SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SECT.240.14a-11(c) or SECT.240.14a-12
PETROLEUM HEAT AND POWER CO., INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-111:
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4) Proposed maximum aggregate value of transaction:
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1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:______________________________________________________
2) Form, Schedule or Registration Statement No.:________________________________
3) Filing Party:________________________________________________________________
4) Date Filed:__________________________________________________________________
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May 10, 1995
Dear Shareholder,
You are invited to attend the 1995 Annual Meeting to be held on June 26,
1995, to be held at KPMG Peat Marwick LLP, Lexington Level Conference Center,
345 Park Avenue, New York, New York.
The Annual Meeting will begin with a report on Company operations, followed
by discussion and voting on the matters set forth in the accompanying Notice of
Annual Meeting and Proxy Statement and on other matters properly brought before
the meeting.
Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by promptly completing, signing, dating and returning
your proxy form in the enclosed envelope.
Cordially,
Irik P. Sevin
Chairman of the Board
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY FORM
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
NOTICE OF 1995 ANNUAL MEETING
OF SHAREHOLDERS
------------------------------------------------
10:00 a.m., DST, June 26, 1995
KPMG Peat Marwick LLP
Lexington Level Conference Center
345 Park Avenue
New York, New York
------------------------------------------------
May 10, 1995
To the Shareholders:
Petroleum Heat and Power Co., Inc.'s 1995 Annual Meeting of Shareholders
will be held at KPMG Peat Marwick LLP, Lexington Level Conference Center, 345
Park Avenue, New York, New York, on Monday, June 26, 1995, at 10:00 a.m., DST.
Following a report on Petro's business operations, the Shareholders will act on
the matters listed below:
(a) Election of Directors for the ensuing year;
(b) Approval of the appointment of Independent Auditors for 1995; and
(c) Consideration of any other matter which may properly come before the
meeting.
Shareholders of record at the close of business on May 1, 1995 will be
entitled to vote at the meeting and any adjournments.
By Order of the Board of Directors
Audrey L. Sevin
Secretary
<PAGE>
PROXY STATEMENT
PETROLEUM HEAT AND POWER CO., INC.
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Petroleum Heat and Power Co.,
Inc. for the 1995 Annual Meeting of Shareholders. This Proxy Statement and a
proxy form are scheduled to be mailed to Shareholders beginning on May 10, 1995.
You can ensure that your shares are voted at the meeting by completing,
signing, dating and returning the enclosed proxy form in the envelope provided.
Sending in a signed proxy will not affect your right to attend the meeting and
vote. A Shareholder who gives a proxy may revoke it at any time before it is
exercised by voting in person at the Annual Meeting, by submitting another proxy
bearing a later date or by notifying the Inspectors of Election in writing of
such revocation.
ELECTION OF DIRECTORS
At the 1995 Annual Meeting, eight directors are to be elected to hold office
until the 1996 Annual Meeting and until their successors have been elected and
have qualified. The nominees, listed below with brief biographies, are all now
Petro directors. The Board is not aware of any reason why any nominee may be
unable to serve as a director. If any nominee is unable to serve, the shares
represented by all valid proxies will be voted for the election of such other
person as the Board may recommend.
RECOMMENDATION OF THE BOARD OF DIRECTORS CONCERNING THE ELECTION OF DIRECTORS
The Board of Directors of the Company recommends a vote for Irik P. Sevin,
Audrey L. Sevin, Phillip Ean Cohen, Thomas J. Edelman, Richard O'Connell,
Wolfgang Traber, Max M. Warburg and Paul Biddelman to hold office until the 1996
Annual Meeting of Shareholders and until their successors are elected and
qualified. Proxies received by the Board of Directors will be so voted unless
Shareholders specify in their proxy contrary choices.
INFORMATION RELATING TO NOMINEES FOR DIRECTORSHIPS
IRIK P. SEVIN, 47, has been a director of Petro, Inc. since January 1979, of
the Company since its organization in October 1983, and Chairman of the Board of
the Company since January 1993. Mr. Sevin has been President of Petro, Inc.
since November 1979 and of the Company since 1983. Mr. Sevin was an associate in
the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers Kuhn
Loeb Incorporated from February 1975 to December 1978. Mr. Sevin is a graduate
of the Cornell University School of Industrial and Labor Relations (B.S.), New
York University School of Law (J.D.) and the Columbia University School of
Business Administration (M.B.A.).
AUDREY L. SEVIN, 69, 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.).
PHILLIP EAN COHEN, 47, 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.
THOMAS J. EDELMAN, 44, 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
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President of The First Boston Corporation. From 1975 through 1980, Mr. Edelman
was with Lehman Brothers Kuhn Loeb Incorporated. Mr. Edelman also serves as the
Chairman of Lomak Petroleum, Inc., and as a director of Amerac Company, Enterra
Corporation and Command Petroleum Limited.
RICHARD O'CONNELL, 48, 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, 50, has been a director of Petro, Inc. since January 1979
and of the Company since its organization in October 1983. Mr. Traber is
Chairman of the Board of Hanseatic Corporation, a private investment corporation
in New York, New York. Mr. Traber is a director of Deltec Asset Management
Corporation, Blue Ridge Real Estate Company, Hellespont Tankers Ltd. and M.M.
Warburg & Co.
MAX M. WARBURG, 46, 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, of which he was a Managing Director between 1988 and 1992. 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 also 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.
PAUL BIDDELMAN, 46, has been a director of the Company since October 1994.
Mr. Biddelman has been Treasurer of Hanseatic Corporation since April 1991. Mr.
Biddelman joined Hanseatic from Clements Taee Biddelman Incorporated, a merchant
banking firm which he co-founded in 1991. From 1982 through 1991, he was a
Managing Director in Corporate Finance at Drexel Burnham Lambert Incorporated.
Mr. Biddelman also worked in corporate finance at Kuhn, Loeb & Co. from 1975 to
1979, and at Oppenheimer & Co. from 1979 to 1982. Mr. Biddelman is a director of
Celadon Group, Inc., Electronic Retailing Systems International, Inc.,
Insituform Technologies, Inc. and Premier Parks, Inc.
Audrey Sevin is the mother of Irik P. Sevin. There are no other familial
relationships between any of the directors and executive officers.
