifteenth day of each April, July, October and
January in each year commencing on the first such date after the date of
issue hereof, and at maturity. The Company agrees to pay interest on
overdue principal and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 16.10%
per annum after due, whether by acceleration or otherwise, until paid. The
principal hereof and interest hereon and premium, if any, are payable at
the principal office of the Company in Stamford, Connecticut in coin or
currency of the United States of America which at the time of payment shall
be legal tender for the payment of public debts.
This Note is one of the Series A Subordinated Notes of the
Company in the aggregate principal amount not to exceed $6,250,000 issued
or to be issued under and pursuant to the terms and provisions of the Note
Agreement dated as of January 15, 1991, entered into by the Company with
the original purchaser therein referred to and this Note and the holder
<PAGE>
hereof are entitled equally and ratably with the holders of al other Notes
outstanding under the Note Agreement to all the benefits and security
provided for thereby or referred to therein, to which Note Agreement
reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note
Agreement may be declared due prior to their expressed maturity dates, all
in the events, on the terms and in the manner and amounts as provided in
the Notes Agreement.
The Notes are not subject to prepayment or redemption qt the
option of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any, set
forth in Section 5 of the Note Agreement.
This Note and the indebtedness evidenced hereby is and shall at
all times be and remain junior and subordinate in right of payment to any
and all Senior Indebtedness of the Company as defined in the Note
Agreement, all to the extent more fully set forth in said Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal, premium, if
any, and interest on this Note shall be made only to or upon the order in
writing of the registered holder.
PETROLEUM HEAT AND POWER CO., INC.
By_________________________________
Its:
<PAGE>
D - 2
PETROLEUM HEAT AND POWER CO., INC.
14.10% Series B Senior Note
Due January 15, 2001
No. R- ___________, 199_
PETROLEUM HEAT AND POWER CO., INC., a Minnesota corporation (the
"Company"), for value received, hereby promises to pay to
or registered assigns,
on the fifteenth day of January 2001
the principal amount of
DOLLARS ($___________)
and to pay interest (computed on the basis of a 360-day year of twelve 30-
day months) on the principal amount from time to time remaining unpaid
hereon at the rate of 14.10% per annum from the date hereof until maturity,
payable quarterly on the fifteenth day of each April, July, October and
January in each year commencing on the first such date after the date of
issue hereof, and at maturity. The Company agrees to pay interest on
overdue principal and premium, if any, and (to the extent legally
enforceable) on any overdue installment of interest, at the rate of 16.10%
per annum after due, whether by acceleration or otherwise, until paid. The
principal hereof and interest hereon and premium, if any, are payable at
the principal office of the Company in Stamford, Connecticut in coin or
currency of the United States of America which at the time of payment shall
be legal tender for the payment of public debts.
This Note is one of the Series B Senior Notes of the Company in
the aggregate principal amount not to exceed $6,250,000 issued or to be
issued under and pursuant to the terms and provisions of the Note Agreement
dated as of January 15, 1991, entered into by the Company with the original
purchaser therein referred to and this Note and the holder hereof are
<PAGE>
entitled equally and ratably with the holders of al other Notes outstanding
under the Note Agreement to all the benefits and security provided for
thereby or referred to therein, to which Note Agreement reference is hereby
made for the statement thereof.
This Note and the other Notes outstanding under the Note
Agreement may be declared due prior to their expressed maturity dates, all
in the events, on the terms and in the manner and amounts as provided in
the Notes Agreement.
The Notes are not subject to prepayment or redemption qt the
option of the Company prior to their expressed maturity dates except on the
terms and conditions and in the amounts and with the premium, if any, set
forth in Section 5 of the Note Agreement.
This Note is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the
Company duly endorsed or accompanied by a written instrument of transfer
duly executed by the registered holder of this Note or its attorney duly
authorized in writing. Payment of or on account of principal, premium, if
any, and interest on this Note shall be made only to or upon the order in
writing of the registered holder.
PETROLEUM HEAT AND POWER CO., INC.
By_________________________________
Its:
PETROLEUM HEAT AND POWER CO., INC.
SECOND AMENDMENT
Dated as of January 24, 1994
Re:
Note Agreements Dated as of September 1, 1988
and
$60,000,000 11.85%, 12.17% and 12.18% Subordinated Notes
Due October 1, 1998
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
SECOND AMENDMENT
Re:
Note Agreements Dated as of September 1, 1988
and
$60,000,000 11.85%, 12.17% and 12.18% Subordinated Notes
Due October 1, 1998
Dated as of January 24, 1994
To the Holders Named on
Schedule I Hereto
Gentlemen:
Reference is made to the separate Note Agreements dated
as of September 1, 1988, (collectively, the "Original Note
Agreements"), between Petroleum Heat and Power Co., Inc., a
Minnesota corporation (the "Company"), and each of you, as amended
by that certain First Amendment dated as of September 1, 1989 (the
Original Note Agreements, as so amended being hereinafter
collectively referred to as the "Note Agreements"). Capitalized
terms used herein and not otherwise defined shall have the same
meanings as in the Note Agreements. You are hereinafter sometimes
referred to as the "Holders."
The Company has requested certain amendments to the Note
Agreements to permit the issuance by the Company of certain
subordinated indebtedness. In connection therewith, the Company
has agreed to issue to the holders of the $60,000,000 in aggregate
principal amount of Subordinated Notes due October 1, 1998 (the
<PAGE>
"Subordinated Notes") its Senior Notes, as defined below, in an
aggregate principal amount of $30,000,000 in exchange for
$30,000,000 of the outstanding Subordinated Notes, upon the terms
and conditions set forth below.
Upon satisfaction of the conditions hereof, this Second
Amendment (this "Second Amendment") shall constitute a contract
between the Company and the Holders amending the Note Agreements in
the respects, but only in the respects, hereinafter set forth and
providing for the exchange of Notes pursuant to Section 1 hereof:
SECTION 1. EXCHANGE OF NOTES
- ---------- -----------------
1.1 The Company certifies that Part A of Schedule II
hereto sets forth the names of all registered holders of all
Subordinated Notes outstanding under the Note Agreements on the
Exchange Date without giving effect to the exchange of Notes (the
"Old Notes"), the aggregate amount of Old Notes held by each holder
and the interest rate applicable to such Old Notes.
1.2 The Company hereby creates a new series of notes
titled "Senior Notes due October 1, 1998" to be issued by the
Company in the form of Exhibit A hereto (the "Senior Notes"), to be
dated the Exchange Date and to be issued in an aggregate principal
amount of $30,000,000. The Senior Notes shall bear interest at the
rate specified below from the date of issuance thereof, payable
semi-annually on the first day of each April and October in each
year (commencing on the first such date after the date of issuance)
and at maturity and shall be expressed to mature on October 1,
1998. Except as provided in Section 1.1 of the Note Agreements
<PAGE>
with respect to overdue amounts, $20,000,000 of the original
aggregate principal amount of the Senior Notes (and all Senior
Notes issued in exchange or substitution therefor) shall bear
interest at the rate of 11.85% per annum, $7,500,000 of the
original aggregate principal amount of the Senior Notes (and all
Senior Notes issued in exchange or substitution therefor) shall
bear interest at the rate of 12.17% per annum and $2,500,000 of the
original aggregate principal amount of the Senior Notes (and all
Senior Notes issued in exchange or substitution therefor) shall
bear interest at the rate of 12.18% per annum.
1.3 Upon satisfaction of the conditions precedent set
forth in Section 2 of this Second Amendment, the holders of the Old
Notes shall tender to the Company on the Exchange Date at the
offices of Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois, all of the Old Notes held thereby and shall concurrently
therewith receive in exchange therefor Senior Notes and
Subordinated Notes in the principal amounts and with the interest
rates set forth on Part B of Schedule II. All Senior Notes and
Subordinated Notes issued on the Exchange Date shall be issued in
the same name as the Old Notes exchanged therefor unless the holder
of such Old Notes shall specify a different name to the Company in
writing at any time prior to the Exchange Date. All Old Notes so
tendered shall be canceled and shall not be outstanding for any
purpose under the Note Agreements.
1.4 The Company hereby agrees to pay the holders of the
Senior Notes on the interest payment date next succeeding the
3
<PAGE>
Exchange Date an amount equal to the amount of interest which
accrued on the Old Notes tendered in exchange for the Senior Notes
from the last date on which interest was paid to (but not
including) the Exchange Date.
SECTION 2. CONDITIONS PRECEDENT
- ---------- --------------------
The obligation of each holder of the Old Notes to tender
the Old Notes on the Exchange Date and to execute this Second
Amendment shall be subject to the performance by the Company prior
to the Exchange Date of the following conditions precedent:
(a) Closing Certificate. You shall have received a
certificate dated the Exchange Date, signed by the President or a
Vice President of the Company, the truth and accuracy of which
shall be a condition to your obligation to exchange the Old Notes
and execute this Second Amendment and to the effect that (i) the
representations and warranties of the Company set forth in Exhibit
B hereto are true and correct on and with respect to the Exchange
Date, (ii) the Company has performed all of its obligations
hereunder which are to be performed on or prior to the Exchange
Date, and (iii) no Default or Event of Default has occurred and is
continuing.
(b) Legal Opinions. You shall have received from
Phillips, Nizer, Benjamin, Krim & Ballon, counsel for the Company,
its opinion dated the Exchange Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibit
C.
4
<PAGE>
(c) First Amendment to Purchase Agreement. The First
Amendment to Purchase Agreement, in the form attached hereto as
Exhibit D, shall have been duly authorized, executed and delivered
by the Company and shall constitute the legal, valid and binding
contract and agreement of the Company and shall be enforceable
against the Company in accordance with its terms.
(d) Payment of Restructuring Fee. The Company shall
have paid such fees, if any, which it may have agreed to pay in
connection with the Second Amendment in any separate agreement.
(e) Payment of Counsel Fees. The Company shall have
paid all reasonable fees and expenses of special counsel to the
holders of the Notes to the extent that such fees and expenses are
known as of the Exchange Date and are reflected in appropriate
bills or invoices delivered by such special counsel.
(f) Private Placement Number. Standard & Poor's CUSIP
Service bureau shall have assigned a Private Placement Number to
the Senior Notes.
(g) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Second
Amendment, and all documents necessary to the consummation thereof,
shall be satisfactory in form and substance to you, and you shall
have received a copy (executed or certified as may be appropriate)
of all legal documents or proceedings taken in connection with the
consummation of said transactions.
5
<PAGE>
SECTION 3. AMENDMENTS TO NOTE AGREEMENT
- ---------- ----------------------------
3.1 Definition of Notes. Notwithstanding any provision
-------------------
to the contrary contained in the Note Agreements, the term "Notes"
shall mean, collectively, the Subordinated Notes and the Senior
Notes.
3.2 Amendment to Section 5.5. Section 5.5 is hereby
------------------------
amended by deleting the existing provisions and by substituting
therefor the following provisions:
5.5 Nature of Business. Neither the Company nor
------------------
any Subsidiary will engage in any business if, after
giving effect thereto, less than 80% of the Consolidated
Operating Cash Flow of the Company for the 12 months
ended with its most recently ended fiscal quarter would
be attributable to the distribution of home heating oil
(#2 fuel oil), propane and related products (including
the distribution of other petroleum products which were
distributed by the Company during its fiscal year ending
December 31, 1990), all as determined in accordance with
generally accepted accounting principles.
3.3 Amendment to Section 5.6. Section 5.6 is hereby
------------------------
amended by deleting the existing provisions and by substituting
therefor the following provisions:
5.6 Limitations on Funded Debt. Neither the
--------------------------
Company nor any of its Subsidiaries will incur, create,
assume, guarantee or otherwise become liable for any
additional Funded Debt unless, after giving effect
thereto, the Company's Consolidated EBITDA Coverage Ratio
exceeds 2.0 to 1 through December 31, 1995; 2.1 to 1 from
January 1, 1996 through December 31, 1996; 2.2 to 1 from
January 1, 1997 through December 31, 1997 and 2.3 to 1 on
and after January 1, 1998 (each such ratio for each such
period, a "Minimum Consolidated EBITDA Coverage Ratio").
The foregoing restriction on additional Funded Debt
shall not be applicable to (i) Funded Debt incurred to
refund, extend or renew up to an equal amount of
outstanding Funded Debt; provided, that, if any Funded
Debt is incurred for the purpose of refunding, extending
or renewing any Indebtedness which is subordinate to the
Senior Notes or the Subordinated Notes, such Funded Debt
6
<PAGE>
must be subordinated to the Senior Notes or the
Subordinated Notes, respectively, to the extent such
Indebtedness is so subordinated, and provided, further,
that, if any Funded Debt is incurred for the purpose of
refunding, extending or renewing any Indebtedness which
is of equal rank with the Subordinated Notes, such Funded
Debt may not be Senior Indebtedness and (ii) additional
Funded Debt in an aggregate amount not to exceed $25
million at any one time outstanding; provided, however,
that Funded Debt incurred pursuant to this subsection
(ii) shall be deemed not to be outstanding for purposes
of this subsection (ii) if at the end of any period of
four consecutive fiscal quarters ending after the
incurrence of such Funded Debt the Company's Consolidated
EBITDA Coverage Ratio exceeds the then applicable Minimum
Consolidated EBITDA Coverage Ratio.