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OWNERSHIP OF EQUITY SECURITIES IN THE COMPANY
The table below sets forth as of April 15, 1995 the number of shares
beneficially owned by each director and each of the five most highly compensated
executive officers of the Company, each beneficial owner of, or institutional
investment manager exercising investment discretion with respect to, 5% or more
of the outstanding shares of capital stock, and all directors and officers as a
group, and the respective percentage ownership of the outstanding Class A Common
Stock and Class C Common Stock held by each such holder and group:
<TABLE>
<CAPTION>
NUMBER OF SHARES(1) PERCENT OF TOTAL
----------------------- ------------------ PERCENT OF TOTAL
NAME CLASS A CLASS C CLASS A CLASS C VOTING POWER(2)
- ------------------------------------- --------- --------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Richard O'Connell(3)................. 1,320,846 302,461 5.78 11.64 8.90
Estate of Malvin P. Sevin(4)......... 970,963 265,048 4.25 10.20 7.42
First Reserve Corporation(5)......... 1,700,783 -- 7.21 -- 3.48
Audrey L. Sevin(4)(6)................ 926,507 212,668 4.05 8.19 6.25
Irik P. Sevin(4)(7).................. 1,107,611 225,641 4.81 8.61 6.83
Wolfgang Traber(8)(9)(10)............ 821,572(11) 307,755 3.59 11.85 7.99
Hubertus Langen(9)(12)(13)........... 750,221 307,755 3.28 11.85 7.84
Wellington Management Company(14).... 2,128,500 -- 9.31 -- 4.36
Barcel Corporation(15)............... 695,151 151,231 3.04 5.82 4.52
Phillip Ean Cohen(4)................. 679,262 113,423 2.97 4.37 3.71
Thomas J. Edelman(4)................. 593,049(16) 129,019 2.59 4.97 3.86
Max Warburg(17)...................... 324,688 38,481(9) 1.42 1.48 1.45
Paul Biddelman(8).................... 2,386 -- (18) -- (18)
Joseph P. Cavanaugh(4)............... 860 -- (18) -- (18)
George Leibowitz(4)(19).............. 15,000 -- (18) -- (18)
All officers and directors as a group
(15 persons)....................... 6,762,744 1,594,496 29.34 60.82 46.09
</TABLE>
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(1) For purposes of this table, a person or group is deemed to have "beneficial
ownership" of any shares which such person has the right to acquire within
60 days after April 15, 1995. For purposes of calculating the percentage of
outstanding shares held by each person named above, any shares which such
person has the right to acquire within 60 days after April 15, 1995 are
deemed to be outstanding, but not for the purpose of calculating the
percentage ownership of any other person.
(2) Total voting power means the total voting power of all shares of Class A
Common Stock and Class C Common Stock. This column reflects the percentage
of total voting power represented by all shares of Class A Common Stock and
Class C Common Stock held by the named persons.
(3) These shares are owned of record by Deltec Asset Management Corp., 535
Madison Avenue, New York, NY ("Deltec"), on behalf of M.M. Warburg Bank,
Luxembourg, as nominee for Mr. O'Connell, whose address is 31 rue de
Bellechasse, 75007, Paris, France, who is the beneficial owner thereof.
(4) The address of such person is c/o the Company at P.O. Box 1457, Stamford,
CT 06904.
(5) The address of such person is 475 Steamboat Road, Greenwich, CT 06830.
First Reserve Corporation acts as managing general partner for the
following funds, which own an aggregate of 968,310 shares of Class A Common
Stock and options to purchase an additional 732,473 shares of Class A
Common Stock, as follows: (a) American Gas & Oil Investors, Limited
Partnership: 423,224 shares and 229,323 options; (b) AmGO II, Limited
Partnership: 289,775 shares and 181,369 options; (c) AmGO III, Limited
Partnership: 88,185 shares and 158,293 options; and (d) First Reserve
Secured Energy Assets Fund, Limited Partnership: 167,126 shares and 163,488
options.
(6) Excludes shares owned by the Estate of Malvin P. Sevin (listed above), of
which Audrey Sevin is executrix and primary beneficiary.
(7) Includes options to purchase 196,000 shares of Class A Common Stock and
24,000 shares of Class C Common Stock.
(8) The address of such person is 450 Park Avenue, New York, NY 10022.
(9) These shares are owned of record by Deltec, which has the power to vote the
shares under discretionary account arrangements, which power may be revoked
at any time by the beneficial owner.
(10) Includes 100,000 shares of Class A Common Stock and 298,717 shares of Class
C Common Stock owned of record by Deltec on behalf of Tortosa GmbH of which
Mr. Traber is the beneficial owner.
(11) Includes 75,000 shares of Class A Common Stock beneficially owned by Mr.
Traber's wife.
(12) The address of such person is Heinrich-Vogl-Strasse 17, 81479, Munich,
Germany.
(13) Includes 100,000 shares of Class A Common Stock and 298,717 shares of Class
C Common Stock owned of record by Deltec on behalf of Tortosa GmbH of which
Mr. Langen is the beneficial owner.
(14) The address of such person is 75 State Street, Boston, Massachusetts 02109.
(15) The address of such person is c/o Trust Department, Lloyds Bank
International, King & George Streets, Nassau, Bahamas.
(16) Includes 71,000 shares of Class A Common Stock owned by Mr. Edelman's wife
and minor children.
(17) The address of such person is Ferdinandstrasse 75, 10095 Hamburg, Germany.
(18) Indicates less than 1%.
(19) Includes options to purchase 15,000 shares of Class A Common Stock.
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Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of the
Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. The Company believes that during the
two fiscal years ended December 31, 1994, its officers, directors and holders of
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements.
Based upon the Shareholders' Agreement (defined below), all or some of the
beneficial owners listed above may be deemed a "group" within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
Messrs. Paul Biddelman, Phillip Ean Cohen, Thomas J. Edelman, Richard
O'Connell, Irik P. Sevin, Wolfgang Traber, Max Warburg and Mrs. Audrey L. Sevin
are directors of the Company, and Messrs. Irik P. Sevin, Joseph Cavanaugh, Tom
Isola and George Leibowitz and Mrs. Audrey Sevin are officers of the Company.
SHAREHOLDERS' AGREEMENT
Certain Shareholders of the Company have entered into a Shareholders'
Agreement (the "Shareholders' Agreement") which provides that they will vote
their shares to elect as directors of the Company five persons designated by a
group consisting of Irik P. Sevin, the Estate of Malvin P. Sevin, Audrey L.
Sevin, Thomas J. Edelman, Phillip Ean Cohen and Margot Gordon (the "Sevin
Group") and three persons designated by certain other Shareholders party to the
agreement (the "Traber Group"). Each group may designate its directors by action
of the holders of a majority of the Common Stock held by that group. The by-laws
of the Company provide for the election of not less than six and not more than
fifteen directors. The Board of Directors has fixed the number of directors at
eight. Of the present directors, Irik P. Sevin, Audrey L. Sevin, Thomas J.
Edelman, Phillip Ean Cohen and Paul Biddelman have been designated by the Sevin
Group and Wolfgang Traber, Richard O'Connell and Max M. Warburg have been
designated by the Traber Group. All such obligations to vote for directors shall
lapse if the Estate of Malvin P. Sevin, Irik P. Sevin or Audrey L. Sevin no
longer own, directly or indirectly, and/or have sole voting power over at least
51% of the shares of Class C Common Stock held by all members of the Sevin
Group.
The Shareholders' Agreement provides that the consideration per share which
may be received by a holder of Class C Common Stock upon a sale of shares of
Class C Common Stock may not exceed the average of the last reported sales
prices per share of the Class A Common Stock for the 90 trading days preceding
the date of such sale as reported on the Nasd National Market, and that any
premium above such consideration will inure to the benefit of the Company. In
addition, the Shareholders' Agreement provides that such provisions may not be
modified without the consent of the holders of 80% of the issued and outstanding
shares of Class A Common Stock. The Restated Articles of Incorporation of the
Company provide that any transfer of a share of Class C Common Stock (i) to any
person who is not a signatory to the Shareholders' Agreement or (ii) to any
person after the date on which the Shareholders' Agreement is for any reason no
longer in effect will automatically result in the conversion of such share into
a share of Class A Common Stock.
The Shareholders' Agreement (and the Company's Restated Articles of
Incorporation) provides that certain actions may not be taken without the
affirmative vote of a super-majority of 80% of the entire Board of Directors
(irrespective of vacancies) including at least one director who has been
designated by the Traber Group. These matters include (i) engaging in any
business other than the fuel oil distribution business, (ii) the merger or
consolidation of the Company with a non-subsidiary corporation, (iii) investment
of Company funds other than in specified securities, (iv) the sale, lease,
transfer or other disposition of a significant portion of the Company's assets
in any fiscal year other than the sale of petroleum products in the ordinary
course of business and those investments described in
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clause (iii) above, (v) the liquidation, dissolution or winding up of the
business of the Company, (vi) payment of any compensation to directors, (vii)
the incurrence of more than a specified level of long-term debt, (viii) any
issuance of more than a specified level of long-term debt, (ix) any issuance or
repurchase of securities or any right or option to purchase Common Stock or any
security convertible into capital stock, except in connection with the Company's
dividend policy and (x) the making of, or any commitment for, any capital
expenditures or purchase of assets at more than specified levels. Action by
Shareholders on matters involving the sale of all or substantially all the
Company's assets, the Company's merger or consolidation (except the merger of a
subsidiary into the Company), the liquidation or dissolution of the Company, or
any amendment to the articles of incorporation does not require a super-majority
vote of the directors; however, the parties to the Shareholders' Agreement have
agreed to vote all of their Class C Common Stock against any proposal for such
items unless approved by a vote of at least 85% of the Class C Common Stock.
MEETINGS AND COMPENSATION OF DIRECTORS
During fiscal 1994, the Board of Directors met twice. All Directors attended
both meetings. The Company pays each of its directors other than Irik P. Sevin
an annual fee of $24,000. Directors are elected annually and serve until the
next annual meeting of Shareholders or until their successors are elected and
qualified. The Shareholders' Agreement governs matters relating to the
nomination of and voting for directors by the Shareholders who are party
thereto. Though the Company does not pay any other direct or indirect
compensation to directors in their capacity as such, it has entered into certain
transactions with persons who are directors, including Wolfgang Traber and
Richard O'Connell, the members of the Compensation Committee, and entities
controlled by them and Thomas Edelman. See "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The members of each committee are appointed by the Board of Directors
for a term beginning after the first regular meeting of the Board of Directors
following the Annual Meeting of Shareholders and until their respective
successors are elected.
Audit Committee. The Audit Committee recommends to the Board of Directors
the auditing firm to be selected each year as independent auditors of the
Company's financial statements and to perform services related to the completion
of such audit. The members of the Audit Committee are Phillip Ean Cohen, Richard
O'Connell and Paul Biddelman. The Audit Committee also has responsibility for
(i) reviewing the scope and results of the audit with the independent auditors,
(ii) reviewing the Company's financial condition and results of operations with
management and the independent auditors, (iii) considering the adequacy of the
internal accounting and control procedures of the Company, and (iv) reviewing
any non-audit services and special engagements to be performed by the
independent auditors and considering the effect of such performance on the
auditors' independence. The Audit Committee also reviews, at least once each
year, the terms of all material transactions and arrangements between the
Company and its affiliates. Members of the Audit Committee may not be employees
of the Company. The Audit Committee held a meeting in October 1994, which Mr.
O'Connell did not attend, and a meeting in April 1995, which Mr. Cohen did not
attend.
Compensation Committee. The Compensation Committee determines the cash and
other incentive compensation, if any, to be paid to the Company's Chief
Executive Officer as well as compensation levels for other executive officers of
the Company. The members of the Compensation Committee are Wolfgang Traber and
Richard O'Connell. The Compensation Committee met in April 1995 to review the
operation of the Senior Executive Compensation Plan for the Chief Executive
Officer approved by the Shareholders at the 1994 Annual Meeting as well as
compensation levels for other executive officers
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of the Company. Both members of the Compensation Committee were present at the
meeting. See "Report of the Compensation Committee of the Board of Directors."
CERTAIN TRANSACTIONS
Set forth below is information concerning (a) stock options granted by the
Company to its chief executive officer and former co-chief executive officer and
(b) certain transactions between the Company and its directors.
Stock Options
In October 1986, Irik P. Sevin purchased 201,641 shares of Class A Common
Stock (the "Put Shares") for $1,280,000, the fair market value thereof as
established by the Pricing Committee pursuant to the Shareholders' Agreement.
(After giving effect to an exchange of Class C Common Stock for Class A Common
Stock in July 1992, the Put Shares now consist of 161,313 shares of Class A
Common Stock and 40,328 shares of Class C Common Stock). Mr. Sevin paid for the
Put Shares by issuing a one-year note (the "Sevin Note") to the Company in the
amount of the purchase price. The Sevin Note has been amended annually to defer
the payment of interest and to increase the amount of principal by the amount of
interest deferred each year. As of December 31, 1994, the principal amount of
the Sevin Note was $1,640,060. The Sevin Note was amended effective January 1,
1992 to change the interest rate thereon from 10% per annum to the LIBOR rate in
effect for each month plus 0.75%. In addition, the Sevin Note has been amended
annually so as to extend the maturity date by one year; the current maturity
date is December 31, 1995. At any time prior to the maturity date of the Sevin
Note, Mr. Sevin has the right to require the Company to repurchase all or part
of the Put Shares (as adjusted for stock splits, dividends and the like) for
$6.35 per share (the "Put Price"); provided, that Mr. Sevin may retain all
shares of Class B Common Stock issued as dividends on the Put Shares without
adjustment to the Put Price. In December 1986, 50,410 shares of Class B Common
Stock were issued as a stock dividend with respect to the Put Shares. Such
shares of Class B Common Stock were exchanged in October 1992 for 80,202 shares
of Class A Common Stock pursuant to a public exchange offer. Upon the repurchase
of any Put Shares by the Company, the Company has agreed to grant an eight-year
option to Mr. Sevin to purchase a like number of shares at the Put Price. Mr.
Sevin has agreed that he will not sell or otherwise transfer any of the Put
Shares to a third party until the Sevin Note has been paid in full.
In November 1986, the Company issued options (the "November 1986 Options")
to purchase 30,000 shares and 20,000 shares of Class A Common Stock (subject to
adjustment for stock splits, stock dividends and the like) to Irik P. Sevin and
Malvin P. Sevin, respectively, 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 November 1986 options are
non-transferable and had an original expiration date of November 30, 1994. As a
result of stock dividends declared by the Company in December 1986, the exchange
of Class C Common Stock for Class A Common Stock in July 1992, and certain
antidilution adjustments, the November 1986 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 November 1986 Options held by the Estate of Malvin P.
Sevin applied to 59,862 shares of Class A Common Stock and 14,966 shares of
Class C Common Stock upon their exercise by the Estate in November 1994 (see
below). The adjusted exercise price for the November 1986 Options is (or was, in
the case of the November 1986 Options held by the Estate of Malvin P. Sevin)
$4.10.
On December 2, 1986, the Company issued options (the "December 1986
Options") to purchase 75,000 shares and 50,000 shares of Class A Common Stock
(subject to adjustment for stock splits, stock dividends and the like) to Irik
P. Sevin and Malvin P. Sevin, respectively. The December 1986 Options are
nontransferable and had an original expiration date of November 30, 1994. As a
result of stock dividends declared by the Company in December 1986, the exchange
of Class C for Class A Common
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Stock in July 1992, and certain antidilution adjustments, the December 1986
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 December 1986 Options
held by the Estate of Malvin P. Sevin applied to 149,655 shares of Class A
Common Stock and 37,414 shares of Class C Common Stock upon their exercise by
the Estate in November 1994 (see below). The adjusted exercise price for the
December 1986 Options is (or was, in the case of the December 1986 Options held
by the Estate of Malvin P. Sevin) $4.10.