3.4 Amendment to Section 5.10. Section 5.10 is hereby
-------------------------
amended by adding the following provision at the beginning:
"In addition to the other restrictions contained
herein, including, without limitation, the restrictions
contained in Sections 5.6 and 5.15 hereof,"
3.5 Amendment to Section 5.14. Section 5.14(f) is
-------------------------
hereby amended by adding the phrase "and Section 5.15" immediately
following the phrase "the requirements of Sec.5.6 through 5.13,
inclusive."
3.6 Addition of Sections 5.15 and 5.16. The following
----------------------------------
Sections are added as Sections 5.15 and 5.16:
5.15 Limitation on Indebtedness and Preferred Stock
----------------------------------------------
of Subsidiaries. The Company will not permit any
---------------
Subsidiary to incur any Indebtedness or issue any
Preferred Stock except: (i) Indebtedness or Preferred
Stock issued to and held by the Company or a Wholly-owned
Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results
in any such Wholly-owned Subsidiary ceasing to be a
Wholly-owned Subsidiary or any subsequent transfer of
such Indebtedness or Preferred Stock (other than to the
Company or a Wholly-owned Subsidiary) will be deemed, in
each case, to constitute the incurrence of such
Indebtedness or the issuance of such Preferred Stock, as
the case may be, by the issuer thereof; (ii) Indebtedness
incurred or Preferred Stock of a Subsidiary issued and
outstanding on or prior to the date on which such
Subsidiary was acquired by the Company (other than
Indebtedness incurred or Preferred Stock issued in
contemplation of, as consideration in, or to provide all
7
<PAGE>
or any portion of the funds or credit support utilized to
consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company), provided that
at the time such Subsidiary is acquired by the Company,
after giving effect to such Indebtedness or Preferred
Stock of such Subsidiary, the Company's Consolidated
EBITDA Coverage Ratio exceeds 2.0 to 1 in the case of any
such acquisition made on or prior to December 31, 1995,
2.1 to 1 in the case of any such acquisition made after
December 31, 1995 but on or prior to December 31, 1996,
2.2 to 1 in the case of any such acquisition made after
December 31, 1996 but on or prior to December 31, 1997
and 2.3 to 1 in case of any such acquisition made after
December 31, 1997; (iii) Indebtedness or Preferred Stock
(other than Indebtedness or Preferred Stock described in
clause (i), (ii), (iv) or (vi) of this covenant) incurred
or issued and outstanding on or prior to the Exchange
Date; (iv) Indebtedness of a Subsidiary consisting of
guarantees issued by such Subsidiary and outstanding on
the Exchange Date and Indebtedness of a Subsidiary
consisting of guarantees issued subsequent to such date,
in each case, to the extent such guarantee guarantees
Bank Debt; (v) Indebtedness of a Subsidiary (other than
Indebtedness described in clause (iv) above) consisting
of guarantees of Funded Debt of the Company permitted by
the first paragraph of Section 5.6, provided that
contemporaneously with the incurrence of such
Indebtedness by such Subsidiary, such Subsidiary issues a
guarantee for the pro rata benefit of the holders of the
Notes that is, in the case of the Subordinated Notes (but
not in the case of the Senior Notes), subordinated to
such Indebtedness of such Subsidiary to the same extent
as the Subordinated Notes are subordinated to such Funded
Debt of the Company; and (vi) Indebtedness or Preferred
Stock issued in exchange for, or the proceeds of which
are used to refund or refinance, Indebtedness or
Preferred Stock referred to in the foregoing clause (ii)
or (iii); provided, however, that (1) the principal
amount of such Indebtedness or Preferred Stock so
incurred or issued will not exceed the principal amount
of the Indebtedness or Preferred Stock so exchanged or
refinanced and (2) the Indebtedness or Preferred Stock so
incurred or issued will (A) have a Stated Maturity later
than the Stated Maturity of the Indebtedness or Preferred
Stock being exchanged or refinanced and (B) will have an
Average Life equal to or greater than the remaining
Average Life of the Indebtedness or Preferred Stock so
exchanged, refunded or refinanced.
5.16 Limitation on Restrictions on Distributions
-------------------------------------------
from Subsidiaries. The Company will not, and will not
-----------------
8
<PAGE>
permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual
encumbrance or restriction on the ability of any
Subsidiary to: (i) pay dividends or make any other
distributions on its Capital Stock or pay any
Indebtedness owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its
property or assets to the Company, except: (1) any
encumbrance or restriction pursuant to an agreement in
effect on the Exchange Date; (2) any encumbrance or
restriction with respect to a Subsidiary pursuant to an
agreement relating to any Indebtedness issued by such
Subsidiary on or prior to the date on which such
Subsidiary was acquired by the Company (other than
Indebtedness issued in contemplation of, as consideration
in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the
Company) and outstanding on such date; (3) any
encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness issued pursuant
to an agreement referred to in the foregoing clause (1)
or (2) or contained in any amendment to an agreement
referred to in the foregoing clause (1) or (2); provided,
however, that the encumbrances and restrictions contained
in any such refinancing agreement or amendment are no
less favorable to holders of the Notes than the
encumbrances and restrictions contained in such
agreements; (4) any such encumbrance or restriction
consisting of customary nonassignment provisions in
leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease; (5) in the
case of clause (iii) above, restrictions contained in
security agreements securing Indebtedness of a Subsidiary
to the extent such restrictions restrict the transfer of
the property subject to such security agreements; and (6)
any restriction with respect to a Subsidiary imposed
pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary pending the closing of
such sale or disposition.
3.7 Amendment to Section 6.1(e). Section 6.1(e) is
---------------------------
hereby amended by deleting the existing provisions and by
substituting therefor the following provisions:
"(e) Default shall occur in the observance or
performance of any covenant or agreement contained in
Section 5.6 through Section 5.13 or in Sections 5.15 or
5.16 hereof."
9
<PAGE>
3.8 Amendment to Section 8.1. (a) Section 8.1 is hereby
------------------------
amended to add the following definitions:
"Asset Disposition" means any sale, lease, transfer
or other disposition (or series of related sales, leases,
transfers or dispositions) of shares of Capital Stock of
a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the
purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any
disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly-owned Subsidiary, (ii) a
disposition of property or assets at fair market value in
the ordinary course of business or (iii) a disposition of
obsolete assets in the ordinary course of business.
"Attributable Indebtedness" in respect of a
Sale/Leaseback Transaction means, as of the time of
determination, the present value (discounted at the
average interest rate borne by the Notes, compounded
annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including
any period for which such lease has been extended).
"Average Life" - means, as of the date of
determination, with respect to any Indebtedness or
Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the
date of determination to the dates of each successive
scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment
by (ii) the sum of all such payments.
"Bank Debt" means any loan agreement with a bank,
including principal, premium (if any), interest
(including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating
to the Company to the extent a claim for post filing
interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all
other amounts payable thereunder or in respect thereof.
"Business Day" means each day which is not a Legal
Holiday.
10
<PAGE>
"Capital Stock" of any person means any and all
shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in
(however designated) equity of such person, including any
Preferred Stock, but excluding any debt securities
convertible into or exchangeable for such equity.
"Capital Lease Obligations" of a person means any
obligation which is required to be classified and
accounted for as a capital lease on the face of a balance
sheet of such person prepared in accordance with
generally accepted accounting principles; the amount of
such obligation will be the capitalized amount thereof,
determined in accordance with generally accepted
accounting principles; and the Stated Maturity thereof
will be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without
payment of a penalty.
"Consolidated EBITDA Coverage Ratio" as of any date
of determination means the ratio of (i) the aggregate
amount of EBITDA for the period of the most recent four
consecutive fiscal quarters ending at least 45 days prior
to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Subsidiary has
incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an incurrence of Indebtedness,
or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a
pro forma basis to (A) such Indebtedness as if such
Indebtedness had been incurred on the first day of such
period, (B) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company and
its Subsidiaries on the proceeds of such Indebtedness, to
the extent not yet applied at the date of determination,
assuming such proceeds earned interest at the Treasury
Rate from the date such proceeds were received through
such date of determination, (2) if since the beginning of
such period the Company or any Subsidiary will have made
any Asset Disposition, EBITDA for such period will be
reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased
by an amount equal to EBITDA (if negative), directly
attributable thereto for such period and Consolidated
11
<PAGE>
Interest Expense for such period will be reduced by an
amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company
or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its
continuing Subsidiaries in connection with such Asset
Dispositions for such period (or, if the Capital Stock of
any Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness
of such Subsidiary to the extent the Company and its
continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (3) if since the
beginning of such period the Company or any Subsidiary
(by merger or otherwise) will have made an Investment in
any Subsidiary (or any person which becomes a Subsidiary)
or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all
or substantially all of the assets of an operating unit
of a business, EBITDA and Consolidated Interest Expense
for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any
Indebtedness) as if such Investment or acquisition
occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income
or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any
Indebtedness incurred in connection therewith the pro
forma calculations will be determined in good faith by a
responsible financial or accounting Officer of the
Company; provided, however, that such Officer shall
assume (i) the historical sales and gross profit margins
associated with such assets for the most recent
consecutive 12-month period ended prior to the date of
purchase for which financial statements are available
(provided that the first month of such period will be no
more than 18 months prior to such date of purchase), less
estimated post-acquisition loss of customers (not to be
less than 5%) and (ii) other expenses as if such assets
had been owned by the Company since the first day of such
period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the
interest on such Indebtedness will be calculated as if
the rate in effect on the date of determination had been
the applicable rate for the entire period.
"Consolidated Interest Expense" means, for any
period, the total interest expense of the Company and its
Subsidiaries, determined on a consolidated basis,
including (i) interest expense in respect of money
borrowed and interest expense attributable to capital
12
<PAGE>
leases, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually
paid by the Company or any such Subsidiary under any
guarantee of Indebtedness or other obligation of any
other Person, (vii) net costs associated with Hedging
Obligations (including amortization of fees),
(viii) Preferred Stock dividends in respect of all
Preferred Stock of Subsidiaries held by persons other
than the Company or a Wholly-owned Subsidiary, (ix) the
cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are
used by such plan to pay interest or fees to any person
(other than the Company) in connection with loans
incurred by such plan or trust to purchase newly issued
or treasury shares of the Company (but excluding interest
expense associated with the accretion of principal on a
non-interest bearing or other discount security) and
(x) to the extent not already included in Consolidated
Interest Expense, the interest expense attributable to
Indebtedness of another person that is guaranteed by the
Company or any of its Subsidiaries less interest income
(exclusive of deferred financing fees) of the Company and
its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Net Income" of a person, for any
period, means the aggregate of the Net Income of such
person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with generally
accepted accounting principles, provided that (i) the Net
Income of any other person (other than a Subsidiary) in
which such person has an interest will be included only
to the extent of the amount of dividends or distributions
paid to such person, (ii) the Net Income of any person
acquired by such person in a pooling of interests
transaction for any period prior to the date of such
acquisition will be excluded, (iii) any Net Income of any
Subsidiary will be excluded if such Subsidiary is subject
to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to such person,
except that (A) such person's equity in the Net Income of
any such Subsidiary for such period will be included in
such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Subsidiary during
such period to such person as a dividend or other
distribution (subject, in the case of a dividend or other
distribution to another subsidiary, to the limitation
contained in this clause) and (B) such person's equity in
13
<PAGE>
a net loss of any such Subsidiary for such period will be
included in determining such Consolidated Net Income, and
(iv) the cumulative effect of a change in accounting
principles will be excluded.
"EBITDA" for any period means the Consolidated Net
Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting
from purchase accounting, extraordinary losses or gains
and any gains or losses from any Asset Dispositions),
plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) all other non-
cash expenses.
"Exchange Date" means January 26, 1994.
"Hedging Obligations" of any person means the
obligations of such person pursuant to any interest rate
swap agreement, foreign currency exchange agreement,
interest rate collar agreement, option or futures
contract or other similar agreement or arrangement
designed to protect such person against changes in
interest rates or foreign exchange rates.
"Indebtedness" of any person means, without duplication,
(i) the principal of (A) indebtedness of such
person for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments
for the payment of which such person is responsible or
liable;
(ii) all Capital Lease Obligations of such person
and all Attributable Indebtedness in respect of
Sale/Leaseback Transactions entered into by such person;
(iii) all obligations of such person issued or
assumed as the deferred purchase price of property, all
conditional sale obligations of such person and all
obligations of such person under any title retention
agreement (but excluding trade accounts payable arising
in the ordinary course of business);
(iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit
securing obligations (other than obligations described in
(i) through (iii) above) entered into in the ordinary
14
<PAGE>
course of business of such person to the extent such
letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later
than the third Business Day following receipt by such
person of a demand for reimbursement following payment on
the letter of credit);
(v) all obligations of the type referred to in
clauses (i) through (iv) of other persons and all
dividends of other persons for the payment of which, in
either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or
otherwise, including any guarantees of such obligations
and dividends, including by means of any agreement which
has the economic effect of a guarantee; and
(vi) all obligations of the type referred to in
clauses (i) through (v) of other persons secured by any
Lien on any property or asset of such person (whether or
not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser
of the value of such property or assets or the amount of
the obligation so secured.
"Investment" in any person means any loan or advance
to, any guarantee of, any acquisition of any Capital
Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, such
person. Investments will exclude advances to customers
and suppliers in the ordinary course of business.
"Legal Holiday" means a Saturday, a Sunday or a day
on which banking institutions in The City of New York or
at a place of payment are authorized by law, regulation
or executive order to remain closed. If a payment date
is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the
intervening period.
"Lien" means any mortgage, pledge, security
interest, conditional sale or other title retention
agreement or other similar lien.
"Net Income" of any person means the net income
(loss) of such person, determined in accordance with
generally accepted accounting principles; excluding,
however, from the determination of Net Income any gain
(but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions
pursuant to leaseback transactions) of any real property
or equipment of such person, which is not sold or
15
<PAGE>
otherwise disposed of in the ordinary course of business,
or of any capital stock of such person or subsidiary
owned by such person.
"Officer" means the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed
by two Officers.
"Preferred Stock," as applied to the Capital Stock
of any corporation, means Capital Stock of any class or
classes (however designated) which is preferred as to the
payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital
Stock of any other class of such corporation.
"Sale/Leaseback Transaction" means an arrangement
relating to property now owned or hereafter acquired
whereby the Company or a Subsidiary transfers such
property to a person and the Company or a Subsidiary
leases it from such person.
"Senior Notes" shall have the meaning specified in
that certain Second Amendment dated as of the Exchange
Date between the Company and the holders named on
Schedule 1 thereto.
"Stated Maturity" means, with respect to any
Indebtedness, the date specified in such Indebtedness, or
in any agreement pursuant to which such Indebtedness was
incurred, as the fixed date on which the principal of
such Indebtedness is due and payable, including pursuant
to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such
Indebtedness at the option of the holder thereof upon the
happening of any contingency unless such contingency has
occurred).
"Subordinated Notes" shall have the meaning
specified in that certain Second Amendment dated as of
the Exchange Date between the Company and the holders
named on Schedule I thereto.
"Treasury Rate" as of any date of determination
means the yield to maturity at the time of computation of
United States Treasury securities with a constant
maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has
become publicly available at least two business days
16
<PAGE>
prior to such date of determination (or, if such
Statistical Release is no longer published, any publicly
available source of similar market date)) of one year.
(b) The definition of "Sevin Group" contained in
Section 8.1 is amended by deleting "Malvin P. Sevin" and inserting
"The Estate of Malvin P. Sevin."
3.9 Section 9 is hereby amended by inserting the term
"Subordinated" before the term "Note" or "Notes" in each instance
they appear.
3.10 Section 10.2 is hereby amended by inserting the
following sentence at the end of the section:
"Notwithstanding the foregoing, Senior Notes may be
exchanged only for other Senior Notes and Subordinated
Notes may be exchanged only for other Subordinated
Notes."
3.11 Section 10.3 is hereby amended by inserting the
following sentence at the end of the section:
"Notwithstanding the foregoing, Senior Notes will be
replaced only by Senior Notes and Subordinated Notes will
be replaced only by other Subordinated Notes."
SECTION 4. MISCELLANEOUS
- ---------- -------------
4.1 Effectiveness. This Second Amendment shall become
-------------
effective upon due execution and delivery hereof by each of the
parties hereto.
4.2 Agreement to Amend the Note Agreements. As soon as
--------------------------------------
practicable following the consummation of the public offering of
the Company's Subordinated Debentures due 2006 (the "New
Debentures"), the Company shall provide you with a copy of all
instruments reflecting the New Debentures and all agreements and
17
<PAGE>
other documents entered into or executed by the Company in
connection with the issuance or sale of the New Debentures and
shall provide therewith written notice referring to, and informing
you of, the rights granted to you by this Section and the time
period during which such rights may be exercised. If the
Indebtedness represented by the New Debentures contains any term,
right or covenant that is more favorable to the holder or holders
of the New Debentures than you, as the holder of the Notes, enjoy
under the Note Agreements (collectively, "more favorable covenants
and other agreements"), then you shall have the privilege,
exercisable by delivering notice to the Company within 45 days
following your receipt of such documents and the written notice
referred to above, to require the Company to amend the Note
Agreements and/or the Notes to contain any or all of the more
favorable covenants and other agreements.
4.3 Continuing Effect of Agreements. This Second
-------------------------------
Amendment shall not constitute a waiver or amendment of any other
provision of the Note Agreements not expressly referred to herein.
Except as expressly amended hereby, the terms and provisions of the
Note Agreements are and shall remain in full force and effect.
4.4 Counterparts. This Second Amendment may be executed
------------
by the parties thereto in any number of counterparts, and all of
such counterparts taken together shall be deemed to constitute one
and the same instrument.
18
<PAGE>
4.5 Governing Law. This Second Amendment shall be
-------------
governed by and construed and interpreted in accordance with the
laws of the State of New York.
19
<PAGE>
4.6 Successors and Assigns. This Second Amendment shall
----------------------
be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereunder.
PETROLEUM HEAT AND POWER CO., INC.
By: _______________________________
George Leibowitz
Senior Vice President
The foregoing Second Amendment is hereby accepted and
agreed to as of the date aforesaid.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:________________________________
Its:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:_______________________________
Its:
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By:_______________________________
Its:
By:_______________________________
Its:
<PAGE>
MELLON BANK, N.A., as Trustee for
AT&T
Master Pension Trust (as directed
by John Hancock Mutual Life
Insurance Company)
By_______________________________
Its:
MELLON BANK, N.A., as Trustee for
NYNEX Master Pension Trust (as
directed by John Hancock Mutual
Life Insurance Company)
By_______________________________
Its:
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By_______________________________
Its:
<PAGE>
SCHEDULE I
----------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
MELLON BANK, N.A., as Trustee for AT&T Master Pension Trust (as
directed by John Hancock Mutual Life Insurance Company)
MELLON BANK, N.A., as Trustee for NYNEX Master Pension Trust (as
directed by John Hancock Mutual Life Insurance Company)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
<PAGE>
SCHEDULE II
Part A. Registered Holders (Prior to Exchange)
Principal Interest
Registered Holder Note No. Amount Rate
--------------------- -------- --------- --------
John Hancock Mutual Life R-1 7,500,000.01 11.85%
Insurance Company 2,812,500.00 12.17%
(For the General Account) 937,499.99 12.18%
John Hancock Mutual Life R-2 5,833,333.33 11.85%
Insurance Company 2,187,500.00 12.17%
(Guaranteed Benefit Sub- 729,166.67 12.18%
Account)
Mellon Bank R-3 3,333,333.33 11.85%
(AT&T Master Pension Trust) 1,250,000.00 12.17%
416,666.67 12.18%
Mellon Bank R-4 2,000,000.00 11.85%
(NYNEX Master Pension Trust) 750,000.00 12.17%
250,000.00 12.18%
John Hancock Variable Life R-5 1,333,333.33 11.85%
Insurance Company (For the 500,000.00 12.17%
General Account) 166,666.67 12.18%
The Northwestern Mutual Life R-7 10,000,000.00 11.85%
Insurance Company 3,750,000.00 12.17%
1,250,000.00 12.18%
Principal Mutual Life R-8 10,000,000.00 11.85%
Insurance Company 3,750,000.00 12.17%
1,250,000.00 12.18%
<PAGE>
Part B. Registered Holders of Notes after Exchange
Principal Interest
Registered Holder Note No. Amount Rate
----------------- -------- --------- --------
John Hancock Mutual Life Senior 1 3,750,000.01 11.85%
Insurance Company Subordinated 1 3,750,000.00 11.85%
(For the General Senior 2 1,406,250.00 12.17%
Account) Subordinated 2 1,406,250.00 12.17%
Senior 3 468,750.00 12.18%
Subordinated 3 468,749.99 12.18%
John Hancock Mutual Life Senior 1 2,916,666.66 11.85%
Insurance Company Subordinated 1 2,916,666.67 11.85%
(Guaranteed Benefit Senior 2 1,093,750.00 12.17%
Account) Subordinated 2 1,093,750.00 12.17%
Senior 3 364,583.34 12.18%
Subordinated 3 364,583.33 12.18%
Mellon Bank Senior 1 1,666,666.67 11.85%
(AT&T Master Pension Subordinated 1 1,666,666.66 11.85%
Trust) Senior 2 625,000.00 12.17%
Subordinated 2 625,000.00 12.17%
Senior 3 208,333.34 12.18%
Subordinated 3 208,333.33 12.18%
Mellon Bank Senior 1 1,000,000.00 11.85%
(NYNEX Master Pension Subordinated 1 1,000,000.00 11.85%
Trust) Senior 2 375,000.00 12.17%
Subordinated 2 375,000.00 12.17%
Senior 3 125,000.00 12.18%
Subordinated 3 125,000.00 12.18%
John Hancock Variable Senior 1 666,666.66 11.85%
Life Insurance Company Subordinated 1 666,666.67 11.85%
(For the General Senior 2 250,000.00 12.17%
Account) Subordinated 2 250,000.00 12.17%
Senior 3 83,333.33 12.18%
Subordinated 3 83,333.34 12.18%
The Northwestern Mutual Senior 1 5,000,000.00 11.85%
Life Insurance Company Subordinated 1 5,000,000.00 11.85%
Senior 2 1,875,000.00 12.17%
Subordinated 2 1,875,000.00 12.17%
Senior 3 625,000.00 12.18%
Subordinated 3 625,000.00 12.18%
Principal Mutual Life Senior 1 5,000,000.00 11.85%
Insurance Company Subordinated 1 5,000,000.00 11.85%
Senior 2 1,875,000.00 12.17%
Subordinated 2 1,875,000.00 12.17%
Senior 3 625,000.00 12.18%
Subordinated 3 625,000.00 12.18%
EXHIBIT A
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
Senior Note
Due October 1, 1998
No. _____________, 19__
$
PETROLEUM HEAT AND POWER CO., INC., a Minnesota
corporation (the "Company"), for value received, hereby promises to
pay to
or registered assigns,
on the first day of October, 1998
the principal amount of
DOLLARS ($ )
and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the principal amount from time to time
remaining unpaid hereon at the rate of ___% per annum from the date
hereof until maturity, payable semi-annually on the first of each
April and October in each year commencing with the first such date
after the date of issue hereof, and at maturity. The Company
agrees to pay interest on overdue principal and premium, if any,
and (to the extent legally enforceable) on any overdue installment
of interest, at the rate of ____% per annum after due, whether by
acceleration or otherwise, until paid. Both the principal hereof
and interest hereon are payable at the principal office of the
EXHIBIT A-1
<PAGE>
Company in Stamford, Connecticut in coin or currency of the United
States of America which at the time of payment shall be legal
tender for the payment of public and private debts.
This Note is one of the Senior Notes of the Company in
the aggregate principal amount of $30,000,000 issued or to be
issued under and pursuant to the terms and provisions of separate
and several Note Agreements each dated as of September 1, 1988, as
amended, entered into by the Company with the original purchasers
therein referred to and this Note and the holder hereof are
entitled equally and ratably with the holders of all other Notes
outstanding under the Note Agreements to all the benefits and
security provided for thereby or referred to therein, to which Note
Agreements reference is hereby made for the statement thereof.
This Note and the other Notes outstanding under the Note
Agreements may be declared due prior to their expressed maturity
dates, all in the events, on the terms and in the manner and
amounts as provided in the Note Agreements.
The Notes are not subject to prepayment or redemption at
the option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with the
premium, if any, set forth in Section 2 of the Note Agreements.
This Note is registered on the books of the Company and
is transferable only by surrender thereof at the principal office
of the Company duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of this Note or
its attorney duly authorized in writing. Payment of or on account
EXHIBIT A-2
<PAGE>
of principal, premium, if any, and interest on this Note shall be
made only to or upon the order in writing of the registered holder.