On December 28, 1987, the Company issued to Irik P. Sevin 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). 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 options to purchase 72,000 shares of
Class A Common Stock and 18,000 shares of Class C Common Stock to Irik P. Sevin
and 48,000 shares of Class A Common Stock and 12,000 shares of Class C Common
Stock to Malvin P. Sevin (in each case, after giving retroactive effect to the
exchange of Class C Common Stock for Class A Common Stock in July 1992). The
option price for each such share is $11.25. These options are non-transferrable.
Malvin P. Sevin's options expired unexercised while Irik P. Sevin's options
expire on March 3, 1999.
Malvin P. Sevin passed away in December 1992.
On April 1, 1994, the Company issued to Irik P. Sevin options to purchase
100,000 shares of Class A Common Stock as part of bonus compensation awarded
with regard to 1993. The option price for each such share is $8.50. These
options are not transferrable and expire on March 31, 2004.
In November 1994, the Estate of Malvin P. Sevin exercised all of its
November 1986 Options and December 1986 Options and purchased an aggregate of
209,517 shares of Class A Common Stock and 52,380 shares of Class C Common Stock
for a total exercise price of $1,073,778, which it paid by surrendering 119,309
shares of Class A Common Stock to the Company for cancellation. At the same time
the Company purchased 71,000 shares of Class A Common Stock from the Estate for
the then current market price of $9.00 per share, or a total purchase price of
$639,000.
In November 1994, the November 1986 Options and the December 1986 Options
held by Irik Sevin (applying to an aggregate of 314,277 shares of Class A Common
Stock and 78,569 shares of Class C Common Stock) were extended for a period of
three years to expire on November 30, 1997. Such options are exercisable as to
one-third of such shares on and after November 30, 1995, as to an additional
one-third on and after November 30, 1996 and as to all of such shares after
November 30, 1997; provided that any such options which become exercisable after
any such date will lapse if Mr. Sevin voluntarily terminates his employment by
the Company prior to such date.
Truck Leases
In January 1992, the Company renewed lease agreements originally entered
into for delivery trucks with individuals who included Phillip Ean Cohen, Irik
P. Sevin, Thomas J. Edelman, Wolfgang Traber, the Estate of Malvin P. Sevin and
Audrey L. Sevin. These leases are currently on a month to month basis but the
Company intends to extend the leases on terms comparable with leases from
unrelated parties. Annual rents under these leases total approximately $125,000.
Real Estate Transactions
On November 6, 1985, the Company sold its Westbury, New York facility to a
limited partnership consisting of Thomas J. Edelman, Phillip Ean Cohen, Wolfgang
Traber, Richard O'Connell and two individuals who are shareholders of the
Company, as limited partners, and two corporate general partners owned by Irik
P. Sevin, and Audrey L. Sevin and Malvin P. Sevin, respectively. The purchase
price was $660,000. The partnership is leasing the facility to the Company
pursuant to a ten-year net
7
<PAGE>
lease providing for an initial rental of $90,000, plus taxes and subject to
escalation. The purchase price of $660,000 was the same as that which the
Company originally paid for the property in June 1984 and was its independently
appraised fair market value.
On November 4, 1985, the Company purchased its Astoria, Queens facility from
Phillips Petroleum Company ("Phillips") for $1,500,000 pursuant to a public
bidding process initiated by Phillips. On December 31, 1985, the Company sold
this facility for the same price to a limited partnership consisting of Thomas
J. Edelman, Phillip Ean Cohen, Richard O'Connell, Wolfgang Traber and various
other shareholders of the Company, as limited partners, and two corporate
general partners owned by Irik P. Sevin, and Malvin P. Sevin and Audrey L.
Sevin, respectively. Simultaneously with such purchase, the limited partnership
leased the Astoria facility back to the Company for a period of ten years on
substantially the same terms and conditions as contained in the Company's
previous lease with Phillips. The annual rent for 1986 was $184,615, the same as
would have been in effect under the previous lease with Phillips. Beginning in
1987, the annual rental has been $315,000, the independently appraised fair
market rent, as adjusted for changes in the consumer price index.
Acquisition of Star Gas and Related Transactions
In December 1993, the Company acquired a 29.5% equity interest (42.8% voting
interest) in Star Gas Corporation for $16.0 million in cash (the "Star Gas
Investment"). Of such $16.0 million, $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"), by
the purchase of preferred stock of Holdings. Certain other investors (including
Holdings) invested a total of $49.0 million of additional equity in Star Gas, of
which $11.0 million was in the form of cash and $38.0 million resulted from the
conversion of long-term debt and preferred stock into common stock.
At the time of the Star Gas Investment, all of the common stock of Holdings
was owned by Hanseatic Corporation. Wolfgang Traber and Paul Biddelman, each a
director of the Company, are Chairman of the Board and Treasurer of Hanseatic
Corporation, respectively. Mr. Traber was also one of the two directors of
Holdings from December 1993 until February 10, 1995. Certain other stockholders
of the Company (including members of the Traber Group, but excluding members of
the Sevin Group) held certain debentures of Holdings.
The purpose of the Company's equity investment in Holdings was to provide
Holdings with sufficient equity capital (for income tax purposes) to permit the
remaining $9.0 million of Holdings' funds to be raised through the sale of
convertible debentures. This facilitated Holdings' raising of such funds by
providing the purchasers of such debentures, who were primarily foreign persons,
with favorable treatment for Federal Income Tax purposes with respect to the
interest payable thereon (i.e., no withholding of interest on the debentures as
compared to withholding on preferred stock dividends).
In connection with the Star Gas Investment, Star Gas granted the Company an
option 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 was held through Holdings) granted the Company an
option to purchase such investor's interest in Star Gas (or, in the case of
Holdings, to purchase such investor's interest in Holdings). The purchase price
upon exercise of such options was calculated based upon specified multiples of
Star Gas' EBITDA, subject to certain minimum prices, and were payable in cash or
Class A Common Stock of the Company or, in the case of the Holdings investors,
in cash, subordinated debt of the Company or, if the Company was not then
permitted to issue such debt, preferred stock of the Company.
In December 1994, the Company exercised such options and completed its
acquisition of Star Gas by acquiring the outstanding voting securities (not
including the equity owned by Holdings) by paying
8
<PAGE>
an aggregate additional consideration of approximately $25.9 million, consisting
of $3.8 million in cash and 2.5 million shares of the Company's Class A Common
Stock.
In February 1995, the Company completed public offerings pursuant to which
it issued $125 million in aggregate principal amount of its 12 1/4% Subordinated
Debentures due 2005 and 2,875,000 shares of Class A Common Stock. The Company
subsequently applied $98.6 million of the net proceeds of such offerings to
purchase $65.4 million of long-term debt of Star Gas, all outstanding shares of
preferred stock of Star Gas not previously owned by the Company (including the
equity owned by Holdings) and 1,521,316 shares of the Company's Class A Common
Stock which were issued to a third party in connection with the Star Gas
Investment.
The Company had managed the Star Gas business under a Management Services
Agreement which provided 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
therein. Star Gas also reimbursed the Company for its expenses and the cost of
certain Company personnel.
Warwick Energy Advisors, Inc. ("Warwick"), a company controlled by Thomas
Edelman, a director of the Company, provided consulting and advisory services to
the Company in connection with the Star Gas Investment for which the Company
paid Warwick a consulting fee of $450,000.