PETROLEUM HEAT AND POWER CO., INC.
By_________________________________
Its:
EXHIBIT A-3
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Corporate Organization and Authority. The Company, and
each Subsidiary,
(a) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation;
(b) has all requisite power and authority and all
necessary licenses and permits to own and operate its
properties and to carry on its business as now conducted and
as presently proposed to be conducted; and
(c) is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction wherein
the nature of the business transacted by it or the nature of
the property owned or leased by it makes such licensing or
qualification necessary.
2. Exchange is Legal and Authorized. The exchange of the
Old Notes for Senior Notes and compliance by the Company with all
of the provisions of the Second Amendment
(a) are within the corporate powers of the Company;
(b) will not violate any provisions of any law or any
order of any court or governmental authority or agency and
will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default
under the Restated Articles of Incorporation or By-laws of the
Company or any indenture or other agreement or instrument to
which the Company is a party or by which it may be bound or
result in the imposition of any liens or encumbrances on any
property of the Company;
(c) have been duly authorized by proper corporate action
on the part of the Company (no action by the stockholders of
the Company being required by law, by the Restated Articles of
Incorporation or By-laws of the Company or otherwise),
executed and delivered by the Company and the Second Amendment
constitutes the legal, valid and binding obligation, contract
and agreement of the Company enforceable in accordance with
its terms; and
3. Ranking. The Senior Notes rank pari passu with all other
---- -----
Senior Indebtedness of the Company.
EXHIBIT B
(to Second Amendment)
<PAGE>
4. No Defaults. No Default or Event of Default has occurred
and is continuing. Neither the Company nor any Subsidiary is in
default in the payment of principal or interest on any Funded Debt
or Current Debt or is in default under any instrument or
instruments or agreements under and subject to which any Funded
Debt or Current Debt has been issued, and no event has occurred and
is continuing under the provisions of any such instrument or
agreement which with the lapse of time or the giving of notice, or
both, would constitute an event of default thereunder.
5. Governmental Consent. No approval, consent or
withholding of objection on the part of any regulatory body, state,
Federal or local, is necessary in connection with the execution and
delivery by the Company of the Second Amendment or compliance by
the Company with any of the provisions of the Second Amendment.
6. Additional Representations. Annex I hereto correctly
identifies (a) all Indebtedness and Preferred Stock referred to in
clause (iii) of Section 5.15 of the Note Agreements, as amended by
the Second Amendment, and (b) all agreements in effect on the
Exchange Date and described in clause (1) of Section 5.16 of the
Note Agreements, as amended by the Second Amendment.
EXHIBIT B
(to Second Amendment)
<PAGE>
ANNEX 1 TO EXHIBIT B
--------------------
Indebtedness and Preferred Stock.
- --------------------------------
Amount payable in connection with the
purchase of a fuel oil dealer $ 80,404
Maxwhale Note Payable (to be refinanced
with proceeds of the Offering) $50,000,000
Agreements.
- ----------
None.
<PAGE>
January 26, 1994
To the Holders Named on
Schedule I Hereto
Ladies and Gentlemen:
We are counsel to Petroleum Heat and Power Co., Inc., a
Minnesota corporation (the "Company"), and have acted in that
capacity in connection with the execution and delivery by the
Company of the Second Amendment dated as of January 24, 1994 (the
"Second Amendment") to the separate and several Note Agreements
dated as of September 1, 1988 among the Company and each of you,
respectively, as amended by the First Amendment dated as of
September 1, 1989 (collectively referred to as the "Note
Agreements"). Capitalized terms not otherwise defined herein are
defined as set forth in the Second Amendment.
We have examined, among other things, the Second
Amendment, originals or copies certified or otherwise identified to
our satisfaction of the Restated and Amended Articles of
Incorporation (the "Restated Articles") and the By-Laws, each as
amended to date, of the Company, records of the corporate
proceedings relating to the Second Amendment, certificates of
public officials and such other documents, records and legal
matters as we have deemed necessary or relevant for purposes of the
opinion hereinafter expressed. In all such examinations, we have
assumed the genuineness of all signatures other than signatures of
officers of the Company, the authenticity of documents submitted to
us as originals and the conformity to the originals of all
documents submitted to us as copies. In addition, we have assumed,
without investigation, that the Second Amendment (and all
collateral documents relating thereto) is valid and binding on, and
enforceable against, you.
Our opinion as to the existence and good standing of the
Company is based solely upon a good standing certificate dated
January 11, 1994, certified by the Secretary of State of the State
of Minnesota.
EXHIBIT C
<PAGE>
-2- January 26, 1994
Based upon the foregoing and in reliance on statements of
fact contained in the documents we have examined, we are of the
opinion that:
i. The Company is a corporation duly organized and
existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to
enter into and perform the Second Amendment and to execute and
deliver the Notes.
ii. The Second Amendment has been duly authorized,
executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except (a) as such terms may
be limited by bankruptcy, insolvency or similar laws and legal and
equitable principles affecting or limiting the enforcement of
creditors' rights generally, and (b) no opinion is expressed as to
the availability of the remedy of specific performance.
iii. The Notes have been duly authorized by proper
corporate action on the part of the Company and the Notes being
issued on the Exchange Date have been duly executed by authorized
officers of the Company and delivered and are legal, valid and
binding obligations of the Company enforceable against the Company
in accordance with their terms except (a) as such terms maybe
limited by bankruptcy, insolvency or similar laws and legal and
equitable principles affecting or limiting the enforcement of
creditors' rights generally, and (b) no opinion is expressed as to
the availability of the remedy of specific performance.
iv. The issuance and delivery of the Notes under the
circumstances contemplated by the Second Amendment is an exempt
transaction under the Securities Act of 1933, as amended, and does
not under existing law require the registration of the Notes under
the Securities Act of 1933, as amended, or the qualification of an
indenture in respect thereof under the Trust Indenture Act of 1939,
as amended.
v. The issuance and delivery of the Notes on the
Exchange Date and the execution, delivery and performance by the
Company of the Second Amendment do not conflict with or result in
any breach of any of the provisions of or constitute a default
under or result in the creation or imposition of any lien or
encumbrance upon any of the property of the Company pursuant to the
provisions of the Restated Articles of Incorporation or By-Laws of
the Company or any agreement or other instrument known to us after
due investigation to which the Company is a party or by which the
Company may be bound.
EXHIBIT C
<PAGE>
-3- January 26, 1994
vi. The Senior Notes rank pari passu with all other
---- -----
Senior Indebtedness of the Company.
We are experts only as to the laws of the State of New
York and the Federal laws of the United States of America. We have
made no special inquiry as to, and are not experts in, the laws of
any other relevant jurisdiction.
This letter is being furnished to you solely for your
benefit and for the benefit of your successors and assigns and any
transferee of the Notes. This letter may not be circulated, quoted
or otherwise referred to by you, and may not be relied upon by you
for any other purpose without our prior written consent.
Very truly yours,
/pg
EXHIBIT C
<PAGE>
SCHEDULE I
----------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
MELLON BANK, N.A., as Trustee for AT&T Master Pension Trust (as
directed by John Hancock Mutual Life Insurance Company)
MELLON BANK, N.A., as Trustee for NYNEX Master Pension Trust (as
directed by John Hancock Mutual Life Insurance Company)
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
EXHIBIT C
PETROLEUM HEAT AND POWER CO., INC.
FIRST AMENDMENT
Dated as of January 24, 1994
Re:
Purchase Agreement Dated as of August 1, 1989
and
250,000 Shares of 1989 Preferred Stock
Par Value $.10
Exchangeable for Subordinated Notes
Due August 1, 1999
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
FIRST AMENDMENT
Re:
Purchase Agreement Dated as of August 1, 1989
and
250,000 Shares of 1989 Preferred Stock
Par Value $.10
Exchangeable for Subordinated Notes
Due August 1, 1999
Dated as of
January 24, 1994
John Hancock Mutual Life Insurance Company
200 Clarendon Street(T-57)
Boston, MA 02117
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Gentlemen:
Reference is made to the separate Purchase Agreements
dated as of August 1, 1989 (collectively the "Purchase Agreement"),
between Petroleum Heat and Power Co., Inc., a Minnesota corporation
(the "Company"), and you. Capitalized terms used herein and not
otherwise defined shall have the same meanings as in the Purchase
Agreement. You are hereinafter sometimes collectively referred to
as the "Holders."
In consideration of the agreement of the Company provided
in Section 1.1 hereof to increase the dividend rate applicable to
<PAGE>
the 1989 Preferred Stock, par value $.10 issued to the Holders
under and pursuant to the Purchase Agreement (the "Preferred
Stock") and for other good and valuable consideration, the Company
requests the amendment of the terms of the Purchase Agreement as
hereinafter provided.
Upon your acceptance hereof and upon satisfaction of the
conditions hereof, this First Amendment (this "First Amendment")
shall constitute a contract between us amending the Purchase
Agreement in the respects, but only in the respects, hereinafter
set forth and providing for the payment by the Company of the
amounts specified in Section 1 hereof:
SECTION 1. AGREEMENT TO INCREASE DIVIDEND RATE; INTERIM PAYMENT
- ---------- ----------------------------------------------------
OBLIGATIONS; AMENDMENT TO PURCHASE AGREEMENT
--------------------------------------------
1.1 Increase in Dividend Rate. The Company hereby
-------------------------
agrees to take all actions as shall be required to increase the
dividend rate applicable to the Preferred Stock to a rate which
shall be $2.00 above the dividend rate otherwise provided in the
Company's Restated and Amended Articles of Incorporation as in
effect on the date hereof (the "Restated Articles").
1.2 Interim Payment Obligations. The Company hereby
---------------------------
agrees that on the Effective Date and on each date (other than
February 1, 1994) on which dividends shall be payable with respect
to the Preferred Stock under the provisions of the Restated
Articles (each such date being hereinafter referred to as a
"Dividend Payment Date") occurring prior to the date on which each
of the Specified Conditions shall have been duly satisfied, the
<PAGE>
Company shall pay to each of the holders from time to time of the
Preferred Stock as an independent payment obligation such amounts
as would have been payable to said holders on the next succeeding
Dividend Payment Date (or, in the case of the payment required to
be made hereunder on the Effective Date, such amounts as would have
been payable to said holders on February 1, 1994 and August 1,
1994) as a result of such increase had such increase been in effect
during the entire Dividend Accrual Period ending on such next
succeeding Dividend Payment Date (or, if applicable, February 1,
1994 and August 1, 1994); provided, however, that in the event that
the dividend rate applicable to the Preferred Stock shall have been
duly increased as contemplated in Section 1.1. hereof with respect
to all or any portion of the Dividend Accrual Period ending on any
Dividend Payment Date, the amount payable as the result of such
increase shall be reduced to reflect any payments theretofore made
pursuant to this Section 1.2 in respect of such Dividend Accrual
Period or portion thereof. Any payments required to be made
pursuant to this Section 1.2 which are overdue shall accrue
interest at the dividend rate contemplated by Section 1.1 plus 2%.
As used herein, (i) the term "Effective Date" shall mean
January 26, 1994, (ii) the term "Dividend Accrual Period" shall
mean any six-month period ending on a Dividend Payment Date and
(iii) the term "Specified Conditions" shall mean each of the
following:
4
<PAGE>
(a) The Restated Articles shall have been duly
amended to provide for the increase in the dividend rate applicable
to the Preferred Stock contemplated in Section 1.1. above;
(b) All other actions as shall be required to
increase the dividend rate applicable to the Preferred Stock as
contemplated in Section 1.1. hereof shall have been duly taken; and
(c) Each of the holders of the Preferred Stock
shall have received from Dorsey & Whitney, Minnesota counsel to the
Company, an opinion, in form and substance reasonably satisfactory
to such holder and its counsel, to the effect that the conditions
set forth in paragraphs (a) and (b) above have been duly satisfied
and such other matters relating thereto as the holders of the
Preferred Stock shall reasonably require.
1.3 No Increase in Subordinated Note Interest Rate.
----------------------------------------------
Notwithstanding Section 4.1 of the Purchase
Agreement, Notes issued in exchange for any shares of Preferred
Stock shall bear interest at a rate per annum equal to the dividend
rate on the Preferred Stock being exchanged as provided in the
Restated Articles and shall not be entitled to the increase
contemplated by Section 1.1 hereof.
1.4 Amendment to Section 5.5. Section 5.5 is hereby
------------------------
amended by deleting the existing provisions and by substituting
therefor the following provisions:
5.5 Nature of Business. Neither the Company nor
------------------
any Subsidiary will engage in any business if, giving
effect thereto, less than 80% of the Consolidated
Operating Cash Flow of the Company for the 12 months
ended with its most recently ended fiscal quarter would
be attributable to the distribution of home heating oil
5
<PAGE>
(#2 fuel oil), propane and related products (including
the distribution of other petroleum products which were
distributed by the Company during its fiscal year ending
December 31, 1990), all as determined in accordance with
generally accepted accounting principles.