In February 1995, the Company entered into an agreement with Thomas Edelman,
a director of the Company, whereby Mr. Edelman provides consulting and advisory
services to the Company in connection with a potential acquisition by the
Company (not related to the Star Gas Investment). Pursuant to the agreement,
commencing in January 1995, the Company is to pay Mr. Edelman a monthly
consulting fee of $10,000 and a transaction fee equal to 1/3 of 1% of the gross
value (as defined therein) of any such transaction.
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company, which officers serve at the discretion of the Board of Directors:
IRIK P. SEVIN, 47, has been a director of Petro, Inc. since January 1979, of
the Company since its organization in October 1983, and Chairman of the Board of
the Company since January 1993. Mr. Sevin has been President of Petro, Inc.
since November 1979 and of the Company since 1983. 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.).
THOMAS M. ISOLA, 51, has been Chief Operating Officer of the Company since
he joined the Company in August 1994 to fill that newly-created position. Prior
to joining the Company and beginning in 1988, Mr. Isola served as President and
Chief Executive Officer of three manufacturing converting companies owned by
Butler Capital Corporation in New York. From 1972 to 1988, he was with Avery
International, Inc. (now Avery-Dennison) in a variety of marketing and
operations roles before becoming Vice President-General Manager of two Avery
companies. Mr. Isola received B.A. and M.B.A. degrees from Stanford University
in 1965 and 1968, respectively. He served as a 1st Lieutenant in the U.S. Army
from 1969 to 1971.
C. JUSTIN MCCARTHY, 50, 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.,
9
<PAGE>
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, 57, was Controller of Petro, Inc. from 1973 and of the
Company since its organization until 1994. He was elected a Vice President of
the Company in October 1983 and has been 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, 69, has been a director and Secretary of Petro, Inc. since
January 1979 and of the Company since its organization in October 1983. Mrs.
Sevin was a director, executive officer and principal shareholder of A.W. Fuel
Co., Inc. from 1952 until its purchase by the Company in May 1981. Mrs. Sevin is
a graduate of New York University (B.S.).
GEORGE LEIBOWITZ, 58, has been Senior Vice President of the Company since
November 1, 1992. From 1985 to 1992, prior to joining the Company, Mr. Leibowitz
was the Chief Financial Officer of Slomin's Inc., a retail heating oil dealer.
From 1984 to 1985, Mr. Leibowitz was the President of Lawrence Energy Corp., a
consulting and oil trading company. From 1971 to 1984, Mr. Leibowitz was Vice
President-Finance and Treasurer of Meenan Oil Co., Inc. Mr. Leibowitz is a
Certified Public Accountant and a graduate of Columbia University (B.A. 1957)
and the Wharton Graduate Division, University of Pennsylvania (M.B.A. 1958).
ALEX SZABO, 41, has been Senior Vice President--Marketing and Sales since
June 1994. From 1989 to 1994, prior to joining the Company, Mr. Szabo was
Executive Vice President at Whittle Communications and President of Screenvision
Cinema Network. From 1987 to 1989, Mr. Szabo was Executive Vice
President--General Manager of Benckiser Consumer Products, Inc. Prior to 1987,
Mr. Szabo held executive management positions at Ecolab, Colgate Palmolive and
I.B.M. Mr. Szabo is a graduate of Brown University (B.A. 1975) and Columbia
University (M.B.A. 1980).
RICHARD F. AMBURY, 38, was Assistant Controller of the Company from June
1983 to 1994 and was elected Vice President in December 1992. From 1979 to 1983,
Mr. Ambury was employed by a predecessor firm of KPMG Peat Marwick LLP, 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, 39, was Assistant Controller of the Company from 1985
to 1994 and was elected Vice President in December 1992. Mr. Bottiglieri was
made Controller of the Company in 1994. From 1978 to 1984, Mr. Bottiglieri was
employed by a predecessor firm of KPMG Peat Marwick LLP, 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, 38, who has been employed by the Company since 1987, has
been Manager of Supply and Distribution of the Company since 1990 and was
elected Vice President--Supply in December 1992. From 1974 to 1987, Mr. Ryan was
employed by Whaleco Fuel Corp., a subsidiary of the Company which was acquired
in 1987. Mr. Ryan graduated from St. Francis College with a degree in Accounting
in 1983 (B.S.).
Audrey L. Sevin is the mother of Irik P. Sevin. There are no other familial
relationships between any of the directors and executive officers.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company and
its subsidiaries for services during fiscal 1992, 1993 and 1994 to each of the
Company's five most highly compensated executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ---------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------- ---- -------- -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Irik P. Sevin............ 1994 $350,000 $800,000(1) $152,000(1) 100,000(2)(3)
Chairman, President 1993 350,000 800,000
Chief Executive Officer 1992 350,000 800,000
Justin McCarthy.......... 1994 200,000 112,000 13,391(4)
Senior Vice President 1993 200,000 112,000 13,035(4)
Operations 1992 175,000 75,000 12,649(4)
Joseph P. Cavanaugh...... 1994 226,000 -- 13,391(4)
Senior Vice President 1993 211,000 5,000 13,035(4)
Compliance and 1992 201,000 10,000 12,649(4)
Administration
George Leibowitz......... 1994 225,000 -- 25,000(3)
Senior Vice President 1993 200,000 -- 25,000(3)
Finance and Corporate 1992 29,107 170,000
Development
Thomas Isola............. 1994 103,750 59,250 $ 17,451(5) 50,000(3)
Chief Operating Officer
</TABLE>
- ------------
(1) Mr. Sevin was entitled to a $952,000 bonus for 1994 pursuant to the Senior
Executive Compensation Plan. Mr. Sevin elected to receive $800,000 in cash
and, in lieu of the additional $152,000 cash compensation due him, to have
the Company pay a premium of $93,000 for an insurance policy to be owned by
a trust for the benefit of certain beneficiaries designated by Mr. Sevin,
and to reimburse him for approximately $59,000 in related tax liability.
(2) The options were issued in April 1994 as part of bonus compensation awarded
for 1993.
(3) The options are exercisable to purchase shares of Class A Common Stock of
the Company.
(4) Other compensation consists of amounts paid in lieu of contributions under
the Company's 401(k) plan in which such persons do not participate.
(5) Amounts represent reimbursement by the Company of $17,451 in moving expenses
incurred by Mr. Isola in connection with his relocation to Stamford,
Connecticut at the Company's request.
11
<PAGE>
The following table presents the value of unexercised options held by the
named executives at December 31, 1994:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF
OPTIONS AT DECEMBER 31, 1994 IN THE MONEY OPTIONS AT
NAME EXERCISABLE(E)/UNEXERCISABLE(U) DECEMBER 31, 1994(1)
- -------------------------------------- ------------------------------- --------------------------
<S> <C> <C>
Irik P. Sevin
Class A............................. 196,000(E)/314,277(U) $117,000(E)/$1,618,527(U)
Class C............................. 24,000(E)/ 78,569(U) $227,850(U)
George Leibowitz
Class A............................. 15,000(E)/ 35,000(U)
Thomas Isola
Class A............................. 50,000(U) $87,500(U)
</TABLE>
- ------------
(1) Values are calculated by deducting the exercise price from the fair market
value of the stock as of December 31, 1994.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth certain information concerning options
granted during 1994 to the named executives:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
- --------------------------------------------------------------------------------------------- RATES
% OF TOTAL OF STOCK PRICE
OPTIONS MARKET APPRECIATION
GRANTED TO EXERCISE PRICE ON FOR OPTION TERM
OPTIONS EMPLOYEES PRICE THE DATE EXPIRATION ---------------------
NAME GRANTED (#) IN 1994 ($ SHARE) OF GRANT DATE 5% 10%
- ------------------------------- ----------- ---------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Irik P. Sevin.................. 100,000(1) 66.67% $8.50 $ 8.50 3/31/2004 $535,000 $1,354,000
Thomas Isola................... 50,000(2) 33.33% $7.50 $ 7.50 8/22/1999 $103,500 $ 228,500
</TABLE>
- ------------
(1) The options were issued in April 1994 as part of bonus compensation awarded
for 1993.
(2) 20% of the options become exercisable on each of the first five anniversary
dates of the grant (August 23, 1994).
Pension Plans
The Company maintains various retirement plans for substantially all
non-union employees. The executive officers of the Company are eligible to
participate in a qualified benefit pension plan (the "Pension Plan") which the
Company maintains for its non-union employees.
The Pension Plan covers non-union employees who complete one year of
service. The Pension Plan generally provides to each participant who retires at
age 65 an annual benefit equal to 1.25% of the participant's average annual
compensation (defined as the average of such participant's highest five
consecutive years earnings out of the prior 10 years before retirement)
multiplied by the number of such participant's benefit years of service. A
participant who has attained age 55 and has completed five years of service may
retire early and receive an actuarial reduced benefit.
12
<PAGE>
For the purposes of the Pension Plan, the following are the benefit years of
service through December 31, 1994 and the covered compensation for the calendar
year ended December 31, 1994 for each individual named in the preceding
compensation table:
<TABLE>
<CAPTION>
BENEFIT COVERED
NAME YEARS COMPENSATION
- ------------------------------------------------------- ------- ------------
<S> <C> <C>
Irik P. Sevin.......................................... 16 $150,000
C. Justin McCarthy..................................... 16 150,000
Joseph P. Cavanaugh.................................... 25 150,000
George Leibowitz....................................... 2 150,000
Thomas Isola........................................... 0 103,750
</TABLE>
The following table shows estimated annual benefits which are not offset by
Social Security or any other reductions, payable in the form of a straight life
annuity under the Pension Plan to participants in the specified covered
compensation and benefit years of service classifications who retire having
reached their normal retirement dates.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
- -------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000........... $ 12,500 $ 18,750 $ 25,000 $ 31,250 $ 37,500 $ 43,750
200,000*........... 25,000 37,500 50,000 62,500 75,000 87,500
300,000*........... 37,500 56,250 75,000 93,750 112,500 131,250**
400,000*........... 50,000 75,000 100,000 125,000** 150,000** 175,000**
500,000*........... 62,500 93,750 125,000** 156,250** 187,500** 218,750**
600,000*........... 75,000 112,500 150,000** 187,500** 225,000** 262,500**
700,000*........... 87,500 131,250** 175,000** 218,750** 262,500** 306,250**
800,000*........... 100,000 150,000** 200,000** 250,000** 300,000** 350,000**
900,000*........... 112,500 168,750** 225,000** 281,250** 337,500** 393,750**
1,000,000*......... 125,000** 187,500** 250,000** 312,500** 375,000** 437,500**
1,100,000*......... 137,500** 206,250** 275,000** 343,750** 412,500** 481,250**
1,200,000*......... 150,000** 225,000** 300,000** 375,000** 450,000** 525,000**
1,300,000*......... 162,500** 243,750** 325,000** 406,250** 487,500** 568,750**
1,400,000*......... 175,000** 262,500** 350,000** 437,500** 525,000** 612,500**
1,500,000*......... 180,000** 270,000** 360,000** 450,000** 540,000** 630,000**
</TABLE>
- ------------
* Exceeds Maximum Covered Compensation considered under the Plan of $150,000.
** Exceeds Maximum Benefit Payable under the Plan of $118,800.
The Company has adopted a non-qualified supplemental retirement plan which
benefits 18 employees and retirees, including Irik P. Sevin, C. Justin McCarthy,
Joseph P. Cavanaugh, George Leibowitz and Tom Isola. Under the Pension Plan, the
projected normal retirement pension benefits of Messrs. Sevin, McCarthy,
Cavanaugh and Leibowitz are $5,287, $4,766, $5,104 and $1,432 per month,
respectively. Under the supplemental retirement plan, Mr. Sevin's normal
retirement benefit would be increased by $4,008 per month, Mr. Cavanaugh's
normal retirement benefit would be increased by $3,279 per month, Mr. McCarthy's
normal retirement benefit would be increased by $3,641 per month and Mr.
Leibowitz's normal retirement benefit would be increased by $968 per month.
13
<PAGE>
REPORT OF COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee's executive compensation philosophy is to assure
competitive levels of compensation, integrate management's pay with the
achievement of the Company's annual and long-term performance goals, reward
above-average corporate performance, recognize individual initiative and
achievement, and assist the Company in attracting and retaining qualified
management. This philosophy is intended to apply to all Company management.
Management compensation is intended to be set at levels that the Compensation
Committee believes is consistent with others in the Company's industry, with
senior management's compensation packages being weighted more heavily toward
programs contingent upon the Company's level of performance. The current
executive compensation structure consists of base salary and annual incentive
bonuses. The Company assesses compensation levels in comparison with those of
competitors in the retail fuel oil industry. Since no competitor is subject to
the reporting requirements of the Securities Exchange Act of 1934 or otherwise
publishes information concerning executive compensation, the Company largely
derives its information from companies acquired in its acquisition program. In
evaluating this information, the Committee took into account the fact that such
companies are generally substantially smaller than the Company with mature
businesses that evidence little or no growth. In contrast, the Company's volume,
EBITDA and NIDA (defined below) have increased at compounded annual growth rates
of 15.7%, 21.6% and 17.1%, respectively, from 1980 through 1994.
With respect to the Chief Executive Officer (who also serves as Chief
Financial Officer), the Compensation Committee also considers the compensation
structure applicable to the investment banking industry due to Mr. Sevin's
substantial expertise in and contribution to the Company in the fields of
acquisitions and corporate finance. Under Mr. Sevin's leadership, the Company
has successfully maintained an active acquisition program which is the primary
reason its volume, EBITDA and NIDA have increased at the compounded annual
growth rates stated above. To finance this expansion, Mr. Sevin, in his capacity
as Chief Financial Officer, has been instrumental in the Company's successful
completion of five public and three private debt offerings and one private and
three public equity offerings.
The Compensation Committee is responsible for establishing the base salary
of the Chief Executive Officer and for reviewing the levels of compensation
established by the Chief Executive Officer for the other executive officers of
the Company. Consistent with its philosophy, the Compensation Committee has
established the base salary of the Chief Executive Officer at $350,000, which
level has been maintained for several years. The Compensation Committee is also
responsible for reviewing the operation of the Senior Executive Compensation
Plan, which was approved by the shareholders of the Company at the 1994 Annual
Meeting. As adopted, the Plan provides that commencing with fiscal 1994, the
Company's Chief Executive Officer is entitled to receive an annual cash
incentive bonus equal to his bonus for fiscal 1993, subject to increase or
decrease, as the case may be, in direct proportion to any increase or decrease
in Adjusted NIDA per share (as defined) in the bonus year as compared to 1993.