1.5 Amendment to Section 5.6. Section 5.6 is hereby
------------------------
amended by deleting the existing provisions and by substituting
therefor the following provisions:
Neither the Company nor any of its Subsidiaries will
incur, create, assume, guarantee or otherwise become
liable for any additional Funded Debt unless, after
giving effect thereto, the Company's Consolidated EBITDA
Coverage Ratio exceeds 2.0 to 1 through December 31,
1995; 2.1 to 1 from January 1, 1996 through December 31,
1996; 2.2 to 1 from January 1, 1997 through December 31,
1997 and 2.3 to 1 on and after January 1, 1998 (each such
ratio for each such period, a "Minimum Consolidated
EBITDA Coverage Ratio").
The foregoing restriction on additional Funded Debt
shall not be applicable to (i) Funded Debt incurred to
refund, extend or renew up to an equal amount of
outstanding Funded Debt; provided, that, if any Funded
Debt is incurred for the purpose of refunding, extending
or renewing any Indebtedness which is subordinate to the
Senior Notes or the Subordinated Notes, such Funded Debt
must be subordinated to the Senior Notes or the
Subordinated Notes, respectively, to the extent such
Indebtedness is so subordinated, and provided, further,
that, if any Funded Debt is incurred for the purpose of
refunding, extending or renewing any Indebtedness which
is of equal rank with the Subordinated Notes, such Funded
Debt may not be Senior Indebtedness and (ii) additional
Funded Debt in an aggregate amount not to exceed $25
million at any one time outstanding; provided, however,
that Funded Debt incurred pursuant to this subsection
(ii) shall be deemed not to be outstanding for purposes
of this subsection (ii) if at the end of any period of
four consecutive fiscal quarters ending after the
incurrence of such Funded Debt the Company's Consolidated
EBITDA Coverage Ratio exceeds the then applicable Minimum
Consolidated EBITDA Coverage Ratio.
1.6 Amendment to Section 5.10. Section 5.10 is hereby
-------------------------
amended by adding the following provision at the beginning:
6
<PAGE>
"In addition to the other restrictions contained
herein, including, without limitation, the restrictions
contained in Sections 5.6 and 5.15 hereof,"
1.7 The following Sections are added as Sections 5.15
and 5.16:
5.15 Limitation on Indebtedness and Preferred Stock
----------------------------------------------
of Subsidiaries. The Company will not permit any
---------------
Subsidiary to incur any Indebtedness or issue any
Preferred Stock except: (i) Indebtedness or Preferred
Stock issued to and held by the Company or a Wholly-owned
Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results
in any such Wholly-owned Subsidiary ceasing to be a
Wholly-owned Subsidiary or any subsequent transfer of
such Indebtedness or Preferred Stock (other than to the
Company or a Wholly-owned Subsidiary) will be deemed, in
each case, to constitute the incurrence of such
Indebtedness or the issuance of such Preferred Stock, as
the case may be, by the issuer thereof; (ii) Indebtedness
incurred or Preferred Stock of a Subsidiary issued and
outstanding on or prior to the date on which such
Subsidiary was acquired by the Company (other than
Indebtedness incurred or Preferred Stock issued in
contemplation of, as consideration in, or to provide all
or any portion of the funds or credit support utilized to
consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by the Company), provided that
at the time such Subsidiary is acquired by the Company,
after giving effect to such Indebtedness or Preferred
Stock of such Subsidiary, the Company's Consolidated
EBITDA Coverage Ratio exceeds 2.0 to 1 in the case of any
such acquisition made on or prior to December 31, 1995,
2.1 to 1 in the case of any such acquisition made after
December 31, 1995 but on or prior to December 31, 1996,
2.2 to 1 in the case of any such acquisition made after
December 31, 1996 but on or prior to December 31, 1997
and 2.3 to 1 in the case of any such acquisition made
after December 31, 1997; (iii) Indebtedness or Preferred
Stock (other than Indebtedness or Preferred Stock
described in clause (i), (ii), (iv) or (vi) of this
covenant) incurred or issued and outstanding on or prior
to the Exchange Date; (iv) Indebtedness of a Subsidiary
consisting of guarantees issued by such Subsidiary and
outstanding on the Exchange Date and Indebtedness of a
Subsidiary consisting of guarantees issued subsequent to
such date, in each case, to the extent such guarantee
guarantees Bank Debt; (v) Indebtedness of a Subsidiary
(other than Indebtedness described in clause (iv) above)
consisting of guarantees of Funded Debt of the Company
7
<PAGE>
permitted by the first paragraph of Section 5.6, provided
that contemporaneously with the incurrence of such
Indebtedness by such Subsidiary, such Subsidiary issues a
guarantee for the pro rata benefit of the holders of the
Notes that is, in the case of the Subordinated Notes (but
not in the case of the Senior Notes), subordinated to
such Indebtedness of such Subsidiary to the same extent
as the Subordinated Notes are subordinated to such Funded
Debt of the Company; and (vi) Indebtedness or Preferred
Stock issued in exchange for, or the proceeds of which
are used to refund or refinance, Indebtedness or
Preferred Stock referred to in the foregoing clause (ii)
or (iii); provided, however, that (1) the principal
amount of such Indebtedness or Preferred Stock so
incurred or issued will not exceed the principal amount
of the Indebtedness or Preferred Stock so exchanged or
refinanced and (2) the Indebtedness or Preferred Stock so
incurred or issued will (A) have a Stated Maturity later
than the Stated Maturity of the Indebtedness or Preferred
Stock being exchanged or refinanced and (B) will have an
Average Life equal to or greater than the remaining
Average Life of the Indebtedness or Preferred Stock so
exchanged, refunded or refinanced.
5.16 Limitation on Restrictions on Distributions
-------------------------------------------
from Subsidiaries. The Company will not, and will not
-----------------
permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any consensual
encumbrance or restriction on the ability of any
Subsidiary to: (i) pay dividends or make any other
distributions on its Capital Stock or pay any
Indebtedness owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its
property or assets to the Company, except: (1) any
encumbrance or restriction pursuant to an agreement in
effect on the Exchange Date; (2) any encumbrance or
restriction with respect to a Subsidiary pursuant to an
agreement relating to any Indebtedness issued by such
Subsidiary on or prior to the date on which such
Subsidiary was acquired by the Company (other than
Indebtedness issued in contemplation of, as consideration
in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the
Company) and outstanding on such date; (3) any
encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness issued pursuant
to an agreement referred to in the foregoing clause (1)
or (2) or contained in any amendment to an agreement
referred to in the foregoing clause (1) or (2); provided,
however, that the encumbrances and restrictions contained
8
<PAGE>
in any such refinancing agreement or amendment are no
less favorable to holders of the Notes than the
encumbrances and restrictions contained in such
agreements; (4) any such encumbrance or restriction
consisting of customary nonassignment provisions in
leases governing leasehold interests to the extent such
provisions restrict the transfer of the lease; (5) in the
case of clause (iii) above, restrictions contained in
security agreements securing Indebtedness of a Subsidiary
to the extent such restrictions restrict the transfer of
the property subject to such security agreements; and (6)
any restriction with respect to a Subsidiary imposed
pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital
Stock or assets of such Subsidiary pending the closing of
such sale or disposition.
1.8 Amendment to Section 8.1(e). Section 8.1(e) is
---------------------------
hereby amended by deleting the existing provisions and by
substituting therefor the following provisions:
"(e) Default shall occur in the observance or
performance of any covenant or agreement contained in
Section 5.6 through Section 5.13 or in Sections 5.15 or
5.16 hereof."
1.9 Amendment to Section 10.1. (a) Section 10.1 is
-------------------------
hereby amended to add the following definitions:
"Asset Disposition" means any sale, lease, transfer
or other disposition (or series of related sales, leases,
transfers or dispositions) of shares of Capital Stock of
a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the
purposes of this definition as a "disposition") by the
Company or any of its Subsidiaries (including any
disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a
Subsidiary to a Wholly-owned Subsidiary, (ii) a
disposition of property or assets at fair market value in
the ordinary course of business or (iii) a disposition of
obsolete assets in the ordinary course of business.
"Attributable Indebtedness" in respect of a
Sale/Leaseback Transaction means, as of the time of
determination, the present value (discounted at 12.07%
9
<PAGE>
compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction
(including any period for which such lease has been
extended).
"Average Life" - means, as of the date of
determination, with respect to any Indebtedness or
Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the
date of determination to the dates of each successive
scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment
by (ii) the sum of all such payments.
"Bank Debt" means any loan agreement with a bank,
including principal premium (if any), interest (including
interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the
Company to the extent a claim for post filing interest is
allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other
amounts payable thereunder or in respect thereof.
"Business Day" means each day which is not a Legal
Holiday.
"Capital Stock" of any person means any and all
shares, interests, rights to purchase, warrants, options,
participations or other equivalents of or interests in
(however designated) equity of such person, including any
Preferred Stock, but excluding any debt securities
convertible into or exchangeable for such equity.
"Capital Lease Obligations" of a person means any
obligation which is required to be classified and
accounted for as a capital lease on the face of a balance
sheet of such person prepared in accordance with
generally accepted accounting principles; the amount of
such obligation will be the capitalized amount thereof,
determined in accordance with generally accepted
accounting principles; and the Stated Maturity thereof
will be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without
payment of a penalty.
"Consolidated EBITDA Coverage Ratio" as of any date
of determination means the ratio of (i) the aggregate
amount of EBITDA for the period of the most recent four
10
<PAGE>
consecutive fiscal quarters ending at least 45 days prior
to the date of such determination to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Subsidiary has
incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction
giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an incurrence of Indebtedness,
or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a
pro forma basis to (A) such Indebtedness as if such
Indebtedness had been incurred on the first day of such
period, (B) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period,
and (C) the interest income realized by the Company and
its Subsidiaries on the proceeds of such Indebtedness, to
the extent not yet applied at the date of determination,
assuming such proceeds earned interest at the Treasury
Rate from the date such proceeds were received through
such date of determination, (2) if since the beginning of
such period the Company or any Subsidiary will have made
any Asset Disposition, EBITDA for such period will be
reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased
by an amount equal to EBITDA (if negative), directly
attributable thereto for such period and Consolidated
Interest Expense for such period will be reduced by an
amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company
or any Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its
continuing Subsidiaries in connection with such Asset
Dispositions for such period (or, if the Capital Stock of
any Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness
of such Subsidiary to the extent the Company and its
continuing Subsidiaries are no longer liable for such
Indebtedness after such sale) and (3) if since the
beginning of such period the Company or any Subsidiary
(by merger or otherwise) will have made an Investment in
any Subsidiary (or any person which becomes a Subsidiary)
or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing
a calculation to be made hereunder, which constitutes all
or substantially all of the assets of an operating unit
of a business, EBITDA and Consolidated Interest Expense
for such period will be calculated after giving pro forma
effect thereto (including the incurrence of any
Indebtedness) as if such Investment or acquisition
11
<PAGE>
occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income
or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any
Indebtedness incurred in connection therewith the pro
forma calculations will be determined in good faith by a
responsible financial or accounting Officer of the
Company; provided, however, that such Officer shall
assume (i) the historical sales and gross profit margins
associated with such assets for the most recent
consecutive 12-month period ended prior to the date of
purchase for which financial statements are available
(provided that the first month of such period will be no
more than 18 months prior to such date of purchase), less
estimated post-acquisition loss of customers (not to be
less than 5%) and (ii) other expenses as if such assets
had been owned by the Company since the first day of such
period. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the
interest on such Indebtedness will be calculated as if
the rate in effect on the date of determination had been
the applicable rate for the entire period.
"Consolidated Interest Expense" means, for any
period, the total interest expense of the Company and its
Subsidiaries, determined on a consolidated basis,
including (i) interest expense in respect of money
borrowed and interest expense attributable to capital
leases, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) interest actually
paid by the Company or any such Subsidiary under any
guarantee of Indebtedness or other obligation of any
other Person, (vii) net costs associated with Hedging
Obligations (including amortization of fees),
(viii) Preferred Stock dividends in respect of all
Preferred Stock of Subsidiaries held by persons other
than the Company or a Wholly-owned Subsidiary, (ix) the
cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are
used by such plan to pay interest or fees to any person
(other than the Company) in connection with loans
incurred by such plan or trust to purchase newly issued
or treasury shares of the Company (but excluding interest
expense associated with the accretion of principal on a
non-interest bearing or other discount security) and
(x) to the extent not already included in Consolidated
Interest Expense, the interest expense attributable to
Indebtedness of another person that is guaranteed by the
12
<PAGE>
Company or any of its Subsidiaries less interest income
(exclusive of deferred financing fees) of the Company and
its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Consolidated Net Income" of a person, for any
period, means the aggregate of the Net Income of such
person and its Subsidiaries for such period, determined
on a consolidated basis in accordance with generally
accepted accounting principles, provided that (i) the Net
Income of any other person (other than a Subsidiary) in
which such person has an interest will be included only
to the extent of the amount of dividends or distributions
paid to such person, (ii) the Net Income of any person
acquired by such person in a pooling of interests
transaction for any period prior to the date of such
acquisition will be excluded, (iii) any Net Income of any
Subsidiary will be excluded if such Subsidiary is subject
to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such
Subsidiary, directly or indirectly, to such person,
except that (A) such person's equity in the Net Income of
any such Subsidiary for such period will be included in
such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Subsidiary during
such period to such person as a dividend or other
distribution (subject, in the case of a dividend or other
distribution to another subsidiary, to the limitation
contained in this clause) and (B) such person's equity in
a net loss of any such Subsidiary for such period will be
included in determining such Consolidated Net Income, and
(iv) the cumulative effect of a change in accounting
principles will be excluded.
"EBITDA" for any period means the Consolidated Net
Income for such period (but without giving effect to
adjustments, accruals, deductions or entries resulting
from purchase accounting, extraordinary losses or gains
and any gains or losses from any Asset Dispositions),
plus the following to the extent deducted in calculating
such Consolidated Net Income: (i) income tax expense,
(ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) all other non-
cash expenses.
"Exchange Date" means January 26, 1994.
"Hedging Obligations" of any person means the
obligations of such person pursuant to any interest rate
swap agreement, foreign currency exchange agreement,
interest rate collar agreement, option or futures
13
<PAGE>
contract or other similar agreement or arrangement
designed to protect such person against changes in
interest rates or foreign exchange rates.
"Indebtedness" of any person means, without duplication,
(i) the principal of (A) indebtedness of such
person for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments
for the payment of which such person is responsible or
liable;
(ii) all Capital Lease Obligations of such person
and all Attributable Indebtedness in respect of
Sale/Leaseback Transactions entered into by such person;
(iii) all obligations of such person issued or
assumed as the deferred purchase price of property, all
conditional sale obligations of such person and all
obligations of such person under any title retention
agreement (but excluding trade accounts payable arising
in the ordinary course of business);
(iv) all obligations of such person for the
reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit
securing obligations (other than obligations described in
(i) through (iii) above) entered into in the ordinary
course of business of such person to the extent such
letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later
than the third Business Day following receipt by such
person of a demand for reimbursement following payment on
the letter of credit);
(v) all obligations of the type referred to in
clauses (i) through (iv) of other persons and all
dividends of other persons for the payment of which, in
either case, such person is responsible or liable,
directly or indirectly, as obligor, guarantor or
otherwise, including any guarantees of such obligations
and dividends, including by means of any agreement which
has the economic effect of a guarantee; and
(vi) all obligations of the type referred to in
clauses (i) through (v) of other persons secured by any
Lien on any property or asset of such person (whether or
not such obligation is assumed by such person), the
amount of such obligation being deemed to be the lesser
of the value of such property or assets or the amount of
the obligation so secured.
14
<PAGE>
"Investment" in any person means any loan or advance
to, any guarantee of, any acquisition of any Capital
Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, such
person. Investments will exclude advances to customers
and suppliers in the ordinary course of business.
"Legal Holiday" means a Saturday, a Sunday or a day
on which banking institutions in The City of New York or
at a place of payment are authorized by law, regulation
or executive order to remain closed. If a payment date
is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the
intervening period.
"Lien" means any mortgage, pledge, security
interest, conditional sale or other title retention
agreement or other similar lien.
"Net Income" of any person means the net income
(loss) of such person, determined in accordance with
generally accepted accounting principles; excluding,
however, from the determination of Net Income any gain
(but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions
pursuant to leaseback transactions) of any real property
or equipment of such person, which is not sold or
otherwise disposed of in the ordinary course of business,
or of any capital stock of such person or subsidiary
owned by such person.
"Officer" means the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed
by two Officers.
"Preferred Stock," as applied to the Capital Stock
of any corporation, means Capital Stock of any class or
classes (however designated) which is preferred as to the
payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or
dissolution of such corporation, over shares of Capital
Stock of any other class of such corporation.
"Sale/Leaseback Transaction" means an arrangement
relating to property now owned or hereafter acquired
whereby the Company or a Subsidiary transfers such
property to a person and the Company or a Subsidiary
leases it from such person.
15
<PAGE>
"Senior Notes" shall have the meaning specified in
that certain Second Amendment dated as of the Exchange
Date between the Company and the holders named on
Schedule 1 thereto.
"Stated Maturity" means, with respect to any
Indebtedness, the date specified in such Indebtedness, or
in any agreement pursuant to which such Indebtedness was
incurred, as the fixed date on which the principal of
such Indebtedness is due and payable, including pursuant
to any mandatory redemption provision (but excluding any
provision providing for the repurchase of such
Indebtedness at the option of the holder thereof upon the
happening of any contingency unless such contingency has
occurred).
"Subordinated Notes" shall have the meaning
specified in that certain Second Amendment dated as of
the Exchange Date between the Company and the holders
named on Schedule I thereto.
"Treasury Rate" as of any date of determination
means the yield to maturity at the time of computation of
United States Treasury securities with a constant
maturity (as compiled and published in the most recent
Federal Reserve Statistical Release H.15(519) which has
become publicly available at least two business days
prior to such date of determination (or, if such
Statistical Release is no longer published, any publicly
available source of similar market date)) of one year.
(b) The definition of "Sevin Group" contained in
Section 10.1 is amended by deleting Malvin P. Sevin and inserting
"the Estate of Malvin P. Sevin."
SECTION 2. MISCELLANEOUS
- ---------- -------------
2.1 Effectiveness. This First Amendment shall become
-------------
effective upon compliance with the following conditions precedent:
(a) Closing Certificate. You shall have received a
-------------------
certificate dated the Exchange Date, signed by the President or a
Vice President of the Company, the truth and accuracy of which
shall be a condition to your obligation to and execute this First
16
<PAGE>
Amendment and to the effect that (i) the representations and
warranties of the Company set forth in Exhibit A hereto are true
and correct on and with respect to the Exchange Date, (ii) the
Company has performed all of its obligations hereunder which are to
be performed on or prior to the Exchange Date, and (iii) no Default
or Event of Default has occurred and is continuing.
(b) Legal Opinions. You shall have received from
--------------
Phillips, Nizer, Benjamin, Krim & Ballon, counsel for the Company,
its opinion dated the Exchange Date, in form and substance
satisfactory to you, and covering the matters set forth in Exhibit
B.
(c) Payment of Counsel Fees. The Company shall have
-----------------------
paid all reasonable fees and expenses of special counsel to the
holders of the Notes to the extent that such fees and expenses are
known as of the Exchange Date and are reflected in appropriate
bills or invoices delivered by such special counsel.
(d) Payment of Fee. The Company shall have paid to you
--------------
any fees as have been agreed to as consideration for this First
Amendment.
(e) Satisfactory Proceedings. All proceedings taken in
------------------------
connection with the transactions contemplated by this First
Amendment, and all documents necessary to the consummation thereof,
shall be satisfactory in form and substance to you, and you shall
have received a copy (executed or certified as may be appropriate)
of all legal documents or proceedings taken in connection with the
consummation of said transactions.
17
<PAGE>
2.2 Agreement to Amend the Purchase Agreements. As soon
------------------------------------------
as practicable following the consummation of the public offering of
the Company's Subordinated Debentures due 2006 (the "New
Debentures"), the Company shall provide you with a copy of all
instruments reflecting the New Debentures and all agreements and
other documents entered into or executed by the Company in
connection with the issuance or sale of the New Debentures and
shall provide therewith written notice referring to, and informing
you of, the rights granted to you by this Section and the time
period during which such rights may be exercised. If the
Indebtedness represented by the New Debentures contains any term,
right or covenant that is more favorable to the holder or holders
of the New Debentures than you, as the holder of the Preferred
Stock, enjoys under the Purchase Agreement (collectively, "more
favorable covenants and other agreements"), then you shall have the
privilege, exercisable by delivering notice to the Company within
45 days following your receipt of such documents and the written
notice referred to above, to require the Company to amend the
Purchase Agreement to contain any or all of the more favorable
covenants and other agreements.
2.3 Continuing Effect of Agreements. This First
-------------------------------
Amendment shall not constitute a waiver or amendment or any other
provision of the Purchase Agreement not expressly referred to
herein. Except as expressly amended hereby, the terms and
provisions of the Purchase Agreement is and shall remain in full
force and effect.
18
<PAGE>
2.4 Counterparts. This First Amendment may be executed
------------
by the parties thereto in any number of counterparts, and all of
such counterparts taken together shall be deemed to constitute one
and the same instrument.
2.5 Governing Law. This First Amendment shall be
-------------
governed by and construed and interpreted in accordance with the
laws of the State of New York.
19
<PAGE>
2.6 Successors and Assigns. This First Amendment shall
----------------------
be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereunder.
PETROLEUM HEAT AND POWER CO., INC.
By:_______________________________
George Leibowitz
Senior Vice President
The foregoing First Amendment is hereby accepted and
agreed to as of the date aforesaid.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY
By_____________________________
NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
By_____________________________
<PAGE>
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to you as follows:
1. Corporate Organization and Authority. The Company, and
each Subsidiary,
(a) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation;
(b) has all requisite power and authority and all
necessary licenses and permits to own and operate its
properties and to carry on its business as now conducted and
as presently proposed to be conducted; and
(c) is duly licensed or qualified and is in good
standing as a foreign corporation in each jurisdiction wherein
the nature of the business transacted by it or the nature of
the property owned or leased by it makes such licensing or
qualification necessary.
2. Compliance with First Amendment. Compliance by the
Company with all of the provisions of the First Amendment:
(a) is within the corporate powers of the Company;
(b) will not violate any provisions of any law or any
order of any court or governmental authority or agency and
will not conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default
under the Restated Articles of Incorporation or By-laws of the
Company or any indenture or other agreement or instrument to
which the Company is a party or by which it may be bound or
result in the imposition of any liens or encumbrances on any
property of the Company; and
(c) has been duly authorized by proper corporate action
on the part of the Company (no action by the stockholders of
the Company being required by law, by the Restated Articles of
Incorporation or By-laws of the Company or otherwise),
executed and delivered by the Company and the Second Amendment
constitutes the legal, valid and binding obligation, contract
and agreement of the Company enforceable in accordance with
its terms.
3. No Defaults. No Default or Event of Default has occurred
and is continuing. Neither the Company nor any Subsidiary is in
default in the payment of principal or interest
EXHIBIT A
<PAGE>
on any Funded Debt or Current Debt or is in default under any
instrument or instruments or agreements under and subject to which
any Funded Debt or Current Debt has been issued, and no event has
occurred and is continuing under the provisions of any such
instrument or agreement which with the lapse of time or the giving
of notice, or both, would constitute an event of default
thereunder.
4. Governmental Consent. No approval, consent or
withholding of objection on the part of any regulatory body, state,
Federal or local, is necessary in connection with the execution and
delivery by the Company of the Second Amendment or compliance by
the Company with any of the provisions of the Second Amendment.
5. Additional Representations. Annex I hereto correctly
identifies (a) all Indebtedness and Preferred Stock referred to in
clause (iii) of Section 5.15 of the Purchase Agreement, as amended
by the First Amendment, and (b) all agreements in effect on the
Exchange Date and described in clause (1) of Section 5.16 of the
Purchase Agreement, as amended by the First Amendment.
<PAGE>
ANNEX 1 TO EXHIBIT B
--------------------
Indebtedness and Preferred Stock.
- --------------------------------
Amount payable in connection with the
purchase of a fuel oil dealer $ 80,404
Maxwhale Note Payable (to be refinanced
with proceeds of the Offering) $50,000,000
Agreements.
- ----------
None.
<PAGE>
January 26, 1994
John Hancock Mutual Life Insurance Company
John Hancock Place
Boston, Mass. 02117
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Ladies and Gentlemen:
We are counsel to Petroleum Heat and Power Co., Inc., a
Minnesota corporation (the "Company"), and have acted in that
capacity in connection with the execution and delivery by the
Company of the First Amendment dated as of January 24, 1994 to a
Purchase Agreement dated as of August 1, 1989 among the Company and
you ("First Amendment"). Capitalized terms not otherwise defined
herein are defined as set forth in the First Amendment.