In reviewing the operation of the Senior Executive Compensation Plan, the
Committee considers the Company's financial performance on both a short-term and
long-term basis, and other factors which reflect the performance of the Chief
Executive Officer, including steps taken to position the Company for future
growth, the accomplishment of specific tasks, and the introduction and
implementation of programs and policies which are believed to promote long term
stability and growth. In particular, with regard to bonus compensation awarded
under the Plan for 1994, the Committee considered the increase of NIDA in 1994
from 1993, Mr. Sevin's contributions in 1994 in positioning the Company for
future expansion and his continued importance in ensuring the continuation of
the Company's historically favorable growth rates. In this regard, the Committee
considered that the Company's growth in the past decade has been directly tied
to the success of its acquisition program and its future growth will depend on
its ability to identify and successfully consummate acquisitions. The
Compensation Committee believes that Mr. Sevin has been the key person in
the conceptualization and implementation of this acquisition program, having
successfully completed 154 acquisitions from 1979 through 1994,
14
<PAGE>
including nine acquisitions in 1994. The Committee believes that Mr. Sevin will
continue to play a key role in the Company's acquisition program and that it is
in the Company's best interest to compensate Mr. Sevin at a level which
recognizes his continued importance. In addition, the Committee considered that
during 1994 Mr. Sevin broadened the Company's strategic focus by completing the
Star Gas Investment, which the Compensation Committee believes has afforded the
Company an opportunity to grow significantly in a related industry which is
larger than the fuel oil industry. The Committee also took into account Mr.
Sevin's success in structuring, negotiating and completing a public debt
financing completed in February 1994 and the financings involved in the Star Gas
acquisition.
Pursuant to the Senior Executive Compensation Plan, Mr. Sevin was entitled
to receive a $952,000 bonus for fiscal 1994. Mr. Sevin agreed, however, to
accept a cash bonus of $800,000 (the same as 1993), an insurance premium of
$93,000 paid by the Company on behalf of a trust for the benefit of certain
beneficiaries designated by Mr. Sevin and approximately $59,000 in reimbursement
for related tax liability.
In April 1995, at the recommendation of the Compensation Committee, the
Board of Directors amended the Senior Executive Compensation Plan to provide
that, to the extent that Mr. Sevin is entitled to receive a bonus in excess of
$800,000 ("Excess Amount") based on an increase in Adjusted NIDA per share, the
Excess Amount will be currently paid to Mr. Sevin in cash only to the extent of
the percentage increase, if any, in the Company's Average Stock Price (as
defined) for the bonus year over the Average Stock Price for the preceding year
multiplied by $800,000. Any part of the Excess Amount which Mr. Sevin is not
entitled to receive in cash will be paid to him, as non-cash compensation in the
form of, at his election, pension benefits, insurance premiums, stock options,
restricted stock, or cash compensation deferred until the termination of his
employment.
The Chief Executive Officer establishes the compensation for the other
executive officers of the Company. The Compensation Committee reviews such
compensation annually. In establishing compensation for other executive
officers, the Chief Executive officer takes into account their individual
importance to the Company, the relative importance to the Company of their area
of responsibility (including where applicable the contribution of areas managed
by them to EBITDA and NIDA), and their individual performance.
Commencing with 1995, the Company has implemented an Executive Incentive
Compensation Program ("EICP"), pursuant to which bonuses of participating
officers and employees are calculated. Thomas Isola, the Company's Chief
Operating Officer, in consultation with the Chief Executive Officer, administers
the operation of the EICP. The object of the EICP is to determine the bonus
compensation of participating officers and employees based on a combination of
the Company's performance and individual performance in as objective a manner as
possible pursuant to a formula stated in the EICP. The formula for determining
bonus compensation is adjusted for all participants to take into account whether
the Company's actual EBITDA performance is better or worse than budgeted, and
takes into account 12 to 15 individually-weighted targets set for each
participant at the beginning of each plan year.
The Omnibus Budget Reconciliation Act of 1993 imposes a limit, with certain
exceptions, on the amount that a publicly held corporation may deduct in any
year for the compensation paid or accrued with respect to its five most highly
compensated officers. While the Committee cannot predict with certainty how the
Company's compensation might be affected, the Committee intends to try to
preserve the tax deductibility of all executive compensation while maintaining
the Company's compensation philosophy as described in this report.
For purposes of the foregoing discussion, "NIDA" is defined as consolidated
net income (loss) plus depreciation and amortization, non-cash charges relating
to the grant of stock options to executives of the Company, non-cash charges
associated with key employees' deferred compensation plans, and other non-cash
charges of a similar nature, if any, 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.
Wolfgang Traber
Richard O'Connell
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Wolfgang Traber and Richard O'Connell, both of whom are directors of
the Company, served as the members of the Compensation Committee during 1994.
In January 1992, the Company renewed lease agreements originally entered
into for delivery trucks with individuals who included Phillip Ean Cohen, Irik
P. Sevin, Thomas J. Edelman, Wolfgang Traber, the Estate of Malvin P. Sevin and
Audrey L. Sevin. These leases are currently on a month-to-month basis but the
Company intends to extend the leases on terms comparable with leases from
unrelated parties. Annual rent under these leases aggregates approximately
$125,000.
Messrs. Traber and O'Connell have participated in certain real estate
transactions with the Company and other related parties. See "Certain
Transactions."
Mr. Traber was one of the two directors of Holdings from December 1993
through February 10, 1995 and is the Chairman of the Board of Hanseatic
Corporation, which owned all of the outstanding common stock of Holdings. In
connection with the Star Gas Investment, the Company purchased Holdings'
outstanding securities. See "Certain Transactions."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In July 1994, the Company entered into an employment agreement with Mr.
Isola which provides for Mr. Isola to serve as the Company's Chief Operating
Officer. The agreement continues for an indefinite period of time, but is
terminable by either Mr. Isola or the Company. The agreement provides for a base
salary of $285,000 during Mr. Isola's first 12 calendar months of employment,
participation in the Company's incentive plan for the first year at the rate of
75% of base salary subject to discretionary increase, and a total guaranteed
compensation for the first year of $450,000. Mr. Isola participates in all
medical, dental, disability and life insurance programs afforded to all of the
Company's senior executives and in the Company's pension and investment plans.
The Company has agreed to pay Mr. Isola's relocation expenses, including a
one-time payment of $15,000 to cover incidental expenses. Upon commencement of
his employment in August 1994, Mr. Isola was granted options to purchase 50,000
shares of Class A Common Stock at market value. If Mr. Isola's employment is
terminated for any reason other than cause within the first three years of
employment, he will receive a severance payment of $285,000.
In June 1994, the Company entered into an employment agreement with Mr.
Szabo which provides for Mr. Szabo to serve as a Senior Vice President of the
Company. The agreement provides for a base annual salary of $200,000 plus an
annual bonus, payable at the end of each calendar year, of $20,000 for each 1%
net improvement in the Company's annual customer attrition rate, subject to a
minimum guaranteed annual bonus of $20,000, and total guaranteed compensation
for the first year of $220,000. Mr. Szabo participates in all health and benefit
programs generally available to the Company's employees and receives a car
allowance. The Company paid Mr. Szabo's relocation expenses. The agreement
continues for an indefinite period of time, but is terminable by either Mr.
Szabo or the Company. If the agreement is terminated within 18 months of its
commencement, Mr. Szabo will be paid his base compensation for the six months
after termination unless he was dismissed for cause.
In November 1992, the Company entered into an employment agreement with Mr.
Leibowitz. The agreement continues for an indefinite period of time, but is
terminable by either Mr. Leibowitz or the Company upon 30 days' written notice.