We have examined, among other things, the First
Amendment, the originals or copies certified or otherwise
identified to our satisfaction of the Restated Articles and the By-
Laws, each as amended to date, of the Company, records of the
corporate proceedings relating to the First Amendment, certificates
of public officials and such other documents, records and legal
matters as we have deemed necessary or relevant for purposes of the
opinion hereinafter expressed. In all such
EXHIBIT B
<PAGE>
John Hancock Mutual Life
Insurance Company
The Northwestern Mutual
Life Insurance Company -2- January 26, 1994
examinations, we have assumed the genuineness of all signatures
other than signatures of officers of the Company, the authenticity
of documents submitted to us as originals and the conformity to the
originals of all documents submitted to us as copies. In addition,
we have assumed, without investigation, that the First Amendment
(and all collateral documents relating thereto) is valid and
binding on, and enforceable against, you.
Our opinion as to the existence and good standing of the
Company is based solely upon a good standing certificate dated
January 11, 1994.
Based upon the foregoing and in reliance on statements of
fact contained in the documents we have examined, we are of the
opinion that:
1. The Company is a corporation duly organized and
existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to
enter into and perform the First Amendment.
2. The First Amendment has been duly authorized,
executed and delivered by the Company and constitutes the legal,
valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, except (a) as such terms may
be limited by bankruptcy, insolvency or similar laws and legal and
equitable principles affecting or limiting the enforcement of
creditors' rights generally, and (b) no opinion is expressed as to
the availability of the remedy of specific performance.
3. The execution, delivery and performance by the
Company of the First Amendment do not conflict with or result in
any breach of any of the provisions of or constitute a default
under or result in the creation or imposition of any lien or
encumbrance upon any of the property of the Company pursuant to the
provisions of the Restated Articles or By-Laws of the Company or
any agreement or other instrument known to us after due
investigation to which the Company is a party or by which the
Company may be bound.
4. To the best of our knowledge and belief, after due
inquiry, the Company is not a party under or bound by any contract,
indenture, agreement, instrument, order of any court, or debenture,
bond, or other security known to us, under the terms of or pursuant
to which the Company's right and obligation to declare and pay the
<PAGE>
John Hancock Mutual Life
Insurance Company
The Northwestern Mutual
Life Insurance Company -3- January 26, 1994
dividends on the Preferred Stock or to otherwise make distributions
in respect of the Preferred Stock or to make mandatory redemptions
of shares of the Preferred Stock pursuant to the provision of the
Restated Article is expressly limited or restricted (other than
covenants or other provisions requiring the maintenance of levels
of shareholders' equity, except for restrictions on the payment of
dividends contained in the Second Amended and Restated Credit
Agreement dated as of December 31, 1992 among the Company, its
wholly owned Subsidiary Maxwhale Corp. and Chemical Bank, as agent
and the Indenture dated as of April 1, 1993 between the Company and
Chemical Bank ("CB"), as Trustee for the $50,000,000 Subordinated
Notes and all Supplemental Indentures relating thereto, the Note
Agreement dated as of January 15, 1991, as amended, for the
$12,500,000 Subordinated Notes due January 15, 2001, the Purchase
Agreement dated as of September 1, 1991, as amended, for the
$12,763,663 Subordinated Notes due March 1, 2000, as amended, and
the Note Agreement dated as of September 1, 1988, for the
$60,000,000 Subordinated Notes due October 1, 1998 and except for
the provisions of the Minnesota Business Corporation Act regulating
payment of dividends and other distributions and the provisions of
the Restated Articles reflecting such provisions of Minnesota law).
We are experts only as to the laws of the State of New
York and the Federal laws of the United States of America. We have
made no special inquiry as to, and are not experts in, the laws of
any other relevant jurisdiction.
This letter is being furnished to you solely for your
benefit and for the benefit of your successors and assigns. This
letter may not be circulated, quoted or otherwise referred to by
you, and may not be relied upon by you for any other purpose
without our prior written consent.
Very truly yours,
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of January 21, 1994 (this "Amendment"), to
---------
the Second Amended and Restated Credit Agreement, dated as of December 31, 1992
(as amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among Petroleum Heat and Power Co., Inc., a Minnesota corporation
- ---------
(the "Company"), Maxwhale Corp., a Minnesota corporation ("Maxwhale"), the
------- --------
several banks and financial institutions from time to time parties thereto
(collectively, the "Banks") and Chemical Bank (as successor by merger to
-----
Manufacturers Hanover Trust Company), a New York banking corporation, as agent
for such Banks (in such capacity, the "Agent").
-----
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company, the Banks and the Agent are parties to the
Credit Agreement;
WHEREAS, the Company has requested that the Agent and the Banks amend
the terms of the Credit Agreement in order to (a) permit the conversion of
approximately $43,000,000 of existing Subordinated Debt into senior Indebtedness
and (b) conform the provisions of subsection 12.10 of the Credit Agreement to
the analogous provisions contained in the instruments and documents evidencing
the Subordinated Debt of the Company;
WHEREAS, the Agent and the Banks are willing to amend such terms of
the Credit Agreement, but only upon the terms and subject to the conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration the sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in
-------------
the Credit Agreement are used herein as therein defined.
2. Amendment of Subsection 1.1. Subsection 1.1 of the Credit
---------------------------
Agreement hereby is amended by (a) deleting the definitions of the terms
"Acquisition L/C Commitment" and "Cash Flow Covenant Amount" in their entirety
from said subsection 1.1 of the Credit Agreement and (b) inserting in said
subsection 1.1, in proper alphabetical order, each of the following new
definitions:
""Acquisition L/C Commitment" shall mean $0."
--------------------------
""Asset Disposition" means any sale, lease, transfer or other
-----------------
disposition (or series of related sales, leases, transfers or dispositions)
of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of
-----------
its Subsidiaries (including any disposition by means of merger,
consolidation or similar transaction) other than (i) a disposition by a
Subsidiary to the Company or by the Company or a Subsidiary to a wholly-
owned Subsidiary, (ii) a disposition of property or assets at fair market
<PAGE>
2
value in the ordinary course of business or (iii) a disposition of obsolete
assets in the ordinary course of business."
""Capital Stock" of any person means any and all shares, interests,
-------------
rights to purchase, warrants, options, participations or other equivalents
of or interests in (however designated) equity of such person, including
any Preferred Stock, but excluding any debt securities convertible into or
exchangeable for such equity."
""Cash Flow Covenant Amount" shall mean, at any date, the amount equal
-------------------------
to (a) the amount which is equal to 20% of the face amount of each
Acquisition Letter of Credit which was issued pursuant to Section 5 more
than 12 months prior to the date of calculation (regardless of whether such
Acquisition Letter of Credit is then outstanding) plus (b) the amount set
----
forth below opposite the period during which such date occurs:
Period Amount
------ ------
Prior to 12/31/94 $25,000,000
12/31/94 - 03/30/95 27,500,000
03/31/95 - 03/30/96 30,000,000
03/31/96 and thereafter35,000,000"
""Consolidated EBITDA Coverage Ratio" as of any date of determination
----------------------------------
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending at least 45 days prior
to the date of such determination to (ii) Consolidated Interest Expense for
such period of four consecutive fiscal quarters; provided, however, that:
-------- -------
(1) if the Company or any Subsidiary has incurred any
indebtedness since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate
the Consolidated EBITDA Coverage Ratio is an incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for
such period will be calculated after giving effect on a pro forma
basis to (A) such Indebtedness as if such Indebtedness had been
incurred on the first day of such period, (B) the discharge of any
other indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, and (C) the
interest income realized by the Company and its Subsidiaries on the
proceeds of such indebtedness, to the extent not yet applied at the
date of determination, assuming such proceeds earned interest at the
Treasury Rate from the date such proceeds were received through such
date of determination;
<PAGE>
3
(2) if since the beginning of such period the Company or any
Subsidiary will have made any Asset Disposition, EBITDA for such
period will be reduced by an amount equal to EBITDA (if positive)
directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to
EBITDA (if negative), directly attributable thereto for such period
and Consolidated Interest Expense for such period will be reduced by
an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Subsidiaries in connection with such
Asset Dispositions for such period (or, if the Capital Stock of any
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer
liable for such Indebtedness after such sale); and
(3) if since the beginning of such period the Company or any
Subsidiary (by merger or otherwise) will have made an Investment in
any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring
in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of the assets of
an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period will be calculated after giving pro forma,
effect thereto (including the incurrence of any indebtedness) as if
such Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given
to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with
any Indebtedness incurred in connection therewith the pro forma
calculations will be determined in good faith by a Responsible Officer of
the Company; provided, however, that such Responsible Officer shall assume
-------- -------
(i) the historical sales and gross profit margins associated with such
assets for any consecutive 12-month period ended prior to the date of
purchase (provided that the first month of such period will be no more that
--------
18 months prior to such date of purchase), less estimated post-acquisition
loss of customers (not to be less than 3%) and (ii) other expenses as if
such assets had been owned by the Company since the first day of such
period. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such indebtedness will be
calculated as if the rate in effect on the date of determination had been
the applicable rate for the entire period."
""Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its Subsidiaries, determined on a
consolidated basis, including (i) interest expense attributable to
Financing Leases, (ii) amortization of debt discount, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and
<PAGE>
4
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) interest actually paid by the Company or any
such Subsidiary under any guarantee of indebtedness or other obligation of
any other Person, (vii) net costs associated with Hedging Obligations
(including amortization of fees), (viii) Preferred Stock dividends in
respect of all Preferred Stock of Subsidiaries held by persons other than
the Company or a wholly-owned Subsidiary, (ix) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan to pay interest or fees to any person
(other than the Company) in connection with loans incurred by such plan or
trust to purchase newly issued or treasury shares of the Company (but
excluding interest expense associated with the accretion or principal on a
non-interest bearing or other discount security) and (x) to the extent not
already included in Consolidated Interest Expense, the interest expense
attributable to Indebtedness of another person that is guaranteed by the
Company or any of its Subsidiaries, less interest income (exclusive of
deferred financing fees) of the Company and its Subsidiaries determined on
a consolidated basis in accordance with GAAP."
""EBITDA" for any period means the Consolidated Net Income for such
------
period (but without giving effect to adjustments, accruals, deductions of
entries resulting from purchases accounting, extraordinary losses or gains
and any gains or losses from any Asset Dispositions), plus the following to
the extent deducted in calculating such Consolidated Net Income: (i)
income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) all other non-cash expenses."
""Hedging Obligations" of any person means the obligations of such
-------------------
person pursuant to any interest rate swap agreement, foreign currency
exchange agreement, interest rate collar agreement, option or futures
contract or other similar agreement or arrangement designed to protest such
person against changes in interest rates or foreign exchange rates."
""Investment" in any person means any loan or advance to, any
----------
guarantee of, any acquisition of any Capital Stock, equity interest,
obligation or other security of, or capital contribution or other
investment in, such person; provided, however, that advances to customers
-------- -------
and suppliers in the ordinary course of business shall be deemed not to be
"Investments"."
""Preferred Stock" as applied to the Capital Stock of any corporation,
---------------
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary liquidation or dissolution of such corporation,
over shares of Capital Stock of any other class of such corporation;
provided, however, that Preferred Stock will not include the Company's
-------- -------
Class B Common Stock."
""Treasury Rate" as of any date of determination means the yield to
-------------
maturity at the time of computation of United States Treasury securities
with a constant maturity (as compiled and published in the most recent
<PAGE>
5
Federal Reserve Statistical Release H.15(519) which has become publicly
available at least two business days prior to such date of determination
(or, if such Statistical Release is no longer published, any publicly
source of similar market date)) of one year."
3. Amendment of Subsection 12.1. Subsection 12.1 of the Credit
----------------------------
Agreement hereby is amended by:
(a) deleting the word "and" from the end of clause (i) thereof; and
(b) inserting immediately before the period at the end of said subsection 12.1
the following:
"and; (k) unsecured Indebtedness not to exceed $43,000,000 in
aggregate principal amount at any one time outstanding in respect of
the conversion of a like amount of Subordinated Debt which is listed
on Schedule III of this Agreement into senior Indebtedness".
4. Amendment of Subsection 12.10. Subsection 12.10 of the Credit
-----------------------------
Agreement hereby is amended by deleting said subsection 12.10 in its entirety
and by substituting therefor the following:
"12.10 Limitation on Funded Debt. Incur, create, assume,
-------------------------
guarantee or otherwise become liable ("Incur") for any additional
-----
Funded Debt unless such additional Funded Debt constitutes
Subordinated Debt and, after giving effect thereto, the Consolidated
EBITDA Coverage Ratio as of the date of the most recent financial
statements delivered pursuant to subsection 11.1(a) or (b) on or prior
to the date on which such Funded Debt is to be Incurred exceeds the
ratio set forth opposite such period during which such date occurs:
Period Ratio
------ -----
Prior to 12/31/95 2.0 to 1.0
1/1/96 - 12/31/96 2.1 to 1.0
1/1/97 - 12/31/97 2.2 to 1.0
1/1/98 - 12/31/98 2.3 to 1.0
1/1/99 - 12/31/99 2.4 to 1.0
1/1/2000 and thereafter 2.5 to 1.0
Notwithstanding the foregoing provisions of this subsection 12.10, the
Company may incur, create, assume, guarantee or otherwise become liable for
additional Funded Debt to the extent that such additional Funded Debt is
incurred to refund, extend or renew up to an equal amount of outstanding
Funded Debt; provided that if any Funded Debt is incurred for the purpose
--------
of refunding, extending or renewing any Indebtedness which is:
<PAGE>
6
(i) subordinate to the obligations hereunder, then such new
Funded Debt must also be subordinated to the obligations hereunder to
at least the same extent as was the Indebtedness which is being
refunded, extended or renewed, as the case may be, thereby; or
(ii) of equal rank with the obligations hereunder, then such
Funded Debt may not be senior to the obligations hereunder."
5. Amendment of Section 12. Section 12 of the Credit Agreement
-----------------------
hereby is amended by inserting therein the following new subsection 12.13:
"12.13 Limitation on Negative Pledge Clauses. Enter into
-------------------------------------
with any Person any agreement, other than this Agreement, which
prohibits or limits the ability of the Company or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien in
favor of the Agent and the Banks upon any of its accounts receivable
or inventory, whether now owned or hereafter acquired."
6. Amendment of Subsection 15.1. Subsection 15.1 of the Credit
----------------------------
Agreement hereby is amended by inserting in clause (a) of the proviso thereto,
immediately following the phrase "or amend, modify or waive any provision of"
and immediately before the phrase "this subsection 15.1", the phrase "subsection
12.10 or".
7. Covenant. (a) The Company hereby agrees that, in the event that
--------
the Maxwhale L/C Expiry Date has not occurred on or prior to March 15, 1994 or
any Maxwhale L/C Reimbursement Obligations or Term Loans are outstanding while
Indebtedness of the type contemplated by subsection 12.1(k) is outstanding, the
Company shall, and shall cause each of its Subsidiaries to, take such action as
may be necessary or otherwise reasonably requested by the Agent in order to
cause the Agent to possess, on or prior to April 1, 1994, a first priority,
perfected security interest in all accounts receivable and material inventory of
the Company and its Subsidiaries as collateral security for the Obligations (as
defined in the Security Documents). Such security interests shall be granted
and perfected pursuant to documentation which is in form and substance
satisfactory to the Agent. Notwithstanding anything to the contrary contained
herein or in any other Loan Document, (i) the failure to provide such first
priority, perfected security interest shall constitute an Event of Default for
purposes of Section 13 of the Credit Agreement and (ii) each Bank hereby
instructs the Agent to release the security interests (without any further
consent of or notice to any Bank or any other Person) granted pursuant to this
clause (a) promptly upon the request of the Company at any time following the
date upon which the Maxwhale L/C Expiry Date has occurred, no Maxwhale L/C
Reimbursement Obligations are outstanding, no Term Loans are outstanding and the
Agent has no knowledge that a Default or Event of Default has occurred and is
continuing. Except as provided in the immediately preceding sentence, no
release of all or any material portion of the collateral security granted hereby
shall be effective unless consented to, in writing, by all Banks. The Company
agrees to pay or reimburse the Agent for all its out-of-pocket costs and
expenses incurred in connection with the actions contemplated by this clauses
<PAGE>
7
(a), including, without limitation, the reasonable fees and disbursements of
counsel to the Agent, filing fees and other charges.
(b) The Company hereby further agrees that, during such time as
amounts are outstanding under the promissory notes made by Maxwhale Corp. which
are supported by the Maxwhale Letter of Credit, the Company shall apply all of
the net proceeds of equity offerings and Indebtedness for borrowed money (other
than any such Indebtedness owing in respect of the Credit Agreement) received by
it and its Subsidiaries to repay such promissory notes promptly upon receipt
thereof. The Company hereby further agrees that the Term Loan Commitments of
the Banks shall be reduced simultaneously with each such payment on account of
such promissory notes by the amount of such payment.
8. Security Interest. (a) As security for the prompt and complete
-----------------
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations (as defined in the Security
Agreements), the Company and each of its Subsidiaries which is party to a
Security Agreement hereby grants to the Agent, for the ratable benefit of the
Banks, a security interest in all Accounts (as defined in the Uniform Commercial
Code as in effect in the State of New York) and all proceeds thereof now owned
or at any time hereafter acquired by the Borrower or such Subsidiary, as the
case may be, or in which it now has or at any time in the future may acquire any
right, title or interest. Notwithstanding anything to the contrary contained
herein or in the Loan Documents, no release of all or any material portion of
the collateral security granted hereby shall be effective unless consented to,
in writing, by all Banks. The Company and each of its Subsidiaries which is
party to a Security Agreement hereby agrees that, if any Default under
subsection 12.8 of the Credit Agreement or any Event of Default under any other
provision of the Credit Agreement shall occur, the Agent, on behalf of the
Lenders, may exercise, in addition to all other rights and remedies granted to
them in this Amendment and in the Security Documents, all rights and remedies of
a secured party under the Uniform Commercial Code as in effect in the State of
New York.
(b) The Company and each of its Subsidiaries which is party to a
Security Agreement hereby agrees that, within ten business days following the
occurrence of any Default under subsection 12.8 of the Credit Agreement or any
Event of Default under any other provision of the Credit Agreement, it will take
such action as the Agent reasonably may request in order to amend the Security
Agreement to reflect the security interests granted pursuant to clause (a) above
and to evidence the perfection thereof, including, without limitation, the
delivery to the Agent of (i) amendments to the Security Agreements which further
evidence the grant of security interests effected by clause (a) above, (ii)
Uniform Commercial Code financing statements in form suitable for filing in each
of the relevant filing offices and (iii) an opinion of counsel to the Company
and each of such Subsidiaries with respect to the perfection of such security
interests. All costs and expenses incurred by the Agent in connection with the
grant, perfection and maintenance of such security interests shall be for the
account of the Company and all instruments, documents and agreements relating to
such grant, perfection and maintenance shall be in form and substance reasonably
satisfactory to the Agent.
<PAGE>
8
(c) Pursuant to Section 9-402 of the Uniform Commercial Code as in
effect in each of the State of New York, the Company and each of its
Subsidiaries which is party to a Security Agreement hereby authorizes the Agent
to file financing statements with respect to the security interests granted
pursuant to clause (a) above without the signature of the Company or any such
Subsidiary in such form and in such filing offices as the Agent reasonably
determines appropriate to perfect the security interests of the Agent under said
clause (a). A carbon, photographic or other reproduction of this Amendment
shall be sufficient as a financing statement for filing in any jurisdiction.
The Agent hereby agrees that it will not file any such financing statement
unless a Default under subsection 12.8 of the Credit Agreement or an Event of
Default under any other provision of the Credit Agreement has occurred.
(d) The Company hereby agrees that it shall, and shall cause each of
its Subsidiaries which is party to a Security Agreement to, execute and deliver
to the Agent, within ten days following the Effective Date, properly completed
and executed Uniform Commercial Code financing statements for filing in each
jurisdiction necessary to perfect the security interests granted to the Agent
pursuant to clause (a) above. The Agent hereby agrees that it shall not file
such financing statements until such time as a Default under subsection 12.8 of
the Credit Agreement or an Event of Default under any other provision of the
Credit Agreement has occurred.
9. Representations and Warranties. The Company hereby confirms,
------------------------------
reaffirms and restates the representations and warranties set forth in Section 9
of the Credit Agreement, provided that each reference to the Credit Agreement
--------
therein shall be deemed to be a reference to the Credit Agreement after giving
effect to this Amendment. The Company represents and warrants that no Default
or Event of Default has occurred and is continuing.
10. Effectiveness. This Amendment shall become effective (the date
-------------
of such effectiveness, the "Effective Date") upon satisfaction of the following
--------------
conditions:
(a) Counterparts. The Agent shall have received counterparts hereof,
------------
duly executed and delivered by each of the Company, Maxwhale, the Agent and
each Bank and duly consented to by each of Guarantors under (and as defined
in) the Subsidiary Guarantee;
(b) Amendment Fee. The Agent shall have received an amendment fee,
-------------
for the ratable accounts of the Banks which have executed and delivered
this Amendment on or prior to January 21, 1994, in an aggregate amount
equal to $275,000; and
(c) Amendment of other Obligations. The instruments and agreements
------------------------------
relating to all Indebtedness for borrowed money (whether or not
subordinated to the obligations under the Credit Agreement) of the Company
and to each issue of Cumulative Redeemable Preferred Stock of the Company
shall have been amended to contain a financial covenant relating to Funded
<PAGE>
9
Debt which is no more restrictive than that to be contained in subsection
12.10 of the Credit Agreement (after giving effect to this Amendment).
11. Continuing Effect of Credit Agreement. This Amendment shall not
-------------------------------------
constitute a waiver or amendment of any other provision of the Credit Agreement
not expressly referred to herein and shall not be construed as a waiver or
consent to any further or future action on the part of the Company or Maxwhale
that would require a waiver or consent of the Banks or the Agent. Except as
expressly amended hereby, the provisions of the Credit Agreement are and shall
remain in full force and effect.
12. Counterparts. This Amendment may be executed by the parties
------------
hereto in any number of counterparts, and all of such counterparts taken
together shall be deemed to constitute one and the same instrument.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the date first above written.
PETROLEUM HEAT AND POWER CO., INC.
By: /s/ George Leibowitz
-----------------------------------
Title: Senior Vice President
MAXWHALE CORP.
By: /s/ George Leibowitz
-----------------------------------
Title: Senior Vice President
CHEMICAL BANK, as Agent and as a Bank
By: /s/John T. Mast
-----------------------------------
Title: Vice President
NATIONAL WESTMINSTER BANK USA, as a
Bank
By: /s/ Stephen R. Bushel
-----------------------------------
Title: Vice President
<PAGE>
10
FLEET BANK
By:
-----------------------------------
Title:
THE BANK OF NEW YORK
By: /s/ Edward J. Moriarty
-----------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ H. Louis Bailey
-----------------------------------
Title: Director
UNION TRUST COMPANY
By: /s/ Matthew Riley
-----------------------------------
Title: Assistant Vice President
ACKNOWLEDGEMENT, CONSENT AND AGREEMENT
Each of the undersigned hereby (a) acknowledges and consents to the terms of
this Fourth Amendment, (b) agrees that all Security Documents to which it is a
party are, and shall remain, in full force and effect, both before and after
giving effect to this Fourth Amendment and (c) agrees to be bound by the
provisions of Paragraph 8 of this Fourth Amendment:
ORTEP OF CONNECTICUT, INC.
PETRO, INC.
PETRO/CRYSTAL CORP.
ORTEP OF STATEN ISLAND, INC.
CBW REALTY CORP. OF NEW YORK
CBW REALTY CORP. OF CONNECTICUT
CBW REALTY CORP. OF PENNSYLVANIA
CBW REALTY CORP.
OCENNET FUEL OIL CORP.
ORTEP OF NEW JERSEY, INC.
PUBLIC FUEL SERVICES CO., INC.
MILLER FUEL OIL CO.
D.J.W. GASOLINE CO.
ORTEP OF PENNSYLVANIA, INC.
<PAGE>
11
MAREX CORPORATION
A.P. WOODSON CO.
RELIANCE UTILITIES CORP.
By: /s/ George Leibowitz
--------------------------------------------
Title: Senior Vice President
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
The Stockholders and Board of Directors of
PETROLEUM HEAT AND POWER CO., INC.:
The audit referred to in our report dated February 26, 1993 relating to the
consolidated financial statements of Petroleum Heat and Power Co., Inc. included
the related financial statement schedules as of December 31, 1991 and 1992 and
for each of the years in the three-year period ended December 31, 1992,
incorporated by reference in the Registration Statement. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such 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.
We consent to the use of our reports relating to the consolidated financial
statements and financial statement schedules of Petroleum Heat and Power Co.,
Inc. and to the consolidated financial statements of Star Gas Corporation
included and incorporated by reference herein and to the reference to our firm
under the headings "Selected Financial and Other Data" and "Experts" in the
Prospectus.
KPMG PEAT MARWICK
New York, New York
January 26, 1994
EXHIBIT 24.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated December 3, 1992 except for Notes 5 and
9, as to which the date is April 1, 1993, with respect to the consolidated
financial statements of Star Gas Corporation and subsidiaries included in
the Registration Statement (Form S-2 No. 33-72354) and related Prospectus
of Petroleum Heating and Power Co., Inc. for the registration of $75,000,000
Subordinated Debentures.
/s/ ERNST & YOUNG
ERNST & YOUNG
January 26, 1994