The agreement provided for a signing bonus of $170,000, which is subject to
partial repayment if Mr. Leibowitz voluntarily terminates his employment with
the Company without the written consent of the Company or if his employment is
terminated by the Company with cause. During the term of his employment, Mr.
Leibowitz will receive a base salary of $200,000, subject to such increases and
bonuses as may be determined by the Board of Directors. If Mr. Leibowitz'
employment is terminated by the Company other than for cause, or if Irik Sevin
and Audrey
16
<PAGE>
Sevin no longer own directly or indirectly, or have sole voting power over, at
least 51% of the shares of the Class C Common Stock of the Company (a "Change in
Control") and his employment is terminated voluntarily within six months after a
Change in Control, then Mr. Leibowitz will continue to receive his then current
salary for 36 months after termination.
Simultaneously with the execution of such employment agreement, the Company
issued to Mr. Leibowitz an option to purchase 25,000 shares of the Company's
Class A Common Stock at $11 per share. On June 30, 1993, the Company issued an
identical option to purchase 25,000 shares of Class A Common Stock at $11 per
share. 20% percent of the options become exercisable on each of the first five
anniversary dates of the date of each grant.
In March 1993, the Company entered into an agreement with Justin McCarthy
which provides that if his employment is terminated prior to July 12, 1999 for
any reason he will receive severance pay equal to his prior year's salary and
bonus; provided, that if his employment is terminated (a) without cause by the
Company, (b) for any reason during the period of six months following a Change
in Control, he will receive severance pay equal to the aggregate of his salary
and bonuses or (c) if after July 12, 1999 for any reason, he will receive
severance pay equal to the aggregate of his salaries and bonuses for the
immediately preceding three fiscal years.
17
<PAGE>
[INSERT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Comparison of three year cumulative total shareholder return among
Petroleum Heat and Power Co., Inc., S&P 500 Index, and S&P Utilities Index
7/29/92 1992 1993 1994
<S> <C> <C> <C> <C>
Petroleum Heat and Power Co., Inc. $100 $ 98 $ 86 $ 95
S&P 500 Index $100 $104 $115 $116
S&P Utilities $100 $102 $117 $108
</TABLE>
18
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP have been recommended by the Audit Committee of the
Board for reappointment as the Independent Auditors for the Company. KPMG Peat
Marwick LLP were the auditors for the Company for the year ended December 31,
1994. KPMG Peat Marwick LLP is a member of the SEC Practice Section of the
American Institute of Certified Public Accountants. Subject to Shareholder
approval, the Board of Directors has appointed KPMG Peat Marwick LLP as the
Company's Independent Auditors for the year 1995.
Representatives of KPMG Peat Marwick LLP are expected to attend the 1995
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to Shareholder questions.
The following proposal will be presented to the meeting:
"Resolved that the appointment by the Board of Directors of the Firm of KPMG
Peat Marwick LLP, 345 Park Avenue, New York, NY 10154, as Independent Auditors
for the year 1995 is hereby approved."
The Board of Directors recommends a vote FOR this proposal.
OTHER MATTERS
VOTE REQUIRED FOR APPROVAL
All shares represented by duly executed proxies will be voted FOR the
election of the nominees named above as directors unless authority to vote for
the proposed slate of directors or any individual director has been withheld. If
for any unforeseen reason any of such nominees should not be available as a
candidate for director, the proxies will be voted in accordance with the
authority conferred in the proxy for such other candidate or candidates as may
be nominated by the Board of Directors.
With respect to the proposal to approve the appointment of KPMG Peat Marwick
LLP as the Company's Independent Auditors, all such shares will be voted for or
against, or not voted, as specified on each proxy. If no choice is indicated, a
proxy will be voted FOR such proposals.
An affirmative vote of a majority of the shares present and entitled to vote
at the meeting is required for approval of all matters presented to Shareholders
for their consideration. Any shares not voted by abstention have the effect of a
negative vote. Broker non-votes do not have any impact on the vote.
VOTING SECURITIES
Shareholders of record at the close of business on May 1, 1995 (the "Record
Date"), will be eligible to vote at the meeting. The voting securities of the
Company consist of its Class A Common Stock, $.10 par value, and Class C Common
Stock, $.10 par value, of which 22,855,097 and 2,597,519 shares were outstanding
on the Record Date, respectively. Each share of Class A Common Stock outstanding
on the Record Date will be entitled to one vote and each share of Class C Common
Stock outstanding on the record date will be entitled to 10 votes.
Individual votes of Shareholders are kept private, except as appropriate to
meet legal requirements. Access to proxies and other individual Shareholder
voting records is limited to the Independent Inspectors of Election and certain
employees of the Company who must acknowledge in writing their responsibility to
comply with this policy of confidentiality.
19
<PAGE>
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
From time to time the Shareholders of the Company may wish to submit
proposals which they believe should be voted upon by the Shareholders. The
Commission has adopted regulations which govern the inclusion of such proposals
in the Company's annual proxy materials. All such proposals must be submitted to
the Secretary of the Company no later than December 27, 1995 in order to be
considered for inclusion in the Company's 1996 proxy materials.
MATTERS NOT DETERMINED AT THE TIME OF SOLICITATION
The Board is not aware of any matters to come before the meeting other than
the election of directors and the proposal to approve the appointment of KPMG
Peat Marwick LLP as the Company's Independent Auditors for the year 1995. If any
other matter should come before the meeting, then the persons named in the
enclosed form of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment.
Audrey L. Sevin
Secretary
Stamford, CT
May 10, 1995
THE ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994 WHICH INCLUDES FINANCIAL STATEMENTS HAS BEEN MAILED TO
SHAREHOLDERS. THE ANNUAL REPORT DOES NOT FORM PART OF THE MATERIAL FOR THE
SOLICITATION OF PROXIES.
20
<PAGE>
PETROLEUM HEAT AND POWER CO., INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Irik P. Sevin and Audrey L.
Sevin, and each of them, each with full power to act without the
other, and with full power of substitution, the attorneys and
proxies of the undersigned and hereby authorizes them to
represent and to vote, all the shares of Class A Common Stock and
Class C Common Stock of Petroleum Heat and Power Co., Inc. that
the undersigned would be entitled to vote, if personally present,
at the Annual Meeting of Shareholders to be held on June 26, 1995
or any adjournment thereof, upon such business as may properly
come before the meeting, including the items set forth on the
reverse side.
NOMINEES:Irik P. Sevin, Audrey L. Sevin, Phillip Ean Cohen,
Thomas J. Edelman, Richard O'Connell,
Wolfgang Traber, Paul Biddelman and Max M. Warburg.
P
R
O
X
Y
(Continued, and to be marked, dated and signed, on the other
side)
SEE REVERSE
SIDE
Please mark your 0279
votes as in this
example.
For all nominees WITHHOLD AUTHORITY
(see other side) to vote for all
(except as marked to nominees
the contrary below) (see other side)
1. Election of Directors. / / / /
(See Reverse Side)
INSTRUCTIONS: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided below:
CLASS A COMMON CLASS C COMMON
FOR AGAINST ABSTAIN
2. Approval of appointment of KPMG Peat
Marwick LLP as the Independent Auditors / / / / / /
of the Corporation.
3. In their discretion, the Proxies are / / / / / /
authorized to vote upon such other
business as may properly come before
the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
(PLEASE SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.)
Please sign exactly as name appears hereon. When shares are held
by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
(Signature) ________________________________DATED__________1995
(Signature if held jointly)_________________DATED__________1995
